VYSOKÁ ŠKOLA MANAŽMENTU V TRENČÍNE
COLLEGE OF MANAGEMENT IN TRENČÍN
ZÁVEREČNÁ PRÁCA
THESIS
2008Daniel Heidrich
THESIS
RECYCLING AND ECONOMICAL PROFITABILITY IN THE SLOVAK REPUBLIC
By
Daniel Heidrich
Advisor: Matthias C. Suthe
A Thesis to Be Submitted to
The College of Management
In Partial Fulfillment of the Requirements for the Degree of
Bachelor in Business Administration (Bc.)
Submitted by ______Date______
Candidate Signature
Approved by ______Date______
Thesis/Project Advisor
Approved by ______Date______
Rector(or his representative)
Table of Contents
List of Abbreviation……………………………………………………………………….....1
I.Introduction………………………………………………………………………………2
I.1.Topic Introduction…………………………………………………………………..2
I.2.Purpose of the Thesis………………………………………………………………..3
I.3.Problem Statement…………………………………………………………………..4
II.Legislative process……………………………………………………………………….5
II.1.European Union……………………………………………………………………..5
II.2.European Legislation………………………………………………………………..5
II.3.Slovak Legislation…………………………………………………………………... 6
II.4.Slovak Commitments………………………………………………………………..8
- Total Social Benefit vs. Total Social Cost…………………………………………...10
IV.MWS…………………………………………………………………………………... 11
IV.1.Structure of MWS………………………………………………………………..11
IV.2.Elements of MWS………………………………………………………………..13
IV.3.Paper……………………………………………………………………………... 13
IV.4.Glass……………………………………………………………………………...14
IV.5.Plastic…………………………………………………………………………….15
IV.5.1.PET………………………………………………………………………16
IV.5.2.LDPE and HDPE………………………………………………………...17
IV.5.3.PS and PP………………………………………………………………...18
IV.6.Other Limitations………………………………………………………………...19
V.Recycling in Slovakia…………………………………………………………………...20
V.1. Situation overview………………………………………………………………… 20
V.2.Widely used recycling system in the SlovakRepublic…………………………….20
VI.The Pilot Recycling Project in Dubnica nad Váhom...... 21
VI.1. Bag Collection System…………………………………………………………….21
VI.2.Cost Comparison…………………………………………………………………...23
VI.3.Results of the Bag Collection System……………………………………………...24
VI.4.Problems of the Bag Collection System…………………………………………...26
VI.5.Improvement Plan………………………………………………………………….28
VII. Financial Analysis……………………………………………………………………..32
VII.1.Overview…………………………………………………………………………32
VII.2.Structure of Residents in the Prejta and the Production of Municipal Waste for
the Year 2006…………………………………………………………………….33
VII.3.Structure of the Púchov District………………………………………………….34
VII.4.Estimated volume of waste a community produces per year…………………….35
VII.5.Sales opportunities for the Púchov district………………………………………36
VIII. Financial analysis of various alternatives…………………………………………36
VIII.1.Alternative one, without external financing…………………...………………37
VIII.1.2Energy consumption for one calendar year……………………………………38
VIII.1.3.Overview of the cost of work for the year 2008……………………...……….39
VIII.2.Alternative two, with external financing…………………………..…..………42
VIII.2.1.Alternative two, the break-even point…………………………………...…….45
IX.Conclusions and recommendations…………………………………………………...50
List of tables…………………………………………………………………………………52
References…………………………………………………………………………………...53
Recycling and Economical Profitability in the SlovakRepublic1
List of Abbreviations
EU – the European Union
HDPE - High-density polyethylene
LCA – Life cycle analysis
LDPE - Low-density polyethylene
MWS – Municipal waste stream
PET - Polyethylene terephthalate
PP - Polypropylene
PS - Polystyrene
SK – Slovak Koruna (Slovak currency)
Recycling and Economical Profitability in the SlovakRepublic1
- Introduction
I.1. Topic Introduction
As the population grows, so do demands on the environment. What was easily absorbed by the nature in the past, poses significant burden for the environment nowadays. The amount of pollutants and waste produced has increased dramatically in recent decades. The rising amount of municipal and industrial waste creates new challenges for local governments to reduce the amount, which isdisposed on landfills. Landfills were originally designed for ash collection; however, with discovery of new materials in the 60s and 70s the structure of waste has changed completely. Paper, plastic materials, metals and other hazardous substances have become common elements of household and industrial waste streams. Even though the structure of waste has changed rapidly, techniques of managing waste streams are changing very slowly.
