Upcoming Energy Crisis Sparks Political Crisis

December 6, 2024

Prime Minister Recean Sacks Top Energy Policy Officials

On Thursday December 5th Prime Minister Recean held a surprise press conference addressing the growing energy crisis. In it he announced that he was sacking 3 officials stating:

"I demanded the resignation of Minister [of Energy] Victor Parlicov, because he is responsible for the management of the energy sector and made mistakes that led us to a crisis situation. I also demanded the resignation of the CEO of Energocom, Victor Bînzar. The company did not purchase gas when it was possible, hiding behind bureaucratic procedures, and was unable to ensure the necessary reserves for the winter period at the most favorable prices. I also demanded the resignation of Mr. Serghei Tofilat from the position of member of the Supervisory Board of Moldovagaz. Mr. Tofilat, despite not having the authority, blocked the purchase of gas by the responsible institutions at the time when it was most advantageous,"

The Prime Minister also called on parliament to declare a state of emergency in the energy sector starting from December 16th “until the situation with gas supply to our citizens, including residents of the Transnistrian region, is resolved.” The Prime Minister announced that he would personally take over the portfolio of the Ministry of Energy until a new minister can be appointed.

Prime Minister Recaen - Screenshot from the press conference.

Shortly after the announcement President Sandu signed the decree accepting the “resignation” of Minister Parlikov.

What Happened?

The Prime Minister’s actions mark the first time since the PAS government came to power when multiple senior officials are fired with little to no warning. All three men later told the press that the call for their resignation was a surprise or shock to them. The fact that the Minister of Energy was fired in the midst of a deepening crisis with no replacement, and that the Prime Minister will take on his portfolio himself, signals how radical a move this was.

We’ll get into reactions below, but it is important to first note that both Victor Parlikov and Sergiu Tofilat resigned at the Prime Minister’s request. Energocom CEO Victor Bînzar did not (yet).

In order to try and explain what happened, we’re going to look at how the energy crisis has deepened in the past weeks and then about what the “resignations” tell us.

How Did we Get Here?

If you haven’t read it already, please start with last week’s article outlining the rise in natural gas prices and Russia’s new and unworkable demands to continue supplying free energy to Transnistria.¹

At the core, the growing crisis situation is based on the following key factors:

• MoldovaGaz (the largest energy supplier) only has gas reserves to supply Moldova through the end of January. Due to a spike in market prices for natural gas in November the company has increased prices 27.5% as they purchase more energy for February and March.

• Gazprom / the Kremlin has signaled that they may cut off gas supplies to Transnistria starting on January 1st. If this happens Moldova will need to purchase large amounts of additional gas to supply residents in Transnistria and the reserves will be stretched thinner. Without free gas the MoldGRES power plant in Transnistria will be unable to supply Moldova with power and the country will have to import energy from Romania via infrastructure that runs through Ukraine.

In short, MoldovaGaz only purchased a portion of the natural gas needed for winter back when prices were cheap. Even if they had purchased more, there would not be enough to cover a Russian cutoff of the Transnistria region. Something that was signaled well in advance and should not be a surprise at all.

Prices Rise and Fingers are Pointed

On December 3rd parliament held hearings to try and unpack what happened (and who is responsible). Most press coverage noted that everyone pointed fingers at someone else and that in the end it was still unclear who was responsible. The core question is why wasn’t more gas purchased and stored in the summer months when it was cheap? This is what happened ahead of winter 2023 and was *supposed* to happen this year.

Here is a basic summary of the main players and their positions:

1. Ministry of Energy (Minister Parlikov) - The state of emergency in the energy sector ended in Spring 2024. When it ended the Ministry of Energy was no longer responsible for purchasing gas but was focused on making policy. They made suggestions to market players but could not compel purchases. Moldova shifted to a market model based on spot pricing. MoldovaGaz was responsible for purchasing the necessary stockpiles.

2. Energocom (CEO Victor Binzari) - During the last state of emergency Energocom was responsible for buying and storing gas in a strategic reserve for winter. With the state of emergency over the company functions as a trader not a supplier. They leverage their contracts and market access to buy gas on international markets and deliver it to Moldovan energy companies (not just MoldovaGaz) in response to purchase tenders from those companies. MoldovaGaz did not try and buy the necessary amounts to cover the whole winter and Energocom has no mandate to unilaterally start purchasing energy in a highly volatile market.²

3. MoldovaGaz (CEO Vadim Ceban) - Basically MoldovaGaz says that there aren’t really any issues at all. They purchased gas as they saw fit and even though prices are going up a bit they can purchase gas to get through the winter. Mr. Ceban suggests buying gas from Gazprom right now actually because the prices are low.³ He notes that the whole “Transnistria” situation is a problem (not his problem) and suggests that everyone focus on that instead of the gas reserves.⁴

4. Serghei Tofilat (Civil Society Representative on the Council of Observers of MoldovaGaz) - PAS MP Dorian Istratii asked Mr. Tofilat why he made a Facebook post in July calling on MoldovaGaz not to purchase the whole amount of gas for winter then. This situation appears to have fueled the later call for his resignation by the Prime Minister. Tofilat explained that he called on MoldovaGaz to spread out purchases due to price instability caused by Ukraine’s invasion of the Kursk region - not to stop making purchases.

