CROATIA SOLID WASTE SECTOR REVIEWTechnical studies - summaries

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As part of the ongoing dialogue with Environmental Protection and Energy Efficiency Fund (EPEEF), the World Bank team conducted a review of the solid waste management sector in Croatia involving seven topical studies across two dimensions. Three studies covered cross-cutting bottlenecks in the areas of a) governance, b) financial recommendations, and c) business opportunities; and four studies addressed implementation constraints for the most challenging investments as well as technical issues hindering implementation of the national Waste Management Plan (WMP): a) waste management centers (WMC) and sorting facilities, b) packaging waste, c) separation at source, and d) brownfields. This note provides a summary of the Business Opportunities Study. Below are the summaries of the seven studies.

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1. Summary note - Waste Management Centers and Sorting Facilities

Current situation

Croatia has around 100 non-compliant municipal waste landfills in operation. It risks infringement penalties because Croatia has to bring the landfills into compliance with the acquis requirements by January 1, 2019

Currently there are three WMCs currently operating in Croatia. Two of these WMCs were built with public funds, predominantly financed by the European Commission (EC) under the Instrument for Pre-Accession Assistance (IPA): WMC Kaštijun with capacity of 90,000 tons per year (Istarska County), and WMC Marišćina with capacity 100,000 tons per year (Primorje-Gorski Kotar County). Both WMCs apply mechanical biological treatment (MBT) technology. A third WMC – MBT facility in the city of Varaždin with capacity of 95,000 tons per year was developed with private funds. The intended role of WMCs is to treat mixed municipal waste received from Local Government Units (LGUs) after separate collection of recyclable fractions.

According to the current national WMP (2017-2022), which was ex-ante conditionality for allocation of EU funds under Operational Programme for the Implementation of the EU Cohesion Policy 2014 - 2020 (2014 – 2020 OP) and its Implementing Decision, both of, a total of nine new WMCs should be built in Croatia, including seven WMCs built by 2020, with a total capacity of 503,000 tons. A majority of the planned WMCs are expected to apply MBT technology to produce (low-grade) compost, refuse-derived fuel (RDF), residual waste for disposal to landfills, and a small fraction of recyclables.

Regional Government Units (RGUs) are responsible for establishment of WMCs. To date none of the WMCs have been constructed under current 2014 - 2020 OP. Feasibility studies and project documentation are under preparation or prepared for six WMCs, while the preparation of documentation has not yet started for the remaining three WMCs.

In addition, the WMP and its Implementation Decision also envisioned construction of sorting plants for separately collecting recyclables with a total capacity of 715,000 tons. LGUs are responsible for the construction of these sorting plants. In late 2018, a process started for allocation of funds for sorting plants.

Key findings and recommendations

The future timeline for the construction of seven WMCs by 2020 needs to be reconsidered given the considerable delay in establishment of the planned WMCs.

Better financial planning is required to ensure the sustainability of WMCs. There are mismatches between planned and required capacities of the WMCs, significant underestimates of investment needs and financing challenges, and underestimated operating costs (e.g. the two existing WMCs at Kastijun and Mariscina).

Planning for energy recovery needs to be expedited, given that most WMCs foresee using MBT technology. One of the products from MBT technology is RDF/SRF for which energy recovery is necessary; this requires, for example, adjusted cement kilns or a waste incineration facility with heat recovery.

The key planning documents could benefit from further guidance on implementation and communication. According to the WMP Implementation Decision, counties are the main responsible party for WMC construction, and the MEE is a partner; however, the funding sources planning falls outside of counties. Such anomalies could be addressed

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through better guidance documentation.

The existing engagement with the private sector needs to be considered when defining sorting capacities. Participation of private sector in the development of WMCs (e.g. privately-owned waste-sorting facilities) is envisaged. LGUs are currently planning separate sorting plants without adequate business analyses (regional needs, existing capacities, etc.) which could endanger the sustainability and reduce the impact of EU funds.

The development of WMCs and sorting facilities would benefit from closer collaboration between national, regional, and local institutions. A more regional approach to waste management planning and implementation could be applied along with the integration of other segments of waste management (separate collection, recycling facilities, etc.). Regional waste management systems, built around regional WMCs are key to the implementation of Croatia’s sector policies and to meeting EU requirements on separate collection, landfilling and circular economy.

