Examination of Witnesses (Questions 290-299)
WEDNESDAY 19 MARCH 2003
MR DIRK
HAZELL, MR
PETER JONES
AND MR
GRAHAM WATSON
Chairman
290. Welcome to the Committee, we have in front
of us Mr Dirk Hazell, the Chief Executive of Environmental Services
Association. Mr Peter Jones, who is the Director of External Relations
from Biffa and Graham Watson, the Group Head of Environment at
Waste Recycling Group plc. Gentlemen, there has been a string
of reports into the handling of waste, including select committee
reports, and the Strategy Unit has been asked to address the problems
of waste delivery and it has made recommendations, should we have
any confidence that anything different will happen with this report
than has happened with all of the other reports?
(Mr Hazell) To an extent that is in your
hands and your ability as a Committee to turn its words into deeds.
The only added value of the Strategy Unit, is if it does now act
as a catalyst for that conversion of words into deeds. As of today
none of the three drivers under the Government's direct control,
that is the planning system, funding of the household waste stream
and regulation, are leading to this country's compliance with
the promises this Government has made to the European Union about
its management of waste. Indeed, in one sense things could not
be worse. I do not know if you have seen the figures the European
Commission has just published, figures that show that the United
Kingdom's implementation of the EU's Environmental Directives
is at the very bottom of the European Union, below 80%, compared
to a European Union average of above 90%.
291. You said there was planning, funding and
regulations, you did not mention the use of a charging or fiscal
instrument as a means of directing or assisting waste management.
We know we have the landfill tax, but that is fairly modest, and
that is the only instrument we have at the moment. Other countries
have a rather more sophisticated, differential system. Did you
miss that out because you do not see a role for it?
(Mr Hazell) Funding the Municipal Waste Scheme is
one of the critical drivers that is essential. If you suggested
that raising landfill tax is primarily the behavioural driver
rather than the funding vehicle we would certainly agree with
that. Last summer when we were concerned with the course that
the Strategy Unit seemed to be taking we did commission Ernst
& Young to prepare a report on how without burdening the public
purse the additional funding needed for the British household
waste stream could be provided, and Ernst & Young came up
with a proposal. We have reports, which we will gladly circulate,
that recommended direct charging as a non-regressive way of providing
extra money. As an industry we see direct charging as the preferred
vehicle for providing additional money for the waste scheme. One
of the great advantages that direct charging has over variable
charging is it provides no incentive to fly tip. Another advantage,
which may be particularly attractive to the present Government,
is that direct charging does not need to be regressive and it
can be more difficult to construct variable charging in a way
that is not regressive.
292. If you were asked if is there one key thing
that the Government can do that would persuade you that it really
decided to get a handle on this and move it forward what would
be the one litmus test you would identify?
(Mr Hazell) The single, key driver for this industry
is getting the regulation right. If you do not get the regulation
right for waste management whatever funding is in theory available
you do not have the drivers for responsible companies, like the
two that are here today, Biffa and WRG, and you do not get the
incentives to invest in infrastructure. You have absolutely got
to get a structure of regulation that is stable and which provides
confidence to those who invest that there is a prospect of waste
going into that infrastructure. Last summer this Select Committee
looked at hazardous waste management and one of the recommendations
that you made, for example, was to set up a Hazardous Waste Forum.
That forum has met once. Once! We are in reality no further forward
since last summer to having in place a regulatory arrangement
that is manageable for hazardous waste when co-disposal ends in
the summer next year. As of today we have a regulatory structure
in place that is actually likely to make hazardous waste make
fridges look a tea party.
293. Is that because the framework of regulation
is there but it has not been implemented or we do not know how
it will be implemented, or that it is not yet there? What does
the architecture look like, because one has to turn that into
the sort of regulatory system you want?
(Mr Hazell) It may be helpful if Graham Watson gives
you some practical examples of where we are at today.
