|Dionis Cenuşa, Senior Contributor|
Russian pressure remains at high levels, militarily against Ukraine and through energy leverage in relation to Moldova. In both cases, Russia is counting on the aggravation of the socio-economic and humanitarian effects produced by the winter, which would weaken the government in Kyiv militarily and the government in Chisinau politically. The Russian objective pursued in relation to Ukraine is the beginning of ceasefire negotiations, which would favor Russian territorial occupations, formalized by the illegal annexation of the Ukrainian regions - Kherson, Zaporizhzhia, Donetsk and Luhansk (September 30). Russian calculations on Moldova would be to bring down the government and weaken the credibility of the ruling party. The latter could be in a position to choose between the risk of mass protests, if energy poverty is not kept under control, and respectively the request for gas negotiations with Russia, with the loss of support from pro-European segments of society.
As a result of the deliberate destruction of energy infrastructure by the Russian military, the Ukrainian population is at risk of facing a major humanitarian crisis if the infrastructure is not repaired, resumed and placed under anti-missile defense. Some voices compare Russia's actions with the "Holodomor", organized by the Soviets in 1932-33, but this time in the energy field. Air, missile and drone strikes (lately to a lesser extent) continue to target Ukraine's critical infrastructure on which the supply of energy and basic services (drinking water, hot water, sewage) depends. Since October 10, when Russia focused its military efforts on destroying the Ukrainian energy sector, about 40% of the national energy infrastructure has been attacked from the air and is in need of extensive repair. The Russian army leaves destruction even as it leaves the occupied territories, where Ukrainian forces are gradually returning as a result of an effective counteroffensive. Thus, during the recent withdrawal from the right bank of the Kherson region, Russian troops destroyed and mined most of the critical infrastructure elements of the city of Kherson (Al Jazeera, November 2022).
On the other hand, the limitation of natural gas flows to Moldova amplifies inflationary trends, because Moldova is forced to massively increase energy sector spending. The reduction in the volume of gas by up to 50% of that established in the contract signed in October causes ramifications of the energy crisis (IPN, November 2022). The government is indebted from externally requested loans to cover the cost of energy resources and the population, as a result of the inability to pay current bills. The outbreak of social tensions can be avoided if the authorities guarantee a sufficient degree of social protection for vulnerable groups and effective crisis communication. In addition to investigating illegal funding linked to kleptocratic groups and pro-Russian political forces and punishing the culprits in accordance with the law, the authorities must provide political guarantees that they remain firmly anchored in the reform process. In this sense, the recent scandal related to the serious accusations against the Minister of Justice Sergiu Litvinenco. He is accused of political interference in the decision-making process in the justice sector must be the subject of an impartial investigation (BalkanInsight, November 2022). In addition, Moldova must prepare for negative scenarios according to which certain parts of the population of the Transnistrian region (in total - 350,859 inhabitants), in the face of a humanitarian crisis, may need the assistance of the constitutional authorities, including as internally displaced persons.
Multilateral aid to Ukraine: resources for winter survival and post-war recovery
Before the beginning of air strikes targeting Ukraine's energy infrastructure, Russian military aggression destroyed the physical infrastructure based on the military presence and movement of Ukrainian ground forces. Thus, in the first 6 months of the war, the greatest material losses recorded by the Ukrainian side affected five sectors: housing (47.8%), transport infrastructure (35.1%), industry (9.7%), education (4.3%), agriculture. sector (4.3%), etc. (Statista, September 2022). Losses were approximately $97-114 billion. At that time, international financial institutions estimated that Ukraine would need at least €349 billion for post-war reconstruction. The recent destruction of the energy infrastructure means that the financial needs essential to the functioning of the Ukrainian state are constantly increasing.
The US provides a steady stream of financial assistance for military purposes, which on November 10 announced a new tranche of $400 million. Thus, the US military assistance provided to Ukraine since the beginning of the Russian military aggression has reached $19.3 billion. The EU has announced that the approximately €5.1 billion budget of the European Instrument for Peace (IEP) is 85% spent. Of this figure, €3.1 billion, or around 55% of the total budget, was transferred to Ukraine. In the process of establishing the International Fund for Ukraine, the Dutch authorities expressed their willingness to pay €100 million for military purposes. Bilaterally, Germany wants to allocate €1 billion from its national budget in 2023 to support Ukraine's cyber defenses and document war crimes committed by Russia (Euronews, November 2022).
In addition to the financial support of the military component, there is a great need for money to keep Ukraine's economy viable and essential budget expenditures. To mitigate the negative effects on the population caused by Russia's destruction of critical infrastructure, the US Agency for International Development (USAID) will allocate $55 million to repair the heating system in Kyiv and another $216 million as humanitarian aid for the winter period (total - $271 million). In this regard, the EU is trying to achieve unanimity to create a financial mechanism that will provide financial resources of €18 billion (€1.5 billion per month) for the monthly budget needs of the Ukrainian side in 2023. It is very likely that Hungary will be pushed to accept the implementation of this mechanism after all, although it tried to condition its vote on unlocking access to EU post-pandemic recovery funds (€13 billion euros). More than that, there is another €3 billion of the amount promised by the EU in May (€9 billion), which could only be allocated in early 2023.
