Variables

Observations

Default Value/Range

Whole Life Costs

Stage 1

Stage 2

9. Initial CapEx

This is the amount that is spent on the asset when it is first bought or constructed. It does not cover expenditure required to maintain the asset or any capital items added over time. Such expenditure is treated as lifecycle costs.

The quantum will vary depending on the scope of activities, level of integration, and techniques employed for residual waste disposal (e.g.: energy from waste, mechanical biological treatment options).

Under the PSC Option less risk is transferred to the private sector than under the PFI Option. Accordingly, the PFI Initial CapEx value should be adjusted upwards to reflect the higher level of risk transfer.

However, PFI waste procurement will often involve working between the constituent authorities, resulting in more integrated solutions based on an optimised number of large facilities, such that a cost effective solution and economies of scale can be achieved. Conversely under conventional procurement, the authorities are more likely to seek local (non-integrated) solutions, tailored to local needs, with a large number of smaller facilities being built.

The effect is that the economies of scale related cost savings could exceed the cost associated with risk transfer, with the PFI Initial CapEx less than under the PSC Initial CapEx.

Initial CapEx value should be developed in conjunction with the technical advisor. There should be significant reliance on evidence-based inputs.

This is a single input value in line with current HMT requirements. The Model assumes that the CapEx profile is uniform, with the same level of CapEx incurred in each period of the pre full operational period.

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10. Lifecycle Costs & Intervals

Lifecycle costs represent the capital investment required on an on-going and/or periodic basis during the course of the contract period, to maintain the asset so that it remains fit for its intended purpose. The lifecycle interval for the PFI option is hard-coded as an annual cost. This is because under the PFI contractual provisions, the Contractor is incentivised to undertake regular maintenance. The periodicity of lifecycle maintenance for the PSC Option is not hard-coded as for some projects this may be less frequent.

The level of lifecycle maintenance is likely to vary over time. To derive a single lifecycle cost at a given interval, the net present value of the total lifecycle costs should be calculated (using the HMT real discount rate of 3.5%) and an annuity derived. In the Model there are no lifecycle costs during the Initial CapEx period. The lifecycle cost period corresponds to the period when the project is fully operational. Lifecycle costs and interval values should be developed in conjunction with the technical advisor. There should be significant reliance on evidence-based inputs, as this data becomes available.

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11. OpEx (Employment & Non Employment)

The non-employment OpEx costs include, but are not limited to, SPV costs, landfill costs, general maintenance costs and transport costs. For most waste projects, landfill tax costs incurred by the PFI contractor are passed by the SPV directly back to the Council. Only in the event that the value of waste delivered to the landfill were to exceed the legally prescribed level would the PFI contractor incur additional non recoverable costs. Accordingly landfill tax can be included as one of the components of total OpEx.

For the majority of waste projects, employment costs are likely to constitute a large share of the total OpEx. There should be no difference in staff costs between the two options, though the number of employees may vary.Should OpEx Employment represent only a very small share of the total OpEx then it is acceptable to set the OpEx employment values to 1, and insert the total annual OpEx amount as the OpEx (non employment) value. OpEx is likely to vary depending on the level of integration. Accordingly OpEx values may differ between the PSC and PFI Options. A smaller number of larger facilities under PFI will result in reduced OpEx. The OpEx is likely to differ each year. Given that the OpEx inputs are single cell inputs, a net present value and annual annuity need to be calculated in order to derive a single annual cost.OpEx values should be developed in conjunction with the technical advisor. There should be significant reliance on evidence-based inputs. This will be possible for conventional services for which there is significant empirical data. For treatment costs there may, in the short term, be a greater reliance on technical advisor input whilst the relevant data is collated.

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