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Waste site PFI decisions slammed

A spending watchdog has condemned funding decisions which resulted in grants worth £213.5 million being paid in three council areas even though promised new waste facilities had not been built.

The Commons Public Accounts Committee criticised the "unacceptably slow" action by the Department for Environment, Food and Rural Affairs (Defra) to intervene in the projects.

The Government was also criticised for a "scandalous" decision to cut off funding for a waste processing plant in Norfolk, leaving the county's taxpayers facing a £33.7 million bill.

The committee examined the private finance initiative (PFI) contracts signed by Norfolk, Surrey and jointly by Herefordshire and Worcestershire.

Defra's predecessor, the Department for the Environment, Transport and the Regions, signed a funding agreement with Surrey County Council in June 1999 for £204.7 million of PFI grant and one for £143 million with Herefordshire Council and Worcestershire County Council in December 1998.

Payment of the grants began shortly afterwards and, the committee said, "the terms of the original funding agreements did not allow central government to unilaterally halt or alter the payment terms in the event that key capital assets were not delivered".

The terms of the contracts were not renegotiated until 2013, the report said, and "as a result, grant payments of £213.5 million were made over 15 years to Surrey and to Herefordshire and Worcestershire councils even though key facilities were not built".

Committee chairwoman Margaret Hodge said: "It is appalling that lax, poorly drafted PFI funding agreements to support the building of local authority waste processing plants have led to hundreds of millions of pounds worth of grants being made to three councils even though the main waste assets - such as incinerators - have not yet been built.

"Funding agreements with Surrey and with Herefordshire and Worcestershire councils signed by the old Department for Environment, Transport and the Regions, meant central government started paying grants to the local authorities as soon as the contractors began to deliver waste management services rather than waste management assets.

"The supporting PFI contracts signed by the local authorities did not require all of the expected assets to be constructed, resulting in £213.5 million in grants having been paid to the councils over the last 15 years with none of the main waste assets to show for it.

"Later, the Department for Environment, Food and Rural Affairs only altered its funding agreements with these councils in 2013 when the Department negotiated a £30 million reduction in its payments to Herefordshire and Worcestershire Councils, and a change in the timing of its payments to Surrey County Council."

In Norfolk, the Department for Environment, Food and Rural Affairs (Defra) signed a funding agreement with the council in February 2012 to contribute £91 million of PFI credits towards a 25-year contract to build an energy-from-waste facility.

But delays in the planning process meant the council missed a key deadline and the Defra funding was revoked in October last year.

Norfolk County Council initially decided to proceed without central government support but ultimately terminated the PFI contract in April 2014, leaving it facing compensation costs of an estimated £33.7 million.

Labour MP Mrs Hodge said: "It's scandalous that taxpayers in Norfolk have been left in the lurch and landed with a bill of around £33.7 million because the department withdrew its funding for the Norfolk waste plant in October 2013.

"This decision was a contributing factor to the council's decision to cancel the contract the following year.

"The department judged that the Norfolk plant was no longer needed to meet the 2020 EU landfill target, and yet it was fully aware of the likely compensation costs that would be incurred when it decided to withdraw funding."

The need for councils to reduce the amount of waste going to landfill follows a European Union directive.

But Mrs Hodge said: " Long PFI contracts that typically last 25-30 years may be inappropriate for the waste sector where technology is continually evolving and the amount of waste that will be produced in the future could be hard to predict.

"The department has more work to do to improve local authorities' contracting capability, especially for PFI projects, and ensure that they only pay for what is delivered in future without getting locked into long, inflexible contracts.

"It should act with far greater urgency when it has concerns about a project's progress and support local authorities to negotiate PFI contracts that are better value for money for local taxpayers.

"The department should balance the need to meet the EU target at minimum cost with making sure that its decisions serve taxpayers' interests as a whole."

A Defra spokesperson said: " Defra's responsibility is to ensure public money is used appropriately and we were very clear in the timely advice we provided to these PFI projects as the NAO has previously recognised. Due to factors at local level these projects could not proceed as planned."

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