NEW PARTNERSHIPS IN URBAN SOLID WASTE IN DEVELOPING WORLD 29
where entrepreneurs are hesitant about operating under a franchise because they fear
high default levels (related to general poverty, a lack of concern for public cleanliness,
and the inability to sanction free riders by excluding them from service). Usually,
contracting is considered the option that holds greatest potential to developing coun-
tries as a way of lowering costs of solid waste collection. It is especially attractive to
governments that are eager to retain firm grip on solid waste collection, usually for
reasons of public health. This form of privatisation works best if contract periods are
not too short, and if tendering procedures and contract specifications stimulate compe-
tition and cost effectiveness. The longer the duration of contracts the more likely
private operators are to invest in appropriate (cost-saving) equipment as time allows
for the depreciation of their capital expenditures. Besides, long-term contracts reduce
transaction costs and lessen opportunities for corruption and political manipulation. In
case contract specifications are too detailed, e.g. not only on performance standards,
but also on working methods, equipment, labour input etc., and control is too tight, this
may stifle private initiative and increase supervision costs (Cointreau-Levine, 1994:
21-6). There is also the danger that contracts do not sufficiently recognize the variation
in local circumstances, for example the difference between planned and unplanned
areas.
Despite the acclaimed advantages of contracting, many advocates of privatisation are
clearly in favour of the franchise system because it transfers the risk to the private
sector ‘where it belongs’. Franchise helps unburden the local public administration
and avoids the endemic problems of weak local tax bases and poor revenue collection
performance in many developing countries. However, this option will only be
successful if safeguards are built in to ensure that privatised operation is sufficiently
attractive (e.g. user charges must be commercially viable) and secure (ibid: 27).
With regard to the second dimension, the type of activity, the privatisation of
state-owned enterprises is something completely different than the privatisation of
urban services. While the former are usually under the jurisdiction of central govern-
ment agencies and their performance can be measured in purely financial-economic
terms, urban services are usually controlled by local authorities and their success is not
only governed by economic returns but also by social and political factors (Lee, 1997:
141). In the case of solid waste collection questions of public interest and acceptability
are at stake, which implies that privatisation usually requires ‘the guiding hand of the
state’ to become effective. The authorities, for example, will have to arrange for
proper monitoring of private waste collectors to ensure compliance to health standards
or environmental regulations. This supervisory role is not only very complex and
demanding, but also very costly. Studies on privatised waste collection often come to
- In the case of franchise the local authorities give a private firm both the right and the responsibility to
provide refuse collection services to customers within a given zone. The operator is allowed to charge
individual households or houses an agreed fee to cover his expenses and to make a small profit.