Overview of the most significant characteristics of the waste management sector and identification of the necessary areas for intervention to inject new life into a segment so essential for the competitiveness of the country
In Italy, just as in the rest of Europe, environmental hygiene services connected with waste collection and treatment have shifted their focus towards the governance of services and waste flows, which are directed towards new recycling processes that extract materials or energy, leaving increasingly less waste destined for landfill.
For certain aspects the sector appears to be in transformation, however there are still many issues to solve and problems to be faced before the country can compare with its international competitors, while turning a waste product into what must become, in Italy as elsewhere, a valuable resource.
The Italian framework
Italy lags significantly behind other European states and is still behind schedule with respect to the objectives laid out in the reforms introduced by the Ronchi Decree (Legislative Decree 22/1997).
Every year approximately 170 million tonnes of waste are produced in Italy, including urban, special and hazardous waste. The country has yet to decouple waste generation from industrial growth, with waste continuing to grow hand in hand with GDP (in Germany, the Netherlands and Sweden, decoupling was achieved over a decade ago).
We bury waste in a country whose most scarce resource is land and we fail to use waste for energy, when we have always been a country which depends significantly on energy imports. It is clear that the national strategy urgently needs an overhaul.
In Italy, landfill continues to be widespread as a waste disposal option. At the same time, however, although it is not among the most virtuous in terms of waste sorting capacity, the country has one of the highest recycling rates in Europe, mostly due to the high recycling rate of pre-consumption waste, that is, industrial waste.
Recycling is, therefore, a strength in the waste management chain, accounting for the biggest share of the segment, in terms of both enterprises and the value of production.
Insufficient plant facilities, distributed in patches across the territory, is the result of a lack of general planning, with investment expenditure distributed over the years in a way that appears to have exacerbated the uneven distribution of existing infrastructure rather than redressing it. In fact, it has been the regions with fewer facilities that have received the least investment.
This distortion is the result of the different investment capacities of territories, in part tied to differences in operational approaches. In the South of Italy, for instance, small enterprises and the in-sourcing of services prevail; these entities have a lower investment capacity, especially from a qualitative point of view.
Territorial imbalances affect all aspects of the waste management cycle, whose characteristics and performance vary greatly from region to region, in terms of production and treatment, business models and governance decisions.
The business model
With reference to operations, the waste management sector in Italy is characterised by the predominance of small businesses, despite the territorial differentiation noted. This obviously affects the general efficiency of the sector, given that larger and more integrated companies are those that show the strongest performance and better capacity for investment, which is often of higher quality, as well as being more attractive to the finance sector.
Over the last ten years, companies in the waste management sector have posted consistently positive profit margins and performance trends, also because, with the exception of a few proprietors of plant equipment only, the companies provide services on a continuing basis, with prices set through service contracts. In fact, they finance themselves through prices, which by law are required to cover the full cost of operations and investments, on the principle of full cost recovery.
While this would appear fair given the public service that environmental hygiene companies provide, it nevertheless risks becoming a disincentive to achieving better efficiency; indeed, service operating costs have consistently risen over the years.
On the other hand, it must be noted that businesses have suffered major cash flow shortages due to the slowness of payments from local authorities and high levels of arrears due from users. The issue has reached a critical point, and if it is not promptly resolved many companies in the sector may be forced to close.
Financing of investments
The investment estimated to build new plants and modernise existing facilities requires major funding, which necessarily must come from private investors.
Yet to date, the sector has not proved particularly attractive to investors. This has been more because of difficult contextual conditions rather than intrinsic factors, which lend the sector to the development of public-private partnerships as well as corporate initiative.
Italy’s bureaucracy and administrative system makes building new facilities a particularly lengthy business. On average it takes 7-8 years to obtain authorisation for a new project; even authorisation to modernise existing facilities takes an average 5-6 years.
One of the most controversial factors affecting the building of new waste treatment plants is tied to the low level of social acceptance of waste treatment, disposal and recycling plants, which poses difficulties not only in building new facilities but also in their day-to-day operation.
In the background there is also the issue of illegality and organised crime, which has found a florid source of revenue in the waste management sector by infiltrating and exploiting the organisational, legislative and operational loopholes and contradictions in the sector, maximising its own profits to the detriment of enterprises that operate legally.
Relaunching the sector
In order to create the conditions to attract greater private investment in the sector, both on a corporate and PPP basis, it is necessary: