An inquiry by the committee, which oversees pubic spending, found that the Department for Environment, Food & Rural Affairs (Defra) has been providing councils with PFI grants way before construction of new waste management facilities has begun.
Generally, the PFI concept for waste management is that a contractor is handed a long-term contract to collect and dispose of waste in exchange for constructing new recycling and processing facilities such as an incinerator. The government grants are intended for capital cost of new construction, not current expenditure on the waste management service.
The PAC investigated Defra’s handling of three local authority PFI waste projects.
The committee says that Defra “has been unacceptably slow to intervene in projects that are struggling to deliver the required waste management infrastructure leading to delays and incurring extra costs”.
Handling of the Norfolk PFI waste project has been particularly poor with Defra coming under fire for agreeing to fund to the project and then failing to give sufficient consideration to the local impact of its decision to withdraw funding to that project. This contributed to the contract being cancelled which has left Norfolk taxpayers facing a bill of some £33.7m, the committee says.
Committee chair Margaret Hodge said: "It is appalling that lax, poorly drafted PFI funding agreements to support the building of local authority waste processing plants have led to hundreds of millions of pounds worth of grants being made to three councils even though the main waste assets – such as incinerators – have not yet been built.
“Funding agreements with Surrey and with Herefordshire and Worcestershire councils signed by the old Department for Environment, Transport & the Regions, meant central government started paying grants to the local authorities as soon as the contractors began to deliver waste management services rather than waste management assets.
“The supporting PFI contracts signed by the local authorities did not require all of the expected assets to be constructed, resulting in £213.5m in grants having been paid to the councils over the last 15 years with none of the main waste assets to show for it.
“Later, the Department for Environment, Food & Rural Affairs only altered its funding agreements with these councils in 2013 when the Department negotiated a £30m reduction in its payments to Herefordshire and Worcestershire Councils, and a change in the timing of its payments to Surrey County Council.
“It’s scandalous that taxpayers in Norfolk have been left in the lurch and landed with a bill of around £33.7m because the department withdrew its funding for the Norfolk waste plant in October 2013. This decision was a contributing factor to the Council’s decision to cancel the contract the following year.
“The department judged that the Norfolk plant was no longer needed to meet the 2020 EU landfill target, and yet it was fully aware of the likely compensation costs that would be incurred when it decided to withdraw funding.
“Long PFI contracts that typically last 25-30 years may be inappropriate for the waste sector where technology is continually evolving and the amount of waste that will be produced in the future could be hard to predict.
“The department has more work to do to improve local authorities’ contracting capability, especially for PFI projects, and ensure that they only pay for what is delivered in future without getting locked into long, inflexible contracts.
“It should act with far greater urgency when it has concerns about a project’s progress and support local authorities to negotiate PFI contracts that are better value for money for local taxpayers.
“The department should balance the need to meet the EU target at minimum cost with making sure that its decisions serve taxpayers’ interests as a whole."
However, Defra denied culpability for the problems facing these waste projects. A Defra spokesperson said: “Defra’s responsibility is to ensure public money is used appropriately and we were very clear in the advice we provided to these PFI projects, as the NAO has previously recognised. Due to factors at local level these projects could not proceed as planned."
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