Examination of Witnesses (Questions 60-71)
10 NOVEMBER 2004
MR STEVE
LEE, MR
CHRIS MURPHY
AND MR
ROGER HEWITT
Q60 Alan Simpson: We have
not even got through to the political stage of getting approval.
Mr Murphy: Well,
yes, and I have to say that the planning system is probably an
eight-year span, which means the process has to be started now
to deliver by 2013 where the pinch point is.
Mr Hewitt: We need
to create investor confidence. You see, we are talking here of
vast sums of money. A lot of this money is going to come from
private sector investment, City investment. Now, they will want
to see planning timescales that give the ability for real thresholds
of return and for the higher rates of return to be achieved. They
will want to see pricing structures and they will want to see
contracting arrangements with authorities which enable prices
to be achieved and returns to be achieved that make those investments
worthwhile. We are talking here of very, very large numbers of
money and that is going to need to be planned for. Within the
timescales we are talking of to achieve the kind of diversion
targets we are talking of, that investment is going to happen
very rapidly. Some estimates were made some two or three years
ago of the overall number and it is probably something like £30-40
billion of investment and it is at least at the rate of £1
billion a year now that needs to be invested. We are talking huge
sums of money and for the City, for investors to be putting that
cash in, they have got to be absolutely confident of seeing the
returns, and I do not believe those structures are there; those
financial structures are not there.
Q61 Alan Simpson: We are
not going to get it, are we? Let's be realistic about this. You
are talking about investor confidence now for a planning process
where we have not even identified how we would get over the political
hurdles of the planning applications that would go in for approval
even before investor confidence becomes sensible to hope for,
so if that is not going to happen, we need just to have a fairly
radical rethink of the other mechanisms that the Government may
have to use to address and meet these targets. Presumably we are
also talking about waste reduction strategies.
Mr Hewitt: It goes
back to, I think, and Steve will want to add something to this,
but it goes back really to some of the points I was making earlier
about timescales, planning and working together to achieve things
in hazardous waste. I have thought for a long time that we have
needed a strategic waste authority to take responsibility for
the overall planning of these things and the inception of them.
That is the only way that these kind of large-chunk projects,
these large-chunk targets are ever going to be achieved. For them
to be played around with on a piecemeal basis, as they are now,
I think will just ensure that we do not get there. I would rather
we have some overarching strategic waste authority, headed up
by somebody with a record of actually making things happen—rather
than saying things that people want to hear, and there is a big
difference between those two things, we might stand a chance.
That person and that authority get together the interested parties,
the contractors, the operators, local government and the investment
community around a table and are not afraid, and if there were
not ladies present, I would use a stronger term, to kick the backsides
to make it happen because that is what you have got to do. Achieving
major projects never happens by people having lunch and being
kind to each other. It happens by people sitting in rooms and
talking about the real issues and finding the solutions, and that
is not happening and it will only happen when there is an authority
with the responsibility and the will to do it.
Q62 Alan Simpson: I used
to run a local authority waste disposal company with an incinerator
that used to turn household waste into domestic heating for district
heating systems. It was very interesting, but I doubt, if we had
been seeking planning approval for a project like that now, that
we would have stood a cat in hell's chance of getting that approval.
Just in relation to incineration, are you effectively saying to
us that we have to acknowledge that if we cannot meet the recycling
targets from landfill in terms of other technologies, the use
of incineration connected to district heating systems, whether
you like it or not, is going to be forced on to the agenda to
meet those targets?
Mr Hewitt: Again
my colleague will say something on that, but there is a principle
of economics and it is iron-clad, and that is supply, and demand
determines supply. Now, you have to define a need and fulfil it.
You cannot think of the fulfilment and then create the need as
that will not work, and recycling is an excellent ambition and
they are first-class objectives, but to believe that these targets
are going to be reached by recycling is an act of naíve
self-delusion. It is going to need other technologies, such as
energy from waste, but the basic laws of economics cannot be changed.
Nobody will buy a pile of recycled material just because it is
a pile of recycled material. They will buy it because they can
do something with it. The clever thing is to find the person who
is going to do something with it first and then to produce the
pile of material.
