Session “Best practice for the procurement of services”

Session “Best practice for the procurement of services” Award of refuse disposal services ("classical" contract vs. concession contract, award criteria, contractual aspects, etc) – practical examples Martin Platzer EBRD-Consultants, WOLF THEISS Kiev, November 2012

Agenda Basics of waste treatment Basics of procurement of wastes disposal services Case Studies Case study I: construction of an incineration plant Case study II: PPP contract for a local MBT plant Best practice examples – lessons learned

Waste collection and disposal– refresher (1) Characteristics of “waste” Definitions: Legal definition Waste is a mixture of various things abandoned by its former owners with the intention to give up ownership Technical definition Waste is a complex mixture of solid and liquid stuffs of unpredictable chemical composition with the potential of threatening the environment and human health Main Problem Waste has to be collected, treated and finally stored in a way that precludes further threads

Waste disposal– value chain Waste is created at the customer’s location (household or company) Waste has to be stored at that location till it is collected Waste has to be collected Waste has to be separated (valuable stuffs as well as materials not suited for further treatment have to be sorted out) Separated waste has to be treated Remains of treatment have to be deposed All these services may be contracted out either individually or all together The cost of the whole value chain may be calculated at about 200 to 250 USD BPE / ton (buying power equivalents)

Wastedisposal services (1) Storage at location Provision of individual waste bins Provision of individual bins for waste separation Provision of collection bins for separate collection of valuable items (e.g. glass, paper, ferrous metals) Maintenance and cleaning of bins Exchange of demolished bins Provision of information how to separate and dispose waste (!) Collecting the fees

Waste disposal services (2) Waste collection Establishing a logistic concept for collection of waste Establishing a technical concept for collection of waste (type of truck, type of pre – treatment, e.g. volume reduction) Organizing the logistic supply chain Organizing treatment facilities Collecting fees

Waste disposal services (3) Separationof waste Waste contains a lot of valuable materials (e.g. glass, paper, metals) Waste contains materials not suited for treatment (e.g. bulky items, hazardous materials) These materials should be sorted out before treatment as they either Provide additional revenues that cannot be realized if not separated or Are unsuited for treatment for technical reasons or cause additional costs after treatment Separation can be achieved either Manually or Automatically (high technical risk) The costs for separation depend on the amount of pre – separation at location The more pre – separation the less costs

Waste disposal services (4) Treatment Problem Waste contains a lot of free reactive chemicals and free organic carbons Main goal: Reduction of total organic carbons (TOC) Two possible technical ways of treatment Incineration MBT (mechanical and biological treatment) The choice between treatment methods has to made taking into account The composition of waste The amount of waste to be treated The financial constraints The possibilities of achieving secondary income

Waste treatment methods(1) Incineration An incineration plant burns waste Waste is a fuel with a specific caloric value of 13000 to 16000 kJ/kg (coal: 35000 to 40000 kJ/kg) The results of the incineration process are: Fly and bottom ashes (partially toxic) Slag (partially toxic) Filter dusts (highly toxic) Gaseous emissions (e.g. dioxins, CO2) Heat The heat output may be used to Generate electric power Provide heat for district heating systems

Waste treatment (2) MBT (mechanical and biological treatment) A MBT contains 3 major steps Separation (light materials vs heavy materials)Light materials with a higher specific caloric value (about 20000 kj/kg) are burned Heavier materials are infected with specific bacteria to reduce TOC and inert gases (methane) Results of treatment High caloric fraction (to be burned) Inert fraction to be depose Methane (power generation)

Waste treatment (3) Incineration MBT Low investments Low amount of mass reduction Low specific deposition costs High total deposition costs Simple technology High running costs High investments High amount of mass reduction High specific deposition costs Low total deposition costs Complex technology Low running costs

Waste treatment methods – key decision parameters (1) Composition of waste Specific caloric value Incineration plants need a minimum specific caloric value (SCV) of 12000 kJ/kg Contents driving SCV Paper, plastic etc. Amount of available waste Incineration plants need a minimum of 100.000 tons/a to feed a single line A two line layout is preferable

Waste treatment methods – key decision parameters (2) Availability of financial resources An incineration plant can be calculated at specific costs of 1200 to 1500 USD BPE/ ton/a A MBT can be calculated at about ¼ of incineration plant costs Running costs of a MBT are high but depend on costs for Disposal of high caloric fraction Disposal of inert fraction Running costs of incineration are dependent on cost for disposal of toxic remains

Waste treatment methods – key decision parameters (3) Secondary income MBT generate no secondary income amount of methane produced may be sufficient to provide power for the plant itself Incineration plants generate heat Heat can be used to produce low pressure steam for Electricity generation (not economical on a stand alone basis) Industrial purposes (e.g. cellulose production) District heating systems The secondary income of incineration depends on the availability of demand infrastructure (!) Waste treatment methods – key decision parameters (2)

