A Russian Revolution?

Written by: Vladislav Vorotnikov | Published:
Russia is building up its waste recycling industry; recycling of household waste is expected to start in Russia from 2019

Russia has introduced a new recycling system whereby all the country’s industrial waste producers must either process it themselves or pay a special fee to the government for the financing of waste management plants. Vladislav Vorotnikov reports

Ecological reform in Russia – known by the unofficial name of “garbage reform” – has sparked serious arguments between the business community and officials over several important issues.

Rashid Ismailov, chairman of the ecological committee at the Open Government organisation, the council that coordinates dialogue between the authorities and business community in Russia, claims it is not clear why businesses are obligated to pay the special ‘utilisation fee’ from 2017, while the scheme for distributing the collected funds won’t be put in place until 2018.

In this regard, businesses have expressed uncertainty that the money will be spent on waste recycling infrastructure in Russia, and warned that it is instead a new revenue stream for the government.

Ekaterina Astafieva, spokeswoman for the Russian association of industrial producers RusBrand, also points out there is a problem with new legislation regarding the definition of waste recycling. In this reform, the government placed an important loophole, equating waste incineration for power generation with recycling. This point should be urgently remedied, she believes, or it will encourage companies to opt for the cheaper option of incineration as opposed to actual recycling. The knock-on effect of this, she warns, would be less demand for recycling plants, and therefore less appetite for the government to help build them.

The environmental ministry’s press office has complained that the country’s business community was not willing to negotiate with the authorities to shape the reform when it was being prepared in 2016. The ministry says that it is not against amendments to the new legislation in principle, but applications from manufacturing plants and factories should be collected and studied first.

The billions are flowing in

Although it would be an exaggeration to claim the reform is going smoothly, it seems that market participants believe the current challenges will be overcome. This year, Russia’s recycling industry is experiencing an investment boom, with numerous projects being unveiled soon for construction.

In particular, the New Energy and Industrial Technology Development Organization (NEDO) is reported to have unveiled plans to pay up to a third of the investment cost of a new recycling plant in the Republic of Buryatia, supplying all equipment to the facility. The price tag of the facility is six billion roubles (US$100m) and it is said to involve sorting, recycling and incineration lines. The plant is claimed to be the first in Russia that is designed to incinerate waste that is not fit for recycling at a temperature of 1,300°C. This high temperature is necessary to destroy dioxins.

The government of Buryatia has also unveiled plans in partnership with Mitsubishi Heavy Industries to build a recycling plant in the region. However, there is not a lot of information on this project as details have so far not been unveiled.

A facility along a similar scale to that of the one in Buryatia is also planned for Irkutsk Oblast. At a press conference in April 2017, the regional governor Sergey Levchenko announced that authorities have finalised the concept of the plant. It is expected to be built at a cost of 3.8 billion roubles (US$40m) and is designed for the recycling of 300,000 metric tonnes of waste per year. At full capacity, the plant is expected to be able to deal with the entire waste generated in the region.

In Volgograd Oblast, the regional government has unveiled plans to build a landfill for the processing of 400,000 cubic metres of household waste per year. While the scale seems modest as the promised investment is only 180 million roubles (US$3m), the key point is that in future the region plans to search for more investors to build a waste recycling plant here.

Plans for the construction of recycling capacities have been also announced in Novosibirsk, where the regional authorities have agreed the construction of two plants in partnership with one investor. The planned cost is 6.5 billion roubles (US$120m), while the facility is designed to process around 800,000 metric tonnes of waste per year.

In this case the investor has signed an agreement obligating the government to compensate it monetarily if the level of waste sent to the plant is not maintained.

In total there are more than 20 recycling plants, with a combined investment value of around 45-50 billion roubles (US$800-900m), that have been promised over the past six months. In most cases the facilities should be commissioned in 2018, when recycling plants should start receiving payments from the foundation set up to collect the special ‘utilisation fee’ from companies; or in 2019, when the additional part of the garbage reform is enforced (see below).

The second part is on the way

The reform enacted in January 2017 concerns only industrial waste, that is, the waste generated by the various plants, factories and other facilities operating in the country. It should be followed by legislation on household waste, which was also planned to be implemented this year, but has had to be delayed until January 2019.

Under the latter, each region should establish its own legislative framework for the collecting and sorting of local waste, including appointing a regional operator to manage this. Data from the environmental ministry shows that household waste accounts for more than 70% of all waste in the country, although certain figures have not been collated.

As a result, the waste management industry might expect a boom. The projected figure of US$120m in utilisation fees collected by the government in 2017 is only the beginning; according to market participants, payments for the disposal of household waste will amount to an additional US$300-400m.

However, according to Dmitry Kumanovsky from Russian investment company LMS, there is a real threat to the recycling industry relating to that waste incineration loophole. At the moment, the country’s state corporation Rosteh is lobbying for an increase in state tariffs for energy purchased from the waste incineration plants.

In the event that Rosteh succeeds, it could build a large number of incineration plants across the country and effectively monopolise Russia’s waste management industry. Earlier, the State Duma, the lower chamber of Russia’s Parliament, voted against the increased tariffs for energy-from-waste incineration plants, but the battle isn’t over yet.

Kumanovsky believes that if Rosteh does get access to the special utilisation fees, in addition to new tariffs, the country’s waste management industry can forget about any competition – and this would mean that the entire reform programme has failed, and the construction of most recycling capacities would be cancelled.

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