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 October 09, 2007
Russia Environmental Market

 The Russian government has neglected environmental protection for years. As a result, the environmental situation in the country has been aggravated and in many cases is out of control. Burning environmental problems, including low quality of water in rivers and lakes, poor water sanitation, incidence of oil spills, polluted air and soil, have forced the government to place more emphasis on the environment.

The government adopted a number of laws and regulations stipulating introduction of water and waste water management technologies, stricter emissions controls as well effective solid waste recycling systems in major cities such as Moscow and St. Petersburg and a number of other regions. Russia has a legislative framework aimed at protection of the environment and, in many cases; the norms and regulations are even stricter than those of the European Union.

However, the problem is not in the laws themselves, but in their enforcement. Another important problem is the fact that many of these norms are obsolete and do not comply with modern Western requirements. This report focuses on the municipal solid waste management equipment and technologies market.

In the Soviet Union and then Russia manufacturing industries have always generated huge amounts of waste, however authorities never cared about it given the country's vast territory and abundant natural resources. Due to the Russia's enormous environmental capacity, the concept of environmental protection was considered as a problem for future generations. The situation with waste collection and processing is acute in many cities across Russia.

According to May 4, 2007 edition of Rossiyskaya Gazeta, annually inspectors of Gostechnadzor (Federal Service for Ecological, Technological and Atomic Control), a government agency overlooking waste collection and processing, revealed 600 unauthorized large-scale disposal operations and about 2,000 disposal sites in the Moscow region alone yet the total of fines associated with these illegal operations amounted to a mere $6,000. Obviously, these measures will not help to radically improve the situation.

Fines imposed on legal entities for unauthorized waste disposal are ridiculously small, often less than 2 dollars. At the same time, fines imposed for similar violations on individual persons can vary from $18 to 180. Therefore, many enterprises prefer to pay fines for unauthorized dumping of their waste instead of investing into collection and processing.

According to different estimates, the total Russian market for environmental technologies and products is estimated at between $700 million and $1 billion with current rates of the growth of the market between 20-25 percent a year. At the same time, waste management capacity is not fully used. The key components of the market include: solid waste management, water treatment and air purification.ơIn the last several decades Russia's waste output has been growing faster than industrial production.

To date Russia has accumulated 80 billion tons of solid waste, including industrial and residential. Russia generates around 3.5 billion tons of waste annually, including 36 million tons of municipal solid waste. According to the Ministry of Natural Resources of the Russian Federation only 30 percent of total waste is recycled or processed. For industrial waste, the percentage of processed waste is 35 percent of the total volume. As for municipal solid waste, it is only 5 percent, except for Moscow where the percentage reaches 27 percent.

Analysts believe that using existing technologies and equipment Russia could recycle 50 percent of its industrial waste and 10 percent of its municipal waste. The main reason for under-exploitation of existing recycling capacities is undeveloped environmental protection concept, lack of up-to-date waste sorting rules and technologies, low environmental culture and education of population as well as insufficient support from the government authorities.

Municipal solid waste market consists of two parts, which are being financed from different sources:

  • Residential Waste (financed by municipalities and population)
  • Commercial and Public Waste (financed by enterprises and institutions)

Waste management is becoming more attractive for private investment despite a number of obstacles. First of all, there are no tax breaks for providers of waste management services. Secondly, waste collection and transportation costs are generally high due to the country's large territory and significant distances between waste management facilities and industrial plants producing waste. Thirdly, unlike European countries, no recycling fee is built into the final cost of packaging. Therefore, foreign investors planning to build recycling facilities in Russia have to think about financing sources for collection and transportation of waste.

Lastly, waste-processing industry does not produce finished products; it produces raw materials, which are further used in production of finished goods. Often times, these recycled raw materials are not cost effective in comparison to original raw materials. Cost effective recycled raw materials include aluminum, mercury from mercury lamps and other metals, as well as glass and cardboard. However less cost effective types of recycled waste such as tin, tire, plastic waste, including polyethylenetereftalin (PET), polythene, polypropylene, etc. are getting more and more attention from investors.

Examples of environmentally safe behaviors by manufacturing facilities are still few. However there are positive examples. It is reported that in April 2007 Metallurgical Industrial Complex of Nizhniy Tagil, part of Evraz Group, won the first place in the European Quality Gold Medal contest. The company competed with more than 150 other companies involved in conservation, pollution control and waste recycling activities and was the winner in the Russia's TOP 100 Enterprises in the Environment and Environmental Management category.

