Waste Management Procurement Strategy Feasibility Study (Phase - - PowerPoint PPT Presentation

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 Strategic Appraisal

• Viability and Deliverability of the PFI contract
• Timescale of the project
• Market strength
• Planning issues
• Financial impacts for WCAs
• Risk Analysis

Basis for the decision

• Costs in procuring a “stand alone” collection service;
• Existing in house skills,
• Capacities to ensure adequate recyclable material quality

delivery

• Ability to response to market changes
• Funding/Investment capability;
• 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. PFI project - Risk Assessment Analysis: Risk to SCDC to provide its own procurement strategy:

Risk JMWMS SCDC Shared 70 34 12 24 Risk Critical Very Important Important No 4 3 4

“Opt In” or “Opt out” Options

Political Issues Economical Issues

Commitment from all LAs to JMWMS and PFI project (MoU) JMWMS’s OBC committed for £40m PFI credits JMWMS can only meet and exceed its statutory & voluntary targets if all LAs are part of this Joint Waste Partnership Consequences, should SCDC decide not to join the PFI: SCDC could be held responsible for not meeting the set targets? Could SCDC politically and publicly support such criticisms? Could SCDC support on its own procurement strategy (capex issues) Could SCDC disengage from the MoU? PFI credit would finance the capital elements of an Integrated Service (WD/WC), for collection infrastructure: vehicles, bins and boxes to facilitate a three –stream collection system across all partner collection authorities Ongoing budgetary costs to be found by the Council PFI project based on an Integrated Service would attract bidders Financial, technological and operational risks would also be shared by all partners. 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

PWC’s assumptions: RSM Robson Rhodes’s assumptions:

SCDC’s capex projection (containers) based on

property growth

No capex for damaged bins thought to be at 3% p.a.

(based on industry standard)

SCDC’s opex projections based on revenue and

disposal costs (trade waste)

Use of SCDC budget for comparison Apportionment of overheads £74K will be transferred

to the PFI contract

No recycling credits will be retained by the Council

• nce joining the PFI contract

Affordability of joining or not the PFI contract based on

the NPV Financial Assumptions

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 transferable to the JMWMS 120 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