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foreign garbage firms feeling trashed
by frederik richter
the egyptian solid waste business is proving to be
something of a minefield for foreign companies. while french and
italian waste management companies onyx and ama have been successful
enough that they are now using egypt as a base for expansion in
the middle east, others have not fared as well. spanish waste management
firm enser has decided to give up its operations in cairo governorate
and is pursuing arbitration with the government to receive at least
part of the payments owed to it.
five years ago, municipal authorities were struggling to cope with
the city’s garbage disposal problems. chief among the problems
were the 60,000 zabbaleen (traditional garbage collectors) working
to move solid waste out of the city, but heavily focused on up-market
neighborhoods where not only were removal fees higher, but so were
profits from scavenging and recycling. in poorer neighborhoods,
garbage piled high and clogged streets.
hoping to remedy this problem quickly, the government rushed the
privatization of the sector. fifteen-year contracts with face values
of between £e 55 million and £e 80 million per year
were signed in 2001 with three foreign waste management companies.
enser was put in charge of cleaning cairo’s western district,
ama was allotted the city’s northern district and spanish company
fcc was put in charge of cleaning the eastern district.
while the strategy behind the move may have been sound, the manner
in which it was carried out left much to be desired. contracts were
misunderstood, equipment was held up by customs, payments to private
companies were late (when they were made at all) and the authorities
in charge of administrating the contracts seemed intent to take
over the work themselves.
antonio canale, general manager of ama arab environment, the local
subsidiary of ama, believes it was the right decision to privatize
the sector, but the government went about it the wrong way. “when
we arrived, the situation was a disaster, there were piles of garbage
everywhere, but no means or technology to fix the situation,”
he said. “they put the municipality in control of the foreign
companies who came here. [these were] the same people who were doing
the cleaning before, so they created a conflict of interest.”
some have suggested that the authorities deliberately created problems
for the foreign companies to increase their profits. “instead
of seeking to implement the legislation faithfully, the apparent
objective was to take as much money as possible from the contractors,”
claims private sector involvement in solid waste management, a study
sponsored by the german development agency, gtz.
according to analysts, one source of conflict has been the contracts
that the foreign companies signed, which are essentially service
contracts stipulating that the streets assigned to the companies
must be cleaned once a day. government cleaning authorities such
as the cairo cleaning & beautification authority (ccba), however,
took them to be quality contracts – contracts that guarantee
that these same streets will be clean all the time.
another issue is the lack of clarity concerning the social insurance
premiums for employees that the companies had to pay. the law specifies
different percentage rates depending on the duration of a labor
contract, but when it was determined which percentage to take, wrong
durations were allegedly taken as the basis for calculation.
apart from these difficulties, however, there was a more basic problem:
the companies weren’t getting paid for all their work. in fact,
there were months in which they received less than 5 percent of
the money they were owed by the government. canale says that at
times ama was unable to meet its payroll, which in turn reduced
staff motivation and productivity.
the government, however, has its own problems collecting money,
mainly because it decided to tag waste collection fees to electricity
bills. until november 2005, when the ccba started to collect fees
directly, they were calculated as a percentage of electricity consumption.
in other words, a shop processing diamonds using a lot of electricity
but producing little waste paid more than a butcher using little
electricity but producing tons of difficult waste.
in the face of these imbalances, many refused to pay.
there was also the issue of education. many egyptians are still
accustomed to paying low prices for collection, or even making a
profit from their waste, explains maheeb abdel ghaffar, general
manager of accord for civil & environmental consultation, a
private consultancy that trains government employees in the waste
sector.
“i asked myself once or twice, why should i pay £e 15,
and all my garbage is being sold? but since i know that dump sites
will be rehabilitated and streets will be swept, creating a better
image for the building where i reside, i pay,” he said. “we
need other people to know this.”
the gtz study argues that bids submitted by local firms were more
expensive than those of their foreign counterparts because local
operators realized that there would be collection problems, and
compensated with higher prices. “because they understood how
the client [cleaning authorities] would operate, [they] realized
they needed to inflate their prices in order to ensure that they
would actually receive sufficient income. the international companies
had to learn about this the hard way,” the study stated.
fcc, which has long complained of unpaid collection fees, is rumored
to be on the verge of shutting down. for enser, it was too much
to bear. in november, the company quietly sold off its bins and
equipment, and pulled the plug on its cairo operations.
enser declined to comment to business monthly, saying its spanish
headquarters has ruled out contacts with journalists after its statements
were turned against them in the local press. the company is also
engaged in arbitration with the government and has been advised
against commenting on the case.
with enser out of the picture, the ccba has taken over its territory,
cairo’s western district. the ccba is also not talking. numerous
requests by business monthly to interview mohammed leben, a retired
army general heading the ccba, were ignored.
some suggest that enser was intentionally pushed out so that ccba
could take over its business. “honestly, i would think this
if i didn’t know mohammed leben”, says abdel ghaffar.
“they are overloaded with the south area and leben is one of
those in favor of privatization.”
he argued that leben’s intention is purely to complete the
job at hand and ensure garbage collection fees are paid. “we
cannot stop collecting, we have to pay millions to these companies,”
he said.
alexandria, where onyx prepared consumers with a months-long awareness
campaign, and has worked well with the governorate, proves that
with the correct conditions the system can work. ama’s canale
is hopeful that cairo can do as well. “i would say that now
we are cooperating well with the ccba, because we were patient in
negotiating,” he says. “provided [one has] the ability
to endure a miserable cash flow and to maintain good relations with
authorities, the sector can be attractive for foreign companies.”
ama sees cairo now as its regional hq and seeks to expand its business
to the gulf countries. it has also started to locally manufacture
its equipment, which it hopes to export within the region and even
back to italy.
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