Waste Incinerator Private Finance Initiative Report Is Baffling

The Waste Treatment Private Finance Initiative Report states that the cost to Calderdale Council of borrowing £9.2m to invest in the construction of the Private Finance Initiative Bradford waste incinerator/combined heat and power generator would be around £564,000 a year. But the Report says that despite the cost, Calderdale Council would “look to” save £200K/year as a result of the investment. I can’t figure this out. Someone please explain!

If Calderdale Council didn’t invest this, based on “assumed commercial interest rates“, repayments on £9.2m over a 25-year period could be around £766,000 a year. This is what it would cost Pennine Resource Recovery (PRR) Limited, the consortium that will own and run the incinerator, to borrow the money.

The difference in repayment costs is because Calderdale Council gets cheaper borrowing through the Public Works Loan Board, compared to commercial bank lending charges, which PRR Ltd would have to pay if it had to borrow the £9.2m.

As far as I can understand the Waste Treatment Private Finance Initiative Report, this difference between the two rates of borrowing is the source of the Report’s claim that by investing £9.2m in PPR Ltd’s incinerator, Calderdale Council would “look to” make a net saving of around £200K/year, compared to what it would cost to use the waste incinerator if it did not invest in its construction.

It seems that this saving would come about because PRR Ltd has said that if Calderdale Council invests £9.2m in the construction of the incinerator, it will reduce the amount it charges Calderdale Council for taking its waste.

The Waste Treatment Private Finance Initiative Report states that savings from this reduction in charges will cover the costs of repaying the £9.2m loan and provide “an additional saving on the Council’s future costs.”

However, the Waste Treatment Private Finance Initiative Report says that the actual saving (as distinct from the “looked for” saving) will depend on

“the rate secured from PWLB and the final terms of the commercial funders at Financial Close.”

I don’t know if I’m understanding this right and have asked the Council Officers who prepared the Report to please explain. But I can’t get my head round this:

  • How does the fact that it would cost Calderdale Council £202K/year less to borrow £9.2m than it would for Pennine Resource Recovery to borrow that amount, translate into a “net saving” for Calderdale Council of £200K/year? How does that add up?

It seems like smoke and mirrors to me, but maybe I’m just innumerate.

Can someone explain this please? Update: Councillor Tim Swift has emailed to say he will explain. More later, when his explanation arrives.

There is also the small fact that approval of the waste incinerator’s construction is subject to judicial review, so it might not happen.

Update 12 March 2013 – As reported in this post, I emailed the Finance Officer asking him to explain how he calculated the savings to Calderdale Council that would result from its investment of £9.2m. His answer simply repeated information given in his Report to Cabinet, without the facts and explanations I’d requested. So I submitted a formal Freedom of Information request.