Private Finance Projects and off-balance sheet debt - Economic Affairs Committee Contents


Memorandum by Ms Mary Newton on behalf of Gloucestershire Friends of the Earth Network

"The 2007 Comprehensive Spending Review set out how the Government is progressing its ambition to create world-class public services that can respond to people's rising aspirations while equipping the UK for global change. Budget 2008 updates the analysis of the strategic challenges facing the economy, highlighting the importance of infrastructure in delivering not only public services that meet people's needs and expectations, but also economic prosperity and growth." (Infrastructure procurement: delivering long-term value by HM Treasury March 2008)

  The fundamentals of PFI funding are large infrastructure projects with long term contracts for public sector projects. Yet Gloucestershire Friends of the Earth Network (GFOEN) would contend that this is the very opposite as to what is required in the area of dealing with waste in this time of change. The handling of waste has different needs, when contrasted with building a school or a hospital, and should be regarded as a resource industry based in local communities.

  In studying the process and procedures in the handling of waste GFOEN has become increasingly concerned that the PFI system used to meet the challenge of the EU Landfill Directive, has led to the focus of PFI funding on residual waste, the back end of the waste industry, to the detriment of the front end of the industry which should be treated as a resource industry of innovative new businesses and new jobs.

  In the way residual waste PFI functions at present it is in danger of having a detrimental effect on this growth area so vital in this period of economic crisis. Local authorities need to be encouraged by financial support from government to invest to achieve high recycling rates and the production of high quality recyclates by kerbside separation needed for this expanding recyclates industry.

  Flexibility is fundamental to meet the changing world of the future in which climate change increases, raw materials diminish and emerging industrialising nations add to the volatility of markets and global economies. The new economies of the Far East are redrawing the economic map of the world and Britain is half a world away from this economic magnet.

  Flexibility should be fundamental to the handling of waste as to any other industry which means investment in small innovative projects and short term five to 10 year contracts. Inflexibility is a single contractor with a large facility for residual waste and a long term 25 to 35 year contract that will dominate a local waste market with no competition, no choice and therefore no chance of change. This will stifle the front end of the waste industry of investment and growth in reduction, reuse, recycling and composting of waste.

  Large projects, such as incinerators are by their nature expensive and therefore require long term contracts, which once signed, the amount of waste required has to be met. This sets an artificial ceiling on the amount of municipal waste that can be recycled to the detriment of future innovative industrial technologies whose source material is recycled waste. Knowaste, in Birmingham, announced it is to turn soiled nappies into plastic cladding and roof tiles with the biodewaste feeding an Anaerobic Digester converting the gases for the national gas grid. Via i-plas in Yorkshire is to turn mixed plastics into high performance building material to be used in the construction industry. Britain is good at innovation, this is an expanding market for new businesses and new jobs.

  Waste is made from raw materials and the energy already used in its manufacture, so it makes sense to recycle and save energy rather than starting from scratch in making products to sell.

  During the first wave of the economic crash when the news was full of stockpiled recyclates, leading materials' reprocessors wrote to DEFRA saying that they were still having to import high quality recyclates, mainly produced from kerbside separation schemes and household recycling centres in Europe. In the UK the problem is that so many local authorities are concentrating on co-mingled (mixed) collections which produces low grade, often contaminated recyclates which can spoil recyclate manufacturing processes. These co-mingled collections are the recyclates that were in the news and are usually shipped to China.

  GFOEN believe that there needs to be a fundamental change in the type of investment to match the economic needs of the future which allows flexibility and stimulates innovative new businesses.

  PFI funding, because of it's large scale, precludes many small bidders, it absorbs resources, is almost risk free to the contractor through the long term contract system which simultaneously creates a long term financial burden for the local taxpayer, all in a cloud of secrecy mainly labelled commercial confidentiality.

  GFOEN believe that there needs to be a fundamental change to enable the responsibility of decision making and action on waste to remain within small local communities, where municipal waste arises, to enable them to be involved in the responsibility of dealing with their own waste. This principle should be extended to the development of small local residual waste management projects of proven need, that match the scale, form and size of their surroundings and that are acceptable to the local communities. It is working on a community scale so that there is direct participation and action at the local level that is the key. This would minimise the waste carbon footprint and stimulate small and medium enterprises in the recycling and in the recyclates industry. Thereby local communities can positively contribute to achieving the government set target of achieving 80% reduction of our carbon footprint by 2050.

