Municipal markets ‘have changed’, says Veolia

Following the publication of Veolia’s response to the Competition and Markets Authority’s (CMA) provisional ruling against the Veolia/Suez merger, Barbora Vaclavova takes a closer look.

Veolia Suez
Veolia began a 10-year collections contract in Wycombe, Chiltern and South Bucks in September 2020

Veolia pulled no punches in its response document, released by the CMA on 16 June. The CMA is investigating whether Veolia UK can ‘merge’ with Suez UK and has provisionally ruled that such a merger would create a substantial lessening of competition so should not go ahead.

In its response to this provisional view, Veolia, which is largely French-owned and headquartered in Paris, argues that the CMA’s take on the UK waste market comes from an “outdated” perspective, which doesn’t consider the landscape and complexities of a changing market. One aspect in particular Veolia wasn’t happy with was the CMA view of local authority contracts.

The regulator described these as ‘complex’, referring to a bundle of waste management services which few operators can apply and compete for, and said that Veolia and Suez joining could result in “insufficient” competition for these deals.

This view was challenged by Veolia, which claimed that “there was no identifiable subset of ‘complex’ contracts and certainly no recognised industry definition.”

As a result, the CMA moved towards the argument that ’complexity’ can be a feature of different waste management markets, such as the municipal collection market, and should therefore be considered when examining competition in those markets.

Infrastructure

However, the waste management company has highlighted that the CMA has not carried out any systematic assessment that would justify defining the market segment as complex.

It pointed out that the authority’s understanding of ‘complexity’ was linked to the inclusion of infrastructure in the contracts. “Integrated contracts for all waste management services, including building and operating facilities, are a thing of the past,” Veolia added.

The argument was strengthened by responses from Beauparc, Amey, Urbaser and Biffa, which all linked complexity of contracts to infrastructure.

Similarly, Veolia said local authorities describe complex contracts as ones “involving large capital expenditure” and “larger contracts where investment in infrastructure is required”.

Development

Veolia went on to describe how the market, and subsequently, the way municipal waste contracts are tendered has developed significantly. This is partly because significant local authority infrastructure has been built. “Coupled with the termination of the private finance initiative (PFI) scheme, contracts for waste treatment infrastructure are now rare,” Veolia reasoned.

In today’s market, it is more common for local authorities to unbundle waste management procurements and tender for individual services.

Veolia said that nowadays it’s more common for local authorities to tender for individual services

Veolia said the CMA’s analysis focused on contracts that were entered into more than 10 years ago, with the responses from third parties also based on their experience tendering for contracts at that time.

In-house

The company reported that the majority of local authorities in the CMA’s sample have considered self-supplying collection services.

It said: “Of 19 local authority respondents who currently outsource collection, 14 have considered self-supplying collection services. This number would likely have been even higher had the CMA asked whether local authorities would consider self-supplying waste collection services, which is more relevant to competition for upcoming contracts.”

“Self-supply is not a mere “benchmark,” it is a genuine constraint on bidders,” it added.

Competition

Veolia’s response noted that competitor responses identify eight competitors other than Veolia and Suez, including in-house supply.

The company also appears to be irked by the fact Biffa’s acquisition of Viridor was not called in for assessment by the CMA.

According to Veolia, Biffa was identified as having “lots of know-how” and other contractors such as Serco as winning “numerous new and large contracts” and Urbaser as “increasing its presence in the UK”, to name but a few.

The waste management company concluded that there is no prospect of a ‘significant lessening of competition’ in the market for municipal waste collection services. It said that the evidence in the provisional findings portrays a competitive bidding market where local authorities can choose from at least eight credible suppliers, appoint a local authority-owned trading company or in-source services.

The response concluded: “The CMA’s attempt to carve out a subset of ‘complex’ municipal collection contracts for which the parties may compete more closely is methodologically flawed and is not supported by the evidence.

“Veolia has shown that there are sufficient bidders for municipal collection contracts no matter how they are packaged.”

All eyes will now be on the 17 July deadline for a final ruling from the CMA on the future of Veolia/Suez. The former has already made plans to sell Suez UK’s waste business if the provisional ruling becomes final.

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