“We are facing a very difficult winter”
November 28, 2024
That is how Prime Minister Recean opened a government meeting this week to discuss the country’s energy situation. The remarks were made against the backdrop of continued uncertainty about Russia’s plans to supply Transnistria with gas in winter and sharply rising energy prices as Europe heads into what may be the coldest winter since the start of the full scale invasion.
To understand these comments, and the new developments driving them, we need to take a step back for some perspective.
How We Got Here
Back when I wrote my article looking ahead to the likely challenges of 2024 I focused specifically on Transnistria and how it will be supplied with natural gas in 2025. Until now Ukraine has been transiting Russian national gas across its territory on the basis of pre-war contracts. These contracts will expire on December 31st 2024 and Ukraine has stated clearly that they will not sign another with Russia.
Currently Russia provides 5.7 million cubic meters of gas per day to Transnistria. This gas transits via pipelines in Ukraine and is used for heat as well as for electricity generation at the MGRES Power Plant. The Transnistrian “authorities” do not pay for this energy but generate almost their entire budget from selling the gas to their residents and from utilizing the free energy in their factories and businesses.1 The majority of the gas is used by MGRES which sells electricity to Moldova and, by virtue of how huge the plant is, helps to stabilize the entire regional electrical grid of Moldova and Odesa.
In the last month this later part has begun coming undone. Russia’s massive bombardment of Ukraine’s energy system is causing widespread power outages all over the country. On November 17th, after massive strikes against Odesa, Ukraine’s regional military administrator asked for help from Transnistria and was refused. Regional leadership did not comment on why they refused power.
Minister of Energy Victor Parlikov commented on Russia’s targeting noting that Transnistrian factories in the north are operating at lower capacity because their supply of high voltage electricity had been cutoff from Ukraine. He said that Russia is “gradually disconnecting Moldova from Ukraine.”
To understand this it is important to remember that as part of the Soviet Union the electrical grid was not designed with any real consideration for national borders (much less something called “Transnistria”). You can see this on a map of the existing high voltage infrastructure:
You can find a better map, and breakdown of Moldova’s pre-war energy mix at this link.
As you can see Moldova2 can get high voltage electricity directly from MGRES (called CERS Moldovanesca (Cuciurgan) on this map) but norther Transnistria cannot. Critically, any electricity imported from Romania must pass through Ukrainian territory to get to MGRES and then flow back into Moldova. Moldova is working to rapidly construct the Vulcanesti - Chisinau high voltage line but it is not expected to be completed until late 2025.
So for now, most of the country relies on power to transit through Ukraine and then Transnistria to get to the rest of Moldova.
MoldovaGaz Asks for “Urgent” Price Increases
In addition to war it’s also just quite cold. MoldovaGaz appealed to the National Agency for Energy Regulation (ANRE) for permission to increase prices by 35% immediately. The increase would see prices rise from 12.15 lei to 16.36 lei per cubic meter of gas (without VAT). The ANRE explained the request saying that regional market prices had risen 25% and that MoldovaGaz was now buying energy for more than they were allowed to sell it for. It appears that the ANRE intended to quickly approve the change but faced a major backlash from groups reminding them that they are legally required to hold public consultations. This forced them to schedule a meeting for November 29th to consider the request.
Previously Prime Minister Recean and Minister of Energy Parlikov had publicly stated that international prices were falling and the Prime Minister assured citizens that prices would not rise this year.
Parliament will hold hearings next week on why the country is facing sudden and unexpected price increases.
Uncertainty About Transnistria
For the past few months the Kremlin has demurred when asked about what they intend to do when Ukraine stops transiting Russian gas. GazProm has refused to appoint new board members to MoldovaGaz creating a minor governance crisis at the company as board tenures expire and a leadership vacuum emerges. To deal with these issues the company invited Minister Parlikov to travel to St. Petersburg and meet with GazProm CEO Alexey Miller.
It is possible for Russia to continue supplying gas to Transnistria via circuitous pipeline linkages through Turkey. It would cost more and GazProm (the Kremlin) has not indicated whether or not they are going to do this.
Minister Parlikov traveled to St. Petersburg and met with Miller. At the meeting the GazProm CEO asked Parlikov to talk to the Ukrainians and convince them to renew their contract to transit Russian gas. He indicated that if this happens Russia will continue supplying Transnistria as normal. If it does not, he said that they were willing to continue gas supplies by another route with one condition. Minister Parlikov explained:
“Gazprom somehow links gas supply via an alternative route, via Turkey, with the issue of settling the alleged debt of the Right Bank,"
This “historical debt” question first emerged back in October 2021. Back then I wrote about how Russia suddenly demanded repayment3 of around $700 million dollars in supposed debts and how basically no one in Moldova had any idea what they were talking about. Moldova refused to pay before conducting an independent audit - which eventually showed that this debt was not real. Back then around 40% of the total amount was fictional late fees on the fictional debt, so most likely Russia is demanding more than $700 million now.