Estimates from the International Monetary Fund (IMF) show that by 2023 Ukraine will need monthly injections of $3-4 billion to stay afloat. If the EU provided half of this amount, the US and international financial institutions could cover the rest. The EU's decision to create a specific financial mechanism for Ukraine comes as Washington has said that the burden of supporting Ukraine must be shared among Western allies. According to October data, the US provided about 55% or €52.3 billion of total government aid (including €26.9bn for military aid) to Ukraine (€93.8 billion in the first 7 months of war), and the EU and member states: 31% or €29.2 billion (IfWKiel, October 2022). In addition to current spending, the Ukrainian authorities are engaged in active diplomacy to prepare the ground for a post-war "Marshall Plan" worth at least €750 billion. This amount has already been expressed in the context of the conference on Ukraine in Berlin (October 25, 2022). This amount could be confirmed in Paris, where another conference is expected to mobilize assistance for Ukraine (December 13, 2022). Without Western financial assistance, Ukraine will not be able to regain its territories, but, first of all, to ensure defense against future Russian offensives and to maintain the state in a functional state. In this regard, in addition to conventional weapons, Russia will take advantage of harsh winter weather conditions in combination with the repeated destruction of critical infrastructure in the energy sector.
Financial aid for Moldova to support energy costs
Moldova is seeking financial resources to manage the energy crisis, which also exposes it to unforeseen costs due to the loss of access to cheap electricity from the Transnistrian region. Inflation affects the purchasing power of Moldovans. The most significant increase in prices was registered in public services (utilities) - almost 52%. By mid-November, more than 500,000 people had registered to obtain compensation for natural gas consumption during the cold period of the year (November 2022-March 2023). The authorities are willing to cover almost half of the natural gas tariff of 15 Moldovan lei per m3 (€0.76 per m3). In this way, the compensation for 500 thousand inhabitants for just one m3 will constitute 7.5 million Moldovan lei or about €389,000. On average, gas consumption can exceed 100 m3 per apartment during the cold period of the year, and the authorities want to cover the cost of half of that volume, for those citizens who apply for social aid. Based on rough estimates, we can conclude that social compensation could cost the government tens of millions of euros this winter.
Government representatives mentioned that the country would need around €1.1 billion to cover the costs of energy resources this winter. In addition to the money needed to support the compensation mechanism, the authorities must purchase electricity that is more expensive. It is bought from Romania, which replaces about 90% of imported electricity flows from Ukraine and the Transnistrian region between May and September 2022 (80% of internal consumption), interrupted because of Russia. Prime Minister Natalia Gavrilița announced that the government wants to solicit from the external partners up to €450 million to prepare for a possible interruption in natural gas deliveries from Russia (Politico, November 2022). This money would be needed to replenish oil and natural gas reserves. The government allocated €10 million (200 million lei) for the acquisition of new batches of fuel oil and modified the budget to allocate €202 million (4 billion lei) for the purchase of natural gas and electricity. Strategic gas reserves remain in Romania and Ukraine, at around 160 million m3. However, this volume is enough for about a month (5.7 million m3 per day). Theoretically, for consumption during three months (December, January and February, the coldest months of the year), more than 320 million m3 would be needed, stored in gas underground storages in neighboring countries.
In November alone, Moldova was promised €40 million in budget aid from Germany for social compensation. A new tranche of €200 million of the EBRD loan for a total amount of €300 million is about to arrive. In addition, it was decided to borrow €60 million from the French Development Agency. During the visit to Chisinau, the President of the European Commission, Ursula von der Leyen, announced a financial aid of €250 million, of which €200 million are for the management of the energy crisis (half of the sum is in the form of budget support). This gesture is a manifestation of solidarity with Moldova, but also political support for President Maia Sandu (both politicians are part of the European People's Party family). It is not clear if the EU applies any conditionality to the new financial assistance. However, the political situation in Moldova and the latest scandals related to judicial reform would require an urgent review of the EU's lax approach to the use of the conditionality mechanism in Moldova.
The financial aid announced in October-November would amount to €550 million, which would represent only half of the minimum amount of €1.1 billion needed for Moldova to survive the winter without socio-political eruptions. The Moldovan authorities will probably try to use the third reunion of the Moldova Support Platform, to be held in Paris (21 November), to obtain additional funds.
In lieu of conclusions...
In all the amalgamation of requests from the Ukrainian authorities and the intersections of Western offers, urgent objectives must prevail. At its top is the restoration and strengthening of the energy infrastructure so that state institutions, social infrastructure, the population and the army can resist Russian aggression. At the same time, Moldova's energy vulnerabilities make it extremely sensitive to Moscow's political decisions in the field of gas exports. The energy situation of the two countries (Ukraine and Moldova) may be complicated if Russia decides to stop the supply of gas through Ukrainian territory in the dead of winter. This could create shortages in the European energy market, which will inevitably affect the price, even if the EU intends to cap the gas price.
The parameters of Western financial assistance for Ukraine and Moldova are essential so that they can provide their population with the minimum public services. Russia is determined to exploit the weaknesses of Ukraine and Moldova in the energy sector. Therefore, Western solidarity towards these states is the main ingredient to strengthen their energy resilience in the face of the “Russian winter”.
Areas of research: European Neighborhood Policy, EU-Moldova relationship, EU's foreign policy and Russia, migration and energy security.
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