City of Newcastle has gone back to the drawing board on its planned materials recovery facility after rescinding a tender with the chosen builder and operator.
The council accepted a $56.7 million tender from Central Coast-based IQRenew in May 2023 for the design and construction of the city's first material recovery facility (MRF).
The facility would be capable of processing up to 85,000 tonnes per annum of recyclables including glass, plastic, metal and paper at the Summerhill Waste Management Centre.
But City of Newcastle said despite the best efforts of both parties, there were "outstanding commercial, technical and contractual" issues with the project.
"City of Newcastle does not consider these issues sufficiently resolved to enable it to enter into a contract," a council spokesperson said.
A recommendation to rescind the tender was approved by Newcastle councillors in a confidential session at the December council meeting.
The council also opted to reject all tenders for earthworks related to the MRF and an organics processing facility at Summerhill. The organics processing facility will convert food and garden waste into compost.
A report from the confidential meeting said separate tender prices for earthworks for the MRF indicated the cost could be $10 million higher than a pre-tender estimate of $4 million.
The MRF and organics processing facility are both awaiting approval by the Hunter and Central Coast Joint Regional Planning Panel.
The council plans to re-tender for the earthworks once the proposals are approved.
A City of Newcastle spokesperson said the council remained committed to building a MRF that increased the volume of waste diverted from landfill.
"We are currently working through how best to achieve this," the spokesperson said.
But the confidential report to the council said there were concerns the unresolved issues could increase the price above $56.7 million.
The Herald understands councillors were told IQRenew was willing to absorb some additional costs, but the council decided to reconsider its options.
The MRF was quoted as a $40 million project when it won $5 million in state and federal funding in 2021.
One councillor said they were worried about the price increasing.
"I don't have high hopes," the councillor said.
"It would be yet another follow-on of projects that have had significant cost blow-outs."
Another MRF in the works
The council planned the facility to be large enough to accept recycled materials from other council areas.
Newcastle currently produces about 15,000 tonnes of recyclables waste per year, less than a quarter of what the proposed Summerhill facility could accept.
But a second material recovery facility is being planned in the region by Hunter Resource Recovery, which represents Cessnock, Lake Macquarie, Maitland and Singleton councils. The facility would also serve Dungog, Muswellbrook and Upper Hunter councils.
It received draft authorisation from the Australian Competition and Consumer Commission on December 6, 2023.
City of Newcastle made a submission in October 2023 to the ACCC about the proposal saying the objective of the proposed Summerhill facility was to enable processing of recyclables from all Hunter councils.
The submission said City of Newcastle assumed its recovery facility would have the same prospects of success as any other tenderer for the Hunter Resource Recovery proposal, and that a new 60,000 tonne facility would cost at least $60 million.
But Hunter Resource Recovery responded to that submission on November 14, saying its independent expert analysis indicated a new facility capable of processing 100,000 tonne per annum would cost $30 million-$35 million.
It said of 10 expressions of interest it received, City of Newcastle's return did not rank in the top five based on a score matrix system.
"We felt that the CN proposal within that EOI would not offer the best value for money for all participating councils and would only benefit CN as a commercially operated facility," the response said.
"We would welcome a tender return from CN at some future stage and we wish them well with their venture."
City of Newcastle also said the costs associated with the collections and processing of its recyclables waste had increased by 152 per cent since 2018, while Hunter Resource Recovery said its member councils had experienced a 74 per cent increase in processing costs during that same period, and no increase in collection costs.
When asked if the Hunter Resource Recovery proposal influenced Newcastle council's decision to rescind the IQRenew tender, a City of Newcastle spokesperson said its expression of interest was a non-confirming one that proposed they not build a MRF, but rather use the one proposed for Summerhill.
"Given HRR's desire to own their own MRF, it was unsurprising that they didn't rank our alternative option more highly," the spokesperson said.
An update on the Summerhill MRF will be provided to Newcastle councillors in February 2024.
The waste industry
The tender rescission comes at a challenging time for waste and recycling management in Australia.
Australia previously exported more than a million tonnes of recycled material to China a year before the country introduced restrictions in 2018 under its National Sword policy.
Australia's largest plastic bag recycling program REDcycle collapsed in 2022 after it was revealed to be stockpiling hundreds of millions of bags dropped off by Coles and Woolies customers.
City of Newcastle has also long criticised the state government for not returning more funds to councils from waste levies, while Sydney is also running out of landfill space.
The City of Newcastle spokesperson said the council was focused on upgrading and optimising operations at Summerhill Waste Management Centre landfill and was not currently looking at any significant increase in the acceptance of waste from Sydney.
Newcastle's recycled materials are currently transported to IQRenew's Central Coast hub.
Recycled goods across the Hunter were previously processed at a private facility in Gateshead, however this closed in 2020.
The council invited expressions of interest to build and run a MRF, and advertised a selective tender to three companies in November 2022.
Tenders closed on March 14, 2023. Of the three selective tenderers, IQRenew submitted a conforming tender, while one non-conforming tender was received, and one company did not submit a tender.
