Waste : A Messy and Costly Business

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Waste A Messy and Costly Business !

• CIPFA Seminar Chester Racecourse
• Friday 7th April 2006

2
Aim of the Presentation

• Outline the current financial issues facing
  Waste Management services
• Explain the approach being adopted by Cheshire
  County Council

3
Structure of Presentation

• Introduction and Quiz.
• Financial Drivers.
• Aims/Objectives of Cheshire project.
• Identification of the reference project.
• Financial and Other considerations.
• Progress to date.
• Next steps.

4
Introduction

• In two tier areas Counties are Disposal
  Authorities (WDAs) and Districts are Collection
  Authorities (WCAs).
• Mixture of delivery arrangements In House /
  Externalised, contracted out services.
• Majority of Waste currently sent to landfill.

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Introduction

• Waste Hierarchy

Waste reduction
Reuse
Recycling Composting
Energy recovery with heat power
Energy Recovery
Landfill with energy recovery
Landfill
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Introduction Waste Acronyms

• BMW , HWRC , MBT , RDF , IVC , EFW
• Anyone prepared to guess all six ?

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Introduction Waste Acronyms

• BMW , HWRC , MBT , RDF , IVC , EFW
• BMW - Biodegradable Municipal Waste
• HWRC - Household Waste Recycling Centres
• MBT - Mechanical Biological Treatment
• RDF - Refuse Derived Fuel
• IVC - In - Vessel Composting
• EFW - Energy From Waste (Incinerator)

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Introduction - Recycling Quiz

• Paper / cardboard
• Plastics / cans
• Glass / batteries
• Bag for Life / Reuse Plastic Bags
• Last Nights Leftovers !
• Reusable Nappies !
• NIMBYs ?

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Financial Drivers Rising Landfill Costs

• Landfill Costs exceed 20 per tonne and rising by
  more than RPI each year. (for CCC this equates to
  approx. 11.5m p.a.)
• Landfill Tax currently rising by 3 per tonne per
  year, from 15 in 2004 to 35 in 2012
• Landfill Tax in 2006/07 is 21 per tonne, which
  equates for CCC to a year on year increase of
  1.3m. (now over 8m p.a.)

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Financial Drivers Landfill Allowance Trading
Scheme (LATS)

• LATS implemented under WET Act 2003 setting
  targets for each Authority for each year.
• By 2010 to reduce BMW sent to landfill to 75 of
  that produced in 1995.
• By 2013 to reduce BMW sent to landfill to 50 of
  that produced in 1995.
• By 2020 to reduce BMW sent to landfill to 35 of
  that produced in 1995.
• Penalties for exceeding the targets are currently
  set at 150 per tonne.

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Financial Drivers LATS Estimates
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Financial Drivers LATS

• LATS trading strategy
• Buy or sell permits ?
• Carry forward permits
• Target years
• Accounting treatment
• LATS trading officer

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Aims/Objectives Cheshire Waste Partnership -
Agreed Strategy 2002

• Encourage the reduction of waste.
• Maximise recycling and composting.
• Review the need for EFW in 2004.
• Working better together.

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Aims/Objectives Public Consultation 2004The
Preferred Approach

• Declining waste growth.
• Improved kerbside HWRCs recycling to achieve
  overall recycling rate of 46 (now 50 !!!).
• A MBT facility (ies) to increase recyclate and
  produce a RDF.
• Use of RDF in existing thermal treatment and
  power facilities where possible.
• An EFW plant.
• Landfilling of the residual waste.

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Identification of the Reference Project

• Long list of options. (all possible options)
• Short list (4 options fully worked up, costed
  out etc)
• 1 Do nothing benchmark
• 2 High Recycling, residual to MBT, producing a
  RDF - RDF goes to market
• 3 High Recycling, residual to MBT, producing a
  RDF - RDF goes to EFW plant
• 4 High Recycling, residual to EFW (minimise
  landfill)

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Financial Considerations

• Which method of procurement ?
• Prudential Borrowing
• Public Private Partnership (PPP)
• Private Finance Initiative (PFI)
• If PFI then key tests-
• Value for money.
• FRS 5. (Off Balance Sheet)
• Affordability.

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Financial Considerations High Level Costs
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Financial Considerations Affordability

• Credits limited to 40m per project. (NPV)
• Year 1 impact 3.6m above projected budgets
  approx. 14 or 1.5 on Council Tax)
• Highest impact is 36m above projected budgets
• Average impact of 19m per annum (over 70 p.a.
  on Council Tax)
• Other costs procurement budget, reimbursement
  of additional districts costs
• Projected budgets take account on above RPI
  inflationary increases and Landfill Tax

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Other Considerations

• Risks obtaining planning permission, unproven
  technology etc.
• Timescale existing contracts expire early 2008.
  (Procurement 2.5 years, Construction 3-5 years)
• Deliverability MBT less controversial.
• Competition / Market Capacity limited number of
  large players.
• Integration / interface issues.
• Political Approval elections, changes through
  procurement period.

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Progress To Date

• Expression of Interest submitted in May 2005.
• Outline Business Case (OBC) submitted July 2005.
• Partnership still strong (except one!).
• External Advisors appointed (OBC to Close)
  October 2005
• OBC considered by Government in early part of
  2006 currently awaiting formal decision
• Waste Local Plan (WLP) progressing towards
  adoption
• Sites identified in WLP

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Progress To Date (cont)

• Offers made /detailed negotiations underway on a
  couple of sites.
• Waste minimisation initiatives being rolled out.
• Increased kerb side recycling.
• Kitchen Waste pilot study being undertaken.
• Trade Waste being investigated.

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Next Steps

• Prepare to go to market (OJEU competitive
  dialogue procedure) - prepare initial
  documentation for procurement process.
• SECURE potential sites.
• Agree Service Level Agreement with Districts
  (Collection Authorities) performance, costs
  etc.
• Packaging of current contracts commence work
  asap on contracts required from 1st March 2008
• Lobby central government for greater financial
  assistance in this sector e.g. more PFI credits
• Work up Plan B - just in case !

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Conclusion

• A rock - Do nothing is not an option. (costs /
  availability of landfill, level of recycling etc)
• A hard place - Do something is very expensive
  balance of funding to be found locally, therefore
  dont underestimate impact on Council Tax.
• Probably the most complex project in the
• history of Cheshire County Council.

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Questions ?

• Patrick Rhoden
• PFI Major Projects
• Corporate Finance
• April 2006