I will make a short introductory statement that I have already sent to the committee. On 22 January when Dublin City Council last appeared before the committee regarding the Dublin waste-to-energy project, I made a detailed submission on the project's background and developments up to that date. I do not propose to cover this material in my opening statement today. I also advised the committee that the project could not proceed until the following issues had been successfully dealt with: the negotiation of a revised project agreement; a resolution in favour of the city council of the complaint to the European Commission on state aid grounds; a resolution in favour of the city council of the complaints to the European Commission on procurement grounds; and an assessment of the project by the National Development Finance Agency, NDFA, and the issuing by same of a value for money letter in respect of it. I also indicated that I would not sign the revised project agreement on behalf of Dublin City Council without first briefing elected members and considering their views on the project.
I will address the issues in turn. A revised project agreement negotiated between Dublin City Council and Dublin Waste to Energy Limited, the public-private partnership, PPP, company, was finalised in September 2014. DG Competition of the European Commission issued a formal decision on the state aid complaint on 7 May 2014, concluding, "The European Commission has found that a series of measures by the Dublin local authorities to participate in the Waste-to-Energy project in Poolbeg, Dublin, are in line with the EU state aid rules". The basis for the Commission's decision was that the project would be carried out on terms that would be acceptable to a private investor operating in a market economy. The city council has also been advised by the European Commission that the latter is no longer pursuing any of the complaints that have been made against the Dublin waste-to-energy project on public procurement grounds.
In line with the Department of Finance PPP guidelines, Dublin City Council engaged with the NDFA to enable it to assess the value for money associated with proceeding with the Dublin Waste to Energy project. The NDFA in its capacity as adviser on the value for money associated with PPP projects issued a value for money letter in respect of the proposed Dublin Waste to Energy project on 4 September 2014.
A detailed briefing note on the Dublin Waste to Energy project was circulated to the elected members of the four Dublin local authorities. It covered the revised project agreement, which is covered in my submission to the committee in Appendix 1; the Dublin Waste to Energy project in the context of EU and national waste management policy, which is dealt with in Appendix 2; projections for municipal solid waste in Ireland and the Dublin Waste to Energy gate fee, which is dealt with in Appendix 3; the economic benefits of the project, as set out in Appendix 4; and it presented the results of a cost benefit analysis of the Dublin Waste to Energy project, which is covered in Appendix 5.
The Dublin Waste to Energy project was considered by the elected members at a special meeting of the City Council on Monday 8 September 2014. The project was also considered at meetings of other Dublin local authorities. The project board met on 26 August 2014 and agreed to recommend the project. The four Dublin local authority chief executives met on 17 September 2014 and agreed unanimously that the Dublin Waste to Energy project should proceed. The revised project agreement and related documentation were signed on 19 September 2014.
Essentially there were two options facing the chief executives. The first option was to abandon the project. Under this option, the Dublin local authorities, DLAs, would have had to accept the loss of the expenditure that has already been incurred on the project, that is, €97.4 million gross or €85.3 million net after State aid. In addition, the Dublin local authorities would be liable for significant compensation payments to Dublin Waste to Energy Limited in respect of the considerable costs it has incurred on the project. The current market value of the site has been estimated at €6 million. Even after disposing of the site the overall net cost of option one to the Dublin local authorities is likely to be in the region of over €100 million when the need to compensate Dublin Waste to Energy Limited has been taken into account. In my report I have outlined the share accruing to the four Dublin local authorities. We have estimated a total net cost of €105 million and this would fall to be divided between the four local authorities.
The second option was to proceed with the project. If the project proceeds then under the revised project agreement the full cost of constructing the Dublin Waste to Energy facility, estimated at about €500 million, will fall to Dublin Waste to Energy Limited. The project agreement contains an authority contingent obligation, ACO, clause under which the Dublin local authorities will provide partial revenue support for the first 15 years of operation of the plant in return for which they will share in the waste revenue stream, over a certain threshold, for 15 years. The Dublin local authorities will also share in the energy revenue stream for the 45 year life of the project above a certain threshold.
