by Igor Tomberg

27-01-06 The Russian gas monopolist, Gazprom, and the Moldovan authorities have agreed on gas deliveries at $ 110 per 1,000 cm from January to March 2006. Gas prices for subsequent periods are to be negotiated soon.
Earlier Gazprom demanded $ 160 per 1,000 cm, while Moldova wanted to pay only $ 80, as it had done since 1996. Last year Moldovan consumers received 2.45 bn cm of gas. Gazprom said that in 2006 it would deliver 1.6 bn cm to Moldova that would guarantee the unimpeded transit of 21.5 bn cm of Russian gas at $ 2.5 for 1,000 cm per 100 km, or 60 miles.

Anatoly Burlakov, director of the Moldovan National Energy Regulatory Agency (ANRE), said the rise in gas prices from $ 80 to $ 110 would not result in a sharp price hike for end users in Moldova. This temporary agreement will also allow Gazprom to maintain guaranteed gas deliveries to Romania, Bulgaria and Greece.
But Moldova does not intend to agree to a price rise to $ 160, which can be suggested at subsequent talks. It may seem at first glance that the Moldovan trading stand is based on the increase of Gazprom’s share in the gas transportation system of the country.

Oleg Reidman, an economic adviser to the Moldovan president, has said that the new “price was negotiated through mutual concessions and also because Gazprom will take a bigger part in the gas transportation system of Moldova.”
On the one hand, this suits the strategy of Gazprom’s management. Company spokesman Sergei Kupriyanov said that the gas price for Moldova for subsequent periods depended on plans for the concern’s involvement in the gas transportation and distribution system of Moldova. He said the sides have reached preliminary agreements, which “will have to be applied in practice.”

On the other hand, although Moldova claims to be ready to increase Gazprom’s share in the national gas transportation system, the sides have not agreed on raising its share in Moldovagaz from 50 % to 75 %. As of now, Gazprom owns 50 % plus one share, Moldova owns35.33 %, and Transdnestr 13.44 % in the company.
The Moldovan government agreed to cede 7 % of its stock and said that Gazprom should obtain the rest from Transdnestr authorities as debt repayment. Moldova’s debt to Gazprom for past years` deliveries is about $ 780 mm (without penalties), of which Transdnestr owes $ 560 mm.

Trying to preclude a repetition of the international gas scandal, the Russian gas monopolist charged Moldova $ 110 per 1,000 cm of gas. But the price will be raised to $ 160 in April, unless the sides agree on the issue of property. Gazprom is unlikely to be satisfied with the 7 %.
To secure a price of $ 110 for the entire year, the Moldovan authorities will have to offer it additional assets. The concern had shown interest in electricity facilities of the Moldovan government, and these assets may be put on the agenda.

At the same time, the agreement on three-month deliveries does not suit the European Union, which fears that another gas conflict would destabilize its gas supplies. The EU has called on Russia and Moldova to find a lasting solution to the problem of gas deliveries.
The two sides should resume talks in order to reach a long-term agreement. The EU will maintain neutrality because this is an issue of bilateral relations, but is ready to contribute to the search for a mutually beneficial solution.

The EU spokesman had rejected Moldova’s invitation to act as an intermediary at the talks with Gazprom. But the EU will dispatch a group of experts to study the situation in the country. The main issue of concern for the EU is the reliability of Russian gas deliveries to Europe.
Moldovan President Vladimir Voronin described the compromise with Gazprom as the triumph of pragmatism, genuine market relations and transparency.
“We understand the scheme of price formation and Russian gas deliveries to Moldova,” he was quoted as saying.

It is clear, however, that the conflict of interests has not been settled but postponed until April 1.
The Moldovan government will have to cede ownership of energy facilities to Gazprom or pay a higher gas price.

Igor Tomberg is a senior researcher with the Institute of the Economy at the Russian Academy of Sciences.