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Drakenstein WTE Project Draft Feasibility Study Report 8-07-2013 1

JAN PALM CONSULTING ENGINEERS

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T R A N S A C T I O N A D V I S O R S : J A N P A L M C O N S U L T I N G E N G I N E E R S

PO BOX 931 BRACKENFELL 7561 60 BRACKEN STREET PROTEA HEIGHTS BRACKENFELL 7560 TEL + (27) 021 982-6570 FAX + (27) 021 981-0868

Jan Palm : [email protected]

Anita Botha : [email protected]

WASTE-TO-ENERGY FEASIBILITY REPORT

I.R.O. THE WASTE TO ENERGY (WTE) PROJECT IN DRAKENSTEIN

(In fulfilment of section 78 of the Municipal Systems Act, Section 120 of the Municipal Finance Management Act and the Public-Private Partnership Regulations)

Prepared and Submitted by JPCE 30 May 2013

With internal comments:

8 July 2013

Revised to include External Comments: ………………………… 2013

mailto:[email protected]

mailto:[email protected]



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EXECUTIVE SUMMARY

A. TERMS OF REFERENCE

The Drakenstein Local Municipality (“DLM”) is mandated to give effect to national, provincial and local waste strategies and objectives. The strategic objective to reduce waste to landfill including waste avoidance, minimisation and recycling goals is firmly embedded in the Integrated Waste Management Plan (the “IWMP”) of the Municipality but in 2008 the Municipality realised that more effective measures were needed to significantly reduce waste to landfill given that the Municipality’s only permitted landfill would reach its capacity in 2016. The Municipality thus embraced the drive to procure alternative technologies to reduce waste to landfill linked to the generation of renewable energy from municipal solid waste and the development of a project that can access the carbon credits trading market.

In December 2008 the Municipality embarked on a Request for Proposals (“RFP”) process to procure a private sector partner that has assessed and confirmed the feasibility of a Waste to Energy (“WTE”) Facility and has the financial, technical and operational resources to establish a WTE facility. The RFP stated three project objectives, i.e.: the generation of renewable energy from municipal solid waste; the reduction of municipal solid waste to landfill; and the development of a Clean Development Mechanism (“CDM”) project in order to sell the Certified

Emissions Reduction (the “CER”) achieved by the generation of electricity from non-fossil fuel.

The procurement process commenced with eight prospective bidders, shortlisted four to do feasibility studies at risk and own cost and culminated in the signing of a Memorandum of Agreement (“MOA”) with Interwaste, the preferred bidder, the aim being to commit to the establishment of the WTE project subject to the successful completion of statutory processes.

One of these statutory processes included the completion of this report, i.e. what is termed a Section 78 feasibility study by the Municipality in accordance with the Local Government: Municipal Systems Act, 32 of 2000 (the “MSA”) to enable the Municipality to assess the WTE project’s feasibility from its own perspective, the important criteria being: is the project in line with the Municipality’s Integrated Development Plan (“IDP”) and its IWMP; would it have been possible for the Municipality to establish the WTE facility and related infrastructure with own resources and capacity; is the project affordable; does it transfer substantial risk to the private party and does it provide value for money.

The first part, i.e. the Section 78(1) Assessment Report consisted mostly out of a needs’ analysis focused on laying the foundation for an affordability, risk and value assessment of the WTE project and to finally determine that a PPP option is the most feasible route to follow. The Section 78(1) Assessment Report was submitted to the Drakenstein Municipality in June 2012 and approved in August 2012.

This report is mainly the result of the second part of the required municipal feasibility study, i.e. the Section 78(3) Feasibility Study but it includes and updated the most relevant parts of the Section 78(1) Assessment Report to the extent that this report is now the combined Feasibility Study of the Drakenstein Waste-to-Energy Project.

This project is registered with National Treasury and the format and content of this report is in accordance with the PPP Guidelines of National Treasury. A Transaction Steering Committee (“TSC”) consisting of municipal officials, the transaction advisors and the representatives of Interwaste has been driving the project. Consultations with the community and with organised labour have taken place as legally prescribed.



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The final feasibility study will be submitted to the Council for approval after community consultation, solicitation of the views and recommendations of National and Provincial Treasury and other relevant state departments and taking the comments received into account. Successful completion of the feasibility study will culminate in the conclusion of contractual arrangements between the Municipality and Interwaste.

B. NEEDS ANALYSIS

The needs analysis considered the extent to which the project would serve national, provincial and local municipal strategic objectives. It furthermore did an extensive study of the legal and policy environment within which the project would be implemented and assessed the current financial ability and human resources expertise of the Municipality to establish whether the Municipality can do such a project on its own.

Strategic Alignment

To determine the project’s alignment with national, provincial and municipal strategies and plans, the study inter alia, consulted the National Waste Management Strategy (the “NWMS”); the Western Cape Draft Strategic Plan (the “WCSP”); the Municipal Waste Sector Plan (“MWSP”) as well as the DLM’s IDP and its IWMP. The strategic, environmental, socio-economic, financial and technical importance of the WTE project for the community, the DLM and the Western Cape was clearly determined.

Legal Considerations

Specific municipal legislation and guidelines that applied to the study and will direct the way forward are the Local Government: Municipal Systems Act, 32 of 2000 (the “MSA”), the Local Government: Municipal Finance Management Act, 56 of 2003 (the “MFMA”), the Municipal Public-Private Partnership Regulations, 2005 (the “PPP Regulations”) and National Treasury’s Municipal Service Delivery and PPP Guidelines (the “PPP Guidelines”). These dictated the process to be followed, the criteria to be met by the study and report and provided guidance on adherence to key factors that will be instrumental in determining the long term success of the project, i.e. the requirements to be met for long term agreements and the performance management, contract management and risk management mandates of the municipality.

It is especially the legal landscape regulating environmental and energy matters that contributes to the complexity of the project and has the biggest influence on the project timeframe due to the statutory authorisations required. The study analysed and interpreted the applicable legislation to determine the statutory authorisations and contractual arrangement that are needed and integrated these legal processes to establish a roadmap going forward. Attention was inter alia paid to the National Environmental Management Act, 1998 (“NEMA”); the National Environmental Management: Waste Act, 2008 (“NEM:WA”); the National Environmental Management Air Quality Act, 2004 (“NEM:AQA”) and various regulations, standards and guidelines. Authorisations and licenses identified include an Environmental Authorisation (“EA”) obtained through a Scoping & Environmental Impact Assessment (“S&EIA”); a Waste Management License (“WML”) and an Atmospheric Emissions License (“AEL”).

From an energy perspective the study inter alia paid attention to the enablement and enforcement stipulations of the Electricity Regulation Act, 2006 (“ERA”) which provide for the National Energy Regulator of South Africa (“NERSA”) and regulate the Independent Power Producer (the “IPP”) procurement process. The study also looked in detail at the objectives of the Electricity Regulations on New Generation Capacity, 2011 (the “ERNGC”) which are very relevant to the WTE project since it sets out the requirements to be met by a Power Purchase Agreement (“PPA”). The mechanisms through which to sell electricity from a generation plant to a customer (the DLM) were investigated with the



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focus on the Renewable Energy Feed-in Tariff and the ‘wheeling’ of power through the national electricity grid.

The WTE facility is a 20 year project and changes in the energy and environmental regulatory framework will impact on the project and its contractual arrangements throughout its lifespan. Therefore contractual arrangements would need to be flexible enough to accommodate legislative changes. A much debated change is the introduction of carbon tax but based on the uncertainties i.r.o. waste and electricity generation from renewable sources, it is too early to debate the impact of the proposed carbon tax on the project in more detail suffice to say that such a tax would only apply to the waste sector from 2020 and a reduction in carbon tax liability is a further financial incentive of the WTE Facility. The development of a CDM project in order to access the international carbon trading market and sell the CERs achieved by the generation of electricity from non-fossil fuel was one of the RFP objectives. The CDM is a mechanism through which highly industrialised countries trade carbon credits with less or non-industrialised countries to meet their own national targets as initiated by the Kyoto Protocol. The intention was not that DLM become involved in such trading but the private party with the latter doing the very complex registration of such a project and taking the risk but also the possible financial gain. Although Farmsecure, the technology partner of Interwaste, has two CDM Programmes of Activity that could include the Drakenstein WTE Project, going this route is from a financial perspective at the moment not feasible given the changes in the global economy, e.g. there is a current oversupply of carbon credits and the European market has decided to conclude carbon trading agreements only with Less Developed Countries which excludes SA.

Another planned change is the move towards the establishment of an Independent System and Market Operator (“ISMO”) which would put an end to SA’s monopolistic electricity industry by creating an entity outside Eskom responsible for planning. If the private sector including the SA Independent Power Producers Association (“SAIPPA”) has its way the power grid would also be owned by the ISMO which could have an impact on the cost of electricity.

Waste Services Considerations

Although the Municipality’s workload in respect of the 240l bins household refuse removal once per week and the more frequent business waste removals have increased year on year, necessitating an annual up-scaling of plant and human resources, it was found that there were an adequate number of teams in place for refuse removal and cleansing even though a number of budgeted vacancies existed in the organisational structure. Thus the transaction advisors are of the opinion that the Municipality has the financial and human resources to render the waste collection and cleansing services it is currently responsible for and therefore the WTE Project would not involve any of these services, it only concerns waste treatment and disposal services. A matter which is not part of the project but worth mentioning is the Illegal dumping which appears to be a huge problem specifically in the Paarl area. It points to the need for more community education and better enforcement of the waste by-laws.

Financial Considerations

The DLM has received unqualified audits for four consecutive years since 2008/09, spent in excess of 96% of its capital budget; 100% of its Municipal Infrastructure Grant (“MIG”) and collected nearly 98% of billed revenue in the last financial year and maintained an adequate and stable financial position. It has a credit rating of A3.za which means that the DLM has a strong capacity to repay long term liabilities and fulfil short term obligations (liquidity). It has also received a number of infrastructure and service delivery accolades which assisted it to be rated amongst the highest performing municipalities in COGTA’s Class 4: “Highest Performing”. These positive indicators are somewhat shadowed by the



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increase in reliance on external funding and the year on year steady increase in municipal debt raising concern regarding the liquidity of the DLM.

The under-spending on repairs and maintenance that is so evident in local government is also the case in Drakenstein given the steady decline in the amount spent on repairs and maintenance as a % of total operational expenditure, such being down from 9,10% in 2008/09 to 4,39% in 2011/12. However, the expansion of infrastructure must be taken into account when analysing this figure further.

In 2011/12 waste management had an income of 4% less than budgeted and expenditure of 3% more than budgeted. Nevertheless, its revenue has increased steadily year on year and the figures indicate a continuous trend of increased surpluses despite its outstanding debt and its consistently moderate tariff increase of 7% per annum. Moving forward with the WTE project requires the Municipality to have a good understanding of municipal costs especially maintenance costs in order to compare such with private sector costs thus a comprehensive tariff review would be advisable. Items found dominating the current three year waste services capital budget were the upgrading and extension of the Paarl Transfer Station specifically the office block; the provision of mini drop-offs; the fence of the Wellington Landfill Site and the rehabilitation of five of the smaller landfill sites at a cost of R16m. Especially the costs to rehabilitate all identified sites in the Drakenstein, i.e. estimated at R57,743,753.70 (escalation excluded) is a huge cost factor thus the rehabilitation of the existing Wellington Landfill Site (current estimated cost without escalation is nearly R22m) which will fill up sooner or later during the lifespan of the WTE Project, became a consideration in the financial modelling of the project. Provision was also made for R6m for the upgrading of the Wellington Landfill Site access roads due to an existing need but albeit one which becomes more important given the increased waste truck traffic that the WTE Project would hold.

The financial analysis further revealed that the solid waste management budgeting is done in a prudent manner and the DLM is committed and financially able to render good waste collection and cleansing services and will be able to continue rendering the current standard of waste treatment and disposal services but did not have the financial appetite or ability to invest in a high capital intensive and technically advanced WTE Facility without a private partner taking on the bulk of these risks. The challenges thus faced by the DLM include:

its increasing debt situation which necessitates strict application of the credit control and debt collection policy;

the ability to finance capital needs without sliding further into the trap of external borrowings to do so but rather to enhance own revenue; and

building a capacitated personnel corps through skills development and filling key vacant positions with suitably qualified people;

increase its spending on maintenance within the context of the above realities.

Human Resources Considerations

The WTE Facility is a new municipal support activity complementary to the existing waste management activities to achieve integrated waste management objectives and, except for making use of municipal land and bulk infrastructure, it is not intended to be in any other way reliant on municipal human resources capacity. Furthermore, the Municipality has none of the scare skills and expertise needed for the highly technical WTE operations or any spare labour capacity.

Consultations with organised labour dealt with the question of labour in the waste treatment and disposal services that will be affected by the WTE Project and both unions, the South African Municipal Workers Union (“SAMWU”) and the Independent Municipal and Allied Trade Union (“IMATU”) preferred redeployment of the affected staff rather than secondment or transfer. From a municipal point of view, individual employees have the freedom to make their own decision should transfer of employment be an option provided to them therefore this option remains open but the DLM has, as



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part of its recent organisational restructuring programme, made provision for the redeployment of the affected staff should this be the final option exercised by them.

Of great importance is the permanent jobs that will be created if the WTE Project is fully implemented. This is in line with the “Green Economy Accord” signed at the end of 2011 between government, business, labour and organised community groups and linked to the New Growth Path. It is also in line with the Sector Jobs Resilience Plans (“SJRP”) as entailed in the National Climate Change Response White Paper.

C. TECHNICAL OPTIONS ANALYSIS

The technical options analysis investigated the current services and activities which would form part of the project and the waste support activities to be added by the WTE Facility.

Existing Services and Activities included in the WTE Project

The existing municipal services and activities determined to form part of the WTE project are: the operation and maintenance of the Wellington Landfill inclusive of the mechanical chipping

of garden and bush waste and the crushing of builder’s rubble; the operation and maintenance of the Paarl Material Recovery Facility (“MRF”) including the

collection of source separated waste material (currently outsourced) and the Paarl Transfer Station in Daljosafat; and

the transport of waste from the Paarl Transfer Station to the Wellington Landfill (currently outsourced) with no fixed or movable assets of the municipality involved.

In analysing the technical options applicable to these services and activities, it was firstly important to note the primary reasons for their inclusion in the WTE Project: adding these services and activities to the WTE Project would add synergy to the project value

chain and enable the Municipality to solicit the huge financial investment required for the establishment of a WTE Facility which was otherwise completely out of reach for the Municipality given its financial situation and other more pressing priorities;

the Municipality does not have the human resources and suitable machinery for optimal compaction methods to improve the operations of especially the Wellington Landfill to the extent needed to optimise extension of the current lifespan of the site;

the Municipality does not have the plant or the finances to purchase such to transport waste from Paarl Transfer Station to the Wellington Landfill Site;

the Municipality does not have any experience of the operation of a MRF with the result that these are already outsourced contracts and fit into the WTE Project and the financial viability and sustainability of MRF operations are quite complex inter alia due to a volatile recyclables market, making it essential to regard a MRF as part of an integrated waste management solution..

It was found that rendering these services and activities did not involve highly innovative l solutions but best practice technical and operational expertise, skills, capacity and resources to rectify the current operational problems and increase operational and maintenance effectiveness, and that these could be rendered by Interwaste. It was concluded that Interwaste could take over the technical and operational risks and offer affordability and value-for-money i.r.o. these services.



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Waste Support Activities and Technologies added through the WTE Project

The municipal waste support activities investigated to be added by the WTE project on a parcel of municipal land at the Wellington Landfill Site are recycling through a MRF, composting from garden waste, brick-making from builders’ waste and the WTE Facility with all its technological components.

Initial WTE technical options that were investigated included structured landfill cells and landfill gas extraction - a good example of which could be found in Ethekwini. However, the size and depth of the Wellington Landfill was found not suitable for landfill gas extraction.

Since critical factors that determined the suitability of the technical options inter alia included waste quantities and waste composition, accurate figures were essential but not available until weighbridges were installed. Based on reviewed waste figures, the technologies investigated were Anaerobic Digestion (“AD”) and Thermal Conversion including Gasification and Direct Combustion (“DC”) which included the sewage sludge of the adjacent wastewater works in the process. Although a combination of the technologies in an integrated Gasification Combined Cycle process held promise and theoretically outperformed conventional power generation, it was yet to be commercialized for small and medium scale applications and could not be considered as a proven technology given the risk involved. Thus it was found that gasification did not fit into the project philosophy. In the final analysis the technologies chosen for the project were a combination of AD and DC. AD is a well-known and popular technology. It is also quite suitable for this particular project due to the sewage sludge availability because the technology fits well into a wet waste scenario. AD plants are found across the world with very reputable companies to choose from. There are also several DC plants across the world. It is a very bankable technology and suits the African model due to the large number of jobs that it creates. There are approximately 20 000 of these steam turbine kits running in SA and at least 200 000 over the world and the particular supplier earmarked for this project has been involved in building 150 of these. The project has also been devised in such a way that the technology selected is modular in nature and can readily be expanded upon.

Broad, Regional Perspective

The feasibility study did not only focus on the WTE options that would be possible if just the Drakenstein waste quantities and qualities were taken into account. Instead it adopted a broad, holistic long term view of the project which included the acceptance of additional waste streams from an adjacent municipality, i.e. Stellenbosch as well as other sources, in acknowledgement of the regional realities and recognising that higher waste volumes and economy of scale phenomenally increased the viability of WTE technologies.

Based on the reliable waste content and volume information derived from a recently executed three-month analysis of the Drakenstein waste streams and waste information obtained from Stellenbosch, it was possible to identify four waste scenarios that included recycling, composting from garden waste, brick-making from builders’ waste and using the sewage sludge of the wastewater works. These scenarios unfolded in three different but incremental phases of implementation. The technical, financial and operational feasibility of these scenarios were analysed in detail to arrive at the best value for money options that could be pursued.



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Drakenstein Interwaste PPP

Phase 1 Phase 2 AD Phase 3 DC

Original landfill % reduction landfill % reduction landfill % reduction

Scenario 1 Excluding sludges 395 188 52.4% 127 67.7% N/a N/a

Including sludges 615 408 33.6% 127 79.3% N/a N/a





Scenario 4 Excluding sludges 711 489 31.3% 301 57.7% 98 86.3%

Including sludges 931 709 23.9% 301 67.7% 98 89.5%

Volume reduction diagram: Tonne to Landfill per day

Phases and Scenarios

The phases as investigated were: Phase 1: Managing of the landfill, the Paarl Transfer Station and MRF, the clear bag system,

crushing of rubble and chipping of clean greens

Phase 2: All of the above plus AD

Phase 3: All of the above plus DC

and the scenarios were: Scenario 1: Only Drakenstein waste volumes

Scenario 2: Drakenstein and Stellenbosch waste volumes

Scenario 3: Drakenstein, Stellenbosch and Interwaste waste volumes

Scenario 4: Drakenstein, Stellenbosch, Interwaste and additional waste volumes

Of all the possible equations, four scenarios in different phases appeared to be feasible for further financial modelling. These are marked in yellow in the table below.

To calculate the waste diversion would be through a weighbridge going into the WTE Park and a weighbridge going into the landfill with the in-between tonnages considered as waste diverted. In the final analysis it was found that these options could offer a phased reduction of waste to landfill projected to be between 52,4% (excluding sludge) in a first phase and increasing to an extensive figure of 89,5% (including sludge) in a final phase when a DC plant is fully operative.



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Given these waste volumes the basic AD Plant to be built would look similar to the plant in the photo below.

The DC Plant would not be nearly as big as the reference sites used for the project but the following photos of the reference sites are provided to get an idea of such a plant.

Fukuoka Clean Park Rinkai (300t/d x 3) Tokyo, Chuo (300t/d x 2)

Taipei, Taiwan (450t/d x 4) Houli, Taiwan (450 t/d x2)



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Generation of Electricity (Green Energy)

The AD and DC Plants would consume some of the electricity generated, referred to as a ‘parasitic load’ as indicated in the table below.

Gross Output

MW Net Output

MW Parasitic Load

% Parasitic Load (kWh)

AD Scenario 1 0.97 0.91 6% 480 000

AD Scenario 2 1.59 1.51 5% 640 000

AD Scenario 3 2.50 2.39 4% 880 000

DC 9.60 8.28 16% 10 560 000

Thus with regards to the energy generating objective of the WTE Project, it was found that the project would in Scenario 4/Phase 3 with the DC Plant in operation, be able to produce green electricity of 12,1 MWh which, after subtraction of the parasitic load, could make 10,67 MWh available to be ‘wheeled’ through the Eskom network to Drakenstein therefore enabling an immense carbon footprint saving since every MWh of green power produced displaces one ton of carbon. The carbon saving amounts to 288 tonnes per day and 105,120 tonnes per annum.

The DLM’s maximum reserved supply with Eskom is 172 MWh and its average consumption is 127 MWh. Therefore the WTE generated electricity could supply approximately 8,4% of the DLM’s current electricity consumption. To be more practical: 0,91 MWh could supply electricity to between 225 and 250 low cost housing units. Even though the green electricity could be generated at a lower cost, the cost of the electricity that the DLM will purchase through the PPA from the private party would be based on the same megaflex tariff currently payable to Eskom due to the current system not allowing competition in this market albeit the DLM should in principle pay less for the project-generated energy due to the environmental levy charged by Eskom not being payable on ‘green energy’. However, the study did not count the latter as an avoided cost due to there been uncertainty on how Eskom would approach the matter.

Socio-economic Impact The WTE Project would have a significant socio-economic impact in Drakenstein given the unemployment and low income figures of a large section of the community which urgently requires more job creation. It is estimated that in total 203 full time jobs will be created through the project, i.e. 125 unskilled and 78 skilled positions. In addition thereto is the employment to be generated during the construction phase which would in the order of 200 jobs for a period of one year. Indirectly the project will also give rise to local enterprises that will provide supporting services like transportation and food supply to plant staff. Also, there will be a significant transfer of skills and technology through training courses, in-house training and employment opportunities.

D. SERVICE DELIVERY MECHANISM AND PROVIDER

The establishment of the WTE Park would be executed by a Special Purpose Vehicle (“SPV”) through a Build, Own, Operate and Transfer (“BOOT”) type of PPP of 20 years. The report explained why this project is a PPP, inter alia beneficial use of municipal property and significant transfer of risk.

The SPV which Interwaste would establish to serve as the WTE Entity was analysed. It was concluded that Interwaste and its technology partners have the financial credibility and appetite for the project; a



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calculated approach to technology and financial risk which included substantial own equity and taking ownership of the whole project value chain.

A discussion of the contracts landscape included identification of the primary and secondary contracts and a diagrammatic explanation which emphasizes just how intertwined these contracts are with the various statutory authorisation processes. The qualifying criteria and objectives of each of these contracts and statutory processes were spelled out in the report. It appears to be a complex portfolio of contractual arrangements which illustrates the complexity of the project itself. For the DLM these complexities will all be encapsulated in its primary contractual arrangement with a single accountable party.

As per the primary contract, the main obligations of the DLM would be the consistent delivery of its entire waste stream to the WTE Facility and punctual payment of the gate fee. The main obligations of Interwaste would be reduction of waste to landfill and effective operations and maintenance of the municipal infrastructure and the WTE Facility to the effect that the lifespan of the Wellington Landfill site could be extended; reclamation and recycling of waste; energy supply and, if so elected by the DLM, rehabilitation of the Wellington Landfill Site at the additional gate fee. A substantial responsibility and risk accepted by Interwaste would be the provision of adequate feedstock (waste) for the DC Plant.

E. FINANCIAL MODELLING

The Contractor did extensive financial modelling and sensitivity analyses of various input parameters with regards to the four scenarios identified as feasible.

An analysis of the Capital Expenditure needed for the project resulted in the following figures: Scenario 1/Phase 1: R34,35m Scenario 1/Phase 2: R93,35m Scenario 2/Phase2: R106,35m Scenario 4/Phase 3: R433,35m

The operating cost assumptions of the model including inflation, fuel, interest, debt repayment period, residual value, depreciation, maintenance, plant and vehicle operation and labour were discussed in the report.

The two primary revenue streams as modelled were the gate fees and electricity sales. In Phase 1, the crucial factor that would determine the project’s viability is the gate fee. Secondary and potential sources of income include revenue from chipped greens, the sale of recyclables and sale of aggregate estimated to comprise between 17% - 27% of total revenue. In Phases 2 and 3 the selling of electricity will be the primary source of revenue and the selling price used in the modelling was based on the MYPD5 annual increase of 8% granted to Eskom.

The current tipping fee of the DLM at the Wellington Landfill is R169.85/ton. This fee compares well with the fee currently applicable at the Kraaifontein site of the City of Cape Town of R360/ton (e.g. applicable to Stellenbosch if making use of this site), the current tipping fee of Overstrand at Gansbaai Landfill of R147/ton (Karwyderskraal belonging to Overberg District Municipality charged more) and the calculated regional fee of R280/ton. Interwaste used for its financial model a fee of R134.61/ton which includes the improved operation of the Wellington landfill and other infrastructure and a 7% per annum inflation based increase. As provided for in the modelling, as soon as the AD Plant kicks in the tonnages going to landfill drop and given the economy of scale, as the tonnages increases, the fixed cost gets absorbed and the cost drops. When the DC kicks in (Scenario 4/Phase 3) with waste volumes coming in from the DLM, Stellenbosch and Interwaste, the tonnage going to landfill drops considerably



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and with it the cost also drops considerably – a win-win situation provided the additional volume of feedstock required by the DC Plant is securely available.

Since there is uncertainty whether Stellenbosch would come on-board, Interwaste is well aware that it must be prepared to supply all the waste required for Scenario 2/Phase 2 in Year 3 when the AD Plant becomes operational. This is a risk to which Interwaste committed itself. However, in Year 4 when the DC Plant is scheduled to become operational additional tons of waste per day would be needed to run the DC Plant and if Stellenbosch is then not on-board, both Interwaste and Farmsecure, their bankers and equity partners would have to carefully consider the feedstock risk before taking it on. These and other risks were clearly spelled out in the report and would have a determining impact on the roll-out of the project. (Of necessity, the contractual arrangements would protect the DLM against any risks and its impact). A variation on the financial model as agreed was to include a monthly fixed fee payment to Interwaste. It was found that this option would reduce the tipping fee/ton to R7,89 in Scenario 1/Phase 1 for waste diverted and, as indicated in the DLM value assessment, would be a feasible alternative to consider. Each of the DLM value assessments thus included the option. Interwaste was requested to add the rehabilitation cost of the Wellington Landfill since, given the huge rehabilitation costs of not only the Wellington Landfill but also quite a number of other sites, this might be a feasible option for the DLM. However, the rehabilitation provision rate per ton calculation is highly dependent on the airspace left for consumption and would therefore need to be recalculated on an annual basis and requires, within strict parameters, the contractual flexibility to do so.

The gate fees calculation must also be revisited and negotiated during the contractual signing phase of the project.

F. VALUE ASSESSMENT

The DLM did a Value-for-Money (“VfM”) Assessment of the financial modelling based on the most feasible scenarios and other variables. In the process important VfM drivers were identified and used to measure the proposed project outputs and a risk analysis was done to quantify the risks and compare the percentage of risk shared with and transferred to the private party. It also looked at the Municipality’s fiscal obligations vis-à-vis its financial abilities and measured the affordability and real VfM of the project based on quantified avoided costs and qualitative socio-economic results.

Key VfM Drivers

The key VfM drivers analysed inter alia included integrated planning and design; whole life costing; optimum allocation of risk meaning allocation of risk to the party best able to manage and minimise it; target based incentives and measurable, suited outputs; innovation which not only refers to technology but also the design of the project and sufficient flexibility which is already built-in by the legal requirement of the MFMA that long term contract/s be reviewed on a three yearly basis but needs good contract/s and good contract management and monitoring to ensure the trust relationship enabling it exists and such ability must reside within the DLM. These key VfM drivers would be the principles underlying contract stipulations.

The report highlighted the qualitative issues that cannot be quantified and the realisation was that overall the project enables a good fit between needs and contractible outcomes; will support optimal municipal asset utilization; has clear boundaries that enables ring-fencing which in turn eases interfacing with other projects, e.g. development of the regional landfill.



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Environmental Considerations The positive benefits that could be gained from the project include: Reduced greenhouse gas emissions Reduced acid gas emissions Reduced depletion of natural resources (fossil fuels and materials) Reduced impact on water (leaching) Reduced land contamination

Even though the ultimate outcome of the project is expected to be positive, it is also accepted that there would be some impact on the environment due to the construction and operation of the Drakenstein WTE project, mostly in the form of off-set gas from the electricity generation process. These environmental aspects would be investigated in detail during the EIA and energy licensing processes. The assessment process is comprehensive and detailed where appropriate, aimed at identifying potential positive and negative impacts on the environment (biophysical, socio-economic and cultural), in order to: Examine alternatives/management measures to minimise negative and optimise positive

consequences; Prevent substantial detrimental impact to the environment; Improve the environmental design of the proposal; Ensure that resources are used efficiently; and Identify appropriate management measures for mitigation and the monitoring thereof.

Infrastructure Considerations

The study found that the bulk infrastructure services such as water and sanitation could accommodate the project and upgrading the access roads to the landfill was already on the capital budget. Also that all the roads involved are all provincial roads and some of these have had a higher than normal accident rates lately which has led province to look into the matter and relevant road upgrading is under discussion in the provincial forum. Nevertheless, it would be necessary to do a Road Impact Study as the project further develops but although the waste load would triple by year 4, the waste related traffic would account for only a small percentage of the overall road use.

Risk Considerations

It is clear that substantial transfer of risk to the private sector will take place. It would therefore be extremely important for the DLM to have watertight, workable contracts and really good, hands-on contract management structures and processes in place for the WTE Project. As detailed in the study, the DLM did a risk analysis through which the risks were identified, ownership thereof assigned, mitigating factors listed and a weigh assigned to each risk to enable scoring thereof. It was found that the DLM would assume responsibility for 26% of the risk while Interwaste would take on 74% of the risk. In respect of the financial structure of the WTE Facility (AD&DC Plants) there would be the comfort of bank due diligence and it could be safely assumed that the DLM would also be able to rely on the bank’s perception of the bankability of the project based on a long term view of the SPVs balance sheet. Managing its risks would also ensure that the bank keeps a close eye on any events and information that may affect the project. However, during the entire project development phase (AD & DC) which may, due to the time taken up by statutory approvals, exceed 3 years, the DLM would also need to be vigilant and monitor, analyse and respond to any information that could negatively impact on the project.



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Mitigating residual value risk is ensuring that the technology used does not become obsolete by the end of the project and assets’ lifecycle. With WTE being a fast developing area it would virtually be impossible to predict what the technology would look like in 20-30 years but the technology to be used has been tried and tested and in existence for many years and there is no doubt that the selected technology base is sustainable. The best mitigating measure for residual value including technological sustainability is adequate spending on maintenance linked to this balanced view between maintenance and renewal/rehabilitation strategies. It is believed that Interwaste did adequate costing for the operation and maintenance of municipal services to account for balanced maintenance strategies and the technical options analysis took it into account. For the DLM it would be essential to contractually entrench these issues.

Affordability The study found that the revenue derived from solid waste could, if ring-fenced, be adequate to service the additional monthly operational expenditure expected to be required by the WTE Project including the obligatory contract monitoring and management fees that would be required by NT. Another trend is that only about two-thirds of the potential waste revenue is annually collected. In 2011 only R46,006,817.78 or 67% of the billed amount of R68,725,335 for waste was collected. It is assumed that even slightly better revenue collection through the strict application of relevant policies could substantially add to the waste revenue and thus add to the division’s ability to carry the WTE Project.

VfM Modelling

In the Value-for-Money assessment to determine if the WTE project is feasible and affordable for the DLM, the following four scenarios stretching over three phases and based on different waste volumes while taking regional realities into account were compared.

I. Scenario 1 / Phase 1 where only DLM waste is received at the landfill but with all wards

included in the waste collection of separation at source, i.e. the clear bag system; recycling at the landfill itself and the maximum amount of greens and builders’ rubble been diverted thus leading to a situation where approximately 52% of the waste is diverted with an estimated 188 tons going to landfill. The scenario includes a significant capital investment by the Contractor and is the logical kick-off scenario for the DLM to inter alia get better operation of the landfill site but it does not as yet include any WTE processes.

II. Scenario 1 / Phase 2 (AD), the first apparently feasible AD scenario which would include a

total capital investment of R93,35m by the private party and use only the DLM’s waste volumes of which 68% would be diverted leaving an estimated 127 tons going to landfill. For the DLM it appears to be a feasible option but from the private party’s perspective it would not be if based on the gate fee included in the financial modeling. It is not economically viable as it has a negative 10 year NPV and a 10 year IRR of less than the 11% borrowing rate that the private party has calculated. To make it feasible for the private party the gate fees would need to be increased and that will reduce the feasibility for the DLM.

III. Scenario 2 / Phase 2 (AD), has the same parameters as the previous scenario except that the AD Plant would be larger with a total capital investment of R106,35m and making this possible is the added waste volumes of Stellenbosch. It would result in a slight lower waste diversion of 63% with 182 tons going to landfill. Based on NPV figures this scenario is for a few years less attractive than the previous scenario but after about 8 years the scenarios have much the same impact on the DLM. For the private party this scenario is more feasible with the IRR increasing substantially and a positive NPV to make this possible.



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IV. Scenario 4 / Phase 3 (DC), is the fourth feasible scenario with an additional capital investment of R300m to establish the DC Plant thus a total Capex of R433,35m. This scenario then adds waste to be provided by Interwaste for feedstock of the DC Plant. Adding feedstock and bringing it to the Wellington landfill might appear to be counter-acting the aims of the WTE Project but this is a skew perspective since all such feedstock will be going into the DC Plant and the electricity so produced would be ‘wheeled’ and sold to the DLM. With an estimated 86% of waste been diverted from landfill and only an estimated 98 tpd waste going to landfill, this scenario is by far the most feasible for the DLM and the region provided adequate waste volumes are available. It is a win-win situation because the private party has estimated an IRR over 10 years of 12% and over 20 years of 18% based on NPV and the DLM has an added 8,28MWh of electricity thus a total of 10.67 MWh. Due to its high capital investment and large waste volume requirements, it is also the most risky scenario.

This following graph indicates the accumulative annual costs (not NPV) of the various scenarios and phases with the Status Quo reflecting the Municipality’s continuance of the current operation of services, i.e. no contract with Interwaste. The scenario with both AD and DC reflects the lowest costs. Rehabilitation of the Wellington landfill is a cost to the Municipality when the site is full. The sharp increases in the gradient of the graphs represent the disposal at and transport to a remote regional facility. Scenario 1 Phase 2 is not economically viable for the Contractor.

The next graph reflects the Net Present Value (NPV) of the accumulated annual costs where the Municipality pays a Gate Fee over the proposed contract duration. The sharp increase in gradients represents the disposal at and transport to a remote regional facility and rehabilitation of the full Wellington site. Worst NPV = Status Quo =R1 075 833 235 / Best NPV = S4P3 = R517 629 203



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The following graph reflects the Net Present Value (NPV) of the accumulated annual costs when the Municipality pays a fixed monthly tariff plus a smaller Gate Fee over the proposed contract duration. The sharp increase in gradients represents the disposal at and transport to a remote regional facility plus the rehabilitation cost of a full Wellington site. Worst NPV = Status Quo = R1 075 833 235 / Best NPV = S4P3 = R443 714 623



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This following graph reflects the Net Present Value (NPV) of the accumulated annual costs when the Municipality pays a Gate Fee over the proposed contract duration plus a Rehab Fee over the life of the Wellington site. The sharp increase in gradients represents the disposal at and transport to a remote regional facility. Worst NPV = Status Quo = R1 075 833 235 / Best NPV = S4P3 = R535 791 326

The next graph reflects the Net Present Value (NPV) of the accumulated annual costs when the Municipality pays a fixed monthly tariff plus a smaller Gate Fee over the proposed contract duration plus a rehab fee over the life of the Wellington site. The sharp increase in gradients represents the disposal at and transport to a remote regional facility. Worst NPV = Status Quo = R1 075 833 235 / Best NPV = S4P3 = R461 693 134



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This following graph represents the options when only Drakenstein’s waste is used. The AD option with this insufficient waste volume is not a viable option for the Contractor and also the most expensive option for the Municipality. If no “outside” waste is to be imported, the best option for the Municipality is Phase 1 = No Waste to Energy.

Following on the previous graph the following graph then represents the options when only Drakenstein’s waste is used and no Waste to Energy facility is constructed. Worst NPV = Status Quo = R1 075 833 235 / Best NPV = Gate Fee plus Fixed Fee = R610 485 213 Landfill full in December 2020 / No electricity generated.



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This following graph represents the options when Drakenstein’s waste and Stellenbosch’s waste are used and an Anaerobic Digestion (AD) plant as WTE facility is constructed. Worst NPV = Status Quo = R1 075 833 235 / Best NPV = Gate Fee plus Fixed Fee = R 657 390 165 Landfill full in February 2021 / 1.51 MWh electricity generated.

The next graph represents the options when Drakenstein’s waste, Stellenbosch’s waste and some external waste sourced by Interwaste are used and that an Anaerobic Digestion (AD) plant and a Direct Combustion (DC) plant as Waste to Energy facility is constructed. Worst NPV = Status Quo = R1 075 833 235 / Best NPV = Gate Fee plus Fixed Fee = R443 714 623 / Landfill full in March 2024 / 10.67 MWh electricity generated.



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VfM Modelling

In a final analysis the VfM modelling calculated the comparative costs of maintaining the status quo vis-à-vis the pursuance of each of the four feasible WTE scenarios vis-à-vis maintaining the status quo. The table below includes fixed cost and rehabilitation cost variations and converted these figures to reflect the Net Present Value (“NPV”) of the cost using the same discount rate as the private party.

The financial modelling showed that with only Drakenstein’s waste the following applies:

1. No WTE Facility is feasible since it is not economically beneficial to the Contractor. 2. The rendering of all the waste management services (except collection and cleansing) by the

external service provider would result in a NPV saving of R 465 348 022 to the Municipality over the duration of the contract. (20 years)

3. No electricity will be generated from waste. 4. The Municipality will rehabilitate the Wellington Landfill when full in 2020/2021 (costs

included in above figures). 5. The better option would be to pay the Contractor a fixed monthly amount plus a gate fee for

the waste diverted from landfill. 6. No sewage sludge will be used in the process.

With the inclusion of “outside” waste the modelling showed the following:

1. The rendering of the above services plus the establishment and operation of an Anaerobic Digestion (AD) plant as well as a Direct Combustion (DC) plant would result in a Net Present Value saving of R 632 118 612 to the Municipality over the duration of the contract (20 years).

2. 10,67MWh of “green” electricity would be generated. 3. The Municipality will rehabilitate the Wellington Landfill when full in 2024/2025 (costs

included in above figures). 4. The better option would be to pay the Contractor a Fixed monthly amount plus a gate fee for

the waste diverted from landfill. 5. 6500 tonnes per month or 300 tonnes of waste per weekday need to be imported into

Drakenstein. (100 t/d from Stellenbosch and the other tonnages to be sourced by Interwaste) 6. This equals 15 additional truck loads (3 container combination) per day. 7. 220 t/d of sewage sludge will be used in the process.

G. PROJECT DUE DILIGENCE

Issues which may affect the project were identified. Those that may have a significant impact on whether the full WTE Project in all its phases could be implemented, are mainly the statutory authorisations (licences or permits) that need to be obtained and the sustainable availability of the required waste volumes.

Scenario Phase Operations WTE AD

WTE DC

Drakenstein Waste Stellenbosch Interwaste Gate Fee

Fixed + Gate Fee

Gate + Rehab Fee

Fixed + Gate + Rehab Fee

1 1 Y Y R 651,000,161 R 610,485,213 R 652,531,978 R 612,017,030

1 2 Y Y Y R 805,531,965 R 713,945,313 R 816,780,945 R 725,194,292

2 2 Y Y Y Y R 750,310,015 R 657,390,165 R 754,953,630 R 662,033,779

4 3 Y Y Y Y Y Y R 517,629,203 R 443,714,623 R 535,791,326 R 461,693,134

No Go Scenario (Status Quo) R 1,075,833,235



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H. CONCLUSIONS

The report arrived at the following conclusions:

Project Relevance

1. The WTE project with all its components is undoubtedly relevant and will be an important tool to assist the Municipality with implementing strategic waste management and to live up to its vision of excellence iro its functional waste mandate and commitments as set out in its five-year IDP and IWMP.

2. There is adequate proof of the strategic, environmental, socio-economic, financial and

technical importance of the WTE project for the community, the DLM and the Western Cape. 3. Through its technical options analysis of the WTE project including four scenarios spaced over

three phases of implementation and taking into account regional realities, it was found that: depending on which of the feasible scenarios are pursued, waste to landfill can be

reduced between 52% and 89%; the airspace of Wellington landfill can be significantly increased with a best case scenario

of 20 years; the most beneficial scenario can produce green electricity of 10.67 MWh on a 24/7/365

basis; a maximum carbon footprint saving of up to 288 tonnes of carbon per day and 105,120

tonnes per annum is possible; if fully implemented, the WTE project would create 203 long term jobs as well as

significant job opportunities during the construction of the plants and through its downstream impact on the local economy.

Project Complexity 4. The establishment of the WTE Park would be executed by a Special Purpose Vehicle (“SPV”)

through a Build, Own, Operate and Transfer (“BOOT”) type of PPP of 20 years. There would be: an all-encompassing Primary Agreement; and various secondary agreements consisting of:

o a CIDB type contract for the operation and maintenance of the landfill site and other municipal services and activities forming part of the WTE Project;

o a land lease agreement for the 6,5 hectare area on which the WTE Facility will be built at the Wellington Landfill site;

o a Power Purchase Agreement; o a BOOT type WTE-AD agreement o a BOOT type WTE-DC agreement; o a Connection and Use of System Agreement between the WTE SPV and Nersa; o a Supplementary Agreement between the DLM and Eskom.

5. To enable the WTE Project, substantial weight rests on legal compliance with especially

municipal, environmental and energy related legislation including a number of required statutory authorisations which include: a Waste Management License; the completion of a Scoping and Environment Impact Assessment process; an Atmospheric Emissions License possibly a Water Use License; and a license from Nersa to allow the Contractor to operate as an Independent Power

Producer.



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Project Value 6. It was found that maintaining the status quo would be very costly for the DLM and is

outweighed by all four the scenarios discussed above but these scenarios do not provide equal value for money.

7. The best value for money and thus preferred scenarios that came to the fore were:

I. Scenario 1 / Phase 1 = No Waste to Energy:

If no “outside” waste is to be imported, this is the best option for the Municipality albeit the landfill would be full by December 2020. If pursuing this option it would be advisable for the DLM to pay the Contractor a fixed fee plus a gate fee and this could also include the rehabilitation option. This option is mutually inclusive in respect of all the scenarios and would thus always be the first phase and kick-off of the project.

II. Scenario 4 / Phase 3 = Full Waste to Energy:

This would be the best option for the Municipality if “outside” waste is to be imported and could be pursued with caution to continuously assess the risk and ascertain bankability before increasing the capital investment in infrastructure. The DLM would be pursuing the ‘green energy’ option, embark on a huge carbon footprint saving and provide a regional waste solution. If pursuing this option it would be advisable for the DLM to pay the Contractor a fixed fee plus a gate fee and include the rehabilitation option.

Project Risk

8. Taking into account the factors that must be dealt with by the municipal and the contractor, there are a number of determining risks that would systematically need to be addressed if the project proceeds with the WTE option. A number of these risks would need to be dealt with through suspensive contract clauses.

Pre-operative: the SPV consortium structure and arrangements (Contractor) political interference, contractual delays (Municipality); not obtaining the statutory authorisations/permits (Contractor); availability of credit and other start up delays (Contractor).

Construction: financial overruns (Contractor); inflation, unexpected costs (Contractor); time delays (Contractor).

Operating: volume - not enough or unsustainable availability of sufficient feedstock for the DC Plant

(Contractor); payment (Municipality); revenue (Contractor); SHE issues (Contractor); operation and maintenance (Contractor).

Handover: residual, going concern (Contractor); various other can be foreseen and must be managed, firstly in primary contract.

Project Cycle: Default events, political changes, contractual risks.



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Project Feasibility

In a nutshell then it is believed that the WTE Project and specifically the two preferred scenarios are feasible and value-for-money.

Scenario 1 Phase 1 involves low to very moderate risk and could be implemented immediately.

Scenario 4 Phase 3 is in terms of VfM the preferred option but involves mostly moderate to high risk albeit which risk would be predominantly transferred to the Contractor. It should be chosen as an option if the required volumes of waste could definitely be acquired in a sustainable manner thus securing the bankability of the option. If so, both parties need to commit to the full implementation of the project but the implementation of each phase would of necessity and apart from obtaining the required statutory authorisations/licenses, only proceed if it is bankable, i.e. implying that the cost of risk should be affordable. Contracting would need to be on these terms.

I . RECOMMENDATIONS

It is recommended that:

1. This report be submitted to the relevant national and provincial departments inter alia National Treasury, Provincial Treasury and Environmental Affairs and be made available to the public and organised labour for comments as legally required.

2. The comments received be taken into account by the transaction advisors in a final report

and such report to be submitted to the DLM for the Portfolio Committee and Mayco to consider and the Council to take a final decision in terms of the recommendations.

Further recommendations to be considered once the above processes have been concluded and such support the WTE Project are that: 3. The Municipality and the Contractor enter into contract negotiations with the objective to

conclude a Primary Agreement in which all statutory processes would be suspensive clauses. 4. The Contractor be given a mandate to start with the statutory authorisation processes

subject to the conclusion of the Primary Agreement. 5. A CIDB based contract for the operation and maintenance of current municipal services

including the activities currently performed by external service providers in respect of the Paarl MRF and waste haulage, be negotiated at the same time as the Primary Agreement in order for these services and activities to be operated more effectively inter alia saving valuable landfill airspace.

6. The Primary Agreement with the secondary CIDB contract be concluded in accordance with

Section 33 of the MFMA and thus, similar to this report, inter alia go through a comments period during which NT, PT, COGTA, DEA, DEA&DP, DME, the public and whichever other affected parties be given the opportunity to comment on the agreements and such comments be taken into account before finalisation of the agreements.

7. The DLM negotiate and finalise each of the secondary agreements with the Contractor as

deemed necessary to comply with the statutory authorisations and the NERSA IPP license application process provided that implementation of each and all of the secondary contracts be subject to obtaining all statutory authorisations.

8. Each of the agreements includes a Contract Management Plan as legally required.



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TABLE OF CONTENTS Page no.

EXECUTIVE SUMMARY .................................................................................................................................. 2

A. TERMS OF REFERENCE .................................................................................................................. 2

B. NEEDS ANALYSIS ........................................................................................................................... 3

C. TECHNICAL OPTIONS ANALYSIS ..................................................................................................... 6

D. SERVICE DELIVERY MECHANISM AND PROVIDER ....................................................................... 10

E. FINANCIAL MODELLING .............................................................................................................. 11

F. VALUE ASSESSMENT.................................................................................................................... 12

G. PROJECT DUE DILIGENCE ............................................................................................................ 20

H. CONCLUSIONS ............................................................................................................................. 21

I. RECOMMENDATIONS .................................................................................................................. 23

TABLE OF CONTENTS ................................................................................................................................... 24

INTRODUCTION TO THE WTE PROJECT ....................................................................................................... 40

1. Introduction ................................................................................................................................ 40

2. Overview of the WTE Project Approach and Methodology ........................................................ 40

3. Outcome of the Section 78(1) Assessment ................................................................................. 42

4. Feasibility Study for the PPP WTE Project................................................................................... 44

5. Transaction Advisors ................................................................................................................... 44

SECTION 1: ANALYSIS OF NEEDS AND CONSIDERATIONS RELEVANT TO THE PROJECT ............................. 45

1. Introduction ................................................................................................................................ 45

2. Project Alignment ....................................................................................................................... 45

3. Study Focus ................................................................................................................................. 46

4. Relevant Factors in Drakenstein’s Profile ................................................................................... 46

5. Legal and Policy Environment ..................................................................................................... 48

5.1 Constitutional Mandate .............................................................................................................. 49

5.2 Municipal Legislation .................................................................................................................. 50

5.2.1 Local Government: Municipal Structures Act, 1998 .................................................................................. 50

5.2.2 Local Government: Municipal Systems Act, 32 of 2000 ............................................................................ 50

5.2.3 Local Government: Municipal Finance Management Act, 56 of 2003 & Regulations ............................... 51

5.2.3.1 Performance Management Mandate ........................................................................................................ 53

5.2.3.2 Contract Management & Monitoring Mandate ........................................................................................ 54

5.2.3.3 Risk Management Mandate....................................................................................................................... 54

5.3 Environmental and Waste Related Legislation, Policies and Plans ............................................ 54

5.3.1 White Paper on Integrated Pollution and Waste Management, 2000 ...................................................... 54

5.3.2 National Environmental Management: Waste Act, No. 59 of 2008 .......................................................... 55



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5.3.2.1 Environmental Authorisation and Waste Management Licensing Processes i.t.o. NEM:WA.................... 56

A. Environmental Management Plans (EMP) ................................................................................................. 60

B. Public Participation .................................................................................................................................... 61

5.3.2.2 National Waste Management Strategy to give effect to the NEM:WA ..................................................... 61

5.3.2.3 Municipal Waste Sector Plan, 2011 as a product of the NWMS................................................................ 62

5.3.3 National Environmental Management Act, 107 of 1998 (as amended in 2004) ....................................... 63

5.3.4 Draft Standards and Waste Classification and Management Regulations ................................................ 64

5.3.5 National Environmental Management Air Quality Act, 39 of 2004 ........................................................... 65

5.3.5.1 Atmospheric Emission License in terms of NEM:AQA ............................................................................... 66

5.3.6 National Policy on Thermal Treatment of General and Hazardous Waste, 2009 ...................................... 68

5.3.7 National Water Act, 36 of 1998 ................................................................................................................. 68

5.3.7.1 Water Use License and Waste Management i.t.o. the NWA ..................................................................... 68

5.3.8 Environment Conservation Act, 73 of 1989 ............................................................................................... 69

5.3.9 Hazardous Substances Act, 15 of 1973 ...................................................................................................... 69

5.3.10 Other relevant National Standards, Regulations, Notices ......................................................................... 69

5.3.11 Western Cape’s Draft Strategic Plan, 2010 ................................................................................................ 69

5.3.12 Western Cape Provincial Spatial Development Framework, 2005 ............................................................ 70

5.3.13 Western Cape Health Care Waste Management Act, 7 of 2007 & Regulations ........................................ 70

5.4 Energy Legislation, Policies, Plans and Programmes .................................................................. 70

5.4.1 White Paper on Renewable Energy Policy, 2003 ....................................................................................... 71

5.4.2 National Energy Regulator Act, 40 of 2004 ................................................................................................ 71

5.4.3 Electricity Regulation Act, 4 of 2006 .......................................................................................................... 71

5.4.4 National Energy Act, 34 of 2008 ................................................................................................................ 72

5.4.5 Western Cape Draft White Paper on Sustainable Energy, 2009 ................................................................ 72

5.4.6 Electricity Regulations on New Generation Capacity, 2011 ...................................................................... 72

5.4.7 Renewable Energy (RE): New Generation Capacity Generators ................................................................ 73

5.4.7.1 Feed-in Tariff Programme and the Integrated Resource Plan ................................................................... 73

5.4.7.2 The Concept, Conditions and Costing of ‘Wheeling’ ................................................................................. 75

5.4.7.3 Eskom Grid Connection and Use-of-the-System Agreement..................................................................... 76

5.4.7.4 Suite of Contracts ...................................................................................................................................... 77

5.4.7.5 NERSA License Process .............................................................................................................................. 78

5.4.8 Independent System and Market Operator Bill, 2012 ............................................................................... 78

5.4.9 Working for Energy .................................................................................................................................... 79

5.5 Climate Change Policy and Planning Perspectives ..................................................................... 79

5.5.1 National Climate Change Response White Paper, 2011 ............................................................................ 79

5.5.2 UNFCCC Conference of the Parties ............................................................................................................ 79

5.6 Clean Development Mechanism ................................................................................................. 80

5.6.1 Carbon Trading .......................................................................................................................................... 80



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5.6.2 CDM Process .............................................................................................................................................. 81

5.6.3 CDM Programme of Activities (PoA) .......................................................................................................... 83

5.6.4 Worldwide Profile of the CDM................................................................................................................... 84

5.6.5 Potential CDM Profile of the WTE Project ................................................................................................. 84

5.7 Carbon Tax .................................................................................................................................. 85

5.8 Health and Safety ....................................................................................................................... 86

5.8.1 National Health Act, 61 of 2003 ................................................................................................................. 86

5.8.2 Occupational Health and Safety Act, 85 of 1993 & Regulations ................................................................ 87

5.9 Human Resources ....................................................................................................................... 87

5.9.1 Focus on Job Creation ................................................................................................................................ 87

5.10 Other Relevant Legislation and Policies ..................................................................................... 88

5.10.1 Consumer Protection Act, 60 of 2008 ........................................................................................................ 88

5.11 Drakenstein By-laws and Policies ............................................................................................... 88

5.11.1 Energy & Electricity Supply ........................................................................................................................ 88

5.11.2 Environment & Waste ............................................................................................................................... 88

5.11.3 Land & Bulk Services .................................................................................................................................. 89

5.12 Alignment of the WTE Project .................................................................................................... 89

6. Waste Services and Activities ..................................................................................................... 89

6.1 Waste Performance Benchmark ................................................................................................. 90

6.2 Waste Volumes and Composition ............................................................................................... 90

6.3 Waste Collection ......................................................................................................................... 92

6.3.1 Waste Separated at Source (s@s) ............................................................................................................. 93

6.4 Waste Cleaning ........................................................................................................................... 93

6.4.1 Clean Green Project ................................................................................................................................... 94

6.5 Waste Treatment and Disposal ................................................................................................... 94

6.5.1 Infrastructure and Facilities ....................................................................................................................... 94

6.5.2 Paarl Transfer Station & Material Recovery Facility .................................................................................. 94

6.5.2.1 Bulk Services Infrastructure ....................................................................................................................... 96

6.5.3 Wellington Landfill Site .............................................................................................................................. 97

6.5.3.1 Bulk Services Infrastructure ....................................................................................................................... 97

6.5.3.2 Site Information ......................................................................................................................................... 99

6.5.3.3 External Audit Results .............................................................................................................................. 101

6.6 Waste Haulage .......................................................................................................................... 103

6.6.1 Transporting of Waste from Paarl Transfer Station to the Wellington Landfill Site ................................ 103

6.7 Waste Reduction ...................................................................................................................... 103

6.7.1 Recovery and Recycling ........................................................................................................................... 103

6.7.2 Composting .............................................................................................................................................. 105



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7. Waste Staff Capacity ................................................................................................................. 105

8. Financial Considerations ........................................................................................................... 107

8.1 Financial Performance .............................................................................................................. 107

8.1.1 Cash Flow ................................................................................................................................................. 107

8.1.2 Debts ........................................................................................................................................................ 107

8.1.3 Loans ........................................................................................................................................................ 108

8.1.4 Investments ............................................................................................................................................. 108

8.1.5 Assets and Liabilities ................................................................................................................................ 108

8.1.6 Financial Risk Management ..................................................................................................................... 109

8.1.7 Cost Recovery .......................................................................................................................................... 109

8.1.8 Performance Management ...................................................................................................................... 109

8.2 Budget Analysis ......................................................................................................................... 109

8.2.1 Revenue and Expenditure ........................................................................................................................ 109

8.2.2 Waste Services Budget Analysis............................................................................................................... 111

8.2.3 Waste Services Tariff Structure ............................................................................................................... 112

8.2.4 Additional Budget Requirements i.r.o. Waste Services ........................................................................... 112

8.3 Financial and Service Delivery Realities .................................................................................... 116

8.4 Preliminary Expected Financial Benefit – nb for new value assessment .................................. 116

8.4.1 Cost Avoidance ........................................................................................................................................ 118

9. Key Role Players ........................................................................................................................ 118

9.1 Project Team ............................................................................................................................. 119

9.2 Municipal Base .......................................................................................................................... 120

9.3 Transaction Steering Committee .............................................................................................. 120

10. Key Stakeholders & Consultation .............................................................................................. 120

10.1 Community ................................................................................................................................ 120

10.2 Organised Labour ...................................................................................................................... 121

10.3 National and Provincial Government ........................................................................................ 122

10.4 Relevant Contractors ................................................................................................................ 122

10.5 Post-Contractual Consultation .................................................................................................. 122

11. Output Specifications ................................................................................................................ 122

11.1 Service and Performance Outputs ............................................................................................ 123

11.2 Collection of Waste and Waste separated at Source ............................................................... 124

11.3 Waste Haulage .......................................................................................................................... 125

11.4 Waste Treatment and Disposal ................................................................................................ 126

11.4.1 Wellington Landfill ................................................................................................................................... 126

11.4.2 Paarl Transfer Station and MRF ............................................................................................................... 128

11.5 Waste To Energy Facility and Operations ................................................................................. 129



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12. Project Motivation .................................................................................................................... 129

SECTION 2: TECHNICAL OPTIONS ANALYSIS ............................................................................................. 132

1. Project Objectives ..................................................................................................................... 132

2. Project Related Assets .............................................................................................................. 132

3. Existing Municipal Services and Activities Options Analysis ..................................................... 132

3.1 Wellington Landfill Operation and Maintenance ..................................................................... 133

3.2 Paarl Transfer Station & MRF & Collection of Waste s@s ........................................................ 133

3.3 Waste Haulage .......................................................................................................................... 134

3.4 Cost Comparison ....................................................................................................................... 135

4. Preliminary Technical Options Analysis .................................................................................... 136

5. Scenario-Based Technical Options Analysis .............................................................................. 137

5.1 DLM Waste Volumes ................................................................................................................. 137

5.2 Regional Waste Situation .......................................................................................................... 137

5.3 Broader Perspective .................................................................................................................. 138

5.4 Modelling Scenarios .................................................................................................................. 139

5.5 Phased Scenario-Based Waste Volumes and Composition ...................................................... 139

5.5.1 Waste Quality Assumptions (Energy Parameters) .................................................................... 142

5.5.1.1 Organic Content ........................................................................................................................ 142

5.5.1.2 Calorific Values .......................................................................................................................... 143

5.5.2 Long Term Waste Resources ..................................................................................................... 143

6. WTE Technologies & Processes ................................................................................................ 144

6.1 Evaluation Criteria ..................................................................................................................... 144

6.2 Waste Separation & Material Recovery .................................................................................... 144

6.2.1 Clean / Dirty MRFs ................................................................................................................................... 144

6.2.2 Wellington MRF ....................................................................................................................................... 146

6.2.3 Equipment Selection ................................................................................................................................ 147

6.3 Anaerobic Digestion .................................................................................................................. 151

6.3.1 Anaerobic Digestion Stages ...................................................................................................... 151

6.3.2 Anaerobic Digestion Components ............................................................................................ 151

6.3.3 Equipment Selection ................................................................................................................. 152

6.3.4 Supplier Evaluation ................................................................................................................... 154

6.3.5 AD Digestate ............................................................................................................................. 154

6.4 Thermal Conversion ................................................................................................................................. 155

6.4.1 Gasification .............................................................................................................................................. 156

6.4.2 Direct Combustion ................................................................................................................................... 156

6.4.2.1 Equipment Selection ................................................................................................................. 157

6.4.2.2 Process Description ................................................................................................................... 161



29

6.4.2.3 Supplier Evaluation ................................................................................................................... 162

6.4.3 Technology Evaluation ............................................................................................................................. 163

6.4.3.1 Comparison of Incineration Technologies ............................................................................................... 163

6.4.3.2 Emission Standards .................................................................................................................................. 164

6.5 Preferred Technologies ............................................................................................................. 165

6.5.1 MRF & VMpress ....................................................................................................................................... 165

6.5.2 Anaerobic Digestion ................................................................................................................................. 165


6.6 Material Flow Balance ............................................................................................................... 165

6.6.1 Overall Material Balance ......................................................................................................................... 166

6.6.2 MRF and VMpress .................................................................................................................................... 167

6.6.3 Anaerobic Digestion ................................................................................................................................. 168


6.7 Stimulated Plant Flows.............................................................................................................. 169

6.8 Plant Water Usage .................................................................................................................... 169

6.9 Composting ............................................................................................................................... 170

6.10 Construction and Demolition Waste......................................................................................... 171

6.11 Waste to Energy Park ................................................................................................................ 172

6.11.1 Access Roads and Access Control ............................................................................................. 172

6.11.2 Weighbridges and Weigh Room ............................................................................................... 173

6.11.3 MRF ........................................................................................................................................... 173

6.11.4 AD & DC Plants .......................................................................................................................... 173

6.11.5 Compost Yard ............................................................................................................................ 173

6.11.6 C & D Crusher Yard .................................................................................................................... 174

6.11.7 Utilities ...................................................................................................................................... 174

6.12 Development, Job Creation and Employment .......................................................................... 175

6.13 Health, Safety and the Environment ......................................................................................... 176

7. Market Studies .......................................................................................................................... 177

7.1 Prices for Recyclables ................................................................................................................ 177

7.2 Composition of Recyclables ...................................................................................................... 178

7.3 Recyclables from Wet Waste .................................................................................................... 179

7.4 Impact on Recyclable Market ................................................................................................... 180

8. WTE Feasible Scenarios ............................................................................................................. 181

9. Capital and Operational Costs................................................................................................... 185

9.1 Capital Costs .............................................................................................................................. 185

9.2 Basis of Estimate ....................................................................................................................... 188

9.3 Operating Costs ......................................................................................................................... 189



30

9.4 Operating Costs Assumptions ................................................................................................... 190

9.5 Electrical Power......................................................................................................................... 191

10. Concluding Remarks .................................................................................................................. 192

SECTION 3: SERVICE DELIVERY MECHANISM & PROVIDER ....................................................................... 193

1. Introduction .............................................................................................................................. 193

2. Service Delivery Mechanism ..................................................................................................... 193

2.1 Legislative Reference ................................................................................................................ 193

2.2 Structure of the PPP ................................................................................................................. 194

3. Service Provider ........................................................................................................................ 195

3.1 Principal Service Provider ......................................................................................................... 195

3.2 Technology Partner .................................................................................................................. 196

4. WTE Contractual & Statutory Arrangements ............................................................................ 198

4.1 Primary Agreement .................................................................................................................. 198

4.2 Phase 1 Contract ....................................................................................................................... 200

4.3 Phase 2 and 3 Contracts and Statutory Processes ................................................................... 200

4.4 Interwaste SPV Contracts & Authorisations ............................................................................. 200

4.5 Qualifying Criteria and Objectives ............................................................................................ 201

SECTION 4: VALUE ASSESSMENT .............................................................................................................. 203

1. Introduction .............................................................................................................................. 203

2. Type of Assessment .................................................................................................................. 203

3. External Reference Model ........................................................................................................ 204

3.1 External Option & Variables ...................................................................................................... 204

3.2 Project Funding ......................................................................................................................... 204

3.3 Cash Flow .................................................................................................................................. 205

3.4 Discount Rate ............................................................................................................................ 206

3.5 Fiscal Terms / Taxation ............................................................................................................. 207

3.6 Inflation ..................................................................................................................................... 208

3.7 Deterministic Result .................................................................................................................. 208

3.8 Financial Model ......................................................................................................................... 208

3.9 Sensitivity of Changes to Input Parameters Analysis ................................................................ 211

3.10 Discussion of Financial Results .................................................................................................. 213

3.11 Risk Analysis .............................................................................................................................. 214

4. Drakenstein Value Assessment ................................................................................................. 219

4.1 Project Finances ........................................................................................................................ 219

4.2 Fiscal Obligations ...................................................................................................................... 219



31

4.3 Payment Mechanism ................................................................................................................ 220

4.4 Revenue and Cost Savings ........................................................................................................ 221

4.5 Value for Money Drivers ........................................................................................................... 221

4.6 Qualitative Considerations ........................................................................................................ 224

4.7 Environmental Considerations .................................................................................................. 224

4.8 Infrastructure Considerations ................................................................................................... 225

4.9 DLM Risk Analysis ...................................................................................................................... 225

4.10 Affordability .............................................................................................................................. 232

4.10.1 Affordability in Perspective ....................................................................................................... 232

5. Value-for-Money Modelling ...................................................................................................... 233

6. BEE Value-for-Money ................................................................................................................ 244

7. Verification of the Model .......................................................................................................... 244

SECTION 5: PROJECT DUE DILIGENCE ....................................................................................................... 245

1. Legal Considerations ................................................................................................................. 245

Site Enablement Issues ............................................................................................................. 248 3.

BEE and Other Socio-Economic Issues ...................................................................................... 248 4.

