Deputation made by Pinkham Way Alliance asking NLWA to consider whether to press on with the NLHPP or to take the time to pause and reconsider

Nature of Request
NLHPP future services
Case id
Enquiry 42

Request

Date received

Dear Councillor,


NLWA meeting – Thursday, June 25th 2020 - Points for consideration

There can scarcely have been a time when decisions on major infrastructure fell against a background that is more troubled financially, environmentally and socially, and an outlook that is more opaque. Transparent, accurate information becomes more important than ever, as do individual responsibilities in making independent judgement about long term decisions and their consequences.
As Members of the NLWA, each of you individually carries responsibility for the proper administration of its financial affairs to ensure the economic, efficient and effective use of all resources. When making decisions on the EfW proposal, you should bear in mind

a) that, last November the Inspector refused to accept the NLWP waste forecasts, the same forecasts that underlay the EfW, and

b) that the proposal lacks two critical regional props – the evidential support of a waste plan (NLWP) and the strategic support of a Joint Waste Strategy (NLJWS).

We are making you aware of these issues prior to your decision making. Please note: Last November, the NLWP comprehensively failed its Examination in Public. The breadth and depth of problems in the NLWP, clarified in the single page commentary at the end of this letter, were such that the Inspector advised the Councils that he was unwilling to suggest modifications himself, and instead asked them to re-consider the whole plan. Any modifications put forward by the Councils would have to satisfy the Inspector before further consultation could proceed.

We draw your attention first to a practice which occurred some years ago at the beginning of the previous failed waste procurement, and which you should not allow to re-occur.

1. The absence of transparency of material facts risks influencing economic decisions.
The NLWA’s 2009/10 accounts revealed a commitment to an unnamed site for which a paid deposit of £1.208m was outlined. The Authority approved these draft accounts at its meeting of 30 June 2010, and signed them off at the meeting of 23 September 2010. Subsequent Authority accounts of 2010/11 revealed the full purchase price (an additional £11.62m making a total of £12.75m when Stamp Duty is included) and that the paid deposit represented (the common) 10% of completion price. The contracted liability, inherent in the 2009-10 Statement, represented roughly 20% of net assets and gross income. Yet The Statement made no mention of it as a NLWA liability, contingent or otherwise.
The purchase of the site in question, Pinkham Way, was a known material fact, about which the Authority accounts were absolutely required to be transparent, and to give a true and fair view of the present position and future affairs of the NLWA. Members will not wish such an egregious oversight of facts to reoccur.

2. Goodwill. On 22nd December 2009 the Authority purchased the remaining 50% of its joint venture in London Energy Limited. The resulting goodwill of £50.213m was capitalised and the 2009/10 accounts state that this sum would be written off via equal instalments over 20 years.
Almost ten years later, the latest publicly available audited statement (2018/19) indicates that no such write down has taken place. Goodwill of £50.213m remains on the balance sheet. Goodwill in a captive public sector market is unusual. Goodwill in any circumstances applying a decade post purchase is more so. Commercially, goodwill’s useful life would be capped at no more than five years and, in the interim, depreciated to nil on a systematic basis. It is open to question how the NLWA has actually been dealing with this legacy, why it failed to fulfil its 2009 / 10 undertaking and how it now intends to proceed.

3. Public Works Loan Board (PWLB) Loans. Members will notice a long-term debt of £60m in the balance sheet, repayable in tranches until 2028. This is related to the purchase of London Energy. In March 2010, the Authority announced that it had committed to buy the remaining 50% of London Energy (Previously LWL), with the intention of selling the company to the winning contractor of the waste procurement then in progress. It financed the purchase by a loan of £95m from PWLB, at fixed rates and with fixed repayment dates. The Authority knew at the time that repayment was 100% dependent on the procurement’s success, which was not a given. Yet neither the Risk Register nor the Notes to the Accounts made any reference to such a fundamental capital risk. It was only after local residents’ request for a Public Interest Report that the District Auditor included details. The subsequent failure of the procurement required the Authority to reschedule the loan. Members will notice in the 2018/19 Accounts that ‘' ... the interest rate payable [ie on the rescheduled debt] is higher than rates available for similar loans at the balance sheet date.'
The Authority was due to repay £20m to PWLB on April 12th 2020. Members should seek confirmation that it has made this repayment. If it has asked once again to reschedule this loan, it should give details of the terms, including any premium demanded. In light of the above, before agreeing to irreversible steps relating to the financing of the EfW, Members should satisfy themselves that all direct and related capital risks have been fully disclosed.

