In a last burst of privatization before the December elections that threaten a change of political course, Russia is selling off huge government stakes in its best companies, including the jewels of its shipping industry.

Russia this week announced 26 auctions to be completed over the next two months for stakes ranging from 5 percent to 51 percent in key companies, including oil giants Lukoil, Surgutneftegaz and Sidanko, metals companies like Norilsk Nickel, producer of 10 percent of the world's nickel, and the company that makes the Sukhoi fighter plane.The auctions also cover big shipping and marine companies, including Novoship, one of the world's top 10 tanker fleets based in the Black Sea, Far Eastern Shipping Co. which dominates Russia's Far East trade, as well as North-West Shipping, Murmansk Shipping and some medium-sized ports including Arkhangelsk and Murmansk on the Arctic Sea and Tuapse, an oil port on the Black Sea.


The sales are designed to raise revenue and promote restructuring but they are also timed to put share parcels into the private sector before the December parliamentary elections which are widely predicted to see a switch to the left in Russian politics.

Anders Aslund, senior associate with the Carnegie Endowment and an adviser on Russian reform, said that the timing of the sales was closely linked to the uncertainty surrounding the elections.

"The reformers know what they can do today but they do not know what will be possible after the elections," he said.

He does not believe that property rights would be threatened by the elections although he said the privatization of the oil and gas industry was most at risk.

The Russian Communist Party, which polls predict will be the biggest party in the new parliament, although well short of control, has made no secret of its concerns over the privatization process.


Communist Party leader Gennady Zyuganov spoke Wednesday to the American Chamber of Commerce in Moscow, reassuring U.S. executives that he was pro-investment and would not break existing contracts. He said, however, that after the elections he wanted the government to have control over the energy, transport and communications sectors.

Russia's entrenched corporate directors have reacted negatively to the auctions that amount to a second wave of privatization, selling off the big stakes that the state did not sell in the first round of voucher privatization that ended last year.

The directors say that because of Russia's political and legal instability, their companies are undervalued and will be sold for a song. They are also afraid that the auctions will give control of their companies to unwelcome or hostile owners, especially to foreigners. "If this goes ahead, foreigners could get hold of a controlling stake," Viktor Miskov, general director of Fesco, told the Reuters news agency.

In fact, foreign companies have already been restricted on national security grounds from bidding directly for some of the key companies, most notably

Norilsk Nickel and Novoship, although investment experts say that rules excluding foreigners may be difficult to enforce.

Igor Plotnikov, a spokesman for the Russian Privatization Ministry, said that the rushed sales were needed to meet targets for privatization revenues for this year's budget. The government plans to raise $670 million by year's end.

Mr. Plotnikov said that the sales are also the only way to bring in new management ideas and investment and turn the companies around.

The coming sales are also clouded by the complexity of the deals that are mostly not direct sales but use a complicated scheme, known as "loans for shares," which is a mixture of a futures contract and a loan against the security of shares.


In the coming month, investors will make bids for the right to manage the parcels of shares that are put up for auction. The winners will make payment in the form of loans and will receive some management control but not full ownership.

At a later date, between three months and three years from now, the winners will be required to sell their shares, receiving repayment of their loan, interest and a 30 percent slice on any rise in the share price under their management.

The Russian Privatization Ministry believes that the formula will ensure that despite the current low prices of Russian shares, the government will retain an interest and will get a big slice of any upside from restructuring the companies.

Tom Reeves, an analyst for U.S.-owned stock broker AIOC Capital, said, however, that the complexity of the deals and the speed of the sales raises the concern of insider trading and corruption. "It could be that the only people who will be able to make money are Russian banks with connections," he said.


This process has already worked for the more powerful companies who have been able to secure more favorable deals. For example, the government has agreed with Lukoil, Russia's biggest oil company, that it will only sell 5 percent of its shares under the loans for shares scheme. It will sell another 15 percent of the shares via an investment tender that will bring money to the company rather than the budget. A Lukoil official who asked not be identified said that the company had "got what it asked."

Sergey Teryokhin, financial director of Novoship, said that the speed of the auctions meant that his company would probably be sold for well under its real price. The starting price for a 35 percent stake in Novoship on sale in the "shares for loans" scheme is $27 million compared to assets of $660 million as identified by an official audit by Coopers & Lybrand. The government is simultaneously selling 10 percent of Novoship at a more conventional auction.


Mr. Teryokhin said that he was concerned that investors who acquired shares in Novoship should have a long-term view of the company and not just be interested in asset stripping. "We are quite worried what kind of buyer we will get," Mr. Teryokhin said.

The price of shares in Russian companies has been kept well below their asset value by a combination of corporate mismanagement and a poor share market infrastructure. The government has been trying all year for a more gradual program of sales but has attracted little interest.