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5. Austria’s Role in the Nabucco and South Stream Pipeline Projects

The Nabucco pipeline was the EU’s flagship project with regard to the energy resources of the Central Asia and Caucasus Region. It could have brought gas from the Georgian-Turkish and/or Iraqi-Turkish border, respectively, to the gas hub in Baumgarten without passing through Russia. OMV was the head company of this project; the other partners were the Bulgarian Energy Holding, Turkey’s Botas, Germany’s RWE, Hungary’s FGSZ (a 100 percent subsidiary of the oil and gas group MOL), and Romania’s Transgaz. As initially assumed, Nabucco would cost an estimated EUR 8 billion, a figure revised to EUR 12–15billion. The 3,300-kilometer-long pipeline should have gone into operation in 2013 and reach a capacity of 31 billion cubic meters of gas (10 percent of EU-27 gas imports in 2005) by 2020. But especially since the fall of 2011, prospects for Nabucco appeared to be dwindling due to several reasons. Thus, the amount of non-Russian gas needed to fill Nabucco did not materialize; so several alternative projects, with a reduced Nabucco West pipeline among them, were under consideration.

Moscow did not want Nabucco to be built from the very beginning and did its best to derail it. An important initiative in this context was the South Stream pipeline, intended to transport gas from the Central Asian and Caucasus region. This pipeline, with a capacity of 63 billion cubic metres of gas per year, is proposed to run from southern Russia under the Black Sea to Bulgaria, then bifurcate to cross several other countries for Italy and Austria.

Russia’s opposition to Nabucco was, of course, well known throughout the entire EU. Austrian Federal Chancellor Werner Faymann (Social Democratic Party) assured then Prime Minister Vladimir Putin in November 2009 in Moscow that Nabucco is not directed against Russia.

Moscow wanted to involve Austria in South Stream at all costs, and Vienna did not take long to be persuaded. In April 2010, an Austrian-Russian intergovernmental agreement and a Gazprom-OMV cooperation agreement to bring Austria into the project were signed. Putin made it clear in Vienna it would be “realized no matter what.”^[1] At the occasion of Austria’s accession to South Stream, Russian news agency RIA Novosti highlighted a “big victory for Russia and a major blow to Nabucco”^[2]—which, again, left no doubt that South Stream was, above all, planned as a “Nabucco-stopper.” On 21 February 2011, Gazprom’s CEO Aleksey Miller announced in Moscow that his company and OMV had officially registered a joint venture to build and operate the Austrian section of South Stream. Its planned Austrian route practically duplicated Nabucco’s (and therefore the EU’s) envisaged route, from Hungary to the Nabucco terminal at Baumgarten.

The main supply planned for Nabucco was to be Shah Deniz natural gas field in the South Caspian Sea, off the coast of Azerbaijan. But after the Shah Deniz consortium took the decision to prefer the Trans-Adriatic Pipeline over Nabucco for its exports, the Nabucco plan was finally aborted in June 2013.

South Stream was expected to cement Gazprom’s influence over south eastern European gas deliveries. EU member-states Bulgaria and Greece are heavily dependent on Russian supplies. In 2014 the European Commission challenged South Stream on the basis of the EU’s Third Energy Package (according to this legislation, adopted in 2009, a gas company cannot own a pipeline that supplies its gas) and threatened legal action against Bulgaria. This led to the cancellation of South Stream. The Commission accused South Stream of violating EU law regarding the access of competitors to the pipeline. After the cancellation, Gazprom quickly unveiled an alternative route. The new pipeline, called TurkStream, was designed to deliver 33.5 billion cubic meters of natural gas—half of which is intended for the Turkish market while the other half is slated for the Balkans and further to Central Europe. The new Russian pipeline through the Black Sea to Turkey was inaugurated on 8 January 2020 at a lavish ceremony in Istanbul. Austria’s Baumgarten gas hub could be a key European transit point for Russian gas that flows through the TurkStream pipeline to Turkey (circumventing Ukraine) and on to the EU. Before TurkStream gas can end up in the continent, however, Gazprom will have to build a pipeline that connects this pipeline to the EU network.

6. RosUkrEnergo, Firtash, Mogilevich, and Raiffeisen

In 2004, the Centragas Holding AG, registered in Vienna and controlled by the pro-Russian Ukrainian oligarch Dmitry Firtash, teamed up with Gazprom to establish Swiss-registered RosUkrEnergo, or RUE, to exclusively import Central Asian gas to Ukraine. Firtash and Gazprom roughly split the ownership of RUE. Firtash’s share was held in trust for some time by the Austrian Raiffeisen Investment AG, or RIAG (a subsidiary of Raiffeisen Zentralbank). Given that Gazprom was then and still is controlled by the Russian Government, observers speculated that Firtash had cultivated strong ties to Putin’s inner circle in order to make RUE operational.

RUE then bought billions of dollars’ worth of cheap natural gas mainly from Turkmenistan, mixed it with expensive gas from Russia and resold it at significantly marked-up prices inside Ukraine. Critics, however, pointed out there was no purely economic reason to use the services of an intermediary in the gas trade between the former Soviet republics. It soon became clear that RUE was nothing more than a shell to siphon off profits. And the press started to speculate about ties of alleged gangster boss Semion Mogilevich to RUE. In April 2006, Raiffeisen International CEO Herbert Stepic “strictly” denied that “we came close to organized crime.” According to him, there was no “proximity [of Raiffeisen] to Mr. Mogilevich.” At this occasion, Stepic, however, declined to say for whom RIAG held its share in RUE. But he insisted that all relevant authorities in the Ukraine and Russia would know who was behind it.^[3]

Raiffeisen had RUE checked by Kroll Inc., a renowned US consulting firm with good links to the intelligence community. The bank had been certified that the business relationship was unobjectionable. But finally, Raiffeisen severed all ties with RUE. As to the “relevant authorities” in Ukraine, Oleksandr Turchinov, head of the Security Service of Ukraine, or SBU, was convinced that RUE was indirectly controlled by Mogilevich. Ukraine’s then Prime Minister Yulia Tymoshenko (a gas-business insider in her own rights) said after 2006 repeatedly that she had “documented proof that some powerful criminal structures are behind RUE company.”^[4] In 2009, Ukraine and Russia agreed to stop using intermediaries, referring to RUE, which was liquitated between 2014 and 2016.

The contacts between Firtash and Mogilevich were discussed for a while in some Austrian and international media outlets. According to a cable from the US Embassy in Kyiv on 10 December 2008, Firtash admitted at a meeting with Ambassador Bill Taylor, which had taken place shortly before, that he had “ties” with Mogilevich, but they were “not close.”^[5] Later Firtash denied having said this and assured that he had been “misunderstood.” Be that as it may, in 2010, Ukraine elected pro-Russian Viktor Yanukovych president. Firtash was one of the main Ukrainian oligarchs who had financed Yanukovych’s campaign, which was also supported by the notorious US lobbyist and political consultant Paul Manafort.

In 2013, Firtash was charged by the US Justice Department with having overseen a criminal enterprise which paid millions in bribes to both state and central government agencies in India in order to obtain mining licenses. He was arrested by Austrian police in Vienna weeks after Yanukovych had fled Kyiv on 22 February 2014. Firtash’s contacts in the Kremlin must have been excellent because the bail of EUR 125 million, which was due for his release, came from Russia: it was within a few days (!) paid by Russian billionaire Vasily Anisimov.Therefore, it was not really surprising that Firtash remained pro-Russian also in view of Putin’s war against his homeland Ukraine.

Firtash is still in Vienna after six years and fighting against his extradition to the United States—with the assistance of a “cohort of attorneys, PR consultants and lobbyists on both sides of the Atlantic.”[6] The best-known jurist working for Firtash is Dieter Böhmdorfer (2000–2004 Austria’s Minister of Justice, nominated by the Freedom Party, of which he was not a member).

