Solid Waste Management in Ukraine: Potential for PPPs

Landfill GasSolid waste management is a major problem in Ukraine. A 2014 Russian-language study by the International Finance Corporation (an update in English was just released but is not yet online) reports that Ukraine produces up to 13 millions tons of municipal solid waste annually with recycling rates in the 3 – 8 percent range. That means most solid waste ends up in its 6,700 landfills and dumps, many of which are unauthorized, overfilled, or fail to meet sanitary requirements..

Government has taken some positive steps to deal with the problem: it’s improved solid waste management legislation and plans to meet European Union standards for recycling. But Ukraine is grappling with an economic crisis, a simmering war with Russia, and 1.3 million internally-displaced persons in urgent need. Simply put, government doesn’t have the resources – not financial, technical, or managerial – to fix these problems anytime soon.

This spells bad news for ordinary citizens. Toxic pollutants contaminate water and soil, and landfills emit methane, a virulent greenhouse gas. Landfills are running out of space. And the economic cost of not recycling – in terms of lost raw materials – are significant.

Clearly, government needs to develop and implement a sound solid waste management strategy. Part of that strategy should include partnering with the private sector through public-private partnerships.

How Can PPPs Help Ukraine’s Solid Waste Management Sector?

The private sector can offer a number of services that government alone would find difficult to provide itself. These include:

  • Building and managing recycling facilities to recover glass, plastic, metal, and cardboard;

  • Developing and operating incineration and landfill gas recovery facilities to generate heat and/or electricity;

  • Designing, building and managing modern landfills, including waste collection and transportation.

Several Ukrainian cities, namely Vinnytsia and Ivano-Frankivsk, are already developing PPPs to capture landfill gas and use it to generate electricity.

Is the Private Sector Interested?

The private sector has shown cautious interest, at best, in solid waste management in Ukraine. Some reasons the private sector might consider participating in a solid waste PPP are:

  • With a sufficiently high tipping fee, which covers the costs of managing landfills, a multi-year PPP can be a source of stable, long-term income for the private operator.

  • Ukraine has significant amounts of waste that have not been tapped for recyclables or landfill gas. An efficient private sector player would have the opportunity to exploit these resources profitably.

  • Because of uncertainties over the price and availability of imported gas, mostly supplied by Russia, the Ukrainian government is eager to identify new ways to generate heat and electricity. Solid waste can be used to generate both.

  • Ukraine has a special Green Tariff for electricity generated from renewable resources. The amount depends on the source of power generation.

Can this work? There are many examples of successful PPPs in the sector. One example is a landfill in Berhampur, India, where the operator will process 150 tons of waste per day. Another example is in Wenzou, China, a city of 2 million, where a PPP converts waste to electricity.

Managing Risks

The risks of a solid waste management PPP in Ukraine are high. How these risks are allocated depend on the specific PPP and on which partner is best positioned to handle them. A thorough feasibility study and effective communication with potential private partners, NGOs, other stakeholders and the public can identify these risks so that they can be properly managed. Some potential risks include:

  • Regulatory risk. Legislation impacting PPPs, concessions, tariffs, and budgets is still developing. There is a risk that regulatory changes could impact the business model for the worse. Critical regulations, therefore, should be identified and contract terms developed to ensure that unexpected changes do not undermine the economics of the PPP. This could include tariffs, special green tariffs, tipping fees, permits, and others.

  • Environmental risk. Although the private sector can assume responsibility for environmental risks when building and operating modern landfills, it will not want to be held accountable for previous pollution. A thorough environmental review is essential.

  • Technical and logistical risks. The private operator is better positioned to assume risks with construction, developing a sound logistical system for collecting and transporting waste, or developing efficient recycling systems.

  • Risk of underestimating waste volume. Revenue forecasts depend on accurate estimates of waste volume. Overly optimistic estimates could lead to operator losses.

In sum, the Ukrainian government needs the financing, business savvy and technical expertise from the private sector to develop its solid waste management sector. PPPs should be a key component of a sound solid waste management strategy.

Learn more:

Handshake Issue 12: Waste and PPPs by World Bank Group Public-Private Partnerships

P3DP Provides Expert Advice to Solid Waste Policy Discussion

P3DP highlighted legal and policy changes needed to attract investment through PPPs into Ukraine’s solid waste management sector during the working group meeting of the Ukraine Environmental Alliance Association. GOU officials, NGOs and experts are working to create a set of key recommendations that can guide the development of a national strategy for solid waste management.

USAID Supporting Efforts to Stimulate Private Sector Investments in the Solid Waste Management Sector in Ukraine

Photo Lviv 2Lviv, Ukraine (November 20-21, 2014) – A conference entitled “Developing Best European Practices of Inter-municipal Cooperation in the Solid Waste Management Sector in Ukraine” took place in Lviv, where representatives of the local and central government, businesses and the donor community discussed how the impact of proposed legislative changes by the Ministry of Regional Development, Construction, Housing and Communal Services will affect private investments in the waste management sector. Participants also shared international and Ukrainian experiences in the solid waste management.

