I thank the committee for the invitation to discuss the waste-to-energy facility at Poolbeg. It is a welcome opportunity for me to set the record straight, given some public comments in recent times, and the concerted campaign now being waged against the project by, among others, the IWMA. It should be noted that the IWMA did not object to the facility during the various statutory processes and members are significant operators of landfill facilities. Its representatives made certain allegations against the Poolbeg project at their recent session with the committee. I will simply present the facts and this in itself will deal with many inaccuracies in their comments.
In 1996, the four Dublin local authorities appointed consultants to prepare a new wide-ranging waste management strategy for the Dublin region. The brief required a thorough technical, environmental and economic appraisal of waste management practice in Dublin, including an appraisal of internationally available policies and technologies. After a wide-ranging public consultation, the new waste management strategy was published in January 1998. It advocated an integrated approach in accordance with best international practice. A policy of maximum realistic recycling and minimum landfill was recommended. Performance targets were set as follows — 59% recycling, including construction and demolition waste, 25% energy recovery and 16% landfill. The mechanisms recommended for dealing with the residual waste, left over following recycling and biological treatment, were thermal treatment of up to 750,000 tonnes per annum and a new regional landfill of 11 million tonnes. The elected members approved preparation of a regional plan in early 1998 based on the strategy as presented. Further rounds of public and stakeholder consultation were held before, during and subsequent to the draft plan preparation. All four elected councils formally adopted the regional waste management plan, some unanimously.
Following adoption of the regional plan at political level DCC commissioned consultants to further investigate biological and thermal treatment options and to carry out site selection studies. The site selection study for thermal treatment recommended Poolbeg as the optimal site but left the technology choice and eventual size of the plant open to the PPP procurement process.
In March 2001, DCC appointed a consortium to act as client's representative for the Dublin waste-to-energy project. During 2001, 2002 and 2003 baseline data for the project were reviewed and verified, and the contract conditions were developed and approved by DCC and the Department of the Environment, Heritage and Local Government, DEHLG. It was decided that the project would be developed as a public private partnership using the appropriate EU procurement procedure. At that time, further diligence was carried out to validate the volume of waste to be diverted from landfill. This informed the put-or-pay aspect of the project. In July 2002, DCC commenced the procurement process and set detailed criteria with respect to financial strength, relevant technology, operations experience and strong organisation to be met by applicants but welcomed all proven technologies to pre-qualify. The preferred site for the project was the Poolbeg Peninsula, but applicants were invited to propose alternative sites, if such were under their control in areas with applicable zoning. The invitation to negotiate was issued to the selected bidders on 4 November 2003.
A project board was established and first convened in January 2004. The board comprised representatives of DCC, DEHLG, the National Development Finance Agency, NDFA, and the client's representative. A process auditor from the Department was also appointed and co-ordinated directly with the project executive board on matters relating to the PPP procurement process and acted as an observer of the board. Three bids were received on 16 April 2004. In June 2005, the procurement report was finalised and issued to the DEHLG, NDFA and the Dublin local authorities. The project agreement and related documents were submitted for approval to the DEHLG and NDFA in June 2005. In September 2005, the project agreement was sanctioned by letter issued by the assistant secretary, environment division of the DEHLG.
Elsam AS was selected as the preferred bidder on foot of its tender. Due to a number of company acquisition-merger arrangements, the participants in that tender were restructured such that Covanta became the major participants in it. A project board meeting was held on 14 May 2007 at which DCC requested approval to proceed to finalise and enter into the project agreement with a PPP co-owned by DONG Energy and Covanta, substantially in the form that had been sanctioned. The project board decided that approval to award the contract for the project would be given in accordance with the original sanction given in 2005.
The project agreement was executed by all parties on 4 September 2007. Planning permission was granted by An Bord Pleanála on 19 November 2007. The EPA licence was granted on 2 December 2008 and the licences from the Commission for Energy Regulation were granted on 4 September 2009. Works commenced on site on 14 December 2009.