7. Former Austrian Top Politicians and Managers at the Service of Russia

On 14 February 2005 then German Federal Chancellor Gerhard Schroeder (Social Democratic Party) received Oleg Deripaska for a dinner with German and Russian entrepreneurs, although the German Foreign Intelligence Service (Bundesnachrichtendienst, or BND) had expressly warned against the Russian oligarch. An official of the German Federal Chancellery noted: “According to BND reports there are indications of [Deripaska’s] links with organized crime that go beyond the ‘normal level of dubious business methods’ for top representatives of the Russian economy.”^[7] In 2007 Deripaska, who at times was Russia’s richest person and is noted for his close ties with Putin, acquired a large stake in Vienna-based Strabag, one of the largest construction companies in Europe. Its then boss Hans Peter Haselsteiner responded very emotionally to the question about Deripaska’s—benevolently formulated—controversial reputation: “Europeans and Americans have no reason whatsoever to point the finger [at Russia]: Russia has completely redistributed its national wealth in less than twenty years, without bloodshed. America has needed three generations of lawlessness and a great civil war for this; Europe has needed two revolutions and two world wars.” And addressed to the then US vice president (who wasn’t actually up for discussion at all), Haselsteiner declared: “I’d rather do business with Oleg Deripaska than with Dick Cheney,”^[8] who, however, has not been known to have wanted to cooperate with Haselsteiner. Haselsteiner’s position regarding Putin’s Russia was also, and especially, fuelled by his desire to do profitable business there. Strabag then built the Olympic Village and the airport for the 2014 Winter Olympic Games in Sochi, among many other things in Russia. According to figures from 1 January 2019, 25.9 percent of Strabag was owned by Cyprus-registered Rasperia Trading, which belongs to the Deripaska-controlled diversified industrial group Basic Element.

The Chairman of Strabag’s Supervisory Board is Austria’s former (2007–2008) Federal Chancellor Alfred Gusenbauer (Social Democratic Party), who had no experience in the construction business prior to this appointment in 2010. Another interesting member of this Supervisory Board is (since June 2018; he will leave in 2020) the Russian national Oleg Kotkov, a Soviet and Russian military officer-turned-banker. He graduated from two Soviet Military Academies. From 2003 to 2007, he was Military Adviser at the Permanent Mission of Russia’s Mission to the Organization for Security and Cooperation in Europe, or OSCE, in Vienna. From 2016 to 2018, he was adviser to the Chairman of the Supervisory Board of the Russian PJSC Asian-Pacific Bank.

Haselsteiner was a MP for the Liberal Forum from 1994 to 1998 and financed it afterwards, as well as the liberal party NEOS, which is represented in the National Council since 2013. The ideology of these parties was and is respectively very far away from Putin’s or Deripaska’s. Nevertheless, Haselsteiner declared to “admire” Putin, whom he has met several times. Haselsteiner’s willingness to converge on opinions that he considered to be widespread in Russia was reflected, among other things, in his statement about a “Jewish network” among Russian oligarchs in which he “did not want to interfere.”^[9] Such statements, which were largely ignored in Austria, can hardly be read otherwise than by the intention to “fish for compliments” in Putin’s Russia. In Austria, at least publicly nobody noticed that Haselsteiner and then Freedom Party leader Heinz-Christian Strache, regardless of the enmity between them (Haselsteiner believes that for Strache he represents an “enemy image”^[10]), share the same—largely favorable—opinion about Putin’s rule.

In interviews Haselsteiner considered it a serious mistake that the EU had “allowed” NATO’s “rapid eastward expansion.” Instead, an attempt should have been made to bring Russia into the EU. “Putin could have been won over. That would have made Europe great.” But all this, Haselsteiner believed, had been thwarted by “the Americans and NATO,” and “the Europeans” had followed suit “in their naivety.” For the United States, there were two very bad scenarios: “A united Europe including Russia” and a functioning euro.^[11] Haselsteiner thus disclosed a complete ignorance of even the basic concepts of Russian foreign and integration policy, distorted the facts (for example, EU and NATO are completely different organizations, so one cannot prevent the enlargement of the other; and post-Soviet Russia has at no time shown any interest in joining the EU, which would be completely unrealistic anyway due to the size of the country), and propagated conspiracy theories. But at least, one learned from such interviews what Haselsteiner “geopolitically dreamed” of—namely a “united Europe together with Russia,” which is opposed to the US. And coincidence or not, this is also one of the most important goals of Putin’s foreign and military policy.

Only exceptionally did Haselsteiner express somewhat more sceptical views about Russia: “I very much regret that the Putin regime is moving further and further away from the rule of law [. . .] and leaves us no choice but to impose sanctions.” But “nevertheless Russia remains an important European nation and a promising market for the construction industry.” Haselsteiner continued that this is in his interest and has “nothing to do with Russian efforts to strengthen the [political] right in Europe, destabilize Europe and denigrate the EU.” This was, according to Haselsteiner, reprehensible despite the economic interests.^[12] And he, of course, maintained his cooperation with Deripaska.

Siegfried Wolf is one of the most internationally renowned Austrian managers. For him, Deripaska is an “upright, obliging and good entrepreneur.”^[13] Wolf had introduced Deripaska to Strabag in Vienna. And at Deripaska’s request, Wolf became a member of Strabag’s Supervisory Board in 2007 and remained there until 2015. Also in 2007, Deripaska joined Magna International Inc. of the Austrian-Canadian industrialist Frank Stronach (who met Putin personally and gave him the highest praises), but already the following year—officially due to the financial crisis—he had to sell his share (20 percent of the stocks with 43 percent of the voting rights) to those banks that had previously helped him to handle the 1.5 billion dollar deal. In 2010 Wolf moved from Magna to the industrial conglomerate Russian Machines (which belongs to Basic Element): He became Chairman of the Board of Directors there (where he remained until 2018) and had to cooperate with Colonel General Valery Pechionkin, (in Soviet times he was a staff member of the Soviet Committee for State Security, or KGB, and from 1997 to 2000 Deputy Director of the Russian Federal Security Service, or FSB), who in 2018 became Basic Element’s CEO. Wolf is also chairman of the Supervisory Boards of GAZ, located in Nizhny Novgorod and part of Basic Element, and of Vienna-based Sberbank Europe AG, a European subsidiary of Sberbank.

In interviews Wolf always defends Putin against any criticism. Thus, Wolf said that human rights violations occur not only in Russia, but “also in other countries.” Russia, according to him, needs a “strong leadership.” And: “I can only report positively what I have experienced with Mr. Putin.” Wolf declared at the beginning of 2014 that in Russia “a more liberal society will emerge in the next few years” (in reality, exactly the opposite happened, M.M.). According to Wolf, Europe needs a “very, very close relationship with Russia.”^[14] Needless to say, he is massively opposed to EU sanctions against Russia.

Wolfgang Schuessel, from 1995 to 2007 was head of the People’s Party, during and after his tenure as Austrian Federal Chancellor (2000–2007), repeatedly praised Putin. In June 2019 Schuessel (who occasionally devoted his spare time to Russian icon painting) joined the eleven-member Board of Directors of Russian Lukoil, one of the largest publicly traded, vertically integrated oil and gas companies in the world. In 2018, Schuessel became one of nine members of the Board of Directors of the largest mobile operator in Russia and the other post-Soviet republics, Mobile TeleSystems, or MTS, with 110 million clients; it belongs to the Russian conglomerate AFK Sistema,headed by CPSU-member-turned-billionaire Vladimir Yevtushenkov. At the end of May 2019, however, it became known that Schuessel would lose this mandate: His name was missing from the list of candidates for reappointment. On it, however, there was another well-known person: Valentin Yumashev, who from 1997 to 1998 (under President Boris Yeltsin) was Head of the Presidential Executive Office.^[15] He and his wife were granted Austrian citizenship in 2009, which was what the Magna Group had stood up for.

The leader of the Social Democratic Party Christian Kern, during his short tenure as Austrian Federal Chancellor (2016–2017), made himself popular in the Kremlin by polemicizing against the EU’s Russia sanctions, for example, at the St Petersburg International Economic Forum in 2017. Kern has been CEO of the Austrian Federal Railroads from 2010 to 2016. In this position, he spoke out in favor of a broad-gauge (1,520 mm) railroad project to Vienna initiated by Russia. In July 2019 Kern joined the Board of Directors of the state company Russian Railroads, where he currently is the only foreigner. One of Austria’s best-known political journalists, Hans Rauscher, commented on this, referring to Putin’s military campaign against Ukraine: “This is not a good time for a former Austrian Chancellor and Social Democrat to become a lobbyist for Russian interests.”^[16] But such statements, of course, did not change anything about Kern’s financially rewarding commitment in Russia.

