The world is overwhelmed by the sheer amount of trash it dumps. Every year, over 2 billion tons of municipal solid waste are generated worldwide. Most of the waste flows, unmanaged, into oceans and cities with dire consequences for people and the planet. Shifting to a circular economy is widely accepted as the only long-term solution to this challenge. However, the transition has been slow and requires large investments that are not always available.
Private investors could address some of these gaps by directly providing services, investing in sustainable solid waste management businesses, or co-financing waste management projects at scale through public-private partnerships (PPPs). A recent report from the Independent Evaluation Group assesses the World Bank Group’s support for solid waste management, points to constraining factors that limit private investments, and highlights lessons on how to address them.
Municipal Solid Waste Management (MSWM) systems are expensive and difficult to finance. Many municipalities often assign a lower priority to MSWM in the face of competing priorities, and even when waste management infrastructure and operations are put in place, they struggle to reach financial sustainability.
Private actors have been slow to enter the sector and, to a large extent, focus on wealthier parts of cities and towns. According to the Public-Private Infrastructure Advisory Facility, while the water supply and sanitation sector saw US$4 billion of private investments in 2020, the MSWM sector only received $1 billion. Not only is there a deficit of investments in the sector overall, but none of these funds have reached low-income countries, where waste generation is expected to triple by 2050.
Several constraining factors explain the shortfall or lack of private investments in the MSWM sector. Private ventures can only prosper in environments with sound legal and regulatory frameworks and evolved markets that provide the infrastructure they need to operate. Well-defined contractual frameworks and land availability are also crucial. Operating in countries where these enabling factors are absent or weak proves extremely challenging for private enterprises. So, how can the World Bank Group effectively address these constraints to foster the power of the private sector in MSWM? There are no simple answers to this question, but evidence shows that collaboration and continuity are key.
The World Bank Group is well positioned to address and overcome many of these constraints through cross-Bank collaboration, by strategically engaging the potential of the World Bank (WB), the International Financial Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). In fact, collaborative efforts between Bank Group institutions have led to groundbreaking results.
Coordinated action between the World Bank and IFC resulted in the first PPP in the West Bank and Gaza and transformed SWM in two of the poorest governorates. Initial assistance from the WB helped the country update PPP guidelines and generated momentum for wider SWM sector reform. The WB mobilized support to finance the construction of the Al-Minya landfill, waste transfer stations, and access roads. IFC built on these efforts and supported the design of a PPP transaction to allow the landfill to be operated by a private partner. Both IFC and the WB then supported the operation through a results-based grant. Although the contractor chose not to continue after the initial contract period because of unfavorable financial terms and difficult working conditions, there was a transformational shift in solid waste management services. A modern, internationally comparable landfill and waste disposal operation with sound environmental processes and social acceptability replaced a widely criticized, primitive, local open dump.
IFC’s and MIGA’s support for the closing and remediation of the Vinca landfill in Belgrade, Serbia, is another example of successful collaboration and long-term concerted engagements.
Located 17 kilometers from downtown Belgrade, Vinca was considered the largest unmanaged landfill site in Europe and was on the verge of collapse. IFC and MIGA supported a PPP that channeled the necessary investments to close the saturated site and build a new sanitary landfill, a waste-to-energy facility, and a facility for processing construction and demolition waste.
From the start, IFC advisory services allowed the city of Belgrade to establish the feasibility of the project, structure the PPP transaction— including holding a transparent tendering process—and improve its untested legal framework for PPPs.
As a result, the city attracted a consortium of leading global companies in waste management and environmental solutions. When the tendering process closed, IFC provided financing to the winning bidder. MIGA provided a guarantee of EUR97.3 million for up to 20 years against non-commercial risks, including breach of contract.
The project, which is expected to be completed this year, is the first large-scale, bankable, private sector project in waste management in an emerging market, worldwide.
Successful partnerships with the private sector in MSWM require a well-defined tariff and revenue structure and the readiness of bankable projects. PPPs also need clarity about how sustainable financing is structured, including certainty on the roles of public works that leverage private investments; and clarity on the distribution of responsibilities for the operation and maintenance of both private and public infrastructure. Through long-term engagements and joint efforts, the Bank Group was able to provide the right conditions to establish successful PPPs in the MSWM sector in the West Bank and Belgrade.
Despite these successes, IFC and MIGA continue to face challenges as they engage in the MSWM sector. Not only do many IFC and MIGA client countries have competing concerns, but even when there is interest in MSWM initiatives, it proves difficult for IFC to find large-scale investments, especially in waste collection, transport, and disposal. MIGA faces similar challenges including the lack of bankable projects that would seek guarantees and the capacity limitations of municipalities as counterparts. IFC’s and MIGA’s support for private investments in MSWM have therefore been relatively modest and mostly focused on waste-to-energy projects.
Furthermore, the World Bank can do more to leverage sovereign-guaranteed resources to promote the private sector in MSWM, as only 19% of World Bank projects addressed private participation in MSWM activities with generally limited scope and scale.
Going forward, and seeking to replicate these success stories, the World Bank Group should continue to foster cross-Bank collaboration to leverage opportunities for investments in every stage of a circular economy.