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    EBRD to Help Moldova Buy Gas if Transit Disrupted


The bank's $50mn letter of credit will cover short-term gas supply if transit via Ukraine is disrupted, but Moldova will need to reform its gas sector in return.

by: Joseph Murphy

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Natural Gas & LNG News, Europe, Premium, Corporate, Import/Export, News By Country, Moldova

EBRD to Help Moldova Buy Gas if Transit Disrupted

The European Bank for Reconstruction and Development (EBRD) has agreed to issue a letter of credit worth up to $50mn to help Moldova pay for gas supplies if transit through Ukraine is disrupted, it said on December 11.

Moldova gets all its gas from Russia via Ukraine, but Moscow and Kyiv still have not agreed new terms for transit from January 1, after their current contract is due to expire. Moldova therefore faces a supply risk, especially as it lacks any gas storage facilities.

The EBRD’s letter of credit will guarantee Moldovan state gas importer Energocom's payment for 0.4bn m3 of gas – a month’s supply – to Ukraine’s Naftogaz, which will procure it from EU suppliers. Under the letter of credit, Energocom will not have to pay Naftogaz for 180 days, giving it enough time to raise funds from gas sales.

“The financial mechanism will complete the set of options Moldova has at its disposal for supplying gas to consumers, in case of an emergency beyond the government’s control,” Moldovan prime minister Ion Chicu commented. “We are grateful to the EBRD for giving us a hand and I am certain the bank will increase the number of projects in Moldova in the near future.”

As part of the deal, Moldova has pledged to undertake gas sector reforms, including the creation of secondary legislation to liberalise the gas market and diversify its sources of supply. It will also implement an action plan for improving corporate governance at Energocom.

Previous efforts at energy reform in Moldova have been hindered by Russia’s dominant position in the market. Russia’s state-owned Gazprom owns a majority share in Moldova’s transmission system operator Moldovagaz. Around 3bn m3/yr of Russia gas is delivered to Moldova, but the bulk of these supplies are actually used at a 2,500-MW power plant in the breakaway region of Transnistria, owned by Russian utility Inter RAO. In turn, this station supplies almost all of Moldova’s power.

Gazprom charges the Moldovan state for shipments to Transnistria, but Transnistria does not pay the government in Chisinau anything to cover the bill. This has led to Moldova clocking up a debt to Gazprom of more than $6bn, further weakening its leverage.

EBRD has taken an active role in helping Moldova secure alternatives to Russian energy, co-financing the construction of gas and power links with Romania.