Original source · versioned page text
2016-02-02 P&O Committee - Item 7 - Attachment 1 - Waste Management PBA Draft Report
Text sections have not been matched to the original PDF pages. Use the original document to check page numbers.
Attachment 1, Item 7, Planning & Organisation Committee Agenda, 2 February 2016
Waste Management Financially
Significant Business Activity:
Public Benefit Assessment (PBA) of
the Application of Competition
Reforms
See the original
The page text is free to read. Viewing or downloading an original file needs an account.
Log in to see the originalSearchable page text hides email addresses. Original files are unchanged and may show email addresses.
Full text of the other 32 sections
Section 2
© Noosa Council 2016 www.noosa.qld.gov.au General Enquiries: By telephone: (07) 5329 6500 By email: [email protected] Fax: (07) 5329 6501 Street Address: 9 Pelican Street, TEWANTIN Postal address: PO Box 141, TEWANTIN QLD 4565 Endorsed by Noosa Council [date to be inserted] or insert document date
Section 3
Table of Contents
Executive Summary ...................................................................................................................... 2
1. PBA Background ................................................................................................................. 6
1.1 Need for this Public Benefit Assessment .................................................................. 6
1.2 Business Models Under Assessment ....................................................................... 6
1.3 Business Models Adopted by Other Queensland Councils ....................................... 8
1.4 The PBA Process ..................................................................................................... 8
2. Business Structure and Operations ................................................................................... 9
2.1 Business Background............................................................................................... 9
2.2 Business Structure and Governance ........................................................................ 9
2.3 Business Personnel ............................................................................................... 10
2.4 Support Services .................................................................................................... 10
2.5 Business Assets ..................................................................................................... 10
2.6 Operating Revenue ................................................................................................ 10
2.7 Operating Expenditure ........................................................................................... 11
2.8 Competition and Pricing ......................................................................................... 11
3. Consultation Process ........................................................................................................ 13
3.1 Consultation Process ............................................................................................. 13
3.2 Consultation Outcomes .......................................................................................... 13
4. Business Model Assessment ............................................................................................ 14
4.1 Community Impact Assessment of Business Models.............................................. 14
4.2 Overall Assessment of Business Models ................................................................ 15
4.3 Financial Assessment of Business Models ............................................................. 24
4.4 Impact Assessment Outcomes ............................................................................... 24
5. Recommendations ............................................................................................................. 26
5.1 PBA Recommendation on Preferred Business Structure ........................................ 26
5.2 Timetable for Reform Implementation .................................................................... 26
6. Appendix A: Implications of adopting each Business Model ........................................ 27
6.1 FCP Model ............................................................................................................. 27
6.2 CBU Model ............................................................................................................. 28
7. Appendix B: Qualitative Assessment Methodology ....................................................... 30
Waste Management Public Benefit Assessment Page 1
Section 4
Executive Summary
Public Benefit Assessment Background
Noosa Council is required to undertake a PBA of its financially significant waste management
business activity to determine the most appropriate business structure under National Competition
Policy (NCP) reforms. The reform options under consideration include:
1. The business remains a Council service, and continues with Full Cost Pricing (FCP) reform
(minimum level of reform); and
2. The business becomes a Commercialised Business Unit (CBU).
Reform Option Implications
Full Cost Pricing Business is essentially operated as just another branch within
Council’s organisational structure.
Prices are set in accordance with commercial cost recovery.
Council A commercialised business unit (not a separate legal entity) is
Commercialised created by Council to manage the business, with a dedicated
Business Unit business unit manager employed.
The business unit enjoys increased managerial autonomy for day-
to-day operations and strategic decisions.
The business may have a greater ability to source inputs from
outside of Council, subject to the framework adopted.
The business operates under its own business plan.
The business has more of a commercial orientation than under the
full cost pricing reform option, and is subject to separate more
detailed performance reporting (financial and non-financial).
Prices are set in accordance with commercial cost recovery.
The objective of the PBA will be to assess whether the benefit to the Noosa community (in terms of
service quality and cost) of applying the competitive neutrality principle in relation to a significant
business activity outweighs the costs of applying the competitive neutrality principle.
There are four key stages in the assessment process:
Stage 1 – Definition of the existing structure and operation of the business, including management
and reporting structures, annual income and expenditure, and other financial arrangements;
Stage 2 – Identification of, and consultation with, stakeholders in the community who might be
affected by the outcome of the PBA;
Stage 3 – Assessment of the potential impact of the business models under consideration on the
business activity and identified stakeholders; and
Stage 4 – Based on stages 1-3, the provision of recommendations to Council regarding which of
the business models is most appropriate for the business, including detail on the costs and benefits
of each model as well as a timetable for implementation of the recommended business model.
