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ITEM CA11
CABINET
– 19 SEPTEMBER 2006
PROCUREMENT
OF WASTE TREATMENT FACILITIES
Report by Director for Environment & Economy
Introduction
On 3 November 2004 the Executive resolved that preparations should be
made for the procurement of waste treatment facilities on a technology
neutral basis to meet European Union Landfill Directive requirements.
Since then the Waste Treatment Board has been established and has been
steering preparation work for procurement in the context of the Oxfordshire
Waste Partnership (OWP) waste strategy review. The purpose of this report
is to present the business case for the procurement of waste treatment
facilities and to seek approval from the Cabinet to begin the procurement
process. An executive summary of the outline business case (OBC) is attached
at Annex 1 (download as. doc file)
to this report. This report highlights the key points and issues.
The OBC has been approved by the Waste Treatment Board and is fully consistent
with the policies in the OWP’s newly agreed strategy, which is being submitted
to this Cabinet meeting for approval at item CA10.
Background
In 2005/06 the Council as Waste Disposal Authority disposed of just under
200,000 tonnes of waste to landfill through four separate landfill contracts
at four different sites in Oxfordshire. This equates to about 66% of total
municipal waste arising for Oxfordshire. Three of the existing contracts
for landfill expire in 2009.
The EU Landfill Directive and Waste and Emissions Trading Act 2003, effectively
caps the amount of biodegradable municipal waste (BMW) that Oxfordshire
will be allowed to landfill in the future. Under the Landfill Allowance
Trading Scheme (LATS) the County Council must either reduce the amount
it landfills every year, face being penalised financially if it fails
to meet these targets, or purchase allowances from another authority (if
they are available) in order to landfill more waste than would normally
be allowed. Financial penalties will be £150 for each tonne of biodegradable
municipal waste landfilled above the agreed landfill allowance in the
target years of 2009/10, 2012/13 and 2019/20, plus potentially a share
of any additional fine levied nationally by the EU. The cost of purchasing
allowances in the future is currently unknown, but is likely to approach
that of paying fines in the target year.
Currently 33% of municipal waste is recycled and composted. There is scope
to improve on this, and the Oxfordshire Waste Partnership has set targets
to increase recycling and composting rates to 40% by 2009-10 and at least
55% by 2019/20. However, work by consultants for the Oxfordshire Waste
Partnership indicates that, even with recycling rates increasing to match
the best elsewhere in Europe, there will still be a need to deal with
a significant quantity of residual waste. To reduce reliance on landfill
alternative waste treatment technologies need to be obtained through a
contract procurement process.
In 2005, the Environment Scrutiny Committee undertook a review of energy
from waste to evaluate the potential of waste treatment options involving
energy recovery to provide solutions for treating Oxfordshire’s waste.
The report "Waste not Want not", recommended consideration of
combined heat and power as the most environmentally and economically sustainable
option for future treatment of Oxfordshire’s waste. The report also recommended
that public engagement and partnership working should be fostered, and
that the experience of other local authorities in similar positions should
be considered. The Cabinet welcomed the report but resolved that whilst
energy from waste should be considered as an option, it should not be
the only option and that the Council should maintain its technology neutral
stance.
Preparation of the OBC has been on the basis of the technology neutral
view taken by the Council in 2004. The work has been undertaken by a Project
Team comprising officers with knowledge of waste management, procurement
and finance, and a dedicated Project Manager. The options appraisal and
development of the business case has been supported by technical consultants
Enviros and financial consultants Deloitte.
The Outline Business
Case
The purpose of the OBC is to establish the need for the project, that
it complies with relevant policies, is affordable and value for money,
and is deliverable. It aims to establish the need for alternative ways
of treating waste to landfill disposal, and sets out the nature and results
of an appraisal of the options for future waste treatment. The OBC then
compares the likely cost of these options with the Council’s current budget
to assess their affordability.
The OBC has been prepared at the same time as the review of the Oxfordshire
Joint Municipal Waste Management Strategy by the OWP. The strategy has
the objective of managing waste in accordance with the waste hierarchy.
