Category Archives: Transnistria

Moldova-Ukraine Energy Deal Upsets Russia by Cutting Transnistria Out

Ukraine’s DTEK Trading, owned by Rinat Akhmetov, and Moldova’s state-owned intermediary Energocom signed a one-year contract, on April 1, for the supply of electricity to Moldovan distributors. Energocom/DTEK’s only competitor was the Kuchurgan Power Station, which is located in Transnistria and belongs to the Russian state-owned electricity giant Inter RAO. According to Moldova’s Ministry of Economy, the winning bid offered to sell power at $50.20 per megawatt/hour (MWh), compared to Kuchurgan’s offer of $54.40 per MWh (MEC.gov.md, April 1). However, questions remain as to why DTEK had to go through the Moldovan intermediary and did not submit a bid directly. Moreover, there are concerns about DTEK’s capacity to cover Moldova’s energy needs in full (Exprt-Grup.org, March 31). The arrest of the deputy minister of economy in charge of the energy portfolio on the day of the auction deadline added further intrigue, despite, so far, corruption charges not being connected to the bidding process. Speculation mounted as the auction deadline was extended repeatedly without a clear justification. Nonetheless, the fact that Moldova switched from the Russian supplier in Transnistria to a Ukrainian company is significant in ways that go far beyond market economics.

The decision took many by surprise, as the key figure in Moldovan politics—the head of the ruling Democratic Party, oligarch Vlad Plahotniuc—had a vested interest in maintaining the old contract despite accusations that importing energy from Transnistria not only legitimates, but also, in effect, sponsors separatism. Moldovan independent experts as well as politicians accused Plahotniuc of benefiting from the shell-company that had served as a middleman between Moldova and Kuchurgan Power Station since January 2015 (Adevarul.ro, April 1). The Tiraspol-based offshore-owned intermediary Energokapital (second-largest taxpayer in Transnistria) is considered the brainchild of Transnistria’s former leader Yevghenii Shevchyk and Moldovan leaders Vlad Filat and Plahotniuc (Ecfr.eu, July 7, 2016; Jurnal.md, July 24, 2016). Maintaining the existing deal was Plahotniuc’s preferred option following Filat’s arrest; but the status quo did not sit well with either Ukraine or Moldova’s Western partners.

Having lost control over its large coal mines in the east (see EDM, February 28, March 29), Ukraine is eager to compensate as much as it can by exporting power generated by its nuclear power stations. DTEK Trading bought the export rights from Energoatom—a Ukrainian state enterprise that operates the country’s four nuclear power stations. Coincidentally or not, the day before the deadline of Moldova’s energy import auction, the Washington Times featured a piece titled “Ukrainian Corruption Casts Nuclear Pall Over Europe,” stoking fears about Ukraine’s alleged inability to ensure the safe operation of its nuclear facilities (Washington Times, March 30). The article leans in favor of Russia. Of course, Ukraine had long sought to replace Russia on the Moldovan energy market, but to date, Chisinau had only used this as leverage with Moscow and Tiraspol. Moreover, the lucrative kickbacks from Energokapital (about $19 million a year) were likely difficult to pass up (Jurnal.md, July 24, 2016). Yet, several factors had been making it increasingly difficult for the Moldovan government to continue with business as usual. For one, Transnistria does not pay Russia back for the Russian natural gas it consumes to produce electricity, passing the debt onto Moldova. Second, the Russian aggression in Ukraine had alarmed the small country with a separatist region. And, last but certainly not least, the election of a pro-Russian president has compelled Moldova’s government to forgo “business as usual” in order to mollify pro-Western Moldovans and the country’s development partners.

It remains unclear why Kuchurgan decided to submit a price higher than the $49 per MWh they had been charging last year. Given that the intermediary Energokapital was no longer in the picture, the price should have been lower still. Yet, the bigger question now is what Transnistria does with its energy surplus. In 2005–2009, when Moldova had a contract with Ukraine and not Inter RAO, Transnistria was able to sell part of the electricity generated by the Kuchurgan Power Station to Romania. Currently, Romania is unlikely to help Tiraspol out and neither is Ukraine. Losing such a significant revenue stream puts incredible pressure on an already austere Transnistrian budget. Spending cuts in Russia will also make it difficult for Moscow to pick up the tab (see EDM, June 29, 2015). Therefore, Moldova’s decision has even larger geopolitical implications.

