Identifier
Created
Classification
Origin
07CHISINAU1520
2007-12-28 15:29:00
CONFIDENTIAL
Embassy Chisinau
Cable title:  

MOLDOVAN ENERGY WOES

Tags:  ECON ENRG PGOV PREL MD 
pdf how-to read a cable
VZCZCXYZ0002
RR RUEHWEB

DE RUEHCH #1520/01 3621529
ZNY CCCCC ZZH
R 281529Z DEC 07
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 6071
INFO RUEHBM/AMEMBASSY BUCHAREST 4244
RUEHKV/AMEMBASSY KYIV 0558
RUEHMO/AMEMBASSY MOSCOW 3255
C O N F I D E N T I A L CHISINAU 001520 

SIPDIS

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: 12/28/2017
TAGS: ECON ENRG PGOV PREL MD
SUBJECT: MOLDOVAN ENERGY WOES

REF: A. CHISINAU 1334

B. CHISINAU 1165

C. CHISINAU 994

Classified By: Ambassador Michael D. Kirby for reasons 1.4(b) and (d).

C O N F I D E N T I A L CHISINAU 001520

SIPDIS

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: 12/28/2017
TAGS: ECON ENRG PGOV PREL MD
SUBJECT: MOLDOVAN ENERGY WOES

REF: A. CHISINAU 1334

B. CHISINAU 1165

C. CHISINAU 994

Classified By: Ambassador Michael D. Kirby for reasons 1.4(b) and (d).


1. (C) SUMMARY: The Moldovan energy sector continues to
suffer from political manipulations, which in a society
accustomed to government subsidies prevents charging full
cost-recovery tariffs for increasingly more expensive natural
gas, electricity, and heating. According to recent media
reports, Moldova will pay about USD 190 per thousand cubic
meters (tcm) for natural gas in 2008. As winter takes hold,
temperatures in Chisinau's centralized heating system
continue to drop as debts and political rhetoric continue to
mount. Compounding the situation, Ukraine briefly cut
exports of electricity to Moldova, hinting at Ukraine's
unwillingness to continue subsidizing low-cost electricity
exports and reminding Moldova of its energy insecurity. END
SUMMARY.

GAS PRICES SET TO INCREASE IN 2008
--------------


2. (C) On December 20, MoldovaGaz announced that Gazprom
would increase the price for natural gas supplied to Moldova
from USD 170/tcm to USD 192/tcm for the first quarter of

2008. In July, Gazprom had initially indicated that the
price for natural gas for 2008 would be USD 180/tcm. On
December 25, Prime Minister Tarlev confirmed the USD 192/tcm
price, noting that it could increase according to the formula
the GOM accepted when it signed a long-term contract for gas
deliveries. According to local media reports, Gazprom
recently held negotiations with Transnistria (TN),discussing
a debt-for-shares swap to cover the region's estimated USD
1.5 billion debt and setting the price for natural gas for
2008 at USD 192/tcm. (NOTE: MoldovaGaz is owned by Gazprom
(50%),the GOM (35.33%) TN (13.44%) and individual investors
(1.22%). END NOTE.) The signing of separate contracts for
right- and left-bank Moldova, dividing debts, and a
debt-for-share swap have been in discussion for over a year
(Ref A).

HEATING IN CHISINAU: FROM WARM TO COOL
--------------



3. (C) On December 26, Termocom was forced to lower the
temperature in the centralized heating system in Chisinau
from 74 degrees Celsius to 14-16 degrees. The measure was
taken to prevent the accumulation of further debts following
the Chisinau municipal government's lowering of the heating
tariff (Ref B). On December 19, MoldovaGaz reduced the
volume of gas deliveries to Termocom by 20 percent. On
December 20, MoldovaGaz President Ghenadie Abashkin told us
he had cut supplies of natural gas not only to Termocom, but
also to the three state-owned power plants (CET-1, CET-2 and
CET-Nord) because of mounting debts. He said MoldovaGaz had
accumulated USD 30 million in debts this heating season with
Gazprom because his customers had not paid their bills in
full. Abashkin said he had recently received a notice from
Gazprom demanding payment and threatening to reduce the
volume of natural gas supplied to Moldova.

UKRAINE SENDS A SIGNAL
--------------


4. (C) On December 20, Ukraine briefly suspended the
transmission of electricity to Moldova, which caused a
blackout for more than 260,000 rural consumers in central and
southern Moldova. Carlos Gonzales, President of Union
Fenosa, the owner of three power distribution companies, said
the blackout lasted less than 10 minutes. Moldova depends on
Ukraine for electricity, producing less than 30% of its
requirements domestically in aging and inefficient power
plants. Gonzalez said the Ukrainians claimed the
interruption was a technical problem, but he thought it was
clearly a shot across the bow intended to encourage the
Moldovans to accept a higher price for Ukrainian electricity.
In July, Moldova signed an agreement with Ukraine on
electricity imports, increasing the price from 2.7 cents per
kilowatt hour (kwh) to 3.0 cents per kwh and gradually
increasing the price 0.1 cent per kwh per month through June
2009 (Ref C).

ALTERNATIVE ENERGY: TRANSNISTRIAN ELECTRICITY?
-------------- -


5. (C) Faced with the prospect of sharp increases in the
price of Ukrainian electricity, the GOM has quietly developed
a relationship with the Russian-owned Cuciurgan power plant
(Moldavskaya GRES) in Transnistria. The plant has agreements
with Moldelectrica, the right-bank transmission company
responsible for Moldova's international electrical
connections, to export electricity to Russia and Romania.
Gonzalez speculated that the GOM might sign a new agreement
with the Cuciurgan power plant to purchase electricity for
right-bank Moldova. (NOTE: Moldova stopped purchasing
electricity from the plant in 2005 following a unilateral
price increase by the Transnistrians. END NOTE.) Gonzalez
noted that Union Fenosa had recently won an arbitration case
in Paris against the Cuciurgan power plant for breach of
contract stemming from the 2005 price increase.

AFTER THE OSCE CHAIRMANSHIP - NO LOVE FOR THE SPANISH
-------------- --------------


6. (C) When asked about current relations with the GOM,
Gonzalez said the relationship remains frosty and he believes
the GOM would rather see Union Fenosa divest. He said the
company continued to call for full-cost recovery tariffs to
finance infrastructure investments, but his demands fell on
deaf ears at the Ministry of Industry and the Prime
Minister's office. He said the Spanish Foreign Ministry had
coordinated a meeting between President Voronin and a
high-level Union Fenosa executive from Madrid, but Voronin
canceled it with no explanation. Gonzalez said that
according to Spanish government information provided to Union
Fenosa, the GOM intends to sell key energy sector assets to
the Russians. He added that Moldova's energy sector and
Union Fenosa had been on the agenda during Voronin's recent
trip to Brussels, but he had seen no change in the GOM's
attitude following the discussions.

COMMENT
--------------


7. (C) Moldova's energy sector is in disarray. The Termocom
case is an example of what happens when artificially low
tariffs are adopted. Both Termocom and its suppliers, Union
Fenosa and MoldovaGaz, are steadily accumulating debts, which
will only get worse in January when the price for natural gas
increases. We also expect an increase in the price of
Ukrainian electricity. We've noted before our concern about
the GOM's attitude towards Union Fenosa, a major foreign
investor. A Western company that operates for profit cannot
work without charging prices that allow for full cost
recovery. Given the GOM's indifference toward the company
and international pressure, it seems that the government has
decided to force the company to divest, clearing the way for
future Russian investments.
KIRBY