Weekly Roundup

October 23 - 29 Part 1: Gas Crisis

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This week, Moldova Matters is going to take a slightly different approach to the Weekly Roundup. The Gas crisis facing Moldova has again completely dominated the news with updates being reported daily at all hours. It has also broken out of the Moldova press with front page treatment from the BBC and in depth original reporting from Politico Europe as well as others. Because of this… and because the Weekly Roundup last week already verged on the unmanageably long side, we’re breaking the Roundup into 2 parts. Today is all gas all the time. In the next few days we will send out a roundup of the non-gas crisis news so we don’t miss other important developments.

Note: On Monday we sent out a Subscriber only Deep Dive article on the origins of the gas crisis. In that article we talked of the origins of the GazProm relationship with Moldova as well as Russia’s long term political goals in these negotiations - in particular, regarding Transnistria. Recent reporting has contradicted earlier reports and statements about the exact origin and nature of the MoldovaGaz debt that Russia is referencing in their negotiations. We’ll dive into this below and try and suss out the actual situation as contradictory statements continue to abound. The Monday article remains accurate in the overall analysis, but has been updated to include this new information. 

Moldova’s Energy Crisis

Last week, our Weekly Roundup ended with Deputy Prime Minister Spinu and others in Moscow for negotiations with GazProm on a new long term gas supply contract for Moldova. Furthermore in the Monday Deep Dive we noted how the negotiations with Russia failed. The Russian side further said that floating contracts and gas supply could continue until December 1st. After this date, if Moldova did not pay off its debt, GazProm would cut off gas supplies entirely. 

The situation continues to evolve very rapidly with the timeline for actually running out of natural gas often metered in days (sometimes in hours) in the press based on the current pressure in the gas pipelines. We’re going to take a look at the situation now, the state of negotiations and the Moldovan government’s various responses to the crisis. 

So how are things now? Is there gas to make tea?

Right now gas continues to flow to consumers in Moldova. MoldovaGaz is urging consumers to conserve gas but has sought to assure customers that despite the drop in pressure the system continues flowing. Meanwhile the government’s Emergency Management Center is evaluating the process in real time and continues to report that all pipelines are operating normally and nothing is cut off… yet. 

At the same time, the Chisinau Termoelectric system that is responsible for heating buildings and apartments on the central heating grid is reporting that only 25% of buildings in the capital have heat. Technically, all buildings should be heated based on outside temperatures but it appears that efforts to conserve energy are resulting in a patchwork of heated and unheated buildings. Few announcements have been made about these heating numbers from the government but Mayor Ceban has begun loudly sounding the alarm and calling out the government on the fact that much of the city is without heat. Additionally, fall break for schools has been extended by a week under an official pretext of the worsening COVID situation. Many observers note that this also reduces the strain on the heating system considerably and this may be a dual use decision. From this picture you can see that Moldova’s Termoelectric plant has begun to burn fuel oil instead of gas. 

Officially things are fine right now… but cracks are showing. We’ll talk about some small gas purchases from EU countries below but almost certainly these mini-contracts are keeping just enough pressure and capacity to keep things running. So, in summary, the country is on the edge. 

What is the State of Negotiations with Russia?

That’s the million dollar question (or $709 million dollar question… or 800 million euro question… or….). Basically, it’s very unclear what exactly is going on in these negotiations. Let’s take a look at a few angles on the story and what different groups are saying. 

The Russian Position

Through statements to state run media, Russian and GazProm officials have tried to make their position very clear. They say that this is a purely economic question. Moldova wants gas, Russia has gas, let’s agree on a price. However, they have attached a condition to this formula in the shape of a supposed $709 million dollar debt that they say Moldova owes GazProm. If Moldova repays the debt in full, then it’s possible to negotiate a new contract. If not, the gas gets shut off in December. As of Friday evening Putin’s Press Secretary Dmitri Peskov says that no deal has been reached and he reiterated these basic points. They continue to state that this is unpaid debt accrued in recent months but have not been any more clear than that on what debt they are actually talking about. 

