Overview and key risks involved
Waste PFI projects are complex and can differ from typical uses of PFI in several important respects. As an industrial process, waste management makes greater use of technology and carries more risk in the construction and operational phases than a serviced asset such as a school or hospital (Figure 27 overleaf).
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Waste management PFI projects - operational risks |
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Waste management PFI projects |
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Capital value range (signed projects) |
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£40m-£200m |
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Contract term |
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25-30 years |
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Design |
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There is now a good deal of experience in designing the facilities required. As with other buildings, the physical design of waste treatment plants is important as the appearance of facilities may influence public opinion and in turn affect whether there are objections to applications for planning permission. There have been examples of technology failure (see obsolescence and termination risk). |
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Construction |
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Unlike most other PFI projects, planning permission on waste projects is typically gained after the contract has been awarded to the contractor. There have been several examples of failure to obtain planning permission resulting in significant delays to projects (see Part 2). |
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Legislative |
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Legislation and regulation in the waste sector changes rapidly as a result of both UK and European intervention. The European legal definition of waste is not fixed. The required environmental performance of waste treatment facilities may also change over time as a result of changing regulation. Examples might be emissions standards and restrictions on the use of refuse-derived products such as fuels and composts. |
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Demand |
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Local authorities must plan ahead to predict the capacity that may be required from their infrastructure. Factors that may affect this include the amount of waste (affected by waste growth and recycling) and composition of waste. The level of risk will vary depending on the technology or technologies chosen: once constructed, incineration-based facilities should be relatively tolerant to changes in waste composition. Other technologies require a carefully controlled mix of wastes. |
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Performance |
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Where facilities have been completed authorities we contacted were satisfied overall with contract performance. |
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Obsolescence |
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Given the legislative and waste composition risk, the risk of technology obsolescence is relatively high. What marks waste projects out from many other PFIs is that the risk profile of the project will not be so clearly divided into construction and operational phases. The enduring risks mean that the project's risk profile (regardless of who bears the risk) remains higher in the operational phase. |
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Residual Value |
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The residual value of assets will depend on other risks such as technology, obsolescence and demand. In some cases local authorities indicated that they will take ownership of assets at the completion of the contract, but there is little evidence around the lifespan of many of the technologies and facilities being built at this stage. |
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Termination |
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Two early waste projects, in Neath-Port Talbot and Dundee, suffered technical difficulties which resulted in the contract being terminated based on contractor default. This type of event is extremely rare in PFI projects and may have had an impact on funders' confidence in the sector. |
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Risk (compared to a typical PFI such as a serviced asset such as a hospital or school)
Source: National Audit Office |
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