32 (127) 2017
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Energy & Environment

Waste management: When local governments and private companies partner up, who stands to benefit?

By Tomasz Korczyński, counsel at Dentons’ Warsaw office, co-head of the PPP practice in Poland
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When local governments team up with private companies to implement investment projects, they gain access to more capital, but in many cases they also have more certainty that their projects will be completed on time and within the planned budget.

Compared to traditionally implemented projects, frequently beset with delays and budget overruns, PPP projects are in most cases completed on time and within the planned budgets. This is clearly seen in mature PPP markets such as the UK, Canada or Australia.

What local governments also get from this form of cooperation is the opportunity to pursue projects that they would not otherwise be capable of funding on their own, while private companies gain stable sources of revenue in return.

And, of course, there is the shared benefit of a cleaner natural environment. But mistakes can be made when planning and implementing projects of this kind.

In 2013, Poland's supreme audit office (NIK) reviewed all the PPP projects under way in Poland. This report pointed to deficiencies in the project-planning stage, such as failure to carry out reliable pre-implementation analyses, or disregarding the results of analyses that were carried out. Also, the public partners sometimes expected too much from their private partners, often trying to saddle them with all the risks inherent in the project while denying them adequate compensation for their exposure. Another thing that NIK auditors complained about was the public sector's reluctance to seek advice from professional and experienced outside experts. The figures speak for themselves:

Outcomes of private partner selection procedures (in the period from 2009 to January 2017) for projects worth upwards of PLN 20m

  • Close to one in two PPP procedures in which external advisors were involved led to contracts being signed, with just one in four procedures ending up being cancelled.

  • When no external advisors were brought in, just 12% of the procedures led to contracts being signed while a whopping 73% got cancelled. (BazaPPP.pl)

I'd like to look at extent to which the PPP formula in waste management projects. On the one hand, more and more waste is being produced in Poland, where the average citizen generates more than 300 kg of municipal waste per year, with the average figure for Europe now approaching 500 kg. This shows the growth potential for the thermal waste treatment processing market. There's a definite upswing in the already-strong interest of the private sector in thermal waste treatment projects, involving classical heat-processing installations, mechanical-biological and biogas facilities. And there is an increasing focus on heat and electricity generation from waste incineration.

Yet looking at the overall picture of construction projects for municipal facilities in recent years, there's no clear rising trend to be discerned as far as PPPs are concerned. These continue to account for just 5%-6% of all projects for which private partners were being sought.

And yet, there is no shortage of examples of waste management PPPs in Europe. Recent years have seen investment projects in this sector being implemented in Germany, Hungary, Bulgaria, Romania and Macedonia. And it’s the same the world over, with the PPP formula having been used for years now in the likes of Japan, India, Brazil, Singapore, South Korea, Mexico, Columbia, Chile, Canada and the US.

The Government should show solid and unambiguous support towards the idea of private partners’ involvement in waste management projects, as well as to enable PPP waste installations to achieve RIPOK status. RIPOK, or regional treatment installation for municipal waste, is the default destination of the regional stream of waste.

Moreover, local authorities with the highest potential (based on well-grounded estimations) of their current and future waste stream should be supported by the central government.

The article was originally published on https://portalkomunalny.pl/ in Polish, in connection with the 14th International Conference ‘Thermal treatment of Waste’ on 14-16 November 2017 in Świnoujście, Poland. The article in Polish is available at the following link: https://portalkomunalny.pl/gospodarka-odpadami-i-ppp-kto-moze-na-tym-skorzystac-wywiad-366193/

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