EBRD helps Moldova secure winter gas supplies

By Olga Rosca
@olgarosca

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Letter of credit to guarantee payment by state energy importer

  • Financial safety net for emergency gas purchases if needed
  • ‘Friend in need’ mechanism demonstrates EBRD commitment to Moldova and its people
  • Country commits to reforms and diversification of gas supply

With a US$ 50 million pledge, the EBRD has arranged a financial safety net to help Moldova secure gas supplies for the coming winter in case of an emergency.

Moldova, which relies on gas from Russia and has no storage for the fuel, faces the risk of disrupted supply should Russia and Ukraine fail to extend a gas transit agreement that expires on 31 December 2019.

Under the agreement signed in Chisinau today by Moldova’s Prime Minister Ion Chicu and EBRD Managing Director for Eastern Europe and the Caucasus Matteo Patrone, the EBRD will issue an on-demand, standby letter of credit of up to US$ 50 million to guarantee payment obligations of the Moldovan state energy importer Energocom.

The financial arrangement will enable Energocom to purchase one month of natural gas supply from Naftogaz, the national oil and gas company of Ukraine, to avoid any gas supply risk.

Naftogaz will procure, through open tenders with European Union suppliers, up to 0.4 billion cubic metres of gas, which will be delivered to Energocom and distributed to customers in Moldova by the national gas distribution company Moldovagaz.

The EBRD letter of credit will facilitate a 180-day delay in Naftogaz payment, which will give Energocom time to collect receivables from customers and pay the invoices. In the event that Energocom is not paid in time and has insufficient funds to pay Naftogaz, the Ukrainian company can claim the EBRD’s letter of credit. Any funds used under the letter of credit will be repaid by the Moldovan state.

Moldovan Prime Minister Ion Chicu said: "The financial arrangement we have signed today is evidence of a very good relationship between Moldova and the EBRD. 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. 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."

EBRD Managing Director for Eastern Europe and the Caucasus Matteo Patrone said: “The financial mechanism that we have agreed on today is yet another demonstration of the EBRD’s commitment to Moldova. It exemplifies what the EBRD stands for and what we can offer Moldova and its people. It is the very definition of a ‘friend in need’. We have been working on this project since September, at the government’s request, and today we are pleased – and relieved – that Moldovans will be able to heat their homes and have a comfortable winter.”

As part of the agreement with the EBRD, Moldova has committed to gas sector reforms such as developing secondary legislation to liberalise the gas market and diversify sources of supply and implementing an action plan to improve corporate governance at Energocom.

Strengthening Moldova’s energy security is one of the EBRD priorities in the country. The Bank has co-financed Moldova’s power link with Romania and is planning to co-finance the construction of the Ungheni-Chisinau natural gas pipeline.

The EBRD is the leading institutional investor in Moldova and has so far invested over €1.3 billion through 130 projects there. The Bank also helps the authorities to design policies that improve the business climate.

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