Early Project Closure - Materials Recovery Facility (MRF)

Agenda Item 4

BOROUGH OF POOLE

CABINET

8th SEPTEMBER 2009

SECURING THE FUTURE DELIVERY OF POOLE’S WASTE STRATEGY

EARLY PROJECT CLOSURE - MATERIALS RECOVERY FACILITY (MRF).

PROJECT INITIATION – NUFFIELD ROAD DEVELOPMENT (WTS & HWRC): REPORT OF HEAD OF ENVIRONMENTAL & CONSUMER PROTECTION SERVICES

Part of Published Forward Plan – Yes

Status – Strategy Policy

1.PURPOSE AND POLICY CONTEXT

1.1.To approve the termination of the ‘Agreement for Partnership’ with Viridor and Bournemouth Borough Council to jointly develop a Material Recovery Facility (MRF).

1.2.To seek approval to negotiate any changes to the Recyclate Service within the Council’s waste management contract as necessary to safeguard the recycling services.

1.3.To seek agreement that the Waste Transfer Station (WTS) project to renew and develop the Council’s Nuffield road site should continue and proceed to the presentation of a detailed Business Case to Cabinet.

1.4.To approve the retention of existing capital resource allocations to support these proposals.

2.DECISIONS REQUIRED

2.1.That Cabinet terminates the ‘Agreement for Partnership’ (Referred to as the MoU) signed with Viridor and Bournemouth Borough Council to jointly develop a local MRF and to close down further work associated with developing a local MRF in Poole.

2.2.That Cabinet assigns delegated powers jointly to the Head of Environmental & Consumer Protection Services, Head of Legal Services, and Head of Finance to negotiate for revised terms to the Council’s waste management contract as necessary to safeguard the Council’s recycling services as a consequence of ceasing development of the Poole MRF.

2.3.That Cabinet approves the continuation of those elements of the Outline Business Case (approved by Council in July 2008) that relate to the renewal and development of the Council’s Waste Transfer Station (WTS) at Nuffield Road and that the scope of this project is revised to include the Council’s Household Waste Recycling Centre (HWRC) on the same site.

2.4.That Cabinet recommends to the Council retention of both revenue and capital funding provisions for the renewal and development of the WTS & HWRC at Nuffield Road.

2.5.That Head of Environmental & Consumer Protection Services (E&CPS) proceeds with all feasibility works and seeks approval from the Cabinet for a detailed Business Case for the renewal and development of the WTS & HWRC (Nuffield Road Site) prior to commencing implementation.

3.INTRODUCTION ANDBACKGROUND TO THE OUTLINE BUSINESS CASE (OBC) TO DEVELOP A POOLE MRF

3.1.The Head of E&CPS is recommending early closure of the project to jointly develop a local Materials Recovery Facility.

3.2.The Council has an agreement with Viridor signed 31st August 2004 to deliver waste services. A Deed of Variation dated 6th September 2006 continues this agreement for 20 years to 2026.

3.3.The Deed of Variation Agreement included provisions for Viridor to terminate the operation of the recycling service on 30th June 2011 if they were not satisfied that the service can be provided in the absence of a MRF in Poole.

3.4.On the 7th March 2006 the Cabinet approved in principle the construction of a MRF in partnership with Viridor on a site adjacent to its Hatchpond depot before 2011.

3.5.The Council established a project to develop an Outline Business Case (OBC) that was approved by the Cabinet on 8th July 2008.

3.6.The option approved by the Cabinet (Option 3) set a framework where strategic waste partner Viridor would be responsible for building, owning and operating a MRF at the Hatch Pond Road site.

3.7.It was intended that Viridor would build, own and operate the MRF on the basis that the Council and Bournemouth Borough Council (BBC) would jointly deliver 35,000 tons per annum of dry recyclables for processing. The Council and BBC would pay a gate fee and the Council would also share in the revenue from sales of recyclables. Viridor would take the risk of finding additional recyclables to improve the commercial viability of the MRF.

4.PROGRESS SINCE OBC APPROVAL

4.1.Project Workstreams: In October 2008 the project established three workstreams: Site Acquisition, MRF Design and Partner Contracts.

