rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Garbage too can make you rich

Garbage too can make you rich

August 30, 2006 14:10 IST

In most Indian cities roadsides are dusty or caked with mud. Trash is piled high amid blood-red marks of chewed-up betel leafs and the smell of urine. But the streets are comparatively clean in Chennai, an industrial city of 5.5 million on the nation's southeastern coast.

Early each morning hundreds of workers trawl by foot and auto-rickshaw through the main arteries of India's fourth-largest city picking up mounds of litter. A team of street sweepers reduces dust. And garbage collectors go door to door in even the most dangerous slums to gather and haul off trash.

Much of the credit for this cleanup goes to Veolia Environnement, a $30 billion (sales) Paris-headquartered outgrowth of the Vivendi media and water company that has tapped into one of the most intractable problems in Asia: pollution.

Garbage experts estimate that on average every person in a developing nation produces one pound of trash per day, compared to three times that amount in a developed nation. But both the economies and populations of the largest Asian nations are growing quickly, suggesting a staggering increase in garbage generation in the years to come.


Slideshows:
Top ten hottest jobs in the world
Forbes Global 2000

Already the world's most populous nation, China generates 190 million tons of trash per year, more than the US, and by 2030, the World Bank estimates, that figure will jump to 480 million tons. Yet only between 5 per cent and 50 per cent of China's waste is currently treated through modern landfill methods or incineration, compared to probably 99 per cent in the US. The situation is even worse in countries like India, Indonesia and the Philippines, where less than 5 per cent is treated.

Solid waste is only the beginning. Untreated garbage seeps into waterways and poisons drinking water. Open sewers and industrial pollution compound the problem. In April the head of the US Environmental Protection Agency made a rare visit to China to encourage his Beijing counterpart and other officials to make use of technologies that could help improve the nation's severe air pollution problem.

For Veolia and a handful of competitors all this smells like opportunity. Veolia has entered into a slew of contracts in China, India and other Asian nations to clear away solid waste and build landfills, wastewater and sewage-treatment facilities, as well as provide clean drinking water to many of the region's 2 billion-plus people.

In its biggest market, China, Veolia handles 20,000 tons of garbage per day, disposing of it in landfills or running it through its waste-to-energy plants. As a result, Veolia's revenue from Asia hit $1.7 billion in 2005 - a 29 per cent increase over the previous year - and executives say it could increase another 15 per cent to 20 per cent annually for the next five years, outpacing growth in the rest of the company.

Competitors expect similar growth. The biggest, Paris-headquartered Suez, has teamed up with New World Development, a Hong Kong conglomerate headed by billionaire Cheng Yu-tung. Since starting its work in the region three decades ago, it has built 150 drinking water treatment plants in Chinese cities, serving clean water to 250 million people.

The $53 billion (2005 sales) company now runs the two biggest landfills in Hong Kong and is testing a hazardous waste incinerator in Shanghai's main industrial chemical center.

These companies go where many others fear to tread. Building a landfill, incinerator or wastewater treatment facility requires an enormous capital outlay that includes the cost of importing heavy machinery and highly trained experts, as well as a long-term commitment from the host country.

And in many of these countries contracts are opaque, cash flow is uncertain and there is little recourse in the event of government corruption or expropriation. Arbitration is a lengthy and difficult process.

Moreover, with few environmental regulations on landfill siting, drainage or lining, local competitors can underbid by cutting corners. Partly because of such potential difficulties, US companies and many others have steered clear of the region.

Slideshows:
Emerging global cities
World's most corrupt countries

"When you go to a country where regulations change from day to day, or are not enforced, it's hard for a reputable company to compete with people who are willing to ignore regulations or pay bribes to get past inspections or enforcement," says Sandra Cointreau, a solid-waste adviser to the World Bank.

But European companies have been eager to expand beyond their own limited borders. They offer the same kind of technological and financial resources as American competitors, and waste management experts like Cointreau say they are also more comfortable with the gray areas in international business ethics. (Both Veolia and Suez insist they work at only the highest ethical standards.)

