Total energy supply (TES) in Moldova was 3.1 million tonnes of oil equivalent (Mtoe) in 2021.1 Poorly endowed with energy resources, Moldova is highly dependent on imported energy (77.8% of TES). Imported natural gas and petroleum products dominate the country’s energy supply (32% and 33.7% of TES, respectively) followed by domestically produced biofuels (20.5%) and imported electricity2 ― 10.4% of the TES, a share that is among the highest in the world.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
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Republic of Moldova
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
Historically, natural gas was imported solely from the Russian Federation. However, at the end of 2021, Moldova connected the gas network through to Romania via the Iasi-Ungheni-Chisinau pipeline, thus creating the possibility of alternative gas supply from EU markets, including potential access to LNG supplies from Greece.
Starting from December 2022, the Russian group Gazprom supplied natural gas only to the breakaway region of Transnistria. To increase energy security by increasing natural gas reserves, in accordance with the Provisions No.54 of the Commission for Exceptional Situations of the Republic of Moldova, the natural gas supplier S.A. "Moldovagaz" purchased natural gas from state JSC "Energocom" with the aim of delivering them to final consumers exclusively on the territory of the country. Compared to previous years, the volumes of natural gas supplied to final consumers have decreased considerably (- 30% in 2022), mainly due to significant reduction in natural gas consumption from the energy sector (- 35.3%) and from households (-25.5%).
In 2022, the country’s total electricity consumption stood at 4 TWh. Of these, 90% was supplied by the MGRES and 10% imported from Ukraine and by two domestic CHPs and one hydro power plant.
Heat production is mainly gas-fired using heavy fuel oil as a reserve fuel. In 2022, both production band delivery for consumers decreased by 18% compared to 2021 due to Gazprom restrictions and high prices.
Oil products are imported, mostly from Romania, and amounted to 0.86 million tonnes in 2022, including gasoline (169 000 tonnes), liquefied petroleum gas (55 000 tonnes) and diesel fuel (636 000 tonnes). After increasing by 9% in post-pandemic 2021, the consumption of oil products decreased by 2.5% in 2022.
Energy prices and taxes
The National Energy Regulatory Agency (ANRE) is the government agency responsible for regulating and approving electricity, gas and heat tariffs in Moldova based on applications from energy generation and distribution companies.
In October 2021, Moldova Gaz and Gazprom extended the natural gas supply agreement by five years. According to the provisions of the new contract, Gazprom requires payment for the delivered natural gas to be made in advance by the 20th of each month. After signing of the new agreement, the price on natural gas significantly increased from 526.6 to USD 1 381.6 per 1000 m3. Natural gas tariffs for households increased by 21% in 2021 and was further multiplied by 3.3 in 2022. Tariffs for district heating also increased by 9% in 2021 and by 90% in 2022, while electricity tariffs decreased by 12% in 2021, but increased by 58% in 2022.
The oil products market is open to competition, with about two hundred licensees in the import and retail trade. However, the competition is de facto limited: large regional companies (Lukoil, Petrom, Rompetrol), which incorporate the entire value chain and have the flexibility in profits reallocation dominate the domestic market of oil products. Nevertheless, during 2021, the Moldovan parliament adopted several amendments to the Petroleum Products Market Law, providing for the establishment of new general rules for the calculation and application of prices for basic petroleum products to ensure the fairest prices for gasoline and diesel fuel, considering the existing fluctuations on international and regional exchanges (Platts). By Decision of the ANRE No. 376 of 1 September 2021, changes were made to the Methodology for calculating and applying prices to petroleum products. As a result, the Agency sets the daily maximum retail prices of the main standard oil products and adjusts the size of the specific commercial margin every six months, which are used to determine the maximum prices.
The taxation system of Moldova consists of six general state taxes (value-added tax (VAT), excise tax, corporate income tax, personal income tax, custom tax and road tax) and 14 local taxes (property tax, land tax, natural resources taxes). Energy production and distribution in Moldova is not subject to any specific taxation beyond those taxes levied on all types of commercial activities.
The consumption of gasoline and diesel, as well as liquefied petroleum gas (LPG) is subject to an excise tax. Natural gas, compressed natural gas, electricity and heat production are not subject to excise tax. The Fiscal Code of Moldova sets a reduced VAT (8%) for the delivery of natural gas and LPG, and 0% VAT for the delivery of electricity and heat to households, while the standard VAT rate is set at 20%.
Figure 2. Total tax rebates and support for fossil fuels in the Republic of Moldova
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
The main subsidy schemes in energy sector of Moldova maintained are: (i) Reduced VAT rates for heat and electricity, natural gas and LPG consumption by households and (ii) Direct subsidies from the state budget to households to support energy consumption. In 2022 also, direct subsidies from state budget to non-household entities for energy consumption was provided. Budget support for investments in energy infrastructure, particularly, gas and electricity grids, was discontinued starting 2018 and was provided mostly as government contribution to Moldova connection to the European electricity network. The special regulations only restricted the disconnection of customers in case of delayed payment for utility services, including energy consumption.
