Finns See Opportunity Amid Masses of Waste

Riches from oil, gas, metals and timber have beckoned dozens of multinational companies to Russia, but just one has set up shop here to cash in on the country's abundant supply of garbage.

And when many of those same industrial giants had to cut down on business during last year's economic slowdown, the Finnish firm Lassila & Tikanoja faced no disastrous drop in the amount of waste — and so it kept investing.

“It's good to be in a different kind of business than all the others,” said Jaana Mulari, L&T director for Baltic countries and Russia. “In many cases, we are like pioneers. We are proud of it.”

She described waste recycling as “untouched ground” in Russia. The 2 million euro ($2.7 million) solid-waste sorting plant that the company is building in the Moscow region would be one of just a handful of its kind when completed next year, said Mulari and Kirill Dzyuba, the company's waste management director for Russia.

But as with all foreign investments in Russia, the waste management business is not without its risks. Lucrative markets like Moscow have been cornered by companies with close ties to the local government, while even smaller cities in the surrounding region can reconsider contracts on whim.

Present in Russia since 2005, L&T has been providing environmental management services — such as sorting and collecting waste — for corporate and municipal customers. It also does property cleaning inside and outside office buildings and industrial facilities, a business that is as large here as the waste handling, Mulari said.

At home, L&T is the market leader in environmental services and the runner-up in property maintenance, she said. Traded on Nasdaq OMX Helsinki, the company earned 33.1 million euros of profit in and outside Finland last year, compared with 40 million euros in the previous year.  It also operates in Sweden and Latvia, but does not break down its results by country.

Tempted by the big Russian market, L&T entered the country by acquiring the Moscow company Alfa Clean, but the different business culture and the economic downturn dampened the growth rate, Mulvari said.

“Expectations we had about growth were much bigger,” she said in an interview at the company's office in northern Moscow, near the Sviblovo metro station. “We didn't understand all the difficulties that we would face here. We just thought that Russia was big enough for us to grow."

In waste removal, the majority of work is done for municipalities — in the Moscow region towns of Noginsk, Sergiyev Posad and the areas in and around the towns of Dubna and Taldom, she said. The pitfalls here stem from elections, because incoming mayors sometimes overhaul local waste management systems, Dzyuba said.

“There are political risks,” he said. “The stronger and more stable the authorities, the easier it is for us to work.”

The crisis knocked out some of the corporate customers or made them cut spending on waste management, but it did not reduce the amount of residential waste, except for trash that comes from renovating apartments, Dzyuba said.

“People didn't start to consume tangibly less, in our view,” he said.

The company has avoided offering its waste management expertise in Moscow so far because the market is full of competition and complicated “relationships,” Mulari said.

“It can be difficult to go between those relationships,” she said, in an apparent reference to the city's notoriously corrupt bureaucracy.

In Noginsk, the authorities are moderately positive about the Finnish waste manager.

“There have been changes for the better,” said the town's maintenance chief, Vladimir Ageyev. “They work with more quality than the company that used to do it before.”

L&T uses new trucks and more powerful waste compressing equipment, which allows them to run fewer trucks, he said. They have also installed 800 plastic dumpsters with lids that prevent trash from flying off with the wind, he said. Preparations are under way to introduce a separate waste collection system for recyclable items, he said.

Ageyev also said the company had things to work on, declining to elaborate.

Marina Blokhina, a manager at waste removal company Eko-Peresvet in a neighboring town, pointed out the flaws. L&T workers do not sweep the area around the often-overflowing dumpsters, sometimes leaving behind untidy sites, she said.

“Some places where they collect look grisly,” she said. “They are strewn over with bits of garbage, which gets blown around. When the snow melts, the picture will be nasty.”

The Finns also charge at least 10 percent more than their Russian rivals, she said.

But Mulari says the cleaning business is also not seamless. Customers, usually Russian ones, often back out of long-term contracts after just a year of services or flout agreements by delaying the start of their implementation, she complained.

“Planning is not usual for the Russian business culture,” she said. “It's not so organized.”

In addition, the market for cleaning sputtered out last year with the economic downturn, a pitfall aggravated by cheap competition from construction companies that sought to make some money on the side, Mulari said.

Still, L&T has won such international clients here as Danone, Mars, Sony and Nokia.

L&T prices its services in the middle of the range for Russia, but relies more on machinery than its local competitors, sometimes making their customers wonder how so few people can handle their spacious premises, she said.

“We sell an end result; they buy the amount of people,” Mulari said. “Customers don't believe us. But machines don't get sick, drunk or tired.”