Dissecting a waste empire

How Lebanese governments created a trash monopoly

Greg Demarque | Executive

While everyone in Lebanon — from taxi drivers to elected officials — “knows” the country’s largest waste manager is as dirty as the trash it collects, when pressed for proof, they have little to offer. Indeed, even questioning the “fact” that Sukleen — and, by extension, parent company Averda — is corrupt will likely get you dismissed as a know-nothing. Breaking the near absolute silence the company has maintained since it began operations in Lebanon in the early 1990s, Averda Chief Executive Officer Malek Sukkar opens up to Executive in a two-hour interview after facilitating tours of the company’s operations in Abu Dhabi and Lebanon. Questions about the private, family-founded company remain — most notably concerning their yearly profits — but months of investigation suggest there is more government negligence than corporate wrongdoing to the Averda story.

Bringing it back home

Maysarah Sukkar moved his engineering company, founded in 1968, to Saudi Arabia after the outbreak of civil war in Lebanon. The work Sukkar secured in the kingdom included the operation and maintenance of two slaughterhouse waste incinerators in Mecca. “We had a lot of expertise in that specific technology of incineration,” Maysarah’s son Malek Sukkar says, recalling the company’s entry into the Lebanese market. That experience led the company to bid for a contract in post-war Lebanon to finish building and test-operate a trash incinerator then-located in Amrousiyeh. According to documentation provided by Averda, Sukkar Engineering beat France’s INOR (a company whose name has since changed to Inova) in a competitive bid to complete the project which INOR had taken on in the late 1980s. The contract’s value, Averda says, was $1.752 million. This was the proverbial foot in the door for Sukkar Engineering, which by 1994 adopted the name Averda and is best known in Lebanon under the brand names Sukleen and Sukomi.

Sukkar Engineering later bid to rehabilitate an existing but damaged waste incinerator in the Beirut neighborhood of Karantina. The company lost that contract, but in 1993 won two separate public tenders to operate the Amrousiyeh and Karantina incinerators, contracts valued at $1.35 million and $1.3 million per year, respectively. Operation, however, was short-lived. Angry residents of Amrousiyeh who did not want an incinerator in their “backyard” burned the plant down in 1996, and the Ministry of Environment — under then–Minister Akram Chehayeb — banned waste incineration in 1997. The end of incineration, however, did not mean a halt to publicly financed work for Averda in Lebanon. Sukleen had been collecting waste in the capital and its suburbs since 1994, and the closure of the incinerators brought Averda more business.

International supervision

Lebanon’s infrastructure in the 1990s was in shambles. In 1993, the World Bank loaned the country $175 million for what was supposed to be three years of “emergency reconstruction and rehabilitation” work. One of the loan’s many targets was developing waste management systems across the country. The solid waste component of the loan was later excised from the main project to become a project of its own with a lifespan extended until 2003. However, one of the only successes of these loans came early on, in 1994, when Sukleen won an international tender for waste collection in Beirut and its immediate suburbs, organized by the Council for Development and Reconstruction (CDR) and overseen by the World Bank. According to company records Executive examined, Sukleen bid $14.99 per ton and was paid $3.6 million for collecting 240,000 tons of waste in the contract’s first year. Citing a report by the CDR — a government body that is part of the prime minister’s office and Averda’s contractual partner — Reinoud Leenders quotes the same figure for Sukleen’s first year of operations in his book, “Spoils of Truce: Corruption and State-Building in Postwar Lebanon.” An Amsterdam-based researcher who worked for the International Crisis Group while based in Beirut from 2002–2005, Leenders’ book touches only briefly on the waste management sector. One detail he missed, however, is that the World Bank — according to project documents — paid the collection bill the first two years, and Sukleen’s contract stipulated that CDR provide the company with all equipment needed to do the job. Equipment provision only became the company’s responsibility in 1996, according to both Averda and the World Bank.

Contract augmentation

Sukleen’s original trash collection contract did not include street sweeping, according to Sukkar and Averda’s documentation (Executive was unable to independently verify this). The city, Sukkar recalls, looked like a dump especially because the previous trash collector in Beirut had been doing street sweeping. “CDR called us and said the political apparatus is not happy with the level of cleanliness in the city and said they want to cancel your contract. They told us we need to clean the city […] So we said ‘okay’ when they told us that they would augment the contract to include street sweeping.” Averda says that a government body with a World Bank representative conducted a price study and determined that the price offered by Sukleen was lower than what the city had been previously paying and, ultimately, CDR awarded the company sweeping works without a formal bid on February 20, 1995. The World Bank’s project descriptions do not go into this level of detail, and Executive failed to reach the country director for Lebanon at that time.

