A number of producer responsibility organizations („PRO“) operate on the Slovak waste management market. Although it is a regulated market environment, relatively dynamic competitive and acquisition efforts to gain customers appear among individual PROs. From the market data point of view it seems that certain PROs even “race” in lowering the offered fees in order to acquire contracts with additional producers, especially in the sector of packaging and non-packaging products for the year 2022. Nevertheless, significantly decreased fees raise a question whether such fees can be compatible with the real costs that PROs shall expend for waste handling in compliance with the legal requirements, and whether they are compatible with the legal principle of non-discrimination.
This contribution turns the attention to the reasons why the efforts of PROs to reduce the fees in the individual cases of producers (e.g. offering of lower fees out of the price list range to certain selected producers) can be questionable also from the point of view of the Act No. 79/2015 Coll. on waste, as amended (“Waste Act”).
Fee reduction by PROs in the context of a possible breach of the non-discrimination principle.
Fee reduction by PROs in the context of a possible breach of the non-discrimination principle.
Pursuant to the Art. 28, par. 4 b) of the Waste Act the PRO is obliged to enter into a contract for the performance of reserved obligations with a producer under non-discriminatory conditions. Thus, the PRO, according to this provision, should enter into a contract with a producer under non-discriminatory basis; however, the Waste Act does not specify in more details how the particular PRO shall approach the contract with the producers in order to meet the condition of non-discrimination of individual producers.
Pursuant to the Art. 28, par. 4 ac) of the Waste Act the PRO is obliged to publish on its web site a model contract and uniform price list for the fulfillment of obligations as well as its modifications.
From the case law of the Constitutional Court of the Slovak Republic on the issue of discrimination, one can point out the interpretation according to which a discriminatory procedure should be considered one that addresses the same or analogous situations in a different way, whereas such a divergent approach cannot be reasonably justified by a legitimate aim and that that aim must be achieved by the solution chosen. [1]
The principle of non-discrimination generally implies a requirement to eliminate unjustified differences, whereas any decision introducing a difference in treatment should be based on objective and rational reasons. The prohibition of discrimination therefore precludes arbitrariness. [2]
The above provision of the Waste Act therefore implies that the Waste Act in principle does not allow PRO to conclude contracts on fulfillment of the reserved obligations with the manufacturers in a way when the prices for the fulfillment of reserved obligations for the same commodity will be different for different and comparable producers (e.g. PRO will offer to the new clients – producers lower fees in comparison with the existing contractual clients, or when compared to the valid PRO price list). We are referring to the cases where the main goal of offering a different (lower) rate is to acquire a new customer, whereas the reduction of the rate does not constitute logical steps of the PRO to ensure a functioning system of waste management and fulfillment of the PRO reserved obligations.
According to the Waste Act, a breach of the prohibition of discrimination constitutes an administrative offense of PRO, which can be sanctioned by a fine between EUR 1 200 and EUR 120 000. Despite the fact that setting the offered rates is a complex issue, we are convinced that the supervisory authorities cannot resign from their irreplaceable role as a guardian of the system of Extended Producer Responsibility. We in particular perceive unjustified setting of different rates as one of the negative elements, which in their consequences have a significant eroding effect on the entire system of Extended Producer Responsibility and in several cases is an act that is most likely to be in conflict with the Waste Act.
In this context, the question necessarily also arises whether, as a result of the agreement on an unreasonably low rate for the fulfillment of the reserved obligations of the PRO, liability for the administrative offense may also emerge on the part of the producer? This question is accented also by the fact that in case of unevenly contracted recycling fees by the same PRO several different “price categories” of producers are actually generated. It was the application of the legal principle of non-discrimination, linked to the obligation to bear the real costs of separate collection that was to prevent such non-systematic situations. Deviation of either of these two bearing elements of the Extended Producer Responsibility system leads to a disturbance of stability and a threat to the entire system.
Fee reduction from the producer's point of view
If a manufacturer of a reserved product agree upon a contract with PRO on fee (in the framework of fulfillment of the reserved obligations) which is lower when compared with the standard PRO price list and which does not correspond to the real costs expended for waste handling by the PRO itself, the producer may also commit a violation of the provisions of the Waste Act.
Producer bears all financial expenditures resulting from collection, transport, reuse preparation, recovery, recycling, processing and disposal of separately collected waste belonging to the reserved waste stream in the framework of his extended responsibility. [3] Thus, it is a basic obligation of the producer of reserved product to finance ongoing costs related to the collection, transport, reuse preparation, recovery, recycling, processing and disposal of separately collected component of municipal waste from the community.
Subsequently, manufacturer of reserved products who fulfills his reserved obligations collectively by means of a PRO is obliged to reimburse to this PRO the actual costs, after deducting the proceeds from the reimbursed handling of the reserved waste stream, resulting from collection, transport, reuse preparation, recovery, recycling, processing and disposal of separately collected waste belonging to the reserved waste stream from his products. [4]
It means that the fee from the client – manufacturer of a reserved product – for the PRO services should be calculated as a multiplication of the quantity of reserved product placed on the market by the particular producer over a certain time period and the fee for the particular commodity defined by the PRO price list – so called recycling fee. The amount of recycling fee should reflect the actual needs of financing of the separated collection of reserved waste streams in order to ensure the achievement of targets and limits required by the Waste Act. [5]
If the PRO agree individually upon a lower recycling fee with a producer, not only prohibition of discrimination may be violated by the PRO, moreover, a situation may arise when PRO is not able to finance the proper fulfillment of its legal obligations, especially the achievement of binding targets of separated waste collection.