Business Profile Summary
Area Outcome
Business Functions The major services provided by the business include:
Waste collection and transport including commercial and domestic
Waste Management Public Benefit Assessment Page 2
Section 5
Area Outcome
waste, recycling, and green garden waste.
Operation of the Eumundi Road landfill for waste disposal and
resource recovery activities.
Operation of the Cooroy and Pomona waste transfer stations.
Waste management and waste minimisation promotional activities.
Business Structure The business resides within Council’s Community Services
and Governance directorate).
The Waste and Environmental Health Manager is responsible for
the waste management operations across the shire and directly
reports to the Director Community Services.
The business is operating under an interim Full Cost Pricing (FCP)
business model.
Personnel The business employs 8.6 full time equivalent staff in the
management and administration, collection and disposal functions.
Support Services The business currently utilises a number of support services from
Council via internal service arrangements and is charged a
calculated percentage (based on expenditure) of corporate
overhead costs to represent payment for these services.
Assets The current value of assets utilised by the business is $18.2 million,
with a replacement cost of $22.2 million.
The business does not own any significant assets for collection
services, as they are provided under contract.
Revenue and Waste utility charges account for $10.9 million (or 81%) of operating
Expenditure revenue for the business. Fees and charges account for a further
$2.3 million, with internal sales ($194k) and Community Service
Obligations ($82k) accounting for the remainder of operating
revenues.
Total operating expenses for the business in 2015/16 are $11
million. Significant expenditure items include materials and services
of $8.2 million, employee costs of $0.6 million, depreciation costs of
$0.5 million and corporate overhead costs of $1.1 million.
Competition and Collection services in the shire are generally non-competitive in
Pricing nature, with the business providing a monopoly service for all
standard general waste and recycling bin collections in accordance
with the provisions contained in the Local Government Act 1993.
The business also levies commercial charges for the disposal of
waste at the landfill and transfer stations. Charges are levied for
domestic and green waste, as well as compacted and loose
commercial waste (with charges based on a per vehicle or load
basis).
Consultation Process
A limited consultation program was undertaken to inform the community of the PBA process
given the level of reform already applied to the business, and previous PBA undertaken by
Sunshine Coast Regional Council in 2010 that included an extensive consultation process.
The PBA process was announced on Council’s internet site with a corresponding media
release (appearing in the local media) announcing the PBA and seeking community input. A
copy of the PBA Information Paper was also made available for download on Council’s internet
site
Only one response was received by the due date from an external stakeholder, who supported
the continuation of the current full cost pricing business model.
Waste Management Public Benefit Assessment Page 3
Section 6
Impact Assessment Summary
The following table provides a summary of the overall impacts of the alternative business models
under consideration.
Impact Area Impact Criteria FCP CBU
Business Unit Pricing NET COST (very low) NET COST (very low)
Financial Position Non-commercial activities NIL IMPACT NIL IMPACT
Administration NET COST (medium) NET COST (medium)
Operational Efficiency NET COST (low) NET BENEFIT (low)
Business Definition NET BENEFIT (medium) NET BENEFIT (low)
Noosa Council Community Service Provision NET BENEFIT (medium) NET BENEFIT
Budget Position (medium)
Financial Sustainability NET BENEFIT (high) NET BENEFIT
(medium)
Ratepayer Impact NET BENEFIT (high) NET BENEFIT
(medium)
Compliance NET BENEFIT (medium) MIXED IMPACT
Market Market Pricing NET BENEFIT (high) NET BENEFIT (low)
Competitive Neutrality NET BENEFIT (high) NET BENEFIT (high)
Business Staff Resourcing NIL IMPACT NET COST (low)
Morale NIL IMPACT MIXED IMPACT
Customers Pricing NET BENEFIT (high) NET BENEFIT (high)
Customer Service Provision NET BENEFIT (medium) MIXED IMPACT
Regional Supporting Regional Development NET BENEFIT (medium) NET BENEFIT (low)
Development and Sustainable Investment NET BENEFIT (low) NET BENEFIT (low)
Economic Stability
Social Welfare and Equity Between Customers NET BENEFIT (medium) NET BENEFIT
Equity (medium)
Ratepayer Equity NET BENEFIT (low) NET BENEFIT (low)
Inter-generational Equity NET BENEFIT (high) NET BENEFIT (high)
Community Affordability NIL IMPACT NET COST (low)
Environment Resource Sustainability NET BENEFIT (low) NET COST (low)
Environmental Outcomes MIXED IMPACT MIXED IMPACT
CONSOLIDATED OUTCOME NET BENEFIT NET BENEFIT
(medium) (low)
A brief summary of the net benefit for each impact area is provided below.