Moldova’s Position

Overall, Moldova has been very quiet about the state of negotiations. Deputy Prime Minister Spinu has been in St. Petersburg for multiple days and has said that the two sides are working together. He says that Moldova is unwilling to settle for any contract that is a higher price than international market norms. Regarding the debt question he has said that Moldova is willing to discuss repayment of historical debts… but must first conduct an audit of MoldovaGaz to understand what this debt actually is. Specifically, he says that the debt in question originates from 1994 and that Moldova will not pay any debt on Russia’s word alone but requires some level of audits to understand the problem. 

So What is this Debt?!

On Monday, we wrote in our Deep Dive that this debt was some part of Transnistria’s 8 billion dollar gas debt that Moldova does not recognize. This was based on both public statements by some officials, parties in the negotiations and the fact that historically this is *always* the debt Russia is talking about. Now things are far far less clear than that and a more complicated picture seems to be emerging. 

Officially, the government is saying that they are not fully sure where this number is coming from and are not willing to accept it without an audit of MoldovaGaz. Deputy Prime Minister Spinu mentioned it dated from 1994 but did not elaborate. What we do know now is that we are not talking directly about Transnistrian gas debt but about debt between MoldovaGaz and GazProm. For context, it is first important to understand that GazProm owns 63% of MoldovaGaz and the Moldovan government owns around 30%. So whatever debt we are talking about is owed by GazProm’s subsidiary to GazProm itself, not directly by Moldova. MoldovaGaz itself did not comment but said it is exploring the issue and will try and have a report within a week. Though you would hope they would know just who they owed $709 million dollars to and why without too much checking. Right? Right?!

Newsmaker, a local news publication, conducted various interviews with energy experts to try and understand what debt the Russians might be talking about. These experts pointed to various larger and smaller debts accumulated in the last 20 years (not back to 1994) involving times when MoldovaGaz sold energy at below cost to the Termoelectric heating company and other state enterprises. These deficits remained unpaid and accumulated late fees. They also wasted money in a number of well documented cases of buying equipment well above the market price including a purchase of pipeline equipment from Cyprus at 5x the market rate. This author will speculate that the Cyprus natural gas manufacturing sector is less responsible for this than their anonymous shell company sector. Additionally, experts noted that MoldovaGaz has been on a bit of a spending spree lately building themselves a big new office building.

So what’s the picture here? Well basically that MoldovaGaz hasn’t been trying to pay its debts to its owner GazProm and has instead been wasting or outright stealing money via graft in some way. Russia picking this time to collect the debt from its own subsidiary company is therefore a calculated political move rather than an “economic” one. 

Experts from Watchdog.md went further and indicated that there are more schemes afoot. According to a survey of MoldovaGaz debts carried out in 2020 they found that when MoldovaGaz was originally formed, and when it was subsequently reorganized, the value of its shares was intentionally undervalued. GazProm’s stake in the company was valued at $52 million dollars while the actual value was in excess of $400 million dollars. Since these changes in share structure were officially about repaying older debts what has basically happened is GazProm has slowly acquired more and more of MoldovaGaz for pennies on the dollar while keeping much of the historical debts in place. Watchdog also noted that MoldovaGaz previously supplied free gas to a bankrupt glass manufacturer controlled by Mr. Platon which subsequently closed and the gas debt was never repaid. So Mr. Platon even gets his fingerprints in this latest crisis… though he denies it and is threatening to sue Watchdog over the story. 

Ugh… Did we actually learn anything here? Or get more confused?

Speaking for myself I would say more confused. The Moldovan government doesn’t seem to know what the debts are but is wisely calling for an audit before owning them. Russia is being tight lipped and experts in the area are shining a tight beam flashlight into a massive cave of corruption trying to pick out what in the world is going on. What we can conclude is this. Firstly, MoldovaGaz, like its parent GazProm, are nests of corruption going back many many years. Secondly, Russia is bringing up this debt as a negotiating chip in very bad faith indeed. 

Do We Know Anything Else About Negotiations?

A bit. Since this has become a rather international story, various well known outlets have started reporting on Moldova’s very unhappy situation. This week the Financial times cited sources in Russia that GazProm has also proposed “non-economic” conditions on the sale of gas to Moldova. These include “restructuring” Moldova’s trade relationship with the European Union more broadly. Specifically, they cited the need for Moldova to postpone implementation of parts of their treaty obligation to the EU involving energy market liberalization. Simply put, Russia views these negotiations as part of a more general political settlement of relationships between Moldova and Russia. 