SECTION 6: VERIFICATION AND SIGN-OFF ................................................................................................ 249

1. Data Reliability .......................................................................................................................... 249

2. Enhancing Value-for-Money ..................................................................................................... 249

3. Assumptions .............................................................................................................................. 249

4. Cost Methodology ..................................................................................................................... 249

5. Document Audit ........................................................................................................................ 249

6. Legal Compliance Checklist ....................................................................................................... 249

7. Sign-off ...................................................................................................................................... 250

SECTION 7: IMPLEMENTATION PLAN........................................................................................................ 251

1. Introduction .............................................................................................................................. 251

2. WTE Project Roadmap .............................................................................................................. 251

3. Key Phases, Milestones and Objectives .................................................................................... 251

4. Idealistic Timeframe .................................................................................................................. 253

5. Project Funds ............................................................................................................................ 253

6. Potential Challenges ................................................................................................................. 253

7. Contracting Compliance ............................................................................................................ 253

8. Stakeholders ............................................................................................................................. 253

9. Project Team / Transaction Steering Committee (TSC) ............................................................ 253

10. Project & Contract Management Process ................................................................................. 253

11. Document Quality Insurance .................................................................................................... 254



32

12. Audit Trail .................................................................................................................................. 254

13. Security and Confidentiality ...................................................................................................... 254

SECTION 8: CONCLUSIONS & RECOMMENDATIONS ................................................................................ 255

1. Conclusions ............................................................................................................................... 255

2. Recommendations .................................................................................................................... 257



33

L I ST OF TABLE S

Table 1.1 NEM:WA – Waste Management License Activities Table 1.2 NEMA Environmental Assessment Activities Table 1.3 NEM:AQA Emission Standards Table 1.4 REFIT/REBID Tariff Adjustments Table 1.5 Applicable Scope 1 Emissions Table 1.6 Waste Types and Quantities received on average at the Wellington Landfill Site Table 1.7 Waste Types and Quantities received on average at the Paarl Transfer Station Table 1.8 Recycling & Airspace Figures related to Paarl Material Recovery Facility Table 1.9 Solid Waste Staff employed at the Wellington Landfill and the Paarl Transfer Station Table 1.10 Liquidity Ratio of DLM Table 1.11 Gross Outstanding Debtors per Service Table 1.12 Debtors Age Analysis Table 1.13 Drakenstein Revenue/Expenditure Comparison Table 1.14 Sources of Revenue Table 1.15 Sources of Funding for Capital Expenditure Table 1.16 Repairs and Maintenance Spending Table 1.17 Revenue/Expenditure Comparison for Waste Table 1.18 Waste Management: Operating Expenditure Table 1.19 Summary of Estimated Landfill Rehabilitation Costs Table 1.20 Waste Management: Three Year Capital Budget Table 1.21 Waste Management: 20 Year Projected Capital Budget Table 1.22 Solid Waste Tariffs 2011-2012 Table 1.23 Assumptions i.r.o. Cost Table 1.24 Total Estimated Cost to Municipality over 20 years and its Net Present Value

Table 1.25 Avoided Costs Table 1.26 Key Role-players in Section 78 Process Table 1.27 List of Key Indicators and Unit Costs to be used to rate Waste Collection Performance Table 1.28 Plant needed for Wellington Landfill

Table 2.1

Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 2.8 Table 2.9 Table 2.10 Table 2.11 Table 2.12 Table 2.13 Table 2.14 Table 2.15 Table 2.16 Table 2.17 Table 2.18 Table 2.19 Table 2.20 Table 2.21 Table 2.22 Table 2.23 Table 2.24 Table 2.25 Table 2.26 Table 2.27 Table 2.28 Table 2.29 Table 2.30 Table 2.31 Table 2.32 Table 2.33 Table 2.34 Table 2.35 Table 2.36

Cost Comparison- Landfill and Transfer Station Average versus Actual Waste Volumes Modelling Scenarios Accumulated Waste Volumes as per Scenarios Municipal Solid Waste Organic Breakdown Direct Combustion Fuel Composition (% W/W) of Municipal Solid Waste Advantages of MRFs Disadvantages of Material Recovery Facilities Expected Material Throughput at the Wellington Material Recovery Facility Expected Recovery Output at Wellington Material Recovery Facility AD Criteria and EPC Evaluation Thermal Conversion Processes Qualitative Comparison between the Different Types of Gasifiers Engineering, Procurement and Construction Evaluation and Criteria for DC Electrical and CHP Efficiencies of Different Conversion Technologies Strengths and Weaknesses of Gasification and Direct Combustion Incineration Technologies Emission Standards for Flue Gas Diversion as per Interwaste available MSW Waste Diversion (mass%) if market exists for Recyclables and Digestate Waste Diversion (mass%) if Recyclables and Digestate have to be Landfilled MSW Organic Breakdown Water Availability and Usage Job creation schedule Prices for Some Recyclables over time from Various Recovery Facilities in the Western Cape Dry Recyclables – Probable Masses and Income from Recyclables Separated at Source Possible Recyclables from Wet Waste – Masses and Income Recycling Market Volumes

WTE Phased Approach Waste Volume Scenarios vs. Volume Reduction to Landfill Waste Volume Scenarios vs. Volume Reduction to Landfill – reduced builders’ rubble Phase 1 - CAPEX Summary All Phases/Scenarios - CAPEX Requirements AD Scenario 1 CAPEX AD Scenario 2 CAPEX AD Scenario 3&4 CAPEX



34

Table 2.37 Table 2.38 Table 2.39 Table 2.40 Table 2.41 Table 2.42 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 4.8 Table 4.9 Table 4.10 Table 4.11 Table 4.12 Table 7.1

DC Scenario 4 CAPEX Summary of CAPEX Requirements Scenario 4 – Operational Costs AD Model – Operational costs DC Model – Operational costs Electrical Power Output Projected electricity prices Projected gate fees Gate Fee Determination Gate Fee Determination – Reduced Builders’ Rubble Tonnage DC sensitivity analysis Consolidated Phase 1 Return on Assets (ROA) Internal Rate of Return (IRR) Typical risk allocations in MSW Infrastructure Interwaste/Farmsecure Risk Analysis DLM Risk Comparison Revenue/Expenditure Comparison for Waste NPV of the Various Options Key Milestones & Objectives of the Project

L I ST OF F IGU RES

Figure 1.1 Map of Drakenstein Figure 1.2 Socio-economic Distribution of the Population Figure 1.3 Projected Population Growth Figure 1.4 Waste Hierarchy Figure 1.5 Scoping and EIA Process Figure 1.6 Integration of EMS and EMP Figure 1.7 Interrelationship between EIA and AEL Processes Figure 1.8 Grid Connection Process (1) Figure 1.9 Grid Connection Process (2) Figure 1.10 CDM Project Cycle Figure 1.11 NDA CDM Project Approval Cycle Figure 1.12 CDM Baseline Concept Figure 1.13 Breakdown of MSW Constituents Figure 1.14 Projected Waste Generation up to the year 2033 Figure 1.15 Bulk Services Layout at the Paarl Transfer Station Figure 1.16 Layout at the Wellington Landfill Site Figure 1.17 Bulk Services Layout at the Wellington Landfill Site Figure 1.18 Audit Overview of Wellington Landfill, 2010 Figure 1.19 Audit Overview of Wellington Landfill Airspace, 2012 Figure 1.20 Composition of Recyclables at Paarl MRF Figure 1.21 Comparison of Sources of Funding for Capital Expenditure Figure 1.22 Provisional Costs and Impact of the WTE Project Figure 1.23 Wellington Landfill – Airspace Consumption without Reduction Figure 2.1 Aerial view depicting Proposed Regional Landfill Site at Wellington and WTE Site Figure 2.2 Projected Waste Generation up to the year 2033 Figure 2.3 Organic Sludge resulting from MSW sorting and press Figure 2.4 Process Flow of the MRF Figure 2.5 Press and MRF Project Activity Figure 2.6 Anaerobic Chemical Stages Figure 2.7 AD Components Figure 2.8 AD Project Activities Figure 2.9 AD Flow Diagram Figure 2.10 Process Flow Diagram of a Biomass Powered Steam Rankine Cycle Figure 2.11 Combustion Process Figure 2.12 Grate Figure 2.13 Boiler Plant Figure 2.14 Furnace/Boiler Features Figure 2.15 Ash Recycling Figure 2.16 Overall Material Balance Figure 2.17 Effect of Moisture Content on LHV of Biomass Figure 2.18 AD and DC Plants



35

Figure 2.19 Reduction of Waste Volume to Landfill and respective increase of Landfill Lifespan for various Scenarios Figure 2.20 Reduction of Tonnes to Landfill as per the Scenario results Figure 3.1 Primary SPV Figure 3.2 Interwaste Holdings and its Subsidiaries Figure 3.3 Farmsecure and its Subsidiaries Figure 3.4 Farmsecure Value Chain Figure 3.5 Contractual and Statutory Arrangements Figure 4.1 Electricity price projection at 8% increase per annum Figure 4.2 AD gate fee sensitivity analysis Figure 4.3 DC sensitivity analysis Figure 4.4 Key VfM Drivers Figure 4.5: Comparative Accumulative Cost to the DLM for the WTE Scenarios as per the Gate Fee Only Figure 4.6: Comparative Accumulative NPV to the DLM for WTE – Gate Fee Only Figure 4.7: Comparative Accumulative NPV to the DLM for WTE – Fixed Fee plus Gate Fee Figure 4.8: Comparative Accumulative NPV to the DLM for WTE – Gate Fee plus Rehabilitation Fee Figure 4.9: Comparative Accumulative NPV to the DLM for WTE – Fixed Fee plus Gate Fee plus Rehabilitation Fee Figure 4.10: Comparative Accumulative NPV to the DLM for WTE – Only Drakenstein Waste with Fixed Fee Figure 4.11: Comparative Accumulative NPV to the DLM for WTE – Options for Scenario 1 Phase 1 (NO WTE) Figure 4.12: Comparative Accumulative NPV to the DLM for WTE Options for Scenario 2 Phase 2 (including Stellenbosch

Waste and AD) Figure 4.13: Comparative Accumulative NPV to the DLM for WTE Options for Scenario 4 Phase 3 (All waste with AD and

DC) Figure 7.1 Roadmap of the Project

L I ST OF ANNEXU RE S

Annexure 1 Council Resolution to approve the WTE Project and mandate commencement of statutory processes Annexure 2 Signed Memorandum of Agreement with Interwaste Annexure 3 Letter to National Treasury dated 10/07/2011 for registration of the WTE project Annexure 4 Letter from National Treasury in acceptance of registration Annexure 5 Minutes of Community Meetings Annexure 6 Organised Labour Meeting Minutes Annexure 7 Scope of Works of Landfill and Transfer Station Annexure 8 Mass and Energy Balance of the Material Recovery Facility and VMPress Annexure 9 Mass and Energy Balance of Anaerobic Digestion Scenarios Annexure 10 Mass and Energy Balance of Direct Combustion Annexure 11 Process Flow Diagram of Anaerobic Digestion Annexure 12 Process Flow Diagram of Direct Combustion Annexure 13 JPCE Confirmation of Information Accuracy & Verifiability



36

LIST OF ACRONYMS AD - ANAEROBIC DIGESTION ADT - ANAEROBIC DIGESTION TECHNOLOGY AR - ANNUAL REPORT BOO - BUILD, OWN AND OPERATE BOOT - BUILD, OWN, OPERATE AND TRANSFER BRR - BASIC REFUSE REMOVAL BSL - BULK SERVICES LEVIES CA - COLLECTION AGREEMENT CAPEX - CAPITAL EXPENDITURE CBO – COMMUNITY-BASED ORGANISATION CCCR - CARBONN CITIES CLIMATE REGISTER C&D - CONSTRUCTION AND DEMOLISHION CDI - CITY DEVELOPMENT INDEX CDM - CLEAN DEVELOPMENT MECHANISM CDM-DOE - CLEAN DEVELOPMENT MECHANISM - DESIGNATED OPERATIONAL ENTITY CDM-EB - CLEAN DEVELOPMENT MECHANISM - EXECUTIVE BOARD CEC - CERTIFIED EMISSIONS CREDITS CER - CERTIFIED EMISSIONS REDUCTION CHP - COMBINED HEAT AND POWER CIDB - CONSTRUCTION INDUSTRY DEVELOPMENT BOARD CO - CARBON MONOXIDE CO2 - CARBON DIOXIDE COGTA - COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS COP/MOP - CONFERENCE OF THE PARTIES / MEETING OF THE PARTIES CPI - CONSUMER PRICE INDEX DCCAC - DURBAN CLIMATE CHANGE ADAPTATION CHARTER DEA & DP - DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND DEVELOPMENT PLANNING DEA - DEPARTMENT OF ENVIRONMENTAL AFFAIRS DLM - DRAKENSTEIN LOCAL MUNICIPALITY DNA - DESIGNATED NATIONAL AUTHORITY DoE - DEPARTMENT OF ENERGY DWA – DEPARTMENT OF WATER AFFAIRS ECA - ENVIRONMENT CONSERVATION ACT EEA - EMPLOYMENT EQUITY ACT EFS - EXTERNAL FEASIBILITY STUDY EIA - ENVIRONMENTAL IMPACT ASSESSMENT EPC - ENGINEERING, PROCUREMENT AND CONSTRUCTION EPWP - EXPANDED PUBLIC WORKS PROGRAMME ER - EMISSION REDUCTIONS ERA - ELECTRICITY REGULATION ACT ERNGC - ENERGY REGULATIONS ON NEW GENERATION CAPACITY ERU - EMISSION REDUCTION UNITS FFC - FINANCIAL AND FISCAL COMMISSION GAMAP - GENERALLY ACCEPTED MUNICIPAL ACCOUNTING PRACTICES GDP - GROSS DOMESTIC PRODUCT GHG - GREEN HOUSE GASES GRAP - GENERALLY RECOGNISED ACCOUNTING PRACTICES GW - GIGA WATT GWh - GIGA WATT HOUR (1000MWh) HHV - HIGHER HEATING VALUE HRSG - HEAT RECOVERY STEAM GENERATION IA - IMPLEMENTING AGENT IDC - INDUSTRIAL DEVELOPMENT CORPORATION IDP – INTEGRATED DEVELOPMENT PLAN IMATU - INDEPENDENT MUNICIPAL AND ALLIED TRADE UNION IPP - INDEPENDENT POWER PRODUCER IRP - INTEGRATED RESOURCE PLAN IRR - INTERNAL RATE OF RETURN IWMP - INTEGRATED WASTE MANAGEMENT PLAN JPCE - JAN PALM CONSULTING ENGINEERS LFG - LANDFILL GAS LGBER - LOCAL GOVERNMENT BUDGET AND EXPENDITURE REVIEW LGSETA – LOCAL GOVERNMENT SECTOR EDUCATION AND TRAINING AUTHORITY LGTAS - LOCAL GOVERNMENT TURNAROUND STRATEGY LHV - LOWER HEATING VALUE LRA - LABOUR RELATIONS ACT



37

LUPO - LAND USE PLANNING ORDINANCE (WESTERN CAPE) MAT - MUNICIPAL ASSET TRANSFER REGULATIONS MCP - MUNICIPAL CLEANSING PROJECT MEB - MASS AND ENERGY BALANCE MFMA – MUNICIPAL FINANCE MANAGEMENT ACT MIG - MUNICIPAL INFRASTRUCTURE GRANT MOA - MEMORANDUM OF AGREEMENT MRF - MATERIAL RECOVERY FACILITY MSA - MUNICIPAL SYSTEMS ACT MSW - MUNICIPAL SOLID WASTE MTAS - MUNICIPAL TURNAROUND STRATEGY MW - MEGA WATT MWSP - MUNICIPAL WASTE SECTOR PLAN NCCRWP - NATIONAL CLIMATE CHANGE RESPONSE WHITE PAPER NCV - NET CALORIFIC VALUE NEA - NATIONAL ENERGY ACT NEDLAC - NATIONAL ECONOMIC DEVELOPMENT AND LABOUR COUNCIL NEM:AQA - NATIONAL ENVIRONMENTAL MANAGEMENT: AIR QUALITY ACT NEM:WA - NATIONAL ENVIRONMENTAL MANAGEMENT: WASTE ACT NEMA - NATIONAL ENVIRONMENTAL MANAGEMENT ACT NEMWA - NATIONAL ENVIRONMENTAL MANAGEMENT WASTE ACT NERSA - NATIONAL ENERGY REGULATOR OF SOUTH AFRICA NGO – NON-GOVERNMENTAL ORGANISATION NOx - NITROGEN OXIDES NT - NATIONAL TREASURY NWA – NATIONAL WATER ACT NWMS - NATIONAL WASTE MANAGEMENT STRATEGY OHSA - OCCUPATIONAL HEALTH AND SAFETY ACT OPEX - OPERATIONAL EXPENDITURE PA - PRIMARY AGREEMENT PDD - PROJECT DEVELOPMENT DOCUMENT PDF - PROJECT DEVELOPMENT FUNDING PFMA – PUBLIC FINANCE MANAGEMENT ACT PGWC - PROVINCIAL GOVERNMENT OF THE WESTERN CAPE PIN - PROJECT IDENTIFICATION NOTE PP - PROJECT PARTICIPANT PPA - POWER PURCHASE AGREEMENT PPP – PUBLIC-PUBLIC / PUBLIC-PRIVATE PARTNERSHIP PSDF - PROVINCIAL SPATIAL DEVELOPMENT FRAMEWORK PSC - PROJECT/PROCESS STEERING COMMITTEE PT - PROVINCIAL TREASURY PUPP - PUBLIC-PUBLIC PARTNERSHIP PV - PHOTOVOLTAIC PLANT RE - RENEWABLE ENERGY REFIT - RENEWABLE ENERGY FEED-IN TARIFF RDF - REFUSE DERIVED FUEL RFP - REQUEST FOR PROPOSALS RIS - ROAD IMPACT STUDY ROD - RECORD OF DECISION ROI - RETURN ON INVESTMENT SAIPPA - SOUTH AFRICAN INDEPENDENT POWER PRODUCERS ASSOCIATION SALGA – SOUTH AFRICAN LOCAL GOVERNMENT ASSOCIATION SAMWU - SOUTH AFRICAN MUNICIPAL WORKERS UNION SANERI - SOUTH AFRICAN NATIONAL ENERGY RESEARCH INSTITUTE SANS – SOUTH AFRICAN NATIONAL STANDARDS SCM - SUPPLY CHAIN MANAGEMENT SDA – SERVICE DELIVERY AGREEMENT SDA - SKILLS DEVELOPMENT ACT SJRP - SECTOR JOBS RESILIENCE PLANS SLFC - STRUCTURED LANDFILL CELLS SPV - SPECIAL PURPOSE VEHICLE TOA - TECHNICAL OPTIONS ANALYSIS tpd - TON PER DAY TSC - TRANSACTION STEERING COMMITTEE TVR - TREASURY VIEWS AND RECOMMENDATIONS TWh - TERAWATT HOUR (1000GWh) UNFCCC - UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE VfM - VALUE FOR MONEY WACC - WEIGHTED AVERAGE COST OF CAPITAL



38

WCSP - WESTERN CAPE (DRAFT) STRATEGIC PLAN WDM - WINELANDS DISTRICT MUNICIPALITY WEP - WORKING FOR ENERGY PROGRAMME WIS - WASTE INFORMATION SYSTEM WML - WASTE MANAGEMENT LICENSE WPIP&WM WHITE PAPER ON INTEGRATED POLLUTION AND WASTE MANAGEMENT WPREP - WHITE PAPER ON RENEWABLE ENERGY POLICY WTE - WASTE TO ENERGY WUL - WATER USE LICENSE WWTW - WASTEWATER TREATMENT WORKS



39

TERMS AND DEFINITIONS

BIOGAS Biogas is defined as the gas that is produced by the decomposition of organic material in the absence of oxygen BIOMASS Energy from plants and plant-derived materials GIGAWATT HOUR (GWh) An energy unit in which electricity consumption is measured 1 GWh = 3,600 GJ (Gigajoule) (a Joule is a unit of energy) GREENHOUSE GAS Gases primarily carbon dioxide, methane, and nitrous oxide in the earth's lower atmosphere that trap heat, thus causing an increase in the earth's temperature and leading towards the phenomenon of climate change. INDEPENDENT POWER PRODUCER (IPP) IPPs are defined as typically limited-liability, investor owned enterprises that generate electricity either for bulk sale to an electric utility or for retail sale to industrial or other customers with certain conditions LANDFILL GAS Landfill gas is defined as gas that is generated by decomposition of organic material within a landfill disposal site POWER PURCHASE AGREEMENT OR “PPA” Means an agreement concluded between a generator and the buyer for the sale and purchase of new generation capacity; REFIT Renewable Energy Feed-In Tariff: means a tariff approved by the Regulator for a renewable energy generator; RENEWABLE ENERGY Renewable energy harnesses naturally occurring non-depletable sources of energy, such as solar, wind, biomass, hydro, tidal, wave, ocean current and geothermal, to produce electricity, gaseous and liquid fuels, heat or a combination of these energy types. WATT 1 Joule per second of energy consumption or dissipation (1 MW = 1,000,000 W).



40

INTRODUCTION TO THE WTE PROJECT

1. INTRODUC TION

Drakenstein Local Municipality (the “DLM”) is constitutionally responsible for refuse removal, refuse dumps and solid waste disposal. This functional area of legislative competence includes a number of municipal services and could also include municipal support activities

1 that focus on ensuring national,

provincial and municipal waste strategies are implemented. The Waste-to-Energy Project (the “WTE Project”) includes those municipal waste treatment and disposal services and related support activities that require in-depth technical expertise and substantial financial investment. The achievement to establish the first solid Waste-to-Energy Facility (the “WTE Facility”) in South Africa will put Drakenstein at the forefront of waste management and sustainable energy solutions in local government. The Drakenstein WTE Project developed over a number of years following a practical and financially feasible route. A summary of the project approach and methodology to date is provided below. Part 1 of the report as completed during Phase 1 of this study and approved by the Drakenstein Municipality in August 2012, provides a more detailed discussion

2.

2. OVERV IEW OF THE WTE PROJEC T APPROACH AND ME TH OD OLOGY

In 2009, while in the process of doing the research, data collation and project planning for its Integrated Waste Management Plan (the “IWMP

(2009)”, the figures as collated made the DLM to realised that the

reduction of mixed collected waste by means of recovery and composting will not meet the National Waste Management Strategy (the “NWMS”) objectives of:

the avoidance of waste generation; the reduction of waste volumes; and the safe disposal of waste

More innovative and alternative waste solutions were needed and, in particular, the DLM needed such waste solutions to drastically reduce waste to landfill in order to slow down the fast decreasing lifespan of the Wellington Landfill Site (the “Wellington LS”). One such solution was the establishment of a WTE Facility to divert waste from landfill. There is no benchmark in SA for WTE projects and in the absence of reliable technical data of waste streams as was the case in Drakenstein which had no operational weighbridges in place at the time, it became even more difficult for the DLM to establish whether a WTE project would be a feasible alternative. To establish such feasibility and the private sector market appetite for a WTE Facility, the DLM put out a Request for Proposals (“RFP”) to procure the best WTE expertise available and tasked these professionals to use own operating capital to conduct the technical, financial and operational feasibility studies required to substantiate their proposals.

1 “Municipal service” means a service that a municipality provides or may provide ito. its powers and functions to the benefit of

the local community irrespective of whether such services are provided through an internal or external mechanism and fees, charges or tariffs are levied iro. such a service or not. A “municipal support activity” means an activity that is reasonably necessary for or incidental to the effective performance of a municipal function and exercise of its powers that does not constitute a municipal service. Pertaining to solid waste, street cleansing, refuse removal and disposal (landfill) of waste are municipal services while recycling, waste minimisation, composting, waste processing and methane gas recovery are all regarded as municipal support activities. The legal processes for a feasibility study are prescribed in different legislation but overlap and converge as the process moves towards the establishment of a PPP.

2 Also known as the Section 78(1) Assessment



41

The RFP stated three project objectives, i.e.: the generation of renewable energy from municipal solid waste; the reduction of municipal solid waste to landfill; and the development of a Clean Development Mechanism (“CDM”) project in order to sell the

Certified Emissions Reduction (the “CER”) achieved by the generation of electricity from non-fossil fuel.

The RFP and its adjudication process lasted from December 2008 until August 2010 when the short listed bidders did presentations to the Council. As part of the process the short listed bidders had to conduct extensive feasibility studies in accordance with minimum set criteria and at their own cost. The studies had to consider inclusion of the operation of the “Wellington LS” and/or the Paarl Transfer Station (the “Paarl TS”) and/or the Paarl Material Recovery Facility (the “Paarl MRF”) in view of these services being interlinked with a WTE operation. Refuse removal and cleansing services were not included. Since the Municipality could not expect the private sector to invest substantial risk capital without any counter performance, it committed to a real project should the WTE be a feasible alternative to meet its waste obligations in an affordable and value-for-money manner. Based on consensus one of the bid proposals that included the operation of the Wellington Landfill, the Paarl TS and the Paarl MRF, was considered markedly better than the rest; remained so given the results of an in-depth risk analysis of all the bids and the company, Interwaste, was thus accepted in principle by the Municipality pending the successful completion of the legally prescribed processes.

Knowing that a WTE project was, from a private sector perspective, feasible in Drakenstein and that the Municipality had provisionally procured the current best expertise available, a Council Resolution dated 23 June 2011

3 resolved that:

the Municipal Manager may sign a Memorandum of Agreement (the “MOA”) with the preferred bidder for the establishment of a WTE Facility;

a final agreement with the preferred bidder be drafted after the Municipality successfully concluded its required statutory investigations; and

such agreement be subjected to a section 33 process in terms of the Local Government: Municipal Finance Management Act, 56 of 2003 (the “MFMA”),

before the final approval thereof by the Council.

In terms of the MOA dated 30 May 20124, the bidder’s obligations included:

Applying for a waste license and all other statutory approvals required for the process including an environmental authorisation for the WTE Facility based on an Environmental Impact Assessment (the “EIA”).

Securing the necessary funding for the establishment of the WTE Facility and the operation and maintenance thereof.

Establishing the WTE Facility and related Infrastructure and, after commissioning thereof, managing, operating and maintaining same in compliance with the license conditions.

Registering the Project as a CDM Project in accordance with applicable legislation and in adherence of such national guidelines as may exist at the time.

In the process of fulfilling its duties as contemplated above, providing Drakenstein with such assurances, from time to time, as may be reasonably required as to proof of progress with these processes.

Managing, operating and maintaining the existing municipal facilities that have been included in the project, i.e. the licensed Wellington LS, the Paarl TS and the Paarl MRF all in accordance with the licence conditions applicable to each for the duration as stipulated in the final contract.

3 Refer to Annexure 1 4 Refer to Annexure 2



42

Creating and maintaining the number of employment positions as set out in the Interwaste Feasibility Report and as verified by Drakenstein's own statutory and consultation processes with preference given to local employment.

Taking over the employment of the municipal staff employed at the relevant workplaces as part of a 'going concern' and in accordance with the principles of the applicable labour legislation

5 and in adherence to other reasonable conditions as may be agreed between the

Drakenstein Municipality and the affected employees. The MOA reiterated that the WTE project was subject to the Municipality completing legislatively prescribed processes. These were:

Phase 1: a Section 78(1) assessment to assess the Municipality’s internal capacity to establish a WTE Facility and its operation and maintenance of WTE supportive infrastructure, i.e. the Paarl MRF, the Paarl TS and the Wellington LS and the potential benefits of the project before moving on to a full feasibility study

6;

Phase 2: a MSA Section 78(3) Feasibility Study including the requirements of the MFMA Section 120(4) to finally determine the feasibility of a WTE Facility and the benefits of outsourcing the establishment of a WTE Facility as well as operation and maintenance of WTE supportive infrastructure, i.e. the Paarl MRF, Paarl TS and the Wellington LS from a municipal perspective and using updated figures (THIS REPORT); and

Phase 3: if a feasible project is proven, a contracting phase in compliance with the MSA, the MFMA and the Municipal Public-Private Partnership Regulations, 2005 (the “PPP Regulations”).

As a result of the RFP process preceding the Feasibility Study, the Municipality, as legally prescribed, will not be able to obtain Treasury’s Views and Recommendations (“TVRs”) at the required intervals. Thus prior to signing the MOA with the preferred bidder, the Municipality clarified its obligations with National Treasury (“NT”) to enable registration of the project and committed to obtain the remaining TVRs as required. Thus this project was officially registered in October 2011 by NT

7.

The Municipality has followed prescribed consultation processes and will continue to consult the trade unions and the public and solicit the views and recommendations of Provincial Treasury (“PT”) and other state departments in respect of the Feasibility Study and a PPP contract for the WTE Facility before final approval thereof by the Council

8.

3. OUTC OME OF THE SECTION 78(1) ASSE SSME NT

Based on the contents of the Section 78(1) assessment, it was concluded:

1. That the WTE Project was aligned with national, provincial and local strategies and plans (including the IDP and IWMP of the Municipality) to minimise waste to landfill, ensure current landfills are operated in accordance with permit requirements and reduce the carbon footprint of municipalities.

2. That the WTE Project would be specifically beneficial to the Municipality given that it has the

potential to maximise the already limited lifespan of its Wellington Landfill by reducing waste to

5 Section 197 of the Labour Relations Act, No. 66 of 1995. 6 Section 77(a) of the Local Government: Municipal Systems Act, 32 of 2000 (the “MSA”) lays the foundation of the Section 78

study in that it obliges the municipality to review and decide on the appropriate mechanism with which to provide a municipal service in the municipality or to part of the municipality, when an existing service is to be significantly upgraded, extended or improved. Section 77(d) requires the same when a new service is to be provided but as explained in the report the WTE Facility is not regarded as a municipal service but a municipal support activity.

7 Refer to Annexures 3 and 4 8 Section 33 of the MFMA requires such consultation if a long term contract will impose financial obligations on a municipality

beyond the 3 years covered in its annual budget.



43

landfill with more than 60%; generate an estimated 20,176MWh/annum of net energy which will be available to the Municipality; create at least 116 permanent jobs and substantially boost the recycling activities of the DM.

3. That the Municipality did not have the current capital resources nor the human expertise, skills or

capacity to establish a WTE Facility based on the estimated capital investment cost for the current best suited technology option; did not budget for the required plant and machinery for the WTE Facility or for the more effective operation of the Wellington Landfill and thus cannot commit the required human or financial investment needed for the WTE Project to succeed.

4. That the preferred bidder for the WTE Facility had the necessary financial credibility, technical expertise and operational skills to finance, construct, commission, own and operate the WTE plant and also operate the existing waste treatment and disposal services of the Municipality in a PPP with the Municipality.

5. That the operation of the Wellington Landfill, the Paarl TS, the Paarl MRF and possibly also the waste haulage from the Paarl TS to the Wellington Landfill be included with the WTE Project for the following reasons:

enabling the WTE operator to implement a combination of technologies best suited to achieve an integrated waste management solution;

upgrading of the operation of the landfill to ensure a maximisation of its lifespan; enabling synergy in respect of waste treatment and disposal activities; and establishing a one-stop contractual accountability which is easier to manage.

6. That there was sufficient uncertainty about the in/direct costs vis-a-vis benefits of the current

collection of waste separated at source to further investigate the impact of this method inter alia by doing a comparative analysis with other practices, e.g. post collection separation, in similar Western Cape towns’ enabling a decision to be taken on the feasibility of source separated vis-à-vis post collection separated waste before the mechanism and/or method of collection of recyclables is further considered. The feasibility of community recycling pickup points or centres could be included in this assessment.

7. That the WTE preferred bidder must complete a thorough analysis of the waste volumes,

composition and calorific values to arrive at a more reliable and accurate dataset, final best suited technology decision and detailed financial modelling to proceed with the WTE Project and enable the Municipality to establish the feasibility of the WTE Project from its perspective.

8. That organised labour preferred deployment of the plus minus 14 affected employees rather than

to see them transferred to the WTE Operational Entity. This should not be a problem but individual employees must be allowed to decide between deployment and transfer and if the latter was chosen be assisted by the Municipality in accordance with labour legislation.

The following recommendations were made:

1. That the Municipal Manager authorise the transaction advisers to proceed with Phase 2, the Section 78(3)/120(4) Feasibility Study in accordance with the provisions of section 78(3)(b) of the MSA and following the prescribed procedure as provided for in the MSA, Section 120(4) of the MFMA and the PPP Regulations inclusive of the prescribed consultation processes and to submit for Council’s approval a Feasibility Study Report including specific recommendations regarding the preferred WTE technologies, contractual arrangements and timeframe of the WTE Project.

2. That the preferred bidder be instructed to proceed with its processes in the following order:



44

(a) a full waste volume and composition assessment and a calorific analysis to have a reliable and accurate dataset as basis to serve as final verification of the feasibility of the WTE project and submission thereof to the Municipality;

(b) based on the above, a revised technology option analysis including detailed financial modelling and proposed timeframes and submission thereof to the Municipality;

(c) a waste licence application for the WTE Facility; and (d) an Environmental Impact Assessment for the WTE Facility.

3. That the transaction advisors be authorised to proceed with a funding application to National Treasury for the transaction advisor costs for the developmental phases of the project as soon as items 2(a) and (b) have been completed and the project feasibility verified. The cost breakdown submitted to National Treasury should include a comparative analysis of the feasibility of source separated vis-à-vis post collection separated recyclable waste as well as the feasibility of community recycling pickup points or centres.

4. That the Directorate Infrastructure and Planning establishes a Project Steering Committee (“PSC”)

representative of all legally designated and relevant role-players, e.g. NT, PT, the DEA&DP, COGTA, etc., which PSC would meet on a quarterly basis with its terms of reference primarily being to observe, advise and facilitate, e.g. speeding up statutory authorisation processes.

5. That the Directorate Infrastructure and Planning establishes a Transaction Steering Committee

(“TSC”) consisting of key role-players of the Municipality, the preferred WTE bidder / WTE Operational Entity (Interwaste) and the transaction advisers which TSC would meet on a monthly or bi-monthly basis and commence its task by agreeing on an implementation programme for the WTE project to enable it to systematically champion the project through an updated feasibility study; the statutory approval processes (both parties responsible for its own but assisting each other where necessary); contracts’ negotiations; contracts’ conclusion; the roll-out of the project and the initial contracts’ monitoring and management.

4. FEASIBILITY STU DY FOR THE PPP WTE PROJEC T

In August 2012 the Municipal Manager of the DLM mandated the transaction advisors to proceed with this Feasibility Study. Based on the above recommendations the needed committees and processes were implemented and on 18 February 2013 the Technical Options Analysis (“TOA”) based on updated waste information was submitted to the DLM by Interwaste to serve as an important input to determine the feasibility of the WTE Project. This document now serves as the basis for further decision-making and as a vital input for the contractual process, should this follow hereon.

5. TRA NSACTION ADVISORS

In February 2008, as per an open tender and bidding process, Jan Palm Consulting Engineers (“JPCE”), hereinafter referred to as the “transaction advisors” was appointed by the Municipality to assist it with the WTE project including the completion of all the statutory processes pertaining to the finalisation of a PPP arrangement.

9

9 Refer to Annexure 2. The JPCE transaction advisor team includes Jan Palm, a specialist in municipal solid waste; Anita Botha, an

experienced local government consultant who had been involved in the successful procurement and contract management of a number of PPP’s in the local government sphere and Adv. Werner Zybrands, a widely acknowledged expert in local government.



45

SECTION 1: ANALYSIS OF NEEDS AND CONSIDERATIONS

RELEVANT TO THE PROJECT

1. INTRODUC TION

The relevance of the WTE Project and the need for it was already established through the needs analysis that formed part of Phase 1, Part 1 – S78(1) Assessment dated August 2012. As a result of the many variables and new and updated information acquired, the needs analysis as further discussed support the final feasibility determination from a municipal perspective as is the aim of this study. The assessment highlighted the need for more accurate waste information and pointed out that, due to the RFP nature of the bidding process with its focus on WTE alternatives, various project outputs concerning the municipal services to be included in the WTE Project, i.e. the operation and maintenance of the Wellington LS, the Paarl TS and the Paarl MRF, were overlooked and had to be incorporated in this Feasibility Study. In view of having more reliable waste information, a revisit of the most suitable WTE technologies was needed and had to be underpinned by financial modelling to enable a value for money and affordability assessment by the DLM. The information contained in this Section 1 overlaps with aspects already addressed in the Part 1 – S78(1) Assessment but where it happens, such was dictated by the context of the project and necessary to present a complete report.

2. PROJEC T ALIGNMENT

The Part 1 – S78(1) Assessment established the strategic and institutional alignment and relevance of the WTE Project. It was found that national and provincial strategic objectives and directives provided a solid foundation for the Municipality’s drive to establish a WTE Facility in Drakenstein and the objectives of the WTE project as will unfold in this document are aligned to the broad objectives of the IWMP and will give effect to the national, provincial and local government goals of increased renewable energy use, waste information collection, compilation and management, job creation and poverty alleviation. Renewable energy has become the main focus in providing solutions to inter alia global warming. The low cost of electricity and availability of fossil fuels, has made Biomass Power plants economically unviable in the past. The increase in energy demand and the Kyoto Protocol has put pressure on first world countries to deliver renewable energy. This incentive along with the drastic increase in electricity cost in South Africa has made it more favourable to, as in the case of the DLM, utilise anaerobic digested sewage and organic municipal waste to generate biogas to be converted into green electricity to the national grid and specifically for municipal use. More specifically the WTE Facility would significantly reduce the mass of waste that requires landfilling and thus address an immediate problem area for Drakenstein. Importantly, the WTE project will also contribute to maintain the integrity of Drakenstein’s environment which is currently under threat inter alia due to unsustainable resource utilisation. Naturally hydrogeology and ground water quality would be important factors to consider in the design of waste facilities, as adequately addressed in the IWMP.



3. STUD Y FOCU S

In accordance with National Treasury’s Municipal Service Delivery and PPP Guidelines10

(the “PPP Guidelines”) the section 78(1) Assessment’s needs analysis looked at the complete waste service of the DM and, based on an assessment of municipal experience and capacity including municipal finances and technical expertise, ruled out the involvement of waste collection in the WTE Project but confirmed the inclusion of all waste treatment and waste disposal processes as part of the WTE Project. These municipal services and support activities are then the focus of this feasibility study albeit a broader discussion is provided as a general introduction. Important is the fact that the WTE project would be dependent on the continuous delivery of the right quantity and quality of waste to its plant and thus dependent on effective waste collection services. With its current waste teams the Municipality is meeting its functional responsibilities in this regard.

4. RELE VANT FACTORS IN DRAKE NSTEIN ’S PROFILE

Drakenstein is made up of two large towns, i.e. Paarl and Wellington, in close proximity to the N1 in the south, where all the main economic activities take place and the three rural towns of Hermon, Gouda and Saron. Drakenstein is within the area of the Cape Winelands District Municipality (the “CWDM”) and flanked by the City of Cape Town.

Figure 1.1: Map of Drakenstein (source: IDP2011-2012)

10 The Guideline consolidates the contents of the PPP feasibility studies required in terms of section 78(3)(c) of the Local

Government: Municipal Systems Act, 32 of 2000 (the “MSA”), sections 120(1) and (4) of the Local Government: Municipal Finance Management Act, 56 of 2003 (the “MFMA”) and Regulation 3 of the Municipal Public-Private Partnership Regulations, 2005 (the “PPP Regulations”) enabling one study report.



VERY LOW & LOW INCOME

64%

MIDDLE INCOME 17%

HIGH AND VERY HIGH INCOME

19%

Socio-Economic Distribution of Population (2001)

Drakenstein is the second largest economic centre in the Western Cape with 31 wards. Paarl, the major centre, is situated on the banks of the Berg River and traditionally a farming town. Wellington, situated at the foot of the Bainskloof Pass, is home to most of South Africa’s vine nurseries and has an established agro-processing industry. According to a recent report of the SA Cities Network

11

Drakenstein is unofficially regarded by National Treasury as a secondary city which implies it is seen as an alternative urban centre acting as an important catalyst for more balanced and dispersed growth and as a market for agricultural produce.

The population distribution, concentration of economic activities and expected growth are important factors for waste planning. The population figures quoted in various Council documents, e.g. the Integrated Development Plan (the “IDP”) and sector plans often differ – a situation to be rectified once the 2011 Census figures are available later in 2013. A seemingly accurate figure is a population of more than 200 000 by 2010 with an annual increase estimated at 1,8 – 2,0% with about 78% of the population residing in and around the two large towns of Paarl and Wellington and between 8 500 and 10 000 people residing in each of the other three rural towns of Hermon, Gouda and Saron. The largest percentage of the population, i.e. 55,5% is under 30 years, with young people up to 15 years, accounting for 30% of the population. Approximately 50% of the economically active persons (above 15) or, if all ages are taken into account, 35% of the population are unemployed according to the IWMP

2009 and two-thirds or more of the population in the study area falls within the lowest income

bracket, i.e. 64.2% as per the IWMP.

Figure 1.2: Socio-economic Distribution of Population (Source: IDP)

It is estimated that the population figures would increase with between 35% and 40% over a contract period of 20 years.

11 Secondary Cities in South Africa: the start of a conversation, published by the SA Cities Network, March 2012



Figure 1.3: Projected Population Growth (Source: TOA)

Given the percentage low-income and unemployed residents, the Municipality has definite challenges in respect of the delivery of basic services. an on-going focal area in the Municipal Turn-around Strategy (the “MTAS”) since 2010/11 is housing projects to eventually eradicate the estimated backlog of 23 000 houses.

The economy is fairly diversified. The main contributors to the Gross Domestic Product (the “GDP”) of the area are manufacturing and agriculture. Available figures vary considerably but agriculture is the largest employer at between 23% and 29% of the economically active population. However, the seasonality of these jobs is problematic and has a negative impact on sustainable socio-economic upliftment. Sustainable employment and new job opportunities of varying skill levels are primary goals for stability and growth in the Drakenstein area where a total of 44% of the employment is in low skilled jobs, 39% in skilled occupancies and 19% in highly skilled occupancies. The WTE project which will provide approximately 116 unskilled and 14 skilled job opportunities will significantly contribute to the achievement of employment creation goals.

5. LEGAL A ND POLICY ENV IRONMENT

The Municipality must act within the statutory framework provided by national, provincial and municipal laws, plans and policies. The Municipality is exclusively a creature of statute and possesses no rights and powers except such as are either expressly or by necessary implication conferred upon it by a competent legislative authority. Policy considerations feature in the evaluation of institutional, technical and financial aspects related to the WTE proposal since our courts regard the adoption of policy guidelines by state organs to assist decision-makers in the exercise of their discretionary powers as both legally permissible and eminently sensible. However, policy guidelines may not be applied inflexibly or in a manner which excludes decision-making involving the conscientious exercise of the relevant discretion. This means that policy can at most be a guiding principle, but in no way decisive.

194423

224249 228285 241064

249584

272870

298328

326162 331728

0

50000

100000

150000

200000

250000

300000

350000

2001 2009 2010 2013 2015 2020 2025 2030 2033

YEAR

Population of Drakenstein Municipality

CONTRACT PERIOD

POPULATION



Against this background and the waste, environment and energy related strategies referred to above, the legislation in which this study and project are rooted and the plans that must direct and guide or impact on the implementation thereof are outlined below. The Part 1 – S78(1) Assessment included a very detailed discussion of the legislative framework. Below reference is made to key elements in the municipal legislation and the environmental and energy legislation and processes of relevance are discussed in more detail.

5.1 CONSTITUTIONAL MAND ATE

The Constitution of the Republic of South Africa, Act No. 108 of 1996, (the “Constitution”) as the supreme law of the Republic is the logical point of departure for any exploration of the maze of statutory provisions that apply. In terms of the Constitution the objects of local government include-

To ensure the provision of services to communities in a sustainable manner; To promote social and economic development; To encourage the involvement of communities and community organisations in the matters of

local government.

The Constitution requires each municipality to strive, within its financial and administrative capacity, to achieve those objects.

12 It also requires each municipality, to structure and manage its

administration and budgeting and planning processes to give priority to the basic needs of the community, and to promote the social and economic development of the community.

13 The latter

includes the IDP and IWMP. The public administration (which includes the municipal administration) is governed by democratic values and principles enshrined in the Constitution.

14 Included amongst those values and principles

are that the public administration must- promote the efficient, effective and economic use of resources; respond to people’s needs; be development-orientated; and provide services impartially, fairly, equitably and without bias.

The Constitution outlines the functional areas that are local government matters in respect of which municipalities have executive authority. These functional areas are listed in Part B of Schedule 4 and Part B of Schedule 5 of the Constitution, which includes refuse removal, refuse dumps and solid waste disposal. The Bill of Rights specifically states that everyone has the right to have access to sufficient food and water

15 and refers to the right to an environment that is not harmful to the health and well-being of

anyone16

. It imposes a duty on national government to promulgate legislation and to take other steps to ensure that the right is upheld and that, among other things, pollution and ecological degradation is prevented.

12 See section 152 of the Constitution. 13 See section 153 of the Constitution. 14 See section 195 of the Constitution. 15 See section 27 of the Constitution. 16 See section 24 of the Constitution.



5.2 MUNICIPA L LE GISLATION

5.2.1 LOCAL GOVERNMENT: MUNICIPAL STRUCTURES ACT, 1998

Section 84(1) of the Local Government: Municipal Structures Act, 117 of 1998 (the “Structures Act”) divides local government powers and functions between district and local municipalities. District municipalities must pursue the integrated, sustainable and equitable social and economic development of the district and in terms of section 84(1)(e) of the act a district municipality has the powers and functions for solid waste in so far as it relates to: (i) the determination of a waste disposal strategy; (ii) the regulation of waste disposal; (iii) the establishment, operation and control of waste disposal sites, bulk waste transfer facilities

and waste disposal facilities for more than one local municipality in the district. Municipal health is also a district municipal function which has an impact on waste management, given the close relationship between waste and health objectives, e.g. the monitoring of waste facilities and public health awareness programmes implemented by district environmental health practitioners. One of the NWMS objectives is to “promote the regionalisation of waste management services” with the establishment of regional landfills as the primary focus whether managed by a district municipality or local municipality acting on its behalf. While the environmental benefits could be huge, a detracting factor could be transport costs therefore regionalisation decisions will necessitate detailed cost-benefit analyses

17. Regional landfills may also remain relatively unsupported where local

municipalities do not wish to be reliant on a landfill owned by a district municipality over which it has limited control in respect of financial, operational and technical risks.

5.2.2 LOCAL GOVERNMENT: MUNICIPAL SYSTEMS ACT, 32 OF 2000

Chapter 4 of the MSA as well as sections 21 and 21A deal with community consultation processes necessitated in terms of a section 78 study.

Chapter 5, (which deals with Integrated Development Planning) and chapter 6 (Performance Management) of the MSA contain various clauses that underscore the need to address the basic needs of a community and which leave the door open for possible private sector involvement. However, the focus is on Chapter 8, where municipal service rendering is directly addressed

18.

Section 73 provides a general duty to give priority to the basic needs community members should have access to, i.e. at least the minimum level of basic municipal services.

Section 74(2) of the MSA prescribes that a council must adopt and implement a tariff policy on the levying of fees for municipal services which policy should inter alia reflect the principles of equity, fairness and affordability while facilitating financial sustainability of the service and economic development.

In section 74(2)(d) specific mention is made that the tariff must reflect the costs reasonably associated with rendering the service and section 74(2)(h) refers to the obligation to encourage the economical, efficient and effective use of resources, the recycling of waste and other appropriate environmental objectives. Section 75 directs a municipal council to enact a by-law to give effect to the implementation and enforcement of the tariff policy.

Section 76 distinguishes between two possible mechanisms for municipal service delivery, namely an internal mechanism, which includes various internal arrangements within the municipal administration, and an external mechanism, which includes various possibilities for partnering

17 The NWMS commits the DEA to undertake such an analysis, develop guidelines for the regionalisation of waste management

services and, in co-operation with COGTA, consider using the MIG to promote regionalisation of waste. 18 Chapter 8 of the MSA specifically applies to service delivery mechanisms i.r.o. municipal services not municipal support

activities; these are covered by the MFMA. In this study the relevant sections of chapter 8 as discussed, were only triggered due to the WTE project including the landfill operation which is a municipal service.



with external parties. Some of these possibilities could lead to a Public-Public Partnership (PUPP) or alternatively a Public-Private Partnership (PPP).

Section 77 spells out the occasions when municipalities must review and decide on mechanisms to provide municipal services, i.e. the ‘mandatory triggers’ which could be inadequate service delivery, new services, significant upgrading or improvement of services, etc.

Section 78 deals with the criteria and processes to be followed in order to reach decisions regarding such mechanisms for municipal services.

Section 78(4) requires that the Council, in considering the recommendations of the Section 78(3) Feasibility Study and thus deciding on which mechanism to use (internal or external), must take into account Section 73(2) of the MSA in achieving the best outcome. The latter section requires that municipal services must be:

o Equitable and accessible o Provided in a manner that makes prudent, economic, efficient and effective use of

available resources and improves standards of quality over time o Financially sustainable o Environmentally sustainable o Regularly reviewed with a view to upgrading, extension and improvement.

Section 78(5) reminds the municipality that it must take other applicable legislation relating to the appointment of a Service Provider into account, e.g. if the service is water and sanitation, it would be the National Water Act and specifically the Water Services Act, 108 of 1997.

Section 79 refers to the commitment of financial and human resources by the municipality if an internal mechanism is decided on.

Section 80(3) which stipulates that before a SDA with another municipality is concluded, the latter municipality must also do a feasibility study to assess the impact of the arrangement.

Section 81(2) refers to the municipality’s responsibilities if concluding an external arrangement including those responsibilities that may be assigned to the external service provider.

Section 81(4) refers to the process to be followed if an existing external service arrangement must be amended (note Reg. 9 of the PPP Regulations also applies).

Section 83 sets out the process of competitive bidding including a reference to the SCM process in the Chapter 11 of the MFMA to be complied with as well.

Section 84 deals with the negotiation and agreement with the prospective service provider. Besides the tariff policy and by-laws addressed in sections 74 and 75 of the MSA, section 96

dictates a Credit Control and Debt Collection Policy and section 98 requires the Municipality to adopt bylaws to give effect to its credit control and debt collection policy including its enforcement. These policies and by-laws aim to ensure effective and financially sustainable service delivery.

5.2.3 LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT, 56 OF 2003 & REGULATIONS

The MFMA is a critical element of the policy framework established by the 1998 White Paper on Local Government, together with the Structures Act and the MSA.

19 As a whole the MFMA is important in

that it regulates municipal fiscal and financial management and sets requirements for the efficient and effective management of the revenue, expenditure, assets and liabilities of municipalities.

In respect of this study the following chapters and sections have specific relevance.

The WTE Facility will be established on municipal owned land adjacent to the Wellington Landfill. It is not envisaged that the land will be transferred or disposed of therefor section 14 of the MFMA that deals with the alienation of municipal capital assets will not apply and since the right to use, control or

19 Like the Public Finance Management Act, Act No. 1 of 1999 (the “PFMA”) which covers the national and provincial spheres of

government, the MFMA gives effect to section 216 of the Constitution which envisages uniform treasury norms and standards for all spheres of government. Given the complexities of the local sphere the MFMA was prepared separately after removing the local sphere of government from the initial scope of the PFMA (as tabled). Though similar to the PFMA in many respects, the MFMA covers additional chapters on co-operative governance, debt, resolution of financial problems, procurement of goods and services, and financial reporting and auditing.



manage the land is dealt with as part of the PPP, the Municipal Asset Transfer Regulations, 2008 (the “MAT Regulations”)

20 will also not apply. However, the Council must verify if the land is not needed

for other essential municipal services and a land lease agreement would need to be concluded. The MFMA overlaps with the MSA. Prior to entering into a PPP, the municipality must conduct a feasibility study that deals with a wide range of aspects including strategically operational benefits. Once the feasibility study has been completed the accounting officer’s report together with all relevant documents must be considered by Council for a decision in principle as to whether it can proceed with such a PPP, or not. The feasibility study content and the processes necessary to ensure that best practice external service delivery relationships such as PPPs are established is provided for in section 120 of the MFMA and the PPP Regulations. Section 120(4) inter alia requires that the feasibility study be made public and the community and other interested parties be invited to comment thereon. The PPP Regulations define a PPP and put forward three criteria for measuring when a contract between a municipality and a private party could be regarded as a PPP:

“public-private partnership” means a commercial transaction between a municipality and a private party in terms of which the private party— (a) performs a municipal function for or on behalf of a municipality, or acquires the management or

use of municipal property for its own commercial purposes, or both performs a municipal function for or on behalf of a municipality and acquires the management or use of municipal property for its own commercial purposes; and

(b) assumes substantial financial, technical and operational risks in connection with- (i) the performance of a municipal function; (ii) the management or use of municipal property; or (iii) both; and

(c) receives a benefit from performing the municipal function or from utilizing the municipal property or both by way of-

(i) consideration to be paid or given to the municipality or a municipal entity under the sole or shared ownership of the municipality;

(ii) charges or fees to be collected by the private party from users or customers of a service provided to them; or

(iii) a combination of the benefits referred to in subparagraphs (i) and (ii); The definition is drafted in such a way that there must be compliance with all three subsections for it to be a PPP and the WTE project does comply with all three criteria. It is specifically stipulated that municipalities may only enter into Public Private Partnerships (PPP) if the municipality can demonstrate that the agreement will: provide Value-for-Money (“VfM”)

21,

be affordable22

, and transfer appropriate technical, operation and financial risk to the private party.

20 Chapter 4 of the MAT Regulations, 2008 21 In terms of the PPP Regulations, VfM means the performance of a private party in terms of the agreement will result in a net

benefit to the municipality in terms of cost, price, quality, quantity, risk transfer or any combination of those factors. From a municipal perspective the contextual framework within which the project develops adds other criteria that further defines VfM as it applies to a specific municipality’s circumstances.

22 In terms of the PPP Regulations, “affordable” means that the financial obligations to be incurred by the municipality ito. a PPP agreement can be met by: • Funds designated in the municipality’s budget for the current year for the service/activity to be outsourced; • Funds destined for the service/activity i.r.o. future budgetary projections;

• Any allocations to the municipality and • A combination of such funds or allocations.



The PPP Regulations inter alia stipulate that the municipality is obliged to obtain the views and recommendations of National and Provincial Treasury no less than four times before finally concluding an external service provision agreement.

23 It also prescribes consultation with the Department of Co-

operative Governance and Traditional Affairs (“COGTA”) and the relevant national departments which in this case will be the Department of Environmental Affairs (“DEA”) and the Department of Water Affairs (“DWA”). Section 33 of the MFMA has a wide range of provisions regarding contracts that have a future budgetary implication and how such contracts should be adjudicated and awarded. It stipulates that, if a contract will impose financial obligations on the municipality beyond the 3 years covered in the annual budget for that financial year, the contract may in terms of section 33(1)(a) only be entered into if the municipal manager has, at least 60 days prior to the Council meeting at which the contract is to be approved:

made public the draft contract in accordance with section 21A of the MSA including an information statement summarising the municipality’s obligations in terms of the proposed contract and invited comments;

solicited the views and recommendations of National Treasury, the Provincial Treasury, the Department of Co-operative Governance and Traditional Affairs and any other national department with an interest; and

Taken the following into account – Section 33(1)(b):

Its projected financial obligations in terms of the contract for each year of its duration The impact of these financial obligations on future municipal tariffs and revenue Comments and representations from the community and IAPs Views and recommendations from Treasury et al.

Adopted a resolution – Section 33(1)(c) - in which:

It determines that the municipality will secure a significant capital investment or will derive a significant financial economic or financial benefit from the contract

It approves the entire contract exactly as it is to be executed It authorises the municipal manager (accounting officer) to sign the contract on behalf of the

municipality. Section 33(2) deals with circumstances when Section 33(1) will not apply and inter alia states that if the financial obligation on the Municipality is below a prescribed value or a prescribed percentage of the municipality’s approved budget for the year in which the contract is concluded, the process set out above will not apply. NT that is responsible for the MFMA has until date not set such value or percentage or published any criteria or other measurement indicators of how this value or percentage should be determined. It is not possible to keep on measuring the affordability; VfM and risk transfer of a project without proper contract, performance and risk management and monitoring. The MFMA complements the MSA to ensure these processes are built into the project cycle.

5.2.3.1 PERFORMANCE MANAGEMENT MANDATE

As implied in section 41 of the MSA a municipality is obliged to extend its own performance monitoring to all its external service providers. The legislative mandate is further stipulated in section 46 of the MSA (as amended by Act No. 44 of 2003) which requires that a municipality must, for each financial year, prepare a performance report reflective of the performance of each external services provider during that financial year and that the annual performance report should be part of the municipality’s annual report submitted as per section 121(3) of the MFMA to the Auditor General.

23 Due to the bidding process already followed by Drakenstein and as clarified with NT, the Municipality will consult NT on two

occasions.



Furthermore in terms of section 72 of the MFMA, a municipality must submit a mid-year budget and an assessment of municipal performance by the 25

th of January each year which, it could be argued,

should already include an early assessment of service providers.

5.2.3.2 CONTRACT MANAGEMENT & MONITORING MANDATE

A performance review is only possible if a contract in question is properly managed and monitored. Section 116 of the MFMA obliges a municipality to do such management and monitoring and provides guidance on how this is to be done. Briefly, it requires that the contract be properly enforced, performance be monitored on a monthly basis and capacity be established to oversee the day-to-day management of the contract with regular reporting to the Council. Module 6 of the PPP Guidelines specifically deals with managing a PPP agreement. It also includes three-year reviews of a (long term) contract.

5.2.3.3 RISK MANAGEMENT MANDATE

All risks related to an external service delivery contract must be identified and communicated to a municipality’s internal audit unit established in compliance with section 165 of the MFMA. The internal audit unit should then include the contract risk profile in its risk-based audit plan. These mandates form an important part of municipal management and oversight of the project and must therefore be embedded in a PPP contract. Two further sections of the MFMA have a potential impact although the WTE project does not include any municipal involvement in the international trading of carbon credits (refer to discussion under item 3.6). Section 164 of the MFMA deals with Forbidden Activities and states that a municipality may not conduct any commercial activities 1) otherwise than in the powers and functions assigned to it in terms of the Constitution or national or provincial legislation and 2) outside the borders of the Republic. Besides this stipulation, the international trading of carbon credits also involve risks which could trigger Section 163 of the MFMA that forbids a municipality to incur a liability or risk payable in a foreign currency.

5.3 ENVIRONMENTA L AND WASTE RE LA TED LE GISLATION , POLICIE S AND PLANS

Apart from a constitutional obligation in respect of a clean and healthy environment, a myriad of acts, policies and strategies apply to this function and necessitate the existence of a comprehensive waste management system. Primarily waste management is based on the principles of the White Paper on Integrated Pollution and Waste Management, 2000 (the “

WPIP&WM”), the NWMS and the subsequent

enactment of NEMWA that promotes cleaner production, waste minimisation, reuse, recycling and waste treatment with disposal seen as a last resort in the management of waste. The most important applicable legislation and policies are discussed below – as far as possible, in a logical order.

5.3.1 WHITE PAPER ON INTEGRATED POLLUTION AND WASTE MANAGEMENT, 2000

To address the generally fragmented, diverse and ineffectively administered waste management situation in SA and eliminate the unco-ordinated way in which pollution and waste was being dealt with, the

WPIP&WM set in motion a process of co-operative governance and law reform. It

represented a policy shift to an integrated approach to pollution and waste management focused on pollution prevention, waste minimisation impact control and remediation. The

WPIP&WM identified

strategic goals and introduced the waste hierarchy into SA waste management policies. Figure 4 depicts the paradigm shift associated with the introduction of the waste hierarchy.



Figure 1.4: Waste Hierarchy (Source: NWMS)

The

WPIP&WM highlighted specific functions to be carried out by municipalities, i.e.:

Compiling and implementing general waste management plans, with assistance from provincial government;

Implementing public awareness campaigns; Collecting data for the Waste Information System; Providing general waste collection services and managing waste disposal facilities within their

areas of jurisdiction; Implementing and enforcing appropriate waste minimisation and recycling initiatives such as

promoting the development of voluntary partnerships with industry, including the introduction of waste minimisation clubs;

where possible, regional planning, establishment and management of landfill sites, especially for regionally based general waste landfills.

5.3.2 NATIONAL ENVIRONMENTAL MANAGEMENT: WASTE ACT, NO. 59 OF 2008

NEM:WA was enacted in March 2009 and took effect from 1 July 2009. The act legally embedded the waste hierarchy as the overarching principle for waste management in SA. It regulates the following matters:

establishment of a national waste management strategy; national norms and standards; provincial norms and standards and waste service standards

24;

institutional and planning matters including the designation of waste management officers and integrated waste management plans for all spheres and sectors including local government and individual municipalities

25;

waste management measures including minimisation, reduction, recycling, re-use and recovery of waste; storage, collection and transportation of waste; treatment, processing and disposal of waste; industry waste management plans and contaminated land,

licensing of waste management activities26

; and establishment of a national waste information system

27.

24 A number of national standards have been set or are in process, inter alia the National Domestic Waste Collection Standards

(the “Waste Collection Standards”) published in Government Gazette No. 33935 of 21 January 2011; Draft National Norms and Standards for the Storage of Waste (the “Waste Storage Standards”), General Notice 436 published in Government Gazette No. 34418 of 1 July 2011; Draft National Standard for Disposal of Waste to Landfill (the “Waste Disposal Standards”), General Notice 432 published in Government Gazette No. 34414 of 1 July 2011; Draft National Standards for the Extraction, Flaring or Recovery of Landfill Gas in South Africa (the “Landfill Gas Standards”), General Notice 434 published in Government Gazette No. 34416 of 1 July 2011 and Draft Standard for Assessment of Waste for Landfill Disposal (the “Waste Assessment Standards”), General Notice 433 published in Government Gazette34415 dated 1 July 2011.

25 Refer to the MWSP and the IWMP of Drakenstein. 26 Refer to Government Notice 178 published in Government Gazette No. 32368 dated 3 July 2009 and General Notice 1113

published in Government Gazette No. 33880 dated 14 December 2010. 27 Refer to the National Waste Information Regulations (the “NWI Regulations”); Government Notice 718 published in

Government Gazette No. 33384 dated 23 July 2010.



Of substantial importance are the stipulations in respect of municipalities as set out in section 9, the most important of which are the following:

Adherence to all national and provincial norms and standards; The need for an integrated waste management plan and integration thereof with the IDP; Affordable tariffs; Keeping separate financial statements, including a balance sheet of the services provided; The annual performance report prepared in terms of section 46 of the MSA to contain

information on the implementation of the IWMP in so far as it relates to the performance of the municipality.

5.3.2.1 ENVIRONMENTAL AUTHORISATION AND WASTE MANAGEMENT LICENSING PROCESSES I.T.O.

NEM:WA

According to Section 19(1) and 19(3) of the NEM:WA the Minister may publish a list of waste management activities that have, or are likely to have, a detrimental effect on the environment, and must specify whether a waste management licence is required to conduct these activities. Under these provisions, a list of ‘Category A’ and ‘Category B’ waste management activities, which require a Waste Management Licence (“WML”) in terms of Section 20(b) of the NEM:WA, were published as Schedule 1 to the act

28.

In terms of this notice, a person who wishes to commence, undertake or conduct any of these listed activities must, as part of the WML application, conduct either a Basic Assessment (“BA”) process (for Category A activities), or a Scoping and EIA process (“S&EIA”) (Category B) as stipulated in the EIA Regulations – the same processes required for Environmental Authorisation (“EA”). The DEA recently published a draft amended list of activities that require a WML

29, with changes to

the actual activities and applicable thresholds which determine whether a BA or S&EIA process is required as part of the licencing process. This was the second draft published for comment, and it is expected that the revised list would come into effect within the next 6 – 12 months. In order to avoid duplication by requiring two approvals for the same activity, waste activities listed in the EIA Regulations were removed which means that currently, waste activities only require a licence in terms of the NEM:WA inclusive of the EA process, and not an EA in terms of NEMA too

30 but the

requirements are the same. Also refer to paragraph 5.3.7. The licensing and environmental assessment processes are therefore quite intertwined. In terms of Section 43(1)(a) of the NEM:WA, the Minister of the national Department of Environmental Affairs (“DEA”) is the licensing authority where the waste management activities applied for involve hazardous waste. The relevant Provincial Environmental Department (i.e. the Western Cape DEA&DP or depending which province the activity is planned in) is the Competent Authority for activities involving general waste only. With reference to the WTE project, there are specific waste management activities as identified in Schedule 1 to NEM:WA that will require a WML. Also to be taken into account is the draft amendments to the existing activity listings published by the DEA in September 2012 and the application of the new Draft Waste Classification and Management Regulations (the “Waste Regulations”)

31 to different waste streams that may be utilised in the Anaerobic Digestion and Direct

Combustion processes. Since the latter has not been clarified yet, this discussion assumes that both general and hazardous waste may be used. This does have an impact on the whether activities are

28 List of Waste Management Activities that have, or are likely to have a Detrimental Effect on the Environment, 2009 published in

Government Gazette 32368 (Notice No 718) of 3 July 2009 read with the Environmental Impact Assessment Regulations, 2010 (the “EIA Regulations”) published in Government Gazette 33411 (Notice No 664) of 30 July 2010.

29 Refer to General Notice No. 779 of 28 September 2012. 30 Refer to General Notice No. 719 of 3 July 2009. 31 Refer to General Notice No. 435 of 2011, published in GG No. 34417 of 1 July 2011.



considered to be Category A or B, and accordingly whether a BA, or an S&EIA process would be required. Furthermore, if only general waste is processed, the licencing authority would be the Western Cape DEA&DP but if hazardous waste is also used, the licencing authority would be the national DEA. The following definitions in NEM:WA should be noted for interpretation of the listed waste management activities:

Incineration: Any method, technique or process to convert waste to flue gases and residues by means of oxidation.

Recovery: The controlled extraction of a material or the retrieval of energy from waste to produce a product.

Recycle: A process where waste is reclaimed for further use, which process involves the separation of waste from a waste stream for further use and the processing of that separated material as a product or raw material.

Re-use: To utilise articles from the waste stream again for a similar or different purpose without changing the form or properties of the articles.

Treatment: Any method, technique or process that is designed to – (a) change the physical, biological or chemical character or composition of a waste; or (b) remove, separate, concentrate or recover a hazardous or toxic component of a waste; or (c) destroy or reduce the toxicity of a waste, in order to minimise the impact of the waste on the environment prior to further use or disposal.

In terms of the above definitions (which are not always clear and sometimes open to interpretation) the MRF is considered to be a ‘recycling’ process. Anaerobic Digestion (“AD”) and Direct Combustion (“DC”) processes that are the preferred WTE technology options as discussed in this report could be considered waste ‘recovery’ processes and/or forms of ‘treatment’. In addition, the DC process would also fall under the definition of incineration, even if the ultimate objective is electricity generation (and not just the mere destruction of waste). Based on the above, Table 1.1 below indicates the activities associated with the proposed Drakenstein project that may require a WML. Table 1.1: NEM:WA – WML Activities (Source: DEA)

NEM:WA Category A (Basic Assessment) Waste Management Licence Activities – Material Recovery (MRF), Anaerobic Digester (AD) & Direct Combustion (DC)

Current Activities (R.719, July 2009) Draft Amendments (R.779, September 2012)

# 3(1) The storage, including the temporary storage, of general waste at a facility that has the capacity to store in excess of 100m3 of general waste at any one time, excluding the storage of waste in lagoons. [MRF, AD, DC]

# 3(1) The storage of general waste in lagoons. New Category C Activity – WML not required, but must comply with DEA storage standards: # 5(1) The storage of general waste at a facility that has the capacity to store in excess of 100m3 of general waste at any one time, excluding the storage of waste in lagoons or temporary storage of such waste. [MRF, AD, DC]

# 3(2) The storage including the temporary storage of hazardous waste at a facility that has the capacity to store in excess of 35m3 of hazardous waste at any one time, excluding the storage of hazardous waste in lagoons. [AD, DC – if hazardous waste is utilised]

New Category C Activity – WML not required, but must comply with DEA storage standards: # 5(2) The storage of hazardous waste at a facility that has the capacity to store in excess of 80m3 of hazardous waste at any one time, excluding the temporary storage of such waste. [MRF, AD, DC]

# 3(5) The sorting, shredding, grinding or bailing of general waste at a facility that has the capacity to process in excess of one ton of general waste per day. [MRF]

# 3(2) The sorting, shredding, grinding or bailing of general waste at a facility that has an operational area in excess of 500m2. [MRF]

# 3(7) The recycling or re-use of general waste of more than 10 tons per month. [MRF]

# 3(3) The recycling of general waste at a facility that has an operational area in excess of 500m2. [MRF]

# 3(8) The recovery of waste including the refining, utilisation, or co-processing of the waste at a facility that has the capacity to process in excess of three tons of general waste or less than 500kg of hazardous waste per day, excluding recovery that takes place as an integral part of an internal manufacturing process within the same

# 3(5) The recovery of waste including the refining, utilisation, or co-processing of the waste in excess of 10 tons but less than 100 tons of general waste per day or in excess of 500kg but less than 1 ton of hazardous waste per day, excluding recovery that takes place as an integral part of an internal manufacturing process within the same premises. [N/A – New



premises. [AD, DC] thresholds exclude AD & DC]

# 3(9) The biological, physical or physico-chemical treatment of general waste at a facility that has the capacity to process in excess of 10 tons of general waste per day. [AD]

# 3(6) The treatment of waste using any form of treatment at a facility that has the capacity to process in excess of 10 tons but less than 100 tons of general waste per day or in excess of 500kg but less than 1 ton of hazardous waste per day, excluding the treatment of effluent, wastewater or sewage. [N/A – New thresholds exclude AD & DC]

# 3(10) The processing of waste at biogas installations with a capacity to process in excess of five tons per day of bio-degradable waste. [AD]

Omitted – would be considered a form of treatment or recovery.

