RUSSIAN GAS FOR MOLDOVA

FT - OCTOBER 26, 2021 - Russian state gas company Gazprom has proposed that Moldova adjust its free trade deal with the EU and delay energy market reforms agreed with Brussels in exchange for cheaper gas for the country.

The former Soviet republic has declared a state of emergency as it tries to secure enough shipments to make it through a winter gas crunch. Kremlin-controlled Gazprom cut supplies to Moldova by one-third last month following the end of a long-term contract and demanded more than double the previous terms to keep gas flowing.

In negotiations this month, Gazprom told Moldovan officials it would reduce the price if the country was prepared to amend its tariff-free trade deal with the EU, said people briefed on the discussions.

Gazprom also wanted Moldova to delay the implementation of EU rules that require gas markets to be liberalised and allow more competition, the people said.

Two people briefed on the talks said the Kremlin saw the gas negotiations as part of a broader political settlement with Moldova after President Maia Sandu took office last year and her staunchly pro-EU party scored a landslide victory in elections in July.

Market analysts have suggested that Russia is leveraging Gazprom’s position as sole supplier to Moldova to put pressure on the government in Chisinau, which has vowed to steer out of Moscow’s orbit and towards the west.

It comes amid a wider global gas crunch that has pushed market prices to record highs.

Russia’s president Vladimir Putin this month dismissed as “complete rubbish” suggestions that the Kremlin used gas supplies as a political weapon against other countries.

Gas market liberalisation would adversely affect Gazprom and Moldovagaz, its subsidiary in Moldova that owns and operates the country’s gas network and buys and sells shipments.

Moscow also would prefer Moldova to abandon the Deep and Comprehensive Free Trade Area deal with the EU and instead sign up to its rival Eurasian Economic Union.

Moscow sees Moldova as coming within its sphere of influence and regards itself as the protector of the Russian-speaking population in the breakaway statelet of Transnistria, where it keeps a small military contingent.

Dmitry Kozak, a senior Kremlin official who leads Moscow’s relations with post-Soviet states, held negotiations last week with Moldovan officials that failed to reach a compromise over the gas price.

Dmitry Peskov, Putin’s spokesman, said Gazprom’s offer was “carefully calibrated, clear, justified, and, from the standpoint of pricing, extremely favourable to the Moldovan side”, according to Interfax.

“Gazprom is holding negotiations with its counterparts on extending the gas supply contract to Moldova exclusively on commercial terms,” Gazprom said. “We do not consider it appropriate to comment on Moldova’s agreements with other suppliers.”

Moldova on Tuesday received its first gas shipment from a non-Russian source, buying a trial 1m cubic metres from Poland’s PGNiG via Ukraine, in a debut tender that bypassed Moldovagaz.

That, in addition to another trial shipment from neighbouring EU member state Romania, came after weeks of crisis talks with EU officials for Brussels to provide extra financial support and for member states to make gas available.

Moldova’s government fears mass unrest this winter from either a shortage of gas or unavoidably high prices for heating and energy.

“The Russians are hitting the country at its weakest point, at the worst possible moment,” said an official involved in the negotiations.

Natalia Gavrilita, Moldova’s prime minister, will head a delegation to Brussels for talks on Thursday, amid discussions to increase the level of grants and loans provided by the EU.

Moldovan officials will meet Gazprom’s chief executive Alexei Miller in St Petersburg on Wednesday. EU diplomats have urged the country not to sign a new long-term deal with the Russian company, and instead find short-term fixes to weather the winter.

But industry analysts have questioned whether additional supplies from EU members will be sufficient to supplant Russian exports to the country of 2.6m people, while spot market costs are likely to be prohibitively high without significant subsidies.

Pawel Majewski, chief executive of PGNiG, said the company was “ready to take part in the next rounds of tenders” for gas supplies to Moldova.

“Independent from our business activities, by supplying gas to Moldova, we are also showing our energy solidarity,” he said.

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