Russia's Big Enterprises Privatize, With Communists at the Ready

VIKTOR PERSHIN, a robust World War II veteran, filled out a form, plunked down a stack of vouchers, and amid the flashes of cameras became the first participant in a pilot privatization program here.

But shortly after signing up to buy shares in a tractor-making plant, Mr. Pershin - the poster-person for Volgograd's experiment in capitalist transformation - revealed that he considers himself a card-carrying Communist.

"I was a member of the party and I never left it," said Pershin, who is not only a shareholder, but also an employee at the Volgograd tractor factory named after Soviet Secret Police founder Felix Dzerzhinsky.

"We don't want to let the factory fall into the hands of some outsiders," he continued, explaining the contradiction between his beliefs and his actions.

Such conservatism is just one of the problems that government officials are trying to overcome as they pick up the pace of Russia's privatization campaign, the linchpin of the country's market reforms.

Lingering confusion among a significant part of the population - as well as political conflicts - also threatens the privatization effort.

The program in Volgograd, an industrial hub on the Volga River about 600 miles southeast of Moscow, marks a new stage in the sell-off of state-owned enterprises. Previously, privatization had been limited mainly to small enterprises.

Under the Volgograd program, launched Feb. 8, 20 medium- and large-scale enterprises are being privatized through a six-week public offering of shares, purchased primarily with privatization vouchers that have been distributed to 96 percent of Russia's 150 million citizens. Each voucher has a face value of 10,000 rubles (about $17), but they have sold for about half that on commodities exchanges.

The Volgograd effort - conducted with the help of the International Finance Corporation (IFC), a World Bank affiliate - was barely 24 hours old when Deputy Prime Minister Anatoly Chubais announced that the program would be expanded as quickly as possible to include all of Russia.

"We're confident everything is ready," said Mr. Chubais, Russia's privatization supremo. "On the basis of practical experience ... such as in Volgograd ... we have verified that our approach is proper."

CONTRASTING with the determination of privatization officials to push ahead, however, is the confusion expressed by many average Russians about the process.

"I have no idea why they've distributed these vouchers," said Nikolai Ivanov, a pensioner in Volgograd. "I don't know what to do with mine."

In Volgograd, a city of 1.2 million, officials have established a privatization information center. About 700 people, including Mr. Ivanov, showed up on the first day of operations, officials said.

A pitfall that officials seek to avoid is privatization in which the workers end up with complete or near-total control of an enterprise. Such an arrangement would shut out up to 70 percent of the population, including pensioners and civil service employees, from benefiting from privatization, says Dmitry Vasiliev, deputy chief of the State Property Committee overseeing the sell-off.

"This process would go against the interests of the majority of the Russian Federation's citizens," Mr. Vasiliev says.

But in the case of the 27,000-employee Dzerzhinsky tractor plant - the largest enterprise being sold off in Volgograd - workers already hold a sizable number of shares, about 70 percent, officials said. And there appears little officials can do to prevent workers from obtaining most of the remaining shares if the employees so desire.

That's because many enterprises thus far have held little attraction from outside investors, particularly foreigners, officials admit. Most worrisome for the outsiders is the financial health of enterprises undergoing privatization. Many industries were loss-makers during the Soviet era, but kept afloat by huge subsidies.

IFC and Volgograd officials said they selected the 20 most financially promising enterprises in the city for the pilot privatization program, but some admitted privately there was no way to tell if they could make it under normal market conditions.

The issue of bankruptcy is another potential roadblock not only for privatization, but reform in general, says Vasiliev.

A bankruptcy law, approved by parliament in November, is scheduled to take effect March 1. But Vasiliev says the law is so weak that it will be almost impossible for a business to be declared bankrupt. Legislators have been cautious on the bankruptcy issue, expressing fears of mass unemployment and possible unrest.

"The law needs to be reworked by the parliament," Vasiliev says. But prospects for a parliamentary review look dim, given the bitter feud between the legislative and executive branches of Russia's government. Both are jockeying for position in advance of the planned April constitutional referendum that will shape the country's future political system.