Chemical leasing promises cleaner profits

Chemical leasing turns incentives in the chemical industry upside down. Manufacturers make their money by selling as little of their environmentally harmful chemicals as possible. An hour's drive south of Belgrade, the Knjaz Milos factory bottles beverages, but not the way it used to. For one thing, the Serbian company is using a new, dry lubricant on its conveyor belts that doesn't have to be changed as frequently, saving the company money and the environment an added burden. But that's not the main difference. The real change is how Knjaz Milos came by the lubricant. Instead of buying it outright, the factory pays its producer, Ecolab, for the amount of time the conveyor belt runs smoothly every day. That means Ecolab's profit is directly linked to how little of the lubricant is used and it motivates the chemical supplier to train Knjaz Milos employees to use it sparingly. Knjaz Milos and Ecolab, an American company that provides cleaning services to industrial clients, are trialing a model called chemical leasing. It aspires to turn the traditional chemical industry on its head. Increased profits Instead of companies selling as much of their product as they can to their customers, they make money by delivering the services that their chemicals provide. It is being touted as a business model for the chemical industry that's good for both the bottom line and the environment. Ecolab's Srdjan Jocic said switching to chemical leasing increased the company's profits 10 percent. Working toward a common goal has also strengthened the trust between the two companies. Ecolab used to be only one of many lubricant vendors to supply the bottling company. "Now we're the exclusive supplier," Jocic said. Knjaz Milo is also paying less in the long run. In 2009 it cost 10,000 euros ($12,700) in lubricant and water to run the filling line for 5,000 hours. Now that cost is only 6,750 euros. A change in thinking The first chemical leasing projects were initiated by the United Nations Industrial Development Organization (UNIDO) in 2005. Today, UNIDO is seeing success with its projects around the world. Since 2008, the American company Nalco, now a subsidiary of Ecolab, has had a chemical leasing arrangement with the energy company Ecopetrol in Colombia to extract leftover oil from wastewater. Instead of paying for the chemicals used, Ecopetrol pays for the amount of salvaged wastewater. Here the environment and the bottom line are also benefitting: Nalco uses fewer chemicals to clean the wastewater and delivers the service cheaper than Ecopetrol was able to do itself. Less wastewater is produced and cleaning costs have been cut by nearly 20 percent, leading to savings of about 2.4 million euros. Despite the advantages, UNIDO's global coordinator Petra Schwager says the new model requires a major change in thinking. "You try convincing a chemical supplier or sales director that profit doesn't depend on more volume, but less," she says.