Agenda item

To hear from North London Waste Authority representatives on accountability and governance.

The Chair welcomed Councillor Meehan, David Beadle – Managing Director, NLWA – and Tom Hemming – Waste Strategy Manager.

The Chair asked Councillor Meehan to explain some of the background of the NLWA – what is was, who it was responsible to and how it was scrutinised.

Councillor Meehan explained that the NLWA was a public authority which had been set up in its’ own right following the implementation of The Waste Regulation and Disposal (Authorities) Order 1985.  Under this Act, each Local Authority appointed two elected Members to sit on the Board.  When sitting on the NLWA Board, members were a representative of the NLWA and not the Local Authority.  The Board as a whole makes the decisions.  These decisions were made in public (apart from sensitive decisions, i.e. procurement), but there was no scrutiny function.

David Beadle added that at the time of setting up the NLWA, 5 other statutory joint waste authorities were also set up.  There were links with officers at each borough and a partnership board with technical officers to work through the procurement side of things.  Although the decisions were made by the NLWA, a lot of these decisions were presented to Local Authorities, and Members would have the opportunity to discuss and scrutinise these.

Councillor McNamara commented that thought needed to go into how OSC could constructively contribute.  He made reference to a piece of work undertaken by the Environment & Housing Scrutiny Panel on waste and recycling where panel members had spoken with Bexley – a unitary waste disposal authority where Councillors had a role in scrutinising the waste function.  He stated that it was important to speak to other waste authorities to get a sense of how they carried out a scrutiny role.

Councillor McNamara also referred to the The Waste Regulation and Disposal (Authorities) Order 1985 and questioned whether this had been superseded by the Local Government Act 2000 which set out the scrutiny arrangements for public organisations.  He added that this did not mean that the NLWA did not work, or that they way it worked was wrong but that there needed to be some exploration into the scrutiny function of the organisation.

In response to Councillor McNamara, Councillor Meehan stated that it would be simplistic to say that Haringey were not aware of issues or decisions of NLWA.  There was a close working relationship between the boroughs and the officers within the NLWA, and decisions were not taken without discussions with the boroughs.  With regards to amendments to legislation, there was no decision taken to scrutinise waste authorities.

Stephen Lawrence-Orumwense – Assistant Head of Legal Services – advised that the creation of the NLWA predated the Local Government Act 2000, and the scrutiny function arose from the LGA 2000.  If members wished to change the process then representations would have to be made to Parliament or the Secretary of State.

Councillor Rice invited Councillor Solomon to ask questions:

Did Haringey Council go out to tender before it appointed NLWA to dispose of recycling materials? Did it consult with other authorities about this? Is there a record of these consultations?

At the time that the recycling strategy was agreed in 2006, the Council decided to collect their waste in commingled form.  After talking with other authorities who collected waste in the same way it was decided that the best route was to use the NLWA to take commingled recycling.

When is the deadline for Local Authorities to sign the Inter Authority Agreement?

The IAA was at a stage where it was more or less in its’ final form, subject to agreement of borough tonnages and would be signed off fairly soon.

Who in NLWA is responsible for signing the procurement contract?

A report would be provided to NLWA members and a decision would be made by them.

What is the future liability for Haringey Council arising from a 25 to 35 year procurement contact? discounted to current values?  What would be the Base year for the Guaranteed Minimum Tonnage?

The 2010 NLWA Outline Business Case provided a breakdown of the modelled costs used to inform affordability sign-off, including a modelled cost for disposal alone of £562 million over 30 years.  This was a nominal figure.

There was no base year as such for GMT, as the forecast tonnage would differ year to year to take allowance of increased recycling rates.

Please can we have a copy of the contract between NLWA and Barnet Council regarding the sale of the Pinkham Way site. In the case of any confidentiality please state the reasons for this.  Was it wise to spend £12m on a site with no planning permission?

Given that the Risk Register acknowledged some planning risk, why did the Authority opt for outright purchase?

A copy of the sale and purchase agreement is publicly available and obtainable from the Land Registry.

With regards to purchasing the site, it was common for contracts to reach a financial close without planning permission and the contractor then pursued planning permission.  Another factor was that the NLWA was trying to obtain PFI credits towards the capital costs of the project and one of the requirements was security over sites needed to deliver the proposal.  The only option given to NLWA was to purchase the site from Barnet.

What was the relationship to London Waste?

LondonWaste Ltd was set up in the mid 1990s, and is owned by NLWA.  The Board of LondonWaste consists of three Executive and four Non-Executive Directors.  Arrangements are governed by a shareholder agreement and a governance report provided of each formal meeting. 

