By Brazil Stock Guide – Lawmakers in Brazil’s Minas Gerais state approved a constitutional amendment on Wednesday eliminating the requirement for a public referendum before the sale of state-run water utility Companhia de Saneamento de Minas Gerais (CSMG3 BZ), clearing a major obstacle in Governor Romeu Zema’s privatization agenda.
The amendment, known as PEC 24/2023, passed by 48 votes to 22, allows the government to proceed with the sale process without popular consultation. The decision comes as the state government has already directed Copasa’s management to begin preparatory studies for a potential privatization, including feasibility analyses and financial valuation work.
In a recent filing, Copasa disclosed it received formal guidance from its controlling shareholder, the state of Minas Gerais, to conduct all necessary studies and acts related to the potential desetatization. The state recommended that Copasa’s management undertake – either directly or through hired third parties – pre-feasibility analysis, due diligence, and economic-financial valuation studies.
Investor Implications and Financial Context
The approval removes a significant legal hurdle for investors eyeing Copasa’s privatization, which analysts say could unlock substantial value for shareholders and help the state reduce its fiscal deficit. The move also strengthens Minas Gerais’ position in debt restructuring negotiations with the federal government.
The state’s earlier directive established that costs from specialized hires and studies, conducted with proper validation, will be integrated into the deal economics if privatization proceeds. Should the state ultimately reject the move, documented costs will be reimbursed to Copasa, protecting minority shareholders.
Amid this strategic shift, Copasa has demonstrated solid operational performance. In its latest financial release, the company posted net income growth of 6.3% year-over-year, driven by tariff adjustments and cost efficiency programs. The utility’s EBITDA margin remained above 30%, signaling strong operational resilience. Earlier quarterly results showed consolidated net operating revenue reaching R$2.48 billion, with sewage collection volume growing 4.3% year-over-year, reflecting continued service expansion.
Political Context and Next Steps
The proposal faced intense opposition from left-wing lawmakers, who argued the state had no urgency to sell a profitable company that plays a vital social role. Supporters countered that the referendum clause made it practically impossible to advance any sale before 2026, when Brazil’s next general elections are scheduled.
The constitutional amendment approval follows several legal developments that make privatization more feasible, including the new federal sanitation framework (Law 14.026/2020) and bill PL 4380/2025, which seeks specific authorization for Copasa’s desetatization and remains under legislative debate.
While market reaction was muted on the day of the vote, investors are likely to reassess the company’s valuation as political uncertainty eases. “This is a signal that Minas Gerais is open to market-friendly reforms,” said a São Paulo-based analyst, noting that privatization could attract infrastructure and pension fund investors interested in long-term cash flow stability.
Copasa’s stock (CSMG3 BZ) closed at R$17.28 on Tuesday, up 1.7% over the past month, reflecting cautious optimism among investors following earlier approval rounds in the legislature. After the final vote, the amendment will be promulgated by the state assembly and come into immediate effect, though no official timeline for the sale process has been announced. month, reflecting cautious optimism among investors following earlier approval rounds in the legislature.