Austrian banks have always been strongly committed to Russia. As of 2014, Raiffeisen Bank International and Bank Austria[17] alone had EUR 36 billion in loans in Russia. Raiffeisen remained strongly represented on the Russian market even as many other Western banks have pulled back due to the impact of EU sanctions and assertiveness of Russian state-owned competitors. Deripaska’s companies had been Raiffeisen clients in Moscow for many years before he and the (1994–2012) Advocate General of the Austrian Raiffeisen Association (in German: Generalanwalt des Österreichischen Raiffeisenverbandes; an important position in the Austrian banking landscape) Christian Konrad met personally; Haselsteiner had introduced them to each other. In 2007 Konrad said: “I have no fear of contact with Russians: Raiffeisen is active in many business areas in Russia. [. . .] Deripaska has my respect. As far as I know so far, he is an incredibly direct and straightforward guy, acting in an understandable way with comprehensible reactions.”^[18]

Stepic, who met Putin personally and was head of the Austrian-Russian Friendship Society from 2001 to 2003, resigned as head of Raiffeisen Bank International in 2013 and then acted as Senior Adviser to the Board of the bank. He continued to give interviews in which he (as before) made no secret of his political views mixed with conspiracy theories. For example, in June 2014 (i.e., shortly after the Russian annexation of Crimea and the start of the fighting in Donbass) said that he would “continue to defend Putin,” because “the media coverage of the conflict [in Ukraine] was totally one-sided, the formation of opinion is determined by New York and London.” The EU had wanted to conclude an Association Agreement with Ukraine “quickly,” “without talking to the Russians” (as when Russia “talks” to Ukraine before concluding any agreements, including with the EU). Stepic also justified the Russian military intervention against Ukraine with a US antimissile system in the Czech Republic and Poland (which, however , had less than nothing to do with the Russian war against Ukraine). Under “Yushchenko and Tymoshenko” a “pigsty” (Saustall) had ruled in Ukraine, but “successor Yanukovych had stabilized the country.” At least Stepic confessed that Yanukovych, at the same time, had “stolen everything so that nothing remained.” And for Stepic, the annexation of Crimea could be explained by the fact that “the West has annexed Ukraine” (!) “Russia’s goal was not to get NATO to its borders. This is the main concern.” And Putin is “light years ahead of the EU in implementing his plans—quite simply because he can decide for himself.” The EU, as Stepic supported Haselsteiner’s views, should have “moved closer to Russia”—because “the US never liked the EU as a structure.” One does not need to speculate about the main reason for such opinions, as Stepic spoke out: According to him, over the past two decades Russia had been the market where the most money could be made worldwide.^[19]

8. Austria and the EU Sanctions Against Russia

The Austrian Economic Chamber constantly lamented the impact of the EU sanctions on the business of its members in Russia, although it was and is limited.^[20] And the homepage of the Austrian Embassy in Moscow literally states: “Austrian-Russian trade has developed extremely dynamically in recent years.”^[21] Therefore, EU sanctions do not stand in the way of this “dynamic.”

The head of the Economic Chamber from 2000 to 2018, Christoph Leitl (People’s Party), always gave Putin a very warm welcome in Vienna. Leitl, since 2009 a knight of the Russian Order of Friendship, from the very beginning opposed the EU sanctions against Russia (the Austrian public was not really interested in the fact that he was involved in two companies in Russia that produce insulation materials). And Christoph Matznetter, Deputy Head of the Economic Chamber (2005–2007 and since 2009), Deputy Head of the Austrian-Russian Friendship Society and long-standing Member of the National Council, has made it repeatedly clear that he, as well as a “broad majority” in his Social Democratic Party, wants to see the sanctions terminated^[22]—as wants the EU-skeptical Freedom Party both in the opposition and, between December 2017 and May 2019, in the government.^[23] Notwithstanding this, Freedom Party-nominated Foreign Minister Karin Kneissl during her tenure always agreed to the six-monthly extension of EU sanctions against Russia.

According to statistics from the National Bank (Austria’s central bank), Russian direct investments in Austria have increased two and a half times since 2013 to around EUR 25 billion in 2018, which made Russia the second-largest investor in Austria. This gave some observers reason to suspect that the EU sanctions were being circumvented via Austria: “Given Russia’s limited corporate footprint and the lack of tangible projects that would necessitate these investments, it appears Austria is used mostly as a hub or throughput for Russian investments across Europe and as a point of repatriation of capital from Russian subsidiaries in Europe.”^[24]

In May 2019, Austrian President Alexander Van der Bellen noted that Austria is participating in the sanctions against Russia as a loyal member of the EU—“regardless of what the Austrian position really is.”^[25] Translated into plain language, this means that “in reality,” “Austria” is against the sanctions. And Leitl in his capacity (since 2017) as president of Eurochambres (the Association of European Chambers of Commerce and Industry, representing over 20 million companies) went on to demand an abolition of the EU sanctions. According to him, they “had no use whatsoever.” Russia is “a partner with whom Europeans should engage in dialogue on economic, political, cultural and sporting issues.”^[26]

9. Conclusions and Outlook

Austrian politicians and managers find it difficult to say “no” to Russian officials and/or to find critical words about its domestic, foreign, security, and foreign trade policy. Austrian media outlets have paid some attention to increasing authoritarianism and the huge corruption under Putin, but Viennese politicians and businessmen rarely raise this issue. Instead, it is a widespread argument that Russia is “too important” as a power—and especially as a supplier of energy resources—so relations must not be “spoiled” under any circumstances.

There are no significant political forces in Austria which could be labelled as “anti-Russian” by Moscow-based politicians and/or media. Truly, nobody in Austria’s political elite wants to “argue” with Moscow. The governments in Vienna and Moscow like to emphasize that they are “very close” in most of the issues of international politics, that there are very few (if any) differences between them, that their relations are “trouble-free,” “cordial” etc. It is therefore not surprising that representatives of most parties and important interest groups (as the Economic Chamber) have been calling for the lifting of EU sanctions against Russia practically from the day they were imposed.

Natural gas and oil are “nonrenewable” resources which are imported into the EU and to Austria to a considerable extent from conflict regions and/or undemocratic states (such as Russia). There is no resistance whatsoever in Austria’s politics, media, and public against the fact that OMV portrays an increasing dependence of Austria and the EU on energy source supplies from Russia as a “guarantee of supply security.” Russia does not grant a “stable and secure gas supply” for Austria and the EU, but just the opposite: Moscow, especially since 1999 when Putin rose to power, has on several occasions demonstrated its capabilities and willingness to use gas and oil supply as a political leverage and a “geopolitical weapon” in order to subdue and/or punish “disloyal” states. It is irresponsible in the sense of a sustainable energy policy to make oneself dependent on the whims of the Kremlin.

If one wanted to give a very brief forecast on Austrian-Russian relations, it is totally obvious that there will be no change in the conditions described—regardless of the composition of the Austrian Government. The opposition hardly offers any alternatives with respect to the policy towards Russia, as all the major political forces in Austria have so-called Putin understanders (Putin-Versteher) among their ranks. And what all Austrian parties and special interest groups have in common is a total lack of understanding for the functional mechanisms of Russian domestic, security, foreign, and economic policy.

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[1] “Putin Hails Russia’s Gas Reserves as Austria Joins South Stream Project,” Sputnik, April 24, 2010, https://sptnkne.ws/3BcY.

[2] Andrei Fedyashin, “Vladimir Putin Goes to the Land of Strauss and Schnitzel,” Sputnik, April 23, 2010, https://sptnkne.ws/pacK.

[3] Christine Zeiner, “Raiffeisen steigt aus russischer Gasfirma aus [Raiffeisen Withdraws from Russian Gas Company],” Wiener Zeitung, April 25, 2006, https://www.wienerzeitung.at/archiv/117286-Raiffeisen-steigt-aus-russischer-Gasfirma-aus.html.

