Pacheco articulates federalization of Cemig to reduce Minas debt with the Union – 11/17/2023 – Market

The president of the Senate, Rodrigo Pacheco (PSD-MG), articulates a proposal for the federalization of state-owned companies in Minas Gerais, including Cemig (energy), as a way of reducing the state government’s debt with the Union, which is already approaching R $160 billion.

The plan also includes the transfer of Codemig (niobium mining) and Copasa (sanitation) into the hands of the federal government.

The topic has already been discussed in two meetings with President Luiz Inácio Lula da Silva (PT). The Minister of Mines and Energy, Alexandre Silveira, a former state senator, also participates in the negotiations.

According to Pacheco’s interlocutors, the president of the Senate should soon present a draft formalizing the proposal for Lula.

High-ranking members of the government consider the financial situation of Minas to be extremely delicate. Therefore, the Executive has demonstrated a willingness to sit at the table to discuss the topic.

The proposal to federalize companies — including Cemig, considered a kind of crown jewel among the state’s assets — would meet the interests of both Pacheco and Lula.

The president of the Senate is mentioned behind the scenes as a possible name to run for state government in 2026. A successful articulation to resolve the financial situation of Minas Gerais, without the need to squeeze civil servants’ salaries or local expenses, would be an asset for Pacheco in an eventual campaign.

Lula, in turn, would once again have under his command a major state-owned company in the electricity sector.

The PT member has already criticized the privatization of Eletrobras several times, shown interest in reversing the operation and is trying to expand the Union’s power of influence over the private company in a lawsuit in the STF (Supreme Federal Court).

Cemig is a company created and controlled by the government of Minas Gerais (which holds 50.97% of voting shares), but has investments of national reach.

It is responsible for operating plants in six states (Ceará, Espírito Santo, Goiás, Rio de Janeiro, Santa Catarina, as well as Minas Gerais) and operates in different links in the chain (including generation, transmission and distribution). The company also has a stake in Norte Energia, owner of Belo Monte.

When contacted, the Ministry of Finance said that “the process that deals with the matter is being analyzed by the National Treasury”.

The governor of Minas Gerais, Romeu Zema (Novo), proposed the privatization of companies as a way of accrediting the state to join federal aid under the RRF (Fiscal Recovery Regime), but faces resistance from the opposition in the Legislative Assembly.

In October, the state government adapted its strategy and sent a letter to the Ministry of Finance proposing the federalization of Codemig. There has still been no response from the federal government, with whom Zema has maintained a protocol relationship. The governor supported Jair Bolsonaro’s (PL) candidacy for re-election.

In this context, Pacheco has sought greater protagonism in the negotiations. The state needs a quick solution. The judicial injunction that guaranteed adherence to the RRF and suspended debt collection expires on December 20th.

Without the protection of the regime, Minas Gerais’ debt service scheduled for 2024 would go from R$4.4 billion to R$18.4 billion, an amount considered irreconcilable with the demand for public policies and the payment of salaries.

On Thursday (16), Pacheco received minister Alexandre Silveira and parliamentarians from Minas Gerais. In a speech after the meeting, he defended the transfer of assets as a way of reducing the state’s debt.

“Minas has business assets, including Codemig, especially niobium and its exploration in Araxá, which is a very considerable asset, which must be valued within what it is really worth, without undervaluation. And this is a claim that we we must have this negotiation with the Union”, said Pacheco.

Although he did not directly mention Cemig and Copasa, interlocutors stated that the two companies would also join the federalization plan.

According to people who follow the discussions, Pacheco’s intention is to facilitate an agreement in which the Union pays the “fair price” for the companies.

For this wing, privatizing them would lower their market value and yield smaller gains for the state. The group also expects the federal government to estimate the values ​​taking into account the “aid nature” to the state.

Preliminary assessments by the state indicate that Codemig would be worth R$25 billion to R$30 billion, but federal government technicians are more skeptical about these values. Cemig has a market value of close to R$30 billion.

The draft to be delivered by Pacheco to Lula must also include a preference clause so that the state of Minas Gerais can repurchase the assets, if the Union decides to dispose of the shares in the future.

Silveira, from MME, said in a note to Sheet that the solutions presented so far by Zema are much more focused on “creating space for governability” than on solving the problem of state finances and defended Pacheco as a “great figure to lead” the relationship between Minas Gerais and the federal government.

“President Lula highlighted to me and President Rodrigo, last Friday, that he is completely open to solving the problem of Minas Gerais, as long as it is a definitive solution for the state, for Minas Gerais and miners to get rid of this great price that the State’s public debt”, said the minister.

“The proposal to maintain public and strategic companies, especially in the electricity sector, under a public company regime is essential. The majority of state concessions were made with loose contracts and which unfortunately left the strategic sector, such as the electricity sector, very fragile. “

Any federalization of state-owned companies in Minas Gerais will depend on the approval of bills in the National Congress and also in the Legislative Assembly.

When contacted, the government of Minas Gerais forwarded a video recorded this Thursday (16) by the acting governor, Professor Mateus (Novo), in which he indicates greater flexibility for the state to discuss the topic.

“I received news that the federalization of our state-owned companies was discussed,” he said. “These are all ideas that are very well received by the government of Minas, and I, as acting governor, am happy to see that so many are joining our effort.”

The federalization proposal, however, is not unanimous. Representative Reginaldo Lopes (PT-MG), for example, defends state-owned companies remaining under the control of Minas Gerais. “They generate more than R$2 billion in dividends to the state, in addition to being strategic,” he says. Still, he supports the attempt to bring some relief to the state’s finances.

When contacted, Cemig and Copasa only stated that the issue is being handled by the controlling shareholder (state government). Codemig did not respond until publication.

The president of the Senate is also negotiating the possibility of Minas handing over to the Union credits for amounts to be received from compensation from mining companies for the environmental disasters in Mariana and Brumadinho. The federal government would collect the amounts (reducing the mining debt), under the commitment to make investments in the region.

Pacheco also pleads for a type of Union discount on debts, drawing a parallel with the renegotiations of tax debts authorized by the National Congress.

“Just as there is a lot of goodwill on the part of the Brazilian State to resolve private taxpayers’ problems, as there is with Refis, as there is with tax transactions, as there is now recently with the Carf project, which provides for a discount on interest and fines for paying the debt, is the Union also willing to provide a program that could benefit the states of the federation? Not only Minas Gerais, [como] Rio de Janeiro, Goiás, São Paulo, Rio Grande do Sul, which experience the same problem”, argued Pacheco.

“This is also a proposal that I consider absolutely fair, honest, to provide that, after the donation and payment in assets and credits, this balance can be subject to a reduction for payment within a period of ten years”, he stated.