How is the PWLB loan of £95m to be repaid?

The authority borrowed money to purchase shares in LondonWaste Ltd. The Authority has set aside sums to repay the loans since 2010/11.  The Authority has also budgeted for and paid the interest due on these loans.

Councillor Jenks asked for confirmation that Haringey Council’s long term liability arising out of a 30 year contract placed by the NLWA would be £563million.  Councillor Meehan requested that a written response be provided.

ACTION: Tom Hemming

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Response to action

The quoted figure of £563 million is the modelled total cost to Haringey for waste treatment and disposal over a period of 31 years, taken from NLWA’s 2010 Outline Business Case (OBC) to Government for PFI credits (available on the NLWA website).  This is a nominal figure - not discounted to current values (i.e. it allows for general price level changes over time).  Furthermore, the estimated costs is an upper boundary, reflective of the application of ‘downside’ sensitivities (essentially a ‘worse case’ scenario).  In order to satisfy Defra requirements as part of the PFI credit application, Constituent Boroughs were required to acknowledge (but are not bound to) the OBC cost estimates as the potential upper boundary of their share of the NLWA’s future waste management costs. 

The estimated cost reflects that a PFI route was evaluated as the minimum cost option for council taxpayers at the time of the OBC.  Furthermore, the OBC demonstrated that implementing the selected ‘Reference Project’ option would be over £200 million less over the lifetime of the project than the ‘do minimum’ option (i.e. essentially relying on landfill). Since the OBC was prepared the Government has announced a further real terms increase in landfill tax, i.e. the per tonne tax on waste which is sent to landfill, so that the comparable savings figure now is nearer £250 million. This is a saving which will effectively be passed on to tax payers.  

The competitive procurement process being undertaken by NLWA is designed to achieve costs below the OBC estimates, hence actual future costs to the Boroughs through the NLWA levy are subject to final bids.  As revised estimates of future levy changes are received from NLWA, these are included in the Council’s medium term financial plan.

It should also be noted that the OBC estimated costs were not based on the levying arrangements for apportioning NLWA’s costs to Boroughs that it is envisaged will be in place from 2016 under the Inter Authority Agreement (IAA).  Under the IAA it is intended that there will be a ‘menu pricing’ levying mechanism in place, which will replace the existing levying system.  The new system will charge Boroughs a cost per tonne - as defined by the NLWA contract - for individual waste streams (residual, recycling, organics etc).  This will directly incentivise lower cost recycling over residual treatment/disposal.  Hence, the actual future costs to Haringey will depend on the volumes of different types of waste delivered in each year and our ability to maximise the recycling rate.

In terms of ‘liabilities’ from the perspective of risks of further costs aside from possible variations to the tonnage of waste and recycling delivered by Haringey (which could increase or decrease costs) there are expected to be Guaranteed Minimum Tonnages (GMT) that NLWA will have to meet under its contract from 2016 onwards.  The GMT for each waste stream (residual waste, commingled recycling and mixed organic waste) is expected to be 70% of the tonnage forecasts that the Boroughs combined propose to commit to under the IAA, in a given year; meaning that tonnages would have to drop below this level to present any risk to NLWA, and in turn the boroughs, in the form of having to pay for the shortfall as though it had been delivered. 

Because the GMT is based on the boroughs’ combined forecasts, this allows the tonnage from any boroughs which are above their minimum tonnage to compensate for potential under-delivery by another borough.  At the same time, as long as the Council does not fall below the 70% threshold for its own individual forecasts it cannot be liable for any GMT costs.   Given the allowances Haringey’s forecasts make for increased recycling/reduced residual waste, our residual waste levels would have to fall to around half of current levels to present any risks from the GMT that will be in place for residual waste.

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Councillor Rice allowed a member of the public to ask a question:

Mr Steven Bryce – Chair of the Pinkham Way Alliance – spoke of the difficulty in forecasting waste, yet the authority had managed to forecast this for the next 30 years and prepared future spend on this forecast.  There was also no evidence that value for money comparisons had been carried out.

David Beadle explained that forecasting waste was a difficult issue however in order to meet targets set by Europe, treatment capacity needed to be built which required investment.  Investment would be a long term arrangement (25 year plus contracts), so forecasting was required.

OSC requested that information be sought on how other strategic waste authorities were commissioned, including other joint waste authorities as well as unitary authorities.

ACTION: Scrutiny Officers

Councillor Rice thanked all for attending.