10 The risks faced by waste infrastructure projects are different from those found in other PFI infrastructure projects. They include: uncertainty over the volume of future waste throughput; planning permission difficulties due to concern by residents about the nature of the facilities being proposed; the risks of different types of waste treatment technology; and finding markets to sell products from waste treatment. PFI projects require interfaces between central and local government and sometimes between neighbouring local authorities. The supply side of the market was relatively undeveloped until recently and mainly focussed on waste collection and landfill.
11 The Department initially responded too slowly to these challenges. The EU Directive in 1999 created a need for a strategy for significantly increasing diversion of waste away from landfill. Before 2003 the Department's strategies lacked practical plans for reducing reliance on landfill. Only then did the Department start to address the complex issues involved in building new waste treatment infrastructure. As a result, the market for waste infrastructure projects developed slowly. Only two of the new waste infrastructure projects developed since the EU Directive (1999) have completed construction of all planned assets.
12 The Department has improved its approach to building a market for new waste infrastructure projects. In July 2006, the Department established a delivery unit, the Waste Infrastructure Delivery Programme (WIDP), to accelerate the delivery of waste infrastructure and to provide greater support to local authorities undertaking the projects. WIDP comprises staff from Defra, Partnerships UK and 4ps, who are managed as a single unified team led by the Defra Programme Director. WIDP currently has around 30 staff. The WIDP team has made considerable progress since 2006 in developing the market, including an increasing focus on energy from waste solutions. It has also sought to achieve value for money through agreeing with the market PFI contract terms relevant to waste projects and by improving oversight of the projects.
13 The actions implemented by WIDP have accelerated the rollout of new, larger projects with more contractors interested in bidding for these projects. Nine new contracts were signed in the two years to March 2008. At the time of our audit, June 2008, the Department had a pipeline of 19 other projects to be advertised in the next three years. The Department has been focusing on larger projects. Projects currently in procurement will, on average, process over twice as much waste as past contracts. The Department has also encouraged local authorities to secure economies of scale by promoting joint projects between neighbouring authorities. There was initially a small number of bidders but the Department's actions have helped stimulate bids from companies not previously involved, including overseas companies.
14 The cost of finance reflects the risks of waste projects and, in recent times, uncertainties in the financing markets. The risk margin for debt finance is higher for waste PFI projects than other PFI projects such as hospitals or schools. This margin reflects the complex risks of the waste projects. Also, lenders are not yet able to draw confidence from a flow of successful operational projects. In addition, all PFI projects have been facing higher financing costs in 2008 because of the uncertainties in the financial markets. In the longer term, there may be opportunities for the private sector to secure refinancing gains if these risks reduce. The Treasury has introduced a sliding scale whereby the public sector is now entitled to up to 70 per cent of refinancing gains on all PFI contracts signed during the current disruption to the credit markets compared with the previous normal arrangement of 50 per cent.