executive summary of outline business case - dorset · executive summary of outline business case...

Dorset County Council – Executive Summary of OBC (December 2008)

Dorset Waste Treatment Project

Dorset County Council

Executive Summary of Outline Business Case

23 December 2008


Contents Page

Abbreviations and Glossary

1. Executive Summary 2. Background 3. Strategic Waste Management Objectives 4. Procurement Strategy and Reference Project 5. Risk Management, Risk Allocation and Contractual Structures 6. Project Team and Governance 7. Sites, Planning and Design 8. Costs, Budget and Finance 9. Stakeholder Communications 10. Timetable

Appendices

1 Defra criteria for awarding waste PFI credits 2 PRG Criteria for Approving Outline Business Cases 3 WIDP Feedback register 4 Planning Health Check 5 Waste Minimisation action Plan 6 Draft Joint Municipal Waste Management Strategy 7 Current Memorandum of Understanding 8 Dorset Authorities Pathfinder Options paper 9 Household Recycling Centre performance 2007/08 10 Map of Waste Management Facilities 11 MEL Residual Waste Analysis 12 MEL Kitchen Waste Analysis 13 Sustainability Appraisal for Waste Strategy Review 14 Combined Heat and Power Assessment 15 SRF Assessment 16 Logistics Modelling report 17 Project Risk Register18 Contract Risk Matrix 19 Bournemouth, Dorset and Poole Waste Local Plan 20 Project Board Report – Site Selection 21 Project Gant Chart 22 Thermal treatment operating in the UK 23 Affordability model 24 Shadow Bid Model 25 PFI Credit Model 26 Waste Flow Model 27 Technical Options Appraisal Detailed Scores 28 Supporting financial model assumptions book – shadow and vfm 29 Value for Money Model 30 RTD Project Communications Strategy 31 Technical Cost Supporting Data 32 Technical – Cost/Revenue Assumptions 33 Neighbouring Authority Partnership Information 3435

Whole life and FEC Dec 2008 Qualitative Value for Money Analysis


36 Dorset Project Delivery Protocol 38 Industry Contact Response Summary

Abbreviations and Glossary

AD Anaerobic DigestionBMW Biodegradable Municipal Waste BVPI Best Value Performance Indicator CHP Combined Heat and Power CD Competitive DialogueDCLG Department for Communities and Local Government DEFRA’s PFI Criteria See Appendix A DPDs Development Plan Documents EoI Expression of Interest EU European UnionHM Treasury’s Value for Money Assessment Guidance

See http://www.hm-treasury.gov.uk/documents/public_private_partnerships/ additional_guidance

HHW Household WasteHRC Household Recycling CentreIndifference Points The point at which an Authority would be indifferent

between two options as they offer equal value for money.

IFRS International Financial Reporting Standard ISDS Invitation to Submit Detailed Solutions ISOS Invitation to Submit Outline Solutions ISRS Invitation to Submit Refined Solutions LAA Local Area AgreementLATS Landfill Allowance Trading Scheme LAWDC Local Authority Waste Disposal Company M-BEAM a LATS modelling instrument developed by Defra MAA Multi-Area AgreementMBT Mechanical Biological Treatment MHT Mechanical Heat TreatmentMRF Materials Recovery FacilityMSW Municipal Solid Waste MWMS Municipal Waste Management Strategy NPC Net Present Cost OBC Outline Business Case Optimism Bias A systematic tendency to underestimate project

costs.Output Specification Definition of Service Requirements included in PFI

ContractPathfinder Two-tier PathfinderPFI Private Finance Initiative PRG Project Review Group PRG’s Criteria See Appendix B PSC Public Sector Comparator Reference Project The technical solution selected as the basis for

establishing the operational and financial


deliverability of the project. Shadow Bid Model a model prepared at the OBC stage using the same

principles a bidder will use to price its bid SPV Special Purpose Vehicle TUPE Transfer of Undertaking – Protection of Employment UG User GuidanceVfM Value for Money WCA Waste Collection Authority WDA Waste Disposal Authority WIDP Waste Infrastructure Delivery Programme WLP Waste Local Plan WSE 2007 Waste Strategy for England 2007


1. Executive Summary

1.1 Introduction and Overview of Key Issue

1.1.1 Dorset’s municipal residual waste, i.e. waste not composted or recycled, is currently disposed of to landfill. Recent progress with recycling and composting and our target in the new Municipal Waste Management Strategy (MWMS) to achieve 60 per cent by 2015/16 will help to significantly reduce the quantity of residual waste arising from the municipal waste stream.

1.1.2 The current projected tonnages of residual waste arising from the municipal waste stream are shown below:

Table A – Projected Tonnages of Residual Waste

1.1.3 The cost of disposal to landfill is rising significantly as a consequence of the escalation of landfill tax, in particular with regard to non hazardous waste, which is currently £32/tonne and set to increase to £48/tonne in 2010/11. Government has stated that it will increase further thereafter in order to further encourage the diversion of waste from landfill.

.1.1.4 The Council estimates that it will be necessary to divert a minimum of approx 40,000

tonnes of residual waste from landfill by 2020 in order to meet our Landfill Allowance Trading Scheme (LATS) obligations. Diverting this minimum quantity of waste from landfill would still mean landfilling approx 58,000 tonnes of municipal waste a year with the consequent emissions of methane and no recovery of value from the waste. In addition, there are economies of scale involved in developing waste treatment facilities and it may not be cost-effective for Dorset to procure a facility of this marginal size.

1.1.5 When considering the procurement of infrastructure it is necessary to plan for the longer term needs of the next 25 -30 years both in terms of potential continued growth in waste and the availability of landfill. It is recognised that increasing restrictions, reduced physical availability and rising costs are likely to prohibit the use of landfill for the disposal of municipal waste in the long term.

1.1.6 On top of this, the possibility of a future ban on all biodegradable waste from landfill (biodegradable hazardous waste has already been banned) is discussed in the Waste Strategy for England 2007 (WSE07).

1.1.7 A more holistic approach to waste management embracing both municipal and commercial waste is also now encouraged and it is estimated that approx. 400,000 tonnes of commercial waste is generated in Dorset (including Bournemouth and Poole area) each year. A more integrated approach provides an opportunity to


deliver more cost-effective and environmentally sound options for Dorset as a whole including both the public sector and small to medium-sized enterprises (SMEs) in particular.

1.1.8 Therefore, in line with our MWMS philosophy and high level principles to: minimise waste to landfill; meet and eventually exceed landfill targets; work in collaboration with others; and provide value for money, any treatment facility for residual waste should be of a scale to minimise waste to landfill and provide some spare capacity for possible higher levels of waste growth, locally produced commercial waste and other local authorities’ waste where there are appropriate synergies and where it provides a cost-effective solution for Dorset.

1.1.9 As investment in a waste treatment facility is likely to place a significant burden on the Dorset’s taxpayers, the Council considers it prudent to apply for PFI credits in order to mitigate the impact of this investment on council tax.

1.1.10 Following approval of its Expression of Interest for PFI credits in April this year, the Council has developed its Outline Business Case based on the assumption that DEFRA will reserve PFI credits to the minimum value of 50% of the capital investment in a residual waste treatment plant with a capacity of ca 115,000 tonnes p.a. the capital cost of which is currently estimated at £74 million in terms of net present cost.

1.1.11 In accordance with DEFRA’s guidance the Council has carried out a residual waste treatment technology options appraisal and a site options appraisal in order to arrive at a reference technology and a reference site, which combine to form the reference case. This reference case is used in the OBC to determine whether such a solution would provide the Council with long-term LATS compliance. The same solution also acts as a means to test the value for money, affordability and deliverability of a PFI project and as a benchmark against bidder proposals in the procurement of the waste treatment facility which is scheduled to start in May 2009.

1.1.12 The reference technology for this OBC is energy from waste, this having been ranked first in the technology options appraisal. However, the Council would like to make it clear that its strategy, as expressed in the MWMS – which will be recommended for approval to Cabinet in February 2009 - is to adopt a neutral stance on the choice of technology in order to encourage competition and value for money. An appropriate solution will be identified by the procurement that is based on the criteria that have been developed to carry out the technology options appraisal.

1.1.13 The criteria and the weightings used for the technology options appraisal, have their basis in the criteria used in the Sustainability Appraisal (SA) carried out as part of the review of the MWMS. Based on DEFRA’s options appraisal guidance, these criteria have been adapted to make them suitable for use in the technology options appraisal required for the OBC.

1.1.14 The site options appraisal included the two sites allocated in the adopted Waste Local Plan (WLP), namely Winfrith and Bournemouth Airport, and also the site that was rejected by the Inspector in the 2005 public inquiry into the WLP, Blunt’s Farm, Ferndown. This site may become an option in the future due to the potential re-drawing of the greenbelt boundary as proposed in the Regional Spatial Strategy (RSS). The site options appraisal resulted in the site at Bournemouth Airport being ranked first, due partly to its location being in the east of the County, i.e. the most


densely populated area in Dorset producing much of the County’s municipal waste, but also due to its potential to make use of heat and power for the airport and neighbouring homes and businesses. This site is therefore used as the reference site for the purposes of this OBC. However, as with the technology options appraisal, the Council would like to make it clear that in the competitive tender to procure the long-term waste treatment plant, we will welcome proposals from bidders based on alternative sites, provided they are deliverable.