# 3(11) The treatment of effluent, wastewater or sewage with an annual throughput capacity of more than 2 000 cubic metres but less than 15 000 cubic metres. [AD, DC – if required]

Omitted – now a listed activity under the EIA Regulations. Requires Environmental Authorisation i.t.o. NEMA (also Basic Assessment).

# 3(18) The construction of facilities for activities listed in Category A of this Schedule (not in isolation to associated activity). [MRF, AD, DC]

# 3(11) The construction of a facility for a waste management activity listed in Category A of this Schedule (not in isolation to associated waste management activity). [MRF]

NEM:WA Category B (Scoping & EIA) Waste Management Licence Activities – Material Recovery (MRF), Anaerobic Digester (AD) & Direct Combustion (DC)

Current Activities (R.719, July 2009) Draft Amendments (R.779, September 2012)

# 4(1) The storage including the temporary storage of hazardous waste in lagoons.

# 4(1) The storage of hazardous waste in lagoons. New Category C Activity – WML not required, but must comply with DEA storage standards: # 5(2) The storage of hazardous waste at a facility that has the capacity to store in excess of 80m3 of hazardous waste at any one time, excluding the temporary storage of such waste.

# 4(3) The recovery of hazardous waste including the refining, utilisation or co-processing of waste at a facility with a capacity to process more than 500kg of hazardous waste per day excluding recovery that takes place as an integral part of an internal manufacturing process within the same premises or unless the Minister has approved re-use guidelines for the specific waste stream. [AD, DC – if hazardous waste is utilised]

# 4(3) The recovery of waste including the refining, utilisation or co-processing of waste at a facility that processes in excess of 100 tons of general waste per day or in excess of 1 ton of hazardous waste per day, excluding recovery that takes place as an integral part of an internal manufacturing process within the same premises. [AD, DC]

# 4(4) The biological, physical or physico-chemical treatment of hazardous waste at a facility that has the capacity to receive in excess of 500 kg of hazardous waste per day. [AD, DC – if hazardous waste is utilised]

# 4(4) The treatment of hazardous waste in excess of 1 ton per day calculated as a monthly average, using any form of treatment excluding the treatment of effluent, wastewater or sewage. [AD, DC – if hazardous waste is utilised]

Currently treatment of general waste is a Category A activity (Basic Assessment).

# 4(6) The treatment of general waste in excess of 100 tons per day calculated as a monthly average, using any form of treatment. [AD, DC]

# 4(5) The treatment of hazardous waste using any form of treatment regardless of the size or capacity of such a facility to treat such waste. [AD, DC – if hazardous waste is utilised]

Omitted – was really a duplication of 4(4).

# 4(7) The treatment of effluent, wastewater or sewage with an annual throughput capacity of 15 000 cubic metres or more. [AD, DC – if required]

Omitted – now a listed activity under the EIA Regulations. Requires Environmental Authorisation i.t.o. NEMA (Scoping & EIA).

# 4(8) The incineration of waste regardless of the capacity of such a facility. [DC]

Omitted – incineration is a form of treatment, so provided for in 4(4) above.

# 4(11) The construction of facilities for activities listed in Category B of this Schedule (not in isolation to associated activity). [AD (only if hazardous waste utilised), DC]

# 4(9) The construction of a facility for a waste management activity listed in Category B of this Schedule (not in isolation to associated waste management activity). [AC, DC]

Based on the above, the procedural requirements that form part of the Waste Management Licensing (WML) process for the WTE project can be summarised as follows:

Storage of waste: Currently requires a BA, provided that hazardous waste is not stored in lagoons, which requires an S&EIA. General waste can be stored in lagoons under a BA process. In terms of the draft amendments (future), no WML would be required, provided that the Waste Storage Standards are followed (not applicable to storage in lagoons).

Material Recovery (MRF): The MRF, only processing general waste, will require a BA in terms of both current and draft future legislation.

Anaerobic Digester (AD): Currently the AD process would require a BA only, provided that hazardous waste is not utilised in the process, otherwise S&EIA. In terms of the draft amendment, general waste



treatment has new thresholds under Category B (S&EIA), and biogas facilities, which are currently specifically identified in Category A, has been omitted. Therefore Scoping and EIA will be required in terms of the new proposed amendments, irrespective of utilisation of hazardous waste.

Direct Combustion (DC): The DC process will require an S&EIA in terms of current and draft future legislation, irrespective of utilisation of hazardous waste.

Figure 1.5 serves to indicate the extent of work and consultation involved in a full S&EIA process and clearly sets out the public participation that is required at various stages of the assessment process. Figure 1.5: Scoping and EIA Process (Source: DEA)



A. ENVIRONMENTAL MANAGEMENT PLANS (EMP)

The development of a detailed Environmental Management Plan/Programme (EMP) for all phases of a proposed project (construction, operation and decommissioning) forms an integral part of the EIA-process, and will be developed for the Drakenstein project prior to implementation. The main aim of an EMP is to develop practical measures to be implemented that will ensure that all potential environmental impacts are effectively managed and mitigated, meaning the significance of impacts are controlled to be within acceptable limits. EMPs provide a link between the impacts predicted and mitigation measures specified within the EIA report, and the implementation and operational activities of the project. EMPs outline the environmental impacts, the mitigation measures, roles and responsibilities, timescales and cost of mitigation (World Bank, 1999). Section 24N of NEMA and Regulation 33 of the EIA Regulations (2010) prescribes the requirements to be addressed in an EMP, which include:

Information on any proposed management or mitigation measures that will be taken to address the environmental impacts that have been identified in respect of planning and design, pre-construction and construction activities, operation or undertaking of the activity, rehabilitation of the environment and closure, where relevant.

The persons who will be responsible for the implementation of the measures in the EMP.

Mechanisms for monitoring compliance with and performance assessment against the EMP and reporting thereon.

Measures to rehabilitate the environment affected by the undertaking of any activity.

Actions to modify, remedy, control or stop any action, activity or process which causes pollution or environmental degradation.

Measures to comply with any prescribed environmental management standards or practices.

Time periods within which the measures contemplated in the EMP must be implemented.

The process for managing any environmental damage, pollution, pumping and treatment of extraneous water or ecological degradation as a result of undertaking an activity.

An environmental awareness plan.

Where appropriate, closure plans, including closure objectives.

An important part of maintaining an effective EMP is the continuous review of its provisions and effectiveness in mitigating environmental impacts. The EMP should be seen as a ‘living document’ allowing for update and amendment as required. The EMP also lends itself to integration with company Environmental Management Systems (EMS), ensuring the integrated management of environmental aspects throughout a projects life-cycle (see Figure 1.6 below).



Figure 1.6: Integration of EMS and EMP (Source: DEA)

B. PUBLIC PARTICIPATION

Public involvement and opportunity to comment on all EIA studies and assessments forms a fundamental part of the EIA-processes prescribed by the NEMA and EIA Regulations. Public participation provides the opportunity for Interested and Affected Parties (“IAPs”) to participate on an informed basis, and to ensure that their needs and concerns are considered during the impact assessment process. The public participation process to be followed for the WTE Project will be aimed at achieving the following as a minimum:

Provide opportunities for IAPs and the authorities to obtain clear, accurate and understandable information about the expected environmental and socio-economic impacts of the proposed development;

Establish a formal platform for the public with the opportunity to voice their concerns and to raise questions regarding the project;

Utilise the opportunity to formulate ways for reducing or mitigating any negative impacts of the project, and for enhancing its benefits;

Enable project proponent to consider the needs, preferences and values of IAPs in their decisions;

Clear up any misunderstandings about technical issues, resolving disputes and reconciling conflicting interests;

Provide a proactive indication of issues which may inhibit project progress resulting in delays, or which may result in enhanced and shared benefits; and

Ensure transparency and accountability in decision-making.

5.3.2.2 NATIONAL WASTE MANAGEMENT STRATEGY TO GIVE EFFECT TO THE NEM:WA

The National Waste Management Strategy (“NWMS”) is a legislative requirement of the NEMWA. It gives effect to the objects of the act and sets out the overall goals and approach to implement the waste hierarchy and the mechanisms, challenges, roles and responsibilities involved. The waste hierarchy is a systematic and hierarchical approach to waste management.



Implementation of the broader social and economic objectives which the NWMS aims to achieve also commits municipalities to the following goals:

Securing ecologically sustainable development while promoting justifiable economic and social development, e.g. increasing job creation in the waste services, recycling and recovery sectors;

Avoiding and minimizing the generation of waste through mechanisms such as volume based tariffs and consumer awareness;

Reducing, re-using, recycling and recovering waste inter alia through the establishment of separation at source practices, more MRFs and developing WTE options;

Promoting and ensuring the effective delivery of waste services, e.g. basic waste services to all including indigents;

Treating and safely disposing of waste as a last resort including WTE and improved landfill management;

Remediating land where contamination presents a significant risk of harm to health or the environment;

Achieving integrated waste management planning, i.e. as stated sector and local IWMPs; Sound budgeting and financial management for waste services thus moving towards full cost

accounting and tariffs that are reflective of these costs; Adequate staffing and capacity for waste management including the appointment of waste

management officers and mobilising private sector capacity; Effective compliance with and enforcement of waste regulations implying an up to date

waste by-law inclusive of new regulations, effective enforcement of the by-law and successful prosecution of waste offenders;

Effective monitoring and reporting on performance with waste functions thereby including key performance indicators in the performance plan of the institution and individual waste staff members;

Ensure that people are aware of the impact of waste on their health, well-being and the environment through local awareness campaigns.

As so strongly pointed out by the Local Government Turnaround Strategy (the “LGTAS”), the NWMS also recognises that fiscal, spatial, functional and capacity differences between municipalities necessitate a differentiated approach to waste services provision that correlates with the resources and capacity of each municipality, e.g. the vast difference between rural and urban challenges and revenue generating capacities. It committed the DEA to prepare a sector plan for addressing waste services backlogs in local government and a Policy for Free Basic Refuse Removal

32.

5.3.2.3 MUNICIPAL WASTE SECTOR PLAN, 2011 AS A PRODUCT OF THE NWMS

The Municipal Waste Sector Plan (the “MSWP”) was prepared by DEA as undertaken in the NWMS presents national government strategy to address municipal solid waste service delivery and infrastructure backlogs within the context of municipal capacity and aligned with the objectives of the LGTAS.

33

The principal strategic objectives of the MWSP are: Waste reduction: reducing the amount of general and hazardous waste being generated and

disposed in the country; Appropriate disposal: Ensuring that all waste is disposed of appropriately – in a manner that

is not detrimental to the environment and human health; and Waste service delivery: providing adequate domestic waste collection services across the

country, thus ensuring protection of the environment from unmanaged waste, and providing

32 A Draft Policy on Free Basic Refuse Removal was published under General Notice 1476 in Government Gazette No. 32688 on 6

November 2009. It was followed by the National Policy for the Provision of Basic Refuse Removal Services to Indigent Households (the “BRR Policy”) published under General Notice 413 in Government Gazette No. 34385 on 22 June 2011. It aims to provide sustainable access to basic refuse removal for indigent households but pertinently acknowledges the differentiated capacities of municipalities to provide such services.

33 The MSWP was promulgated on 30 March 2012, GN No. 270, published GG No. 35206 on 30 March 2012.



all communities with access to a basic refuse removal service in line with national and provincial service delivery targets - the target being 75% of households by 2013/14.

The challenges of financial, institutional and technical capacity contributing to the backlogs will determine the baseline and target percentages of each municipality with respect to reduction in backlogs, increased budget allocation, increase in infrastructure and capital assets; increase in skills; job opportunities, etc. The MWSP emphasizes the role of industry partners to inter alia assist with reduced waste disposal at landfill through increased recycling and building the sustainability of the rather volatile recycling industry in SA and energy recovery from waste. Other interventions proposed are: separation at source, landfill management, improved data and information; phasing out of salvaging at landfills; regionalisation of landfills; optimising waste collection systems through awareness, planning, maintenance, capacity building and enforcement of by-laws.

5.3.3 NATIONAL ENVIRONMENTAL MANAGEMENT ACT, 107 OF 1998 (AS AMENDED IN 2004)

The National Environmental Management Act, No. 107 of 1998 (“NEMA”) is the principal act for environmental issues and as such it has direct relevance for the implementation of the NWMS. Chapter 7 of NEMA has important implications for the achievement of the NWMS initiative on a national level and on a local level this is stipulated by the IWMP of Drakenstein Municipality.

NEMA inter alia contains the following environmental principles applicable to this study:

Environmental management must put people and their needs at the forefront, and must serve their interest fairly;

Development must be socially, environmentally and economically sustainable. This means that the following things must be considered before there is development:

Disturbance of ecosystems and loss of biodiversity

Pollution and degradation of the environment

Disturbance of landscapes and sites where the nation’s cultural heritage is found

Non-renewable resources must be used responsibly

The precautionary principle must be applied

Negative impacts must be anticipated and prevented and if they cannot be prevented they must be minimised or remedied;

Environmental management must be integrated and the best practical environmental option must be pursued;

Equitable access should be provided to environmental resources, benefits and services to meet basic human needs;

Responsibility for environmental health and safety of any policy, programme or project must continue throughout the life cycle of a project;

Public participation in environmental decision-making must be promoted; Community well-being and empowerment must be promoted through environmental

education; and There must be inter-government co-ordination and harmonisation of policies and laws.

NEMA provides that no one may commence with any listed activities before obtaining environmental authorization from the competent authority. Anyone wishing to obtain such authorization must follow a basic or a full environmental impact assessment process, depending on the type of activity envisaged

34.

34 List of Waste Management Activities that have, or are likely to have a Detrimental Effect on the Environment, 2009 published in

Government Gazette 32368 (Notice No 718) of 3 July 2009 read with the Environmental Impact Assessment Regulations, 2010 (the “EIA Regulations”) published in Government Gazette 33411 (Notice No 664) of 30 July 2010.



In order to avoid duplication by requiring two approvals for the same activity, waste activities listed in the EIA Regulations were removed thus currently waste activities only require a licence in terms of the NEM:WA. Refer to par. 5.3.2.1 in terms of which it was indicated that the WTE Facility activities will require a BA but also a full S&EIA

35 process to obtain an EA from the provincial DEA&DP if the full

project development (anaerobic digestion and direct combustion) as envisaged takes place. The EIA processes have become highly regulated to improve the quality of specialist input and facilitate informed decision-making. There are no less than nine guidelines which address inter alia environmental, biodiversity, heritage, visual and aesthetic, economic, hydrological and social inputs in the EIA processes. Table 1.2 sets out the NEMA EA activities which also include reference to other licences that are applicable as further attended to in par. 5.3.5 and 5.3.7. Table 1.2: NEMA EA Activities (Source: DEA)

EA Activities – Material Recovery (MRF), Anaerobic Digester (AD) & Direct Combustion (DC)

GN R.544 – Basic Assessment Activities

# 1: The construction of facilities or infrastructure for the generation of electricity where: i. the electricity output is more than 10 megawatts but less than 20 megawatts; or ii. the output is 10 megawatts or less but the total extent of the facility covers an area in excess of 1

hectare. [AD & DC Combined]

# 10: The construction of facilities or infrastructure for the transmission and distribution of electricity - i. outside urban areas or industrial complexes with a capacity of more than 33 but less than 275

kilovolts; or ii. inside urban areas or industrial complexes with a capacity of 275 kilovolts or more. [AD, DC – if

necessary electricity infrastructure is not available]

# 13: The construction of facilities or infrastructure for the storage, or for the storage and handling, of a dangerous good, where such storage occurs in containers with a combined capacity of 80 but not exceeding 500 cubic metres. [AD, DC – if required for storage of captured gas (AD), or storage of chemicals for process water, effluent and/or air emissions treatment]

GN R.545 – Scoping & EIA Activities

# 5: The construction of facilities or infrastructure for any process or activity which requires a permit or license in terms of national or provincial legislation governing the generation or release of emissions, pollution or effluent and which is not identified in Notice No. 544 of 2010 or included in the list of waste management activities published in terms of section 19 of the National Environmental Management: Waste Act, 2008 (Act No. 59 of 2008) in which case that Act will apply. [If Water Use Licence required]

# 26: Commencing of an activity, which requires an atmospheric emission licence in terms of section 21 of the National Environmental Management: Air Quality Act, 2004 (Act No. 39 of 2004), except where such commencement requires basic assessment in terms of Notice No. R544 of 2010. [DC]

5.3.4 DRAFT STANDARDS AND WASTE CLASSIFICATION AND MANAGEMENT REGULATIONS

The draft Assessment Standards, the draft Disposal Standards and the Draft Waste Regulations in terms of NEM:WA

36 would to a large degree replace the existing Minimum Requirements for the

Handling, Classification and Disposal of Hazardous Waste, and Minimum Requirements for the Disposal of Waste to Landfill (2

nd Ed., DWAF, 1998). For the past 15 years, the Minimum Requirements

provided the only norm by means of which authorities, waste generators, permit holders and other stakeholders could differentiate acceptable waste handling and disposable practices from unacceptable practices. Although not formal legal requirements in terms of South African legislation, the provisions of the Minimum Requirements have historically been enforced (to an extent) through conditions included in permits for waste disposal sites and other waste management facilities, with relatively little obligations placed on waste generators.

35 In terms of the EIA Regulations the competent authority would ideally take a decision within 30 days, but built into the

regulations are extension periods which effectively allow for 120 days if the application complies with all requirements. Taken into account the required content of a full environmental impact assessment and its public consultative process, it could realistically be assumed that it would take between 14 and 24 months to obtain an environmental authorization based on a S&EIA.

36 Refer to General Notice No. 435 of 2011, published in GG No. 34417 of 1 July 2011.



The new Regulations and Standards represent a notable paradigm shift from the previous principles and approaches to the classification, management and disposal of waste contained in the Minimum Requirements, and places several obligations on waste managers, transporters and waste management facilities alike. These requirements include a new system for the classification of hazardous waste, a new methodology to assess waste for disposal to landfill, a revised landfill classification system with updated liner designs, restrictions placed on the disposal of certain waste streams, labelling and storage of hazardous wastes, as well as record keeping of waste generation and management, and maintaining a waste manifest system for transport of hazardous wastes. A recent review of the DLM’s waste management by-laws included these responsibilities where necessary. Particularly relevant to the Drakenstein project, is the different waste classification system that is prescribed by the Regulations to determine whether waste is hazardous or not. The Regulations require that all waste must be classified in accordance with SANS 10234, the South African National Standard Globally Harmonized System of Classification and Labelling of Chemicals (GHS). Classification in terms of SANS 10234 means establishing whether a waste is hazardous based on the nature of its physical, health and environmental hazardous properties (hazard classes), and determining the degree or severity of the hazard (hazard categories). Unlike the Minimum Requirements, the classification of waste as hazardous in terms of the new Regulations would not pre-suppose or require any particular waste management measures, e.g. disposal to a particular type of landfill. Rather, the purpose is to ensure adequate and safe storage and handling of the waste, and to inform the consideration of suitable waste management options. It therefore does not exclude the use of hazardous waste in WTE processes. Due to the different parameters of the proposed system, it is also conceivable that waste that is currently classified as hazardous in terms of the Minimum Requirements, could be considered general waste in terms of SANS 10234, which means licencing of specific hazardous waste storage, recovery, etc. activities may not be required as is the case now. A second version of the new Regulations and Standards was published for public comment a second time in August 2012, and it is expected that these would come into effect within the next 6-12 months.

5.3.5 NATIONAL ENVIRONMENTAL MANAGEMENT AIR QUALITY ACT, 39 OF 2004

Regulating air quality monitoring, management and control in general as well as activities that may have an impact on ambient air quality, is the purpose of the National Environmental Management: Air Quality Act, 39 of 2004 (the “NEM:AQA”). The act systematically replaced the Atmospheric Pollution Prevention Act, 45 of 1965 and came into full effect on 1 April 2010. It provides for the listing of activities resulting in atmospheric emissions and the establishment of minimum emission standards for substances resulting from these activities. The act recognises that the minimisation of pollution can be achieved through control and the implementation of cleaner production practices and cleaner technologies. Section 21 of the NEM:AQA provides for the listing of activities resulting in atmospheric emissions. Specifically, the Minister must publish a list of activities, which result in atmospheric emissions and which the Minister reasonably believes have or may have a significant detrimental effect on the environment. Furthermore, such a notice must establish minimum emission standards for substances resulting from a listed activity, including the permissible amount or concentration of substances being emitted, as well as the manner in which measurements of such emissions must be carried out. The notice may also contain transitional and other special arrangements in respect of activities which are carried out at the time of their listing. The DEA has given effect to Section 21 through the publication of Listed Activities and Minimum Emission Standards (March 2010), which identifies activities/plants that require an Atmospheric Emission Licence (“AEL”). Recently (23 November 2012), the DEA published a draft revised list of



activities, which includes additional activities for licencing and associated minimum emission standards. The Parliamentary Portfolio Committee on Water and Environmental Affairs commenced in March 2013 with public hearings to establish if there are any potential or unintended consequences of the proposed amendments to the listed activities before the process is taken further. It is expected that the amended list of activities would come into effect within the next year. The NEM:AQA also makes provisions for the establishment of national standards for ambient concentrations of specified substances or mixtures of substances in ambient air, which through ambient concentrations, bioaccumulation, deposition or in any other way, present a threat to health, well-being or the environment or which are reasonably believed to present such a threat. The Minister has accordingly also published national ambient air quality standards referring to various pollutants. In addition, criteria and limits for dust deposition and regulations on the management of dust pollution have also been set. The National Framework for Air Quality Management, 2007 is in the process of being updated.

5.3.5.1 ATMOSPHERIC EMISSION LICENSE IN TERMS OF NEM:AQA

The activities/processes that require an AEL are very specifically identified, in such a way that although the Anaerobic Digestion process will include a flaring stack and may have other emissions, it would not require an AEL. The DC process would however be considered an incineration / thermal treatment process and would require an AEL. Table 1.3 set out the emission standards (stack concentration limits) that the DC process would have to comply with. The applicable activity and emission requirements that would apply to the DC process are the same in the draft revised list of activities published by the DEA in November 2012. Table 1.3: NEM:AQA Emission Standards (Source: DEA) Section 17, Category 8: Disposal of hazardous and general waste

Description: Facilities where general and hazardous waste including health care waste, crematoria, veterinary waste, used oil or sludge from the treatment of used oil are incinerated.

Application: Facilities with an incinerator capacity of 10 kg of waste processed per hour or larger capacity.

mg/Nm3 PM CO SO2 NOx

a HCl HF TM

b Hg TM

c TOC NH3 D&F

d

Emission Limits

10 50 50 200 10 1 0.5 0.05 0.05 10 10 0.1

Mg/Nm3 concentration - under normal conditions of 10% O2, 273 K and 101.3 kPa.

Special arrangements: Compliance with requirements of the National Policy on Thermal Treatment of General and Hazardous Waste. a NOx expressed as NO2

b Sum of Pb+As+Sb+Cr+Co+Cu+Mn+Ni+V

c Sum of Cd+Tl

d PCDD/PCDF in ng l-TEQ/Nm

3 under normal conditions of 10% O2, 273 K and 101.3 kPa.

Although the AEL application procedure in the NEM:AQA does not refer directly to the NEMA EIA

Regulations (as the NEM:WA does), it is a process that will run concurrently (refer to Figure 1.7) with

the S&EIA Process required for the waste licensing of the DC process.



Figure 1.7: Interrelationship between EIA and AEL Processes (Source: DEA)



5.3.6 NATIONAL POLICY ON THERMAL TREATMENT OF GENERAL AND HAZARDOUS WASTE, 2009

The policy provides the framework, within which the following thermal waste treatment technologies must be implemented in SA, i.e.:

the incineration of general and hazardous waste in dedicated incinerators or other high temperature thermal treatment technologies, including but not limited to pyrolysis and gasification; and

the co-processing of selected general and hazardous wastes as alternative fuels and/or raw materials in cement production.

This policy gives the certainty that was needed to allow for the development of alternative waste treatment technologies as will be used in the WTE Facility since it presents Government’s position that thermal waste treatment is an acceptable waste management option in South Africa, and that incineration is an internationally proven technology for the treatment of general and hazardous waste. The policy also provided the framework within which these thermal waste treatment technologies shall be implemented in the country, which included emission standards (which have since been formalised under the NEM:AQA), as well as operational, management and monitoring requirements for thermal waste treatment activities. In terms of policy implementation, all Government Departments across the different spheres of government must consider this policy in their decision-making on matters pertaining to the thermal treatment of waste. Relevant provisions and the minimum standards set in the policy must form conditions of different approvals required in terms of South African environmental legislation as appropriate, ensuring that the requirements for thermal waste treatment are applied effectively and consistently across the country.

5.3.7 NATIONAL WATER ACT, 36 OF 1998

The National Water Act, 36 of 1998 (the “NWA”) is relevant in that its purpose is to ensure water resources are protected, used, developed and conserved, inter alia ensuring the reduction and prevention of pollution and thus taking to task any landowners or users that do not comply with standards, e.g. waste standards that could pollute water sources. Section 19 of the NWA deals with pollution prevention in particular situations where pollution of a water resource occurs or might occur as a result of activities on land. A person who owns controls, occupies or uses the land in question is responsible for taking measures to prevent pollution of water resources. If these measures are not taken, the catchment management agency concerned may itself do whatever is necessary to prevent the pollution or to remedy its effects and to recover all reasonable costs from the persons responsible for the pollution.

5.3.7.1 WATER USE LICENSE AND WASTE MANAGEMENT I.T.O. THE NWA

The need for a Water Use License (“WUL”) in terms of the NWA for the WTE Project has not been clarified since it would depend on the final design of the WTE Facility. The water uses regulated through a WUL that are most likely to be relevant to the WTE waste management activities are:

the discharging of waste or water containing waste into a water resource through a pipe, canal, sewer, sea outfall or other conduit;

disposing of waste in a manner which may detrimentally impact on a water resource; and disposing in any manner water that contains waste from, or which has been heated in, any

industrial or power generation process. The process of applying for a Water Use Licence accordingly includes the development of an Integrated Water and Waste management Plan (the “IWWMP”) to assess any risks to water resources and develop management plans to address these risks. The IWWMP will be obliged to take a number



of national strategies and local concerns into account, e.g. the National Water Resource Strategy (the “NWRS”) and the down-stream water users in the vicinity of the WTE site.

5.3.8 ENVIRONMENT CONSERVATION ACT, 73 OF 1989

The act has largely been replaced by a new generation of environmental legislation but is still relevant in respect of existing licences. Within the parameters of this legislation, a management structure based on the Minimum Requirements Series was developed. This is an important source of information, particularly relating to the disposal of waste, although it does not have the status of law. Once a minimum requirement is included in a landfill site permit, it is legally enforceable.

5.3.9 HAZARDOUS SUBSTANCES ACT, 15 OF 1973

This Act provides for regulations to be issued in order to control the dumping and disposal of hazardous waste. Where local government is involved in the disposal of empty containers used for Category B Group I substances, it must refer to Regulation GG5467 of 25 March 1977. In identifying and classifying dangerous goods and substances, the SANS Code 0228 is used.

5.3.10 OTHER RELEVANT NATIONAL STANDARDS, REGULATIONS, NOTICES

A number of other legislative instruments may be relevant to the project whether it be to the process of establishment or the management and operation of the various components if the project is successfully established. These are:

Waste Tyre Regulations, 2008 in terms of the ECA, GN No. R.149 of 2009, published in GG No. 31901 of 13 February 2009;

List of Waste Management Activities that have, or are likely to have a detrimental effect on the Environment, in terms of NEMA, General Notice (GN) No. 718 of 2009, published in Government Gazette (GG) No. 32368 of 3 July 2009;

Draft Guiding Document on the Preparation of Industry Waste Management Plans ito NEM:WA, Notice 573 of 2010, published in GG No. 33264 of 11 June 2010;

National Waste Information Regulations ito NEM:WA, Notice 718 of 2010, published in GG No. 33384 dated 23 July 2010;

Draft National Standards for the Scrapping or Recovery of Motor Vehicles ito NEM:WA, GN No. 431 of 2011, published in GG No. 34413 of 1 July 2011;

Draft National Standards for the Extraction, Flaring or Recovery of Landfill Gas in South Africa ito NEM:WA, GN No. 434 of 2011, published in GG No. 34416 of 1 July 2011

Draft National Norms and Standards for the Storage of Waste ito NEM:WA, GN No. 436 of 2011, published in GG No. 34418 of 1 July 2011; and

Draft Health Care Risk Waste Management Regulations ito NEM:WA, GN No. 452 of 2012, published in GG No. 35405 of 1 June 2012.

5.3.11 WESTERN CAPE’S DRAFT STRATEGIC PLAN, 2010

The WCSP includes 12 overarching strategic objectives for the Western Cape including the ‘Mainstreaming of Sustainability and Optimising Resource-use Efficiency’ which includes pollution and waste management. In terms of the policy priority ‘climate change mitigation and adaptation’ the PGWC has adopted the following strategic targets and outcomes applicable to this study:

facilitate and promote processes which will contribute to a target of 15% of the electricity used in the province being generated from renewable energy sources by 2014;

Increase the percentage of waste diversion from landfill through the following initiatives:



Develop the Provincial Integrated Waste Management Plan by 2011 and implement it by 2014;

License applications for waste management activities;

Co-ordinate, assess and monitor ‘second generation’ municipal and selected industry first generation waste management plans by 2014;

Complete and Implement the Health Care Waste Management Amendment Act and Regulations by 2012;

Reduce environmental quality impacts on environmental resources (land and water) by:

Approving 50% of received remediation applications;

Implementing the Action Plan of the Western Cape Provincial Programme of Action to reduce marine pollution from land-based pollution sources;

Co-ordinating chemicals management action plans in 3 industry sectors.

5.3.12 WESTERN CAPE PROVINCIAL SPATIAL DEVELOPMENT FRAMEWORK, 2005

The Provincial Spatial Development Framework (the “PSDF”) voices the concern that a number of waste landfill sites in the Western Cape are not properly managed. In addition to the challenges of managing increasing waste volumes and decreasing land available for waste disposal, the Western Cape, along with other Provinces, has to deal with waste management problems caused by inequitable development and inadequate service delivery. It is recognised that waste issues are often closely associated with poverty, environmental health and social justice issues.

The following policies have relevance in respect of the planned waste developments in the study:

RC32: All municipalities shall follow an integrated hierarchal approach to waste management consisting of the following: avoidance/reduce, reuse, recycle, composting, treatment and final disposal. The Waste Management System shall consist of a collection service from the source, (domestic, office or factory) transfer stations and waste disposal sites;

RC33: Waste separation at source shall be mandatory in all domestic households and institutions and businesses including high density and multi-storey buildings from a date to be announced. Initially only organic (vegetable and plant matter) and inorganic (usually dry, cardboard, glass, plastics, paper, builders’ rubble) waste shall be separated;

RC34: Material Recovery Facilities shall be established at all transfer stations; RC35: Engage with the raw material and packaging industries and reach agreement to ensure

demand for recycled products; RC36: Every urban settlement should have a Transfer Station within a maximum of 5

kilometres from the town centre, inside the Urban Edge; RC37: Every municipality shall have a Waste Disposal facility site located and operated

according to the minimum requirements of the Department Water Affairs (DWA) that will service transfer stations in the urban settlements of that municipality. These sites may or may not be located within the Urban Edge of urban settlements. The main criteria for their location will be to meet satisfactory environmental and transport requirements.

5.3.13 WESTERN CAPE HEALTH CARE WASTE MANAGEMENT ACT, 7 OF 2007 & REGULATIONS

The Act provides for the effective handling, storage, collection, transportation, treatment and disposal of health care waste. In 2010 the Act was substantially amended to align with the NEM:WA and to make provision for better enforcement thereof. Draft Regulations published in 2011 deals in more practical details with transportation, record-keeping, registration on the IPWIS, etc.

5.4 ENERGY LEGISLATION , POLIC IE S , PLANS A ND PROGRAMME S

A plethora of acts, policies and plans makes up the energy legal and institutional framework mapped out by the Department of Energy (“DoE”), some of which laid the foundation for a diversified energy



sector and others enabling and regulating the new role-players entering the energy generation market. The discussion below highlights important acts, policies, plans and concerning the WTE project. Most important is the realisation that the evolving nature of the legal and institutional energy environment in SA has a direct influence on Independent Power Producers (“IPP”) such as the private entity that will partner the Municipality in the WTE project. IPPs’ entrance into the power generation market is through a state procurement programme and a complex “contractual suite” which it is hoped would be simplified by the evolving legislation.

5.4.1 WHITE PAPER ON RENEWABLE ENERGY POLICY, 2003

The White Paper on Renewable Energy Policy, 2003, (the “WP

REP”) set out to promote renewable energy and integration of renewable energies into the mainstream energy economy. Biomass from organic material including the organic components in municipal and industrial wastes is recognised and energy from waste is accordingly one of the renewable energy resources included in the policy. So is biogas and landfill gas. The

WPREP set an initial target of 10 000 GWh of renewable energy by 2013.

5.4.2 NATIONAL ENERGY REGULATOR ACT, 40 OF 2004

The National Energy Regulator Act, 40 of 2004 (the “NERA”) establishes a single regulator to regulate the electricity, piped-gas and petroleum pipeline industries. It sets out the functions, composition and all other matters related to the National Energy Regulator of South Africa (“NERSA”).

5.4.3 ELECTRICITY REGULATION ACT, 4 OF 2006

The second amendment bill of the Electricity Regulation Act, 4 of 2006 (the “ERA”) is in process. The ERA establishes a national regulatory framework for the electricity supply industry; makes the NERSA the custodian and enforcer of this framework and provides for licences and registration as the manner in which generation, transmission, distribution, dispatch, reticulation, trading and the import and export of electricity are regulated. “Dispatching” was added through the amendment bill to regulate the scheduling, coordination and management of the flow of electricity in and out the national transmission power system. However, “wheeling”, i.e. the flow or transporting of electricity over the transmission lines from the generation facility to the substation from where it is distributed or simply to be understood as making use of the national grid to ‘wheel’ the energy to a third party buyer, was not addressed in the amendment act. The act also provides for the Integrated Resource Plan, 2010 (the “IRP”) and the Independent Power Producer (“IPP”) procurement process, including a Power Purchase Agreement (“PPA”). The objects of the ERA are inter alia to promote the use of diverse energy resources, renewable sources of energy and energy efficiency. NERSA is the electricity licencing authority for generating facilities, transmission or distribution power systems and the import, export and dispatch of electricity and sets the tariffs. The act also refer to municipalities having to comply with the legal process set out in the MSA and the MFMA to procure external service providers, i.e. the process followed by this study. In terms of section 34 of the Act, the Minister, with concurrence of NERSA, may make a determination in terms of the extent of new generation capacity needed, the types of energy source from which the electricity may be generated and the amount that may be generated from each of the sources.



5.4.4 NATIONAL ENERGY ACT, 34 OF 2008

The aim of the National Energy Act, 34 of 2008 (the “NEA”) is to ensure that diverse energy resources are available in sustainable quantities and at affordable prices including the increased generation and consumption of renewable energies. It defines renewable energy as “energy generated from natural non-depleting resources including solar energy, wind energy, biomass energy, biological waste energy, hydro energy, geothermal energy and ocean and tidal energy”.

5.4.5 WESTERN CAPE DRAFT WHITE PAPER ON SUSTAINABLE ENERGY, 2009

The Western Cape Draft White Paper on Sustainable Energy, 2009 (the “WC

WPSE”) mobilises the Western Cape to embark on a more sustainable path of energy production and use enabled through energy demand management programmes and support for a mix of renewable and clean energy technologies. The long term 2020 strategy has the following targets:

Energy efficiency programmes achieve a 15% saving; Clean and renewable energy contributes to 15% of the energy mix; and Emission reductions of 15% are achieved.

5.4.6 ELECTRICITY REGULATIONS ON NEW GENERATION CAPACITY, 2011

The Electricity Regulations on New Generation Capacity, 201137

(the “ERNGC”) is very relevant to the WTE project. The objectives of the regulations are:

a) to facilitate planning for the establishment of new generation capacity; b) the regulation of entry by a buyer and a generator into a PPA; c) to set minimum standards or requirements for PPAs; d) the facilitation of the full recovery by the buyer of all costs efficiently incurred by it under or

in connection with a PPA including a reasonable return based on the risks assumed by the buyer thereunder and to ensure transparency and cost reflectivity in the determination of electricity tariffs; and

e) the provision of a framework for implementation of an IPP procurement programme and the relevant agreements to be concluded.

The Regulations defines the “buyer” as any organ of state designated by the Minister as per a determination made in terms of section 34 of the ERA and sets out the requirements to be met by a PPA as:

a) VfM (value-for-money); b) appropriate technical, operational and financial risk transfer to the generator; c) effective mechanisms for implementation, management, enforcement and monitoring of the

PPA; and d) satisfactory due diligence in respect of the buyer’s representative and the proposed

generator in relation to matters of their respective competence and capacity to enter into the PPA.

The regulations oblige the buyer or procurer, before concluding the PPA, to ensure all approvals required in terms of the PFMA (e.g. the same feasibility study, consultation, reporting and procurement processes as in the MFMA) are in place, and, in doing so to:

a) ensure the above requirements are met; b) the buyer has a contract management plan in place to enable regular reporting on the PPA to

NT and the Minister; and c) the buyer has ring-fenced the revenue approved or allocated by the Regulator for new

generation capacity projects so that the buyer can honour its financial obligations in terms of these projects.

37 Regulation Gazette No. 9539 published in Government Gazette No. 34262 dated 4 May 2011



5.4.7 RENEWABLE ENERGY (RE): NEW GENERATION CAPACITY GENERATORS

In order for a project to qualify as Renewable Energy (“RE”), the electricity should be produced by means of naturally occurring non-depletable sources of energy such as solar, wind, biomass, hydro, tidal, wave, ocean current and geothermal. Biomass energy (from organic matter) can be converted in various forms of fuel that can be used to supply energy and to generate electricity. Biomass inter alia includes plants, food production, fuel wood and organic components in municipal and industrial waste (waste to energy). Biomass is grouped in two categories, i.e. biomass (solid) and biogas. Biogas is obtained from anaerobic digestion and landfill gas. It thus includes power projects using fuels derived from biological treatment of waste. Currently there are four mechanisms through which to sell the electricity from a generation plant to a customer:

REFIT/REBID – Bidding program initiated by the DoE and jointly facilitated by ESKOM and NERSA.

Wheeling – Make use of the national grid to wheel the energy to a third party buyer. Genflex – Can be used where the Eskom customer is both a generator and a load and the

same network assets are used for export and consumption. This avoids network charges being charged on both import and export.

Direct – Supply to a customer without connecting to the grid. The REFIT/REBID and Wheeling mechanisms are further discussed.

5.4.7.1 FEED-IN TARIFF PROGRAMME AND THE INTEGRATED RESOURCE PLAN

In terms of the national mandate, NERSA produced the Renewable Energy Feed-in-Tariff (the “REFIT”) Programme, the selection criteria of renewable energy projects under the REFIT programme and PPAs to enable the access of IPPs to the energy supply market as well as the initial procurement documentation for the full project cycle. The IRP, developed as a 20 year projection on electricity supply, lays the foundation of the country’s energy mix up to 2030. It makes provision for a diversified energy mix that will comprise coal, gas, nuclear and renewable energy carriers. It gives effect to the

WPREP target of 10 000 GWh for 2013 and

envisages that renewables would contribute 42% of SA’s new generation capacity by 2030. The REFIT procurement process

38 was set as the starting point in implementing the IRP. It has bidding rounds

planned during which IPPs can enter the energy market. Initially the government determined a fixed REFIT structure for the various technologies but when it changed the process to a two envelope competitive bidding process it also capped the price for each technology to levels below the 2009 REFIT as promulgated. The capped tariffs as determined differ as follow from the initial indications: Table 1.4: REFIT/REBID Tariff Adjustments

Energy 2009 Capped-2012 % less

biomass 118c/kWh 107c/kWh 9%

biogas 96c/kWh 80c/kWh 17%

landfill gas 90c/kWh 60c/kWh 32%

During the first bidding round that ended in November 2011 the government procured 1 416 MW of renewable energy transactions by approving 28 projects of the 53 involving 2128 MW submitted. NERSA held the public hearings on the licence applications of the 28 IPPs. The results of the second bidding round that closed on 5 March 2012 were announced on 21 May 2012. From a total of 79 bids

38 Also known as the REBID Programme due to the preference for bidding processes or as the Renewable Energy Independent

Power Producer Procurement Programme



received the DoE selected 19 preferred bidders with projects having the potential to produce 1044MW made up of 9 solar photovoltaic bids, 7 wind projects, 2 hydropower projects and 1 concentrated solar power project. The projects have a value of R28,1bn with R11,8bn in local content value, thus emphasizing the importance of the latter. The government wishes to procure 3 725 MW of renewables capacity before or at least by 2016. Based on the mentioned figures it thus appears that the first two bidding rounds took up an allocation of 2 459MW of generation capacity and only 1 166MW remains to be procured in the upcoming bidding windows.

Note: 3-4 kilowatts (KW) is sufficient to provide power to one standard three bedroom house therefore 1MW would be sufficient to provide power for 225 -250 low cost housing units.

Further bidding rounds will focus on biomass, biogas and landfill gas and demand a fairly high percentage of local content from certain technologies. As per the section 34 determination dated August 2011, government looks at procuring amongst others 25MW of landfill gas and 12.5MW apiece of biomass and biogas capacity but these allocations are not fixed. The determination set the minimum MW per technology at 1MW and the maximum capacity per plant at 10 MW for hydro, biomass and biogas respectively. 100 MW was set aside for small projects up to 5 MW and 100MW was to be produced by Eskom. According to the procurement and selection rules laid down by the first two rounds of IPP selection a bidder’s price would only be considered once it had met the other criteria which include environmental acceptability, land security, commercial robustness, economic development, financial viability, technical competence and capacity. The economic development criteria relate to job creation, the involvement of historically disadvantaged individuals, community development and economic spinoffs such as the localisation of components and solutions. The procurement process also has a built-in zero tolerance for any collusive and uncompetitive behaviour with the penalty of immediate disqualification and the loss of the bid bond, i.e. a refundable guarantee of R100 000/MW required on submission. As per the ministerial determination in terms of section 34 of the ERA, the current “buyer” under the REBID programme is Eskom with selected bidders (IPPs) having to conclude a PPA with Eskom. A second contractual arrangement is the Connection Agreement (“CA”) with either Eskom or a municipality and thirdly an Implementation Agreement (“IA”) between the IPP and the DoE with aspects such as Black Economic Empowerment (“BEE”) and risk management hard-wired into the agreement and at least a 40% SA owned requirement. In effect a private party partnering a municipality in a WTE project is simultaneously a partner to Eskom and the DoE and has to go through rigorous procurement processes to reach this position. The municipal procurement process is in accordance with the Supply Chain Management Regulations (the “SCM Regulations”) in terms of the MFMA and the national government procurement processes in terms of the Public Finance Management Act (the “PFMA”). Both of these processes are open, fair, transparent and competitive. According to the DoE the approved IPP projects initially each receives a two year PPA from Eskom but could be converted into projects accepted under the larger renewables procurement programme. Should that be the case a new PPA would have to be negotiated and the capacity is deducted from the MW sought under the REBID programme. If municipalities were to enter into PPAs with IPPs these would have to be approved by NERSA. Recently, eThekwini was authorised to purchase electricity from IPPs at the Mega Flex rate, i.e. the rate at which municipalities are purchasing electricity in bulk from Eskom. The 2009 REBID tariffs made provision for an annual review during the first 5 years of the programme and every 3 years thereafter. Since the IPP procurement process only started in 2011 this could not be done. However, this process will have to resume and also include the changes in financial and economic parameters since ERA requires NERSA to set and approve tariffs that shall ‘enable an



efficient licensee to recover the full cost of its licensed activities, including a reasonable margin of return’. The DoE has postponed the third bid submission date to August 2013 but even so the Drakenstein WTE project would not make this bidding round of the current REBID procurement given that the timeframe would not allow the private party to meet one of the most important qualifying criteria, e.g. the Environment Impact Assessment’s Record of Decision (the “EIA

ROD”) i.e. the environmental

authorisation received.

5.4.7.2 THE CONCEPT, CONDITIONS AND COSTING OF ‘WHEELING’

In order to support wide green electricity market, renewable energy IPPs are permitted to sell power directly to buyers willing to purchase renewable energy outside of the REFIT mechanism, provided that a generation licence has been granted by NERSA. In fact, the ERA requires that transmission, distribution and trading functions of electricity supply be separately licensed and that non-discriminatory network access be given to all users of the transmission or distribution system, such as IPPs. Wheeling is the transportation of electric power over such transmission lines. Thus in the case of the WTE acting as an IPP selling electricity directly to the DLM it implies that the transmission lines belonging to ESKOM will be used to transport (wheel) the electric power from the generating facility of the IPP to the Municipality via a substation that also belongs to ESKOM. The cost structure related to give IPPs network access for electricity transportation is quite complex with a number of components. NERSA has issued Regulatory Rules on Network Charges for Third Party Transportation of Energy, 2011 (the “Network Regulatory Rules”) which incorporates a number of principles, rules and methodologies and complies with the Electricity Pricing Policy

39 (the “EPP”) of

DoE. In terms of the EPP requirements, wheeling must inter alia give fair and non-discriminatory access and use of networks to all users of the relevant networks and the full cost to operate the networks must be reflected in the various connection and use-of-system charges while incremental wheeling costs associated with a specific wheeling transaction and its fair share must be recovered as a connection charge. The Use-of-System (the “UOS”) charges refer to unbundled tariff structures and rates including components such as the Transmission Use-of-System Charges (the “TUOS”), the Distribution Use-of-System Charges (the “DUOS”). These UOS charges are included in the Wholesale Electricity Pricing System (the “WEPS”) with a time and season differentiated energy charge, an administration charge and a customer service charge. According to the Network Regulatory Rules, general market rules provides the context within which TUOS and DUOS charges will be applied and in respect of New Generation Capacity Generators the rules are set out. Chapter 4 of the Network Regulatory Rules deals with power wheeling and contractual matters. It appears that several transactions take place for the supply of electricity from generators to loads (customers). The generator will contract with the network provider, i.e. Eskom or the Municipality, to provide network services including a Connection and Use-of-System Agreement (“C&UOS Agreement”) as well as a contract with the entity purchasing the energy through a PPA. This purchasing entity may be Eskom, a third party, or own generation. If the energy is sold to a third party, the electricity bill of the third party, that is, the customer receiving the energy, must be adjusted to take into account the wheeled energy. This is done in

39 The South African Electricity Supply Industry: Electricity Pricing Policy GN 1398 of 19 December 2008.



terms of a supplementary contract between Eskom and the customer receiving the wheeled energy. The customer will pay the standard tariffs associated with the cost of delivering the energy. Generators, whether they sell energy to Eskom or wheel energy to third parties, will pay the same Distribution Use-of-System charges including transmission costs, based on their export capacity and energy and the service provided to the generator. Customers that receive wheeled energy from a non-Eskom generator will pay the same standard tariff charges, based on their capacity requirements and the amount of energy delivered over the network to their point of supply, as any other customer. Generators embedded in the distribution network will only impact the cost of distribution (network usage and losses) in exceptional circumstances because the nodes where embedded generators are connected are predominantly demand dominated. It is further not considered prudent to provide a credit to embedded generators for reducing distribution losses and enhancing network reliability because the generation is not always in service. Wheeling of energy, i.e. access between a generator and a third party (load) to facilitate the trading of energy, is allowed, subject to the generator receiving its approvals from NERSA to trade (sell to a third party) and signing the network service provider’s C&UOS Agreement with NERSA. The account(s) due to third-party access are reconciled in terms of the rules on the reconciliation of accounts and the third-party access framework.

A generator may enter into the following arrangements for the sale of energy to a third party:

Sell to remote Consumer or Consumers through Eskom Network Service Provider.

Sell to a directly connected Consumer, but not export onto Eskom networks.

Sell to a municipal customer from a generator connected to Eskom’s distribution network.

Sell to an Eskom customer/Eskom from a generator that is connected to a municipal distribution network.

5.4.7.3 ESKOM GRID CONNECTION AND USE-OF-THE-SYSTEM AGREEMENT

Eskom established a special Grid Access Unit to assist generators with the grid connection process. The following diagrams illustrate the grid connection process. These are included in this report to create an understanding of the numerous steps and timeframe involved in the process. Figure 1.8: Grid Connection Process (1) (Source: Eskom)



Figure 1.9: Grid Connection Process (2) (Source: Eskom)

It is preferable that the EIA, NERSA license process and the grid connection application for generators run in parallel since the processes are interlinked, i.e. phase 1 of the grid connection application inter alia requires proof of the EA application submitted to the DEA, the appointment of an EIA consultant and information regarding the public participation process. The initial non-binding (on Eskom) cost estimate provided by Eskom to a generator contains indicative costs and is valid for one year. Various further requirements kick in once the cost estimate provided by Eskom is accepted by the generator to move forward to a formal budget quote. Apart from financial commitments, the budget quote request must include inter alia, proof of the lodging of a license application with NERSA, proof of land ownership/permission to use the land earmarked for the electricity generating facility for that purpose; confirmation from the DEA approving the Scoping Report and proof of the reasonable viability of the proposed technology. The budget quote contains a lot of detail including a number of suspensive conditions that could see the quotation lapsing, i.e. the failure to obtain way-leaves or servitudes by Eskom; a failure to complete an EIA within time; a force majeure event, etc. The C&UOS Agreement set out the technical, financial and legal conditions for connection by the generator – as required by the Distribution Code. This agreement contains details such as the connection site, quality of supply requirements, operating agreement, customer and distributor obligations etc. Eskom will proceed with connection works upon acceptance of the budget quote, payment of the connection charge and receipt of the C&UOS Agreement. Eskom has developed a self-build policy document and will allow customers to self-build the dedicated portion of the connection works.

5.4.7.4 SUITE OF CONTRACTS

Thus, within the context of the WTE Project, the contractual process would be that in concluding the C&UOS Agreement (that includes the UOS charges) with NERSA, the generator of electricity, i.e. the IPP will conclude the PPA with the DLM as the entity purchasing the energy albeit this could also be Eskom. Included in the PPA would normally be the environmental levy raised on all energy supplied but this levy does not apply to electricity generated through anaerobic digestion or direct combustion processes. With the energy being sold to a third party as is the case, the electricity bill of the customer (DLM) would need to be adjusted for the wheeled energy through a supplementary contract with Eskom. The customer will pay the standard tariffs associated with the cost of delivering the energy as regulated by NERSA. The latter does not acknowledge a competitive environment with regards to the supply of electricity.



5.4.7.5 NERSA LICENSE PROCESS

The application for an electricity generation license to NERSA is done in terms of the ERA. As done in other sections of the report, the details of the license requirements are given below to emphasize the intertwining and interdependence of the environmental, energy and other statutory processes. 1) Complete Nersa application with the following key information and documents:

(a) Particulars of applicant (b) Desired commencement date of licence (c) Generation station details including type, capacity, commencement, year forecast,

efficiency, useful life, etc. (d) Fuel supply details including supplier and contractual agreements with primary fuel

supplier (e) Maintenance and availability forecasts (f) Details of energy off taker including PPA with proof that wrt the IRP, it is the least cost

solution to the customer (g) Network connection details including connection point, voltages, wheeling arrangement (h) Financial information including current financial statements, most recent audited

accounts; forecasting of sales, opex, revenues and cash flow (i) Human resource information regarding support staff and operational staff for the

generation station (j) Permission from government departments including the EIA, the WUL and the Waste

License (k) Broad based black economic empowerment details of applicant.

2) Financial model for review by Nersa 3) Feasibility study document 4) Other supporting documents including a process flow diagram

Once all of the above requirements are met and compiled, the package can be handed over to NERSA in order to start the 120 day process of finalising the license application. The 120 day process cannot be started before the complete package is with NERSA. The major bottle necks of the requirements include the EIA process, the Eskom process and the PPA. All of these requirements are mandatory.

5.4.8 INDEPENDENT SYSTEM AND MARKET OPERATOR BILL, 2012

As indicated, Eskom was designated as the state organ that must act as the ‘buyer’ of renewable energy under the REBID programme. The selected bidders or IPPs have to conclude a PPA with Eskom and these PPAs between the ‘state buyer’ and IPPs have to be approved by NERSA. Eskom controls electrical systems planning and operations and the transmission of power. It was the referee, a player and the umpire in the same business. By introducing the Independent System and Market Operator Bill (the “ISMO”) the government recognises that the SA electricity industry has a monopolistic structure regulated by NERSA and that it does not provide for the independent purchase of power from the private sector. The ISMO Bill therefore wishes to create such an independent structure as a state owned entity that will be autonomous from its key stakeholders on the supply side and on the demand side in relation to the national electricity transmission system or the electricity grid distribution system. It would also create an entity outside Eskom responsible for planning. In essence, the ISMO would have four core functions, i.e. the buying of power, wholesale, dispatch and planning functions. It would be 100% state owned as it would not be the privatisation of Eskom but the segregation of functions. The set-up of the ISMO is transitional and would not happen overnight. There has already been a long process of deliberation over the establishment of the ISMO. It has been through the National Economic Development and Labour Council (“NEDLAC”) process but still has a long road ahead. In commenting on the ISMO Bill, a recurrent concern of the private sector including the SA Independent



Power Producers Association (“SAIPPA”) is the need that the power grid must also be owned by the ISMO to avoid the IPP having agreements with more than one entity because such an arrangement would make the allocation of liability a contractual nightmare for an IPP. The WTE facility is a 20 – 25 year project and changes in its regulatory framework will impact on the project and its contractual arrangements throughout its lifespan.

5.4.9 WORKING FOR ENERGY

The Working for Energy Programme (“WEP”) of the South African National Energy Research Institute (“SANERI”) is similar to the Working for Water and Working on Fire programmes and is aiming to create jobs and skills through localised projects. The WEP has a number of focal points including a number of renewable type projects which could link into the WTE project, e.g. biomass to energy from invasive alien plants and bush encroachments and biogas to energy for rural and non-municipal commercial application derived from agricultural waste.

5.5 CL IMA TE CHANGE POLIC Y AND PLANNING PE RSPECTIVE S

South Africa has ratified the United Nations Framework Convention on Climate Change (the “UNFCCC”) and its Kyoto Protocol (coming to an end in December 2012) and in terms thereof already has existing internationally legal binding obligations to inter alia manage, mitigate and report on its emissions of Greenhouse Gases (“GHG”) in order to curb the air pollution blamed for global warming. SA is part of many countries who thus pledged to cut their emissions.

5.5.1 NATIONAL CLIMATE CHANGE RESPONSE WHITE PAPER, 2011

On 12 October 2011 the government approved the National Climate Change Response White Paper (the “NCCR

WP”) the main objectives thereof being to:

effectively manage the inevitable climate change impacts through intervention that could build and sustain SA’s social, economic and environmental resilience and emergency response capacity; and

make a fair contribution to the global effort to stabilise GHG concentrations in the atmosphere at a level that avoids dangerous anthropogenic interference with the climate system within a timeframe that enables economic, social and environmental development to proceed in a sustainable manner.

Waste Programme

The NCCRWP

outlines a risk-based process to identify and prioritise short –and medium term adaptation interventions to be addressed in sector plans. DEA leads the Waste Management Flagship Programme which will establish the GHG mitigation potential of the waste management sector including investigating waste-to-energy opportunities available within the solid-, semi-solid- and liquid-waste management sectors, especially the generation, capture, conversion and/or use of methane emissions. Based thereon the DEA will develop and implement a detailed waste-related GHG Emission Mitigation Action Plan (the “WE

MAP”) aimed at measurable GHG reductions. Once again the

relevancy of the WTE Project is boldly emphasized by national strategy and planning.

5.5.2 UNFCCC CONFERENCE OF THE PARTIES

The UNFCCC 17th

Conference of the Parties (the “COP 17”) took place in Durban in December 2011 with the countries involved (only 38 industrialised countries were present) agreeing to a 2

nd

commitment period of the Kyoto Protocol from January 2013 which will be a legally binding deal that requires countries to turn their economy-wide targets into quantified Emission Reductions (“ER”)



objectives. Also positive was the establishment of the much awaited Green Climate Fund to assist developing countries with climate change. Cities on Climate

Local government has moved to the forefront of climate change control when the Global Covenant of Cities on Climate (the “Mexico City Pact”) was launched at the World Mayors Summit on Climate in Mexico City in November 2010. Signed by 200 majors all over the world including eThekwini and City of Cape Town, the Mexico Pact sets out why cities are strategic actors in combating global warming and establishes a set of voluntary commitments to promote strategies and actions aimed at reducing GHG emissions and adapting cities to the impacts of climate change. Signatories to the Pact registered their emission inventories, commitments and actions to the carbonn Cities Climate Registry (the “cCCR”). At the COP 17 114 majors of 28 countries again emphasized their commitment to the strengthening of local resilience for climate change by adopting the Durban Climate Change Adaptation Charter (the “DCCAC”). Cities are encouraged to sign the Mexico Pact and as a secondary city with a known green focus embarking on a WTE project currently without replica in any other municipality in SA and right at the core of the cities’ commitment, the DLM could consider being a signatory to the Mexico Pact.

5.6 CLEA N DE VELOPME NT MECHANISM

The environment, energy and climate change discussion above highlighted the international and national legal, policy and planning environment necessitating, enabling and regulating renewable energy projects. It also broadly discussed the institutional environment within which a WTE roadmap must steer the WTE Project to become a formal part of the renewable energy capacity input into the national energy grid and commercially anchored. Depending on various global factors, the project could also rely on the international carbon trading market to get a return on investment (“ROI”) for its extensive capital outlay to further enhance its financial viability and sustainability. It is therefore feasible to provide a brief explanation of the legal mechanisms involved to give a holistic view of the complexity and timeframes impacting on the WTE project.

5.6.1 CARBON TRADING

The WTE Project has been earmarked to access the carbon trading market through the Clean Development Mechanism (the “CDM”) which was established in December 1997 at the 3

rd Conference

of the UNFCCC. Since the Kyoto Protocol requires countries to limit or reduce their GHG emissions, it sets a national target for each country which the country allocates to its domestic emitters. Each of the domestic emitters can meet its targets through one of three protocol established mechanisms:

the International Emission Trading (the “IET”) that allows countries that have emission units to spare to sell this excess capacity to countries that are over their targets; or

the Joint Implementation Mechanism (the “JIM”) which is designed to assist industrialised (referred to as Annex 1) countries in meeting their targets through investment and development of projects in other Annex 1 countries thus earning Emission Reduction Units (“ERU”); or

the CDM allowing industrialised countries with GHG ER commitments to meet part of those commitments by investing in projects in developing (non-Annex 1) countries that reduce GHG emissions thus gaining Certified Emissions Credits (“CEC”) for themselves or by buying Certified Emissions Reductions (“CER”) from an entity that invested in such a project. South Africa is such a non-Annex 1 country and the WTE a potential CER project.

By setting emission targets, emission reductions that could be measured, verified and certified i.e. CERs obtained economic value and CER credits can be traded and sold. The opportunity thus exists for a feasible project (such as the Drakenstein WTE project) in a developing country such as SA to attract financing or technology investment from an industrialised country in exchange for carbon credits, i.e.



CECs or such a country purchasing the CERs earned by the project from the developer thereof. The host country and region is thus assisted in its shift to a less carbon-intensive economy, attracting private investment, sustainable development and job creation. Especially Landfill Gas (“LFG”) projects are attractive given the benefit of reducing methane emissions since methane is a much more powerful GHG than carbon dioxide, e.g. while 1 tonne of reduced carbon dioxide = 1 CER; 1 tonne of reduced methane = 21 CERs.

5.6.2 CDM PROCESS

The following discussion deals with the CDM steps in detail to create an understanding of the rigorous process that a CDM project must go through to ensure real, measurable and verifiable emission reductions that are additional to what would have occurred without the project. The CDM requires a good governance regime which starts with the host country therefore a host country of CDM must have a Designated National Authority (the “DNA”) in place. In SA the DNA was established within the DoE and approval of the DNA is a pre-requisite for registration of the proposed CDM project with the UNFCC under the Kyoto Protocol. The main task of the DNA is to assess the potential CDM project to determine whether it will assist the host country in achieving its sustainable development goals. It then provides a letter of approval confirming the latter to the project participants which supports the registration of the by the Executive Board of the CDM (“

CDMEB”). The

CDMEB is answerable to the Conference of the Parties/Meeting of the Parties (“COP/MOP”) to the

Kyoto Protocol, i.e. the parties that have ratified the protocol. The CDM project cycle and the NDA approval process are set out in Figures 1.10 and 1.11. Figure 1.10: CDM Project Cycle (Source: UNFCCC CDM)



Figure 1.11: NDA CDM Project Approval Cycle (Source: DoE)

1. Project Design: The Project Participant (“PP”), i.e. the project developer or owner may voluntary

submit a brief Project Identification Note (“PIN”) providing the DNA with the opportunity to carry out an initial screening. However, mandatory is the submission of a detailed description of the project via a prescribed Project Development Document (“PDD”). A priority for the DNA is to ascertain that the potential project will assist in achieving sustainable development goals which in SA have broadly been determined as:

Economic – the economic impact of the project on: foreign exchange requirements; foreign direct investment; cost of energy; existing economic activity in the area; enabling appropriate technology transfer; local skills development and the replication potential of the project.

Social – the alignment with national, provincial and local development priorities; its contribution to sectoral objectives, e.g. the NCCR Waste Management Flagship Programme; its impact on social equity and poverty alleviation including basic service delivery and access, the provision of social amenities, employment levels, etc.

General – project acceptability, i.e. are the distribution of the project benefits reasonable and fair.

2. PDD Approval: After a public participation process and a comprehensive review the PDD can be

approved if it meets the criteria. The DNA submits a letter to the CDM

EB indicating the host country’s ratification of the Kyoto Protocol and containing a statement that the proposed CDM project contributes to sustainable development and is a voluntary action.

3. Validation: Once approved the PDD is submitted to the CDM

EB for validation. Validation is the process of an independent evaluation of a project activity by a Designated Operational Entity (“

CDMDOE”) against the requirements of the CDM as set out in CDM modalities and procedures

and relevant decisions of the Kyoto Protocol Parties and the CDM

EB, on the basis of the PDD. All CDM projects are required to use an approved baseline methodology for estimating carbon emission reductions, or to propose a new methodology if an appropriate one is not available. If a methodology previously approved by the

CDMEB and made public is used, the

CDMDOE can proceed



with the validation of the project. However, if a new baseline or monitoring methodology is proposed it must first be submitted by the

CDMDOE to the

CDMEB for review and approval, a

process taking approximately four months. A baseline methodology is a protocol for selecting the baseline scenario and calculating baseline emissions for a particular project type or within a particular sector so as to produce a baseline scenario. In other words, a project’s GHG emission reductions need to be judged against some baseline and the baseline is ‘what would have happened in the absence of the CDM project’. A baseline methodology contains formulae and algorithms for a particular project type and certain parameters for calculating the baseline scenario and also explains how additionality will be tested for in that project category. Additionality is arguably the most difficult concept in assessing and developing CDM project proposals. The UNFCCC Decision 17/CP.7,]]43 defines it as: “A CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity.” E.g. in respect of LFG management additionality involves two aspects: 1) the ERs from the combustion of LFG and the ERs associated with the use of LFG fuel to offset other fuel uses. The additional ERs can be calculated as the positive difference between the baseline emissions (an as usual scenario) and the emissions resulting after the undertaking of the proposed project. It can be illustrated as in Figure 1.12.

Figure 1.12: CDM Baseline Concept (Source: DoE)

4. Registration: Once the PDD is validated by the CDM

DOE, a request for registration can be made to the

CDMEB including a registration fee. Unless a review is requested, the registration process can

be done within eight weeks but a review can take approximately six months, i.e. within two meetings of the COP/MOP.

5. Verification: The CDM

DOE periodically monitors the project activity to verify the ERs achieved by the project which may include site visits, a review of performance records, interviews with project participants and local stakeholders, collection of measurements, observation of established practices, and testing of the accuracy of monitoring equipment to ensure the validity of the emission reductions and the methodologies carried out to calculate them. The results of the verification are made available to both the public and the

CDMEB in the form of a verification

report. 6. Certification and Issuance of CERs: The

CDMDOE issues a written report, based on its verification

report, stating that the project activity has achieved a certain amount of ERs in a specified time period. The report is made available to the PP, COP Parties,

CDMEB and the public and constitutes a

request for the issuance of CERs. The issuance of CERs will be considered final after 15 days, unless a COP Party or the PP or the

CDMEB requests a review. If so, the latter must be conducted

within 30 days. Decisions are made known to the public and the PP.

5.6.3 CDM PROGRAMME OF ACTIVITIES (POA)

When adopting the modalities and procedures for the CDM at its very first session in 2005, the CMP decided that "a local/regional/national policy or standard” cannot be considered as a CDM project activity, but that project activities under a Programme of Activities (“PoA”) can be registered as a



single CDM project activity, provided that approved baseline and monitoring methodologies are used that, inter alia, define the appropriate boundary, avoid double counting and account for leakage, ensuring that the net anthropogenic removals by sinks and emission reductions are real, measurable and verifiable, and additional to any that would occur in the absence of the project activity ". Thus, under PoA, an unlimited number of similar project activities, over a wide area or region, can be administered under a single programme umbrella. They are particularly suited to small-scale or micro-scale projects. After a PoA is registered, similar projects can be added over time without the need to register each one individually, reducing transaction costs and making the CDM more attractive and more accessible to LDCs. The UNFCCC CDM has now registered more than 100 PoAs. One of the main benefits of a PoA is the reduction in transaction costs, investment risks and uncertainties for individual CPA participants.

5.6.4 WORLDWIDE PROFILE OF THE CDM

In January 2013 the UNFCCC reported that the CDM has passed the 6000 project milestone with 1,240,107,471 CERs issued for Project Activities and 48,810 CERs issued for PoAs. Of the registered projects approximately 13,35% (627) concerned waste handling and disposal in 2012. In June 2012, South Africa’s Project Portfolio includes 316 projects of which 287 projects have been reviewed, 20 projects have been registered by the

CDMEB and in terms of 8 projects CERs have been issued. E.g. the

Durban LFG Bisasar Road Project was issued with 65 711 CERs for the monitoring period 26/03/2009 – 31/08/2009.

