By Guillermo Parra-Bernal
SAO PAULO, Jan 31 (Reuters) - The Brazilian state of Minas Gerais opposes the sale of the controlling stake it has in power utility Cia Energética de Minas Gerais SA as a 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 involves the sale of non-essential assets, the person added.
The federal government would only allow Minas Gerais to take new private loans if the state guarantees that credit with “solid assets,” said a senior member of the economic team. The official, who asked for anonymity to speak freely, said the state has not requested help yet.
The utility’s preferred shares gained the most in almost three weeks on Tuesday, adding 6.9 percent to 9.14 reais, on expectations that the federal government might convince Minas Gerais to negotiate a sale. The stock is up 18.5 percent this year.
The states’ rescue program temporarily suspends debt payments owed to the federal government in exchange for deep spending cuts and the privatization of some state-run enterprises.
“The state will not accept the privatization of Cemig as a pre-condition to access the debt relief facility,” said the person who is familiar with the thinking the Minas Gerais government. Cemig is Brazil’s No. 3 power utility.
The government official said Minas Gerais will have to prove in court that it is owed the tax program money. The finance ministry did not have an immediate comment.
In a securities filing late on Tuesday, Cemig said it is unaware that “any privatization process is under way.”
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 and Tatiana Bautzer in São Paulo; Editing by Chizu Nomiyama and Cynthia Osterman