Relaxed regulations on medical waste disposal in South Korea may slow the industry’s growth, which would have a negative effect on the investment performance of some private equity firms that increased their exposure to the sector.

The Educational Environment Protection Act has recently been amended to include sterilization and the crushing of medical wastes in an exemption list of facilities that are prohibited from educational environment protection zones. This revision has allowed large university hospitals to build and operate such facilities in their buildings.

University hospitals previously had to hire medical waste companies to dispose of their waste despite high costs, because most are in the protection zones regulated by the act.

The medical waste market in South Korea has more than doubled since 2010, with the volume of waste increasing from 115,000 tons per year to 219,000 tons. However, there are only 13 facilities nationwide that treat and incinerate medical waste.

A growing imbalance between demand and supply has pushed up waste disposal costs. According to National Assembly Research Service data, medical waste disposal costs jumped 44.7% to over 1 million won ($900) per ton in 2019 from 694,000 won in 2010.

The fast-growing industry of waste management has attracted strong interest from private equity investors. Notable deals in the sector this year include KKR’s 875 billion won ($788 million) acquisition of Eco Green Holdings from Anchor Equity Partners.

In relaxing regulations, the government is apparently responding to complaints about high costs for medical waste disposal, industry watchers said. Last year, the Ministry of Environment amended the Wastes Control Act to remove diaper waste discharged by hospitals from the category of medical waste.

“The medical waste industry has high barriers to entry,” said an industry insider. “The trends of relaxing laws on medical waste could hinder the growth of the industry.” (Reporting by Se-hun Jo)