Tag Archives: Energocapital

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.


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


Are Moldovan Consumers Financing Transnistrian Separatism?

The “leader” of the separatist Moldovan region of Transnistria, Evgheni Shevchuk, met with Russian Deputy Prime Minister Dmitry Rogozin, in Moscow, on April 14. No official press statement followed, other than a few lines by Rogozin’s assistant on social media. Reportedly, Rogozin called upon the would-be candidates in Transnistria’s upcoming “presidential” race—presumably Evgheni Shevchuk and “parliamentary speaker” Vadim Krasnoselski—to avoid destabilizing the political situation and to seek mutual dialogue (Regnum, April 15). The call to order was clearly a result of the rising political infighting in Transnistria.

The two opposing political camps in Transnistria, that of incumbent “president Shevchuk and the informal opposition leader Krasnoselski, are in full combat mode, even if the presidential elections are still eight months away. Krasnoselski’s camp has gone on the offensive. In particular, the newly elected chairwoman of the opposition Obnovlenie (Renewal) party, Galina Antiufeeva (spouse of Vladimir Antiufeev, the so-called “deputy prime minister” of the Moscow-backed separatist “Donetsk People’s Republic” and a former long-time head of Transnistria’s “Ministry of State Security”), publicly accused “President” Shevchuk of embezzling $100 million via offshore companies that serve as intermediaries for Transnistrian exports (Newsmaker.md, April 12). Most accusations levied against Shevchuk refer to Energokapital, a largely unknown company that was created just over a year ago, but which has already become the second-largest taxpayer in the Transnistrian region, after Sheriff Holding, and the region’s number one exporter. Energokapital accounts for about 40 percent of Transnistrian exports and is the main source of foreign currency for the secessionist quasi-statelet, which is struggling to maintain the stability of the local ruble (Pridnestrovye, April 6). Shevchuk denies any wrongdoing. And in an apparent PR move, he ordered local law enforcement to investigate the mounting allegations (Novostipmr, April 16).

Energokapital is a premier subject of political attacks against Shevchuk because it has indeed skyrocketed to become a major economic player in the region. The company provides Transnistria’s Kuchurgan Power Plant with Russian natural gas and sells the electricity it produces to the Moldovan state-owned company Energocom, which in turn sells it to Moldovan distributors. On the one hand, Moldova’s cooperation with Energokapital was fostered by shortages on Ukraine’s internal market and the latter country’s unstable export capacity following developments in Crimea and Donbas. But additionally, it was brought about by a better price deal offered by Energokapital (News Finance, January 20). As only 20 percent of Moldova’s electricity needs are generated on the territory controlled by the government in Chisinau, the country ended up gradually covering the remaining 80 percent of its electricity needs from a single source—the Russian-owned Kuchurgan Power Plant, located in Dnestrovsc, Transnistria. The plant was privatized in 2003 for a mere $29 million. Since 2005, it has been controlled by Inter RAO, a subsidiary of the Russian monopolist Unified Energy System (RAO UES) (Investigatii.md, July 25, 2007). The privatization of this strategic asset was carried out without Moldova’s consent and, therefore, remains legally questionable.

However, if the initial deal with Kuchurgan was justified in the context of Ukrainian energy export shortfalls, the extension of the contract in March 2016 was somewhat controversial. By that time, Ukrainian producers were ready and willing to regain a share of the Moldovan electricity market (News Finance, January 20). Yet, Moldova’s Ministry of Economy, which controls Energocom, decided in favor of Energokapital, which offered a 28 percent discount, effectively dumping Ukrainian producers and raising questions about Energokapital’s previous profit margins (Infotag, March 3). Some local analysts suggested that this price was still too high, as the gas that is used to produce electricity is not paid back to Gazprom, but rather accumulates as debt for Moldovagaz (itself owned by Gazprom, Transnistrian authorities and a blocking minority share controlled by the Moldovan government). Many voices in the media have speculated about Energokapital being a cash cow for both Transnistrian and Moldovan elites: “President” Evgheni Shevchuk as well as the gray eminence of Moldova’s ruling coalition, businessman Vladimir Plahotniuc (Newsmaker.md, March 21).

As pointed out by an opposition parliamentarian in Chisinau, Socialist Bogdan Tirdea, Energokapital was granted a license by Moldovan authorities in record time, in October 2014. The lawmaker also wondered how was it possible for Energokapital’s price offer to be 10 percent lower than if Moldova were to buy directly from the producer, Kuchurgan Power Plant. During the same hearing in parliament, Moldova’s Deputy Economy Minister Valeriu Triboi assured lawmakers that everything was done in accordance with the law and that cooperation with Energokapital benefitted Moldovan consumers. In fact, according to Triboi, the Moldovan government even plans to build the infrastructure needed for the Russian-owned Kuchurgan Power Plant to be able to export electricity to the European Union (Parlament.md, July 2, 2015).


Several explanations exist for this fruitful partnership. A largely positive economic argument is that Energokapital simply offered Moldova the most competitive price for its electricity. A more vague humanitarian argument states that the Moldovan government is consciously helping the Transnistrian economy to stay afloat during this difficult time. Finally, a largely negative explanation argues that the intermediary Energokapital is a classic shell company, used to siphon off profits to offshore accounts belonging to Transnistrian and Moldovan elites (Protv.md, July 15, 2015; Ziarulnational.md, July 22, 2015). As the Moldovan leadership looks to reset relations with Russia, the deal could also be explained, in part, as a gesture of goodwill, if not a response to Russian pressure.

At the end of the day, Moldova’s total reliance on Russian gas and oil is further exacerbated by the country’s dependence on a single Russian-owned electricity producer located in Transnistria. Not only does it increase the country’s vulnerability, but it also needlessly damages Moldova’s partnership with neighboring Ukraine. Ironically, this “generosity” on the part of Moldova’s government does not stop Transnistrian authorities from accusing Chisinau of “unilateral pressure and strangling the Transnistrian economy” (Novostipmr, April 16). Ultimately, the deal was also politically expedient, as it allowed Moldova’s new government to boost its popularity by decreasing electricity bills for consumers by 10 percent after a 37 percent increase passed last November (Hotnews.md, April 1). This hike in energy prices prompted then–prime minister Valeriu Strelet to order the National Anti-Corruption Center to investigate the deal with Energokapital (Europa Libera, October 8, 2015). Strelet was later ousted from office. Needless to say, the investigation produced no meaningful results.

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