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Solid waste management in East Asia: an opportunity for PFI?

Originally appeared in FRR issue:January 2000

Governments across the world are seeking to reduce capital expenditure and are deregulating and privatizing industry at an ever-increasing rate. Services which were considered solely the domain of local government (such as waste management) are increasingly being taken over by private companies. Part of this trend is due to Private Finance Initiatives (PFIs), where governments effectively contract out services to the private sector. PFI law has recently passed the Diet in Japan and will bring new ways of doing business to industry. Waste management is one of the sectors likely to change fastest and this report examines current trends and case studies.

Introduction

Municipal solid waste (MSW) is a growing problem. - between 1975 and 1990, production of MSW in industrialized countries increased by more than 40%. In Europe, production of MSW now averages 1kg/per person/per day. In a number of South-east Asian countries (Japan, Korea, Malaysia and Taiwan) the amount produced may be even greater.

The production of ever-greater amounts of MSW can have implications for human health, for the visual environment, and for pollution of both of land and water. However, management of MSW can be very expensive; estimates for developing countries suggest that the cost of collection and disposal may be as high as 0.5-2.0% of national GDP. At the local level, 20-50% of municipal budgets may be devoted MSW management. The public sector is continually seeking to reduce this financial burden; PFI may provide a solution.

Private Finance Initiative (PFI) is a technique for private capital and expertise in the provision of public infrastructure and services. The aim is for public and private sectors to work together to achieve better 'value for money' across many types of project - such as housing, economic development and regeneration, transport and municipal enterprises. PFI was introduced to the UK in 1992, and has been largely successful. Many other countries are now looking to PFI as a way to fund provision of essential services, and in Japan the PFI law has recently (July 1999) passed the Diet.

Some of the major PFI success stories in the UK have been related to Waste Disposal and Waste to Energy Plants. As PFI becomes increasingly common through the Southeast Asian region there will be many opportunities for companies such as Fujita to build (and run) new types of business. This article attempts to analyse the current sectors involved in the management of MSW in SE Asia, show an example of a PFI waste-to-energy scheme, and to examine opportunities that PFI may bring to the industry.

Sectors currently involved in collection and disposal of MSW.

Public Sector.

Ultimately the responsibility for overall management of MSW rests with the public sector- local governments, health authorities, etc. The national government also has a role to play in MSW management; it is able to set policy for product durability, percentage of recyclable components, use of packaging materials, and the requirements for discharge of waste by industry.

Private Sector

The private sector is involved in MSW management at a number of levels. At the highest level are the companies which have formal relationships with local governments and seek to make a profit on their investment in MSW management. Such companies may be involved in waste collection, materials recovery, materials remanufacture, incineration, composting, or landfill. In reality they often perform several of these roles and may subcontract others to associated companies.

The next level of the private sector is the 'informal' sector. This sector is most important in common in poorer, developing nations, and is usually made up of 'waste pickers'. Waste pickers are usually among the poorest members of developing societies and are usually unregulated and unlicensed. They generally look for high value or recyclable material within MSW - and most often collect metals, paper, glass and plastics.

Although it may be tempting to think of 'waste-pickers' as having little or no effect on overall MSW management, the evidence available suggests they play an important role. Studies undertaken in Indonesia suggest that he 37 000 waste pickers working in Jakarta recover or recycle 25% of the city's MSW, saving the authorities as much as $US3 million/year. In Surabaya and Bandung, 31% and 19% (respectively) of waste is recovered by the waste pickers. Outside Indonesia there are reported to be significant waste picker communities in the Philipines, Thailand and China. Since the economic crash of 1997 the activities of waste-pickers may now also be significant in a number of other poorer SE Asian nations.

Even in Japan , there is an informal private sector involved in MSW management, albeit not as a result of poverty. Local organizations (such as town associations, children's associations and parent-teacher associations all collect and sell recyclable waste materials to recycling companies. Funds raised by these activities are used to fund local projects. In 1993 there were more than 800000 such organizations (more than 90 per municipality). Indeed, because citizen groups can recover recyclable materials far more cheaply than municipal authorities, some local governments subsidize such community groups and encourage their activities.

In addition to waste pickers and community groups, non-governmental organizations also form an important part of the informal private sector in MSW management. Often, they act as spokesmen for the poorer members of the sector, giving respectability to the waste pickers which, because of their low social class, they do not usually have.

PFI and MSW management: A European Case Study

The city of Birmingham is the UK's second-largest, with a population of over one million people. It generates over 450 000 tonnes of MSW per year. However the management of this MSW is performed entirely by a private company which gains revenue from charges for waste disposal and by selling electricity generated from the incineration of waste (waste to energy) back to the city. Although this joint venture between local government and a private company (Onyx Aurora) was set up before PFI law was introduced to the United Kingdom, it works in a similar way to PFI systems and serves as a useful model of how PFI could work within the MSW management sector.

The heart of the MSW management by Onyx Aurora is the Tyseley Waste Disposal Plant, a waste-to-energy incinerator which processes 350 000 tonnes of MSW every year, and generates 219 000MWh of electricity. The agreement with the local government, required the company to build an entirely new waste incinerator plant which it has the right to operate for 25 years. The land on which the plant was built remains the property of the local government, and after twenty-five years the plant will return to the ownership of local government. The redevelopment of the site cost Onyx Aurora £95 million (¥15.5 billlion).