However, if the OZV does not fulfill its obligations, the producer represented does not fulfill them either. The fee paid by the producer to the PRO is intended to take into account the actual costs incurred by the PRO in disposing of the reserved waste stream. Thus, if the PRO will “artificially” reduce the defined recycling fee, the producer will find himself in a situation where he can pay the PRO fees in an amount lower than the actual expenditure of the PRO for handling of the waste stream in question, i.e. an amount which is lower than the share of this producer on generation of the reserved waste stream. In this situation, the producer pays the PRO an amount that is lower than the actual costs of the PRO to ensure the management of this waste (that is, the fee agreed with the PRO is not sufficient to cover the treatment of the waste that the producer has placed on the market). At the end of this chain, the waste management system then lacks funds to be collected from the producer and to be used by PRO for covering reserved waste stream handling in order to achieve the obligations of the Waste Act. In practice, the amount of PRO costs depends on the prices agreed by this PRO with respective collection company. If PRO negotiates with the collection company too low prices in order to reach as low fees as possible, it is highly probable that such prices will not sufficiently cover the extent of collection company services to meet the legally defined parameters in the territory of respective municipalities (e.g. insufficient frequency of waste collection). Such situations also result in a failure to meet the targets set out by the Waste Act.
In the context of the above, it should be noted that if the producer agree with a PRO upon reduced fees which do not correspond to the actual PRO costs for ensuring the waste management in compliance with the Waste Act, and for meeting the binding targets and limits, the producer violates the above mentioned provisions of the Waste Act. This will also apply in the situation when the amount agreed between PRO and collection company (i.e. the amount from which the actual costs are derived) will not secure achievement of the minimal required extent of services from the side of the collection company.
Such conduct by the manufacturer may also be penalized by a fine between EUR 1 200 and EUR 120 000 (if it will be proved that the actual costs for waste management exceed the fee of the producer reimbursed to the PRO), or a fine between EUR 2 000 and EUR 250 000 (if the supervisory authority considers that the manufacturer has also breached the obligation to bear all the financial costs associated with collection, transport, reuse preparation, recovery, recycling, processing and disposal of separately collected waste belonging to the reserved waste stream).
What does this mean for producers and for PRO?
If the manufacturer of the reserved product decides to negotiate with PRO the amount of recycling fee outside the PRO price list in order to achieve a lower amount than the amount corresponding to the actual costs of the PRO for the management of the reserved waste stream of the producer, both, PRO and producer should be aware that their actions may violate the Waste Act. This statement will be valid with its consequences also in the above described situations, where the extent of the services agreed between PRO and collection company would not be sufficient for meeting the targets pursuant to the Waste Act.
It cannot be ruled out that the current practice of some PROs, which objectively raises doubts as to whether this is an artificial reduction in recycling fees, will result in arousal of raised interest in these issues from the side of supervisory authorities, who can inspect such PRO activities and judge also the potential responsibility of the producers for violation of their legal obligations.
Therefore, if the manufacturer finds himself in a situation when a PRO offers him surprisingly low fees in comparison with the market standard, he should be more vigilant and realize that by accepting a disproportionately low fee rate, he runs the risk of infringing the legislation for which he may be penalized.
In the context of these legal relationships, it is difficult to assess the distribution of liability between the PRO and the producers. If the PRO strictly complied with the Waste Act, producers would, in principle, be guaranteed by concluding a contract for the fulfillment of reserved obligations that the legal obligations of producers would also be fully met. However, if PRO offers rates that do not even correspond to the real costs, or if PRO unjustifiably offers different rates for different manufacturers, such action may at the end of the day be considered as breach of the Waste Act on the side of both, the PRO and the producer. If such illicit practices also exceed a certain critical measure, the Extended Producer Responsibility system can face a loss of funds which may really jeopardize its existence and sustainability. Therefore also the supervisory authorities should very sensitively perceive such practices and communicate and explain more consistently the necessity of compliance with the basic legal rules. If, despite such preventive efforts, violations of the Waste Act continue, more active inference of responsibility by the supervisory authorities will remain the only possibility for sustaining of the current system – towards both, PROs and producers.
TaylorWessing e/n/w/c lawyers s. r. o.
JUDr. Ján Lazur, LL.M., partner / JUDr. Zoltán Nagy, lawyer
[1] See, by analogy, the SR Constitutional Court's ruling, file reference PL. ÚS 21/2000.
[2] See, by analogy, the SR Constitutional Court's ruling, file reference PL. ÚS 3/08-68.
[3] Pursuant to the Art. 27, par.5 of the Waste Act, except of cases when such obligations are fulfilled by a person according to the Art. 37, par. 3, Art. 48, par. 3, Art. 56, par. 8, Art. 71, par. 2 and Art. 73, par. 9 of the Waste Act.
[4] Art.27 par. 12 a) of the Waste Act.
[5] See for example the obligation of a producer pursuant to the Art. 27 par. 4 e)