The event was jointly organized by Ministry of Regional Development, Construction, Housing and Communal Services, the U.S. Agency for International Development (USAID) Public Private Partnership Development Program (P3DP), the German Federal Enterprise for International Cooperation (GIZ), and the Swiss-Ukrainian project “Decentralization Support in Ukraine” (DESPRO).

When opening the Conference, Deputy Minister of Regional Development, Construction, Housing and Communal Services of Ukraine Mr. Andriy Bilousov highlighted: “Ukraine needs investments and private sector participation in all aspects of waste management to improve services and protect the environment. The private sector has the resources needed to introduce modern technology and management, and change consumer and industry habits to increase recycling and protect the environment.“

“The partnership with the private sector is key for the modernization and development of the solid waste management” – said Jed Barton, USAID Regional Mission for Ukraine, Belarus and Moldova Director. – Private companies have the resources, management experience and technical knowledge in order to protect the environment and provide better services more efficiently.

“Decentralization reform requires special attention of local authorities to development projects. One form of such projects is public-private partnerships. In order for the projects to be economically sustainable, it is important for the central government to introduce the right tariff policy to stimulate long-term private investment, for example, in the sector of solid waste management.” said Tetyana Korotka, Director of Professional Services of the USAID Public Private Partnership Development Program.

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The USAID Public Private Partnership Development Program provides assistance to the Government of Ukraine in improving the legal environment for PPPs, increasing the capacity of authorities to develop and manage PPPs, and provides assistance in all stages of preparation and implementation of PPP pilot projects.

The American people, through the U.S. Agency for International Development (USAID), have provided economic and humanitarian assistance worldwide for 50 years. In Ukraine, USAID’s assistance focuses on three areas: Health and Social Transition, Economic Growth and Democracy and Governance. USAID has provided technical and humanitarian assistance to Ukraine since 1992. For additional information about USAID programs in Ukraine, please call USAID’s Development Outreach and Communications Office at: +38 (044) 521-5741. You may also visit our website: http://ukraine.usaid.gov or our Facebook page at https://www.facebook.com/USAIDUkraine.

P3DP Provides Input to Draft Solid Waste Tariff Law

P3DP provided recommendations on solid waste tariff issues during a working group meeting held by the Ministry of Regional Development.  P3DP was a primary contributor to the proposed solid waste tariff methodology which is expected to make PPPs more attractive in the solid waste sector.  The draft law shifts greater authority and delegates tariff setting responsibilities for SWM to municipalities.  It is expected to be submitted to Parliament in the near future.

PPPs Tap into Landfill Gas for Power Generation

PPP UkraineUkraine inherited a highly inefficient and polluting solid waste management system upon independence in 1991. It has been struggling with its garbage ever since. A recent World Bank study reports that Ukraine generates over 17 million tons of waste per year. Its waste recovery rate is alarmingly low — about 5 percent. The rest ends up landfills or illegal dumps near cities, posing health and environmental risks. Regardless of future government actions and potential changes in consumer behavior, Ukraine needs to significantly expand its landfill capacity.

The Ukrainian government has taken some important steps to foster a legislative environment that will improve the processing and recycling of waste. Encouragingly, cities have recognized that tapping landfill gas for power generation is an effective part of comprehensive solid waste management system. The USAID funded Public Private Partnership Development Program (P3DP) is in the forefront of this movement, helping two cities — Vinnytsia and Ivano Frankivsk — introduce biogas technology as part of their comprehensive solid waste management systems through public-private partnerships (PPPs).

Value in Vinnytsia

Vinnystia, a city of 370,000 in south-western Ukraine, plans to decommission its existing landfill and generate electricity from its landfill gas, which mostly consists of methane — a greenhouse gas with over 21 times the impact of CO2. The project will generate and sell electricity using biogas that is currently flared. The proceeds will be used to recultivate and close down the landfill once its capacity expires.

The municipality has completed feasibility studies and expects to be ready for tender in 2014. An independent study showed that the project could attract up to $3 million in private sector investment, generate $5 million in tax revenues, and reduce gas emissions of nearly 460,000 tons of CO2.

The idea is catching on. After visiting the site in Vinnytsia, the Governor of Ivano-Frankivsk, championed the initiating of a similar PPP in his own region. A feasibility study is underway and is expected to be completed in late 2014.

The Demonstration Effect

With approximately 100 landfills in Ukraine suitable for extraction and utilization of landfill gas, the demonstration effect has the potential to be replicated across the country. If this becomes an ingrained aspect of Ukraine’s solid waste management system, Ukraine’s landfill gas utilization will ultimately contribute to more efficient and environmentally friendly use of the country’s resources.