4.2.Site Acquisition: In December 2008, the Council approved a report to proceed with preparatory work for the joint purchase with BBC of a plot of land owned by Brett Landscapes to be used for development of the MRF.

The Council agreed in principle for compulsory purchase of the site with action being taken concurrently to acquire the site by agreement.

4.3.Design:The design team formulated Construction Standards and site layout designs for the MRF on the land owned by Brett Landscapes and encroaching, in part, onto the Council’s Hatchpond Depot site.

4.4.Partner Contracts: in February 2009 the Council, Viridor and BBC signed an Agreement for Partnership (referred to as the Memorandum of Understanding, MoU) to develop a local MRF in line with Option 3 of the approved OBC. The agreement provides for the parties to terminate the MoU and to share the declared Council’s external costs incurred since signing the MoU.

4.5.Review of the Business Case: on 13th May 2009 Viridor provided revised pricings for the operation of the MRF. As a result of recent significant changes in the economic climate, it was advised that gate fees for the Poole MRF would rise by over 10%. The reasons for this are as follows:

4.5.1.Increased costs for procuring plant for the MRF from within the Euro zone as a result of deteriorating £ exchange rate.

4.5.2.Reductions in capital allowances mean that costs for construction will have increased by some £300,000.

4.5.3.Viridor are experiencing more difficulty in getting access to the capital necessary to procure and construct the MRF.

4.5.4.The cost of borrowing capital for private enterprise during the current recession has increased from 6.5% to 8%.

4.5.5.In addition there are potential further increases in landfill costs for residual waste at a stage in the future.

4.6.Viridor asked the Local Authority partners to consider funding the MRF with prudential borrowing.

4.7.BBC has made it clear that it is not in a position to support an option whereby they fund the MRF through prudential borrowing because the term of their contract is too short (ends 2014).

4.8.The Council also made it clear that it would not be willing to accept the transfer of all of the project risks. The Council has identified the following key risks;

4.8.1.Future fluctuations in recyclate prices

4.8.2.Increased competition from MRF’s currently in development in the southern region.

4.8.3.Lack of certainty with regard to future growth rates of waste overall and recyclable products in particular.

4.9.Since the deed of variation was signed on 6th September 2006 Viridor have purchased the company with whom they previously contracted to process the Council’s recyclates. This has removed the uncertainty of Viridor being able to provide the recycling service to the Council post 30th June 2011. Viridor gave a verbal assurance that this service would continue and that their option to terminate this service would not be implemented.

4.10.As a result of this analysis the parties agreed that the Business Case to develop a local MRF as presented to Council in 2007 was no longer viable.

5.OPTIONS CONSIDERED FOR THE FUTURE OF POOLE MRF

5.1.As a result of the revised gate fee information provided on the 13th May and the analysis described in 4.5 – 4.10, a two week review period was agreed in order to allow a thorough evaluation of the options available. In summary the options considered included:

• Seek lower capital and operating cost through a ‘Mini-MRF’ offering less capacity and fewer material separation options.

• Proceed as planned with the Viridor design, build, finance, operate pricing model.

• Opt for a prudential borrowing, pricing model.

• Put on hold development of the MRF for an unspecified period.

• Close the MRF project with immediate effect and negotiate revised terms for the current recycling service with Viridor.

5.2.At a meeting of the partners it was determined that none of the options proposed for the continued development of the MRF were acceptable to all parties. It was agreed that the business case in the current climate was no longer viable and, as a consequence, that the project should cease all further development work and the parties should seek project closure.

6.CONSEQUENTIAL ACTIONS - MRF PROJECT CLOSURE

6.1.The Outline Business Case set out a number of key drivers and benefits to be derived from building a local MRF. The project has assessed the implications of Project Closure on those imperatives.

