Weekly Roundup
December 9th, 2022
Hi Everyone, first and foremost - sorry for the long absence. This week I came down with some kind of flu and I’ve been knocked out and just resting. We’re gonna try a quick(ish) roundup of the most important energy news today but leave some of the less critical updates for next week when I’m more on my feet.
Energy Crisis - Big Week
This past week has seen some major changes in Moldova’s energy outlook for the winter months, with the Moldovan Government signing a contract for electricity supply with the Transnistrian MGRES power company on Dec 3rd. Under the contract, MGRES will supply the right bank with 54% of its power needs at $73 / MWh in exchange for 5.7 million cubic meters of natural gas per day which is 100% of the supply of gas coming from GazProm. Minister of Infrastructure Spinu announced that combined with fixed price contracts for electricity from Romania this will cover Moldova’s electrical needs entirely at affordable prices. Moldova will draw on strategic reserves for natural gas plus purchase from Romania on the EU market. Gas started flowing through the Romania - Moldova pipeline the same day. This has been a very controversial deal so let’s dive into how it came about and what it means.
Background
On November 1st, MGRES stopped selling electricity to Moldova (the right bank) because Transnistria complained they were not getting enough gas to power the plant as well as their heavy industry. From that date Moldova began purchasing electricity entirely from Romania with around 40% being bought at “spot pricing” that varied based on the EU market. In past weeks those prices soared 30% to around 415 euro / MWh. On November 30th, Moldovan regulators accepted a price increase from energy company Premier Energy from 4.77 lei to 5.91 / kWh for households (it was 1.51 lei one year ago). At the same time, Moldova now has at least 2 months supply of natural gas in state reserves or around 250 million cubic meters - and the government is continuing to buy and stockpile in the reserve. Going forward, the exact amount in the reserves will now be classified as a state secret.
Analysis of the Deal
Minister Spinu explained the deal saying that trading gas for electricity was the “best economic deal Moldova had available.” He explained that with the stable contract for electricity consumer prices can fall up to 25%. At the same time, he explained the trade of gas saying:
“[the] Right Bank will pay nothing for the gas supplied by Gazprom and will only pay for the cost of electricity. MoldovaGaz did not pay the advance payment for December. Until December 20th, MoldovaGaz will pay for the consumption of the right bank for November,”
Since the gas is being sold to Transnistria, Moldova will not pay for this gas in any way. In theory, Transnistria has to pay, but in practice they won’t. Russia’s past practice has been to give free gas to Transnistria and charge it to a fictional “Moldova” account racking up a debt that is now over 8 billion dollars which GazProm periodically uses to threaten the Chisinau government with cutoffs. They will likely do the same now, but these threats are empty given that a gas cutoff would only harm Transnistria. In that circumstance, Moldova would lose cheaper electricity, but has already proven it can last on Romanian power alone.
The way that this deal came together is itself very interesting. Over the last month, Chisinau had offered 3.9 million cubic meters of gas for 45% of required electricity. Tiraspol had countered with 24% electricity for the same amount of gas. It appears these negotiations were stalled until November 30th when US Ambassador Logsdon met with Transnistrian Leader Vadim Krasnoselsky. After their meeting bilateral negotiations between Chisinau and Tiraspol were announced and the deal was made.
There are a LOT of critics of this deal, especially in Moldova’s civil society and on social media. Most criticisms stem from the idea that Moldova is giving up too much while getting too little. Though there is some consensus that it was a necessary, if ugly, decision.
The US Ambassador congratulated the Moldovan government on the deal and has vocally supported it.
The Ukraine Angle
There is another angle to this deal worth considering - this is likely a good deal for Ukraine. Moldova has regularly lost power in the last month as attacks on the Odessa area infrastructure separate parts of the Ukrainian grid causing massive drops in voltage across the system causing emergency shutoffs. MGRES, which has been powered down, is connected to this same grid and will provide a large, stable load that will help the Ukrainian and Moldovan grids weather disruptions. In addition, with Moldova needing less energy from Romania, more Romanian power can be diverted into Ukraine’s southern grid as well.
Critics have noted that Transnistria is getting one thing it really wants from this deal - hard currency in payment for the electricity. This is true. But the amount is quite small compared to the $140 million + per month in hard currency that is no longer flowing to Russia. So it’s a mixed bag.
Mr. Putin seems aware that the situation is not turning in his favor and recently spoke angrily about Moldova’s use of gas storage facilities in Ukraine asking his Minister of Energy to “monitor this closely.” Speaker of Parliament Grosu responded:
“I express dissatisfaction with the fact that their missiles are falling on our territory. So each with his own dissatisfaction. This is our gas, we paid for it to the last cubic meter. Let us decide for ourselves where to store our gas. And I ask them to keep the rockets at home,”
Early Results - Within 2 days of the deal being announced Premier Energy reduced prices by 22% from 5.91 to 4.62 lei / kWh.
Minister of Energy?
At Moldova Matters we often refer to Minister Spinu as the “Minister of Infrastructure” for brevity, but his actual title is the “Minister of Infrastructure and Rural Development.” That is quite a large portfolio and one that has been largely overtaken by energy worries this year. The Minister announced a planned reorganization of the Ministry, which started the year with 7 employees in 1 department (for energy) to 17 employees in 3 departments divided across natural gas and oil; electricity and heat; and energy efficiency and renewables.
At the same time, members of parliament announced that there are discussions underway about a bigger reorganization and the creation of a Ministry of Energy. What’s important here is not the actual composition of the departments, but what may be behind it. Through the pages of Moldova Matters readers have likely gotten very familiar with Minister Spinu as he has been front and center in this crisis for the last year. Through most public reporting the Minister has been doing a good job, not without things to criticize, but certainly proactive. At the same time there are growing concerns on social media and lots of rumors (often spread by the Socialists) that the Minister is personally profiting from his position in some way. None have been substantiated or even taken solid form, but the “Ministry of Energy” looks on one level like a way to push the Minister aside under the guise of “better allocating responsibility.” We’ll have to watch this space carefully in the months to come.
President Sandu’s (energy) World Tour
This week President Sandu visited Tokyo and Washington DC meeting with government officials to discuss Moldova’s energy crisis, and to attend the International Anti-Corruption Conference, a part of the "Summit for Democracy.”
In this visit, President Sandu spoke about anti-corruption efforts, the effects of the war, sanctions and their application, and of course, energy security issues.
This was probably the most prominent visit of a Moldovan Head of State in the country’s history with President Sandu meeting with Speaker of the House Nancy Pelosi, USAID Administrator Samantha Power, IMF Leadership, Senators Bob Menendez & James Risch of the Senate Foriegn Relations Comittee, Treasury Secretary Janet Yellen, and Vice President Kamala Harris.
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Get well soon, David, and stay warm! Thanks for the update on the energy situation.