Analysis rubbishes waste savings

01:27, Jul 31 2011

Small waste firms have commissioned a report to fight Auckland Council's plans to squeeze them out, says Paul McBeth.

Small-time waste firms fear the Auckland Council's plans for the city's $600 million of landfills and waste stations will squeeze them out.

They worry the plan will favour a city-run monopoly using only major players Transpacific Industries and EnviroWaste Services.

The city is reviewing its obligations under the Waste Minimisation Act 2008 and favours a plan to take operational control of waste. Its preferred scheme is a joint venture with Transpacific and EnviroWaste, though nothing definitive has been decided yet, according to a council report on its draft plan.

There are now as many as 30 waste management operators, including small-time collection and recycling agents, in the region. They fear they will be muscled out of the market if council sidles up with the two biggest players.

Pushing back, those smaller waste companies have commissioned their own analysis of the proposals from Stephen Franks' Wellington law firm Franks & Ogilvie, which concludes the council hasn't done enough analysis and could generate "major costs".

In March the council's regional development and operations committee agreed to support a plan to take control of the 85% of the waste-stream it doesn't control, probably through some type of public-private partnership with major waste players Transpacific and Ironbridge's EnviroWaste. Only councillors Cameron Brewer and George Wood voted against the proposal.

Following the user-pays model in Waitakere City and Christchurch, the council thinks it can cut trash going to landfills by at least 40% through a monopolistic joint venture, also reducing the cost to households.

Those claims fail to stack up, says a review of the proposal by Alex Sundakov of Castalia Strategic Advisors, commissioned by Franks & Ogilvie.

Sundakov says the council hasn't received good policy analysis, and that "there is currently no basis for making an informed decision" on the future of waste.

"Much of the analysis that we would expect to support a proposal of this significance is missing," Sundakov says. "In our view, the proposal is not justified by the information considered by the council, and major costs of the proposal appear to have been ignored."

Auckland Council spokesman Glyn Walters says the local body is "open-minded about what strategy or structural arrangements will best achieve" the favoured proposal.

He plays down the prospect of a public-private partnership, saying such presuppositions are "premature", and that it is too early to put a dollar-figure on the process, including the $600m industry estimate of the Transpacific and EnviroWaste assets in Auckland.

Transpacific owns the Redvale landfill and EnviroWaste owns the Hampton Downs site.

The council declined to comment on the structure of any joint venture.

EnviroWaste has been keen to pursue a PPP with council since the proposal's outset, while Transpacific took a while to warm to the idea. Still, they will only participate in a joint venture with council provided they are "not worse off as a result", according to council papers on the plan.

Such a move would also need Commerce Commission sign-off to create a monopoly, though the council thinks it can counter antitrust issues by claiming it is in the public good. The antitrust regulator hasn't given its view yet, Walters says.

This is EnviroWaste's second bite at the cherry. It unsuccessfully lobbied central government for a similar proposal in a submission to the Auckland Governance Legislation Committee.

The council's proposal claims households will have to only pay about 81 cents a week, compared to the next cheapest option, a licensing regime, that would cost about $3.41 a week. With some 480,000 households in the city, based on 2006 Census numbers, a conservative estimate puts the annual cost at about $20.3m versus $85.1m.

Castalia's Sundakov says it is "implausible" that the plan could produce the same outcomes at less than a quarter of the cost, and questions the council's claim that controlling the assets is the best way to keep costs in check.

Polluter-pays models reduce costs by about 26% on average as "households respond to the incentives created through pricing", his report says.

Buy-in from the Auckland Council will be a relief for Transpacific's Australian parent, which wrote down the value of the New Zealand assets by $A200m, in what was described by White Funds Management's Sydney-based Angus Gluskie, as an admission that they "basically paid too much" for Waste Management in 2006.

Transpacific bought Waste Management New Zealand five years ago for $870m, creating the biggest waste disposal firm in Australasia, but has struggled in recent years after taking on too much debt ahead of the global financial crisis.

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