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The Price of Reunification: $3.5 Billion

Is the choice for Moldova to let go of Transdniester or pay off the region’s huge debt to Gazprom?

by Zakhar Koretsky 12 June 2012

CHISINAU | As the government of Moldova attempts to renegotiate contract terms with Gazprom, the gas giant is forcing uncomfortable terms on its customer: pay off the debts of Moldova’s breakaway Transdniester or recognize that region as an independent country.


The debts of Transdniester – a separatist region on the eastern bank of Dniester River – to Gazprom started accumulating when Moldova lost control over its gas distribution network in the region in 1991, the year Transdniester broke away in an armed conflict.


At the end of 2011, Moldova officially owed Gazprom $3.9 billion. The lion’s share of that debt – about $3.5 billion – had been incurred by Transdniester. The remaining $400 million was the responsibility of Moldova's national gas distribution company, MoldovaGaz, which is half-owned by Gazprom.


Transdniester authorities previously have officially denied the existence of any debt. In 2007, the region's gas distributor, Tiraspol-TransGaz, stopped paying for Russian gas completely. The population, however, continued to receive bills. Last autumn, Anatoly Kaminsky, the leader of the region’s parliament, acknowledged at a public meeting that gas consumers are still paying the bills, but the funds are not being delivered to Gazprom. Instead they're used to “fulfill social obligations” like salaries and pensions, he said.


A border crossing between Transdniester and Moldova. Photo by Dieter Zirnig/flickr.


As 2012 began, authorities on both sides of the Dniester recognized the need to step up gas debt negotiations to solve the debt problem. Transdniester wanted to show its independence from Moldova, and Chisinau certainly didn’t want to carry the whole debt burden for the breakaway region. Fortunately for both, 2012 brought new opportunities: Tiraspol got a new leader with a new approach to the problem and Moldova needed to renew its contract with Gazprom.


Dmitry Rogozin
Russian Deputy Prime Minister Dmitry Rogozin brought up the issue of the debt when he visited Moldova in April. During a press conference, he said that if Chisinau doesn't recognize Transdniester as an independent state, the debt for gas consumed by the breakaway region is Moldova's debt, and Moldova has to pay for it.


“It's a pragmatic approach,” he said.


Naturally, this suggestion was received skeptically inside Moldova, prompting even more hostility toward Russia, which keeps troops along the border between Transdniester and Moldova and which essentially sponsors the breakaway region by covering a significant portion of its budget deficit. Officials and public figures across the spectrum in Moldova agreed that the gas debt should not be a condition for reintegration of the country.


“Reunification is a question of political will, not of economic problems on two Dniester banks or Transdniester's debts. If that will existed the country could reunite in six months,” Vitalie Nagacevschi, a former member of parliament, said in an interview.


Nagacevschi said Rogozin is mistaken. The debt belongs to MoldovaGaz, which is a separate legal body, and Nagacevschi said legal procedures exist to resolve such debts.


The Moldovan government recently has been looking for ways to escape Gazprom's pressure. Faced with the need to renew the contract with Gazprom in 2012, it conducted difficult negotiations with the company, even though for the past three years Moldova has been searching for another gas supplier. In early June, with talks inconclusive, both sides agreed to extend the contract through September.


Valeriu Lazar
Moldova's official position was repeated 24 May in a press conference. Economy Minister Valeriu Lazar reiterated a proposal to separate the Transdniester portion of the debt from that owed by MoldovaGaz. A separate gas supply agreement should be signed between Gazprom and Transdniester's Tiraspol-TransGaz, he said.


“Everybody should pay for what they really consume,” he said.


Nagacevschi drew an analogy. “The right and left banks of Dniester are like a husband and wife that are living apart. They're not officially divorced, but one isn't expected to pay for the expenses of the other,” he said.


Gazprom has not yet officially responded to the offer from Chisinau.


Tiraspol, on the other hand, seems to have embraced the idea of paying off the debt in an effort to support its independence from Chisinau. In February, Yevgeny Shevchuk, Transdniester's new elected leader, met with Valery Golubev, deputy chairman of Gazprom and MoldovaGaz chairman.  Shevchuk confirmed that the region does owe Russia for gas. According to Shevchuk's press office, he said Transdniester would pay off the debt as soon as the economy of the left bank of the Dniester “enlarges its capacities.”


Observers in Moldova, however, have a different explanation. Some speculate that Shevchuk and Golubev agreed to transfer some of the region's assets, like the gas distribution network, to Gazprom in order to reschedule the debt.


Russia already is a major shareholder of many of Transdniester's industrial facilities, which are the largest consumers of the imported gas on the left bank.


Some commentators in Moldova don't think the deal to transfer assets, if it exists, happened by accident. According to Foreign Policy Association program director Eugen Revenco, it was Russia that created Transdniester’s gas debt.


“The Russian Federation almost subsidizes its enterprises in the region by supplying them with gas so [the companies] can make a huge profit,” he said.


According to the Transdniester anti-monopoly agency, Gazprom has supplied gas to the breakaway region at one-fifth of its cost. Revenco noted that Russia didn't shut off the supplies to Tiraspol because of unpaid debts, as it has done other cases. In Ukraine, for example, Gazprom responded to payment arrears in winter 2009 by turning off the tap.


Revenco, too, said Gazprom has created the debt deliberately but he did not elaborate because of the “complexity of the topic.”


Not everybody in Moldova sees Russia as an aggressor, however. Victor Dorash, a prominent political scientist and a former presidential adviser, said Russia's claims for paying off the debt are well justified.


“Russia has the right to demand full payment for gas supplied,” Dorash said.


Whether Transdniester will be able to cover the $3.5 billion bill, however, is doubtful, he said.


In 2012, the Transdniester budget deficit is expected to be $147 million, or 68.6 percent of its budget revenues.

Zakhar Koretsky is a reporter for the Panorama daily in Chisinau.
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