Slovakia, as many others post communistic countries, changes its attitude towards recycling only slowly. There were junkyards where the old paper and various types of metals could be sold throughout the country in the past. In addition, occasional paper collections at schools were organized, but that was the only way of recycling at that time. As a result, there was no need felt to start thinking about recycling as a problem for the society among baby boom generation. Such feelings and unconcern of various governments have contributed to slow progress of introducing new recycling technologies into every day’s life. Notwithstanding, the situation changes since Slovakia has started pre-entering negotiations with the European Union. The SlovakRepublic has bound to reduce the number of waste ending on landfills, but it did not have any legal rules until 1991. The Slovak law has also implemented the Council Directive 75/442/EEC - Waste framework (RegionalEnvironmentalCenter, n.d.).This directive has concretely defined the terms and what duties and responsibilities waste producers, transporters and operators of landfills have. Although targets have been market out, it will not be possible to fulfill the goals if the legislation and economic conditions do not favor recycling from other waste treatment techniques.
- 2. Purpose of the Thesis
Speaking of recycling there is one major assumption that has to be fulfilled, the financial profitability. If the recycling is not profitable and based only on subsidies, it will not be never possible to establish wide network of waste treatment facilities (Hogg, Eunomia Research & Consulting, n.d.). As a result, the main purpose of this study is to evaluate the profitability of recycling in the SlovakRepublic. A business could only thrive if it generates profit. Therefore, the study will examine elements of municipal and industrial waste and evaluate materials that are or are not economically suitable for recycling and further treatment, which components could be reduced, reused, recycled, incinerated or disposed on landfills. The statistics on the amount of waste generated and recycled within Slovakiawill be included as well. The study will compare consequences on the environment in Slovakia, and provide examples how the environment could be benefited if the amount of waste deposited on landfills is reduced. Moreover, the thesis will closely examine the already existing projects that are in progress in some parts of Slovakia and the structure of Slovak legislation, how it supports recycling and how much has been already done under the European Union supervision. Statistical data will support benefits such projects have already brought to the society and what, if any, drawbacks have to be solved. In addition, this final thesis will provide information about the European Union and its legislation. Based on this evaluation it will be possible to recommend future goals and improvements.
Recycling and Economical Profitability in the SlovakRepublic1
- 3. Problem Statement
The infrastructure for waste treatment is not developed enough in the SlovakRepublic. The Slovak legislation has adopted some regulations that were required by the European Union such as act number 223/2001, which requires all subjects responsible for waste collection and treatment to introduce recycling technologies eliminating amount of waste ending on landfills ( 2006). However, this law is still not strictly followed in many villages and cities in Slovakia. Even though there are programs promoting recycling in many Slovak towns and cities, such program functions only on voluntary basis. Therefore, capacities of these recycling programs are not used in the most efficient manners. The main problem of current system is that recycle bins for paper, glass and plastic waste are provided only in areas with higher density of citizens. Besides, those recycle bins are for one or more apartment buildings, which do not allow the possibility of price discounts in any form and each item of the waste stream has to be sorted separately by households. Moreover, to ensure the profitability for waste processors the constant supply of waste has to be guaranteed, which current system does not allow. Consequently, the problem is like a circle. If towns and cities do not provide wider scale of recycling services, they could not have enough material for further economical reprocessing and sufficient amount of inputs could be guaranteed only if the services are offered on wider scale, targeting as much citizens and industry in the area as possible.
