National Resource Efficiency Policy (NREP): Can it revive the circular economy?

Over the last decade, much has changed in the regulatory landscape of waste management sector as number of old rules (Plastic Waste Management Rules 2011, Solid Waste Management Rules 2000) have been upgraded and new rules (E-Waste Management Rules 2016, Construction and Demolition Waste Management rules 2016) have been implemented. However, the ground realities remain grim: on the one hand, our cities are crumbling under piles of uncollected waste, while on the other hand waste management companies are unable to get enough waste.

In this context, the draft National Resource Efficiency policy (NREP), aims to create an overarching policy framework to promote resource efficiency across all sectors. It recommends a life cycle driven approach for managing resources right from their extraction to disposal. It proposes penalties for extraction of virgin material, design standards for product longevity and reuse, encouragement of production of green products, strict rules for collecting waste from consumers/bulk generators and taxes on landfills. The policy has good intent, but may not be able to achieve the desired impact in absence of a robust circular industry that can collect and process waste.

Historically, waste management policies have been implemented through Pollution Control Boards (PCBs), who are responsible for licensing and regulating the industry. As such, the emphasis has been on regulation, which now needs to shift to industry enablement. Further, NREP must address issues such as lack of access to waste, small scale of operations and high taxes that render circular companies uncompetitive.

Access to waste

India’s circular industry is nascent, with only handful of public listed companies and no unicorns. It mostly exists in selected sectors such as electronic waste, plastic waste and to some extent in tyre, metal recycling and municipal solid waste processing.

Getting access to segregated waste in large quantity is a big constraint for the industry. For example, while annual e-waste generation in India is estimated to be 20 Lakh tonnes, most formal sector recyclers are not able to collect even 5000 tonnes per annum. Similarly tyre recyclers that reclaim rubber from tyres face challenges in collecting waste tyres. Many waste and biomass based power plants have been closed down due to unavailability of segregated waste. Metal recycling industry relies on imported scrap, and construction waste recycling is yet to take off as segregating waste and converting it to useful products is not profitable.

Unlike regular manufacturing industries, where raw material can be bought from other sources, circular economy companies need to collect waste (their raw material) from a wide variety of sources and incur considerable cost in transporting it to the recycling centres. Additionally, generators of waste are not ready to pay for its disposal; instead, they expect to be paid for their waste. Moreover, composition of waste changes on a daily basis, making it difficult for companies to deliver standardised products, thus affecting their financial viability.

Waste can be divided into two categories; post-consumer waste and pre consumer (industrial) waste. The cost of collection of post-consumer waste is high and volumes are low, as consumers do not have sufficient incentives to dispose the waste in a responsible manner. For example, most of the Multi-Layer Plastic (MLP) waste cannot be recycled as it is mixed with household waste and the cost of cleaning MLP waste makes the recycling unviable. Industrial waste is somewhat easier to collect, but the waste generators are nonetheless unwilling to pay for its disposal. To add to this, high end machinery for recycling is mostly imported, adding to the project cost of recycling ventures.

Some of the remedial measures that could be implemented for this could are:

  • Funding mass awareness programmes on waste segregation, waste disposal and capacity building of informal sector should be routed through waste management companies who have incentives for doing it effectively as they stand to gain from higher waste collection
  • Incentivise domestic machinery manufacturers to develop indigenous machinery for onsite waste segregation/processing

Financial incentives to achieve economies of scale

India’s recycling industry is dominated by a large number of micro enterprises with low processing capacities. For example, a majority of the 7500 (Report by FICCI, 2017) plus formal and informal plastic recyclers, have capacities lower than 10 tonnes per day, whereas globally new plants are being built with a capacity of more than 100 tonnes per day. Similarly, most of around 300 e-waste recycling companies dismantle e-waste manually and have not invested in modern facilities for recycling/refining the waste. The tyre recycling companies that have been dismantling cross ply tyres need to invest in technology to be able to process radial tyres.

NREP has proposed to set up a green fund to facilitate access to finance for technology and process improvement. A part of this fund could be exclusively reserved for financing value addition related to capex of circular economy companies. This fund could work on the lines of energy efficiency cluster financing program of the World Bank/SIDBI which provides financing for energy efficiency/pollution reduction measures to foundries.

Rationalising taxes in the entire value chain

NREP proposes rationalization of the tax regime to make secondary raw materials price-competitive. The taxes would need to be rationalised throughout the product value chain. For example, the GST rates on plastic scrap have already been reduced to 5%, but the products made out of the plastic waste such as plastic granules, roofing sheets, furniture, sacks etc. attract 18% GST, in line with the products made from virgin material. Further, since recyclers buy their raw material from scrap sellers, many of whom are not registered with GST, they are not able to claim input credit, and therefore their effective taxation is higher than that of manufacturers of products based on virgin products.