Minister Parlikov refused to take a joint picture with Alexey Miller noting that the CEO was wearing a black “Z” pin on his lapel.
Moldova will not pay this debt and the Kremlin knows this. If Gazprom keeps the transit question linked to the debt then it implies that they are preparing to shut off the gas.
What Happens if the Gas Stops?
Following the meeting Minister Parlikov spoke to the press stating:
"We are working not only with international partners, but also with the Transnistrian side, so that they understand: sooner or later this will end, and they must prepare and pay for gas at market prices," …
"If gas supplies stop, the Transnistrian region will collapse. We will have to take care of them,"
Deputy Prime Minister for Reintegration Oleg Serebrian explained that the interlinked nature of the last mile gas delivery system means that many villages on the Chisinau side of the river would also lose energy. He stated:
"the cessation of gas supplies would not just be a crisis. I dare say, it would be a real humanitarian catastrophe. This would lead to the collapse of the economic system of electricity delivery, tens of thousands of families on both the Left and Right Banks of the Dniester would suffer"
The basic analysis is the following. Transnistria has never paid for gas at market prices (or at all) and if they are cut off the region will simply collapse. All of the heavy industry would cease operating, the electrical generation would stop, people would have no sources of heat and the administration of the region would have no financing. Without the gas Transnistria does not exist.
Prime Minister Recean explained that Moldova will need to manage the crisis saying:
“This could develop into a humanitarian catastrophe. Since these are our citizens, we are obliged to find a solution,"
Technically Moldova is able to supply Transnistria with natural gas. The question is who pays for it? The government has estimated the need for around 400 million euros per year to pay for gas to the region. Minister Parlikov explained that a combination of international support and Transnistrians paying for their own energy would be needed to make the gas supply work. That would allow for heating of homes, not the running of heavy industry that is only competitive with free energy.
The Minister called the gas cutoff scenario “real” and stated that in Transnistria they are “even more concerned” than in Chisinau.
What is Likely to Happen?
Based on the public statements of government officials it seems like a total gas cutoff is being taken very seriously. It is possible that the Kremlin has decided that creating a very expensive and distracting humanitarian catastrophe would be helpful for them this winter. Possible.
Minister Parlikov has stated that he believes that the more likely scenario is that they will continue gas supplies but will take this opportunity to reduce the volumes provided to the region by 50-60%. This would keep residents from freezing and allow for some operations of their heavy industry. It would not allow for large scale electricity generation.
Currently Moldova buys 88% of its power from MGRES at $66 / MWh. If they stop exporting power Moldova will have to purchase electricity from Romania where it currently sells for 120 euros / MWh. This price is predicted to rise because of ever increasing demand from Ukraine as more and more of their power stations are destroyed.
In this scenario, Russia drives energy prices up in Moldova substantially during a wold winter. At the same time they force the Moldovan government to scramble to prepare for a potential collapse of the Transnistria regime - a time consuming distraction if Russia announces last minute that they will continue supplying some gas.
“A Very Difficult Winter”
In almost any scenario Moldova is facing the prospect of major energy prices increases in the coming months. If MGRES is shut down or substantially reduces electricity production it will also significantly destabilize the regional energy grid. When this happened in November 2022 Moldova experienced blackouts around the country when critical Ukrainian infrastructure would get hit.
Compared to that year Moldova is far more prepared for a tough winter. The government has large stockpiles of natural gas and various tools to intervene if prices become volatile. But being prepared for an attack is not the same as not being attacked. Russia is again wielding the energy weapon - and it has time and again proved to be potent.
…and no one is prepared for Transnistria collapsing.4
This story started as the opening of the Weekly Roundup but is seemed wise to dedicate an article just to the looming energy crisis. We’ll be back soon with a roundup of looking at the other stories of the past week.
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These are largely Soviet era factories that have not been modernized. If they were forced to operate by purchasing energy on the open market they would be uncompetitive and would close.
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.
A big shout out to anyone who’s been with me for that long!
But you would really hope that there is a plan *somewhere.* This possibility has been discussed since at least January as a serious threat.
Thanks for the "shout out"!