Tag Archives: Dodon

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.

Dodon muddies the water in Moldova’s relations with Romania and Ukraine

Mihai Popșoi: The statements of President Dodon create a less pleasant diplomatic atmosphere in the relations with neighbours. The foreign policy expert, Mihai Popsoi, says the biggest challenge in the relations with Kiev and Bucharest is the domestic policy of Chisinau and that an increase in the weight of Igor Dodon’s Socialist Party will inevitably lead to new tensions in the relations with neighbors, relations that are quite good at the moment.

RO_UA_MD4fc8a4bdcdLina Grâu: How do you see the relations between Moldova and its two neighbouring countries – Romania and Ukraine- at this moment?

Mihai Popșoi: An overview would lead us to the thought that the relationship between Moldova and Romania, on the one hand, and Ukraine, on the other hand, is a good one. The governments of these three countries have somewhat similar views in relations with the EU and the Euro-Atlantic space. But if we look deeper, in the context of domestic politics in Bucharest, Kiev and Chisinau, things get complicated. Regarding the majority coalition in Chisinau, its relations with Bucharest were largely based on materialistic considerations. The part of belonging to the same space of values with Romania is of minor importance to the Democratic Party, while the Liberal Party failed to impose its vision and unionist ideas within the government. Meanwhile, the right-wing opposition finds itself in a very complicated situation. It hoped that Romania will have a more decisive stance, but Romania has chosen to provide financial support to the Moldovan government, largely for geopolitical reasons, which is supporting this government in power. And now we see that the current government is trying to stay in power also after the 2018 elections through changing of the electoral system. So, Romania has had and continues to have a very important role in terms of domestic politics in Chisinau. Regarding the relations with Kiev, they are also complicated, both because of the Transnistrian conflict and, more recently, in the context of the problems of Crimea and Donbas. It seems that we are getting into a bit strange situation where the Ukrainian politicians are calling for support and solidarity, while the politicians in Chisinau don’t seem to hear them for fear not to antagonize Russia. The Moldovan government’s position is very prudent, trying to “both eat the cake and have it”- it is pro-European, but at the same time, it is trying to build a relationship with the Russian Federation. I believe that the recent visit to Chisinau of the vice chairman of the Foreign Policy Committee of the Ukrainian Rada and his statements encouraging directly the Moldovan government to impose stricter controls on the Moldovan-Ukrainian border of the Transnistrian segment, remained without reactions. During his recent visit to Kiev, Pavel Filip has also discussed the issue of the common border crossing points. But there is a long way from words to deeds.

Lina Grâu: The existing duality in the Moldovan politics, to what extent does it influence the relations with Romania on the one hand, and those with Ukraine, on the other hand? The president Dodon said during the election campaign that Crimea, de jure, belongs to Ukraine, but de facto, to Russia. On the other hand, it attacked Romania, so arrows flew in all directions. How does this aspect influence the bilateral relationship with the two neighbours?

Mihai Popșoi: Indeed, during the election campaign, the position of Dodon was quite harsh and unfriendly towards the two neighbours of the Republic of Moldova. But after three months since his inauguration, it is becoming increasingly clear that those tough positions of Dodon’s in the electoral campaign were meant only to consolidate his electorate, while his actions after he took over the presidency, make us think that he would rather try not to antagonize things. But neither has he direct mechanisms to do so, even if he would like to do so as his power is very limited. Those bellicose statements can sometimes be interpreted as benefiting the power in Chisinau and first of all, Vlad Plahotniuc, because they allow the Democrats to position themselves as defenders of the European vector and of good relations with Romania and Ukraine. It seems to be nothing more than the well-known tactics of “the good and the bad cop” that has been already de-conspired and the only thing Kiev and Chisinau can do is to ignore the aggressive statements of President Dodon, what they are actually doing already. However, I must admit that these statements create a less pleasant atmosphere in the diplomatic relations between our states, even though they cannot have a direct impact. The situation could change, though, with a possible Dodon’s victory in the 2018 parliamentary elections, when his rhetoric could be implemented into public policy, which will have a serious impact on Moldova.

Lina Grâu: Igor Dodon is a very frequent guest in Moscow. Do you think he can rely on the same frequency of official visits to Kiev and Bucharest?

Mihai Popșoi: This will become evident this week, when Dodon returns to Moscow, although he promised that after the initial visits to Moscow and Brussels he will go to Bucharest or Kiev. But he is not doing it and it is understandable why – because he is not welcome, neither in Bucharest or Kiev, as a result of his previous statements. Well, in Moscow he is welcome, for understandable reasons.

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Lina Grâu: Russia is not a direct neighbour of Moldova, however, it is very present in the media and public space, having direct or indirect representatives among the political class and civil society. How do you see this presence in the context of the geopolitical situation? And how did you find the recent diplomatic incident, when the Russian ambassador was summoned to the Prime Minister Filip and informed about Chisinau’s indignation in relation to the abusive treatment of some Moldovan officials in Russia?

