Executive summary

i. Solid waste management as a public good. Solid waste management is a service for which local government is responsible. This service is nonexclusive, meaning that once it is provided to some portion of a community it benefits the overall public welfare, not only the resident that specifically receives service (20).2 The service is also nonrivaled, meaning that any resident can enjoy the benefit of the service without diminishing the benefit to anyone else (20). Beyond this, it is not feasible to exclude from service those who do not pay, because public cleanliness and the safe disposal of waste are essential to public health and environmental protection (47).

ii. These qualities of being nonexclusive, nonrivaled, and essential place responsibility for solid waste management squarely within the public domain as a public good. Because solid waste management is an urban issue, the level of government responsible is typically local or metropolitan government. This does not, however, mean that local government has to accomplish the task of solid waste service delivery entirely with its own staff, equipment, and monies. In fact, this is where the role of the private sector comes into play.

iii. What is privatization? Generally stated, privatization is a reduction in government activity or ownership within a given service or industry, as follows:

Government activity is reduced when the private sector participates in service delivery.

Government ownership is reduced when

a) government enterprises are divested to unregulated private ownership and
b) government agencies are commercialized (reorganized into accountable and financially autonomous semiprivate enterprises).

iv. This paper discusses only reduction of government activity through private sector participation. it does not address the reduction of government ownership.

v. Context within which the decision for private sector participation should be made. This paper poses the question of whether to involve the private sector in the provision of municipal solid waste services. The aim of government and of the private sector in providing this public good is based on two entirely different perspectives: for the private sector, the fundamental concern is whether the delivery of service will make money. For government, one of many considerations is whether it will save money through private sector participation. Moreover, government must consider known public values and address macroeconomic issues beyond the price of service as discussed in the context section.

1. For the purposes of this discussion, solid waste management refers to the collection, transfer, recycling, resource recovery, and disposal of municipal solid wastes. Municipal solid wastes are defined to include: refuse from households, non hazardous solid (not sludge or semisolid) wastes from industrial and commercial establishments, refuse from institutions (including nonpathogenic waste from hospitals), market waste, yard waste, and street sweepings. For purposes of this paper, construction and demolition debris is not included within the definition of municipal solid waste, because it dramatically skews waste generation rates and waste composition.

2. The numbers in parenthesis refer to references that begin on page 47.

vi. Private sector participation is a possible opportunity-not a panacea. In situations in which existing service delivery is either too costly or inadequate, private sector participation should be examined as a means of enhancing efficiency (and thus lowering costs) and mobilizing private investment (and thus expanding the resources available for urban infrastructure and equipment).

vii. Chapter one discusses the context for deciding whether to have private sector participation, in terms of cost recovery, eficiency, public accountability, management, finance, economies of scale, legislation, institutions, and cost. The Annex elaborates on the contextual issue of cost; and provides an analysis of the costs of solid waste collection, cleansing, disposal, and transfer.

viii. Chapter two discusses methods of private sector participation and provides case examples. The types of private sector participation most common to solid waste management are contracting, concession, franchise, and open competition.

Contracting. The government awards a finite-term contract to a private firm for the delivery of solid waste collection service, street sweeping service, the collection of recyclables, transfer station operation, disposal site operation, or fleet maintenance. The contract award is made after a competitive procurement process. The private firm is paid for service delivery by the government under the terms of the contract.

Concession. The government awards a concession to a private firm to set up a facility that utilizes the government-owned resource-refuse. This concession may enable the private firm to recycle materials (paper, plastic, metal, glass) from refuse; to recover resources (compost, heat, electricity) from refuse; or to transfer or dispose of refuse. The concession is in the form of a long-term contractual agreement, whereby the private firm builds the facility. In some cases, the private firm may maintain indefinitely the ownership and operation of the facility. In others, the private firm may transfer ownership of the facility to the government after a specified period of private ownership and operation.

Franchise. The government awards a finite-term zonal monopoly (a franchise) to a private firm for the delivery of solid waste collection service. The franchise award is made after a competitive qualification process. The private firm deposits a performance bond with the government and pays a license fee to cover the government's costs of monitoring. The private firm recovers its cost and profit through direct charges to the households and establishments that are served. Government provides control over the tariff charged to the consumer through:

a) development of adequate competition and control of price collusion, or
b) price regulation.

Open Competition. The government freely allows qualified private firms to compete for refuse collection, recycling, or disposal services. In open competition, individual households and establishments make private arrangements with individual firms for refuse collection and/or recycling. No firm holds a zonal monopoly, and any number of firms may compete within the same zone.

Similarly, in open competition, the government grants a license to qualified individual firms for the private provision of disposal services. One city may be served by several disposal sites competing for business from the area's local governments and private haulers, as well as for business from remote governments and haulers. The government's role in open competition is to license, monitor, and, as needed, sanction private firms. Under open competition, costs are directly billed by the private firms to their customers.

ix. Chapter three summarizes the decision making criteria for whether to have private sector participation in delivery of solid waste management services.

x. Chapter four recommends steps for proceeding beyond the evaluation of contextual issues and private sector methods available to a given country and city, toward incremental involvement of the private sector in service delivery.