Further, NREP may also want to advocate the case of rationalisation of taxes/subsidies on the products that compete with the recycled products. For example, organic fertilsier (made from food waste) competes with chemical fertilsier such as Urea/DAP, which are heavily subsidised. Rationalisation of subsidies on chemical fertilsier will provide a boost to the organic fertiliser sector and make the operations of agri waste recycling companies profitable.

Monitoring the health of circular industry

The new policy lists resource productivity, domestic material consumption, extraction and output as indicators for measuring resource efficiency. It may be prudent to add circular industry health to the list of indicators, which could be measured in terms of growth in sales of formal sector enterprises, their employee strength and capital expenditure.

In summary, NREP with its proposed measures of life cycle management of resources, is a good step toward building the circular economy. However, the implementation approach needs to be different though, one that gives priority to the entrepreneurs /enterprises in the sector.

How can we help?

We are an advisory firm for small and medium enterprises in green industries. We can help you evaluate the viability of your proposed green venture and assist you in raising funds for growing your business. If you are looking to purchase or sell your business, we can help you identify the right buyer/seller and hand hold you throughout the transaction.If interested, please get in touch with us at We look forward to helping you negotiate your path to a successful SME business!

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Bio-CNG: Should you consider entering this business?

Though Biogas has been around for nearly three decades, it has been a small industry, dominated by family size plants used for providing cooking fuel and power. Prospects for Biogas plants are improving slowly but significantly, largely driven by the government policies that have allowed use of Bio-CNG (purified Biogas, also known as Compressed Bio Gas or CBG) in commercial vehicles and availability of subsidy for large scale plants. In September 2018, government of India (GOI) announced a policy on Sustainable Alternative Towards Affordable Transportation (SATAT), which proposes to set up 5,000 new Bio-CNG units across the country by 2025 and generate 15 million tonnes of Bio-CNG.

India is the third largest energy consumer in the world with fossil fuels accounting for over 90 per cent of the energy mix. Renewable fuels such as Bio-CNG present a huge opportunity as they not only reduce our dependence on imports but also offer a solution to tackle the growing amount of organic waste and pollution arising out of crop burning.

No wonder then that Bio-CNG industry is suddenly attracting several entrepreneurs, including existing Biogas facilities that are looking to upgrade to Bio-CNG. Profitability of Bio-CNG businesses depends on a host of factors including macro issues that influence demand for cleaner fuels and local elements such as availability of feedstock, capital requirements and ability of entrepreneurs to market their products. This article analyses four key factors that affect viability of Bio-CNG ventures.

1. Demand for cleaner fuels

Natural gas contributes to around 23% 1of primary energy mix (see Figure 1) in India, with a consumption of around 164 MMSCMD2 (equivalent to 45 million tonnes per annum), growing at around 4 per cent per annum. Power, Fertiliser and City Gas Distribution (CGD) are key consuming sectors (see Figure 2). Since the domestic production of gas has not increased significantly, consumption of imported gas (LNG) has been rising (see Figure 3).


Consumption of gas is constrained by the limited availability of infrastructure related to its supply and distribution. Gas distribution network pipelines are available only in 96 districts in Northern and Western parts of country. Similarly, there are only 1424 CNG dispensing stations, 82% of which are located in Maharashtra and Gujarat3. Petroleum and Natural Gas Regulatory Board (PNRB) is expanding City Gas Distribution (CGD) network significantly so as to cover 400 districts and set up additional 9000 CNG pumping stations. The CGD network will be used to supply Bio-CNG also, therefore boosting its demand.

2. Cost competitiveness of Bio-CNG vis-a-vis other fuels

For large scale adoption, Bio-CNG would need to be cost competitive with LNG, commercial LPG and fuel oil that are used by the transport and industrial sectors. As per SATAT, the introductory price (ex- factory) of Bio-CNG is likely to be Rs. 46/kg and retail price could be around Rs. 52-55 per kg ($14–$15 per MBTU).

The prices of LNG have been decreasing of late, and landed prices of LNG in the near term are expected to be around $ 13 per MBTU, thus translating into a price of Rs. 48 per kg. Over the long term, significant decrease in LNG prices, would put pressure on Bio-CNG prices also.

Note: landed prices of LNG have been calculated by adding $5 to the cost of contracted LNG, to account for cost of regasification and distribution

With regard to Bio-CNG’s cost competitiveness with industrial fuels such as LPG and fuel oil, according to CRISIL4 , at an average crude price of $64 per barrel, landed cost of fuel oil and LPG would be $12.1 per MMBtu and $16.9 per MMBtu respectively, as against Bio-CNG’s expected prices of $14-15 per MMBtu. Therefore any significant decline in crude prices from current levels could also put pressure on Bio-CNG prices.

