Russian Gazprom Ready To Pounce On Moldovan Prey – Analysis

By Vladimir Socor*

Using Gazprom as its political instrument, the Kremlin threatens to halt natural gas supplies to Moldova temporarily on November 1, and indefinitely from December 1, unless Moldova accepts Russia’s financial and political conditions for continuing gas deliveries (see below).

Dmitry Kozak, the deputy head of Russia’s Presidential Administration, directly participates in the gas negotiations with Moldova, packaging the issue of gas supplies with other issues, including political ones. Kozak has even hosted two rounds of negotiations during October—a highly unusual move underscoring the Kremlin’s leading role in this matter.

Russia’s main targets in the current European gas crisis are: 1) Ukraine (to eliminate that country’s gas transit route to Europe or, alternatively, compel Ukraine to accept Russia’s terms of gas transit and gas trade), and 2) Germany (to lock it into structural dependence on Russian gas and other forms of business generated by the gas sector). Moldova is merely a collateral target and target of opportunity for Russia. The Kremlin views the current European gas crisis as a window of opportunity to destabilize and subdue Moldova’s recently elected pro-Western authorities.

Moldova’s current authorities went out of their way to appease Russia during their successful presidential and parliamentary election campaigns and after taking over power. This appeasement strategy, in policy and rhetoric, dictated by Moldova’s domestic circumstances (see EDM, July 13, 15, 19, August 12), seemed to work until Russia’s gas weapon struck.

Russia has covered 100 percent of Moldova’s natural gas consumption from 1991 to date. Moldova has never had direct or indirect access to other gas supplies. The long-term supply contract between Gazprom and Moldovagaz has, since 2008, been prolonged from year to year each September, adjusted each time to prices on international markets. The latest annual version expired at midnight on September 30, 2021, but Gazprom has not prolonged it by another year. Instead, Gazprom dragged the negotiations from June until September 30, on which date, at 9 PM, Moldovagaz had to sign a highly onerous contract for the month of October.

The Kremlin demands more concessions for further monthly contracts in November and December, to be followed by an annual contract if Moldova accepts those conditions. Lacking alternatives, and facing the winter without gas reserves, Moldova had to sign on the dotted line for October; and it may have to sign again for November and December as stopgap measures. The Moldovan government, meanwhile, is casting about for some alternative solutions, none in sight as yet.

Under the contract for October, Moldovagaz must pay $790 per one thousand cubic meters of Russian gas, up from $550 in September (the final month of the expired annual contract), each time in line with European spot market prices. Gazprom has committed to supplying 90 million cubic meters (mcm), which would cover Moldova’s normal seasonal requirement for October. However, Gazprom only reserved 54 mcm of pipeline capacity in Ukrainian transit pipelines for delivery to Moldova. This feint has caused a shortfall of more than one third of Moldova’s monthly gas requirement as October draws to a close. Gazprom claims that the contract’s signing on September 30 was too late for it to reserve pipeline capacities that would have fully covered the contractual volume of 90 mcm (Kommersant, October 22; RIA Novosti, October 22, 25; TASS, October 26).

Four rounds of negotiations (two in Moscow and two in St. Petersburg) were held during October toward a new Russian-Moldovan agreement on gas-related issues. The Russian side, however, introduced also political issues, which were not made public by either side.

Kozak hosted negotiations in Moscow on October 7 and October 21–22, with Moldovan delegations headed both times by Deputy Prime Minister Vladislav Kulminski. Neither of them specializes in energy or any economic matters. Each of them is responsible for negotiations on the Transnistria conflict. This fact raises concerns that Moscow may be pressuring Chisinau to discuss Transnistria in a package with gas supplies, where Russia holds additional heavy leverage. According to Moldovan insiders, Kozak did make a number of specific proposals regarding Transnistria on October 7 informally, not in writing but verbally for plausible deniability. On October 13, according to Chisinau insiders, Kozak’s office followed up, asking Chisinau whether it could offer a concept for a sustainable resolution of the Transnistria conflict.

Chisinau invited Kozak to visit in the third week of October (it would have been Kozak’s second visit per Chisinau’s invitation, after his first visit in August). Kozak declined this time, and Chisinau sent Kulminski to Moscow again (TASS, October 15; Ziarul National, October 18, 19).

On the business side, Moldovan Deputy Prime Minister and Infrastructure Minister Andrei Spinu and Moldovagaz Board Chairman Vadim Ceban participated opposite Russian Energy Minister Nikolai Shulginov and GazpromExport General Director Yelena Burmistrova in the October 21–22 Moscow negotiations. Spinu and Ceban also negotiated with Burmistrova on October 8 and with Gazprom CEO Aleksei Miller on October 27, both times in St. Petersburg. This latter round yielded no information at all in the public domain, but the other three rounds did reveal the two sides’ conflicting positions.

Four Rounds Of Talks

Four rounds of Russian-Moldovan negotiations in October over natural gas supplies have revealed the two sides’ conflicting positions.

The Russians propose signing a gas supply contract with Moldovagaz for the month of November, at the spot market price of $1,000 per one thousand cubic meters (no public information about the volume) and, in due course, a contract for December at the spot market price. The Russians offer a 25 percent discount from those dizzying prices, on the following conditions: 1) Moldova to pay immediately for Russian gas received during September and October in the Moldovan government-controlled territory (right bank of the Nistru river, as distinct from Transnistria on the left bank); 2) the Moldovan government to take responsibility for Moldovagaz’s company debts to Gazprom, turning those into Moldovan state debts, again for gas received in right-bank Moldova; 3) Moldova to commit to repaying those debts within the next three years; and 4) Chisinau to accept yet another postponement of “unbundling” Moldovagaz, as the European Union’s Third Energy Legislation Package requires, into independent companies for gas procurement, transportation and distribution. Gazprom takes the position that the unbundling would affect Gazprom’s assets in Moldova, given that Gazprom holds 50 percent plus one share in Moldovagaz.