5.6.5 POTENTIAL CDM PROFILE OF THE WTE PROJECT

Interwaste’s WTE technology partner, Farmsecure, has concluded the following two PoAs that were submitted to the UNFCCC:

Anaerobic Digestion and Renewable Energy Generation in South Africa - submitted in August 2011;

Biomass Energy Generation through Gasification or Direct Combustion in South Africa - submitted in December 2011.

The PoAs were developed for CDM only. Both have been validated but not yet registered. The main reason is that no ERPA has been signed and at current CER prices it might not be worthwhile to include a project under the PoA as pointed out below.

There are risk areas concerning the CDM that need to be taken cognisance of given the impact thereof on the viability of the WTE Project registering as a CDM project and reliance thereon, i.e.:

Due to the global economic slowdown the price of carbon credits has reduced drastically from around 20Euro/tonne to 10Euro/tonne and there seem to be an oversupply of carbon credits which keeps the carbon market under pressure and the European market is more recently highly affected by the euro-zone crisis which does not seem to have a speedy resolution.

The European market (in reality a few European countries that rules over the CDM) have also announced that as from 2013 it will seek to conclude carbon trading agreements only with the Less Developed Countries (the “LDC”) thus excluding SA. To be kept in mind is that the CDM represents only 5% of the total carbon trading market.

The rand has depreciated considerably making any imports, e.g. WTE technology more expensive and the private party does not want to be tied into specific deals.

It is for these reasons that the project will not include the CDM/CER options as part of its financial viability projections.



5.7 CARBON TAX

In February 2013 the Minister of Finance announced the introduction of a carbon tax in his budget speech with its commencement earmarked for 1 January 2015. The latter follows a long debate which NT started with its Environmental Fiscal Reform Policy Paper, 2006 and followed up in December 2010 with a Discussion Paper on the Carbon Tax Option. A Carbon Tax Policy Paper – Reducing Greenhouse Emissions and Facilitating the Transition to a Green Economy (the “Carbon Tax Policy”) was released on 2 May 2013 for public comment. It is seen by the government as the final round of comments before proceeding with draft legislation. The policy is aimed at enabling SA to reach the COP17 committed curbing of GHG emissions by 34% by 2020 and 42% by 2025. The objective is to change future behaviour rather than raising revenue. Implementation of the policy would be phased with the introduction of a relatively low carbon price and a progressively rise thereof with significant increases in 5 – 10 years (2020-2025) and beyond. A breakdown of SA’s GHG emissions by sector indicates that waste accounts for 2% and electricity generation for 40%. Carbon pricing will focus on a shift in production and consumption patterns; low carbon emitting alternatives in production, products and services and reducing the consumption of carbon intensive products such as cement, steel and aluminium and stimulating innovative low carbon technologies. A carbon tax will only cover Scope 1 emissions in the tax base; that is, emissions that result directly from fuel combustion and gasification, and from non-energy industrial processes. Scope 1 emissions include carbon dioxide, methane, nitrous oxide, perfluorocarbons, hydrofluorocarbons and sulphur hexafluoride. Table 1.5 describes the Scope 1 emissions applicable.

Table 1.5: Applicable Scope 1 Emissions (Source: 2013 Policy Paper)

Process or sector

Energy inputs Type of GHG Description

Electricity generation Coal, natural gas, petroleum products (e.g. diesel), renewable fuels

CO2, CH4 Fuel inputs are used to generate heat or steam in order to power boilers and turbines that generate electricity.

Agriculture, forestry and land use

CO2, CH4, N2O

Direct emissions resulting from specific processes, as well as net emissions arising from agriculture, forestry and land-use related activities. These include enteric fermentation, manure management and land use (forest land and cropland).

Waste CO2, CH4, N2O

Emissions arising from solid waste disposal, biological treatment of solid waste, incineration and open burning of waste, wastewater treatment or discharge. The treatment of wastewater from domestic, commercial and industrial sources contributes to anthropogenic emissions of methane and nitrous oxide.

In respect of waste, the main waste sector emissions involve solid waste disposal, biological treatment of solid waste, incineration and open burning of waste, and wastewater treatment or discharge. Some of the waste streams include waste from households, commercial businesses, institutions and industry. Methane emissions from urban managed-landfill sites contribute about 2 per cent of total GHG emissions in South Africa.



Estimates for landfill methane emissions are surrounded by uncertainties, including inadequate data on landfill depth; the actual levels of waste disposed of and limited information on the composition of waste (e.g. the proportion of garden waste, wood and paper, and textiles). Treatment of wastewater from domestic, commercial and industrial sources contributes to anthropogenic emissions of methane and nitrous oxide. Industrial wastewater can either be treated on site in septic systems, or disposed of untreated. Wastewater from domestic and commercial sources is treated through municipal wastewater treatment systems. The proposed introductory tax free threshold of actual emissions is 60% with a 40% allowance for “process emissions” for the waste sector but the significant uncertainties associated with waste sector emissions and poorly developed emissions methodologies complicate the inclusion of waste sector emissions under the proposed carbon tax policy regime. GHG emissions from the sector will be dealt with through alternative policies, as per the 2011 White Paper, and as part of the second phase of the carbon tax policy regime. Thus important for the WTE Project, is that:

Largely due to administrative difficulties in measuring and verifying emissions from these sectors, emissions from the agricultural and waste sectors will be exempt during the first phase – 1-01-2015 to 31-12-2019 with the complete exemption to be reviewed and the sector to be included during the second phase, i.e. 2020-2025;

The electricity sector will qualify for a tax free threshold of up to 70% and some sectors will be able to qualify for a tax free threshold of up to 90% during the first phase;

However, in principle, electricity generation from renewable sources is deemed to be GHG emissions neutral and should not fall within the scope of the proposed carbon tax policy but firms will be expected to demonstrate the GHG neutrality of a particular facility by reporting on emissions using methodologies and emissions factors agreed to by the DEA;

Inclusion of the agricultural sector under the carbon tax regime could, if exploited by IW’s feedstock strategies, be a mitigating factor for the volume risk of the project.

The carbon tax would also lead to a reduction of the existing levy on electricity produced from non-renewable sources but, as can be deduced, this levy does not apply to the WTE power. Based on the uncertainties iro waste and electricity generation from renewable sources, it is too early to debate the impact of the proposed carbon tax on the project in more detail suffice to say that a reduction in carbon tax liability is a further financial incentive of the WTE Facility.

5.8 HEA LTH AND SAFE TY

Apart from a constitutional obligation in respect of a clean and healthy environment, note must be taken of legislative stipulations governing health and safety in respect of waste handling and in the workplace which equally applies to the Municipality and the preferred WTE bidder.

5.8.1 NATIONAL HEALTH ACT, 61 OF 2003

The Act provides a framework for a structured, uniform health system. In respect of waste it:

Obliges local authorities to abate nuisances, including any accumulation of refuse or other matters, which are dangerous to health, etc.; and

Empowers the Minister to make regulations, which could directly impact on waste management.



5.8.2 OCCUPATIONAL HEALTH AND SAFETY ACT, 85 OF 1993 & REGULATIONS

The Act provides for the health and safety of persons at work and in connection with the use of plant and machinery. Given that the municipality will remain the owner of the land concerned, it would be essential to include in a contract with a WTE service provider a Health and Safety Indemnity Agreement in accordance with the stipulations of this Act.

5.9 HUMA N RESOU RCE S

Various acts and regulations made in terms of these acts regulate human resource matters. The most important are: Labour Relations Act, 66 of 1995, (the “LRA”); Basic Conditions of Employment Act, 75 of 1997 (the “BCEA”); Employment Equity Act, 55 of 1998 (the “EEA”); Skills Development Act, 97 of 1998 (the “SDA”); Skills Development Levies Act, 9 of 1999 (the “SDLA”) Occupational Health and Safety Act, 85 of 1993 (the “OHSA”); and the MSA. From a macro perspective – since an in-depth analysis was not done - the Municipality’s existing human resources management practices and policies largely comply with the mentioned acts. It has an Employment Equity Plan and Policy, a Skills Development Policy and Plan and a Performance Management Policy and Plan including the needed institutional and individual scorecards and performance agreements with senior staff. The Municipality does submit an annual workplace skills plan, it pays its monthly skills levy to the South African Revenue Services and it accesses the training grants available from the Local Government and Sector Education and Training Authority (the “LGSETA”). Furthermore, its labour practices and procedures comply with the LRA including a number of internal policies and, as required, this study adhered to the stipulation of section 84 (consultation with the trade unions) of the LRA and with section 78(1)(a)(v) of the MSA (soliciting the views of organised labour).

5.9.1 FOCUS ON JOB CREATION

At the end of 2011 government, business, labour and organised community groups signed the “Green Economy Accord” committing the emerging renewable-energy industry to a minimum local content level of 35% for the initial roll-out period working towards the government’s target of 75% over time. Linked to the New Growth Path the expectation is that green industries will contribute around 300 000 jobs to the SA Economy by 2020. Job creation also featured in the NCCR White Paper with Sector Jobs Resilience Plans (“SJRP”) having been identified as an instrument to move employment from a carbon intensive economy to a lower-carbon economy inter alia by using the Expanded Public Works Programme (the “EPWP”), promoting job creation incentives in new green economies and ensuring the Sector Education and Training Authorities (“SETA”) develop and fund enabling learnerships and internships. The WTE Project has to incorporate the various job creation incentives and possible learnerships and internships into the project in so far as it is feasible and specifically focus on benefitting the local community. The monitoring thereof would form part of contract management. Another facet of human resources is the WTE project’s handling of staff matters with reference to the existing municipal staff that are employed at existing municipal owned facilities that are envisaged to form part of the WTE Project.



5.10 OTHE R RELEV ANT LEGISLA TION AND POLICIE S

During the lifetime of project development, establishment and implementation the legal landscape will change continuously and due diligence practices will have to ensure legislative obligations and rights are contextualised and contractually embedded. Contract management and monitoring will ensure compliance and keeping up with changes.

5.10.1 CONSUMER PROTECTION ACT, 60 OF 2008

The Consumer Protection Act, 60 of 2008 (the “CPA”) also has relevance. Apart from its general importance in respect of consumer relations, Section 59 links directly with Industry Waste Management Plans as required by the NEMWA. It confers rights on consumers to return items to suppliers, manufacturers or points of sale if discarded at end-of-life or otherwise. When considering the flow of materials from manufacturing through to waste treatment that incorporates materials recovery, diversion, processing, treatment and recycling back into manufacturing, where second-hand materials can be reused it provides opportunities to integrate commercial and industrial systems with municipal systems for the management of waste.

5.11 DRAKE NSTEIN BY-LAW S AND POLIC IES

Specifically applicable to the proposed project are municipal by-laws relating to the environment, waste and energy but also by-laws and policies relating to financial management, asset management, tariffs, property rates, credit control and customer care; land use management and planning and developer contributions. Aspects such as asset management and maintenance will specifically become relevant during the contracting phase.

5.11.1 ENERGY & ELECTRICITY SUPPLY

The Electricity Supply By-law, 3 of 2007 governs the relationship between the Municipality and its electricity consumers and will concern the WTE Project only in so far as it is a user of electricity for its facilities. It is not foreseen that the WTE Project would necessitate any substantial changes to this by-law or any new by-law given that relationships will be governed through specific contractual arrangements.

5.11.2 ENVIRONMENT & WASTE

The Environmental Policy, 2010 outlines the primary objectives concerning protection, conservation, management, infrastructure maintenance, sustainable land use, environmental emergencies and waste management, equally applicable to the envisaged WTE facilities as to all other consumers. The Prevention of Atmospheric Pollution, 11 of 2007 by-law deals with air quality which will be a concern given the processes involved in the WTE Facility but should be a minor issue. The Municipality is in the process of updating the by-law to make provision for integrated air quality management inter alia incorporating the stipulations of the NEM:AQA. The latter would need to be taken into account. In terms of solid waste there are two current by-laws, i.e. Refuse Removal, 17 of 2007 and The Control of Waste Disposal Sites, 13 of 2007. Both are outdated and need to be consolidated, a process which is nearly finalised with the new Integrated Waste Management By-law, 2013 expected to be promulgated during the current financial year.



5.11.3 LAND & BULK SERVICES

The land to be used for the WTE Facility is part of the same tract of municipal owned land on which the Wellington Landfill and Wellington WWW are built and this land is zoned for municipal use which covers the current uses. Bulk Infrastructure Contribution Levies or otherwise referred to as Bulk Services Levies (“BSL”) have been in place or introduced at most municipalities to provide for developers’ contributions to the upgrading of bulk infrastructure and services. The Interim Developer Contributions Policy of 26 January 2011 deals with these matters. It derives its powers mainly from the Land Use Planning Ordinance, 15 of 1985 (“LUPO”) (Western Cape) which also deals with rezoning, subdivision and departures. In terms of the latter, the standard municipal practice conditions of approval imposed under LUPO makes the developer responsible to provide at own cost all the required internal municipal services as well as for the cost of link services. Section 42 of LUPO also empowers the Council to require from a developer as condition of approval that a financial contribution be made to the Municipality for municipal expenses incurred in the past that facilitates the proposed development and/or to fund or provide engineering services that are directly related to the needs arising from the development. Basically the thinking behind the relevant provision is that any formula for contributions in respect of the cost of providing services should ensure equal treatment; more particularly that the residents who paid for “existing services” should not subsidise the new development and that neither should the “existing consumers” derive any benefit from the new development, unless a deliberate decision to the contrary is taken. Additional services’ related revenue could be, in accordance with Section 42 of LUPO, a financial contribution required by the Municipality from the developer for municipal expenses incurred in the past to install bulk infrastructure that now facilitates the proposed development and/or to fund or provide engineering services that are directly related to the needs arising from the development. These expenses could also be factored into the bulk services’ contribution of the developer. The Interim Developer Contributions Policy stipulates the liaison and negotiations that should take place between officials and developers and the written records to be kept.

5.12 ALIGNMENT OF THE WTE PROJEC T

Based on the section 78(1) assessment complimented by this study, the transaction advisors are of the opinion that the proposed WTE project is directly and soundly aligned to national, provincial and municipal strategies, renewable energy and waste plans and in will take place within a legally enabling but complex environment. It also links up with core global issues and will assist to pursue international strategies. The three project objectives stated in the RFP will enable sustainable economic development through a number of secondary objectives such as providing an incentive for other downstream activities related to the project development or operational phases and real permanent job opportunities.

6. WASTE SE RV ICE S A ND ACTIV IT IES

This overview provides a broad perspective of the DLM waste environment before focusing only on the services and support activities involved in the WTE Project.



6.1 WASTE PE RFORMA NCE BENCH MA RK

Drakenstein compares well with the City Development Index (CDI) for the Western Cape in respect of infrastructure, equalling 0.79. However, Drakenstein’s waste performance is at 0.79, slightly lower than the CDI’s 0.89. According to the IDP, 77% of the households in the main towns of Paarl, Wellington, Hermon, Gouda en Saron are receiving a once weekly municipal waste removal service and communal and own refuse dumps are still prevalent in Dromedaris, Drakenstein DMA, Dal Josafat Nature Reserve and Paarl Berg Nature Reserve. This percentage puts Drakenstein ahead of the national average of 57.4% households having access to refuse removal services in large towns and 73.5% in small towns

40.

6.2 WASTE VOLUME S AND COMPOSIT ION

The waste stream composition and volumes recorded prior to the RFP for the WTE project did not have the advantage of weighbridge data. Since 2010 the weighbridges at the Paarl TS and the Wellington LS have both being in working order offering more accurate waste volume figures but the inconsistencies and inaccuracies in the data (including the figures used for the section 78(1) assessment) motivated the latter report to recommend a dedicated 3 month waste stream analysis including waste quality assumptions based on organic content and calorific values. The following tables illustrate the current average monthly types and quantities of waste received at the Wellington LS and the Paarl TS respectively as per municipal figures. Table 1.6: Waste Types and Quantities received on average at the Wellington Landfill Site (Source: JPCE SOW)

Monthly Average (Tonnes)

Garden Refuse Through Chipper 326.5

Directly Disposed 12.6

Household Refuse

Ref Rem Trucks 2346.5

All other 80.4

General rubbish 1517.8

Street Refuse 31.7

Builders Rubble Contaminated 4397.0

Crushed 2180.8

Industrial refuse 85.0

Bad Foodstuffs 7.9

Cover Material 4690.0

Bulk refuse from Paarl Transfer Station 578.3

Table 1.7: Waste Types and Quantities received on average at the Paarl Transfer Station (Source: JPCE SOW)

Monthly Average (Tonnes)

Garden Refuse Through Chipper 42.2

Directly Disposed 109.8

Household Refuse

76.3

General rubbish 77.4

Street Refuse 47.0

Industrial refuse 95.9

Bulk refuse to Wellington 578.3

40

According to 2007 figures published in the 2011 Local Government Budgets and Expenditure Review (the “LGBER”) issued by

National Treasury on 13 September 2011.



Figure 1.13 provides a breakdown of the municipal solid waste constituents according to the recorded waste figures.

Figure 1.13: Breakdown of MSW Constituents (Source: TOA)

Based on the projected population growth up to the year 2033, the increase in waste generation is as projected in Figure 1.14 below. Figure 1.14: Projected Waste Generation up to the year 2033 (Source: Technical Options Analysis - TOA)

Even if waste volumes and composition appear to justify a sustainable WTE operation, the extent to which this is possible, is determined by the energy production from waste which is dependent on the energy contained within the incoming waste; the moisture content of the waste and the conversion efficiency of the process adopted to recover energy from the waste. Thus the energy potential of putrescible organic industrial and municipal solid waste would depend on the exact nature of the material. E.g. typically one tonne of kitchen waste will produce 80m

3 of biogas whereas one tonne of

grass cuttings will produce 170m3 of biogas, thus cautioning against evaluating viability and

sustainability without full knowledge and understanding of the waste characteristics of the waste streams involved.

36%

17% 14%

6%

5%

22%

MSW Breakdown

Food and Garden Waste

Paper/Cardboard

Plastics

Glass

Metals

Other

222 230 251

275 300 306

0

50

100

150

200

250

300

350

2013 2015 2020 2025 2030 2033

YEAR

Domestic Waste Generated per day in tonne

DOMESTIC WASTE GENERATED INTONNE PER DAY



The results of the calorific value analysis within the context of the preferred technologies, i.e. AD and Direct Combustion (“DC”) are dealt with in Section 2 of the Feasibility Study. The results were obtained through an updated technical options analysis which formed part of the study.

6.3 WASTE COLLECTION

Successful waste removal and transporting thereof to the Paarl TS and the Wellington Landfill is of utmost importance to the WTE project. The latter will be developed at a huge cost to handle current and projected future waste streams and its financial viability including compliance with power producer and, if in place, CER trading commitments will be dependent on a continuous and consistent delivery of the expected waste streams to its operations. A strike resulting in a long term interruption of these operations might cause financial losses including penalties applicable to the WTE operator as part of its contractual commitments. The by-laws make provision for different residential service levels in accordance with national standards and regulations applicable to refuse removal. All residents in urban areas with formal residential stands and high density areas where a sustainable, formalised domestic waste collection service can be rendered are receiving a weekly waste collection service respectively using a system of bins or refuse bags as provided by the Municipality. These areas include the towns of Paarl and Wellington; the villages of Saron, Hermon, Gouda as well as Voelvlei Dam and Swartland Water Works and some rural areas including Allandale Prison, Boland agricultural area, Windmeul, Agter Paarl, Simondium area, the area around Victor Verster Prison and the Wemmershoek road in the Paarl area and includes all schools, churches, hospitals, etc. in these areas. The Municipality’s workload in respect of the 240l bins household refuse removal once per week increases year on year, necessitating an annual up-scaling of plant and human resources. In the high density informal areas, the Municipality makes use of private contractors through the Municipal Cleansing Project (the “MCP”). Each contractor is paid a daily sum and he/she must use his/her own LDV and use and pay for workers appointed from residents in the area serviced. A team collects waste in a designated area and disposes thereof at the Paarl TS. The system is based on a ‘no work – no pay’ principle. Each contractor does about 3 to 4 rounds per day to the Paarl TS and each collects and disposes between 300 and 1000kg municipal waste per day. The system appears to work well despite the fact that the contractor remuneration is low.

Communal collection is done by placing bulk receptacles at communal collection points and in Simondium and the serviced rural areas, the Municipality collects skip bins from the school and residential areas. Where it is not economically viable for the Municipality to provide any form of formal collection, i.e. on farms and in rural areas, communities and farmers are encouraged to make use of the Municipality’s coupon system to dispose of waste at the Paarl TS or the Wellington Landfill. The incoming revenue from the coupon system has grown but the system could be used more. Collection of business waste is done in accordance with the needs of each business which is an at least once weekly collection or any number of times a week using a very practical system of colour-coded bins, i.e. the colour of the bin indicating how many times per week it should be removed. There are also other private waste removal companies active in Drakenstein rendering a service to businesses. The Municipality does not collect garden waste but makes a garden waste and bulky waste removal service available at an extra cost and residents are allowed to dispose up to five one ton bakkie loads of general waste (excl. the waste types that the municipal system collects) at the Paarl TS or the Wellington LS.



Effective and efficient refuse removal services inter alia depend on adequate vehicles, equipment and staff which in turn necessitates an adequate financial budget. Collection vehicles should ideally not be operated beyond 7 to 8 years in age since the maintenance costs increase dramatically with age. However, a number of the DLM waste fleet vehicles are passed the age of cost-effective maintenance. As reported in the IWMP

2009 the refuse collection fleet consisted of 15 compaction vehicles of which

10 were used on a daily basis. The others were old and some have been scrapped but were still in use when required. Since 2009 the Municipality has acquired new vehicles. The current age of the vehicles ranges between 16 and 4 years with the average age being 9 years old. The fleet also include 6 flatbed tippers, 4 with railings and 2 without railings that collects builders’ rubble, waste from major clean-ups, waste from individual streetcars and assist with black bag collection in informal areas. The long term budget of the Municipality makes provision for purchasing a new vehicle in respectively 2014/15, 2019/20 and 2024/25, thus one waste vehicle every five years. There are an adequate number of teams in place for refuse removal and street cleansing although a number of budgeted vacancies exist in the organisational structure. The transaction advisors are of the opinion that the Municipality has the financial and human resources to render the waste removal services it is currently responsible for.

6.3.1 WASTE SEPARATED AT SOURCE (S@S)

The Municipality has regarded waste s@s as an important component of its reduced waste to landfill and waste minimisation advocacy to eventually be expanded to its whole constituency. Currently collection of waste s@s is part of a two-year outsourced MRF Contract that commenced in November 2010 and would have terminated in October 2012 but was extended for one year as contractually allowed. In terms thereof the contractor, Enviro Smart Waste Management cc. supply all labour for the management and operation of the municipal MRF at the Paarl TS and use such labour for the collection waste separated at source on a weekly basis from the wards to which it has been rolled out by the Municipality. The Municipality provides the white bags and is in control of the waste s@s’ roll-out schedule in accordance with its own resources and has to date rolled it out to 5 of the 31 wards in Drakenstein. The additional workload is provided for in the MRF contract through a Contract Price Adjustment (the “CPA”). In addition the contract price is escalated on an annual basis in accordance with the Consumer Price Index (the “CPI”) of the Western Cape.

6.4 WASTE CLEA NING

Waste cleaning including all the activities related thereto, i.e. erf cleaning, street sweeping, clean-up of illegal dumping and other clean-up campaigns as needed are not included in the WTE Project but again the effective and efficient delivery of these services impact on the waste volumes and waste flow and thus also on the effectiveness of the MRF and other WTE operations. Waste cleansing is done in all the urban areas. In Paarl there are 3 teams with tractor-trailers and 24 individual sweepers with street cars. The latter consists of a wheelie bin and sweeping equipment. The Municipality has a street cleaner on tender and 2 mechanical street sweepers servicing the Paarl CBD area but these are not always in operation due to expensive parts and weather limitations. Further equipment includes two mechanical leaf suckers with teams. Wellington also has 3 teams with tractors-trailers to do street cleaning and another tractor-trailer team serves Gouda, Hermon and Saron. The age of the tractors used range from 4 to 14 years and the trailers are custom built and mostly in excess of 20 years old.

Illegal dumping appears to be a huge problem specifically in the Paarl area. It points to the need for more community education and better enforcement of the waste by-laws.



6.4.1 CLEAN GREEN PROJECT

The project is similar to the MCP but linked to a different budget. Councillors normally choose this project as part of the community upliftment and job creation projects that they may have in their wards. The ward councillor appoints a person owning a LDV as the driver and co-ordinator who then appoints a team of between 10 and 15 workers to clean a designated area by weeding pavements and roads as well as collecting vegetative waste and litter. Each team fills around 100 blacks bags as provided by the Municipality and the driver takes it to the Paarl TS for disposal. There are normally 2 – 3 wards running a Clean Green Project simultaneously.

6.5 WASTE TREATMENT A ND D I SPOSA L

6.5.1 INFRASTRUCTURE AND FACILITIES

Waste treatment and disposal practices, sites and related activities are very important to the WTE Project given that the management and operation of the Wellington Landfill and the Paarl TS and the already outsourced MRF operations at the Paarl TS are envisaged to form part thereof. The municipal waste management facilities consist of a mixture of closed and current facilities as well as future planned mini drop-offs, extension of transfer stations and, in a few years, a new landfill site when the Wellington Landfill has reached the end of its lifespan. Closed and current waste treatment and disposal facilities include:

Paarl TS including the MRF Wellington landfill Dal Josafat – a closed general waste landfill for Paarl area which must still be rehabilitated. Wateruintjiesvlei – a closed general waste landfill used for the Paarl area already

rehabilitated. Boy Louw – a closed builder’s rubble site which is rehabilitated but still needing some

attention given the rehabilitation budgeted for it – an EIA/basic assessment of this site is currently in process.

Orleans – a closed builder’s rubble site which is rehabilitated but apparently still needing some attention given the rehabilitation budgeted for it.

Gouda – a closed general waste landfill which has not been rehabilitated and is used as a transfer station albeit the perception of it been used as a general waste dumping site was stated in the 2009 audit that also pointed out a number of seriously incorrect practices which had to be attended to through hands-on management. It does not appear to be permitted as a transfer station.

Hermon – a closed general waste landfill and non-permitted transfer station where the 2009 audit also observed uncontrolled dumping and found hands-on management lacking.

Saron – a non-permitted builder’s rubble site which has not been rehabilitated and a transfer station that is well operated.

6.5.2 PAARL TRANSFER STATION & MATERIAL RECOVERY FACILITY

The Paarl TS was commissioned in 2000. It has an operating permit. The Paarl TS is situated to the west of Distillery Street in Daljosafat approximately 12 km from the Wellington Landfill. There is a weighbridge at the Paarl TS and all loads are weighed. The Paarl TS is neat, fenced with controlled access and the necessary signage in place. All main access roads and vehicle turning areas have hard surfaces. Colourful skips stand in a neat row at the entrance.



There are four bays in the transfer station for one open top 30 m³ container for bulky non-compactable waste and three 30m

3 compaction containers. Compaction is obtained by a static

compactor. Waste disposers include:

Municipal Collection Vehicles: domestic and commercial waste Commercial Vehicles: garden/bush waste, commercial waste Private residents: domestic and garden/bush refuse, builder’s rubble

The municipal owned but privately operated MRF is adjacent to the transfer station and the tailings from the recovery effort is discharged into two (one duty, one standby) 30 m³ open top containers. All the containers at the Paarl TS and the MRF are the property of the Municipality. A transport contractor transports these containers on a daily basis to the Wellington Landfill for disposal. According to the IWMP

2009 the two chippers at the facility generate approximate 5m

3 of chipped

product daily consisting of green/”wet” vegetation to a maximum thickness of 100 mm. No dry stringy or thick greens are chipped as the blades become blunt. During a visit, the Paarl TS it appeared to be well managed and maintained with good security and access control. The office buildings were neat and clean and the site displayed all the necessary signage to comply with permit conditions and the employees wore the prescribed protective clothing. An amount of R1,55m had been budgeted over the next three years for the further upgrading and extension of the Paarl TS including a new office building. The Paarl TS employees consist of an operator/driver, a gatekeeper and 7 general workers. The MRF is managed and operated in accordance with a two-year outsourced contract that would have terminated in October 2012 but, as per contractual stipulation, was extended until October 2013. The employees manually sort materials of value from the source separated wastes and bale the various materials. According to the tender instructions the maximum possible number of workers was to be employed from the labour lists of local unemployed labour. Contract management then include a monthly report on employment of local labour vis-à-vis others.



The Municipality is clearly focused on waste recovery providing containers for various types of recyclables, i.e. glass igloos, skips for paints and insolvents and large containers for cooking and other oil. The Municipality also accepted various hazardous articles albeit in small quantities such as fluorescent lamps and batteries at the Paarl TS and transport it from time to time to the hazardous waste site at Vissershok.

6.5.2.1 BULK SERVICES INFRASTRUCTURE

The following infrastructure (refer to Figure 1.15) exists within the immediate vicinity of the Paarl TS. This information was extracted by the revised technical option analysis from the Geographic Information System (the “GIS”) data provided by the DLM and water modelling data compiled by GLS Consulting. Sewer Reticulation There is a 500mm diameter bulk sewer line located approximately 150 metres south of the site along Distillery Street. Potable Water Supply There is a 250 mm diameter water main located on the western edge of the site adjacent to Distillery Street. In addition, a 100mm diameter water main exists on the southern edge of the site. Stormwater Drainage There is a bulk stormwater pipeline of unknown diameter size located on the south eastern edge of the site originating at a point along Distillery Street and running in a westerly direction before dissecting the site and changing to a northerly direction. The site however also lies next to the Berg River and therefore drainage into the Berg River may be easier. Water Supply: Pipe pressures The information provided by GLS Consulting on the bulk water infrastructure for the area confirms the following:

The existing static pressure band is greater than 60 metres but less than or equal to 90 metres.

The peak demand pressure is greater than 60 metres but less than or equal to 90 metres. These pressures are adequate to meet the recommended parameters for reticulation design.



Figure 1.15: Bulk Services Layout at the Paarl Transfer Station (Source: TOA)

6.5.3 WELLINGTON LANDFILL SITE

The Wellington LS is situated off the R44 on 25 hectares of industrial zoned land belonging to the municipality. The landfill site area contains an old landfill which was closed when the current Wellington Landfill was commissioned in 2000. It is a G:M:B landfill. Adjacent to the Wellington Landfill is the land earmarked for the WTE Facility (refer to Section 2) and a bit further away on the other side of the Wellington Landfill is the Wellington WWW from where the WTE will get the sewage sludge it factors into its operations. The project site is thus bordered by the Wellington Golf Club on the north-eastern side, the existing Wellington Waste Water Treatment Works along the western side, old disused effluent ponds to the south of the existing landfill and a railway line along the eastern side of the site. The GPS coordinates are S 33

o 39’ 13.4”, E18

o 59’ 03.5”. Refer to Figure 1.16.

6.5.3.1 BULK SERVICES INFRASTRUCTURE

The following infrastructure (refer to Figure 1.16) exists within the immediate vicinity of the Wellington LS. The information was extracted by the revised technical option analysis from the GIS data provided by the DLM and data compiled by GLS Consulting.

Sewer Reticulation There is a bulk sewer line of 110mm diameter located along the northern edge of the site. In addition, there is a bulk sewer line of unknown capacity along the western and southern edges of the site. Potable Water Supply There is a 250mm diameter water main located along the northern edge of the site.

Stormwater Drainage From the GIS information received from the Drakenstein District Municipality, there does not appear to be any existing stormwater infrastructure located around the immediate vicinity of the site.



Figure 1.16: Layout at the Wellington Landfill Site (Source: JPCE)

Figure 1.17: Bulk Services Layout at the Wellington Landfill Site (Source: TOA)

Water Supply: Pipe Pressures The information provided by GLS Consulting on the bulk water infrastructure for the area confirms the following:

The existing static pressure band is greater than 60 metres but less than or equal to 90 metres.

The peak demand pressure is greater than 60 metres but less than or equal to 90 metres.



The pressures are adequate to meet the recommended parameters for reticulation design pertaining to the WTE Project.

6.5.3.2 SITE INFORMATION

Lifespan: The end of the lifespan of the Wellington LS was set as 2014 but in 2010 the Municipality applied for authorisation to increase the landfill height through an extension of the clay berm with 4m and this increased the lifespan to 2019. Dependent on good management and minimisation of waste to landfill through waste limitation practices by the community and the implementation of the WTE project, including its recovery operations, it might be possible to extend the lifespan of the Wellington LS beyond 2016. The Winelands DM is busy with an investigation in regional landfill sites and will in due course make a decision on the location of a new landfill site. One of the candidate sites is on the same tract of land as the Wellington LS and the Wellington WWW just adjacent to the site earmarked for the WTE Facility. (Refer to Figure …. in section 2). The development costs will be astronomic making the lifespan extension of the Wellington Landfill through less waste to landfill essential. Aesthetics & signage: The access road from the R44 and the internal roads are well maintained. The

entrance to the landfill site is kept neat with the necessary notice boards and a board (also at the Civic Centre) indicating the statistics of the landfill site, e.g. airspace used, estimated lifespan and waste diverted from landfill. Inside the landfill site the area around the weighbridge and weighbridge office is clean and neat and although the buildings used as stores for e.g. tyres and other specialised waste types are old and dilapidated. Children’s art on the asbestos walls alongside the entrance road and the colourful tyres

serving as flowerbeds gives the impression of real effort to brighten up the place. The employees are friendly, helpful and busy - not loitering around. On the site there was an area away from the working face where uncovered exposed waste was noticed.



Health and safety: The employees all wear the prescribed protective clothing. Incidentally the health and safety record of the site is very good given that there have not been any accidents involving humans on site during the past 17 years. Access control and security: According to the waste management capital budget R5m was budgeted to fence the site to rectify non-compliance issues. There is a formal, lockable entrance gate with 2 gatemen and the security consists of external guards that patrol the site 24/7. Equipment: Municipal equipment includes a front end loader plus its operator and a 6m

3 tipper truck

with its operator. Both operators have positions in the solid waste division but not specifically at the landfill site. Rented equipment includes a D6 Dozer, water truck and a 10m

3 tipper truck each with an

operator. There is no compactor and no plans to purchase such by the Municipality given the cost of it. However, to improve the landfill operations and the lifespan of the site, a compactor is sorely needed and over the long term the cost of purchasing it will outweigh the cost of hiring it. Currently the Waste Management Department is spending about R3m per annum on the rental of vehicles and equipment related to its waste treatment and disposal operations. Reclamation of waste: There is a large quantity of builders’ rubble at the Wellington Landfill and a high volume of wood and vegetation is disposed of at the site by private contractors such as garden services. The Municipality has a licence for chipping, crushing and recycling. In 2010 when the Municipality applied for authorisation to increase the landfill height it included in the Basic Assessment ito NEMA the diversion of builders’ rubble and garden waste to chipping and crushing areas. The environmental authorisations and waste license for this was obtained allowing the Municipality to hire crushing and chipping equipment from time to time with the result that crushed rubble has increased with 126% and chipped garden waste with 117% according to JPCE’s latest figures. The cost of hiring the equipment is unfortunately very high and clean rubble is still only half of the volume of contaminated rubble received at the site but finding a use for it and diverting it from the landfill could reduce waste to landfill with a further 8 tons/day or 3%. The Municipality is using the crushed builders’ rubble to fill up the roads on the landfill site and makes it available for other road building projects but not guaranteeing the suitability of the quality/density for road building. When available, compost is sold to the public. The public pays at the municipal offices and present proof of payment at the site. Provision has been made for an enclosed recycling area (without any equipment, just storage) and the municipality has authorised the current recycler contracted for the MRF at the PAARL TS to also take responsibility of the recyclables off loaded at the Wellington Landfill. Permissible wastes: There was no evidence that any hazardous or other controlled waste types were disposed of at the landfill. However, the Municipality acts as an intermediary for hazardous waste



types such as asbestos sheets and fluorescent lamps by accepting it from the public and from time to time transporting it in a safe way to Vissershok hazardous waste site. The Wellington Landfill also still receives tyres not insisting on these to be quartered as the regulations require. According to the tyre regulations

41 the Wellington Landfill will not be allowed to receive tyres as from July 2013. It is

important to note that although it might be good to accommodate the public rather than taking the chance of storage or illegal dumping of hazardous wastes by the public, the Municipality may not store or stockpile large quantities of hazardous waste at the Wellington Landfill and when the landfill forms part of the WTE contract, the Municipality must accept the operator will act in strict compliance of the permit conditions and other legal regulations governing the Wellington Landfill operations therefore public education and the enforcement of the new by-laws that encapsulates all these regulations, standards, policies and guidelines, must be implemented. Besides the assistant superintendent who at the age of 59 will retire in a few years’ time, the other personnel at the Wellington Landfill include 2 access controllers and 2 general workers. The site operations have improved with an assistant superintendent in control but critical recommendations must still be implemented.

6.5.3.3 EXTERNAL AUDIT RESULTS

The IWMP2009

external audit came to the conclusion that the site was managed much better than in 2005 when the previous audit was done. However, it found a number of non-compliances with the permit conditions, e.g. the allowable volume of waste received per day, and recommended urgent hands-on management and co-ordination of duties as required by the operating permit such as ground water, surface water and leachate management and monitoring. Mention was also made of the need for proper compaction and excavation equipment to be acquired and used as well as a wood chipper and crusher and a concrete crusher. In October 2010 another audit was done which was in general satisfactory but with a number of non-compliances with the permit conditions. Below is an overview of the audit. Figure 1.18: Audit Overview of Wellington Landfill (Source: JPCE Audit2010)

41

Waste Tyre Regulations, No. R. 149 published in Government Gazette No. 31901 of 13 February 2009



The 2010 audit found the following non-compliances or problem areas in respect of operations: inadequate internal storm water control; inadequate waste coverage with large areas far away from the current workface that are

insufficiently covered resulting in exposed waste; inadequate compaction equipment with compaction being achieved by the passing of a

tracked dozer over the waste but this method is only effective if the waste is being spread in thin layers.

The most recent External Audit was done in November 2012 by JPCE. The audit did a detailed analysis of the extent to which construction, operations, reporting, recording and monitoring at the site complied with the permit conditions. The non-compliances and problem areas that were found included:

Informal residential housing established within the buffer zone on the northern side of the site thus some distance from the part of the site earmarked for the WTE Plant – a health and safety situation to be addressed immediately;

Vandalism to the boreholes, i.e. stolen lockable caps, possibly due to the security fence not surrounding the entire site, albeit such is in progress;

Insufficient waste coverage with the required action being the compacting of cover material after placement or an increase in the amount of cover material placed to prevent exposure by erosion;

Informal waste reclamation on the site which the municipality should be able to stop when the security fence has been completed; and

The lack of an incident and complaints register kept at the site; Other identified problem areas were:

The inconsistencies between the data from the weighbridge and the data derived from the topographical survey – a situation which was addressed through weighbridge re-calibration and re-training of the staff.

The low compaction density of waste, i.e. 650kg/m3 which was due to the relatively

inefficient plant used for compaction and cover purposes at the landfill. Insufficient compaction vehicles used. Poor condition of the landfill perimeter service road due to rain and construction traffic. Lack of internal storm water control works with contaminated run-off treated as leachate

and contained within the cell. In fact, storm water is a major problem given the flat terrain which causes storm water arising outside of the landfill footprint to pond thus interfering with the day to day operations around the site. The answer would be the construction of an external storm water management system to drain the catchment area.

A large garden refuse stockpile which poses a fire risk due to proximity to the office building. Poor screening of waste at the access despite the availability of an inspection platform.

In analysing these results it is clear that inter alia poor compaction, insufficient waste coverage, the lack of internal storm water control and the absence of an incidents and complaints register are persistent problems. The unfortunate situation however, is that the inadequate compaction is drastically shortening the already dire straits lifespan of the Wellington LS. Figure 1.19 clearly indicates the positive impact that better compaction would have i.r.o. the site’s lifespan given the height extension of the landfill that is currently underway. Note that the graph also indicates the subsequent heightening construction activities that could follow when required, in approximately 2m lifts up to the 12m above ground level limit as stated in the Waste Management License of the site.



Figure 1.19: Audit Overview of Wellington Landfill Airspace (Source: JPCE Audit2012)

6.6 WASTE HA ULAGE

6.6.1 TRANSPORTING OF WASTE FROM PAARL TRANSFER STATION TO THE WELLINGTON LANDFILL SITE

In July 2011 the Municipality awarded a three year R3m contract for the transport of containerised general waste from the Paarl TS to the Wellington Landfill to SA Metal Group (Pty) Ltd. The contract is for the supply of all labour, plant, tools, equipment and management necessary to transport and offload municipal solid waste in 30 m³ open top (bulky waste as well as tailings from recycling) and 30 m

3 compaction containers at the landfill site. The contractor is responsible for the co-ordination of all

vehicles, containers and equipment, and for liaison with both the Paarl TS and the Wellington Landfill staff to ensure all operations are carried out in a safe, orderly and efficient manner. The Municipality is satisfied with the contractor operations. The contract will expire in June 2014 prior to the WTE project becoming operational.

6.7 WASTE RE DUCTION

6.7.1 RECOVERY AND RECYCLING

Current waste recovery for recycling in Drakenstein consists of the MRF operations at the Paarl TS complemented by the systematic roll-out of waste separated at source activity. The MRF contractor also collects the waste separated at source from the wards hitherto included in this operation. The MRF figures are based on real recyclable figures obtained for waste handled at the Paarl TS. A breakdown of the recyclable figures is indicated in Figure 1.20 and Table 1.8 provides the recent data.



Figure 1.20: Composition of Recyclables at Paarl MRF (Sources: JPCE)

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000W

eig

ht

in k

g p

er

mo

nth

Metal

Beverage Cans

20lt Plastic Containers

Milk Bottles

PET

Plastic

Paper

Cardboard (K4)

Glass

Table 1.8: Recycling & Airspace Figures related to Paarl MRF (Source: JPCE)

Aug-11 Sept-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12

MRF Sales 13,7 48 33,74 64,829 54,855 60,231 51,921 59,952 61,465 64,365 58,213 66,932

Airspace saved m3 131,83 442,38 273,93 538,19 539,77 479,56 520,13 513,60 471,81 456,87 321,53 495,29

Based on these figures there has been a significant increase in recycling from the start of the contract to the second quarter of 2012. These figures are also indicative of the impact of the increase in waste collection services rendered since 2009 as borne out by recent refuse collection figures and possibly also the add-on results of the waste separated at source roll-out, although not verified. It appears that the percentage of recyclables in the Drakenstein area is higher than was anticipated thus indicating the significant impact successful recovery of recyclables in the total municipal area could have on waste minimisation, reduction of waste to landfill and the successful operation of MRFs in Paarl and Wellington, i.e. the financing and construction of the latter MRF would be part of the WTE project. The financial viability and sustainability of MRF operations are quite complex inter alia due to a volatile recyclables market, making it essential to regard a MRF as part of an integrated waste management solution. Information contained in the IWMP

2009 indicates that post collection

separation or material recovery would result in a higher income even though other research shows that the source separation recovery figures for paper and glass is much higher than its post-collection recovery rate. However, the cost of establishing and operating a post-collection MRF (i.e. a ‘dirty MRF’) can be very high, to the extent of surpassing the income while source separated wastes must be collected preferably separate from the mixed waste stream and separated in its various material streams, also a labour intensive process and both of these have been proven in the past to be financially unsustainable if dependable on the revenue from sales to finance operational and capital costs. If a MRF is privately operated and not part of an integrated system there must at least be an incentive tariff based on the ‘reduction of volume of waste to landfill’ but even the latter may not be enough to make the operation sustainable if upfront capital cost has to be repaid. In the case of the municipal owned MRF at Paarl TS, the contractor had no upfront capital outlay in respect of the MRF operations. The contractor also benefits from a ‘waste reduction incentive scheme’. It is a two year contract with the built-in option of a 12 month extension period as invoked.



The contract price as awarded was R2,470,635.00 consisting of a R1,980,000.00 fixed monthly tariff component and R490,635.00 presenting the total of a monthly incentive scheme. There is no doubt that MRFs should be part of an integrated waste management solution, i.e. an integrated WTE facility. Deserving further attention is a cost-benefit and comparative analysis in respect of ‘clean’ vis-à-vis ‘dirty’ MRFs which then will impact on the extent and speed of the collection of ‘waste separated at source’ roll-out. A benefit of a successful MRF at the Paarl TS is the saving on transport costs from the Paarl TS to the Wellington Landfill due to a reduction in the waste. A number of other waste recovery efforts are being implemented by the industry in Drakenstein, e.g. used oil and oil products, printing chemicals, medical waste disposal and the wine industry by composting peels and pips and recycling bottles and cardboard.

6.7.2 COMPOSTING

Composting of organic material is environmentally much friendlier than landfilling thereof. The reason being that decomposition of organic materials in a landfill is an anaerobic process (i.e. without oxygen) which produces carbon dioxide and methane gas while composting outside a landfill is an aerobic process (in the presence of oxygen) which also produces carbon dioxide but not methane gas making the latter a much more feasible process given that methane gas is 21 times more effective as a GHG than carbon dioxide - therefore a much lesser harm to the environment. Composting also forms an important part of a WTE integrated operation. The Paarl TS is located on the premises of the former composting plant in Daljosafat. The Record of Decision (the “ROD”) obtained upon the application for an Environmental Authorisation, gave approval for the establishment of a MRF and a Composting Facility provided that the natural ground level be raised by 2m in order to be above the flood level of the Berg River. This was done ito the MRF and systematically using clean builders’ rubble also for a composting yard. The compost so produced is sold to the public per bag or cubic metre.

7. WASTE STA FF CA PAC ITY The WTE Facility is a new municipal support activity complementary to the existing waste management activities to achieve integrated waste management objectives and, except for making use of municipal land and bulk infrastructure, it is not intended to be in any other way reliant on municipal financial or human resources capacity and the Municipality has none of the scare skills and expertise needed for the highly technical WTE operations or any spare labour capacity.

An assessment of the municipal capacity base in respect of the WTE project involves the existing waste management activities envisaged to be directly and indirectly related to the WTE operations: Wellington landfill – adequate municipal workforce taking into account insourced security

services and insourced landfill equipment including the operators; necessary part of the WTE operations;

Paarl TS – adequate municipal workforce albeit insourced security services; necessary part of the WTE operations if the objective is synergy of operations;

Paarl MRF – no municipal capacity; contractor with own labour; necessary part of the WTE operations;

Cleansing services – a number of budgeted vacancies; not part of the WTE operations but a lack of capacity and poor performance will impact negatively on the WTE operations;

Waste collection services – a number of budgeted vacancies; not part of the WTE operations but a lack of capacity and poor performance will impact negatively on the WTE operations;



Collection of waste separated at source – utilising the workforce of the Paarl MRF contractor and thus no current municipal capacity; in the interest of synergising operations it could be part of the WTE operations but does not need to be;

Transport of the waste from the Paarl TS to the Wellington Landfill - contractor with own labour; no municipal capacity or vehicles; in the interest of synergising operations it should be part of the WTE operations and if not, a lack of capacity will impact negatively on the WTE operations.

The Municipality provided the following information regarding its own labour force at the Wellington Landfill and the Paarl TS – refer to Table 1.9. The post levels are still based on the old structure (van der Merwe scales) but the Municipality is in the process of moving over to the Task system. Should it apply, a further analysis of remuneration and benefits will form part of the value assessment.

Table 1.9: Solid Waste Staff employed at the Wellington Landfill and the Paarl Transfer Station (Source: DLM)

Location Position Post Level No.

Wellington Landfill Access Controller 19-17 2

General Worker 19-17 2

Assistant Superintendent 8-7 1

Paarl Transfer Station Operator/driver 12-11 1

General Worker 19-17 7

Gatekeeper 19-17 1

Total 14

However, mandatory consultation with organised labour dealt with the question of labour that will be affected by the WTE project and both unions, the South African Municipal Workers Union (“SAMWU”) and the Independent Municipal and Allied Trade Union (“IMATU”) prefer redeployment of affected staff rather than secondment or transfer. From the municipal point of view, individual employees must have the freedom to make their own decision should transfer of employment be an option provided to them. The section 78(1) assessment found a substantial number of budgeted vacancies in the waste removal and cleansing teams, i.e. a few for the positions of tractor driver/operators and the majority of vacancies for general workers. It was observed that some of these might need to be filled for sustainable effective and efficient refuse removal and street cleansing services to be rendered, e.g. to complete working teams. Subsequent to the assessment, the DLM embarked on an organisational restructuring programme which established an organisation structure that could make provision for the redeployment of the affected staff should this be necessary. Should transfer of personnel be a reality, e.g. by personal request, the total remuneration package of the personnel concerned will be protected in negotiations and Section 197 of the LRA will dictate the handling thereof.

Should the Municipality rely on own capacity for the collection of waste separated at source it would need an adequate number of work teams, each of which should include 1 driver and 2 general workers with at least a 1 ton bakkie with a trailer.

Should the Municipality elect to keep the haulage of waste from the Paarl TS to the Wellington Landfill as an internal activity once the transport contract expires in 2014 it will need skilled drivers and purchase the quality and number of vehicles needed or hire resources. The current and previous tenders for this transport service from the Paarl TS to the Wellington Landfill provide a benchmark for an assessment of the costs involved.



8. F INA NC IA L CONSIDE RA TIONS

This section of the report discusses a few important financial parameters influencing or indicating the extent to which the Municipality will be able in the foreseeable future to invest in or finance a WTE Facility and the associated infrastructure. As more fully discussed in further Sections, the preferred WTE technology includes as a 2

nd phase an AD plant with a VM Press at a capital cost ranging from R72m to

R99m, depending on the size of the plant and as a 3rd

phase a DC plant at an estimated capital cost of R300m. The discussion focuses on the financial performance of the DLM and more specifically the capital expenditure requirements of the Waste Management Department and its operational budget to gain insight into the financial situation and future financial requirements of waste management in DLM.

8.1 F INA NC IA L PERFORMANCE

The DLM has received unqualified audits for four consecutive years since 2008/09 and maintains an adequate and stable financial position. During the 2011-12 financial year the DLM managed to spend in excess of 96% of its capital budget, a turnaround taking into account that during the previous year it was criticized by the Auditor General (“AG”) for its slow spending of the capital budget and the years preceding that such monies were also used for operational expenses. The DLM has also managed to spend 100% of the Municipal Infrastructure Grant (“MIG”) and collected nearly 98% of billed revenue which together with a number of infrastructure and service delivery accolades assisted to have it rated amongst the highest performing municipalities in COGTA’s Class 4: “Highest Performing”.

8.1.1 CASH FLOW

The 2010/11 Annual Report indicated a credit rating of A3.za which meant that the DLM had a strong capacity to repay long term liabilities and fulfil short term obligations (liquidity). However, as indicated in Table 1.10 the AR

also pointed out a decline in the liquidity ratio and another view

expressed by a municipal ratings agency42

indicates a steady decline in the financial stability rating of the DLM mentioning the DLM’s liquidity as of particular concern. Table 1.10: Liquidity Ratio of DLM (Source: AR)

Financial year Net current assets Net current liabilities Ratio

(R/m) (R/m)

2008/09 181 801 218 205 0.8

2009/10 190 601 258 825 0.7

2010/11 166 235 306 635 0.5

2011/12 111 957 278 631 0.4

8.1.2 DEBTS

Year on year the municipal debt has steadily increased thus adding to the concern about liquidity. From 2008 to 2011 municipal debt increased from R209m to R298m while total creditors increased to R220m and in 2011-12 the DLM was facing a R53,8m actual shortfall on its commitments

43.

42

Ratings Africa which has been criticised by municipalities for not using criteria more fully representative of all socio-economic

parameters but still recognised for producing useable results. 43

These were points highlighted by the Executive Mayor of DLM at the occasion of the tabling of the 2011-2012 Adjustments’

Budget.



Tables 1.11 and 1.12 indicate the debt situation as per age and service. Note: that these tables exclude what is considered ‘bad debt’. Table 1.11: Gross Outstanding Debtors per Service (Source: AR)

Financial year Rates

Trading services Economic services Housing

rentals Other Total

(Electricity & Water)

(Sanitation & Refuse)

(R/m) (R/m) (R/m) (R/m) (R/m) (R/m)

2008/09 28 607 87 224 68 105 21 480 4 514 209 932

2009/10 31 528 119 191 77 154 26 400 4 878 259 154

2010/11 30 363 128 699 58 491 17 870 2 747 238 174

2011/12 34 401 131 673 72 112 22 701 2 381 263 268

Difference 2011/12

4 038 2 974 13 621 4 831 -369 25 094

% Growth for 2011/12

13.30 2.31 23.29 27.03 -13.32 10.54

Apart from housing rentals, sanitation and refuse is owed the most with the improved situation of 2010/11 nearly reversed in 2011/12. Table 1.12: Debtors Age Analysis (Source: AR)

Financial year > 30 days 30 - 60 days 60 - 90 days < 90 days Total

(R/m) (R/m) (R/m) (R/m) (R/m)

2008/09 53 849 9 715 7 427 138 939 209 932

2009/10 78 398 9 115 7 150 164 489 259 154

2010/11 95 608 9 269 7 356 125 939 238 174

2011/12 88 533 11 513 8 644 154 578 263 268

Difference 2011/12

(7 075) 2 244 1 288 28 639 25 094

% Growth for 2011/12

-7.40 24.21 17.51 22.74 10.54

8.1.3 LOANS

By 30 June 2011 the DLM’s external loans amounted to R334,133,285. During 2010-11 loans of R108,534,000 were taken up and R25,392,165 was repaid. By 30 June 2012 the DLM had external loans of R500,494,186 due to the loans taken up to complete some of the capital infrastructure works that could not be completed in 2010/11.

8.1.4 INVESTMENTS

Investments refer to deposits of longer than 12 months. On 30 June 2012 these amounted to R112,000. The Call Deposits (shorter than 12 months) amounted to R102,165,057 in 2011/12 and to R 156,074,889 in 2010/11 and the Cash book balance on 30 June 2011 amount to a positive balance of R 10,146,425 while it was R9,777,399 by 30 June 2012. The Municipality has an investment policy that gives effect to its obligations in terms of section 13 of the MFMA.

8.1.5 ASSETS AND LIABILITIES

On 30 June 2012 the Municipality’s total assets amounted to R4,438,061,899 made up of net assets of R3,548,782,103.00 and total liabilities amounting to R889,279,795.



8.1.6 FINANCIAL RISK MANAGEMENT

As pointed out above it appears that the Municipality is well aware of its liquidity and debtor risks and during the latter part of 2011/12 the Municipality had been addressing these. In terms of interest rate risk, the Municipality is not exposed due to its interest bearing external loans having fixed interest rates.

8.1.7 COST RECOVERY

There are a number of policies and by-laws which the Municipality must have in place in order to comply with legislation. In respect of policies these include a Credit Control and Debt Collection Policy in terms of Section 96 of the MSA and a Tariff Policy in terms of Section 74 of the MSA. Section 98 of the MSA requires the Municipality to adopt bylaws to give effect to its credit control and debt collection policy including its enforcement. Section 75 of the MSA refers to the adoption of by-laws to give effect to the municipality’s tariff policy, which in terms of Section 74 must determine the fees levied for services rendered by the municipality itself or by way of service delivery agreements. The Municipality has tariff and credit control and debt collection policies and by-laws as well as waste by-laws in place.

8.1.8 PERFORMANCE MANAGEMENT

Despite the MSA governing performance management being in place since 2000 and two further sets of performance regulations respectively applicable since 2001 and 2006 as well as the obligatory performance reporting in terms of the MFMA, the Municipality, as pointed out in Auditor-General’s Report on the DLM’s Performance Management and the comments of its own Performance Audit Committee in the previous AR the DLM is not implementing the required processes properly. However, from 2011 there has been an improvement which should become more visible as the DLM is addressing the shortcomings in its skills base. The latter was also pertinently pointed out by the AG and can be seen from the number of vacant posts of supervisory nature. Performance monitoring of a PPP in respect of a WTE project will be essential and thus a challenge.

8.2 BUDGE T ANA LYSIS

8.2.1 REVENUE AND EXPENDITURE

The comparative results for the last three financial years are as follows: Table 1.13: Drakenstein Revenue/Expenditure Comparison (Source: AR)

*Discrepancy

For 2011/12 the DLM derived 15.33% of its revenue from grants vis-à-vis 13.01% in 2010/11; 16% in 2009/10 and 15% in 2008/09. This does not point to an over-reliance on external grants but the DLM must be cautious.

Description 2009/10 2010/11 2011/12

Revenue R942,882,953 R1,025,587,546* R1,165,111,358

Expenditure R950,236,179 R1,050,039,064 R1,231,114,733

Surplus / (Deficit) (R3,007,899) (R24,451,518) (R66,003,376)



Table 1.14: Sources of Revenue (Source: AR)

Description of revenue

Amount received

2008/09 2009/10 2010/11 2011/12

(R/m) (R/m) (R/m) (R/m)

Equitable share 39 374 52 658 59 707 62 476

Capital grants 64 465 80 850 40 384 66 431

Operating grants 19 917 20 037 33 359 49 700

Own revenue 701 032 789 337 892 137 986 505

Total revenue 824 788 942 882 1 025 587 1 165 112

Capital expenditure amounted to R236,691,000 in 2010/11 which represented 92,91% of the approved capital budget and R271,904,000 in 2011/12 representing more than 96% of the approved capital budget. Refer to table below. Table 1.15: Sources of Funding for Capital Expenditure (Source: AR)

Financial year External loans Grants & subsidies Own funding Total

(R/m) (R/m) (R/m) (R/m)

2009/10 89,753 42,015 101,121 232889.00

2010/11 104,945 40,471 91,275 236691.00

2011/12 155,613 66,431 49,860 271904.00

The positive indicator of better capital spending is somewhat shadowed by the increase in reliance on external funding. Figure 1.21 indicates the trend iro capital funding sources. Figure 1.21: Comparison of Sources of Funding for Capital Expenditure (Source: AR)

The under-spending on repairs and maintenance that is so evident in local government is also the case in Drakenstein given the steady decline in the amount spent on repairs and maintenance as a % of total operational expenditure as indicated in Table 26. Table 1.16: Repairs and Maintenance Spending (Source: AR)

Description 2008/09 2009/10 2010/11 2011/12

(R/m) (R/m) (R/m) (R/m)

Total operating expenditure 777 306 945 891 1 065 230 1 231 115

repairs and maintenance 70 617 50 649 53 553 54 058

% of total OPEX 9.10 5.35 5.03 4.39



8.2.2 WASTE SERVICES BUDGET ANALYSIS

According to the LGBER issued by National Treasury, municipal income from solid waste services has been growing very rapidly and so has expenditure. However, strikingly so, in the majority of municipalities budgeted revenues for solid waste do not cover budgeted expenditure. It points to an under-recovery of solid waste costs which municipalities must then subsidise from other revenue sources. Thus municipalities are in general under-pricing their solid waste services which sends inappropriate signals to households and other waste generators about the costs of their activities resulting in limited incentives for waste minimisation. NT mentioned that in addition to refuse removal charges, there are a range of other potential revenue streams in the management of solid waste that municipalities need to explore: landfill dumping fees, hazardous waste disposal fees, fines for littering and illegal dumping, recycling concessions, sale of compost produced from organic waste, revenues from using waste for electricity generation and the earning of carbon credits. Generally, municipalities need to pay more attention to optimising their revenues from these other sources. DLM’s comparative results for the last three financial years are as per Table 1.17. In 2011/12 waste management had an income of 4% less than budgeted and expenditure of 3% more than budgeted. Its revenue has increased steadily year on year since 2009/10 and the figures indicate a continuous trend of increased surpluses. R46,006,817.78 of the R70,470,871 revenue accounts for revenue collected but which is only 67% of the billed amount of R68,725,335 for 2011/12 and as seen in previous tables, apart from housing rentals, sanitation and refuse have the most outstanding debt. Table 1.17: Revenue/Expenditure Comparison for Waste (Source: AR)

Description 2009/10 2010/11 2011/12

Revenue R 59,916,323 R 65,886,032 R 70,470,871

Expenditure R 47,297,809 R 58,496,848 R 44,706,058

Surplus (deficit) R 12,618,514 R 7,389,183 R 25,764,813

Table 1.18 provides the operating budget of the waste services as per the waste activities which gives more insight in the costs applicable to each. Further analysis indicates that the operating costs of the waste treatment and waste disposal services budgeted for in 2012/13 is R14,610,217 of which nearly R2m is spend on hiring of vehicles and equipment and around another R2m on contractual services including security, cover material and transport, i.e. a large percentage of the budget spent on the insourcing of these services. The equitable share received by the refuse removal services component amounted to R14, 422, 589 for 2011-12 with R12,545,443 budgeted for 2012/13 and R15,780,000 for 2013/14. Table 1.18: Waste Management: Operating Expenditure (Source: DLM)

Description 2012/13 2013/14

Cleansing administration R807,811 R1,518,960

Cleansing Gouda R1,236,960 R1,209,279

Cleansing R814,105 R1,103,058

Cleansing streets and pavements R144,704 R487,660

Cleansing scavenging sidewalks R18,802,417 R19,825,616

Cleansing refuse removal R25,265,845 R26,750.427*

Cleansing refuse removal R41,409 R98,770

Cleansing refuse treatment R6,474,842 R6,388,315

Dumping sites R8,135,375 R8,829,346

Expenditure R61,723,468 R66,211,431

Projected Operating Income R75,378,889 R87,243,091

Surplus R13,665,421 R21,031,660



Table 1.20 lists the prioritised capital needs, the projects financed in 2010/11; those approved for 2011-12 and the provisionally budgeted capital expenditure for 2012/13 and 2013/14. Capital items that concern the infrastructure envisaged to be operated by the WTE operator are highlighted. Four items dominate the 3 year capital budget, i.e. the rehabilitation of five of the smaller landfill sites; the upgrading and extension of the Paarl TS specifically the office block; the provision of mini drop-offs and the fence of the Wellington LS. Capital infrastructure which would be part of the financial risk transfer to the WTE Operator include inter alia the installation of weighbridges at Paarl TS for R1,8m and the Wellington Landfill for R2,8m (outdated figures), therefore these are not reflected in the budget. The WTE Operator has included it under its Civil Works cost component – refer to technical option analysis in Section 2. It would be noted that a few items in the list have no budgeted figures. It appears that e.g. new vehicles are bought through another vote managed by the Civil Engineering Department. Table 1.21 provides a 20 year projected capital budget at current cost and indicates the estimated future costs of the items listed. Various items refer to the upgrading or extension of the Wellington Landfill site or the establishment of a new site. Provision is also made for R6m for the upgrading of the Wellington LS access roads.

8.2.3 WASTE SERVICES TARIFF STRUCTURE

A comprehensive tariff review of solid waste services taking all the required components, e.g. the often forgotten maintenance costs, into account every few years is essential. For instance to ensure the impact of the fuel price syndrome is accounted for. In comparing the waste tariffs of the Municipality with similar municipalities in the Western Cape, e.g. Overstrand and Swartland, the average annual percentage increase in the DLM tariffs does appear in line with other municipalities but the waste tariffs are higher. Table 1.22 provides the waste tariff schedule of the DLM. As for 2012/13, the last few years has seen an increase of 7% per year in the waste tariff. Moving forward with the WTE project requires the Municipality to have a good understanding of municipal costs in order to compare such with private sector costs – thus a comprehensive tariff review is advisable.

8.2.4 ADDITIONAL BUDGET REQUIREMENTS I.R.O. WASTE SERVICES

The costs to rehabilitate all identified sites in the Drakenstein was estimated at R57,743,753.70 (escalation excluded). Provision for R16m (escalation excluded) has been made for this programme over the current and next two years on the capital budget. Table 1.19: Summary of Estimated Landfill Rehabilitation Costs (Source: JPCE)

Solid Waste Site 30 June 2011

Wellington Existing Landfill R21,904,933.59

Wellington Old Landfill R14,957,926.59

Gouda Landfill R1,139,272.03

Saron Landfill R2,290,791.72

Hermon Landfill R985,177.97

Dal Josafat Landfill R3,108,425.31

Orleans Landfill R7,271,020.50

Boy Louw Landfill R6,086,205.99

Total R57,743,753.70



Table 1.20: Waste Management: Three Year Capital Budget (Source: DLM) DRAKENSTEIN CAPITAL BUDGET : MARCH 2012: REVISION 2

AREA DISCIPLINE PROJECT

3 YEAR BUDGET AMOUNT

(Excl VAT) x R1

000

ITEM No.

ENGINEER

VOTE No.

DESCRIPTION Actual

Spending 10/11

CASHFLOW (Excl VAT)

2012

2013

2014

Total Amount

11/12

12/13

13/14

Paarl Waste Services Refuse Containers (Wheely Bins Pole Bin)

R 415 179 8330-4-06-445-00 Refuse Containers (Wheely Bins Pole Bin)

R 85 R 100 R 150 R 165

Paarl Waste services Transfer station R 1,550 180 8330-4-06-511-00

Upgrade and extension of transfer station and new office building R 2,100 R 500 R 500 R 550

Paarl Waste Services Implementation of IWMP R 1,500 182 8330-4-06-477-00 Implementation of IWMP R 457 R 200 R 300 R 1,000

Wellington Waste Services Rebuild Access Road to Wellington Dump Site R -

Refurbish Road to Wellington Dumpsite and Weigh Bridge R - R - R - R -

Wellington Waste Services Extension of landfill R 100 185 8330-4-06-565-00 Extend Wellington Landfill : 225000m3 clay berm 4m high R 60 R 100 R - R -

Paarl Waste Services Equipment General R 260 186 8330-4-06-407-00 Equipment General R 70 R 50 R 100 R 110 Paarl Waste Services Office Furniture And Equipment R 19 187 8330-4-06-237-00 Office Furniture And Equipment R 14 R 1 R 8 R 10

Paarl Waste Services New/alternative landfill site R 100 188 8330-4-06-069-00

Investigate, and develop new/alternative landfill site or Waste Minimization Projects R 239 R - R - R 100

Various Waste Services Mini Drop Offs R 1,300 189 8330-4-06-502-00 Mini Drop off R - R 400 R 500 R 400 Wellington Waste services Rehabilitation of Dumpsites R 16,000 191 8330-4-52-001-00 Rehabilitation of the 5 sites R 1,000 R 6,000 R 5,000 R 5,000 Wellington Waste Services Cleansing Depot R 400 192 8330-4-06-437-00 Upgrade Wellington cleansing

depot R - R 200 R 100 R 100

Paarl Waste services Refuse bin management system R 420 193 8330-4-06-458-00 Refuse bin management system R - R 200 R 200 R 20

Wellington Waste Services Upgrade existing Landfill R 1,000

8330-4-06-184-00 8330-4-06-476-00

New access, rehab, public drop off. (Recycling Waste) R - R 400 R 300 R 300

Paarl Waste services Transfer station R -

Upgrading Transfer Station including Rehab of Roads, New Admin. Building, Wash bay and Parking Facilities R - R - R - R -

Paarl Waste services Purchase new waste trucks R - Purchase new waste trucks R - R - R - R -

Paarl Waste Services New mobile diesel 6' pump (2no.) R - New mobile diesel 6' pump

(2no.) R -

R - R - R -

Wellington Waste services Leachate management R 100 284 8335-4-06-605-00 Wellington Landfill Leachate management

R - R - R - R 100

Paarl Waste Services Statutory Compliances R - Statutory Compliances R - R - R - R -

Wellington Waste services Waste to energy plant R 100 190 8330-4-06-594-00 Waste to energy plant Section 78 Investigation

R - R 100 R - R -

Wellington Waste Services Rehabilitation of old site including closure

R - Rehabilitation and closure of old

site R -

R - R - R -

Wellington Waste Services Parking facilities : Wellington transfer station R -

Parking facilities : Wellington cleansing station R - R - R - R -

Wellington Waste Services Fence for Landfill site R 5,100 285 8330-4-06-606-00 Fence for Landfill site R - R 5,000 R - R 100

Wellington Waste services Waste minimisation projects R - Waste minimisation projects R - R - R - R - TOTAL R 28,364 R 4,024 R 13,251 R 7,158 R 7,955 R 28,364

Previously Requested Budget (10/11) R 4,025 R 3,054 R 11,600 R

60,814 75,468

R75,468

Shortfall amount (+ Shortfall / - Excess) R 1 R -10,197 R 4,443 R 52,859 47,105

R47,105



114

Table 1.21: Waste Management: 20 Year Projected Capital Budget (Source: DLM)



Table 1.22: Solid Waste Tariffs 2011-2012 (Source: DLM)

SERVICE Tariff Incl. Vat (R)

2011/12 Tariff Incl. Vat (R)

2012/13

Refuse Removal Fees (240 litre bins)

One removal per week per bin 1 770.84 1894.80

Two removals per week per bin 4 826.77 5164.65

Three removals per week per bin 8 164.10 8735.59

Refuse Removal Fees (770 litre bins)

One removal per week per bin 6 056.20 6480.13

Two removals per week per bin 15 510.10 17,665.81

Three removals per week per bin 27 921.55 29,876.16

Availability Charges (vacant ervens) 20% rebate of the above iro schools

324.21 346.91

Special Services

Skips for hire (515m3 minimum rate of one service per month) 628.09 672.05

Woodchips (per m3) 54.57 58.39

Indigent subsidy: monthly R190.00 credited to registered indigent’s account

Sundry Refuse Removal and Compost Tariffs

Special refuse removal (large quantities) per load. Approved manageable garden refuse will be removed if it can be loaded onto truck (payment upfront)

333.25

358.30

Wellington Landfill

All waste excl. Wellington’s private residential waste. Contractors and non-Drakenstein residents per 100kg or part thereof.

