Lessons learnt from the national and province level finance strategy case-studies in the

municipal waste management sector

Alexandre Martoussevitch

Tenth Environmental Finance NetworkTenth Environmental Finance Network meetingParis, 22-23 February, 2007

EAP Task Force

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Outline of the presentation Objectives and scope of the publication Outline of the publication Status of the MW sector in EECCA

– Key challenges facing MW sector Why finance strategies (FS) Key lessons learnt from FS case-studies

– on sectoral policy– on FS methodology – on FEASIBLE tool

Key recommendations

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Objective and scope of the publication

The objective is to synthesise and disseminate the lessons learned from the FS case-studies on MSW, implemented so far in EECCA countries as well as in some EU accession and candidate countries

The publication also reflects on the FS methodology and FEASIBLE computer tool which have been continuously developed, assessing their present status and identifying possible areas for development and improvements

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Outline of the publication Executive summary Framework for policies in the municipal

waste sector (based on OECD experience)

Municipal waste management in EECCA– Some challenges for municipal waste sector in

EECCA Why Finance strategies Key recommendations Adaptation of the methodology

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Framework for policies in the municipal waste sector

Best practices from OECD countries provide some guidance for policy design:– sustainable use of natural resources,

minimisation of waste and protection of human health and the environment from adverse effects that may result from waste

– diversion of waste streams to the extent possible from facilities operating with low-standards to facilities that manage waste in an environmentally sound and economically efficient manner

– fair competition between enterprises in the MW sector, ensuring that high environmental standards are met by all competing companies

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Potential benefits from sound municipal waste management

Social benefits (improved quality of life, etc.)

Direct health benefits Positive impacts for eco-systems and

climate Resource benefits Wider economic benefits (structural

reforms, economic growth)

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Recent trends in municipal waste generation in EECCA

Key driver: Final Private Consumption– Income elasticity = 1 in OECD and EU

Specificity of EECCA in 1991-1999:– Household waste generation per unit of GDP is

much higher than in EU – Despite huge decline in GDP and HH income in

1990s, household waste generation did not fall much due to:

• substantial changes in the packaging for food and beverage

• high share of household expenditure for food • labour migration from rural to urban areas

Changes in the density and the composition of municipal waste

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Status of municipal waste-related services and infrastructure

Coverage “Free-rider” problem (institutional) No separate waste collection Logistic is not optimal Sorting is almost absent Recycling:

– focused on few most profitable recyclables: – profitable if price > USD 80/tonne, distance to

recycling facility below 100-150 km– C&D waste: recycling could be profitable if just 10-

15 000 tonnes is recycled– Collecting recyclables is an area of “grey business”

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Status of waste disposal sites Properly operated landfills are rare in

EECCA; the status of dump sites is poor Poor monitoring of the status of waste

disposal sites, and no leachate control Widespread co-disposal of municipal waste

together with industrial, medical and other types of waste

Absence of methane/landfill gases collection systems

Over-utilisation of many landfills and dump sites

Illegal and uncontrolled waste disposal

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Why is the status of the sector so poor?

Low on the political agenda Low tariff rates and little allocations from

the public budget– MWM company revenues: Rostov-on-Don:

EUR 2, Armenia: EUR 0.7 - per citizen per annum

– allocation from the public budget: typically below 1% of total public expenditure, in that operational subsidies >80%

Decentralisation of responsibilities not supported by adequate revenue base

Law on local self-governance vs Budget and Tax Codes

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Demand for sound strategic planning and Finance strategies

Some EECCA countries and provinces tried to develop target programmes for MWM sector but implementation have failed– priorities were not clearly linked to policy, and

investment projects were too many (“wish lists”)

– targets were not specific, measurable, agreed, realistic and time bound

– expenditure needs exceeded available finance

– the institutional set-up was weak

– lack of enforcement Demand for Strategic planning FS case-studies were undertaken to help EECCA

countries to address these demands

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FS case-studies in MW sector In EECCA:

– Armenia (Lori and Shirak provinces/marzs)– Ukraine (national)– Russian Federation (Novgorod, Yaroslavl and

Rostov oblasts, St. Petersburg city and Leningrad oblast, KhMAO, the Caucasus mineral water region)

In EU accession and candidate countries:– Latvia, Lithuania, Turkey (national)– Bulgaria, Poland (province level)

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Outcomes of the FS case-studies implemented so far in the MWM sector

In Armenia, the FS case-study provided an input to "The Concept for MSW Management in Armenia" submitted for review and eventual approval to the GoA in January 2007

In Ukraine, the Finance Strategy was approved as a national sectoral policy document

In Novgorod Oblast of Russia the FS facilitated a substantial revision of regional waste management plans and revealed many options for inter-municipal landfills

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Implementation of the Finance Strategy in Novgorod

Tariff rates increased as advised, but households still do not pay for waste disposal

Sorting station in Novgorod-the-Great with pressing residual waste (built with Danish support)

Inter-municipal landfill for Borovichi and Okulovka under construction, etc.

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Key Challenges for Sectoral Policy in MWM Sector in EECCA

Service standards are not fully developed– e.g. for proper operation of landfills and dump sites

and closure of fully loaded sites Compliance and lax enforcement are major

issues Capacity to plan and implement the plans

– lack of administrative capacity (often due to excessive fragmentation of responsibilities)

– poor data-base for decision-making and/or improper approach to planning

Costly mistakes in planning Lack of weighing, poor accounting and

reporting

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Key Challenges… - 2 Improper business models and poor

contractual relations many opportunities for rent-seeking and opportunistic behavior

Excessive fragmentation– Fragmentation of responsibilities– Lack of inter-municipal co-operation – some EECCA countries are moving to even

higher decentralisation and fragmentation! Similar problems were faced by other

countries but they found effective solutions: e.g. Denmark, Turkey

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Key Challenges… - 3 Lack of a sound tariff policy

– externalities are not internalized (MWM companies do not pay pollution charges)

– non-transparent cross-subsidisation – households do not pay for waste disposal

because affordability constraints are overestimated – HHs spent just 0.2%-0.4% of their budget, while the

affordability limit is 0.75-1.7%

poor financial status of MWM companies and/or higher demand for operational subsidies from the public budget

How to sustain interest from the private sector, while achieving compliance?

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Key policy recommendations The benefits of waste prevention policies

– Implement incentives for recycling and reuse– Stimulate demand for recycled materials

Service defined by a comprehensive set of standards– BUT no progress will materialise until rigorous

enforcement mechanisms are in place Inter-municipal cooperation as a policy

option

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Key policy recommendations 2

Strict, unambiguous, performance-based contractual arrangements should be defined between municipalities and their service providers

When service quality improves, tariffs for households can be raised closer to the affordability limit

Such policy packages are a precondition to attract private (operators and financiers) with sustainable business models

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Key policy recommendations 3

Finance strategies, as they have been developed by the OECD/EAP Task Force Secretariat and other institutions, can support policy dialogues around these issues, at national and sub-national level

But an integrated approach to implementing the suggested finance strategy still needs to be developed, using experience from WSS sector

THANK YOU !