The ‘affordability’ of waste contracts established through the government’s Private Finance Initiative – PFI – is increasingly under review by local authorities, a legal expert said yesterday (22 February).
The comments emerged during a discussion at the Energy from Waste Conference in London where panellists discussed different funding models available for EfW projects.
James Snape, partner at law firm Nabarro
Speakers included James Snape, partner at law firm Nabarro, Ashley Comerford, business development and joint venture manager for SSE, James Samworth, partner at Foresight group and David Newman, structured finance office for EMEA at the Mitsubishi UFJ Financial Group.
PFI contracts involve initial capital investment from the private sector to fund large public infrastructure projects. Public finance is then used to pay back the project over a long-term period.
PFI
A number of major UK residual waste infrastructure projects were financed using the PFI model between 2000 and 2012 as the Department for Environment, Food and Rural Affairs (Defra) sought to ensure that the UK would meet landfill diversion targets.
In early 2013 Defra opted to end its PFI support for a number of future developments, after it had projected that the landfill diversion target was on course to be met (see letsrecycle.com story).
During yesterday’s discussion, the panel was asked by Jacob Hayler, executive director of the Environmental Services Association, whether there were any concerns over local authorities cancelling contracts and whether this has wider implications on the waste market.
Contracts
His question was prompted by the recent decision to re-tender the 35-year Sheffield waste services contract, initially signed in 2001, with the council seeking instead to secure a ‘new and improved’ arrangement (see letsrecycle.com story). The Greater Manchester Waste Disposal Authority (GMWDA) has also revealed that it is ‘not satisfied’ with the terms of its PFI waste contract, which was signed in 2009 and is due to run for 25 years.
Responding to the question, Mr Snape of Nabarro, who has been involved in the drafting of several long term waste treatment contracts, said: “There are a number of high profile cases of local authority contracts that are under review – one of the points made earlier that the jury is out on PFI generally – but it is important to remember that it was about the transfer of long term risk to the private sector.
“That comes at a cost and if you looked at those PFIs that are viewed to be in difficulty they were drawn up at a very different time. There was a lot of pressure on recycling targets, there was a lot of pressure on driving waste up the waste hierarchy, and I think there was also a push back to MBT technology because of opposition to energy from waste.
“So I think that the real issue is not failure or issues with those contracts it is whether or not those local authorities can afford those contracts or find a way of dealing with their waste that is more economic.”
David Newman, MUFJ
Finance
Also during the discussion, Mr Newman, a specialist in management of debt and equity finance on behalf of the Japanese financial group MUFG, said that there could be more activity from financiers in providing funding for merchant waste plants, which he said can be seen as valuable long term assets.
He added that more lenders are looking to finance waste projects and that activity had increased compared to ‘three or four years ago’.
He said: “The biggest change in the market is in the mind-set of developers. They understand that a well located plant with a good waste story can be seen as a valuable asset for years to come.
“Based on current market operators it is possible to see several more plants built out to bridge the current supply gap.”
The post Councils ‘focusing’ on PFI waste contracts appeared first on letsrecycle.com.
Source: letsrecycle.com Waste Managment
