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Supporting local waste management companies to grow

Author: Ing I. B. Nartey-Tokoli

• An analysis of the current situation

By Ing I. B. Nartey-Tokoli


Environmental sanitation is undeniably one of the most powerful drivers of quality of life, with respect to health and wealth.

In our part of the world, however, enormous work is still needed to make this rhetoric a reality in the lives of many.


Local solid waste management companies have been at the forefront of delivering such services on behalf of metropolitan, municipal and district assemblies (MMDAs) in the form of public-private partnership.

Over the past years, contractors and assemblies have maintained an active relationship to deliver this service to the citizenry in consonance with the government’s recognition of the private sector as the engine of growth.

Achievements

Many interventions have been made to improve service delivery and these include the execution of franchise agreements or contracts with the MMDAs which has resulted in the injection of private capital into the waste management industry.

Again, the Public Procurement Act, Act 663 has helped to improve the procurement processes and consequently breed a healthy competition in the delivery of services among the providers.

Furthermore, the application of the polluter pays principle (PPP) has taken a substantial financial burden off the internally generated fund (IGF) of the assemblies and common fund allocation to the MMDAs. The Accra Metropolitan Assembly (AMA) has, for instance, been saving about GH¢1,000,000.00 every month since July 2011 which it was otherwise paying to local contractors prior to the implementation of its Fee and Performance- Based Solid Waste Collection Service in July 2011.

The solid waste contractors have also invested in procuring modern and highly efficient equipment such as refuse compactors and roll-on/off skip loading trucks.


These achievements, notwithstanding, the medium-term sustainability of the local private sector involvement remains at risk. This is due to major challenges that tend to play against the effective solid waste collection services provided by these local private waste firms, especially those that operate in the Accra Metropolis.
   
Political and-socio-economic setbacks  

Political will on the part of the assemblies is needed to impose cost recovery fees (by their annual fee-fixing resolutions) determined to guarantee and sustain the service delivery standards.

While the service standards require the use of highly-efficient specialised equipment to manage the volumes of solid waste generated, collected and transported daily over long distances, the critical factor in determining the simple-average fee is affordability and not sustainability.

The delicate balance normally struck between ability to pay and the service standard required results in the imposition of very low service charges which makes it difficult to fund operational cost and guarantee service reliability.

For example, in the case of Accra, we have the following scenario playing out:

In other words, the approved rates cover only 18 to 42 per cent of the established cost of transport. These imposed rates, which are below 50 per cent of the established standard, are grossly inadequate to sustain the delivery of quality services in the short-term without compromising the required service standard or running the local contractors out of business.

The practical reflection of this analysis is the filth that engulfs us in the millennium city. It is practically impossible for any contractor (be it local or international or multinational or conglomerate) to work with the current imposed rates and be able to collect all the solid waste generated in Accra in a sustainable manner.

Already grappling with low service fees imposed by the MMDAs and operating long haulage distances (in the case of AMA ), the service providers are being bullied to accept the imposition of a dumping fee of GH¢15.00 per metric tonne, without taking into account the life cycle cost of delivering solid waste services and without negotiation, when they dump at the Kpone Engineered Sanitary Landfill.
   
Payment of this dumping fee will further reduce the coverage of the approved rate to between 11 and 26 per cent of the established cost of transport; an increase in the shortfall to between 74 per cent and 89 per cent. This will be catastrophic.

Supply of waste storage bins

In the recent past, there had been attempts to coerce service providers (in Accra) to supply standard plastic refuse bins free of charge to subscribers of solid waste collection services in contravention of the AMAs own Solid Waste Bye-law, 1995, which states that “Owners or occupier of premises shall be responsible for the provision of containers that will be used in storing solid and liquid waste within the premises in consonance with specifications approved by the AMA.”

As a result of this misinformation, some prospective customers demand the supply of a free bin from the service provider as a condition for registering for the service.

Considering the required numbers (minimum of over 20,000 units per service zone) and the cost (over GHC4,000,000.00) involved for each of the 11 service zones in Accra, this is a huge expenditure which if added to the high initial investment cost and factored into appropriate equipment will simply collapse the businessess of all service providers.

High initial investment cost

The acquisition of  appropriate equipment is a must for the delivery of reliable cost effective service. However, with the very low service charges approved by the assemblies, it is very difficult to invest in brand new equipment without procuring commercial loans with rather high interest rates from the banks. Meanwhile, brand new trucks can assure reliable service at low running and maintenance cost over the first few years of their lifespan.

With the prevailing high interest rates and a minimum of 27 per cent on products delivered by the banks, most local contractors are compelled to rely on second-hand equipment which has reduced efficiency and higher maintenance costs.

It stands to reason that the banks will denominate the cost of equipment (not locally manufactured but imported) in foreign currency.
   
High customs and import duty on refuse trucks
These fees (calculated as a percentage of the initial first sale price in foreign currency abroad) become very high when converted into the local currency. The cost again escalates when added to the Cost, Insurance and Freight (CIF) cost.
 
Enforcement of Bye-laws

The MMDAs must compel recalcitrant prospective clients to register with accredited service providers and participate in the service delivery system.

Unfortunately, due to very low levels of enforcement, accredited service providers continue to deliver services in a market of reducing potential client sizes.

The total effect of these challenges is that service providers are cocooned in a vicious cycle of operational inefficiency, management ineffectiveness with no prospect of growing in an industry which otherwise has a very high potential of creating employment for the teeming youth.

There is no way that the local private sector players would be able to accumulate capital to re-invest in equipment replacement or to research and implement new innovations and be able to compete with international players in the waste management industry.

Some recommendations

The Government  should  temporarily waive the high custom and import duty on refuse trucks for a period of between five to 10 years, so that service providers can build capital for equipment replacement.
 
To prevent abuse of the proposed waiver, evidence of an active contract with an MMDA and membership of a recognised body such as the Environmental Service Providers Association (ESPA) on one hand and compliance with other conditions as the government may set on the other hand could qualify a service provider to access the waiver.