In summary the project recommends the following actions:

• Securing the Blue Bin Service & Provide for Expansion – Negotiate with Viridor that they will not seek to pursue the option for Viridor to terminate the recycling service in 2011 and seek to secure revised terms of agreement or instigate a procurement project to commence retendering the service should notice be served.
• Improve Proximity to Source (Reduce Carbon Footprint): Negotiate to secure future transport of dry recyclables to a facility closer to Poole than Crayford if this will be beneficial.
• Compliance with Duties: Proceed with renewal and development of the WTS at Nuffield Road. This work is essential to ensure that the Council can continue to dispose of its household waste, green waste recycling and blue bin recyclables. The current facility is reaching the end of its serviceable life.
• Safeguard Licence and Health & Safety by Renewal and Development of the WTS: Proceed with renewal and development of the Nuffield Road site. This work is essential to ensure legal compliance of both the WTS and HWRC both in terms of environmental permitting and the health and safety of the site workers and users.
• Cost (Fine) Avoidance & Improve the Quality of Recovered Material & Increase Flexibility: Seek revised arrangements that would enable a wider range of recyclable products to be separated and further reduce the amount of waste going to landfill.
• Return of Value/Cost Efficiencies (Price) Seek revised arrangements that address the lack of credit or return of value for increases in recyclate value and volume and that will reduce transportation costs.

6.2.The project closed all discussions regarding the purchase of land from Brett Landscapes with immediate effect following the meeting.

7.THE WTS AND HWRC OUTLINE BUSINESS CASE

7.1In order to proceed with the development of the Nuffield Road site a project will be created within the Council’s project management scheme. A report has already been taken to the Asset Management Group.

7.2A full condition survey will be undertaken to produce options for the future design and operation of the Nuffield Road site. This will inform the development of the OBC which will be presented to Council for approval.

8.FINANCIAL

8.1.On the basis that Viridor Waste Management Ltd will no longer be serving notice in line with their option under their waste disposal contract with the Council, the Council has met its objective of securing a long-term arrangement for the disposal of its dry recyclate waste (blue bin scheme). This agreement has mitigated the potential financial exposure to the Council from the following;

- Recyclate having to be treated as domestic waste

- Exposure to Landfill Tax

- Exposure to Landfill Tax Trading Scheme (LATS) penalties

- Failure to meet the Governments Recycling Targets.

It is anticipated that the cessation of this project will not have a direct impact on the current terms (prices)withinthe waste disposal contract.

8.2.In meeting the objective of preparing the OBC and working towards the development of thefull business case for the MRF the Councilhas incurred the followingrevenue expenditure

Financial YearAmount £

2007/08 170,000

2008/09 98,000

2009/10 30,000 (estimate)

The total of £298,000 is net of contributions from Bournemouth Borough Council and Viridor Waste Management Ltd. These costs also exclude the cost of any officer either within Environmental & Consumer Protection Services (E&CPS) or the various support services of the Council who's costs are not recoverable as they are met by the base budget of the Authority.

8.3.The Council has set-a-side a further £118,000 within earmarked revenue reserves to supportfurther feasibility costs associated with the Council's Waste Strategy which includes the MRF. It is proposed that these resources are retained to support the development of an OBC for the refurbishment of the HWRCand WTS.

8.4.Within its Capital Programme the Council has set-a-side £4.9m to support its Waste Strategy which included;

a) A contribution towardscertain development costs for the MRF.

b) Refurbishment of the HWRC and WTS.

It is proposed to retain these resources as earmarked for the Waste Strategy subject to the development of the OBC for the HWRC and WTS refurbishment, as well asthe Council's review of the allocation of its available capital resources as part of a Capital Resources Allocation Model (CRAM) which is being used to support the annual refresh of the Council's Medium Term Financial Plan.

9.GOVERNANCE

9.1.Where appropriate, these recommendations have been discussed and agreed by the MRF Tripartite Steering Group (The Council, BBC, Viridor) that represents the interests of the three parties to the MoU and jointly agreeing the original intent to develop the MRF.

9.2.All the recommendations have been discussed and agreed by the Council’s MRF Sponsorship Group that oversees the MRF Project and ensures governance procedures are followed and effective.

9.3.A new Governance framework for the project to renew and develop the WTS & HWRC facilities (Nuffield Road site) has been established (see appendix 1).

10.EQUALITIES

10.1 The redevelopment of the HWRC will improve the use of the site for

older people and for some who have a physical disability. A full

equalities impact assessment will be conducted as part of the

development of the OBC.

Shaun Robson

Head of Environmental and Consumer Protection Services

Name and Address of Officer Contact

Mike Watts

01202 261728

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