The IWMA has made much play about the potential liability for site acquisition, relocation costs, the cost of statutory processes, etc. The breakdown of expenditure to date is site acquisition and relocation, €34 million; client representation costs, €25.5 million; and preparatory works on district heating, €3.5 million. The balance of the site acquisition and associated cost has yet to be determined through the CPO process, but we are working on the basis of a worst case scenario. We have to provide the site for the building under the PPP agreement. Acquisition of a site in a city context for a plant of this nature is a difficult process. Price is based on either agreed valuations, having regard to expert advice, or if no agreement is reached, on valuations through an independent CPO and arbitration process. Client representation costs are significant because of the complexity and length of the processes over ten years, including the PPP aspect and the input required to achieve the statutory permissions. The project involved expertise in planning, stakeholder engagement, engineering, environmental, financial and legal aspects. It should be noted that an amount of €7.5 million was allocated by the Department of the Environment, Heritage and Local Government with regard to costs for procurement, with support from the EU Cohesion Fund. This is further evidence that the Department and the European Union were locked into the project. In addition, an amount of €4.7 million has been recouped to date from Covanta towards the costs of the statutory processes.
The Dublin local authorities have been directed by Government policy for almost 14 years in respect of this project. They have incurred the costs outlined above and are in a contract for the provision of a waste-to-energy facility because of Government policy. Indeed the law was changed in 2001 to give powers to the managers to ensure the implementation of the policy. At all stages our actions were approved by the Department and the National Development Finance Agency, NDFA, and were in accordance with Department of Finance guidelines for PPPs. There has been much comment recently about the "put or pay" clause. The provision of major public infrastructure using the PPP approach has been a central tenet of Government policy for the past 15 years and this involves risk and benefit sharing on the part of the public and private sector. Without some right to raise revenue, such projects would not be funded by the private sector and the full cost would have to be provided by the State. From the point of view of the public sector — local authorities in this case — it is essential to have access rights to the plant. In its report, the ESRI deals in great detail with "put or pay" clauses and confirms the appropriateness of entering into advance contractual commitments in projects such as this.
The contract between DCC and the PPP company does not provide for an automatic payment from DCC if it does not need to use the 320,000 tonnes capacity set aside for its use. There are 38 pages in the contract dealing with payment and performance. The Dublin local authorities are only obliged to make a payment if a waste provision or revenue target for the plant as set out in the contract is not met each year. Even if the Dublin local authorities present less waste to the plant, the commercial dynamic operates such that Covanta will source the waste itself directly from the market to meet the Revenue targets, thereby avoiding or minimising any payments by the Dublin local authorities. It must be remembered that residual waste within the region must go to the highest point in the hierarchy and based on current plans and EU legislation, that is likely to be the Poolbeg plant for the foreseeable future. It should be noted that there are economic benefits for Dublin arising from the successful operation of the plant. For example, electricity generation will result in a payback which will assist in meeting our liabilities under the project, aside from the benefit itself.
The size of the facility has also caused much debate recently. The Dublin local authorities are of the view that the plant is appropriately sized and this was confirmed by the Environmental Protection Agency in the granting of the waste licence. Recent waste statistics have confirmed the need for the plant. In 2008, some 735,000 tonnes of waste from the Dublin region was sent to landfill. This is an underestimate of the figure, as not all commercial operators have made their returns for the year. Waste is a function of economic activity and population growth.
The ESRI and the EPA acknowledge that there is a reduction in waste at present due to the recession, but both agencies predict waste increases of from 3% to 4% per annum in the next 20 years. There will be a significant population increase in the region in the period to 2030. Dublin is an international city region and in order to attract investment we must have an infrastructure to cope with future development. We have been criticised for capacity issues with regard to water supply and waste water. Are we now to be criticised for proposing a plant of a proper size to deal with residual waste for the next 25 years — a plant that can be used to produce district heating and electricity at the same time? The incineration plant proposed by an IWMA member for the north-east region is proportionately the same size, for the population and waste arising in that region, but appears to have the support of the IWMA.
Dublin's current waste management plan is similar in strategy to the waste plans of many of Europe's top waste management cities, including Stockholm, the European green capital for 2010. A report just published by COWI, reviewed and endorsed by Professor Thomas Christensen of the Technical University of Denmark, states that the Dublin waste-to-energy project is an integral part of the Dublin waste strategy which complies with EU climate change policy. The report goes on to say that the proposed Dublin waste-to-energy plant contributes significantly more towards reaching climate change targets than any combination of MBT, anaerobic digestion, co-incineration using waste as a fuel or landfill. Professor Christensen was chairman of the waste and climate conference in Copenhagen in December 2009.
