John Tierney on Poolbeg Incinerator

2nd March 2012
Re: Dublin Waste to Energy Facility at Poolbeg

Introduction
Given the debate on the above issue in recent times particularly in
relation to costs I consider it necessary to give Members a further
very detailed contextual outline of what work has gone into the
project to date. Members are aware that the decision date on this
project has been deferred on a number of occasions since September
2010. Notice of the up to date position in this regard was advised to
Members yesterday. In concluding discussions on commercial
arrangements we have also agreed a final decision date with Covanta of
the 31st August 2012. In effect they must notify us by that date if
they are in a position to commence no later than the 5th November
2012. The issue of costs associated with the project were most
recently debated by the City Council in September 2010 and July 2011
when the forecast expenditure on the procurement, planning,
contractual and site assembly costs for the project were set out. The
report below will serve as a reminder of the context and the process
involved in trying to deliver this much needed project not only for
Dublin but the State.

Background
The history of this project goes back to 1996 when the four Dublin
Local Authorities held an EU competition for the engagement of a
consultancy to prepare a wide ranging waste management strategy for
the Dublin Region. The competition was ultimately won by the MCCK
consortium led by the M.C. O’Sullivan practice. In addition, Mary
Murphy & Associates were appointed as communications consultants.

The Strategy Study commenced in February 1997 with a wide ranging
public consultation and ultimately led to the publication, in January
1998, of a new Waste Strategy for the Region which advocated an
integrated approach to waste management in line with best
international practice. Among the many recommendations in the Strategy
were proposals to develop:

• Biological treatment facilities on two sites, north and south of the
Liffey of either composting or anaerobic digestion and
• A Thermal treatment facility for up to 750,000 tonnes per annum
(subsequently reduced to 600,000 tonnes per annum in the PPP contract)
for residual waste.

The Strategy recommended gained broad political acceptance with the
elected members of the four Dublin Authorities and all four Councils
formally adopted the Regional Waste Management Plan in 1998. Following
this, Dublin City Council, as the lead Authority, commissioned
consultants to further investigate biological and thermal treatment
options and to carry out site selection studies. Tobins and M.C.
O’Sullivans were respectively appointed to carry out the required
studies after a public procurement process. The site selection study
for thermal treatment recommended Poolbeg as the optimum site but left
the technology choice and eventual size of the plant open to the PPP
procurement process.

In May 2000, the process of procuring a Client’s Representative for
the Thermal Treatment Plant at Poolbeg commenced. A Group headed by a
joint venture of M.C. O’Sullivan and COWI Consulting Engineers and
planners, with sub-Consultants E.C. Harris, Price Waterhouse Coopers
and McCann Fitzgerald were eventually selected. The group also
included a Public Information / Public Consultation element provided
by Mary Murphy & Associates, Pat Delbridge International and Judith
Petts. In March 2001, a contract was signed engaging the consortium as
Client’s Representative for the Plant.

During the period from March 2001 to July 2002, the new Client’s
Representative team was involved in sourcing an independent review of
background data on the project, the setting up of a local task force
for Community involvement and of a local office in Ringsend, various
workshops with Council and Department staff, taking market soundings
and preparing a report on same as well as the development of a
Procurement Plan with Milestones, a Project Information Memorandum and
a Project Questionnaire.

During the second half of 2002, contract documentation was developed
by the consortium in cooperation with the Council and the Department
leading to the completion of documentation on an Invitation to
Negotiate and a Project Agreement with 30 Schedules. Also, during this
period, a District Heating Feasibility Study was prepared in respect
of the Docklands area.

The Thermal Treatment Project was to be developed as a Public Private
Partnership and the procurement carried out as a Negotiated Process
under the EU Works Directive. A pre-qualification phase served to
select suitable bidders for the Project. In 2002, the Council
advertised in the EU Journal and other media for expressions of
interest to participate in the Project. Interested consortia were
invited to submit applications for pre-qualification to bid for the
Project. Thirteen groups submitted applications to pre-qualify but,
following detailed examination of the applications, it was determined
that only four of the applicants met all the necessary criteria to
qualify. The successful applicants were notified in May 2003 and
invited to bid for the Project. Following meetings with the four
Bidders and visits to reference sites, the Invitation to Negotiate was
issued to the four bidders in November 2003.

