Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



Mr Martlew

  100. When we talked to the Commission they said that what you have just said is wrong, that is not how they interpreted it at all. The reality is "if practical" was put in and the argument was around what was practical and the Government said it is not practical because we cannot do it at the present time and the Commission was saying that if it technically was not possible, it was not practical. It was not something else. They were saying because it is practicable, if you have the facilities then it should be implemented. That was the debate and the argument that went on, not the point that you have made, because we talked to people from the Commission.
  (Mr Bellingham) If I can tackle that one. If the word "practicable" in item 3 applied to the two above, the test is one of "is it practicable"? "Practicable" is quite different to "practical". "Practicable" would mean can it be done anywhere and, yes, the Germans were already doing it. In our sense, no matter how you read that paragraph, the balance of probabilities was that it applied to our products.

  101. That was not what you said earlier. You are starting to backtrack on the logic and coming down on the side of the Commission.
  (Ms Smith) We were not present at the meetings between the Government and the Commission so it is difficult for us to know exactly the nature of that argument. At the end of the day we were waiting on government advice and we had reports back from DEFRA officials from time to time and meetings with DEFRA officials, but as to the nature of phrases they were arguing about, we were not there.

  102. That did not seem to be the evidence you were giving.
  (Ms Smith) Our interpretation was "if practicable" meant "if achievable" and it is achieveable in other parts of Europe so we assumed the regulation meant—

  103. That was the argument. The other argument was that we could not do it in this country because we have not got equipment. Run me through the export of fridges.
  (Ms Smith) If I can run you through what basically happened when we used to take old fridges back. As the LGA said, we used to deliver fridges and did more or less a one for one swap. When we took them back our fridges were either delivered from our local distribution centres or in some cases direct from manufacturers who supply direct. We have 18 local distribution centres. Each of them covers eight to a dozen local authorities because there are a lot of different local authority regions. We would deliver the fridge and bring the old fridge back to our distribution centre. There are clear regulations about how those fridges are stored. They have to be lined up neatly and so on and so forth. Retailers are only allowed to hold fridges for a maximum of 28 days through an exemption on the Waste Regulations to do so. We could not hold them for longer than that. What happened is we had contracts with recyclers and refurbishers around the country, a dozen of them covering our 18 distribution centres, and they would collect from us on a daily basis because our LDCs had lorries going in and out all the time to deliver new goods and we did not have storage space for a lot of kit, never mind the authority to do so. So they would take stuff from us. They would then sort it and some of it was taken out of the waste stream because it was refurbishable for UK use and it was sold at low cost through local shops and their own plants, 40 quid, whatever it is. Some of it in fact we also took out because we run two refurbishment sites of our own. We sponsor New Deal places for training for the long-term unemployed in white goods refurbishment and those were also sold at low cost. That takes out a small proportion, something like 20 per cent of the overall total[2]. Then something like 70 per cent were until a year ago sent for export largely to Africa and largely used for hospitals, schools, small commercial units, and indeed domestic units.

  104. Were these exported with CFC gases in them?
  (Ms Smith) No, what happened was that our contractors extracted CFCs in cylinders and then when you get to the other end you put in R134, which is an alternative to CFC. They were reinjected at the other end with a CFC substitute.

  105. You would have been happy if it had just been the gases?
  (Ms Smith) That would have enabled that part of the market to continue, yes.

Patrick Hall

  106. Just to be clear, why have you stopped taking fridges back?
  (Ms Smith) Because those contractors have facilities to extract CFCs from the compressor units and they produce certificates to verify the fact that they have done that and so on. They received notification that that was not sufficient and they could neither export with CFC foam in it nor dispose of it with CFC foam in it. They therefore had to have the means to remove the foam and they could not do that, and a number of them gave us notice that they could not collect from us any longer—and some of them exited the business straight away—so we no longer had any route to dispose of the fridges that we collected from our consumers and we faced the prospect of suddenly having hundreds of thousands of fridges dotted arround our local distribution centres that we simply could not collect. Even had we collected them, it would have been illegal for us to hold on to them for more than 28 days so we really had no alternative.

