KIEV: “Stop opening the windows” — this was the message to Ukrainians after officials agreed to almost double their gas bill to solve a pricing dispute with Russia.

Attacking the habits of Ukrainians used to subsidised gas and constant heat during the long winter, Prime Minister Yuri Yekhanurov hit at the heart of Ukraine’s economic woes — inefficiency and gas dependency — and demanded modernisation.

Analysts said the aim of developing a sophisticated, modern economy in Ukraine might take years, but energy reform had to be a priority for the government despite it being an election year.

“Ukraine’s current energy consumption pattern is probably the country’s main structural weakness,” said Sergei Voloboev, emerging markets economist at CSFB in London.

Voloboev said that, with Russia expected to build an alternative Baltic Sea gas export pipeline to Germany by next decade, the five-year gas deal with Russia offered a good means for Ukraine to adjust its economy to market prices for energy.

Ukrainian President Viktor Yushchenko hailed the deal to end Soviet-era gas subsidies as the beginning of Ukraine’s transformation into a more market-based economy.

But officials warned the agreement — raising the price of gas from $50 per 1,000 cubic metres to $95 — would also hurt the country’s industrialised economy, squeezing profits and forcing companies to look to different forms of fuel.

Analysts said Ukrainian consumers pay about $37 per 1,000 cubic metres compared with $44 by Russians. Ukrainian industry pays about $71-77 per 1,000 cubic metres. Even with aggressive measures to boost domestic tariffs for residential consumers over the next two years, retail gas prices will not reach $95.

“We need to modernise our industry, especially the metallurgical sector, also we have a challenge for our chemical sector especially for those which demand gas for their industries as the main resource,” Yekhanurov said on Wednesday.

He said Ukraine had to diversify its energy resources, find Western investors to help modernise the pipeline network and underground stores of gas, and teach a population used to living in hot apartments despite plunging temperatures to conserve gas.

“Ukrainians now know they have to conserve energy. We use it inefficiently ... because of our flats, our norms and rules when using windows. We will need to change all windows in Ukraine,” he said, referring to a Soviet-style window that has a smaller window within its pane to help regulate the temperature.

But alongside the $100 million Kiev estimates it needs to modernise gas storage and a new gas bill that could run up to around $1.5 billion extra, the government faces a tough time in implementing any wider changes, particularly at its factories.

In Ukraine’s industrial heartland of Donetsk, Mikhail Davydov, chief energy officer at metallurgical plant Azovstal, said the plant’s profits would be cut with the rise.

“We just cannot move immediately to alternative sources,” said Davydov. “We will work on that, but it won’t take a day.”

Tatyana Borodina, deputy head of the Donetsk regional administration, said the rise would hurt the metal, chemical and car manufacturing industries in the region. “I think the fuel balance will move in favour of coal,” she said.

Any more pressure on those industries could further alienate Ukraine’s Russian-speaking regions from Yushchenko’s government, and also impact its result in a March parliamentary election.

“The widespread view is that until the election new reform would be difficult because parliament is in election mode,” said Voloboev. “But certain things regarding the energy sector are so important that they cannot be postponed by several months.”—Reuters