Recycling and Economical Profitability in the SlovakRepublic1
- Legislative process
II.1. The European Union
Waste is the problem that troubles not only Slovakia. The main coordinator of waste legislation within the Europe is the European Union. The Union provides many directives handling waste treatments and countless number of reports. As a result, part of this thesis is going to be dedicated to some of many materials, not only from the EU administration, but from the Slovak governmental and non-governmental organizations as well. Experts within the European Union have agreed that producing new materials without using waste treatment technologies, which do save the environment, is not sustainable. According to the EU legislation, each member state has to develop and implement its own waste management plans under the EU supervision and regulations (see appendix A). The main purpose of such policies is to include waste management and treatment to legislative processes within the EU. Since it is not possible to apply one system in all member countries, the legislation provides basic framework under which the goals have to be achieved. The guideline provides basic instructions for national, regional or local administrations, in order to establish the most effective waste treatment projects in particular areas.
II.2. European Legislation
The directive about Packaging and packaging waste number 94/62/EC focuses on two main goals. First, it is essential to look for new packaging materials that are more environmental friendly and exert resources in order to minimize the amount of waste produced within the European Union. Second, such measures should not restrict the function of the internal European market in any ways. As it was mentioned before, the European legislation provides only basic framework under which members states are obligated to act.
Recycling and Economical Profitability in the SlovakRepublic1
The main framework contains:
- Introduction of preventive measures that would contribute to the reduction of waste produced
- Set up required maximum and minimum amount of waste from packaging materials that should be recycled
- Members states are required to create means for separation and collection of packaging materials and dispose such materials in the way thatreduces any additional burden to the environment
- It is required that each member state identifies and classify materials with the same symbols
- Set up maximum amount of heavy metals in packaging materials
- It is required that each member state introduces databases about various waste streams (Gallovič, n.d.)
The whole directive is intend to establish principles and standards under which various waste streams would be treated within the European Union.
II.3. Slovak Legislation
The government of the SlovakRepublic has bound to adopt the legislation of the European Union and implement directives into Slovak laws. As an answer to support recycling and other related activities the Recycling Fund was established by the act number 223/2001 Z.z. in 2001 (Recyklačný fond, 2001-2007). The main purpose of such fund is to collect financial resources and aim financial support on projects that comply with preset standards and requirements. Each legal entity that sells products composed of certain substances is obligated to pay contribution to the Recycling Fund in the amount stated in the act 127/2004 Z.z (See appendix B). The main purpose of such charges is to ensure enough financial resources for projects, which use alternative treatment methods of various waste streams and contributes to the overall reduction of waste produced. Moreover, the recycling fund focuses on supporting tools that allow using waste as raw material at comparable, or lower prices with virgin raw materials. Supporting recycling projects and with direct financial aid is Recycling Fund concentrating on the promotion of recycling among citizens of the SlovakRepublic and prefers production processes that favorites waste as the main inputs.
Moreover, the Slovak government has been actively involved in environmental policies that would encourage the elimination of certain commodities of in the MWS. According to the Ministry of the Environment of the SlovakRepublic, imposing deposits on PET bottles will contribute to the reduction of single use packaging (M.E.S.A.10, Recyklačný Fond, 2005a). This proposal is following examples of Germany, Austria, or Norway where such programs have been introduced in recent years. This proposal has the potential to reduce the volume of PET bottles ending in the municipal waste, but it has raised objections among business owners. There are two main problems that have been widely discussed. First, the imposition of an act that would require all shops selling PET bottles to redeem these bottles back. This is probably not the problem for large food-chains, which have enough storage places and sufficient financial resources, but it is huge problem for small grocery shops with limited space and budgets. If the proposal would be adopted, shops that would not be able to meet the legal obligation would be closed. Second, another argument against this proposal is that the SlovakRepublic would be full up by PET bottles from neighbor countries. Although the flow of waste would be monitored in order to prevent such occurrence, there is huge concern and disapproval to the proposal.
Recycling and Economical Profitability in the SlovakRepublic1
II.4. Slovak Commitments
The European Union requires from all its members states the introduction of measures in order to reduce the overall production of waste. The act number 220/2005 Z.z. introduces limits that the government of the SlovakRepublic has bounded to achieve under the legislation of the European Union.
