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    Zema administration will encounter difficulties in approving cemig privatization, analysts say

    Zema administration will encounter difficulties in approving cemig privatization, analysts say

    SÃO PAULO (Reuters) – The Minas Gerais government’s proposal to privatize the state-owned Cemig will not be easy to implement. This measure will require people’s approval or a three-fifth majority in the state legislature, where Romeu Zema’s administration has been struggling to get votes, analysts told Reuters.

    Zema, an entrepreneur who is new to politics, was elected last year under promises of liberal management, and has been speaking of selling the iconic utility company as part of a state tax recovery plan negotiated with the federal government.

    A bill to that effect, authorizing the privatization of Cemig and other publicly-held companies, is due to be sent by the state government to the Minas Gerais State Legislature later this month, Cemig executives said last week.

    Under the Minas Gerais Constitution, selling control of public utility companies provides for a plebiscite. However, Zema could avoid this if he is able to rely on the support of three-fifths of congressmen for a constitutional amendment that would bypass this obligation.

    “If the government wishes to follow regular procedure, it would have to hold a referendum, call the population to vote. I don’t know if it would be the easiest way, but it would be more negotiable to amend state legislation”, said Carlos Tortoro, a partner at Tortoro, Madureira, & Ragazzi Advogados.

    “Basically, Constitutional amendments must be voted by an absolute majority, and this seems like a complicated option to me, because I don’t know if the Minas Gerais government will be able to create this coalition,” he added.

    The Minas Gerais State Legislature is composed of 77 congressmen, of which only three belong to Novo, Zema’s political party.

    Novo politicians are part of the “Sou Minas Gerais” (I am Minas Gerais) bloc, the largest in the house, with 21 members. This includes PSDB members, but it does not offer considerable advantage over the others.

    Bloc “Liberdade e Progresso” (Freedom and Progress), with congress members from parties like PSL and PSD, and “Minas tem História” (Minas has History), with politicians from MDB and PV parties, have 20 members each.

    In turn, the group “Democracia e Luta” (Democracy and Fight), composed of members of opposing parties such as PT, PSOL and PCdoB has 16 members.

    When contacted, the Zema administration said in a statement that “the privatization of Minas Gerais state-owned companies is being assessed by a technical team” and that “the proposals will be submitted by the Executive to the State Legislature.”

    “The Minas Gerais government understands that the government-controlled companies will be better managed by the private initiative, contributing to an improved performance, coverage and quality of services offered,” he added.

    Even if Zema won a plebiscite over Cemig, the agenda would still require approval by at least a simple majority in the state legislature. This would require a few votes from the “center” parties, said political analyst and professor of the Federal University of Minas Gerais, Carlos Ranulfo.

    “The problem is that Zema does not have the majority vote in the Legislature and Cemig is a historical company in the state, it is reputable… so it’s a very difficult issue. He could encounter difficulties even if he had the simple majority,” said Ranulfo.

    He compared the situation to the negotiation issues faced by President Jair Bolsonaro before the National Congress in Brasilia.

    Malco Camargos, political scientist and professor at PUC Minas, pointed out that even the small bloc that supports Zema in the legislature has not shown loyalty in voting, which adds to the uncertainties.

    “The government’s base support is very fragile… part of the 20 members do not systematically vote in favor of the government, they have difficulties even within their bloc,” he said.

    With the ruling and opposition groups being of similar sizes, discussions among congress members would probably be decided by the “independent” members, who should be open to negotiation. However, the more likely scenario is that these independent members will take into account how much it would cost their reputation if they voted in favor of such privatization.

    “Cemig means to Minas Gerais more or less what Banco do Brasil, Petrobras and Caixa mean to the federal government. These are publicly-held companies with a long tradition and are part of the State’s DNA,” said Camargos.

    On the other hand, the Minas Gerais government could argue that the state has been dealing with a difficult tax situation, and selling Cemig could be one of the federal government counterparts for the viability of a recovery plan, he pointed out.

    “As for today, we can’t make any predictions. The government should encounter difficulties in approving it, but that does not mean it will not succeed. The Welfare reform was also an unpleasant subject,” he compared.

    Formerly seen as a largely unpopular issue, the Welfare reform was passed in the House of Representatives and was the target of public protests this year, in which Bolsonaro supporters defended the measure.

    Created in 1952 by Juscelino Kubitschek, Governor of Minas Gerais at the time, Cemig operates in the generation, transmission and distribution of energy, with a market value of R$ 23.1 billion, according to data from Refinitiv Eikon.

    Between January and June, the company reported a net profit of R$ 2.9 billion, the highest for a first semester in the company’s history – this should also be used as an argument by some politicians against privatization, according to experts.

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