Their own governments encouraged this kind of work, too. Beginning in the 1970s European governments lent China money, requiring Beijing to use it to hire European pollution-remediation companies. One of the first to take advantage of this was Suez.

By 1992 Veolia made its first Asian contact by setting up a waste-to-energy plant in Macau, and through the decades it evangelized throughout the region on the benefits of Western-style pollution control. At first Chinese municipal authorities expressed little interest. Jorge Mora, Veolia's point man in China, says cities competed with one another for economic growth but paid little attention to the environmental effects of rapid industrialization. "The only thing they had in mind was GDP, GDP, GDP," he says.

But by the end of the decade that began to change, Mora says. With relatively transparent contracts, low corruption and an apparent willingness to accept foreign help, Chinese investment devoted to controlling pollution reached $115 billion between 1996 and 2004.

So beginning in 2000 Veolia began to snap up contracts in Guangzhou and along the coast; it now handles 60% of the waste in Shanghai, China's most populous city. Mora and other waste professionals agree that Chinese officials are far more committed to cleaning up the country than in the past. "Even Chinese officials from the environment ministry are saying there's still a lot of things to do," says Mora.

Elsewhere a lack of political will to clean things up creates little incentive for companies to make investments. In the late 1990s, for instance, the $13 billion (sales) US company Waste Management considered teaming up with a Japanese company to set up a waste management plant in Taiwan.

But executives rejected the idea when they realized there was little guarantee the nation's trash would be properly collected. "If you put in $200 million to $300 million and you're not sure the waste is going to get there, that's a risk we're not going to take," says Richard Felago, senior vice president of business development and strategy at the Houston company.

Getting paid is tough, too. Suez lost a bundle in Asia's third-most-populous nation, Indonesia, when it built a water treatment facility financed with a dollar-denominated loan. During the Asian financial crisis the government devalued the Indonesian rupiah, and Suez was unable to cover its debt. Now the company makes all its investments in local currency and divides risk among lenders, partners and local water authorities.

Even a relatively stable country like India can be tough to navigate. The country almost completely ignored solid waste as a problem until, in a spell of judicial activism, the Supreme Court decreed that all cities of 100,000 people or more must provide disposal by the end of 2003.

"I don't think any city has met the deadline," says N C Vasuki, the head of the International Solid Waste Association. A 2000 law further mandated the separation of organic waste from recyclables - something that has also proved impossible.

Bureaucracy is one reason for India's difficulties. Several years ago the city of Delhi contracted with Danish company Volund to construct and operate a modern waste-to-energy plant that would deliver 4 megawatts of electricity to the city grid, according to Vasuki.

But shortly after they started up, a dispute arose about the calorific value of the solid waste. The plant was shut down amid a spate of lawsuits and has been sitting idle for more than a decade. In 2003 Vasuki visited and recommended to officials that they could restart the plant, with some modifications, and feed it a mix of plastics from composting operations, as well as hospital, nursing home and industrial wastes. The top official in Delhi told him that two government departments were at loggerheads and no one was willing to make a decision to settle the case. In the meantime, Vasuki says, Delhi's solid-waste stream is growing at 6 per cent annually.

Slideshow:
World's most dangerous destinations

The bureaucracy has prevented private participation in other ways, too. Authorities in Tirupur, in the south of India, invited a private contractor to build a composting plant to convert biodegradable material or organic waste into fertilizer.

But the city refused to enforce the law requiring garbage segregation, arguing it did not have the resources, and refused to allow the plant to function with mixed garbage. Now the trash is just dumped in the open, and the plant is in a state of disuse, processing at only 10 per cent of capacity. "Getting segregated garbage is a major concern," says B. Suresh, chief of Mahindra Acres Consulting.