Next Steps

Pilot a regional scheme of waste management systems, built around regional waste management centers (WMCs), with willing LGUs that would particularly benefit from economies of scale (e.g. in Slavonia). This would also help with closing of local non-compliant landfills and support the LGUs in segregated waste collection and management of recyclables. Lessons from the pilot would inform further development and implementation of Croatia’s sector policies aimed at meeting EU requirements and ensure the sustainability of investments and enable economy of scale for circular economy.

Establish a multi-stakeholder team that would lead the regional planning and would comprise of representatives from MEE, EPEEF, LGU and RGU representatives (or representative of association of LGUs, NGOs, chamber of commerce and technical experts). The team would ensure:

Proper planning of required capacities, investments, and operational costs of future waste management centers that takes into consideration the capacity and technology of existing and planned sorting plants, as well as co-financing of construction models and management of built plants

Preparation of an action plan for the implementation of the measures that define the required capacity of sorting plants, their potential locations, and their requirements related to output fractions

Conduct energy recovery analysis involving evaluation of Croatia’s current energy recovery capacity and prospective additional needs. This analysis is necessary given that the current and planned WMCs are based on MBT technology with RDF/SRF as by product. While assessing energy recovery needs, the analysis should also consider solutions for the treatment of sludge from waste water management systems.

Strengthen the application of economic incentives to move the waste agenda forward. The landfill tax, as a key instrument, could be introduced with the primary aim of increasing the financial attractiveness of alternatives to landfilling (in this case, recycling). Collected landfill taxes could be rolled back to the LGU’s though co-financing of EU funds.

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2. Summary note – Separate Waste Collection

Current situation

Separate collection of municipal waste (waste paper, plastics, metals, glass, bio-waste, textiles, and large (bulk) municipal waste) is the responsibility of Local Government Units (LGUs). A portion of municipal waste recyclables are also collected by private companies while some special waste streams like packaging waste are collected through the Extended Producer Responsibility (EPR) scheme organized by Environmental Protection and Energy Efficiency Fund (EPEEF).

Separate collection accounted for 26% of municipal waste collected and treated in Croatia in 2016, of which 17% ended-up in landfills. Landfilling is still the predominant outlet for all municipal waste (77% in 2016). Significant efforts will be required to comply with EU targets on Recycling and Reuse (50 % in 2020, 65 % in 2030) and Landfilling (10% in 2035). Since households as a group are the biggest producers of municipal waste, attaining the EU recycling target for municipal waste largely depends on LGUs capability to organize separate collection.

A large share of LGUs (441 out of 556 LGUs or 79%) claim to have introduced some level of separate collection of recyclables from municipal waste. However, the rate of separate collection, and thus recycling, is less than 10% in 426 LGUs.

Key findings and recommendations

Given the low separate collection rate, significant efforts will be needed to reach EU recycling and reuse targets and landfilling. It is evident that Croatia will fail to achieve EU 2020 recycling and reuse targets of 50%, and the circular economy EU package brings additional challenges with more ambitious targets for 2025, 2030 and 2035.

The national targets could reinforce the link with the EU targets and their elaboration1. The national waste management plan (WMP) targets for separate collection are more ambitious than the European targets, but they are also not clearly defined. The fractions of waste (beyond paper, glass, plastic, metal, and bio-waste) to which the WMP’s targets for separate collection apply, need to be made clearer.

Reaching the targets could be supported by circular economy strategy or action plan. Currently, the national planning documents are not focused on using waste resources and developing a market for them, but on separate collection of useful materials and simply meeting the target numbers. This could be changed through a greater focus on circular economy, supported by economic incentives.

The government has introduced economic incentives to divert waste from landfilling to separate collection and recycling, however there is room for improvement.

a) An incentive fee for reducing the amount of mixed municipal waste (a “proxy” landfill tax) can be improved by taking into account the degree of success of a particular LGU in separate collection, which can serve to further encourage LGUs to ensure separate collection of municipal waste.

b) Fee collection for mixed and biodegradable municipal waste has been formally introduced, and LGUs have adopted a decision on the method for charging and the price for the collection service. As a next step, the LGUs need to envisage separate

1 The WMP sets quantitative targets for the separate collection of bio-waste from municipal waste, which is not the case in the EU regulations. There is no quantitative goal at the EU level for the separate collection of bio-waste, but Member States are required to introduce separate collection by December 31, 2023 and meet targets to reduce the disposal of biodegradable materials in landfills.