12.90 13.90

Rejected foodstuff (per100kg or part thereof – incl. but not limited to, fishery waste, bad foodstuffs and other special waste

48.38 52.10

Builders’ Rubble (all disposal sites)

Clean (only contains sand, stone, half bricks, soil, small pieces of concrete, less than 100mm)

Free Free

Container with tree stumps and refuse and contains concrete pieces greater than 100mm (price per ton)

107.50 115.60

Paarl Transfer Station

Per 100kg or part thereof but iro Paarl residents: if total load less than 1000kg, and the limit of 5 loads p/m not exceeded, dumping free of charge

14.51 15.70

Clean approved garden refuse will be received free of charge (only if it can be chipped) Per bag (blue bags)

14.51 15.70

Compost

Fine compost per bag (supplied by municipality) when available

7.53 8.20

Fine compost per bag (supplied by purchaser) 5.38 5.90

Fine compost per m3 51.06 55.00

Coarse compost per m3 23.65 25.50

Provision of containers for special events

240l / per container/service 34.83 37.60


5,5kl skip / per skip (minimum of one service/month) 553.63 595.30

Damaged bins – replacement costs


770l / per container/service 3 466.88 3727.00

Incinerator

Formula C = 0,598 x GRE + 0,136

GRE = Overall refuse equivalent value



8.3 F INA NC IA L A ND SE RVICE DELIVE RY REA LIT IES

The above discussion indicated that the Municipality is committed and financially able to render good waste collection and cleansing services and will be able to continue rendering the current standard of waste treatment and disposal services. The financial statements and the annual report revealed that the solid waste management budgeting is done in a prudent manner and controls enable the division to stay within its budgeted amount. Although waste had a 67% collection rate in 2011/12 and this being a trend, its revenue exceeded its expenditure leaving it with a surplus of R25m in 2011/12. Judging by the over expenditure / deficit of other departments and the overall financial obligations of the DLM, the waste management division will not be allowed to ring-fence its income and use this surplus to e.g. accelerate capital expenditure on renewal of its waste fleet. It should be noted that the costing of the various waste activities remains very intertwined which made it difficult to ascertain the real costs of the waste services that served as an input cost comparison for the WTE Project. The National Key Performance Indicators (“KPIs”) include indicators expressing municipal financial viability. Using these to determine the DLM’s financial viability shows that:

the DLM’s debt coverage is still within the acceptable norm, i.e. it is not over-borrowed even though its interest and redemption on loans have grown from R53,50m in 2010/11 to R72,65m in 2011/12;

in respect of service debtors to revenue – if bad debt is taken into account, the total outstanding service debtors exceed the acceptable norm;

its cost coverage situation, thus the cash and investments immediately available to cover monthly fixed operating expenditure, is not as sound as it should be and it is because of the financial situation that the current Council inherited in 2011 and which necessitated it to withdraw investments to pay creditors and also the fact that cash collection from long outstanding debts was not realised as expected.

The challenges thus faced by the DLM include:

its increasing debt situation which necessitates strict application of the credit control and debt collection policy;

the ability to finance capital needs without sliding further into the trap of external borrowings to do so but rather to enhance own revenue; and

building a capacitated personnel corps through skills development and filling key vacant positions with suitably qualified people.

Based on the above analysis it is clear that the DLM does not currently have the financial appetite or ability to invest in a highly expensive and technically advanced WTE Facility without a private partner taking on the bulk of these risks.

8.4 PRE LIMINA RY EX PECTE D F INA NC IA L BE NEFIT – NB FOR NEW VA LUE A SS ESSME NT

To assess the expected financial benefit of the WTE Project at the start of the project in 2009, JPCE used the proposed diversion rates, tipping charges and electricity generation figures of the bidders in the WTE RFP as well as a number of assumptions to arrive at the estimated costing of a WTE project to the Municipality. The assumptions used by JPCE were the following:

the cost assumptions as indicated in Table 1.23; an estimated contract duration of 20 years with a 2 year commissioning delay due to

statutory approvals; inclusion of the Paarl TS, the Paarl MRF and the Wellington Landfill in the WTE project;



that the disposal cost the DLM would need to pay at another landfill (Cape Town City or regional) when the Wellington Landfill is full would be equal to the current costs charged by the City;

that the haulage of waste between the Paarl TS and the Wellington Landfill be regarded as a cost equal to all scenarios;

that the transport cost to another landfill be based on private haulage contract costs. Table 1.23: Assumptions i.r.o. Cost (Source: JPCE Evaluation Report of WTE Bids)

Description (R) value Unit

Municipality’s cost to operate the landfill 6,988,800 R/a

Municipality’s cost to operate the Transfer Station (excluding the existing

haulage contract’s cost since it is a common factor in all scenarios) 480,000 R/a

Municipality’s cost for the operation of the Material Recovery Facility 823,545 R/a

The Nersa tariff for purchasing electricity ex Waste-to-Energy 0.98 R/kWh

Profit margin that the Municipality will add to Electricity sales 5 %

Mass of waste generated by Drakenstein Municipality 87,360 Tons/a

Remaining airspace at Drakenstein’s Wellington landfill 865,500 m3 Cost of disposal at remote landfill once Wellington landfill is full 270 R/ton

Cost of transport to remote landfill 120 R/ton

Escalation of costs 4 % per annum

Should the Net Present Value (“NPV”) of the above estimated cost to the Municipality for 20 years be calculated, using a discount rate of 6%, the following results (as a cost to the Municipality) were obtained:

Table 1.24: Total Estimated Cost to Municipality over 20 years and its NPV (Source: JPCE Evaluation Report of WTE Bids)

Bidding Party Total Estimated Cost to Municipality Net Present Value (Cost)

ARK Industries R 483,774,614 R 209,342,011

Re R 508,757,900 R 205,800,678

Interwaste (preferred bidder) R 398,905,516 R 169,661,227

Status Quo R 1,184,028,080 R 514,220,075

Besides highlighting the private investment that would be involved, the concluding figures in Table 1.24 also showed that the bidders who will divert more from landfill, are “penalised” initially since the Municipality effectively only pays for the waste that gets diverted, but once the waste has to be transported to a remote landfill, the more effective bidders obtained the advantage.

Figure 1.22: Provisional Costs and Impact of the WTE Project (Source: JPCE Evaluation Report of WTE Bids)



Figure 1.22 clearly indicates the increase in costs should the Municipality refrain from implementing the WTE project. Since the RFP and calculation of these figures, the WTE Project input data has changed considerably, also given the various scenarios that were developed. Section 2 contains the revised technical options analysis.

8.4.1 COST AVOIDANCE

The figures in Table 1.22 included a calculation of avoided costs. More specifically an evaluation of the RFP bidders’ proposals listed the following types of avoided cost that will be the result of the WTE project in Table 1.25 (based on the costs of the preferred bidder) as well as the projected daily cost after taking the avoided costs into account. The revised figures and calculations are analysed in Section 4. Table 1.25: Avoided Costs (Source: JPCE Evaluation Report of WTE Bids)

Avoided Cost Item Applicability Avoidance Cost Measurement

Operation of Paarl MRF Yes R9.43 / tonne

Operation of Wellington Landfill Yes R80/ tonne

Operation of Paarl TS Yes R5.49 / tonne

% Waste Diverted from Landfill Yes (lifespan extended) 61%

Cost Item After avoidance taken into account

Additional Daily Cost to Municipality Yes R5,873.14 (±R1,55m/a)

9. KEY ROLE PLAYE RS

The role-players involved in section 78 and 120 processes are indicated in the table below. Some of these are involved from the start and continuously while others, e.g. the community and treasury departments are only involved if the study proceeds to this 2

nd part of the feasibility exercise that deals

specifically with the WTE PPP. Table 1.26: Key Role-players in Section 78 Process

Persons/Structure Function

Transaction Advisor/s Person/team with appropriate skills and expertise to assist the Municipality with the Section 78/120/33 Processes

Head of Directorate The head of the department/directorate (HOD) responsible for the service/s under investigation, or another senior person with good project management skills delegated by the HOD to champion the process

Project Officer Person within the municipality who assists the HOD with the S.78 / 120 Process and, if the process leads to the conclusion of an outsourced contract, this person may assist with fulfilment of legal contract monitoring obligations, i.e:

Monthly performance monitoring

Enforcement of the contract

Day-to-day management of the contract

Reports to the Council or a Board of Directors (if an entity)

Other Managerial Staff Senior managerial staff of other affected departments, e.g. the Finance and Management / Human Resources Services liaises with the Transaction Team and provide all required information.

Municipal Manager As the municipality’s Accounting Officer, the municipal manager must oversee the process, e.g. ensure that Treasury and the community are consulted, and also has overall responsibility for the finalisation of the process and implementation and monitoring of the agreed option. In the case of Drakenstein the Municipal Manager approves the Section 78(1) report and submits the Section 78(3)/120(4) as well as the section 33 contract and reports to the Mayoral Committee (“Mayco”) and Council.



Employees If any, employees in the service/s under investigation must be kept up to date with the process and their concerns addressed via their trade unions, or directly should the process require it.

Organised labour From the inception of the process, the trade unions must be engaged in consultation and their views solicited and recorded in minutes.

Community & IAPs From Phase 2 of the process, i.e. the Section 78(3) / 120(4) Feasibility Study into external service delivery mechanisms, the community and other interested and affected parties (I&APs) must be consulted. Their views must be solicited through meetings, notices, the media or as otherwise prescribed and recorded in minutes.

National and Provincial Treasury

Four times during Phases 2 and 3 of the process, the municipality must obtain the views and recommendations of Treasury, i.e. during the feasibility, pre-bidding, evaluation and contracting phases. National Treasury must also be approached with registration of the project and a funding application, if applicable.

Department concerned with Local Government Affairs and other State Departments

Twice during Phases 2 and 3 of the process, i.e. during the feasibility and contracting phases, the municipality must obtain the views and recommendations of the Department concerned with Local Government Affairs, i.e. Co-operative Governance and Traditional Affairs (CoGTA) and the relevant state department/s, e.g. Environmental Affairs (national and provincial) if the service investigated is solid waste services.

Portfolio Committee The Portfolio Committee of the relevant service/department/directorate may act as the Steering Committee but irrespective it must receive and comment on documents before these are submitted to the Mayoral Committee/Council

Mayoral Committee /Council

The Mayco/Council receives and approves the Section 78/120 reports and any agreement or contract which results from the process.

9.1 PROJEC T TEAM

The Municipality’s project officer is Mr Ronald Brown, Engineer Waste in the Department of Civil Engineering. The project is overseen by Messrs Deon du Plessis, Head: Civil Engineering Services. The project team further consists of the personnel of the waste management services as and when needed. The Municipality has not specifically budgeted for the internal project management of this project therefore each member of the project team fulfils his role in terms of the project as part of general daily duties. The internal staff is supported by a transaction advisor, i.e. Jan Palm Consulting Engineers (JPCE), in 2008 appointed as the DLM’s solid waste management consultant for a five year period as per an open tender process. As part of the project team JPCE’s primary role is to assist the Municipality with planning, budgeting and implementation of an integrated waste management strategy and plan including any studies that may be necessary. The firm’s scope of work in respect of the WTE project includes:

providing technical input for the MOA to be entered into with the preferred bidder; conducting all the required investigations, i.e. in accordance with section 78 of the MSA (the

previous assessment and this report), sections 120 of the MFMA and section 33 of the MFMA; assisting with contractual processes; advising the municipality on technical matters as and when required whether by requests

from the Municipality, the preferred bidder or the statutory licensing authorities; and assisting the Municipality with the upgrade of its waste management policy and by-laws to

accommodate the effects of the proposed WTE Facility. JPCE has an intimate knowledge of the current set of circumstances concerning waste as well as the requirements of the Municipality to ensure future waste service delivery mechanisms that meet the needs of the Drakenstein community. Further expertise includes specialist PPP investigatory, procurement and contracting knowledge including contract management planning and structuring. The JPCE team make use of expert legal and financial services if and when necessary to ensure the Municipality has the ‘value-added’ benefit of a wide area of knowledge and expertise. The transaction advisors deal with the project officer on a continuous basis.



9.2 MUNICIPA L BA SE

During the feasibility, contracting, planning, construction, commissioning and commencement of operation phases of the WTE project the involvement of municipal key role players will be consistent with the transaction advisors involved as determined by their contract terms. Due to the technology and expertise involved and the complex nature of the project, engineering, electricity or other required external expertise might be involved in the contract management and monitoring. The CFO and Finance Department is involved concerning financial matters as the need arises and the Human Resources Department under the Directorate Corporate Governance manages the data of the levels, positions and salary scales of employees which would be required to determine employee costs and other relevant staff information should existing affected employees elect to be transferred to the WTE project rather than to be re-deployed within the Municipality. Within the mentioned Directorates there are established lines of authority and communication between the ad hoc project team members. As delegated, the Municipal Manager, who also has an in-depth knowledge of section 78/120 studies, approved the acceptance of this Section 78(1) report and mandated the transaction advisors to proceed with this Section 78(3)/120(4) feasibility study into the external service delivery technologies and mechanism options. The final feasibility report with its recommendations on the appropriate internal/external service delivery mechanisms to be implemented would be submitted to the Mayoral Committee and be approved by the Council. If so approved, a negotiation phase will ensue with assistance of the transaction advisors and oversight by the Directorate Infrastructure and Planning.

9.3 TRA NSACTION STEERING COMMITTEE

As recommended during the section 78(1) assessment phase, a Transaction Steering Committee (“TSC”) was established consisting of the municipal project team (including the transaction advisors) and key members of the preferred bidder’s project team. The TSC has fulfilled a pivotal role in taking the project forward to this point and will continue to be the main instrument steering the project to finalisation. Skills transfer is not so much an objective of this project but knowledge transfer and empowerment to all employees involved is a definite benefit.

10. KEY STA KEH OLDE RS & CONSU LTATION

10.1 COMMU NITY

Community expectations of a project such as the WTE vary. In most municipal areas, the majority of residents must still be educated about the need and socio-economic impact of waste minimisation, reduction, recycling and conversion to energy. Primary service delivery concerns and expectations involve the directly visible services, in this case waste removal and street cleansing. In respect of support activities secondary thereto, i.e. recycling, waste to energy, etc. the focus is on the maximum benefit that can be derived by the community through sub-contracting of work, supply of materials and job creation. A key expectation is thus that all jobs created would benefit the local community. Section 78(1) of the MSA did not require community consultation therefore none took place. As required by Section 78(3)(b) of the MSA, the views of the community had to be solicited during the Section 78(3) Feasibility Study process. The Municipality organised two community meetings in November 2012, one in Wellington and one in Paarl. Notices of the meetings were placed in the local



press (newspapers of record) in representative languages. At each of the meetings the Transaction Advisors did a presentation of the feasibility study process and the details of the WTE project. The meetings were minuted.

44 The meetings were not well attended but the members of the public that

were present gave inputs that sparked a lively debate about the various WTE technologies. In accordance with Section 120 of the MFMA the community will be provided with this Section 78(3)/120(4) Feasibility Study Report sixty days prior to the Council meeting at which the Section 78(3)/120(4) report will be tabled. The manner in which the community consultation will be done is determined by Sections 21 and 21A of the MSA which require the following:

Notices in municipal newsletter & local newspaper/s of record

Radio broadcasts

Document (e.g. report to be available at the municipal head office, applicable management area offices, applicable libraries and the municipal website)

Notices etc. in English/Xhosa

Notices to state the places where the documents are available, if a person needs transcribing, the place/person/time for assistance and brief particulars of the proposed outsourced contract with an invitation for comments/representations from the community.

Public comments received will be taken into account and included in the Section 78/120 Feasibility Study Report to Council. The Municipality will report the decision taken in respect of the Section 78(3)/120(4) Feasibility Study, to the community. If the project proceeds, the Municipality may report on the timeframe of the WTE project and progress made with the contracting and construction processes at suitable intervals to the community, e.g. through the municipal website.

The contract including 1) an information sheet and 2) a financial analysis of the contract obligations will be made available to the community using the methods prescribed in Sections 21 and 21A of the MSA and in compliance with Section 33 of the MFMA. The latter will be done sixty days prior to the Council meeting where the contract is to be approved. Compliance with section 33 of the MFMA is required because the contract will impose financial obligations on the municipality beyond the 3 years covered in the annual budget.

10.2 ORGANISED LA BOU R

As required by Section 78(1)(a)(iv) of the MSA, the views of organised labour had to be solicited during the section 78(1) Assessment process and, in terms of Section 78(3)(b)(v) of the MSA, also during this section 78(3)/120(4) Feasibility Study. The transaction advisors held a first meeting with representatives of IMATU and SAMWU respectively on 7 and 8 March 2012. A second meeting was held with IMATU in November 2012 but SAMWU cancelled the meeting scheduled with it. As agreed with SAMWU, the Municipality provided it with the transaction advisor’s presentation and gave it time to make comments. None were received. All meetings were minuted and the minutes distributed to the trade union representatives.

45

As also legally required this report will be available to organised labour sixty days prior to the Council meeting at which it will be tabled thus providing organised labour with a further opportunity to comment thereon. To be noted is that legislation does not dictate the number of consultative meetings to be held during the Feasibility Study and it is felt that the above constitute adequate consultation.




If any existing employees at the Paarl TS or the Wellington Landfill are to be transferred to the WTE Operator such further meetings as necessary to ensure a fair and smooth transfer of the employee/s will be held by the transaction advisors with the trade union/s, transferring employees and the new employer.

10.3 NATIONA L AND PROVINCIA L GOVE RNMENT

Since the project is registered with National Treasury, the transaction advisor has provided NT with written and verbal feedback regarding the project. In May 2012, NT and PT attended a Mayoral presentation of the project and in January 2013 PT attended a Technical Analysis Feedback Workshop in Paarl, to which NT was also invited. Both parties were also invited to attend the public meetings. Section 120(6)(c) of the MFMA states that the municipality (specifically the Accounting Officer) must solicit the views and recommendations of NT, PT, CoGTA and the relevant state department/s, i.e. DEA and the provincial Department of Environmental Affairs and Development Planning (the “DEA&DP”) when the Section 78(3)/120(4) Feasibility Study Report has been completed. Based on these legal requirements the Municipality will submit this report to these departments at the same time as it is provided for public comments. Further consultations with national and provincial government are also prescribed and these would be adhered to but with some deviations due to the pre-feasibility determination explained. The following will apply:

the section 78(3)/120(4) Feasibility Study Report submission to Treasury and the other national and provincial departments to obtain TVRI will include the bid and bid evaluation documents thus leaving out the TVRIIA and TVRIIB solicitations as previously mentioned;

solicitation of the views and recommendations of NT, PT and other state departments in respect of the PPP contract for the WTE Facility to obtain TVRIII before final approval thereof by the Council

46.

10.4 RELE VANT CONTRA CTORS

The current contractor responsible for the Paarl MRF attended the community consultation meeting and is otherwise kept up to date with information about the process. In January, the transaction advisor had a meeting with Waste Control (SA Metal Group) who has the haulage contract to inform them of the WTE developments.

10.5 POST-CONTRAC TUA L CONSU LTATION

Quite a number of statutory authorisations and licences must be put in place as part of the successful implementation of the WTE Project, i.e. the EA, a Waste License, an AEL, a WUL, etc. Each of these involves extensive community and stakeholder consultations including all the relevant departments and ensuring these parties have adequate opportunity to raise concerns, if any, and make inputs.

11. OUTPU T SPEC IF ICA TIONS

The discussion deals with what is expected from the WTE project services and support activities. To continue with the holistic view taken by the study, the discussion also deals with the waste collection outputs.

46 Section 33 of the MFMA requires such consultation if a long term contract will impose financial obligations on a municipality

beyond the 3 years covered in its annual budget.



11.1 SERVICE AND PE RFORMA NCE OUTPUTS

From a holistic perspective, the constitutional mandate of a municipality, as further detailed in local government legislation, guides all service delivery outputs. In terms of Clause 73 of the MSA, a municipality must give effect to the provisions of the Constitution and:

give priority to the basic community needs; and promote development

Ensure that all community members have at least the minimum level of basic municipal services, which must in turn:

be equitable and accessible to all; effectively use available resources and improve standards with time; be financially and environmentally sustainable; and be regularly reviewed.

Key performance indicators are: Landfills, Transfer Stations and Drop-off Facilities:

Compliance with the permit requirements and contract conditions (the latter iro external contracts)

Available landfill lifespan

Waste collection:

Table 1.27: List of Key Indicators and Unit Costs to be used to rate Waste Collection Performance

Performance Category or Relationship

Unit Key Indicators

Cost Rands R/Service Point R/Tonne (if have weigh facilities) R/m³ of waste removed R/unit of waste disposed (could be tonnes, m³ or vehicle load etc.) R/worker R/vehicle etc.

Based on Service Points Number of Service Points Service Points / worker kg / Service Point Vehicles / Service point Service Points / Loader Cleaners / Service Point

Quantity of Waste handled in terms of mass or volume.

Tonnes or m³ or truck load (for equally sized vehicles) or bags of waste etc.

T/worker per day (or week or month etc) kg/service point T/day T/vehicle T/collection round Bags/worker

Resources utilised Vehicles, machines, supervision, management, depots or area divisions,

Loads/Refuse Collection Vehicle Bags/Refuse loader Service Points / Refuse loader Supervisors / Service Point Managers / Service Point

Percentage of the population receiving a waste collection service; Improvement on level of service given per population; Percentage of the population receiving a door-to-door service; Number of complaints related to collection activities; Percentage of waste illegally dumped which is collected related to all waste collected; Number of people registered as indigent (related to expected numbers); Number of incidents of illegal dumping; and



Amount (tonnes) of illegal dumping cleared by Drakenstein

11.2 COLLECTION OF WASTE AND WASTE SEPARATED AT SOURCE

Waste collection services are rendered in Drakenstein in accordance with the service levels stipulated in regulations and contained in its new ‘to be promulgated’ waste by-laws. It implies that all areas except rural areas where it is not possible, is receiving a refuse removal service. However, there are areas for improvement. The current fleet includes a number of vehicles that has passed their economic lifespan and needs to be replaced. As the Municipality, by enforcement through its new Integrated Waste Management By-law, becomes the only waste collection service provider in Drakenstein, it will need more vehicles and human capacity to serve specifically business consumers or appoint other service providers to do so on its behalf since the current vehicle planning schedule of replacing one vehicle every three to five years, does not present an ideal scenario. The Municipality should consider a quicker upgrading of the fleet if it wants to be an effective service provider of solid waste removal services in the DLM area. According to 2011/12 figures the Municipality’s workload in respect of the removal of 240l household bins once per week has increased with 41% and the trend continued in 2012/13. These increases in the number of collection points and the relationship between waste volumes and collection points must be factored into the Municipality’s planning. Thus currently focus areas of the waste collection service should inter alia include:

the extent and impact of the increase in its workload and the average age of its the fleet on service rendering to do short, medium and long term planning in respect of its assets, liabilities and staff;

how the WTE project could assist the Municipality to save on treatment and disposal costs, enable the deployment of more labour to the collection teams, enable it to prioritise the capital investment needs of the collection services, e.g. purchasing of more vehicles sooner, focus on rendering of a more effective collection service through the optimisation of the level of service, the type of containers and the type of vehicles.

Waste separated at source: The collection of waste separated at source is part of the Paarl MRF contract. The DLM has some doubt about the financial viability of the activity albeit the potential positive impact of community education on waste minimisation is clear. As part of the determining the WTE Project viability there was a need to establish:

Which is the most feasible alternative i.r.o. affordability and VfM; 1) source separated material recovery and a ‘clean MRF’ or 2) post collection separation of recyclables going through a ‘dirty MRF’ inter alia taking into account the material, equipment and human resources’ costs of rolling-out the collection of waste separated at source to all 31 wards of DLM; and the difference in labour costs and process times between these methods.

If the roll-out of waste separation at source is financially viable and continues, who should be responsible for the ‘collection of waste separated at source’ when the Paarl MRF contract ends in October 2013 (as extended) the alternatives being: 1. the Municipality which could include redeployed employees from the Paarl TS and the

Wellington Landfill, permanently or only until the WTE Project commences and includes the activity;

2. the current party on a month-to-month basis until the WTE project commences and incorporates the activity;



3. a private party (including Small and Medium Enterprises (“SME”) or Community Based Organisations (“CBO”)

47 by putting out a new tender with a limited contract period until

including it in the WTE contract; or 4. utilising and expanding the MCP contractor services to render the services.

In deciding on these options it is important to note that the revised technical option analysis which dealt with the WTE scope of work and financial modelling explored in this study, included the management and operation of the Paarl MRF and, as with the current contract, it would not make business sense to separate the collection of waste separated at source from this activity. It could be tempting to argue that the collection of waste separated at source could empower entrepreneurs and stimulate job creation if linked to the MCP with the overhead costs of the project arguably lower than the Municipality’s. However, it mitigates against the principle of having one point of contractual responsibility with all inherent risks packaged therein and the risk factor introduced by it would be too costly. From a cost saving and WTE-project, due diligence point of view, option 2 is preferable.

11.3 WASTE HA ULAGE

Waste is transported from the Paarl TS to the Wellington Landfill by a contractor who won a three year competitive bidding contract. The contract includes the supply of all labour, plant, tools, equipment, management, co-ordination and liaison necessary to transport and offload the waste at the landfill site. Back-up vehicles for breakdowns must be available within six hours. These requirements imply the contractor must be company whose core business includes the transport of waste. Quick and efficient transporting of waste from the Paarl TS to the Wellington Landfill is the service output needed. There are a few alternatives on how to handle this support activity when the contract expires by August 2014 and such must ensure this service output. The alternatives would be:

An internal service provided by the Municipality; A competitive bidding tender as was the case with the current contract; or Including it in the WTE project and factoring the costs into the ‘tipping fee’.

In deciding on these options the Municipality needs to take into account that:

A transport operator that complies with the Municipality’s competitive bidding criteria and has the benefit of economy of scale operations to support reasonable costing will, from a value-for-money and affordability point of view, be better suited to deliver this service than the Municipality given that the Municipality does not have the current capacity, or the vehicles or the financial resources to purchase the vehicles and these are the reasons why the contract was outsourced in 2011 and prior thereto.

Given that the waste haulage from the Paarl TS to the Wellington Landfill is an important link in the WTE operations, the revised REVISED TECHNICAL OPTION ANALYSIS includes it in the WTE scope of works and it again emphasizes the point of keeping one operator, i.e. the WTE contractor responsible, i.e. a direct and single line of accountability;

From a legal point of view it is important for the Municipality to consider its options if this transport contract is bound to be included in the WTE project but comes to an end before the WTE project operations commence. Preferable would be to amend the contract in terms of Section 81(4) of the MSA

48 to make provision for another year or 18 months’ of operation or as required (but within limits)

until the WTE project can take over the transport operation provided such arrangement is consistent with the SCM policy or putting out another tender but for a limited period so that the haulage can be

47 The MSA regards SMMEs and CBOs also as external service delivery mechanisms within the context of Chapter 8 that obliges

municipalities to do this section 78 study. 48 Section 81(4) of the MSA stipulates that a service delivery agreement concluded through competitive bidding may be amended

by the parties (municipality and contractor) but only after the local community has been given notice of the amendment and the reasons for it and had sufficient opportunity to make representations thereon to the municipality.



included in a DLM-WTE contract when possible albeit linked to the other components of the WTE operations in order to mitigate risks inherent in the phasing of operations.

11.4 WASTE TREATME NT A ND D I SPOSA L

The municipal services, i.e. the Wellington LS and the Paarl TS envisaged as part of the WTE project and the municipal support activities, i.e. the MRF operations and the WTE Facility that will be part of the WTE project involve the waste treatment and disposal components of the municipal solid waste function.

11.4.1 WELLINGTON LANDFILL

Since 2005 the Wellington Landfill operations have improved. However, a number of problem areas including inadequate equipment, leachate and storm water problems cause non-compliance with permit conditions. Of serious concern is the valuable airspace that is lost. The last landfill survey done in December 2011 found that 62% of the total airspace had been used with an estimated lifespan until 2016. At the end of 2012 waste diverted from landfill was put at 3%. However, it is felt that with the latest recycling figures this percentage could be much higher and higher percentages of chipped and crushed materials diverted from the landfill has also been recorded. The transaction advisors believe that these waste-to-landfill reduction figures plus better compaction on site could easily increase the lifespan of the Wellington Landfill but to address the problem areas will require expertise, the correct plant to properly compact the waste and financial capacity. The correct plant needed for optimal operations at the Wellington Landfill is listed in Table 1.28 below. Table 1.28: Plant needed for Wellington Landfill (Source: JPCE)

Plant Time Required Purchase Price Hire Costs Hire Conditions

Compactor Full time R4,5m R850/hour Driver incl. / Fuel excl.

Front end loader Full time R0,5m R305/hour Driver incl. / Fuel excl.

Tipper truck One day per week R - R480/hour Driver incl. / Fuel incl.

Water truck 2/3 days per week R- R220/hour Driver incl. / Fuel excl.

The Municipality has in principle agreed that the Wellington Landfill will form part of the WTE project and operations. Apart from the fact that the landfill is an essential part of the WTE solution, the transaction advisors believe this is sensible if proven viable. Experience has shown that landfills operated by the private sector are more efficient and meet higher environmental standards than those operated by the public sector. This is partly because landfill operations are so specialised and the private sector invest more in equipment and skilled human resources. But the main reason is accountability. An external contractor is normally awarded the operation and management of a landfill based on a tender with specific specifications and performance indicators based on the landfill’s permit conditions. It enables strict regulation of the external contractor with penalties or non-payment if non-compliance occurs. On the other hand it is often difficult to hold the public sector accountable for its performance.



Figure 1.23: Wellington Landfill – Airspace Consumption without Reduction (Source: JPCE) Besides performance management and monitoring by the Municipality, the preferred bidder is ISO 9001 and ISO 14001 accredited. It implies that both in terms of management practices and environmental practices, the firm has to comply with international standards that ensures the public of an effective service and gives the Municipality added peace of mind albeit not lessening the need for good contract management and monitoring. When a municipality wants to involve the private sector in the operation of a landfill it normally follows the competitive bidding route with a Construction Industry Development Board

49 (“CIDB”)

contract including specific contract conditions and, if it is a PPP, the contract is amended to include the PPP contract requirements. Due to the nature of the RFP process that was followed for the WTE project, the foundation of a CIDB contract including the conditions and standard of services, performance parameters and penalties are lacking. In taking the project forward there must be clarity on the rationale for including the landfill with the WTE project and note be taken of the abovementioned realities and shortcomings as well as getting clarification for inadequate role definitions. Important points are:

To enable the WTE project it would be essential to outsource the management and operation of the Wellington Landfill to the preferred bidder to optimise the operation of the landfill because it is as essential for the WTE operator to stretch the lifespan of the Wellington Landfill as it is for the Municipality and the WTE operator is in a better technical and operational position to do it and able to acquire funding when necessary.

The Municipality will pay a tipping fee on the waste that is off-loaded at the Wellington Landfill to the WTE contractor which tipping fee will include savings on the operating costs of the Wellington Landfill, the Paarl TS and the Paarl MRF if structured optimally.

49 The CIDB is a Schedule 3A public entity. The contracts of the CIBD are widely used in the construction and engineering

industries.



Since not included in the RFP financial modelling - further clarification is needed about what the WTE operator includes in the operation of the Wellington Landfill, Paarl TS and Paarl MRF, i.e. does it only include the transfer of technical and operational knowledge, capacity and risks with the Municipality still having to finance all capital items or would it also include the transfer of financial risk pertaining to the management and maintenance of the infrastructure and perhaps even capital investment in fixed assets such as the second weighbridge that is needed and offices.

The RFP was a different process with no prescribed specifications, levels and standards of service or non-performance penalties as would normally be in a tender document. The feasibility study must spell these out so that the terms and conditions could be quantified in the financial models (operating costs and the tipping fee) and contractually entrenched.

11.4.2 PAARL TRANSFER STATION AND MRF

The Paarl TS is well run and an upgrading and extension thereof including a new office building at a cost of R1,55m have been budgeted for. Essentially there are no operational deficiencies at the Paarl TS necessitating the outsourcing of its operation. However, by including the operation of the Paarl TS with the Paarl MRF (which is adjacent thereto on the same premises) in the WTE project as envisaged, it will enable the WTE contractor to consolidate its operations in an integrated business plan that will enable synergies and possibly savings and it will provide the Municipality with a single source of accountability for its solid waste treatment and disposal operations. As applicable to the Wellington Landfill operation, there are gaps in terms of the service outputs that are expected from the external operation of the Paarl TS requiring the Municipality to:

Determine what should be included in the operation of the Paarl TS to clarify technical, operational, financial and managerial roles and responsibilities including capital and operational expenditure requirements;

Lay down the conditions and standard of service and non-performance penalties that will apply since these must form part of the contract management plan and criteria required in terms of legislation

50 preferably as part of the CIDB contract referred to under item 11.4.1.

The Paarl MRF contract comes to an end in October 2013, as extended. The Municipality does not have the capacity or knowledge to operate the MRF and enter the recyclables market. Besides, direct involvement of a municipality in the commercial activities that forms part of a recycling operation might be in contravention of Section 164 (Forbidden Activities) of the MFMA

51.

The long term sustainability of a single MRF is not as good as it forming part of an integrated waste management process including economy of scale and other supporting operations. It would not be feasible to exclude the Paarl MRF from the WTE operations and it has to form part of the WTE project as envisaged in order for the WTE operator to get the full recyclable waste stream as required. There is nothing withholding the current operator to endeavour being part of the WTE operations but the Municipality should not get involved or act as a go-between in any arrangements of this nature. Similar to the Wellington Landfill and Paarl TS, the RFP process did not allow for the determination of service conditions, standards, performance outputs and penalties as would have been the case with a competitive bidding tender. A ‘what if’ legal question also arises if the Paarl MRF contract comes to end before the commencement of WTE operations. To enable it to get the outputs it want, i.e. effective and efficient management and operation of the Paarl MRF, the Municipality will need to pay attention to:

Inclusion of the Paarl MRF in an envisaged CIDB based PPP contract in which all the matters previously mentioned are spelled out;

50 Section 116 of the MFMA and the PPP Guidelines of NT 51 The matter will need to be clarified with NT. To knowledge there are no other municipalities operating a MRF and conducting

commercial activities in the recyclables market.



Clarification if Section 81(4) of the MSA could be used to extend the current contract until the WTE operator can assume the operation of the Paarl MRF.

11.5 WASTE TO ENE RGY FAC ILITY AND OPE RA TIONS

An outsourced municipal service or activity must provide VfM for it to be feasible. From a municipal point of view the potential VfM outcomes offered by the WTE project are primarily the following:

the minimisation of waste to landfill; increasing the lifespan of the Wellington Landfill; and the socio-economic advancement of the community through job creation.

Linked thereto is its affordability for the Municipality; it not being a risk for the Municipality but the latter actually succeeding in transferring substantial risk to the private party and, in as far as possible, guaranteed long term financial viability. Secondary but equally important is the generation of electricity that the Municipality can purchase and protection of the environment. Outputs to be achieved through the WTE project are:

A successful WTE project based on a reliable dataset and combining best suited technologies (refer to Section 2) and processes to establish an integrated waste management system in partnership with the Municipality and to the long term benefit of both parties and the community

Minimisation of waste to landfill An optimum lifespan for the Wellington Landfill Maximisation of avoided costs Generation of electricity Maximum recovery and recycling of waste products within the limits of the recyclables

market Cost-effective management and operation of the waste treatment and disposal activities

linked to the WTE operations, e.g. the Paarl TS Maximum local job creation Maximum local content i.r.o. the WTE construction and operational requirements Maximum environmental benefits outweighing environmental disadvantages (refer to

Section 2) in the form of reduced GHG emissions; reduced leaching, reduced land contamination; reduced depletion of natural resources;

Minimum noise generation. To ensure the achievement of these outputs, it would be necessary to:

Complete a project value assessment based on a reliable dataset and financial modelling taking into account all risks and liabilities

Contractual arrangements that allows for practical phasing of the project but with the built-in protection that the Municipality is not held ransom if the private party fails to affect any part of the contract and includes enforcement of penalties as a recourse to sub-standard performance thus meaning all risks and possible contingent liabilities must be identified and mitigated.

12. PROJEC T MOTIVATION

Based on the discussion in Section 1, it can be concluded that the WTE project with all its components is undoubtedly relevant and will be an important tool to assist the Municipality with implementing strategic waste management and to live up to its vision of excellence iro its functional waste mandate and commitments as set out in its five-year IDP and IWMP. There can be no doubt about the strategic, environmental, socio-economic, financial and technical importance of the WTE project for the community, the DLM and the Western Cape.



It aligns with crucial national and international environmental and energy objectives and emphasizes the importance of addressing municipal solid waste challenges through integrated waste management solutions with direct benefits for its communities, i.e. a clean environment and job creation with downstream economic development.

Specific primary goals such as waste recovery and recycling through the MRF operations; the reduction of waste to landfill and decreasing the municipality’s carbon footprint through the WTE conversion will be made possible through costly technologies and scarce expertise which the Municipality will not be able to afford on its own. The establishment of the WTE with its related infrastructure and the roll out of the waste separated at source service will also have a ripple effect on health and wellness especially if linked to public education and law enforcement. Necessary or synergetic components of the WTE project include the less labour-intensive waste treatment and disposal services of the DLM and exclude the more labour-intensive waste collection and cleaning services of the Municipality. However, the WTE project will turn the waste treatment and disposal services also into labour-intensive services through the large number of jobs to be created especially i.r.o. the MRF operations. The preferential procurement policy of the Municipality would adequately take care thereof and any contract would enforce the employment of local labour. It should however be appreciated that the WTE project includes a number of highly skilled jobs for which the expertise may not exist locally, regionally or even nationally. The WTE project has the ability to moderately or significantly upgrade municipal assets and broaden the DLM asset base depending on the contractual terms and conditions that the DLM and the WTE operator negotiate and conclude. The Municipality will need to strike a fine balance in respect of risk transfer in order for it to pass significant risk to the WTE operator without such risk transfer being too costly for one or the other party and making the project unaffordable for the Municipality. Reduction of waste to landfill is projected to be between 52% in a first phase and increasing to an extensive figure of 89% in a final phase with AD and DC plants fully operative with maximum economy of scale added to the project. If this scenario becomes a reality, it will have a huge impact on the lifespan of the Wellington Landfill, i.e. as much as 20 additional years. Allowing a contract of suitable duration will have a positive impact on the total cost for the Municipality and the ROI that the WTE operator can achieve. The minimum duration of the project will need to be 20 years. The project is from a technological, financial, legal and operational perspective complex, necessitating every step of the way to be done with careful planning and vigorous risk assessment by the Municipality and the WTE contractor, separately and together, given the range of mutual responsibilities the parties would have to address to ensure the success of the project. The process technology need to be the best solution suited to the waste volume and waste characteristics of the waste streams involved for the sake of financial viability and sustainability. Thus, even if the volumes and qualities of the waste allow a feasible project as appears to be, it still requires the implementation of an ideal set of integrated technologies to ensure a total integrated waste management solution. The technical complexity extends to finding quality suppliers of the selected technologies at affordable costs and within feasible timeframes. The statutory and legal complexities are equally challenging and compliance with it requires the inputs of a number of experts to obtain the statutory authorisations and licences and conclude the suite of contractual arrangements that will be needed. The set of arrangements required between the Municipality and the WTE contractor may not appear to be complex but translating these into contractual terms and conditions with built-in checks and balances linked to specific phasing will be complex.



The financial models are equally complex having to allow for various possible options, scenarios and criteria influencing the calculation of the ‘tipping/gate fee’ and including the electricity tariff to enable the Municipality to make a very informed decision with regards to affordability and VfM.

The challenge is also to ensure that the project is structured in a way and all the risks linked to the technical, legal, financial and operational arrangements are packaged in such a way by the WTE operator that it can present a financially viable and sustainable project to obtain the required financial investment and secure a CDM registered project if the latter proves to be a feasible option.



SECTION 2: TECHNICAL OPTIONS ANALYSIS

1. PROJEC T OBJEC TIVE S

The WTE project is expected to achieve the following objectives: the generation of renewable energy from municipal solid waste; the reduction of municipal solid waste to landfill; and the development of a CDM project in order to sell the CERs achieved by the generation of

electricity from non-fossil fuel; through a medium to long term PPP with the preferred bidder being responsible for the planning, design, financing, construction and operation of the WTE Facility and related infrastructure which must be able to:

accept the municipal solid waste; separate the waste for recovery; treat the suitable fraction; transport and deliver the unsuitable fraction to the WL; generate electricity; and make the electricity available to the municipality through the grid.

Embedded in the establishment of the WTE Facility and the generation and selling of electricity is compliance with all the statutory processes required to obtain environmental authorisations and the various licences pertaining to waste, atmospheric emission and electricity as well as a suite of contractual arrangements with regulatory authorities, the Municipality and, if feasible, a CER trading partner through the CDM mechanism.

2. PROJEC T RE LATED ASSE TS

The infrastructure envisaged to be established, operated and owned by Interwaste in terms of the project includes:

the WTE Facility with it various components adjacent to the Wellington Landfill on land owned by the Municipality and zoned for Municipal Use; and

the MRF to be built at the Wellington Landfill. The municipal owned infrastructure that the project envisaged to include for management and operation by Interwaste includes:

the Wellington Landfill including all fixed municipal assets; and the Paarl Transfer Station, Paarl MRF and the composting facility including all fixed municipal

assets.

3. EXISTING MU NICIPA L SERVICES AND AC TIV IT IES OPTIONS ANA LYSIS

The existing municipal services and activities envisaged to form part of the WTE project are: the operation and maintenance of the Wellington Landfill inclusive of the mechanical chipping

of garden and bush waste and the crushing of builder’s rubble; the operation and maintenance of the MRF and the Transfer Station in Daljosafat, Paarl and the

collection of source separated material; and the transport of waste from the Paarl TS to the Wellington Landfill (currently outsourced) with

no fixed or movable assets of the municipality involved.

In discussing the technical options applicable to these services and activities, it is firstly important to note the primary reasons (extensively dealt with in the section 78(1) assessment and again in Section 1 of this report) for their inclusion in the WTE Project:



adding these services and activities to the WTE Project would add synergy to the project value chain and enable the Municipality to solicit the huge financial investment required for the establishment of a WTE Facility which was otherwise completely out of reach for the Municipality given its financial situation and other more pressing priorities;

the Municipality does not have the human and financial resources to improve the operations of especially the Wellington Landfill to the extent needed to optimise extension of the current lifespan of the site, e.g. suitable machinery for optimal compaction methods;

the Municipality does not have the finances or resources to transport waste from Paarl TS to Wellington LS or any experience of the operation of a MRF with the result that these are already outsourced contracts and fit into the WTE Project.

Rendering these services and activities does not involve highly innovative technical solutions, it involves best practice operational expertise, skills, capacity and resources to rectify operational problems and increase operational and maintenance effectiveness. It also requires that the preferred bidder is able to take over the technical and operational risks and to offer affordability and value-for-money within the context of the total project.

3.1 WELLINGTON LA ND FILL OPERATION A ND MA INTENANCE

The landfill site is permitted and must therefore meet the Minimum Requirements laid down in the permit conditions. Recently finalised amended license conditions for the increase of the Wellington Landfill height by two meters also included:

the establishment of a builders’ rubble crushing area; chipping of garden waste; a drop-off area (where recycling igloos and recycling activities can take place until a MRF is

available); a composting area.

With the recent extension of the landfill site’s maximum height it is possible to extend the lifespan to 2019. A huge impact could be realised through the crushing of building material which has increased considerably and better diversion of the greens. Thus from the start, Interwaste, as the preferred bidder, would be expected to increase the compaction to an average density of at least 900 kg/m

3 instead of the current 600 kg/m

3. Once

compacted, the height of a strip will not be allowed to exceed 2.5m in any situation with the preferred average height being 2.0 m albeit with some variation towards outer edges. Technical specifications regarding the working surfaces, waste coverage, the storm water drainage system and other permit non-compliances or problems areas are part of the Scope of Works (“SOW”)

52 and would be part of

contractual terms enabling the Municipality to determine the performance specifications and lay down a penalty regime. Contract management and monitoring would focus on adherence to these performance standards.

3.2 PAA RL TRA NSFE R STATION & MRF & COLLEC TION OF WASTE S@S

The transfer station site is permitted and must therefore meet the Minimum Requirements laid down in the permit conditions. The latter dictated the SOW

53 for the operation and maintenance of the site

and the MRF and the performance specifications expected from Interwaste. All municipal collection vehicles currently transport directly to the Wellington Landfill with only the public and industry utilising the Paarl Refuse Transfer Station.




The Paarl MRF has been in existence for many years but reached a point where it was functioning below its potential with excess amounts of waste having to be transported to the Wellington Landfill. An EIA ROD obtained in 2006 authorised the upgrade of the Paarl MRF and Composting Works as well as the process flow of the waste through the facility at the Paarl TS in Daljosafat. The ROD stipulated that the site level will be raised with approximately 2 meter with clay and soil to prevent any flooding of the site with respect to a 1 in 50 year flood with potential pollution of the Berg River. The timeframe within which the filling-up work required by the ROD should take place was not stipulate in the ROD. The latter is still in process and the WTE Operator would need to complete the job. The MRF is equipped with an impact conveyor, sorting conveyors, baling equipment, ablution, office and space on the apron of the TS for pre-sorting and also has a security fence, water supply and electrical supply. The TS is provided with a roofed apron, a static compactor and a five position, three bogey container magazines with compaction containers. Interwaste will be responsible to collect the source separated recyclables in clear bags from the participating neighbourhoods in Paarl. Currently on average 50-60 tonnes of recyclables are recovered at the MRF. With a recent add-on of another ward, a total of six out of thirty one wards have been included in the roll-out of this recycling drive - a participation rate of 20%. Interwaste, with the co-operation of the DLM, would need to expand the service quite rapidly. It will be expected from Interwaste to employ local labour at the TS, the MRF and for the collection of waste s@s. Even though the currently outsourced contract for the operation of the MRF and the collection of waste separate at source is between the Municipality and another contractor and will come to end before the operations are included in the WTE contractual arrangements, it is not obligatory but would be feasible for Interwaste to consider the MRF as an on-going operation and thus employ as many as possible of the current MRF staff, also for continuity. To enable the WTE Operator to quantify the costs involved in the existing municipal services’ operations and take such into consideration for financial modelling of the identified scenarios, JPCE provided the complete SOW which was mutually agreed. Interwaste have priced for all maintenance costs other than the costs of materials required as a result of normal wear and tear. It is thus believed that there are no other hidden costs that should have been considered with the construction of the External Reference Model (the “ERM”) for these services.

3.3 WASTE HA ULAGE

The Paarl TS is situated approximately 12 km from the Wellington Landfill. The Municipality has no resources available to fulfil this operation. On the other hand, waste haulage is one of Interwaste’s core functions. With other waste haulage operations in the region, it has the resources and logistics to operate this part of the contract optimally, more so because of the project ability for effective management and risk control that could be derived from inclusion of both the Paarl TS and the Wellington Landfill. Thus, while not expecting any technological advantages, cost-effective operational management of haulage is expected.



3.4 COST COMPA RISON

The technical analysis and the financial information gained arrived at the following overall cost comparison of existing services rendered through Interwaste. Table 2.1: Cost Comparison – Landfill and Transfer Station (Source: JPCE)

Transfer Station: the amount of R40 000 is only for the running of the transfer station thus excluding the overhead costs since these are not ring-fenced by the DLM and always discernible. The R138 700 of IW includes the loader, the weighbridge management and diesel. Paarl MRF: the MRF is currently recovering 50-60 tons per month based on a 20% participation given its roll-out to 6/31 wards. The estimation is that 100% participation could thus conservatively give a yield of 250 tons per month of recyclables. Based on the rate paid to the MRF contractor and the incentives paid, it will cost the DLM R550 000 per month if the clear bag system is rolled out to all the wards, taking no revenue into account. IW has calculated its cost as R511 300 based on the same service parameters. Clear bags: the cost of a clear bag is exorbitant at between R1.20 and R1.46 and this will apply equally to any service provider. IW thus based the cost comparison on the current cost of R130,000 per month which then will exponentially increase in equal terms for any party as the support activity is further rolled out. Brickmaking: the DLM diverts the builders’ rubble but no brickmaking takes place. IW’s calculations which are agreeable, show that it costs R4 to make a brick and it would sell for roughly the same price, therefore a breakeven situation and no direct monetary value assigned to it. The diversion benefit is the saving of airspace and a real monetary value in the long term and the brickmaking benefit is the creation of a substantial number of jobs, thus a very attractive proposition to support the DLM community. Long haul to landfill: IW calculates its cost at R86 500 and estimates it could even be slightly lower depending on the vehicle used. Crushing: the DLM is currently paying R78 per ton to crush the rubble and with these high costs not all the rubble are crushed. Should all the rubble according to the measured tonnage be crushed, it will cost the DLM R513 006 per month. IW calculates that it could do so at a cost of R248 600 because it would be using own plant and not contract the job out like the DLM has to. Chipping: the chipping at the Wellington LS is done on contract for the DLM at R91 per ton. IW estimates that through separation of the greens they will be able to get a yield of 80% at a cost of R106 400.

Cost comparison (Scen 1 ph 1) Volume Measure Rate Drakenstein Interwaste

Transfer Station Management 1 Month 40,000 40,000 138,700

Mrf Management (250t) 1 Month 550,000 511,300

Clear Bag 130,000 130,000

Brickmaking

Long haul to Landfill 1 Month 90,000 90,000 86,500

Crushing at Landfill 6,571 Tonne 78 513,006 248,600

Chipping at Landfill 489 Tonne 91 45,000 106,400

Management of Landfill 1 Month 600,000 600,000 337,700

Total 11,587 1,968,006 1,559,200

169.85 134.56

Per Month average



Wellington Landfill: It cost the DLM R600 000 to manage the landfill excluding other overhead costs, e.g. a percentage allocation of departmental costs, that are not known. IW has many years of experience in respect of the management, operation and maintenance of landfills and is currently managing 32 landfills across SA. Therefore it has a very good grip on the real costs involved and believes R337 700 is a realistic figure translating into R134.56 per ton vis-à-vis the DLM’s cost of R169.85 per ton.

4. PRE LIMINA RY TECH NICA L OPTIONS ANALYSIS

The new municipal activities envisaged to be added by the WTE project on a parcel of municipal land at the Wellington Landfill Site are:

the WTE facility with its various technological components; and the MRF with its various technological components.

There are a number of technologies available for the treatment of Municipal Solid Waste (“MSW”). These can be used as standalone systems or combined systems or all incorporated into a total integrated waste management solution. The DLM is in favour of an integrated solid waste solution which is made up of best suited technologies but it should be affordable and sustainable.

A number of factors influence the choice and integration of these technologies, namely:

Waste quantities – firstly, a WTE project needs an adequate waste stream to make it feasible. Furthermore, a large waste stream then works well with some technologies while a smaller waste stream is better suited to other technologies.

Waste composition – e.g. anaerobic digestion is not recommended if only a small fraction of the waste stream is organic.

Land availability and environmental impact. National, provincial and municipal legislation, strategies and objectives. Capital expenditure needed - availability and terms of loans and financing methods. Operational expenditure which if too high can render a project unfeasible. Social acceptance, i.e. public acceptance of the technologies involved. CDM & CER considerations – is it possible / feasible to register the project as a CDM and will the

project generate enough CERs to ensure the feasibility of the technologies used. Technology support and skills being available. Recyclables market – this is a very volatile market and thus a risk element to be kept in mind. Tipping/gate fees – these fees must be feasible and affordable and are influenced by the

technologies chosen. Job creation.

In the External Feasibility Study, 2010 (the “EFS

2010”) submitted by the Interwaste in response to the RFP, a

number of these technologies were considered but it was clearly stated by Interwaste that due to the inaccuracies found in the waste data, project implementation should be preceded by a more thorough waste analysis to determine more exact information and thus to ensure the selection of best suited technologies. The initial technologies considered by the preferred bidder included the MRF, gasification/pyrolysis; structured landfill cells/anaerobic digestion and landfill gas extraction and an integrated technological approach including sewage sludge.

Each of the technologies and the possible and preferred combination of options as put forth by Interwaste was discussed in detail in the section 78(1) assessment and thus not repeated in this report.



5. SCENARIO-BA SED TECH NICA L OPTIONS ANA LYSIS

5.1 DLM WA STE VOLUME S

The revised technical options analysis compared the municipal waste figures (average volumes) with the actual recorded waste figures as obtained through accurate weighbridge information. Refer to Table 2.2. Only the builders’ rubble showed a real variance in figures.

Table 2.2: Average vs Actual Waste Volumes (Source: TOA)

5.2 REGIONA L WA STE S ITUA TION

Another very important development impacts on this study. In 2010 the WDM initiated a study to find a few candidate landfill sites with the aim of selecting a suitable site for the development of a regional landfill in the eastern part of its area thus serving Langeberg, Breedevallei and Witzenberg and another in the western part (other side of the mountain) serving Drakenstein and Stellenbosch. The study was triggered by a request from Stellenbosch based on its urgent need for landfill space and supported by the Drakenstein situation of inadequate landfill space in a few years as well as limited landfill airspace in the other municipalities as mentioned. The development of regional landfills is also a national objective that features in strategic waste related documents. The WDM’s western regional landfill project has reached a stage where two candidate sites have been identified, one in Gouda and another in Wellington, each with two footprints. In Gouda the one footprint is on municipal land and the other on private land but both are zoned for agricultural use. In Wellington the two overlapping footprints are both on the municipal owned land on which the current Wellington landfill and the proposed WTE Facility is located (refer to Figure 2.1). The footprint bordering on the proposed WTE site is proposed as per the scoping report submitted to the DEA&DP. If the proposed site is acceptable, the special studies would probably only commence during the next financial year given that the WDM also needs to do the special studies of the Eastern site identified in Worcester.



The current landfill situation in Stellenbosch is of even greater concern as in Drakenstein. Stellenbosch’s landfill ran out of space in 2010. A new cell was developed and an outsourced contract for the operation and management thereof was only awarded in April 2013. Before operational commencement of the new cell, Stellenbosch had to transport their waste to Kraaifontein, disposing at double the cost or triple the costs if the haulage costs are included. The new cell at Stellenbosch landfill has an approximate lifespan of four years by which time an alternative site must be available.

The proposed site has various advantages not least its close proximity to the current landfill and the WTE otherwise the tailings must be transported for approximately 60 km to the Gouda site, should the latter be selected. Figure 2.1: Aerial view depicting Proposed Regional Landfill Site at Wellington and WTE Site (Source: JPCE)

5.3 BROA DE R PE RSPE CTIVE In accordance with:

the actual recorded waste volumes of DLM and other waste trends; national and provincial priorities and strategies; and especially the mentioned regional waste realities

the revised technical option analysis adopted a broad, holistic long term view of the project which include the acceptance of additional waste streams from adjacent municipalities and outside sources such as industries and agriculture, including fruit and wine farms, some of which are Interwaste clients. The addition of these waste streams also provides additional benefits for the DLM in that the overall disposal tariff will reduce (due to economy of scale as shown later on this report) and increased electricity generation. Thus instead of just focusing on the WTE options that would be possible if only the Drakenstein waste quantities and qualities were taken into account, the TSC identified a number of scenarios and included these in the SOW of the technical option analysis.



5.4 MODE LLING SCE NA RIOS

The following scenarios were identified: Scenario 1: Only DLM waste

Scenario 2: DLM and Stellenbosch waste (after recycling)

Scenario 3: DLM + Stellenbosch + Interwaste (selected volumes based on composition)

With the advantage of accurate DLM waste information based on the waste stream volumes derived from the three-month analysis and including available information of the Stellenbosch waste streams and that of Interwaste, it was possible to review the technologies selected for evaluation within the context of minimum and potential optimum waste quantities and choose the best suited options available from a combined technical, environmental, financial and operational perspective. It was soon realised that adding another scenario based on higher waste volumes which it was felt would be possible to source, would enable real economy of scale modelling and since it is also known that the viability of tested WTE technologies could increase phenomenally when adequate quantity and quality feedstock is available, Scenario 4 was added. In addition the DLM undertook to commit any required volume of effluent from the Paarl Waste Water Treatment Works (the “WWTW”) to the project. Table 2.3: Modelling Scenarios (Source: TOA)

5.5 PH ASE D SCE NARIO -BASE D WASTE VOL UMES AND COMPOSI TIO N

The selected technologies and treatment processes were phased based on the 4 identified scenarios with their accumulative waste volumes and required timeframes. Three phases were identified, i.e.: Phase 1: Managing of the landfill, the Paarl TS, the Paarl MRF, the clear bag system,

crushing of rubble and chipping of clean greens

Phase 2: All of the above plus AD

Phase 3: All of the above plus DC or Gasification



VOLUME SCHEDULE SUMMARY Phase 1: Managing of Landfill ,Clearbag system,Paarl Mrf,Paarl Transfer station,Crushing of rubble,Chipping of clean greens

Phase 2: All of the above plus anaerobic digestion

Phase 3: All of the above plus direct combustion or Gasification


Scenario 1 Total Diverted Remain Total Diverted Remain Total Diverted Remain

Drakenstein Volumes alone

MSW 4521 5% 4295 4521 45% 2478

Builing Rubble 6577 80% 1319 6577 80% 1319 Cover material

Recyclables 250 100% 0 250 100% 0

Greens 489 95% 24 489 95% 24

Ton/day excl sludges 395 52% 188 395 68% 127 Not feasable: Shortage of volumes

Sewage sludges 6600 0% 6600 6600 100% 0

Ton/day incl sludges 615 34% 408 615 79% 127

Scenario 2

Drakenstein and Stellenbosch

MSW 7521 5% 7145 7521 45% 4123

Builing Rubble 6577 80% 1319 6577 80% 1319 Cover material

Recyclables 250 100% 0 250 100% 0

Greens 489 95% 24 489 95% 24

Total/Day 495 43% 283 495 63% 182 Not feasable: Shortage of volumes

Sewage sludges 6600 0% 6600 6600 100% 0


Scenario 3

MSW 9521 5% 9045 9521 45% 5219

Builing Rubble 6577 80% 1319 6577 80% 1319

Recyclables 250 100% 0 250 100% 0

Greens 489 95% 24 489 95% 24

Total/Day 561 38% 346 561 61% 219 Not feasable: Shortage of volumes

Sewage sludges 6600 0% 6600 6600 100% 0


Scenario 4

MSW 14021 5% 13320 14021 45% 7686 14021 88% 1614

Builing Rubble 6577 80% 1319 6577 80% 1319 6577 80% 1319

Recyclables 250 100% 0 250 100% 0 250 100% 0

Greens 489 95% 24 489 95% 24 489 100% 0

Total/Day 711 31% 489 711 58% 301 711 86% 98

Sewage sludges 6600 0% 6600 6600 100% 0 6600 100% 0

Ton/day incl sludges 931 31% 709 931 61% 301 931 90% 98

Drakenstein ,Stellenbosch and

Interwaste additional

Drakenstein ,Stellenbosch and

Interwaste

Table 2.4: Accumulated Waste Volumes as per Scenarios (Source: TOA)



141

The overall waste volumes as indicated in Figure 2.4 were determined and can be briefly explained as follows: Phase 1 Scenario 1 (Drakenstein Waste only):

MSW: Of the 4521 ton MSW that is brought to the Wellington LS via municipal REL per month it is felt that it would be possible to take 5% of the dirty waste out at the Wellington MRF.

Recyclables: Currently the Paarl MRF takes out 50 tons per month through the clear bag system based on an average participation rate of 20% thus it is estimated by Interwaste that a 100% roll out of the clear bag system will enable it to take out 100% of the possible recycled content of MSW which it estimates conservatively to be 250 tons per month.

Greens: If the contaminated greens are separated from the rest it is estimated that about 95% can be taken out of the system with a residual value of 5%.

Builders’ Rubble: If the contaminated and clean builders’ rubble are separated, approximately 80% of it can be taken out of the system and used for brick-making, etc.

Sewage Sludge: The 6600 tons of sewage sludge is not required if AD and DC are not involved.

The result is a diversion of 52% with 188 tons going to landfill in phase 1/scenario 1.

Phase 2 Scenario 1 (AD):

MSW: the AD process would take a further 45% of the remaining tonnage of 2478. (The percentage organic fraction of the waste was determined based on figures from the DLM, Stellenbosch, Farmsecure and statistics obtained from Cape Town)

Sewage Sludge: The 6600 tons of sewage sludge is actually secondary sludge (95% water content and 5% solids) and thus would not affect the municipality’s dry sludge market.

The result is a diversion of 68% with 127 tons going to landfill in phase 2/scenario 1. Phase 3: Scenario 1 (DC):

Not feasible due to inadequate waste volumes. Phase 1 & 2 Scenario 2 (Drakenstein & Stellenbosch Waste (if the latter requires it)):

One hundred tons per day of MSW will be added to the volumes and since only 5% of the dirty waste would be taken out, adding this waste would not reduce the waste stream enough to actually reduce more airspace and the latter being the goal would make the alternative not feasible;

Taking the Stellenbosch waste would make the AD more feasible but adding more waste volume to be landfilled thus reverting back to the reduction figures that can be obtained via scenario 1/phase 1 and with substantially less capital investment but in the absence of a WTE alternative.

The result is a diversion of 43% with 283 tons going to landfill in phase 1/scenario 2 and 63% or 182 tons in phase 2/scenario 2.

Phase 3: Scenario 2 (DC):

Not feasible due to inadequate waste volumes.

Phase 1 & 2 & 3 Scenario 3 (Drakenstein, Stellenbosch & IW Waste):

None of the options are feasible with either a higher volume of waste going to landfill or due to inadequate waste volumes.



142

Phase 1 & 2 Scenario 4 (Drakenstein, Stellenbosch, IW Waste and additional IW):

None of the options are feasible with a higher volume of waste going to landfill.

Phase 3 Scenario 4:

Very viable and could result in the establishment of a DC plant and a huge reduction of waste to landfill of at least 86% provided IW can bring an additional volume of organic fraction to the DC Plant.

Only 98 tons vis-à-vis the current 395 tons per day going to landfill.

5.5.1 WASTE QU ALI TY ASSUMP TIO NS (ENE RGY PAR AMET ERS)

5.5.1.1 ORG ANIC CO NTE NT

The data used was derived from the waste sources and quantities consisting of: Greens, domestic waste, general rubbish and sewage sludge from the Drakenstein

Municipality Greens and domestic waste from the Stellenbosch Municipality Domestic waste supplied by Interwaste

Table 2.5: Municipal Solid Waste (MSW) Organic Breakdown (Source: TOA)

Source Quantity (ton/day)

Organic Fraction

(%)

Organic Fraction

(ton/day)

Total Solids (% of OF)

Total Solids (ton/day)

Volatile Solids (% of TS)

Volatile Solids

(ton/day)

Drakenstein:

Greens 15 100% 15 70% 11 90% 9

Domestic Waste 70 40% 28 50% 14 70% 10

General Rubbish 45 30% 14 60% 8 50% 4

Sewage Sludge 220 5% 11 100% 11 60% 7

Total 350 19% 68 65% 44 69% 30

Stellenbosch:

Greens 11 100% 11 70% 8 90% 7

Domestic Waste 89 40% 36 50% 18 70% 12

Total 100 47% 47 55% 26 76% 19

Interwaste:

Domestic Waste 200 40% 80 50% 40 70% 28

Total 650 30% 194 56% 109 71% 77

The DLM has committed the effluent from the Paarl Waste Water Treatment Works (the “WWTW”) to the project. Thus effluent from the Paarl WWTW of 220 m³ per day @ 5% TS on a dry matter basis will be utilized for dilution in the AD facility. The organic fraction of this waste stream was included as feedstock for the Anaerobic Digestion process.



222 230 251 275 300 306

0

100

200

300

400

2013 2015 2020 2025 2030 2033

YEAR

Domestic Waste Generated per day in tonne

DOMESTIC WASTE GENERATED INTONNE PER DAY

5.5.1.2 CALOR IF IC VAL UES

The higher heating value (“HHV”) of Methane produced from Anaerobic Digestion (“AD”) (Phase 2) is 36 MJ/Nm³. Based on information provided by the technology provider an average methane yield of 0.195 Nm³/kg VS will be produced when MSW is used as the feedstock in the digester. In respect of Direct Combustion (“DC”) the feedstock used in the technical and financial models is based on the following: Combustibles from the separation plant Digestate as waste stream from the Anaerobic Digestion process Inorganic MSW supplied by Interwaste

The HHV of RDF from the sorting plant was also estimated at 15MJ/kg and 30% moisture where values of between 14 and 16 MJ/kg have been identified (dB Technologies).

