Examination of Witnesses (Questions 120
- 139)
MONDAY 4 MARCH 2002
MS LESLEY
SMITH, MR
GEOFF BELLINGHAM
AND MS
VIVIEN WILLIAMS
120. Do you agree with the Local Government
Association's assessment as to how long it might take to clear
the fridge mountain because I suppose having seen some rather
lurid film on the television of these things, you wonder what
state those that are in the current mountain are going to be like
when they come to be sorted out by this new equipment?
(Mr Bellingham) We estimate arisings in the UK of
two and a half million fridges a year. Each one of these big pieces
of equipment can realistically process about 250,000 units a year,
(although I have heard estimates of 300,000). In that case we
need ten pieces of fixed kit in the UK before we break even. Once
you exceed ten pieces of fixed kit you can then start working
on the backlog but until you have ten pieces of kit the backlog
is growing.
121. So this problem could be here for quite
a long time?
(Mr Bellingham) If we do not stimulate sufficient
investment.
Mr Lepper
122. I want to ask a bit more about the lead
authority scheme, but before I do that could I take you back to
something that you said, Ms Smith, much earlier about correspondence
with Customs & Excise about exports. Do I remember rightly
that this confusion over whether the foam was covered by the Directive
as well in terms of export was something that seemed to exist
in the minds of Customs & Excise?
(Ms Smith) No, no.
123. It did not?
(Ms Smith) I think it existed in everybody's eyes
and then not. The initial letter we received on 21 November 2000
said that prospective exporters must be satisfied that the equipment
contains no CFCs or other substances, and they should be aware
that if they export a refrigerator the foam or refrigerant of
which contains CFCs, they are in breach of Article 11. This was
from the DETR Global Atmosphere Division. Customs & Excise
are the police and they have to enforce what DETR tells them.
The second letter from DETR seemed to withdraw the foam from the
instruction. The third letter was one from Customs & Excise
which said from January 2001 "the export of pre-1996 refrigeration
equipment must have a declaration that all CFC refrigerant gases
have been removed". At that point they were only advising
us that the gas from the compressor had to be removed, they were
not saying the foam had to be removed. That was a lesser instruction
than the original instruction from DETR in November. The first
instruction was take it all out, foam included, the two subsequent
instructions did not go as far as that, they said, no, just take
out the gases.
124. Thank you. I wanted to clarify that in
my own mind. You have heard what representatives of the LGA have
said to us this afternoon about this lead authority scheme. It
does not suggest that it is much of a runner, does it?
(Ms Smith) They did say they are consulting on it.
125. True.
(Ms Smith) The truth is that at the end of the day
we did it because we felt somebody has to come up with some ideas.
We would not say this is the best solution in the world, however
it was done in response to an initial proposal from DEFRA of a
recycling credit scheme which would require every fridge to be
returned categorised by its original local authority of origin,
and we felt that that was not practical or achievable, either
for us or our contractors because most of our distribution centres
cover an area of eight or ten or however many local authorities
and we would have to log every fridge by local authority keeping
an administrative paper chain for it as would our contractors.
So what we looked at was an existing scheme. There are existing
waste disposal schemes and we tried to say could there not be
a parallel to that.
Chairman: Can I ask you to curtail your answer
at that point. Colleagues may want to go and vote. I am sorry
about this. This is one of the vagaries of doing business in the
House of Commons.
The Committee suspended from 6.24 pm to 6.35
pm for a division in the House.
Chairman: I think part of Lesley Smith's replies
may well have been okay for you but to the rest of us were drowned
out. If you want to wind the clock back and go over a bit of the
lost ground, I think it would be helpful.
Mr Lepper
126. The response we heard today from the LGA
representatives did not show a great deal of enthusiasm for the
lead authority scheme. I think you were telling us why Dixons
had proposed that scheme. Perhaps if you are going to recap, could
you tell us whether it was a suggestion solely from Dixons or
was it done, for instance, in conjunction with the British Retail
Consortium or other retailers?
(Ms Smith) It was with the British Retail Consortium
and RETRA.
