By Brazil Stock Guide – The government of Minas Gerais, controlling shareholder of Copasa (CSMG3), has taken a concrete step toward privatizing the water utility after formalizing an amendment to its cooperation agreement with Belo Horizonte, extending the contract through February 2073. The move addresses one of the company’s main structural weaknesses — uncertainty over its core market — and materially improves the conditions for a future sale of control.
Belo Horizonte accounts for a significant share of Copasa’s customer base, revenue and cash generation. The lack of long-term contractual visibility had been a key deterrent for investors. The new agreement consolidates terms reached in 2025 and establishes a more stable regulatory framework, including a R$1.3 billion transfer to the municipality between 2026 and 2028. The amount will be incorporated into the regulatory asset base, allowing recovery over time through tariffs.
Buyer interest
With this uncertainty removed, the asset is beginning to attract interest from potential buyers. Sabesp, controlled by Equatorial Energia, is expected to evaluate the process. Aegea and Perfin are also assessing the opportunity independently. The presence of these groups reinforces the view that Copasa is moving into the pool of “transaction-ready” sanitation assets, particularly after regulatory conditions in its main operating area were clarified.
Privatization pathway
For the state government, the amendment represents a strategic milestone. By extending the contract for nearly five decades and locking in remuneration rules, Minas Gerais reduces perceived risk and improves long-term cash flow visibility — two key factors for valuation in a potential sale.
The document also states that, in the event of privatization under State Law No. 25,664/2025, the future concession contract will preserve the regulatory framework now defined. This provision is critical for investors, as it limits the risk of regulatory reset and reinforces confidence in long-term rule stability.
Regulatory architecture
The new framework incorporates mechanisms set out in the amendment, including a pre-tax WACC methodology, annual updates of the regulatory asset base through a rolling forward approach and efficiency parameters based on the company’s historical performance. Together, these elements help anchor returns and improve cash flow predictability.
The agreement also introduces a progressive sharing of efficiency gains with consumers, starting at 25% and rising to 90% across future tariff cycles. The structure seeks to balance operational incentives with political pressure for tariff moderation.
De-risking the asset
The amendment also seeks to resolve an ongoing legal dispute through a negotiated settlement, with potential reimbursements likewise incorporated into the regulatory base. In parallel, Belo Horizonte has committed to joining the state’s sanitation regionalization framework, aligning the capital with Minas Gerais’ broader sector strategy.
While the amendment does not affect the current tariff cycle, its impact is clearly long term: lower regulatory risk, longer contract duration and improved revenue visibility. More importantly, it sends a clear signal to the market — the controlling shareholder is actively preparing Copasa for privatization, reducing long-standing uncertainties and moving the company closer to a transaction-ready asset.
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