January 31, 2017 / 7:03 AM / a year ago

Brazil state rules out Cemig sale to join debt relief plan, source says

SAO PAULO, Jan 31 (Reuters) - The Brazilian state of Minas Gerais has no plans to sell the controlling stake it has in power utility Cia Energética de Minas Gerais SA as condition to join a federal government-backed debt relief plan, a person with direct knowledge of the matter said.

According to the person, who requested anonymity because of the sensitivity of the issue, mineral-rich Minas Gerais wants part of the 92 billion reais ($29.44 billion) the federal government owes it in the form of export-promotion tax exemptions to be refunded if the state joins the debt program.

The sale of the state’s 51 percent voting stake in Cemig, as the utility is known, looks unfeasible at this point, because the company is undergoing a drastic turnaround that is involving the sale of non-essential assets, the person added.

Epoca magazine reported on Monday, without saying how it obtained the information, that finance ministry officials back asking Minas Gerais to exit Cemig in exchange to access the debt relief plan. The program reduces debt payments and extends the maturity on about 427 billion reais of state debt.

“The state will not accept the privatization of Cemig as a pre-condition to access the debt relief facility,” said the person. Cemig is Brazil’s No. 3 power utility.

Calls to the media office of Minas Gerais state were not answered after working hours. The finance ministry did not have an immediate comment.

Currently Minas Gerais owes 70 billion reais to the federal government, which has spurred a surge in debt-servicing expenses for the state amid tumbling tax revenues, the impact of Brazil’s harshest recession ever and falling global mineral and metal prices between 2014 and early 2016.

With Minas Gerais under self-declared “financial calamity,” Governor Fernando Pimentel has been at odds with other key shareholders over ways to cut the company’s 16.3 billion-real debt.

Last month, his government brought about a reshuffle of Cemig’s top brass in order to accelerate the disposal of several subsidiaries such as telecommunications and information technology firms.

$1 = 3.1255 reais Additional reporting by Alonso Soto in Brasilia; editing by Diane Craft

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