127. The small retailers.
(Ms Smith) The small retailers society and Comet reviewed
the paper before we submitted it. That paper was a response to
a paper which was produced by DEFRA in November and they produced
a paper which outlined a third party recycling credit scheme which
would pay credits to local authorities which they would in turn
pay on to contractors. We or the contractors would have to link
each fridge back to its local authority of origin under that scheme.
There was quite a difficult audit trail. In response to that we
worked out that if in an average year you have two and a half
million fridges back, each fridge would need some sort of docket
that would need to go through three different sets of people—the
local authority, the contractor and us—and be linked back.
We were not confident of a proper verification scheme that enabled
local authorities to be sufficiently confident about where that
fridge had come from in order to pay a credit. We could foresee
a situation where if we had one local distribution centre that
covered ten local authorities and it had fridges from Haringay,
Hackney, Islington and Enfield, any one of those authorities might
say, "We do not think it is 25 fridges, it was 25 from Enfield
and 30 from Haringay", so we could foresee lots of logistical
problems. We felt to try and eliminate the two and a half million
bits of paper and a tracking system that we would look at existing
models. There are existing models under the Local Government Act
2000 best value regime. Hampshire Council have an integrated waste
management strategy where it covers 13 district councils and also
there are waste disposal authorities in East London, North London,
Western Riverside, Greater Manchester and Merseyside, and what
we would like to do is to think of a scheme that replicated that
as closely as possible just to make the whole thing simple and
easy to manage. None of us claim to be expert in local government
management so that is why we brought it to the meeting chaired
by Michael Meacher at which local authorities and retailers and
waste contractors were present really as a paper for discussion.
None of us would say that this is the only route but it seemed
helpful to contribute a route.
128. When was that meeting?
(Ms Smith) That was on 24 January.
129. What is in it for the lead local authority,
could you clarify that, assuming after consultation there does
seems to be some enthusiasm or this might be an inducement to
local authorities?
(Ms Smith) Our thought is that in any system where
you are going to be buying and procuring systems often you get
a discount for volume, so they are incentivised to buy at volume
and that is going to give them some sort of discount for cash.
They would be drawing down funds from Central Government based
on the volume of fridges that were processed but actually they
are then incentivised to collect as many fridges as possible because
in terms of reducing the costs of their contracts and potentially,
if they wish to do so, making money out of it they do that by
maximising the number of fridges that they collect. So in terms
of efficiency, it incentivises both them and the contractor to
collect as many fridges as possible. Also, if you are doing that
on a collective basis where you are drawing down money centrally
and you are being paid by volume rather than by origin of the
fridge then it does not matter, we have not got to verify whether
they come from this street or that street because it is the number
of units that you process that matters.
Chairman
130. In terms of the resurrection of some kind
of disposal system, if you like, to take the place of the current
undisposed mountain that is growing, is the only model that you
think will work one where you have this lead authority network
to then feed the volume of fridges into recyclers, reprocessors,
who have made the investment in the model plant, or could you
see the old system being resurrected, albeit with fewer players,
where you would still carry on taking the refrigerators to the
private recyclers and disposers?
(Mr Bellingham) I think the issue with the existing
infrastructure is that there is no one player large enough to
lay down a contract for the 300,000 fridges that someone would
need before they would invest £2.5 million. That is another
benefit of the lead authority scheme, it gives you that buying
power, if you like, to place a contract to give you confidence
to go out and buy a big fridge munching machine.
(Ms Smith) It also minimises the costs because at
the moment those players who are trying to bring in these fridge
munching machines, for want of a better expression, are going
around picking off individual local authorities and if local authorities
have not got the confidence, they do not know how much weight
they will have, they will place very short-term contracts. Because
they are all placing their contracts individually, fairly short-term,
the unit cost goes up, as these contractors are having to charge,
leaving aside as to why they are doing it, a higher unit cost
in order to guarantee they are going to get payback, whereas if
they were dealing with one big authority who knew they had a bulk
stream and also that authority was incentivising the collectors
to deliver volume to them then the whole exercise becomes cheaper
right the way through because you have got volume being pulled
through.
Patrick Hall
131. From what you know of all this business
so far, what do you think the key lessons to be learned are from
the point of view of all the main players?
