ECONOMICS : Russians Fearful as Small State Businesses Go Private : Critics argue that owners will convert bread and milk stores into upscale outlets, leaving kopeck-pinched consumers stranded.

Flies circle a pot of steaming cabbage soup, detour to a heap of greasy meat cutlets, then buzz the few customers at steaming Cafeteria No. 42. In an airless back room, manager Ludmilla Nikolaeva bends over her accounts while two employees wander between the grubby kitchen and the nearly empty dining room.

“No one has the money to eat in cafeterias anymore,” Nikolaeva laments, sighing as she totes up another monthly balance in the red.

So far, the city government has covered Cafeteria No. 42’s losses, sinking enough into the faltering business to keep the electricity on, the food supplies up and employee salaries at a low-to-average level. But soon, authorities in this city of 1 million people on a broad reach of the lower Volga plan to privatize the cafeteria--to sell it as part of a massive auction of state property.

Top officials from the International Finance Corp., a World Bank affiliate, traveled recently to this city--site of the colossal World War II battle of Stalingrad--to plug the auction, which would push more than 1,000 state-owned shops, restaurants and services into private hands.

In theory, a privately run Cafeteria No. 42 would boast clean counters, friendly waiters, tasty food and efficient service. No longer able to count on the city to absorb losses, managers would be forced to cater to customers’ needs, rather than serving oily noodles and mystery meat.

But despite the lure of higher-quality shops, the impending selloffs terrify many in Volgograd. Critics argue that if private owners are allowed to snap up bread and milk stores, they will convert them into upscale outlets for clothing and other high-profit wares, leaving kopeck-pinched consumers stranded.

In a measure of this deep-rooted fear, two months after state-run businesses were auctioned off in Nizhny Novgorod, another Volga River city, 45% of the residents polled were still afraid they would lose their corner vegetable or milk store. Two-thirds argued that some enterprises should remain in government hands. Yet 60% said they had noticed no change in the quality or price of goods in the new private shops, although selection improved, said the International Finance Corp., which made the survey.

“People are afraid that privatization will destroy the state distribution system,” said Volgograd Mayor Yuri Chekov, who enthusiastically supports auctioning state property.

Further, managers of small enterprises say they worry that privatization will upset profitable deals they have struck with the city. As the Soviet Union crumbled last year, the government in Volgograd, as in countless other cities, relinquished its traditional role as central planner.

Technically, the state still owns almost all Volgograd shops. But bureaucrats no longer dictate which goods should fill which shelves at which prices. Instead, the city acts as a landlord, renting out enterprises and granting entrepreneurs considerable leeway in operations.

“We consider ourselves independent already,” said Galina Bolotina, chief accountant at Household Goods Store No. 11, a department store that stretches a city block.

Free to sell whatever they can find, the store’s managers now offer imported sweat suits and cigarettes next to the traditional teapots and frying pans. Profits have skyrocketed, allowing managers to raise the average employee wage to 4,500 rubles a month--only about $30 but almost double the typical pay here.

Given their comfortable arrangement with the government, store employees say they don’t see any need to buy the business outright--a move that would put all the risk, as well as the profits, in their hands.

Nikolaeva, the cafeteria manager, said: “The whole privatization process moves toward putting us out of work. We’ve been working honestly for all these years, and we don’t have the money to buy this cafeteria ourselves. Only the mafia will be able to afford it. And we’re afraid that once they own the business, they’ll kick us out onto the street.”