1 The Department's waste infrastructure
programme
1. On the basis of a Report by the Comptroller and
Auditor General, we took evidence from the Department for the
Environment Food and Rural Affairs (the Department) on its oversight
of three PFI waste projects run by Norfolk County Council, Surrey
County Council and a joint project managed by Herefordshire Council
and Worcestershire County Council.[1]
2. In 1999, the European Union introduced a Directive
requiring all member states to reduce the amount of biodegradable
municipal waste sent to landfill. The Department has overall responsibility
for ensuring that England diverts sufficient waste from landfill
to enable the UK to meet its target under this Directive of sending
less than 10.2 million tonnes of waste to landfill a year by 2020.[2]
3. The Department established the Waste Infrastructure
Delivery Programme (the programme) in July 2006 to help it meet
England's contribution towards the EU 2020 target. The aim of
the programme is to encourage and support local authorities to
develop new waste infrastructure by providing support, guidance
and funding. Through the programme, the Department allocates funding
for some local authority PFI projects and scrutinises local authorities'
plans. The Department also provides funding to a number of PFI
projects that pre-date the programme, reaching as far back as
1997-98.[3] Local authorities
are the signatories to the PFI contracts and are responsible for
ensuring that their waste contracts represent value for money.[4]
The programme only provides funding support for local authorities
that are entering into PFI contracts to construct waste management
assets. This incentivises councils to use PFI over other options
for diverting waste from landfill. PFI contracts are long-term
undertakings, typically running for 25 to 30 years. The Department
is currently providing PFI credits for a range of waste management
projects, which include integrated recycling facilities as well
as energy-from-waste incinerators.[5]
4. When deciding whether to fund these PFI projects,
the Department had to forecast the amount of waste that would
be produced. The Department told us that future levels of waste
are difficult to predict. Notably, recycling rates are higher
now than was predicted when some of the older projects were approved
and there are new technologies available for disposing of waste.[6]
There are also opportunities to sell waste to European countries
where energy-from waste plants have been built to provide municipal
heat and power, and there is a substantial demand for waste to
burn.[7] The Department
noted that it had highlighted to local authorities that selling
waste is an option, but it had not incentivized this approach.[8]
5. The Department told us that despite higher recycling
rates and new waste-management technologies, it still thought
that it was right to provide long-term funding for waste incineration
plants. The Department argued that the provision of long-term
funding for infrastructure projects from the 1990s onwards was
essential as 'in order to get a marketplace to deliver these things,
we had to give a degree of certainty'.[9]
The Department also told us that the incinerators that it had
been funding were still needed to meet the EU targets for 2020
and form part of a package of different types of facility to reduce
the use of landfill. The Department conceded, however, that new
waste infrastructure needs to generate both electricity and heat
to be environmentally viable and stated that it had no plans to
provide PFI credits for any new incinerator schemes.[10]
6. Early PFI waste contracts tended to be for integrated
waste management contracts, under which contractors provide a
range of waste services. By contrast, more recent PFI waste management
contracts provide for the construction of specific infrastructure.
The early funding agreements for PFI waste management projects
that the Department inherited from its predecessor, the Department
for the Environment, Transport and the Regions, differ from those
signed more recently. The early funding agreements under which
the Department for the Environment, Transport and the Regions
had agreed to provide funding to local authorities had looser
terms which typically committed the Department to start paying
grants to the local authorities as soon as the latter began to
make payments to the contractors under the contracts. The payments
were based on services delivered rather than infrastructure built
and the agreements contained no provision for the Department to
halt or modify payments without the agreement of the local authority
when individual capital assets were not delivered.[11]
7. The funding agreements signed with Surrey County
Council and with Herefordshire and Worcestershire Councils highlight
the shortcomings of these early agreements to fund PFI projects.
In both cases, the Department's payments to the local authorities
were aligned with the payments being made by the local authorities
to the contractors. The grant payments therefore began as soon
as the local authorities began to pay their contractors and the
Department has been legally committed to making grant payments
to these councils ever since, even though key assets have still
not been built.[12] This
occurred because the underlying PFI contracts, which dictated
the payments owed by the local authorities to the contractors,
related to a range of services and committed the local authorities
to pay the contractor provided that it achieved certain targets
in recycling and waste recovery and did not require all of the
expected assets to be constructed before payments started.[13]
8. The Department and its predecessor began making
payments to Surrey County Council in 1999 and, by the end of March
2014, had paid £124 million under this funding agreement.
The contract that Surrey signed had originally provided for the
construction of two energy-from-waste plants, but these have yet
to be built.[14] Payments
to Herefordshire and Worcestershire County Councils began in December
1998 and totalled £89.5 million by 31 March 2014. Again,
the planned energy-from-waste plant has not been built.[15]
9. The Department told us that "[we] have changed
the way that we do these contracts, so there are much tighter
conditions on the local authority about what happens to the money
and what triggers penalties or payments".[16]
10. PFI contracts are complex and specialised instruments
that require skilled handling to achieve value for money. Individual
local authorities are only likely to enter into such contracts
once in a generation. However, there is greater experience and
expertise in handling them within central government such as in
the Department and HM Treasury. The Department has provided support
to local authorities since the start of the programme to help
them handle complex PFI projects. In addition to providing local
authorities with guidance on planning issues, technology, and
procurement options, the Department has funded Partnerships UK
to act as 'transactors' to provide expert support and advice to
councils. The Department also told us that, when dealing with
specialist areas such as hedging, it pointed authorities to external
organisations who could provide support.[17]
Norfolk County Council in their evidence said that the Department
examined and vetted all details of the proposed contracts.[18]
1 C&AG's Report, Oversight of three PFI waste
projects, Session 2014-15, HC 264, 17 June 2014, Back
2
C&AG's Report, Oversight of three PFI waste projects,
Session 2014-15, HC 264, 17 June 2014, Appendix Four, para 1 to
4. Back
3
Q 2 Back
4
C&AG's Report, Oversight of three PFI waste projects,
Session 2014-15, HC 264, 17 June 2014, paragraphs 1.1 to 1.7. Back
5
Q 13 Back
6
Qq 6, 29 Back
7
Qq 31, 33, 119 Back
8
Qq 31,119-121 Back
9
Q 33 Back
10
Qq 6,16 Back
11
C&AG's Report, Oversight of three PFI waste projects,
paragraphs 2.21 to 2.26 Back
12
Qq 21, 23 Back
13
Q 22 Back
14
C&AG's Report, Oversight of three PFI waste projects,
paragraphs 1.10 to 1.13 Back
15
C&AG's Report, Oversight of three PFI waste projects,
paragraphs 1.14 to 1.17 Back
16
Q 111 Back
17
Qq 62-6 Back
18
Evidence from Norfolk County Council to the PAC, 23 June 2014,
p 1 Back
|
