The increasing costs of waste management

The costs of waste collection are rapidly increasing in dozens of Polish cities and municipalities as a result of the European Union's policy and the reform of the waste management system adopted in 2013.

For the past several months, Polish local governments have been increasing the fees for waste collection, the so-called waste fees. These are often drastic increases, reaching 30-60 per cent. There have even been examples of fee hikes reaching 250 per cent — in the municipality of Krzywcza in the Podkarpackie Voivodeship (southern Poland), the monthly rate for the collection of sorted rubbish has jumped from PLN3.8 to PLN10.5 (EUR0.88 to EUR2.44) per person, and the rate for unsorted waste rose from PLN8 to PLN21 (EUR1.86 to EUR4.87), since February 2018.

Such increases will become widespread. Some cities and municipalities and boroughs are doing this by invalidating the tenders for waste collection and announcing new ones. They justify their decisions with the fact that the submitted offers significantly exceed the funds allocated for this purpose in the local budgets. Others are simply subsidizing waste collection from the municipal budget, although it is not certain whether that is even legal (the applicable legislation does not explicitly specify this matter).

Yet another solution was applied by Warsaw (the capitol of Poland), which took advantage of a legal loophole, and extended the contracts until the end of the year with the companies that have collected waste in the capital so far.

Why is it getting more expensive?

The Polish local governments usually conclude contracts for waste collection for a period of 2-3 years. They choose the contractors in tenders. Unfortunately, in the recent tenders the submitted offers were higher, often drastically, than in the previous ones, organized just a few years ago. The reasons that the companies increased prices mainly included:

  • the fall in the prices of secondary raw materials, which is mainly due to the fact that China has significantly limited their import;
  • the increase in expenditure on salaries, resulting, among other things, from the increase in the minimum wage;
  • the increase in other costs resulting from the recent legislative changes aimed at increasing the recycling rate. These changes include, among other things, the introduction (in 2017) of the obligation to use separate containers for plastic and paper waste and to dispose of organic waste (such as leftover food or spoiled food) into a separate container.

The municipalities have to adapt to the new requirements by mid-2021 at the latest. However, in newly announced tenders for waste collection they are already asking the companies to include these changes in their offers.

The rapidly increasing rates of the landfill tax, which is supposed to discourage waste disposal and encourage recycling, has even greater consequences. In the case of so-called mixed waste, the landfill tax rate was PLN16 (EUR3.71) per ton back in 2007. One year later the tax rate jumped to PLN75 (EUR17.39) per ton, and then continued to gradually increase. Until last year the rate was PLN121 (EUR28.05) per ton. Starting from this year, however, the landfill tax amounts to PLN140 (EUR32.46), in the next year it will increase to PLN170 EUR39.41), and in 2020 it will reach PLN270 (EUR62.6) per ton.

While determining the pricing of their offers, the companies are taking into account all of the above-mentioned cost increases, as well as those expected in the coming years.

The EU regulations

The changes in the environmental protection legislation, which are leading to such large increases in the costs of waste disposal, including the sharp increase in the landfill tax, are the result of obligations imposed by the European Union. The EU has the ambition of becoming the global leader in environmental protection. Consequently, the European Union’s waste directives are very restrictive and are designed in such a way as to minimize the amount of landfilled waste and to maximize the recovery of the secondary raw materials (recycling).

The recycling rates in the EU member states are supposed to reach 50 per cent by 2020 (that is, as much as half of all waste is to be recovered in the form of secondary raw materials), and 65 per cent by 2035. If Poland fails to achieve these targets, it may be punished with high fines and the withdrawal of EU funds for waste management.

However, the environmental policy of the European Union and the associated costs are not the only reason for the high increases in the prices of waste collection services. The second reason arises from Poland’s internal regulations. The implementation of the reform of the waste management system in 2013 significantly reduced the level of competition in this market.

Before the reform, everyone in Poland — the owner of a single-family house, a residential community, a housing cooperative, or a company — decided on their own where to order the waste disposal services. There were also no special restrictions for the companies that wanted to be involved in waste processing (including waste recycling), waste storage and waste disposal activities.

However, many experts, local government officials, but also companies operating within the waste industry, criticized that. They argued that in order to save money on waste collection services, many people were “disposing” of all or at least some of their waste on their own, by dumping it in the woods or burning it in the home furnaces. At the same time, the situation in the industry resembled a free-for-all. While choosing the providers of waste disposal services, many customer were solely guided solely by the prices. Meanwhile, the companies offering the lowest prices were often ones that were disposing of waste illegally (e.g. in illegal landfills, which number in Poland reached 2,500 at that time, according to the Statistics Poland) or that were transporting waste to sites that were the cheapest, that is, primitive landfills which did not meet the environmental protection standards applicable at the time and which were poisoning their surroundings.

The obligation to increase the recycling rate, resulting from EU requirements, was passed on to the local governments. However, the local government bodies complained that they would not be able to fulfil this obligation under the waste management model that existed until 2013. At the time, the recycling rate in Poland was very low and was growing slowly, because recycling wasn’t very profitable for the companies collecting waste and involved in waste processing and disposal.

The 2013 reform 

The reform of the waste management system carried out five years ago mainly consisted in entrusting the local municipalities with the organization of the collection, processing and disposal of waste. Everyone had to terminate their existing contracts for waste collection, because waste collection services were to be commissioned by the municipalities (to the companies involved in such activities) — for their entire territory and on behalf of all the residents and companies. And the municipalities would cover the costs of remuneration for the waste disposal companies using the so-called waste fee imposed on the residents and the companies.