The HHV of MSW was estimated at 15MJ/kg on a dry basis with 30% moisture content. As the heating value is very dependent on the input streams, a conservative value was chosen where general values of between 14 and 20 MJ/kg can be sourced by Interwaste. Table 2.6 indicates the Direct Combustion fuel composition of MSW. Table 2.6: DC Fuel Composition (% W/W) of Municipal Solid Waste (MSW) (Source: TOA)

Throughput t/d 300 300 300 300 300

LHV MJ/kg 12.6 13.0 13.4 13.8 14.2

C % 35.1 35.84 36.95 38.37 39.72

H % 3.74 3.9 4 4.1 4.2

O % 17 17.5 18.2 19 20

S % 0.07 0.07 0.1 0.1 0.1

N % 0.45 0.45 0.5 0.67 0.71

Cl % 0.24 0.24 0.25 0.26 0.27

F % 0 0 0 0 0

Ash % 11.4 11 10 9 8

Water % 32 31 30 28.5 27

Total % 100 100 100 100 100 Performance Net calorific value (kJ/kg): 13,389 Specific gravity (ton/m3) 0.2 ~ 0.4

Combustion with auxiliary fuel (NCV, kJ/kg): below 5,021

5.5.2 LONG TE RM WASTE RE SO URCE S It is estimated that the population figures would increase with between 35% and 40% over a contract period of 20 years. Based on the projected population growth up to the year 2033, the increase in waste generation is as projected in Figure 2.2 below. Figure 2.2: Projected Waste Generation up to the year 2033 (Source: TOA)



6. WTE TECHNOLOGIES & PROCESSE S

The technical options analysis included extensive technical analyses of all the processes and equipment involved in the various technologies covering a volume. Only the essential explanatory elements were included below to substantiate the discussion of technology options.

6.1 EVALU ATION CRITE RIA

To arrive at the preferred technologies the following criteria were used: Available Resources

o Land o Water o Geographic Location (proximity to grid, transport, human resources) o Regulations and triggers - Environmental Impact Assessment

Feedstock o Quality o Quantity o Consistency

Capital cost Efficiency Bankability

o Proven track record with references o Performance guarantees

Ease of Operation o After Sales Support o Operator skill requirements o Maintenance requirements and complexity

Building on the knowledge gained through an investigation of the MRF, gasification/pyrolysis; structured landfill cells/anaerobic digestion, landfill gas extraction and an integrated technological approach including sewage sludge during the RFP phase

54, the revised technical option analysis

investigated two main WTE technologies, i.e. Anaerobic Digestion (“AD”) and Thermal Conversion Processes including Gasification and Direct Combustion (“DC”). The project has been devised in such a way that the technology selected is modular in nature and can readily be expanded upon.

6.2 WASTE SE PA RA TION & MA TERIA L REC OVE RY

A MRF forms the basis of a waste management system and can consist of manual and/or automated methods. It entails the separation of incoming waste into various streams, i.e. recyclables, organics, etc. The sorted waste is either collected for recycling, processed as an energy source or transported to the landfill to be landfilled. Including the MRF into the waste management system can save approximately 15-20% landfill air space and render a substantial quantity of recyclables to be sold into the regional or national market.

6.2.1 CLEAN / DIRTY MRFS

The MRF receives waste materials which are either separated at source (clean co-mingled waste) or mixed (“dirty” wastes).

54 Refer to the section 78(1) assessment dated August 2012.



Within a clean MRF the incoming material to be processed is normally separated at source (either residential or commercial) and has therefore gone through a first phase of recycling. At the MRF the material, i.e. paper, glass, plastic, metal, etc. is sorted to specifications, then baled, shredded, crushed, or otherwise prepared for shipment to market. Normally one would distinguish between single and dual stream MRFs. At a dirty MRF all the collected material, meaning 100% of the waste stream, enters the site and the sorting process. Here the recovery rate should be higher since no pre-separation takes place. At the same time it can also target a higher number of materials for recovery. This type of facility is usually more labour intensive. Depending on the implementation of either a clean or dirty MRF system, the detailed procedures will vary. No matter which of the two systems is implemented, the main function would be to maximise the quantity of recyclables as well as the quality of processed material in order to generate the highest possible revenue in the market. Tables 2.7 and 2.8 show the pros and cons of implementing either a clean or dirty MRF. Additionally, a MRF could also function in order to process waste as input for biological conversion or into a fuel source for the production of energy. The MRF at Wellington LS will recover recyclables and separate organic wastes which are intended for the AD plant. Table 2.7: Advantages of MRFs (Source: TOA)

Clean MRF Dirty MRF

High processing efficiency Extracts additional recyclables from residual waste stream

Potential for revenues from sale of materials Generally lower capital costs compared to clean MRFs (per tonne equivalent)

Recycle generally of relatively high quality Can be used as part of an integrated system to gain energy and materials value out of the residual waste stream

Can significantly contribute to meeting high recycling targets

Lower cost than MBT whilst achieving similar aims (although potentially less effectively)

Proven under world-wide conditions Applying proven technology

Can attract material from both bring & kerbside collection systems, including some commercial / industrial

Can provide work opportunities for disadvantaged sectors of the community

Reduction of carbon dioxide and methane gas at the landfill

Good governance



Table 2.8: Disadvantages of MRFs (Source: TOA)

Clean MRF Dirty MRF

Exposed to market fluctuations Low quality of recyclables output can render material of low value

Potential fire risk from storage of materials on site Unless there is a high level of separation in the plant, there is likely to be a major component of the waste entering the plant going to a disposal facility (landfill or energy from waste).

Relies on householders to participate Where materials are divided, for example, into biodegradable and combustible material streams, the facility is reliant on the availability of other waste management operations.

Security of input materials required Potential dust / odour problems and health issues for staff on picking belts

Potential dust emissions and health issues for workers Any biodegradable stream derived from plant will be subject to the Animal By-products legislation

Reliance on efficiency of mechanical equipment

6.2.2 WELLINGTON MRF

The Wellington MRF will be located in the WTE area at the Wellington LS, near the entrance of the site and using the same entrance thus a paved entrance road will be constructed. Once the waste to be off-loaded enters the site, over the weighbridge, it will be directed to the crushing, chipping, MRF or disposal area.

The MRF will be designed to handle 200 to 300 tonnes of waste per day, which equates to a throughput of 5 to 11 tonnes per hour. The facility therefore would have a maximum throughput capacity of 75,600 tonnes per year. Table 2.9 gives the throughput expected at the Wellington MRF and Figure 2.3 provides an illustration of the processes once AD and thus the VMPress become part of the processes.

Table 2.9: Expected Material Throughput at the Wellington MRF (Source: TOA)

Throughput (t/day) Throughput (t/month) Throughput (t/annum)

Minimum 200 4400 52800

Average 250 5250 63000

Maximum 300 6300 75600

Based on experience in the waste management industry it is expected that the throughput will not be seasonally consistent. Peak periods with distinctly higher throughput will be during the winter months, while low throughput periods can be expected during summer months.

The recovery rate of recyclables is dependent on the throughput as well as the correct selection of loads which are diverted to the MRF instead of to the landfill site. The following recycling outputs are expected:



Table 2.10: Expected Recovery Output at Wellington MRF (Source: TOA)

Recyclables (t/ day) Recyclables (t/month) Recyclables (t/annum)

Minimum 5 150 1800

Maximum 10 300 3600

Average 7.5 225 2700

The catchment areas for the Wellington landfill site are serviced by mixed-refuse collection services. No waste separation is currently taking place at source and therefore the mixed-refuse is collected in single compartment trucks which then enter the disposal site.

When looking at the potential efficiency and recovery rates of the MRF, the collection of all wastes together will ensure that higher volumes of materials can be taken from the solid waste stream but at the same time, however, the quality of materials could be reduced due to contamination.

However, the MRF to be established at the Wellington Landfill will be a combination of a dirty and clean MRF given that some of the waste received would, as part of the further roll out of the s@s project, be clean waste.

6.2.3 EQUIPMENT SELECTION

The VMpress is a waste pressurising machine. It is designed to physically separate mixed wet waste streams into two relatively clean product streams suitable for further processing, i.e.:

1. a high solids organic-rich ‘wet fraction’ almost totally free of any contaminants, suitable for AD; and

2. a ‘dry fraction’ almost totally free of organics and with low moisture that is further sorted for recovery.

The VMpress is available in four designs and can process from 3 up to 35 tons of waste per hour. The waste handling capacity of the plant is 450 ton/day MSW and the output streams will supplement the AD Plant and the DC Plant as well as creating a potential revenue stream from sales of recyclables. This mechanical plant comprises of integrated and distinct process technologies:

Extruder Press Sorting and Recovery Plant

The plant will have the ability to process and derive value from three separate input waste streams:

Traditional “black-bag” MSW Solid organic wastes Liquid organic wastes

A reduction of approximately 84% in the volume of waste disposed to landfill will be achieved with only 16% of the input waste, comprising of inert and non-recyclable materials being subject to disposal assuming a market for recyclables. The figure below shows the end result of the extruder press as a 30% TS organic sludge mixture that will be used for Anaerobic Digestion.



Figure 2.3: Organic Sludge resulting from MSW sorting and press

Figure 2.4 explains the Process Flow of the MRF and Figure 2.5 the VMPress and MRF Project Activity.



Pick/sort material

and separate

waste

Off-load material

on tipping floor

3 5

Feed material to

picking line

4

Deliver resourcesStore baled

resources

Weigh & record

bale mass

Bale sorted

recyclable

materials

Transfer of waste

to landfill

Weigh & record

waste mass

8

10

9

7

6

Clean plant

12

11

Weigh incoming

material

1

Off-load private

vehicles at

public site

2

OR

Tru

cks

Pu

bli

c

Figure 2.4: Process Flow of the MRF (Source: TOA)



Figure 2.5: Press and MRF Project Activity (Source: TOA)



151

6.3 ANAE ROBIC D IGESTION

Anaerobic digestion is a biological process in which micro-organisms break down biodegradable material through a series of processes in the absence of oxygen. The process is widely used in industry to treat wastewater and as part of an integrated waste management system. AD is also used as renewable energy source because it produces a methane rich biogas which can be used as fossil fuel replacement for energy production. Due to the global rise in energy demand and the depletion of fossil fuels, there is an on-going search for “cleaner” renewable energy. Renewable energy has become the main focus in providing a solution for an ever growing economy and a reality that will affect the future of our planet, global climate change. Thus while the low cost of electricity and availability of fossil fuels, has made AD facilities economically unviable in the past, the increase in energy demand and the Kyoto Protocol has put pressure on first world countries to deliver renewable energy and this incentive along with the drastic increase in electricity cost in South Africa has made it more favourable to implement AD and other renewable energy projects through the CDM. There is a trend to construct larger and larger biogas plants to take advantage of the improved economics. The choice of anaerobic digestion technology and full scale design is critical to ensure long term production and sustainable projects. The basic engineering design is based on proven patented technologies that have been successfully implemented in Europe and the United States.

6.3.1 ANAE ROB IC D I GESTIO N STAGE S

AD consists of four key Biological and Chemical stages, hydrolysis, acidogenesis, acetogenesis and methanogenesis. An illustration of these processes is provided below. Figure 2.6: Anaerobic Chemical Stages (Source: TOA)

6.3.2 ANAE ROB IC D I GESTIO N COMPONE NT S

The feedstock, various phases, technical and infrastructural components of AD are depicted in the figure below.



Figure 2.7: AD Components (Source: TOA)

6.3.3 EQUI PMENT SELECTIO N

A detailed technical analysis of components was done to ensure optimum selection of equipment. Anaerobic Digestion: The equipment evaluation and selection process included looking at the following:

make-up tank digester/s mixing – mechanical, gas jet or liquid jet heating – external or internal CHP generator liquid/solid separation tanks pumps auxiliary power scrubbers

The Combined Heat and Power (“CHP”) generator is one of the high cost items of a biogas facility. Companies have spent many years of research and development to improve the electrical efficiencies from converted diesel engines to specialized biogas generators running entirely on methane gas. The leading biogas engine suppliers were evaluated on a capital cost and efficiency basis and included the following:

Camda CAT Gauscor Jenbacher Shengdong

Figure 2.8 explains the AD Project Activities.



Figure 2.8: AD Project Activities (Source: TOA)



154

6.3.4 SUPP LIER EV ALU ATIO N

The table below shows the EPC55

contractors that were extensively evaluated and the process selection criteria. In respect of the VMpress, the press from dB Technologies was chosen to be most suited.

Table 2.11: AD Criteria and EPC Evaluation (Source: TOA)

EPC Contractors

Selection Criteria

Basil Reed

Reference Sites

Biogas-UK

Biogas Yield

Fountain Civil Engineering

Methane Fraction

DVO inc.

Digester hydraulic retention time

Shengdong

Digester volume

OWS

Generator Efficiency

dB Technologies

Net Electrical Output

Parasitic Load

Operators Required

CAPEX

OPEX

Local Support

Generation Costs

IRR

6.3.5 AD D IGE ST ATE

The traditional approach for the management of AD digestate is to use this material as a cover material to landfill sites or possibly to blend it with other organic waste, mainly garden greens and such, in a post AD composting set up. The main reason for viewing the AD digestate as a waste and not as a resource, are the remaining pollutants consisting of glass, plastics and heavy metals. In central Europe in particular (Germany, Austria, etc.) the issue of the heavy metals is particularly acute and very high standards have been set before any digestate could be permitted for agricultural application. Whereas technologies exist, e.g. as demonstrated by Akura at Wastecon 2012, for the removal of plastics and glass from waste streams, the removal of the heavy metals from MSW in general and digestates, in particular, remains a headache for which no viable and practical solutions have yet been found. In a recent project completed in Cape Town by one of the consultants to Interwaste for KfW, the German Development Bank, a rigorous testing programme for the determination of the heavy metal fraction in the organic and fines fraction of MSW was undertaken. (Previous work in Europe has shown that the bulk of the heavy metals reside in the organic and fines fraction of MSW.) In the case of the Cape Town project extensive tests at a commercial laboratory and a University in Cape Town, as well as further testing of 16 samples at a university in Austria, found that the heavy metal contents of the organic and fines fraction of MWS in Cape Town was well below even the most stringent limits set for any country in the EU. It is therefore reasonably safe to conclude that the AD digestate will be found to be of adequate quality that it may be used for agricultural application rather than disposal to landfill, provided plastics and glass are first removed.

Clearly there are considerable financial implications with regard to airspace, landfill site operational cost and disposal cost.

Below is an illustration of the AD process which also indicates the possible usage of by-products.

55 Engineering, procurement and construction



Figure 2.9: AD Flow Diagram (Source: TOA)

6.4 THERMAL CONVERSION

Thermal conversion involves processes driven by heat as dominant mechanism to convert biomass into energy or another chemical form. Biomass is a carbon, oxygen and hydrogen based biological material from living or previously living organisms. Biomass can either be used directly for the production of energy or converted to energy products such as biofuels and biochar. Biomass (forest residues, wood chips and other woody wastes from industrial process as well as municipal solid waste and refuse derived fuels) is converted to usable energy through thermal -, chemical - and biochemical processes. Industrial biomass as source of energy can be produced from various crops/grains such as miscanthus, switch grass, sorghum, poplar, maize, sugar cane and a variety of tree species. The basic alternatives of direct combustion, torrefaction, pyrolysis and gasification are separated principally by the extent of the chemical reactions involved and the conversion of reactants mainly driven by the availability of oxygen and temperature. The temperature range and products of the different processes are depicted below. Table 2.12: Thermal Conversion Processes (Source: TOA)



6.4.1 GASIFICATION

Gasification is the process where carbonaceous materials such as coal, petroleum, biofuel or biomass are converted to combustible gases consisting of Carbon Monoxide (CO), Hydrogen (H2) and traces of Methane (CH4). The raw material is reacted at high temperatures with a controlled amount of oxygen and/or steam

56. The resulting gas mixture is known as synthesis gas or syngas. The syngas can be

burned in an internal combustion engine or be used in highly efficient integrated combined gasification cycle processes for energy production.

57

The advantages of gasification are that the syngas is potentially more efficient than direct combustion of the original fuel because it can be combusted at elevated temperatures. The high temperature combustion refines out corrosive ash elements such as chloride and potassium, allowing clean gas production from otherwise problematic fuels. Four distinct processes take place in a gasifier as the fuel makes its way to gasification, i.e. combustion, reduction, pyrolysis (a process in which tar and other volatiles are driven off) and drying of fuel. Though the processes overlap and cannot be separated completely, each can be assumed to occupy a separate zone where fundamentally different chemical and thermal reactions take place.

58

There are three main types of gasifiers, i.e. fixed bed, fluidized bed and entrained flow. The choice of type is dependent on the fuel characteristics. Below is a qualitative comparison of these gasifiers. Table 2.13: Qualitative Comparison between the Different Types of Gasifiers (Source: TOA) Gasifier Type Advantage Disadvantage

Fixed bed

- Updraft

• Small pressure drop • Good thermal efficiency • Low slag formation

• Sensitive to tar and moisture content • Long start-up of IC engine • Poor reaction to heavy gas load

- Downdraft • Flexible to variations in load • Low sensitivity to dust and tar content

• Tall • Not for small particle sizes • Poor turndown capability

- Crossdraft • Short design height • Very fast response to load • Flexible to variations in load

• Highly sensitive to slag formation • High pressure drop

Fluidized Bed (Bubbling)

• Good gas/solids mixing • Flexible to variations in load • Uniform temperature

• Carbon loss with ash • Pre Feed Processing required • Particle size is critical

Entrained Flow • High Conversion • Low tar content in syngas

• Highly sensitive to slag formation • Pre Feed Processing required • Poor gas/solids mixing • Complex control

6.4.2 DIRECT COMBUSTION

A direct combustion system burns the biomass to generate hot flue gas, which is either used directly to provide heat or fed into a boiler to generate steam. In a boiler system, the steam can be used to provide heat for industrial processes or space heating and a steam turbine can be used to generate electricity

59.

56 Hutchison, F.H. (2006) “Facts about gasification”, http://www.cleanenergy.us/facts [2007, December 15] 57 Visagie, J.P. (2007) “Development of a generic gasifier model”, Masters dissertation, Dept Chem. Eng, University of Pretoria 58 Rajvanshi, A.K. (1986) “Biomass Gasification”, Nimbkar Agricultural Research Institute, Maharashtra, India 59 Peterson 2009



6.4.2.1 EQUI PMENT SELECTIO N

A detailed technical analysis of all the components was done to ensure optimum selection of equipment. The equipment evaluation and selection process included looking at the following: refuse receiving and feeding system; incinerator and grates; steam generating units; flue gas cleaning system ash handling system boiler systems turbine generator system condensing system water treatment system wastewater treatment system

A few of the abovementioned systems are discussed in more detail below to create a better understanding of direct combustion. Flue gas: In respect of the flue gas cleaning system, the project would use a semi-dry flue gas cleaning type before the gases are released in the atmosphere. It includes inter alia environmental test stations located at the induced draft fan inlet. Also refer to discussion of emission standards in par. 6.4.3.1. Ash handling: The ash handling system includes the facilities, equipment and operational concepts required for the collection and handling of grate riddlings and ash residue, as well as for recovery of ash from boiler convection sections and air pollution control equipment. Methods for storage and transport of ash from plant were investigated. The design data are based on recovery of ash in a wet state. Ash quantities will result from the firing of four boilers at a combined initial rate of 200 tons of refuse per day. The moisture content of the ash will be about a numerous percent by weight. The ash deposition would consist of:

Fly ash: Fraction of ash leaving boiler with flue gas including ash collected in boiler ash hoppers, 20 %

Bottom ash: Fraction of ash leaving boiler as bottom ash and siftings, 80 % The equipment used in the process is as follows: At the Incinerators, Boilers, SDR and Bag Filters, collecting screw conveyors will receive ash from the plant. The screw conveyors will discharge through seal valves to a common transfer drag conveyor which will convey the ash.

Ash from the ash expeller will be discharged onto the ash vibrating conveyor. The ash vibrating conveyor will feed an inclined belt conveyor which transports the ash to a grizzly scalper. The grizzly scalper will remove the +254mm material (mostly metal) from the bottom ash. The 254mm material (mostly ash) will pass through the grizzly deck onto a vibrating conveyor. A drum magnetic separator located above the vibrating conveyor will remove magnetic ferrous metal from the minus 250mm ash. Magnetic ferrous metal and grizzly over will be loaded directly into the ash truck, or discharged onto the floor in the storage area for subsequent loading via front-end loaders. Three days storage (at the expanded Facility capacity) is provided. The ash storage area shall be completely enclosed with a ventilation system. The ash storage building shall not be connected to any other structures in such a fashion as to enable dust to infiltrate to other parts of the plant.



The supplier shall curb and pave areas beneath the ash conveyors and in the ash building queuing area. Wheel washers shall be provided at doorways to the ash handling building. Belt conveyors shall be installed within an enclosed gallery with siding extending to a push all at ground level. All ash handling areas including the curb and paved areas shall be drained to the contact water sump for reuse of the contact water.

Boiler systems: The two main types of direct combustion boiler systems that utilize biomass are fixed-bed (stoker) and fluidized bed systems. Fluidized bed systems in general, have greater parasitic loads than stokers. The advantages of a fluidized bed system are:

Complete combustion of the feedstock, which reduces atmospheric emissions and Improves the process efficiency. Utilize a wider range of feedstock.

The efficiency of a direct combustion biomass system is influenced by a number of factors including:

Moisture content of the feed Combustion air distribution and quantity Operating temperature and pressure Furnace retention time

Turbine generator system: Direct combustion of biomass that is implemented exclusively for power generation through a steam turbine has typical conversion efficiencies of 15% - 35%. A Combined Heat and Power (CHP) system depending on the vendor can have an overall efficiency of as much as 85% but 80% is more likely mentioned as the norm. The level of efficiency is because CHP systems, also known as cogeneration, generate electricity and useful thermal energy in a single, integrated system. To be noted is that CHP is not a technology, but an approach to applying technologies. Heat that is normally wasted in conventional power generation is recovered as useful energy, which avoids the losses that would otherwise be incurred from separate generation of heat and power

60.

Two different boiler/turbine configurations can be used for direct combustion:

Condensing turbine Back pressure turbine

Back pressure steam turbines are used in combination with industrial processes where there is a need for low to medium pressure steam. Condensing turbines are used primarily for electricity generation (as full condensing turbines) and not for CHP applications. Some or all of the outlet steam exiting the turbine is condensed to a liquid and used again in a closed loop known as a Rankine Cycle. It is inter alia the overall thermal efficiency of Steam Rankine Cycle and turbine generators that makes DC an attractive WTE technology. An overall process flow diagram of a biomass fired conventional steam Rankine cycle is depicted in Figure …. Basically the technology is nothing different from a boiler/turbine set that one would find at an Eskom power station. The front-end removing grate and the feeding system are slightly different but the actual technology, i.e. the process that generates electricity through heat transfer is the same as has been proven around the world many times.

60 American Council for an Energy-efficient Economy (www.aceee.org)



Figure 2.10: Process Flow Diagram of a Biomass Powered Steam Rankine Cycle (Source: TOA)

The biomass power plant can be divided into the following main operations/areas: 1) Fuel transport, storage, preparation and feed 2) Pre heating and control of combustion air 3) Combustion and flue gas treatment 4) Boiler feed water treatment and recycle 5) Power generation and cooling

Water treatment systems: A potable water distribution system will be provided for drinking and sanitary purposes. Water fountains and sanitary facilities are also included. A boiler feed water treatment system (two trains) will be provided to treat water for the boilers. All condensate will be returned except for miscellaneous uses. No condensate polishing equipment is included. The concept of operation for the boiler feed water treatment system includes demineralization and storage. Wastewater treatment system: The system will be sized for the expanded facility and include the neutralization sump, wastewater sump, two (2) sump pumps, wastewater treatment equipment as required, acid and caustic injection pumps and system (may be spare identical demineralizer regeneration pumps), and lined and/or non-metallic piping and accessories. The supplier shall determine the wastewater discharge requirements and provide a lift station if required. The wastewater treatment system includes collection and to the maximum extent possible, reuse of all wastewater with the exception of sanitary waste.

Using a few diagrams, the combustion process and the components involved and evaluated are explained below.

Figure 2.11: Combustion Process (Source: TOA)



FEATURES OF BOILER PLANT Boiler Water Circulation

Figure 2.12: Grate (Source: TOA) Figure 2.13: Boiler Plant (Source: TOA) Figure 2.14: Furnace/Boiler Features (Source: TOA)



Figure 2.15: Ash Recycling (Source: TOA)

The fly ash (top of process) will definitely be sold since it has a value and could possibly go into the brick manufacturing process. The EIA process would do a thorough investigation of the bottom ash to determine if it should for instance, go to landfill.

6.4.2.2 PROCESS DESC RI PTIO N

The processes involved in direct combustion are briefly described below to further enable an understanding of how DC works.

Biomass conditioning, storage and feed: The Refuse-derived Fuel (the “RDF”) quality, moisture content and calorific value will vary with seasonal, diurnal and source changes. To minimize the impact of external factors, RDF will be:

Reclaimed from stockpile and fed from different feed hoppers into the combustion plant. Waste heat from the flue gas will be used to pre-dry the fuel to provide a constant Lower

Heating Value (“LHV”) for the combustion process.

Combustion: The biomass is converted to thermal energy through direct combustion in a furnace. The proposed combustion technology is a moving grate system that ensures sufficient residence time for complete conversion and introduces air at different temperature and locations through the grate. Air will be pre-heated by the flue gas after heat recovery steam generation and used for combustion and partially for drying the fuel. The air to fuel ratio will be adapted according to the specific moisture content and biomass quality. Heat recovery steam generation (“HRSG”): The thermal energy in the hot flue gas is carried over to hot water in a pressurized boiler system. The boiler feed water is treated to maintain the levels of dissolved solids and composition according to the boiler pressure and design specifications. Feed-water will be de-aerated with bleed steam from the turbine/boiler blow-down to control the level of dissolved oxygen. Flue gas after the steam generator is used to heat the boiler feed water in an economizer to maximize energy recovery. The water is then evaporated and superheated at low, medium and high pressure.



Electricity generation: Superheated steam from the HRSG unit is expanded in a turbine and the pressure and volume change is converted to shaft work. The selected turbine technology is of extraction cum condensing type. The extraction cum condensing turbine is a technology preferred for power generation with process steam demand at intermediate pressure and high volume where variations in pressure cannot be tolerated. The steam used for power generation will be condensed in a vacuum condenser to maximise electricity production. The cooling medium will be either; process water and heat will be dissipated in an evaporative cooling tower to maximize electrical output by cooling water to approaching the air wet bulb temperature or; in the case of scarce water resources, cooling will be done via direct air condensers where the condensate will approach the dry bulb temperature. Flue Gas treatment: The flue gas will be treated according to the air emission regulations applicable to the scale of the project and local environmental laws. Flue gas after economizer and air pre-heaters will be passed through a cyclone filter to remove particulates, dust and un-burnt organic carbon. The flue gas efflux velocity at MCR shall not be less than 15 m/s and gas velocity up the body of the stack shall not exceed 8 m/s if a wet scrubber is proposed. The top of the exhaust stack shall be at a height above the highest point of the plant according to local regulations. The stack shall be self-supporting. Stack construction and materials shall be selected to be suitable for the design life without maintenance considering the flue gas cleaning technology (wet or dry). Water treatment: Fresh water will be supplied to the plant only if evaporative cooling is used. Water make up will be required for cooling tower blow-down and boiler blow-down losses to control the level of total dissolved solids. Other losses in the cycle will occur through de-aeration vent losses and turbine gland leakages. The water treatment technology and chemical addition will be selected according to the quality of the water supply and design specifications from the boiler supplier.

6.4.2.3 SUPP LIER EV ALU ATIO N

Listed below are the EPC contractors that were extensively evaluated and the process selection criteria that were used.

Table 2.14: EPC Evaluation and Criteria for DC (Source: TOA) EPC Contractors

Selection Criteria

Babcock & Wilcox

Reference Sites

KKIEC (POSCO)

Flexibility in Feedstock

Abutec LLC

Experience with different biomass

London Waste

Boiler Capacity

Balfour Beatty Civil Eng.

Design Pressure

Boiler Thermal Efficiency

Turbine Efficiency

Cooling/Condenser Technology

Net Electrical Output

Captive Power

CAPEX

OPEX

Local Support

Generation Costs

IRR

Operators Required



6.4.3 TECHNOLOGY EVALUATION

The focus of the technology evaluation was on power generation from renewable sources through proven technologies, with reference to biomass gasification and direct combustion. Although a combination of the technologies in an Integrated Gasification Combined Cycle (IGCC) process holds promise and theoretically outperforms conventional open/single cycle power generation, it is yet to be commercialized for small to medium scale applications. Table 2.15: Electrical and CHP Efficiencies of Different Conversion Technologies (Source: TOA)

Process Fuel to Electricity Efficiency (%

Overall) Total CHP Efficiency

(%)

Gasification & IC Generator 20 – 25 (21) 50 – 65

Backpressure Steam Turbine 7 – 15 (7) 75 – 80

Condensing Steam Turbine 20 – 38 (33) 20 – 38 (33)

Combined Cycle Steam and Gas Turbine

35 – 50 (42) 85 – 90

The strengths and weaknesses of the two waste-to-energy technologies are given in the table below (Peterson, 2009):

Table 2.16: Strengths and Weaknesses of Gasification and Direct Combustion (Source: TOA) Technology Strengths Weaknesses

Direct Combustion

Proven technology Equipment is widely available, complete with warranties Fuel flexibility in moisture and size

Greater NOx, CO, and particulate emissions Inefficient conversion process when generating power alone Requires water if generating power with a steam turbine

Gasification Lower NOx, CO, and particulate emissions More efficient conversion process for CHP applications Virtual elimination of water needs if generating power without a steam turbine (close-coupled systems excluded)

Development and demonstration phase (close-coupled systems excluded) Need fuel of uniform size and with low moisture content

6.4.3.1 COMPARISON OF INCINERATION TECHNOLOGIES

Based on the table below, the most viable incineration system would be the stoker for MWS for its proven track-records and it is widely used globally with no difficulty in adhering to the regulated emission regulations. This would then be the option pursued with KKIEC being the technology partner for the Interwaste SPV for the DC plant.



Table 2.17: Incineration Technologies (Source: TOA)

TYPE

PROVEN TECHNOLOGY NON PROVEN TECHNOLOGY

STOKER FLUIDIZED

BED ROTARY KILN

PYROLYSIS/ GASIFICATION

PLASMA

Main Treatment Waste MSW, IW Sludge IW, Sludge MSW. IW

Sludge IW, Ash, RW,

Medical Waste

Operation Temperature 850~1000℃ 850~950℃ 850~1100 ℃ 1100~1600℃ Above 2000℃

Maximum Capacity Rate for Incineration (Per 1 unit)

800 T/D 200 T/D 150 T/D 120 T/D

60T/D (Contaminated

Soil/ MSW

Research)

Proven Technical Level High High High Medium Low

Used as Commercial Plant Worldwide

Widely used Not common Sparingly Only a few Only a few

(Ash etc, MSW None)

Construction Cost Rating (Scale 1~3)

1 1 1.5 2 3

Operation Cost Rating (Scale 1~3)

1 1 1.5 2 3

Generation Amount of Dioxin (mg TEQ/Nm3)

0.2~5 5~20 0.5~10 Unconfirmed Unconfirmed

Pre-treatment of Waste (Necessary)

No Yes No Yes No

Possibility of Energy surplus

High High High Low Low

Technology Confidence High High High Very Low Lowest

6.4.3.2 EMISSION STANDARDS

The table below shows the emission standard and suggested plant data, extracted from 2 existing MSW incineration plants in Seoul which were designed by KKIEC’s technical expertise and compared to the European Union Standards together with the Korean Standards. All data has been verified and it can be confirmed that the proposed Plant would meet the EU and the much stricter Korean Standards in terms of air emission regulations. Table 2.18: Emission Standards for Flue Gas (Source: TOA)

Emission Standards

Parameters RSA

Standard Korea

Standard Expected

Value

Value of KKIEC’s Designed Plant in Korea

SangGae Plant SungNam Plant

in Seoul in Seoul

Dust(mg/Nm3) 10 30 10 4.1 1.99

HCl (mg/Nm3) 10 20 10 0.9 1.85

SO2 (mg/Nm3) 50 30 20 1.5 1.24

NO2 (mg/Nm3) 200 70 50 24.9 47.96

CO(mg/Nm3) 50 50 30 Below 30 Below 30

Heavy Metals (Pb/As/Sb/Cr…)

0.5 0.5 0.3 Below 0.3 Below 0.3

Dioxin and Furan (mg-TEQ/Nm3)

0.1 0.1 0.1 0.054 0.03



6.5 PRE FE RRED TEC HNOLOGIES

6.5.1 MRF & VMPRESS

The Wellington MRF will be a combination of a dirty and clean MRF and will be established as the 1st

Phase of the WTE Facility. With development of the 2

nd Phase AD plant, the VMpress, a waste

pressurising machine designed to physically separate waste into two fundamental fractions will be added to provide:

Homogeneous feed for AD Improved biogas yields Higher net calorific value (“NCV”) of solid dry fraction for thermal processing.

The VMpress has been installed all over the world very successfully and the supplier provides performance guarantees that financiers are very happy with.

6.5.2 ANAEROBIC DIGESTION

Based on the evaluation criteria, Anaerobic Digestion was chosen as an intermediate WTE technology (phase 2) due to the following primary reasons:

Increased overall efficiency as the organic fraction with a high moisture content is removed and utilized

Digestate will be used as feedstock for the Direct Combustion process in phase 3. The digestate also has a market value as fertilizer in the interim before the DC plant is commissioned.

In essence, AD is a well-known and popular technology. It is also quite suitable for this particular project due to the sewage sludge availability because the technology fits well into a wet waste scenario. AD plants are found across the world with very reputable companies to choose from.


Direct combustion was selected as a WTE technology (phase 3) for the refuse that will not be used as feedstock for AD, recyclables or inert land filling portion due to the following primary reasons:

Overall thermal efficiency of Steam Rankine Cycle and turbine generators Robust technology and variety of feedstock that can be utilised in the process Proven track record of the technology worldwide.

There are several DC plants across the world. It is a very bankable technology and suits the African model due to the large number of jobs that it creates. There are approximately 20 000 of these steam turbine kits running in SA and at least 200 000 over the world and the particular supplier earmarked for this project has been involved in building 150 of these. Although gasification will give a much higher efficiency, the project approach is conservative, inter alia to secure the required finance, therefore the extra risk of gasification does not fit into the project philosophy. The project has been devised in such a way that the technology selected is modular in nature and can readily be expanded upon.

6.6 MA TERIA L FLOW BA LA NCE

A certain tonnage of material will enter the WTE Facility and a certain tonnage of material will leave the WTE Facility whether as recyclables or as AD digestate or tailings going to landfill or ash from the



MSW 130 t/d230 t/d430 t/d

Press

Dry Fraction

Bio Fraction (30% TS) 55 t/d97 t/d

182 t/d

Separation Plant Anaerobic Digestion

Landfill 24 t/d46 t/d85 t/d

Direct Combustion 300 t/d

Recyclables 12 t/d23 t/d43 t/d

Digestate (30% Moisture) 34 t/d61 t/d

114 t/d

Additional Feed 227 t/d175 t/d66 t/d

RDF39 t/d64 t/d

120 t/d

Ash (22.2% w/w)46 t/d

DC process. A material balance is the method of accounting for material entering and leaving the WTE system.

6.6.1 OVERALL MATERIAL BALANCE

The first three scenarios require on estimation between 130 – 430 ton/day MSW. The MSW available is as follows:

1. Drakenstein 130 ton/day 2. Stellenbosch 100 ton/day 3. Interwaste 200 ton/day 4. Total: 430 ton/day

Resulting in the following unit parameters: 1. 29 – 96 % running capacity 2. 81 – 94 % supply of the sludge needed for the Anaerobic Digestion plant 3. 24 – 78 % supply of the fuel needed for the Direct Combustion plant

Combustibles of between 66 and 227 ton/day will have to be sourced in addition to the feed available from the MSW to make Scenario 4 a viable option. The estimated overall material balance for the MSW sorting, AD, DC, Recyclables, Landfilling and additional resources required is given below. Figure 2.16: Overall Material Balance (Source: TOA)



Table 2.19 shows the diversion, landfill and additional resources required as per Interwaste available MSW. Table 2.19: Diversion as per Interwaste available MSW (Source: TOA)

Unit Press and MRF Anaerobic Digestion

Direct Combustion

Diversion to project (MSW)

Scenario 1 ton/day 130



Additional waste to project

Scenario 1 ton/day 13 227



Recyclables from project




Landfill from project

Scenario 1 ton/day 13 34* 46**



* Only applicable when phase 3 (Direct combustion) is not commercially operational and if no off-take is available for the AD

digestate for use as fertilizer. ** Only applicable if no off-take is available for ash from the Direct Combustion plant.

Table 2.20: Waste Diversion (mass%) if market exists for Recyclables and Digestate (Source: TOA)

Waste diversion Anaerobic Digestion Direct Combustion

Scenario 1 91% 84%

Scenario 2 90% 83%

Scenario 3 90% 82%

Table 2.21: Waste Diversion (mass%) if Recyclables and Digestate have to be Landfilled (Source: TOA)

Waste diversion Anaerobic Digestion Direct Combustion

Scenario 1 59% 81%

Scenario 2 56% 78%

Scenario 3 55% 74%

6.6.2 MRF AND VMPRESS

Annexure 7 shows the mass and energy balances (“MEB”) of the MRF and VM-Press.



6.6.3 ANAEROBIC DIGESTION

Three scenarios were evaluated based on feedstock availability as supplied by Interwaste: 1) Drakenstein Municipality – 68 ton/day organic waste 2) Drakenstein Municipality and Stellenbosch – 114 ton/day organic waste 3) Drakenstein Municipality, Stellenbosch and Interwaste – 194 ton/day organic waste

Inputs: The feedstock used is indicated in Table 2.22. Sewage sludge was excluded from the MSW feed calculations, but the Organic Fraction was used as feed to the digester; as the sludge will be used as make up water. Table 2.22: MSW Organic Breakdown (Source: TOA)

Source

Quantity (ton/day)

Organic Fraction

(%)

Organic Fraction

(ton/day)

Total Solids

(% of OF)

Total Solids (ton/day)

Volatile Solids

(% of TS)

Volatile Solids

(ton/day)

Drakenstein:

Greens 15 100% 15 70% 11 90% 9

Domestic Waste 70 40% 28 50% 14 70% 10

General Rubbish 45 30% 14 60% 8 50% 4

Sewage Sludge 220 5% 11 100% 11 60% 7

Total 350 19% 68 65% 44 69% 30

Stellenbosch:

Greens 11 100% 11 70% 8 90% 7

Domestic Waste 89 40% 36 50% 18 70% 12

Total 100 47% 47 55% 26 76% 19

Interwaste:

Domestic Waste 200 40% 80 50% 40 70% 28

Total 650 30% 194 56% 109 71% 77

Mass and Energy Balances:

The MEB of the three AD scenarios are shown in Annexure 8.


Inputs: The feedstock is based on the following:

Combustibles from the separation plant Digestate from the Anaerobic Digestion Plant Inorganic MSW supplied by Interwaste

Figure 2.17 below indicates the effect of moisture content on the lower heating value (“LHV”) of Biomass used.



6

7

8

9

10

11

12

13

14

15

0% 10% 20% 30% 40% 50%

LHV

(M

J/kg

)

Moisture Content (%)

LHV of Biomass

Figure 2.17: Effect of Moisture Content on LHV of Biomass (Source: TOA)

Mass and Energy Balances:

The MEB of Direct Combustion is shown in Annexure 9.

6.7 STIMU LA TED PLANT FLOWS

The process flow diagrams (“PFD”) of the Anaerobic Digestion and Direct Combustion are shown in Annexures 10 and 11, respectively. A process flow diagram shows the general flow of plant processes and equipment.

6.8 PLANT WA TE R USAGE

Table 2.23 indicates the water available as sewage sludge which will be used as make up water for the Anaerobic Digestion Scenarios as the composition of the water is optimal for the digestion process. The water needed for the Direct Combustion is also indicated and will have to be sourced elsewhere.

Table 2.23: Water Availability and Usage (Source: TOA)

NOTE: The 20m³/day needed in Scenario 3 can be obtained by increasing the recycle rate, thus increasing the Total Solids slightly.

m³/day

Sludge Water Available 209 209 209

AD water usage (Scenario 1) 105 AD water usage (Scenario 2)

157

AD water usage (Scenario 3)

229

Surplus/Deficit (without DC) 104 52 -20

DC water usage 120 120 120



6.9 COMPOSTING It is assumed that an average 22tpd garden refuse will be received at Paarl and Wellington jointly and it is anticipated that in the composting process through the decomposition of the organic material and the aeration of the material up to 30% by mass will be lost at Wellington. Furthermore, it is also anticipated that, depending on the volumes and the qualities of the material to be composted and the AD digestate, some digestate will be mixed with the garden greens etc. as part of a post AD aeration and composting of the digestate. As most of the garden greens etc., are generated in the Paarl area it would beneficial to locate the chipping facility at the Paarl TS to save on transport costs. Stockpiles of garden greens will be chipped at regular intervals, especially in summer to reduce the likelihood of fires. In addition, adequate fire hydrants and hoses will be provided.

Since the spatial requirements of composting yards are relatively demanding and space may be an issue at the Paarl MRF and TS while a portion of the Paarl TS/MRF site seems to be located close to or below the 1 in 50 year flood line, the use of that area as a compost yard may be problematical. It would therefore be less risk if the garden greens are received and chipped only at the Paarl TS and MRF, and that all composting takes place at Wellington. The purpose of a composting yard would be to provide a facility that will treat garden greens and similar waste to produce organic products such as compost, mulch and chips. It is anticipated that the material will be chipped and then placed in windrows (refer photo) which will be turned from time to time. Although recently finalised amended license conditions for the increase of the Wellington Landfill height by two meters also included:

the establishment of a builders rubble crushing area;

chipping of garden waste; a drop-off area (where recycling igloos and

recycling activities can take place until a MRF is available); and

a composting area the size and specific location of the envisaged composting yard might require for it to be included in the discussions around statutory requirements to see if it should not form part of the EIA still to be undertaken. In the case of a composting yard at Wellington, it is anticipated that the water required to maintain an adequate moisture content in the windrows, would be derived from the AD process. There seem to be markets for various sizes of compost and hence, it is likely that a sieve (or sieves) will be employed to produce the various qualities of compost to meet market demands. If it is found that there is a market for retail sales of compost, a small bagging facility may be included, otherwise the compost, mulch and chips will be sold in bulk. For retail packaging the well-known “Earth2Earth” Brand which is owned by Interwaste, will be used.

The question of adequate markets is a key aspect in the viability of a composting plant. Drakenstein Municipality, as a partner in the PPP, could have a role to play in creating an enabling environment for



the composting yard to succeed given the employment created through it. Support measures from DLM that would assist in creating such an environment would include a) specifications and procurement policies that encourage the use of products from the composting yard and b) liaison with other stakeholders in the organic products market e.g. garden contractors, farming associations, other authorities, etc. c) provision of by-laws to regulate types, separation and contamination of garden greens, etc.

6.10 CONSTRUC TION AND DE MOLIT ION WASTE

The Construction and Demolition (“C&D”) waste volumes of the DLM have increased considerably over the last few years. Recorded figures indicate a volume of 299 tpd received at Wellington LS. Based on the experience of the consulting team supporting Interwaste

61 as gained on other projects, it

is envisaged that a more progressive approach to the conventional “C&D crushing” will be undertaken for this project. It is anticipated that, as the volumes of MSW to be disposed will significantly reduce due to increased recycling efforts, treatment of the organic waste and other uses of the remaining waste, the amount of cover material required will also reduce substantially. This approach is in line with practices in other countries e.g. in the Netherlands where almost all C&D waste is re-used or recycled after treatment, and could draw on such experience. It is envisaged that:

The clay based C&D waste, mainly bricks and tiles, is disposed separately where local entrepreneurs will be given the opportunity to clean bricks and sell these for their own pocket.

The cement based or cementitious C&D waste, mainly concrete, is crushed for use as a sub-base like material in road construction or for the production of cement based bricks.

The envisaged usage is also supported by the results of tests that the consultants have undertaken on other projects where the clay based C&D waste was separated from the cement based or cementitious C&D waste. These results provide an understanding why roads engineers in particular are not keen on the use of crushed unsorted C&D waste for use in road bases without upfront quality control. (A high clay content in road bases is not desired due to the tendency of clay to become soft when wet.) The approach is also based on the observations that there is a market for cleaned second-hand bricks throughout South Africa (observed at landfill sites in Johannesburg, Pretoria, Bloemfontein, Cape Town, Hartswater, Reivilo, Ladysmith and Oudtshoorn, for instance). The latter practice is of course labour intensive and stimulates local economic development through the establishment of local entrepreneurs. Crushed materials could also be used for road building throughout the Municipality or be used for daily cover on the landfill. The reduction of airspace being the primary objective, the use of this material for cover will be the last resort. Examples of the machinery to be deployed on the site, i.e. a crushing plant and a crusher plant with conveyor, are shown below.

61 Envitech and PD Naidoo & Associates



With the annual available building materials received on site it is envisaged that about 500 000 bricks per month could be manufactured, thus creating about 50 jobs. The basic assumption in the financial modelling exercise was that the cost to process and crush building rubble and demolition waste for the manufacturing of bricks will be covered by the selling of the bricks and assumed that this will be a breakeven business or maybe a marginal loss and as such it has been excluded from the financial model. The key to the success of these proposals is to some extent the role that Drakenstein Municipality, as one of the partners in the PPP, plays to create the appropriate enabling environment. The support that will be required from Drakenstein Municipality includes the following:

Bylaws to encourage/require builders and contractors to separate their C&D waste into mainly cement based or clay based waste.

A tariff structure that encourages the separation of the C&D waste or alternatively that penalises the non-separation of the C&D waste (keeping in mind the possible unintended consequence that penalties may have on the increase in dumping, hence rather an incentive to encourage separation).

Technical specifications and procurement policies by Drakenstein Municipality that make provision for and/or encourage the use of a) second hand bricks, b) bricks from crushed concrete and c) the use of sub-base like material from crushing and demolition, where appropriate, e.g. under sidewalks or driveways.

The brickmaking is potentially an ideal opportunity for a local BBBEE entrepreneur. For instance, the “Hydra Form” system of brick/block making be used, the advantages of which are:

Cost effective Eco-friendly building blocks Thermal excellence High quality Simplicity Minimal mortar required Community involvement Attractive, face-brick finishes

Apart of the job opportunities this will create, this process will divert in the order of about 3000 to 6000 tonne per month away from the landfill and hence save a lot of valuable airspace.

6.11 WASTE TO ENE RGY PA RK

The infrastructure envisaged to be established, operated and owned by the WTE operator in terms of the project includes:

the WTE Facility including the C&D Yard, the MRF, AD Plant and DC Plant and the municipal owned infrastructure that the project will include for management and operation by the Interwaste are the:

the Wellington Landfill, the Paarl Transfer Station, Paarl MRF and its adjacent composting facility.

The discussion below expands on support and core infrastructure and control of the WTE Park to be established.

6.11.1 ACCESS ROAD S A ND ACC ESS CONTROL

It is the intention to fence the entire area with one point of entry into the waste park situated at the Wellington Landfill site.



All waste received at the Landfill site or Transfer stations will firstly be checked and inspected visually before being recorded by mass, per registration on a computerized system per category of waste and per area of generation. Once waste has been weighed, it will be directed to the point of processing whether it being for recycling, chipping, crushing or landfilling. From the MRF the tailings will also be diverted to the area of final processing being one of the above mentioned or the anaerobic digestion plant. The entrance to the waste park will be manned by 24 hour security, seven days a week. Strict safety standards will be applied and all visitors or users will be required to view a safety induction video of the facility and be issued with an entry permit before being allowed to enter or use the facility.

6.11.2 WEIGH BRID GES AND WE IGH ROOM

The WTE Operator would man and operate the weighbridges. All visitors would need to report to the site office at Wellington LS and the Paarl TS and no unauthorised visitors will be allowed to wander around without being escorted. All users of the facility will be required to register as a vendor at the waste park as no cash will be handled on site. All users will be identified by their vehicle registration numbers and the waste delivered will be recorded by mass per category of waste received. All site users will be issued with an invoice at the end of each month and that should be payable within 30 days from date of statement. All late payers will be blacklisted and refused entry into the site. All data recorded will be available to the DM for record purposes and would simultaneously be viewable on a live web based system. The weighbridge will be the control room of the site and all users will pay a rate per ton. Monthly reports will be produced per category of waste received or per individual vehicles per month. The weighbridge will consists of an incoming and outgoing bridge to be calibrated annually by the operator with municipal oversight.

6.11.3 MRF

The Wellington MRF would be a dirty/clean combined MRF. A number of examples of the technology and operations exist in SA as also applies to the Paarl MRF. The primary risks, i.e. fire, fuel and oil releases, electricity and staff accidents are addressed in the risk analysis.

6.11.4 AD & DC PLA NTS

The size and outlay of the proposed AD and DC plants are illustrated below. Notice the insert indicating the nearby location of the Wellington Substation. Refer to Figure 2.18.

6.11.5 COMPOST YA RD

Based on 22 tpd of Garden Greens received and a six week composting period, a composting yard of approximately 80 m by 160 m would be required (allowing a buffer for fluctuations in greens received and sold/disposed).

The composting yard at Wellington LS will consist of a hardened area suitably sloped for stormwater drainage and with stormwater ponds that would act as interceptors for any polluted run-off. Also to be included in the composting yard will be a chipper from time to time, windrow turner shared between Wellington and other sites and a front-end loader shared with other activities on the project as well as one or more sieves. If it is found that there is a market for retail sales of compost, a small bagging facility may be included, otherwise the compost, mulch and chips will be sold in bulk.



Figure 2.18: AD and DC Plants (Source: TOA)

6.11.6 C & D CRU SHE R YA RD

It is not foreseen that the C&D waste management yard will require any special infrastructure except for space for the various C&D waste products and a mobile crusher for treating the concrete and cementitious based C&D waste from time to time. It is therefore foreseen that a hardened area, possibly using selected and crushed C&D waste and suitably sloped for stormwater drainage would comprise the bulk of the infrastructure at the C&D waste management yard. It is proposed that the C&D waste management yard shares the same space as the chipping and composting yard, suitably demarcated. It is foreseen that the following will be provided:

A gate and security/admin office with water, power, sanitation and security

Appropriate signage at reception and on site to guide vehicles

Security fencing

Space for off-loading various types of C&D waste

Space for stockpiles of various types of C&D products post treatment

Space for stockpiles of cleaned bricks to be located and collected A possible layout for the composting yard and the C&D waste management yard is shown below.

6.11.7 UTIL IT IE S

As pointed out under par. 6.5.2.1 and 6.5.3.1, the sewer reticulation, (potable) water supply and electricity provision to the WTE Park is adequate. Stormwater is a problem area to be addressed in that there does not appear to be any existing stormwater infrastructure located around the immediate vicinity of the site.



In addition to the management of stormwater associated with the Wellington landfill site, which will be undertaken in terms of the Minimum Requirements (1998), specific management of stormwater is required in the following instances: The composting yard(s) The C&D Waste Processing Facility The general parking, vehicle turning, logistics and container management areas Roofs of buildings

Specific stormwater detention ponds will be provided to intercept stormwater run-off from the composting yard(s). With regard to the run-off from the general parking, vehicle turning, logistics and container management areas, care will be taken that the post development run-off will not exceed the pre-development run-off and that low-flow interceptors are provided to capture most of the pollutants associated with the first flush. In the case of run-off from the roofs of buildings, rain water tanks will be provided albeit that they will only capture a small percentage of the total run-off from the roofs. They will enable a source of water to be provided even if it is just for washing purposes in order to give credence to the slogan “every drop counts”.

6.12 DEVELOPME NT , JOB CRE ATION A ND EMPLOYMENT

The socio-economic impact of the WTE Park is of utmost importance given the unemployment and income figures of a large section of the community. Job creation is an important consideration for the project viability as a whole. It is estimated that in total 203 jobs will be created through the project. These estimates are based on the following:

Materials Recovery Facility (MRF) & TS - Paarl: Unskilled - 36 positions; Skilled - 9 positions.

These jobs would be possible due to Interwaste’s intention to roll out the waste s@s and clear bag collection system to all the wards instead of the current 5 wards in order to increase the current clear bag recyclables from 50 tons to 250 tons per month. It would mean 5 or 6 vehicles doing collection 5 days per week.

Materials Recovery Facility (MRF) - Wellington: Unskilled - 26 positions; Skilled - 1 position to take an estimated 5% of recyclables out of the waste delivered via REL at the Wellington LS.

Long Haul Transport: Unskilled - 1 position; Skilled - 1 position

C&D and Composting: Unskilled - 57 positions; Skilled - 20 positions. The number of jobs provided by brickmaking would be dependent on the volume of builders’ rubble which, as recent figures indicated, could nearly half in six months and then double again over another six months. Brickmaking works out to roughly 100 bricks p/p/p/d. The number of jobs could thus increase/decrease on a seasonal basis but it would remain a steady business albeit money wise it would always be a breakeven situation thus not at all a revenue stream.

Anaerobic Digestion (AD) Plant: Unskilled - 0 positions; Skilled - 15 positions. As also apply to DC, the positions involved are none of an unskilled nature and requiring expertise not to be easily found in the immediate or regional employment market.

Direct Combustion (DC) Plant: Unskilled - 0 positions; Skilled - 25 positions

Landfill: Unskilled - 5 positions; Skilled - 7 positions. These are also the current staff numbers at the landfill.

A breakdown of the staff is provided in Table 2.24 below.



Table 2.24: Job creation schedule (Source: TOA)

This totals to an estimated 125 unskilled and 78 skilled full time positions being created, in addition to the employment generated during the construction phase. Indirectly the project will also give rise to local enterprises that will provide supporting services like transportation and food supply to plant staff. Also, there will be a significant transfer of skills and technology through training courses, in-house training and employment opportunities. Besides the many jobs that will be created, none of the current jobs will be negatively affected given the intended redeployment of the staff unless in cases where individual employees indicate a preference to transfer to Interwaste.

6.13 HEA LTH , SAFE TY AND TH E ENVIRONME NT

The DLM and its officials are very aware of the importance of environmental matters. Specifically a landfill site that is potentially harmful to the environment if not operated correctly with the necessary expertise and in accordance with its permit stipulations which the project intend to rectify. A risk factor linked to the handling of waste is occupational health and safety. On a practical level, improved waste practices arrived at through the more effective operations would advance the health and safety of the workers fulfilling these activities. The result should be that respiratory problems and the continuous inhalation of carcinogenic trace components of landfill gas are reduced; odours resulting from landfill gas and the potential for lateral gas migration from the site should be significantly reduced and safety improved through the reduction of explosion hazards from gas accumulation in structures on or near the landfill. Furthermore, the Municipality, under the constant scrutiny of organized labour and its own human resources policies, is obliged to implement the correct health and safety measures and provide agreed on PPE to all staff. Similarly, any external service provider would have to implement work practices and procedures that enhance the health and safety of employees and would perhaps even more so than internally be monitored to ensure it happens. Potential environmental impacts will be considered and assessed in detail as part of the EIA procedures required by different pieces of environmental legislation and the design and construction of all equipment will also have to consider the relevant emission standards, to ensure compliance with the requirements set for discharges to the air, water and soil, if any.

General workers Drivers/Operators Foreman Managers

Paarl Transfer 6 2 1

Paarl MRF and Clear Bag Collection 30 5 1

Long-haul Paarl to Wellington 1 1

Wellington MRF 26 0 1

Crushing 52 16 2

Chipping 5 1 1

Anaerobic Digestion 14 1

Direct Combustion 20 4 1

Landfill 5 6 1

TOTAL 125 65 11 2

TOTAL AMOUNT OF LABOUR 203

JOB CREATION



It is accepted that there would be some impact on the environment mostly in the form of off-set gas from the electricity generation process. According to the NEMAQA, the activities/processes that require an AEL are very specifically identified, in such a way that although the Anaerobic Digestion process will include a flaring stack and may have other emissions it would not require an AEL. The Direct Combustion process would however be considered an incineration / thermal treatment process and would require an AEL but, as discussed previously, the emissions are expected to be well within SA standards and in most instances surpassing it. Nevertheless the impacts would have to be managed through detailed Environmental Management Plans (EMPs) for all project components and phases to ensure that no impacts are unacceptable significant. No apparent fatal flaws related to the environmental characteristics and aspects associated with the proposed development site or surrounds have been identified. All environmental aspects will however be investigated in detail during the different applications for environmental approvals required for the project. The assessment process is comprehensive and detailed where appropriate, aimed at identifying potential positive and negative impacts on the environment (biophysical, socio-economic and cultural), in order to:

Examine alternatives/management measures to minimise negative and optimise positive consequences;

Prevent substantial detrimental impact to the environment; Improve the environmental design of the proposal; Ensure that resources are used efficiently; and Identify appropriate management measures for mitigation and the monitoring thereof.

The benefits to be gained from MSW energy recovery are: reduced GHG emissions; reduced acid gas emissions; reduced depletion of natural resources (fossil fuels and materials); reduced impact on water (leaching); and reduced land contamination.

Noise generation could be a negative impact of the WTE plant but is not expected to be a real issue given the location of the site, i.e. in an industrial area and near the railway line. However, if noise has to be contained there are a number of ways in which it can be done, e.g. a brick wall. It could be expected that the WTE project will have a positive impact on communities’ environmental responsibility specifically if it is used to increase community awareness and the community being made proud of the fact that they will receive a portion of electricity from a renewable energy source rather than been generated through the conventional coal-fire method.

7. MA RKET STU DIE S

7.1 PRICE S FOR RE CYC LA BLE S

The market, including collection and distribution channels, as well as buyers and convertors for recyclable material, is reasonably well established in Cape Town. The market consists of several buyers, especially in the plastics sector. The metal (cans) sector is dominated by Collect-a-Can, although there are also other minor role players. The glass sector is dominated in the Western Cape by Consol Glass, although some glass is also collected by Nampak. In the paper sector there are several competitors. The market is also enlarged by some collectors of recyclable materials supplying to markets outside Cape Town e.g. most of the recycled structural steel in the Western Cape is exported to the East

62, most paper collected at the Athlone Refuse Transfer Station, Cape Town is

transported to Swaziland and some glass is sold to buyers from Gauteng63

.

62 pers. com. Rodrick Gasant, January 2012 63 pers. com. Bertie Lourens 2012



Concerns have been expressed at the volatility of the prices of recyclables. An analysis over the past four-or-so years has, however, shown that the prices have held remarkably well and, while there is indeed volatility, it is not considered a fatal flaw, provided the volatility is allowed for in the financial modelling for the viability of a recycling facility. The variation in prices as well as the base prices assumed for the current feasibility study is shown in the table below.

Table 2.25: Prices for Some Recyclables over time from Various Recovery Facilities in the Western Cape (Source: TOA)

Material

^Price in R/t

Cape Town Malmesbury Hermanus Malmesbury Cape Town Prices

assumed for Drakenstein

WtE

Feb 09 - Baled

Aug 09 - Baled

Jan 09 - Baled

Aug 11 - Baled

Jan 12 - Baled

#Jun 12 - Baled

Cardboard 650 650 650 850 850 750 750

White office paper

900 1,100 1,000 1,700 1,200 900 900

Newspaper 350 350 550 480 * 700 500 500

Glossy paper 300 300 200 550 500 450 450

Mixed paper 300 350 200 480 500 500 500

PET (No.1) 2,000 2,000 2,300 2,800 2,800 2,400 2,400

HDPE (No.2) 1,500 1,500 1,500 2,000 1,800 * 2,200 2,000

PVC (No.3) -

2,500 ? -

LDPE (plastic bags/film)

(No.4) 2,000 2,000 1,500 1,550 2,000 1,800 1,800

Polypropylene (No.5)

1,200 1,500

2,300 2,200 2,200

Polystyrene (No.6)

1,200 1,200

1,300 1,200

Glass (all colours)

(crushed) 400 400 395 * 485 400 * 400 400

Metals (mainly cans)

600 1,100 700 * 1,700 1,650 1,700 1,700

* Collected at plant

# email JPCE July 2012

^ Infrastruktur & Umwelt report on Feasibility Study on Advanced Solid Waste Management System for Cape Town, Sept 2012.

7.2 COMPOSITION OF REC YC LA BLES

The composition of dry recyclables from the separation-at-source scheme run in a variety of suburbs in Cape Town was determined after more than 1 000 tonnes of dry recyclables from the separation-at-source schemes were analysed. This information has been used to calculate the potential volumes (and mass) of the various components making up the dry recyclables. In the table below, the prices for recyclables as set out in the previous table have been discounted by 15% to make some provision for the volatility in prices and hence a probable income has been calculated as shown in the table below.



Table 2.26: Dry Recyclables – Probable Masses and Income from Recyclables Separated at Source (Source: TOA)

Material Assumed

composition % by mass #

Yield (tpa) at 10 tpd (22

d/m)

Prices R/t (15% discount)

Probable income (R/yr)

Paper & cardboard 49.2 1299 425 R 552,024

Glass (all colours) (crushed) 28.0 739 340 R 251,328

Metals (mainly cans) 2.5 66 1445 R 95,370

PET (No.1) 4.0 106 2040 R 215,424

HDPE (No.2) 2.1 55 1700 R 94,248

PVC (No.3) 0.0 0 0 R 0

LDPE (plastic bags/film) (No.4) 2.2 58 1530 R 88,862

Polypropylene (No.5) 0.8 21 1870 R 39,494

Polystyrene (No.6) 0.2 5 1020 R 4,852

Other (not recyclable, to RDF) 11.0 290 0 R 0

Total 100.0 2639 R 1,341,603

# from PDNA "Comprehensive report for Tygerberg RTS & MRF" for City of Cape Town, 2009

The composition of the recyclables in the separated-at-source waste collected in the Drakenstein area since 2010 to date is to a large extent reflective of the results of the Cape Town Study, 2009. Refer to Composition of Recyclables in par. 6.7.1.

7.3 RECYCLABLE S FROM WE T WA STE

In the technology proposed by Interwaste, using a VM press, it is anticipated that much of the paper and cardboard will be converted into biomass and hence find its way into the AD process. The flow diagram presented under the section on Material Balance, shows that it is anticipated that the recyclables would comprise approximately 10% of the MSW entering the press. The composition of these recyclables is not known at this stage, but for the purposes of the illustrative calculation, it has been assumed that glass and metals will find their way through the press into the recyclable stream, whereas most of the paper and cardboard, as well as plastics, would find their way into the Bio and RDF streams respectively. Since there is a perceived reluctance by convertors to purchase so-called dirty recyclables, the prices of the recyclables that then come out of the press have been discounted by 30% compared to the base prices that were established in the beginning of this section. The foregoing information has been used in the table below to determine the possible income that could be achieved based on these assumptions.



Table 2.27: Possible Recyclables from Wet Waste – Masses and Income (Source: TOA)

Material

Distribution % by mass

(originally in waste stream)

% Recovered as recyclable in AD

plant

Yield (tpa) at 130 tpd

(22 d/m)

Prices R/t (30%

discount)

Possible income (R/yr)

Paper & cardboard 20 1 343 350 R 120,120

Glass (all colours) (crushed)

5 5 1716 280 R 480,480

Metals (mainly cans) 3 3 1030 1190 R1,225,224

Plastics 15 1 343 1400 R 480,480

Organic / bio 30 42

RDF 12 30

Other (landfill) 15 18

Total 100 100 3432 R2,306,304

7.4 IMPA CT ON RECYC LABLE MA RKET

The concern has been expressed that, should the Drakenstein Waste-to-Energy facility come on-stream, the volume of recyclables generated would have a significant impact on the market for recyclables and therefore cause prices to reduce substantially. An analysis of the recycling volumes, mainly nationally but also regionally, shows that the probable volumes of recyclables that would emanate from the Drakenstein Waste-to-Energy facility would have an insignificant impact on both the regional and national recycling market and it is therefore not anticipated that these will affect the prices to any significant extent. Naturally good communication with the recycling market in order to prepare the market for the new entrant would be beneficial to reduce the probability of any short term spikes or hiccups in the local recycling market.

Table 2.28: Recycling Market Volumes (Source: TOA)

Material

Volume recycled (tpa) Probable max volume ex

Drakenstein tpa

Drakenstein as % of Western Cape

volumes * National Western Cape

Paper & cardboard 1,016,000 100,000 1642 1.6%

Glass (all colours) (crushed)

>338,000 200,000 2455 1.2%

Metals (mainly cans)

129,000 (2009)

30,000 1096 3.7%

All plastics * 248500 588 0.2%

PET (No.1) 38000 1,000

PE - HD 38000

PE - LD 100000

Polypropylene (No.5) 48000

PVC (No.3) 17000

Polystyrene (No.6) 4000

Other 3500

* Note: Plastics expressed as a percentage of National volumes














Volume reduction diagram: Tonne to Landfill per day

8. WTE FEASIBLE SCE NA RIOS

The technical analysis executed by Interwaste, the preferred bidder and its technological partners and expert consultants has resulted in a three-phased approach based on specific volume-driven scenarios that would use AD and DC as the technologies to achieve the WTE objectives determined for the project. The three phases are outlined in Table 2.29.

Table 2.29: WTE Phased Approach

Phases Services & Activities Implementation / Principal role in SPV

Implementation Timeframe

Phase 1

Operation and Maintenance of existing Wellington LS

Interwaste (principal)

As soon as possible after feasibility study accepted and commencement approved

Operation and maintenance of existing Paarl TS

O&M of Paarl MRF, the latter including the collection of waste s@s and rolling out this system to all 33 wards

Interwaste (principal) As from expiry of current contract

Phase 1

Waste haulage Paarl TS to Wellington LS Interwaste (principal)

As from expiry of current contract

Added operations at the Wellington LS, i.e. Crushing, Chipping and MRF

Interwaste (principal)

As soon as possible after feasibility study accepted and commencement approved (adding brick-making later)

(Part of phase 1 operations)

Long haul from Wellington LS to new regional LS Interwaste (principal)

If Gouda site. Timeframe depending on airspace savings on current site

Phase 2 Anaerobic Digestion Farmsecure (principal) Minimum 2 years

Phase 3 Direct Combustion Farmsecure (principal) Minimum 3 years

The four waste volume scenarios were, as discussed earlier in the report, focused on addressing the impact of regional waste realities on the WTE Project as well as the economy of scale benefits (e.g. waste reduction to landfill) that could be derived from increased waste tonnage being available for feedstock for the technologies chosen. The following table indicates the volume to landfill reduction for the different scenarios and phases.

Table 2.30: Waste Volume Scenarios vs. Volume Reduction to Landfill (Source: TOA)

The last six months actual data reflects a 50% reduction in builders’ rubble volume (also refer to Section 2, par. 5.1) and the table below reflects the effect of this change.














