On 16 of October 2006  SITA Cornwall  a SITA-led consortium signed a contract Cornwall county Council for a 30-year PFI waste to energy scheme,

The £162m (US$302m) project - entitled the Cornwall Waste PFI - will process 240,000 tonnes of waste into 124,000MWh per year. This will take place in the first five to six years of the 30 year concessionary agreement reached between SITA Cornwall and Cornwall county council.

The Cornwall scheme is the UK's pathfinder waste PFI project and both DEFRA and PUK have been keeping a close watching brief on the scheme since it came to the market.

The deal has been hailed by observers as being the first waste PFI contract with a structure fully independent of the waste operator, a key factor in making the project robust and bankable.

Louis de Poncheville, general manager of SITA UK, says 'there is no other project like this at the moment, we are the first to have such a structure…this structure will help us as we develop our waste PFI portfolio in the future'.

Waste to Energy in the UK

Local authorities in the UK rely on landfill for municipal waste disposal more than any other European country

Performance data for 2003 shows that  75 per cent of municipal waste (or 17.7 million tonnes) was land filled in the United Kingdom, compared to 38 per cent in France and 20 per cent in Germany.

In 2004-05 the amount land filled in the UK has fallen from 72 per cent in 2003-04 to 67 per cent. Mainly owing to approaches to waste management many European countries were achieving the targets for reduction of reliance on landfill.

A 2006 National Audit Office study concluded that common features of countries that were advanced in terms of dealing with waste and reducing landfill  were:

• A greater acceptance of energy from waste as an alternative method of waste disposal
• Infrastructure development risks shared between private investors and central or local Government.

In this way the scene was set and ready for PPP projects and waste to energy projects to merge into one type of project that will not only satisfy the waste needs and EU landfill reduction targets, but will do them with a reduced risk by means of the innovative structure - demonstrated in the case of the Cornwall waste PFI.

The project

The Integrated Waste Management contract is a 30 year PFI concession agreement between Cornwall County Council and the SITA Cornwall consortium, made up of three equity partners:

• SITA UK with a 45 per cent stake
• Royal Bank of Scotland with a 45 per cent stake
• AXA with a a 10 per cent stake.

The scheme involves the construction of a new energy from waste plant and the acquisition of the business of Cornwall Environmental Services Limited from Cornwall County Council. The system they propose to use for the plant is a waste flow management system

Louis de Poncheville said; 'we propose a waste flow management system re-integrated between recycling and re-composting'

The plant will process and turn 240,000 tonnes of waste into 124,000 MWh per year electricity per year through the building of plant.

Two major risks that they are faced are:

• volume uncertainty; the concessionaire will have to process any waste delivered by the authority whatever the amount
• the risk presented by application for planning permission, although a risk sharing mechanism between the authority and the contractor will minimise this.

Funding & Structure

The structure of the Cornwall waste PFI is the first of its kind for a waste PFI. It has a legal structure completely independent from the waste operator.

De Poncheville points out two advantages of a project structured independently of the operator:

'the structure is such that the assets do not show up on the balance sheet of the operator, or the SPV, if risks are not properly allocated, they will end up on one of those balance sheets. This is a bar to developing a PFI portfolio in the future,' he says.

 'We need to make sure all risks are properly allocated so that they don't end up on SPV or operator balance sheet, there is no other project like this at the moment where the assets will not end up in the balance sheet of the operator' de Poncheville adds.

The MLAs, RBS and the European Investment Bank have underwritten £144m (US$268m), in senior debt, funded 50 per cent each.

The consortium have provided the balance of the financing. The overall funding comes to £162 million (US$302m), and the debt - equity ratio is 89:11.

The concessionary payment will be based on tonnage processed. There will also be a penalty if we don't achieve their target. There is no targets regarding tonnes processed because they have to process everything they are given, there is a target in recycling amounts. They have to recycle 50 per cent of everything that goes on SITA site.

Future plans

For the next five to six years SITA will use the landfill site and attempt to get planning application for construction of the waste-to-energy plant. Construction  in anticipated to start in 2009 and be completed by 2012.

SITA plans to look into further waste PFI projects, using the same structure, and also plans to work again RBS and EIB.

However, Louis de Poncheville predicted that for further projects on a larger scale SITA would look to partner with a regional waste developer.

Allen & Overy, the sponsor's adviser, is also acting for SITA UK on the Northumberland waste PFI scheme, which is scheduled to close later this year.

The project at a glance