Record breaking PFI waste contracts announced while PFI rules to change
The Government has announced a series of multi-million pound PFI waste contracts on the same day as it announced changes to the way PFI support is calculated.
The changes to the PFI rules were made as the result of a consultation carried out between July and October 2004. This sought the views of local authorities and other interested parties on a range of proposals to create some parity between PFI and conventional procurement.
Under the reformed scheme, grant for new PFI schemes will be provided at a constant annual level, or annuity, over the life of the contract. A “scaling factor” will also be applied to new PFI projects, so that any adjustment needed to reflect the total available is applied equally to PFI and to support for conventional borrowing.
Local Government Minister Nick Raynsford, said: “PFI has a small but important role in the range of procurement options available to local authorities. The reformed PFI grant scheme will help establish a more level playing field of procurement options. By eliminating bias in favour of PFI and bias against, it will ensure that decisions are taken as much as possible on value for money grounds, rather than the level of grant support.”
Despite this “small but important role”, no other procurement option seemed available for a set of new waste disposal contracts announced on the same day.
Multi-million pound waste contracts were announced for Cambridgeshire and Southwark, and a record £100 million contract was announced for waste disposal in Greater Manchester. This could prove to be the most valuable waste disposal contract award in Europe.
Councillor Neil Swannick, Chair of the Greater Manchester Waste Disposal Authority welcomed the announcement: “This is great news for Manchester. We are the largest waste disposal authority in England, dealing with 1.5 million tonnes of waste each year. We need to divert the rest of our biodegradable waste from landfill if we are to avoid the £150 per tonne penalties in the new Landfill Allowance Trading Scheme. This PFI finding will allow for capital investment in a new waste disposal infrastructure.”
Mr Swannick said the authority would take be taking a recycling-led approach to waste disposal. Residual waste would be dealt with using mechanical biological treatment, producing a refuse derived fuel for use in industry and power generation as an alternative to fossil fuels. He stressed the new strategy does not envisage building any more mass burn incinerators.
Environment Minister, Elliot Morley said: “Greater Manchester has put forward a well thought out proposal that offers good prospects for successfully combining the best that the private and public sectors have to offer, in a way that will achieve best value for Manchester’s businesses and council tax payers. The size and scale of the project would represent an attractive opportunity for new companies to enter the waste sector and increase the market capacity n this sector.”
Cambridgeshire and Southwark were awarded grants of £35 million and £34.5 million respectively.
Mr Morley said last November (see related story), that there was “clear evidence of a growing demand for PFI from local authorities”. Whether or not this is true remains unclear. There is certainly demand for effective waste management solutions and the Government is doing all it can to encourage PFI as the main procurement option.
A new waste management procurement pack has also recently been developed by the Public Private Partnerships Programme to provide specific assistance to local authorities in England with the procurement of waste management projects through the PFI.
No similar guidance has been published to assist with any alternatives, however, making the “evidence” for PFI “demand” seem more like evidence that local authorities have little choice but to accept.
The news of the waste contracts comes in the same week as PFI contractor Mowlem issued its third profit warning in six months, while recent weeks have seen financial upheaval at Amey and Jarvis.
Jarvis is perhaps the most notorious of all the PFI companies, and has had to delay much of the work on its contracts, finally handing control to another group on five of them, including the delayed extensions to Whittington Hospital in north London. Jarvis’ troubles also led to severe delays in the refurbishment of 37 schools in Norfolk after the company failed to find a builder. The project was rescued by government hand outs of £56 million.
PFI contracts are often favoured due to the private sector’s perceived ‘efficiency’ and commercial drive. By dumping a number of its PFI commitments however, Jarvis’ share price jumped considerably.
No contractors have yet been announced for this week’s new waste contracts although the lure of multi-million pound budgets is sure to attract takers fairly quickly.
By David Hopkins