Volume reduction diagram: Tonne to Landfill per day: Builders rubble at 50%

Table 2.31: Waste Volume Scenarios vs. Volume Reduction to Landfill – reduced builders’ rubble (Source: TOA)

The analysis of these waste tonnage scenarios makes it clear that waste diversion via a WTE project is a tonnage/volume game. For instance, Phase 3 requires more than double the existing waste volumes but reduces the landfill volumes also by more than double. It is evident that only four of the scenarios above meet the reduction in volumes to landfill criteria and therefore this report only highlight these in the further discussions and the financial models. A summary of the net result in terms of the selected scenarios, in terms of reduced volumes of waste going to landfill and the extended life of the landfill are shown in Figures 2.19 and 2.20.



Figure 2.19: Reduction of Waste Volume to Landfill and respective increase of Landfill Lifespan for various Scenarios (Source: TOA)

740 000m³ airspace

251 months

21 years of available

740 000m³ airspace airspace

740 000m³ airspace

AIRSPACE USAGE / 194 months

EXTENDED LIFE OF LANDFILL 16 years of available

740 000m³ airspace airspace

131 months

740 000m³ airspace 11 years of available

96 months airspace


62 months airspace


airspace

Existing volumes Current reduction Additional reduction Anaerobic Digestion Direct combustion

Reduction 100% 35% 17% 15% 19%

Total reduction 0% 35% 52% 67% 86%

Total tonne /day 395 tonne /day 256 tonne/day 188 tonne /day 127 tonne/day 98 tonne/day

Total tonne /month landfill 11850 7680 5640 3810 2940

Timeline Current Sep-13 Sep-15 Sep-16



250 226.05

5257.90

464.80

5 638

Clear bag

Recycling

Crusher

Chipping

Landfill

Scenario 1 Phase 1 Tonnages

250 226.05

5257.90

464.80

3 821

1816.76

Clear bag

Recycling

Crusher

Chipping

Landfill

AD

Digestate

Scenario 1 Phase 2 Tonnages

250 376.05

5257.90

464.80

5 466

3022.31

Clear bag

Recycling

Crusher

Chipping

Landfill

AD

Scenario 2 Phase 2

Tonnages250 701.05

5257.90

489.00

2 933

5634.34

9 000

Clear bag

Recycling

Crusher

Chipping

Landfill

AD

Direct Combustion

Scenario 4 Phase 3

Tonnages

Figure 2.20: Reduction of Tonnes to Landfill as per the Scenario results (Source: TOA)



185

9. CAPITA L AND OPE RA TIONA L COSTS

9.1 CAPITA L COSTS

The Capital Expenditure (the “CAPEX”) for the various phases is detailed in Table 2.33. Phase 1 CAPEX requirements: Phase 1 CAPEX requirements remains constant with the addition of Phases 2 and 3. In other words, the capital figures provided for the various phases/scenarios will not be accumulative. Each of the phases/scenarios has been costed on its own. The CAPEX for Phase 1 will be provided by Interwaste. Table 2.32: Phase 1 - CAPEX Summary (Source: TOA)

Currently IW has included CAPEX of R1,6m for the transport to take the tailings to a new site which may still be Gouda, an approximate distance of 60km. However, this amount would not be applicable for at least 5 years and possibly much longer. It does not change the fundamental analysis of whether the project is value for money for the DLM. The CAPEX of R1,85m in respect of the clear bag collection and PTS MRF is also exposed to possible variation caused by instability of the recycling market and/or the roll-out of the clear bag system to all remaining wards not being as successful and clear cut as assumed in the volume figures adopted for the financial modelling. Phases 2 & 3 CAPEX requirements: The two technologies which will be used for electricity generation, Anaerobic Digestion (AD) and Direct Combustion (DC) will be implemented along with the rest of the project in a phased approach. For AD three scenarios exist, depending on the waste available for utilisation. DC waste feed will consist of digestate from AD, as well as the dry inorganic waste material, to make up a total of 300 ton/day:

Phase 1 Capex summary:

Bakkie with trailer x 3 600,000

Bakkie with cage x 2 400,000

Forklift 2 ton 250,000

Baler 600,000

Loader CAT 800,000

6x4 Horse Mercedes Benz 1,000,000

Walking floor trailer 800,000

Pilot Modular Crushing and Screening Plant 1,750,000

FEL 2,200,000

Tub grinder 2,500,000

MRF 4,500,000

Baler 600,000

Loader CAT 1,200,000

Forklift 3 ton 400,000

CAT 816 Compactor 1,500,000

ADT Dumper Bell 2,000,000

Excavator PC 200 1,250,000

Watercart 400,000

6x4 Horse Mercedes Benz 800,000

Walking floor trailer 800,000

Civil work 10,000,000

34,350,000



i. Scenario 1: Drakenstein municipality: 130 ton/day total waste, 68 ton/day organic waste; ii. Scenario 2: Drakenstein and Stellenbosch municipalities: 230 ton/day total waste, 114

ton/day organic waste; iii. Scenario 3-4: Drakenstein and Stellenbosch municipalities and Interwaste: 430 ton/day

total waste, 194 ton/day organic waste; iv. DC waste feed will consist of digestate from AD, as well as the inorganic waste material, to

make up a total of 300 ton/day.

Capital Cost estimates are in the -10% to +15% range, the estimates given are by no means fixed and firm and subject to complete bankable feasibility study and detailed engineering by selected EPC contractors. A major portion of AD CAPEX will comprise of a VM Press, an important component to separate organic and inorganic waste material which will form part of a MRF system.

i. AD Scenario 1:

Table 2.34: AD Scenario 1 CAPEX (Source: TOA)

VM Press R 20 000 000

Structural/Civil R 9 996 465

Engine R 5 625 064

Mechanical R 8 272 820

Site Survey, Geotech. R 3 170 368

Development Cost R 7 875 317

Contingency R 4 059 967

Total CAPEX R 59 000 000

ii. AD Scenario 2:

Table 2.35: AD Scenario 2 CAPEX (Source: TOA)

VM Press R 20 000 000


Engine R 9 907 519


Site Survey Geotech R 3 171 622




iii. AD Scenario 3-4:

Table 2.36: AD Scenario 3&4 CAPEX (Source: TOA)

VM Press R 20 000 000


Engine R 17 976 632


Site Survey Geotech R 3 455 682






Table 2.33: All Phases/Scenarios - CAPEX Requirements (Source: TOA)

DRAKENSTEIN INTERWASTE PPP

CAPEX REQUIREMENTS

Scenario 1

Drakenstein Volumes alone Interwaste Farmsecure Total CAPEX Interwaste Farmsecure Total CAPEX Interwaste Farmsecure Total CAPEX

Clear Bag Collection & PTS Mrf 1,850,000 1,850,000 1,850,000 1,850,000 1,850,000 1,850,000

PTS Management 800,000 800,000 800,000 800,000 800,000 800,000

PTS Waste Transport 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000

Wellington Crusher Plant 3,950,000 3,950,000 3,950,000 3,950,000 3,950,000 3,950,000

Wellington Brick Plant - - - - - -

Wellington Chipping and Comsposting 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000

Wellington MRF 6,700,000 6,700,000 6,700,000 6,700,000 6,700,000 6,700,000

Wellington Press - - 20,000,000 20,000,000 20,000,000 20,000,000

Wellington AD - - 39,000,000 39,000,000 39,000,000 39,000,000

Wellington DC - - - - - -

Wellington Landfill Management 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000

Wellington Waste Transport (new site) 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000

Wellington Civils 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000

34,350,000 - 34,350,000 34,350,000 59,000,000 93,350,000 34,350,000 59,000,000 93,350,000

Scenario 2

Drakenstein and Stellenbosch Interwaste Farmsecure Total CAPEX Interwaste Farmsecure Total CAPEX Interwaste Farmsecure Total CAPEX


PTS Management 800,000 800,000 800,000 800,000 800,000 800,000





Wellington MRF 6,700,000 6,700,000 6,700,000 6,700,000 6,700,000 6,700,000


Wellington AD - - 52,000,000 52,000,000 52,000,000 52,000,000

Wellington DC - - - - - -




34,350,000 - 34,350,000 34,350,000 72,000,000 106,350,000 34,350,000 72,000,000 106,350,000

Scenario 4Drakenstein ,Stellenbosch and Interwaste

additional Interwaste Farmsecure Total CAPEX Interwaste Farmsecure Total CAPEX Interwaste Farmsecure Total CAPEX


PTS Management 800,000 800,000 800,000 800,000 800,000 800,000





Wellington MRF 6,700,000 6,700,000 6,700,000 6,700,000 6,700,000 6,700,000


Wellington AD - - 79,000,000 79,000,000 79,000,000 79,000,000

Wellington DC - - - - 300,000,000 300,000,000




34,350,000 - 34,350,000 34,350,000 99,000,000 133,350,000 34,350,000 399,000,000 433,350,000




iv. DC Scenario 4: Table 2.37: DC Scenario 4 CAPEX (Source: TOA)

Equipment R 112 418 765

Civils and Architecture R 22 483 753

Piping and Insulation R 38 222 380

Electro-mechanical R 35 974 005

Development Costs R 15 580 524

Erection and Installation R 15 738 627

EPCM R 25 856 316



In summary: Table 2.38: Summary of CAPEX Requirements (Source: TOA)

Total CAPEX

Net Electrical Output MW R/MW

AD Scenario 1 R 59 000 000 0.91 R 64 835 164

AD Scenario 2 R 72 000 000 1.51 R 47 682 119

AD Scenario 3 R 99 000 000 2.39 R 41 422 594

DC Scenario 4 R 300 000 000 8.28 R 36 231 884

As can be seen, economy of scale plays a big part as the price per MW decreases substantially as the size increases. The cost compares well with that of a coal plant. To date the Medupi cost is R85m/MW and Eskom’s price is approximately R100m/MW.

9.2 BASIS OF ESTIMA TE

Phase 1: The CAPEX required for Phase 1 forms mainly part of Interwaste’s day to day operations and will be sourced from its existing suppliers. It is the intention to purchase new CAPEX for the project. Interwaste do however have a pool of yellow equipment from which it can draw yellow plant and may from time to time make use of these resources. The crusher and screening plant is a modular plant and the quotation was supplied by Pilot Chrushtec (SA) (Pty) LTD. It is the intention to make use of MRF technology supplied by Akura. Phases 2 & 3: For the AD and DC plants quotations were requested from different companies and went through a process of assessment, after which the most suitable option was selected based on price versus efficiency. The companies that provided preferable quotes for the Drakenstein AD project included the Netherlands based DB Technologies, which also supplied the VM Press quote, and GHD, a global company with roots in the USA. For the Drakenstein DC project the preferred quote was received from K.K. Incinerator Engineering & Consulting (KKIEC), a Korean company who are experts in the field with projects that could substantiate it.



9.3 OPERATING COSTS

Phase 1: The operational costs for Phase 1 change slightly in every scenario due to changes in waste volumes handled. Included below is the operational cost for Scenario 4. Please note all the interest and depreciation is included in the Vehicle – Fixed line. Table 2.39: Scenario 4 – Operational Costs (Source: TOA)

DRAKENSTEIN CONSOLIDATED SCENARIO 4 PHASE 1

Total YEAR 1COST OF SALES -19,089,782

Landfill -

Waste treatment -

Stock adjustments -

Vehicle -12,399,952

Fixed -6,325,641

Fuel -3,601,630

Maintenance -2,301,292

External transport -

Tyres -144,989

Other -26,400

General operating -48,000

Bins & workshop -163,200

Payroll -6,478,630

Wages -5,665,973

Allowances & benefits -475,826

Payroll expenses -336,832

Subcontractors -

Depreciation -

GROSS PROFIT -12,183,702

OTHER INCOME -

OPERATING EXPENSES -2,027,563

General administration -504,049

Printing & stationary -55,200

Management & consulting -

ISO -54,000

Property -942,600

Communication -99,000

IT & network -

Advertising -10,800

Payroll -361,914

Wages -

Salaries -359,514

Allowances & benefits -

HR - personnel -2,400

Other/Franchise fee -

Interest & finance -



Phases 2 & 3: The following operational expenses have been built into the AD model:

Table 2.40: AD Model – Operational costs (Source: TOA)

Salaries No Monthly Rate Annual Rate

Plant Manager/Supervisor 1 R 40 000 R 480 000

Millwright 2 R 20 000 R 480 000

Operator 12 R 10 000 R 1 440 000

Maintenance 5% of mechanical CAPEX excluding engine

Waste Transport R 0

Water R 0

Engine Maintenance R 0.17/kWh

Service Agreement Fee 1% of total CAPEX

Other Operating Expenses 25% of salaries and maintenance

Audit and Verification Fees R100 000/annum

The following operational expenses have been built into the DC model:

Table 2.41: DC Model – Operational costs (Source: TOA)

Salaries No Monthly Rate Annual Rate

Plant Manager/Supervisor 1 R 50 000 R 600 000

Foreman/Technician 4 R 30 000 R 1 440 000

Millwright 4 R 20 000 R 960 000

Operator 16 R 10 000 R 1 920 000

Maintenance 5% of plant and equipment costs

Biomass Conditioning R 1.6/ton

Waste Transport R 0, as the DC project will not carry transport costs

Water R8/m3

Engine Maintenance R 0.17/kWh

Service Agreement Fee 1% of total CAPEX

Other Operating Expenses 25% of salaries and maintenance

Audit and Verification Fees R100 000/annum

9.4 OPERATING COSTS ASSU MPTIONS

Phase 1:

Inflation: Assumed 6% increase per annum unless otherwise stated. Fuel: Representing between 12% - 14% cost to revenue (including Gate fees). Assumed fuel price

of R12 per litre. Interest: calculated at 10% per annum. Debt payment period: Calculated at 4 years.



Residual value64

: 30% of cost price. Depreciation policy: Calculated over a straight line. Annual increase equal to inflation rate to

compensate for replacement of assets during the PPP period. Maintenance: Calculated on a rate per hour or kilometre used basis. Plant and vehicle operating hours/ kilometres: Based on the suppliers specifications and

operational experience of hours used to manage the required tonnage per the tonnage sheet. Labour: Representing 27% cost to revenue (Including Gate fees). Increase at inflation rate.

Phases 2 & 3: Salaries: The salary estimates are based on existing plants and knowledge of typical labour requirements of plants of the same size. Maintenance: The percentage of maintenance is conservative and derived from supplier quotes. Biomass Transport: Transport costs will not be carried by the AD or DC plants, but instead will be carried by Interwaste’s existing operations by that time. Water: There will be no water costs for AD, as all necessary water will be obtained from sewage waste. The DC plant will however require fresh and clean water daily, which will be paid for at the going rate. Engine Maintenance: The amount used for engine maintenance is a guideline as derived from supplier quotes. Service Agreement Fee: The rate is as per company policy. Other operating expenses: Such as administration, out-sourcing, consulting fees, office supplies, telephone etc. Audit and Verification Fees: As per company standard.

9.5 ELEC TRIC AL POWE R

Phases 2 & 3: The AD and DC plants will consume some of the electricity generated by the plant itself. A summary of the parasitic load can be seen below: Table 2.42: Electrical Power Output (Source: TOA)

Gross Output

MW Net Output

MW Parasitic Load

% Parasitic Load (kWh)

AD Scenario 1 0.97 0.91 6% 480 000

AD Scenario 2 1.59 1.51 5% 640 000

AD Scenario 3 2.50 2.39 4% 880 000

DC 9.60 8.28 16% 10 560 000

Once again, the economies of scale are evident as the AD plant increases in size.

64

Residual value refers to the value of an asset (how much it is worth) at the end of its lease, or at the end of its useful life. Residual

value is determined by the financial institution giving the lease for plant or equipment and is thus an important factor in determining the monthly lease payments.



10. CONC LUDING REMA RKS

It is important to note that in order to ensure maximum diversion of waste from the landfill, it is necessary to import waste from adjacent municipalities or sources to warrant the establishment of the AD and DC plants. There is therefore an economy of scale that can be achieved by bringing in the additional wastes. The crucial factor that determines the project’s viability from a financial perspective is the tipping/gate fee that will be charged to the DLM. Factors that apply when assessing the tipping/gate fee in terms of value for money include, but are not limited to the following:

Cost of remaining airspace in existing landfill, a key factor being the avoided landfill costs Cost of compliance (landfill) Cost of replacement of landfill – all CAPEX costs including cost of land (a new landfill should

ideally have a lifespan of minimum 50 years) Cost of operations and maintenance of the landfill (ring-fenced costs) Cost of operational equipment – CAPEX Cost of staff and management in all associated operations Costs of O&M, staff, equipment etc. for the composting operations Costs of O&M, staff, equipment etc. for the C&D waste crushing operations Costs of operations and management of the Paarl MRF and TFS Costs of transport / haulage between Paarl and Wellington



SECTION 3: SERVICE DELIVERY MECHANISM & PROVIDER

1. INTRODUC TION

As Interwaste has already been appointed as the service provider for the WTE Project and the study has hitherto adequately outlined the DLM’s incapacity (financial, technical, human resources and operational) to implement a WTE Project without utilising an external mechanism, an institutional delivery options analysis comparing internal and external options as required in the PPP Guidelines would not serve any purpose. Given the involvement of municipal services, the section 78(1) assessment did such an analysis. Section 4 of this study does a value comparison of the internal vis-à-vis external mechanism as far as it concerns the municipal services included in the project.

2. SERVICE DE LIVE RY MEC HANISM

2.1 LEGISLATIVE REFE RE NCE

External mechanisms allowed for in the MSA consist of service delivery agreements with any of the following: a municipal entity including a private company, service utility or multi-jurisdictional service utility; another municipality, i.e. a public-public partnership through non-competitive bidding and a

service delivery agreement; a national or provincial organ of state, i.e. a public-public partnership through non-competitive

bidding and a service delivery agreement; a private institution, entity or person with relevant skills and experience, i.e. a public-private

partnership through a competitive bidding process and a service delivery agreement or whichever legal contractual arrangement is necessary.

Within the context of the external service delivery mechanisms allowed for municipalities there are only two options that could be applicable, i.e. the various forms of a municipal entity and a PPP since there is clearly no role to be played by any other municipality or organ of state. It is possible to rule out a service utility and a multi-jurisdictional service utility as these would be owned by a municipality or municipalities. If the idea was for the DLM to take up any shares in the SPV for the WTE facility (explained below) the external option available would be a private company. However, the Municipality is not allowed to acquire shares in a private company unless the majority of such shares are owned by the municipality and/or other organs of state but not by the investor/operator. This is obviously not an option for this project. There is often confusion in respect of when a contract constitutes a PPP and when not. In this regard it is useful to refer to the definition of a PPP as extracted from the PPP Regulations – refer to Section 1. The WTE project would be a PPP because it answers to the criteria of the PPP definition, namely:

the external service provider would both perform a municipal services and/or function on behalf of the Municipality and in the process acquire the management and use of municipal property, for its own commercial purposes;

the service provider would assume substantial financial, technical and operational risks; and the service provider would receive a benefit from performing the municipal service and/or

function and from utilizing the municipal property.



2.2 STRUC TU RE OF THE PPP

Interwaste will establish a Special Purpose Vehicle (“SPV”) for the WTE facility that will act as the Operational Entity and be registered as a separate company of which the final composition or structure will be determined by the funding mechanism employed and the levels of equity taken up by the various partners. The effective external delivery mechanism will thus be a PPP of 20 years with the Interwaste SPV albeit the capital expenditure and long term scope of the project might make 25 years more appropriate. Refer to Figure 3.1. Figure 3.1: Primary SPV (Source: IW)

The partnership between the DLM and the WTE Operational Entity would be regulated through a PPP agreement or more than one PPP type agreement depending on how the WTE project unfolds. The DLM would not dictate the shareholding of the various parties in the Interwaste SPV apart from needing the assurance and proof that Black Economic Empowerment (“BEE”) requirements are met and the Entity has the financial security, the technical expertise and the operational know-how to fulfil the project objectives. Interwaste will be responsible for the functions as indicated in Figure 3.1, Farmsecure will be Interwaste’s WTE technology partner for the AD and DC phases of the project with the partners entering into a back to back Service Level Agreement (“SLA”) also for 20 years. Farmsecure in turn would also establish a SPV with their various technology partners consisting of the suppliers of the VMpress, and the EPCs for the AD and DC plants. It is essential that there be two separate SPVs because Farmsecure would take transferable guarantees and funding and thus needs to be a standalone entity. It is not impossible that the AD and DC plants could



end up being separate SPVs in their own right with their own partners because often technology partners are keen to take equity in a plant. Between Interwaste and Farmsecure there will be off-take agreements for the waste supply to the AD and DC plants. It appears to be a complex portfolio of contractual arrangements which illustrates the complexity of the project itself. However, for the DLM these complexities will all be encapsulated in its contractual arrangements with an overall accountable party namely Interwaste.

3. SERVICE PROVIDE R

3.1 PRINCIPA L SERVICE PROVIDE R

Through a legally compliant procurement process that stretched from August 2008 until March 2012 Interwaste was formally accepted by the Municipality as its preferred private partner for the WTE project. The Interwaste Holdings Company is listed on the Johannesburg Stock Exchange under Small Stocks. The holdings group consists of a number of divisions including haulage, landfills, recycling, organics composting, etc. Refer to Figure 3.2. Figure 3.2: Interwaste Holdings and its Subsidiaries (Source: IW) The company is involved in a number of related initiatives, including Easy-bin to promote recycling, the HazPak which focus on transporting small volumes of hazardous waste, e.g. discarded medical waste or old batteries, in a safe way via DHL. The company is positioned to offer a portfolio of environmental management services and its business philosophy is focused on offering a one-stop solution to clients. The following is a fact sheet of Interwaste:

Holistic Waste Management through the consistent implementation of the Hierarchy of Integrated Waste Management



Established 1989 Operational Experience in Excess of 23 Years National Footprint and expanding to Mozambique Capital Invested in Excess of R 350 000 000 250 + Units of Specialized Waste Handling Equipment Current Logistics Capable of Handling 27000m³ of Waste Daily, managing 32 landfills all over SA Level 5 BEE Contributor CIDB 7CE which means the company is registered to tender for civil contracts of around R35m ISO1400I Accredited and busy with OHSAS 18001 accreditation on some landfills Fully Compliant Service Provider

The assessment of Interwaste as conducted during the RFP process indicated that the company has the financial ability and access to funding; the technical skills and expertise and the operational experience to take over the management, operation and maintenance of the municipal services and activities which form part of the project. The company does not specialise in waste-to-energy but Farmsecure, its technological partner in the SPV has a good record of such expertise. Financial risk in projects is inter alia mitigated through the receipt of a bank rating letter from the contractor’s bank to the effect of declaring the company good for the business and amount involved. However, to obtain such a letter the bank very specifically needs the amount involved, the period of risk or way of business and such cannot be provided at this stage. Upon request, Interwaste provided the transaction advisors with a bank letter of reference declaring it as a customer of good standing and as the project progresses to the point of firm figures, the mentioned bank rating will be requested. The transaction advisors also obtained the preliminary financial results of Interwaste Holdings Limited for the year ended 31 December 2012 and is satisfied that based on all important financial parameters, the company’s financial situation is sound and managed well. Over the past financial year, the main revenue improvements were in the waste management and landfill management businesses. Also evident from the financial report is the group’s achievement of completing a number of projects and meaningful progress on others indicating the commitment, capacity and drive within the group – elements which are of great importance to this project also. Another capacity enrichment development of the group was to acquire Enviro-Waste which is posed to add to the revenue and strengthen Interwaste due to the many synergies that exist.

3.2 TECHNOLOGY PA RTNE R

The transaction advisors obtained information of Farmsecure and did a brief though thorough analysis of the psyche and capacities of the company with respect to this project. Farmsecure is a R6bn agricultural giant, employing nearly 5000 people in 40 business units operating across SA. As part of its business strategy and specifically due to it being a huge input cost in its operations, energy has become very important to Farmsecure and has led it to look at technologies which it can implement to create energy. This business objective led it to become a partner for biomass plants for the big sawmill companies and the majority of the waste management companies. Strictly speaking Farmsecure is a risk-averse company and does not get involve in a project unless they have an 80% certainty of the viability of the project. It then adopts a holistic perspective of energy projects and thus takes these from an initiation stage through the development stage and eventually being responsible for its operation and maintenance. Thus Build, Own, Operate and Transfer (“BOOT”) projects with the assets after the contract duration being earmarked for transfer to the municipality.



Figure 3.3: Farmsecure and its Subsidiaries (Source: IW)

Simply put, Farmsecure sees itself as an energy asset originator and because it puts own money into a project and runs all the processes including statutory authorisations, etc. itself, it controls the whole process and owns the value chain thus taking full responsibility for the project and its various technologies. Figure3.4 illustrates the processes and synergies of the Farmsecure Energy value chain. Figure 3.4: Farmsecure Value Chain (Source: IW)

Currently Farmsecure has 14 IPP applications in at NERSA for their various projects and two CDM Programmes of Activity with the UNFCCC in terms of which DLM type projects with CER trading potential could be registered. Its conservative approach to risk is largely due and made easier, it is believed, by its role as part financier of its own projects. For instance, while the Drakenstein waste is perfectly suited for gasification (one of the technologies investigated) the latter is still too high risk and thus not pursued for this project. The transaction advisors obtained the Condensed Audited Financial Statements of Farmsecure Holdings (Pty) Ltd Group for the year ended 31 December 2011 and is satisfied that based on all important financial parameters, the company’s financial situation is

sound and managed well. It is clear that Farmsecure is experiencing year on year explosive growth and would not have a problem to provide own equity and acquire the percentage debt that it would need to make the project work, provided obviously that its financiers are presented with a bankable feasibility study.



Farmsecure certainly has the appetite for this project and the financial, technical and operational capacity and expertise of Farmsecure to deal with a project of the size and nature of the DLM WTE Project cannot be doubted. The AD and DC technologies have the track record required and very importantly, Farmsecure has a solid set of criteria and will, based on the technical analysis performed, be very careful and risk-averse in their choice of EPC partners. Of importance to the DLM would be the BEE compliance of the Farmsecure SPV. In this regard it needs to be noted that various of the statutory authorisation processes to be completed by Farmsecure requires full details of its BEE status and are hard-wired in respect of BEE compliance, e.g. the NERSA license. The manner in which both Interwaste and Farmsecure is conducting their finances is a risk mitigating factor but the test for the DLM is still if the project provides value-for-money for the Municipality.

4. WTE CONTRACTU AL & STATU TORY ARRA NGEME NTS

The WTE PPP contractual arrangements of 20-25 years between the DLM and Interwaste/Farmsecure could either take the form of one contract with different phases of implementation or an overarching primary agreement of 20-25 years with two or more secondary contracts addressing different aspects and, if necessary, of different durations depending on the circumstances. Figure 3.5 provides a diagrammatical outlay of the Contractual and Statutory Arrangements.

4.1 PRIMA RY AGREEME NT

A Primary Agreement (“PA”) is preferable and would stipulate all the contractual arrangements to follow and the important terms and conditions as well as timeframes to be met by these contracts thus providing the security that the WTE Entity needs to commence with its statutory authorisation processes and its technology supply contracts while at the same time leaving space for these contracts to be finalised at a more opportune time, e.g. the PPA during the 2

nd phase of implementation of the WTE project, e.g. in

2014/5. The supplementary contracts and statutory authorisations/licenses would all become annexures to the PA. The main obligations of the DLM would be the consistent delivery of its entire waste stream to the WTE Facility and punctual payment of the tipping fee. The main obligations of Interwaste would be reduction of waste to landfill and effective operations and maintenance of the municipal infrastructure to the effect that the lifespan of the site could be extended; reclamation and recycling of waste; energy supply and, if so elected by the DLM, rehabilitation of the Wellington LS at the additional tipping fee. The establishment of a WTE-AD plant during phase 2 of the project and a WTE-DC plant in phase 3 of the project would significantly broaden the Interwaste SPV scope of risk given the additional feedstock that would be required, i.e. from Stellenbosch and/or other clients of Interwaste. However, Interwaste believes that it would be possible for them to source the additional waste volumes and has provided the transaction advisors with a written preliminary commitment thereto. For the DLM it would be important to ensure its own potential risk is contractually secured. Once all secondary contracts are in place it would be necessary to revisit the PA and amend it in accordance with the practical implementation details of the project.



Figure 3.5: Contractual and Statutory Arrangements

PRIMARY

AGREEMENT

Drakenstein

Municipality

Payment

Committed

waste streamInterwaste

Reduction

Recycling

Increased lifespan

Waste-to-Energy

(rehabilitation)

Approval

Departments

Contractual & Statutory Arrangements

NERSA

Farmsecure

(IPP)

CIDB- O&M of WLS,

MRF@WLS,O&M of PTS,

Chipping, Composting,

Crushing, Brick-making

- Paarl MRF

- Haulage

WTE-AD

----------------

WTE-DC“BOOT”

PPA

Eskom

Land Lease

C&UOS

WML

S&EIA

AEL

WUL

adjustment to account

for wheeled energy

Supplementary

proof of licenses required

feedstock

Stellenbosch

Interwaste clients

requires proof of NERSA application & other

Licenses/Authorisations or applications

IPP – Independent Power Producer

PPA – Power Purchase Agreement

C&UOS – Connection and Use-of-System

proof of agreements

required for NERSA license &

Eskom application

5/15/2013

4/30/2016

1/1/2014

1/1/2015

1/1/2016WML – Waste Management License

S&EIA – Scoping & Environment Impact Assessment

AEL - Atmospheric Emissions License

WUL – Water Use License



200

4.2 PHA SE 1 CONTRAC T

A CIDB type contract including the SOW already issued by the transaction advisors to Interwaste would be used as the basis of the agreement that would govern the operation and maintenance of the Wellington LS, the Paarl TS, the Paarl MRF including the collection of the clear bags, the MRF to be established at the Wellington LS, all chipping, crushing, composting and brick-making activities and the transport of waste from the Paarl TS to the Wellington LS. The contract would transfer significant technical and operational risk to Interwaste and accordingly appropriate checks and balances and penalties would need to be built into the contract.

4.3 PHA SE 2 AND 3 CONTRA CTS A ND STA TU TORY PROCE SSES

The financing, design, construction, ownership, management, operation and maintenance of the WTE-AD and WTE-DC plants would be regulated through one or two Build, Own, Operate and Transfer (“BOOT”) type contracts, as negotiated. The PA would address the land lease of the ±6,5ha on which the WTE Facility would be built but most probably it would need to be also regulated through a separate land lease agreement or included in the WTE-AD/DC contracts, depending on what is required by the project. Proof of the land lease being in place would be needed for the NERSA License Application and the Eskom C&UOS Agreement and most probably for all the other authorisations/licenses. The PPA would also be needed for the NERSA and Eskom applications and so would proof of all the other license/statutory authorisations be required to process these applications. The secondary contracts and the license/authorisations processes are thus completely interlinked and dependent on each other. The finalisation of all the authorisations/licenses would be suspensive clauses in the PA and as soon as the PA is finalised these processes would all commence and run in parallel even though for instance the AEL is only needed for the DC Plant. The only process about which clarity must still be reached is if there would be a need for a WUL.

The C&UOS Agreement would, subject to the approval from NERSA, regulate the ‘wheeling’ of energy and the Supplementary Agreement between Eskom and the DLM would serve to adjust the DLM’s account with Eskom to take into account the ‘wheeled’ energy but the IPP sourced energy would be at grid parity thus the DLM paying for it according to the megaflex tariff of Eskom.

4.4 INTE RWA STE SPV CONTRAC TS & AUTH ORISA TIONS

The Interwaste SPV including a BEE partner and Farmsecure, its technology partner, and the Farmsecure SPV including its financiers and possibly technology suppliers would require a complex set of contractual arrangements with the risks that come with multi-party involvement and substantial financial investment but the WTE parties are not new to these kind of arrangements and would not consider the project bankable unless they have completed further feasibility studies as required e.g. by NERSA, and are satisfied that risks are sufficiently mitigated to enable a successful project. The DLM will not be involved in the SPV’s contracts except for monitoring such if compliance with a suspensive clause in the PA is needed and putting in place the contract monitoring structures and processes to enable identification of potential red flag situations that may affect the DLM. The PA would include definite performance criteria, timeframes, milestones and substantial performance guarantees to mitigate the DLM’s risks.



4.5 QUALIFYING CRITE RIA A ND OBJEC TIVES

The various contractual arrangements have to comply with certain criteria and achieve specific objectives to be acceptable and sustainable. In terms of the MSA, MFMA and PPP Regulations, the WTE PPP agreement/s between the DLM and the Interwaste SPV must deliver a set of arrangements that:

is affordable transfer significant technical, operational and financial risk; and will provide value for money.

According to the procurement and selection rules of an IPP, criteria to be met include:

environmental acceptability (i.e. the S&EIA); land security; commercial robustness; economic development including job creation, the involvement of historically disadvantaged

individuals, community development and economic spinoffs such as the localisation of components and solutions;

financial viability; technical competence and capacity.

Section 34 of the ERA sets out the requirements to be met by a PPA and related activities as:

value for money; appropriate technical, operational and financial risk transfer to the generator; effective mechanisms for implementation, management, enforcement and monitoring of the

PPA; satisfactory due diligence in respect of the buyer’s representative and the proposed

generator in relation to matters of their respective competence and capacity to enter into the PPA; and

the buyer (DLM) to ensure legislative compliance and ring-fencing of the revenue approved or allocated by Nersa or its successor, i.e. ISMO.

The NERSA application would inter alia require the following key information:

Generation station details including type, capacity, commencement, year forecast, efficiency, useful life, etc.;

Fuel supply details including supplier and contractual agreements with primary fuel supplier Maintenance and availability forecasts; Details of energy off taker including PPA with proof that it is the least cost solution to the

customer; Network connection details including connection point, voltages, wheeling arrangement; Financial information including current financial statements, most recent audited accounts;

forecasting of sales, operational expenditure, revenues and cash flow; Human resource information regarding support staff and operational staff for the generation

station; Permission from government departments including the S&EIA, the WML, the AEL and WUL; BBBEE details of applicant; Financial model for review by Nersa; Feasibility study document; and Other supporting documents including a process flow diagram.

An Implementation Agreement between the IPP and the DoE would have aspects such as BEE and risk management hard-wired into the agreement.



If a CDM agreement is feasible, a priority for the DNA is to ascertain that the potential CDM project will assist in achieving sustainable development goals which in SA which have broadly been determined as: Economic – the economic impact of the project on: foreign exchange requirements; foreign

direct investment; cost of energy; existing economic activity in the area; enabling appropriate technology transfer; local skills development and the replication potential of the project.

Social – the alignment with national, provincial and local development priorities; its contribution to sectoral objectives, e.g. the NCCR Waste Management Flagship Programme; its impact on social equity and poverty alleviation including basic service delivery and access, the provision of social amenities, employment levels, etc.

General – project acceptability, i.e. are the distribution of the project benefits must be reasonable and fair.



SECTION 4: VALUE ASSESSMENT

1. INTRODUC TION

Initially the WTE Project focused on those municipal waste support activities that could be implemented to divert waste from the landfill and the generation of green energy. In this regard the RFP stated the following three objectives, i.e.: the generation of renewable energy from municipal solid waste; the reduction of municipal solid waste to landfill; and the development of a CDM project in order to sell the CERs achieved by the generation of

electricity from non-fossil fuel. The bids received covered all these aspects but the two most suitable bids added the operation of the Wellington Landfill Site and the Paarl Transfer Station. It led to the DLM having to consider the feasibility of adding these to the WTE Project. Thus in the first part of this study as documented in Section 1 of this report, considerable attention was paid to analyse the operation of the Wellington Landfill and the other current waste services and activities related thereto. The aim was to ascertain that the legally prescribed criteria for adding these municipal services to the WTE Project were served and that substantial reason existed for combining the mix of municipal services and activities that make up the WTE Project. The WTE Project can literally be ring-fenced on the ground with Interwaste being responsible for the full spectrum of services/activities which would form part of the WTE Park, e.g. recycling, landfilling, chipping, crushing, haulage, AD, DC, etc. In terms of the WTE Project the sum of the parts can thus become much more than the parts measured on its own and the proposed payment mechanism is based on the whole, i.e. for every single ton coming into the Facility irrespective from where or how, there will be a Rx/ton cost. Measuring and assessing the feasibility of the WTE Project would still be based on the initial objectives but an added factor is the effective operation of the Wellington LS in accordance with its permit conditions.

2. TYPE OF ASSE SSME NT

In assessing the feasibility of the WTE PPP the three most important criteria to be applied are whether the option is: Affordable, i.e. whether the project costs, over the whole duration thereof, can be

accommodated within the Municipality’s budget given its existing commitments; Provides value-for-money as a necessary condition for PPP projects, implying that delivery of the

services by Interwaste would result in a net benefit to the Municipality as defined in terms of cost, price, quality, quantity or risk transfer or a combination of these; and

Appropriate transfer of risk from the Municipality to Interwaste. In order to answer these questions a value assessment must be done. The type of value assessment is determined by the nature of the project, the capacity of the Municipality and the circumstances of the project. It is argued that the output expected from the WTE project cannot be assessed through a Public Sector Comparative (“PSC”)

65 model due to the Municipality never having implemented these waste support

activities, i.e. the recycling activities, waste haulage, AD, DC, etc. and there is no current model composed of all these components in SA to serve as a benchmark for the project. For some of these,

65 A PSC Model is the costing of a project with specified outputs with the public sector as the supplier. Costs are then based on

recent, actual costs of a similar project, or best estimates.



e.g. the MRF, comparability of certain cost components is possible but not so valuable given that it would not be implemented as a standalone system.

The DLM has years of experience in delivering waste treatment and disposal services, specifically the operation and maintenance of the Paarl TS and the Wellington LS so the costs of the DLM vis-à-vis that of Interwaste in respect of these municipal services were compared. The result was used as a basic input costs for the financial modelling. However, within the broader context of the ring-fenced WTE project the real VfM of the entire WTE project is locked up in the avoided costs due to the diversion of waste to landfill and the generation of green energy.

As part of the revised Technical Options Analysis, Interwaste was advised to do the total costing and modelling of the phases and feasible scenarios that crystallised out based on the agreed project objectives and SOW as provided to enable the development of an External Reference Model (“ERM”)

66.

Based thereon, it was possible to carry out a Simplified Value-for-Money Assessment by assessing whether VfM drivers were demonstrated in the ERM. Simultaneously the affordability of the various phases/scenarios of the WTE Project for the DLM was assessed.

3. EXTERNA L RE FERE NCE MODE L

An ERM is normally a hypothetical model which costs the output specifications based on an assumed private party perspective. In the case of the WTE Project the models are real, have considered the expected revenue and expenditure, the variables and the risks albeit still having to make assumptions due to the flexible set of factors that must be accommodated, e.g. waste volume, waste source, landfill airspace, timeframes, etc.

3.1 EXTERNA L OPTION & VA RIABLE S

The establishment of the WTE Park would be executed by an SPV through a BOOT type of PPP of 20 years. The final composition or structure of the SPV will be determined by the funding mechanism employed and the levels of equity taken up by the various partners. A number of economic and financial variables impact on the costing of the ERM. These were taken into account in the financial modelling. Relevant risks were identified and quantified. A factor that would have a definite impact but must at this point in time be treated as an uncertainty is the exact lifespan of the current Wellington LS with the worst and best case scenarios at 5 to 20 years of available airspace depending on the speed of putting effective landfill operations and WTE solutions in place to divert maximum volumes from the landfill. If, as IW envisaged in a best case scenario, the lifespan can be extended to 20 years, the avoided landfill costs for the DLM and the ROI for IW would be substantial.

3.2 PROJEC T FU NDING

The CAPEX of the respective phases and scenarios was outlined in Section 2 of the report. Phase 1: The CAPEX for Phase 1 will be financed through Interwaste’s existing finance facilities and it is not likely that additional facilities will be required. Interest rates are negotiated on an individual asset to asset basis but an estimated interest rate of 10% over 4 years was assumed in the financial models.

66 An ERM is a costing of a project with the identical specified outputs than used for the public sector but with the private sector

as the provider.



Phases 2 and 3: In respect of Phases 2 and 3, the AD and DC operations, the Plants will be financed on a non-recourse basis from the free cash flow of the plant. Financing will commence in a 70:30 debt to equity ratio. 70% of the total project capital costs will be debt financed from a financial institution such as Nedbank or the Industrial Development Corporation (“IDC”) at an interest rate of prime + 2%. Although the prime rate at the moment is 8,5%, a conservative approach was followed throughout the modelling and budgeting process, therefore 9% plus 2% was modelled on. The remaining 30% will be financed by equity investors, venture capitalists or partners. The debt repayment will be the largest cash outflow for both WTE projects and availability of cash is a definite risk factor. As previously indicated in the study, the capital cost estimates used by Interwaste/Farmsecure, i.e. in the -10% to +15% range are by no means fixed and firm and still subject to a complete bankable feasibility study and detailed engineering by selected EPC contractors.

3.3 CASH FLOW

Phase 1: The cash flow for Phase 1 of the project will comprise of the operational cash expenses discussed in Section 2, an overhead charge calculated at 11.5% of external revenue, and two primary revenue streams as discussed below, i.e. gate fees and electricity sales. Based on a further analysis of these scenarios the revenue streams modelled by Interwaste would be the following:

i. Gate fees: The primary source of income will be gate fees per ton of waste entering the site. The

Gate fee analysis reflects the required gate fee for the different feasible scenarios and phases. The following assumed external party tipping fees for Scenario 2 to 4 were taken into account:

Stellenbosch R200 per ton MSW

Interwaste R100 per ton MSW

ii. Other secondary and potential sources of revenue: Revenue from chipped greens, the sale of recyclables and sale of aggregate have been calculated in the cash flow and financial models. It comprises between 17% – 27% of total revenue.

The gate fees will be paid into the Interwaste SPV from where the SPV will pay out the gate fee for diversion required for Phase 2 and Phase 3. Phases 2 & 3: The cash flow of the WTE facilities will comprise of operational cash expenses as discussed above and two primary revenue streams as discussed below: i. Electricity Sales: The selling of electricity will be the primary source of revenue. The electricity

selling price as used in the model is based on Eskom’s Megaflex tariffs, since electricity will be sold to the DLM. The latter offers a risk mitigation factor as no PPA is required with a private company but it also restricts the selling price to be fixed at Megaflex tariffs which cannot be negotiated. The electricity selling price is therefore considered to be at grid parity. Eskom opened its MYPD5 proposal for comment by NERSA and the public at the end of October 2012. The MYPD5 proposed a 16% annual increase in electricity price (currently at R0,62/ kWh) for the next five years but only an annual increase of 8% for five years was approved. The electricity selling price used in the financial models is indicated in the table below.



Table 4.1: Projected electricity prices (Source: TOA)

2012 2013 2014 2015 2016 2017

Electricity Selling Price R 0.62 R 0.67 R 0.72 R 0.78 R 0.84 R 0.91

Figure 4.1: Electricity price projection at 8% increase per annum (Source: TOA)

ii. Gate fees/Tipping fees: A secondary source of income will be gate fees/tipping fees which will be

paid per ton of waste diverted. A portion of the gate fees paid to the Interwaste SPV for waste diversion will be paid over to the AD and DC plants separately, as it is necessary to make these projects feasible and independent of all the other operations to run on its own. If more waste is allocated to the AD plants, such as in scenario 3, the MW output increases, which increases electricity sales. This in turn decreases the gate fee amount per ton required to make the project feasible. It is therefore desirable to maximise waste input for the AD plant. For modelling purposes a gate fee of R120 in 2012 was used, increasing at 6% annually. Note that 2015 is projected commissioning date for the AD Plant and 2016 is the DC Plant’s commissioning date.

Table 4.2: Projected Gate Fees (Source: TOA)

2012 2013 2014 2015 2016

Gate Fees R120.00 R127.20 R134.83 R142.92 R151.50

These alternative sources will by no means be sufficient to cover any of the financial obligations such as debt repayment, and will only be seen as a sweetener if it does realise. As discussed previously the availability of cash to repay the debt would be a major success factor. The electricity selling price is already at grid parity, this leaves gate fees as the only variable revenue stream. It is therefore imperative that gate fees be negotiated to an amount sufficient to suit the financial requirements of the projects.

3.4 D I SC OUNT RATE

Phase 1: The discount rate used in the model is the assumed cost of capital, 10% (9% + 1%), which is the lending rate of capital (prime rate + 1%). Although the prime rate is currently at 8.5%, a conservative approach was followed.

0.62 0.72 0.84 0.97 1.08 1.22 1.37 1.54 1.73 1.94 2.18

0

1

2

3

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Electricity Selling Price



Phases 2 & 3: The discount rate used in the model is the assumed cost of capital, 11% (9% + 2%), which is the lending rate of capital (prime rate + 2%). Although the prime rate is currently at 8.5%, a conservative approach was followed.

3.5 F ISCA L TE RMS / TAXA TION

Phase 1:

No taxation benefits for Phase 1 of the project were assumed and no benefits built into the financial model.

Phases 2 & 3: Section 12B of the Income Tax Act provides for an accelerated depreciation tax deduction for assets used for the production of electricity from biomass. This accelerated depreciation will be calculated as follows: 50% of asset price in the first year of operation, 30% in the year thereafter and 20% in the third year of operation. Under Section 12K of the Income Tax Act no revenues from the sale of Certified Emission Reductions (CER’s) is taxable. Section 37B of the Income Tax Act allows for a tax deduction for expenditures incurred for all environmental treatment and recycling assets and environmental waste disposal assets as set out below. Environmental treatment and recycling asset - means any air, water, and solid waste treatment and recycling plant or pollution control and monitoring equipment (and any improvement to the plant or equipment) if the plant or equipment is:

i. utilised in the course of a taxpayer's trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

ii. required by any law of the Republic for purposes of complying with measures that protect the environment; and

Environmental waste disposal asset - any air, water, and solid waste disposal site, dam, dump, reservoir, or other structure of a similar nature, or any improvement thereto, if the structure is:

i. of a permanent nature;

ii. utilised in the course of a taxpayer's trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

iii. required by any law of the Republic for purposes of complying with measures that protect the environment.

The tax deduction is equal to 40% of the cost of the asset in the first year of operation, and 20% thereafter.



3.6 INFLA TION

Phase 1:

The CPI (Consumer Price Index) was the guideline for selecting an inflation rate. Currently CPI is at 5.6%, but a conservative approach of 6% was followed in the model, except in the gate fee increase analysis where 7% was used due to the higher than inflation increase in landfill tipping tariffs experienced over the last couple of years. Phases 2 & 3: Again the CPI (Consumer Price Index) was the guideline for selecting an inflation rate. Currently CPI is at 5.6%, but as a conservative approach was followed throughout the model, 6% was used.

3.7 DETE RMINISTIC RE SU LT

Table 4.3 indicates the gate fee required on the Drakenstein Waste tonnages in order to make the project feasible.

Table 4.4 indicates the impact that a 50% decrease in the volume of building rubble would have on the required gate fee given that this has been the trend reflected in the last six months’ data. Note the additional rehabilitation rate R40.50 per ton (year 1) required at the bottom of the tables. It applies should the DLM require the rehabilitation of the Wellington LS to form part of the scope of the project.

3.8 F INA NC IA L MODE L

The current financial model as presented in the tables was preceded by many alternative models. Once established these models made it possible to insert or delete costs that will or will not or might or might not be part of the model, e.g. brick-making and the model presented herein was adjusted accordingly. All of these models clearly illustrated that waste is a tonnage game, i.e. the more waste, the more the R/ton reduces. These models could be made available to the DLM’s finance department. In simplified terms, the financial model of Interwaste indicates that for each of the selected phases the tonnage coming into the landfill differs and linked thereto, the costs associated with the tonnage, differ as well. A separate costing model was done for each one of these scenarios and phases that all pulls through to the modelling contained in the tables. With the cost rising as the tonnages increases, the diversion rate also changes. Thus a basic cost was calculated and other revenue streams that could be available, i.e. recyclables and the sale of the bricks were taken into account to calculate what it would cost Interwaste to manage the WTE Facility, i.e. the amount that Interwaste would be ‘out of pocket’. This shortfall was then divided by the diversion tonnages (i.e. all the waste diverted from landfill by Interwaste) to arrive at a tipping or gate fee. As indicated the current tipping fee of the DLM at the Wellington LS is R169.85/ton, the regional fee is R280/ton excluding any transport and an increase based on an inflation rate of 7% per annum was used. Based thereon, in Scenario 1/Phase 1 a tipping fee of R134.61/ton would be required or R182.44/ton if the building rubble reduces to 50%. As soon as the AD Plant kicks in the tonnages going to landfill drop and given the economy of scale, as the tonnages increases, the fixed cost gets absorbed and the cost drops.



Drakenstein Interwaste PPPDRAKENSTEIN CONSOLIDATED : REQUIRED GATE FEE

7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%

Total YEAR 1 Total YEAR 2 Total YEAR 3 Total YEAR 4 Total YEAR 5 Total YEAR 6 Total YEAR 7 Total YEAR 8

Budget Budget Budget Budget Budget Budget Budget Budget

Required waste at gate fee per ton - no fixed charge

Current Drakenstein Tipping cost per ton excl overheads 169.85 181.74 194.46 208.07 222.64 NO MORE LANDFILL AIRSPACE

Average Regional tipping fee (10% increase per annum) 280.00 308.00 338.80 372.68 409.95 450.94 496.04 545.64

Tonnage into landfill 142,044 142,044 142,044 142,044 142,044 142,044 142,044 142,044

Scenario 1 Phase 1 Total 134.61 143.93 153.91 164.57 188.52 201.60 215.58 230.53


Scenario 1 Phase 2 Total - - 294.41 313.48 346.34 368.85 392.84 418.40

Tonnage into landfill - - 45,858 45,858 45,858 45,858 45,858 45,858



Scenario 4 Phase 3 Total Stellenbosch and IW - - - 191.66 217.18 231.91 247.64 264.45

Tonnage into landfill - - - 34,724 34,724 34,724 34,724 34,724

Scenario 4 Phase 3 Total Only IW - - - 225.17 252.69 269.55 287.55 306.75


Required waste at gate fee per ton - fixed charge of R1,500,000 pm














40.54 43.38 46.41 49.66 53.14 56.86 60.84 65.10

Additional R25m capping provision rate per ton (To

be recalculated with inception of contract and

annually thereafter)

Table 4.3: Gate Fee Determination



Drakenstein Interwaste PPPDRAKENSTEIN CONSOLIDATED : REQUIRED GATE FEE 50% reduction in builders rubble

7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%

Total YEAR 1 Total YEAR 2 Total YEAR 3 Total YEAR 4 Total YEAR 5 Total YEAR 6 Total YEAR 7 Total YEAR 8

Budget Budget Budget Budget Budget Budget Budget Budget

Required waste at gate fee per ton - no fixed charge














Required waste at gate fee per ton - fixed charge of R1,500,000 pm














40.54 43.38 46.41 49.66 53.14 56.86 60.84 65.10

Additional R25m capping provision rate per ton (To

be recalculated with inception of contract and

annually thereafter)

Table 4.4: Gate Fee Determination – Reduced Builders’ Rubble Tonnage



In year 4 when the DC kicks in with waste volumes coming in from the DLM, Stellenbosch and Interwaste, the tonnage going to landfill drops considerably and with it the cost also drops considerably – a win-win situation provided the volume of feedstock required by the DC Plant is securely available. Since there is uncertainty whether Stellenbosch will come on-board, Interwaste must be prepared to supply all the waste required for Scenario 2/Phase 2 in Year 3 when the AD Plant becomes operational. This is a risk which Interwaste is committed to take. However, in Year 4 when the DC Plant is scheduled to become operational another 300 tons per day would be needed to run the DC Plant and if Stellenbosch is then not on-board, both Interwaste and Farmsecure, their bankers and equity partners would have to carefully consider the feedstock risk before taking it on. A variation on the financial model would be to include a monthly fixed fee payment to Interwaste. The latter option would reduce the tipping fee/ton to R7,89 in Scenario 1/Phase 1 for waste diverted. There will be a weighbridge going into the WTE Park and a weighbridge going into the landfill and the in-between tonnages would be considered as waste diverted. Each of the tables included the option. Interwaste was requested to add the rehabilitation cost since, given the huge rehabilitation costs of not only the Wellington LS but also quite a number of other sites, this might be a feasible option for the DLM. However, the rehabilitation provision rate per ton calculation is highly dependent on the airspace left for consumption and will therefore need to be recalculated on an annual basis which will require the contractual flexibility to do so.

The gate fees calculation above must also be revisited and negotiated during the contractual signing phase of the project.

3.9 SENSITIV ITY OF CH ANGE S TO INPUT PA RA METE RS ANA LYSIS

Phase 1: Determining the right amount for gate fees will be one of the crucial aspects of the success of the project: Phase 1 is however not as sensitive to changes in the waste tonnages as Phases 2 and 3 as the waste tonnages are fairly constant and more than 75% of the revenue is derived from gate fees. The exception to this is builder’s rubble. The effect of a 50% reduction in builders’ rubble has been included in the ERM. Phases 2 & 3: Determining the right amount for gate fees will also be one of the crucial aspects of the success of the AD project. Sensitivities were run on the two revenue sources on the AD side, i.e. Gate Fees and Electricity Selling Price. Although Electricity Selling Price is fixed at the moment, where it will go in the next ten years is still uncertain. The figure below applies to Scenario 3 including waste from Drakenstein, Stellenbosch and Interwaste.



Figure 4.2: AD gate fee sensitivity analysis (Source: TOA)

What the 3D Sensitivity Graph essentially shows is that at a Gate Fee of R143/ton (2015 price) and upwards, the AD Project will always get a 10 year IRR of more than 15%. This is what the project will require to minimise risk in the debt period. Sensitivities were run on the DC model on the following variables: Gate Fees/Ton, Biomass feed, CAPEX, Electricity Price. Different scenarios were compared to a base case for each variable, and a graph was drawn up to get a visual representation of the IRR sensitivity to the different scenarios. Below are the values for each scenario:

Table 4.5: DC sensitivity analysis (Source: TOA)

Gate Fee DC Tons CAPEX Electricity Cost/kWh

Scenario 1 106 210 R 210 000 000 R 0.59

Scenario 2 121 240 R 240 000 000 R 0.67

Scenario 3 136 270 R 270 000 000 R 0.76

Base Case 151 300 R 300 000 000 R 0.84

Scenario 5 166 330 R 330 000 000 R 0.92

Scenario 6 181 360 R 360 000 000 R 1.01

Scenario 7 196 390 R 390 000 000 R 1.09

The result of the analysis is given below.

0.6

0.8

0.9

1.1

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

100 120 130 143 150160

180

Ele

ctri

city

Co

st (

R/k

Wh

)

IRR

10

(%

)

Gate Fee (R/ton)

IRR10 vs Gate Fee and Electricity Cost

25.0%-30.0%

20.0%-25.0%

15.0%-20.0%

10.0%-15.0%

5.0%-10.0%

0.0%-5.0%



Figure 4.3: DC sensitivity analysis (Source: TOA)

Biomass Feed: the 10 year IRR is very sensitive to biomass feed as can be seen above. This means that biomass feed will influence cash flows and revenues the most, as it affects gate fees received and electrical output of the plant directly. These are the two most prominent revenue sources of the project. The biomass feed is dependent on the waste available from Drakenstein and Stellenbosch Municipalities and from alternative sources from Interwaste.

3.10 D I SCU SSION OF F INANC IAL RE SU LTS

Phase 1:

Table 4.6: Consolidated Phase 1 Return on Assets (ROA) (Source: TOA)

Phases 2 & 3:

Under the current financing structure, the following IRR will have to be obtained within the debt period:

Table 4.7: Internal Rate of Return (IRR) (Source: TOA)

% of Capital Return Required Weighted Average

Debt 70% 11% 7.7%

Equity Investors 30% 30% 9.0%

16.7%

DRAKENSTEIN CONSOLIDATED PHASE 1 RETURN ON ASSETS

Total YEAR 4 Total YEAR 4 Total YEAR 4 Total YEAR 4 Total YEAR 4

Scenario 1 Phase

1

Scenario 1 Phase

2

Scenario 2 Phase

2

Scenario 4 Phase

3 Stellenbosch

and IW

Scenario 4 Phase

3 IW Alone

Capex Required 34,350,000 34,350,000 34,350,000 34,350,000 34,350,000

ROA 23.0% 22.9% 25.1% 27.3% 26.2%

106 196

210

390 210

390

0.69

1.27

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

IRR

10

ye

ars

(%)

IRR 10 years vs Gate Fee, Biomass feed, CAPEX and Electricity Price

Gate Fee (R/ton)

DC Tonnes (tons/day)

CAPEX (R mil)

Electricity Price (R/kWh)



Below is a summary of all the most important financial indicators of all the AD Scenarios and the DC Plant:

i. 68 ton/day AD plant with VM Press:

CAPEX – R 59 000 000 IRR 10 years 1% IRR 20 years 9% NPV 10 years R -24 180 110 NPV 20 years R -6 608 864 Gross Electricity Output – 0.97 MW (Nett 0.91 MW) Generation Costs – R 64 835 164 per MW (Nett) It can clearly be seen that at gate fees of R143/ton Scenario 1 is not economically viable as it has

a negative 10 year NPV, and a 10 year IRR of less than the 11% borrowing rate. If additional waste streams cannot be found, the gate fees will have to be increased to carry the project.

ii. 114 ton/day AD plant with VM Press: CAPEX – R 72 000 000 IRR 10 years 11% IRR 20 years 17% NPV 10 years R 406 331 NPV 20 years R 35 245 296 Gross Electricity Output – 1.59 MW (Nett 1.51 MW) Generation Costs – R 47 682 119 per MW (Nett)

iii. 194 ton/day AD plant with VM Press: CAPEX – R 99 000 000 IRR 10 years 17% IRR 20 years 22% NPV 10 years R 28 403 987 NPV 20 years R 92 524 589 Gross Electricity Output – 2.5 MW (Nett 2.39 MW) Generation Costs – R 41 422 594 per MW (Nett)

iv. 300 ton/day Direct Combustion facility

CAPEX - R 300 000 000 IRR 10 years 12% IRR 20 years 18% NPV 10 years R 9 902 444 NPV 20 years R 159 234 316 Gross Electricity Output – 9.6 MW (Nett 8.28MW) Generation Costs – R 36 231 884 per MW (Nett)

3.11 R I SK ANA LYSIS

Interwaste and Farmsecure did a risk assessment which has fed into the DLM risk comparative analysis. It can be concluded that the private party believes that, although there are risks associated with this project, there are sufficient mitigation measures that can be put in place to ensure the success of the project.

An important difference between the risk ownership assumed in a typical risk matrix – refer to Table 4.8 concerning a BOOT for MSW infrastructure and the risks transferred to the private party in the WTE Project is the ownership of volume risk. Instead of it being a total DLM risk, the bulk of it will be allocated to IW. It represents a significant risk transfer. Other than that the project is much in line with the global trend.



Table 4.8: Typical risk allocations in MSW Infrastructure (Source: World Bank)

Risk Type BOT BOOT Management Contract

A Pre-Operative Task Risks

A1 Delays in Land Acquisition Public Sector Public Sector Not Relevant

A2 External Linkages Public Sector Public Sector Not Relevant

A3 Financing Risks Private Sector Private Sector Not Relevant

A4 Planning Private Sector Private Sector Not Relevant

A5 Approvals (other than for construction) Private Sector Private Sector Not Relevant

B Construction Phase Risks

B1 Design Risk Private Sector Private Sector Not Relevant

B2 Construction Risk Private Sector Private Sector Not Relevant

B3 Approvals Private Sector Private Sector Not Relevant

C Operations Phase Risks

C1 Operations & Maintenance Risk Private Sector Private Sector Private Sector

C2 Volume Risk Public Sector Private Sector Public Sector

C3 Payment Risk Public Sector Private Sector Public Sector

C4 Financial Risk Private Sector Private Sector Private Sector

C5 Revenue risk in associated operation, e.g. wte

Not Relevant Private Sector Not Relevant

C6 Environmental, health and safety risk

Private Sector Private Sector Shared

D Handover Risk Events

D1 Handover Risk Private Sector Private Sector Private Sector

D2 Terminal Value Risk Private Sector Private Sector Private Sector

E Other Risks

E1 Change in Law Public Sector Public Sector Public Sector

E2 Force Majeure Shared Shared Shared

E3 Sponsor Risk Public Sector Public Sector Public Sector

E4 Concessionaire Event of Default Private Sector Private Sector Private Sector

E5 Government's Event of Default Public Sector Public Sector Public Sector



Table 4.9: Interwaste/Farmsecure Risk Analysis (Source: TOA)

Drakenstein Waste to Energy Project - Risk Analysis

High

Medium

BOOT Low

Pre Operative Risks Responsible

Party Interwaste Farmsecure Drakenstein Mitigations

Pure Risk

Residual Risk

Consortium Structure

x Engage with competent partners /Contractual / BEE Component

H M

Supply of Sureties or Guarantees x x Farmsecure guarantee operation of waste to energy plant H H

Corruption/Political interference x x x Not tolerated. Rather walk away. Risk to high. M L

Credit Risks x x Keep capital costs low. IW's Balance Sheet sufficient. H M

Delays in Contract agreements

x x Allow for Escalation. Stick to project plans. Get project approval asap. Agree time frames

H M

Planning and timeline x x Be realistic. Contractual agreement on timeframes. M M

Financial risks

x x x Due Diligence. Accurate Costings. Provisions for fluctuations in interest / forex

H H

Legal Risks (Capacity of Party to sign Contracts)

x x x

Corporate Governance. Due Diligence. Follow procedures for PPE agreements. Transaction advisors

H M

Approvals DM x Competent persons to conduct EIA M M

Treasury x Competent persons to conduct EIA

NERSA x Competent persons to conduct EIA

Escom x Competent persons to conduct EIA

Environmental risks EIA x x Identify and mitigate in planning process M M

(Grid capacity, availability of water) Identify and mitigate in planning process

Legislative risks (Law effecting the project)

x x Contract subject to EIA approval M M

Start-up Risks Delay in Target days x x Time frames / Penalties / Transaction advisor H M

Apply rules / regulations of CIDB contract



Construction Phase risks

Finance Risk

x x Obtain financial approvals prior to this phase. Use proven technologies to ease granting of loans

H M

Inflation Risk x x Contracts linked to CPI. H M

Gearing Risk (Debt to Equity)

x Farmsecure has secured favourable debt to equity ratios for WTE projects through a Nedbank/USAID bond

Market Competition. Potential gains

x x x Contracts with waste generators on long term basis. Ensure SPV's right to waste in DM

M M

Foreign exchange x [Farmsecure]. Sign contracts and implement asap

Interest rates x x Contracts linked to CPI. M L

Economic Risk ( Financiers pulling out).

x [Farmsecure]

Design Risk (process flow) x x IW's experience / Reliable suppliers M M

Installation Risks

x x Contractors to supply guarantees / Penalty clauses / Strict H&S policies

M M

Insurance Risks (contract with EPC) x [Farmsecure]

Time Risks (delays in Project)

x x Penalties for delays / Right to source alternate contractors / Good Project Management

H M

Construction Risks x x Quality Control / H & S / Project Management M M

Approvals Building Inspector

x x Assistance from DM for prompt approval L L

Quality Control from inception

CIDB contract and approval

Operating Phase Risks

Feedstock Supply (availability and cost)

x x x

IW to secure feedstock from suppliers contractually. DM not to start competing system

H M

Demand Risks (Underutilized) x x x DM to buy all electricity the project produces M M

Operational (Operating beyond the cost projections)

x x

Strict cost controls / Financial discipline / Ensure accurate cost budget / Flexibility on how to use incoming waste

M L

Project Management ability risk x x x Experienced, qualified Project Manager M M



Project performance risk (fail to meet standards)

x x

Farmsecure to guarantee acceptance of minimum waste stream input and outputs

M M

Payment risks

x x x DM to guarantee payment / Penalty clauses / Treasury to back project

H M

Financial risks (cash flow) x x x Strict cost controls / Budgeting M M

Taxation Risks (change in laws (AB)

No provisions made for receiving of grants / No upside budgeted for

M L

Weather risks (project disruptions)

x x Force majeure clauses / Rates for standing time / Contract as per CIDB / Wet cells on landfills

M M

Usage risks (overtime) x x CIDB contract requirements / Project Manager M L

Revenue risks (Waste to Power )

x Power Purchase Agreement. Treasury to back project (guarantee)

H M

Social risks (community opposing project)

x x x

EIA Process / Plant operated to spec / Provider of jobs (local employees)

M L

Environmental, health and safety risk

x x ISO System / Monitoring / CIDB contract H M

Technology risk

x Use of proven technologies and competent technology partners / Watertight SDAs all around

H M

Handover risks

Residual Value Risk (at end of Project)

x x All capital to be depreciated M L

(debt at end of period, not depreciated)

Other

Change in Politics x x x Watertight contracts H M

Force Majeure(beyond Parties control)

x x x CIDB Contract H M

Sponser Risks (will not rely on grants, CDM, Carbon taxes)

Sponsors not budgeted for / No upside budgeted for M M

Contractual Risks (CIDB based, FIDIC)

x x x

H M



4. DRAKE NSTEIN VA LUE ASSESSMENT

4.1 PROJEC T F INA NCE S

In respect of the financial structure of the WTE Facility (AD&DC Plants) there would be the comfort of bank due diligence and it could be safely assumed that the DLM would be able to rely on the bank’s perception of the bankability of the project based on a long term view of the SPVs balance sheet. Managing its risks would also ensure that the bank keeps a close eye on any events and information that may affect the project. However, during the entire project development phase (AD & DC) which may, due to the time taken up by statutory approvals, exceed 3 years, the DLM would also need to be vigilant and monitor, analyse and respond to any information that could negatively impact on the project. Currently IW has included CAPEX of R1,6m for the transport to take the tailings to a new site which may still be Gouda, an approximate distance of 60km. However, this amount would not be applicable for at least 5 years and possibly much longer. It does not change the fundamental analysis of whether the project is value for money for the DLM. The CAPEX of R1,85m in respect of the clear bag collection and PTS MRF is also exposed to possible variation caused by instability of the recycling market and/or the roll-out of the clear bag system to all remaining wards not being as successful and clear cut as assumed in the volume figures adopted for the financial modelling. The financial model has a built-in sensitivity given the nature of the recyclable market and also in terms of the compost market which must still be further established. On the other hand the oversupply risk of the recyclable market is mitigated by the fact that recyclable items could also be used as feedstock for the DC Plant from year 4. A substantial capital outlay is the initial purchasing and adequately timed replacement of plant and vehicles throughout the lifespan of the project. The intention of Interwaste is to purchase new CAPEX for the project and adopt a depreciation policy calculated over a straight line. It implies an annual increase equal to the inflation rate to ensure adequate capital for the replacement of such assets throughout the contract period. Good contract management would enable the DLM to monitor the application of this policy which in itself would mitigate the DLM’s residual risk.