Those are Gazprom’s conditions for signing supply contracts for November and December. Moldovan compliance with those conditions would open the way to negotiations for a multi-year supply contract with Gazprom (Kommersant, October 22; RIA Novosti, October 22, 23, 25; TASS, October 22, 25).

According to Chisinau insiders, the Russian side further proposed holding trilateral discussions among Russia, Moldova and the European Union about the impact of the EU-Moldova Deep and Comprehensive Free Trade Area (DCFTA) upon Moldova’s bilateral trade with Russia. The Russian government aims to adjust that DCFTA in line with Russian commercial interests, but also (and perhaps mainly) to set a precedent for Russian interference with the EU-Ukraine and EU-Georgia DCFTAs.

Gazprom is assessing right-bank Moldova’s debt at $709 million (RIA Novosti, October 23), apparently updated to $715 million (Kommersant, October 19, 22). Of that total, $433 million represents the principal, while interest and penalties account for the remainder of the total alleged debt. Gazprom takes the position that this alleged debt is higher than Moldovagaz’s market value. Such a claim seems to hint that Gazprom could demand reimbursement in the form of Moldovan assets.

A vituperative statement by Gazprom spokesperson Sergei Kupryanov expressed “bewilderment” at Moldova’s falling into arrears: “Moldova has provoked this crisis. Gazprom is a company of shareholders and cannot accept such losses. You must pay on time for the goods received” (TASS, October 23).

The Kremlin and Gazprom, however, seldom mention Transnistria’s debt for Russian gas consumed there. That debt is at least ten times larger than right-bank Moldova’s. It amounts to $7.4 billion, according to Moldovagaz; or “approximately $8 billion,” according to Gazprom (Kommersant, October 19). Transnistria’s leadership from time to time confirms the growing multi-billion arrears, promising to hold talks about reimbursement at some unspecified future time. Gazprom never seriously attempted to collect Transnistrian debts in the last 15 years. With such laxness, Gazprom defrauds its own shareholders (they do not seem to complain). The Kremlin is thereby using Gazprom to subsidize Transnistria and keep it afloat.

The Moldovan government rules out discussing political matters within negotiations on natural gas, Prime Minister Natalia Gavrilita assured the country several times (Ziarul National, October 22, 25) after the negotiations in Moscow with Russian Presidential Administration deputy head Dmitry Kozak. Apparently, Chisinau has understood that sending its negotiator on the Transnistria conflict to discuss natural gas supplies with Russia’s negotiator on the Transnistria conflict—or to combine the two tracks into one process—is inappropriate and risky. Inviting Kozak to Chisinau for the second time in two months, this time to discuss the gas crisis, also signaled nervousness and a degree of confusion. The Kremlin has muddied the waters by giving Kozak a second hat as supervisor of Russian-Moldovan economic relations. Chisinau must keep those two tracks separate from each other. Moldova’s top officials handling the gas crisis—especially Prime Minister Gavrilita and Deputy Prime Minister and Infrastructure Minister Andrei Spinu—display a reassuring sang froid and poise in this situation.

These officials have stated Chisinau’s basic positions during the negotiating rounds as follows: 1) Gazprom’s proposals—both economic and extra-economic ones—run counter to the interests of Moldova’s citizens, hence negotiations must continue toward a mutually acceptable outcome. 2) This Moldovan government does not recognize the $700 million dollar debt to Gazprom, because it is far from clear who calculated it and how. Moldova demands an independent professional audit (with both Chisinau’s and Gazprom’s participation), with a view to calculating any debt correctly and restructuring it. 3) Chisinau aims to switch from short-term to longer-term contracts (one year to three years) and from spot-market gas prices back to indexing the gas price to the basket of crude oil and oil derivatives. An option also exists to use the oil basket price indexation for gas supplies in the first and fourth quarters of the year (the heating season) and a gas price corridor in the second and third quarters, similar to that in Gazprom’s contracts with a number of European countries (RFE/RL, October 11; Unimedia, October 18; Ziarul National, October 22, 23, 25, 26; IPN, October 26).

Russian negotiators have apparently told Moscow media that Chisinau could agree to postpone the unbundling of Moldovagaz (TASS, RIA Novosti, October 22, 25). It does, indeed, seem that Chisinau has little choice in the matter, considering Gazprom’s supply stranglehold and its 50 percent plus one shares in Moldovagaz.

*About the author: Vladimir Socor is a Senior Fellow of the Washington-based Jamestown Foundation and its flagship publication, Eurasia Daily Monitor (1995 to date), where he writes analytical articles on a daily basis. An internationally recognized expert on the former Soviet-ruled countries in Eastern Europe, the South Caucasus, and Central Asia, he covers Russian and Western policies, focusing on energy, regional security issues, Russian foreign affairs, secessionist conflicts, and NATO policies and programs.

Source: This article was originally published by The Jamestown Foundation in two parts in its Eurasia Daily Monitor Volume: 18 Issue: 164 here (part one) and here (part two).