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Private Sector Participation in Municipal Solid Waste Management: Lessons from LAC Carl R. Bartone Transport, Water & Urban Department 7 May, 1999.

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Presentation on theme: "Private Sector Participation in Municipal Solid Waste Management: Lessons from LAC Carl R. Bartone Transport, Water & Urban Department 7 May, 1999."— Presentation transcript:

1 Private Sector Participation in Municipal Solid Waste Management: Lessons from LAC Carl R. Bartone Transport, Water & Urban Department 7 May, 1999

2 MSWM often costly and vexing problem for local authorities u Low service coverage 50-70% in capitals of low-income countries 80-85% in capitals of middle-income countries u Substantial inefficiencies high costs but low quality service labor intensive but low labor productivity u Insufficient resources little cost recovery dependent on general revenues or transfers u Widespread uncontrolled dumping

3 Commonly proposed solution u Contract service provision with the private sector belief that service efficiency and coverage can be improved should view as possible opportunity -- not a panacea important questions are whether and how to involve private sector

4 Roles for the private sector u Improve efficiency and lower costs by introducing commercial principles limited and well-focused performance objectives financial and managerial autonomy hard budget constraint clear accountability to customers and providers of capital u Provide new ideas, technologies, skills u Mobilize needed investment funds especially for short-lived collection vehicles

5 Evidence from around the world u Studies of over 2,000 cities in UK, USA and Canada public monopolies cost 25 to 41% more than competitively contracted services u Malaysian national study cost of contractor services 23% lower (after taxes) u Latin American 5 city study service costs halved, higher labor and vehicle productivity

6 Key Characteristics of MSWM u Public good nature (public health objective) ineffective without universal coverage some WTP for collection little WTP for disposal u Cost recovery problematic traditionally paid from general revenues trend to bill with property tax or utility u Easy to unbundle u Easy to compete for residential collection easy entry and exit -- limited economies of scale but high economies of contiguity

7 PSP Options for Collection u Zonal service contracts exclusive right to provide service privately owned fleet municipality charges and pays takes advantage of contestability for greater competition and efficiency u “Managed Competition” variation municipal SWM department competes on equal terms for zonal service contract requires corporatization and clear separation of regulatory, client and operator functions popular in USA (by zones) and UK (by system)

8 PSP Options for Collection (cont.) u Zonal or city-wide concession or franchise difficult for private operator to bill customers directly used in Fernando de la Mora (Asuncion) and Guayaquil respectively u Open competition used in Guatemala City (<80% participation) costliest option for households OK for large ICI generators u Micro- or small-enterprises good for servicing poor periurban areas or inaccessible areas

9 PSP Options for Transfer, Treatment and Disposal u Management contracts easy to unbundle services private sector unlikely to make major capital investments (enforcement and payment risks) u Concessions Hong Kong DBO model (with public investment) BOT/BOO u Open competition private mega-fills in USA regional hospital waste incinerators

10 PSP Experiences in Latin America u Big cities started contracting out in 1970’s Buenos Aires, Caracas, Sao Paulo zonal service contacts for collection management contracts for transfer, treatment and disposal u Today spreading to intermediate cities between 40-50% of LAC urban population served by private operators in Brazil, 40 firms collect 65% of urban waste nationwide (up from 40% in 1982) almost all options observed now, but still mostly contracting out

11 Typical LAC Contractual Arrangements u 5 - 8 year contracts with renewal options allow for full depreciation of equipment multiple zones and periodic rebidding increases competition for the market u Payment linked to performance per ton collected, per km swept, per ton disposed requires direct measurement (eg, weighbridge) u Periodic price adjustment based on cost indices and/or inflation rates

12 Types of Firms Entering Market u Typically small and medium firms u In Brazil, of 40 firms: 5 large contractors in road or dam construction sectors 20 medium and 15 small haulers or transportation companies u Increasing international participation important for management know how and environmental technology transfer trend to integrate with WSS? (eg, Dominican Republic)

13 Microenterprise Participation u Survey of 80 LAC microenterprises in 8 countries found: ME’s service areas that larger private companies cannot serve by conventional trucks ME’s provide cost-effective and affordable services for which poor urban households are willing to pay to be effective, ME’s must be integrated with city-wide management system to promote ME’s, facilitate access to commercial micro-credits and technical assistance

14 Sao Paulo Municipality (11 million) u In 1977, LIMPURB contracted out 2/3 of collection to 3 firms u By 1987, all services were contracted out: including collection, street sweeping, transfer, composting, incinerators, hospital waste collection & treatment, sanitary landfills u Today, have 16 contracts for 13,000 tpd worth US$30 million per month separate contract with engineering management firm for monitoring and control led to 10% reduction in cost of contracts

15 u Presently bidding out 2 large incinerators with energy recovery (1250 tpd each) and large composting plants BOT concessions u Issues: disposal costs will more than double plan calls for source separation into wet and dry fractions, requiring high public participation decentralized monitoring and control important since collection and sweeping contracts are so large (1.6, 3.6 and 5.8 million population) that collusion/cartel a concern Sao Paulo (cont.)