Table 1 - Obligatory limits for alternative treatment (e.g. energy recovery, recycling) of various waste elements in the relationship to overall weight of waste from packaging materials
Table 2 - Obligatory limits for recycling of various waste elements in the relationship to overall weight of waste from packaging materials
Source: The Government of the SlovakRepublic, 2005
Recycling and Economical Profitability in the SlovakRepublic1
Table 3 - The real situation comparing to the provision of the Slovak Government
(official data sent to the European Commission)
Packaging material / % / % / % / % / %
Paper / 30 / 50 / 56 / 58 / 60
Glass / 40 / 26.5 / 46 / 50 / 60
Plastic / 20 / 16 / 35 / 40 / 45
Metals / 20 / 16 / 35 / 50 / 55
Wood / 0 / 0 / 0 / 15 / 25
All / 28 / 36,5 / 46 / 50 / 55
Source: Priatelia Zeme, n.d.a
Although the overall recycling rate has increased by 1.1%, such positive figure has been achieved by the unexpected increase in the collection of old paper. As it could be seen from the table, other items such as glass, plastics and metals are deep bellow obligatory limits. The comparison indicates that there still has not been made enough effort to improve the separation of various elements in the waste streams in Slovakia.As a result, it could be concluded that if the current situation remains, the likelihood of meeting preset criteria is very slim in the future. On the other hand, the reason why the data is not in compliance with required level could be the fact that there are still many scrap yards operating in the Slovakia. Such scrap yards operate on commercial basis and the material, usually metal and paper, which is bought from their customers (citizens and various businesses), is then resold to final processors.Any person can bring old paper or metal and sell it at such companies. Such opportunity is mostly used by people from socially poorer background. According to the representative fromMarius Pedersen, which is the main provider of waste treatment services in the Trenčín region, there is no legal entity that monitors operations of such private entities; consequently, the amount in recycled paper and metal could be slightly higher, but probably not at any considerable level.
Recycling and Economical Profitability in the SlovakRepublic1
III. Total Social Benefit vs. Total Social Cost
Landfilling is the cheapest solution within the waste treatment options. However, as the amount of waste produced is rapidly increasing, other waste treatment technologies should be taken into consideration. There are three major problems with landfilling. First, disposal sites have limited life and are limited by space. If no other waste management plans are introduced, the landfills would be overfull and require more space. Second, all landfills have to be secure against leaking into the groundwater. If layers are damaged the leaking could cause environmental catastrophe. Third, storage of waste on the landfill sites produces methane and contributes to flux of greenhouse gases. However, if recycling is widely introduced, it could significantly eliminate emissions contributing to the global warming and reduce the amount of waste disposed. For example, waste management considerate to the environment could reduce emissions produced by using primary production sources such as coal, oil or natural gas. For example, recycling of aluminum produces approximately 95% less emissions (Novelis, 2005). Moreover, fossil fuels used to produce electricity or heat could be saved if the incineration of municipal waste is used (European Commission, n.d.). Waste treatment technologies, which eliminate the volume of waste ending on landfills, contributes to the elimination of pollution otherwise produced by using raw materials.
One of the main problems in recycling is to ensure that the total social benefit will exceed total social costs. It means that the recycling as a process should be accomplished without adding any additional burden to the environment. The social cost is the comparison among the internal cost and external cost, where the internal cost represents costs related to the operation of a particular company and the external cost represents an impact that an activity of one entity has on the other members of society and the first entity do not fully bear consequences of their activities.Therefore, the most preferable waste treatment option is the one that crates the lowest possible external cost. Even though some waste treatment such as recycling, incineration or reuse could be perceived as tools to reduce the impact of human presence on this planet, this statement could not be applied in every situation. Each of these methods has its own specific social cost, which the society has to pay in the form of money or resources used. According to the Research Development & Consulting and its report on packaging and packaging waste directive 94/62/EC each waste treatment method should be subject to detailed scrutiny in order to determine, which waste treatment option has the lowest social cost (2003). Consequently, the full Life Cycle Assessment (LCA) should be performed before any decision is taken. This assessment provides information about which delivery option should be chosen, in which populated area should be particular waste treatment method performed and which of these methods brings the highest social benefit to the society.