CSMG3

Companhia de Saneamento de Minas Gerais – COPASA MG is a mixed-capital company controlled by the State of Minas Gerais, with common shares traded on B3 under the ticker CSMG3. The company’s origins date back to 1963, with the creation of Companhia Mineira de Água e Esgotos (COMAG) by State Law No. 2,842/1963, in a context of formulating a broader basic sanitation policy in the state. Over the following decades, the company benefited from federal initiatives such as the Sanitation Financial System in 1968 and the National Sanitation Plan (PLANASA) in 1971, which encouraged the formation of state sanitation companies through municipal concessions. In 1974, through State Law No. 6,475/1974, the corporate name was changed to Companhia de Saneamento de Minas Gerais – COPASA MG, the brand under which the company consolidated its operations across a large part of the state of Minas Gerais.

COPASA’s corporate trajectory includes key moments of restructuring and opening to the capital markets. In 2000, State Law No. 13,663 expanded the company’s scope, authorizing it to operate in the collection, recycling, treatment and final disposal of urban, household and industrial solid waste, as well as allowing it to operate in other Brazilian states and abroad through consortia and partnerships. In 2003, the company went public and, in 2006, carried out its initial public offering (IPO), joining the Novo Mercado segment of B3 directly, which is associated with higher corporate governance standards. In 2008, there was a secondary share offering, in which the State of Minas Gerais reduced its stake, although it retained control, while the municipality of Belo Horizonte sold its shareholding in the company.

COPASA MG’s business model is centered on providing public basic sanitation services, with a primary focus on drinking water supply and sewage services, complemented by smaller-scale operations in urban cleaning and solid waste management. According to its bylaws, the company is responsible for planning, executing, expanding, remodeling and operating sanitation services, involving the infrastructure and facilities required from the collection of water from surface or underground sources to distribution to the end consumer, as well as the collection, transport, treatment and final disposal of sewage. Additionally, the company is authorized to operate in the collection, transport, transfer, treatment and final disposal of urban and street-sweeping solid waste, an activity that currently materializes, for example, in the landfill operation concession in the municipality of Varginha, signed in 2017.

From an operational standpoint, COPASA organizes its activities into water, sewage and solid waste segments, with water supply accounting for the largest share of revenue. In 2024, 66.06% of the company’s consolidated net revenue came from water supply services, 33.87% from sewage services and 0.07% from solid waste activities. At the end of 2024, the parent company and its subsidiary COPANOR held 637 water supply concessions and 308 sewage concessions, in addition to one solid waste concession. The population served with water services reached around 11.8 million inhabitants, while sewage services covered approximately 8.7 million people. The operating structure included 4.7 million water connections and 3.2 million sewage connections, as well as an extensive distribution and collection network, supported by 10,103 employees at COPASA MG and COPANOR at the end of 2024.

The company operates predominantly in the state of Minas Gerais, with a presence spread across various river basins and urban locations of different sizes. The Belo Horizonte Metropolitan Region is the main revenue-generating hub, concentrating about 48% of the company’s water revenue, served by large production systems such as the Rio Manso, Serra Azul and Vargem das Flores reservoirs and the run-of-river intake on the Rio das Velhas. Outside the capital and surrounding areas, operations are decentralized, with most locations relying on local water production sources, which reduces the systemic impact of potential water restrictions at any single source. In the solid waste segment, activity is more limited, but it signals the company’s ability to expand its presence in other links of the basic sanitation chain, in line with regulatory opportunities and municipal concessions.

COPASA’s corporate structure includes wholly owned subsidiaries created to serve specific regions and activities. COPANOR – COPASA Serviços de Saneamento Integrado do Norte e Nordeste de Minas Gerais – is responsible for planning, designing, executing, expanding, remodeling and providing water supply and sewage services, as well as operating in waste collection and disposal and urban drainage in the North of Minas and in basins such as Jequitinhonha, Mucuri, São Mateus, among others. COPANOR’s priority is to operate in municipalities where the parent company does not provide services or has not implemented sewage systems. Copasa Patos Saneamento, also a wholly owned subsidiary, focuses on providing basic sanitation services in the municipality of Patos de Minas. Subsidiaries that were no longer aligned with the core strategy, such as COPASA Serviços de Irrigação and COPASA Águas Minerais de Minas, had their activities terminated in 2016, in a move to focus on the core sanitation business.

COPASA’s activities are heavily regulated, reflecting the essential public service nature of its operations. At the sector level, the company is subject to the national guidelines for basic sanitation established by Federal Law No. 11,445/2007, updated by the New Sanitation Framework (Law No. 14,026/2020), which introduced universalization targets through 2033, requirements for proof of economic and financial capacity and greater regulatory standardization under the coordination of the National Water and Basic Sanitation Agency (ANA). In Minas Gerais, COPASA’s provision of water and sewage services is regulated by the Minas Gerais Water Supply and Sewage Services Regulation Agency (Arsae-MG), created in 2009, which defines technical, economic and social standards, including tariff regimes, and conducts periodic tariff reviews. The company also depends on water-use permits granted by the Minas Gerais Water Management Institute (IGAM) and by ANA, which authorize withdrawals from surface and underground sources, and is subject to environmental licensing and other federal, state and municipal regulations related to the operation of sanitation systems.

In terms of governance practices and environmental and social issues, COPASA has been making structural adjustments since the second half of the 2010s. In 2016, a collegiate management model with approval thresholds for authorizing expenditures was implemented, strengthening cost and investment control. In 2018, the governance model was improved with the creation of an Audit Committee, the establishment of a Compliance unit and the strengthening of internal controls, as well as the revision of bylaws governing statutory bodies and related-party transaction policies. In 2019, specific policies on internal control, gifts and presents, conflicts of interest and corporate governance were implemented, in addition to revising the related-party policy, aligned with the company’s Integrity Plan. On the social front, notable measures adopted during the Covid-19 pandemic in 2020 included the suspension of service disconnections for customers in the social residential category, the waiver of interest and fines for this group, and actions to protect employee health and support remote customer service, underscoring the company’s role as an essential service provider during public health crises.

The company also develops initiatives related to water security and the protection of water sources, which are critical to the continuity of its business model. In 2015, for example, a new water intake system on the Rio Paraopeba was implemented, with a flow rate of 5 m³/s, to reinforce supply to the Belo Horizonte Metropolitan Region, which had been heavily affected by periods of low rainfall. The tariff structure established by regulation includes revenue percentages earmarked for the preservation of water sources and internal subsidies, such as that applied to COPANOR, to ensure economic and financial sustainability in less advantaged regions. Operating in a capital-intensive sector with increasing targets for water and sewage coverage, COPASA combines long-term concession contracts with a highly diversified revenue base, with no individual customer accounting for more than 10% of net revenue, which contributes to the operational stability of its business linked to public water and sanitation services in Minas Gerais.