Egypt’s private-sector waste management industry is struggling. Here’s why. Almost two decades ago, Egypt embarked on a mission to manage waste properly instead of using traditional open air incineration or dumping waste in unsanitary landfills. Key to what policymakers hoped would be a landmark change: Giving the private sector an incentive to process waste and recycle part of it into intermediary raw materials. To back the strategy, the government allocated bns of pounds of investment and took on loans and grants from multilateral organizations, international cooperation agencies, and western governments, the head of the Waste Management Regulatory Authority (WMRA) Ahmed El Berri tells Enterprise.

But the private sector end of that program has stalled with as many as 15 companies closing down since 2013, says Karim El Sabee, CEO of waste management company Reliance Investments.

The private sector couldn’t find a way around structural problems in the industry, including the lack of a nationwide collection infrastructure and a market that is no longer conducive to the byproducts of recycling, according to industry players we’ve spoken with. On top of that, the government stopped paying service fees to recyclers who handle waste — which had been mitigating these structural issues. Private sector players are now asking the government to step in with incentives to save the industry.

Why did the gov’t turn to the private sector on waste management in the first place? The short answer: Waste management is an expensive process. Egypt produces 50k-60k tonnes of solid waste per day, totaling 22 mn tonnes annually, WMRA’s El Berri tells us. The process starts (pdf) with collection at the source (the home or company). The cost of waste collection alone amounts to USD 30-75 (EGP 480-1,1122) per tonne in lower and middle income countries. In Egypt, the cost could roughly reach some EGP 480 per tonne, according to Hisham El Sherif, CEO of Qalaa Holding-owned waste management company ECARU.

A fee to cover the costs of collection barely scratched the surface: The government passed legislation in 2005 establishing a solid waste collection fee, which is tacked on to the electricity bills paid by households and businesses. The problem is that the fees are collected only in major urban centers (Cairo and Alexandria), leaving local councils of other governorates to fund the process themselves or rely on local associations and NGOs. This has meant that the fees cover only 20% of the costs of collecting waste, El Sherif tells us.

The government tried to bring the private sector into the equation back in 2012. The National Solid Waste Management Program (NSWMP) landed funding from the European Union and Germany to build dedicated waste management departments in Gharbiya, Kafr El Sheikh, Assiut, and Qena. The idea was that the private sector would then get incentives to come in and handle processing and recycling. The government would provide waste management companies with waste at no charge and lease them the land to build recycling facilities, whose byproducts would then be able to sell. In some cases, companies are also contracted to collect the waste themselves.

Companies were also promised a variable incentive fee to handle the solid waste, with the fee negotiated on a per-company basis that factored in what services they delivered. ECARU, one of the first companies to benefit from the system, was paid EGP 78 per tonne to process garbage, El Sherif told Enterprise. These service fees were funded in part through the NSWMP. Another company, Nahdet Misr (a subsidiary of Arab Contractors), was paid an annual fee of EGP 850k when they were hired in 2011, the company’s vice chairman Osama Elkholy tells us.

These companies would then be expected to recycle 65-80% of the waste they receive — an ambitious target as the rate is only 39% in high income countries, El Sherif told Enterprise.

…and then sell any byproducts they produce: On top of the service fee, waste management companies earn revenues through the sale of byproducts. The highest value can be obtained from recyclables (cans, plastics, and glass), which yield up to USD 70 / tonne, while refuse-derived fuel (RDF) is sold to cement factories at USD 30 / tonne and compost to farms for USD 3 / tonne, according to El Sherif.

But the hurdles in the system start at the source — collection: Only 20% of the total waste is actually brought to companies for recycling due to the lack of adequate garbage collection and transportation systems, Reliance’s El Sabee told us. High-value recyclables account for just 0.5% of total recyclable waste, he added. Garbage is only collected from homes in the Greater Cairo area, while the rest of the country’s residences either have to find their own dumpster or make arrangements by informal garbage collectors and salvagers (such as the Zabbaleen) every morning — and the Zabbaleen thus get first pick of high-value recyclables, according to El Sabee. The lack of an official system outside the capital has been a serious concern for citizens and officials alike. The local press reports that even major cities such as Alexandria have issues and that the problem is acute enough that some hospitals lack access to proper waste disposal.