1.1.15 The Council has made every effort to develop this OBC in accordance with DEFRA’s PFI credit award criteria, Project Review Group’s (PRG) criteria for approving OBCs and the various guidance papers that comprise the Waste Infrastructure Delivery Programme’s (WIDP) procurement pack.

1.2 Background

County Profile1.2.1 Dorset covers an area of ca. 2,500 square km. The population of just over 400,000

contains a high proportion of older people and a low proportion of children compared to the national average. The population, which is concentrated in the east of the county, grew by over 14% between 1985 and 2005, mainly due to the influx of new residents, and is expected to grow by a further 17% by 2029. Currently there are approx. 190,000 dwellings, with ca 1,400 built every year. Household sizes continue to reduce in Dorset due to factors including an aging population, increasing divorce rates and more single-parent families.

1.2.2 Dorset’s natural and built environment is of the highest quality. Over half of the county is designated an Area of Outstanding Natural Beauty (AONB) and the majority of the coastline is part of the Dorset and East Devon World Heritage Site (the Jurassic Coast). In the summer months, Dorset’s population swells with a large influx of tourists.

1.2.3 The profile of Dorset’s economy : -

Is largely service-sector based, particularly involving tourism; Has some light manufacturing and engineering, particularly in the east; Has a limited amount of knowledge intensive firms; Has no heavy manufacturing; Has above average involvement in agriculture and fishing; Has fairly extensive historic and current quarrying activity, particularly of

aggregates.

Current Waste Management Arrangements1.2.4 Dorset is a two-tier authority with six District/Boroughs collecting waste as Waste

Collection Authorities (WCAs) with the Waste Disposal Authority (WDA), Dorset County Council, responsible for the disposal of residual waste and the provision of the 11 household recycling centres (HRCs).

1.2.5 The working relationship between the councils is reinforced by a memorandum of understanding (MoU) to deliver the MWMS agreed in 2003 (appendix 7). This MoU is currently being updated to meet Defra’s criteria for PFI credits (see 6.7.3)

Current Waste Collection Arrangements1.2.6 Of the 6 WCAs, 5 have Direct Service Organisations (DSOs) collecting municipal

waste in their areas. Only Purbeck has outsourced its waste collection service.


1.2.7 The main features of municipal waste collection on Dorset at present are:

- As yet no uniform collections of material throughout the county; - 97% of Dorset’s residents receive kerbside collections of newspapers,

magazines, mixed cans and glass bottles; - Some areas also receive collections of plastic bottles, lightweight card, brown

cardboard and textiles; - Some areas also have kitchen and green waste collections.

1.2.8 In addition the 11 HRCs strategically located throughout the county, receive ca 65,000 tonnes of municipal waste per annum and achieving a remarkable recycling rate of ca 75%.

Current Waste Disposal Arrangements1.2.9 Following the expiry of the previous waste disposal contract with SITA new landfill

disposal contracts have been let with Viridor, Veolia and SITA and a new treatment contract for green, food and wood waste with Eco Composting. The new contracts commenced in August this year and have a duration of eight years with the option of four, one-year extensions.

Interim LATS Strategy1.2.10 In view of the fact that the Council’s long-term waste treatment facility is not anticipated

to be operational until 2016 and also that the Council estimates that it will start to go into a LATS deficit in 2011/12, a LATS strategy is in place to provide LATS compliance in the intervening years. The strategy consists of the following elements:

- Continuing to implement tried, tested and innovative waste minimisation initiatives; - Treating fixed tonnages of municipal waste at the mechanical-biological treatment

plant of the supplier, New Earth Solutions (NES), at Canford Magna near Poole, as party to a contract between NES and Bournemouth Borough Council;

- Working with Dorset’s six waste collection authorities on the enhancement and standardisation of waste collection throughout the County in order to divert more waste from landfill; and

- Buying LATS permits only if required.

Pathfinder1.2.11 More recently the Dorset authorities have achieved two-tier Pathfinder status and are

working on the possibility of forming a joint waste authority (JWA) which is likely to deliver improvements in terms of efficiencies in municipal waste collection and transfer logistics, training and communication.

Analysis of Waste Arisings1.2.12 In 2004 when LATS allowances were allocated, waste growth in Dorset was ca. 3%

per annum. (See table 1 below). This led to the assumption that up to three waste plants might be required to treat Dorset’s and Bournemouth’s waste over the long term.

Table 1 – Municipal Solid Waste (MSW) Growth Trends – 2003/4 – 2007/8


Year TotalMSWArising

PercentageChange

Tonnes %2003/4 216,4952004/5 222,987 3.0%2005/6 223,934 0.4%2006/7 231,611 3.4%2007/8 228,151 -1.5%

1.2.13 In recent years there appears to have been a stabilisation in municipal waste. This has led Dorset to review factors likely to increase municipal waste arisings, like population growth and the reduction in household sizes and balance them against factors likely to reduce waste growth, such as economic pressures, environmental awareness and national and local waste minimisation initiatives.

1.2.14 The review has led Dorset to revise its waste growth trend down to 1% as shown in table 2 below.

Table 2 – Waste arising over the period of the contract

Year TotalMSWArising

PercentageChange

Tonnes %2008/9 230,433 1.0%2009/10 232,737 1.0%2012/13 239,789 1.0%2013/14 242,187 1.0%2014/15 244,609 1.0%2019/20 257,086 1.0%2024/25 270,200 1.0%2029/30 283,983 1.0%2034/35 298,469 1.0%2039/40 313,694 1.0%

Performance of Existing Services1.2.15 Dorset is, and always has been, in the forefront of recycling performance in England.

High kerbside recycling rates combined with the outstanding performance of the HRCs has enabled Dorset to produce the results shown in table 5 below:

Table 5 – Recycling and Composting 2004/05 – 2007/08

Year Recycling Recycling Composting CompostingBVPI BVPI

Tonnage % HHW Tonnage % HHW2004/05 45,941 21.8 26,453 12.62005/06 48,969 23.5 31,005 14.92006/07 50,272 23.6 39,481 18.62007/08 53,518 25.8 40,459 19.5


1.2.16 The steady increase in recycling and composting can be attributed to the introduction of new collection schemes across Dorset and the recent move to alternate weekly collection of residual waste and separate kitchen waste collections in some areas. The greatest gains have been made recently as the kerbside collection of kitchen waste has been introduced to some areas and as the composting of street sweepings has been developed.

Waste Composition1.2.17 Since 2001 Dorset has been carrying out regular waste analysis of residual waste. The

WCAs operate a rolling programme of analysis to provide a useful indication of trends. To supplement this programme, the consultants MEL carried out waste analysis in five of the six WCA areas in 2006 (appendix 11). The aggregate information from the WCA rolling programme of analysis and MEL’s analysis have been used to inform both the waste modelling for the OBC and the Council’s future MWMS.

1.2.18 In 2006 MEL were commissioned to analyse the kitchen waste collections carried out in the county. This analysis (appendix 12) has provided valuable data for the design of future high performing schemes.

Commercial and Industrial Waste1.2.19 In 2003 the Environment Agency carried out a nationwide survey of commercial and

industrial (C&I) waste. Data was extrapolated from a limited survey to produce Dorset’s results. It is recognised that this data is not particularly robust and considerably out of date. However, there are no alternative data sets available.

1.2.20 Although a large proportion of C&I waste is recovered in some way, many thousands of tonnes are landfilled. Whilst local authorities are not responsible for C&I waste, it is recognised that they have a role to play in assisting in the provision of sustainable waste management for all waste. In view of this, the Council will make every effort in the procurement of its waste treatment facility to provide a certain amount of capacity for the treatment of C&I waste, provided it is proven to be cost-effective.

1.3 Strategic Waste Management Objectives

Introduction1.3.1 The current MWMS for Dorset was approved in April 2003. The strategy was based on

the information available at that time and characterised by the following:

- Comparatively limited knowledge of treatment technologies; - The exclusion of direct energy from waste; - Waste growth of 3.5% per annum; - Recycling rate of 26% was considered close to the maximum achievable; and, - The assumption that up to 3 waste treatment facilities required.

1.3.2 The subsequent partnership between the Council and Bournemouth (BBC) to procure the necessary waste treatment facilities ran from November 2004 until December 2007 and was based on a memorandum of understanding (MoU). While attempting to turn the MoU into a legally binding agreement as required by DEFRA for the allocation of PFI credits to partnerships, it became clear to the Council that, as BBC had already implemented a short-term strategy to achieve LATS compliance, they did not need to invest in a waste treatment plant quite as soon as Dorset and were therefore unwilling to enter into the legally binding agreement. The partnership subsequently dissolved


and the Council has since continued to pursue the waste treatment project on its own account, whilst keeping BBC informed of progress in case BBC wish to re-join the partnership at some time in the future.