[4] Luke Harding, “WikiLeaks Cables Link Russian Mafia Boss to EU Gas Supplies,” Guardian (US edition), December 1, 2010, https://www.theguardian.com/world/2010/dec/01/wikileaks-cables-russian-mafia-gas.

[5] “Ukraine: Firtash Makes His Case to the USG,” WikiLeaks, December 10, 2008, https://wikileaks.org/plusd/cables/08KYIV2414_a.html.

[6] Stefan Melichar, Michael Nikbakhsh, and Christoph Zotter, “All the President’s Men,” Profil, no. 43 (2019): 35.

[7] “Schröder empfing 2005 dubiose Gäste aus Russland [Schröder Received Dubious Guests from Russia in 2005],” Spiegel Online, May 4, 2015, https://www.spiegel.de/spiegel/vorab/schroeder-empfing-2005-dubiose-gaeste-aus-russland-a-967403.html.

[8] Renate Graber, “Die russische Wende [The Russian Turnaround],” Der Standard, June 4, 2007, https://derstandard.at/2857801/Die-russische-Wende.

[9] Christa Zöchling, “Ein Freigeist als Milliardär [A Free-Spirited Billionaire],” Profil, no. 8, (2008): 27.

[10] Renate Gruber, “Da lachen ja die Hühner, Herr Hofer” [“That’s a Good Laugh, Mr. Hofer”] [interview with Hans Peter Haselsteiner]. Der Standard, June 29–30, 2019, 23.

[11] “Haselsteiner: Russland in der EU ‘hätte Europa groß gemacht’ [Haselsteiner: Russia in the EU ‘would have made Europe great’] [interview],” Die Presse, September 20, 2017, https://www.diepresse.com/5288922/haselsteiner-russland-in-der-eu-hatte-europa-gross-gemacht.

[12] “Haselsteiner will sich Auftragsvergabe bei Westbahn anschauen [Haselsteiner Wants to Take a Look at Contract Awards for Westbahn],” Die Presse, May 20, 2019, https://www.diepresse.com/5631337/haselsteiner-will-sich-auftragsvergabe-bei-westbahn-anschauen.

[13] Jakob Zirm, “Siegfried Wolf wechselt von Magna zu Oleg Deripaska [Siegfried Wolf Moves from Magna to Oleg Deripaska],” Die Presse, September 14, 2010, 15.

[14] Miriam Koch and Andreas Lampl, “Putin ist der richtige Mann” [Putin’s the man] [interview with Siegfried Wolf],” Format, no. 5, (2014): 22–25.

[15] Yumashev’s daughter from his first marriage, Polina, in 2001 had married (and in 2018 divorced) Deripaska.

[16] Hans Rauscher, “Neuer Job für Kern: Russian Connection. Es sind bereits etliche ehemalige Top-Politiker in Putins Reich engagiert [New Job for Kern: Russian Connection. Several Former Top Politicians are Already Employed in Putin’s empire],” Der Standard, May 1, 2019, https://www.derstandard.at/story/2000102353840/neuer-job-fuer-kern-russian-connection?fbclid=IwAR3eeZ4VLlmX3-h87hpnMKPAZftnO0NOr3A2FGpdV1lETGjxCM2r7NbQ5X0.

[17] The headquarters of UniCredit Bank Austria AG (which is its full name) is located in Vienna, but it has not been “Austrian” for a long time, as it is almost entirely owned by the UniCredit Group based in Milan, Italy.

[18] “Deripaska ist ein gerader Bursche [Deripaska is a straight guy] [interview with Christian Konrad],” Der Standard, June 4, 2007, https://www.derstandard.at/story/2859447/deripaska-ist-ein-gerader-bursche.

[19] Martina Salomon, “Stepic: ‘Putin ist EU um Lichtjahre voraus’ [Stepic: ‘Putin is light years ahead of the EU’] [interview],” Kurier, December 6, 2014, https://kurier.at/wirtschaft/stepic-putin-ist-eu-um-lichtjahre-voraus/70.074.860.

[20] Cf. Otmar Lahodynsky, “Schwein gehabt [Had Good Luck],” Profil, no. 12, pp. 56-60.

[21] Österreichische Botschaft Moskau, Wirtschaftsbeziehungen zwischen Österreich und Russland [Austrian Embassy Moscow, Economic relations between Austria and Russia], https://www.bmeia.gv.at/oeb-moskau/bilaterale-beziehungen/russische-foederation/wirtschaft/ (accessed 30 May 2020).

[22] “The Winner is: Zar Wladimir [The Winner is: Czar Vladimir],” Trend, no. 46 (2016): 21.

[23] Cf. “Strache fordert Ende von Russland-Sanktionen [Strache demands end to Russia sanctions],” Die Presse, June 2, 2018, https://diepresse.com/home/ausland/aussenpolitik/5439865/Strache-fordert-Ende-von-RusslandSanktionen.

[24] Heather A. Conley et al., The Kremlin Playbook II. The Enablers, Center for Strategic & International Studies, (New York: Rowman & Littlefield, 2019), 50, https://csis-prod.s3.amazonaws.com/s3fs-public/publication/190327_Conley_KPII_interior_v3_WEB.pdf (accessed 30 May 2020).

[25] Jutta Sommerbauer, “Van der Bellens und Österreichs ‘wirkliche’ Russland-Position [Van der Bellen and Austria’s ‘real’ position on Russia],” Die Presse, May 15, 2019, 4.

[26] Christoph B. Schiltz, “Europäische Wirtschaft ruft zur Abschaffung von Sanktionen auf,” Die Welt, December 9, 2019, https://www.welt.de/politik/ausland/article204148482/Europaeische-Wirtschaft-ruft-zur-Abschaffung-von-Sanktionen-auf.html?fbclid=IwAR0cMRb_u5mEhqAsdqNihEliLnzmfQLaSKl9KR4jl65L9SjS3_XN8Ub8Pvo.

This article is a part of the first issue of the Kremlin’s Influence Quarterly.

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Introduction

Over the last 200 years, the main part of the territory that today constitutes the Republic of Moldova switched sovereignties six times between the Russian Empire, the USSR, the Ottoman Empire, and Romania, which explains why Russia treats it as a less loyal territory, compared to Ukraine or Belarus. With the last change in 1991, the Republic of Moldova proclaimed its independence and, on March 2, 1992, gained official recognition by the UN, in the borders of the former Moldavian Soviet Socialist Republic, including the Transnistrian region, inhabited by a more pro-Russian population as compared to the rest of the country. On the day of official recognition of the Republic of Moldova within UN, a military conflict sprang in the Transnistrian region, initially involving police forces and civilians and later the regular army. The Russian Army stationed in Transnistria (the former Soviet 14th Guards Army) supported the Transnistrian side, first unofficially then officially, which determined the outcome of the war. The war ended by a cease-fire agreement signed between Presidents of the Russian Federation and the Republic of Moldova—Boris Yeltsyn and Mircea Snegur, reconfirming the direct involvement of Russia in the Transnistrian conflict.[1]

Since 1991, the goal of Russian policy towards Moldova was to prevent Moldova from fleeing the Russian sphere of influence, and especially to maintain the Russian military base in Tiraspol and prevent Moldova’s adherence to NATO. Transnistrian authorities served as proxies for Russia in pursuit of its foreign policy objectives, Russia’s control over Transnistria being juridically recognized by the European Court for Human Rights.[2] However, maintaining the “statehood” of Transnistria required major financial support, and the energy sector played a crucial role in Russia’s financing of separatism in the Republic of Moldova.

