Font Size

- Aa +

Wed 2 Oct 2019 02:44 PM

Font Size

- Aa +

Gulf wealth funds eyeing profit in Russia's waste-disposal revolution

Kuwait and Saudi Arabia earlier this year acquired an initial stake of about 5% in a project to build four electricity-generating incineration plants

Gulf wealth funds eyeing profit in Russia's waste-disposal revolution
Russia’s annual volume of trash has more than doubled in the past two decades and waste storage sites occupy 4 million hectares, an area almost as large as The Netherlands, according to officials.

After decades of dumping trash in landfills across the country, Russia is plotting a waste-disposal revolution that its “rubbish czar” compares to the Bolshevik transformation of the nation with electricity after the 1917 takeover.

It’s a five-year plan that has some Gulf monarchies sniffing profit for their sovereign wealth funds by investing - albeit modestly so far - in a garbage-processing programme that Russian officials view as a new lucrative industry for the country.

“This is on the same scale as the electrification of the country that happened under Lenin” during the early Soviet years, said Denis Butsayev, head of the state-run Russian Environmental Operator that’s in charge of most of the project, in an interview in his 51st-floor office overlooking the Moscow City business district. President Vladimir Putin signed an order creating the company in January.

Sovereign wealth funds from Kuwait and Saudi Arabia earlier this year acquired an initial stake of about 5% in a 151-billion-ruble ($2.4 billion) project by RT-Invest to build four electricity-generating incineration plants near the Russian capital, according to the company. The Russian state development bank, Vnesheconombank, holds a 10% stake in the plants, which can process 2.8 million tons of waste annually.

“It is their first round of investment, which they can increase,” Andrey Shipelov, chief executive officer of RT-Invest, a regional waste-management company partly-owned by state industrial holding Rostec, said of the Gulf funds in an interview. “We have serious investor interest because over a period of 15 years they will get a stable profit” of 12% through the sale of electricity on wholesale markets under a government decree, he said.

Moscow is the richest prize for the insurgency against the established disorder. Europe’s biggest capital city and its surrounding region generate 17% of Russia’s annual 70 million tons of household rubbish.

Political issue

The incineration plants are backed by the Russian Direct Investment Fund and “leading Middle East sovereign wealth funds,” the RDIF said in a July 15 statement.

The Public Investment Fund of Saudi Arabia declined to comment. The Kuwait Investment Authority didn’t respond to a request for comment.

Garbage has become a sensitive political issue for Putin and was among the main topics raised in his annual call-in show in June. Russia’s annual volume of trash has more than doubled in the past two decades and waste storage sites occupy 4 million hectares, an area almost as large as The Netherlands, according to officials.

Activists in 26 regions protested against plans to move Moscow’s excess trash to their areas earlier this year. Proposals to build garbage-processing plants as part of a push to close landfills have also triggered strong opposition by residents worried about pollution.

Russia has belatedly started a recycling programme. The country currently recycles only 1% of refuse, compared to 46% in the European Union, with the rest mostly buried. The aim is to raise that level to 36% by 2024.

Trash management

To help reach that target, Butsayev’s Russian Environmental Operator is overseeing the construction of 220 waste treatment plants in Russia that will require 105 billion roubles of state investment and 182 billion roubles of private funds.

Another beneficiary of the policy shift is The Big Three, a Moscow-based consultancy that employs a computerized system to manage rubbish collection and disposal across Russia. “This allows us to predict into the future what waste disposal infrastructure will be needed and where,” Chief Executive Officer Artem Sedov said.

The company is exporting the technology to Europe, the U.S., Brazil, Mexico, India, Japan and Africa. It’s aiming to capture 25% of a global market it estimates at $3 billion-$6 billion in the next five years.

RT-Invest says it’s also building six waste-treatment plants and facilities using Carbon8 U.K.-designed technology for converting incineration residue into construction materials.

It predicts its annual turnover from the trash business could rise from 14 billion rubles now to 150 billion rubles if it can achieve a 30% market share in Russia as early as 2024. Shipelov, the CEO, forecast a rapid Russian trash revolution.

“We can achieve in five years what the Europeans did in decades,” he said.

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.