1.3.3 In addition to the changed circumstances between the Council and BBC, a number of reasons prompted the need for a review of the MWMS, among them:

- The WSE07 specifying higher recycling and recovery targets: - The 2007 Energy White Paper linking waste and energy for the first time; - A technology options appraisal carried out in 2007 on behalf of the Council by

DEFRA’s advisor, Enviros indicating that energy from waste was likely to be the most cost-effective treatment technology; and,

- The Council’s policy to review its MWMS every 5 years

Review of the Municipal Waste Management Strategy (MWMS)1.3.4 The review of the MWMS commenced in November 2007 and proposed the following

aims that went out for public consultation:

- Achieve zero growth in the long-term so that the level of waste that each household produces does not continue to increase

- Reach a 60% recycling (and composting) rate by 2015/16 - Use the most efficient technology to deal with any leftover waste – this could

involve just one facility - Meet and eventually exceed targets to reduce waste to landfill - Show leadership by taking account of commercial waste management needs and

in the way we manage our own waste

1.3.5 Supporting these aims are 10 policy objectives of which the following 2 policies are directly relevant to the treatment of residual municipal waste:

- To progressively increase the recovery and diversion of biodegradable waste from landfill to meet and eventually exceed the landfill diversion targets under LATS;

- To ensure that residual waste treatment complements activities higher up the waste hierarchy and maximises the value recovered from waste in terms of resources and energy.

1.3.6 In view of recommendations in the WSE07 that local authorities should not exclude any proven technology from the procurement and also the findings of a technology option appraisal commissioned by the Council in 2007 that direct energy from waste, when compared to various mechanical-biological treatment processes, proved to be more cost-effective, the 2009 MWMS (appendix 6) proposes keeping all technology options open so that the procurement attracts bids covering all proven technologies.

1.3.7 The 2009 MWMS includes a SA in which a variety of waste treatment technologies were appraised alongside landfill with energy recovery, using the Environment Agency’s WRATE model in addition to environmental, social and economic criteria with proposed weightings in order to establish a ranking of the technologies.

1.3.8 The MWMS, which includes the SA technology options appraisal, is now complete and will be presented to Dorset’s 7 Councils for approval over the first 3 months of 2009.


1.3.9 The review of the MWMS was conducted as widely as possible, using questionnaires to residents, road shows, county shows, focus groups, elected member seminars and waste forum meetings.

1.3.10 Once adopted by all 7 of Dorset Councils, the MWMS will provide the basis for waste management in the County for at least the next 5 years and is specifically designed to be flexible and adaptable to new circumstances in the future without having to be prepared totally afresh.

Waste Minimisation within the MWMS1.3.11 Dorset’s waste reduction and reuse strategy is implemented by the Council’s dedicated

waste reduction team. Their successes to date include:

- the sale of over 60,000 home compost bins to Dorset residents since 2000; - widespread and active engagement with the community sector; and - their support for furniture re-use projects, including full re-use credits

1.3.12 The 2009 MWMS aims to build on the success achieved to date by implementing the following policy objective:

- To prevent the growth in municipal waste by promoting waste reduction and reuse initiatives, with a medium to long term aim that waste arisings per person should fall.

1.3.13 The WSE07 includes targets for the reduction in the amount of residual waste produced per kilogramme per head of population. Table 9 below details Dorset’s aspirations to better these targets by implementing the waste minimisation action plan in the 2009 MWMS (appendix 6) and through enhanced recycling.

Table 9 – Waste Strategy Residual Waste per Head Target

Waste Strategy Target DCCYear Kg per head (residual) Kg per head (residual)1999/00 450 3622019/20 225 193

Recycling and Composting1.3.14 In 2007/8 Dorset achieved a combined recycling and composting rate of 45%. The

2009 MWMS proposes that this increase to 60% by 2015/16. Having worked closely with WCA officers with support from WRAP’s ROTATE team and a number of leading consultants in this field, the Council’s waste policy team is confident that 60% is deliverable using the following strategy:

- Enhanced, uniform collection of dry recyclables across the County; - Separately collected kitchen waste collection for in-vessel treatment or anaerobic

digestion;- Fortnightly refuse collections where adequate HRCs and weekly kitchen waste

collections are in place or other means of restricted residual collections

1.3.15 In order to enlist the support of Dorset’s 6 WCAs to deliver this strategy, the Council’s waste policy team is working on a “performance reward scheme” designed to


incentivise the WCAs to collaborate and a “challenge fund” to enable them to gain a contribution towards the capital costs of implementing the objective.

1.3.16 The Council’s waste policy team aims to achieve Cabinet approval for the performance reward scheme and the challenge fund in early 2009 and subsequently to phase in the enhanced collections throughout the County between 2009 and 2011. This scheme is linked to the Dorset Pathfinder (see 1.2.11) programme and aims to synergise with its aims and aspirations.

1.3.17 Further recycling is expected to be achieved by the recovery of materials from waste treatment. The reference project of EfW selected for this OBC (see section 4) is expected to recover ca 4% of the input waste as metals. This percentage does not count towards the recycling national indicator, as the metals are recovered post combustion, and therefore does not contribute towards the 60% recycling target by 2015/16.

Landfill Objectives1.3.18 The 2009 MWMS contains the following landfill objective:

- To progressively increase the recovery and diversion of biodegradable waste from landfill to meet and eventually exceed the landfill diversion targets under LATS.

1.3.19 In the short term the Council aims to achieve LATS compliance and no more, by implementing the interim LATS strategy as described in para 1.2.10 above. In the longer term, however, once the waste treatment plant becomes operational, the Council aims to make full use of the plant’s treatment capacity in order to:

- optimise diversion of waste from landfill, thereby minimising the payment of landfill costs and landfill tax which is likely to rise above £48/tonne beyond 2010/11;

- achieve the full economies of scale offered by the plant; - optimise the recovery of valuable recyclates and energy from the treatment

process;- provide any unused capacity for the treatment of commercial and industrial waste

(at a competitive market price) - be prepared for a possible outright ban from the EU on the landfilling of BMW.

1.3.20 This means that from 2016 onwards it is likely that the Council will have LATS permits to sell and although the Council is being prudent by not attaching any value to the possible proceeds from the sale of LATS permits in the affordability analysis of its reference project (section 8), any additional income in this form would be a welcome contribution to the costs of the plant.

1.3.21 There will continue to be a role for landfill in the future as all waste treatment technologies produce some form of residual stream that can only be landfilled. In view of this Dorset will continue to use a proportion of its LATS allowances while aspiring towards zero disposal of biodegradable waste to landfill in the long term. The effect of this strategy means that the capacity of the waste treatment facility has been sized to treat the expected amount of waste arising in 2040 based on waste growth of 1% and at least 60% recycling and composting.

Environmental Impact1.3.22 The Council’s strategy is to mitigate the environmental impact of all its activities. Below

are numerous examples of this strategy in action.


1.3.23 One of the Council’s six strategic aims in its Corporate Plan is to “safeguard Dorset’s unique environment. One of the priority outcomes of this aim is to reduce the amount of waste sent to landfill.

1.3.24 Mitigation of environmental impact also figures in the following strategy documents relating to Dorset:

- The Dorset Community Strategy refers to the mitigation of climate change as a key priority;

- The Local Area Agreement contains the target to reduce carbon emissions from 7.4 tonnes per person in 2005 to 6.9 tonnes by 2010/11.

1.3.25 In addition, the Bournemouth, Dorset and Poole Renewable Energy Strategy contains the objectives to develop biomass energy and renewable energy from waste and to achieve 64-84MW of renewable electricity generating capacity in the County by 2010.

1.3.26 A key part of the 2009 MWMS is the SA, the purpose of which is to assess the impact on sustainability the policy objectives in the MWMS and the waste treatment technology options in particular. The environmental impact of each waste treatment technology can be modelled using the Environment Agency’s WRATE software. This modelling has been carried out and the results included in the technology options appraisal described in para 1.4.12 below.

1.3.27 DEFRA promotes the production of combined heat and power (CHP) from waste treatment for use by homes and businesses in the vicinity of a plant as a means of realising the significant carbon benefits that can be gained from CHP as a source of renewable energy. With this in mind, the project team initiated a study of the 3 potential sites in terms of their suitability to make use of CHP. The results of the study (appendix 14) were provided to the Project Board in order to inform the site options appraisal described in para. 1.1.14 above.

1.3.28 The project team also initiated a study on the possible local demand for solid recovered fuel (SRF) as a potential output from the County’s waste treatment process. However, the study confirmed that SRF production would currently outstrip any local demand (appendix 15).

1.3.29 In addition the project team took advantage of an on-going tender for the selection of a partner for the Council’s highways maintenance division by posing a question to bidders as to the use they might have within their groups for SRF and/or compost-like output. The responses from each bidder were encouraging, although further work will be required in order to refine their proposals. The final tenders are due back on 15 January 2009 and the project team will continue to work with the highways maintenance division to explore the use of SRF and/or compost-like output by the successful bidder.

1.3.30 The technology options appraisal criteria used to select the reference project for this OBC (section 4) includes criteria such as value recovery (taking into account CHP) and full economic cost (which evaluates the relative ability of each technology to reduce greenhouse gas emissions).

1.4 Procurement Strategy and Reference Project


Introduction1.4.1 The Council, being responsible for waste treatment and disposal, has the following

contract in place with the supplier, Weymouth & Sherborne (W&S):

- Management of up to 9 Household Recovery Centres (HRCs), 2 Materials Recycling Facilities (MRFs) and up to 3 Waste Management Centres (WMCs)

- Provision of all haulage associated with the above contract, including to landfills from the facilities, between the facilities, to composting sites, reprocessors or treatment plants where required

- Management of collection and recycling of plastic bottles, including collections from approximately 120 Plastic Banks throughout Dorset; and delivery of collections to Hurn MRF for further separation.

- Sale and marketing of recyclates from the MRFs within the contract.

The initial period of this contract expires in August 2013 with an option to extend it each year for up to 3 years.

