Weekly Roundup

November 1 - 5

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Moldova’s Energy Crisis - Denouement… for Now. 

After last week’s high stakes negotiations and last minute purchases of gas things have finally quieted down on the energy front in Moldova. Due to the new contract with GazProm Moldova has a sufficient energy supply for the winter and any recent fears of running out of gas are no longer on the table. That said, costs will go up in November with Deputy Prime Minister Spinu saying that the higher price of gas based on the new formula plus the poorer exchange rates between the lei and US dollar will both contribute to this. He thinks prices will fall again in December according to the formula for payment… which is itself still a secret. 

Experts in the field have suggested that consumer prices will likely triple in November compared to October prices which were based on the old contract price and did not go up for consumers during the crisis. 

Ion Sturza, former Prime Minister and highly respected businessman in both Moldova and Romania posted a long synopsis of the energy crisis. In it he sought to summarize the successes and failures of the last few weeks’ crisis. Here are summaries of his key takeaways:

• Moldova wound up with a very good deal in the end. Sturza suspects that the price formula Moldova proposed was created in concert with European energy experts and finds it very surprising that Russia both accepted the formula and dropped any political conditions. 

• The biggest drawback to the deal is that Moldova agreed to delay reforms in the energy market that separate producers, consumers and transporters of gas. These reforms are part of Moldova’s attempts to liberalize the energy market and their delay is unfortunate. 

• Sturza praised the government saying that “Moldova launched an unprecedented diplomatic offensive” in capitals across the EU and former Soviet space. He noted that strong support from both the EU and Germany and how much press coverage the crisis of such a small country revived around the world. Sturza believed that this was partly responsible for the resolution, strong support from the major EU powers plus coverage as far off as the Washington post made Russia consider the costs of bullying a tiny neighbor country. 

• Finally Sturza noted that the Transnistria factor was critical. Russia sought to leverage the gas crisis to use Transnistria’s “historical debt” and other factors for political concessions. Instead, Moldova was able to buy gas on the open market for the first time in the country’s history. Basically, Moldova proved that breaking away from GazProm entirely was a question of money not technical capability. With EU and German support as well as money in the form of grants this looked like a real possibility. Russia may have blinked because if Moldova did manage to find the money to break away this winter… then it would be Transnistria that would be out of gas and left in the cold. 

All in all it seems like there are pluses and minuses to Moldova’s new gas deal with Russia. But experts generally seem to think that the Kremlin blinked here, so in retrospect this may be seen as a major win for the Gavrilita Government. 

A Warning on Energy Security

Another key takeaway from the crisis has been a serious warning about Moldova’s energy security. The crisis was averted for now, but whatever the exact combination of negotiating skill and political pressures that came together to prevent a serious catastrophe may not repeat themselves. 

To this end Moldova is taking a variety of steps looking towards the future. Firstly, Moldova and Ukraine have agreed to begin high level talks on the issue of energy security. President Sandu began by thanking President Zelinski for the electricity and gas Ukraine provided Moldova during the crisis which almost certainly was critical to keeping the system functional. Minister Spinu also noted that Moldova will continue to buy gas on the international market in spite of the deal and keep open the pathways for energy created in the past weeks. 

EU High Representative for Foriegn Affairs Borrell spoke on the crisis calling all EU countries to accelerate their moves to green energy. He noted that Moldova’s crisis and Russia’s continued use of gas as a political and diplomatic weapon threaten regional countries and is designed to keep countries like Moldova away from the EU. 

Minister Spinu held a press conference this week noting that Moldova does not and has not had anything approaching a real energy security strategy. He says that the Government will begin creating one now which will have some key components. Firstly, the country must retain gas reserves for 2 months. This will allow them time to react and create market tenders for more supply in the case of a crisis. Two, Moldova must complete connections to Romania and Ukraine for both electricity and gas. Three, Moldova will propose a plan of implementing renewable energy over the next 5 years. 

All in all this crisis has certainly been a wake up call. The question will be what concrete steps are taken to avert a repeat in future cold seasons. 

