Home ›› 11 Nov 2021 ›› Editorial
Moldova’s recent gas crisis, which left supplies in jeopardy for several weeks ahead of the winter until a new contract was agreed with Russia’s Gazprom to replace an expiring one, came as a surprise for many observers. Yet several unresolved issues had marred the Moldova-Russia gas relationship, notably accumulated debt, which played a major role in the crisis.
Moldova’s gas consumption is very small at about 2.9 billion cubic meters (bcm), of which right-bank Moldova consumes about 1.3 bcm, while the breakaway republic of Transnistria consumes the rest.
Moldova has no gas production of its own, and its national gas company, Moldovagaz, imports 100% of the country’s requirements from Gazprom. Moldovagaz owns the gas transmission network, as well as local supply and distribution companies. Gazprom owns 50% of Moldovagaz, with the remaining shares split between the Moldovan central government (36.6%) and the administration of the Transnistrian region (13.4%).
Although Moldova is de facto a partitioned country (the Moldovan central government has no control over Transnistria), Moldovagaz is de jure a unified gas company, and all supply and transit contracts are concluded between Gazprom and Moldovagaz. It is understood that supply contracts stipulate volumes to be delivered to right-bank Moldova and Transnistria separately, with payments also made separately.
Debt accumulation has been a constant feature of Russian-Moldovan gas trade throughout the post-Soviet period, with both right-bank Moldova and Transnistria running high debts, although the former’s debt has been significantly lower — and the payment discipline significantly higher — than the latter’s.
By October 2021, Moldova’s gas debt stood at about $709 million (principal debt is about $433 million) for right-bank Moldova and about $7 billion for Transnistria.
Prior to the end of September 2021, Gazprom supplied gas to Moldova under a 2006 five-year contract that had been extended on an annual basis. That contract, whose price formula was originally based on oil price indexation, was set to expire on September 30, 2021. Under the contract, the average annual price in 2020 was about $148 per thousand cubic meters (mcm).
The second half of 2020 saw exceptionally low European gas hub prices, with the Dutch TTF hub price falling to about $75/mcm.
The prevailing expectation was that low prices would continue into 2021, thus giving Moldova every incentive to seek some degree of hub price indexation. The Moldovan government apparently sought to negotiate a new contract that would give it more beneficial terms.
Although no new contract was signed, the old contract was amended in January 2021 to introduce the German NCG month-ahead hub indexation for the warmer months — the second and third quarters of 2021 — while preserving oil price indexation for the first and fourth quarters.
As the crisis was unfolding, the EU provided Moldova with financial assistance worth 60 million euros (the equivalent of about two-thirds of Moldova’s monthly consumption at current hub prices) “to set up a support scheme for the most vulnerable people,” but otherwise remained largely on the sidelines.
Moldovan Prime Minister Natalia Gavrilita asked the EU for help, saying that without a contract with Gazprom, Moldova would need to spend about 800 million euros over the next five months on alternative imports at market prices to meet its winter demand.
The EU High Representative for Foreign Policy Josep Borrell said on October 28 that the solution to the crisis would “not come from the European Union funding all the differences between the current prices and the prices that Gazprom is asking for.”
The EU’s message could hardly have been clearer, and Moldova signed its contract with Gazprom on the following day, October 29.
On October 29, Gazprom and Moldovagaz signed a five-year contract, and supply began on November 1. The contract is understood to be an extension of the old one, with some adjustments.
Although the formula has not been published, it reportedly takes into account the price of oil and gas in the preceding nine months, with 70% being indexed to oil prices and 30% to hub gas prices, with adjustments to be made quarterly. The price for November is about $450/mcm (over 60% less than the current hub prices at which Moldova bought balancing gas in the preceding days, and over 40% less than the contract hub-indexed price at which it bought gas from Gazprom in October).
As before, Russian gas will be delivered at the Moldova-Ukraine border, thus enabling supplies both to right-bank Moldova and Transnistria (through which it will transit).
In addition to the contract, a separate protocol was signed aimed at resolving prior disagreements. It addresses inter alia two specific problems that have complicated the Moldova-Russia gas relationship: the accumulation of debt, and the implementation of unbundling provisions of the EU acquis in respect of Moldovagaz.
As stated in the protocol, Moldovagaz and Gazprom agreed to conduct an independent audit of Moldovagaz’s debt (with regard to supplies to right-bank Moldova) in 2022 to confirm the amount owed, with further negotiations to be held on the method and the repayment schedule. The protocol stipulates that the amount of debt is to be confirmed by May 2022 and paid back over a five-year period.
The protocol also addresses the issue of Moldovagaz’s restructuring. As a contracting party of the Energy Community Treaty (EnCT), Moldova has committed to implement the EU energy acquis, including its unbundling provisions, under which Moldovagaz’s transmission activities would have to be separated from its supply activities.