  107. As responsible retailers contracted with customers and potential customers that you would take back, given the difficulties that you were facing and still wanting to be responsible retailers, etcetera, etcetera, did you explore ways of continuing to offer that service from the customers' point of view and did you seek ways of, given the circumstances, maybe getting some waiver on the licensing restrictions? Did you try to do that with the Government in order that you meet your environmental obligations and uphold your standards to customers?
  (Ms Smith) We wrote a number of letters to Ministers basically seeking a way out of this problem. We wrote to Nick Raynsford about the fact that we thought this would be a problem for local government and we also tried to see the Local Government Association. We saw Brian Briscoe in September 2001. We saw a number of local authority leaders to discuss with them what the consequences would be. We explored the prospect of whether or not they could accept refrigerators from us at their local authority sites but their local authority sites are mainly licensed for domestic waste, not commercial waste, and while it is in your kitchen it is domestic waste but if I put it on to my van and take it to the site for you it suddenly becomes commercial waste, therefore they could not accept it from us. We did try to find ways around that but short of breaking the law we were really in a very difficult position.

  108. Do Dixons operate in other EU countries?
  (Ms Smith) Yes, we do.

  109. What were your overseas EU located operations doing about the same issue getting information from Member State governments or, indeed, the Commission which was obviously different from what you were getting at head office in Britain?
  (Ms Smith) Although we operate in other countries, in most cases we do not sell white goods in other countries, we sell PCs in Spain and France. The only countries in which we operate where this takes effect are the Scandinavian countries and Sweden does have facilities for disposal but the route to that disposal in most cases is managed by the local authority. In Sweden it is a much smaller country obviously, although there are not current statistics, something like just short of 300,000 units were collected and treated in 1996 and they believe the annual number is similar now. Appliances are sent for materials recycling after CFC extraction. They have three to four companies carrying out the actual CFC extraction and that is managed through the local authority route.

  110. The foam issue, which was not a surprise to you here because you raised it two years ago I think you said earlier on, was certainly not a surprise to your Swedish operations that do sell fridges, although you said you do not sell too many fridges direct from your overseas operation. Surely they were able to confirm that the disposal of the insulating foam was most certainly going to be a requirement and it was also good practice already being carried out. Despite attempts to contact the Government here and get clarification, did you not already know that this was firmly on the cards?
  (Ms Smith) We have only gone into overseas operations quite recently and we only bought the Swedish company at the end of 1999

  111. It is the same time frame.
  (Ms Smith) It is, but I have to admit it was not the first thing we talked about when we bought the new company.

  112. We might let you off.
  (Ms Smith) Hindsight is a marvellous thing but it was not our first discussion. The truth is in Sweden they did have the infrastructure but it mainly operated via the local authority route. To be truthful, the problem was invisible because it was solved so it was not the first thing that came up. We did ask for information once we were alerted to the problem over here but it was at the end of 2001 that we were alerted to the problem over here and in Sweden the problem was already being dealt with but by a completely different infrastructure.


  113. Can I move us on to the question you touched on, the take-back scheme. Just for my information, was it self-funded because whilst, you are quite right, you put the old refrigerator or freezer on to your vehicle there would have been a bit of a cost there, but the vehicle goes back to the depot and there is not a cost and then subsequently it has got to be taken away by third parties? How was the finance of that operated? Did the take-back scheme cost Dixons any money?
  (Mr Bellingham) If you look at it over the time frame from when we introduced the take-back scheme some years ago there was a value in recovered steel and we did not just take back fridges, we took back cookers, washing machines and all of those rather heavy, large domestic appliances which are a nuisance for householders to dispose of. In those heady days we were selling the units to scrap merchants, not for a lot of money, it was pennies, but we were still selling them and we had a positive cash flow. There was some work for us involved and it did take time, we had to put it on the truck and bring it to the depot, but nevertheless there was a small income. Over the last few years the gate price of steel has crashed so there is no money in picking up all of those products, in fact there is a cost involved. We did have a healthy export market in refrigerators and the income stream that that generated to our recyclers funded most of the collection of washing machines and cookers, so the collapse of the export market was extremely bad news for us because it pushed up the price of collecting the washing machines and cookers as we go forwards.

