Mike Read, head of waste sector at Grant Thornton UK LLP, returns to tackle the subject of waste contracts, but not only in the UK as he looks to the company’s work further afield and the progress that is being made…
Over the last few years the team I lead, which is focussed on financial and commercial advisory on waste infrastructure projects, has been spreading its wings and exploring opportunities outside the UK. We’ve been involved in projects in Eastern Europe, Greece and the Middle East. The opportunity to work on these international projects reflects the fact that the UK’s love affair with public private partnership (PPP) projects is waning – even as other countries seek to embrace it.
As we work on projects ranging from waste collection to thermal infrastructure, we were expecting to see variations of SoPC4 standard UK PPP contracts being rolled out. In some regions, Poland for example, this is closer to reality. Our experience of the Middle East, however, is that it takes a longer period to happen and is slowed by considerable resistance from procuring authorities to take on risks that are seen as standard in the UK.
This is not unexpected. It is very early days and only a few waste infrastructure projects are being tendered in the Middle East. The position also reflects that the local waste market is quite different. To date it has been dominated by local players – with the service being single ‘residual’ waste stream collections. The majority of material ends up in dump sites in the desert.
The need and expectations for sophisticated contracts has not existed. Contracts have been focussed heavily on lowest price, with the contractor effectively taking all the risk. Strong local competition has allowed this, but the end service has not always been the winner as when delivering a fixed price (no indexation mechanisms even) service with very limited tonnage and composition data, whilst taking all the risk, something has to give.
The simplicity of these contracts generally reflects the simplicity of the service provided. However, as the focus now moves to waste treatment infrastructure as countries sign up to landfill diversion targets, there is a move to more sustainable service waste management practices and the link between waste and energy is made. The transition to delivering this will have to be seismic. Local players cannot deliver the required new type of contracts alone. They need international technology, finance and general expertise to make it work.
The procuring authorities recognise this and want to embrace international input and expertise, but are still getting to grips with understanding that procurements and contractual positions will need to change to allow this to happen. Given that a huge amount of power, water and waste water sector infrastructure is delivered by international players in the Middle East this is something that can and will happen but will take time as different entities get used to it.
Already we are seeing progress. The $900m Bahrain integrated waste management project on which tenders have just been received is an example of this and has attracted European and South East Asian providers, in addition to locals. However, the fact that this is the second bite at the cherry tells its own story. The original project was tendered in 2008 and was cancelled on the eve of financial close in 2014, and shows the difficulties in getting projects across the line.
Interesting times, and the great thing is Dubai is a lot nicer place to be in mid-January than Rotherham…and I can say that as it’s my home town.