Other Politics

This week Parliament has proposed a bill to limit construction of new buildings in parks and green spaces. Currently, it’s a common occurrence to read stories about huge new apartment blocks or banquet halls getting put up right in city parks. These buildings are often technically illegal but little to nothing is done about them. In this new bill, the only construction that can be approved in parks are items designed to integrate into the landscape such as sports facilities, recreation areas, etc. The law will be enforced by criminal penalties against companies that build these illegal objects as well as the local officials who approve them. 

COVID-19 Update

Moldova’s 3rd wave of COVID continues to show some improvement this week with cases falling to a 7 day average of 1282 cases / day and deaths plateauing at 42 / day. As you can see in the graphs the falling case rate leads deaths by about 2 weeks as we’ve come to expect during this pandemic which will hopefully mean that the wave is beginning to end and the death rate will begin falling soon. 

The situation remains dire in Romania and Moldova has dispatched another 20 doctors and 7 paramedics to aid the first line response in Iasi. 

The Minister of Health has announced that the extended fall break holidays will be ending and students will return to in person education next week. They cited the falling numbers as the reason for this decision, though speculation remains that the gas crisis and challenge of heating the schools may have played a role in the holidays announced for the past week. Students will have to make up the lost time during the rest of the school year which reminds everyone who has felt the joy of a snow day that it usually bites you sometime later on. 

While no new restrictions or measures have been announced this week, the prohibition on private events including weddings and funerals is set to go into effect November 8th. The Emergency Commission has also speculated this week that they may put in place a requirement for public and private sector workers to have a COVID-free certificate in order to work. Right now, companies are “obliged” to vaccinate 95% of their staff but this is simply a recommendation of some kind with no enforcement or penalties. The new rule being considered would make a certificate a compulsory element of employment. These certificates show vaccination status, recent sickness (antibodies), or recent tests. So while this is not a vaccine mandate per-say, the high cost of testing as well as the 3 or 6 month limit on antibodies being considered relevant means that if this is implemented it would be a de facto vaccine mandate. 

Economic News

This week it was announced that Moldova will receive 23.5 million euros as a loan from the EBRD to modernize the infrastructure in the national railroad. This is a follow-on loan to one initially given in 2014 and is based on the recognition that Moldova still has a very long way to go in this department. 

National statistics are showing a 2-4% increase in apartment prices in Chisinau this past month continuing a months-long trend of steady increases in home prices. This is being attributed to both supply and demand factors as a relaxing of fiscal policy by the national bank last year increased lending and therefore drove demand. Meanwhile, the international shortage of construction materials and their increase in price has pushed prices up from the apartment supply side too. 

Meanwhile, the State Tax Service has announced it is going to get serious about cracking down on tax evasion by bloggers and online influencers. Stars on Instagram and other platforms in Moldova often do not pay their taxes and the tax service has announced investigations that are ongoing and that 28 persons have already agreed to pay back taxes and penalties. While going after tax evasion is a good thing, Moldova’s “self employment” laws are very very complicated and unclear. At the same time, Moldova’s e-commerce laws are very very unclear and it is extremely hard for even large companies to report and properly account for spending done online - especially with platforms based outside of Moldova. So crackdowns are fine but must be accompanied by reforms and simplifications or else they can become counterproductive. 

Crime and Corruption

This week, President Sandu officially moved to exercise her rights under the new law on the General Prosecutor in order to create an evaluation commission which will audit the work of the office. Since the General Prosecutor has already been removed and is facing criminal prosecution this is more likely about auditing the office as a whole than simply targeting the man at the top. The President stated that the goal is to restore public confidence in the system.

Ending on a High Note!

This week, I’ve picked a rather satirical high note. The US Department of Defense sent a training mission to Moldova where officials worked to train Moldovan emergency services in responding to chemical, biological, radiological and nuclear disasters. As you can see from the photo below this apparently involved a white board presentation of an atmospheric nuclear blast… represented here by the word “boom.”

Source dse / newsmaker

On one hand this is a high note. If 2020 and 2021 have taught us anything it's that crisis is always right around the corner and it’s best to be prepared. On the other hand… don’t we have enough on our plates!? In the midst of a pandemic, energy crisis, and the rolling political madness of the last year do we really need to stop and read news stories about nuclear disasters? I’m not sure but the picture of the boom made me laugh so that’s good enough for a high note this week. 

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