(Mr Watson) From our point of view we have to look
at a level playing field. The investment criteria are driven knowing
we can compete with the low end of the market. In terms of current
realities there are something like 120,000 exempt sites operating
at the moment and they cover a gamut from land spreading and on-farm
composting: We know they are taking hazardous waste, we know they
are taking biodegradable waste that would otherwise go in to regulated
schemes to be used, for example, as compost, but they are outside
the control of the Environment Agency to regulate. There is a
funding issue: From an industry perspective what we want to see
is a tough regulator, not a pragmatic regulator. We do not want
to see the Agency having to target its inspection regimes, we
want to know that the people who are cutting corners, not following
and not abiding by the rules can be forced out of business. I
can give you specific examples, we operate a licenced hazardous
waste facility in the West Midlands and directly across the road
from that is a site, which is a golf course, and it is now 7 metres
higher than it was in 1993. There is no duty of care being addressed
to the waste going to that site. There has been no, as far as
we know, formal inspections in the way that our site licence is
inspected, where we have to randomly sample waste and verify its
chemical composition there is no control over the waste going
to a site 50 metres away. All of the while there is that discrepancy
on the playing field and it is very difficult to compete commercially.
We can only deliver waste strategies by siting facilities, we
only get those facilities when we know we are going to make money
in the commercial environment. It is very difficult to compete
with people on an equitable cost basis.
Mr Borrow
294. The Committee have had representations
from the council in Bath and North East Somerset and Southwark
Council in London. We have been looking at the problems they have
in terms of recycling waste and one of the points both councils
seemed to be making was recycling was more likely to be achievable
and effective if the schemes were run by a community or voluntary
groups rather than run by commercial companies. I wonder if you
have any comments on that? Their view was if you have more groups
involved you are likely to increase participation rates.
(Mr Hazell) I have quite a lot of comments I could
make on the evidence you heard last week from Bath and North East
Somerset, one of the things about them is they do spend quite
a lot of money £1 per person per week, and recover 28% of
the municipal waste stream. The record of the private sector tends
to be better than that and Peter Jones may want to talk to you
about the Biffa contract in Leicester. The private sector rates
of recovery compare favourably to Bath and North East Somerset.
I think one has to be very realistic about what the voluntary
sector can actually deliver which, in terms of the industrial
scale of transformation which is needed for resource management
in this country is not a great deal. One of the areas of competition
between us and the voluntary sector that may be of particular
interest to you is that our members have, very largely, a unionised
work forces, they provide pensions, they have externally verifiable
environmental audit systems and they have health and safety systems.
When you are dealing with waste you are, by definition, dealing
with a product that public policy has decided has to be treated
in a particular way and with particular care. If you are dealing
with the materials on an industrial scale you do need to have
regard to the welfare of the people who are engaged in it. It
is all very well having very enthusiastic volunteers—in
some cases it is enthusiastic volunteers—but you do need
to have real systems in place to look after the welfare of those
people. There is a lot of stuff that we could say about commercial
competition, but it would probably be better if I pass you over
to Peter Jones from Biffa.
(Mr Jones) I suggest that there is a very real role
for community recycling networks, it is not a question of either/or.
Certainly as far as Biffa is concerned we are keen to work with
some of these organisations, and we committed well over £1
million to CRN specifically in terms of the magazine and various
studies they have been undertaking. These organisations have great
strengths in terms of understanding local communities, in terms
of the social issues, particularly where are you talking about
inner city areas, and so on. On the other hand, if one is honest,
I would say that it is a bit like the parallels between using
farmers' markets as a long-term solution to replacing Tesco and
Sainsbury's. We all have our hang-ups about the way that private
businesses are powered by profit but here we are looking at a
truly significant tonnage issue. CRN groups probably service 1
to 2 million households, I think they are collecting of the order
of one quarter of a million tonnes of recyclate. Within Biffa
we are already doing three quarters of a million tonnes and we
will be at 1 million in 2 years. More importantly Dirk referred
to the Leicester issues, in Leicester, quite rightly, the City
Council insists that we work very closely with these people. We
agree entirely with the City Council that they are a very good
route to communication, they are better understood—we are
the boys and girls with the black hats. I think the more that
we as a private sector activity can introduce the community sector
into our side of the business then we can come and understand
each other mid-way. Where the community sector will have problems
is that if you look at the fact that round 50% of the material
in the 25 million tonnes of domestic waste that is currently in
domestic dustbins it is quite feasible that within 10 to 12 years
be funded through contracts let by producer responsibility supply
chains, which will be packaging, the electrical industry, the
electronics industry—I will send you a note on that separately.
