Crippling debt puts Minas Gerais governor at a crossroads

Share prices of Cemig, a Minas Gerais-based power company and one of Brazil’s biggest, have taken a nosedive in recent days — crashing by almost 10 percent on November 22 and losing value in seven of the past ten trading sessions, as investors grow jittery about the possibility of the company being handed over to federal control.

If the process advances, Cemig stock could plunge by as much as 30 percent, says investment bank Bradesco BBI in a report to clients.

Cemig, the power supplier of Minas Gerais, Brazil’s second-most populous state, operates under a mixed-capital model. Its shares are split between the Minas Gerais state government (which has a 50.97 percent controlling stake), the federal government (11.14 percent), and private investors.

Minas Gerais Governor Romeu Zema was initially elected in 2018 with the promise of fully privatizing Cemig, but didn’t make good on his promise during this first term. Re-elected in 2022, Mr. Zema recently submitted bills to local lawmakers in order to streamline privatizations, lowering the legislative thresholds for their approval and removing a clause that orders a referendum on such decisions. 

In recent months, Cemig has gone from the crown jewel of Mr. Zema’s privatization agenda to a bargaining chip the state can use to slash its crippling debts. 

Among the country’s 27 states, Minas Gerais has the third-highest indebtedness level, only behind Rio Grande do Sul and Rio de Janeiro. Its net consolidated debt accounts for 155 percent of its current net revenues.

By its own account, the Minas Gerais state government owes BRL 160 billion (USD 32.6 billion) to the...