Promoting Government Accountability in Moldova A project supported by the National Endowment for Democracy and implemented by Business News Service /Mold-Street.com during 1 May 2017 - 31 May 2018 The version in English 1 Project coordinator: Eugeniu Rîbca All rights reserved Mold-Street.com © 2 Instead of Pay Raise, Government Prepares Pay Optimization in Public Area Public sector employees – especially in the education area – continue to nourish hopes for a perceptible pay raise. This expectation however is unlikely this year, because the salary bill for teachers and lecturers is al- ready too expensive, the Government says. Earlier protests with education employees forced the Govern- ment to pass a number of decisions regarding the remuneration improvements. One of decisions envisages a salary increase for education staff in public institutions and for other employees based on the Common Tar- iff Network. Pay raise promises Starting May 1, 2017, the public education staff in Moldova will receive a monthly raise of 100 lei (5$) and from September they will get a 10% raise, the Labor and Social Protection Ministry announced. At the same time, current legislation and the 2016 economic performance would allow to raise teachers’ salaries by 5.3% while the Government would be looking for additional funding during the amendment of the 2017 budget. On the other hand, the Government admits in the Additional Memorandum on Economic and Financial Poli- cies with the IMF that it is short of resources to increases the public spending, including salaries. Salary expenses are “too large” "On the expense side the salary expenses in the public sector exceed the targets that have been established in the Memorandum with the International Monetary Fund which was signed on October 24, 2016," the execu- tive said in a press release. The main reason is the approval of a new law on retirement pensions in Decem- ber 2016, which applied general rules on social contributions for all categories of public sector employees. "It is expected that the net impact on the public budgetary deficit will be limited, given that the increase of salary expenses in the public sector will be compensated significantly by larger revenues to the social fund," the release reads. Government: Blame the pension reform! In 2017 the spending for public sector salaries will amount to 12,461 million lei, which is 537 million lei (+4.5%) above the target of 11,924 million lei, with governmental official blaming the reform in the retire- ment pension system. "The reform […] started in order to make the retirement pension system fairer, more sustainable and more transparent. The Law on Pension System Reform which was passed in December 2016, foresees: (i) enforcement of a new calculation formula, which would ensure a stronger connection between contributions and pensions in order to improve the coverage and conformity; (ii) gradual increase of the retirement age up to 63: for men until 2019, for women until 2028; (iii) application of identical meth- ods of calculation of contributions and pensions across the entire public sector; and (iv) payment of a basic pension to reduce poverty among the elderly," the document reads. In parallel, the Government says it has begun a complex administrative reform that is due to complete in autumn 2017, just ahead the debates on the 2018 budget where the costs of this reform should be added. Optimization of salaries at the horizon This task is clearly mentioned in the IMF-Moldova agreement: Optimization of salaries and labor force in the public sector shall begin in every sector apart, and the system of motivation of employees and the mechanism for incentives shall begin too. The targets refer to the maximum salary level in the public ad- ministration; minimum social expenses in the public administration; and the top ceiling for the government’s internal arrears. Premier Pavel Filip blames the previous governments for the state of the remuneration system – without naming one. „For years, in a populist and non-transparent way, governments of Moldova changed parts of the system for certain categories of beneficiaries, and thus they undermined the integrity and viability of the remuneration system. For these reasons, I have requested the crafting of a new remuneration system concept 3 in the public sector. We need a unitary system, fair and strong,” the prime minister said at a meeting with a reform taskforce. Rank or performance? The draft concept of Mr. Filip’s reform has been prepared and will follow the principle “equal pay for equal labor” – which means the salary will be linked to the rank of the job. The draft calls for reducing the com- plexity of the remuneration system by increasing the pay size for the job ranking compared with the total salary; this is designed to make the public jobs more attractive for young specialists. Performance is another principle in the new concept; it will be applied