Russia’s war of aggression against Ukraine provoked a regional energy crisis, as well the social and economic instability in the Republic of Moldova in 2022. Since November 2022, Gazprom reduced the gas supply by 50% and the separatist region of Transnistria totally stopped the supply of electricity. As Moldova is poorly endowed with energy resources and is totally dependent on imported energy, the government initiated a national action plan to mitigate the energy crisis and increase energy security and energy efficiency. In 2022, Moldova succeeded to (i) purchase natural gas from the European spot market, (ii) connect to the European electricity network, (iii) create the Fund for the reduction of energy vulnerability, and (iv) create the Fund for energy efficiency in the residential sector.
The fiscal cost of support measures for fossil fuels in Moldova was estimated at MDL 3.30 billion in 2022 (Table 1). Ninety-nine per cent (99%) was directed at end user beneficiaries, as opposed to 0% directed to firms. Support was mainly given out in the form of tax expenditures (MDL 2.23 billion) accounting for 67% of the total fiscal cost of support measures. Direct transfers amounted to MDL 1.08 billion.
The fiscal cost of support measures for fossil fuels has increased by 155% since 2017. Since last year, tax expenditures have increased by 85%, from MDL 1.27 billion to MDL 2.23 billion and direct transfers increased by 1031%, from MDL 0.12 billion to MDL 1.08 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
1.199 |
1.188 |
1.109 |
1.123 |
1.270 |
2.225 |
|
Direct transfers |
0.096 |
0.100 |
0.105 |
0.093 |
0.120 |
1.078 |
|
Total |
1.295 |
1.288 |
1.214 |
1.216 |
1.390 |
3.303 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
|
|||
|
Reduced VAT rates for natural gas consumption by households |
0.891 |
0.270 |
0.622 |
|
|
Reduced VAT rates for electricity consumption by households |
0.762 |
0.593 |
0.168 |
|
|
Reduced VAT rates for heating consumption by households |
0.471 |
0.253 |
0.218 |
|
|
Direct transfers |
||||
|
Compensation of the households for prices on energy |
0.745 |
(Started 2021) |
0.608 |
|
|
Compensation of the non-households for prices on natural gas |
0.151 |
(Started 2022) |
0.151 |
|
|
Social support to households at the border with Transnistria region |
0.089 |
0.030 |
0.060 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Reduced VAT rates for natural gas consuption by housholds |
Since 1997, under Moldovan value-added tax (VAT) rules, supplies of natural gas have been taxed at the reduced rate of 6% (in 2010-12) and 8% since 2013, while the standard VAT rate in Moldova is 20%. Whereas this reduced rate does not affect the gas price for business purposes (since most companies can deduct the VAT paid), it does imply a lower gas price for households, not-for-profit institutions, public institutions. We estimate the value of the tax revenue foregone based on the average tariff and consumption of natural gas based on the data provided in ANRE Annual Reports. |
|
Reduced VAT rates for electricity consuption by housholds |
Since 1997, under Moldovan VAT rules, supplies of electricity have been taxed at the reduced rate of 6% (in 2010-12) and 8% since 2013, while the standard VAT rate in Moldova is 20%. This reduced rate does imply a lower electricity price for households. We estimate the value of the tax revenue foregone based on the average tariff and of household consumption based on the data provided in ANRE Annual Reports. |
|
Reduced VAT rates for heating consuption by housholds |
Since 1997, under Moldovan VAT rules, heating supplies have been taxed at the reduced rate of 0%, while the standard VAT rate in Moldova is 20%. This reduced rate does imply a lower heating price for households. We estimate the value of the tax revenue foregone based on the average tariff and of household consumption based on the data provided in ANRE Annual Reports. |
|
Compensation of the households for prices on energy |
According to the Law no. 241/2022 regarding the Energy Vulnerability Reduction Fund and GD nr.704/2022, the GoM provides compensations for natural gas (within the limits of the consumed volume of up to 250 m3/month), thermal energy (up to 1.5 Gcal/month), electricity (up to 250 kWh/month) to household consumers. |
|
Compensation of the non-households for prices on natural gas |
According to the Provision no. 3/2022 of the Commission for Exceptional Situations of the Republic of Moldova, the GoM provides compensation of the price difference for the supply of natural gas to non-household consumers for the first 500 m3/month and not more than 1.5 million lei per consumer per month. |
|
Social support to households at the border with Transnistria region |
The Moldova government compensates 50% of the electricity and natural gas bills for households in certain border settlements on the border with Transnistria. These are settlements which are supplied with electricity and gas by Transnistria and accordingly pay utility bills to Transdnistria. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.
Notes
← 1. The data for the Republic of Moldova is presented according to the official statistics which do not include the estimates for Transnistrian region uncontrolled by the Moldova government.
← 2. Electricity from the Moldavskaya GRES (or MGRES) power station situated in Transnistria is treated statistically as imports.