In summary, the Ministry of Energy and Energocom blamed MoldovaGaz for not making purchases. MoldovaGaz, which is marjority owned by Gazprom does not see a crisis and suggests purchasing more gas from Gazprom (Russia). Ahead of another difficult winter and facing an eminently foreseeable crisis with energy in Transnistria, basically a Gazprom subsidiary was left to make “free market” decisions without the controls imposed by the past state of emergency.

These hearings occurred 2 days before the resignations. What was not discussed was the higher level question - why was there not a system in place where someone (anyone) was clearly responsible for avoiding this situation?

Reactions to the Resignations

Sergiu Tifolat

Sergiu Tifolat commented on the call for his resignation saying:

"I am surprised by Prime Minister Recean's statements, everyone is to blame except Ceban. Through today's decisions, he has demonstrated that there is no political will to clean up Moldovagaz.

The fight is not over. It is miserable what is happening, this is not why we protested during the period of the captured state."

Regarding the accusation that he blocked Moldovagaz from purchasing gas when it was cheap he said that "the prime minister is spreading disinformation." Tofilat said that "What I demanded was not to buy everything for one day, but to split them up by days. And the fact that the gas was bought much later meant that the moment of purchase was lost." He also claimed that he lacked authority to actually block purchases and laid the blame at Moldovagaz CEO Ceban’s feet.

For some time Tofilat had been demanding that Moldovagaz be put under temporary outside administration as Gazprom had continued to block the appointment of new board members. Before being fired he stated: “When the Republic of Moldova risks facing an energy crisis after December 31, we cannot accept that the leadership of Moldovagaz includes people who promote the interests of another state. [Russia]”

Victor Parlikov

The former minister held a press conference on the day he was fired. He stated that while the ministry has had major successes, it has not succeeded in communications:

"We have achieved significant results in terms of security, market creation, market integration, etc. But we have not been able to convince people, and we have not been able to show people, at this point, the beneficial effects of these changes. And this is probably one of the reasons why today we are still so vulnerable and so susceptible to the narratives that have been imposed on us from the outside,"

He went on to say that the whole crisis in natural gas supply is exaggerated, noting that 64% of families in Moldova still heat their homes with wood fire stoves. Parlikov said that electricity prices are a much more impactful piece of household budgets but that people keep talking about gas because…

"This is exactly what external actors want us to discuss. Russia is pursuing such a policy not only in Moldova, but also at the level of the European Union"

He also noted that the potential cutoff of energy to Transnistria is becoming "more and more real" and admitted that he is somewhat relieved that "he will not be at the helm" through the crisis.

Victor Bînzar / Energocom

In a statement the company rejected the accusations of the Prime Minister and supported the work of the CEO saying:

"It was Energocom that helped Moldova overcome the energy crises in 2021 and 2022. The company's development was noted by international experts, Energocom became one of the largest companies in South-Eastern Europe. All this is due to the significant contribution of the current head of the company, who strengthened, expanded and retained the Energocom team. In this regard, the Energocom team expresses bewilderment and concern about the demand for the resignation of Victor Bînzar,"

Victor Bînzar himself stated that "This demand came as a surprise to me. Yesterday there was a meeting where we discussed what to do after January 1. Mr. Rechan was also present at the meeting." He asked why he was to blame for MoldovaGaz not purchasing gas and stated that the Prime Minister does not have the power to force him to resign since Energocom answers to the Public Property Agency. As of the time of writing he is still in his post.

Reaction from Transnistria

Transnistrian “Foreign Minister” Vitaly Ignatiev blamed the Moldovan government for the potential cutoff of Russian gas to Transnistria.

Transnistrian “leader” Vadim Krasnoselsky declared a state of economic emergency in the region citing the uncertainty over whether they will have energy supplies on January 1st saying that they must "prepare for any development of events." The “authorities” in the region stated that should a full gas shutoff occur MGRES can continue producing enough power for the minimum needs of the region’s population for 50 days while burning coal reserves.

Reactions from the Opposition and Civil Society

The news of the firings was not greeted well in civil society groups and was jumped on by the opposition to call for a full resignation of the government and early elections. Mayor Ceban called for the Prime Minister to step down and for “criminal investigations.”

The NGO Watchdog, where Sergiu Tofilat works as an energy expert, put out a statement saying:

"The allegations regarding the responsibility of our colleague Sergiu Tofilat in the possible blocking of natural gas purchases at advantageous prices are not substantiated. As a member of the Supervisory Board of the Moldovagaz company, Mr. Tofilat has always put forward the interests of the shareholder. In this case, the citizens of the Republic of Moldova, represented by the Public Property Agency. Sergiu Tofilat's allegations exclusively concerned risky procurement decisions over a short period of time in which prices were increased following the incursion of the Ukrainian army into the Kursk region.