The problem with selling RDF: Though this use of waste was promising, it is now barely surviving and at least a dozen companies have been forced to shut down, Reliance’s El Sabee says. During the natural gas shortage of 2012, RDF emerged as a potential alternative fuel to gas and coal for cement production. But the drop in coal prices has pushed companies away from RDF, he explained. Coal prices have halved since the beginning of 2019, while the EGP has appreciated, which cut the import cost of coal by about 50% down to EGP 1,100 / tonne. Local coal coke is even cheaper at EGP 750-800 / tonne. In addition to being more cost efficient, coal is also more reliable than RDF, generating twice the thermal energy that RDF does.

The problem with selling WtE: Waste-to-energy (WtE) has been touted by the government as a big win for private sector companies entering the space. El Berri says that 93 companies bid in a pre-qualification tender last month to build new WtE projects, tempted by a high energy tariff of EGP 1.40/ kWh. But as we noted in our series on how the renewable energy sector is faring amid covid-19, Egypt now has too much generation capacity, which is threatening to temporarily halt investment in renewables and alternative energy. “Why would a factory buy electricity produced from waste at this high price when electricity is already available for a cheaper price?” El Sherif asked. WtE is in an even worse state than renewables thanks to the availability of solar and wind — and the decreasing costs of renewables compared to generating electricity from waste.

The problem with selling compost: Selling compost isn’t profitable, says Nahdet Misr’s El Kholy — it costs EGP 200 to produce a ton of compost that sells for just EGP 50.

Service fees, which had become the lifeblood of struggling companies, are off the menu. Companies that entered after 2013 were unable to negotiate a service fee and relied exclusively on proceeds from selling the byproducts they obtained from processing waste, El Sabee said. El Berri told us that the government paid a “service fee” to companies as an incentive in the beginning to help jumpstart the market, but stopped paying it after more investors entered the fray. When Reliance Investments started in 2015, they were fully dependent on the revenues from selling RDF until that market collapsed. Similarly, Nahdet Misr’s 2011 contract in Alexandria expired in 2015 and, when renewed in 2016, they were unable to obtain the service fee.

Industry players now want the government to step in with a lifeline — starting by bringing back service fees. Selling waste byproducts can eventually become a profitable business in a regulated market with government support, but until then, it is not, El Sabee said. The collection and transport of waste alone costs the state, so investing in a better waste management system would reduce the volume of this waste, cut its impact on the environment, and introduce cheaper recycled raw materials, El Sabee said. Globally, the average annual fee for recycling and burying waste in sanitary landfills is USD 33-120 / tonne, which is why waste management companies want to negotiate with the government a similar fee, which they think should come in at around EGP 650 / tonne, El Sherif said.

Who usually foots the bill? El Sherif highlights a report from the World Bank, which notes that local governments represent about half of global waste services investments, with national governments subsidizing 20%, and the private sector accounting for 10–25%. In the NSWMP case, Egypt, supported by international lenders, fostered dedicated waste management departments and tapped new investments that benefit over 29k households, El Berri told Enterprise. “The government has been very supportive of the local industries and offered several initiatives to help,” El Kholy said, highlighting the recent discounts on electricity and natural gas. “We only want to have similar incentives.”

Cabinet is reviewing the requests: Several companies pitched their ideas to former environment ministers and Prime Minister Moustafa Madbouly back in December 2018, El Sherif said. El Berri told Enterprise that the government is aware of the demands and has prepared a study, which is now with Madbouly for review.

Can a new waste regulatory authority come to the rescue? The House Environment Committee has greenlit the establishment of a new independent authority for the waste management industry, after the Madbouly Cabinet approved the proposal last year. Although representatives were apparently hesitant to approve the legislation for fear of generating losses, the Environment Ministry’s legal advisor argued it would, in fact, solve some of the constraints that face the current regulators, such as concluding new contracts. Having a single body set policy for a fragmented market would be a strong start, El Sherif says. But perhaps, this agency’s greatest role in solving the current crisis is acting as a single point of contact and grievance for companies looking for rescues, he added.

Correction (08/07/2020): A previous version of this article incorrectly stated that Karim El Sabee is the CEO of Reliance Logistics. El Sabee is the CEO of Reliance Investments.