The key question that needs to be analyzed is whether a Bio-CNG plant will be profitable at a price of Rs. 46 /kg (ex-plant). Important components of Bio-CNG cost include feedstock, power, and manpower and capital costs, with feedstock cost accounting up to 40% per cent. Therefore feedstock cost (including transport) and its biogas yield play a critical role in determining viability of Bio-CNG unit. For example, a feedstock such as cow dung has a poorer biogas yield vis-a-vis other sources, resulting in lower Biogas output and higher capital costs. However it may be available free of cost, thus reducing the operating cost and making the operations viable.

Table 1: Bio-CNG cost (Rs/Tonne)
Raw Material 16,931.22
Direct Labour 4,162.26
Power 5,333.33
Operating costs 29,580.35
Interest and depreciation 12,195.66
Total cost 41,776.01

An indicative cost structure for a press mud based BIO-CNG unit is provided in Table 1. It has been assumed that the capacity of the plant is 10 TPD of Bio-CNG and its capital cost is Rs. 34 crores, with a subsidy of Rs. 8 crores. The plant procures press mud at a price of Rs. 800 per tonne and press mud yields about 105 cubic meter of Bio gas per tonne.

As can be seen from the Table 2, the cost of Bio-CNG increases from Rs. 39,000 per tonne to Rs. 52,000 per tonne due to an increase in the feedstock cost from Rs. 600 per tonne to Rs. 1100 per tonne.


As such, to be competitive, the Bio-CNG unit must get feedstock almost free; therefore units with captive access to the feedstocks are more likely to succeed.

3. Capital cost

As a thumb rule, cost of a project that handles around 200 tonnes of waste per day (produces 10 tonnes of Bio-CNG per day) is likely to be around Rs. 30-35 crores. The fixed cost (interest and depreciation) contributes to as much as 30 per cent of the total cost of production and this can vary depending on the cost of land and machinery and timely receipt of subsidy, as described below.

  • Land cost: Around 4 acres of land is required to set up a plant that can handle 200 tonnes of waste per day. The cost can vary hugely depending on the location and whether the land is agricultural or industrial, land cost is typically funded by the entrepreneur.
  • Machinery and civil work: These together contribute to almost 70 % of the cost of a Bio-CNG plant. The machinery comprises biogas holder, scrubber, upgradation unit, plant automation equipment and piping/electricals and its cost can vary a lot across vendors depending on whether they are manufacturing it in house or procuring it from others. Civil work is typically executed through local contractors and its costs may not differ across vendors.
  • Timely receipt of regulatory approvals: A Bio-CNG unit requires a number of permissions including a license from Petroleum and Explosives Safety Organisation (PESO), fire safety certifications and a certification from MNRE (Ministry of New & Renewable Energy). Ability of the company to secure these licenses on time can minimize delays in commissioning of the plant and result in cost savings. Additionally, receipt of subsidy is also subject to project completion and commencement of commercial production and any delay in project commissioning would also delay the subsidy, therefore increasing the interest cost.

Since purity/quality and specifications to standards is of topmost priority for a Bio-CNG unit, quality of machinery/upgradation technology should not be compromised. Significant cost savings can be realised by working directly with OEMs who can provide both biogas fabrication and CBG upgradation technology, instead of engaging with contractors who would outsource critical plant components.

4. Market

While the offtake for Bio CNG from OMC is assured to an extent, it would be important to develop alternate set of customers such as industries/hotels, who can perhaps provide better pricing/payment terms and provide cushion when the demand from OMC declines. Also, the potential for sale of organic fertiliser would need to be assessed. Fertilisers/compost are typically sold through dealer network and require large sales force that can educate farmers on benefits of organic fertilisers. Alternatively, the option of bulk sale to fertiliser companies needs to be explored.

Our view

The need for cleaner fuels is evident given that by 2030, under the Paris Climate Change Agreement, India has committed to meeting 40% of its electricity con from renewable energy sources. While macro environment remains positive, the key risk to a Bio-CNG plant viability is lack of any linkage between the feedstock and final product price and lack of clarity on the price revision mechanism under SATAT. Since Bio-CNG would compete with fossil fuels, its pricing would depend on the price of CNG/LPG, whereas the price of its feedstock may move very differently. This is already the case with biogas based power plants/waste to energy plants that are not able to compete with decreasing tariffs of solar/wind power plants. Therefore, feedstock analysis, availability and long term agreements for purchase of feedstock are critical to the viability of Bio-CNG plants. Industries such as sugar mills, distilleries, and poultry farms that have captive access to feedstock would be most favourably disposed to take advantage of this opportunity.

How can we help?

We can help you assess viability of your proposed Bio-CNG venture and support you in raising capital for the same. If you are looking to purchase/sell an existing Biogas/waste management company, we can identify prospective buyer/ seller and support you throughout the transaction.

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