16 Sao Paulo Metropolitan Region u 21 of 39 constituent municipalities contact out entire service, and another 4 contract collection and transport services

17 Rio de Janeiro (6 million) u Prior to 1990, COMLURB prevented by law from contracting with private operators significant inefficiencies (eg, 12 year old fleet) u Today, several PSP arrangements traditional zonal collection service contracts zonal contact for multiple services (street sweeping, beach cleansing, weed removal, drain cleaning, container management) COMLURB leases vehicles and drivers concession to licensed private operators who are free to contract directly with larger waste generators (>100 lpd)

18 Santiago (5 million) u Communes responsible for all services u By 1989, 21 of 23 communes contracted out collection services payment on monthly lump sum basis, not tonnage 7 small to medium firms provide service average commune population of 170,000 u In 1984, 14 communes created EMERES (a joint commercial entity) as a disposal authority subcontracts sanitary landfills today oversee state-of-the-art landfills with methane gas recovery and utilization

19 Metropolitan Lima (6 million) u Recent contract with Relima, a Peruvian, Brazilian, French consortium collection and street sweeping in Lima Cercado District (500 tpd) transfer and disposal for metropolitan regions (2 landfills totaling 2000 tpd capacity) adjust prices every 6 months using cost index u Other districts now bidding out collection mainly with local firms, but some richer districts attracting international bidders u ME’s service large parts of poor districts

20 Bogota (6 million) u Starting in 1989, contracted out 3 zones with 3 consortia only with international firms in joint venture with local firms initially municipality kept 1/3 of city due to inefficiencies and labor strike, that zone eventually was privatized too u Today, 7 collection zones contracted out with 4 consortia plus joint company to collect user fees bids awarded on basis of smallest percentage of existing tariffs

21 Bogota (cont.) u Landfill operation was also contracted out in 1998, major landfill slide occurred probably as a result of excessive leachate recirculation and steep topography (2 million tons of waste slipped) u PSP in line with Colombian national policy national regulatory and institutional framework competitive bidding in all major cities regulated tariff with cross-subsidy billed with water national commission for monitoring performance

22 Lessons from LAC u Trend toward national PSP policies initial experience was strictly ad hoc still so in many countries (eg, Brazil) many countries now moving toward definition of national solid waste policy framework (with support of World Bank, IADB, PAHO/WHO) that includes privatization policy some countries have well defined PSP frameworks (eg, Colombia) or are developing it (eg, Dominican Republic)

23 Lessons from LAC u Cost recovery needs special attention critical to avoid payment risk most countries now apply user charge (benefit tax) or tariff cross-subsidization common billing and collection with property tax most common but not efficient (eg, 70% in Brazil) trend to billing and collection with other utility water (eg, Colombia) power (eg, Ecuador has 10-12% surcharge on electric bill) pay commission to utility of up to 5%

24 Lessons from LAC u Labor issues should be dealt with up front solid waste department biggest employer in city government labor redundancy must be resolved or efficiency gains will be ephemeral (eg, Caracas) severance packages strategy of natural attrition and voluntary retirement (eg, Quito) encourage workers to form enterprises and compete (eg, UK) worker health and safety can’t be sacrificed contractual agreements to cover worker protection

25 Lessons from LAC u Strengthen municipal/metropolitan institutions to assume regulatory and client functions early successes largely due to strong institutions with good knowledge of costs and technical requirements (eg, LIMPURB) basically evolve into contracting agencies (eg, EMERES, COMLURB) capacity for monitoring and supervision of contracts is essential (eg, Sao Paulo)

26 Lessons from LAC u Successful PSP models well known To collect -- divide and conquer most international experience is in contracting out for defined zones (50- 100,000 minimum; > 400,000 for ICB) responsibility and revenue collection remain with municipal government franchise is less used, less appropriate Consolidate (city-wide or metro-wide) for environmentally-safe disposal management contracts common focus on DBO rather than BOT in the short term

27 Lessons from LAC u Accountability -- emphasize performance measures Contracts should clearly define operational standards and regulatory requirements (financial, occupational, environmental) Contracts should specify enforceable performance measures and link to payments Conduct performance monitoring regular inspections direct measurements (e.g., weighbridges, landfill monitoring wells, etc.) public involvement (e.g., Complaints Bureau)

28 The Bottom Line


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