HWP Briefing for Members

Intermediate Inter-Authority Agreement The legal context

Nicky Sumner Sharpe Pritchard

Agenda for today

• • • • • • • Some terminology What are the respective rights and obligations of a WCA and WDA (a canter through the relevant legislation) What are the key ingredients of a waste PFI o what is PFI o the process o the structure of the contract Why is an IAA needed?

What other authorities are doing The HWP IIAA Next steps

Terminology

WCA WDA OBC IAA IIAA WET Act EPA OJEU Defra/WIDP PRG PUK CD EfW MBT Recycling Credits Tipping Away Payments Project Finance Waste Collection Authority Waste Disposal Authority Outline Business Case Inter Authority Agreement Intermediate Inter Authority Agreement Waste Emissions and Trading Act 2003 Environmental Protection Act 1990 The first notice and invitation to express interest issued pursuant to the Public Contracts Regulations 2006 Sponsoring government department and Waste Infrastructure Delivery Programme HM Treasury’s project review group (who will determine whether PFi credits are available) Partnerships UK: quango set up to scrutinise and advise on PFI contracts on behalf of the Treasury Competitive Dialogue procedure pursuant to Public Contracts Regulations 2006 Energy from Waste – treatment facility to divert residual waste from landfill by incinerating it –can produce heat and/or power Mechanical and Biological Treatment waste used for land fill cover. – process to treat and reduce biodegradable element of municipal – produces a compostible output typically Payments from a WDA to a WCA in return for the WCA recycling waste through the WCAs own arrangements and therefore saving the cost of the WDA disposal Compensation paid to a WCA if they are required to deliver to points other than those agreed and outside their areas Funding from a senior lender (bank) secured on the project rather than an asset

Background to Statutory Framework

• EU Landfill Directive – requirement on all Member States to reduce biodegradable municipal waste sent to landfill • UK Landfill Allowance Trading Scheme (LATS)– introduced in April 2005. Local authorities only permitted to landfill up to their allocated allowance levels or suffer fines. Allowances to be reduced. Allowances can be traded between authorities • UK Landfill Tax – payable on waste sent to landfill. Set to increase year on year to further encourage diversion from landfill (Landfill Tax Escalator) • UK National Waste Strategy for England 2007 – Government’s strategy for implementing EU framework and setting national targets for recycling and recovery of municipal waste

Statutory powers and rights

Environmental Protection Act 1990

County Council is a Waste Disposal Authority (WDA) Districts are Waste Collection Authorities (WCAs) S45 EPA WCA obligation to collect household waste (free of charge in most cases) and commercial waste where asked to do so (for a charge) Other collections are optional (eg industrial waste) but WCA has power to collect S46 EPA WCA can dictate the type of receptacle for household waste to be collected, the number and kind Can be at Council or householder’s cost S48 EPA WCA must deliver the waste collected to the place where the WDA directs (the power of Direction) There are no provisions setting out location of disposal points, opening times or the specification in design, vehicle turnaround times etc S 47 EPA WCA may retain waste for recycling provided it notifies the WDA The WDA may object if it has already made disposal arrangements S51 EPA WDA has duty to make delivery points available and dispose of waste

Statutory powers and rights

WET Act 2003

WDA power to require WCAs to separate waste

Household Waste Recycling Act 2003

• Duty on local authorities to provide kerbside collection for at least two recyclates by 2010

National Indicators

• NI 191 – residual household waste per household • NI 192 – household waste reused, recycled and composted • NI 193 – municipal waste landfilled

What is a PFI?

• Arrangement for the provision of services which require an asset financed by the private sector • Off local authority balance sheet so does not count as public borrowing • Procured through the competitive dialogue procedure of the Public Contracts Regulations 2006 • Usually Project Finance but sometimes other forms of finance (eg corporate debt) but issues similar

The PFI process

• OBC submission and approval • OJEU • PQQ short-listing • Competitive dialogue • Preferred Bidder appointment • FBC approval • Financial close • Planning, construction, operation

Typical PFI Project Structure

Hertfordshire WCAs IAA Payment (Unitary Charge) Contract Waste Construction Contract (“the Construction Sub-Contractor”) Hertfordshire County Council (“the Authority”) PFI Contract and Property Agreements (SPV) (“the Contractor”) PFI credits (£112m) Direct Agreement Senior Debt (85%) Equity (15%) Operating Contract Other Sub Contracts (“the Operating Sub-Contractor”) Defra (sponsoring government department) Bank (“Senior Lender”) Bidder Limited Technology supplier Technology Supplier WTS (“New Facilities Construction Contracts”) Landfill Services

Why is an IAA needed?

3 key reasons o

Defra requirement

o

Certainty

o

Value for money

Defra requirement

• Defra’s “Criteria for securing waste PFI credits” (version 1.2 published 16/08/07) http://www.defra.gov.uk/environment/waste/locala uth/funding/pfi/pdf/pfi-criteria-aug08.pdf

• Criteria 1 is the key criteria for our purpose –

“In two-tier areas, proposals [for PFI credits] should demonstrate how the two tiers of local government will work together to deliver their targets under legally binding agreements or constitutions, which should be in place by the start of procurement.”

Certainty

• • • Assists authorities in two tier authorities to work together Augments statutory framework (fills gaps in legislation) Certainty for Defra and private sector that HWP can work together before investing in multi million pound facilities

Value for Money

• • • • Issues and risks for the private sector    Scope of project Composition and volume of waste Changes overtime Certainty (leading to better competition) Better risk profile for PFI (good for public purse) Less risk, more manageable risk – cheaper finance

What other authorities have done

• Essex – joint committees supported by MoU. Developing binding IAA • Northamptonshire – MoU in place. In process of executing binding SLAs • Leicestershire – statement of understanding signed for OBC. Legally binding, in place until financial close of PFI • Suffolk - detailed IAA signed pre procurement. To be reviewed following LGR if required • Buckinghamshire - interim IAA signed for waste management project and long term arrangement for composting • Cambridgeshire – RECAP supported by statement of understanding

The HWP IIAA

• Contractual document – legally binding • Builds on and formalises provisions in the MoU • Parties to continue as the HWP in accordance with the 2007 Joint Municipal Waste Management Strategy provisions • In place for start of PFI procurement until Financial Close of PFI • Structure to assist HWP to work during PFI procurement: • to comply with Defra’s requirements for OBC • to encourage competition by giving certainty to the private sector • to ensure value for money • Is a first step. Long term IAA envisaged once PFI procurement in final stages

What the IIAA includes

• Partnership working • WDA and WCA commitments during PFI procurement • WCA Baseline and information provision • Delivery points and tipping away • Funding • Flexibility

 Intermediate agreement  Review Procedure

• Dispute Resolution Procedure

Next Steps

• Workshop 3 – Tuesday 13 th January • HWP Members Group- 26 th January • OJEU – April 2009