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Announced with bells and whistles as a big thing achieved by the Republic of Moldova with regard to the gas supply from Russia, the new contract with Gazprom is not exactly a success, either economically or politically.
A contract negotiated in Moscow behind closed doors
First of all, the negotiations were not at all transparent and took place in the Russian Federation only, where it’s more comfortable for the Russians to talk behind closed doors. Nothing transpired from there, except for Gazprom’s and the Kremlin’s direct and concerted threat: “pay or freeze, you are in our pocket”.
The Republic of Moldova did not negotiate de facto on an equal footing with Moscow. Chisinau looked rather terrified, as if the Sword of Damocles was hanging over its head. The entire period before the signing of the contract, the inexperienced Deputy Prime Minister Andrei Spinu looked uneasy and even scared by some apocalyptic prospect, very much like Mihail Saakashvili when he saw the Russian tanks at the gates of Tbilisi, in August 2008.
Out of all the secrecy, last Friday evening, Spinu came out with a triumphant post on the webpage of the Ministry of Infrastructure and Regional Development announcing through a victorious message and a picture with the head of Gazprom, Alexei Miller, looking relaxed and with a huge smile on his face, that he had “defeated”.
The Russians have indeed good reasons to smile, as Miller did. As Minister Spinu was eager to explain to us, the Republic of Moldova has for the moment obtained a price of 450 USD and a five-year agreement, one of the longest in the three-decade history of the Republic of Moldova.
“The last round of negotiations lasted three days, over October 27-29, in St. Petersburg and ended with the signing by Alexei Miller and myself of a protocol setting out details on the common gas agenda and concerning the signing by MoldovaGaz and Gazprom of the contract on gas supply to our country starting November 1”, Spinu wrote on Facebook.
But what he didn’t say and is still a secret is the formula according to which the gas price will be calculated for the contract period, more precisely for the next five years. While in the message mentioned earlier he tried to highlight his personal merit in signing the agreement, when it came to the transparency of the formula, he once again used the trade secret cover, leaving room for speculation and calculations made by “informal sources.”
“Given that this is about a commercial relationship between Moldova-Gaz and Gazprom, the formula will be made public only if these two companies decide to do so, but what I can say at the moment is that, based on the current market prices, in November the price will stand at 450 dollars per one thousand cubic meters, and subsequently the price would decrease depending on the quotation of the gas price on the stock exchanges ”, Spinu explained.
In other words, the Moldovan minister negotiated the contract on behalf of MoldovaGaz, de facto owned by Gazprom thanks to its nearly two-thirds control package, but when it came to the price formula, which was actually proposed by the Moldovan side, the only thing he showed was lack of transparency, which once again left plenty of room for re-interpretation.
The hidden cost of the Gazprom contract: postponing connection to the European energy system
According to statistics, in the past ten years the Republic of Moldova has bought gas from Gazprom at an average price of 270 USD, which is almost half the amount agreed upon this time, which is 450 USD per one thousand cubic meters. From the start, this is not a good deal, especially since we are talking about a contract period of five years. The import price of Russian gas over the past 10 years has ranged from 150 to 560 USD, with the highest price being paid in 2021. In other words, the future contract will rather lean towards the maximum value of this range.
Leaving aside the triumphalist statements and the related dose of populism, things are not exactly good for the Republic of Moldova, which negotiated a high price, at a time when outdoor thermometers read 15 degrees Celsius. Moreover, experts in the field say that the critical months would be November and December, after which forward contracts (with a fixed price) will stand around 600 USD, compared to about 1,000 USD as they currently are on the international free markets .
According to Financial Times, with the 60 million euros received from Brussels last week alone, the Republic of Moldova could have resisted buying gas from the SPOT markets at the current exorbitant prices, for about three weeks.
In fact, with the establishment of the state of emergency, the Republic of Moldova had also allocated an additional100 million dollars (1.7 billion Moldovan lei) to the state company EnergoCom to buy from the free market. Moreover, Romania has been putting in one million cubic meters a day for several weeks now to maintain the pressure in the Iasi-Chisinau pipeline, and Ukraine has shown its availability for small but sufficient volumes of gas for Moldova, either sold or lent, until markets have stabilized.
All in all, the Republic of Moldova had all the good reasons not to resort to desperate gestures and fall into Moscow’s trap.
Although both the Russians and Chisinau denied any political conditionality, such conditions were included in the contract without them being mentioned as separate items. First of all, the long term of five years will automatically mean a large enough volume for the Republic of Moldova not to buy gas from other markets. This will more or less cancel the efforts made by Romania and the EU to connect the Republic of Moldova to the European energy system and to offer Chisinau alternatives to Russian gas.
In other words, for the next five years, the gas pipeline inaugurated this year will become almost irrelevant and a mere decorative item.
Then, the implementation of the Energy Package III under the EU-Republic of Moldova Association Agreement, which entails the use of Moldovagaz networks by other players in the energy market, will be practically suspended. Given that the Republic of Moldova will buy gas only from Gazprom, package III is somehow suspended by default. Therefore, the non-implementation of an important provision in the Association Agreement will automatically slow down Moldova's economic commitments to the EU.
Russia’s bluff and Chisinau’s failure
The lack of political experience and tact of the Chisinau representatives was obvious in these negotiations, according to several pundits in Chisinau. Moscow kept bluffing, like in a poker game, using the subservient media in Chisinau to present and inflate a tension that was not that high in reality.
What must be said from the very beginning is that the only real pipeline through which the separatist region of Transnistria can get gas comes from the right bank of the Republic of Moldova, controlled by the constitutional authorities. Therefore, a scenario with Moscow leaving Transnistria with no heat in winter would have been unlikely. Russia has over 220,000 citizens in Transnistria, which is de facto about two-thirds of the region's total population.
Moreover, it would have left Tiraspol without vital sources of income. The majority of the Transnistrian budget consists of the amounts paid by Chisinau for the energy coming from the Cuciurgani power plant. The scheme is simple and it works as follows: Gazprom brings via Moldovagaz (its subsidiary) gas to the Transnistrian region at the Cuciurgani plant (owned by the Russian giant Inter RAO), the gas is burned and transformed into electricity which is then sold to Chisinau, and the money goes to a “special gas account” from which most salaries, pensions and other allowances granted to the citizens of Transnistria are paid.
Therefore, Russia did not have all the winning cards, but it bluffed and intimidated Chisinau in such a way that the Republic of Moldova made huge, and most importantly, long-term concessions. Despite the fact that the EU has created all the conditions for the Republic of Moldova to have a certain leverage and to be able to avoid energy dependence on Russia, Chisinau seems to be rushing and ready to give in quickly in the negotiations with Moscow.
The leadership in Chisinau, no matter how pro-European it may be, has shown it is inexperienced and frightened by Moscow's “energy weapon”. This is not an exactly good start for the pro-European executive who has won, de facto, a Pyrrhic victory in this episode of the “gas war”, demonstrating lack of skill and even dilettantism.
In conclusion, the “gas crisis” could have been an opportunity for Chisinau to show Russia that it doesn’t sit in its pocket any longer and that it is committed to taking that irreversible path to the EU. Instead, its officials showed that they were willing to make big compromises and that they would like to have the European cake, but also eat the Russian one. The tactic of the friendly calf who sucks two mothers has not disappeared, it has just turned into something else.
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