Federalization of state-owned companies hovers on the horizon of fiscal recovery in MG

With the deadline that was extended in December coming to an end, the Minas Gerais Fiscal Recovery Regime is still uncertain, despite being necessary. Of all the states that owe the Union, Minas has the largest debt: R$ 194.03 billion. And, while the state government is looking for ways to ensure that the payment of this amount does not interfere with other commitments, the Union “needs” this money to be able to cover the amount foreseen in its own – and not at all modest – budget.

On the 6th, after meeting in Brasília with minister Fernando Haddad and president Lula (PT), Minas Gerais governor Romeu Zema (Novo) said that the conversation had come out “with good proposals”. Zema stated that the federalization of state companies – proposed by senator Rodrigo Pacheco (PSD) – is an option that he would be in favor of and that “the state will not oppose” if it is a viable alternative.

The federalization of Cemig (Companhia Energética de Minas Gerais), Copasa (Minas Gerais Sanitation Company) and Codemig (Minas Gerais Economic Development Company) has been discussed since 2023 and raises debates.

On the one hand, it is an option to make debt repayment possible. On the other hand, handing over the companies to the current government would make actual privatizations unfeasible.

During an interview with journalists after the meeting in Brasília, Zema highlighted the importance of a detailed analysis of the value of companies before moving forward with proposals. He also argued in favor of transformation of these companies into companies with dispersed capital before federalizationaiming to increase their values ​​at the end of the process.

In the case of Cemig, the solution of federalization was considered during Zema’s first term, which would make the privatization option more viable, due to the ideological alignment that existed between the government of Minas and the economic team of Jair’s federal government. Bolsonaro (PL). However, discussions on the Fiscal Recovery Regime were at a standstill due to the poor relationship between the state Executive and the Legislative Assembly of Minas Gerais.

Despite the improvement in the relationship between the powers during this second term, privatization is not unanimous, not even among the government base in the state Legislature. If Cemig is included in an agreement between the federal and state governments with the federalization of the energy company, it is highly unlikely that the PT government would work towards a subsequent privatization of the company.

Cemig gained market value during Zema management

Cemig is a highly profitable company and gained considerable market value during Romeu Zema’s management: it closed 2022 with R$3.9 billion in profit and, in the first quarters of last year, it had accumulated a profit of R$2.6 billion. The need to increase energy production in Minas Gerais, thanks mainly to new investments in the industrial sector, makes the company’s future projections promising.

Even with good results, complaints about the quality of services provided by the concessionaire are a historical constant in Minas. For deputy Ludimila Falcão (Podemos), federalization can solve the problem. “We must also take into account the fact that Cemig has difficulty meeting the energy demands of the productive sectors in Minas, especially agribusiness and industry. The federal government, if it takes control of Cemig, has the investment capacity to expand and improve Cemig’s services, which, today, the state government, due to insufficient resources, cannot do”, she states.

In 2023, the deputy even stated in a radio interview The time that “the big bottleneck of Agro in Minas is Cemig”, arguing that the state has the structure, topography, water resources and labor, but loses investments due to the company’s poor service provision. For the parliamentarian, federalization is a joint effort between the Legislative Assembly, the government of Minas Gerais, Congress and the Federal government, “focused on solving the problem that hampers state finances”.

In turn, Copasa is going through a different moment. Although the company is profitable and its balance sheets show an improvement in operational and financial performance compared to the past decade, there is a factor that could devalue it, as many cities are rethinking contracts with sanitation companies due to the new legal framework. of the sector. It is the case that Patos de Minas It is Divinópolis.

Without a solution for Tax Recovery, Minas could compromise salaries and transfers to city halls

In February, the Federal Supreme Court (STF) confirmed the extension of the 120 deadline for joining the Minas Gerais Tax Recovery Regime. In his vote, the reporting minister, Kassio Nunes Marques, considered that the deadline would be essential “so that Minas Gerais does not find itself in a financial situation that is difficult to reverse”.

In mid-January, during the presentation of the 2023 balance sheet, the government showed that it maintained the fiscal balance of public accounts last year. Minas Gerais went from a deficit of R$11.2 billion in 2018 to the third consecutive year of controlling public accounts, closing the 2023 fiscal year with a surplus of R$299 million.

Despite this, if an agreement or a new extension of the deadline is not reached, Minas will collapse.

With 853 municipalities and 380 thousand active public servants, salaries and transfers to city halls would be compromised, returning the state to the situation it was in until 2018, during the government of Fernando Pimentel (PT). If you are forced to pay the full installments to pay off the debt, basic education and security equipment, in addition to paying suppliers, will be harmed.

O Commerce is one of the sectors most likely to be affected in this process. According to the president of the Federation of Chambers of Shop Managers of Minas Gerais, Frank Sinatra, the agreement is essential to ensure that the circulation of goods in the state is preserved. “Not only concerns for a social context, but also for a broader economic context, because this can directly affect our sector. If people cannot access basic services, the circulation of goods decreases. Citizens, when they do not have access to basic services, whatever they may be, have more difficulty in employment, more difficulty in training themselves and more difficulty in consuming”, he ponders.

Furthermore, Sinatra points out that Minas Gerais’ trade comes from a recent blow caused by the prolonged closure required during the Covid-19 pandemic. “Companies are still recovering from the impacts of the pandemic. Our sector has already managed to overcome a lot, especially in the last four years, but this entire recovery could be jeopardized with the total collapse of the state. So, to protect the economy, we understand that it is necessary to agree on the Fiscal Recovery Regime quickly”.

According to information from the Ministry of Economy, in a usual process of joining the Fiscal Recovery Regime, Minas Gerais would have to resubmit the Fiscal Recovery Plan, which is the document in which it indicates how the entity will achieve fiscal balance and which proves that the pre- -conditions for approval of adherence to the regime (including legal prerequisites) were met.

Adhesion must be approved by consensus by three federal bodies: the National Treasury Secretariat, the National Treasury Attorney General’s Office (PGFN) and the Fiscal Recovery Regime Supervision Council. In the version of the recovery plan presented previously, the state did not comply with legal requirements – analyzed by the PGFN. One of them is the approval of an authorization law in the Legislative Assembly, which did not occur. With the Attorney General’s veto, the approval process did not continue. Minas Gerais now depends on a feasible proposal, followed by a plan that covers all legal requirements for adherence to the Tax Recovery Regime.

Tadeu Martins Leite (MDB), president of the Minas Gerais Legislature, stated on the 7th that there is no veto on the federalization of state-owned companies. “The ideas are all open. The state government is open to suggestions that may appear. And the federal government is very committed to resolving this issue (of state debts),” he said.

In a note, the communications department of the government of Minas Gerais reaffirmed that there will be no objections from the state to plans that involve the federalization of state-owned companies in Minas Gerais. He also confirmed that the new proposal should be presented by the end of March, as scheduled at the meeting held in Brasília.