4.2 F ISCA L OBLIGA TION S

The DLM’s own CAPEX would be as budgeted to fulfil its landfill and transfer station permit compliance obligations that will probably not transfer to the private party, e.g. fencing of the sites. However, a substantial amount of capital funding that would have been the DLM’s responsibility becomes part of the Civil Works that Interwaste would do in order to run the sites in accordance with the WTE Project requirements, e.g. the initial installation of further weighbridges. And, should the DLM elect to make the rehabilitation of the Wellington LS part of the WTE Project it would spread a significant CAPEX burden over a bearable time. In Table 1.20, Section 1 of the report, the planned CAPEX of the DLM is outlined. Any grant funding that the DLM obtains for solid waste could be used to offset its capital contribution to the ring-fenced infrastructure now becoming part of the WTE Project, e.g. access roads, but to enable effective operation and maintenance of its waste collection fleet in order to fulfil its waste volume obligations, it might serve the DLM better to adjust its fleet replacement schedule and accelerate its fleet turnover time. It certainly might mean reduced maintenance costs and having spare capacity to ensure waste collection is run effectively.



Contingent Liability: With an intended investment in excess of R400m, Interwaste/Farmsecure is very risk-conscious and, understandably so, very concerned about payment risks which, in respect of Rx/ton and the purchasing of electricity fall within the ambit of the DLM’s contingent obligations. The private party views underwriting of the DLM’s contingent liability

67 schedule by National Treasury as a mitigating measure

and will table it as a contractual requirement. Provincial Treasury has however already indicated that it is not government policy to bail municipalities out if a project fails or there is premature termination but that the contingent liability will be the DLM’s sole responsibility. Thus the parties will need to keep their fingers on the pulse of this project so that any red flag situations can be picked up immediately.

4.3 PAYMENT MECH ANISM

Payment mechanisms vary according to the type of project, the transfer of risk applicable and the project objectives. A payment mechanism should be based on principles that enable the performance of the project to:

achieve required service delivery outcomes and objectives; enable the transfer of risk but simultaneously reduce the cost of risk; include penalties for sub-standard performance; and include incentives to stimulate the achievement of desired targets.

There are various possible payment mechanisms namely rate (tipping fee) per ton delivered to the WTE facility; rate per ton delivered to the landfill (nett) and rate per ton diverted from the landfill. These alternatives are open for different applications, e.g. diversion could be a take-off at the transfer station and the waste never even going to the landfill or all waste could be going to the landfill site with an agreed payment for diversion, etc. The financial modelling exercise considered these alternatives within the context of ‘which option is sellable’ and ‘what is bankable’ with the outcome being the models as summarised in Tables 4.3 and 4.4. Normally the payment mechanism would be set up to exclude a fixed payment being made for services rendered. However, the benefits thereof may in certain circumstances also outweigh the disadvantages and therefor consideration thereof is included in the financial models. In fact, best practice indicates that the remuneration structure of contracts of this nature should include a fixed tariff at least providing for the contractor’s labour and equipment availability on site. The DLM only pays a tipping/gate fee on the waste that has been reduced not on the waste that actually goes to landfill thus providing Interwaste with the incentive to do maximum waste reduction/diversion from landfill. A fixed fee will not detract from Interwaste’s commitment to divert this waste or to extend the lifespan of the site since these results feed into other objectives. But, it could be argued, that it would substantially reduce the project risk if the DLM is prepared to pay a fixed monthly operations fee and Interwaste would ensure that such risk reduction be adequately taken into account in the interest rates and other applicable finance costs of the project, the impact of which has been included in the gate fee calculations of this option in the financial models. Viewed from a holistic perspective, the payment mechanism answers to the principles mentioned above. In essence, the manner in which the project including the payment mechanism is structured and financed includes measures that mitigate sub-standard performance. It is thus believed that the presented payment mechanism incentivises good risk management.

67

A contingent liability is a liability that accrues to the DLM through the PPP agreement but only has an actual financial impact if a

future, uncertain event occurs.



VALUE FOR MONEY DRIVERS

SUFFICIENT FLEXIBILITY

INNOVATION

OPTIMUM ALLOCATION OF

RISK

WHOLE LIFE COSTING

RIGOROUSLY EXECUTED

TRANSFER OF RISKS

INTEGRATED PLANNING AND

DESIGN

MEASURABLE OUTPUTS

TARGET BASED INCENTIVES

4.4 REVENUE AND COST SAV INGS

The real value of the project lies in the quantifiable avoided costs and the qualitative socio-economic result. Avoided Costs:

Primarily the avoided costs are due to waste diversion from landfill and the cost saving linked to the operation of the landfill. An added saving for the DLM is the Eskom environmental levy on electricity not being applicable to green electricity generated from AD or DC. When translated, the savings on the environmental levy could add up to a substantial amount of avoided cost. The project would also enable an immense carbon footprint saving since every MWh of green power produced displaces one ton of carbon so at 10.67 MWh for a plant that intends to run 24/7/365 the maximum saving would amount to 288 tonnes of carbon per day and 105,120 per annum. Based on the uncertainties iro waste and electricity generation from renewable sources, it is too early to debate the impact of the proposed carbon tax on the project in more detail suffice to say that a reduction in carbon tax liability is a further financial incentive of the WTE Facility. Tariffs:

As part of its normal annual budgetary processes and tariff review/increase cycle the Municipality increases its waste tariffs by 1 July every year. The 2013 increase would be 7% as has been the trend for a number of years. The tariff increases by the Municipality clearly indicates a responsible approach balancing municipal expenses with the affordability concerns of consumers. It is not expected to change irrespective of the added activities or any other waste related expenditure.

4.5 VA LUE FOR MONEY DRIVERS

The private party has already quantified its risks in the ERM as presented in as far as these are known. Any assessment of the WTE Project by the Municipality necessitates the identification of the factors that it (the DLM) must consider and their related risks. The discussion below sets out to do so. Key VfM drivers of the WTE Project are depicted in Figure 4.4 below. This list is not all inclusive and there are many other direct and indirect factors that would have an impact. Figure 4.4: Key VfM Drivers



Optimum allocation of risk: The optimum allocation of risks imply that risks be allocated to the party best placed to manage and minimise the relevant risk/s over the project timespan. The DLM will not establish a WTE Facility on its own. It simply does not have the financial, technical or operational ability to do so. The private party has these means to do so and the appetite and ability to take on and manage the concomitant risks (including financing, design, construction, operation, maintenance, and refurbishment) provided the payment mechanism and the contract term incentivise taking on these risks and enable good risk management. Also to be kept in mind is that sometimes risks need to be shared to get an optimum result. Inclusive herein is dealing with third parties, e.g. Stellenbosch Municipality and using the best internal resources to monitor and manage risk. Sometimes risk needs to be shared based on legal or institutional grounds, e.g. the successful roll-out of the waste separated at source ‘clear bag collection’ would need to be driven by the DLM albeit the actual collection would be done by Interwaste. Whole-life-cost: Whole-life-cost means the total cost of ownership over the life of an asset. Thus not only focusing on upfront costs but also all other costs throughout the project period. The modelling as done took all the financial costs, e.g. capital, operating, maintenance, replacement, depreciation, etc. into consideration and used a discounted cash flow analysis to bring the costs back to a common basis enabling the comparative analysis that was needed for the various phases and scenarios. Costs which are more difficult to quantify, e.g. environmental and social costs, were taken into account, e.g. the statutory authorisations, but it is not always possible to assign a numerical value to these costs. Rigorous transfer of risk: The project is designed in a manner that a rigorous transfer of risk within the timeframe intended could and should take place provided the statutory authorisations and contractual arrangements take place within the intended timeframes. Specifically the transfer of risk in respect of the operation and maintenance of the landfill and other phase 1 services and activities should be done speedily. Integrated design and planning: Looking at the project from DLM’s perspective - if a comparison is done of where this project started vis-à-vis where it is now in terms of integrated design and planning, the conceptual result and, if managed carefully, the physical result would be to the absolute benefit of strategic long term waste management on a regional basis. This is provided the complex set of risks is adequately identified, quantified and contractually mitigated and the project management team must retain its strategic approach. Equally, from Interwaste’s perspective, the project has enabled and empowered it to forge new innovative relationships of which the end result would be a project build on integrated design and planning principles. Linked thereto is the exploitation of efficiencies available from economies of scale/scope and the expertise available in the private sector. To establish a successful WTE Facility, the private parties are going to source and integrate the most effective solutions that the market can offer for the given set of circumstances presented to them by the DLM. Target-based incentives: Interwaste should be able to provide consistently higher quality services with respect to landfill management. The achievement of higher waste diversion from landfill targets is already incentivised through the payment mechanism but there is always room for further target based incentives. Risk transfer is already priced into the ERM.



Measurable, suited outputs: Of course targets and incentives assume the existence of measurable outputs and these should be in the form of clear and direct output specifications combined with contract and performance monitoring and penalty deductions against payment. Since the RFP stages of the WTE Project the initial objectives have been translated into measurable outputs through the SOWs of the municipal services component and the projected diversion and energy generation figures which would be the result of a suite of waste support activities. Important is for these outputs to be contractually entrenched. Innovation: Apart from the broader concept of using waste for energy, the innovation of the WTE Project is specifically also locked up in the way that the project has been structured to achieve a holistic goal and serve a regional purpose, e.g. on top of the more obvious commercial practices of recycling and composting, sewage sludge that would have been landfilled has become part of the solution and cementitious waste would become the driver of sustainable job creation whether in lesser or larger numbers. Sufficient flexibility: Although the WTE Project needs to be structured and implemented within the ambit of a specific regulatory environment and achieve certain non-negotiable goals, the contractual arrangements need to be sufficiently flexible not to stifle further innovative solutions in respect of technology advancements or the scope of the project. It is precisely this kind of flexibility that has already added value to the project by including therein holistic and regional driven outputs. Flexibility is already built-in by the legal requirement of the MFMA that long term contract/s be reviewed on a three yearly basis. But flexibility also needs good contract/s and good contract management and monitoring to ensure the trust relationship enabling it exists and such ability must reside within the DLM. The fact that contractual variations may be necessary during the lifespan of the contract, e.g. caused by a new regional landfill or other third parties wishing to bring waste to the landfill or a lack of feedstock, etc. necessitates a practical balance between operational flexibility (at an acceptable cost) and long term contracting. It is believed that such foundations have been laid in the ERM. For the DLM it is very important to, at the end of the project lifecycle, take transfer of an asset (plants) with a substantial asset life (residual life). Management of the assets should thus include balanced maintenance/replacement/renewal strategies supported by the flexibility of the contractual relationship and sound asset management principles. Related to residual value is ensuring that the technology used does not become obsolete by the end of the project and assets’ lifecycle. With WTE being a fast developing area it would virtually be impossible to predict what the technology would look like in 20-30 years but the technology to be used has been tried and tested and in existence for many years and there is no doubt that the selected technology base is sustainable. The best mitigating measure for residual value including technological sustainability is adequate spending on maintenance linked to this balanced view between maintenance and renewal/rehabilitation strategies. It is believed that Interwaste did adequate costing for the operation and maintenance of municipal services to account for balanced maintenance strategies and the technical options analysis took it into account. For the DLM it would be essential to contractually entrench these issues.



4.6 QUALITA TIVE CONSIDE RATIONS

The discussion above included some qualitative issues but a number more that cannot be quantified need to be highlighted. The views of organised labour are normally a complicating factor. In respect of this project organised labour has been adequately consulted and listened to with the result that current employees will be redeployed as already anticipated in a reviewed organisational design. Besides many jobs are going to be created and a large number thereof will be sustainable employment. The construction phase will also add an unknown number of downstream jobs. The overall impact on development is very positive. The DLM undertook the stakeholder consultation legally expected and has paid attention to what was said at these meetings and thus public views are indirectly reflected in this study. Consulting and listening to the public and other stakeholders are very much part of the DLM’s commitment to accountability and will remain an objective of the project. The project is ideally suited to be undertaken on a PPP basis and thus would be able to raise significant private sector investment and achieve substantial risk transfer to the private sector. Initial key risks so transferred include obtaining all the requisite authorisations and licenses. By taking on this risk the private sector would spend a substantial amount without a 100% surety that the project will proceed. A main difference between an internal operation and an external operation based on clear contractual terms is the value for money derived from better regulation and enforceability of compliance and performance through a penalty regime. Normally no such regulatory pressure takes place within a municipality – it is too complex and impractical and may not deliver the expected results, e.g. in the DLM’s case no amount of regulation could correct the absence of adequate resources. Besides all other factors pertaining to the DLM situation, e.g. waste minimisation and green energy generation, the project is very desirable since it brings the responsibility of delivering and operating complex waste infrastructure under one point and, if the project is a successful PPP, it can lay the foundation for other MSW PPP projects with huge benefits to be gained by the municipal sector and society in general. Taking into account 1) the history of the project, i.e. a first feasibility study and lately a second technical options analysis by the private party as well as this feasibility study by the DLM and 2) future processes, i.e. detailed environmental assessments, detailed technical analyses to secure the best technological support, detailed financial evaluations by financial institutions/equity partners to determine final viability of the project, etc., then the conclusion is certainly that the preparation done for this WTE Project is considerable. It is all to the benefit of contractual clarity, risk mitigation and a successful project. Overall the project enables a good fit between needs and contractible outcomes; will support optimal municipal asset utilization; has clear boundaries that enables ring-fencing which in turn eases interfacing with other projects, e.g. development of the regional landfill.

4.7 ENVIRONMENTA L CONSIDERA TIONS

Life-cycle-based assessments of the major environmental impacts (or sustainability indicators) of municipal solid waste have shown the positive benefits to be gained from MSW energy recovery, in the form of: Reduced greenhouse gas emissions Reduced acid gas emissions Reduced depletion of natural resources (fossil fuels and materials) Reduced impact on water (leaching)



Reduced land contamination Even though the ultimate outcome of the project is expected to be positive, it is accepted that there would be some impact on the environment due to the construction and operation of the Drakenstein WTE project, mostly in the form of off-set gas from the electricity generation process. These potential environmental impacts will be considered and assessed in detail as part of the EIA procedures required by different pieces of environmental legislation and thereafter managed through detailed Environmental Management Plans (EMPs) for all project components and phases. The design and construction of all equipment will also have to consider the relevant emission standards, to ensure compliance with the requirements set for discharges to the air, water and soil, if any. No apparent fatal flaws related to the environmental characteristics and aspects associated with the proposed development site or surrounds have been identified. All these environmental aspects will however also be investigated in detail during the EIA and energy licensing processes. The assessment process is comprehensive and detailed where appropriate, aimed at identifying potential positive and negative impacts on the environment (biophysical, socio-economic and cultural), in order to: Examine alternatives/management measures to minimise negative and optimise positive

consequences; Prevent substantial detrimental impact to the environment; Improve the environmental design of the proposal; Ensure that resources are used efficiently; and Identify appropriate management measures for mitigation and the monitoring thereof.

4.8 INFRA STRUCTU RE CONSIDERA TIONS

It was indicated in the report that the bulk infrastructure services such as water and sanitation can accommodate the project and the AD and DC Plants will use a small percentage of electricity generated for own use. A matter that has not been adequately addressed is the impact of the increase in waste transported to the Wellington LS on the road infrastructure of Wellington. To put this in perspective: although the waste load would triple by year 4, the waste related traffic would account for only a small percentage of the overall road use. The roads involved are all provincial roads and some of these have had a higher than normal accident rates lately which has led province to look into the matter and relevant road upgrading is under discussion in the provincial forum. The DLM would ensure that the potential WTE impact is brought to the attention of province to enable it forming part of future planning. It would definitely be necessary to do a Road Impact Study (“RIS”), the size and extent of which should not take longer than 6 weeks and the costs of which the DLM most probably would expect the private party to carry. Depending on the outcome of the RIS, it might be possible to accommodate the necessary road infrastructure/augmentation to fall within the scope of work and funding of province but it would be safer to assume this not to be the case and the DLM having to stand in for the costs.

4.9 DLM R I SK ANA LYSIS

In a PPP risk relates to uncertain outcomes that would have an impact on 1) the provision of services, and/or 2) the financial viability of the project. The first goal in respect of risk is to minimise the overall



risk of a project irrespective of who would take ownership of it. What then follows is the risk allocation ideally to the party best suited to deal with it. Three risk allocations are possible:

Retained risk, i.e. retained by the DLM; Transferable risk, existing service related risk and specific project related (new) risks to be

transferred to Interwaste SPV; Shared risk, which both parties will bear as set out in the contract/s.

An objective view of the risks involved in the WTE Project is not possible unless the risks associated with not developing the WTE Facility and not having the private sector operation and maintenance of the treatment and disposal infrastructure and services, are also understood. These were highlighted throughout the study as being: Compliance risk:

o the DLM not complying with all its permit conditions inter alia due to the lack of technical and operational plant and expertise;

Operating risks: o the DLM not having the human, financial, technical and operational ability to operate

and maintain the Wellington LS as required; Financial risks:

o the sooner the landfill airspace fill up, the sooner the DLM must develop another site (regional site) which will be very costly even though grant funding might be obtained;

o grant funding would not apply to the rehabilitation of the current site which is separately costed at R35m, i.e. significantly more than what it would be by including it in the WTE;

o the DLM is not in the position to purchase a compactor, chipper and crusher and thus would need to hire these at exorbitant rates since these are important parts of the solution to divert waste from landfill;

Landfill airspace: o the landfill has being given at most until 2019 based on the current operating processes

which include compaction but not to the extent required; Contractual risk:

o the DLM would proceed with its separate contracts for waste haulage, recycling, hiring of equipment whereas it is more ideal to have a single line of accountability with a contract based on a mutually beneficial economy of scale.

The DLM Risk Comparison is outlined in Table 4.10. It is clear that substantial transfer of risk to the private sector will take place. It would therefore be extremely important for the DLM to have watertight, workable contracts and really good, hands-on contract management structures and processes in place for the WTE Project.



Table 4.10: DLM Risk Comparison

RISK COMPARISON

Risk Identification

Risk Ownership (.../5)

Issues/Impact Risk Mitigation Weight Score

(shared, retained, transferred)

DLM IW/FS L(1);M(2);H(3) Mun Private

Pre-operative Risks Site zoning; site availability 5 Contractual warranty 1 5 0

Availability of water, sanitation, electricity, stormwater

5 Contractual warranty 1 5 0

Provincial roads to site would need upgrading/augmentation

3 2 IGR / Financial Early engagement of province with traffic impact assessment. Financial contribution.

2 6 4

Consortium SPV 5 Trustworthy private partner

Competent; financially sound; creditworthy; BEE; solid contractual base.

3 0 15

Planning risks 1 4 Pre-development studies inadequate causing deviations/delays

Correctly drafted TORs; competent management. 2 2 8

Project schedule 2 3

Continuous rescheduling. Erode trust of equity/debt/contract partners

Realistic timeframes. Keep to timeframes. 2 4 6

Political interference 4 1 Private walk away. Delays. High cost.

Transparency. No tolerance. 3 12 3

Institutional risks 5 Quality of governance, effective project appraisal and option selection.

DLM internal expertise and commitment. Transaction advisors.

1 5 0

Supply of sureties/guarantees 5 Proof of WTE technology required otherwise contract at risk

FS to guarantee operation of WTE Plant 3 0 15

Contractual delays 3 2 Escalation costs; private loss of interest; availability risk kicks in

Well functioning TSC; agreed timeframes; allow for escalation.

3 9 6

Legal risks (capacity of parties to sign)

2 3 Contractual ability Corporate governance; due diligence; follow legal processes; transaction advisors.

3 6 9



Regulatory risks - approvals, permits, licenses, EIA, etc.

1 4 Would delay or halt the project.

Suspensive clauses in primary contract. Competent consultants. Assistance by DLM where possible.

2 2 8

Financing risk 1 4 Financing options of WTE too costly. Unaffordable for DLM.

Contained, known risks; SPV secure; proven technologies to reduce risk; due diligence; provision for fluctuations in interest and forex.

3 3 12

Credit risk 5 High capital cost threaten project viability.

Keep capital cost low. Stay within balance sheet. 3 0 15

Start-up risks, delay in target days

1 4 Cost escalation Timeframes; penalties; transaction advisors 3 3 12

Construction Risks

Financial risk (all related) 5 Financial overruns making project financially unviable

EPC contract - cost known & protection against changing prices; proven technologies;, all approvals in place; DLM adequate protection through contract.

3 0 15

Inflation risk 5 Unexpected costs. Contracts linked to CPI. 3 0 15

Gearing risk (debt to equity) 5 Debt/equity ratio affects financial viability

FS has secured favourable debt to equity ratios for WTE projects through a Nedbank/USAID bond.

2 0 10

Foreign exchange 5 Fluctuation is threat to financial viability.

FS to implement signed contracts asap. 2 0 10

Interest rates 5 Avoid cost of finance dictated by ratchets

Contracts linked to CPI. 2 0 10

Economic risk (financiers pulling out)

5 Threat to project Reverse penalties in FS contracts,financially viable project.

2 0 10

Design risk (process flow) 5 Modification and redesign very costly.

EPC contract with reliable suppliers. IW experience. 2 0 10

Installation risks 5 Problems very costly. EPC contract - guarantees included; penalty clauses; strict site policies.

2 0 10

Construction risks 5 Problems very costly. EPC contract - scope, time, budget, specification, defined; penalties apply. Quality control; project management.

2 0 10

Time risks (delays in project) 5 Substantially adds to high cost of finance

EPC contract - project duration defined; fixed costs; penalties apply. Contractual right to source other contractors; project management.

3 0 15

Approvals - building control/inspector

1 4 Delays would be costly WTE - good quality control; DLM assistance. IW - CIDB contract.

1 1 4



Insurance risk (EPC* contracts) 5 Ensure adequate insurance protection

EPC-turnkey, insurance included. 2 0 10

Labour problems 5 Economic losses, viability threat.

EPC contract built-in risk. Good & fair labour practices and management.

2 0 10

Health and safety risks 1 4 DLM remains co-accountable for H&S.

Strict H&S policies enforced on site. 2 2 8

Insolvency risk 5 Private party no longer able to deliver services/activities

Adequate oversight; Performance guarantees; Protection clauses.

1 0 5

Market competition; potential gains

2 3 Determine project viability.

Secured right of SPV iro DLM waste. IW long term contracts with waste generators.

2 4 6

Operating risk

Availability risk (continuity and quality of services meeting the output specifications)

5

Inadequate waste diversion, recycling and/or compaction with fast diminishing airspace

Clear output specifications, contract/performance monitoring and penalty deductions

2 0 10

Compliance risk 5 All permit conditions to be complied with.

CIDB Contract. Performance KPIs; penalties. 2 10 0

Volume risk (availability and cost of feedstock supply)

2 3 Determining factor of project viability.

IW to secure feedstock from suppliers contractually. DLM not to start competing system.

3 6 9

Demand risk 2 3 Determining factor of project viability.

DLM to buy all the electricity generated by WTE Plant. 2 4 6

Operating costs (exceed cost projections)

5 Affect financial viability of project.

Strict cost controls; financial discipline; accurate cost budgeting. Flexibility on how to use incoming waste.

2 0 10

Project management risk 5 Determining factor of service delivery.

Experienced, qualified project management. 2 0 10

Project performance risk (failure to meet standards)

5 Determining factor of project viability.

FS to guarantee acceptance of minimum waste stream input and outputs.

2 0 10

Payment risks 2 3 Fixed / variable costs would split risk more evenly.

DLM to guarantee payment; penalty clauses. FS requires NT to back the project.

3 6 9

Financial risks (cash flow) 1 4 Affect financial viability of project.

Strict cost control; budgeting; initial appropriate debt & equity financial structuring.

2 2 8



Usage risks (overtime) 5 CIDB Contract requirements. Project Manager. 2 0 10

Revenue risks - WTE 5

Determining factor of project viability/bankability/cost of capital.

Power purchase agreement. FS requires NT to back the project.

3 0 15

Taxation risk (change in law, e.g. carbon tax)

1 4 Advantages and disadvantages

Flexible contract. IGR intervention if necessary. 1 1 4

Contractual Risks (inadequacies in/inflexibility of contract/s; ease of control and enforcement of contract/s)

3 2 Unintentional grey areas, inconsistencies / no SA benchmark available

Transaction advisors. Legal obligation - 3 yr review. Good contract monitoring and management.

2 6 4

Insurance risk 5 Economic losses, viability threat.

Adequate but not overly insured. 2 0 10

SHE Risks 1 4 DLM remains co-accountable for H&S

CIDB Contract; ISO 14001 & OSHAS 18001 Accreditations; good policies; contract management.

3 3 12

Elements (weather) could turn into FM

5 Unforeseen Wet cells on landfill. 2 0 10

Availability of water 3 2 Additional needed for DC Contractually secured. 2 6 4

Social risks (community opposing project)

2 3 Affects viability of project. EIA process; feasibility and contractual transparency; job creation; further promotion of greenest town.

2 4 6

Contract management (all around)

3 2

Poor contract management at SPV level and/or DLM level represents substantial risk to viability of project.

Good contracts & SDAs; structured, strictly applied contract monitoring practices applied by competent persons for all disciplines, i.e. technical, operational, legal, financial, i.e. an adequate institutional framework

2 6 4

Operating risks, e.g. technology failure

5 Economic losses, viability threat.

Use of proven technologies and competent technology partners. Watertight SDAs all around.

3 0 15

Maintenance risks 5 Affects performance and residual value

Performance KPIs; SDAs; Maintenance reserve account - contingency fund.

3 0 15

Handover risk

Residual value risks (end of project; debt at end of period, not depreciated)

5 WTE Park must be fully operative/well maintained at handover

All capital to be depreciated. Contract management - regular asset evaluation.

2 0 10



Other project-cycle risks

Contractor - event of default 5

Breach of contract. Inability to enforce obligations or recover compensation/remedy.

Good contract. Good contract monitoring and management. Guarantees.

3 0 15

Government - event of default 5

Breach of contract. Inability to enforce obligations or recover compensation/remedy.

Good contract. Good contract monitoring and management. Guarantees.

3 15 0

Force majeure (beyond parties' control)

2 3 Unforeseen Standard risk mitigation clauses built into contracts. 2 4 6

Labour problems 5 Economic losses, viability threat.

Good & fair labour practices, management. 2 0 10

Change in law 5 Waste environment exposed to changing law regime

MAGA clause in contract. Flexible contract. Obligatory 3 year contract review.

1 5 0

Political changes 5 Could threaten project viability.

Watertight contracts. 3 15 0

Contractual risks 2 3 Could threaten project viability.

Watertight but flexible contracts. 3 6 9

Sponsor risks 5 Unsuitable partner/s No reliance on grants or CDM or carbon tax credits. 1 5 0

173 502

26% 74%



4.10 AFFORD ABILITY

4.10.1 AFFORD ABILITY IN PE RSPECTIVE

Before assessing the affordability of the External Reference Model (ERM), a theoretical but ‘relevant to practice’ argument needs to be explored. It needs to be understood - as a general statement - that a PPP project may provide value-for-money and still be considered unaffordable given a municipality’s financial inability to commit sufficient funds. If so proven, such a project should rightfully be terminated. However, the legal necessity of the municipal sphere of governance fulfilling its service provision mandate mitigate against the application of this criteria to determine whether or not a service must be delivered. This is due to some services having to be undertaken and in numerous cases in SA, being undertaken in a specific manner because legislation dictates so. Moreover, such services are rendered because our concern for the poorest of the poor or our environment, etc. dictates so. Therefore to argue if a (basic) service will not be affordable it should not be rendered irrespective of whether through the private or public sector is inherently flawed due to our circumstances in South Africa. Completing the full circle of the argument: if then it is accepted that service rendering in SA is not always done because it is affordable but irrespective of whether it is affordable, a municipality must negotiate this reality in the best manner possible. The above scenario applies in a different form to the WTE Project. The DLM must operate the landfill site in accordance with its permit conditions; it must urgently save airspace otherwise it will need to spend the millions to develop a new landfill soon, it will need to spend millions to rehabilitate the old (current) landfill when the time comes and it is, through various national, provincial and own strategies and plans, committed to minimise waste, to recycle waste, to create jobs, to generate green power, in short, to basically do all the things that this WTE Project will assist it to accomplish. It can thus be argued that the WTE Project must be structured in a manner that it would be affordable because of the need for it. The various scenarios offer adequate flexibility to accommodate affordability but whichever model is chosen, it must still also hold value for money. A benchmark is the disposal costs of other known landfills. Such a comparison was done and it appeared that the average regional tipping fee is R280/ton vis-à-vis the DLM’s current R169.85/ton and Interwaste’s estimated R134.61/ton – the latter being used as the start-up cost for phase 1: scenario 1 of the proposed financial model. The waste budget analysis done in Section 1 showed that the waste management division of DLM has had a year-on-year surplus since 2009/10 and is expecting this trend to continue.

Table 4.11: Revenue/Expenditure Comparison for Waste (Source: AR)

Description 2009/10

(R/m) 2010/11

(R/m) 2011/12

(R/m)

Expected 2012/13

(R/m)

Expected 2013/14

(R/m)

Revenue 59,916,323 65,886,032 70,470,871 75,378,889 87,243,091

Expenditure 47,297,809 58,496,848 44,706,058 61,723,468 66,211,431

Surplus (deficit) 12,618,514 7,389,183 25,764,813 13,665,421 21,031,660

Thus the revenue derived from solid waste could, if ring-fenced, be adequate to service the additional monthly operational expenditure expected to be required by the WTE Project including the obligatory contract monitoring and management fees that would be required by NT. Another trend is that only about two-thirds of the potential waste revenue is annually collected. In 2011 only R46,006,817.78 or 67% of the billed amount of R68,725,335 for waste was collected. It is assumed that even slightly better revenue collection through the strict application of relevant policies could substantially add to the waste revenue and thus add to the division’s ability to carry the WTE Project.



5. VA LUE-FOR-MONEY MODELLING

The transaction advisors determined the VfM of the WTE Project for the DLM using the same financial parameters as the private party, i.e. a 10% discount rate to determine the NPV of the various scenarios. The feasible scenarios are the following:

V. Scenario 1/Phase 1 where only DLM waste is received at the landfill but with all wards included in

the waste collection of separation at source, i.e. the clear bag system; recycling at the landfill itself and the maximum amount of greens and builders’ rubble been diverted thus leading to a situation where approximately 52% of the waste is diverted with an estimated188 tons going to landfill. The scenario includes a R34,35m capital investment by the SPV and is the logical kick-off scenario for the DLM to inter alia get better operation of the landfill site but it does not as yet include any WTE processes.

VI. Scenario 1/Phase 2 (AD), the first feasible AD scenario which would include a total capital

investment of R93,35m by the SPV and landfilling of only the DLM’s waste volumes of which 68% would be diverted leaving an estimated 127 tons going to landfill. For the DLM it appears to be a feasible option but from the private party’s perspective it would not be if based on the gate fee included in the financial modelling. It is not economically viable as it has a negative 10 year NPV and a 10 year IRR of less than the 11% borrowing rate that the private party has calculated. To make it feasible for the private party the gate fees would need to be increased and that will reduce the feasibility for the DLM.

VII. Scenario 2/Phase 2 (AD), has the same parameters as the previous scenario except that the AD

Plant would be larger with a total capital investment of R106,35m and making this possible is the added waste volumes of Stellenbosch. It would result in a slight lower waste diversion of 63% with 182 tons going to landfill. Based on NPV this scenario is for a few years less attractive than the previous scenario but after about 8 years the scenarios have much the same impact on the DLM. For the private party this scenario is more feasible with the IRR increasing substantially and a positive NPV to make this possible.

VIII. Scenario 4 / Phase 3 (DC) is the fourth feasible scenario with an additional capital investment by

the SPV of R300m to establish the DC Plant thus total Capex of R433,35m. This scenario then adds waste to be provided by Interwaste for feedstock of the DC Plant. Adding the feedstock and bringing it to the Wellington landfill might appear to be counter-acting the aims of the WTE Project but this is a skew perspective since all such feedstock will be going into the DC Plant and the electricity so produced would be ‘wheeled’ and be available for the DLM to purchase. With an estimated 86% of waste been diverted from landfill and only an estimated 98 tpd waste going to landfill, this scenario is by far the most feasible for the DLM and the region provided adequate waste volumes are available. It is a win-win situation because the private party has estimated an IRR over 10 years of 12% and over 20 years of 18% based on NPV and the DLM would have an additional 8,28MWh of electricity with a really significant reduction of its carbon footprint and that of other waste producers in its vicinity.

Figure 4.5 indicates the accumulative annual costs (not NPV) of the various scenarios and phases with the Status Quo reflecting the Municipality’s continuance of the current operation of services, i.e. no contract with Interwaste. The scenario with both AD and DC reflects the lowest costs. Rehabilitation of the Wellington landfill is a cost to the Municipality when the site is full. The sharp increases in the gradient of the graphs represent the disposal at and transport to a remote regional facility. Scenario 1 Phase 2 is not economically viable for the Contractor. Figures 4.6 to 4.13 further set out the findings of the VfM assessment.



Figure 4.5: Comparative Accumulative Cost to the DLM for the WTE Scenarios as per the Gate Fee Only (Source: JPCE)



Figure 4.6: Comparative Accumulative NPV to the DLM for WTE – Gate Fee Only (Source: JPCE)

This graph reflects the Net Present Value (NPV) of the accumulated annual costs where the Municipality pays a Gate Fee over the proposed contract duration. The sharp increase in gradients represents the disposal at and transport to a remote regional facility and rehabilitation of the full Wellington site. Worst NPV = Status Quo = R1 075 833 235 Best NPV = S4P3 = R517 629 203



Figure 4.7: Comparative Accumulative NPV to the DLM for WTE – Fixed Fee plus Gate Fee (Source: JPCE)

This graph reflects the Net Present Value (NPV) of the accumulated annual costs when the Municipality pays a fixed monthly tariff plus a smaller Gate Fee over the proposed contract duration.

The sharp increase in gradients represents the disposal at and transport to a remote regional facility plus the rehabilitation cost of a full Wellington site. Worst NPV = Status = R1 075 833 235 Best NPV = S4P3 = R443 714 623



Figure 4.8: Comparative Accumulative NPV to the DLM for WTE – Gate Fee plus Rehabilitation Fee (Source: JPCE)

This graph reflects the Net Present Value (NPV) of the accumulated annual costs when the Municipality pays a Gate Fee over the proposed contract duration plus a Rehab Fee over the life of the Wellington site. The sharp increase in gradients represents the disposal at and transport to a remote regional facility. Worst NPV = Status Quo = R1 075 833 235 Best NPV = S4P3 = R535 791 326



Figure 4.9: Comparative Accumulative NPV to the DLM for WTE – Fixed Fee plus Gate Fee plus Rehabilitation Fee (Source: JPCE)

This graph reflects the Net Present Value (NPV) of the accumulated annual costs when the Municipality pays a fixed monthly tariff plus a smaller Gate Fee over the proposed contract duration plus a rehab fee over the life of the Wellington site. The sharp increase in gradients represents the disposal at and transport to a remote regional facility. Worst NPV = Status Quo = R1 075 833 235 Best NPV = S4P3 = R461 693 134



Figure 4.10: Comparative Accumulative NPV to the DLM for WTE – Only Drakenstein Waste with Fixed Fee (Source: JPCE)

This graph represents the options when only Drakenstein’s waste is used. The AD option with this insufficient waste volume is not a viable option for the Contractor and also the most expensive option for the Municipality. If no “outside” waste is to be imported, the best option for the Municipality is Phase 1 = No Waste to Energy.



Figure 4.11: Comparative Accumulative NPV to the DLM for WTE – Options for Scenario 1 Phase 1 (NO WTE) (Source: JPCE)

Following on the previous graph the following graph then represents the options when only Drakenstein’s waste is used and no Waste to Energy facility is constructed. Worst NPV = Status Quo = R1 075 833 235 Best NPV = Gate Fee plus Fixed Fee = R610 485 213 Landfill full in December 2020 No electricity generated.



Figure 4.12: Comparative Accumulative NPV to the DLM for WTE Options for Scenario 2 Phase 2 (including Stellenbosch Waste and AD) (Source: JPCE)

This graph represents the options when Drakenstein’s waste and Stellenbosch’s waste are used and that an Anaerobic Digestion (AD) plant as WTE facility is constructed. Worst NPV = Status Quo = R1 075 833 235 Best NPV = Gate Fee plus Fixed Fee = R 657 390 165 Landfill full in February 2021 1.51 MWh electricity generated.



Figure 4.13: Comparative Accumulative NPV to the DLM for WTE Options for Scenario 4 Phase 3 (All waste with AD and DC) (Source: JPCE)

This graph represents the options when Drakenstein’s waste, Stellenbosch’s waste and some external waste sourced by Interwaste are used and that an Anaerobic Digestion (AD) plant and a Direct Combustion (DC) plant as Waste to Energy facility is constructed. Worst NPV = Status Quo = R1 075 833 235 Best NPV = Gate Fee plus Fixed Fee = R443 714 623 Landfill full in March 2024 10.67 MWh electricity generated.



In a final analysis the VfM modelling calculated the comparative costs of maintaining the status quo vis-à-vis the pursuance of each of the four feasible WTE scenarios vis-à-vis maintaining the status quo. The table below includes fixed cost and rehabilitation cost variations and converted these figures to reflect the Net Present Value (“NPV”) of the cost using the same discount rate as the private party. Table 4.12: NPV of the Various Options (Source: JPCE)

Scenario Phase Operations WTE AD

WTE DC

Drakenstein Waste Stellenbosch Interwaste Gate Fee Fixed + Gate Fee Gate + Rehab Fee

Fixed + Gate + Rehab Fee

1 1 Y Y R 651,000,161 R 610,485,213 R 652,531,978 R 612,017,030

1 2 Y Y Y R 805,531,965 R 713,945,313 R 816,780,945 R 725,194,292

2 2 Y Y Y Y R 750,310,015 R 657,390,165 R 754,953,630 R 662,033,779

4 3 Y Y Y Y Y Y R 517,629,203 R 443,714,623 R 535,791,326 R 461,693,134

No Go Scenario (Status Quo) R 1,075,833,235



The financial modelling showed that with only Drakenstein’s waste the following applies:

1. No WTE Facility is feasible since it is not economically beneficial to the Contractor. 2. The rendering of all the waste management services (except collection and cleansing) by the

external service provider would result in a NPV saving of R 405 027 479 to the Municipality over the duration of the contract. (20 years)

3. No electricity will be generated from waste. 4. The Municipality will rehabilitate the Wellington Landfill when full in 2020/2021 (costs

included in above figures). 5. The better option would be to pay the Contractor a fixed monthly amount plus a gate fee for

the waste diverted from landfill. 6. No sewage sludge will be used in the process.

With the inclusion of “outside” waste the modelling showed the following:

1. The rendering of the above services plus the establishment and operation of an Anaerobic Digestion (AD) plant as well as a Direct Combustion (DC) plant would result in a Net Present Value saving of R 547 503 396 to the Municipality over the duration of the contract (20 years).

2. 10,67MWh of “green” electricity would be generated. 3. The Municipality will rehabilitate the Wellington Landfill when full in 2024/2025 (costs

included in above figures). 4. The better option would be to pay the Contractor a Fixed monthly amount plus a gate fee for

the waste diverted from landfill. 5. 6500 tonnes per month or 300 tonnes of waste per weekday need to be imported into

Drakenstein. (100 t/d from Stellenbosch and the other tonnages sourced by Interwaste) 6. This equals 15 additional truck loads (3 container combination) per day. 7. 220 t/d of sewage sludge will be used in the process.

Based on the External Reference Model and the analysis discussed above it is clear that a PPP route offers a clear benefit in terms of VfM. Nevertheless the feasibility, bankability and value for money of the project will be tested a number of times as the EIA and other statutory authorisation processes proceed.

6. BEE VALUE-FOR-MONE Y

The procurement process included a BEE Assessment. BEE would be an integral part of the SPV, the existence of which would be scrutinised by each of the statutory authorisation and licensing processes that the Interwaste/Farmsecure SPV would go through to obtain the regulatory approval in order to proceed with the WTE Facility. Also a very important factor is the long term job creation to be provided by the project.

7. VERIF ICA TION OF THE MODE L

The costing done in the External Reference Model was based on primary data obtained or generated by Interwaste and cost/data analysis provided by the transaction advisors, all of which have been generated over a number of years and having being refined throughout this process. Various cross checks have been performed to confirm the validity of the model and the results produced. Briefly it is confirmed that: The model reflects the output specifications; All costs required to deliver the output specifications have been included, i.e. capital, operating,

maintenance and repairs, etc.; BEE targets have not been specifically costed as it is believed these would not have a significant

bearing on the service delivery costs; All risks have been identified and qualitatively assessed; A sensitivity analysis was conducted; and

All assumptions are considered to be reasonable and appropriate.



SECTION 5: PROJECT DUE DILIGENCE

1. LEGAL CONSIDE RATIONS

Current Contracts:

In various instances the report has referred to the haulage between Paarl TS and the Wellington LS and the operation of the Paarl MRF that form part of Phase 1 of the WTE Project and, as such, had been included in all the financial modelling but currently done in terms of two outsourced contracts. The three year haulage contract was awarded in July 2011 and expires in August 2014, a few months after the intended commencement of Phase 1 of the WTE Project. The MRF contract commenced in November 2010, just prior to the final adjudication of the WTE’s RFP process. It was considered wise to start with a two year contract with the option to extend it for a further period of 12 months. It was expected that the WTE contract will be in place before the MRF contract expires at the end of October 2013. As it turned out, the feasibility processes of the WTE project took longer to be finalised and therefore, besides the “allowed for” 12 month extension, a further extension of the MRF contract proves to be necessary. The transaction advisors argued that in terms of section 81(4) of the MSA

68 read with section 116(3) of

the MFMA69

it would be possible to extend the contract for a further 6-12 months until finalisation of the WTE contracting. The same argument will apply to the haulage contract if necessary. The DLM was so advised. However the DLM has decided to put out a new tender for the operation of the Paarl MRF. The tender will not derail the project and the outcome will still be the diversion of the estimated waste volumes from landfill irrespective of which party is responsible therefor. However, if the tender is, as the aim should be, to bridge over the period between the current contract expiry and the WTE Contract commencement, it could result in a very short term contract, i.e. 6 – 12 months and could possibly be seen as wasteful expenditure on the part of the DLM, i.e. for the costs of the tender process as well as the expected higher cost of the short term contract. It is also not ideal to have separate contractors for interlinked services given the interfaces involved that the DLM would have to manage. Environment & Energy Legislation: As discussed and extensively highlighted in this report, the project is taking place within an evolving legal landscape concerning the environment and energy therefore there will be legal changes which might impact on the project, e.g. streamlining the establishment of IPPs, the introduction of carbon tax to the waste sector, the establishment of an ISMO, etc. It is however, not expected that legislative changes will impact negatively on the project as long as engineering designs comply with current and expected regulations concerning the protection of the environment. To act safely it is expected that the private party would want a MAGA

70 clause in the contract/s.

68 Section 81(4) of the Systems Act allows for the amendment of a service delivery agreement following a competitive bidding

process after: the local community has been given reasonable notice of the intention to amend the agreement and the reasons for the

proposed amendment; and sufficient opportunity to make representations to the Municipality.

69 Section 116(3) of the MFMA stipulates that a contract/agreement procured under the supply chain management policy of the Municipality (incl. contracts procured through competitive bidding) may be amended after:

the reasons for it were tabled in the Council; and the local community was given reasonable notice of the intention to amend the contract and invited to submit

representations to the Municipality. 70 Protection against materially adverse government action



Government Controls: The MSA and the MFMA require consultation, i.e. obtaining the views of all stakeholders on the project and, besides the soliciting of views and recommendations in respect of the feasibility study and the primary contract this will be done extensively during the authorisation processes which involve a number of national and provincial government departments. It concerns mainly the statutory authorisations whether licences or permits, that needs to be obtained. These were identified and discussed in detail in the report. The processes include a Scoping and Environmental Impact Assessment, a Waste Management License, an Atmospheric Emissions License and perhaps a Water Use License. Furthermore, Interwaste/Farmsecure would need to obtain an IPP License from NERSA and conclude a C&UOS Agreement with ESKOM. Fortunately, both Interwaste and Farmsecure has experience with these processes, i.e. Farmsecure has already submitted 14 IPP applications to NERSA. The Primary Agreement would include all of these legal “uncertainties” as suspensive clauses and so will relevant secondary agreements such as the land lease agreement and the PPA. The parties should be well aware of the complex and time consuming nature of the mentioned authorisations and licenses and unless there is substantial proof that these would be obtained, no definitive investment in the WTE AD and DC Plants (Phases 2 and 3) that also holds a financial impact for the DLM, can commence. Interwaste/Farmsecure will do substantial groundwork at own cost and risk before any EPC work can proceed. They understand these opportunity costs and accept the reality that the DLM will not make any contribution other than assisting with liaison with authorities if possible. Phase 1 is also affected by these regulatory requirements. As part of the revised permit stipulations of the Wellington landfill, the DLM was authorised to do chipping, crushing and recycling with the latter authorised to exceed 1tpd. However, the licence permit does not make provision for a mechanical recycling/reclamation process such as the dirty/clean MRF that Interwaste wishes to build. The MRF would thus need to be part of the S&EIA processes and the WML that Interwaste/Farmsecure has to obtain for the WTE Facility. Contracting: The procurement process has been fair, transparent and compliant. The transaction advisors are aware of the NT contract guidelines for PPPs. As per section 33 of the MFMA, the financial impact of the long term WTE contract would be spelled out in documentation accompanying contracts for approval to the Council and the CFO of the DLM would be fully informed of the financial instruments and implications. Interwaste has declared its transparency with regards to its financial models thus it is envisaged that the CFO would, if so required, be able to work in detail through the financial models before supporting any recommendations to the Council. Contract matters that will receive much attention during the contracting phase would be the financial arrangements that Interwaste/Farmsecure have with their lenders, e.g. the legal compliance of such agreements given that the investment concerns public service infrastructure. The aim would be to ensure that the DLM’s assets and potential assets is protected against any undue third party influences and liabilities and to ensure on-going operations secured through performance guarantees. Government Guarantees: Farmsecure would like the national government, by name National Treasury, to provide some sort of guarantee or counterindemnity. With an intended investment of R433m and the financial instability of municipalities as an ever-looming risk, this is understandable. However, the national government will not stand in for the contingent liabilities of municipalities, neither will provincial government. Municipal



government is an independent sphere of governance which implies that the DLM has to provide Farmsecure and their bankers with adequate security and Farmsecure would need to accept what is offered for the project to proceed.

Labour: In respect of current DLM employees labour legislation will not play role due to the redeployment option preferred but it will apply in respect of the labour to be employed by the project, the practices of which will monitored to ensure local employment is a priority. There is a definite lack of labour stability in SA and the Western Cape has had its share of it. Depending on where Interwaste plans to obtain the required DC feedstock, such instabilities may have an impact on the project. Also municipal strikes which can never be excluded and often affect waste services the most, would be a definite risk area to be managed but none of these is linked to labour legislation per se. Taxes: Rather than being an obstacle the Income Tax Act, 58 of 1962 may give more incentive to the WTE Project.

Section 12B of the Income Tax Act provides for an accelerated depreciation tax deduction for assets used for the production of electricity from biomass. This accelerated depreciation will be calculated as follows: 50% of asset price in the first year of operation, 30% in the year thereafter and 20% in the third year of operation.

Under Section 12K of the Income Tax Act no revenues from the sale of Certified Emission Reductions (CER’s) is taxable.

Section 37B of the Income Tax Act allows for a tax deduction for expenditures incurred for all environmental treatment and recycling assets and environmental waste disposal assets.

Should a carbon tax i.r.o. the waste sector be introduced by 2020, it would more likely be to the advantage of the project than to its detriment. Foreign Investment/Exchange: All foreign exchange dealings transacted in SA is subject to Exchange Control Regulations and Rules as prescribed by the SA Reserve Bank as promulgated by Government Notice R.1111 of 1 December 1961 and amended up to Government Notice No. R.9 in Government Gazette No. 33926 of 14 January 2011. Specific stipulations apply to inward loans, imports of technology, etc. The DLM will not be directly involved in any financial transactions involving foreign investment but any such transactions by Interwaste/Farmsecure will indirectly impact on the DLM as part of the financial models underlying the financial viability of the WTE Facility. Farmsecure has expressed the intention to source local financing based on a 70:30 debt to equity ratio. It has local financial institutions, i.e. Nedbank and the IDC in mind which would minimise the risks involved in foreign investment. However, some of the technologies involved would have to be sourced from companies located outside SA and that would involve a foreign exchange risk which could be present throughout the lifespan of the project albeit not necessarily significant. If any of these companies wish to acquire shares in either the AD or DC Plants, Farmsecure would need to comply with the relevant legislation. For the DLM it remains an indirect risk but one that needs to be carefully monitored.



S ITE ENABLE MENT ISSUE S 3.

Land: The WTE Facility will be established on municipal owned land adjacent to the Wellington Landfill and a short distance from the Paarl WWTW which is on the same portion of land. The land is zoned for municipal use and thus may be used for the purposes of a landfill, WWTW or, as is the need, a WTE Facility. It is not envisaged that the land will be transferred or disposed of therefor section 14 of the MFMA that deals with the alienation of municipal capital assets will not apply and since the right to use, control or manage the land is dealt with as part of a PPP, the MAT Regulations will also not apply. The DLM has indicated that the land is not needed for any other essential municipal services and such would be stipulated in the Primary Agreement and possibly done through a separate lease agreement. Also refer to Government Controls. There is no legal impediment against the sewage sludge being used in other industrial processes.

BEE A ND OTHE R SOCIO-ECONOMIC ISSUES 4.

The procurement of the project took place in accordance with the BEE requirements applicable at the time. Interwaste as a listed company on AltX could not claim any points for HDI status. Currently Interwaste is a Level 5 Contributor to Broad Based Black Economic Empowerment (“B-BBEE”). There are no specific socio-economic issues that need to be addressed through the project except the obligation to create local jobs which will be done.



SECTION 6: VERIFICATION AND SIGN-OFF

1. DATA RE LIA BILITY

The data used in the Feasibility Study report has been obtained empirically, from various audited DLM documents or DLM strategic documents, e.g. the IDP and the IWMP, over the span of the study and prior thereto for the section 78(1) assessment. It is confirmed that:

The waste quantities and other waste related information are based on databases which were available but which were revisited as part of the study’s technical options analysis and substantially updated to reach a point at which it was felt the data is sufficiently reliable that it can serve as the basis for multi-million rand modelling;

throughout the development phase of the project (and thereafter), the DLM’s databases will be updated and expanded to ensure the DLM and the project has a complete, verifiable and comparative waste information system to rely on;

Information on the DLM waste management budget and other financial performance indicators was obtained from the DLM through the project officer and derived from the DLM’s annual report and its audited annual financial statements; and

For the costing models, recent prices of vehicles and plant were obtained and the labour rates are in line with the rates currently paid by other private contractors in the region.

2. ENHA NCING VALUE-FOR-MONEY

The report has clearly demonstrated the value-for-money to be derived from a PPP contract and the enhancement of value-for-money possible through the entrenchment of waste minimisation, diversion from landfill, recycling and green energy practices.

3. ASSU MPTIONS

For the external reference model a ‘zero-based’ costing approach was adopted. This involved determining the complete resource requirements to meet the service need, and then applying the costs to each resource item. The capital cost basis and the operating cost assumptions of each of the phases were provided in the report. The costs contained in the model were benchmarked against current waste management costs applicable to private operators.

4. COST ME TH OD OLOGY

The cost methodology was explained in the discussion of the model. All risks have been identified and mitigation measures discussed but costs have not been apportioned to these risks. The overweight of risks will be transferred to the private contractor.

5. DOC UMENT AUD IT

All documentation used for and produced in respect of this study is on record with the transaction advisors and notices, advertisement, etc. handled by the Municipality are also on record at its appropriate offices for the purposes of an audit by the Auditor-General.

6. LEGAL COMPLIA NCE CHE CKLIST

The Feasibility Study and the processes followed in terms thereof comply with all legislative requirements as pointed out herein. Briefly, it is in accordance with the provisions of section 78 of the Local Government: Municipal Systems Act, 32 of 2000, section 120 of the Local Government: Municipal Finance



Management Act, 56 of 2003 and the Public Private Partnership Regulations published in terms of the MFMA. It has studied all waste related legislation and gives effect to the objectives of the new Waste Management Act, 2009. The processes hitherto and to be followed in future also comply with the mentioned legislation as well as section 33 of the MFMA.

7. S IGN-OFF

Confirmation of the accuracy and verifiability of the information contained in this report is attached as Annexure 13.



SECTION 7: IMPLEMENTATION PLAN

1. INTRODUC TION

As outlined in the previous section and translated into specific conclusions and recommendations in the next section of the report, the transaction advisors believe that the WTE Project is feasible and should be implemented in the phases outline in the financial models. For various reasons it would be necessary for both parties to commit to the full implementation of the project but the implementation of each phase will, apart from obtaining the required statutory authorisations/licenses, only proceed if it is bankable, i.e. implying that the cost of risk should be affordable. Volume risk (the availability and cost of adequate volumes of feedstock) and payment risks (the ability of DLM to pay for the services) would be some of the primary risks determining whether all phases of the project would be implemented. A primary contract will make provision for the implementation of all phases but with inclusion of adequate suspensive clauses to ascertain implementation is linked to critical milestones and flexible enough to react aptly to all red flag situations.

2. WTE PROJEC T ROAD MA P

Figure 7.1 provides an outline of the various WTE Project Development and Implementation Processes applicable in the Inception Phase, the Contracting Phase and Implementation Phase A. It would be premature to do a detailed timed roadmap of Implementation Phase B, i.e. putting into operation the AD and DC Plants until the statutory processes are at a point of enabling such detailed planning.

3. KEY PHA SES , M I LESTONES A ND OBJE CTIVES

The key milestones until Implementation Phase A and the objectives of Phase B.

Table 7.1: Key Milestones & Objectives of the Project

KEY PHASES, MILESTONES & OBJECTIVES IDEAL TIME FRAME AS PURSUED

INCEPTION PHASE: MILESTONE 1: Feasibility Study Report (FSR) submitted to the Municipality

May 2013

MILESTONE 2: FSR approved by Council

September 2013

CONTRACTING PHASE: MILESTONE 3: Primary Agreement (PA) and CIDB plus Contract Management Plan (CMP) submitted to DLM

October 2013

MILESTONE 4: Approval of PA, CIDB and CMP by Council

March 2014

IMPLEMENTATION PHASE A: MILESTONE 5: Handover of Landfill site and other services to IW for operation and maintenance ito CIDB

March/April 2014

IMPLEMENTATION PHASE B: OBJECTIVE 1: Negotiation and finalisation of other contracts, i.e. land lease, WTE, Power Purchase Agreement

2014-2015

OBJECTIVE 2: Construction and commissioning of AD Plant

2014/5

OBJECTIVE 3: Construction and commissioning of DC Plant

2015/6



Figure 7.1: Roadmap of the Project

Interwaste – Technical Options Analysis (as input for final feasibility report S78(3) FSR & IP – JPCEby May 2013 Septem

ber 2012 – September 2013

Analysis/Study/

Report/Contract

Consultation

Steering/Monitoring

Decision-making/Approval

ROADMAP OF THE WTE PROJECT DEVELOPMENT AND IMPLEMENTATION PROCESSES – May 2013

September 2013 - M

arch 2014

COMMUNITY- Notice to Community – Oct 2012- 2 Community Consultation Meetings – Nov 2012- S78(3) FSR to Community for Comments July/Aug 2013

ORGANISED LABOUR- 2 Consultation Meetings – Nov 2012 (including provincial reps)- S78(3) FSR to trade unions for Comments July 2013

NT, PT & OTHER STATUTORY- Progress report to NT – Sept 2012- PSC Meeting – Jan 2013- S78(3) FSR to all for Comments July/Aug ‘13 (NT for TVRI)

Tabling S78(3) FSR at Mayco for information –

12 June 2013

Include Comments received into FSR –

Aug/Sept 2013

Abbreviations:TSC – Transaction Steering CommitteeFSR – Feasibility Study ReportIP – Implementation PlanIW - InterwasteCMP – Contract Management PlanSPV – Special Purpose Vehicle

Tabling final S78(3) FSR at Mayco for decision in

principle – 11 September 2013

Tabling final S78(3) FSR at Council for decision –

18 September 2013

Inception Phase: Feasibility & Contracts Mapping

Contracting Phase: Primary & Secondary

IW SPV to commence with EIA & other statutory processes for WTE Oct 2013 – 2015

Review/Negotiation

TSC

Discussions iro number, types, activities included, phasing, estimated duration of contracts – Ground work for contracting – July-September 2013

PPP Primary (and secondary e.g. landfill) agreements drafted, refined including CMP – Sept-Oct 2013

TSC

Finalisation of Draft PPP Agreement/s and preparation for S33 process – drafting and internal approval of

Financial Obligation Assessment & Information Statement to accompany contract/s – Oct 2013

Submission of all relevant documents for S33 process – 30 Oct 2013

COMMUNITYNotice & Draft Contract/s to Community for Comments - Nov - Jan 2014

ORGANISED LABOUR- No meetings necessary due to redeployment - Not prescribed but opportunity given to comment on draft contract/s – Nov - Jan 2014

NT, PT & OTHER STATUTORY- Progress report to NT – Sept 2013- PSC Meeting – Nov/Dec/Jan 2014 if required- Draft Contract/s to NT for TVRIII, PT, etc. for comments – Nov - Jan 2014

Tabling Draft Contract/s & CMP at Mayco for

information – 20 Nov 2013

Comments received worked into

Contract/s & CMP – Feb 2014

Submission final Contract/s & CMR to

Mayco & Council – Feb/March 2014

Final Contract/s approved by Council -

March 2014

Commencement of operations in accordance with contract/s approved

Implementation Phase A Conclusion of other agreement/s, construction and commissioning of WTE – April 2014 - 2015

TSC



4. IDEALISTIC T IMEFRAME

The transaction advisors is pursuing an ideal timeline which it is hoped can be achieved.

5. PROJEC T FU ND S

The Municipality budget includes an estimated amount for the Contracting Phase but also has the full intention to apply to the PPP Unit of National Treasury for co-funding of the project. This will be done as soon as the TVR1 process is complete.

6. POTENTIA L CH ALLE NGE S

If the Council approves this report and accepts its recommendations, many challenges kick in, i.e. negotiation of the primary agreement and the CIBD to be adequately protective, yet flexible and sustainable; the successful completion of all the statutory authorisation/licensing processes; for the IW SPV to secure the volumes of feedstock needed; for the FS SPV to secure its partnership with the preferred technologies and the best EPCs; for all parties to keep to the ideal timeline and to establish and maintain a trusting partnership strictly driven by good contract management principles.

7. CONTRA CTING COMPLIA NCE

The Municipality is bound in terms of the MFMA’s section 33 to a specific process. Important though and this will be done, is to put a contract management plan in place at the same time as the contract. Past experience has taught that the bridging over from contracting to fulfilment of the contract has many teething problems of which a contract management plan should take care.

8. STA KEH OLDE RS

As set out in Figure 7.1 full acknowledgement is given to the stakeholders and the extent to which they have to be involved.

9. PROJEC T TEAM / TRA NSACTION STEE RING COMMITTEE (TSC)

The DLM has an internal project team consisting of staff of the Civil Engineering Department. However, in the main, the project is driven by the TSC consisting of municipal officials, the transaction advisors and the private party’s representatives. The TSC was establish during the section 78(1) process and has been functioning very well. The TSC will take this process through contracting to implementation of the contract and will eventually hand over in as smooth as possible a fashion to a contract management team. The project expenses will make provision for a ‘contract monitoring fee’ to be used to implement the required contract management processes as will also be required by NT if the mentioned funding application is successful.

10. PROJEC T & CONTRAC T MA NA GEME NT PROCE SS

Refer to Figure 7.1. The transaction advisors are using proper project management tools such as Gantt charts in which all the relevant information is included. However, this report opted for a simplified diagram format due to the fact that not all people receiving this report electronically would have the necessary computer software to read a Gantt chart.



11. DOC UMENT QU ALITY INSU RANCE

The JPCE team would in co-operation with the IW SPV draft the contracts whereupon these would be submitted to the Municipality and through it to National Treasury for its comments and views. The Municipality will most probably use its legal advisors to also scrutinise the contracts and subject it to adequate internal and external quality assessment processes to ensure they are in order.

12. AUDIT TRA IL

Throughout the project process, the transaction advisors in co-operation with the Municipality have kept an audit trail and would sustain this practice throughout the other phases and contract management period that follows. The audit trail of the project would eventually include the three-yearly reviewed contracts, the annual performance reviews and all other relevant documents.

13. SECU RITY AND CONFIDE NTIA LITY

Where necessary, security and confidentiality measures would be implemented and maintained but so would transparency also be implemented and maintained where required.



SECTION 8: CONCLUSIONS & RECOMMENDATIONS

1. CONC LUSIONS

1.1 The WTE project with all its components is undoubtedly relevant and will be an important tool to assist the Municipality with implementing strategic waste management and to live up to its vision of excellence iro its functional waste mandate and commitments as set out in its five-year IDP and IWMP.

1.2 There is adequate proof of the strategic, environmental, socio-economic, financial and

technical importance of the WTE project for the community, the DLM and the Western Cape. 1.3 Through its technical options analysis of the WTE project including four scenarios spaced over

three phases of implementation and taking into account regional realities, it was found that: depending on which of the feasible scenarios are pursued, waste to landfill can be reduced

between 52% and 89%; the airspace of Wellington landfill can be significantly increased with a best case scenario

of 20 years; the most beneficial scenario can produce green electricity of 10.67 MWh on a 24/7/365

basis; a maximum carbon footprint saving of up to 288 tonnes of carbon per day and 105,120 per

annum is possible; if fully implemented, the WTE project would create 203 long term jobs as well as significant

job opportunities during the construction of the plants and through its downstream impact on the local economy.

1.4 The establishment of the WTE Park would be executed by a Special Purpose Vehicle (“SPV”)

through a Build, Own, Operate and Transfer (“BOOT”) type of PPP of 20 years. There would be: an all-encompassing Primary Agreement; and various secondary agreements consisting of:

o a CIDB type contract for the operation and maintenance of the landfill site and other municipal services and activities forming part of the WTE Project;

o a land lease agreement for the 6,5 hectare area on which the WTE Facility will be built at the Wellington Landfill site;

o a Power Purchase Agreement; o a BOOT type WTE-AD agreement o a BOOT type WTE-DC agreement; o a Connection and Use of System Agreement between the WTE SPV and Nersa; o a Supplementary Agreement between the DLM and Eskom.

1.5 To enable the WTE Project, substantial weight rests on legal compliance with especially

municipal, environmental and energy related legislation including a number of required statutory authorisations which include: a Waste Management License; the completion of a Scoping and Environment Impact Assessment process; an Atmospheric Emissions License possibly a Water Use License; and a license from Nersa to operate as an Independent Power Producer.

1.6 It was found that maintaining the status quo would be very costly for the DLM and is

outweighed by all four the scenarios discussed above but these scenarios do not provide equal value for money

1.7 The best value for money and preferred scenarios that came to the fore were:



I. Scenario 1 / Phase 1 = No Waste to Energy: If no “outside” waste is to be imported, this is the best option for the Municipality albeit the landfill would be full by December 2020. If pursuing this option it would be advisable for the DLM to pay the Contractor a fixed fee plus a gate fee and could include the rehabilitation option. This option is mutually inclusive in respect of all the scenarios and would thus always be the first phase and kick-off of the project.

II. Scenario 4 / Phase 3 = Full Waste to Energy:

This would be the best option for the Municipality if “outside” waste is to be imported and could be pursued with caution to continuously assess the risk and ascertain bankability before increasing the capital investment in infrastructure. The DLM would be pursuing the ‘green energy’ option, embark on a huge carbon footprint saving and provide a regional waste solution. If pursuing this option it would be advisable for the DLM to pay the Contractor a fixed fee plus a gate fee and include the rehabilitation option.

1.8 Taking into account the factors that must be dealt with by the municipal and the contractor,

there are a number of determining risks that would systematically need to be addressed if the project proceeds with the WTE option. A number of these risks would need to be dealt with through suspensive contract clauses.

Pre-operative:

the SPV consortium structure and arrangements (Contractor) political interference, contractual delays (Municipality); not obtaining the statutory authorisations/permits (Contractor); availability of credit and other start up delays (Contractor).

Construction: financial overruns (Contractor); inflation, unexpected costs (Contractor); time delays (Contractor).

Operating: volume - not enough or unsustainable availability of sufficient feedstock for the DC Plant

(Contractor); payment (Municipality); revenue (Contractor); SHE issues (Contractor); operation and maintenance (Contractor).

Handover: residual, going concern (Contractor); various other can be foreseen and must be managed, firstly in primary contract.

Project Cycle: Default events, political changes, contractual risks.

It is believed that the WTE Project and specifically the two preferred scenarios are feasible and value-for-money.

Scenario 1 Phase 1 involves low to very moderate risk and could be implemented immediately.

Scenario 4 Phase 3 is in terms of VfM the preferred option but involves mostly moderate to high risk albeit which risk would be predominantly transferred to the Contractor. It should be chosen as an option if the required volumes of waste could definitely be acquired in a sustainable manner thus securing the bankability of the option. If so, both parties need to commit to the full implementation of the project but the implementation of each phase would of necessity and apart from obtaining the required statutory authorisations/licenses, only proceed if it is bankable, i.e. implying that the cost of risk should be affordable. Contracting would need to be on these terms.



2. REC OMMEND ATIONS

It is recommended that: 2.1 This report be submitted to the relevant national and provincial departments inter alia National

Treasury, Provincial Treasury and Environmental Affairs and be made available to the public and organised labour for comments as legally required.

2.2 The comments received be taken into account by the transaction advisors in a final report and

such report to be submitted to the DLM for the Portfolio Committee and Mayco to consider and the Council to take a final decision in terms of the recommendations.

Further recommendations to be considered once the above processes have been concluded and such support the WTE Project are that: 2.3 The Municipality and the Contractor enter into contract negotiations with the objective to

conclude a Primary Agreement in which all statutory processes would be suspensive clauses. 2.4 The Contractor be given a mandate to start with the statutory authorisation processes subject

to the conclusion of the Primary Agreement. 2.5 A CIDB based contract for the operation and maintenance of current municipal services

including the activities currently performed by external service providers in respect of the Paarl MRF and waste haulage, be negotiated at the same time as the Primary Agreement in order for these services and activities to be operated more effectively inter alia saving valuable landfill airspace.

2.6 The Primary Agreement with the secondary CIDB contract be concluded in accordance with

Section 33 of the MFMA and thus, similar to this report, inter alia go through a comments period during which NT, PT, COGTA, DEA, DEA&DP, DME, the public and whichever other affected parties be given the opportunity to comment on the agreements and such comments be taken into account before finalisation of the agreements.

2.7 The DLM negotiate and finalise each of the secondary agreements with the Contractor as

deemed necessary to comply with the statutory authorisations and the NERSA IPP license application process provided that implementation of each and all of the secondary contracts be subject to obtaining all statutory authorisations.

2.8 Each of the agreements includes a Contract Management Plan as legally required.

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