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Analysis 08 Mar 17

Moldova Pays High Price for Power Games

The former Soviet country’s energy security remains at risk as Moldova is unable to reform its power sector and to cut links to controversial intermediary companies.

Virginia Nica
BIRN
Chisinau
Moldova is dependent on electricity delieveries from Cuciurgan power plant in breakaway Transdniester | Photo: Agora.md

Officially, the government in Chisinau is to start looking next month for a new supplier of electricity for country’s debt-ridden economy and poverty-stricken people.

But as there are not so many options on the table, Moldova is most likely to remain dependent on a scheme which involves a monopoly on gas delivery from Russia’s Gazprom and also intermediary companies with off-shore owners.

Currently, Moldova is around 80 per cent dependent on a gas-fired power station in Cuciurgan, a Soviet-era facility in the breakaway entity of Transdniester.

Transdniester is a mainly Russian-speaking region which split off from Moldova following an armed conflict in 1992. Unrecognised by the outside world, it is sustained by Moscow.

Analysys say the problem is that the price of electricity is not based on a genuine cost structure. Transdniester does not pay for the gas it receives from Gazprom, and the Russian company charges Moldova for delieveries instead.

Moreover, Transdniester sells the gas to a controversial energy intermediary company Energokapital, which pays the Cuciurgan power station to convert gas to electricity and then sells it to Moldova’s state-run Energocom.

Official data shows that in 2015 Chisinau paid Energokapital some $222 million for electricity, while the intermediary company paid $129 million to Transdiniester’s local gas company.

Experts say that the difference between the processing costs and the amount Moldova pays for the electricity is too high, prompting fears that someone is siphoning off this cash.

“In my opinion, the scheme was created by devious characters from both Transdniester and Moldova with the aim of supporting the regime in [breakaway Transdniester’s capital] Tiraspol and, of course, to siphon off money,” independent Moldovan energy analyst Sergiu Tofilat told BIRN.

According to media reports, Energokapital has a complex series of off-shore owners who are connected to a huge bank fraud in which up to $1 billion US, about a fifth of Moldova’s annual GDP, vanished from three local banks ahead of the 2014 elections. 

Moldova’s deal with Energokapital ends on March 31, but it is highly likely to be renewed as the controversial intermediary company could sale electricity at the best price.

Last year, Energokapital cut the sale price of electricity to Moldova by 27 per cent compared to 2015, in a move aimed not only to undercut potential competition but also, media reported, to help the government in Chisinau face down protests against its decision to raise energy prices.

But if the current situation is to continue, Moldova faces major risks, according to a report from the Chisinau-based Expert Grup think tank.

“First of all, the country will remain dependent on unpredictable, unreliable electricity supplies and, besides, it will continue the current practices of purchasing electricity through imports, through non-transparent contracts with preferential partners, at the expense of consumers and taxpayers,” said the report.

Analysts say that this is why it is of key importance for Moldova, which is almost entirely dependent on Russia for gas, to diversify its energy supply.

Image from Tiraspol, breakaway Transdniester’s capital | Photo: Sandu Tarlev / MoldNova.eu

But its options are few, as the country of 3.5 million people, one of the poorest in Europe, is sandwiched between Ukraine and Romania.

Currently, Moldova is receiving no electricity from Ukraine, which stopped deliveries at the end of 2014 following supply deficits for its own domestic consumption due to the armed conflict in the Donbass region.

On the other hand, EU-member Romania is not yet interconnected with its neighbour Moldova.

The Bucharest-based Expert Forum think-tank has suggested that there are two possibilities for interconnecting the two countries, with an estimated cost of some 200 million euro. 

“Given the uncertainties about Ukrainian supplies and issues with the purchases of electricity produced from Cuciurgan, the gap between consumption and domestic production could only be filled by interconnecting with the Romanian system,” said energy analyst Otilia Nutu from Expert Forum.

“But any interconnections, both in gas and electricity, make sense only as long as Romanian suppliers are confident that they can participate in a transparent and competitive market, and that there are no companies benefiting from preferential treatment,” Nutu added.

A gas pipeline linking Moldova to Romania, aimed at reducing the former Soviet country's dependence on Russian imports, started to operate in 2015.

The Iasi-Ungheni pipeline is intended to create an alternative supply route for Moldova, enabling it avoid a repetition of the crisis seen in 2009, when Russia's Gazprom cut off natural gas to many European countries following disagreements with Ukraine.

In the first stage, the pipeline has started to deliver natural gas only to the area close to the border. About 100 kilometres of pipeline remains to be built to Chisinau, avoiding the existing gas network, which Gazprom owns.

The Iasi-Ungheni pipeline has cost around 30 million euro and its construction took less than a year. The EU covered about a third of the costs and the rest came from Romania.

Romania produces about 11 billion cubic metres of gas a year, covering about 75 per cent of its own annual needs. It imports the rest from Russia.

Russia and Romania have long vied for influence in Moldova, which has been independent since 1991.

The country was part of Romania from 1918 to 1940, when the Soviet Union annexed it. Before 1918, it was part of the Russian Empire.

About 80 per cent of Moldova’s population of 4.1 million are of ethnic Romanian origin and speak Romanian as well as Russian.

Virginia Nica is a Moldovan journalist based in Chisinau. This article was produced as part of a project funded by the Black Sea Trust for Regional Cooperation.

 

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