Ukraine still feeling gas pressure

Ukrainian householders have seen gas bills double

It was a year ago that Ukrainians woke up to discover that Russia had gone ahead with its threat to cut off gas supplies.

Kiev had refused to meet demands by Moscow to substantially increase the price.

A few days later Ukraine agreed to almost double what it paid, and the gas was turned back on.

A repeat of the gas crisis is unlikely as the two neighbouring countries have agreed a deal for 2007 which puts the cost up by another 40%.

It is ordinary Ukrainians who are being hit the hardest by the consequences of the dispute.

Life is desperate and with the energy bills going up, it's going much, much worse Galina Alekseeva Pensioner

In the last year, energy bills paid by householders have gone up by more than 100%. That has sparked anger, as Ukraine is one of the poorest countries in Europe.

There has been a wave of action across the country.

Thousands gathered in the capital recently to demonstrate about the price they have to pay for gas and other utilities, which is set to increase again in January.

"My pension is worth $75 (£38) a month but the council wants me to pay almost all my pension on bills," complains Galina Alekseeva.

"Already we can't afford to eat or drink properly. We can't afford to get sick and pay for medicine."

"Life is desperate and with the energy bills going up, it's going much, much worse," she adds.

'Chain reaction'

There is now speculation in the media that some people may simply stop paying their bills.

"This problem may lead to a negative chain reaction," says political commentator Volodymyr Fesenko.

"If the public doesn't pay, this may cause a shortage of funds for the energy companies. This is fraught with political problems and risks."

Ukraine gets 30% of its gas from Russia

At the same time the cost of living in this former Soviet state is also going up.

"In the past prices were kept artificially low, but these have started to become more realistic. And so, for example, the cost of food and transport is increasing, which has been a great shock for people," says Eldar Gazizulin, an economist at the Institute for International Policy Studies in Kiev.

Ukraine remains one of the biggest consumers of gas in Europe. Its industry is dominated by steel and chemicals producers.

These sectors use high levels of gas and there were fears some of these businesses would be destroyed by the increased price of energy.

World prices for chemicals and steel have however remained good, limiting the impact, but should the prices drop there are concerns these companies would no longer be able to compete so effectively on the international stage.

"It's the chemicals sector which is likely to be the first to suffer and who will face the threat of bankruptcy," says political analyst Oksana Shulier.

Wake-up call

Ukraine continues to be one of the most energy-inefficient countries in Europe.

The wake-up call that urgent action was needed to transform its Soviet-era energy systems came on New Year's Day in 2006.

It is estimated that those reforms will cost Ukraine more than $20bn, but in the last year the government spent less than $500m. "It feels like little has changed," says Mr Gazizulin.

"There have been lots of public statements about energy efficiency since the gas crisis, but the state just can't afford to spend the huge sums of money needed to properly introduce power saving measures."

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