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Rajneesh Mehra, CEO, A2Z Infrastructure Ltd.

01 Jul 2014

Rajneesh Mehra, CEO, A2Z Infrastructure Ltd., speaks to Neeraj Dhankher about the low generation of garbage in India, the quantum produced in developed countries and the untapped potential of waste management in India. Excerpts

What kind of potential do you see for waste management in India?

In India, it is still the tip of the iceberg. India is a huge country, but the quantum of garbage in India is far lesser than there is potential to be. If an average Indian person was as prosperous as an average Abu Dhabi person, we could be producing ten times more garbage. We in India produce under 400 grams per person per day of garbage which is about 4,100 grams per person per day in Abu Dhabi. Garbage increases with prosperity and urbanization. The quantum of garbage is anyway going up and its scientific management is going on in about 50 out of 1800 plus cities in this country. So it’s a very small operation which is going on. However, there are a few cities where a good system is going on, Ludhiana being one, Kanpur being another and many cities where end to end services have been given to a private operator in a PPP mode and things have started showing results also. Around 125,000 tonne of garbage is available in the country per day, and around 25,000 tonne is being handled, rest is not being handled. That is why there is still a lot of potential for this business.

Do you think this business is commercially viable for a private player to come in?

This is an extremely important and hugely debated issue. Viability of the business always depends on how sustainable is the revenue model. The cost of inputs has gone up and bound by agreements, the local governments are not changing the rates to account for those increments in costs. Result being that all these agreements which were taken at a particular rate for collection and transportation have gone unviable. But coming down to recovery or revenue from these items, whatever you have created from garbage in a processing plant like compost and RDF depends on how marketable the product is. If the government were to be more pragmatic in addressing these issues, this business model is very sustainable. World over these waste management companies survive on incomes from collection and transportation only. I feel that sustainability in municipal solid waste business will only be there when user charges are collected. Otherwise for how long can municipal corporations (MCs) keep on sustaining any operation? The change in psyche of average consumer also has to come. If they are generating any waste then they must pay for it. And if the government so decides that the collection of user charges from every household is becoming difficult, I strongly suggest that there be an urban sustainability tax as a part of the upcoming GST regime. Urban sustainability tax could be a very small amount which would sustain the waste management, sanitation conditions, STPs. Only then the MCs will be able to make this operation self sustainable. So our operations will be sustainable if MCs can be sustainable. There is a huge issue of sustainability which comes in terms of sale of derivatives of garbage. These include compost and RDF and other derivatives. Now the Government of India has defined very categorically what standards of compost can be but the issue is if these standards are met can the demand be ensured? Despite the Supreme Court’s orders that every chemical fertilizer company has to buy three bags of compost with every seven bags of chemical fertilizer, these companies are not buying it because there isn’t much demand. And why is the demand not there? Because the farmers are not being educated enough that this could be a good product for them. The government came up with an idea of PPP in waste management but it’s only a small part of the work done. The larger part which needs to be done on the behalf of the government is to educate the farmers; educate the government system about how PPP should be conducted and ensuring sustainability of these operations. This can only be done with the government’s active participation. In a PPP active participation and not intervention is needed. In a PPP, the private partner is doing his job but the public partner which is the government treats him like a contractor. And the public partner has not defined its role in the system.

Are there any policy issues which need more clarity?

There are many grey areas in waste management policy. First of all the PPP model has not been defined well. Policy has to be define that the private partner in PPP is a partner and not a contractor. As a private partner we are nothing but extended arms of the government. We end up doing the same job they were supposed to do. So they have to stop behaving like they are the government and we are the contractors. This sea change in mentality is needed. They have to understand that the success and failure of the system of PPP is not of the private partner but of the whole institution. A regulator is also needed. A Two-Tier MSW business regulator for state as well as Centre needs to be setup which will:Fix up the entry rules,Standardize the legal framework,Set expectation standards and Service Level Agreements,Set time-frames,Standardize the monitoring and audit systems,Be sole arbitrator for disputes in PPP,Listen to and address all the breaches within PPP from either party immediately,Fix up all the costing structure,Lay a system for training of elected local politician and public.The State regulator will have the judicial and policy implementation role and the Central regulator will have a policy formation and appellate role, much like the State Electricity Regulatory Commissions and Central Electricity Regulatory Commissions. The regulator will have to renegotiate the old or existing concession agreements so that the unviable businesses could again be made viable. Policy has to be created so that the directives of the honorable Supreme Court should be strictly followed. For example; the Supreme Court has categorically stated that if a waste processing plant is there,the electricity supply has to be given to this plant on the same rate as it is given to the agricultural sector but this is not done anywhere except for in Punjab. Planning Commission has drafted a document which categorically defines how this business is to be pursued,how it is to be incentivized, how long term sustainability is to be brought in this business. If there is a public service, ways and means need to be thought to sustain that service. Purpose is to ensure public service.

Can you specify on the kind of investment which goes into setting up of a processing plant and ancillary activities?

It’s a high cost business. A 1000 tonne waste processing plant end to end,would require `35 to `40 crore in collection transportation setup and it would require around `80 to `100 crore in a processing plant and another `80 to `100 crores for setting up a WTE plant. So a 1000 tonne operation would require minimum investment of `220 – 250 crore for a world class project to come up. A document made by the Planning Commission talks of various ways and means to fund it but they are talking of Viability Gap Funding (VGF) only. Primary investment has to come from the private sector if it is a PPP project and if private partner invests `200 crore or any amount of this nature, there has to be a mechanism of recovering it back. See for PPP partner normally it is a public service business done by a public limited company almost everywhere. It is a system where public is serving the public. So if it becomes unviable, eventually it is the public which will suffer.

The budget is going to come soon. What are your expectations?

In this budget, the government has to address genuine cost increments which occur in the operations for solid waste management business and these have to be provided for. Example; when we took up the Kanpur project, diesel was `34 per liter, today it is `58 a litre in Kanpur. A difference of `24 has occurred which is almost 70% of the original cost, Similarly when we took up this project the minimum wages were fixed at `3600 which today is `7500, an increment of almost 108% over original cost. So 80% of the cost has gone up by almost 90% but the revenue has gone up only by 6%. How is this anomaly to be addressed and who can address this other than the government. A thumb rule is that for every `100 spent on waste management, `40 is fuel, `40 is manpower and `20 is spent on other expenses. The government has to come up with an urban services sustainability mechanism. Till the same time it is not set up the system will fail. Government needs to define to their own people that PPP is to be understood. We are their partners not their contractors. So we need access to whatever they have for themselves.