Waste Management Procurement Strategy Feasibility Study (Phase No1) CIWM ---------------------------------------------------- AFFILIATED ORGANISATION
� Feasibility Study - Principles: Review of the opportunity for SCDC to “Opt In”or “Opt Out” from the County Public Finance Initiative Financial analysis on taking this option Basis for the decision Strategic Appraisal Costs in procuring a “stand alone” collection service; � Viability and Deliverability of the PFI contract � Existing in house skills, � Timescale of the project � Capacities to ensure adequate recyclable material quality � Market strength � delivery Planning issues � Ability to response to market changes � Financial impacts for WCAs � Funding/Investment capability; � Risk Analysis � Ability to manage PEST risks; � Ability in implementing and managing service � improvements; Ability in managing planning issues in conjunction with the � implementation of waste treatment facilities; Level of synergy with the County and other LAs; � Decision power in front of the PFI contract. �
� Strategic Appraisal - Risk Assessment Viability and Deliverability of the PFI contract: Out put based project: ability to successfully provide an integrated waste management service and to meet recycling and composting targets PriceWaterhouseCoopers’s (PWC) assumptions: Discrepancies within the PWC’s financial model i.e. work sheet cells duplicated Assumptions regarding wheeled bins/boxes increase are only based on property growth; no allowance made for the replacement of damaged/stolen containers, thought to be 3% p.a. as per industry standards Doubt on overall project affordability Timescale of the project: In principal, overall timescale appears adequate, however: Crucial step of the tendering publication and negotiation thought to be tight Failure in meeting timescales could result in the slip up of the project in the time, enhancing further pressures on LAs in delivering key recycling targets and financing of their operations
Market Strength: 4ps influence on DEFRA: need to submit OBCs incorporating Integrated Services High number of PFI projects submitted to DEFRA p.a. – low success Attractiveness of the market – fewer bidders Slow down in the PFI market – project deliverability review by DEFRA and 4ps Planning Issues: Need for agreed Waste Local Plan identifying sites for end treatment and disposal technologies, to avoid strategy failure LAs should not rely on the private sector to resolve planning and licensing issues Problems on WLP could be a deterrent for some waste management companies Risk Management: OBC review shows that not all risk issues have been highlighted and WCAs may bear the “costs” technically, financial and politically of such risks especially those linked to the construction of waste management facilities. Risk JMWMS SCDC Shared PFI project - Risk Assessment Analysis: 70 34 12 24 Risk Critical Very Important Important Risk to SCDC to provide its own procurement strategy: No 4 3 4
“Opt In” or “Opt out” Options Political Issues Economical Issues Commitment from all LAs to JMWMS and PFI project (MoU) PFI credit would finance the capital elements of an Integrated Service (WD/WC), for collection infrastructure: vehicles, bins and JMWMS’s OBC committed for £40m PFI credits boxes to facilitate a three –stream collection system across all JMWMS can only meet and exceed its statutory & voluntary partner collection authorities targets if all LAs are part of this Joint Waste Partnership Ongoing budgetary costs to be found by the Council Consequences, should SCDC decide not to join the PFI: SCDC could be held responsible for not meeting the set targets? PFI project based on an Integrated Service would attract bidders Could SCDC politically and publicly support such criticisms? Financial, technological and operational risks would also be shared by all partners. Could SCDC support on its own procurement strategy (capex issues) Could SCDC disengage from the MoU? The “opt out” option could consist of entering into agreements with the JMWMS on the delivery of waste and recyclable. Initial review provides arguments for SCDC to “opt in”
� Financial Appraisal of the JMWMS Financial Assumptions PWC’s assumptions: RSM Robson Rhodes’s assumptions: � SCDC’s capex projection (containers) based on � Use of SCDC budget for comparison property growth � Apportionment of overheads £74K will be transferred � No capex for damaged bins thought to be at 3% p.a. to the PFI contract (based on industry standard) � No recycling credits will be retained by the Council � SCDC’s opex projections based on revenue and once joining the PFI contract disposal costs (trade waste) � Affordability of joining or not the PFI contract based on the NPV
� Financial Projections(1) – over the length of the project: Net Present Values Joining (£'000) Not Joining (£'000) Collection Costs (net of Income) / OPEX 50,708 42,159 CAPEX (Bins & Boxes -- replacement/overhaul) - 2,812 Less: Management overheads transferred to the PFI contract - - Less: Credits & Grants (1,348) (1,339) Project Net Present Value 49,360 43,632 Cost of Mgt Overheads retained by Council 2,037 - Cost of Remaining Services 1,767 1,767 Total Cost of all services to SCDC 53,163 45,399 Note: Cost of transferring portion of management overheads (joining the PFI contract) - £1,261k
� Financial Projections (2): Should the Council join the PFI contract, the remaining overheads normally related to waste collection services and recycling services, will have to be absorbed as an extra cost by the rest of services not transferred to the PFI contract. £’000 Costs of Remaining Services retained to Council 1,767 Remaining Management Overhead from Collection and recycling not 120 transferable to the JMWMS Extra costs to carry 6.80%
� Financial Projections (3): Net Present Values on annual basis Joining (£'000) Not Joining (£'000) Collection Costs (net of Income) / OPEX 2070 1721 CAPEX (Bins & Boxes -- replacement/overhaul) - 115 Less: Management overheads transferred to partnership - - Less: Credits & Grants (55) (55) Project Net Present Value 2015 1781 Cost of Mgt Overheads retained by Council 83 - Cost of Remaining Services 72 72 Total Cost of all services to SCDC 2170 1853 Difference between joining and not joining 317 % Difference between joining and not joining 17%
� Résumé: Should SCDC Join the PFI contract: � Political and economical issues to consider � Extra O/H costs to carry: 6.8% p.a. � % operating costs difference between joining and not joining: 17% p.a. � SCDC would loose all recycling credits � SCDC would end up paying for the inefficiency of the other LAs in terms of recycling and composting � Loss of opportunity for SCDC to further improve service efficiency, revenues from trade, and extra credits from Public Reward Grants
� Conclusion: SCDC is better off “Opting Out” the PFI contract Next step: SCDC to design its own procurement strategy and to assess viability of its environmental services
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