In late November 2003, one of the four advised that it would not
submit a Bid due to the company being put up for sale.

A Project Board was established and first convened in January 2004. It
was chaired by the Dublin City Council Assistant City Manager and
comprised representatives from the Council, the Department of
Environment, Heritage and Local Government, The National Development
Finance Agency and the Client’s Representative. The role of the Board
developed as the project progressed but was generally considered to be
an Advisory Body that, among its roles, set policy, conveyed
information to the project stakeholders and provided advice on the
Statutory Approvals required. There was a clear distinction between
the Project Board, which operated in an advisory capacity and the
Project Executive Board (consisting of members of management of Dublin
City Council) with day-to-day responsibility for project management
which was established within the same period. A Process Auditor from
the Department of the Environment, Heritage and Local Government was
also appointed and coordinated directly with the Project Executive
Board on matters relating to the PPP Procurement process and acted as
an observer on the Project Board.

Three bids were received in April 2004 and, over the period to June
2005, were assessed. One of the three was deemed not to comply with
the bid requirements. It also became clear that one of the remaining
bidders was unable to commit finance to the project in accordance with
the terms of the Invitation to Negotiate and that bidder subsequently
withdrew from the process. The remaining bidder was Elsam A/S. The
Client’s Representative proceeded to negotiate a Project Agreement and
related documents (the Project Documents) during this period until
finally in mid 2005, the Project Documents were submitted for approval
to the Department and to the NDFA and the Project Agreement was
sanctioned by the Department in September 2005.

During the negotiations process, Elsam A/S was acquired by Danish Oil
and Natural Gas (DONG) as part of a transaction involving several
major companies active in the northern European electricity market and
which resulted in a series of asset and business line acquisitions and
disposals. Following the Elsam acquisition, DONG considered taking on
a project partner and proposed to the City Council that it would
invite Covanta Energy to become a shareholder in its Irish subsidiary,
DONG Generation Ireland Limited. The pre-qualification process was
revisited in January 2007 which concluded that DONG Generation Ireland
Ltd, under its proposed new ownership structure, could be recommended
as a PPP Co. partner for Dublin City Council for the Project. A
Project Board meeting in May 2007 approved a proposal to award the
contract for the Project in accordance with the original sanction. A
legal report requested by the Board, completed in May 2007, determined
that the procurement of the project had been carried out by the
Council in accordance with its obligations under procurement law and
the requirements of the negotiated procedure under the Works
Directive.

The Project Agreement was executed by all parties on 4th September 2007.

The signing of the Project Agreement was a milestone in the Project
but, in the absence of the achievement of a number of Conditions
Precedent within the Project Agreement, it did not, in itself, deliver
the Project. Negotiations continued in the intervening period with a
view to delivering all of the Conditions Precedent in order to allow
the Project to progress. The Conditions Precedent had to be met by
September 2010 to ensure that the Project would continue in line with
the terms set out in the Project Agreement. Failing that, the powers
available to the Council under the Project Agreement would be severely
curtailed.

Statutory Procedures

Planning application
A Planning Application, including an Environmental Impact Statement,
was lodged with An Bord Pleanala on 30th June 2006. Further
information was requested by the Board and lodged between September
2006 and March 2007. This further information included reports on
Major Accident Hazard Assessment, Traffic Noise Impact Assessment and
revised plans and drawings. These were notified to the public
indicating that observations could be submitted to the Board within a
specified timeframe. 165 separate submissions and 2,591 signed
observations were submitted. The bulk of the submissions/observations
were in the form of objections to the proposed development.
An Oral Hearing was held by the Board extending over a period of 18
days between 19th April 2007 and 7th June 2007. A Decision to Grant
Permission issued in November 2007, subject to conditions.
Commission for Energy Regulation
Two applications were made to the Commission for Energy Regulation.
These were an ‘Authorisation to construct a new generating station or
reconstruct an existing generating station’ and an ‘Authorisation to
generate’. Both applications were lodged with the Commission in May
2008 and approval was received in September 2009.