1.4.2 The Council has also recently re-let its waste disposal contract which now has the following profile:

- Access to up to 5 landfill sites - Landfill contracts with Viridor, Veolia and Sita - Treatment of food, green and wood waste by Eco Composting

The initial period of these contracts expires in August 2016 with an option to extend them each year for up to 4 years.

1.4.3 In addition, the Council has become party to a contract between Bournemouth Borough Council and the supplier, New Earth Solutions, in Poole, for the treatment of fixed quantities of municipal waste from 2009/10 to 2011/12. The initial period of this contract expires in August 2011, but can be extended for up to 3 years by Dorset, together with, or independent of, Bournemouth.

1.4.4 A waste logistics study recently commissioned by the project team recommended that the County would benefit from the development of another 2 waste transfer stations (WTSs) strategically located, which would bring the total number of WTSs in the County to 5.

1.4.5 The current timetable for the letting of the PFI contract for a waste treatment plant shows the plant becoming operational in 2016. The Council will ensure that it has the resources and expertise to manage the interface between the PFI contract and the other waste management contracts described in 1.4.1 and 1.4.2 above.

1.4.6 Based on DEFRA’s guidance regarding the use of PFI for complex, risk-laden projects rather than Prudential Borrowing, the Council intends to apply for PFI credits for the waste treatment project only. The re-letting of the contracts described in 1.4.1 and 1.4.2 above and contracts relating to the development and management of any further WTSs are, in the Council’s opinion, unsuitable to be included within the waste treatment PFI and will be procured as conventional outsourced contracts. However, the Council may take the opportunity to combine the re-letting of some or all of the above contracts as separate lots within the waste PFI procurement in order to give bidders the opportunity to identify synergy savings.


Output Specification for the Project1.4.7 The output specification will be developed in accordance with WIDP’s guidance. It is

anticipated that the contract will be open to any technology provided it can deliver the output specification.

1.4.8 It is envisaged that the Council’s waste would take priority at the waste treatment facility. However, the procurement will include a request for variant bids for suppliers to propose how they might deliver added value by providing additional capacity for third party waste.

Long-List Technology Options Appraisal Process1.4.9 The 2009 MWMS contains in the SA a draft options appraisal of a long-list of 8

treatment technologies – including direct energy from waste and a variety of mechanical-biological and/or heat treatments - together with the provisional weightings of three high-level criteria, namely environmental, social and economic. The scoring of the environmental criteria has been achieved using the Environment Agency’s WRATE software. The scoring of social and economic criteria has been completed using the expertise and experience of officers and an external consultant. The outcome of the draft options appraisal shows direct energy from waste being ranked in first place. This outcome has been verified by feedback from the public consultation of the draft MWMS. The outcome of the long-list technology options appraisal appears in table 14 below:

Table 14 –Rank of the Long-List Options Appraisal

PreliminaryRank

RankScore

Option

1st 8.50 Direct Energy from Waste

2nd 7.75 Autoclave (or MHT) with Advance Thermal Treatment

3rd 7.03 MBT with Anaerobic Digestion and RDF Output

4th 6.95 Mechanical Separation with Advanced Thermal Treatment (ATT)

5th 6.28 MBT/MHT with aerobic stabilisation and RDF Output

6th 6.10 MBT/MHT with anaerobic digestion

7th 5.33 MBT with aerobic stabilisation

8th 3.58 Direct to Landfill

1.4.10 The project team has used the results of the long-list technology options appraisal in the SA to prepare the options appraisal in the OBC which leads to the selection of the reference project. Certain adjustments have been made to the criteria and the weightings in the SA in order to focus on the requirements of the OBC appraisal which concentrates more than the SA on criteria such as deliverability, flexibility, bankability and affordability. However, the project team has taken care to ensure it records, and


can fully explain, the reasons for any changes to the criteria and weightings in the SA appraisal, when compared to appraisal in the OBC.

1.4.11 For the purposes of the short-list technology options appraisal in the OBC, the 8 treatment technologies considered in the SA have been re-grouped into 4 generic technologies based on guidance from WIDP that certain of the technologies are so similar in terms of cost and performance that there is little value gained from appraising them separately. The re-grouping of the 8 treatment technologies considered in the SA to the 4 generic technologies appraised in the OBC is shown below:

Table 15: Technology Link Between long and short list

Shortlist Options Appraisal in OBC Long-List Options Appraisal in OBC

Direct thermal treatment Direct Energy from Waste

Mechanical heat treatment + thermal treatment

Mechanical separation + Advanced Thermal Treatment Autoclave or MHT with Advanced Thermal Treatment

Mechanical-biological treatment + landfill of residue

MBT with Aerobic Composting/Stabilisation MBT/MHT with Anaerobic Digestion

Mechanical-biological treatment + offsite thermal treatment

MBT/MHT with Aerobic Stabilisation and RDF output MBT with Anaerobic Digestion and RDF output

Do minimum Landfill

1.4.12 The reasons for the shortlist technology options appraisal in the OBC are:

- To enable the Council, when selecting the reference technology, to concentrate on deliverability, flexibility bankability and affordability – these being criteria that DEFRA and PRG will use to assess the robustness of the OBC;

- To enable the Council to agree on a reference technology from the short-list of generic technology options that can be used to test the affordability of a PFI- financed reference project against the “do minimum” option – that of continuing to landfill;

- To provide the Council with a reference technology that can be used to produce performance data and costs that can be benchmarked against bids generated by the procurement;

- To develop the proposed options appraisal methodology to be used in the procurement to select the preferred bidder.

OBC Technology Options Appraisal Criteria Weighting and Scoring Process1.4.13 Using WIDP’s options appraisal guidance and bearing in mind that the focus of the

shortlist technology options appraisal for the purposes of the OBC is on deliverability, flexibility bankability and affordability, the project team selected the following qualitative appraisal criteria:

- diversion from landfill; - value recovery; - emissions; - flexibility; and


- deliverability.

1.4.14 The draft technology options appraisal for the OBC was prepared by the project team and presented to the Waste Management Liaison Panel (see 1.6.14) in November 2008 for members to review the proposed weightings of the appraisal criteria. The results of this review largely confirmed the criteria weighting proposed by the project team. See table 18 below:

Table 18 – Agreed Technology Options Appraisal Weightings

Agreed WeightingsFull Economic Cost 60%Quality Criteria 40%

100%

Quality Criteria Agreed WeightingsLandfill Diversion 14%Value Recovery 25%Emissions 21%Flexibility 7%Deliverability 33%

100%

1.4.15 The criteria weightings were then provided to the Project Board to enable them to complete the options appraisal by reviewing the scores proposed by the project team for each of the 4 generic technology options.

Qualitative Appraisal of Technology Options1.4.16 In accordance with WIDPs options appraisal guidance, the Project Board first

appraised the relative weighting between cost and quality. The overall weighting for quality was 60%, this being the approximate weighting given for qualitative criteria in the long-list SA appraisal. The results of the project team’s scoring of the technology options was confirmed by the Project Board in their meeting of 18 November 2008 and appear in table 24 below:

Table 24 – Weighted Scores of Qualitative Options Appraisal

Weighted Scores

Direct Thermal Treatment

MHT followed by Thermal Treatment

MBT followed by Landfill

MBT with AD and off-site

ThermalLandfill

Landfill Diversion 0.75 0.75 0.15 0.3 0Value Recovery 0.63 0.88 0.38 0.75 0.13Emissions 0.84 0.63 0.42 1.05 0Flexibility 0.28 0.2 0.24 0.16 0.4Deliverability 1.09 0.93 1.24 0.93 1.09

Total 3.59 3.39 2.43 3.19 1.62Rank 1 2 4 3 5


1.4.17 The qualitative rankings of technologies show “direct thermal treatment” in first place, closely followed by “MHT with thermal treatment” and “MBT with AD and off-site thermal treatment” in second and third place. “MBT with landfill” and “Landfill” trail in fourth and fifth place.

Cost Appraisal of Technology Options1.4.18 WIDP’s options appraisal guidance recommends that the “full economic cost” (FEC) of

each technology option should be weighted but not scored, in order to provide the opportunity for decision-makers to see the relationship between the qualitative performance of each technology and their costs and to reduce the risk of the cheapest option being selected at the expense of quality. The FEC excludes cash-flows that are internal to the public sector, like landfill tax and LATS, but includes the cost of carbon that is designed to reflect the cost of the damage caused by greenhouse gas emitted by each technology. The comparison of the FEC of each technology option is shown below:

Option 1 Option 2 Option 3 Option 4 Option 5 Weighting Direct TT

(EfW) Pre treat + smaller TT (EfW)

Pre treat & Bio

Pre treat & Bio & SRF

Dominimum

FullEconomicCost

40% £118m £142m £100m £123m £37m

Rank3 5 2 4 1

1.4.19 It is evident from the above two tables that the “do minimum” option, i.e. continuing to landfill, is qualitatively the worst performing option, but quantitatively the least cost option. However, when comparing the “full economic cost” of landfill (i.e. excluding landfill tax and LATS) with the “net present cost of landfill” (including landfill tax and cost), the costs are as below:

Table 26 – Net Present Cost of Options

Option 1 Option 2 Option 3 Option 4 Option 5 Direct TT (EfW)

Pre treat + smaller TT (EfW)

Pre treat & Bio


Dominimum

NPC £m NPC £m NPC £m NPC £m NPC £m Full Economic Cost

118 142 100 123 37

Landfill Tax 5 4 41 31 54LATS 0 0 0 0 47Shadow Price of Carbon

(2) (1) (5) (2) (11)

NPC 121 145 136 152 127

1.4.20 It is equally evident that the “do minimum option” costs more than the best performing technology options when including landfill tax and LATS. In addition, bearing in mind the risk that landfill tax may rise and the price of LATS permits is open to the vagaries of the market, whereas both these risks are substantially mitigated by the best


performing technologies, Dorset considers it prudent to eliminate the “do minimum” option 5 from consideration.

