Fertiliser tycoon Andrei Melnichenko, Russia’s richest man with a $25bn fortune,  is facing a lawsuit from the  Prosecutor General's Office for energy assets acquired back in 2018, according to reports by RBC, Vedomosti and Forbes.

While previously the nationalisation drive in Russia has focussed on foreign assets that have not yet pulled out of the country, Melnichenko’s case shows that domestic tycoons also risk falling victim to infighting between groups close to the Kremlin and elite asset redistribution.

Melnichenko is reportedly being sued for unlawfully acquiring energy assets from the structures of former minister Mikhail Abyzov. These assets are is now owned by SGK, a subsidiary of the Siberian Coal Energy Company (SUEK), owned by Melnichenko.

The plaintiff demands to recover the shares of Siberian Energy Company (SIBECO) for the state. 

According to the Prosecutor General's Office, "in order to realise the plan and conceal his participation in the sale of SIBECO shares, Abyzov, maintaining informal friendly relations with Melnichenko, offered him to acquire the named property asset". 

The Prosecutor's Office concludes that the transaction shows signs of "bad faith" and therefore there are grounds for recovery of "all received by the parties under anti-social transactions" to the state. The prosecution argues that since 2012 Abyzov had concealed his ownership of five Cypriot offshore companies, through which he illegally managed SIBECO while he was a minister, eventually selling the asset, but violating a ban on entrepreneurial activity for state officials.

Abyzov was arrested after the SIBECO deal closed in 2018 and on accusations of embezzlement and defrauding shareholders.

RBC reminds that this is the fourth lawsuit of the Prosecutor's Office to seize private assets in favour of the state for in the summer of 2023. Earlier, the Prosecutor General's Office filed a lawsuit in connection with the "illegal privatisation" in the 1990s of Metafrax Chemicals, one of the largest producers of methanol and formalin in Russia, and demanded that the company's shares be seized from the current owners. In July, the Tefida fishery holding and the Perm port were also reclaimed to the state.

The analysts surveyed by RBC believe that the government has taken a number of unveiled steps towards nationalisation of the assets, while almost abandoning any concern for the investment climate.

SIBECO (Siberian Energy Company) is the main electricity supplier in Siberia in heat and electricity generation. The FAS authorised SGK to acquire SIBECO in early 2018 if a number of conditions were met, among them a refusal to "significantly increase prices on the wholesale electricity market" within three years. 

Experts interviewed by Kommersant in 2018 estimated the value of the deal at RUB18bn-RUB24bn rubles. Other estimates cited by Forbes put the deal at RUB36bn ($570mn at 2018’s exchange rates). SIBECO's revenue in 2016 was RUB28.2bn rubles and net profit was RUB1bn. In 2022 the company increased revenues and the bottom line to RUB38.3bn and RUB4.8bn, respectively.

"The decision [to sue Abyzov Melnichenko] represents a biassed view of the investigation into some arbitrarily chosen circumstances of the case without verification by an independent and impartial court," Yuli Tai, a lawyer for the former minister, said in the appeal. He questioned whether the judge had independently written the judgement, suggesting: "It was produced by a third party”.

Melnichenko indirectly owned 92.2% of Siberian Coal Energy Company (SUEK) along with his family at the end of 2021. However, he ceased to be a beneficiary of SUEK and fertiliser major Eurochem on  March 8 2022, one day before the EU imposed sanctions against him for Russia’s full-scale military invasion of Ukraine.