EPA Waste Licence

An application for a Waste licence, including an Environmental Impact
Statement, was submitted to the Environmental Protection Agency (EPA)
in July 2006. Notification to a Proposed Decision was issued by the
EPA in November 2007. Objections to the Proposed Decision were lodged
and an Oral Hearing was held by the EPA between 14th April and 1st May
2008. The EPA issued the final Waste Licence on 1st December 2008.

It is worth mentioning that the Project Agreement conditioned the
Council to use its “best endeavours” to help the PPP Co obtain the
necessary statutory approvals. This involved work by the Client’s
Representative to this end. In addition, the number and nature of the
conditions attaching to the Planning Permission and the EPA Licence
required further negotiation with the EPA and the PPP Co on what were
deemed “satisfactory” permissions to ensure that the PPP Co could meet
Conditions Precedent under the Project Agreement.
Site Acquisition

An application for the confirmation of the Compulsory Purchase Order
to acquire the site at Shelly Banks Road for the Waste to Energy
facility was lodged with the An Bord Pleanala in 2002. It was decided
by the Board that this application would not be dealt with until the
planning application for the development, plus the Environmental
Impact Statement had been submitted to the Board. 3 objections to the
CPO were lodged with the Board and one was subsequently withdrawn.
The objections to the CPO were heard at the Oral Hearing on the
Planning Application and EIS referred to above.

The CPO was confirmed at a meeting of the Board on 16th November 2007.
While the Notices to Treat were issued in 2007 it should be noted that
the conclusion of the arbitration process has still not been finalised
in one case although it is expected that this will be dealt with in
2012.

Foreshore Licence
In August 2008, an application was lodged with the Department of
Agriculture, Fisheries and Food for a Foreshore Licence in respect of
a cooling water channel for the Plant. The acquisition of this licence
was a Condition Precedent for the City Council. In January 2010,
responsibility for Foreshore Licensing was transferred from the above
Department to the Department of the Environment Heritage and Local
Government.
The Council, on becoming aware of this, wrote to the Department of the
Environment, Heritage and Local Government on 26th January 2010, 24th
February 2010, 15th April 2010, and 10th June 2010 seeking information
on the status of the application. No response was received to any of
these letters.
We again wrote on 17th June 2010 indicating that the Council was
considering the use of its Compulsory Purchase powers to acquire the
necessary lands in the absence of a Foreshore Licence or even
information in relation to the application for same. This proposal
elicited a response from the Department seeking further information in
this regard. The Council responded on 21st July 2010 indicating our
intention to proceed with the CPO.
The Compulsory Purchase Order in this regard was lodged with An Bord
Pleanala on 17th August 2010. By letter of 8th October 2010, the Board
indicated that the Council could proceed to confirm the order, with or
without modifications. The Compulsory Purchase Order was confirmed, by
Order of the Assistant City Manager, on 19th October 2010.
By virtue of the fact that neither a foreshore licence nor the CPO on
the cooling water channel lands were in place by 4th September 2010,
this Condition Precedent was not met and this had major, negative
implications for the Council’s ability to progress the project in line
with the terms of the Project Agreement. Had all Conditions Precedent
been met by that date, the Council could, and would, have insisted
that Covanta proceed to construction stage using balance sheet
financing, in line with the Project Agreement. By failing to meet this
particular Condition Precedent, the Council lost this power. As a
result of this, Covanta were in a position to alter their position on
funding for the project and indicated that they wished to secure
either Project Funding or Equity Funding. In the current financial
climate and in light of the uncertainty which has surrounded waste
policy in Ireland in recent years, this has led to the delay in the
development of the Project.
Appointment of Authorised Officer

