COMHAIRLE CONTAE ÁTHA CLIATH THEAS
SOUTH DUBLIN COUNTY COUNCIL
MEETING OF SOUTH DUBLIN COUNTY COUNCIL
Monday, September 13, 2010
HEADED ITEM NO.14
Report of Dublin City Manager to Dublin City Council on Monday 6th September 2010 on behalf of the 4 Dublin Local Authority Managers (The Dublin Waste Region)
Background – As everyone here knows this issue stretches back to 1997. The first thing I want to say relates to the statutory position of Managers. It is very relevant when it comes to this project. Not only do we, the managers, have to deal with the executive issues associated with the contract we were also given the responsibility of dealing with the Waste Management Plan and its implementation about 10 years ago. We have had to deal with the expectations created by this. We have acted, and continue to act, in good faith, reflecting applicable Govt policy. Indeed it should be noted that we were under a lot of pressure to deliver facilities to deal with the ongoing waste management situation to meet the requirements to direct waste away from landfill.
Negotiations on acquiring the site can be traced back to 2001. Indeed before the Minister came into power about €40m had already been spent in that regard. In May 2007 the Project Board signed off on the contract. The Project Board included representatives from the DEHLG and the NDFA. A letter of intent was issued on 20th June 2007 and the contract was formally signed in September 2007. The project was fully in conformity with the applicable Government waste policy when it was signed. It is only now that we have a draft revised policy for consideration and the closing date for submissions is the 1st October 2010.
Cost – To date we have spent at least €60m and, based on the claims submitted in relation to the remaining part of the original CPO, there is a potential exposure of another €60m although we are fighting to reduce this. These are our costs in implementing Government policy.
Statutory processes – Apart from the DEHLG and NDFA approvals we subsequently got approvals from ABP and the EPA for the 600,000 tonne facility. The Foreshore Licence which was the most innocuous matter still has not been dealt with but I will come back to that in a moment.
Outside Parties who have the contract include the Project Board including DEHLG (pre June 2007), the Attorney General, (Mar 2009), John Hennessy S.C. Authorised Officer (April 2010), IWMA (Redacted version through Court Case)
Contractual relationship – The City is, and continues to be, in a contractual relationship with PPP Co. Given that we have been in continuous discussions with the PPPCo (Covanta) on many aspects of the contract, such discussions could not be conducted in public. I have been similarly criticised on other projects for this but I think deep down you understand contract discussions have to be conducted in this manner
Release of contract – However as I have said a number of parties have the contract already. If they have read it they will know that there are clauses dealing with possible early termination if certain circumstances occur. However they should also know that there is a confidentiality clause. Notwithstanding that this clause exists in the contract some people have seen fit to comment on the contract in public. When I enter a contract I am legally bound to abide by its terms. For example, we have to be minded to the commercially sensitive nature of the contract, not just for the City but also for Covanta. For instance, if competitors to Covanta got certain information it could be damaging to them. However given that parts of the contract are now in the public domain, it may be possible to release a redacted version (excludes the commercially sensitive info). Before doing this we will be asking Covanta if they have any difficulty with this.[1]
Panda Judgement – There has been a lot of mention about the Panda judgement. This is under appeal and we have been advised that we have good grounds for this appeal. The matter is therefore not finalised. It should be noted that Minister’s proposals for dealing with this issue actually promotes competition for the market.
Effective Date There has also been some confusion about what the effective date is as opposed to the long stop date under the contract. The effective date is the date all conditions precedent (e.g. planning approval) have been met, with a target operational date of three years from that point in time.
Long Stop Date and Current Position
The long stop date is three years from the date of signing the contract which was yesterday. After that there is a 35 day decision period on what we decide to do. [2]
At this stage we have agreed to extend this decision period to 240 days i.e. to the 2nd May 2011. The final documentation is with the lawyers at present to sort out. This gives us more time to consider the way forward. If we need to, we can seek to extend the period further.
One Condition Precedent relating to Foreshore cannot now be satisfied by the long stop date which has now passed. Within the 240 days this requirement can dealt with through the agreement of both parties. The effect of this is that even if the foreshore matter is dealt with, the City cannot contractually require Covanta to start the full construction of the project without their agreement.
As I said it gives us more time to consider the matter further. It is a situation that should never have had to be considered because the Foreshore Licence was by far the least controversial aspect of the legal processes.
There has been talk in the media about renegotiation. Most people when they hear this seem to think that this includes material reduction in the size of the facility. It doesn’t because to do that would mean re-tendering under procurement law. It would also require new statutory consents. And we would have to add significant further cost to what has already been spent to achieve this. Given the history of this project the chances of any firm wanting to become involved in a new procurement would be remote.
At this stage we do have a right to terminate but determining our possible liability in the face of a claim is not straightforward. We, in our decisions, have tried to protect our rights as much as possible. During the extended period I along with the other 3 managers will have to reflect on a number of issues such as:
- The exposure of the Dublin Local Authorities on costs to date and committed under the original CPO
- Possible claims by Covanta. The contract, particularly in the situation we now find ourselves, seeks to limit Covanta’s claims. But they have spent a lot of money – are they going to walk away? It highlights the necessity for me to deal with the situation and our partners properly.
- The Waste Market. When the contract was signed waste output was very high. It has reduced due to the current economic situation. But the decision the managers have to take must consider a much longer time horizon. There has been an endless debate on the M50, Terminal 2 at Dublin Airport and other pieces of infrastructure and their size at respective times. As an example DCC wanted to build a bigger WWTP in Ringsend. Had we got the approval with funding back then we would not have to be extending it now. There is also a lot of misunderstanding around the put or pay clause. If Covanta process 550,000 tonnes or achieve a certain minimum revenue target (this could involve processing less than 550,000 tonnes) then in these circumstances, irrespective of the source, the put or pay clause does not apply. The 600,000 tonnes refers to the approved processing capacity of the facility. The fact also remains that under the Dublin Waste Management Plan all waste must go to the highest point on the hierarchy within the region. Separately Covanta have done their own study recently and they are of the view that even in the current economic circumstances the project is viable. (highlight projections of EPA and ESRI). The WTE at best will not be available until early 2014. We would all hope that circumstances would have changed again at that stage.
- Another factor is emerging: Government Waste Policy. For example if the Minister proceeds with policies which have the effect of making the facility unviable and they are upheld legally then neither party will wish to proceed. But someone will end up paying for what has been spent already. Nobody at Government level (within this context) has said they will pick up the tab. If they do then that will have to be considered also. I can tell you I do not want the people of Dublin to have to pick up the tab
The four Managers have been put in something of an impossible position. On the one hand we were given the full responsibility so that the policy would be implemented. Now at the 11th hour complete and utter uncertainty has been created
So be it but we will continue to act in good faith. This is particularly important with Covanta. You will understand this has limited what I have been able to say in public. All others involved in this matter should be acting in the same way.
I will conclude by saying this project can be of enormous benefit to this region