Q63 Paddy Tipping: You
mentioned £30-40 billion worth of investment—
Mr Hewitt: Over
a long period of time, yes.
Q64 Paddy Tipping: Just
remind me, most waste disposal companies now are international
companies, SITA, for example. Given the complexities you have
been talking to us about, the regulatory framework, the scientific
work that needs to be done, the planning system, those companies
are going to invest elsewhere rather than the UK, are they not?
Mr Hewitt: I think
that is the risk we run. All organisations have investment policies
in the way they look at investing money. I am obviously not familiar
with those of SITA, Onyx, or any of the other international companies,
but I am aware of those I have practised in my own and other large
international companies I have worked for and if the analysis
says that I can get a return on investment quicker and more profitably
and at a better cash rate in another country than I can in this
one, then I would be running the risk of getting sacked by my
board if I did not go and put the money there rather than here.
Q65 Joan Ruddock: I have
to say you are all painting a very depressing picture for us,
but I think the difficulties of getting incinerators sited are
as great as probably getting the other new technologies sited,
so I think we are in great difficulties here. I have to say personally
that I have my own anaerobic digester, Greencone, so one can do
it oneself. However, to get to more serious points, a lot of people
have proposed that if we were to charge households for their waste,
and there were differential charges and incentives, that this
could make a difference. My own view, and I wonder if you share
this, is that until there is an offer from local authorities to
collect all the "recyclets", you cannot begin to punish
people if they fail to put their recyclets out. How do you see
this area developing? Do you think it is essential and if we got
to that point where the offer was there, you can do all your recyclets
and, therefore, if you do not, you are punished or whatever, do
you think we might end up with more fly-tipping?
Mr Lee: I will
answer that question and start at the back and work forwards again.
Yes, I share a fear, I think, with most people I talk to that
as the cost of responsible waste management goes up, so the risk
of uncontrolled fly-tipping goes up with it, so whatever it is
that we do to try and move us all towards more sustainable materials
practice, that has to be tempered by an awareness of the potential
downsides and strong local authorities and strong environment
agencies to prevent it and to cope with it if it arises, so fly-tipping,
for me, is still one of the most potential serious downsides to
all of this development. Now, in terms of the role of local authorities
and householders in actually helping this waste and materials
revolution to happen, it could hardly be more obvious. We depend
on individuals being more responsible with their own purchasing
decisions, what they do with their own materials as they waste
them and we, as a professional institution, one of the reasons
why we exist is to use the expertise and experience of our individual
members to come together to actually describe for local authorities,
for businesses and for individuals what best practice might look
like. Actually we have just weighed your Committee Clerk down
with three best practice documents produced by the institution,
one of which is on what we believe could, and should, happen on
direct or incentive-based charges for householders. The second
is on what local authorities ought to be doing to put the householders
in a position to be able to separate out their wastes, and the
third is the issue that Mr Simpson was talking about just now,
and that is the mechanisms of recovering the energy value from
the waste when all of the other valuable materials have already
been pulled out. The truth is that recycling and minimisation
are going to get us so far and we believe that with the political
will, the resources and the stimulated markets to make it happen,
local authorities and people can just about make the 2010 targets
by recycling and minimising. We think it is pretty clear that
some bigger, probably more capital-intensive solutions are necessary
to get us beyond 2010 and the sad truth is, and you have put your
finger on it already, have you not, that the planning system and
the need to get the investment in place means that we need to
start making those decisions about how we are going to reach the
2013 targets and beyond, and the decision time is about now, unless
we can streamline the systems to get us there, and those systems
include the planning strategy development, individual planning
permission application decisions and the issuing of regulatory
permits by the Environment Agency. All sorts of things need to
be there if we want the mechanisms there to treat residual waste
after we have minimised and recycled to the maximum.