Tyseley Waste to Energy Plant - simplified schematic

Onyx Aurora make money by charging 'gate fees' for all waste coming to the plant (a set fee for each consignment of waste) and by selling electricity to the city. The company has also found other ways of making money from the pre-sorting of waste - clean soil waste is sold to a landscape company, green waste to a composting company etc. After combustion, ferrous material is separated from the ash - a process that led to the company recovering 12 000 tonnes of such material every year. Ultimately the company also hopes to make a profit from the ash itself - it intends to both bottom and fly ash to a separate company which will use the material to make bricks for use in the building industry. Yet another revenue stream comes from the process of handling restricted medical waste by a special high-temperature incinerator —fees from such a service are relatively high and make a good profit.

Since coming 'online' in 1996, the plant has been very successful. Part of the success is due to the location of the facility, just 4.5 km from the centre of Birmingham. However, most of the success is due to the good relations between city residents, the local government and the private company. The private company took over all local government staff involved in running the plant as has made no reduction in staff numbers since. The plant has an open gate policy to city residents, allowing them to dump all types of waste directly.

Of course there are some problems with the plant — after all it is only the second such plant in the United Kingdom. Although ferrous material is recovered, this only happens after combustion and could potentially cause problems. Also, aluminium is not effectively pre-sorted from the waste stream and causes problems when it melts on the grate of the boiler. This occasionally results in plant closures for maintenance which cost Onyx Aurora time and money.

Overall however, the plant is a resounding success. Tyseley is now being widely used as a model in the UK and two new waste-to-energy plants are being developed (under PFI) along similar lines.

PFI and Waste-to-Energy in Asia. An economic success story for the future?

As 1999 ends, PFI seems an unstoppable force. The Japanese Diet have passed the PFI law and deregulation is sweeping through the Asian economies. It is clear that PFI will become even more important in the new millennium. One of the key areas for PFI growth does appear to be MSW management, and in particular the development of waste-to-energy plants. However, although there is much to be learned from the UK experience with PFI, it will be important to adapt the system to take advantage of local conditions throughout the different regions of Asia.

One of the clear lessons from the Tyseley experience in the UK is the importance of local support for any PFI project, particularly from members of the community. In the case of certain poorer Asian markets this may mean understanding the existing role of the informal private sector (e.g. waste pickers) in the overall management of MSW. The to bring in western MSW management techniques may in fact exacerbate the position of some of Asia's poorest citizens, separating them from the waste stream from which they have traditionally made their living.

One example of modern MSW management policy that has effectively incorporated exiting MSW management realities has been in Surabuya, Indonesia. Although again not formally a PFI, the developments there point the way to successful private-public co-operation.

Surabuya, like Birmingham in the United Kingdom, runs incinerators to process the city's MSW. However, unlike Birmingham, there has always been a large group of urban poor working as waste pickers. Today, there are about 2500-3000 waste pickers known as the Mitra Pasukan Kuning (MPK - Partners of the Yellow Force).

The MPK are regarded by local governent as co-equal partners in MSW management plans. The MPK generally recover between 10 and 20% of Surabuya's waste before it reaches the city transfer stations. At the final disposal site, MPK members recover another 10% of the waste, generally recyclable materials such as plastic that would cause damage to the incinerator if burnt. In removing 30% of the city's waste (thus reducing collection and disposal costs), the MPK also generate income for their families - about US$180-220 per family per month.

A similar beneficial relationship between government, the formal private sector and waste-pickers exists San Juan in the Philippines. After several unsuccessful attempts to develop western-style MSW management, the city authorities decided to work in partnership with the local waste pickers. The government issued ID cards and uniforms to former waste pickers, making them formal partners in MSW management. The 'push-cart boys' (as they were termed locally) were managed by waste material dealers who advanced them money to enable them to purchase recyclable MSW from richer households. The scheme has led to a 35% reduction in MSW production in the city. It has also led to improvement in conditions for the 'push-cart boys' — their role is now recognized by the police and they are protected from harassment by the citizens.

The above examples are not intended to divert attention from PFI, but to illustrate that by taking the current social circumstances into account, companies such as Fujita can make PFI-based waste to energy plants even more efficient and profitable. It just takes some lateral thinking to explore new markets and new methods of doing business. The companies which can do so will ride the PFI wave most successfully.

Conclusions

  • PFI is a new method for financing municipal services which is likely to become very important, both in Asia and worldwide.
  • PFI will become increasingly important to companies such as Fujita Corporation.
  • Although PFI has proved successful in the UK, PFI projects do need to be adapted to suit local conditions.
  • By understanding existing local conditions, PFI MSW management projects are likely to be more popular with local communities and more profitable for the companies involved.

Sources

1. Taylor, D.C, 'Mobilizing resources to collect municipal solid waste: illustrative East Asian case studies', Waste Management Research v.17 (1999) pp263-74.

2. http://www.local-regions.detr.gov.uk/pfi/3.htm#public

3.Publicity material from Onyx Aurora Corporation about Tyseley Waste Plant.


©2000 Fujita Research