4. Valuation of the Pinkham Way site in the 2018/19 Accounts. The Savills valuation of the NLWA portion of the site in June 2018 (£14.1m or £3.4m per ha) is some 800% higher than Barnet Council’s valuation of the 1.8 ha contiguous portion that it retained in 2011 (£400,000 per ha). One or other (or neither) may be correct, but not both. Savills allows c £850,000 per ha for decontamination and site preparation costs. This contrasts with the Barnet April 2017 estimate for the whole of the Pinkham Way site of £46m, or c £7m per ha. In addition, Savills cited the site’s proposed allocation for waste use in the recent draft NLWP as supportive of their valuation. Last November, however, the NLWP comprehensively failed its Examination in Public and failed to justify the allocation, thereby removing one basis of Savills valuation. Whilst Savills refers to some planning issues, it avoids the central planning risk on the site, which NLWA itself has rated at the highest level in its own Risk Register, viz. that Pinkham Way is highly contentious, a fact reflected in the 10-year history of failure in attempts to allocate the site for waste. This sets Pinkham Way apart from the operating or permitted sites involved in the transactions cited by Savills as support for its valuation. All of these issues have clear implications for the assumptions on which Savills based its valuation.

5. Waste Forecasting found to have been inflated. Planning for the EfW at Edmonton, and thus for the DCO application, was based on forecasts of North London’s waste arisings. The same methodology was subsequently employed by the NLWP. At the November 2019 Examination in Public of the draft NLWP, the independent Inspector refused to accept this inflated level of forecasting. It is now open to question how the NLWA will deal with this material.

6. Recycling and Residual Waste. NLWA based its planning for the Edmonton EfW on a future recycling level of below 50%. London’s medium-term requirement is for this level to be at least 65%. Arup’s ‘Route to a Circular Economy’, prepared for the GLA, estimated that a moderate take-up would result in a 30% reduction in overall waste arisings. This would be most noticeable in residual waste. Meeting London’s recycling requirement in circumstances of reduced overall waste arisings would open up considerable risk in feedstock supply for the EfW. Over-estimating waste arisings would expose the Councils to inflated costs, since any 'Build and Operate' contract would surely involve obligations of Guaranteed Minimum Tonnage. How does the NLWA plan to deal with these clearly identified risks emerging post DCO?

7. Climate Emergency and CO2. Leading organisations (as well as nations) are rapidly changing their future business models and operating assumptions based on a climate stressed future; managing the changed and rapidly changing position strategically. The proposed EfW plant will input substantial levels of CO2. Over its expected life its accumulated gross output will be as much as two full years’ worth of London’s aggregate CO2. That constitutes a daunting prospect and legacy for members.
Despite such major changes to the operating environment it is not clear what, if any, adjustments the NLWA has decided upon to the plans for residual waste that it drew up in the previous decade.

8. Strategy and Planning. The Authority has previously stated that the NLJWS will be used to facilitate the procurement of new waste management services; that the NLWP is required to inform and be informed by the NLJWS; and that the NLJWS is a parallel document to, and inextricably linked to the NLWP. At this juncture there is no NLJWS beyond this year (2020), neither is there a NLWP.

Against this global and local uncertainty, members must now make their individual judgements. Members are reminded of the failure to pause and reflect on the earlier failed procurement, when the removal of PFI credits changed matters so fundamentally. Financially, that considerable price is still being paid.

9. Next Steps Objectively, which is now the more sensible course?

A. To press on regardless with a dated proposal, which has been overtaken by multiple crises beyond the NLWA’s control, and which lacks two essential regional props - evidential support from the NLWP and strategic support from a Joint Waste Strategy?

B. Or to pause, to take time to resolve the outstanding, interlinked threads highlighted by various groups including PWA (and, we would hope, by your own advisors), and to work together with stakeholders, including residents, to bring forward the integrated waste strategy and waste plan that North London requires?

With kind regards,

Chair – Pinkham Way Alliance

Response

Response date

Dear Ms Ryan,

I am writing to you regarding your deputation to the North London Waste Authority (NLWA) meeting on Thursday 25 June 2020. This was in relation to the North London Heat and Power Project (NLHPP). I would like to thank you for joining the meeting and setting out the issues you wanted to draw to Members’ attention.