The Need for Change1.4.21 The decision to eliminate the “do minimum” option from consideration can be justified

by considering the results of pursuing it, which would be that key objectives set out in the following would not be met:

- Waste Strategy for England 2007; - the Energy White Paper 2007; - the BERR consultation on Renewable Energy Strategy; and - Dorset’s 2009 MWMS.

1.4.22 In addition, the major implication of adopting the “do minimum” option for Dorset would be exposure to the risks of landfill tax increases and the need to buy LATS permits on the open market or to pay LATS penalties at £150 per tonne, if LATS permits were not available.

1.4.23 A sensitivity analysis carried out on the net present cost of each option illustrates the risk that the Council would run in terms of potential increased LATS and landfill tax costs by adopting the “do minimum” option.

Figure 6 – NPC Sensitivity Analysis – Downside and Upside

NPC Sensitivity range

2116

64

90152136145

121

2

2

020406080

100120140160180

Direct TT(EfW/CHP)

Pre treat +smaller TT (EfW)

Pre treat & Bio Pre treat & Bio &SRF

Do Nothing

Option

£m

Risk LATS & Lfill Tax rangeBest Case NPC of Option

1.4.24 It is evident from the above sensitivity analysis that those options that are not heavily reliant on landfilling waste only expose Dorset to relatively low levels of landfill tax and LATS costs. However, the “do nothing / minimum” option of continuing to landfill waste risks exposing the Council in the worst case to up to £64 million. (see appendix 34)

1.4.25 On the basis of the number of key objectives that would not be met (as listed in 1.4.20 above) and exposure to the high risks of increases in landfill tax and LATS costs / penalties, the Council feels justified in eliminating the “do minimum” scenario.

Selecting the Reference Project


1.4.26 In line with the Defra guidance on selecting a reference project, the results from the technology options appraisal (see Table 24) have been combined with the FEC comparison (see Table 26) in order to arrive at the reference project.

Table 27 – Selection of the Reference Project

Options Option 1 Option 2 Option 3 Option 4 Option 5 %Direct TT (EfW)

Pre treat + smaller TT (EfW)

Pre treat & Bio


Dominimum

Quality appraisal weighted scores

3.59 3.39 2.43 3.19 1.62 60%

Quality ranking 1 2 4 3 Eliminated

Full economic cost £’000s

118 142 100 123 37 40%

FEC rankings 2 4 1 3 Eliminated 100%

1.4.27 As stated in 1.4.18 above, WIDP’s options appraisal guidance recommends that the “full economic cost” (FEC) of each technology option should be weighted but not scored, in order to provide the opportunity for decision-makers to see the relationship between the qualitative performance of each technology and their costs and to reduce the risk of the cheapest option being selected at the expense of quality.

1.4.28 Table 27 shows that option 1 – Direct Thermal Treatment – is ranked 1st from a quality viewpoint, but 2nd in terms of full economic cost, whereas option 3 – MBT + landfill – is ranked 1st in terms of full economic cost (where option 5 “do minimum” is eliminated), but 4th in terms of quality, indicating that the choice of reference project is potentially between these two options. Neither option 2 nor 4 are ranked 1st in terms of quality or economic cost and will therefore not be taken forward as the reference project.

1.4.29 Considering option 3, the bio-stabilisation of waste through MBT followed by landfill, scored poorly in terms of quality, due to the large proportion of waste still needing to be landfilled, resulting in poor scores for landfill diversion, value recovery and emissions. If it were possible to secure a reliable outlet for the bio-stabilised waste this option would achieve a higher quality score. At this stage the market for this output is still in its infancy and questions still remain about the regulatory position of this material. Therefore this option will not be taken forward as the reference project. However, if through the procurement a reliable market for this output can be established, it may prove to be the most cost-effective solution.

1.4.30 Therefore the reference project is direct thermal treatment / EfW , as it scores highly in terms of performance quality, is reasonably competitive in FEC terms and has the most competitive net present cost (see table 26 above).

Table 28 – Reference Project

Proposed Facility Number of Proposed Facility

Nominal Capital Expenditure (NPC)

Capacity of Facility

Direct thermal treatment

One £74 million 115,000 tonnes per annum

1.5 Risk Management, Risk Allocation and Contractual Structures


Project Risk Management at Dorset County Council1.5.1 The Council’s risk management strategy and processes are well developed, tried and

tested and embedded in the way the Council manages its projects. The Council has its own risk management officer who is a member of the waste PFI project team. The project team applies the Council’s risk management strategy to the following 6 project work-streams:

- Interim waste treatment - Sites and planning - Communications - Procurement strategy - Advisors and costs - Project plan and critical path

Progress on each of which the project team reports to the Project Board on a two- monthly basis.

1.5.2 Risks identified in each work-stream are added to the project risk register and assessed according to the probability of their occurrence and their probable impact. The scoring of both probability and impact are multiplied to produce a ranking of the risks. The project team focuses on the highest ranked risks in order to develop strategies to counter or minimise their effect, should they occur. The project team has also developed counter-measures for each of the lesser risks, should they materialise.

Contract Risk Allocation Matrix1.5.3 It is an accepted principle of PFI projects that value for money (vfm) is maximised

when risk is transferred to the party best able to manage it. The Council therefore intends to reflect the standard SoPC4 and OGC risk positions and derogations will only be acceptable to the Council if it can clearly be demonstrated in agreement with DEFRA’s WIDP that they provide a vfm benefit.

1.5.4 The Council maintains a contract risk allocation register (appendix 18), divided into the following risk areas: demand; technical and obsolescence; regulatory; tax; and insurance, and will use it to negotiate appropriate risk allocation during the procurement.

Project Agreement1.5.5 The Council intends to develop a project agreement that complies with SoPC4.

Project-specific issues will, of necessity, be incorporated into the draft project agreement and any derogations agreed with DEFRA’s WIDP. It is understood that WIDP is working on a standard waste PFI contract which the Council intends to use as its model contract.

Payment Mechanism1.5.6 The Payment Mechanism provides the financial incentive for the contractor of

delivering both the Output Specification and the strategic objectives of the project. It also ensures risk transfer in line with the principles of SOPC4. The Payment Mechanism will follow the commercial principles set out in the latest draft WIDP guidance dated July 2008.

1.5.7 The broad principles that the Payment Mechanism will adopt are:


- Payment for services only when availability and performance is achieved; - Risk transfer to the Service Provider in line with their obligations; and, - Protection of the quality of services delivered over the long term in line with the

Council’s strategic objectives.

1.5.8 The Payment Mechanism will need to be developed so that it addresses the Council’s objectives which can be summarised as follows:

- The Contractor delivers the agreed level of diversion of waste from landfill; - The Council provides assurance around exclusivity of waste supply in return for

assurance around availability of facilities and minimum processing capacity; - Securing a share of any upside in net revenues arising from off-take contracts

covering recyclates, third party tonnage and power sales; and - Ensuring that the Council’s position is hedged against inflationary changes that are

likely to occur during the life of the contract.

1.5.9 The Payment Mechanism principles will be not be technology specific. It will be developed by the Council supported by its financial and technical advisors who have significant experience of developing waste sector payment mechanisms. Throughout the Competitive Dialogue process it may be necessary to make adjustments to ensure the underlying principles are maintained for the actual technology solution eventually selected. In developing the final draft of the Payment Mechanism, the Council will ensure that the devised payment mechanism accords with WIDP best practice guidance at the time.

Markets for process outputs1.5.10 The Council recognises the significance DEFRA attaches to the possibility of any

energy from waste solution providing combined heat and power (CHP) to neighbouring homes and businesses and already has the results of a high-level study on the potential for the use of CHP at each of the 3 sites under consideration. The reference project of direct energy from waste includes a high-level CHP solution and the project team is in active discussions with the owner of the reference site in order to develop and refine that solution.

Balance sheet treatment1.5.11 The Council is currently preparing to request bids from potential Operators for the

construction, financing and subsequent operation of a waste disposal service.

1.5.12 The Council is required to account for its involvement with this transaction in accordance with proper practices. Proper practice in respect of this type of transaction is currently FRS 5 and in particular its associated Application Note F. This reflects that the scheme as currently proposed is clearly more than the simple lease of a property.

1.5.13 The general principle set out in FRS 5 is that the assets generated under the scheme should be recorded on the balance sheet of the party which has access to the main benefits of the property and exposure to the risks and rewards inherent in those benefits. FRS 5 further notes that, where it is significant, demand risk will normally give the clearest evidence of who owns the underlying property. It also notes that where it is significant, residual value will give clear evidence as to who owns the asset.

1.5.14 On the basis of our preliminary analysis of the scheme as currently expected to be taken forward we would be of the view that it has the characteristics of one which could be off balance sheet – if finalised as intended – to the Council.


