ELENA GLADYSHEVA, MANAGING PARTNER OF RI-CONSULTING, FOR GENERAL DIRECTOR MAGAZINE ON THE COURT PRACTICE OF DISPUTES ON VIOLATION OF PRIVATIZATION RULES

The RF Prosecutor General's Office filed a lawsuit with the Arbitration Court of the Perm Territory to contest the results of the privatization of Solikamsk Magnesium Plant JSC, the only Russian processor of rare-earth materials and radioactive elements. The company shares are to be taken from four Russian citizens to be owned by the state. Solikamsk Magnesium Plant JSC (SMZ) was founded in 1936 in Solikamsk (Perm Krai). Today, in addition to magnesium, the plant produces sponge titanium, niobium, and tantalum. The largest shareholders of the plant are Sergey Kirpichev, Igor Pestrikov, Pyotr Kondrashev, and Timur Starostin (together they own 89.5% of shares). The General Prosecutor's Office demands that the SMZ shares be returned to Russian ownership and on October 4, the court banned the shareholders from making transactions with the company shares as per the plaintiff's petition. The General Prosecutor's Office insists that the privatization of the Solikamsk Magnesium Plant, which occurred in 1992-1996, violated federal law. State property left the ownership of the Russian Federation "against its will".

According to the prosecutor's office, SMZ worked and operates with radioactive materials and waste, and such enterprises were subject to a special privatization procedure in 1992 - permission from the federal government was required, which was not obtained. The decision to privatize the company was made by the Perm Region Property Management Committee which was not entitled to do so. The main product of Solikamsk Magnesium Plant is magnesium, but the plant also controls Lovozersky GOK, the only operating producer of rare-earth metals as well as niobium and tantalum, which are strategically important metals for the development of the machine-building and defense industries in Russia.

According to the data of General Director. Counterparties website, revenues of Solikamsk Magnesium Plant in 2020 amounted to 7.9 billion rubles, net profit - 357.5 million rubles. Fixed assets amounted to 2.6 billion rubles. Accounts payable - 1.2 billion rubles, accounts receivable - 837 million rubles. The plant is not involved in major legal disputes with counterparties, since 2019 there is a shareholder conflict at SMZ, with Igor Pestrikov (24.99%) on one side and the remaining shareholders on the other. At the request of the Federal Antimonopoly Service, some of the transactions on the acquisition of shares by Kondrashev, Starostin, and Kirpichev were found to be illegal.

According to Elena Gladysheva, Managing Partner of RI-Consulting, this is not the first dispute in Russian court practice on violation of privatization rules. "For example, in 2017, the court considered a dispute about the legality of leasing a site for the disposal of waste of hazard classes I-IV to the company. The court found that this site could not be privatized and leased. At the suit of the prosecutor, the disputed site was formalized into federal ownership," she noted. According to Yelena Gladysheva, the regulations of the 1990s allowed privatization of enterprises processing radioactive and rare-earth elements only by decision of the Russian government. "These provisions, among others, are the basis of the General Prosecutor's lawsuit against Solikamsk Magnesium Plant JSC. Given the particular importance of rare-earth metal mining activities, this case will have a broad resonance," said the lawyer, noting that the contractors of SMZ should take into account the risks associated with the dispute in their relations with the plant.

Source: https://www.gd.ru/news/14646-genprokuratura-osparivaet-privatizatsiyu-edinstvennogo-proizvoditelya-redkozemelnyh-metallov