Other benefits include:

  • Lower costs. The high cost of gas in Ukraine is a drain on local budgets. Business is uncompetitive and municipalities do not have the necessary funds to address infrastructure needs.
  • Greater energy independence. Ukraine imports most of its natural gas from Russia, making it vulnerable to geopolitical pressure. Harnessing landfill gas will reduce the need for imports.
  • Opportunities for small business. Local Ukrainian businesses will have greater opportunities to participate in the solid waste and energy sectors.
  • Reduced greenhouse gas emissions. Ukraine is a leading contributor to carbon emissions on a per capita basis. A study by Bio, an engineering firm, estimates Ukraine could save the equivalent of 6 million tons of CO2 annually by using landfill gas.

With improving solid waste management as a top priority for the Ukrainian government, this is a good time to demonstrate how PPPs can improve the collection, processing and disposal of solid waste throughout the country. PPPs bring private sector investment for infrastructure and public services, as well as new technologies and managerial skills that play a major role in increasing energy efficiency and mitigating climate change. Landfill gas PPPs could lead the way, forming an integral component of a sustainable solid waste management program.

This article was originally published in Handshake: Waste & PPPs.

Solid Waste Tariffs: Encouraging Sustainable Investments in Landfills

SWM PPP Ukraine

Ukraine generates 17 million tons of waste per day, but only recycles 4 percent of it. More than half its 6,000 dumpsites are uncontrolled, posing environmental and health risks such as groundwater contamination, rodents, disease, and emissions of methane – a potent greenhouse gas. An improved tariff system is needed to encourage private sector investments in solid waste services and through public-private partnerships. P3DP is working with the National Commission on Regulation of Public Utilities to develop a rational, clear and consistent tariff methodology for landfills.

Ukraine has the potential to significantly reduce greenhouse gas emissions, increase waste recovery rates, and contain environmental and health risks by reforming its solid waste management sector.  A good place to start is tariffs: under the current system, landfill operators have little incentive to invest in needed improvements.

P3DP’s international SWM experts, Chris Shugart and Peter Faircloth, presented a proposed Solid Waste Disposal Tariff Methodology at a roundtable discussion organized by the National Commission for the Regulation of Public Utilities on November 12. Once finalized, the methodology will become a key strategic pillar for better regulation of the SWM sector in Ukraine. This work complements efforts of the World Bank and other international agencies to support low-emission development strategies in the sector.

A national tariff methodology opens the door wider for public-private partnerships, which can attract private sector funding, technology and expertise to the sector. This will lead to improved landfills that adhere to global best practices, support Ukraine’s efforts to transition to lower greenhouse emissions, and ensure that landfill post-closure care protects the environment and public health.

Valeriy Saratov, Head of the National Commission, opened the roundtable by stressing the importance of solid waste management in Ukraine’s development.  He noted the importance of USAID’s support in general and P3DP specifically. In addition to P3DP’s contributions to improving legislation, policy and regulation, two of P3DP’s pilot PPP projects, in Vinnystia and Ivano-Frankisk, focus on the SWM sector.

Knowledge Sharing in Action: Ivano-Frankivsk Governor Visits P3DP Biogas Project in Vinnytsia

Landfill GasGovernor Mykhailo Vyshyvaniuk of the Ivano-Frankivsk Region visited Vinnytsia this week for a first-hand look at P3DP’s pilot PPP landfill biogas extraction project. The project aims to generate power from landfill gas at a municipal landfill. The energy produced will reduce the need for power from more polluting sources, reducing carbon emissions by an estimated 20,000 tons and increasing Ukraine’s energy independence.

This municipal cross-learning study tour is an excellent example of how P3DP facilitates knowledge sharing on the role of PPPs in energy efficiency and renewable energy in Ukraine. P3DP’s Tatiana Korotka, Nelia Makary, and Alexandra Chalaya facilitated the event.

The idea for the study tour came up in September, when the Governor visited P3DP’s offices in Kyiv to discuss a biogas extraction project in Ivano-Frankivsk. P3DP-supported tests indicated that there are sufficient gas emissions at a municipal landfill in Ivano-Frankivsk to generate electricity.  Under a PPP, the city plans construct power lines from the site to the grid and enter into a PPP with a private operator to build and operate a power generating facility. The total investment could reach $3 million and generate 10 new jobs.

P3DP, as transaction advisor to both projects, presented key topics during the visit. These included information on best-practices in landfill management, including biogas extraction; social, economic, financial, and legal implications of the project, and environmental issues such as the Kyoto Protocol, green tariffs, energy-efficiency and related taxes. The roles and responsibilities of private operators  in such PPPs were also discussed.