1.5.15 Therefore, under the scheme as currently expected to be taken forward, the significant majority of the property related risks of ownership will be carried by the Operator, rather than the Council. Accordingly, the scheme has the clear potential, if finalised as intended, to be off balance sheet to the Council.

1.5.16 As an off balance sheet accounting option for the Council is an important element of the affordability of the scheme, the Council is aware of the need for the accounting analysis to be kept under rigorous review, and revised as appropriate, as the procurement of the scheme develops.

1.5.17 From the financial year 2010/11 financial statements prepared under the Central Government Financial Reporting Manual (‘the FReM’) will have to be prepared in accordance with international financial reporting standards (‘IFRS’). The transition balance sheet for adopting IFRS in the Local Government sector is 1 April 2009

1.5.18 Accounting for PFI/PPP schemes (service concession arrangements) is a particularly difficult area as there in no equivalent of FRS 5 in IFRS and no specific standard has been issued by the IASB on accounting for service concessions by public sector bodies (grantors in the terminology used by the IASB).

1.5.19 The accounting treatment assessment for this scheme will need to be updated for IFRS when further guidance is received. However early indications have highlighted that achieving an off balance sheet accounting opinion for any service concession arrangement under IFRIC12 may prove challenging.

1.6 Project Team and Governance

Legal Context1.6.1 Dorset County Council is the waste disposal authority (WDA) as defined in the

Environmental Protection Act (EPA) 1990 for Dorset and as such has a duty to arrange for the disposal of controlled waste collected by the WCAs within the county and to give directions to the WCAs as to where and to whom to deliver the waste.

1.6.2 The EPA gives Dorset the power to manage the County’s municipal waste by making arrangements with a third party waste disposal contractor. Dorset has a further range of powers under the EPA which enable it to hold, and make available to waste disposal contractors, land, plant and equipment for the purpose of holding, transporting or disposing of waste.

1.6.3 The constituent boroughs/districts of Dorset are WCAs as defined in the EPA 1990 and have a duty to arrange for the collection of waste in their areas. In addition, the WCAs have the power to undertake their own recycling of waste and accordingly to retain waste for that purpose.

1.6.4 Under the EPA Dorset has the power to direct the WCAs to deliver residual waste to particular persons and places. Dorset and the WCAs intend to maintain and strengthen existing working partnerships to ensure that the facility provided to Dorset under its long-term waste disposal contract is put to maximum and efficient use, and to ensure that Dorset is able to meet its obligations to its long-term waste Contractor.

1.6.5 The working relationship between Dorset and the WCAs is currently described in a memorandum of understanding (MoU) (appendix 7). In addition the WDA has powers


of direction over the WCAs which it has, to date, not had the need to use. Furthermore Dorset is currently working to a tight timetable with the WCAs to enhance the MoU in line with WIDP guidance on joint working - currently out for consultation - to ensure continued partnership working and service delivery and to satisfy DEFRA that the relationship between the parties is sufficiently robust to meet their criteria for securing PFI credits. The project team aims to have the enhanced MoU approved by the Council’s Cabinet in early March and by the relevant committees of the other six Councils by the end of March 2009.

1.6.6 The Council derives its power to enter into long-term contracts from:

- Section 111(1) of the Local Government Act 1972- Section 1 of the Local Government (Contracts) Act 1997- Section 2 (promotion of well-being) of the Local Government Act 2000

and, when letting contracts, is governed by the Public Contracts Regulations 2006 (SI 2006/05) of the European Union in terms of the procurement processes and procedures to be followed.

1.6.7 In addition, Dorset has a duty under section 3 of the Local Government Act 1999 (as amended by the Local Government and Public Involvement in Health Act 2007) to secure “best value” in the manner in which its functions are exercised.

Project Governance and Management1.6.8 The governance structure of this project has been in place since 2004 and comprises a

project board with:

- two elected Members, one being the Deputy Leader and Portfolio Holder for Environment, the other the Portfolio Holder for Corporate Resources;

- two Directors, including the Director for Environment who is the senior responsible officer, and the Director for Corporate Resources who is also the Deputy Chief Executive;

- one elected Member representing the WCAs; and - the WIDP transactor for the South of England

The project board has delegated power from the Council’s Cabinet to manage the project within the allocated budget and refers major investment and procurement decisions back to the Cabinet for approval.

1.6.9 The project board has appointed a project team that has been in place since the start of the project in 2004 and comprises:

- One fulltime project manager on secondment from Procurement - One fulltime assistant project manager experienced in Waste Management - Two Waste Group Managers working for part of their time on the project - One fulltime officer from Communications - Officers from Finance, Legal and Valuation & Estate who work on the project as

and when required.

Project team members regularly attend project board meetings and additional officers are frequently invited to provide advice on their specialist subjects. This especially applies to planning, a senior representative of which attends the project board meetings on a regular basis.


1.6.10 The project team is supported by financial advisor, KPMG, legal advisor, Nabarro Nathanson, technical advisor, RPS and project management advisor, Woolf, all four of whom are well versed in waste PFI projects.

1.6.11 The project team manages the project using Prince 2 methodology and reports to the Board on each of six work-streams listed in 1.5.1 above at least every two months.

Outline of Partnership Arrangements with other WDAs1.6.12 The project started in 2004 with a partnership between the Council and BBC which led

to a joint application to DEFRA for PFI credits in 2005. This application was unsuccessful and further work on a different procurement approach led to the dissolution of the partnership in late 2007 as described in para 1.3.2 above.

1.6.13 Although the partnership was dissolved in late 2007 and the Council has since continued to pursue the waste treatment project on its own account, the project board and team keep BBC informed of progress in case BBC wish to re-join the partnership at some time in the future.

District Involvement1.6.14 The project board and team have frequent access to, and communication with, the

following additional bodies:

- The Waste Management Liaison Panel comprising 2 members from each of the 7 Dorset authorities;

- The Strategy Implementation Group comprising senior waste officers from each of the 7 Dorset authorities;

- The Reduction and Recycling Group comprising relevant waste officers from each of the 7 Dorset authorities

- The Dorset Strategic Partnership comprising a wide variety of organisations and groups from with the county

- The Pathfinder Support Group comprising relevant senior officers from each of the 7 authorities

This structure and communication with associated group helps achieve full buy-in to the project from all the WCAs.

Approval of the OBC1.6.15 As detailed in paras 1.3.4 to 1.3.10 above, Dorset has just completed the review of its

MWMS. The 2009 MWMS will be presented for adoption by all seven Dorset authorities in early 2009.

1.6.16 In view of the above, Dorset’s OBC has “officer approval” status and will be presented for approval to the Council’s Cabinet, together with the MWMS on 2 February 2009.

1.7 Sites, Planning and Design

Introduction1.7.1 The acquisition of a suitable site on which a major waste treatment facility can be

constructed is crucial to the delivery of this project. We have a workstream dedicated to sites and planning. We have developed a robust site acquisition strategy and are currently negotiating with the owners of our preferred site. This site will subsequently


be made available to our preferred bidder who will, in turn, submit planning application for the waste treatment facility.

1.7.2 It should be noted that, if a bidder comes forward with an alternative site, they will not be precluded from bidding for the contract and we will, through consideration of the risks involved in securing planning permission for the site, evaluate their bid with all other bids received.

1.7.3 The current availability of sites is based upon the existing Waste Local Plan (WLP). This plan was adopted in 2006.

1.7.4 The Planning and Compulsory Purchase Act 2004 (PCP Act 2004) introduced a requirement for Dorset to produce a Waste Development Framework to replace the existing WLP. Therefore, on 17 December 2008 Dorset applied to the Secretary of State requesting approval to ‘save’ the existing WLP beyond June 2009 and to have all the policies in the WLP remain in force until replaced by a new Development Plan Document.

1.7.5 Dorset is conscious of the potential impact of the changing waste planning policy context on the delivery of the contract and the management of the procurement process. See the Planning Health Check for further detail (appendix 4).

1.7.6 At all stages of site acquisition, we have, and will continue to, liaise closely with the appropriate Waste Planning Authority’s (WPA) planning officers. Indeed, an open invitation extends to Dorset’s planning officers to attend all project board meetings and ad-hoc additional meetings are frequently held to ensure full compatibility of objectives. (See 1.6.9 above)

Site Identification1.7.7 For the purposes of developing the WLP, the WPA carried out a comprehensive site

identification exercise, initially identifying 90 sites potentially suitable for waste management purposes. After examination in public, the independent planning inspector reduced this to 10. Two of these sites, one at Bournemouth Airport, the other in Winfrith, were considered suitable for major waste treatment infrastructure, a third being rejected because it was located in green belt. However, it is likely that the third site, located in Ferndown, might again become an option due to the possible re-drawing of the greenbelt boundary as proposed in the draft RSS.

1.7.8 Dorset’s 2003 MWMS identified the need for up to three waste treatment facilities and this is what the PFI bid, submitted jointly with Bournemouth to Defra in 2005, was predicated on. In recent years, waste growth has stabilised and Dorset is no longer in partnership with Bournemouth. In view of this, we consider that we now only require a single waste treatment plant and therefore carried out a site selection exercise to identify the most advantageous site.