The arguments that convinced the four Dublin local authority chief executives that they should proceed with the project are as follows. The proposed facility has always been and remains entirely consistent with regional, national and EU waste management policy. Current national waste policy is strongly supportive of the provision of the facility. In addition to its importance in meeting waste management objectives for the new eastern and midlands waste region, the Dublin Waste to Energy project is crucial if the State is to meet landfill diversion targets, without being dependent on the export of municipal waste to overseas facilities. It is also essential if Ireland is to meet the objectives of self-sufficiency and proximity, which are enshrined in the EU waste framework directive. It it was clear from the RPS report, Dublin Waste to Energy Waste Market Assessment, which was circulated to the elected members and put in the public domain, that there should be more than sufficient residual municipal solid waste available for the facility to operate at its contracted capacity of 550,000 tonnes per annum, even after demanding EU mandatory recycling and landfill diversion targets are met. The RPS analysis also provided a degree of confidence that the gate fee that will be achieved by the facility will ensure the threshold waste revenue figure is realised with the result that the authority contingent obligation mechanism will not operate and the Dublin local authorities will receive a share of both the waste and energy revenue of the facility over the first 15 years of its operation and will share in the energy revenue over the remaining 30 years.
The Dublin Waste to Energy facility has the support of major operators in the waste industry. The project will generate significant employment, including 300 direct construction jobs and 100 direct jobs at the facility once it is operational. It will make a major contribution to economic activity and generate significant tax revenue during both the construction and operating phases. Aside from these economic benefits, the project will provide renewable energy and generate electricity sufficient to meet the equivalent needs of more than 80,000 homes annually, thereby helping to achieve the country’s renewable energy goals. The project will also finance a substantial community gain fund of more than €10 million during the construction period and of up to €0.6 million or €600,000 per annum during the operation phase.
A cost benefit analysis of the two options facing the Dublin local authorities was undertaken by PwC. This was circulated to the elected members and put in the public domain. PwC estimated that the discounted value of the net benefits to the Dublin local authorities of selecting the second option, which is to proceed with the project, ranged between €155 million and €30 million depending on the assumptions used. This compares with a certain loss associated with the first option, to abandon the project, of more than €100 million. The PwC analysis did not take account of the benefits associated with either the community gain fund or the payment of rates on the facility to the City Council which are substantial. PwC concluded its analysis as follows: "The potential financial returns the Dublin local authorities can expect to realise are high and the estimated financial risks of entering the Project Agreement are low. Thus, it seems to be rational for the Dublin Authorities to proceed to complete the renegotiated Project Agreement".
The NDFA is the statutory agency charged with assessing the value for money associated with PPP projects such as the Dublin Waste to Energy project. Following a detailed assessment, the NDFA issued a value for money letter in respect of the project on 4 September 2014. The European Commission in its determination of the State aid complaint confirmed that the participation by the Dublin local authorities in the Dublin Waste to Energy project is on terms that would be acceptable to a private investor operating in a market economy.
Dublin City Council has selected a preferred bidder for the client’s representative for construction and commissioning phases of the facility and has appointed CDM Smith on a fixed price lump sum fee of €2.13 million for the 49 month construction and commissioning period. I wish to correct an error in one of the appendices that estimates that cost at €4 million; the actual price negotiated was €2.13 million. Dublin Waste to Energy Limited via its subcontractors mobilised to site on 22 September 2014 and construction of the facility commenced on 20 October 2014. Facility construction is expected to take approximately three years, with commencement of operations targeted for late 2017.
Compared with the position I presented in December, significant progress has been made. This project is now under construction and will meet a major need in terms of waste management infrastructure. It will comply fully with the process laid down by the Oireachtas and the Department of Finance. The project is under construction and I am very happy that is the position.