During Soviet times, the energy infrastructure was constructed in such a way that the energy system in the former Moldovan Soviet Socialist Republic was dependent on critical infrastructure placed in the Transnistrian region:

• the largest power plant—Moldovan State Regional Power Station (aka Kuchurgan Power Station, also known under the Russian acronym MGRES), with total installed capacity over 2.5 GW
• six out of seven interconnection points between Moldova and Ukraine on high-voltage (330 kV) lines, four of these lines being tied up in a transformer substation on the territory of MGRES
• four out of five entry points on gas transmission pipelines of regional importance, including all three entry points on the Trans-Balkan pipeline system
• the main gas compressor station on the Trans-Balkan pipeline system between Ukraine and Bulgaria, located near Tiraspol (the administrative center of Transnistrian region)

Thus, by 1992, the energy security of the Republic of Moldova almost entirely depended on Russia and its proxy regime in the Transnistrian region. Less than 10 percent of the country’s needs could be covered by electricity generation located outside the Transnistrian region. Import of electricity from Ukraine could not avoid high-voltage lines and transformation stations located in the breakaway region. Moreover, even the limited amount of generation controlled by constitutional authorities was mainly based on natural gas as fuel, while Gazprom was the only gas supplier and physical continuity of gas supply depended on infrastructural elements located in the Transnistrian region.

Since then, Russia has taken advantage of its energy leverage in relation to Moldova several times, generating crises, some of them politically reasoned[CD1] . Thus, electricity supply to the main part of Moldova was limited or even halted in 1998,[3] 2004,[4] and 2005,[5] while natural gas supply was interrupted in 2000.[6]

How Gazprom took control of Moldova’s gas infrastructure

The gas price has long been used by Russia as a political tool in promoting its foreign policy in the countries largely dependent on Russian gas. The former Soviet countries are particularly vulnerable due to poverty, corruption, and weak regulation of the energy market. The Kremlin administration exploited these weaknesses to gain control of gas supply systems via Gazprom, as it happened in countries like Moldova (1995), Armenia (1997), and Belarus (2007), and only partly succeeded in other countries.[7] The energy sector has always been a copious source of illegal enrichment for corrupt politicians. In the case of Moldova, during 1994–1998 [CD2] the gas supply complex was twice exposed to hostile takeovers. Following a series of actions such as artificial debt swelling and undervaluation of assets, undertaken in conspiracy with Moldovan government officials, Gazprom gained control over companies that owned critical gas transmission and distribution infrastructure.

The trans-Balkan pipeline that crosses Ukraine and Moldova (including the breakaway Transnistrian region) has been used by Gazprom to supply about 20–25 bcm of gas annually to Balkan countries. The gas transit was one of—if not the only—negotiating tools for Moldova in relation to Gazprom. However, the corruptibility and lack of vision of Moldovan political elites allowed the Russian holding to acquire, at derisory prices, the majority stake in Moldova’s gas transmission system (1995) and distribution pipelines (1998) via debt-to-equity swaps. Prior to the acquisition, Gazprom had used its dominant position as a sole gas supplier to impose discriminatory conditions on the Moldovan side, thus artificially increasing the gas debt, as thoroughly analyzed in our 2007 research.[8] Beginning in 1994, Gazprom increased the gas price for Moldova from USD 38.5 to USD 80 for one thousand cubic meters. During that period, Gazprom supplied gas on the European market at an average price of USD 72.8,[9] although the share of transportation costs in the final price for EU countries was higher than for Moldova. At the same time, Gazprom supplied gas to the neighbouring Ukraine at a price of USD 50, which remained unchanged until 2005[10] for political reasons, aimed at retaining Ukraine in Russia’s sphere of influence. Besides the abusive price increase for Moldova, Gazprom requested advanced payments and imposed a fine of 0.35 percent per day on the amounts due (equivalent to 127.8 percent per annum in hard currency), which was seventeen times more than for other countries of the former USSR. Moldova’s debt was further increased by the fact that the Transnistrian separatist region stopped paying for gas consumption after the 1992 Transnistrian conflict, when the separatists were backed by the Russian [CD3] 14th Guards Army. Consequently, in 1994 alone, Moldova’s gas debt increased from USD 22 million to USD 291 million, including USD 100 million in fines and USD 91 million of debt from the separatist region. Moldova was under threat to remain without [CD4] gas supply due to the immense debt. In order to avoid this, in 1995 the government agreed to cede in favor of Gazprom a 50 percent+1 share of the newly formed company Gazsnabtranzit, in whose capital the transportation pipelines were transmitted. The transaction was made both with deviations from the legal norm and to the detriment of the public interest, and as a result Moldova was prejudiced with over USD 416 million for the benefit of the Russian concern.[11]

The government of Moldova admitted similar abuses in 1998 at the founding of JSC [CD5] Moldovagaz, in which Gazprom received a 50 percent share.[12] The equity of the newly created enterprise was determined on the basis of the so-called preliminary estimate of both transmission and distribution pipelines. In 1999, the assets of the gas complex were to be revalued in order to rectify the ownership quotas in the share capital of Moldovagaz, with the corresponding correction of the gas debt. However, this provision has not been executed by the government. The share capital and the gas liabilities remained the same. These and other frauds were investigated in 2000–2001 by the Moldovan Court of Accounts (Supreme Audit Institution in Moldova) at the request of the Parliament. However, following Parliamentary elections on February 25, 2001, the pro-Russian Party of Communists of the Republic of Moldova (PCRM) took over power,[13] and already in March 2001 the team leader of auditing team, Mr. Tudor Șoitu, was ordered to finalize the investigation ahead of schedule.[14] Despite the report containing pertinent proofs of frauds committed by high-level government officials and management of gas companies in favor of Gazprom, it has not been heard in the Parliament. Moreover, Mr. Șoitu was placed under accusation by the Prosecutor’s office and fired from the Court of Accounts. The data and confirmative documents that constituted the base for the report were partially published later, within policy papers produced by IDIS “Viitorul” think tank in 2007,[15] 2017[16] and in Watchdog.md in 2019.[17]

Gas debt and the financing of separatism

The supply of Russian gas to both Moldova and the self-proclaimed Transnistria has been carried out under contracts signed by Gazprom with entities registered in Moldova and officially recognized (initially it was Gazsnabtranzit, afterwards—Moldovagaz). Under such a contractual scheme, the gas debt of the separatist region is accumulated by the Moldovan side.[18] This was possible due to the fact that Transnistria’s gas infrastructure was included in the capital of the Moldovan gas supplier under the pretext of paying the gas debt. Thus, Gazprom supplies gas to Moldovagaz, while the latter supplies gas to Moldovan consumers and to Tiraspol-Transgaz from Transnistria. De jure Tiraspol-Transgaz is a subsidiary of Moldovagaz, but de facto its assets were nationalized by the separatist authorities.[19] Currently the outstanding amount owed by Moldovagaz to Gazprom at the end of 2019 totalled USD 7860.6 million[20] (including USD 1201.2 million to its subsidiary Factoring-Finans).[21]

Tiraspol-Transgaz resells the gas at subsidized tariffs to local Transnistrian households and enterprises, including to MGRES (Молдавская ГРЭС) power plant that supplies Moldova with electricity. The obtained revenue is accumulated on the so-called special gas account and is transferred directly to the separatist budget as loans from Tiraspol-Transgaz. Between 2007 and 2016, the separatist region received a USD 6 billion “gas subsidy,” out of which USD 1.3 billion was converted into budgetary funds. In this way the self-proclaimed Transnistrian authorities covered 35.3 percent of the total budgetary expenditures for the respective ten-year period.[22] The amount of “gas subsidy” generously provided by Gazprom is equivalent to 48 percent of the self-proclaimed Transnistria’s GDP for that period. These findings point out that the unconstitutional regime in Tiraspol would not be sustainable without the permanent support of the Russian Federation. Given the subsidized tariffs, many people in Transnistria are unwilling to rejoin Moldova because they would have to pay more for gas consumption.[23]

The largest gas consumer in Transnistria is MGRES power plant (generation capacity of 2520 MW), controlled by Russian energy holding Inter RAO UES. MGRES generates electricity from gas provided by Tiraspol-Transgaz and supplies 80 percent of Moldova’s electricity consumption. Using Moldova’s dependence on Russian gas, including for electricity generation, the Russian Federation has imposed a contractual scheme whereby Moldovan consumers are forced to finance separatism in their own country by purchasing energy from MGRES located in Transnistria and accumulating gas debts.