Policy 9 is particularly relevant to waste treatment and states that "the
Oxfordshire Waste Partnership will provide a system for recovering value
from residual wastes in order to meet LATS targets". The strategy
also explains that whatever technology for treatment is chosen it must
be safe for the environment and human health, recover value from waste,
and not be a substitute for reuse, recycling and composting. Preparation
of the OBC has been fully aligned with these principles.
The OBC is based on a great number of assumptions, some of which have
a high degree of uncertainty, such as the future rate of waste growth,
the value of LATS, and the cost of waste treatment facilities. Overall
the assumptions made are reasonable, but the reality may differ and will
not be known until later in the tendering process or in some cases for
some years. The waste reduction and recycling and composting targets in
the waste strategy are more ambitious than the initial assumptions made,
and their impact has now been assessed as part of the OBC. The OBC will
need to be revisited as information becomes available to ensure the project
remains robust, but at the present time the sensitivities tested, including
the waste strategy targets, do not change the recommendation to proceed.
The key points in the OBC are as follows:
The Options Appraisal
This has been carried out on a technology neutral basis and compares the
performance of doing nothing (moderate recycling and composting rate of
40% with continuing landfill) with a number of treatment options – Advanced
Thermal Treatment (ATT), Energy from Waste (EfW) and Mechanical Biological
Treatment (MBT). A brief explanation of these technologies is attached
at Annex 2 (download as .doc file)
The same evaluation criteria have been used as for the review of the waste
strategy, although cost has been given more weight for this project to
reflect how bids are most likely to be evaluated. The evaluation criteria
take into account the potential deliverability of the technology options,
including whether they are proven, and the planning risks. For example,
use of ATT (gasification or pyrolysis) is not proven in this country for
treatment of mixed waste and therefore has operational and bankability
concerns. The planning risks of EfW are potentially greater than for other
options. Opportunities and benefits have also been taken into account,
including revenue from electricity generated from ATT and EfW and markets
for other outputs. However, the markets for some outputs such as refuse
derived fuel (RDF) produced from MBT are known to be uncertain.
A waste flow model has been used to compare forecast waste arisings to
Oxfordshire’s LATS allowances. This shows that to meet LATS allowances
around 155,000 tonnes of BMW need to be diverted from landfill by 2012/13,
202,000 tonnes by 2019/20, and potentially 246,000 tonnes by 2035/36.
The do nothing option will not divert sufficient waste from landfill to
meet LATS.
Due to the lead times involved, none of the treatment options considered
will enable LATS requirements to be met before 2011/12. Therefore ways
of mitigating the impact of LATS will need to be developed in the short
term, such as developing a LATS trading strategy, procurement of in-vessel
composting facilities, and possibly securing short term treatment capacity
out of county.
In the longer term implementation of the Joint Municipal Waste Management
Strategy provides an important opportunity to reduce waste growth and
increase recycling and composting. However, achieving the higher targets
in the strategy will not remove the need for waste treatment, but it would
reduce the amount of treatment capacity required.
Overall ATT options perform best against the evaluation criteria used,
followed by EfW options, and then doing nothing. MBT options perform less
well against the criteria. From a cost point of view, ATT and EfW options
also perform better in the appraisal than doing nothing. For ATT this
is mainly because of the higher potential income from energy generation
(because it qualifies as renewable energy), and it produces less hazardous
waste. However, as referred to above there are concerns about deliverability
of this technology. ATT and EfW also perform better in terms of BMW diversion.
MBT also meets diversion requirements, albeit at higher cost.
The options appraisal demonstrates that a business case can be made for
ATT and EfW compared to doing nothing, although not for MBT in the generic
form in which it has been modelled. However, all technologies have different
potential benefits and risks, and their true costs will not be known until
bids are made. There are a wide range of MBT variations that could provide
a viable solution. Therefore, options based on all technology types have
been taken forward as reference projects in the affordability assessment.
