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Although operational, the Iasi-Chisinau gas pipeline seems to have a decorative role, rather than a practical one

Although operational, the Iasi-Chisinau gas pipeline seems to have a decorative role, rather than a practical one
©EPA/DUMITRU DORU  |   A functionary walks near a pumping station during the inauguration ceremony of the Iashi-Ungheni Moldovan-Romanian gas pipeline

The recent gas crisis in the Republic of Moldova has shown once again that, in addition to the historical success of the pro-European forces in Chisinau, a real strategy and political will are needed to deal with the constant energy blackmail that Russia is using in relation to the states that are dependent on its gas supplies.Although completed this summer and adjusted at the beginning of October, the Iasi-Ungheni-Chisinau gas pipeline, which de facto connects the Republic of Moldova to the European energy system via Romania, has proved rather ineffective. The high price of gas on international markets has made it impossible for the Republic of Moldova to purchase volumes of gas from Europe to be carried through this pipeline.

The Republic of Moldova regards this pipeline only in terms of commercial and not political reasoning. In other words, the pipeline will be just a safety net, not to be used unless the gas coming from Romania gets cheaper than that supplied by Gazprom, which is unlikely. “If the gas coming from Romania has a better price than the one coming from Russia, then we will use the gas pipeline to bring that gas to Chisinau”, said the Moldovan Minister of Infrastructure and Regional Development Andrei Spanu, who also stressed that all the gas needed by the Republic of Moldova during the summer could be provided by the Iasi-Ungheni pipeline. In fact, the gas pipeline is designed for more and could easily cover the consumption of the Republic of Moldova, the Transnistrian separatist region not included. The maximum delivery capacity from Romania to the Republic of Moldova is 5,076,000 million cubic meters per day, which means about 1.85 billion cubic meters of gas per year. The Republic of Moldova, without the Transnistrian region, consumes, on average, about 1.1 billion cubic meters of natural gas. The difference up to three billion is what Transnistria consumes, more precisely the Cuciurgan thermal power plant, which produces electricity by burning gas.

A decorative pipeline?

It is very hard to believe that Gazprom will not give cheaper gas than any other competitor in Moldova, given that this supplier role provides Moscow with an important political leverage. This will make the 150 km long Romanian pipeline , for which Transgaz Romania paid about 150 million euros, only an object to be used occasionally.

“As regards this gas pipeline, we did our duty to have this possibility exist. The Republic of Moldova will find gas there where it is more advantageous for them, and there is no obligation to buy from Romania”, the president of Transgaz, Petru Vaduva, told Veridica.ro.

He explained that the pipeline is not being used right now for commercial reasons only.

“If there is a demand [from Chisinau], we can deliver. We are carriers, if someone wants gas and buys it from Romania or elsewhere and carries it transiting Romania, we can do it.  We can deliver gas now, it's not necessarily something for the future. When there is commercial demand from this point of view, we will be able to bring gas there [to the Republic of Moldova] ", the Transgaz official explained.Petru Văduva gave assurances that the gas pipeline can operate at full capacity and there are currently no technical problems related to this equipment.

Regarding the possibility mentioned by the Chisinau authorities to store gas, in the future, in facilities in Romania or Ukraine, Petru Văduva explained that Romania can do this.“Of course, we can store gas for the Republic of Moldova. Our storage facilities are not used at full capacity. It is again a commercial matter. By law, anyone can do that. The location of the tank does not matter, it is simply about the fluid principles. As long as there is gas in the pipeline, this storage facility can be in Timisoara. If there is a demand, the gas can be delivered anywhere”, the Transgaz official stressed.