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collection schemes and purchase the necessary equipment (collection bins, vehicles, etc.).

There are too many small LGUs which are also lacking in capacity to organize themselves to deliver on the targets individually. While responsibility for separate collection of household waste falls under LGUs, they are small (average 6000 inhabitants) with poor technical, financial and organizational capacity. As a result, data on municipal waste composition and existing capacities for waste treatment are not available, and majority of LGUs do not have Waste Management Plans.

A more regional approaches to waste management could create the foundation for circular economy through economies of scale. Rather than localized systems at individual LGUs, it may be possible to plan for separate collection of municipal waste integrated together with other segments of waste management (waste sorting plants, recycling plants, WMCs, etc.) at the regional level. This would require considering local characteristics of LGUs (demographics, spatial constraints, affordability, economic activity, infrastructure, etc.) to develop regional models for municipal waste separate collection and benchmarking.

The private sector can play an important role in separate waste collection, but its role and capacity need to be assessed.

Next Steps

Establish a special national initiative to develop a systematic approach for separate waste collection and treatment of municipal waste and benchmarking of LGUs. Support to this initiative (with defined funding and responsibilities) would be needed in term of analysis of waste composition, and available capacities (public and private) for waste treatment.

Review and revise the economic incentives for reducing municipal waste, including the consideration of a landfill tax. Since already some incentives have been created, any change should further encourage the Government to scale up efforts while aiming to ultimately recover the cost of meeting the targets.

Introduce further incentives for commercial establishments to undertake composting of bio-waste. Hotels and restaurants could be encouraged to separate bio-waste at source through the provision of mobile composting machines without the obligation to obtain a permit (and other burdensome procedures). A similar approach could be taken for the operation of re-use centers, which currently have to obtain a waste management license.

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3. Summary: Packaging Waste Management

Current situation

The packaging waste management system in Croatia, established in 2005, is based on the extended producer responsibility scheme (EPR) with The Environmental Protection and Energy Efficiency Fund (EPEEF) as a leading entity in packaging waste management and EPR.

By paying the waste management fee to the EPEEF, the obligations held by “packaging producers” for management and achievement of the targets for packaging waste are transferred to the EPEEF. The EPEEF packaging scheme excludes so-called small producers, and the producers who generate hazardous waste packaging. Hazardous packaging waste is managed based on principles of the market by companies that have a license for this type of waste.

In line with EPEEF’s mandate, collection and treatment of packaging waste is primarily organized by EPEEF and implemented by companies under contract with EPEEF. For collection, parallel systems also exist alongside EPEEF-managed activities. Part of the packaging waste that is collected outside the EPEEF scheme is done on a commercial basis by private companies, while another part is collected by providers of public collection services (municipal companies) for mixed municipal waste and biodegradable municipal waste.

According to official data, in 2016 Croatia met the EU’s target recycling rate, but it did not meet the target for recovery of packaging waste.2 Regarding recycling targets for specific packaging materials, Croatia has met targets for paper and cardboard and plastic recycling, while targets for glass packaging, metal, and wood have not been met.

Key findings and recommendations

The legislative framework needs to be brought in line with new European targets for waste packaging and municipal waste recycling and re-use. Amendments to the Waste Directive and Packaging and Packaging Waste Directive (so called circular economy targets) provide a new framework for waste packaging and municipal waste recycling and re-use. Aligning with the new targets within this framework could be undertaken.

The quality of data on packaging and waste packaging needs improvement to install greater confidence in the publicly reported information3. There is a lack of complete and reliable information on the amount of packaging placed on the market; instead, data is based solely on the producer's reporting to the EPEEF4.

According to the Croatian Agency for Environment and Nature (CAEN) recycling rate estimate, the packaging waste target for plastic, paper and cardboard, and glass was not reached for 2016. The greatest difference is shown for plastics (41% EPEEF rate compared to 12% World Bank estimate) and paper and cardboard (83% and 42% respectively). The EC is also aware that official reports based on EPEEF data overestimate the waste packaging recycling rate.

The EPR scheme has room for improvement, in terms of expanding its scope and

2 This means that almost all collected packaging waste is recycled and other forms of treatment are negligible (e.g. energy recovery)3 The quality of data (availability and ratability) is a concern recognized internally and by EU Commission. The availability and reliability of data is limited, hindering transparency and public engagement.4 The number of producers that are not registered is unknown and consequently the quantities of packaging placed on the market, and no mechanism of records and control has been established.