Mihai Popșoi: Indeed, Russia, although not a direct neighbour, is perhaps the most influential force affecting the domestic and foreign policy of the country. Unfortunately, this is a reality. As for the recent diplomatic incident, is not yet clear what the essence of the problem is. From the multiple versions that have circulated, one is curious that says that Russia had tried to put Plahotniuc under the Interpol monitoring. So, Russia is in a position to create preconditions for the oligarch Plahotniuc to be investigated and supervised by the Interpol. The Prime Minister Filip complained to the Western diplomats – the EU and the US ambassadors – requesting support and protection of oligarch Plahotniuc. This is a difficult situation for the Western diplomats, because it puts them in a difficult situation, given Plahotniuc’s personality and rating in Moldova. It remains to be seen how accurate this information is -that Russia wants Plahotniuc to be supervised by Interpol. The explanation given by the Government that it would be allegedly a response to the investigations initiated by the law enforcement bodies in Moldova in the context of the laundering of $20 billion through the Moldovan banks seem implausible. It is a fact, though, that Russia has influenced in the past the political processes in Moldova and it will try to do so in the future. It depends now on the Moldovan politicians and their ability to prevent Russia’s plans in order to promote the interests of the Moldovan parties and of the citizens who support them.

Lina Grâu: I would like to address also the issue of energy in the relations with the neighbours. Theoretically, Moldova would have a fundamental interest in diversifying its sources of gas supplies that are now coming from the Russian Federation, and of the electricity, which are coming from Transnistria, the latter producing the electricity with the help of the Russian gas. However, Transnistria is not paying for this gas, the debts being put on Moldova’s shoulders. So, Moldova should have a vital interest in diversifying its energy sources. And we see that at the moment, there is very little gas coming from Romania and the developments in the extension of the pipelines from Ungheni to Chisinau are insignificant, while the electricity is bought from Transnistria and not Ukraine. What is actually happening in this area?

Mihai Popșoi: You’re right, it is a very illogical situation. Especially when we refer to the so-called ‘statalistic’ parties – and here I mean especially the centre-left parties. The Socialist Party and the Democratic Party are great defenders of the Moldovan identity and sovereignty of Moldova. But when it comes to energy security of the state, these parties ignore the importance of diversifying both the gas and electricity supply sources. This undermines the sovereignty of the Republic of Moldova, because as long as you are dependent on one supplier, you are very vulnerable. When signing last year the contract for the supply of electricity with the Cuciurgan power station, the latter was a bad movement in relation to our partners in Ukraine, which after a period of instability, at the moment of signing of the contract, were ready to sell electricity to Moldova at a more convenient price to the Moldovan consumers. However, Chisinau has chosen to buy electricity from Transnistria. The explanation here is at the same time simple and painful for the Moldovan citizens, because they are forced to subsidize the separatist regime – paying the bill for electricity each month, the Moldovan government is inevitably supporting the separatist regime in Tiraspol, to the detriment of the Ukrainian partners. It is an open secret that EnergoKapital, which acts as in intermediary in this business, benefits both the Tiraspol and Chisinau leadership. The profit of this company goes to offshore sites. In this situation, the Moldovans remain with the bill and less friendly relations with Kiev. In terms of gas supply from Romania the situation is equally complicated. Chisinau was not insistent enough and has not invested enough to build that pipeline. Neither the Romanian side has given sufficient diligence to turn this project into a truly viable one. But we have to understand that the Russian factor is also important here. Because if Moldova receives gas from Romania, whether it comes from the continental Europe or whether that is liquefied gas coming from the sea, this would mean weakening of Russia’s influence. Russia opposes a lot this process of gas supply diversification for Moldova. And even if we admit that Romania would like to invest into Moldova and support it, the lack of initiative on the side of Chisinau, because of the pressure from Moscow, makes this process a difficult one, which will have no success on the short and medium term.

Lina Grâu: In the current context, do you think the European vector is still valid for Moldova?

Mihai Popșoi: The European integration vector is the only viable vector for Moldova, especially in the context of Ukraine’s pro-European positioning. A possible re-orientation to Russia and the Eurasian space of Moldova would be obviously to the detriment of Moldovan citizens from both economic and political points of view. But the most important is that from the economic point of view, if we look at the figures, the European market is incomparable both as volume and purchasing power, and especially, the quality standards. Moreover, the experience of our relations with the Eurasian market, especially with the Russian Federation, is very unpleasant – embargoes, pressure on our migrants in the Russian Federation … This instability and political influence on the economic relations proves that this pro-Russian alternative is to the detriment of the Moldovan citizens. Unfortunately, some parties and politicians, seeing the survey data showing that the support for the European integration decreases, are getting disappointed and the power of and dedication in promoting the European integration lose from their intensity. However, I would suggest them, on the contrary, to make their best to contribute in order to return to that level of support for the European integration that we once had – more than 70 percent in 2007- 2008. That decline in support for the European vector has objective reasons: the self-called “Alliances for European Integration” have failed in fighting against corruption and in raising the living standards in Moldova. This, it is natural for the support of the European vector to decline. But we have to understand very clearly that this support has declined not because of the European Union, but because of the involuntary association of the EU with the lack of vision and poor governance in Moldova.

Note: The interview is part of the Synthesis and Foreign Policy Debates newsletter funded by the Friedrich-Ebert-Stiftung (FES) and produced  the Foreign Policy Association (APE). The Romanian version could also be found here: LinaGrau.com.

 TOPICS OF THE EDITION:
1. Romanian ambassador to Chisinau, Daniel Ioniță: Romanian assistance is directed at all Moldovan citizens, and not at certain parties or politicians
2. Ukrainian ambassador to Chisinau, Ivan Gnatişin: Ukraine is a good neighbour and friend of Moldova.
3. Political analyst Mihai Popșoi: The statements of President Dodon create a less pleasant diplomatic atmosphere in the relations with neighbours.