Waste management poses a mounting challenge in Indonesia as growing household consumption and accelerated business activity gives rise to higher volumes of organic food waste, plastic packaging and industrial byproducts. To address this increasingly severe waste problem characterized by a near trebling of the country’s production of municipal solid waste from 0.8 kg per capita to 2.1 kg per capita over the past decade (UNCRD); the Indonesian government has sought to impose stricter waste management and recycling regulations. Most recently, the Ministry of Environment in cooperation with the Ministry of Industry announced its plans to issue a ministerial mandate that better defines the different types of hazardous waste and puts in place easily understood penalties for non-compliance.
Following on from the previous implementation of laws designed to encourage recycling and other waste limiting practices; the upcoming legislation is indicative of growing momentum in Indonesia to tackle its present shortcomings in waste management infrastructure and facilities. Amid this stricter regulatory climate and increasing demand for comprehensive waste disposal services, foreign investors are presented with new opportunities in Indonesia to enter the waste management and recycling sector.
Decluttering the Regulatory Landscape
On 11th February 2014, Indonesia’s Ministry of Environment (MoE) went public with its plans to draw up a new regulatory framework that makes existing industrial waste laws easier to understand and at the same time ensures compliance with stricter waste management standards. Set to be issued in March, this mandate expands upon Law No 18 of 1999 by providing in depth details into three different types of hazardous and toxic materials (Bahan Berbahaya dan Beracun, B3) – ‘physically hazardous waste’ comprised of explosive and flammable materials, ‘dangerous to human health waste’ that contains poisons capable of harming the human body, and ‘environmentally damaging waste’ typified by a propensity to negatively affect marine life and the ozone. In the past, companies struggled to interpret an extremely general definition for B3 that made few distinctions between different disposal techniques specific to certain types of waste, and offered very little clarity in regards to which byproducts could be classified as B3 by the Indonesian government.
The upcoming regulation will also obligate companies to provide a guarantee of their compliance to the government in the form of a bank deposit that would be used to mitigate pollution if a company’s waste management system fails to meet environmental standards. The decision to impose more tangible consequences for companies that fail to abide by waste management guidelines is the latest in a growing list of laws put forward by the Indonesian government to combat the effects of a waste production rate rising by 2-4% annually (World Bank). Notable directives include Law No.18/2008, which is aimed at implementing the ‘3Rs’ of reduce, reuse and recycle by requiring homeowners to segregate their waste at the source as well as setting out steps for formal waste handling, and Law No. 32/2009, which requires companies to issue an Environmental Management Statement and have an Environmental Audit as a precondition for other business permits.
Informal Sector Impediments
Despite what is now becoming a legal landscape conducive to the success of companies in the waste management and recycling sector, challenges brought about by Indonesia’s informal sector continue to dampen the potential of this industry. Business reliant upon the growing supply of waste products must contend with the prevalence of scavengers who depend on collecting, sorting and selling waste for their income. Efforts to educate consumers about the advantages of commercial scale waste management and recycling are often met with opposition from communities unwilling to jeopardize the livelihood of scavengers.
The involvement of the informal sector is not limited to household waste. Reports from within the medical sector suggest that it is a common occurrence for a health clinic’s support staff to sell used medical equipment such as needles to scavengers as opposed to disposing of them through licensed waste management companies. With the recent implementation of a universal healthcare program, the magnitude of opportunities lost to Indonesia’s waste management and recycling sector due to scavengers stands to grow unless steps are taken to lessen the informal sector’s role.
The most effective method in achieving this goal is the integration of scavengers into the formal sector through training and social empowerment programs. Whether through the state or private sector, this type of initiative is sorely needed to complement the broader goal of educating households, businesses and industries on their environmental obligations. Danone, the multinational producers of Indonesia’s leading bottled water brand Aqua, have demonstrated the feasibility of working with scavengers by founding recycling cooperatives in South Tangerang, Bandung and Bali. Through these projects, Danone has been able to create stable employment opportunities and provide access to social services and micro financing to approximately 5,000 scavengers; thereby lowering their dependence on informal waste collection.
One Man’s Trash
The opportunities to investors approaching Indonesia as a producer of over 10 million tonnes of waste per year (Municipal Solid Waste Management and Waste to Energy in Indonesia; A Policy Review, Aretha Aprilia, Kyoto University) are far reaching and diverse. Foremost among these opportunities is tapping into the management and reuse of the country’s household waste.