The IWMA is of the view that the Dublin local authorities are involved in waste management for financial gain. Local authorities operate on the polluter pays principle and therefore we strive to break even in the provision of waste management services. Were Dublin City Council to make a profit in any one year, it would lead to a reduction in charges the following year. We have a statutory responsibility to be involved in waste management. With regard to waste collection, the IWMA is right in that local authority involvement takes different forms around the country. However, there is evidence that where local authorities remain involved, recycling rates are higher. Local authorities are also concerned about the treatment of lower income households. Waiver schemes are prevalent where local authorities are involved. In Dublin city alone, there are 40,000 waiver cases and the full cost of schemes is borne by the local authority without Government assistance.
We agree with the recommendation in the international review, as do the ESRI, the Competition Authority and the OECD, that there should be competition for the market rather than in the market. There are major downsides to a free-for-all in the market. If this particular recommendation in the international review was implemented by the Government, it would address our concerns on this issue.
The ESRI, in its report published today, believes that despite some positives, the international review does not provide a road map for the way forward for waste management in this country. The National Competitiveness Council has also commented negatively on the international review. The ESRI states that the international review sets forth some sensible general principles for guiding policy and makes some welcome recommendations with respect to household waste collection, producer responsibility and refundable compliance bonds for construction and demolition waste. However, it believes the international review must be considered a failure in respect of its proposals for setting residual waste levies, per capita targets for reduction in residual waste and guidance in the appropriate mix of waste technologies. In its opinion, the review does not explain how its proposed levy structure was derived from its underlying research. There is no explanation of how Ireland will accelerate recycling rates way beyond levels in the UK and it does not find the target of 70% for recycling credible. The review did not provide any guide on the mix of technologies and leaving stranded assets through a cap on incineration is not addressed. There is no analysis of how alternative options, such as MBT, can be fast tracked.
The ESRI believes that the task undertaken in the review was too big. It argues that the programme for Government and the proposed policy direction on incineration and other matters placed constraints on policies for no coherent or compelling reason. In particular, incineration was to be disfavoured and MBT encouraged. Making this a precondition in the analysis distorted the results from the outset. The terms of reference for the regulatory impact assessment stipulated that the levy rates should be set so as not to provide any competitive advantage to incineration and instead to encourage MBT. The ESRI points out that this is a very debatable approach and instead the levy should have been set on the basis of the associated externalities of a particular method of treatment and examining the evidence in this regard. Despite nods towards greater attention to costs and benefits, these issues are conspicuous by their absence.
The ESRI is of the opinion that nothing in the review suggests that it will enhance international competitiveness. Rather it is of the view that instead the whole process of waste management is likely to have generated unnecessary uncertainty that is likely to have increased regulatory risk and thus raised investment costs and biased technological choices, so damaging consumers and taxpayers. Moreover, by not achieving a least-cost mix of waste management facilities and practices, the proposals are likely to lead to higher prices for users of waste management services. The ESRI refers to the Minister saying that considered research is the essential foundation for good and robust policy, but it is of the view that the international review does not fulfil that description and that it is unlikely to lead to a sustainable waste management policy.
In its concluding note, it makes the point that the past two years have been wasted and the question of whether the change is necessary has never been asked. These are the words of the ESRI under this heading, not mine.
The Dublin local authorities believe that if certain proposals contained in the international review are implemented, they may be open to challenge. The Dublin local authorities have no wish to be in conflict with the Minister. In my meetings with him I have explained that we are in a contractual position. I have written to him and detailed the evolution of the project to date and pointed out all of the facts of the case. I have set out the potential consequences of the project not going ahead. To stand in the way of a contract entered into in good faith under existing policy would be unprecedented, when, as the ESRI put it, no good reason exists for doing so.
I will describe the situation as of now. Work on the site is under way. The plant is needed and it is the correct size. It is compliant with Government policy, and it has the consent of An Bord Pleanála, the Environmental Protection Agency and the Commission for Energy Regulation. The contract price mechanism is below the affordability cap as set by the Department and well within the public sector benchmark. It has been certified as value for money by the Department and the NDFA; it provides value for money for the taxpayer and the ratepayer. It is a €350 million inward investment in the Irish economy and it has the necessary finance to be constructed. It will be a net energy producer with a significant proportion of renewable energy and it will contribute more to climate change targets than any of the alternatives. With the introduction of the three-bin system, we have gone beyond MBT and in the short to medium-term, waste to energy is the most efficient way to meet the requirements of the EU landfill directive and avoid the fines which have already been triggered from 1 January 2010.
I will conclude by asking why the project is being subjected to so many obstacles and why attempts are being made to penalise the Dublin local authorities for implementing Government policy.
