45. In developing countries, cities are hard pressed to obtain enough capital to finance their solid waste systems and are burdened with political constraints limiting their ability to generate revenues. This problem is related to years of inadequate efforts toward cost accounting for cost recovery in solid waste management, as well as to competing political agendas.

46. In response, private sector participation is viewed as one way to secure investment finance from private companies for solid waste equipment and facilities in return for contracts to provide service. In reality, in many developing countries, the private sector has expressed an unwillingness to provide solid waste service under contract with local governments. The private sector queries how local governments in developing countries, which do not obtain the funds to provide for the renewal and expansion of existing equipment, can be expected to reliably meet their payments to suppliers and contractors. The track record is not good.

47. In countries where the private sector is unwilling to work with government under contract, this sector is sometimes willing to work independently (through zonal monopoly or open competition) and to collect its own user charges. Some problems are: How does government deal with those generators of refuse that are not willing to enter into individual agreements with private haulers and pay for service? How does government regulate the tariffs charged? How does government limit collusion and price-setting?

48. In countries in which the private sector is willing to invest in solid waste management, the apparent and hidden costs of private versus government service need to be carefully analyzed. This needs to be put into comparable and equitable terms, showing any hidden subsidies and costs that might exist in either service.

49. For example, in many developing countries, local governments can borrow at substantially lower interest rates than private firms. These governments are exempt from paying property tax on their facilities and equipment; often can import machinery, spare parts, and even technical assistance without paying custom duties; and can provide a service without paying value added taxes on their services (2, 12, 57). These can be viewed as hidden subsidies to government. When comparing private with government service, these hidden subsidies need to be included in a comprehensive accounting of costs.

50. Beyond these subsidies to government (which require analysis), there are hidden costs incurred by the private sector. For example, in many developing countries in which the private sector collects refuse or provides landfill operations, the operators are small (often with only one or two trucks) and the equipment used (open tipper trucks and bulldozers) have already been fully depreciated (during ten to fifteen years of construction use). In such cases, the prices charged by the private sector seldom include monies for renewal. While government may save money in the short term by hiring small operators with old equipment, eventually, the cost of renewal will have to be borne.

51. When solid waste management service is rendered by public means, there are costs related to political exploitation. These involve the hidden cost of patronage and the political manipulation of the purchase of equipment and facilities. On the other hand, awarding and administering contracts with private firms also provides "numerous opportunities for political manipulation" (57). This issue is particularly true in developing countries wherein governmental procurement regulations typically limit the term of contracts to one year because of a reluctance to commit funding beyond the current budget. Every year, the need for contract renewal is revisited and the opportunities for exploitation reappear. Costs to the economy at large in the form of directly unproductive profit-seeking, include not only the transfers made to bureaucrats but also the cost of lobbying (51).

52. In some developing countries, the government's reputation for corruption is founded on a longstanding reality—one which contractors to government understand better than anyone. The costs of working under contract (in terms of bribes to get contract payments, delays in payments, and risks of nonpayment) can be substantial. While there are many reasons given in each case of delayed payment or nonpayment (lack of budget, change of government, inadequate invoicing, poor performance), the instances occur far too frequently to always be justified.

53. Private refuse collection companies take advantage of the fact that government must work toward the overall cleanliness of the city. In many countries, including Colombia, Mexico, and Nigeria, private sector collectors have been responsible for much of the clandestine dumping of wastes. These collectors have serviced their paying customers and dumped on open land, leaving the resulting mess for government to clear at a great expense (11).

54. When developing countries involve the private sector, it is typically for service of areas with predominantly upper income households and large industrial and commercial establishments. If private service costs are covered directly by and matched to user charges within the service area, the opportunity is lost for government to source these wealthier residents for the cross-subsidy of service to poorer residents. In the worst case scenario, the government contracts for this service and the cost recovery paid to government is less than the cost of the service—leading to a hidden cross subsidy from poorer residents to cover the service for wealthier residents (53, 29).