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 PlatzerEBRD-Consultants, WOLF THEISS

Kiev, November 2012

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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

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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

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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)

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Waste disposal 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

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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)

Separation of 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)

TreatmentProblem 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 wasteWaste 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 High investments High amount of mass reduction High specific deposition costs Low total deposition costs Complex technology Low running costs

MBT Low investments Low amount of mass reduction Low specific deposition costs High total deposition costs Simple technology High 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

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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

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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

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Martin Platzer, Mag. iur, MBATel: + 43 / 1 / 5851041

Fax: +43 / 1 / 5851041-20

E-Mail: platzer@mapl.at

MAPL ConsultantsNeubaugasse 25/1/271070 ViennaAustria