As the Industry and Trade Ministry puts the last touches on a cash-for-clunkers program, skepticism is high among companies that recycle cars that the plan will work.
The state program, patterned after similar initiatives in Germany and the United States aimed at bolstering domestic car production, would award certificates worth 50,000 rubles ($1,730) to drivers who turn in cars 10 years old and older for recycling. The certificates could be used at any dealership that sells Russian-made cars.
But a lack of legislation and recycling infrastructure bode poorly for the program, which is supposed to start up next year.
And while the program aims to assist carmakers at the beginning of a car’s life cycle, it is misguided because it does not establish a clear policy on recycling cars at the end of their life cycle, industry insiders said.
“It’s like mixing up the services of a delivery ward and a funeral,” said Yury Vorontsov, deputy director of Vtormet, a Moscow-based company that recycles car bodies and sells shredded metal to Severstal and NMLK.
The Industry and Trade Ministry aims to finish drafting the cash-for-clunkers program and forward it to the Cabinet by this weekend.
The program is at the stage of “agreeing on the general principles,” Alexei Rakhmanov, head of the ministry’s automobile department, said in an interview last week.
“The prime minister is rushing us to finish by Nov. 1,” he said, declining to outline the general principles before they are agreed upon and forwarded to the government.
Ten billion rubles ($341 million) will be earmarked for the program next year from “the sack of anti-crisis measures,” Rakhmanov said.
The federal funds will serve as the “cash” in the cash-for-clunkers program.
With no additional money expected to be allocated for the program, the regions will bear the responsibility of making sure that the cars are properly recycled, Rakhmanov said.
“The regions have given us the names of companies interested in participating … and we expect the regions to be responsible for whom they delegate the recycling to,” he said.
Only 15 percent to 20 percent of discarded cars are currently recycled in some way. Last year, about 1.78 million automobiles were deregistered without being registered again, according to a report compiled by Tolyatti-based Avtostat.
Vtormet, one of the largest companies involved in car recycling, processes about 400,000 tons of metal per year, but cars make up only 10 percent to 12 percent of its raw materials.
“Every car recycler runs into the problem of stable supply and stable demand for secondary use materials,” Vorontsov said, adding that it is the job of the government to set up a system that guarantees both.
Secondary use materials include a car’s metal and plastic components, as well as oil, engine and tires. European legislation requires cars to be 95 percent recyclable by weight by 2015. Currently the figure is 85 percent.
Vtormet, which operates with a 12 percent profit margin, has to get rid of nonmetal components, which make up 20 percent of the car’s weight, by paying to have them burned or buried in landfills. Although there is an engine recycler in the region, Vtormet cannot take on the cost of shipping engines. Used oil, for which there is a huge market in the United States, has to be burned, while companies recycling plastics, glass, and textiles are too small to handle Vtormet’s needs, Vorontsov said.
Vorontsov, who has lobbied for more than three years for a federal law on car recycling, said he has been disenchanted with the government’s efforts and thinks that the clunkers program is nothing but a short-lived campaign initiated for political reasons.
“There are no laws in Russia that set standards and requirements determining a car’s fate after it reaches the end of its life cycle,” said Sergei Udalov, deputy head of Avtostat, which compiled a report on car recycling in Russia in August.
While other countries introducing cash for clunkers programs merely injected money into a pre-existing system for waste management, Russia has no such system and has not even developed waste legislation yet, he said.
Europe requires car producers to bear some of the responsibility for processing cars after they reach the end of their life cycle, and even Tolyatti-based car giant AvtoVAZ factors about 100 euros ($150) into the cost of each Lada sold in Germany for this program, Udalov said.
The necessary Russian legislation will be drafted next year and could come into force in 2011, said Rakhmanov, of the Industry and Trade Ministry. “Optimistically speaking, we’ll need a whole year to prepare to launch it in 2011, because the legislation needs to go through the State Duma,” he said.
But Russian legislation on waste management is at least 10 years behind that of European countries, said Vera Merkulova, a corporate social responsibility specialist at Toyota Motor Russia. The European Union has been developing its policy on managing old cars since the 1990s, adding regulations on landfills, shipments and the incineration of waste, as well as standards for recycling and the safety of vehicles.
“Currently, Russia only has one industrial waste law, and there is no mention of car recycling,” Merkulova said.
In addition to legislation, the government needs to provide major investment into recycling infrastructure, because car recycling as a whole is not currently profitable, the Avtostat report said. “Simply requiring producers and importers to develop the system is not effective,” it said.
With a budget deficit and a flat economy, however, federal investment is unlikely.
The crisis has made business even harder for recyclers, said Denis Puzanov, director of RTI Holding, a small company that recycles tires in Sergiyev Posad, a town in the Moscow region. Equipment that turns tires into rubber pellets costs 2 million euros ($3 million), and with the current credit crunch, such a purchase is out of the question for a business that turns a low profit, he said.
Despite the fact that Article 14 in the Law on the Environment declares tax breaks for environmentally oriented companies, “We have worked here for years, and neither the municipal government nor the tax service know about this law,” Puzanov said.
Only 10 percent of used tires are recycled in Russia, Puzanov said. “In the regions, people make flowerbeds out of them,” he said.
Companies that want to recycle cars face numerous barriers and few incentives, said Vorontsov, of Vtormet. Six years ago, a Moscow government decree gave his company an additional 3.5 hectares to dismantle cars and sort the components. “The site had cannabis growing on it, and the occasional murder,” he said. “We put a fence around it but now have to pay an annual fine for the fence because the documents for the land have still not been processed.”