Awarding new work without a competitive bid, however, became a new modus operandi for the Lebanese government in handling waste management. Averda’s presentation of its contract history in Lebanon includes specific dates and government decisions for all the additional work Sukleen and Sukomi were given. Executive was unable to find these decisions in old copies of the “Official Gazette” — Lebanon’s mostly non-digital legislative registry. However, one of the most frequent critiques of Averda is that the company frequently received new work without tender. One example is the Sukleen service area. Originally, according to Averda, the service area was less than 100 square kilometers. The company writes, “At the request of the [since re-named] Ministry of Municipal and Rural Affairs, CDR expanded the waste collection operational area from 100 [square kilometers] to 1,380 [square kilometers].” A chart Averda provided Executive with showing the increasing amounts of waste Sukleen was collecting suggests the expansion began in 1995, continued gradually until 1999 and, by 2014, included 266 municipalities generating slightly over 1.1 million tons of trash per year.

Emergency plan

During the war years, preserving the environment was not part of the waste management strategy for Beirut. The divided city had two open dumps — the Normandy dump in the West and the Bourj Hammoud dump in the East. By the time Sukleen began waste collection in 1994, Sukkar says the company was disposing of most of the trash it picked up in the Bourj Hammoud dump. The government repeatedly promised to close the dump, and in early 1997 finally approved an action plan. The plan included construction of new composting facilities, construction of two sanitary landfills and expansion of incineration and sorting capabilities at Amrousiyeh and Karantina. Excluding the landfill construction, Averda explains that in lieu of an international tender for work at the sites Sukomi was already operating, “CDR proposed to the Council of Ministers to subcontract the works to the existing contractor, Sukomi.” Incineration was later banned and the government ultimately only provided land for one composting plant, but Sukomi completed the works. Averda did not disclose the value of the construction contracts, nor did it disclose the value of the contract for building a sanitary landfill in Naameh, work awarded to Sukomi by CDR in 1997, according to Averda documents Executive reviewed.

No amount of sweeping has cleaned up Averda’s reputation in Lebanon

No amount of sweeping has cleaned up Averda’s reputation in Lebanon

A 2001 report on the state of the environment in Lebanon offers a hint at the confused decision-making process that led to the construction of the Naameh sanitary landfill. The report says, “CDR commissioned Sukomi to design, build and operate the Naameh landfill (January 1998),” but notes that operation of the facility began in August 1997. Averda says CDR requested Sukomi to begin construction of Naameh in August 1997, with work actually starting in October. Averda adds that a contract for Naameh was not signed with CDR until January 19, 1998. Averda claims that, despite the lack of a tender, “CDR reviewed Sukomi’s technical and commercial offer,” adding that an unnamed CDR consultant “ensured that the prices are very well competitive with international norms.”

Following the emergency plan, according to Averda, the Council of Ministers combined Sukomi’s two waste treatment contracts (covering works done at the Amrousiyeh and Karantina plants — which includes composting done at the nearby Coral facility) into one contract, again without a competitive bid. This all means that by 1998, largely as a result of contracts awarded without competitive tender, Averda was collecting, treating and disposing of a significant portion of Lebanon’s waste.

The question of price

Given that Averda handles the full waste cycle (from collection to disposal) for hundreds of municipalities in Lebanon, quoting one, per-ton price is arguably counterproductive. As Sukkar explains, “it is a matrix. There are tens of people involved in calculating the costs.” He elaborates, “the issue of pricing is not voodoo. It is very simple. Our profits are generally in line with industry averages.” That last statement, of course, is the most disputed and one impossible to verify as the company does not share its profits in Lebanon.

That said, and contrary to Sukkar’s in-person answer that prices cannot be divulged due to a non-disclosure agreement that is part of Averda’s contracts, the company did share its prices with Executive. As noted earlier, the initial collection bid Sukleen offered was $14.99 per ton. However, Averda notes that the price was revised as per contractual agreement in 1995, reaching $22.66. By 2010, Averda reports that collection prices were $26.17 per ton in Beirut and its suburbs and $36.24 for further flung areas in the service zone. These prices are below the range offered by the World Bank in 2012 for average waste collection costs in a country with Lebanon’s gross national income per capita. The bank gives an estimated collection cost between $40 and $90.