It is also quite feasible that these industry associations or
big companies involved in supplying these goods in society will
be looking to collect and fund that back end responsibility. If
that does happen then those organisations will need to let contracts
on a substantial scale and they will not want to deal with thousands
of local community groups, they will want to deal with big organisations
that have the capital funding capability and the ability to, in
fact, support those sort of infrastructures. It is about co-operation
and about understanding each others objectives. On the competitive
front there are many of the big named companies, I am not sure
about Shanks and McEwan but I know Richard Biffa started out as
part of the voluntary sector, he was a rag and bone man, he was
voluntary for himself. There are some of these community businesses
that are as far as we are concerned building them up to sell on
to people like us. We must not be too doe-eyed about the motives
of some of those businesses.
295. Okay. One of the things the Council from
Bath and North East Somerset mentioned was their experience had
been there was a lack of flexibility if you are dealing with long-term
waste management contracts, particularly if the local authority
are seeking to improve recycling rates and change policy to achieve
different targets during the period of the contract, the existence
of a long-term contract makes that more difficult and they saw
that as one of the down sides of the contract regime. Do you have
any response or comment on that?
(Mr Jones) In essence if you look at the whole of
the United Kingdom we have 80 million tonnes going into holes
in the ground that bio-digest and neutralise this material eventually
over 30 year cycles. In the next 10 years we have to take round
60 million tonnes of that stuff and put it through mechanical,
chemical and physical sortation systems that neutralise that material
not in 30 years but in 30 days, or less, and that is going to
need a lot of investment and a lot of sophisticated capital. The
reason why long term contracts are advantageous to the private
sector is that we can see a pay-back over that cycle, to go from
a system like landfill, which is pretty low-tech but is sophisticated
in its management, to one that requires billions of pounds of
capital investment in about 3,000 physical, chemical or thermal
treatment technologies is going to be an expensive process. As
a company we do not believe that you go for the big hit, the big
single solution, you do not try and compost it all or burn it
all or recycle it all you go for a mix and match of different
technologies which give you flexibility. In Leicester those flexibilities
come from a mixture of roughly 25% recycling of the physical material
back to the process sectors, 25% is associated with what we think
might be happening in the European Soil Directive and the need
for huge tonnages, millions and millions of tonnes of carbon that
will need to be sequested back into soils, because we stripped
all that carbon out, and that is causing a lot of flooding round
the country due to the Common Agricultural Policy of the last
50 years. In another quarter we will probably have a lot to do
with the fact that through the Government's Energy Strategy huge
chunks of power generation capacity in this country are going
to disappear from nuclear and probably from a lot of these end-life
coal fire technology solutions running on non-renewables, that
is going to form an element, and you will always have landfill.
I think what people do not appreciate is that in the context of
the City of Leicester or the Isle of Wight who will be making
money, it is not our money, a lot of these are pooled arrangements,
where in summer when electricity demand is low you may find it
is more attractive to divert cardboard for producer responsibility
notes and tradable permits in packaging but in winter, when energy
renewable obligations certificate prices are hardening you may
flex it towards that route. The key thing and the feature of these
contracts through PFI and through open sharing arrangements is
that anything that comes out of that is a pound for us and a pound
for the local authority. We believe in Biffa that it is large
companies that have to manage that process. The technologies and
the cost of those technologies are pretty well known. In this
future world we are going to be making our living out of the trends
and these tradable permit regimes and the liability associated
with producer responsibility of the Climate Change Levy, and so
on.
(Mr Hazell) One of the problems we have as an industry
is that large contracts can often cost our members about £1
million[7]in
lawyers fees to negotiate and they take about a year to negotiate
and the level of profitability does not begin to justify that
sort of spending. More than three years ago we did suggest to
the predecessor to DEFRA that it would be helpful if we could
standardise some of the PFI-type contractual stuff. As a result
of the Strategy Unit's recommendations we understand that work
is underway but astonishingly we have been informed by DEFRA that
we will not have any input at all into their discussions about
the shape of future PFI contracts, which to us does seem quite
surprising, particularly for a Department that has aspirations
for taking on the sponsorship as well as the regulatory remit,
it is not really quite the type of engagement that we would like
to have.
Chairman: Mr Hazell, could I ask you to speak
up a little, you are very softly spoken and we are having a little
difficulty.
Mr Lepper
296. Is that reluctance to respond to the suggestion
that you made to do with resources within DEFRA or is it to do
with a philosophical position they have adopted, a political position
or—?