Another positive example is the completion of the Environmental Protection Program for the city of Lipetsk, which was started in 2004. The corner stone of the program was emission control on the major roads by arranging traffic lights in such a way that allows uninterrupted passage of the traffic lights. It was discovered in the course of air monitoring that major emissions happen during breakaway and braking. By reducing those, where possible, the city's authorities managed to reduce the atmospheric pollution index from 24.4 to 8.6. As a result Lipetsk was removed from the list of highly polluted cities.

A significant number of industrial enterprises and cottage villages around Moscow have started using waste pressing and shredding equipment to significantly reduce waste transportation costs. Mayor of Kaliningrand in North West Russia has formed an administrative and technical inspection responsible for garbage collection in the city. The inspection has installed about 1,000 garbage containers in the city.

Best Prospects
Best selling products include:

  • Waste sorting, pressing, crushing and washing equipment;
  • Plastic and steel waste containers;
  • Special containers for dangerous waste;
  • Refuse collecting vehicles and litter bins;
  • Waste incineration plants;
  • Hydraulic presses for packing paper, cardboard, plastic and other kinds of waste;
  • Recycling equipment for production of plastic packaging;
  • Food waste processing equipment;
  • Polymeric, plastic and paper waste processing equipment.

Regulatory Environment, Market Issues and Obstacles
At the moment there are key seven laws governing environmental protection. They contain conflicting and exclusionary clauses, lack appropriate detailed elaboration. The Russian Ministry of Natural Resources has started to develop an Environmental Code, which will include all aspects of environmental protection. The corner stone of the Code will be incentives for introduction of the best- known world environmentally safe technologies. Those enterprises, which will not introduce the best technologies, will have to pay significant taxes. These taxes will be used to develop environmentally safe technologies.

Currently from 80 to 90 percent of all industrial enterprises use obsolete and unsafe environmental technologies. In 2006 Rostechnadzor conducted an environmental examination of business plans for construction of 297 new enterprises. The approval was received by 268, 19 projects were rejected.

The Environmental Code will also stipulate high fines for environmentally unsafe enterprises and tax incentives for waste management projects. However until this Code is adopted as a law Russia will continue to rely upon an undeveloped legislative environmental framework.

Currently there are no well-defined norms for recycling of certain types of waste, for example, for utilization of batteries containing lead as well as mercury lamps. Similar legislative gaps relate to tire and used cars processing. Sorting of waste by the population and use of separate containers for different types of waste are still not developed in Russia. Some of the cities are introducing these new garbage collection technologies as pilot projects. For example, such project is currently implemented in the city of Dubna, Moscow region. However, generally there are no laws and regulations stipulating participation of population in waste separation. The majority of citizens do not contribute in any way to sorting solid waste, leaving this job to a small group of people; this way the issue remains outside the cultural and educational mainstream. However waste management cannot succeed without citizens' participation on a mass scale. Generally regulatory environment for solid waste management activities has been significantly improving in the last several years. A number of key Russian cities and regions have been adopting laws and regulations creating incentives for waste collection by population, private investment into the sector, developing public-private partnerships and attracting foreign investment. A significant number of solid waste management projects are under preparation for launching or have been launched in such cities as Kazan, Novosibirsk, Krasnoyarsk, Bryansk, Kursk, Tyumen and several others. According to the February 16, 2007 edition of Rossiyskaya Gazeta, in the last several years 16 modern solid waste management complexes have been built or modernized in the Moscow Region. The Moscow region has a purpose- sampling program for utilization of waste for the years 2004-2010 according to which the Moscow region authorities plan to spend more than $230 million on waste management.

Responding to chronic situation with garbage disposal in the Moscow region, authorities have been establishing paid garbage containers on the key roads and highways, which could be used by passing by cars. Currently, free containers, which are put on a number of Moscow region highways are only eligible for long-range drivers and tourist buses. "Dachniki", owners of small cottages and summerhouses around Moscow, do not have right to use free garbage cans on the roads.

On November 30, 2005, the Moscow City Duma (municipal legislative organ) passed a Law #68 on Production and Consumption of Waste in the City of Moscow. The Law draws distinction between recyclable material resources and recycled raw materials.

According to the law, recyclable material resources are not identical to recycled raw materials. Recyclable material resources are extrapolated from the waste mass directly, they can be reused after additional processing. Recyclable material resources are turned into recycled raw materials after recycling. The law stipulates that municipal authorities are financially responsible for extracting recyclable raw materials from the waste mass.

However, the government will not take full financial responsibility for further processing, or recycling. It actually should be responsibility of private business. In other words, the Moscow government will pay for sorting out waste out of municipal solid waste flow, but not for recycling waste. The law also provides for certain government support for private recycling activities.


Excerpts from US Commerce Department Report "Russia's Environmental Market" August, 2007.