Government Response and EU Support

Against this backdrop, the Moldovan government is scrambling to secure alternative sources for natural gas from the EU and from neighboring countries. Initially, this has looked like a series of small scale tenders for the provision of gas with Moldova trying to buy supplies on the open market. This gas will be transited primarily through Ukraine and rely on their large transit and storage infrastructure. Interestingly if Moldova supplies itself with gas from the EU transited via Ukraine then Transnistria will have to pay cash on arrival for their part… something it has never had to do before. Russia can’t sell gas directly to Transnistira because it would contradict their fantasy arrangement of charging Moldova for this gas and not dealing directly with Transnistria. 

In any case, this week Moldova conducted its first ever purchases of energy on the open market, and from a non-Russian state, with a test purchase of 1 million cubic meters (cubes) of gas from Poland. This was followed by more small tenders in the neighborhood of 1.5 million cubes from the Netherlands and then from Poland again. The purchase price is being kept secret so that the government can conduct open tenders without sellers knowing what other sellers are offering. But they are said to be around $1000 per 1000 cubes of gas (compared to around $200 in last year’s Gazprom contract). While these are market prices it's important to remember just how much the cost of gas is up all over Europe and how little money Moldova has to spend. 

So far these purchases seem like a combination of a proof of concept and a desperate attempt to keep the pressure high enough in the gas lines to prevent failures in the system. Towards the latter, Ukraine has agreed to “lend” Moldova 15 million cubes of gas. Ukrainian law prevents them from selling gas but they can lend it in such a way that Moldova will send them gas back later. 

To help with these purchases, European Commission President Ursula von der Leyen met with Prime Minister Natalia Gavrilita and pledged 60 million euros as a non-repayable grant to help Moldova pay for energy in this crisis. 

Ok, EU to the Rescue Right? 60 million Euros is great!

Well… not really. Moldova has been buying gas in 1 - 1.5 million cube amounts. That’s around a day’s worth of gas if they stretch it. Politico EU reports that Moldova will need between 7 and 8 million cubes a week to keep things running right now. It will rise to 12 to 15 million cubes a week as winter sets in. At these rates, Moldova will spend that 60 million euros in one week. 

On Friday Prime Minister Gavrilita stated that Moldova will need around 800 million euros to pay for gas this winter if they can’t come to an agreement with GazProm for cheaper prices. She stressed that Moldova needs help right now and that the next 2 - 3 weeks will be “decisive.” She noted “In these four to five months, the EU must make it clear that it supports Moldova. Moldova needs very small volumes [of gas]. We hope we can count on continued support.”

Meanwhile President Sandu convened the Supreme Security Council to discuss the crisis and the country’s energy infrastructure more generally. Specifically, she noted the failure of past governments to connect to the Romanian electricity grid as a hedge against this type of crisis. Moldova currently gets most of its electricity from Transnistria. 

Meanwhile, What is the Russian Press Saying?

Another front in this crisis is press misinformation. Moldova’s Security and Information Service SIS has been working to block websites pushing false information about Ukraine applying shady pressure to Moldova ove the gas situation. Ukrainian bloggers meanwhile blame Moldova for their own gas troubles. This seems like a well known story of Russian media and misinformation working to drive wedges between Moldova and Ukraine and cast blame on actors other than Russia itself. Meanwhile, coverage on Russian TV is mostly quite confusing. Some “experts'' on state TV link the issue to Transnistria and a commentator on RT news called Moldovans Gypsies and noted that “they are russophobes - let them freeze.” The commentator quickly noted that this sentiment goes for Ukraine as well. 

So What’s Next? How Does this End?

Who knows. Negotiations are ongoing and Moldova is calling for stronger EU support in the face of this Russian inflicted energy crisis. The Prime Minister says the next weeks will be decisive, but the government has not shared much about their perspective on these negotiations. As we’ve seen through this all together too-long Weekly Roundup there is more confusion than solid information right now. 

Ending on a High Note!

Once again, high notes are a bit hard to glean from the press this week. Keeping the topic on the crisis, we have to say that the EU’s 60 million euros assistance is a strong statement of support and solidarity. Moldova needs its friends right now so let’s hope we see more glimmers of hope like this in the coming weeks’ news. 

And consider becoming a paid subscriber to support our work at Moldova matters. For just $5 / month, the price of a nice coffee, you can support this work and help us expand into even better content!