To mitigate the escalating energy crisis, in the late 1990s Moldova embarked on an ambitious set of energy sector reforms. The objective of these reforms was the full commercialization of energy supply, accompanied by appropriate social policies implemented through fiscal instruments to protect the most vulnerable groups (the socalled nominal compensation scheme). The main elements of the reform included: (i) the development of a new, market-oriented legal framework; (ii) restructuring and corporatization of the industry whereby the country’s vertically integrated electricity monopoly was unbundled; (iii) privatization of three out of five electricity distribution companies covering about 70% of the market; (iv) divestiture of state shared in the gas industry with the majority share in the country’s monopoly gas supplier sold to Russia’s Gazprom in exchange for a portion of debt; and, (v) adjustment to the level and structure of tariffs where tariffs for all consumers where increased and equalized.<sup>4</sup> As a result of these reforms, payment collections increased especially in the electricity sector. While some collection problems persist, particularly with state-owned entities – such as district heating and water companies – collection rates reached 92% for gas and 98% for electricity in 2005. Further, the quasi-fiscal deficit has been significantly reduced and the government has stopped accumulating external debt for gas and electricity imports.

# **III. Energy Dependency and Vulnerability**

**Table 1.  2003 Energy Balance**

Moldova is poorly endowed with energy resources and it imports almost all of its primary energy (over 99 percent in 2003). Natural Gas, imported from Russia, comprises nearly two-thirds of energy imports and it is the main fuel for local electricity generation and district heating. Petroleum products account for about 20% of all energy imports and the electricity imports represent about 10 percent of all energy imports (see Table 1). The power generation system on the right bank of the Nistru river comprises of only three combined heat-and-power plants, covering about one-third of domestic electricity consumption. The rest of Moldova’s electricity needs are imported from Ukraine, Transnistria, and, to lesser (and limited) extent, from Romania. Residential (1000s tons of oil equivalent - ktoe)

|1000s tons|Percent|
|---|---|
|**Sources**||
|Total Primary Energy Supply (TPES)<br>3,267||
|Internal Sources<br>61||
|Imports<br>3,255|100%|
|Petroleum Products<br>640|20%|
|Natural Gas<br>2,185|67%|
|Coal<br>122|4%|
|Electricity<br>308|9%|
|Exports<br>(12)||
|Stock Changes<br>(37)||
|**Uses**||
|TPES<br>3,267||
|Energy Conversion and Distribution Losses<br>(1,519)||
|Total Final Energy Consumption (TFEC)<br>1,748|100%|
|Industry Sector<br>338|19%|
|Agriculture Sector<br>97|6%|
|Transportation Sector<br>316|18%|
|Commercial and Public Services<br>168|10%|
|Residential<br>661|38%|
|Other<br>168|10%|

Source: International Energy Agency, _Energy Statistics 2003._ 4 In 2003, ANRE approved differentiated electricity and gas tariffs, reflecting costs, consumption and voltage levels. In 2004, a social tariff for electricity and gas was also introduced – with a reduce price for electricity consumption of up to 50 kWh and a social tariff to residential gas consumers for consumption up to 30 cubic meters per month.

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