in the case of most categories of em- ployees where remuneration will encourage the so-called flat growth and development based on perform- ance and experience. The document also provides for a growing degree of uniformity, clear rules, fairness, transparency and protection of the unitary nature against eventual interferences, according to the premier. © * * * The Battle for Moldovagaz: 20 Companies Reorganized into Three Entities The plan to restructure the Russian-Moldovan joint venture Moldovagaz in compliance with “European Di- rectives” is set to win approval at the annual meeting of shareholders on 26 May 2017, sources in the Moldovan Government say. It is the Third Energy Package of the European Union and new national laws on natural gases that entail Moldova to break up the domestic gas monopolist. The company is owned by Rus- sia via Gazprom (50%), Moldova (35.33%), separatist Transnistria 13.44%, with small shareholders ac- counting for 1.3%. Three to stay out of 20 The group is currently represented by 20 smaller, regional firms, and after reorganization only three entities will remain on the Moldovan gas market. The first one, Moldovagaz S.A., shall continue to import natural gases from the Russian Federation and shall assume a debt of more than 700 million dollars towards Gaz- prom. The other, Moldovatransgaz S.A., will handle the transportation and transit operations. The fate of a subsidiary that manages the butane and propane filling stations is yet unclear. Chișinău-Gaz S.R.L. will clue the remaining 12 limited liabilities that deal with the distribution and delivery of gases to consumers. Chișinău-Gaz will become the most important and largest gas business in Moldova. Last march it welcomed a new chief, Ruslan Garbali, a Socialist member of the Gagauzian regional legislature who had run the pledge management department at the Moldovan Savings Bank (BEM). The bank was closed in 2016 over its role in a billion-dollar financial fraud two years earlier. Mr. Garbali will manage a company with a turnover of five billion lei. Whether Moldovagaz chairman Va- sile Botnari, a former minister on behalf of the ruling Democratic Party, will keep his job is unclear for the time being. "It is not a simple reorganization – we are running a whole restructuring of the group of compa- nies that are part of Moldovagaz," Deputy Prime Minister / Economy Minister Octavian Calmic promised in an interview published by Deschide.md. "We shall create distinct enterprises for the transportation, distribu- tion, and supply of natural gases. We don’t have such a structure at present. There is now a mother com- pany, and a number of regional daughter firms and our plan is to implement a reorganization based on other principles,” Mr. Calmic stated. The deputy premier pointed to the European Union’s Third Energy Package and a number of Moldovan laws which the Chisinau Parliament passed in 2016 and take effect in 2017-18. In October 2011 Moldova had committed itself to enforce the Third Energy Package until January 2015 and then negotiated a deferment until 2020. The E.U. Directives oblige the signatory countries to break up mo- nopolies into separate operations and to ensure equal access to the transportation, distribution, and storage of natural gases. Distribution will be thus taken over by an entity acting independently from the producing cor- poration – Russia’s gas giant Gazprom. The latter, which is controlled by the Russian government, has 4 claimed that the Third Energy Package was designed namely against Russia. Gazprom empire in Moldova Gazprom currently controls the entire journey of natural gases from the Siberian probes to the homes of Moldovan consumers, either directly or via Moldovagaz. According to the investigative portal RISE- Moldova, directly and indirectly Moldovagaz officially controls 19 gas distribution firms (100%), transpor- tation company Moldovatransgaz, and gas servicing enterprises Flacara Albastră in Chișinău and IALG in Strășeni. Moldovatransgaz in turn is a parent company of Transautogaz, and Bălți-Gaz, a subsidiary, owns Bălți-Gaz-Montaj and Realexpres-Gaz in Sângerei. Moldovagaz also appears as a founder of the distribution enterprises in the secessionist region of Transnis- tria. In its annual reports for 2008-2009 it admitted that 25% of Tiraspoltransgaz is its property; the latter in turn has six enterprises in its property. Gazprom currently manages the assets in Transnistria and is expected to take over all of them in exchange for the region’s huge debts. Moldovan Deputy Premier Octavian Calmic said all low- and medium-pressure tubes which Moldovagaz has been using for years would be transmitted into the permanent ownership of this or other company that appears as a result of reorganization. According to Moldovagaz records, it currently owns just 34.3% of the distribution network while the remaining 65.7% of networks don’t appear in any property acts.