Bizarre negotiations over gas and energy infrastructure development. Romania, overlooked for contracting, despite the investments made so far

In other words, Romania has all the levers in place to help the Republic of Moldova ensure its energy security, but for now, pricing is the main issue. As long as Chisinau prefers to avoid purchases on free markets, where gas is more expensive, it pays a political price to Moscow.This was quite obvious at the latest negotiations, where the Republic of Moldova was drawn into a 5-year contract with a flexible price which, under the pretext of trade secret, was not made public.On the other hand, given the exorbitant price of 400-450 USD per thousand cubic meters that Moldova is currently paying to Gazprom (Serbia pays 270 USD fixed price), the current government in Chisinau will pay about 10 billion lei (500 million Euro) from the state budget in subsidies to citizens for the winter period.Combining the 400-450 USD purchase price from Gazprom with state subsidies, plus the issues resulting from a poor bargaining that led to the obligation of payment on the 20th day of the month, we get a price formula that could be more expensive for the Republic of Moldova than if it had purchased gas from the free markets and then transported it through the Iasi-Chisinau gas pipeline.

Moreover, this would have created difficulties for Russia, which would have had to deliver separately to Transnistria through its Chisinau subsidiary, called Moldovagaz, given that Transnistrians haven’t paid any money for Russian gas for 15 years, which has led to the accumulation of a historic debt that already amounts to about 8 billion USD and which, Moscow says, must be paid by Chisinau. According to the contract concluded by the Deputy Prime Minister Andrei Spanu on October 29 in St. Petersburg, Chisinau not only pays for the gas on the set day, but also gives part of the money in advance, while Tiraspol continues to be exempt. However, Spanu negotiated a combined gas volume for both banks of the Dniester of about 3.3 billion cubic meters. According to the contract, the Republic of Moldova is obliged to purchase this volume of gas with a deviation of no more than 5%.However, in a recent interview on Free Europe , the Deputy Prime Minister Spanu has explained that the Republic of Moldova is considering to no longer depend 100% on electricity supplies from Cuciurgan in Transnistria as of next year, and to reduce this percentage to 70%. The other 30% could be purchased from Ukraine.

On the other hand,  Spanu did not mention such a supply scenario with 70% from Gazprom and 30% from Romania, although the infrastructure situation is similar. Ukraine has developed a network in the north of the Republic of Moldova via which it can supply energy, while Romania can supply gas to the Republic of Moldova from the west to the center. Moreover, in the same interview Andrei Spânu says that he will do his best to interconnect the Republic of Moldova with Romania as soon as possible, but at the same time he awards the contract for the construction of the Vulcanesti-Chisinau line to an Indian company, although a Romanian company participated in the tender with a similar offer, the difference being, according to sources consulted by Veridica.ro of only 30,000 euros.

In other words, after Romania facilitated the construction of the 150 million euro gas pipeline, the overhead power transmission line that will connect the Republic of Moldova with the EU via Romania, worth 260 million euros, is given to a company that has reportedly benefited from many derogations. Thus, the Romanian company that participated in the tender was not even informed by the Chisinau authorities that it could make some minor changes to the offer in order not to be disqualified from the race, according to Veridica.ro sources.The Deputy Prime Minister Spanu said on November 15 that the reason for excluding the Romanian company was that they did not present a document according to the requirements, namely a financial guarantee. “I'm sorry, but that's how it is”, he said.Spanu did not even join Maia Sandu on her recent visit to Bucharest, although he had been announced on the list of officials from the Republic of Moldova, where the Republic of Moldova raised the issue of storing gas volumes in facilities in Romania.

Improbability and lot of „ifs”

Experts consulted by Veridica.ro in Chisinau have confirmed that the Iasi-Ungheni gas pipeline is rather meant to play the role of a bargaining leverage with Gazprom, rather than actually bring gas from Europe.

