Weekly Roundup Part 1 - Energy Crisis
October 27, 2022
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Author’s Note: This week there are 2 stories driving the news in Moldova. In order to better organize the Weekly Roundup, and too dive deeply enough into each set of stories to provide the necessary context, we’ve broken the article into 2 parts released at the same time.
Both articles should arrive in your inbox at the same time.
Moldova Energy Crisis Deepens
Only weeks ago the main worry in Moldova was that the country wouldn’t have sufficient natural gas supplies for winter heating. This worry remains, but has been massively compounded by electricity shortages stemming from the ongoing attacks against Ukrainian energy infrastructure. Russia stepped up these attacks with another wave of missile and drone strikes on Ukrainian infrastructure October 22nd which has left at least 30% of electrical infrastructure out of commission and caused Ukraine to begin implementing rolling blackouts to sustain the power grid. Speaking to refugees abroad, the Ukrainian government has asked them not to return until spring because “the grid will not survive” [if many people return]. Examining the news of this week we will first dive into the gas shortage and then see how shortages there are putting Moldovan electricity in a critical situation.
MoldovaGaz Makes Large Payments - With a Twist
On October 20th, MoldovaGaz paid its parent GazProm $53.5 million dollars for September gas consumption plus $27.4 million dollars advance payment for October. In order to make these payments on time the Moldovan government decided to loan 1.05 billionMoldovan lei from state controlled EnergoCom to MoldovaGaz to make up for cashflow deficits. This loan was made at the National Bank base rate of 21.5% and is due to be repaid in full May 2023. Nominally, this loan was made in order to keep all payments current with GazProm and give the Kremlin no excuse to cut off Moldova’s supplies this winter. But there is more going on here…
The loan was secured against a 100% stake in MoldovaGaz and the natural gas infrastructure network in Moldova - both entities are majority controlled by Russia. Critically, the loan was given, or perhaps imposed, without the prior approval of either company’s board of directors regarding the terms. Effectively this is a threat by Moldova to nationalize MoldovaGaz if it does not pay back the loan. Energy experts believe that the mechanism of this is the following: If Russia maintains current supply levels and pricing, then MoldovaGaz should make back this money over the winter and be able to repay the loan. If not, GazProm will face either bailing out its subsidiary in May or seeing its gas infrastructure network seized and any claims of “historical debts” by MoldovaGaz lost. It is unclear if this would play out in international courts but experts and commentators agree on one thing - Moldova is playing hardball and now it’s the Kremlin’s move.
All of these machinations are forward looking to November. At the same time, the gas deficit is already hitting Moldova. Last week Transnistria announced a State of Emergency in the Economy due to gas supplies. This has led to shutdowns or curtailing of major industries and limits on the MoldGRES power plant’s “exports” of electricity to the right bank. These reductions came into effect October 24th and resulted in a reduction from MoldGRES supplying 70% of Moldova’s electricity to 27%. Further reductions are expected in November.
Minister of Infrastructure Spinu again called on citizens and companies to conserve electricity, especially in peak hours from 7 - 11 am and 6 - 11 pm. He said:
“I'm talking to entrepreneurs and the business environment: turn off advertising or decorative lighting, change production hours, use individual generators where possible. Each of you, as you have built the business, you can now contribute so that we can get through this period well",
The Minister noted that the population must save energy as the government looks to sign new supply contracts for power. At the same time, the system is seeing daily shortages of around 7% and rolling blackouts are a distinct possibility.
Moldova’s Electricity Mix
Typically, Moldova (excluding Transnistria) uses 700 - 830 MW of electricity daily of which 600 MW comes from MoldGRES in Transnistria. MoldGRES has now reduced output to 350 - 400 MW and may reduce further as more gas needs to be diverted into heating as the season gets colder. Things will be worse still if Russia cuts gas supplies further in November.
At the same time, Moldova has increased the 100 MW from Romania announced last week to 180 MW - all of which is purchased at a subsidized price. The final piece of the puzzle is the Chisinau and Balti Termoelectric plants which currently can cover around 15% of Moldova’s electrical needs but will be able to increase outputs up to 40% when the central heating systems are fired up. These plants are now burning fuel oil instead of natural gas. Finally, when there is a deficit Moldova can draw on the EU power grid but does not currently have purchase contracts to do this - meaning that emergency power is provided at very high prices.
To understand the price situation, here’s a basic breakdown:
MoldGRES : $60 - $70 / MWh
Subsidized Romanian Electricity (180 MW) : $90 / MWh
Chisinau / Balti Termoelectric : $200 / MWh
Emergency Electrical Supplies from EU Grid : 190 - 380 euro / MWh
Emergency Romanian Electricity above subsidy threshold : ~$200 / MWh
If you’re thinking “this is very technical and I don’t understand it” you aren’t alone. It seems the the authorities are scrambling in part because they are managing many shifting crisis situations at once. Supply is governed by Ukraine’s power grid failing while gas supplies are getting cut to MoldGRES. More supply can be found in Europe (but within limits of high voltage lines) but the prices are exorbitant and Moldova is hastily signing contracts for more supply. Meanwhile, at any time gas supplies can be further reduced, or the weather can turn cold, dropping the floor out of this precarious system. No matter what, prices are set to massively increase in the next months.
Government Response to the Crisis
President Sandu convened the Supreme Security Council to discuss the situation and make further plans. At the meeting she stated:
The Republic of Moldova is currently facing the worst energy crisis in its history and how we will get through the coming winter depends on all of us"
Through the Commission for Emergency Situations and the Ministry of Economy the following actions were announced:
Indoor heat must not be set higher than 19 C (66F) during working hours or 15 C (59 F) for non-working hours.
Building administrators must post signs on elevators indicating that from 7 - 11 am and 6 - 11 pm residents should not use elevators. This is to save power and prevent people from being trapped in outages.
Crypto mining is prohibited and import of mining equipment prohibited
Local authorities will be responsible for reducing street lighting
In the event of rolling blackouts, Government Agencies, Hospitals, Schools and homes will be prioritized. Businesses (especially those that consume large amounts of energy) will go first.
Chisinau responded by announcing that street lights will be turned on one hour later and off one hour earlier. This resulted in a rush hour in pitch darkness with residents posting videos showing how crosswalks are totally invisible.
Responding publicly to appeals from the socialists and opposition parties about why the government does not go to Moscow to beg for gas, PAS representatives responded:
"The Kremlin does not want to negotiate the price of gas, it wants to negotiate the price of our country."
Meanwhile, the government has announced that they are requesting 1+1 (bilateral) meetings this week with the Transnistrian “authorities” to discuss the energy crisis.
Analysis - What Does this all Mean?
In Chisinau the feeling is apprehensive but the crisis is only now being really felt by people. There was shock at streetlights being out resulting in total darkness on sidewalks and roads. If rolling blackouts do begin, which the government is saying could happen any day now, then the reality of the crisis will be brought home to every household in the country. For 12 months we have heard about possible gas cutoffs on the news and pries have increased. But only now is Moldova facing real shortages.
At the same time, there are some rays of hope. October was unusually warm this year in Moldova and across Europe. This has led many EU countries to report a glut of natural gas and the market price has fallen considerably as supply exceeds both demand and storage facilities. Meanwhile, Moldova’s not so veiled threat to effectively nationalize GazProm property if they stop supplying gas has showed that the government isn’t passively waiting to see what the Kremlin’s next move is. Will it work? Absolutely impossible to tell. The Moldovan energy system is walking on a tightrope with so many challenges that it is easy to see how any one failure or miscalculation could cascade into major crisis. Time will tell.
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