Ukrainians worry about gas price surge

Ukrainians and experts worried today about a surge in consumer prices, a day after Russia and Kiev reached a deal to end a gas row that rattled Europe and roiled relations between both countries.

They also expressed concern that the fallout will mean energy-inefficient industries will suffer and the sputtering economy will falter further.

Limited-income retirees coping with rising inflation and living costs have already blamed President Viktor Yushchenko’s pro-Western government for failing to improve living standards in the impoverished country of 47 million.

Now retirees like Olena Schurko, whose monthly pensions average €79, fear a hike in domestic gas prices.

“If prices go up, I won’t be able to make ends meet,” she said.

Under the complex deal reached Wednesday, Ukraine will end up paying nearly twice its current prices.

The agreement, which uses a mysterious Russian-owned company as a middleman, was hailed by both Ukraine and Russia as a victory, and politicians including Prime Minister Yuriy Yekhanurov sought to reassure the population that prices will not surge, at least not during the winter heating season.

But many ordinary Ukrainians were sceptical.

“The prices of consumer goods will surely go up and Ukrainians will not be happy about it,” said Oleh Efimov, a 36-year-old Kiev businessman.

Yulia Tymoshenko, the former prime minister who was widely known as the “Gas Princess” for her earlier role in the gas industry, called the deal “nonsense, a great trick” and “treason”.

Industrial enterprises, particularly those producing chemical products, steel and coking coal announced probable price increases.

Analysts also had mixed reactions to the deal, which stipulated that the price would stand for six months. Oleksandr Chaliy, an expert who is a former deputy foreign minister, said that the agreement will force heavy industry to improve self-sufficiency and efficiency.

But, he said, “it will, however, slow down economic growth.”

The country’s chemical and steel industries, which together account for 30 percent of GDP and 45% of its export earnings, use about 2.5 times as much energy as Poland for every pound’s worth of industrial production.

Others said that the outcome of the gas crisis might, in fact, have positive effects, and they said since the chemical and metal industries operate on huge profits, that should help shield those sectors from any increase.

“Ukrainian companies can afford the price, … which will lead to the adoption of new technologies and improve competitiveness,” said Ivan Poltavets, the head of Kiev’s Institute of Economic Research.

Poltavets predicted that ordinary Ukrainians would hardly notice any increase and said the government’s £15 billion budget for 2006 could absorb the blow.

Since Yushchenko came to office last year, the economy has slumped with the government lowering its GDP forecast three times last year.

Poltavets, who predicted GDP would grow 4.3% this year, also said the government was likely to try to put off increasing prices for ordinary residents ahead of the crucial parliamentary elections set for March.

He also cautioned that the involvement of RosUkrEnergo – the shady Russian-Austrian middleman company – as the sole provider for Ukraine’s gas supplies was bad news for the country.

“The choice buried plans for the diversification of gas supplies,” he said.

Ukraine purchases about 40% of its gas needs from Russia, while the rest comes from the Central Asian nation of Turkmenistan for prices currently set at €44 per 1,000 cubic metres.