The endangerment of the procurement process is largely the fault of the interim director of Moldovagaz – Vadim Ceban. This is documented in detail. We recognize the right of the Government of the Republic of Moldova to appoint and dismiss whomever it deems appropriate in office, but we respectfully request that unfounded accusations not be made.

"In the same context, we consider it necessary to exclude Mr. Vadim Ceban from the board of directors of the Moldovagaz company. This decision is currently entirely within the powers of the Government,"

Renato Usatii gave an TV interview where he predicted 1990’s style rolling blackouts in the new year. Prime Minster Recean responded in an interview saying "we may have some disconnections, but those disconnections will be measured in hours , not in weeks or months."

Journal TV presenter Alexandru Cozer presented his thoughts which largely echoed many pro-EU opposition voices and other commentators. He stated:

"Parlicov may have been wrong, but it was not he who sabotaged the country for years while serving as the director of Moldovagaz. Mr. Recean, who failed to buy gas when the prices were acceptable, Parlicov or Ceban? At best, both are equally guilty. So why are you blaming Parlicov? The man who followed all your instructions to the last and even humiliated himself by going to St. Petersburg? And why should Tofilat resign? Isn't it because he is the only one who calls a spade a spade? I wouldn't be surprised if, with this approach, Recean even appoints Ceban as the head of the Ministry of Energy. And then we will have a complete catastrophe,"

It’s fair to say that the whole story has devolved into a bit of a mess.

What this Signals

In the near future we are going to return with a political breakdown of what all of this means. At the minimum, this is the first time that there are real cracks in the pro-EU movement under PAS. Victor Parlikov, who is not a member of PAS, has now stated that he has political ambitions and that “Alternative [pro-EU] voices are needed. And in general, the monopoly of power is a bit corrupting.” As Moldova looks ahead to parliamentary elections next summer fractures like this increasingly threaten to turn into competing political camps.

In concrete terms, it is now becoming clear that the country facing a very difficult winter. The government plans to offset price increases for energy by compensating people’s bills - a plan that may not prove to be as politically popular as they hoped.⁵ But the real threat is regarding electricity. In his capacity as Minister of Energy the Prime Minister ordered Moldelectrica to prepare for more imports from Romania. He also ordered preparations for “island connections” or connecting parts of the country to Romania via low capacity high voltage lines. Further, he ordered Moldelectrica to begin preparing to coordinate with their Ukrainian counterparts to repair the Isaccea-Vulcănești line as needed.

Whoever is responsible for the current situation it is clear that Russia plans to use energy this winter to attack the legitimacy of the Moldovan government. Should they specifically target the Isaccea-Vulcănești high voltage line in Ukraine and cut off or substantially reduce gas supplies to Transnistria Moldova could face power outages.

Moldova has faced numerous crises in the last 3 years, but it has never gone into a crisis with this level of political turmoil and uncertainty. The next weeks will be critical as Moldova prepares for January 1st.

1. Note: As we’ve done before with articles about Transnistria we will sometimes say “Moldova” and “Transnistria” as a way to indicate the parts of Moldovan territory controlled by Chisinau and Tiraspol respectively. This is easier for most readers than “left bank” vs “right bank” and is simply a convienent shorthand. All territory in question is Moldova.

2. It’s worth noting that the state enterprise EnergoCom is profit capped at 1%. This means that if they bought energy for $28 MWh in July and sold it now when prices are at $50 MWh they would likely have to sell well below market price. On the other hand, if they purchased at $50 and the price fell to $20 there are no rules (now that the state of emergency of 2023 ended) requiring anyone to buy their gas. Essentially they have limited upside and nearly unlimited downside - not a good equation of risk taking (especially with public money).

3. This is untrue of course, Gazprom does not conclude spot contracts for gas based on tenders. They only sign long term multi-year contracts. On average Gazprom’s prices are higher than Moldova gets on the EU market (when *someone* buys the gas in summer).

4. By this he means making some kind of gas transit deal with Russia. He is not referring to the need to stockpile extra gas to take care of Transnistria.

5. In past years home energy subsidies were factored directly into the consumers energy bill. This meant that people got a bill saying “you owe 2000 lei 1400 lei” with a little advertisement about the compensation program. For apparently technical reasons this process was deemed too inefficient due to the high number of energy companies. So this year everyone gets their bill at full price, pays them at full price and then gets a rebate check from the government later. Many people will have to go to the post office to pick up this subsidy. The mechanism may be more efficient for the government, but it will most likely be less popular as people will still have the sticker shock of higher prices and will only get compensation later. Also, the computer system crashed today telling all applicants they they are not eligible for assistance - which is also not great.