OFT sees role for smaller companies in waste market

The unbundling of waste and recycling contracts by local authorities could enable a raft of smaller players to enter the market, according to a report published by the Office of Fair Trading today (December 3).

The study, entitled ‘Infrastructure Ownership and Control Stock-Take', maps the ownership of infrastructure in the UK and identifies potential barriers to competition. Case studies look at the waste sector, ports, toll roads and car parks in particular.

The major themes to emerge from the waste section is the importance of government policy in shaping the market – with Landfill Tax credited as a major driver behind waste development – and the barriers presented by the planning sector.

In addition, the OFT points to the opportunities presented to so-called ‘smaller players'. Assessing the existing state of the market, the report identified seven ‘major players' in the market but said, in the future, there was scope for smaller players to become more involved in waste infrastructure.

It claimed that small players already had a role in the sector, mainly in the capacity of a sub-contractor to a larger firm. And, it said with the ‘unbundling' of waste contracts – such as specification of sub-contractors for bulky waste or management of household waste recycling centres – could improve the market standing of smaller firms.

Chris Jenkins, co-author of the document, told letsrecycle.com: “We have found that there is a long-tail, if you will, of smaller players. So we have got a big seven who compete between themselves for contracts from local authorities but other niche companies coming to the fore.”

Turnover

The report also highlights that the estimated market turnover of the waste sector is around £8.9 billion, with seven firms providing just under half of this figure. Comparatively, the report claimed that majority of companies, around 67%, currently had a turnover of less than £500,000 per year.

The main players were: Veolia Environmental Services, with 14% total market share; Biffa Group, 9%; SITA Holdings UK, 8%; Viridor, 6%; Waste Recycling Group, 6%; Cory Environmental, 2%; and, Shanks Group, 2%.

Within this, the OFT claimed that there was a “prevalence” of smaller waste operators and this was reflective of the importance of regional and local markets.

Contract

On the issue of contracts, the OFT report found that the design of local authority waste deals could have an impact on competition in the sector. It states that councils should move away from offering “overly long” contracts, as well as those that integrated a large number of services into one deal.

However, the report claims that this recommendation – that the OFT had also made in a previous report in 2006 – was being acted upon by councils. This meant that there had been a move towards councils offering separate contracts for waste disposal and waste collection, rather than combined deals.

Mr Jenkins said: “In the past there has been a bundling of contracts in terms of waste disposal and waste collections and it would appear that recommendations we have made previously [about separating them] have been implemented. So we thought that was positive.”

In terms of contracts for infrastructure development, the OFT report claims that growing competition in the sector meant that incumbents were unlikely to retain waste contracts once they were retendered. It states that developments in technology, as well as a “dynamic market”, have “eroded incumbency advantages”.

Future

Looking ahead, the OFT said that long-term certainty for the regulatory framework was “very important”, as this would provide the right conditions for investment and also act as a beacon for new entrants into the waste market. The body said that “clarity about future rates of landfill tax” would be a good indicator for new firms.

Furthermore, it said that the use of enforcement could help combat the prevalence of illegal waste operators, which currently undercut the business of legitimate operators.

Summarising the overall findings , Mr Jenkins said: “The key lessons were that government policy plays a key role in terms of the market regulation on pushing more away from landfill and treatment of waste. And, Landfill Tax has played an increasingly big role in stimulating innovation in waste treatment plants.”

Heather Clayton, senior director of OFT's infrastructure group, said: “[The report] provides clarity and greater certainty to businesses on when we might consider intervening in infrastructure sectors. Alongside this, our report should have wider benefit to government and other bodies responsible for ensuring competitively provided infrastructure contributes to economic growth.”