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Gas is coming from East
Iurie Gotisan, December 21, 2005

Shock of gas. The rise of the natural gas price is being discussed much but the topic has turned from a genuine rhetoric into practical actions. Thus, if Moldova has received natural gas for 80 dollars per 1,000 cubic metres until now, Gazprom proposes an abrupt price rise of up to 160 dollars starting 2006. If this scenario is implemented, both the Chisinau administration and common consumers will experience a true shock, the budget will start cracking and not even additional revenues declared in the latest period will rescue it. The worst side of this problem is that the planned price rise intervenes right in full winter.

It is clear why every country is trying to find a best solution to this situation. We can say frankly that there are almost no alternatives for the Russian gas our way. Ukraine has tried to agree with Turkmenistan, but Gazprom went ahead. Georgia has seemingly found a formula with Kazakhstan, but the transit of gas crosses Russia's territory and Moscow could impose its conditions again, like in the case of Moldova indeed, when Chisinau has tried to obtain natural gas from Kazakhstan and Turkmenistan.

Consequences. The question of questions which troubles everybody is related to consequences of higher gas prices on Moldova's economy in general and pockets of population in particular.

Firstly, the effects of the price rise would affect the household consumers, especially because the daily expenditure for public services is high on many positions. Secondly, if we take into account the rise of price of gas and many other services, in which the share of gas is dominant, the situation is not good at all.

As for example, the share of gas in electricity production of CET-1 counts for 80 percent at present. If the price of gas grows, the share of fuel in the finished product, it means of electricity, will count for about 95 percent. As a result, thermo-energy stations (CETs) will have to review their tariffs for energy supplied to all consumers. If 1 GK of heating costs about 140 lei at present and a KW/h costs 0.44 lei, then these tariffs would grow by at least 90 percent for sure, if the gas price doubles, and these are estimates of a simple economic reason.

In addition, higher gas prices could destroy very rapidly the myth about "successful economy" of Moldova. Followed by a rise of electricity, heating tariffs, higher natural gas prices could increase the inflation up to a rate of two figures. The deficit of trade balance of the country would have an additional rise factor. The exchange rate of domestic currency would experience a strong pressure. Producers and transporters would experience one more burden after a rise of payments for acquisition of energy agents, and this fact would have a negative influence on production volume and provided services.

Conditions. As nothing is impossible nowadays and everything can be solved, Gazprom is capable to step back but, of course, under certain conditions. As regards Moldova, it seems that Gazprom does not have any concrete economic interests. However, there is another thing - the problem of natural gas seems to be a lever of pressure on Chisinau in the Transnistrian issue.

However, the mode and arguments that Chisinau tables at negotiations are the most important things. Many news agencies reported that Moldovan officials will have to negotiate a gradual rise of gas prices with the Russian side, it means within 4-5 years. Perhaps, this was the goal of the visit of the Moldovan delegation which negotiated the Russian gas price with the Kremlin last week.

Indeed, this gradual rise could attenuate a potential shock on consumers. Moldova's economy could not afford a price higher than 110-120 dollars per 1,000 cubic metres for the time being, because it lacks capacities or, if you want, technologies needed to handle a price of 160 dollars per 1,000 cubic metres.

In addition, because of very high production costs and old equipment of enterprises, which are the main consumers of natural gas and main debtors of the company Moldova-Gaz, perhaps Moldovan strategists already hold projects on reorganisation of the energy system that could be implemented within 4-5 years. Chisinau would manage meanwhile to modernise the CETs and the energy transportation infrastructure, reducing or stopping all losses in network.

Finally, this gradual rise could be easily afforded by household consumers, and eventually, some social problems would be avoided. The government may intervene in the next draft budget law with salary rises, subsidies or indemnities, growths that could attenuate the impact of higher gas tariffs among population at least from psychological point of view.

In this context, it should be mentioned that Moldova does not have meters in its territory to measure the real consumption of natural gas. However, these meters are very necessary, so that the payment not be based only on data of Ukraine. Indeed, the adjustment of gas tariff to the level of prices for Central European countries has also an advantage: Russia would lose any possibility to blackmail Moldova in future.






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