Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Lviv Auction Is a Timid First Step

LVIV, Ukraine - The auctioneer rattled off prices into the millions, but Maria Ivanovna stubbornly held up her card until all other bidders gave up. In less than a minute, she had spent 44 million karbovanets ($22, 000) for a five-year lease of a cocktail bar in the western Ukrainian city of Lviv.

The tiny cocktail bar was one of 17 small shops, pubs and restaurants sold off Saturday in the first privatization auction held in Ukraine.

The historic auction was a first, and very timid, step away from state control for Ukraine. Local officials started planning the auction as early as March 1992 but were forced to postpone it several times because the conservative-dominated Ukrainian parliament blocked several privatization laws.

The Ukrainian privatization scheme is well behind Russia's, and less radical. Russia sold off 40, 000 small businesses in 1992 - about a third of the total - and has started selling bigger factories at voucher auctions.

Of the 17 properties at auction in Lviv, 16 were for lease, not for sale as in Russia. While Russia distributed 10, 000 ruble privatization vouchers that can be sold freely, Ukraine plans to give its citizens special privatization credits worth 30, 000 karbovanets, (one karbovanets is worth a quarter of a ruble) but with only two options - invest them or lose them.

Despite the restrictions, citizens of Lviv bid fiercely, paying on average more than 100 times the face value as estimated by the government in 1992. In the first Russian auctions, sale prices often exceeded the nominal value by 50 times.

Maria Ivanovna, 36, shook her head in disbelief at the huge sum of money she had just spent. "We are taking a big risk in buying this place", she said. "Not one insurance company will insure us. If a different government comes to power, they may just liquidate all these shops".

Maria Ivanovna refused to give her surname. She said her brother in Chicago had provided the money for the purchase, and she was concerned this would break a rule that prevents companies with foreign partners from bidding at the Lviv auctions.

Economic reformers had to add many such restrictions and compromises to push privatization laws through a recalcitrant parliament. No buyers from outside Lviv were allowed to participate.

Ukraine has yet to distribute its equivalent of the privatization voucher - a bank account holding 30, 000 karbovanets for each citizen. Parliament member Volodymir Pilipchuk said that, while Russians were able to sell their vouchers to the highest bidder, Ukrainians can only use their 30, 000 karbovanets in privatization bids themselves.

Deputy economics minister Roman Shpek said auctions were scheduled for March. World Bank officials, who are advising the Ukrainian government on the sales, said that by the end of 1993, 60 percent of small enterprises should be privatized.

Ukraine's political uncertainty did not keep the prices down on the Lviv auction. The audience gasped as the bids shot up to as high as 110 million karbovanets for a record store.

Vasil Semizhenko, 23, had come with 400, 000 karbovanets in savings from his chauffeur's job and savings from his mother, to buy a barber shop. It sold for 44 million.

"I'm too young, I guess", he said, smiling sadly. "It was worth a try, but it did not work out". Semizhenko said he and two friends were planning to start up a tailoring business, and were looking for an office space. "But no one knew that the prices would be this high", he said. "Next time I'll know".