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By Guillermo Parra-Bernal and Leonardo Goy
SAO PAULO/BRASILIA, Dec 16 (Reuters) - Tensions between the Brazilian state of Minas Gerais and the top management of Cia Energética de Minas Gerais SA are escalating over Chief Executive Officer Mauro Borges' debt-reduction and asset-sales strategy, two people with direct knowledge of the matter said on Friday.
According to the people, Borges could leave the electricity holding company if the state of Minas Gerais, Cemig's controlling shareholder, refuses to back his plan of selling several non-essential assets to cut debt. Both sides are in talks to settle their differences, the people added.
Minas Gerais Governor Fernando Pimentel, who is under investigation for alleged illegal campaign funding, is at odds with part of a plan to sell some assets to help cut Cemig's 16.3 billion-real ($4.8 billion) debt. Pimentel is faced with a deep budget crisis and fallout from the November 2015 burst of a tailings dam in the mineral-rich state.
Investors say that under Borges and Chief Financial Officer Fabiano Maia Pereira, Cemig has reworked terms of some loans and sold a stake in Transmissão Aliança de Energia Elétrica SA . They hired banks to sell stakes in Renova Energia SA, several small dams and a power venture with Vale SA.
Both executives would step down if the differences with the Minas Gerais state government are not resolved, the sources said.
The media office of Belo Horizonte, Brazil-based Cemig did not have an immediate comment. Pimentel's office said in a statement that Cemig's board was solely responsible for decisions on asset sales, without elaborating on the executives.
Pimentel has not said why he opposes the Cemig debt plan but some analysts believe he would welcome asset sales if the proceeds could be used to help with the state's fiscal crisis.
Preferred shares, the most widely traded class of Cemig's stock, are up 28 percent this year, partly on hopes that Borges will succeed in selling assets to reduce the company's obligations. The shares rose 0.3 percent to 7.25 reais on Friday.
Reuters reported on Nov. 18 that Cemig was trying to sell its 45 percent stake in the Aliança Geração de Energia SA venture. It also reported on Sept. 16 that the company was looking for new partners for Light Energia SA .
Cemig has been the center of battles between the state of Minas Gerais and investors in the past. In 1999, former Minas Governor Itamar Franco wrested control of Cemig from AES Corp and Southern Co in courts, saying the privatization process by which the firms took over the utility was questionable.
$1 = 3.3673 reais Additional reporting by Tatiana Bauzter in São Paulo; editing by Christian Plumb and Chizu Nomiyama