MOLDOVAGAZ PRESIDENT GUSEV TALKS BUSINESS

C O N F I D E N T I A L CHISINAU 000005

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: (##)
TAGS: ECON ENRG ETRD PGOV MD
SUBJECT: MOLDOVAGAZ PRESIDENT GUSEV TALKS BUSINESS

Classified by: Charge d'Affaires Marcus Micheli
for reasons 1.4(b) and (d)


1. (C) SUMMARY: In a December 22 meeting,
Moldovagaz President Alexander Gusuv told Pol/Econ
Officer that the new Government of Moldova (GOM)
no longer interfered in his company's business as
the previous GOM had done. Gusev said recent
meetings with Ukrainian representatives -- on the
eve of a trip to Moscow to sign the annual gas
supply agreement with Gazprom -- had indicated
that there would be no interruption in gas
supplies in 2010. He also explained that
Moldovagaz and the National Agency for Energy
Regulation (ANRE) had recently instituted a
simplified methodology for calculating domestic
prices of Russian gas. Gusev also expressed
growing concern about the poor maintenance of gas
pipelines in Transnistria and said he saw no
foreseeable alternative to Russia for Moldova as a
source for gas. END SUMMARY

WORKING WITH THE NEW GOM
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2. (C) In a December 22 meeting, Moldovagaz
President Alexandr Gusev said that working with
the new Alliance for European Integration (AIE)
GOM was easier than with the previous Party of
Communists (PCRM)-led government because the
authorities no longer intervened in his company's
internal affairs. Gusev explained that the new
GOM did not give instructions on whose gas supply
needed to be disconnected or reconnected or who
must pay bills and who might be allowed to be
delinquent in making payments (Note: all of which
happened under the previous government). Gusev
also noted a recent problem in the city of Balti
in which Moldovagaz and the local gas company
disputed the ownership of land and a pipeline on
the property. The two companies eventually
resolved the issue, leaving the assets with
Moldovagaz. (Note: The mayor of Balti is pro-PCRM
and the dispute may have been an effort by the
local gas company to claim assets with local
political support. End note).

GAS FROM RUSSIA AND UKRAINIAN TRANSIT THIS WINTER
-------------- --------------


3. (C) Recently, Gusev said, he had visited
Ukraine where he had discussed the natural gas
supply situation for the winter with his Ukrainian
counterparts. Gusev indicated that he was
optimistic that there would be no interruption in
gas supplies in 2010 because Russia and Ukraine
had taken steps to prevent a repeat of the crisis
of January 2009. On December 23, Gusev traveled
to Moscow to sign the annual agreement with
Gazprom for natural gas deliveries to Moldova,
including Transnistria, and gas transit through
Moldovan territory to Turkey, Romania, Bulgaria,
and Greece. In the December 22 meeting, Gusev
said that one goal of the meeting in Moscow would
be to determine the projected annual volumes of
the gas Gazprom would supply. According to Gusev,
in the first quarter of 2010 the gas acquisition
price for Moldova was expected to be USD 233 per
1,000 cubic meters. This would be 21 percent
higher than the current price of USD 192 for the
fourth quarter of 2009. The final price would be
calculated sometime around January 15, 2010, Gusev
added.

CHANGES IN GAS PRICE METHODOLOGY
--------------


4. (C) Gusev said that Moldovagaz had asked the
National Agency for Energy Regulation (ANRE) to
approve a new natural gas tariff and was pleased
the regulator had agreed to amend the methodology
for calculating domestic tariffs following
recommendations from the gas company. According
to Gusev, the revised methodology now completely
separates the calculations for the domestic gas
tariff and the transit charges for gas passing
trough Moldovan territory. This new methodology
was an important improvement and simplification,
Gusev said. The previous methodology intertwined

the two actions. Gusev welcomed a second
adjustment that provided Moldovagaz with cost
recovery for previous investments, noting that the
company will be able to adjust tariffs from 5 to
14 percent to recover the costs of investments.

TRANSNISTRIA NOT MAINTAINING PIPELINES
--------------


5. (C) Referring to relations with Transnistria
and Moldovagaz's inability to access its
infrastructure, Gusev mentioned the two gas
pipeline explosions that occurred in 2009, one on
the right-bank of the Nistru River and another one
on the left-bank in Transnistria. Moldovagaz had
no access to its facilities on the left-bank of
the Nistru River and therefore it could not
inspect and conduct maintenance on the entire
pipeline in order to keep it in good working
order, Gusev explained. According to Gusev, there
are three branches of the pipeline passing through
Transnistria that were built in 1974 and might
have deteriorated substantially. Clearly
frustrated with the Transnistrians, Gusev noted
that Gazprom and Moldovagaz might face a situation
in future when the pipeline could not be used or
transit could be severely reduced. (Note: In
addition to blocking access for Moldovagaz to its
infrastructure in Transnistria, the regime in
Tiraspol has accumulated a debt of almost USD 2
billion to Gazprom which is legally a Moldovagaz
debt. End note.)

NO ALTERNATIVE ENERGY SOURCE
--------------


6. (C) There was no alternate to Russian gas for
Moldova, Gusev said, when asked about alternatives
to Gazprom. In theory, he noted, if the Nabucco
pipeline went through Romania the closest point
would be in Timisoara which is about 500 km from
the Moldovan border. However, it was very
unlikely that any company would consider it
feasible to build a pipeline through Romania, he
said. He added that it was questionable as to how
Moldovagaz would finance the required construction
in Moldova for a connection to Nabucco. South
Stream, he added, was even further from Moldova
and offered no viable alternative. Moldovagaz had
looked at gas storage opportunities in southern
Moldova, according to Gusev, and there were some
locations and soils that would allow construction
of such a facility. However, the prohibitive cost
of between USD 100 to USD 150 million to build a
two- to three-week gas storage facility for
Moldova made this option unrealistic. He noted an
alternative would be for Moldova to lease gas
storage facilities in Ukraine. However, this
option was unacceptable since there would be no
means of guaranteeing access to such a supply in a
force majeure situation.

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


7. (C) The lead-up to presidential elections in
Ukraine -- which have forced Prime Minister and
presidential candidate Tymoshenko to take
proactive measures with Moscow -- likely
guarantees that gas deliveries from Russia through
Ukraine to Moldova will flow freely in the near
future. This is good news for Moldovan gas
consumers. Nevertheless, the continued
deterioration of Soviet-built infrastructure and
the lack of alternative sources of energy mean
that little has changed. Moldova remains
completely dependent on Russian gas and transit
disputes are possible in future.

MICHELI