The reform also changed the rules applicable to the companies involved in the processing, storage and disposal of municipal waste, i.e. the owners of waste landfills, incineration plants, waste sorting facilities, and recycling facilities. Much greater requirements were introduced for these facilities, and in particular for landfills. As a result a large number of them, especially the cheapest ones, had to be shut down.

Despite the arguments in support of such changes, some also criticized the reform (institutions such as the Office of Competition and Consumer Protection and the Polish Chamber of Commerce approached the reform with skepticism). They warned that such a system would lead to the closure of many small companies involved in waste disposal, which in turn would lead to a reduced level of competition on this market as well as attempts of the largest players to build monopolies. Critics also claimed that once the biggest companies monopolize the market they would dictate the prices for waste disposal, which would result in their excessive growth. How was this supposed to happen? The tenders for waste management services for the entire municipality or its sections were a very attractive target for large companies, because they meant taking control over the local market all at once. The companies no longer had to fight for each customer individually. Instead they could acquire thousands of customers just by winning a single tender.

The municipalities were supposed to organize a single tender for the collection of waste from their entire territory once every few years, or — if they are really large — they were supposed to divide their territory into several sections and announce a separate tender for each of them. Even back then, it was easy to imagine that large companies would have the best chance of winning in these tenders. Small and medium-sized companies would not participate in the tenders, because they would either be unable to handle such a large order, or would lose anyway. Before going bankrupt or changing their specialization, they would get rid of their facilities and equipment. In many local markets there would be no competition anymore. As a result, in many cases only one company would participate in the next tender procedure — the same one that was awarded the contract in the previous tender. And they would be able to dictate the price.

Unfortunately, these fears are now beginning to materialize. Many smaller companies dropped out of the market, and the biggest players strengthened their position (for example: the German company Remondis won the “waste” tenders in more than 200 municipalities). Subsequent tenders are very frequently won by the same companies, there is a lack of genuine competition in many of them, and the submitted offers are increasingly expensive.

A good example of this trend is the city of Starachowice (central Poland, approx.. 160 km south of Warsaw), which changed the waste management system on its own 15 years ago, putting in place the same system that was introduced nationwide by the 2013 reform. The tenders for waste disposal organized by that city were won three times in a row by the same company — Almax, belonging to the Toensmeier group. That company was the only one to participate in the fourth tender. In the years 2003-2011 the remuneration for Almax increased almost fourfold (from PLN 1.67 to PLN 6.42 or EUR0.39 to EUR1.49 per one resident), and the waste collection fee increased by almost 150 per cent (from PLN 2.6 to 6.42 PLN or EUR0.6 to EUR1.49). It’s worth noting that the same company, albeit operating under a different name (Toensmeier East), continues to provide waste collection services in Starachowice to this day.

At the national level, in the first tenders following the introduction of the reform, i.e. in 2013, the situation was not yet bad. There was considerable competition and many companies, especially large ones, were willing to knock down their profit margin to zero or even to lose money on a contract — just so they could stay on a given market or acquire new local markets. However, in the subsequent tenders, especially since last year, the situation began to deteriorate dramatically. This was also due to the fact that as a result of the 2013 reform the level of competition also decreased on the waste processing, storage and disposal market, as a result of which the prices for these services increased, in some cases by up to 30 per cent.

Today local governments have an instrument that allows them to defend themselves against the prohibitive pricing of companies involved in the collection and processing of waste. Following the example of other countries, including Germany, the option of so-called in-house waste collection was introduced in Poland: the municipalities do not have to organize tenders for the collection and disposal of waste — they can commission this task to their own municipal company (excluding the waste collected from companies and institutions). In this way, however, a private monopoly is replaced with a public monopoly.

Additionally, in many municipalities such municipal companies would have to be created from scratch (in very many cases this is because the given city had previously privatized such companies), which is not easy to do and involves high risk. In any case, so far Polish cities and municipalities have rarely reached for this option.

The reform of the waste management system carried out a few years ago did not meet most of the expectations. Rubbish is still being dumped in forests, and the number of illegal landfills has not decreased, as this is still an effective way to reduce costs for some waste disposal companies. The recycling rate in Poland is still low: according to the Ministry of the Environment, it currently stands at only 26 per cent. Poland is still far from reaching the 50 per cent target, which, according to EU regulations, should be achieved within two years.

However, this is not only the fault of bad regulations, or solely the fault of bad companies. It is also a consequence of negligence on the part of the citizens. In the case of single-family houses, the companies collecting waste control whether the residents of the given property have properly sorted their waste and may refuse to accept waste bags with improperly segregated contents. However, it is very difficult to convince the residents of multi-family apartment blocks and tenement houses to segregate their waste. They often simply can’t be bothered to do this, and there is now way to find out whether someone really segregates their waste or not.

That is why the Ministry of Environment is proposing subsequent remedies aimed at increasing the recycling rate. Right now, for example — following the example of Western Europe — it wants to introduce a so-called packaging fee. That is, to add to the price of each product a tax for its package. The proceeds from this tax would be spent on the organization and functioning of the waste recycling system. This will likely increase the recycling rate, but will not reduce its costs, which are simply passed on to the average citizen.

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