The Iasi-Ungheni pipeline: a means of achieving energy independence from Russia? Moldova's attempts at gas supply diversification. OSW Commentary No. 118, 2013-10-08

Since taking power in 2009, the Alliance for European Integration (AIE) has been trying to end Moldova’s dependence on Russian gas. Currently, natural gas accounts for about 50% of the country’s energy balance (excluding Transnistria), and Gazprom has a monopoly on the supply of gas to the republic. The key element of Chișinău’s diversification project is the construction of the Iasi-Ungheni pipeline, which is designed to link the Moldovan and Romanian gas transmission networks, and consequently make it possible for Moldova to purchase gas from countries other than Russia. Despite significant delays, construction work on the interconnector began in August 2013. The Moldovan government sees ensuring energy independence from Russia as its top priority. The significance and urgency of the project reflect Chișinău’s frustration at Moscow’s continued attempts to use its monopoly of Moldova’s energy sector to exert political pressure on the republic. Nonetheless, despite numerous declarations by Moldovan and Romanian politicians, the Iasi- -Ungheni pipeline will not end Moldova’s dependence on Russian gas before the end of the current decade. This timeframe is unrealistic for two reasons: first, because an additional gas pipeline from Ungheni to Chisinau and a compression station must be constructed, which will take at least five years and will require significant investment; and second, because of the unrelenting opposition to the project coming from Gazprom, which currently controls Moldova’s pipelines and will likely try to torpedo any energy diversification attempts. Independence from Russian gas will only be possible after the the Gazprom-controlled Moldova-GAZ, the operator of the Moldovan transmission network and the country’s importer of natural gas, is divided. The division of the company has in fact been envisaged in the EU’s Third Energy Package, which is meant to be implemented by Moldova in 2020.

Interconnector Investment for a Well-Functioning Internal Market: What EU regime of regulatory incentives? Bruges European Economic Research (BEER) Papers 18/October 2010

Sufficient cross‐border electricity transmission infrastructure is a pre‐requisite for a functioning European internal market for electricity. Also, the achievement of the EU’s energy policy objectives – sustainability, competitiveness and security of supply – critically depends on adequate investment in physical interconnections between the member states. Mainly focusing on the “regulatory path”, this paper assesses different ways to achieve a sufficient level of interconnector investment. In a first step, economic analysis identifies numerous impediments to interconnector investment adding up to an “interconnector investment failure”. Reflecting on the proper regulatory design of an EU framework able to overcome the interconnector investment failure, a number of recommendations are put forward:  All congestion rents should be channeled into interconnector building. Unused rents should be transferred to a European interconnector fund supervised by an EU agency.  Even though inherently sub‐optimal, merchant transmission investment can be used as a means to put pressure on regulated transmission system operators (TSO) that do not deliver. An EU agency should have exclusive competence on merchant interconnector exemptions.  A European TSO organization should be entrusted with supra‐national network planning, supervised by an EU agency.  The agency should decide on investment cost reallocation for interconnector projects that yield strong externalities. Payments could be settled via a European interconnector fund.  In case of non‐compliance with the supra‐national network plan, the EU agency should have the right to organize a tender – financed by the European interconnector fund – in order to get the “missing link” built. Assessing the existing EU regulatory framework, the efforts of the 2009 “third energy package” to fill the “regulatory gap” with new EU bodies – ACER and ENTSO‐E – are acknowledged. However, striking holes in regulatory framework are spotted, notably with regard to the use of congestion rents, interconnector cost allocation, and the distribution of decision making powers on new infrastructure exemptions A discussion of the TEN‐E interconnector funding scheme shows that massive funding can be an interim solution to the problem of insufficient interconnection capacities while overcoming the political deadlock on sensible regulatory topics such as interconnector cost allocation. The paper ends with policy recommendations.