Ten Reasons why the Suez proposal should not be reinstated

March 19th, 2010 by Rupert

  • Please reject the Spruce requete and honour the emphatic 38-2 vote in the States of Deliberation on 26th February in support of the Chief Minister’s & Deputy Chief Minister’s support for a revised waste strategy.
  • The Guernsey taxpayer is shouldering 100% of the financial and operational risk of the Suez Environnement waste proposal. Suez bears no risk at all, as they are being paid up front for the construction & commissioning costs as well as being offered a minimum guaranteed income for 25 years, regardless of the tonnage of waste passing through the plant. This one-sided risk profile, where the client is the guarantor, is highly unusual in Private Finance Initiative / Private Public Partnership type contracts. All of the risk is being borne by the States of Guernsey and its taxpayers / chargepayers. Suez bears no risk, and gets paid a guaranteed contractual sum. There is a clear lack of alignment of interests.

  • There remain a number of significant risks which have not been quantified in the Suez proposal
    • Upwards only inflation cost risk to the operating contract
    • Open ended and possibly adverse foreign exchange risk against the €.
    • Uncertain disposal routes for toxic bottom ash. The costs of bottom ash disposal have not been quantified.
    • Construction cost escalation risks (Isle of Man plant was contracted at £40m but ended up costing £80m)
    • No decommissioning costs have been allowed for
    • No depreciation has been factored in to the operating costs.
    • 2 yr “guarantee” offers minimal protection in the event of operational failures.
    • High gate fee of £175 per ton will encourage waste diversion away from the plant via other routes, threatening the already marginal economics.

These costs could add significantly to the approx £260m lifetime costs of the Suez waste proposal. (Suez value of contract of £194m + £66m of financing charges borne by the Guernsey taxpayer / chargepayer). This is equivalent to a minimum £28,000 per day, every day, for 25 years.

  • The Suez proposal offers Guernsey little or no incentive to reduce residual waste tonnage going to the plant below the minimum effective 37,000 tons operating capacity of the plant . Guernsey’s annual residual waste production is currently about 35,000 tons and has been on a falling trend since 2002. There will be little incentive to recycle, as tonnage volumes will have to be maintained to operate the plant at its optimal capacity to produce electricity.
  • Guernsey will be locked into a hugely inflexible contract for 25 years for the simple reason that the upfront capital costs are so high, that they can only be defeased financially over a very long time period. Using a shorter time period to offer greater flexibility for treatment of waste by other means, would result in a massive increase in the gate fee from the already high levels of £175 per ton. All other things being equal, with a 15 year contract term the gate fee would rise to £250 per ton
  • The high fixed cost structure of the Suez plant means that the plant is very intolerant to falling residual waste volumes. This means that the Guernsey taxpayer has to fund the fixed (financing & operating) costs whatever the waste tonnage throughput, meaning that as residual waste volumes fall, the resulting revenue shortfall can only be compensated for by a corresponding rise in the gate fee, which are already well over double the UK average.

At 30,000 ton throughput the gate fee would need to be £290 per ton

At 20,000 ton throughput the gate fee would need to be £400 per ton

  • The Suez waste proposal does not fulfil best practice criteria
    • It destroys finite material resources
    • It wastes huge amounts of taxpayers / chargepayers money
    • It is a waste of energy, given that 4 times more energy is saved by effective recycling than is generated by energy from combustion (using average range of recyclates)
    • Incineration is the most expensive of all waste treatment processes (source WRAP)
    • Why is Guernsey spending so much on a dead end solution that offers no operational or financial flexibility, where the interests of the States of Guernsey and the contractor are so misaligned?
  • More effective waste minimisation measures can be implemented well before the completion of construction of the proposed plant in 3-4 years time. Not only will these measures be far cheaper, they will reduce further the tonnage of material being delivered to Mont Cuet, even before the Suez plant is built. They are also simple and comparatively inexpensive to implement.
  • The Suez waste solution is a retrospective backward looking and over engineered & expensive strategy that does not incorporate any imagination or vision in terms of waste treatment processes.
  • The waste treatment advice that the States of Guernsey has taken has been dominated by a flawed philosophy. The States has sought advice from experts in “waste management” rather than “waste minimisation”. This is rather like a doctor trying to cure the illness after it has been contracted, rather than applying preventative treatment to address the cause. Predictably, the result is an expensive technological solution that accommodates the problem rather than treating it at source.
  • Please reject the Spruce requete and honour the emphatic 38-2 vote in the States of Deliberation on 26th February in support of the Chief Minister’s & Deputy Chief Minister’s support for a revised waste strategy.

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