China is being overrun by its own garbage - about seven billion tons' worth of accumulation this year, according to data from the China Society of National Resources. This mountain of trash is growing at a clip of 8-10% a year, the data indicated.
What is a nightmare for China's urban planners and environmentalists, however, is proving to be a boon for waste management companies like Veolia Environmental Services of France. In November, the city of Jiujiang in southern China awarded Veolia a 30-year contract valued at 140 million euros, or $205.7 million, to build, operate and transfer its first-ever household waste storage centre. It is Veolia's 21st waste management contract in China. Veolia Environmental Service's parent company, the French water giant Veolia Environnement, has outperformed the FTSE World Europe index since August 2007.
What Veolia is doing with China's garbage is a far cry from toting and hauling to the nearest dump. The waste management facilities the French company is developing there employ some of the most innovative and potentially profitable waste treatment technologies in the market today - ranging from landfill gas collection and gas-to-energy facilities to sorting technologies that allow for material recovery and recycling.
What is driving China's comprehensive push toward landfill management is not economic altruism, but ecological panic: By 2020, the landfills in the country's urban areas are expected to reach capacity, according to a research brief published in February 2007 by the China Environment Forum in conjunction with Western Kentucky University.
Though the Chinese contracts are designed to meet specific local needs, their scope signals an important industry-wide departure from traditional waste management processes, according to Michel Gourvennec, chief executive of Veolia Environmental Services, North America.
"In the past, our focus was on getting rid of waste. Now our business is undergoing a fundamental change,” Gourvennec said. "Increasing urbanisation, population explosion and growth in developing countries are exacerbating the problems of the depletion of natural resources. From now on, waste must be used as a resource."
Landfill initiatives, like the one introduced by the European Union in 1999, are proving to be powerful catalysts for change. As of October, all nonhazardous waste must be pretreated before it can be deposited in an EU landfill.
"The landfill directive has significantly increased the pressure on local authorities to find alternative technologies fast," said Jeremy Jacobs of the Composting Association, a British group.
For waste management companies, the ability to turn refuse into a resource represents a key opportunity for bottomline growth.
In an equity research report published in October, Morningstar's waste management analyst, Brian Nelson, credited strong pricing for recycled commodities, including corrugated cardboard and newspaper, with helping contribute more than 2 percent to the overall revenue of Waste Management, one of the biggest US players.
Dave Ryan of the US Environmental Protection Agency, described landfills as an "effectively untapped resource" for renewable energy. The EPA estimates that landfills are the source of about 12 percent of global methane emissions. Ryan estimated there were some 1,000 projects around the world currently devoted to recovering landfill gas for sale to customers, among them Bayerische Motoren Werke. The German automaker is currently firing one of its US manufacturing plants with landfill-generated electricity supplied by Waste Management's Palmetto Landfill in Spartanburg, South Carolina.
Allied Waste Industries has 52 landfill gas-to-energy projects under way in the US, including 41 electric-generation plants, and another 17 projects in the permit stage or under construction. Its rival, Waste Management, announced plans in September to build 60 landfill gas conversion facilities in the US over the next five years. The plants are expected to generate 700 megawatts of electricity or enough to power 700,000 homes.
For investors, the waste management sector's foray into "green" garbage is welcome news. Waste management has typically been a high-volume, low-margin business where the commodity in question - garbage - was seen as having little added value. Not anymore. With metals in ever-shortening supply and trading at a premium, aluminum recovery begins to make viable economic sense.
In the US, for instance, large hauling companies have slowly pushed smaller concerns out of the way by leveraging their economies of scale. As a result, the waste management sector has been whittled down into an oligopoly shared largely by four big public companies: Waste Management, Waste Industries, Allied Waste Industries and Republic Services. The consolidation has produced a "healthy, functioning" industry, said Nelson of Morningstar, that will be fairly insulated from recession.
Working capital, lots of it, will be a key determinant in how well waste management operators make the jump to more sophisticated, integrated service offerings. For companies like Waste Management, which last year hauled in $1.36 billion in free cash flow, that shouldn't be a problem. For smaller regional companies like China's Tianjin Capital, which Goldman Sachs reported in October, was facing increased difficulty sourcing, "sufficiently profitable water projects due to intensifying global competition," expansion could be more difficult.
Investors intrigued by waste management plays should know it is a sector that is fast expanding. In the market today are dedicated recyclers like Australia's Sims Group, which is merging with a US company, Metal Management - a combination expected to create the world's largest publicly held recycling concern, according to Earthtimes.org, an online journal. Canada's Conporec treats and recycles waste through its own patented sorting-composting technology, a process that sifts out recyclable materials while allowing decay-prone matter to be transformed into organic compost. The company owns and operates three plants in Canada, France and the US where the technology is being used. Austria's A-Tec Industries, a diversified engineering group that builds waste-to-energy plants, received EU approval to acquire Lentjes of Germany, a similarly focused company.
Then there are fringe companies like Fuel Tech, a US company that developed an air pollution control system to reduce hazardous emissions.
New York Times