  The PFI system actually discourages public participation and innovation, underlined by the lack of transparency in critical areas of modelling which directly influence outcomes leading to the critical decisions of site, size of facility and technology of a residual waste facility and thereby the cost to the Government and the local tax payer. This lack of transparency stifles innovation and the growth of alternatives and thereby value for money challenges. GFOEN requested to put the points contained within this and the accompanying document to be told by the DEFRA officer that there is no third party participation in the negotiations between the Local Authority and DEFRA for PFI funding.

  For consideration by the Lords Economic Affairs Committee and other communities GFOEN recommends the abandonment of the PFI system of financing for municipal waste projects for a more innovative approach which might encourage more venture capital.

  In the report Infrastructure procurement: delivering long-term value by HM Treasury March 2008:

    "2.3: Joint ventures A joint venture can take a number of different legal forms, including:

    — a company limited by shares—with joint venture parties as shareholders;

    — a Limited Liability Partnership—similar to the unincorporated partnership but where the entity is registered and the liability of the partners is limited;

    — a Community Interest Company—where the various parties invest in a limited company which is registered to ensure that any profits are reused for the stated community purpose."

  For example local communities being supported to develop Community Interest Companies, small joint ventures between local authorities and small private businesses could revolutionise the handling of waste resources. For instance the average cost of small scale Anaerobic Digesters is expensive to a farmer whereas in partnership with a local authority he could provide CHP or converted gas for the national gas grid or H2 fuel cells for the cars of the future all from food waste or farm waste. In June 2009 the compost price of biowaste stood at £4.00 a ton whereas the market value as converted gas, CHP or fuel cells for cars would be far higher, as well as contributing to reaching the government climate change targets.

  In Gloucestershire GFOEN are recommending

    — an increase in recycling targets to 70% by 2013 and at 2013 to reassess 2020 targets upwards to 80% to move onwards to zero waste. In work for the National Assembly for Wales 2007 by consultants, Eunomia showed 93.3% of the municipal waste stream could be recycled;

    — greater separation of waste at kerbside; and

    — small local residual waste management facilities that match the scale, form and size of their surroundings and acceptable to local communities (5,000-45,000tpa, size dependent on proven need) preferably MBT with Anaerobic Digestion on a few local sites, for the benefit of local communities guided by variable short term contracts of five to 10 years. Development staggered to allow recycling rates to increase over a period of time covered by LATS purchase and brought on line with population growth. There should be several small local contractors involved on different sites stimulating competition.

  Because of the financial crisis GFOEN understands that the Government has agreed to underwrite PFI funding for residual waste projects to enable projects to move forward, therefore it would appear that there is little risk to the contractor especially when one considers the long term nature of PFI contracts. If PFI funding is to continue GFOEN questions whether this is value for money and would welcome a reappraisal as to whether PFI funding would be better spent in focusing on the front end of the waste industry for investment in reduction, reuse, recycling and composting of waste.

  If the PFI system is retained GFOEN recommend reforming the PFI criteria, contract system and guidance with regard to waste to enable innovation by:

    1. widening PFI funding to include reduction, reuse, recycling and stimulating investment in new small recyclates businesses;

    2. removing the floor level minimum cost for a residual waste project of £20 million;

    3. removing the long term contract requirement and providing the alternative of short term contracts of five to 10 years;

    4. requiring inclusion within an Outline Business Case (OBC) reference project modelling small residual waste facilities;

    5. if contested, requiring projected waste arisings to be tested at public inquiry before a residual waste project proceeds to ministerial approval;

    6. requiring all information and modelling processes used to advance a residual waste project be available for public inspection for transparency and for the greater public interest;

    7. requiring public consultation to take place at each stage of procurement; and

    8. removing the requirement for the output specification to be "technology neutral" for PFI funding.

  GFOEN also submit a separate companion document Memorandum to the Select Committee Environment Food and Rural Affairs inquiry into the Waste Strategy for England 2007 submitted by Gloucestershire Friends of the Earth Network and request that this document be read in conjunction with this submission as it contains many references to the PFI system of funding from the perspective of local taxpayers and concerns relating to climate change. 71


 
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