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making it more economically attractive. Unlike most EU countries, the EPR scheme in Croatia relies heavily on one central state agency (EPEEF) that focuses on some of the most valuable waste streams. Within those streams, EPEEF is further focused on the parts of the sector that are easiest to manage (the beverage industry and the recycling of PET/Fe/Al containers). It could expand its scope to policies and actions for larger segment of materials through a system of financial incentives to expand the limited EPR program.

In order to reduce the generation of packaging waste, efforts are needed to implement the “polluter pays principle”. Currently, the extent to which the fees paid by packaging producers cover the cost of collection and recycling is uncertain. If the "polluter pays" principle is to be applied, producers would need to pay "the full costs of packaging waste management for packaging they place on the market."

The packaging waste system needs to be expanded, to make it attractive to private sector participation. All types of packaging materials and packaging waste need to be covered and implementation needs to be expanded throughout the country, so that there is enough volume of packaging waste to be managed.

Next steps

A wider government initiative is recommended to develop a systematic approach to packaging and packaging waste management, especially for identifying and monitoring producers. It would need to have defined funding and responsibilities as well as a high-level government oversight body that includes MEE and EPEEF.

Preparation for a new legislative package in line with EU amendments to the Waste Management Directive and Packaging and Packaging Waste Directive to be adopted in 2020, needs to be initiated. A comprehensive analysis of (i) the most practicable fee system, (ii) methods for fee collection, and (iii) options for improvement of the current packaging waste management and treatment system, should prepare the foundation for sector reform and provide analysis for a new legislative package that needs to be adopted in 2020.

Undertake a pilot assessment of the effect of increasing the share of automated reception (RVM) and recording of beverage containers in line with EU Member States that have made progress in the management of packaging materials and packaging waste by introducing automated management (i.e., use of a GTIN number). This examination should rely on a technical-economic analysis that includes both technical and environmental parameters, a detailed analysis of costs and benefits with clearly-defined roles and obligations of the system’s stakeholders, and design for a new management system.

Review and revise data collection concerning packaging waste management in Croatia as well as the systems for reporting to national and EU bodies.

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4. Summary note – Brownfields

Current situation

Contaminated land management needs to be based on risks to human health and the wider environment, and typically follows the following sequence of activities: identification, investigation, risk assessment, risk management (options appraisal, remediation), verification, and aftercare. The international consensus is also that risk management should also meet sustainable development principles, and hence the sustainable risk based contaminated land management (SRBLM) approach is considered as a good practice. Sustainable remediation considers all three elements of sustainability: environmental, economic and social.

The EU Industrial Emissions Directive seeks to prevent the future creation of land contamination by Integrated Pollution Prevention and Control (IPPC). Many industries in Croatia are suboptimal both in their environmental performance, impeding their ability to comply with whatever IPPC requirements Croatia will apply, but also undermining their competitiveness by wasting resources, wasting water and wasting energy. Croatia has not developed a systematic approach or policy for addressing and remediating its contaminated sites. Although measures related to land contamination are present in all the key planning and implementation documents, few sites have been remediated, and they are significantly behind the schedule outlined in planning documents. The methodology for their identification, or risk assessment has not been officially established. Of the 17 hotspots identified in different documents since 2005, only six have been fully remediated.

Key findings and recommendations

The cost of remediation of contaminated land in Croatia has been significantly underestimated and needs to be revisited. With unreliable cost estimates, securing funding is going to be difficult from the EU or from national government sources.

The Government would benefit from risk assessment of the identified sites in order to prioritize the remediation efforts. Guidelines concerning the acceptable level of cleanup linked to future land use need to be developed and activities planned in coordination with LGUs. This would also help in estimating costs based on the level of treatment required, and hence coming up with cost-effective interventions that would avoid unnecessary public spending and possibly excessive use of EU funds.

Establishing the ownership / liability of legacy contaminated sites is often the biggest hurdle that needs to be overcome. Most contaminated sites are legacy contaminations, and, in most cases, the original “polluter” no longer exists, whereby the cost of remediation is assumed by the Government. In cases where a liable party exists, remediation is often delayed due to unsolved ownership issues or lack of financing.

