Home      Privacy Policy      Disclaimer

Is PFI/PPP best for waste?


John-George Willis weighs up whether PFI/PPP models are appropriate instruments for attracting investment into the waste sector.

Under the Landfill Directive, the Department of the Environment for Northern Ireland is seeking to reduce the biodegradable municipal waste (BMW) sent to Northern Ireland’s diminishing landfill capacity. Under the Landfill Directive, waste authorities must:

  • reduce BMW landfilled to 75 per cent of 1995 level by 2010;
  • reduce BMW landfilled to 50 per cent of 1995 level by 2013;
  • reduce BMW landfilled to 30 per cent of 1995 level by 2010.


The PFI/PPP model of financing public activities under a long-term service contract has been found to be attractive to a number of English local authorities. There are several reasons for this, including the PFI/PPP credits given by government towards infrastructure costs, lower bid process costs, greater flexibility if waste mix and volumes change and lastly, PFI/PPP is excluded from their budget for capital investment (although capped by central government).

The Department of the Environment for Northern Ireland with assistance from SIB has instigated the three waste investment projects underway in Northern Ireland (arc21, SWaMP and NWRWMG). It is open to speculation whether Northern Ireland will meet its EU targets for reducing the amount of BMW going into landfill but all three projects are progressing. arc21 is at the most advanced stage and is at the prequalification of bidders stage, whilst NWRWMG is currently being advertised by the Official Journal of the European Union (OJEU).

If the landfill reduction targets are not met central government will incur financial penalties. Furthermore, the rate of Landfill Tax (i.e. the tax that any waste authority, commercial business or private contractor pays for one tonne of putrescible waste delivered to a landfill) has increased.

The effect of these measures is that waste now represents a substantial financial risk for those councils without the required landfill diversion infrastructure in place. Local authorities are therefore seeking to eliminate the risk by bringing forward the procurement of new waste treatment facilities under PFI/PPP.

So far 18 local authorities in England have signed PFI/PPP contracts with a combined capital value of £1.6 billion. DEFRA has allocated around £750 million of PFI/PPP credits and has allocated a further provisional allocation of £2 billion for waste projects.

So what about the private sector, does it see opportunities in participating in waste projects under a PFI/PPP procurement model?

Waste management projects can be complex and there has been a perception in some quarters that waste technologies were relatively untested on a large-scale basis in the UK. However the current view is that the commercial opportunities presented by the PFI/PPP procurement model outweigh the difficulties. In particular:

  • Waste projects are now seen as representing the continued evolution and standardisation of PFI/PPP following an increasingly successful and competitive series of school, hospital and transport deals. The development of financial advisors’ skills at integrating the waste flow model with the financial model has also allayed doubts about the difficulty of pricing risk in a waste project. Competitive Dialogue also assists where bidders may have more than one commercial solution to the requirements of a project;
  • Although capital markets are currently illiquid, lenders to waste projects can achieve potentially higher returns by pricing the risks inherent in waste projects which are still seen as greater and also less tested than in other sectors;
  • There is a significant international market for these transactions with some local projects obtaining more than eight expressions of interest. This sustains competitive tension if the project is structured in an appropriate manner; and
  • The impact of the current economic downturn and the market for recycled products will have an impact on the waste PFI/PPP model. This is likely to be led by funders’ due diligence on technical solutions.

At a time where many of the large infrastructure projects have been delayed or cancelled, the construction and engineering market will welcome projects of this scale and necessity. We must also consider the wider sustainability and environmental benefits this Northern Ireland-wide strategy will positively promote for future generations.

If you would like to discuss any of the issues raised in this article, please contact John-George Willis, Partner, Corporate Department,  on Belfast 028 9055 3300 or by email, j-g.willis@tughans.com.