Appendix 5: Canterbury's regional landfill project

Procurement route

The Canterbury regional landfill project is being undertaken by a combination of a public-private joint venture set up to create a regional landfill facility, and a project alliance responsible for construction of the landfill site. We previously reported on the project in our March 2001 report Local Authority Governance of Subsidiary Entities (pages 67-78)

The Canterbury region had 52 landfill sites in 1995, all but 2 of which had resource consents expiring within 10 years. The project reflects the recognition by the Canterbury territorial local authorities involved of the need to adopt a strategic approach to waste management, including meeting modern environmental standards.

The joint venture company, Transwaste Canterbury Limited (TCL), was formed in 1998 as a local authority trading enterprise under the Local Government Act 1974. It is now a council-controlled organisation under the Local Government Act 2002.

It is 50% owned by 6 Canterbury local authorities: Ashburton, Banks Peninsula, Hurunui, Selwyn, and Waimakariri District Councils, and Christchurch City Council. The remaining 50% is owned by Canterbury Waste Services Limited (CWS), in turn a joint venture between 2 waste companies, Enviro Waste Services Limited and Waste Management N.Z. Limited.

The role of TCL is to select the site, obtain consents, build, own, and operate the Canterbury regional landfill. CWS was contracted by TCL to obtain all necessary consents, and to design, build, and manage the new regional landfill for TCL. The landfill has a predicted life of 35 years.

The initial capital outlay of $16 million was funded half by the 6 Councils and half by CWS. The balance of the $36 million total capital required for the consenting process and establishment of the landfill to operating stage is to be funded by debt. Construction will be ongoing, once the site is operational, to provide for the continual waste stream, and it is planned that these costs, estimated at $20 million, will be met from income received.

CWS set up a project alliance involving 3 further companies to construct the landfill by 30 June 2005.

Reasons for opting for a joint venture

Economic

The annual combined total waste produced by the districts of the 6 participating councils was about 277,000 tonnes in 1997. There was only enough waste to justify one new landfill site equipped to meet the new standards. A number of private companies already owned potential landfill sites in Canterbury, and the councils believed that if they competed directly with these companies to provide landfill, the councils would lose. The private sector companies also understood that waste volumes were sufficient for only one economic facility, and saw the advantage in a joint approach.

Political

The councils recognised early on that the site would have to be located in one of their districts, and the council of that district would inevitably face local opposition. A joint venture company could operate at arm’s length from the councils involved, including the relevant council, and be able to choose the best site from an environmental perspective, removing potential for political influence to override inherent site suitability.

The site finally chosen was in Hurunui District, and the local political pressures on that Council to stop the development were immense. However, the project was able to continue through the joint venture arrangement. In a subsequent local election, the Hurunui mayor lost his seat, and a new mayor and group of councillors from the main group opposed to the landfill were elected.

Environmental and technical

In entering into a partnering arrangement with the private sector, the councils involved could benefit from the private sector’s greater technical knowledge of the requirements of modern landfills, without having to relinquish ownership of the landfill site or influence over the way it operated.

This benefit was particularly important because a comprehensive regional waste strategy had been prepared by the Canterbury Waste Joint Standing Committee, to which all the councils belonged. This strategy integrated residual waste disposal by landfill with waste minimisation measures. The councils therefore considered there was a strong public sector interest in remaining involved to ensure that they could influence what happened throughout the whole of the waste chain.

Reasons for choosing an alliancing approach

With the joint venture established, the consent process ended in March 2004. The landfill had to be in operation by June 2005 at the latest to provide a service following the closure of the Burwood landfill in Christchurch. The final design of the landfill could not be started until the consent decision was obtained, as the appeals related to critical design aspects.

The demanding timescales meant that construction had to begin well before final designs were ready, leading to considerable unknown factors, especially relating to earthworks quantities on the site. This meant the work and therefore the price was difficult to specify under a traditional contract tender process. An alliancing approach offered the flexibility to begin work before designs were finalised, but with a focus on the end date, an agreed target cost, and quality standards.

Lessons so far

Political commitment

The political commitment and leadership of all Canterbury councils⁶⁰ were essential to establish the project. However, the project is long-term, and political opposition was likely to transpire during its course. The arm’s-length arrangements and delegated decision-making mean that the original decisions cannot be influenced or rescinded through political action.

Experience of alliancing

The project management company had been involved in alliances for major projects, and its experience and reputation were important in giving the other alliance participants the confidence that they could make this approach work. However, it took time and continuing effort to ensure that all the participants, including subcontractors, were able to operate in an alliance. In CWS’s view, a particular mindset is necessary and this had to be created. For example, some of the subcontractors had to learn that the usual practice of claiming for extras did not fit with the “joint gain/joint pain” approach.

Monopoly

The councils and waste companies that are party to the joint venture have undertaken to send all their waste to the Canterbury regional landfill. This undertaking, together with the difficulty and high cost of securing resource consents, and the waste volumes dictating only one economically viable facility, will probably result in a monopoly position, with no competitors to influence the pricing structures. Independent checks and audits, including the appointment of independent legal and financial probity and financial auditors, have been instituted, to ensure that the landfill company acts as though it were in a competitive market.

60: Ten Canterbury councils were involved in establishing the project, though only 6 decided to participate in the joint venture. The others have reserved the option to join later.