(Ms Smith) We should all have been around the table
a lot earlier. We felt that our concerns were not taken seriously
from the very word go. Not only our concerns but our contractors
and those of the industry were not taken seriously from the word
go. I have absolutely no doubt that that situation is very different
today and I think there are better relationships between Government
and industry and Government and local authorities around this
issue as a result. It is very unfortunate it happened this way
but I think these relationships have improved a great deal and
the dialogue has improved a great deal.
132. Do you think that that situation will help
us avoid problems when the Waste Electrical and Electronic Equipment
Directive comes into force?
(Ms Smith) I think there is certainly a far greater
understanding now how the industry and the infrastructure works.
At the beginning of this process neither local authorities nor
Government understood that we were taking so many fridges out
of the waste stream on their behalf. Local authorities basically
said "we do this" and because the fridges that we handled
were invisible as far as they were concerned they did not realise
what the size of the problem was. I think people are now much
more aware of the structure of the industry and how we work together.
133. Do you think we can avoid the problems
of the forthcoming Directive?
(Ms Smith) Yes.
Mr Martlew
134. This is a question I thought perhaps Austin
would have asked. What we have got now is the EU banning the export
of fridges throughout Europe to the Third World cutting out a
cheap source of refrigerators for Africa. Did anybody think of
that? Obviously we talked to the Commission but did anybody think
about the consequences of that before this Directive came in?
(Ms Smith) You say "did anybody", you mean—
135. Did anybody? Did the EU? It is obvious
from your evidence that the Government did not know it was taking
place but I presume that we are not the only country that does
this. What we seem to be doing is helping to save the ozone layer
at the expense of Africa, to some extent.
(Ms Smith) I think you are right. I think you get
into quite big picture questions there, to be honest. I hesitate
to say that we are just humble shopkeepers but we tend to look
at these things when they leap up and affect us, to be completely
honest with you. I think it is true that a lot of the provision
that was made for African countries through this has now been
lost and I have no doubt that is an unintended consequence of
the regulation.
136. You do not think that anybody sitting in
Brussels was looking at the big picture?
(Ms Williams) I think from the letters we had from
DETR and the ones we have given you copies of, it does say that
they perhaps were not aware of the full extent of the export or
volume of products that were exported. They did recognise that
come about October time 2000 but whether Brussels have noticed
it, I do not know, we have not really been too involved.
137. It certainly did not come up in our discussions
with them when we were talking to them in Brussels.
(Mr Bellingham) I cannot say about the start of the
regulations but back in September 2001 I went over to Brussels
myself and I met with members of the European Commission, I met
with Peter Horrocks and Tom Batchelor, and I did raise the issue
of the social need in Africa for a cheap source of refrigeration.
We did make the point that the cost of refurbished refrigeration
is a fraction of that for new. I cannot remember the exact figures,
I am afraid, but we calculated it in terms of a year's salary
for a typical man out there. We did make the point but it was
relayed back to me that the issues were with the ozone layer and
the problem was that when you dispose of this product in Africa
it will not go through one of these environmentally friendly fridge
munching machines, and therefore the ban on exports was to remain.
(Ms Smith) It goes back to the discussion on the Montreal
Protocol, to be honest, rather than the EU because it was at that
stage that the decision was taken that you had to prevent developed
countries offloading their responsibilities for CFCs on undeveloped
countries and it all flows from that discussion as far as we can
see.
138. Has this affected the sale of refrigerators
in this country at all?
(Ms Smith) It is quite early to tell because we only
withdrew the service in November and fridges by and large are
distress purchases, you buy one when your old fridge runs out.
Despite our best efforts to make it a fashion item, by and large
people buy them when their old fridge runs out. Also what happens
in January is you have the January Sales, so whereas fridge sales
may have been depressed they will have been stimulated again by
the fact that we slash prices in January. It is quite difficult
to tell also because we have had the situation where with low
interest rates there have been more house moves and as a result
of that white good sales have been up in the last year. We would
not expect to see the results until the peak time for sales which
is in June, July, August when it is hot weather. That is when
we may see a more serious effect.
139. You should be able to compare them with
last year's figures for the same months. What does that show?
(Ms Smith) We have year on year figures. In this January
fridge sales, as a segment of white goods, was lower than in the
previous year.
| 