According to an Averda spokeswoman, Sukomi was charging between $30 and $35 per ton to receive waste at the Naameh landfill, within the $25 to $65 range the World Bank estimates as average for a middle-income country. The World Bank did not provide an estimated cost for street sweeping. Averda says Sukleen is only being paid to sweep 1,375 kilometers per day at $21.125 per kilometer while it actually sweeps over 50 percent more, or 2,165 kilometers. Executive learned this after speaking with Sukkar, so was not able to ask why the company is not pushing to be paid in full. One can only assume the margins are loose enough to overlook the discrepancy.

Sukleen has been collecting waste in Lebanon since 1994

Sukleen has been collecting waste in Lebanon since 1994

All told, Averda provided Executive with collection, sweeping and disposal prices — excluding the treatment contracts covering Amrousiyeh and Karantina. Based on Executive’s calculations, these three components come with a yearly price tag of $59 million. The true bill Averda presents CDR every year is, of course, higher because of the treatment contract, which an official involved in implementing a new waste management plan for Sukleen’s service area says totaled $50 million per year, bringing the total to around $109 million. While the local press often cites a single figure (i.e., $140 per ton, $160 per ton or $170 per ton) for what Sukleen “charges” the state, those figures appear to be an attempt to lump all of Sukleen and Sukomi’s services together. The figure is “high” simply because it covers the full waste lifecycle — collection, treatment and disposal.

While there are other waste management companies around the world that offer services covering the full waste lifecycle, it is more common for a company to focus on one or two areas — i.e. collection and street sweeping or treatment. Sukkar himself believes the fully integrated approach is not in Averda’s future as it looks to continue expansion beyond Lebanon. He wants to take the company public as soon as 2017, which would include bringing in what he calls a “professional CEO.” Sukkar says, “When the professional CEO comes in, he will look at [our treatment and disposal operations] and say, ‘This is not core.’ Because we shouldn’t be developing composting systems. We shouldn’t be developing sorting systems. […] He might well divest.”

End of an era?

When CDR put out international tenders for new waste management contracts in early 2015, Averda did not bid. Sukkar says that was because the contracts required the winners to find land for treatment facilities and sanitary landfills — long a problem in Lebanon as no one wants to live near a waste center. If and when a new plan is put into place, Sukleen and Sukomi will leave Lebanon. The issue of finding land, however, is integral to Sukomi’s early history in this country. The emergency plan from 1997 called for more than what was ultimately delivered as the state never provided land for facilities it said it wanted built. Indeed, Sukkar and Averda’s documentation have no shortage of complaints about the client — CDR — either making promises it does not follow through on (such as providing land) or otherwise making life difficult for Sukleen and Sukomi. He denies the company ever paid bribes in exchange for contracts and denies that leading politicians are shareholders (a fact confirmed by documents Executive obtained from the commercial registry). The one question he dodged, however, is why the company continued working in Lebanon despite being at the whims of a fickle and often unresponsive client.

Sukkar also refused to provide the company’s financial statements, making it impossible for Executive to verify his claim that Sukleen and Sukomi’s profit margins in Lebanon are in line with industry averages. Critics often claim that Averda’s Lebanon operations result in profit margins of 35 percent or more. Whether that’s true or not, the state is about to see its trash management bill significantly increase should a December 21 cabinet decision to export waste go into effect. Agriculture Minister Akram Chehayeb told the press that exporting the waste will come with a total price tag of $212 per ton — well above the rumored lump sum rates Sukleen and Sukomi are paid. He also mysteriously said that for 18 months of export, the total bill will come to $200 million. However, given that Sukleen’s service area generates an average of 3,000 tons of garbage per day, at $212 per ton, the $200 million will be spent in around 10 and a half months. The full 18 months would cost nearly $350 million. And, once again, the government will be awarding the trash contracts without competitive bidding.

Matt Nash

Matt is Executive's Economics & Policy Editor. He has been reporting on Lebanon since 2007 with a focus on oil and gas, policy and legal matters.

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