Energy company Covanta UK, the UK arm of American firm Covanta, has lodged a legal challenge against the Merseyside Recycling and Waste Authority (MRWA) over its decision to award preferred bidder status for its £1.18 billion waste contract to SITA SEMBCORP UK.

On 19 April, MRWA announced it had chosen SITA SEMBCORP UK (SITA) – a consortium led by SITA UK, a subsidiary of SUEZ ENVIRONNEMENT, with Sembcorp Utilities UK and I-Environment, (a wholly owned subsidiary of Itochu Corporation) – as preferred bidder for the Merseyside and Halton Waste Resource and Recovery Contract following ‘an extensive competitive procurement’.

This was despite government withdrawing £90 million of private finance initiative credits from the project, after finding that the UK’s 29 residual waste treatment projects that already had funding were ‘sufficient’ to meet the EU’s 2020 landfill diversion targets.

Contract details

The 30-year contract, thought to be worth £1.18 billion, covers the annual treatment of 430,000 tonnes of municipal waste collected from six local authorities: Liverpool, Knowsley, St Helens, Wirral, Sefton and Halton.

Artist’s impression of SITA’s Teesside facility

The winning SITA bid includes the construction of an energy-from-waste (EfW) incineration facility, comprising a plant capable of producing combined heat and power (CHP), at the Wilton International site in Teesside.

According to SITA, construction of the facility would see the creation of hundreds of jobs, with ‘around 50 new permanent jobs’ on completion. A further 25 jobs will reportedly be created following the construction of ‘a new rail hub’ at the Potter Group Rail Freight Terminal in Kirkby, to deal with the transportation of waste.

MRWA had hoped the deal to ‘move towards financial close’ by early 2014, with the incineration plant expected to come on stream in 2016 following a two-year construction period. However, this is now expected to be delayed, following court proceedings.

Legal challenge details

The legal challenge submitted by Covanta’s lawyers to High Court in Leeds outlined concerns with MRWA’s decision process, saying it was ‘flawed’ and did not take into consideration the economic savings of the Covanta bid.

Speaking at the time of awarding the bid, Chairperson of MRWA, Councillor Joe DeAsha, said: “I believe that the solution we have chosen is the best for the environment – saving natural resources, generating green electricity and providing value for money for Merseyside and Halton Council Tax payers.”

Covanta bid was ‘£200 million cheaper’

However, Covanta claims that its bid, to build an incineration facility with Peel Environment (a subsidiary of the Peel Group), was £200 million cheaper than the winning bid, and would offer better value to the local area, as it was to be built in Ellesmere Port.

Covanta Energy has said it would be ‘inappropriate’ to comment as court proceedings unfold. However, John Whittaker, Chairman of Peel Holdings, said: “I would normally never comment on a public tendering process, especially where a Peel business has a vested interest. However, the ramifications for the North West economy of this contract going outside the region are so important that I felt I had to speak out.

“Over time, our planned joint venture at Ince Park, Ellesmere Port with Covanta has the scope to create over 2,000 construction jobs and up to 3,000 operating jobs. There would be half a billion pounds of US investment in just the first phase and enough clean electricity to meet 16 per cent of the North West's sustainable energy target.

“Furthermore, I understand that Covanta would save the authority more than £210 million over and above the SITA bid, over the life of the contract.”

He added: “The people of Ellesmere Port, Merseyside and the North West need to be reassured that those benefits were given due considerations. We need to be sure a very costly error is not being made.”

Artist’s impression of Covanta’s facility at Ince Park

This is not the first time MRWA’s decision has been questioned, with Liverpool Mayor, Joe Anderson, speaking out against SITA being preferred bidder in May: “I feel the city and the wider city region has had a massive opportunity for major infrastructure investment snatched from its grasp and hundreds of potential jobs which we desperately need have gone to the North East.

“I want to understand…how it can be more environmentally friendly and more cost effective to ship the waste of Merseyside all the way to Teeside some 150 miles away rather than dispose of our own waste locally.

“Although local authorities on Merseyside didn’t want the facility on their patch, a bid was put in to have it in Ellesmere Port, which would have allowed people living in the city region to apply for the jobs created.”

MRWA rejects challenge

Speaking of the challenge, Carl Beer, Chief Executive of the Merseyside Waste Disposal Authority (MWDA, the statutory name of the Merseyside Recycling and Waste Authority), said: “Covanta, the unsuccessful bidder, has decided to challenge this decision and has issued legal proceedings against the authority in order to do so.

“MWDA regrets this action by Covanta. Whilst it is appreciated that an unsuccessful bidder will naturally be disappointed at the outcome, MWDA has conducted an extensive and fair procurement process over several years and is confident that the most economically advantageous solution has been selected for Merseyside.

“MWDA therefore rejects the challenge made by Covanta and intends to vigorously defend the claim brought against it. It would be inappropriate for the authority to comment further on the decision to appoint SITA whilst the legal proceedings by Covanta continue.”

The date for the hearing has not yet been set.

The Merseyside bid was considered important for Covanta, which has announced that it must secure a buyer or partner to take over its operations or face making the ‘majority’ of its staff redundant.

The announcement came amidst growing concern about residual waste treatment overcapacity in the UK, specifically of the mass-burn variety practiced by Covanta. Waste management consultancy Eunomia’s latest report indicates that the UK is on track to see a 12 million tpa shortfall in the amount of waste needed to feed residual waste treatment plants, while the Global Alliance for Incinerator Alternatives (GAIA) has warned that some EU states, including the UK, have the capacity to burn ‘more than the non-recyclable waste generated’.

Read more about the MRWA waste contract.