Although Gazprom mentions in all its financial reports that Transnistria does not pay for gas consumption and it leads to the increase of Moldova’s gas debt, gas supply to the region still continues.[24] From an economic point of view, the supply of gas without recovery of value is in fact a subsidy. In other words, Gazprom’s activity in Moldova does not have an economic purpose, because it would never recover the gas debt from Moldovagaz, whose assets are below 20 percent of the total gas debt. In fact, Gazprom and senior Moldovan officials compel Moldovagaz to legalize the financing of the unconstitutional regime in Transnistria by supplying gas “on credit” and passing the debt to Moldovagaz. Moreover, according to contract provisions, Moldovagaz cannot interrupt the gas supply to the Transnistrian region without the written agreement of Gazprom.[25] It is probably the only case in history when legalization services of financing the separatism are not paid, but are provided in exchange for debt accumulation.

Even if Gazprom takes over all Moldovagaz assets to recover the debt, we estimate their value at almost USD 1.4 billion, which is under 20 percent of total gas debt.[26] Therefore Gazprom’s activity in Moldova has nothing in common with genuine economic interests, but rather serves as a tool to promote the strategic agenda of the Kremlin administration in Moldova. This geopolitical agenda can be summarized as follows: strengthening Russian influence in Moldova by financing separatism and maintaining the role of mediator of the Transnistrian conflict in its own interest.

Russian “gas subsidy” converted into benefits for Russian businesses

Since the 1990s, consumers in the Transnistrian region have benefited from heavily subsidized gas prices. The main beneficiaries were the large industrial enterprises—MGRES and the Moldovan metallurgical plant, also known under its Russian acronym MMZ. These companies consume a lot of energy and gas, and have been, or continue to be, controlled by Russian capital. Subsidized gas and energy tariffs provided them with significant competitive advantages compared to other companies in the region. At the same time, they exported the production at market prices, collecting strong currency. Respectively, the subsidies obtained by these factories through Russian gas were converted into real income.

The MGRES power plant is 100 percent owned by the Russian concern Inter RAO UES. As mentioned, the power plant is the main consumer of gas in the separatist region, using it as a basic source for electricity production.[27] MGRES benefited from a subsidized tariff that covered between 28 percent and 68 percent of the real cost of gas. Based on the financial reports of Inter RAO UES, during 2008–2015, the Russian investors obtained a profit of USD 291.8 million only through MGRES.[28]

The separatist authorities have established subsidized tariffs for the MMZ metallurgical plant as well, through secret decisions. In the period 2005–2015 MMZ was part of the MetalloInvest holding controlled by the Russian oligarch Alisher Usmanov. The plant paid only 11.5 percent of the real gas price and was sometimes generally exempt from paying for gas. In the period 2007–2015, the plant reported sales of over USD 2.3 billion according to the data published by the so-called central bank of Transnistria. However, the real market prices for metallurgical production in Ukraine were 65–85 percent higher. We assume that this margin is explained by the fact that MMZ sold its production through traders affiliated to the MetalloInvest group, where the group accumulated most of its profits. Based on this assumption, we estimated that in the period 2007–2015, the profit related to MMZ production, accumulated by MetalloInvest traders, amounted to over USD 1.5 billion.

The so-called gas subsidy and respectively the subsidized electricity price in self-proclaimed Transnistria continue to be exploited by Russian cryptocurrency businesses as well. Igor Chaika, the son of the Russian ex-Prosecutor General, not only expressed openly his interest to invest in mining farms in Transnistria,[29] but also his organization Delovaya Rossiya (Business Russia) helped the separatist government to develop the legislation on blockchain technology.[30] At least a part of the mining equipment was supplied through Moldovan customs. In December 2018 the separatist authorities announced their plans to increase the output capacity of MGRES power plant by 100 MW by suppying energy to the mining farms.[31]

Cryptocurrency and Russian subversive operations overseas

Cryptocurrency has been used by Russian hackers for various cyber attacks in recent years as a part of the “hybrid warfare,” following the rise of the political tension between Russia and Western countries after the annexation of Crimea. Cryptocurrency transactions are difficult to trace and this fact allowed the perpetrators to hide their identity and the source of funds, in order to circumvent the sanctions or the Know-Your-Client (KYC) procedures applied by commercial banks. The GRU-linked hackers used cryptocurrency to attack the German parliament in 2015,[32] and the US Democratic National Committee (DNC) in 2016.[33] Cryptocurrency-funded cyber operations also targeted FIFA, WADA (World Anti-Doping Agency), and the Court of Arbitration for Sport in 2016.[34]

Hard-to-trace cryptocurrency became a common tool in Russian subversive operations. In October 2017 Russian president Vladimir Putin even issued five presidential orders on the legal framework for digital currencies and mining.[35] Shortly after that, a spike in cryptocurrency mining activities has been observed in several pro-Russian breakaway regions. Besides Transnistria, the mining of virtual currency has also expanded to Donbass[36] and Abkhazia,[37] with the aim of creating a virtual trading platform in Crimea and providing services to the unrecognized pro-Russian territories.[38] Moreover, acccording to Ukraine’s Deputy Prosecutor General Anatoliy Matios, cryptocurrency mined in Ukraine has been used to buy military equipment, weapons, and ammunition for the separatist groups fighting in the regions of Donetsk and Luhansk.[39] Given that, the trace of the cryptocurrency mined in the pro-Russian breakaway regions becomes necessary to prevent and expose the subversive operations conducted by the Kremlin in its attempt to achieve political goals in other countries.

Russian gas “subsidy” stimulating corruption of Moldovan political elites

Although Moldova was ruled by parties of different geopolitical orientations, since its incorporation in 1998, Moldovagaz remained a dangerous territory for control bodies. Throughout this period, Gazprom along with Moldovan decision-makers tolerated and even facilitated fraudulent schemes in the energy sector to the detriment of the national interests of Moldova.[40] At the same time, investigations of alleged fraud in the gas sector turned against their initiators and none of them finalized with proper prosecution of decision makers from Moldovagaz or Moldovan officials. Moreover, despite catastrophic dynamics in Moldovagaz’s financial situation, two of its top officials were decorated with the Glory of Work presidential award: Mr. Alexandr Gusev, President of the Administration Council (2012)[41] and Mr. Iacov Cazacu, Vice President of the Administration Council (2017).[42] This suggests that some of the illicit proceeds from these schemes were used to bribe Moldovan politicians. Thus, each of the parties pursues its own interest: Moldovan political decision-makers aim for personal enrichment from corruption schemes, while Gazprom executes the Kremlin’s agenda on financing separatism and increasing Moldova’s dependence on the Russian Federation.

As mentioned above, the Court of Accounts’ attempt to verify the activity of Moldovagaz in 2001 resulted in an open criminal investigation against the head of the audit team, Tudor Soitu.[43] However, the situation did not change even after the so-called pro-European coalition came to power in 2009. In 2012, the National Energy Regulation Authority (ANRE) issued four inspection reports on procurement irregularities at Moldovagaz’s subsidiary. Frauds worth MDL 243 million (approximately USD 20 million at that time) were found in the purchase of goods at prices that exceeded 3–4 times the market price. This time the control ended with the assasination attempt on one of ANRE directors[44] just two weeks after the first inspection report was issued. Despite its odiousity—the explosion of a grenade under the car of a senior official, appointed by Parliament—this assassination attempt remains uninvestigated until present.