“The purpose of this pipeline is to strengthen energy security and eliminate Moldova's vulnerability to getting supplies from just one gas corridor. The main function of this pipeline is security. This means that it does not have to be constantly filled with gas […] It is a principle just like the one that applies to the army and army spending. It must ensure security, not fight constantly in wars”,  the former presidential adviser and energy expert, Sergiu Tofilat said. He explained that such a system of gas pipelines used for negotiations also works in Lithuania, where in 2014 a liquefied gas terminal - LNG - was rendered operational in Klaipeda.“It has not been used, or rather very little, only at the minimum technical level required, but this terminal has allowed the Baltic countries to break a price 30% lower than Gazprom”,  he explained.Tofilat believes that the existence of the Iasi-Chisinau gas pipeline has allowed the Republic of Moldova to obtain a lower price for gas in the negotiations with Gazprom.The former presidential adviser has explained that the Iasi-Chisinau gas pipeline could be used when, for example, the Republic of Moldova finds gas at a more convenient price than that of Gazprom’s.

“I don't think anyone can offer a better price in the winter than Gazprom. When there is a surplus of gas on the European market, then we can expect it, he concluded.In his turn, the energy expert from Chisinau, Ion Munteanu, has stated for Veridica.ro that the gas pipeline was designed from the beginning to serve as a solution when problems arise related to the supply of natural gas and energy security.“It was clear that it’s purpose was to help deal with  energy security issues rather than a commercial one that would provide some offers, at least in the medium term […] We see what is happening in Romania;  for example this country has connections with neighboring member states of the European Union. This has been tried and is being done in the Republic of Moldova, a state that is a member of the Energy Community Treaty,  Munteanu said.

He stated that, in his opinion, at the latest negotiations between Andrei Spanu and the head of Gazprom, Alexei Miller, what mattered the most was  the situation in the Transnistrian region.“In the negotiations with Gazprom, I believe that what mattered the most was Transnistria, given that it was obvious that a potential interruption of natural gas supply for the right bank would have also meant affecting directly the consumers on the left bank of the Dniester and the powerplant in Ciurciugan, which is also controlled by a Russian company (InterRao). I think that that was the upper hand in the negotiations, Transnistria”, he said. Munteanu also explained that there is currently a new draft law in the consultation process that comes to amend the natural gas law. The proposal is to have the law oblige the supplier of last resort – in this case Moldovagaz - to have natural gas reserves that would  cover the necessary consumption needs during two winter months.

Moreover, now that we have this interconnection with Romania, the possibility to identify or contract reserves of storage capacity is more diverse, considering that, in fact, Ukraine provides the possibility to store natural gas too. That's why it's an absolutely healthy idea”, he concluded.

Tags: Republica Moldova , Russia , Gazprom
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8 minutes read
  • The pipeline should have been a first step towards reducing dependence on Russian gas. However, as long as Gazprom’s prices remain lower than on the European markets, the gas pipeline is only decorative.
  • It is very hard to believe that Gazprom will not give cheaper gas than any other competitor in Moldova, given that this supplier role provides Moscow with an important political leverage. This will make the 150 km long Romanian pipeline , for which Transgaz Romania paid about 150 million euros, only an object to be used occasionally.
  • Romania has all the levers in place to help the Republic of Moldova ensure its energy security, but for now, pricing is the main issue. As long as Chisinau prefers to avoid purchases on free markets, where gas is more expensive, it pays a political price to Moscow. This was quite obvious at the latest negotiations, where the Republic of Moldova was drawn into a 5-year contract with a flexible price which, under the pretext of trade secret, was not made public. On the other hand, given the exorbitant price of 400-450 USD per thousand cubic meters that Moldova is currently paying to Gazprom (Serbia pays 270 USD fixed price), the current government in Chisinau will pay about 10 billion lei (500 million Euro) from the state budget in subsidies to citizens for the winter period.
  • Andrei Spânu says that he will do his best to interconnect the Republic of Moldova with Romania as soon as possible, but at the same time he awards the contract for the construction of the Vulcanesti-Chisinau line to an Indian company, although a Romanian company participated in the tender with a similar offer, the difference being, according to sources consulted by Veridica.ro of only 30,000 euros. In other words, after Romania facilitated the construction of the 150 million euro gas pipeline, the overhead power transmission line that will connect the Republic of Moldova with the EU via Romania, worth 260 million euros, is given to a company that has reportedly benefited from many derogations.
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