CSMG3 COPASA

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 the context of developing 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 creation of state sanitation companies through municipal concessions. In 1974, through State Law No. 6,475/1974, the company’s name was changed to Companhia de Saneamento de Minas Gerais – COPASA MG, the brand under which the company consolidated its operations across much of the territory of Minas Gerais.

COPASA’s corporate trajectory includes significant periods of restructuring and access to the capital markets. In 2000, State Law No. 13,663 expanded the company’s powers, authorizing it to operate in the collection, recycling, treatment, and final disposal of urban, household, and industrial solid waste, as well as the possibility of operating in other states of the federation and abroad through consortia and partnerships. In 2003, the company went public and, in 2006, carried out its initial public offering (IPO), joining B3’s Novo Mercado segment 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 maintained 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 abstraction of water in surface or underground sources through 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 solid waste and street sweeping waste, an activity that currently materializes, for example, in the concession to operate a sanitary landfill 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 areas of different sizes. The Belo Horizonte Metropolitan Region is the main revenue hub, accounting for about 48% of the company’s water revenue and supplied 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 its surroundings, operations are decentralized, with most locations relying on local water production sources, which reduces the systemic impact of potential water restrictions in any single source. In the solid waste segment, the company’s role is more limited, but it signals the capacity to expand its presence into other links of the basic sanitation chain in line with regulatory and municipal concession opportunities.

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 areas of Northern 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, as part of a move to focus on the core sanitation business.

COPASA’s activities are heavily regulated, reflecting the nature of an essential public service. At the sector level, the company is subject to the national basic sanitation guidelines established by Federal Law No. 11,445/2007, updated by the New Sanitation Legal 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 Water Supply and Sewage Services Regulatory Agency of Minas Gerais (Arsae-MG), created in 2009, which sets technical, economic, and social rules, including tariff regimes, and conducts periodic tariff reviews. The company also depends on water use rights granted by the Minas Gerais Water Management Institute (IGAM) and by ANA, which authorize abstraction from surface and underground sources, and is subject to environmental licensing and other federal, state, and municipal rules related to the operation of sanitation systems.

In terms of governance practices and environmental and social aspects, COPASA has been implementing structural adjustments since the second half of the 2010s. In 2016, a collegiate management model with approval thresholds for expenditures was implemented, reinforcing cost and investment control. In 2018, the governance model was enhanced 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 the bylaws of statutory bodies and related-party transaction policies. In 2019, specific policies were implemented for internal control, gifts and presents, conflicts of interest, and corporate governance, along with a revision of the related-party policy, aligned with the company’s Integrity Plan. On the social front, measures adopted during the Covid-19 pandemic in 2020 stand out, such as the suspension of service disconnections for customers in the social residential category, waiver of interest and fines for this group, and actions to preserve employee health and enable remote service, underscoring the company’s role as an essential service provider in public health crisis scenarios.

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