In 2014, following a conspiracy between Moldovan oligarch Vladimir Plahotniuc and self-proclaimed Transnistrian President Yevgheny Shevchuk, the electricity produced by MGRES (owned by Russian Inter RAO UES) was supplied to Moldova through an intermediary company, Energokapital. The electricity was supplied at the same price as previously, while the internal gas tariffs for electricity generation in self-proclaimed Transnistria were decreased by 15 percent.[45] The illicit margin was syphoned off via Energokapital, whose beneficiaries are hidden behind a Scottish limited partnerships.[46] An investigation conducted by the Blacksea.eu revealed that Energokapital has a complex series of off-shore owners connected to the “theft” of a billion dollars from three Moldovan banks. Undoubtedly the energy supply scheme via Energokapital was coordinated at the highest levels in Gazprom and the Russian government, given the visit of the Deputy Prime Minister Andrian Candu to Moscow in September 2014,[47] just two weeks before the incorporation of Energokapital.[48] Moreover, in 2016 civil society watchdogs publicly presented[49] copies of payment orders for transfer of dividends by Energokapital to its offshore mother company worth over USD 19 million[50] and solicited the Prosecutor’s office to verify whether these were made in compliance with anti-money laundering legislation. Instead of investigating the facts, after just 2 weeks, the Prosecutor’s office issued a press release claiming that “experts did not present any documents that would confirm the illegalities.”[51]

In March 2019 Moldova’s Prime Minister Pavel Filip secretly sent a letter to his Ukrainian counterpart, in which he called for the removal of the Transnistrian metallurgical plant MMZ from the sanctions list and the termination of the antidumping investigation against MMZ.[52] Why would the Moldovan prime minister lobby for the metallurgical plant located in the separatist region? The reason is obvious if we follow the money. MMZ is the main customer of the state-owned company Metalferos, which has a monopoly on the collection and export of scrap metal from Moldova.[53] In 2015–2019, the payments from MMZ to Metalferos amounted to at least USD 127 million, a part of which was embezzled to offshore companies directly controlled by Moldovan oligarch Vladimir Plahotniuc,[54] the former leader of the Democratic Party to which Pavel Filip belongs. The Prosecutor’s office started the investigations at Metalferos only after Plahotniuc left the country.[55] In exchange for insignificant personal benefits and acting to the detriment of national interests, Moldovan political elites ensured the temporary registration of MMZ in Moldova and allowed its exports to be made through Moldovan customs[56] and the state-owned Railway company.

The large-scale corruption in the energy sector poses a real threat to economic and energy security, and even the territorial integrity of Moldova. Even today the Moldovan government continues to support the large energy-consuming enterprises in Transnistria, despite the fact that it leads to the increase of the gas debt. In March 2020 the Commission of Emergency Situations canceled the energy procurement tender and the state-owned trader Energocom signed a new agreement with MGRES power plant from Transnistria.[57]

How to take a country hostage for USD 1 billion in 27 years

As mentioned above, by the end of 2019 the total debt of Moldovagaz to Gazprom and its subsidiary Factoring Finans Ltd amounted to USD 8 billion, including about USD 7.5 billion related to gas supplied to the Transnistrian region. These figures are based on contract prices of gas, however the cost of natural gas supplied by Gazprom in the Transnistrian region via Moldovagaz is much lower than the invoiced amounts. According to Gazprom’s officials, in 2016 the average cost for natural gas extraction was around USD 20 per one thousand cubic meters, including taxes.[58] Before switching to the “European price formula” in 2006, Gazprom supplied natural gas to Ukraine at USD 50 for the same amount,[59] which included the cost of transmission services to the border.

Between 2007 and 2016, the average gas consumption in the Transnistrian region was 1.8 billion cubic meters per year. Taking into consideration the cost of transit services on Ukrainian territory, one thousand cubic meters of natural gas delivered to the Ukrainian-Moldovan border (Transnistrian segment) cost Gazprom approximately USD 65 per one thousand cubic meters. Thus, the total costs incurred by Gazprom with financing the Transnistrian separatism over twenty-seven years are slightly more than USD 3 billion. In the mean time, at least around USD 2 billion have been recovered by just two Russian corporations (Metalloinvest and Inter RAO) by benefiting from subsidized gas prices in the Transnistrian region. Thus, the bottomline costs for Russia with maintaining Transnistria as its main instrument of influence in Moldova was at most USD 1 billion—not too expensive for twenty-seven years of influence in a European country of 3 million people.

Thus, by exercising its monopolistic position as a natural anti-dumping gas supplier to Moldova and by loyalizing corrupt political elites from Chișinău, Gazprom served as the main instrument of financing the Russian foreign policy agenda in Moldova.

This malign influence can only be countered by consolidating Moldova’s energy security and eliminating dependency on critical energy infrastructure controlled by Russia via its Transnistrian proxies. However, little has been done in this respect since 1991, despite the fact that the need for diversification has been acknowledged and even included in all energy strategies. Thus, the Energy Strategy until 2010 adopted in 2000[60] mentions diversification of energy supply sources and routes five times, while the Energy Strategy till 2020 adopted in 2007[61] mentions it six times and the Energy strategy till 2030 adopted in 2013[62] refers to it nine times. De facto, despite strong political and financial support provided by the European Union and other international development partners, no major progress has been achieved until the second half of 2019!

In terms of natural gas supply diversification, the largely publicized Iași-Ungheni interconnector started in 2014 still cannot be operated at its full capacity. Moreover, even after finalization of all works around this interconnection route, its capacity (1.5 bcm per annum) won’t be sufficient to cover the winter peak consumption in Moldova even except Transnistrian region. Also, the southern part of Moldova would still remain fully dependent on the traditional natural gas supply route—the Trans-Balkan pipeline system—where the flow of gas could be disrupted by Transnistrian authorities. In the mean time, Gazprom has finalized the Turkish Stream project and is able to supply natural gas to Turkey and other Balkan countries bypassing the Ukrainian and Moldovan part of the Trans-Balkan pipeline. The breakthrough in terms of natural gas supply options for Moldova has been achieved only in the second half of 2019, and mainly due to external factors. Uncertainties around the gas transit contract through Ukraine after 2019 forced Gazprom to look for alternative scenarios for supplying gas to the Balkans. The only feasible emergency alternative was to upgrade the Trans-Balkan pipeline system to be able to operate in reverse mode, which would enable Gazprom to supply gas to Bulgaria, Macedonia, Romania, and Moldova via Turkey. Thus, in just about six months, this project of strategic importance was implemented. It is worth mentioning that civil society experts signalled the strategic importance of the reverse flow on the Trans-Balkan pipeline system and its priority compared to the Iași-Ungheni interconnector since at least 2014.[63]

The implications of the Trans-Balkan reverse flow for Moldova cannot be overestimated as it also reverses the balance of power between Moldovan constitutional authorities and the Transnistrian proxies of Russia in the gas sector: presently, should Moldovagaz solicit Gazprom to supply natural gas to Moldova’s southern border (instead of the eastern, as previously) the Russian supplier would have to comply with it. In this case, if Transnistrian authorities maintain the practice of nonpayment, the supply of natural gas to the secessionist region could be physically limited or even completely interrupted at Căușeni measurement station. The main risks associated with this scenario is on the electricity side: not only would it leave Moldova without its largest source of electricity, which is MGRES fueled by natural gas, but it is also highly likely that Transnistrian authorities would respond by shutting down high-voltage (330 kV) lines that would become critical for importing electricity from Ukraine thus leaving the entire country dependent on a single high-voltage line. Therefore, the next and the last logical step on the path of eliminating the risk of energy blackmail on behalf of Russian proxies in Transnistria is securing the electricity supply by interconnecting with the Romanian electricity transmission system in an asynchronous mode.

Similar to “diversification” efforts on the gas side, construction of electricity interconnections with Romania are being long delayed. Civil society experts have already lost track of all technical and feasibility studies commissioned in the last more than ten years around interconnection options. So far, despite about 250 million euros allocated for these purposes by international partners (World Bank, European Investment Bank, European Bank for Reconstruction and Development), including a 40 million euro grant from the European Union, construction has not even been started. The only plausible explanation is that the entire process is being sabotaged by Russian agents of influence among Moldovan decision makers.

In conclusion, consolidation of Moldova’s energy security by diversification of energy supply options and integration into European energy markets is not only vital for countering Russian malign influence in Moldova, but also key to solving the Transnistrian conflict, which affects regional security.

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[1] For more details on historical background and evolution of transnistrian war see Christopher Borgen, “Thawing a Frozen Conflict: Legal Aspects of the Separatist Crisis in Moldova: A Report from the Association of the Bar of the City of New York,” Record of the Association of the Bar of the City of New York, Vol. 61, 2006, pp. 13-24.

[2] “Case Ilașcu and others vs Moldova and Russia. (Application no. 48787/99)”, European Court of Human Rights (website), July 8, 2004, http://hudoc.echr.coe.int/eng?i=001-61886.

