Unprecedented Auction Puts Russians in Business : Privatization: Sale organized with aid of World Bank agency is part of plan to speed economic transition.

When Lot. No. 4, the big Radio-Technika Store on Sovnarkomovskaya Street, was announced by the auctioneer, Elvira Nikolayeva immediately held up her numbered white placard to bid, and her hand wavered only a little as the amounts rose quickly from 300,000 rubles to her winning bid of 2 million.

“It’s ours!” Nikolayeva said in jubilation to her colleagues after the auctioneer banged his gavel and declared the property sold. “We did it! Now, all we have to do is pay for it.”

Radio-Technika’s 72 workers had just bought their store from the city of Nizhny Novgorod under Russia’s slowly gathering efforts to privatize its state-owned enterprises and thus speed its transition from socialism to a free-market economy.

“We have great hopes for our store and were even ready to pay more, much more,” said Nikolayeva, elected the enterprise’s commercial director on the basis of her plans to reorganize the shop and diversify its products.

“We are sure we will do better since we will be working for ourselves. We know our market, we know our products and, most important, we realize the rubles we earn go into our own pockets, not the state’s.”

Radio-Technika’s was one of nine “worker collectives” that bid successfully Saturday for their enterprises in Russia’s boldest privatization program--Nizhny Novgorod’s plan to auction all its 2,000 retail stores, corner shops and small businesses over the next six weeks.

Twelve more shops were also sold in the fast, often furious bidding to other buyers, mostly entrepreneurs believing that the poorly run state stores would turn into retail gold mines under private ownership with good management, creative marketing and, most of all, hard work.

An empty shop in an outlying residential area went for 55,000 rubles, a store selling crystal and glassware in the city center was sold for 10 million rubles, and Marina Bortman realized her dream of a shop of her own when she and her friends bid 2 million rubles for a hair salon they intend to transform into a grocery selling produce from private farmers.

“A business of our own won’t be easy, but it will be paradise to work for oneself,” Bortman, 30, said after buying the small beauty parlor, just 420 square feet of selling space. “I’m not worried about making back the investment. People want to buy the farmers’ produce close to home, the farmers want someone to sell it, and we will be this market.”

Altogether, the winning bids came to nearly 45 million rubles, most of which goes to local, regional and central governments. Ten percent goes to compensate workers who may be laid off by the new owners of privatized businesses.

(Because the ruble is worth only one U.S. cent at current exchange rates, foreigners were barred from the sale to prevent them from buying up everything; even the 10 million rubles paid for the downtown crystal shop amounted to less than $100,000. Foreigners are likely to be able to buy such properties only in a year.)

The Nizhny Novgorod auctions, organized with the help of the International Finance Corp., a World Bank affiliate, are the first serious attempts at privatization in Russia, and their success is seen as critical for a nationwide selloff of state property and development of a market economy.

“This difficult process of privatization cannot be carried out by the wave of a magic wand,” Yegor T. Gaidar, Russia’s first deputy prime minister for economic reform, said after the auction. “But finally this process is on a ‘conveyor belt’ so that it becomes a pattern we can apply in other regions.”

Wilfried E. Kaffenberger, vice president of the International Finance Corp., which also helped privatize state-owned enterprises in Eastern Europe, commented, “In Nizhny Novgorod, we have something that will put some body and soul into all the talk of reform.”

The Yeltsin government has come under increasing criticism as prices have soared in the first stage of its reforms while state-owned monopolies have not been broken up to provide competition and bring the prices down; privatization has thus become increasingly essential for the success of the reforms as a whole.

Anatoly B. Chubais, who oversees the national privatization program, described the auction in Nizhny Novgorod, formerly Gorky, as “the breakthrough point of the privatization process” for, after three years of discussion and trial efforts, large-scale privatization is finally under way.

“I think that, in the nearest future, auctions like this will be routine across Russia,” Chubais said, acknowledging that while the auction method probably could not be applied to all state-owned enterprises, especially the largest, it did establish the principles of competition, fairness and openness in the whole effort. “Privatization is no longer an experiment, it is our new reality.”

But privatization has encountered opposition here.

About 400 protesters, mostly women worried equally about higher prices and unemployment, gathered outside the hall where the auction was held to denounce both the process and the entrepreneurs who wanted to take over the state stores.

“Shame, shame,” they shouted at Gaidar and other officials as they entered the building where the auction was held.

“This will lead only to social conflict,” Irina Krasnikova, 52, a schoolteacher, declared. “The government is forcing us into classes again, and it will be the owners versus the employees, the merchants versus the consumers, the haves versus the have-nots. Prices will be raised to increase profits. . . . Simply and clearly, the people as a whole will suffer.”

Dalia Yurchenko, 43, a laboratory technician at one of the city’s many military plants, complained, “We have a right to work under the constitution, but these sales give the new owners the right to fire the workers, many of them veterans of many years of labor. Where is the fairness here?”

And Igor Kuznetsov, 49, asked, “Where does this money come from? What honest person can pay 2 or 3 million rubles for these stores? This is all ‘hot money,’ or worse, and the Mafia (as Russians call local crime groups) is getting a chance to use its criminal profits to take over this most vital sector of the economy.”

The sales prices were fantastic for Russians, particularly in Nizhny Novgorod, a provincial city of 1.5 million about 200 miles east of Moscow; a good salary here is 1,500 rubles a month, and thus a worker at Radio-Technika committed about a year and a half’s pay to buy his share of the enterprise.

Gaidar, acknowledging that Mafia money probably did finance some purchases, said, “Socially, politically, it’s not very pretty, but . . . economically it is good to bring such money into the market, under regulation, under law and under taxation.”

To overcome trade union opposition, notably workers’ complaints that they could not compete with Mafia-financed speculators, Nizhny Novgorod Mayor Dmitry I. Bednyakov had agreed in lengthy negotiations to give worker collectives at an enterprise a 30% discount and allow them to pay the purchase price over a year.

Nizhny Novgorod’s reformist leaders have favored an open sale of small enterprises to the highest bidder as the only fair method, impervious to corruption, to sell such state enterprises, but other Russian politicians, notably in Moscow and St. Petersburg, are arguing that stores should be given to their workers.

Kaffenberger said that Nizhny Novgorod was chosen to try the auction process because its retail and service industries were underdeveloped and because its obsolete defense industries, now waiting for conversion to civilian use, will be targets for privatization in the future.

But the decisive element in Nizhny Novgorod’s selection and its success, added Anthony Doran, who heads the International Finance Corp.’s projects in Russia, was the political courage of its young leaders to “bite the bullet and go for the change.”