PFI projects under scrutiny - King’s Lynn incinerator plan cost effective?

The use of Private Finance Initiatives (PFI) to provide public services - including the proposed controversial waste incinerator on the edge of King's Lynn - should be subject to greater scrutiny, says a report published today.

The current economic climate means PFI schemes may not be the best, or most cost-effective, way forward, according to the National Audit Office (NAO).

Rising costs of borrowing and an absence of data concluding that PFI schemes offer better value for money could lead to to a reining-back of the system.

But PFI deals should be focussed on economic infrastructure - including waste management, according to the NAO report.

Norfolk County Council has appointed Corey Wheelabrator as its preferred contractor under a PFI agreement to create an 'energy from waste' plant on the Willows industrial estate at Saddlebow.

Under the scheme the council will receive �169 million of Government cash using PFI credits to help offset the cost of the project - but there has been widespread opposition to the plan from West Norfolk residents and West Norfolk council.

'The type of project that government aims to procure is changing. With large programmes to develop social infrastructure such as hospitals and schools having been delivered in recent years, the future focus of spending will be on economic infrastructure such as energy and transport projects,' said the report.

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Economic infrastructure includes waste management, flood protection, energy, transport, digital communications and water management.

South Norfolk MP Richard Bacon, a member of the Commons public accounts committee, said the report should be required reading for senior civil servants.

'Too many projects keep ploughing on despite receiving a 'red' rating from an Office of Government Commerce Gateway Review. All projects should be open to external challenge from officials with the experience to know when taxpayers' money is at risk.'

He added that PFI may seem more attractive than it really is because costs are excluded from statistical calculations of public sector net debt.

'The overriding concern when considering the use of PFI should be obtaining an honest and accurate assessment of the extent to which a project offers genuine value for money. This report should be required reading for senior civil servants whenever a government department even hints that it may wish to use the Private Finance Initiative'.

The government is aiming to save upt to �3 billion in annual delivery costs for infrastructure, but it should do more to act as an 'intelligent customer' in terms of procurement, according to the NAO.

'The public sector should make better use of the hard worn lessons from the extensive and substantial PFI programme. This means acting as a more demanding and intelligent customer by harnessing government buying power through concerted tactics and tougher negotiation,' said head of the NAO Amyas Morse.

The NAO said the case for using private finance in public procurement needed to be challenged more, and it suggested that the system should be heavily scrutinised.

'There has not been a systematic value for money evaluation of operational PFI projects by departments. There is, therefore, insufficient data to demonstrate whether the use of private finance has led to better or worse value for money than other forms of procurement,' said the report.

The NAO is also calling on the treasury to identify alternative methods for delivering infrastucture and related facilities services to ensure value for money.

While PFI offers a number of benefits, including providing facilties or services which may not be afforded any other way, the report highlights disadvantages - including high contract termination costs which, in the case of Norfolk County Council and Cory Wheelabrator - could be as steep as �20 million.

The complexity of PFI deals are also raised as an area for concern as local authorities may not have the degree of expertise necessary to navigate the contracts. The problem may lead to a reliance on advisors and ultimately add to timescales, according to the NAO.

But Norfolk County Council leader Derrick Murphy said that the county had benefited from PFI contracts and has the required expertise.

'There is no doubt that in the early days of PFI mistakes were made, but there is also no question that Norfolk has benefited,' he said.

Current schemes include a 25 year contract with Amey to modernise the county's street lights, which Mr Murphy said, was more cost-effective than a piecemeal approach.

The council also has a PFI contract with Salt Union to help maintain road salt stocks during the last two winters.

The �150m Norwich Areas Schools PFI allowed the county council to build five new primary schools and modernise one high school, he said.

'When it comes to the waste PFI, in simple procurement terms this is an extraordinarily good deal for Norfolk council tax payers because it brings in Government support worth �169m. We are very fortunate to have a very experienced team that has worked hard to drive down the costs through a highly competitive process, closely scrutinised by DEFRA at every stage.'

'Planning permission and an environmental permit are still needed, but if the plant does go ahead it is expected to save Norfolk council tax payers �8m a year compared to the cost of landfill.'

But the figures are disputed by Dr Chris Edwards, a senior fellow in the School of International Development at the University of East Anglia - and a campaigner against the proposed incinerator at Saddlebow.

He said the contract with Corey Wheelabrator would end up costing the country more than �600 million over 25 years - and could not possibly be classified as a PFI deal offering value for money.

'If you add together the amount of landfill tax which will not be going to the Government, along with the �169 million grant it is giving to this project, then the total is �637 million over 25 years - an enormous sum of money,' he said.

Dr Edwards disputes the county council's projected 170,000 tonnes of domestic waste a year which would head for the incinerator and says the amount of waste is falling, and would continue to do so - leaving a shortfall.

'Corey Wheelabrator will be wanting a guaranteed tonnage to make it pay, so if the amount falls below the 170,000 tonnes it will still be costing the same to council tax-payers,' he said.

'Despite the huge subsidy, Norfolk County Council would be better-off land-filling,' he added.

Dr Edwards said encouraging greater recycling, composting and using anaerobic digestion for food waste, would ultimately be the best, and cheapest, way forward.

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