Affordability
The affordability section compares the budget available within the Medium
Term Financial Plan with the reference model costs and the costs associated
with doing nothing other than increasing recycling and composting rates
to 40%. A range of potential costs are shown to reflect the cost of the
different technologies to the Council.
The assessment shows that the cost of doing nothing is affordable up to
2009/10. It is not until the cost of LATS fines and/or the costs of treatment
through a technology solution are realised as a result of further reductions
in the LATS allowances that a substantial gap in affordability emerges.
This affordability gap is greater for "do nothing" than for
ATT or EfW, so cannot be avoided by inaction.
Over the 30 year life of the project doing nothing but increasing recycling
and composting rates to 40% will, on average, cost £12.3m per year
– the annual equivalent affordability gap. Proceeding with a technology
based solution, the equivalent affordability gap will range from £5.8m
to £17.6m. Sensitivity analysis has been undertaken and does not
change the principle illustrated above. While the recent agreement by
the OWP of targets to increase recycling to 55% by 2019/20 and to reduce
waste growth to 0% per person by 2012 could have a sizeable impact in
reducing the affordability gap, it will by no means remove it.
Funding Route
The Waste Treatment Board has considered the advantages and disadvantages
of alternative funding routes and concluded that, on balance, it would
not be of benefit to the Council to pursue Private Finance Initiative
(PFI) credits for this project. Briefly, PFI would involve a longer timescale
and higher procurement costs, and there is a risk that the Council would
not be successful due to the Government’s criteria and competition from
other local authorities for a limited fund. The amount of credits would
only cover a proportion of the capital investment required, and the soft
market test has suggested that PFI is unattractive to industry. Therefore
the Waste Treatment Board has recommended a PPP (public private partnership)
based on a Design, Build, Finance, Operate (DBFO) contract is the recommended
approach. The Council would pay for this through a unit charge (gate fee).
Procurement Strategy and Risk Management
The approach to procurement is summarised in the OBC executive summary
and it has been informed by a soft market testing exercise to seek the
views of the industry on issues such as funding route, technology solutions
and contractual issues. EU and Government procurement regulations will
be followed, beginning with the advertisement of a notice in the Official
Journal of the European Union (OJEU). The tendering and negotiation process
using Competitive Dialogue is then expected to take about two years, with
gaining planning and licensing consents, design and construction a further
four years. Assuming the procurement process starts in the autumn 2006
the earliest new facilities are expected to be operational is in 2012.
There are significant risks and uncertainties involved in procuring major
waste treatment facilities. These must be managed and taken into account
in contract negotiations with bidders. A risk register for the project
has been drawn up and this will be regularly reviewed as the project progresses.
The degree to which responsibility for risks are accepted by the Council
or the contractor, or are shared (risk allocation) is to be developed
and will have implications for the cost of treatment.
A significant risk of current concern is failure to attract sufficient
market interest to ensure effective competition that results in the best
price for the Council. The soft market testing exercise has confirmed
that the market place is interested in bidding for this contract. However,
the availability of suitable sites for waste treatment facilities and
how the associated planning risks are managed will be a major factor influencing
companies’ decision whether to bid.
The identification of sites will be through preparation of the Minerals
and Waste Development Framework (MWDF) which will include a Waste Sites
and Proposals Document. The timetable for this does not sit particularly
well with the procurement timetable and there are concerns that any delay
in the MWDF could delay when waste treatment facilities gain planning
consent and are constructed. Ways of reducing the risk of delay and achieving
a closer alignment of the projects are being investigated.
Preferred site options are due to be published for consultation in May
2007, and the waste sites document is expected to be adopted in summer
2009. The Waste Treatment Board has carefully considered whether the Council
should acquire a site for waste treatment. Based on the fact that sites
will be identified in the MWDF, the procurement strategy proposes that
bidders may provide their own sites or the Council will seek to deliver
a site identified in the MWDF. This is not a commitment to acquiring a
site but leaves this open to consider if and when it becomes appropriate.