1.7.9 The site selection exercise involved the weighting and scoring of the following criteria:

- Logistics – costs of transferring and hauling waste - Site costs and considerations – land values and acquisition status - Environmental considerations – flood risk, potential for CHP - Planning considerations – planning status


1.7.10 In order to assist with the scoring of sites and to make the process as quantitative as possible, the following reports, prepared by advisors, were used:-

- Dorset and Bournemouth Waste Logistics Study - CHP Assessment of Proposed Sites for Waste Treatment Facilities - Pre-planning application investigations carried out for the PFI bid prepared in

2005.

1.7.11 The outcome of the site selection exercise was a ranking of sites in order of preference for acquisition. This ranking was as follows:-

- 1st The site at Bournemouth Airport, Hurn - 2nd The site at Ferndown - 3rd The site at Winfrith

Securing the Sites1.7.12 Confidential information

Planning Health Framework1.7.17 We have used WIDP’s planning healthcheck questionnaire to determine whether

there are any issues or risks for the procurement of the project arising from the timetable for the development of the County’s Waste Development Framework. Our findings are highlighted below.

1.7.18 Dorset is required to prepare a replacement to the current WLP, a Waste Core Strategy, as part of the Waste Development Framework, the timetable for which is as follows:-

- Draft scoping: Spring 2009 - First informal discussion paper: Late 2009 - Draft Waste Plan: 2010 - Examination in public: 2011 - New Waste Plan adoption: Late 2011 / early 2012

1.7.19 On 17 December 2008 the WPA requested that all the policies in the current WLP be ‘saved’ with GOSW until adoption of the new Waste Plan. The WPA has confirmed that the sites allocated in the WLP will be assessed as sites option in the emerging Core Strategy and related sites development plan documents (DPD).

1.7.20 The WDA will actively promote the reference site for inclusion in the Core Strategy. In addition, depending on the outcome of East Dorset’s Local Development Framework, the site at Ferndown is also likely to become an option. Furthermore, if other sites are identified that may be suitable, these will also be presented for examination.

1.7.21 If the policies are not “saved” they will expire in 2009 and proposals for waste management would be considered against the remaining development plan including the RSS and Structure Plan and also PPS10.

Reference Site and Planning Policy Context1.7.22 Of the two potential sites allocated in the 2006 WLP, one has been identified as our

reference site, the acquisition of which is being currently negotiated with the site owners. The reference site was assessed in the WLP and allocated for a MBT/SRF strategic waste facility.


1.7.23 Policy 38 of the WLP states that energy from waste through incineration will not be permitted unless specific criteria are complied with, including: the proposal would meet the need in Bournemouth, Dorset and Poole; the proposal was at an appropriate scale; and, it would not impact on recovery and recycling schemes.

1.7.24 The WLP does not include policies to allow the consideration of other thermal technologies. Therefore, a proposal for a thermal technology, e.g. the reference technology, at the reference site may be considered a “departure” from the development plan. However, we are advised that PPS 10 is likely to hold greater weight in the determination of a proposal where the adopted development plan does not fully reflect the key planning objectives. Other material considerations would include the 2009 MWMS.

Emerging Dorset Waste Core Strategy1.7.25 The WPA has confirmed that the sites allocated in the WLP are likely to be assessed

as site options in the emerging Core Strategy and the related site development plan documents (DPD). The timescales for preparing the Waste Core Strategy have been taken into account in the consideration of the procurement process, assessing any potential risk. We are advised that the Core Strategy is not sufficiently progressed to be considered at this stage.

1.7.26 We are also advised that PPS10 will have considerable weight in the determination of waste proposals in Dorset until the Waste Core Strategy has been well progressed and/or adopted and is judged by an inspector to fully reflect the key planning objectives set out in the national guidance.

Managing Planning Risk1.7.27 It has been identified that there may be tensions and risks arising from the conflicting

timescales of the emerging development plan and procurement process and this could impact on bidders securing planning. We are aware that the contract will be delivered within the context of a development plan-led planning system. As a critical path issue the adopted programme for the preparation of the emerging Dorset Waste Core Strategy and other relevant emerging development plans have been considered alongside the procurement and contract planned timescales, the potential risks that such programmes pose to the waste contract as well as how this can be managed have been assessed.

1.7.28 We are advised that the Core Strategy will hold little weight in the determination of planning applications until such time as it is well progressed and in line with national guidance this is considered to be at submission stage under the new Development Plan Regulations. The WDA is aware that “prematurity” should not be used as a sole reason for refusing planning applications in the new Planning System.

Design Issues1.7.29 Dorset has a firm commitment to good quality design and recognises that this project

will provide an opportunity to construct a building of the highest standards both visually and operationally. In the development of new waste treatment facilities, the design of the facilities is not solely about appearance as the facilities will need to operate efficiently and meet/exceed contract targets and performance indicators. Maintenance and lifecycle costs will be expected to be integrated into the design and need to be sufficient to ensure the efficient operation of the facility throughout the contract period and for a further five years after expiry without the need for major refurbishment.


1.7.30 It is anticipated that the standards for design will take into account guidance on design quality included in:

- DEFRA and CABE’s jointly produced guidance document for use in the design of waste facilities

- The Department for Culture, Media and Sport’s (DCMS) publication, Better Public Buildings

- Treasury Taskforce Technical Note 7, How to achieve design quality in PFI projects

- The 4ps publication, Achieving Quality in Local Authority PFI Building Projects. - Building Research Establishment Environmental Assessment Method from BRE.

1.7.31 The standards for design - design quality indicators (DQI) – will be set out in the draft Output Specification and include:

- Quality standards – a requirement to comply with British Standards and codes of practice or European equivalents, Egan principles (minimisation of construction waste, supply chain management) , approved quality manuals, good industry practice, legislation, health and safety legislation and guidance, fire safety requirements, guidelines issued by CABE, DCC policies;

- Sustainability – a requirement to meet the Government’s carbon emission challenge, both at completion and in use. e.g. a requirement to use sustainable materials and comply with emission standards;

- Recycled and reused material in construction – a minimum proportion to be specified in procurement clauses; and,

- Workmanship – a requirement that all persons employed in connection with the works will be skilled and experienced in their professions/trades.

Permitting1.7.32 As an Energy-from-Waste facility, the proposed reference project will require an

Environmental Permit (EP) from the Environment Agency (EA). Depending on the fuel type, scale and primary purpose of the facility, an EP application as a co-incineration plant or as a Waste Incinerator would be prepared. The application will demonstrate how the facility has been designed and will be operated, including those management procedures that will be in place to satisfy the requirements of all relevant policy, process and guidance. The application will be prepared using the EA electronic templates and will be in line with the most up-to-date and relevant Sector Guidance documents.

Engagement with the Environment Agency (EA)1.7.33 We will engage with the EA during all stages of the EP application process to ensure

the approach and content of the application meets their requirements. This approach provides the best means of achieving efficient determination of the application. Pre-application meetings will be held with the EA to agree the application approach, the scope of risk assessments and information required in the application. As the preparation of the application progresses, we will ensure that we maintain regular contact with technical and permitting experts within the EA to ensure the application meets with all EA requirements.

1.7.34 As there is considerable overlap with those impact assessments which are required to support an EP application and an EIA. To ensure that outputs are efficiently generated to support both submissions, the delivery of the EP application will be twin tracked with


delivery of the planning application and EIA. This will streamline the processes and allow a joint stakeholder engagement approach to be taken.

1.8 Costs, Budget and Finance

Introduction1.8.1 The purpose of this section is to outline the analysis undertaken by the Council relating to:

- The cost of procurement; - The demonstration of the Value for Money for the reference project consistent

with HM Treasury’s Value for Money Assessment Guidance; and - The affordability of the reference project and the Council’s budgetary

commitment to the affordability implications.

Procurement Costs

1.8.3 Procurement costs from 2008/9 until project delivery in 2015 is estimated at £3.158 million, including internal and external costs. This includes £900,000 for the cost of external consultants during the procurement. This figure seems low in comparison to the budgets of other Councils conducting waste PFI projects. However, having had experience of delivering our recent street-lighting PFI project within tight budget constraints, we believe that with careful cost management we will be able to do the same with this procurement. If it proves that we may require access to more funding, we understand from our S151 officer that a contingency fund could be made available.

Cost of the Reference Project Using Private Finance1.8.4 The reference project has been further developed to make it a realistic solution by

incorporating project finance as the vehicle a private sector partner would bid for this project. The financial modelling is based on realistic expectations and is conservative with assumptions that the Council has limited control over.

1.8.5 The costs of the reference project have been derived from:

- A waste flow model developed by the technical advisor, RPS, who has also provided financial information using their database of capital, lifecycle and operating costs;

- A “shadow tariff” model created by the financial advisor, KPMG, using a model in a form that the private sector would use to price their proposals. The cost and waste flow assumptions are taken from the RPS model. The project finance assumptions and bid transaction costs are based on KPMG’s knowledge of current bid submissions in the waste market;

- An affordability model provided by KPMG, showing the impact of a PFI solution on the Council’s affordability position.