Following a thorough review of the proposed project, including the points raised in the deputations, I am letting you know that Members unanimously approved the start of procurement for the new Energy Recovery Facility (ERF).

As promised in the meeting, we are responding in writing to each deputation. I have outlined the key points you raised and provided a response for each below, to advise you of Members’ understanding of these issues in making their decision.

In your deputation you claimed that last November the Inspector refused to accept the North London Waste Plan waste forecasts, the same forecasts that underlay the Energy from Waste facility. The Inspector has not issued any opinion to date on the soundness of the NLWP or the waste forecasts that underpin the NLHPP. If Inspectors have serious reservations that a plan is not sound, they will raise this at or in advance of the examination hearings and may halt the hearings. The NLWP Inspector did not raise reservations about the soundness of the plan at the hearing, and the post-examination correspondence on the NLWP website indicates that progress is being made with the appropriate modifications.

In your deputation you stated that the North London Joint Waste Strategy and the North London Waste Plan need to be in place before members should commit to procurement for the ERF. The current waste strategy set out the issues to be taken into account in determining the approach to residual waste management, which were developed following changes in regional and local planning policy. It is inevitable that delivery of such a major project spans more than one strategy period and it is legitimate for the project to be promoted pending development of the next waste strategy. However, as we have explained, it is also sensible to await Government decisions on elements of waste policy before developing a comprehensive updated strategy. Detailed work on the deliverability of the strategy was prepared for Members prior to the start of implementation of the Development Consent Order (DCO), and the outcomes were reported at the Authority meeting on 5 April 2017.

In your deputation you claimed that the NLWA is not transparent in historic financial matters. Specifically, you referred to payment for an unnamed site in 2009/2010, purchase on LondonEnergy in 2009, public works loan board in 2010 and valuation of Pinkham Way. As a public authority, NLWA makes its accounts public every year in accordance with requirements and provides the necessary time for public comment as part of the audit process. Information about the purchase of Pinkham Way, purchase of LWL/LEL and borrowing from the Public Works Loan Board are publicly available in NLWA’s annual accounts for 2010/11. You will recall that Pinkham Way Alliance brought a challenge against the Authority’s accounts for the financial year ending March 2013. The auditor carried out a value for money investigation and the accounts were signed off without qualification.

In your deputation you claimed that the NLHPP is not consistent with GLA recycling targets. The NLHPP is based on households achieving 50% recycling rates which is in line with the Mayor of London’s Environment Strategy (2018). In the Environment Strategy, the NLHPP is accepted as part of London’s future waste infrastructure. The Strategy is clear that, if London achieves its waste reduction and recycling targets, it will have enough capacity for residual waste management if the new ERF is built, and in doing so will help London meet its self-sufficiency targets. NLWA is in regular dialogue with the GLA. The GLA recently reaffirmed its support for the NLHPP on the basis that

a) it will provide combined heat and power, and

b) it will meet the Mayor’s carbon intensity floor – which is the Mayor’s standard on energy efficiency – now and in the future.

In your deputation you stated that the NLHPP is not consistent with the Climate Emergency. As a public waste authority, our duty in this time of Climate Emergency is to minimise the environmental impact. Landfill is the worst option for the environment, producing vast quantities of uncontrolled methane emissions, which is at least 25 times stronger than carbon dioxide. Moreover, landfills scar our countryside for generations and produce leachate that can severely pollute water courses. The waste sector accounts for around 4% of UK greenhouse gasses and within this, the vast majority is caused by landfill-generated methane. In contrast, our ERF will save the equivalent of 215,000 tonnes of CO2 every year compared to landfill – that’s like taking 110,000 cars off the road every year. In London, energy recovery accounts for just 0.75% of greenhouse gas emissions More information is available in the carbon impact screening prepared for the Project here. The methodology used in this report follows internationally recognised scientific standards set by the Intergovernmental Panel on Climate Change (IPCC). The NLHPP will also save carbon emissions that would be caused by transporting waste outside London and motor vehicles are the major contributor to London’s greenhouse gas emissions.

If you have any further questions about the Project or require any clarifications, I would be happy to answer them or arrange a briefing at a suitable time.

Yours sincerely,

Cllr Clyde Loakes

 Email Caoimhe Friel