Due to increased domestic contestation by the opposition, Plahotniuc has been trying desperately to boost his legitimacy by proving himself to the West, yet without antagonizing Russia directly. The Moldovan leadership has gone to great lengths to avoid linking the Russian government to the actions of its intelligence services. This is despite accusations of Russian special services harassing Moldovan officials traveling to Russia, their sabotage of a Moldovan law enforcement investigations into a major transnational money laundering scheme, and the recruitment of a former Moldovan Democratic Party legislator as a spy for Moscow (Adevarul.ro, March 9). But following the election of a pro-Russian president in Moldova, Moscow is now focused on ensuring that pro-Russian forces secure a majority in Moldova’s next parliamentary elections, scheduled for 2018. Consequently, Russia has diminished its space for maneuver. It cannot retaliate against Moldova without undermining the chances of the pro-Russian parties in the next election. Vladimir Putin recently made President Igor Dodon several token concessions regarding Moldovan exports and labor migrants. Dodon is also creating expectations about progress in the Transnistrian conflict settlement (see EDM, January 26). If the Kremlin were to retaliate on any of these fronts, it would undermine its own political projects in Moldova.

The politically agile Plahotniuc may have hoped to persuade the European Union that cutting Transnistria out of the energy deal would be detrimental to the conflict settlement process, but Plahotniuc has lost the battle, even while saving face for now. Clearly, the deal is a major win for Ukraine. Apart from the much-needed cash inflow and a snub at Russia, Ukraine is also hoping to access the EU energy market via Moldova. The new contract may ultimately prove to be a big win for Moldova if DTEK is able to ensure supply and price stability, since Plahotniuc is likely to use any hitches as a pretext to go back to his preferred option. In light of the difficult economic conditions in Transnistria and Russia’s increasingly limited leverage over Moldova, there is some hope that pressure for a positive development in the conflict settlement may emerge at the grassroots level to the point when it can no longer be ignored or stifled by the authorities.

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Note: The article was written for the Jamestown Foundation and can be accessed here.

Transnistria: Change of Leadership, But Not Policy

On December 11, Moldova’s secessionist region of Transnistria held presidential elections. After a heated campaign, mutual accusations and even prison threats, the Chairman of the Supreme Soviet (Transnistria’s parliament), Vadim Krasnoselski, defeated the incumbent President, Yevgeny Shevchuk, by a landslide (62 percent to 24 percent) in the first round (Dniester.ru, December 12). Krasnoselski will now control both the executive and the legislative branches. The Renewal party, which is the political arm of the Sheriff Company, holds 33 of the 43 seats in the Supreme Soviet. The Sheriff conglomerate is Transnistria’s wealthiest and most powerful business group—the largest employer and taxpayer in the separatist region (Rise.md, June 30).

Shevchuk’s reliance on administrative resources and partial control over the state bureaucracy and law enforcement have proved insufficient, perhaps because the judiciary and the local electoral commission are heavily influenced by the legislative majority, controlled by the Sheriff Company via its representative Krasnoselski. Yet, more importantly, it was Russia that intervened on several occasions to calm the spirits of the two opposing sides, thus ensuring a peaceful transition of power in the region that is de facto under its protectorate. The Kremlin did not openly support any candidate (Kommersant.ru, October 10). Instead, Shevchuk appeared to have better ties with the Russian government, including with the Russian Deputy Prime Minister and Kremlin’s envoy for the Transnistrian conflict, Dmitry Rogozin, while Krasnoselski had the backing of the ruling United Russia Party (Adevarul.ro, December 9).