1.8.6 The assumptions used in costing the reference project are designed to reflect the way the private sector would price the project. They include whole-life-cost and funding structure assumptions based on advice from our financial and technical advisors. We believe them to be conservative, thereby reducing the risk of affordability issues during procurement. The Shadow Bid model simulating the PFI reference project (appendix 24) has produced the estimated cost of the PFI solution, as below:

Table 31 – Estimated Cost of the PFI Solution


Cost Unitary Charge (PB Apr 08)

£m

Total Nominal UC

£m

PFI Solution 13.9 577.0

Value for Money Assessment1.8.7 In accordance with the Guidance, this OBC assumes that Defra has already

undertaken a Stage1 programme level assessment for waste PFI projects as part of the Comprehensive Spending Review (completed in 2004) which demonstrated that the waste industry, as an investment programme, is likely to achieve value for money under PFI. In applying the Guidance, there is a presumption, therefore, that there is already a prima facie case for using PFI as the preferred procurement route. This assessment does not, therefore, provide a full analysis of all possible procurement routes.

1.8.8 This project level assessment has considered both qualitative and quantitative factors. The qualitative appraisal considers the viability, desirability and achievability of PFI. The quantitative analysis uses a prescribed methodology and electronic spreadsheet provided by HMT to determine which PFI represents indicative VfM when compared to a Public Sector Comparator (PSC). This section outlines the results of both the qualitative and quantitative assessments.

1.8.9 In terms of the VfM qualitative assessment, the Council has taken into consideration the qualitative factors as recommended by HMT of viability, desirability and achievability. The results of the assessment are recorded in appendix 35. In summary, based on the qualitative project level assessment, the Council is of the opinion that the EfW reference project meets the viability, desirability and achievability requirements of the Guidance, thereby confirming the initial programme level assessment decision that PFI offers VfM.

1.8.10 As regards the quantitative assessment the Treasury VFM Model contains a number of assumptions that are pre-set and cannot be altered. However, specific input assumptions such as project timescales and estimated transaction costs have been determined.

1.8.11 The Treasury VfM model accounts for the impact of uncertainty over project costs through input assumptions for Optimism Bias. This relates to the tendency for project appraisers to be overly optimistic when considering project benefits and costs. The overall level of Optimism Bias relating to Capex is 72%. The pre-final-business-case (FBC) Optimism Bias has been estimated at 18% and represents the increase in costs up to the point of contract award. The post-FBC Optimism Bias of 47.4% represents the potential cost increases after contract award. Two critical drivers determining these figures are

:- The fact that the choice of technology remains unknown at this stage; and - The current uncertainties that exist within the financial markets.

The impact of the post-FBC Optimism Bias for Dorset is expected to be reduced by a PFI solution due to the risk transfer opportunities.


The key outputs from the Treasury model are the Public Sector Comparator Net Present Cost (“NPC”) of the project, the PFI equivalent and the indicative PFI VfM percentage representing the percentage difference between the two. Table 34 shows the results of the VfM quantitative analysis as being a positive indication that PFI represents value for money when compared to PSC.

Table 34 – VfM Base Case Results

PSC NPC £m PFI NPC £m

Base case scenario (15% pre tax) 305 257Indicative PFI VfM 15.7%

1.8.12. The following sensitivity analyses have also been carried out on the VfM base case result to determine the degree by which the various cost elements of the reference project would need to change in order for the PSC and PFI net present costs to become equal. Table 35 below shows these % changes (called indifference points).

Table 35 – Indifference Points for Capital and Operating Expenditure

Procurement Option

Variable Indifference Points %

PSC Capex (24%) PSC Non-employment Opex (74%) PSC Employment related

Opex (173%)

PFI Unitary Charge 20%

1.8.13. The analysis demonstrates that Capex under PSC would need to decrease by 24% in order to render PSC equal to PFI. The same applies to the other variables listed. HMT Guidance suggests that a minimum 5% indifference point would confirm the VfM of PFI.

1.8.14. In terms of the unitary charge under PFI, it is estimated that it would have to increase by 20% in order for its VfM advantage as against the PSC to be eroded.

Affordability AnalysisConfidential information

Calculation of PFI Credits1.8.15. The unitary charge generated by the PFI project has been calculated using funding

and commercial terms which are consistent with those used in the current waste PFI market.

Projected Budget1.8.16. The projected budget for 2009/10 to dispose of the same amount of waste anticipated

to be treated during the first year’s operation of the treatment plant, been flexed to account for the increased recycling rate anticipated to be achieved by the start of the contract, and has been extrapolated out by applying 2.5% inflation year on year to


reflect the nominal budget over the contract duration. The total budget is estimated at £4.9 million.

1.8.17. The PFI credits have been calculated in accordance with guidance provided by DEFRA. Based on this approach the Reference Project delivers a PFI credit figure of £78.3 million.

1.8.18. The RSG attributable to the project based on the PFI Credit figure of £78.3m has been calculated in accordance with the Local Authority PFI Grant Reform that came in to force in 2005 and subsequently updated thereafter. Based on this methodology, the PFI credits generate RSG attributable to this project as follows:

- First full year RSG is £5.8m - Total RSG over the contract period is £145.7m

A copy of the PFI credit model calculation can be found in appendix 25.

Member Approval of Affordability1.8.19. This OBC has received “officer approval” from the Project Board and will be

recommended for approval to Cabinet on 02 February 2009. This will provide the evidence for member approval of affordability.

The Council’s LATS Strategy1.8.20. In view of the fact that the Council’s long-term waste treatment facility is not anticipated

to be operational until 2016 and also that the Council estimates that it will start to go into a LATS deficit in 2011/12, a LATS strategy is in place to provide LATS compliance in the intervening years. The strategy consists of the following elements:

- Continuing to implement tried, tested and innovative waste minimisation initiatives;

- Enhancing WCA recycling and composting services to achieve 60% recycling by 2015/16;

- Securing interim treatment of residual waste within or outside of the county; - Maintaining contact with all treatment plants within a 100 mile radius of Dorset in

order to keep abreast of spare treatment capacity; and, - Acquiring sufficient LATS permits from authorities with surpluses, if required.

1.9 Stakeholder Communications

Introduction1.9.1 The Council has recently completed a public consultation on the review of its 2009

MWMS. The consultation started on 28 July 2008 and ran for 14 weeks until 7 November 2008. The breadth of media used in the consultation was substantial and is one example of how serious the Council takes its responsibility to communicate with stakeholders.

Communications Strategy1.9.2 Now the review of the 2009 MWMS is complete, the Council has developed a similar

communications strategy to keep stakeholders informed about progress on the long-term waste treatment project (appendix 30) The full-time communications officer appointed in April 2008 to develop and implement the strategy for the review of the JMWMS has taken on the same role with regard to the development and the implementation of the communications strategy for the waste treatment project.


Public Engagement1.9.3 Public relations has developed into a discipline that provides efficient and effective

ways to engage the public and other interested parties by segmenting stakeholders into groups, developing relevant key messages for each group and also the most effective medium through which to communicate with each group. The Council will use this methodology to develop and deliver its communication strategy for the waste treatment project.

Community Sector / Non Governmental Organisations (NGOs)1.9.4 This stakeholder group comprises such bodies as residents associations; conservation

organisations, trade, business and education representatives, voluntary and community groups, interested local people, local authorities and the EA.

1.9.5 The most appropriate way to engage this group is generally face to face either at public meetings, exhibitions, open days or at special interest group meetings. Providing explanatory literature, case studies and responses to frequently asked questions in plain English is an effective aide to communication.

Transfer of Undertaking (Protection of Employment) (TUPE)1.9.6 The project team has not identified any impact with regard to TUPE and workforce

matters as a result of this project and will therefore not include TUPE in its communications strategy. Should this change, the Council will observe the relevant legal requirements and codes of practice and include those affected in its communication strategy.

Supply Market Interest1.9.7 The Council is fully aware of the need to market its project successfully in order to

attract bidders and banks and generate healthy competition in the procurement. It will achieve this by: circulating an information pack which describes the project and the procurement timetable and requesting feedback via a questionnaire in early 2009; going to tender in May 2009 with a technology neutral, output specification; providing the preferred bidder with a site and pre-planning investigations completed; and concentrating purely on waste treatment, i.e. a disaggregated project.

1.10 Timetable Amended February 2009

Introduction1.10.1 Dorset’s draft project timetable is shown below:

Action DateSubmission of officer-approved OBC to Defra Dec-08OBC approved by Council Feb-09DEFRA approval of OBC Mar-09PRG approval of OBC Apr-09OJEU publication date May-09Issue of descriptive document May-09Issue of Invitation to Submit Outline Solutions Aug-09Return date for Outline Solutions Oct-09Issue of Invitation to Submit Detailed Solutions Dec-09Return date for Detailed Solutions Mar-10


Call for final tenders Jul-10Preferred bidder selected Oct-10Submission of Final Business Case Nov-10DEFRA/ PRG approval of Final Business Case Jan-11Contract award Feb-11Financial close Mar-11Successful bidder submits planning application Jan-11Planning permission achieved Mar-13Plant operational Mar-16

Managing Timetable Risks1.10.2 The project team is confident that there is sufficient time built into the timetable in order

to cater for contingencies during procurement. The synchronisation of the successful bidder’s planning application with the adoption of both East Dorset District Council’s Local Development Framework (likely to make the preferred reserved site an option) and the WPA’s emerging Waste Core Strategy (replacing the current WLP), is important in order to ensure that any delay in the adoption of either the Framework or the Core Strategy does not affect the project’s critical path.

1.11 Contact Details of Project Team Members

Should any questions arise regarding this PFI application, please contact in the first instance:

Steve Burdis Project Director: [email protected], 01305 224 691 Tom Kinally Project Manager: [email protected], 01305 224221 Matthew Webb Assistant Project Mgr: [email protected] 01305 228 669