Concern over impact of PFI axe on private sector

Waste management companies have questioned the government's commitment to landfill diversion as they grapple with the wider implications of Wednesday's Spending Review announcement that seven major waste treatment projects are having their PFI funding withdrawn.

There is already doubt over many of the projects directly affected by the decision, with the South London Waste Authority revealing it will now only sign a long-term treatment deal if it still makes economic sense (see letsrecycle.com story).

And, concerns have been raised over just what effect the change (see letsrecycle.com story) could have on the development of waste infrastructure in general, and in particular in terms of the damage it could cause to the banks' confidence in supporting major projects.

This was highlighted by Mike Snell, external affairs manager for Northampton-based Waste Recycling Group, which is a shortlisted bidder for two of the procurements to have their PFI funding withdrawn – in South London and the Milton Keynes and Northamptonshire partnership.

He told letsrecycle.com: “The Government's actions on PFI projects yesterday came as a real surprise, and it does raise questions about the coalition Government's commitment to maintaining the transformation of how the UK manages its waste and resources in the longer term.”

“We urge the Government not to give up on supporting the provision of the necessary treatment infrastructure in order to continue to drive waste from landfill. The programme is at a delicate stage and to create uncertainty around funding at this level risks significant delay and damage,” he added.

His concerns about securing investment were echoed by another waste industry insider, who said: “The government thinks that these companies can just go out to the market and get the money but banks might look at it and say ‘no thank you, we're not touching waste' and then where are we?”

Merchant facilities

Some in the sector have suggested the announcement could precipitate a move towards waste management companies developing merchant facilities instead of infrastructure under council contracts, while there are also claims that more material could be sent to facilities overseas.

A private sector representative said there would also be opportunities in expanding existing infrastructure such as some of the older municipal incinerators in the Midlands – something that Coventry council has mooted as an alternative to its now-abandoned ‘Project Transform' – and that some had recently revealed they were short of material.

And, a spokesman for waste sector trade body the Environmental Services Association highlighted the Spending Review's potential impact on opening up alternative financing avenues such as prudential borrowing.

“Local authorities will have new powers to borrow against future revenues under proposed plans, so we don't know whether there will be any scope for them to use that towards projects,” he said, adding that details on this were expected in a finance bill later this year.

Future prospects

Many of the other waste companies to feature on the shortlists for the contracts affected have remained tight-lipped about the future prospects for both specific procurements and the development of waste infrastructure in general.

Viridor, which is one of two final bidders for the £1 billion Cheshire contract, as well as being one of four contenders for the Gloucestershire deal and in the running for the NLWA contract, would only highlight its commitment to work with its local authority clients.

“We will be working with our respective local authority clients to deliver vital and cost effective landfill diversion services and capacity,” it said, adding that, in terms of the contracts directly affected, “decisions regarding the way forward will be the responsibility of the local authorities concerned.”

A similar line was taken by Veolia, the UK's largest waste company, which is also in the running for the NLWA contract, as well as being one of the final two bidders another of the seven contracts affected, Leicestershire county council.

Paul Levett, Deputy Chief Executive of Veolia Environmental Services (UK) Plc, said: “It is too early to assess the impact of the CSR on individual procurements. We continue to be ready to offer solutions to our customers irrespective of the availability of PFI credits.”

Despite the uncertainty, SITA, which sold its stake in LondonWaste to the NLWA in November 2009 to allow it to bid for the Authority's waste PFI (see letsrecycle.com story), stressed that the private sector would still have a big role to play in developing waste treatment infrastructure.

The company's chief executive, David Palmer-Jones, told letsrecycle.com: “With government funding under greater pressure than ever before there will inevitably be a greater role for the private sector to help with a national need to divert waste going into landfill. The private sector has always been willing to invest in sound projects.”

But, he added: “For this to happen it is paramount to have a tighter co-ordination between central and local government to ensure the planning process acts as a facilitator to enable alternative waste management schemes rather than the current situation where schemes are increasingly stymied at the local level.”

Shanks, which has a major presence on the list of those contract directly affected by yesterday's announcement given its purchase of United Utilities' PFI waste business earlier this month, (see letsrecycle.com story), was unavailable for comment.