Still, Veolia dipped its toe in the region, investing in 2000 an initial $9 million for things like garbage transfer stations and a workshop to service 250 sanitation vehicles. It set up a toll-free customer service number. And while tradition dictated that only workers belonging to certain castes could be hired for cleaning operations, Veolia (under the name Onyx) opened up hiring and clothed its 2,300 employees in uniforms, offering training in customer service and vaccinations every six months.

Its entry prompted the city garbage authority to behave more like a private contractor. It reduced the number of employees by 20 per cent over a seven-year period and offered incentives to reduce absenteeism. Garbage collectors were allowed to segregate recyclable waste and sell it on their own. As a result, armies of men and women now pedal three-wheeled vehicles to every doorstep, asking for garbage, including in the 6.5-square-mile Zone 3 in northern Chennai, a region of 600,000 people notorious for slums and gang violence.

Chennai's experiment with Veolia also spurred other cities to look to outsiders. In 2003 Delhi began to try to implement a similar privatisation, and Bangalore and other cities also showed interest. Yet there was little foreign interest when the city of Delhi put a series of nine-year waste collection contracts up for bid last year.

Suez has taken a wait-and-see approach to India, and Veolia found it would get only $10 per ton in the first year - half of what it gets in Chennai - along with annual price increases that did not cover future costs. It elected not to bid, according to Patrick Huard, head of its Chennai operation. "It was difficult to take the type of risk, if you are not sure of compensation for inflation," he says. Instead Delhi turned to local companies with little experience in waste collection.

Meantime, the cleanup effort in Chennai has stumbled. Veolia's workers have gone on strike three times since 2001. Authorities have accused the company of inflating its bills; Veolia disputed it and countered that it does not get paid on time - a fact that has diminished its enthusiasm for aggressive bidding elsewhere.

In addition, Veolia's contract, now under negotiation, calls for collection only, not disposal. So rather than landfilling the garbage, it simply dumps 1,200 tons of trash a day into a 100-acre-plus marshy mess in Perungudi, one of the most expensive and rapidly growing parts of Chennai.

The open dump, which adjoins a reservoir of drinking water, holds waste that runs 20 feet deep. Runoff has polluted the groundwater and caused skin rashes and breathing problems in nearby communities, says Exnora, a nongovernmental agency.

Burning mounds of organic waste and plastic release plumes of toxic white smoke and cloak the bustling business hub in a white cloud. On a recent day ragpickers, including children, dug through piles of trash, hoping to find something salvageable that they could later sell.

On some days rainy weather and mud prevent trucks from entering, so a few old bulldozers pound the garbage to submission. Veolia executives insist there is little they can do for now. "I don't really like the contract," says Mora, who runs the Asian operation. "Yes, we did a good job of cleaning the garbage and cleaning the city. But the treatment is still done by the local government, and they are not doing it properly. It's just kind of a dump site. I am frustrated by that."

It's Not Pretty

There's plenty of opportunity in cleaning up Asia. But given the complexity of the job, few companies, large or small, want to get their hands dirty. Here are some that do:

Mahindra Acres Consulting Engineers (India)

Eleven-year-old company is a joint venture of one of India's ten largest industrial conglomerates and Acres International, a Canadian consulting and engineering firm.

Ramky Group (India)

Twelve-year-old company is the largest environmental and waste-management firm in India, with projects in its hometown Hyderabad, as well as Bangalore and elsewhere.

SembEnviro (Singapore)

Subsidiary of SembCorp Industries offers solid and medical waste collection, recycling and street cleaning to 1.6 million households and 40,000 commercial and industrial customers in Singapore, Australia, China and India.

ShinMaywa (Japan)

The $1 billion (sales) company builds industrial machinery, construction equipment and environmental services products like water treatment facilities and equipment and garbage transfer station systems.

Visy Industries (Australia)

One of the world's largest private packaging and recycling companies has 30 plants at home, as well as recycling operations in Singapore.

Slideshow: Most off-beat cities for investing

S. Dinakar and Michael Freedman, Forbes