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Shevchuk meets Rogozin in Moscow (Source: novostipmr.com)

The president, elected for a five-year term, is a central figure in the Transnistrian power structure and holds extensive executive powers, controlling the government and law enforcement forces. Unlike Shevchuk, who had strong opposition, Krasnoselski will have complete control over the self-proclaimed Transnistrian Republic. This presents some risks as well as opportunities for Moldova in the conflict settlement negotiations. Krasnoselski will enjoy a strong bargaining position, particularly as Moldova’s political system is highly polarized and a relatively strong opposition vocally objects to both the newly elected President Igor Dodon and the actual power broker in Moldova—Vlad Plahotniuc. Chisinau will find it difficult to reach consensus on a potential settlement proposal, despite the efforts by the OSCE to give new impetus to the negotiation talks (Moldnova.md, October 11).

Moldova’s President-elect Igor Dodon, despite having extremely limited prerogatives on setting domestic and foreign policy, proposed during the campaign a federal solution to the quarter-century-long frozen conflict. However, not only was his proposal rejected by Krasnoselski and Shevchuk (Radiochisinau.md, November 19), something to be expected during an election campaign in Transnistria, but it was also rebuked by the Moldovan center-right opposition as well as the ruling Democratic Party (Agora.md, November 19). Still, no solution to the conflict will ever materialize without Kremlin’s approval. Moscow’s influence was clearly manifested as Dmitry Rogozin personally intervened during the campaign to avoid further escalation of political tensions between the two opposing camps (Newsmaker.md, October 11). Furthermore, after the election results were announced, Shevchuk was summoned to Moscow to ensure a peaceful transition of power (Vestipmr.info, December 13).

Nonetheless, holding the political and economic power in the breakaway region, Krasnoselski and the two pragmatic and non-ideological businessmen behind Sheriff—Victor Gusan and Ilya Kazmali—could potentially become sensible partners in the reintegration talks with Chisinau (Politrussia.com, November 12; Rise.md, December 12). It is noteworthy that, in the first nine months of 2016, Transnistria exported 57 percent of its products to the European Union (benefiting from Moldova’s free trade agreement with the EU) and only 38 percent to the Russia-driven Eurasian Economic Union (Realitatea.md, September 18), which makes the region and its business elite increasingly westward-looking. The Association Agreement between the European Union and Moldova signed in 2014 and enacted fully in July 2016, particularly its economic component, the Deep and Comprehensive Free Trade Area, to which Transnistria also signed on, albeit with some caveats, makes the region increasingly dependent on the EU market. This, along with decreasing Russian assistance, which only exacerbates the already dire economic conditions in the region, could prompt the new Transnistrian leadership to become more lenient toward a mutually feasible settlement. Still, this remains a long-term prospect. In the short run, the region will continue to get on the Russian bandwagon.

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Krasnoselski meets Rogozin in Moscow (Source: vestipmr.info)

Russian Foreign Minister Serghei Lavrov stated during the OSCE ministerial meeting in Hamburg that Russia counts on further progress in the settlement negotiations over Transnistria (RIA.ru, December 9). However, all stakeholders in the conflict have long become accustomed to Russian diplomatic formalism and have very low expectations in this regard. Until Russia fulfills its 1999 OSCE Summit commitments to withdraw its military forces and equipment from Transnistria, Moscow will have little credibility when it declares support for the sovereignty and territorial integrity of Moldova. This becomes all the more evident as Moscow rejected yet again Ukraine’s offer to provide a corridor for the withdrawal of Russian troops from Transnistria. Russian Deputy Foreign Minister Grigory Karasin responded that the Russian peacekeepers would stay in Transnistria for as long as they are necessary for the preservation of peace (TASS.ru, November 11). Russian Deputy Prime Minister Dmitry Rogozin was even less diplomatic, ridiculing the proposal altogether (TASS.ru, November 7). Thus, the only feasible approach to conflict settlement in the foreseeable future is supporting Transnistria’s further integration into the EU market, and encouraging local grassroots confidence-building initiatives. Hence, the status quo is here to stay.

Note: The article was written for the Jamestown Foundation and can be accessed here.