There is a need to strengthen the technical and human capacity for dealing with contaminated sites in Ministry of Environment and Energy as well as Environmental Protection and Energy Efficiency Fund.

Next steps

Risk assessments of known contaminated sites should be done to prioritize remediation activities. This would in line with the international good practice of SRBLM.

An expert team working on contaminated site remediation could be established within the EPEEF to work with the LGUs and polluters. Such a team would consist of technical

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experts, land issue and corporate/privatization lawyers, communication experts, financial experts, and land planning experts. It would help with identifying approaches to remediate certain contaminated sites, production of cost estimates, and redevelopment and reuse of the sites.

A methodology could be developed to support site prioritization and remediation requirements. Development of such a methodology could support site valorization, providing answers to key questions such as the development potential after remediation, initial cost estimates of remediation, financing source identification, (co-) financing, and risk analysis.

Remediation guidelines based on the type of contamination of the site and on the intended purpose for the remediated site need to be developed. Such guidelines could be based on the existing EU directives and legislation concerning industrial and land pollution, to the extent possible.

A transparent remediation process and intensive public involvement from the onset of planning is a good practice for successful implementation.

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5. Summary - Financial Aspects

Current situation

Waste management is defined as an investment priority in the Partnership Agreement between Croatia and the EU. For the 2014-2020 Programming Period, 33 percent of European Structural and Investment Funds for Croatia have been allocated for waste management (EUR3.6 billion out of the full allocation of EUR10.74 billion).

The cost of implementing measures for achieving targets and implementing the 2017-2022 Waste Management Plan (WMP) by 2022 is estimated at HRK5.1 billion.

The WMP lists three categories of resources for project implementation: public sources (State budget, EU funds, LGUs, RGUs, EPEEF, CAEN, Croatian waters); bank loans (WB, EBRD, EIB, etc.); and private sources (including PPPs, concessions, etc.). The waste management system in Croatia is heavily reliant on public funding and the role of the market is limited. The WMP expects financing to come predominantly from public sources, such as EU funds (67 percent of funds), LGUs (11 percent), RGUs (9 percent), and the EPEEF (9 percent). Private investments would cover just 2 percent, and state budget funds would account for 1 percent.

Key findings and recommendations

Delays in implementation of the WMP indicate that significant challenges exist related to the financial capacity and sustainability of the Croatian waste management system. Delays itself increase costs (e.g., for transitional measures) and reduce the availability of EU funds, and thus necessitate securing alternative sources of financing for the planned measures. Special focus needs to be given to building capacity of WMP stakeholders so that they can absorb and disburse funds.

The estimates regarding the required amounts and sources of financing need to be revised and made more robust. Requirements from the central budget seem to be underestimated, as is the amount of available private investment. Costs related to financing and costs for the development of institutional capacity (1-2% of investment costs) are currently not considered. The financing gap to implement the national WMP is estimated at HRK0.9 billion to 2023, which is an underestimation.

Better cost sharing arrangements for financing the regional infrastructure (both investment and operating costs) among LGUs, RGUs and central government and other stakeholders could accelerate the pace of reform in the waste sector. There is a need to benchmark the financial health LGUs, assess their level of affordability and willingness to pay, and use that information as the basis for prioritizing investments. Consistent cost estimates need to be developed per collection area at LGUs, and per area of a WMC. This information needs to feed into the Government's decisions so that there is greater coherence in financial planning (e.g., EPEEF's financial plans are not aligned with the WMP and its Implementation Decision), for the medium- to long-term.

More focus needs to be given to currently delayed measures, especially those that provide financial sustainability for the system. This includes the implementation of “polluter pays” principle (landfill tax, collection according to quantity, incentive fee), as well as measures to support the absorption of EU funds.

Investment planning need to be better aligned with the financial and institutional capacity of key stakeholders. The operational costs and affordability issues cannot be overlooked

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when planning for investments. The preliminary analysis indicate that problems of affordability limit the cost that households can bear to HRK1.3 billion a year (HRK1000/t), and hence it is unlikely that users can fully cover the national component of investment costs.

Sustainability related criteria could be developed to guide investment planning for the WMP so as to ensure that that it is not only focused on capital cost of investments. Significant efforts should also be given to capacity building of WMP stakeholders, predominately LGUs and RGUs, so that they can also undertake financial planning including development of a framework to work trigger private investments.

