Shop auction gives Russian city a taste of capitalism

April 05, 1992|By Kathy Lally | Kathy Lally,Staff Writer

NIZHNY NOVGOROD, Russia -- In this city of exile -- known as Gorky when it was bound to the Soviet past -- Russia took an important step into the future yesterday.

Twenty-one of Nizhny Novgorod's 2,100 shops were sold at auction as part of the first comprehensive privatization effort in the former Soviet Union.

Yegor Gaidar, architect of Russian economic reform, flew in from Moscow for the occasion. "We've finally managed to form a base of privatization, a model that can be used all over Russia," he said.

Fearing exactly that, about 600 workers, angry and frightened at the prospect of losing their jobs under new ownership, protested outside the auction hall.

Inside, the new capitalists signed their sale contracts with a mixture of elation and anxiety.

"Now it's work, work and work," said Sergei Shirokov, describing his transformation from socialist worker into capitalist owner of an electronics store. "Nobody will give us profits. We have to earn them."

The 21 properties sold for a total of 46.5 million rubles in just over 1 1/2 hours of heart-in-mouth bidding as auctioneer Sergei Lobanov bobbed from side to side, acknowledging bidders first with a foot-long gavel in his right hand, then with his outstretched left hand.

But questions remained.

* Would there be corruption? On property No. 10, a restaurant, the bidding was low, and Mr. Lobanov didn't like it. "I have an offer for 4 1/2 million, so I'm withdrawing this property," he said. Later, he presented it again, demanded 5 million rubles and got it.

"I was lying," Mr. Lobanov said, rather merrily, about the 4 1/2 million-ruble offer. "There was collusion. I could tell they were keeping the price down. So I lied and said there was a higher offer," forcing an honest bid later.

* Would new owners fire the old employees? "It's difficult to say because I don't know them, but probably I'll keep them," said Ludmila Gaiduchenko, a tourist agency operator who bought a sewing shop for 3.6 million rubles.

* Would the privileged profit, to the detriment of workers? "Nine shops were bought by workers' collectives, and I think we need to applaud this," said the mayor, Dmitri Bednyakov.

Privatization has been stalled throughout Russia over such questions: Should workers, who have put in years at low pay, have first rights to buy? If so, is that fair to a teacher? And how do you sell a city?

"In 1917, the Bolsheviks took all the property from the people for free," said Vladimir Fabrichev, a 25-year-old shoe repairman who was demonstrating outside yesterday. "And now they're selling it back to the people at a high cost."

Until January, Sveta Konnova was making 340 rubles a month in the hairdressing salon where she works. "Shops are selling for several million," she said. "We will not earn this money in our entire lives."

Over the past six weeks, Nizhny Novgorod has been sorting out these questions with the help of the International Finance Corp. (IFC), an arm of the World Bank.

This city, east of Moscow on the Volga, might seem an unlikely choice for revolution. It was here that dissident Andrei D. Sakharov was hidden from the rest of the world for seven years. Until September, the city was closed to the eyes of foreigners.

The IFC chose this city because of its new leadership: Boris Nemtsov, the governor of this region of 4.5 million people, is a 32-year-old physicist appointed recently by Russian President Boris N. Yeltsin. Mayor Bednyakov is a 40-year-old former police official, appointed by Mr. Nemtsov.

"We looked for political commitment to reform and for political consensus so you don't get the Moscow situation where the process is frozen," said Anthony Doran, director of operations in Russia for the IFC.

Nizhny Novgorod tried to assure fairness by opening the auctions to everyone -- all Russian citizens. But workers get a break -- a year to pay and a discount of 30 percent.

Fifty percent of the proceeds go to the city budget, 20 percent to the Russian budget, 10 percent to the regional budget and 10 percent to a fund to help unemployed workers. The rest will be divided among other agencies, including those that handle privatization.

Two weeks ago, the first of two trial runs was held. Despite fears that the people of Nizhny Novgorod wouldn't take the plunge, there were 46 bidders for 10 shops.

Buyers bought, despite the difficulty of getting financing and the lack of Western-style banking. The interest rate is above 40 percent for a three-to-six-month loan.

The buyers were reluctant to say where the money was coming from. "It's a commercial secret," said Mr. Shirokov, 33, who bought the electronics store for 2 million rubles -- along with the 56 other employees of the store.

Lev Y. Gorobeynik, the 37-year-old director of a food store that will be sold in a few months, said that he and his co-workers fear that they won't be able to afford their store but that they will be fired if someone else buys it.

"It's like we're in the subway now," he said. "The lights are behind us, and the dark is before us."

Not at all, insists the governor, Mr. Nemtsov. "Now we are going back to a normal market and there isn't a single country where the market has made conditions worse," he said.

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