Q66 Joan Ruddock: You
have raised a very interesting question which just struck me as
you were speaking. If incinerators are only to burn residual waste,
that changes the nature of their operation to an extent. It also
brings to bear important questions of how they get sufficient
tonnage because they would then need to be getting it from a much
wider area. I have SELCHP in my constituency and that has always
been an issue, how to feed that plant, and it is one of the reasons
why my local authority has such a very low level of recycling
because it was thought 10 years or more ago that it was doing
the right thing in sending everything to SELCHP.
Mr Lee: I think
what is at the real heart of your question there is the structure
of future waste management contracts and not getting locked into
practices that you wish you had not done.
Q67 Joan Ruddock: But
are there not technical issues as well if you only burn residual
waste?
Mr Lee: Yes, there
are technical issues, and predicting the future volume and composition
of residual waste is absolutely vital. We can see from energy
from waste-based strategies around the British Isles that whilst
the volume of waste going into some energy from waste plants is
going down, very often the calorific value of the residual waste
is currently going up, so there is a very careful balance to be
played here. But I think your point is absolutely crucial, and
you need some very thoughtful planning. We are not looking two
years ahead, but in these sorts of solutions, we are looking 20
years ahead and we need to make sure that we have got flexible
technical fixes and flexible contract arrangements to go with
them.
Q68 Chairman: I just want
to raise one minor question because in terms of the level of the
local authority to introduce new collection techniques which are
encouraging certainly the waste producer the initial sorting exercise,
you have got a combination of capital investment by the local
authority, saying, "We'll be the collection system",
but the penalty is that it then has every other week disposal
and the net result is that wastes build up, the householder becomes
disillusioned with the new system, you get untidy waste and you
get all kinds of waste going where they should not do. If you
are going to invest in it and involve people right the way through
the waste chain, have you not got to make certain that, if you
are going to have a high level of investment in sophisticated
separation equipment, that is backed up by high-frequency collections
to keep a high quality of system in place?
Mr Lee: There is
no one perfect solution. That much is quite clear to us. In putting
this best practice guidance together, we have been able to find
a large number of good examples that we can point at and all of
them operate on different principles. What is clear is that when
householders are encouraged and helped to separate their waste,
they can actually produce a surprisingly small amount of residual
waste. Now, it may be more efficient and effective for the local
authority to say, "If we help you to be effective in that
way, we might not need to come to pick up your residual waste
every week", as it might well not be worth it. On the other
hand, there are local authorities who have found that that really
is not accepted very well by the householders in their area and
they have either elected to stay with weekly collections and some
of them have even had to go back to weekly collections. There
is no one ideal solution. What is clear is that local authorities
need support and they need to learn from each other and they need
the skills and resources to put these schemes into place because
without them, we are not going to reach the 2010 targets. That
much is obvious.
Q69 Paddy Tipping: I was
interested in the point Mr Lee made a minute ago about not getting
locked into long-term contracts. Now, most local authorities are
going the PFI route at the moment and the danger of that is that
it does lock them into long-term contracts. What advice are you
giving in terms of best practice to local authorities around this?
Mr Lee: I can confirm
that another piece of best practice work being done by the institution
with input from all sorts of parties, including waste management
operators and local authorities, is some guidance on best practice
in developing contracts. It is interesting that you used the word
"locked". I suspect that means that I did earlier on
and being locked into a contract, there are two ways that you
can look at it. Obviously in order to recoup the high capital
costs of some of these investments, there has to be a long term
to the contract. It does not mean to say that you necessarily
want or need to be locked into what becomes an inappropriately
constrictive contract. Flexibility has to be the order of the
future.
Q70 Paddy Tipping: You
are confident that you can work flexibility into PFI contracts?
Mr Lee: I am convinced
it can be done.
Q71 Paddy Tipping: Has
it been done?
Mr Lee: Well, perhaps
experience might tell us whether it is being done now.
Chairman: Well, upon that
very neat piece of footwork, Mr Lee, we will draw our evidence-gathering
session to a conclusion. Thank you for the candour of the way
that you have answered our questions. I think you have set our
inquiry off to an extremely good start, and you have posed some
challenging issues which will guide us in our further questioning.
Thank you again for your written material and for the time you
have spent with us this afternoon.
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