[3] https://www.mold-street.com/?go=news&n=8275

[4] https://www.rbc.ru/politics/05/08/2004/5703b64e9a7947783a5a599c

[5] https://www.ng.ru/cis/2005-11-11/5_endoftheworld.html

[6] https://www.vedomosti.ru/newspaper/articles/2000/03/03/moldova-sdalas

[7] Gazprom profile by Steve Thomas, May 2006, PSIRU, Greenwich University, https://www.epsu.org/sites/default/files/article/files/Gazprom_profile_May.pdf.

[8] IDIS Viitorul, “The gas industry in Moldova: The burden of ignorance and the cost of errors”, 2007, https://bit.ly/37IL3L5

[9] М.М. Судо, Э.Р. Казанкова, ”Энергетические ресурсы. Нефть и природный газ. Век уходящий”, 1998

[10] Slovoidilo.ua, ”Как менялась цена российского газа для Украины на протяжении 24 лет?”, 2016, https://bit.ly/2S8lPiP

[11] IDIS Viitorul (2007), Supra note 8 at page 10

[12] IDIS Viitorul (2007), Supra note 8, §2.6

[13] http://www.e-democracy.md/elections/parliamentary/2001/

[14] https://www.watchdog.md/wp-content/uploads/2019/09/Studiu-Moldovagaz-09-2019_compressed-1-1.pdf

[15] IDIS Viitorul (2007), Supra note 8

[16] IDIS Viitorul, “Energy and politics: the price for impunity in Moldova”, Apr 2017, https://bit.ly/2Nss3Yh

[17] Community Watchdog.MD, “Moldovagaz – 20 years of massive fraud under the protection of shareholders and state institutions”, Sept 2019, https://bit.ly/37M7z5P

[18] IDIS Viitorul (2017), Supra note 16 at chapter 3

[19] Order no. 723 from Oct 13, 2005, of the self-proclaimed President of Transnistria, https://bit.ly/2YgkDgO

[20] Gazprom financial report for Q4/2019 at page 83, https://www.gazprom.ru/f/posts/77/885487/gazprom-ifrs-2019-12m-ru.pdf

[21] Gazprom financial report for Q4/2005 at page 47, http://www.gazprom.ru/f/posts/91/747099/repiv_2005.doc

[22] IDIS Viitorul (2017), Supra note 16 at page 15.

[23] ECHR, case Ilascu v. Moldova and Russia, Annex: Witness Y, §261, http://hudoc.echr.coe.int/eng?i=001-61886

[24] Gazprom financial report for Q1/2020 at page 55, https://www.gazprom.ru/f/posts/05/118974/gazprom-emitent-report-1q-2020.pdf

[25] Rise.md, (2016) „Confidential contract: Gazprom empire in Moldova”, Agreement no. 1 to the Contract of gas supply no. 1GM-07-11, §2.8, https://www.rise.md/contract-confidential-imperiul-gazprom-in-moldova/

[26] IDIS Viitorul (2017), Supra note 16, chapter 4.

[27] MGRES technical indicators for 2019, https://bit.ly/2BtiV2t

[28] IDIS Viitorul (2017) Supra note 16, §2.4.1

[29] Kommersant.ru, ”Приднестровье примайнивает инвесторов”, Feb 2018, https://bit.ly/2UYnoS0

[30] Novostipmr.com, ”Начало большого пути. […]”, Dec 2017, https://bit.ly/3didSPC

[31] Anticoruptie.md, “The cryptorepublic”, Apr 2019, https://bit.ly/2YhYjUc

[32] Netzpolitik, “Digital Attack on German Parliament”, Jun 2015, https://bit.ly/3155DT7

[33] Mueller indictment from Jul 13, 2018, https://bit.ly/2NPPpGf

[34] Indictment of the Western District of Pennsylvania, § 21 and 22, https://bit.ly/30hnE1t

[35] Kremlin press release from Oct 21, 2017, http://kremlin.ru/acts/assignments/orders/55899

[36] BBC, “”Морячок” из ДНР купил биржу криптовалют и начал охоту на сокровища Винника”, Dec 2018, https://www.bbc.com/russian/features-46444479

[37] Abkhazia signed a memorandum of cooperation with the Russian Association of Crypto Industry and Blockchain (RACIB), Bitfeed.ru, “Абхазия разрабатывает нормативную базу для регулирования майнинга”, Dec 2018, https://bit.ly/2UZ92Rl

[38] Supra note 36

[39] Politico.eu, “How Ukraine became the Wild East of cryptocurrencies”, Mar 2018, https://politi.co/3fiZEPM

[40] Community Watchdog.MD, “Moldovagaz – 20 years of massive fraud under the protection of shareholders and state institutions”, Sept 2019, https://bit.ly/37M7z5P

[41] http://lex.justice.md/index.php?action=view&view=doc&lang=1&id=344965

[42] Presidential decree 362 from Sept 03, 2017, https://www.legis.md/cautare/getResults?doc_id=100273&lang=ru

[43] ECHR, case 18835/08 Tudor Șoitu vs Moldova, http://hudoc.echr.coe.int/eng?i=001-191880

[44] ANRE press release, Apr 2012, https://bit.ly/2YZpxOy

[45] Press release of self-proclaimed Transnistria Government, Jul 2016, http://gov-pmr.org/item/7269

[46] Blacksea.eu, Bird, M. and Cotrut, A., “Moldovan energy intermediary company linked to “billion-dollar bank theft” scandal”, Mar 2016, https://bit.ly/2NhyzAK

[47] Ministry of Economy press release, Sept 2014, https://bit.ly/2V4iQtb

[48] Energokapital incorporation agreement, Oct 2014, https://bit.ly/310nxIj

[49] https://www.ipn.md/en/economie/77740

[50] https://sergiutofilat.files.wordpress.com/2016/08/plati-energokapital.pdf

[51] http://procuratura.md/md/newslst/1211/1/6723/

[52] Rise.md, “Rescuers of the Transnistrian metallurgic plant: Filip and Poroshenko have helped Transnistria earn mmillions”, May 2019, https://bit.ly/39Whff7

[53] Newsmaker.md, “Люди бьются за металл. Кому выгодна продажа Metalferos и сколько денег там украли”, Jan 2020, https://bit.ly/3fxcZE2

[54] Zdg.md, “Дело Metalferos: Эпизод с Владимиром Плахотнюком”, Aug 2020, https://bit.ly/33sQZYv

[55] Tv8.md, “В ходе обысков на предприятии Metalferos задержано 7 человек”, Dec 2020, https://bit.ly/2Prjgqd

[56] Commission Regulation (EC) No 112/2009 at (48) and (109), https://bit.ly/39Y169i

[57] TV8.md, “Контракт на поставку энергии с Молдавской ГРЭС продлен до 30 июня”, March 2020, https://ru.tv8.md/2020/03/31/kontrakt-na-postavku-energii-s-moldavskoj-gres-prodlen-do-30-ijunya/

[58] Vedomosti.ru (2016), ”Газпром назвал текущую себестоимость добычи газа”, https://bit.ly/2BtkCgl

[59] Supra note 10

[60] https://www.legis.md/cautare/getResults?doc_id=73726&lang=ru

[61] http://lex.justice.md/viewdoc.php?action=view&view=doc&id=325108&lang=2

[62] http://lex.justice.md/ru/346670/

[63] http://www.vedomosti.md/news/viktor-parlikov-gazoprovod-yassy-ungeny-sam-po-sebe-ne-imeet

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 [CD1]Another word that will also work here is motivated.

 [CD2]Number ranges are separated by an en dash. Hereafter this change will be made silently (i.e. without track changes on).

 [CD3]On p. 1 you describe this army as former Soviet. For consistency, and to avoid confusion for the reader, it helps to be consistent with terms. Please make the necessary changes so that these terms match.

 [CD4]Was Moldova already not having gas supplied (as is suggested by the word, remain)? If this is correct, leave as is.

If this is not the case, this phrase could be simplified to of losing

 [CD5]Please spell out this abbreviation (joint-stock company?) and insert the before it. E.g. …the joint-stock company…

Since it is only used once it is unnecessary to include the abbreviation in parentheses.