Alongside the reformation of justice and corruption fighting, the EU-Moldova bilateral agenda incorporates a series of sector objectives without which Moldova’s European course is unimaginable. One of these sectors is the energy system that is underdeveloped and, respectively, inefficient, but also powerfully dependent on imports. Particularly for these reasons, the energy system needs to be thoroughly inventoried and adjusted to the European requirements and practices.
Though all the components of the energy system are crucial for developing Moldova’s energy sector, the natural gas market is for now a priority. If the supply of natural gas is not ensured, not only the end-users and business entities, but also the electricity production infrastructure will be affected. It should be noted that Moldova imports natural gas from Russia for internal consumption and, indirectly, for the production of electrical energy. This is due to the fact that the government of Moldova purchases electricity produced on the basis of Russian natural gas from the Cuchurgan Power Plant of Transnistria, which is owned by the Russian concern RAO UES (Unified Energy System of Russia).
The situation could have been less difficult if Moldova hadn’t depended on one supplier – the Russian joint stock company Gazprom. The historical debts to this supplier amount to about US$5 billion (65% of the GDP). Also, this supplier owns 50% of the shares of Moldovagaz, which operates the natural gas system in the country. Therefore, the implementation of the European legislation and practices and the physical integration into the European energy market represent the only methods of investing in the country’s energy security. As a result, the dependence on the natural gas supplied by Gazprom will be reduced. This will also enable to get rid of the debts to Gazprom, on condition that Moldova and Romania are closely interconnected in the areas of natural gas and electrical power.
Interconnection, but not only…
The dependence on Gazprom can be reduced if new players that obey the European rules enter Moldova’s energy market. This would impose to a certain extent the reformation of Moldovagaz, which maybe didn’t degrade, but at least stagnated because of lack of competition on the market. This will also lead to a revitalization of the sector and to positive effects on the quality of the provided services and prices for end-users.
The recipe for success for the natural gas market needs several essential ingredients.
Firstly, the Iasi-Ungheni interconnection should be extended up to Chisinau, which consumes 50-65% of the natural gas bought by Moldova. Without the necessary physical infrastructure, it is impossible to diversify the sources of gas supplies.
Secondly, the energy legislation should be adopted to implement the Third Energy Package and liberalize the gas market (ensure the third party’s access to the transportation infrastructure, end-user’s right to change the suppliers, etc.). Moreover, preparations should be made for fully implementing the Third Energy Package so as to separate the supplier from the carrier (Art. 9 Directive 2009/73/EC). Only a robust legal framework can create the preconditions needed for making the Moldovan energy market attractive for such new operators as those from Romania or other European countries. Also, a robust legislation will impose strict rules on the traditional players (Moldovagaz). Moreover, the renewed legislation should be impenetrable for offshore companies.
Thirdly, the body that regulates the energy market should enjoy guaranteed autonomy. Consequently, Moldova’s National Agency for Energy Regulation (NAER) must be reformed so as to strengthen its internal capacities, maximize transparency in decision making (price formation), ensure its openness to end-users and prevent political interference or interference by interest groups in its activity. The de-politicization of the institution should go hand in hand with its professional optimization. This can be done first of all by choosing the Agency’s Administration Board at an open contest, under the surveillance of representatives of civil society and external partners.
It’s definite that none of these ingredients will open or resuscitate the natural gas market without violating the legislation and the market players will thus not have complete confidence in Moldovan justice. However, the pressure for change can come if transparency in the sector is increased. The ‘colonization’ of the sector by professionals of integrity at the NAER and by new operators that obey the European natural gas market rules can be another helpful element.
Besides the extension of the Iasi-Ungheni to Chisinau, the power lines should also be interconnected with Romania’s (Isaccea-Vulcanesti-Chisinau, Iasi-Ungheni-Straseni, and Suceava-Balti), which is to be done until 2018. Though they are significant, the electrical energy projects are not promoted on the EU-Moldova bilateral agenda as powerfully as the extension of the Iasi-Ungheni gas pipeline to Chisinau. This is confirmed by the results of the Association Council meeting held in Brussels on March 14. This reveals the importance of the Iasi-Ungheni gas pipeline for diversification and, respectively, for the country’s energy security. Nothing was said about the interconnection of the power lines. This issue continues to be omitted in the positions referring to Moldova stated recently by the European institutions (press releases, resolutions, conclusions, etc.).
In reality, the interconnections for electrical power are as important. The Moldovan authorities purchase electricity produced based on Russian natural gas through intermediary offshore companies (Energokapital) from the Cuchurgan Plant of Transnistria. The problem is that the Cuchurgan Power Plant, which is controlled by the Russian company, does not pay for the Russian gas supplied based on the contract signed by Moldovagaz and Gazprom. Consequently, Moldova accumulates debts to the Russian concern. In parallel, the Moldovan authorities buy electricity generated with unpaid Russian gas from Cuchurgan. Consequently, Moldova pays two times. Furthermore, in both of the cases Chisinau contributes (in)directly to the welfare of the separatist regime. Moreover, this way the separatist regime, together with Russia, keeps the Moldovan energy system ‘in check’.
Therefore, the Iasi-Ungheni gas pipeline must be extended simultaneously with Moldova’s interconnection with the electrical energy market of Romania. Moldova must diversify its sources (including routes) of supply of natural gas and of electricity as well. This way the country can be gradually freed from the dependence on the electricity of Transnistria and on the natural gas of Gazprom. Surely, political will, external pressure and maximum transparency are needed to eliminate the authorities’ discretion to keep the current status-quo.
Nevertheless, the recent decision to extend the contract for the purchase of power from the Cuchurgan Plant when the Ukrainians submitted a good bid generates questions as regards the real interest of the government. How can this accept commercial contracts involving offshore companies that do not contribute to the country’s energy security, but rather endanger it? Thus, the given contract not only keeps the country dependent on the separatist regime, but also stimulates this regime’s interest in consuming gratis natural gas for which the official Chisinau accumulates debts.
Given these abnormalities in the power sector, the interconnection with the electricity market of Romania must be treated as a matter of urgency that is as important as the extension of the Iasi-Ungheni gas pipeline. Also, the electricity market should be liberalized so as enable Ukrainian operators to enter it.
Instead of conclusion
The integration into the European energy market is a realistic objective that envisions the liberalization of the Moldovan energy market. The Moldovan energy system can be cleared of obscure schemes by which the natural gas and power markets continue to be parasitized only by implementing the European rules and practices. That’s why the European agenda must include clear features related to the energy sector (natural gas, electrical energy) and as powerful conditions as in the justice and banking sector.
The role of the European Union and its member states (Romania) is essential for reforming the Moldovan energy system. The Moldova authorities must undertake conditional reforms that are closely monitored by the European partners, including through the Energy Community.
The failure of the energy sector can generate a large-scale crisis given the historical debts of about 65% of the GDP to Gazprom. Consequently, both the gas interconnections and power interconnections should be devoted attention.
The competition in this area that can be ensured by correctly transposing the European legislation will lead to price reductions and will allow new operators to enter the local market. The integration into the European energy area can contribute to diminishing dependence on the separatist Transnistrian regime and on Russia and this will be a real investment in the energy security and political stability of the country.
Dionis Cenușa is a politologist, holding an MA degree in interdisciplinary European studies from the College of Europe.
Areas of interes: European integration, European policies, EU's foreign policy, migration and energy security.
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