(Mr Hazell) I think that clearly the present Secretary
of State has come into DEFRA determined to impose a new culture,
that is very clear to us. It is a huge challenge. When you look
at the resources that are available within DEFRA to provide the
strategy for waste management in this country it clearly is not
equal to the task, which is one of the reasons you have an on-going
turf war between the regulator and central Government Department,
because the regulator gets frustrated at DEFRA's inability to
provide guidance. We are quite clear that we think the Government
must govern and the regulator must regulate and at this stage
in the development of this sector it is in everybody's interest
that waste management has a coherent, single voice within the
Government. We are quite clear ourselves that if DEFRA is to have
that role it is going to have to learn from other Government departments,
like the DTI and Treasury, about how to interact with the private
sector. They are very polite when they see us but they just do
not begin to understand what is needed in terms of engagement
with us. I can give other examples but I think for an industry
that had the initiative more than three years ago to go along
and say: "Let us talk about PFI, let us see if we can make
it sensible, in everybody's interest", and now they are doing
it but we will not be told what it is until it is done, that is
an incredible lack of engagement with an industry that is really
trying to help. Another example I can give is that the Landfill
Directive puts in place a requirement to have financial provision.
I have been at ESA nearly 4 years and it was going on for about
4 years before I got there. After years and years of engagement
we still do not even begin to know what DEFRA's position is likely
to be in terms of financial regulations required by the Landfill
Directive. This is an industry which by its culture wants to work
with local government and central government in partnership, it
is very much the culture of this industry to achieve the best
outcome for all concerned. We want a single voice but we are very
concerned about the skill and the resource level in DEFRA at the
moment. I will give you one more example, this time last year
DEFRA was saying: "Our real problem on the Landfill Directive
is that we do not have an internal legal resource". We said:
"Let us provide you with the money for a legal resource",
and they said: "We could not do that". You could not
make it up.
Ms Atherton
297. You could!
(Mr Hazell) I promise you I am not.
Mr Mitchell
298. You say in your submission that tendering
for local authority contracts has become very expensive, even
prohibitive, and the same is becoming true of PFI initiatives.
Before my heart begins to bleed too extravagantly for you, is
that really because you had such an easy ride in the original
gold-rush in to the local authority work and PFI work?
(Mr Hazell) I do not think it is. If one is brutally
honest most of what one is asked to do in this sector is not rocket
science. A lot of what is in a lot of contracts could be standardised.
Indeed the OECD has thinking about providing model standard contracts
for some years across the whole of the developed world. In principle
it is not a terribly difficult thing to do. I think that it is
probably just that as a sector we come quite a long way down various
people's priorities. It is not beyond wit to provide a reasonable
model for PFI contracts that would reduce our members' tendering
costs and ensure that local authorities continue to have competition.
It is in everyone's interest that the tendering process is simplified
and rationalised and, to an appropriate extent, standardised.
I do not think it is a bleeding heart thing, it is quite honestly
that this is an industry that in good faith wants to maintain
healthy competition, and the cost of maintaining that competition
is frankly prohibitive.
(Mr Jones) Can I just add there, if I may, there is
a lot more maturity in contract letting as well at the moment,
you can see that is coming through, and that local authorities
are moving towards outcome based specified terms of delivery.
There were so many snake-oil salesmen that were going round local
authorities saying, "I have this magic box that will do this,
this and this" that we were getting contracts in a fragmented
framework with no legal consistency, but they were also telling
us how to do the job. What the waste industry wants is outcome
based contracts that say, "You achieve this, this and this,
which are the strategic waste objectives from central government",
plus the bells and whistles they want to add, rather than telling
us what sort of processes we must use. If you do that then you
restrict our freedom for manoeuvre. Indeed in our case we walk
away from a number of those contracts because we do not think
what they are specifying is even technically feasible.
299. That is true of local authority contracts.
It surely must be true that it is right to tighten up the terms
of PFI contracts, which were a goldmine in the early stages.
(Mr Jones) In fairness there were not many in the
waste sector. I do not know a lot about the hospitals and the
railways, and so on, and those sorts of areas, but certainly in
waste there was no agreement on the technology, nobody was making
any decisions and we do not have that same sort of track record
compared to these big investment infrastructure projects like
hospitals, it is much more focused.
7 Witness amended this to "up to about £5
million". Back
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