The concerns could lead to the development of new financing options for councils to develop major new waste treatment infrastructure, outside the Private Finance Initiative.
– Cyrille du Peloux, ESA chairman
The concerns came within the Department's consultation on England's waste strategy, ahead of the publication of the Office of Government Commerce investigation into the contracting of private waste companies by councils.
Last year's OGC investigation was particularly interested in the amount of competition available for large-scale local authority waste contracts – for example through the Private Finance Inititative – and the treatment capacity available to meet European waste targets.
“Failures”
Publication of the OGC's findings is expected soon, but Defra's strategy consultation revealed yesterday: “OGC's early findings point to significant failures in the market, especially through the limited number of suppliers; it also pointed to long procurement timescales, the lack of steady flow of projects, planning delays, duplication of advice to local authorities.
“These failings were putting at greater risk the achievement of our landfill diversion targets for municipal waste,” Defra said, adding that: “Defra agrees with the review's diagnosis of current problems and that these need to be further addressed as a matter of urgency.”
The Department is seeking ideas for how it can expand non-PFI financing for local authority contracts, and how to encourage more organisations to enter the municipal waste market.
Part of the problem for local authorities in seeking competitive bids from industry for long-term, large-scale waste contracts is that there are a lot of councils seeking new private sector partners at the same time.
Local authorities
The North London Waste Authority, which is in the very early stages of seeking a new long-term waste contract, recently warned its councillors that the deluge of municipal waste contracts on offer “could significantly reduce the interest” from the private sector.
NLWA officers warned this month: “Companies will be in a position to 'pick and choose' the contracts that offer them the most profit and the least complications with regard to planning issues.”
Ian Fielding, who chairs the National Association of Waste Disposal Officers, said the situation was in danger of moving to the stage where local authorities would be competing amongst themselves to attract private sector partners.
Mr Fielding said: “This is a strange situation and it is not always healthy. Ways to solve this can be to structure contracts differently, be less specific and engage with the market before you go to tender.”
ESA
Giving a view from the waste management industry, the chairman of the Environmental Services Association, Cyrille du Peloux, said the difficulties in the market place focussed on the need to design, finance, build and operate major new infrastructure for long-term 25 or 30 year contracts.
He said: “There are not hundreds of companies that have the time, the strength or the resources to do this. There are between five and 10 companies that can, but the issue now is can they cope with more tenders at the same time?”
Risk
Mr du Peloux, who is also chief executive of waste firm Veolia Environmental Services (formerly known as Onyx), said the government was trying to bring in new players into the arena – notably from the construction sector. But to do so, he said the government would need to make planning process easier – and simplify the allocation of risk.
He explained: “Really this is a matter of finding the right financial structure. If the government improves the planning process and simplifies the risk within these contracts I think they can open the door to more players in the market. Otherwise there could be this bottleneck of companies.”
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Within its waste strategy review, Defra said it would look to strengthen the central and regional co-ordination of municipal waste management, working with the LGA and Regional Centres of Excellence. It also described the development of non-PFI financing options as “critical”.
Defra said: “In order to ensure that sufficient future funding is attracted to this market it is critical that alternative (non-PFI) procurement options are developed. This will help local authorities access other potential sources of capital funding and allow them greater freedom to apply the procurement model that best fits with their specific requirements.”
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