  114. In your evidence to us you told us you had 12 companies, mainly SMEs, who were involved in a lot of this work. Has the entire network of those 12 now effectively collapsed in the light of the current situation?
  (Mr Bellingham) The entire network has not collapsed but we have had notice from several players that they have now withdrawn from that market and they will not be re-entering it in the near future. Some of that infrastructure still remains and we have invited them to the meetings of the working parties that we have attended to try to re-establish that infrastructure.

  115. Just develop that point a bit further if you can. What action do you think it will take to redevelop that because the previous evidence that we heard from the LGA suggested a lot of expense by somebody investing in the quite sophisticated machinery in different parts of the country? It may well be beyond the size of enterprise that you previously employed to get this kind of cash or a question mark over what period of time because clearly as new fridges and freezers come along the problem is not as great. Just help us to understand what needs to be done to reconstruct some kind of network of disposal and, therefore, the take-back scheme?
  (Ms Smith) One of the reasons that we suggested some sort of lead authority scheme was one of the issues of scale is a lot of these players are small players, although there are three large players that cover quite a lot of the country. If there was a lead authority scheme, for want of a better expression, that covered several different local authorities each they would be taking up all refrigerators from a large area and they would have the scale and the volume to place larger and longer term contracts which would give the contractor enough certainty to place contracts to buy these units and also have contracts that would lower the unit cost of processing. At the moment if you have lots of different contractors with the uncertainty who are basically charging a gate price[3] rather than a long-term fee, the price they will charge for processing is going to be much higher.

  116. Just coming back to the private sector solution. Do you envisage that some of the partners you formerly worked with will in some way metamorphose themselves as people capable of making an investment in the way that we heard earlier and will reconstruct in some way a network that will be suitable for you to get the take-back scheme up and running?
  (Mr Bellingham) Yes, I think that is possible.

  117. And you have had firm indications of that?
  (Mr Bellingham) There has been some interest but all of the interest hinges upon getting a contract that is big enough to underwrite the capital depreciation required for the £2.5 million before you start.

  118. I know that you are very big in the domestic appliance business but there are other players as well. Have you had, perhaps through the British Retail Consortium, discussions with some of the people who are your commercial competitors about how they are seeing the situation?
  (Ms Smith) Throughout this we have discussed it. Our biggest same size competitor is Comet and we have discussed it with them but we have also, throughout this process, discussed it with the Radio and Electrical Trades Retail Association, RETRA, and also through the BRC. We have close conversations with them and with the local authorities and with officials at every stage. Everybody is in a competitive environment, we all want to offer the service, we all have slightly different routes to disposal at the end of it but we want to get the system back up and running and that means keeping our contractors in business if it is possible to do that.

  119. We are going to pursue in a little more detail this local authority lead scheme but I just want to ask a question about the timescale for the installation of commercial investment. Has anybody said to you that given a green light this is how long it will take?
  (Mr Bellingham) I have heard several estimates of the time required to come from ordering a plant to delivery of a fully working service. It varies between a best estimate of seven months, a more realistic estimate of nine months, and the worst was ten months. It is quite a long, drawn out process. There are only two or three manufacturers of equipment of that size and the whole of Europe wants that equipment. Those time-frames may be longer and whether they are optimistic it is hard to say.

2   The witness later stated the proportion would be nearer 15 per cent of the overall total. Back

3   A gate price is the cost per unit on a non-contract basis. Long-term fees would follow negotiation. Back

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