Other Waste Management Facilities
The scope of the
OBC only covers the main waste treatment capacity that will be needed.
However, supporting infrastructure and other types of waste management
facilities will also be needed. These include additional waste recycling
centres, materials recovery facilities, waste transfer/bulking stations,
and windrow or in-vessel composting. Some of these are dependent on the
decisions to be made by the District Councils on the nature of their future
waste collection services. There will also be a continuing need for some
landfill capacity. The intention is to tender for these facilities at
the same time as the main treatment contract to enable companies to bid
for all or some of the different elements if they wish.
Public Consultation
and Engagement
Consultation on the future of waste management and treatment has taken
place over the last two years. From July to October 2004 the County Council
ran a programme of public debates on waste treatment to raise awareness
of the need for change and promote debate. A wide range of views were
expressed, but no particular technology preference was expressed overall
and both the positive and negative aspects of energy from waste were expressed.
In June 2006 the OWP launched a countywide public engagement exercise
"No time to waste" to raise awareness of and generate debate
on the waste management issues facing Oxfordshire. The responses, 891
in total, have been taken into account by the OWP in finalising the waste
strategy. Of these, 377 pre-printed Friends of the Earth responses were
received that supported the use of MBT with anaerobic digestion and in-vessel
composting, and not wishing any kind of incineration to be used. Of the
other responses, 53 responses were against incineration, 43 in favour
of MBT, and 24 in favour of incineration. The greatest number of responses
(over 500) called for reduced packaging by manufacturers and retailers,
and increased opportunities for recycling (226).
Conclusions
The options appraisal and affordability assessment demonstrate that substantial
diversion from landfill will be needed in the future to meet LATS allowances.
Implementation of the waste minimisation and recycling policies in the
new waste strategy will make a significant contribution towards this,
but will not remove the need for waste treatment capacity. The costs of
treatment could be significantly less than doing nothing, and the risks
of not proceeding with procurement are high in terms of future LATS and
waste disposal costs. Therefore the recommendation is to begin the procurement
of waste treatment facilities based on the procurement strategy outlined
in the report and in more detail in the OBC. The true costs of waste treatment
will not be known until the tendering stage of the process. However, the
business case will be revisited to ensure that justification for proceeding
remains robust.
Next Steps
Subject to the Cabinet’s agreement, the next step will be preparation
for the OJEU notice advertisement at the end of October. The prequalification
process to select bidders is expected to be completed early in 2007. The
competitive dialogue process is likely to continue until spring 2008.
Following a final tendering process and selection of the preferred bidder
in summer 2008, a contract could be finalised in autumn 2008.
Financial and Staff
Implications
The main financial implications are discussed in the report. In addition,
a budget has been included the medium term financial plan to meet the
costs of procurement of £200,000 per year. The level of staff resources
available to work on this project will need to be kept under review as
the project progresses. Due to the scale and complexity of the procurement
process and the contract to be negotiated, the work will be supported
by external legal, financial and technical advisors. The cost of these
will be met from the budget for procurement.
RECOMMENDATION
The Cabinet is RECOMMENDED on the basis of the outline business case
to:
(a) endorse
the need to procure waste treatment facilities to help meet Oxfordshire’s
targets under European and Government legislation for reducing the amount
of biodegradable waste that is landfilled;
(b) agree the
advertisement of an OJEU notice to formally begin the procurement process
as soon as the relevant documentation can be prepared;
(c) authorise
the Director for Environment and Economy, following consultation with
the Cabinet Member for Sustainable Development to take into account
comments of the Environment and Economy Scrutiny Committee in preparing
for procurement; and
(d) authorise
the Director for Environment and Economy to approve the necessary procurement
documentation following consultation with the Cabinet member for Sustainable
Development.
RICHARD DUDDING
Director for Environment & Economy
Background Papers:
"No Time To Waste"
Contact Officers:
Andrew Pau, Head of Waste Management tel: (01865) 815867
Frankie Upton, Waste Project Manager tel: (01865) 815824
September 2006
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