Israeli Government to Weigh Price Controls Over Waste Management Sector

Preliminary study found triple-digit price increases in last seven years, absence of competition.

Bloomberg

Israel’s environment and finance ministries are weighing imposing price controls on the waste management industry, amid concerns that growing concentration in the sector has led to prices rises of 100% to 150% over the last seven years.

Officials said on Monday there was evidence of undeclared regional monopolies for municipal waste disposal, covering the entire chain of operations from transportation and way stations to private landfills.

That, in turn, has enabled contractors to raise the fees they charge local authorities and municipalities by hundreds of millions of shekels, which is then passed on to residents in the form of higher municipal taxes. Excess fees for transportation alone are estimated at 110 million shekels ($28.2 million) annually, which adds 50 to 100 shekels to the municipal taxes of each household in Israel, they said.

As a result, the interministerial committee on prices on Monday called industry figures to a hearing and invoked Section 6 of the Price Supervision Law, ordering them to present reports on their pricing and profits.

Israel’s waste management industry provides about 2 billion shekels annually in services, 700 million of that from haulage and related services and 300 million for landfills, with local authorities accounting for the rest. The biggest player in the sector is Veolia Israel, the local arm of a French company, which operates landfills, three way stations and a haulage company.

The Antitrust Authority has in the past investigated the industry on suspicions of concentration, but it is not known to have taken any operative steps.

The municipal trucks that collect garbage from homes and offices are only the first link in a chain that brings the waste to its final resting place in a landfill. The municipal trucks typically bring trash to a regional way station, where private haulers collect it and bring it to landfills.

But a paper prepared ahead of the hearing by Dr. Or Goldfarb, deputy director-general for economics and technology at the Environment Ministry, found that competition in private hauling is minimal and may not exist at all. The industry has high rates of cross-ownership between various subsectors, such as way stations and landfills or waste removal contracting.

In a preliminary estimate, the paper found that prices for landfill usage had risen 90% to 100% since 2008, for no discernible reason. Prices not only varied between landfills but often the same landfill charged different rates to different customers.

“The way stations constitute a natural regional monopoly because of limitations on the amount of waste, planning restrictions and environmental rules, so that in practice only one station alone is made available to specific local authorities,” the Environment Ministry said. “But an analysis of several way stations found that prices were 119% higher than the expected average, including a reasonable rate of profit.”