Contracting out the value chain All these services can be performed either by Public entities or Private contractors Contracting out can be done for all these services or Individual services Contracts may be awarded for Individual services Groups of services The whole value chain

Procurement of waste disposal services - basics Waste disposal needs a complex set of different services with complex interfaces The first decision to be taken is: What services can be provided by (existing) public entities What services shall be contracted out Establishing new public entities normally does not pay off (costs of learning curve) Decision therefore must be based on Quality and experience of existing public entities restructuring of the whole value chain (should be contracted out to consultants)

Procurement of waste disposal services - market Service providers Consultants and engineers Plant manufacturers Transport and logistic providers General contractors Availability of different providers has to be taken into account before deciding on the split of services to be contracted out

Procurement of waste disposal services – PPP vs classical contract Assessment of Availability of financial resources Availability of technical resources Legal framework Risks Waste treatment is a long term business, its costs are driven by legal aspects and Risk aspects

Procurement of waste disposal services - specifications Specifications have to be drawn up based on A general survey of the waste production (composition, stakeholders, etc.) Availability of supply infrastructure Availability of demand infrastructure Availability of disposal sites (quality and volume) Financial resources Fee generation systems Resulting in a decision on the method treatment leading to technical plant specification All these steps are summed up in a contractual specification for the tender

Case study 1 Incineration plant (1) Contracting entity City of Vienna MA (department) 48 Incineration plant Simmering II Type: Fluidized bed Capacity: 2 lines 250.000 tons/a Demand infrastructure Vienna district heating (total capacity 500.000 households) The plant is part of extension of existing infrastructure Type of procurement: individual technical lots

Case study 1 Incineration plant (2) Key decision factors Existing infrastructure Existing operating experience (2 plants already running) Waste composition forecast remains stable Waste production forecast remains stable Risk assessment show predictable risks Operator has an excellent financial reputation (AAA) financing costs are low MA 48 will therefore finance, build and operate the plant itself Operating experience allows detailed plant specifications Technical lots are tendered

Case study 1 Incineration plant (3) Main lots Plant engineering Building engineering Architecture Plant manufacturing Various building and building engineering lots Main works Electrical works Plumbing works Etc.

Case study 2 MBT PPP (1) Contracting entityAWV Osttirol MBT Lavant Type: MBT Capacity: 1 line 30.000 tons/a Demand infrastructure none The plant is constructed onan existing landfill Type of procurement:PPP general contractor (BOT)

Case study 2 MBT PPP (2) Key decision factors Few existing infrastructure (landfill for inert fraction available, has to be operated over the next 30 years) Few existing operating experience (only landfill) Waste composition forecast remains stable Waste production forecast remains stable Risk assessment show predictable risks Operator has an good financial reputation (AA) financing costs are low AWV Osttirol will therefore opt for a PPP based general contractor A build operate transfer model (BOT) is chosen A BOT PPP is tendered

Case study 2 MBT PPP (3) Key contractual specification factors Operation of disposal services has to be secured even in case of bankruptcy of operator Financial stability of contracting entity allows it to take part in financing the project Operation of the existing landfill has to be secured Decision: a specific project company is established (51% contractor 49% AWV) The project company will finance, build and operate the plant over a 25 year period according to AWV‘s technical specifications At the end of this period the contractor‘s shares will be transferred to AWV at a pre - specified price

Lessons learned – Preparation Excellent preparation is essential it includes assessment of Waste composition and production forecasts Existing infrastructure (e.g. demand infrastructure) Operating experience Available financial resources Available technical resources Market of service providers Legal framework risks

Lessons learned – Specifications Decision 1 How should the division of services in the value chain be and what parts of the value chain are to be tendered Decision 2 What can be the role of the public entity and what are the roles of the contractor (s) According to these decisions contractual and technical specifications are drawn up The more detailed specifications are, the better bids will match the public entity‘s needs The more detailed specifications are the less is the flexibility of reaction to innovative bids Flexibility needs highly experienced contractors and contracting entities

Lessons learned Procurement Waste disposal remains a service of general interest; the public entities will remain heavily involved even after contracting out The complexity of the services involved allows a wide variety of tender types Classical contracts tendered in technical lots General contractors PPP models Their use depends on the individual circumstances There is nothing like a model solution

Contact Martin Platzer, Mag. iur, MBA Tel: + 43 / 1 / 5851041 Fax: +43 / 1 / 5851041-20 E-Mail: platzer@mapl.at MAPL ConsultantsNeubaugasse 25/1/271070 ViennaAustria

Session “Best practice for the procurement of services”