The supply of household waste is projected to grow in concert with commercial activity and opens the door to the establishment of waste-to-energy power plants. The government’s ongoing process of weaning the country off fossil fuels necessitates a growing dependence on renewable energy and Indonesia has increasingly looked at the success of byproduct fuelled power generation in regional neighbours as a template for success. Singapore’s initiative to centre its waste management on a waste-to-energy program that involved the construction of four incineration plants is particularly worthy of attention given the city state’s impressive recycling rate of 60% and waste power plant energy output of 2,688 MWh per day that currently dwarf Jakarta’s 5% recycling rate and 15 MWh output (Jakarta Post). As seen in this comparison, there is considerable room for Indonesia’s waste energy industry to grow to meet its potential as a major contributor to the country’s energy mix.
Less constrained by land limitations than Singapore, Indonesia also presents opportunities in a composting industry now more attractive due to an increasing awareness amongst the general public of the need to separate organic from inorganic waste. Initiatives from local governments and private sector players such as Unilever Indonesia to introduce the concept of waste banks — in which households separate their waste into different containers and then deposit non-organic solid waste at a collection point in their neighborhood in exchange for money that can be kept in an account at the waste bank or withdrawn – have had a substantial impact across the country in educating consumers and changing their behavior. Over 14,000 kg of inorganic waste was collected by local communities in Greater Jakarta less than a year after Unilever Indonesia’s program set up 10 waste banks in the area. This movement also leads to the creation of centralized recycling and collection points that build towards the basic infrastructure needed for lucrative composting business opportunities in Indonesia.
A more targeted approach to the composting industry can entail engaging in nappy composting; an area of waste management that holds significant potential in Indonesia given the high birth rate and increasing preference towards disposable nappies among the urbanised middle class (See Indonesia’s Fast Moving Consumer Goods Sector). With 4.7 million births per year (National Family Planning Coordinating Board), Indonesia’s fast growing population is making the waste management and recycling issue all the more pressing. Nappy composting has proved to be highly effective in New Zealand and the United Kingdom, and should have similar success in Indonesia given the implementation of active consumer education programs and facilities such as clearly marked disposal areas.
Other opportunities include catering to a medical industry poised to produce more waste as a result of Indonesia’s universal healthcare scheme introduced in early 2014 (See What Social Security Reform Means for Business in Indonesia). Demand for international standard sterilization services and specialized transportation, incineration and landfill facilities is projected to reach unheralded levels as the country’s healthcare market doubles in size between 2012 and 2018 to reach $60.6 billion USD. When approaching an Indonesian healthcare sector still heavily reliant on public sector facilities to serve the lower and middle class segments of the population, foreign investors are best served working with companies that have an established customer network of public health clinics and hospitals.
Indonesia’s concerted efforts to move up the value added chain will also create bright prospects in providing waste management services to downstream industries that produce waste requiring specialized disposal or recycling processes. Mineral processing, for example, produces waste in the form of tailings; a slurry comprised of excess water and chemicals added during ore treatment that demands special care in preventing uncontrolled release into the environment. Companies with expertise in advanced storage techniques, such as the use of geotextile containers that dewater said slurry and facilitate the waste being stored as a solid, are encouraged to enter the market at a time when traditional methods of waste disposal in Indonesia such as storage in on site bodies of water have been found to negatively impact the environment. With that said, foreign investors are advised to wait for the impending release of the aforementioned revision to waste management regulations, as the new categorizations of B3 waste may entail mandatory management and disposal processes specific to each waste type.
Driving the emergence of Indonesia’s waste management and recycling sector are several trends that beget its positive long term outlook. The present boom in consumption necessitates a rise in the use of plastics and packaging that require advanced waste management techniques to avoid adding to Indonesia’s already dangerously full landfills. The country’s high birth rate brings about opportunities in a niche composting industry that has proven successful in markets abroad. Finally, growing demand for energy and the government’s long term plan to move away from fossil fuels places a spotlight on renewable energy and opens the door to the establishment of waste fuelled power plants used to great effect in other ASEAN countries. With these trends providing the momentum that propels the sector forward, Indonesia’s waste management and recycling businesses should expect to reap the rewards of future market growth set to widen the scope of opportunities in this presently underserved field.
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