Council Minutes - Town of Cambridge

COUNCIL
20 DECEMBER 2011
PWC note that the value of the City of Stirling’s interest in the MRC is higher under Scenario A
“due to the incremental value associated with the assumed acquisition and exploitation of a
replacement landfill site when the existing air space at Tamala Park is exhausted”. PWC
acknowledge that under this scenario, “the actual costs may be significantly different from those
estimates. For this reason we consider the pro-rata values determined under Scenario B to be
more robust and our preferred values”.
Effectively PWC have rejected Scenario A as a basis for the valuation. The Town supports the
view that Scenario A should be rejected as it highlights one of the deficiencies of the DCF
method in relation to the validity of the assumptions used and the potential to significantly affect
the result as identified in Town’s decision to not support the DCF method in April 2011.
The Town considers Scenario A as a highly inappropriate basis to assess the valuation of MRC
because it provides the owners (including Stirling) with the benefit of the positive cash flows
derived from a future investment decision to purchase a landfill site after the closure of Tamala
Park. At the proposed time of the capital investment it is assumed that City of Stirling will not
be a member of the MRC, so how could they possibly benefit in terms of this valuation from the
speculative decision of the capital purchase of an unknown site, for an unknown amount and at
unknown operation and transport costs? This is a purely hypothetical scenario and should not
have been considered as a reasonable way of calculating a valuation of MRC.
The Town has further concerns about the assumptions used relating to the DCF valuation as it
is based on the assumption that the members will sell the operations of MRC to a private
operator and that the members will continue to tip at Tamala Park at a higher fee per tonne
than the members currently pay so that the new owner will be able to make a return on their
investment. Members currently pay a tipping fee of $123 (ex GST) per tonne and the valuation
assumes that the Low valuation is based on $135 (ex GST) per tonne and the High valuation at
$140 (ex GST) per tonne (refer to the table above).
In reality, the market value of tipping is significantly less than this. It is understood that the City
of Stirling has negotiated a fee to tip its waste at Red Hill landfill managed by the Eastern
Metropolitan Regional Council at $94 (inc GST) per tonne which is $85.50 (ex GST). The City
of Canning went to tender several years ago for the disposal of its waste to landfill and is
currently in the third year of a contract with Sita and is also paying $94 (inc GST) per tonne.
Both these disposal rates demonstrate that the market rate for tipping is much lower than the
assumptions made in the PWC valuation. The fees charged by MRC are higher because of
their investment in a Resource Recovery Facility to divert waste from landfill which operates at
a higher cost. Clearly, if members were ambivalent to resource recovery they could tip their
waste direct to landfill at a much lower cost.
It is difficult to accept that the members would agree to sell MRC to a private operator and then
enter into contracts to pay a higher tipping cost so that the operator could make a profit when
there are lower cost alternatives in the market.
The MRC operates as a cost recovery business to keep the cost of tipping down for members.
It is not operated as an investment or wealth generation facility for the members. Therefore a
valuation that assumes profits is a flawed approach to valuing the business operations and this
is consistent with the Town’s decision in April 2011 not to support the methodology. The
members do not plan to sell the operations of the MRC but to continue to dispose of waste at
the site.
The method used by PWC does not account for the post closure obligation of the owners of
MRC of the Tamala Park site such as monitoring and any possible rehabilitation of the site that
are unknown at his stage. Any agreement for the City of Stirling to withdraw should be
conditional upon them retaining their post closure liabilities for the Tamala Park landfill in
proportion to the tonnes tipped to the total of members’ tonnes over the life of the landfill.
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