The EPEEF financial plan would benefit from coherency with national and regional strategic and planning documents (primarily the WMP and Implementing Decision). The sources of waste management financing, including waste tariffs and fees and the system of EPEEF financing could be streamlined

Achieving demonstrated progress with planning could lower the penalty for non-compliance with the EU regulation that is estimated to exceed the cost of the implementing waste management measures (estimated at HRK975 million or EUR130 million). It is estimated that the fine could require a lump sum of EUR10 million and a daily penalty of EUR42,000.

Next Steps

Reassess the feasibility of planned investments and allocate adequate funds for technical assistance and capacity building (1-2% of investment) as well as for a public awareness campaign (between HRK31 million and HRK192 million).

Develop financing models for capital investments and operational costs. This would require introduction of preconditions for the financial sustainability of the system and the application of the “polluter pays” principle (landfill tax, waste tariff reform, fees for special categories of waste, EPR)

Increase the transparency of EU funds expenditures. Bottlenecks need to be identified and gradually removed. Revise the definition of eligible applicants based on the principle of subsidiarity and in accordance with the structure of the sector.

Prepare a 3-year business plan for key institutions. Define which priorities should be reflected in the financial plan. Provide flexibility mechanisms for adapting to changing market conditions (e.g., change of investment costs, remediation costs).

Define incentives for LGUs/RGUs to engage and to start budgeting and cost recovery schemes and integrate incentives into task-force arrangements for implementation.

Consider providing co-financing from the EU to utility companies and the involvement of the private sector to increase absorption and efficiency.

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6. Summary - Governance

Current situation

The main central government stakeholders are the Ministry of Environment and Energy (MEE); Ministry of Regional Development and EU Funds (MRDEUF); the Environmental Protection and Energy Efficiency Fund (EPEEF); and Croatian Agency for Environment and Nature (CAEN). The MEE governess the waste management laws, strategies and sector plans; MEDEUF sets priorities, and prepares strategic and operational documents, for use of EU funds; EPEEF acts as Intermediate Body 2 for EU funds5 and is a central source for collecting and investing extra-budgetary resources into programs and projects that protect nature and the environment. Implementation of waste management is decentralized in Croatia, taking place predominantly with local government units (LGUs), while regional government units (RGUs) have role in planning of the Waste Management Centers (WMC). There are 556 LGUs in Croatia; they have on average 6,000 inhabitants (excluding city of Zagreb). More than 200 companies are contracted to deal with municipal waste.

Key findings and recommendations

Institutional fragmentation of responsibilities contributes to slow implementation of national Waste Management Plan (WMP).

Providing stability and consistency in the regulatory system, as well as timely adoption of secondary legislation could significantly accelerate compliance with the WMP and reaching EU targets. Currently, waste legislation is partially applied in the areas of implementation of fees, introduction of the landfill tax, implementation of restrictions on the disposal of biodegradable municipal waste, remediation and closure of landfills. In addition, the key implementing documents – the national WMP and the Implementation Decision on WMP – conflict in many areas. Deadlines for the preparation and implementation of new regulations are often not realistic (e.g., the decision on sequencing and dynamics of closure of landfills entered into force before it was published). Changes of regulations are frequent (for example, the Ordinance on Packaging and Packaging Waste has been changed 10 times in 12 years) and sometimes made without required planning and preparation (e.g., merging CAEN with MEE).

The is a need to improve the competencies and clarify the responsibilities of institutions so that there is alignment with their implementing mandate (administrative, organizational, and financial). This is recognized by relevant national institutions (e.g., Competition Agency identified the need to separate regulatory from market-based activities of the EPEEF, State Audit office identified the need for multi-annual planning and linking revenues with expenditures) as well as the EU (e.g. the Council Recommendations on the National Program for the Reform of the Republic of Croatia for 2017), and needs to be acted upon

The is a need for capacity-building at policy, institutional, and technical levels (including capacity building for public procurement). LGUs, who are key implementers of WMP, lack the capacity to meet their obligations. For example, the availability and reliability of data needs to be implemented in the interest of fostering greater transparency and public

5 In utilizing EU structural instruments, an Intermediate Body level 2 are all public bodies or agencies acting with responsibility for Managing or Certifying Authorities or performing tasks on their behalf in relation to Beneficiaries or the bodies or firms carrying out projects/operations.

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engagement.