A further issue in relation to the progress of the Project occurred
with the appointment by the Minister for the Environment, Heritage and
Local Government, in February 2010, of an Authorised Officer under
Section 224 of the Local Government Act 2001. This Officer was
appointed with a remit to investigate matters related to the Project,
the Project Agreement, the financial risks associated with the Project
and the consequences of alteration or abandonment of the Project. The
Council co-operated fully with the Authorised Officer appointed but
this again caused delay and uncertainty around the overall Project and
considerable additional work.
The Report was submitted to the then Minister in the Autumn of 2010
but the outcome of the Report was not published until June 2011 and no
issues arose from the Report.
Competition Authority and EU Commission
In February 2010, the Competition Authority notified the City Council
that it had received a number of complaints from the Irish Waste
Management Association in relation to the Waste to Energy Project and
that it would be investigating the complaints. Again, the Council
co-operated fully with the Authority in an effort to have such
vexatious complaints dealt with in the most expeditious manner. A
detailed response to the complaints was prepared by the Client
Representative’s team on behalf of the Council and submitted to the
Authority.
In July 2010, the Competition Authority wrote to the City Council
following their assessment of the complaints made by the IWMA to
confirm that there was no breach of Irish competition law in relation
to the Dublin Waste to Energy plant at Poolbeg and the Public Private
Partnership Contract between the four Dublin Local Authorities and
their private sector partners in the Dublin Waste to Energy Limited
project. The Competition Authority rejected all four complaints made
by the Irish Waste Management Association about the Waste to Energy
Plant at Poolbeg.
The Irish Waste Management Association had not objected to the Poolbeg
Waste to Energy Plant in the ten years it was going through the
statutory processes and during which time they had had plenty of
opportunity to have their view considered. This was indicative of the
continuing frustration of the Project by various interested parties
and contributed, in no small part, to the work of the Council and the
Client’s Representative team extending over a considerably longer
period than had been originally envisaged.
In June 2011, the Department of Environment, Community and Local
Government notified the City Council that it had received
correspondence from the EU Commission in relation to “state aid”
complaints received by the Council in relation to this Project. The
Department had previously responded, in late 2010, to correspondence
on this matter but the Commission responded looking for more
information at that stage.
The nature of the information required meant that it was necessary for
the Client’s Representative team to again prepare detailed papers to
answer the complaints and to clarify the nature of the Project and how
it did not breach EU Commission Regulation in this regard.
The above clearly demonstrates that this project encountered
considerable delays, due, mainly, to circumstances outside the control
of the City Council. So significant have these delays been that,
despite some elements of the construction stage having been completed,
a substantial start has yet to be made on the construction of the
Plant some 5 years after this work was originally due to be completed.
Current Waste Situation

EPA Waste Report
On the 1st March 2012 the EPA launched its most recent national waste
report. While there was positive news on the recycling front there was
also a clear indication of the impending crisis regarding waste
management infrastructure. The shortage of landfill space is again
highlighted in the Report. The most likely scenario is that Ireland
will be out of landfill capacity in as little as 8 years.
EU Waste Framework Directive
However landfill is not the option we should be pursuing in any event.
Article 4 of the EU Waste Framework Directive (which was transposed
into Irish law last year) introduces a requirement to apply the waste
hierarchy as a priority order in the management of waste. Article 10
requires Member States to take measures to ensure waste undergoes
recovery operations. In effect Ireland needs to move from it’s over
reliance on the bottom tier of the hierarchy i.e. disposal to
landfill.

Summary

It is acknowledged that the costs in bringing this project forward are
very significant due to the reasons outlined in this report. The final
total net outlay is forecast at close to €100m including land
acquisition etc. However when this is matched against the turnover
associated with the project over its lifetime it becomes a small
percentage in comparison and the agreement is structured so that over
time the four local authorities will recoup those costs (reflected in
net present value).

With landfill capacity decreasing and EU policy directing waste away
from the landfill option the need for facilities such as the proposed
Waste to Energy Plant in Poolbeg was never clearer.

It has to be said that in spite of incredible obstacles we have still
maintained the opportunity for the project to proceed in accordance
with national and EU policy. It is vital for the local and national
interest that it commences as soon as possible

John Tierney
City Manager