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Cornwall Council could save £320 million by ditching their Waste PFI contract

Eunomia Research & Consulting was engaged by Atlantic Energy on behalf of the Cornwall Waste Forum (CWF) to examine a number of questions regarding waste treatment in Cornwall. Cornwall’s current waste (PFI) contract was signed with Sita in 2006. Eunomia carried out an independent study that considers whether there may be a practicable and more affordable alternative to Cornwall Council’s current waste management arrangements.

Eunomia’s Assessing the feasibility of an alternative plan for Waste Management in Cornwall report reaches some powerful conclusions, notably that the Cornwall PFI contract has been found to have two significant problems, that also appear to apply to other Waste PFI contracts:

[The Cornwall Waste PFI contract] is outdated and not fit for purpose. Due to its origins in analysis conducted in the late 1990s, it no longer reflects the policy, legislative and technology context of waste management. For example, it does not identify food waste as a separate waste stream, and does not apply current guidance on how food waste should be collected and treated. This presents a level of legal risk to the council, which is obliged by law to apply the waste hierarchy in its approach to waste management.

[The Cornwall Waste PFI] is expensive. Based on credible estimates of SITA’s charges, the contract appears to offer very poor value for money. We estimate that the contract currently costs the council around £28m per year, and that this will rise in future. The total cost is estimated at £647m (in real terms) from 2012/13 through to the contract’s end. Our modelling shows that by exiting the contract, more than half of this cost might be avoided…

…Cornwall Council, in common with other local authorities, faces severe constraints on its budget and must look closely at the value for money it achieves in all of the services it delivers. Reviewing the contract with SITA could present a significant opportunity for the council to identify savings. Changing its approach to waste has the potential to deliver major savings without a reduction in the services delivered to local residents. Indeed, it would open up possibilities such as separate food waste collection and improved recycling rates. There is a strong case for a thorough review of the SITA contract, which could help relieve budgetary pressure on other areas of council services.

In their Report Summary Eunomia explain that their review did not set out to identify an optimum approach to waste management in Cornwall, but rather focussed on a comparison of the estimated costs of the current approach with the costs the council might expect to incur if it made various changes to its arrangements.

The scale of the potential saving identified by Eunomia is dramatic, and they explain that this is in large part because of the charge of over £50 per tonne it appears that the contract specifies for receiving and processing recyclable materials. This charge is set to rise in the future and is already very high by the standards of the current market. Eunomia found that overall costs could be reduced by an average of £10m per year by simply diverting recyclable materials out of the PFI contract and onto the open market.

The study also found that exiting the contract entirely and not building SITA’s planned incinerator would save even more – over £20m per year on waste management, although offset somewhat by additional collection costs.

[quote] In the context of such significant savings, the risks and costs that the council has identified as likely to be incurred in leaving the contract, though unpalatable, are relatively small compared with the potential savings of over £320m in net present value terms over the period through to 2036/37. The costs include likely penalty payments to SITA stated by the council to be up to £80m, combined with the loss of some £45m of PFI credits. Few would dispute the council’s view that there is a need to divert more of Cornwall’s waste from landfill. However, there do appear to be better options than the approach envisaged under the PFI contract and the view that the SITA incinerator should be progressed immediately as there is no realistic alternative seems overstated. [end quote]

Speaking on behalf of Cornwall Waste Forum, St Dennis Branch, Chairman Ken Rickard said: “We began our campaign because of our concerns about the impact on the environment and health of Cornwall, and our immediate community if an incinerator was built in St Dennis. Over time we have found out more about the complex subject of waste management and become convinced that Cornwall Council boxed themselves into a corner when negotiating the PFI contract with SITA. This has not offered value for money, or taken into consideration the huge changes taking place in waste disposal approaches elsewhere in the country. Councillors have understandably asked for evidence, which we have now provided and it is their responsibility to look into this contract and question waste treatment and disposal policy”.

Atlantic Energy’s Charmian Larke, technical advisor, who was involved in commissioning the report, continues: “This is no longer just about incineration, although our objections stand; it is about the validity of Cornwall Council’s waste management policy and the urgent need for Councillors and Cornwall Council’s Chief Executive to finally get a grip on the runaway costs of the disposal contract. By refusing to consider Cornwall Waste Forum’s alternative suggestions which include separate food waste collection with anaerobic digestion and automated residual waste sorting, the Council has refused to consider options which could save £ hundreds of millions. This is clearly unacceptable. We now have clear independent evidence which must make every Councillor sit up and interrogate waste management in Cornwall more fully. These findings are in fact good news. The case for reviewing waste management is persuasive and the savings a real opportunity for Cornwall Council to take pressure off other budgets. An example of savings is that Cornwall Council is paying over £50/tonne to dispose of valuable dry recycling which has an average resale value of up to £40 per tonne – so SITA are getting paid twice!”

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