A functional review could be conducted with the aim to improving the performance of central and local government in the waste management sector. This would assist in identifying institutional and organizational barriers and highlighting the distribution of functions between public and private actors. An action plan could be developed for the short- and medium-term to strengthen the effectiveness and efficiency of the sector’s administration. It could include recommendations for strategic planning, performance improvements (institutional, legislative, etc.), capacity building, and reform of financial management systems.

Furthermore, it could assist in aligning obligations with available capacities, defining the competencies (as well as implementing instruments) of various stakeholders, defining appropriate approaches (monitoring, enforcement, incentives) to improve performance of LGUs and other stakeholders in the sector, and provide capacity-building at all levels (i.e., cities, municipalities, counties, public education, utilities).

Next steps

Conduct a functional review of the sector with the outlook towards the new EU waste package to be transposed in 2020.

Establish a policy-making unit with the capacity and mandate to negotiate with the EU on transposition of waste legislation.

Dedicate resources for capacity-building at all levels, including for strengthening public procurement capacity.

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7. Summary – Business Opportunities

Current situation

Problems related to the insufficient application of both market principles and the "polluter pays" principle, identified in the 2005 Waste Management Strategy, continue to hinder business opportunities related to waste management in Croatia.

According to the Act on Sustainable Waste Management (Waste Act) there are 17 activities stemming from waste management. The collection of mixed and biodegradable municipal waste is considered a local public service. Waste recovery, disposal, collection, processing, and transportation activities are considered economic activities, while waste management and waste trading are considered to be business activities. To carry out business activities, it is necessary to be currently and properly registered in the appropriate register for the activity, while for economic activities and public services it is necessary to obtain an appropriate license. Private participation is allowed in all activities, although as an exception in some of them. Planned private sector investments in the implementation of the WMP (foresees that private sector would contribute with 2% expenditures for national WMP), are associated with activities which are not clearly defined.

Key findings and recommendations

The waste sector in Croatia is heavily reliant on public funding and the role of market is currently limited. The Waste Act’s implementing regulations favor public bodies over private entities (in terms of conditions to be met, VAT rate, regarding the EPR scheme, access to finance/use of EU funds, and more) and favor the limited existing market participants over new entrants. Thus, the WMP and Implementing Decision as well as the local WMPs lack measures that systematically involve the private sector. This may need to change in the future with greater engagement of the existing private sector capacities.

A greater predictability in terms of the legal and financial environment for the private sector to grow is vital: There is need for greater alignment between legislation and regulations (Law, national WMP, Implementing Decision, local WMPs, implementing regulations) that are frequently changed; and greater predictability with regards waste financing and the system of fees, that in turn affect estimates concerning possible costs and revenues, and thus increase investment risk.

A significant potential for expanding business opportunities in waste management especially in the transition towards the circular economy model lies ahead. Exploiting this potential requires a thoughtful design and thorough application of economic instruments. There is also economic and social potential by the integration of informal waste workers into the economy and by improving their living and working conditions.

The institutional setup, market structure, and regulatory framework need to be made more amenable to supporting the development of business opportunities. There is a need for greater clarity between the domain of public service and private utilities. Competition is limited, and significant share of companies are owned by LGUs. Private companies are inter-connected, and the Competition Agency has limited control in the area. In addition, EPEEF competes in the relevant waste market, while simultaneously exercising public authority. This may need to change in the future with creation of greater market opportunities for the private sector.

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The main recommendation is to create a level playing field for the public and private sectors.

This could be done through a) introducing economic instruments, including flexibility mechanisms for adapting to changing market conditions (e.g., change of investment costs, remediation costs); b) Defining performance criteria (i.e., criteria that do not differentiate based on legal status and ownership, but rather on technical, financial, or institutional capacity); c) Easing market entry for new participants, including potentially opening up utility activities to competition; d) Implementing measures necessary for the application of the polluter pays principle (landfill tax, waste tariff reform, fees for special categories of waste/EPR) that enables proper operational financing of the sector; and e) improving the EPR scheme consistent with the latest amendment of the Waste Framework Directive that strives to achieve so-called “circular economy” targets.

Next steps

Prepare an action plan for removing inconsistencies between regulations and define better role of private sector.

Clarify the role of the EPEEF concerning the market, especially regarding EPR.

Enable privately-owned companies to access financing and EU funds to reach circular economy targets.

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