LAWR

PFI ANALYSIS PFI EfW projects: Where did they go wrong? Millions of pounds have gone into private finance initiative (PFI) waste projects run by Norfolk, Surrey, and Herefordshire and Worcestershire. All the projects have experienced delays. Taxpayers have footed the bill. Liz Gyekye finds out what went wrong and if any lessons have been learnt. he National Audit Office (NAO) recently published a report on Defra's role in oversee- ing PFI energy from waste (EfW) projects run by Norfolk County Council, Surrey County Council and jointly by Herefordshire Council and Worcestershire County Council. The NAO concluded that all three projects have experienced delays stemming from a range of problems, including difficul- ties obtaining planning permission, com- plex commercial considerations, opposi- tion from local groups and uncertainty over technology. The inquiry was triggered because the NAO received a high level of corre- spondence from the public about the three PFI waste projects over the last 18 months. In order to help meet 2020 land- fill diversion targets, Defra has commit- ted £205m of waste infrastructure credits to Surrey County Council and £113m of credits jointly to Herefordshire Council and Worcestershire County Council. In October 2013, Defra withdrew £91m of credits it had previously allocated to Norfolk County Council because it had missed a planning deadline. First PFI contracts in the UK The nature of the funding agreements between Defra and two PFI waste projects resulted in money being spent before any EfW plant had been built. The Surrey and Herefordshire and Worcestershire contracts were among the first PFI con- tracts in the UK, according to the NAO. The funding agreements inherited by Defra required grant payments to start as soon as the contractors begun to provide services under the contracts, irrespective of whether all of the planned infrastruc- ture had been delivered and built. In the case of Herefordshire and Worcestershire, they jointly signed a 25-year contract with Mercia Waste Management for around £680m in 1998. For the first 15 years of the contract up to March 2014, Defra and its predecessors contributed grant payments of £89.5m to the councils even though no founda- tions had been laid. The location of the EfW plant was originally proposed for a site near Kidderminster but the planning application for the plant failed. The authorities have now agreed to act as the sole source of finance for the construction of a proposed EfW site in Hartlebury after negotiating changes to the contract. As a result of the changes, Defra has reduced its overall funding support for the project from £143m to £113m. In contrast, Defra's funding agreement with Norfolk included stricter terms and conditions than earlier agreements. Norfolk's breach of one of these terms caused Defra to review its allocation of credits to the Norfolk project. Defra subsequently revoked its fund- ing allocation because ministers judged it likely that they could meet their 2020 landfill diversion target without its help. In April 2014, Norfolk decided to ter- minate its contract with waste man- agement firm Cory Wheelabrator at an estimated cost of around £33m, as a result of the failure to secure planning permission and the reduction in value for money caused by delays. Norfolk states that around £14.7m will be cut from other council services to help fund this compensation. MPs from the Public Accounts Committee (PAC) criticised Defra over its role in advising Norfolk County Council on its contract, and why it chose to press ahead with funding for the scheme, only to withdraw it at a later date. In response, Defra permanent secre- tary Bronwyn Hill says that she regrets that money has been wasted but the "thing that led to the cancellation by Norfolk of its contract was their fail- ure to obtain planning permission, over which Defra has no control". Reflecting on lessons learnt, Norfolk County Council leader George Nobbs says: "Defra approved the contract and awarded Norfolk PFI credits worth £169m in the full knowledge of the pro- posed timetable and the compensation arrangements. By anyone's book a two- year period for achieving planning per- mission should have been reasonable and increasing that timescale would have increased the price of the contract. At the end of the day, Eric Pickles' decision to 'call in' the project and the consequences of that decision meant the timetable was unachievable. "It is now clear that the original deci- sion to enter into the contract turned out to be disastrous. A number of factors are probably to blame. This is a sad and sorry tale but it is one that is hopefully behind us. It has been a salutary lesson about placing reliance on promises of support from the current Government." T August 2014 Local Authority Waste & Recycling 11 " It has been a salutary lesson about placing reliance on promises of support from the current Government "

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