Financial Position of the Business - There are negligible impacts on the financial position of the
business from the adoption of either the FCP or CBU models, given both reform options require full
cost pricing principles to be applied to the business.
Noosa Council Budget Position - An overall net benefit for the Noosa Council budget would be
likely if the FCP model was adopted. Under both options Council’s financial sustainability will be
enhanced although Council will also be faced with increased compliance costs to support the
needs of the CBU.
Market - An overall net benefit for the Noosa market would be likely if the FCP model was adopted,
as whilst both reform options require full cost pricing principles to be applied to the business
additional compliance costs would need to be recovered from customers under the CBU model.
Business Staff - There are mixed impacts for business staff from the adoption of either models.
although the creation of additional management autonomy under the CBU model would potentially
realise a stronger business focus for the business employees.
Customers - There is likely to be a net benefit for consumers from the adoption of the FCP model.
Despite price increases being required under both models to ensure that full cost pricing
Waste Management Public Benefit Assessment Page 4
Section 7
requirements are being met in accordance with legislative requirements, slightly higher prices may
be required under the CBU model to recoup additional compliance costs.
Regional Development and Economic Stability - An overall net benefit for regional development
and economic stability would be likely if the FCP model was retained, as it would minimise
administration and compliance costs in the provision of waste and recycling services, provided
funds generated by the adoption of full cost pricing practices continue to be invested into waste
infrastructure (and landfill rehabilitation) to ensure sustainable service provision.
Social Welfare and Equity - An overall net benefit for social welfare and equity would be likely if the
FCP model was retained, given that administration and compliance costs are minimised and
Council retains control over what is largely a community service targeted at social and
environmental outcomes, subject to intergenerational equity being promoted by ensuring
appropriate ongoing levels of investment in waste service provision is maintained.
Environment - An overall net benefit on the environment would be likely if the FCP model was
retained, as it will provide Council greater control and flexibility in managing the delivery of the
environmental benefits targeted in waste strategy initiatives.
PBA Recommendation on Preferred Business Structure
The PBA shows that when comparing the net benefit of the available reform options, the adoption
of the Full Cost Pricing (FCP) business model provides the greater net community benefit when
compared to the Commercialised Business Unit (CBU) business model.
It is therefore recommended that to comply with legislative requirements associated
with the PBA process Council retains the Full Cost Pricing (FCP) business model
for the Waste Management business activity.
The FCP business model is appropriate moving forward as:
The FCP business model is currently adopted by Council for the business and can be easily
retained without any issues;
Council still has the flexibility to voluntarily apply additional commercial principles that it
considers will provide benefit to Council, ratepayers and the broader community at little to no
additional cost to customers.
The business currently has, and will continue to have, considerable legislative obligations
regarding the services it offers to the community, with the provision of waste and recycling
activities considered an essential community service with social and environmental objectives
rather than profit maximisation being the primary focus.
There will be increasing control and intervention in waste service provision resulting from
Federal and State policies and agendas, with these changes likely to require continued
involvement by Council in strategic decision making.
Implementation Timetable
Given FCP reforms are currently applied to the business current processes and timings
surrounding the annual review of business expenditure thresholds should be continued.
Waste Management Public Benefit Assessment Page 5
Section 8
1. PBA Background
1.1 Need for this Public Benefit Assessment
Noosa Council (Council) is responsible for providing waste management services to residents and
businesses in the Noosa shire. Between March 2008 and December 2014 these services were
provided by the Sunshine Coast Regional Council following Council amalgamations that resulted in
the amalgamation of the Noosa, Maroochy and Caloundra Councils, and their corresponding waste
management activities.
Following the amalgamation Sunshine Coast Regional Council was required to undertake a public
benefit assessment of the new regional waste management business. The Public Benefit
Assessment (PBA) undertaken in 2010 recommended the implementation of full cost pricing
reforms to the business, which was subsequently adopted by the Sunshine Coast Regional
Council.
Waste management service provision was further impacted following the de-amalgamation of
Noosa from the Sunshine Coast Regional Council on 1 January 2014, whereby Noosa Council
resumed responsibility for waste management in the new Noosa shire. The state government de-
amalgamation legislation included provisions regarding Council businesses and the requirement to
undertake new public benefit assessments should they be considered financially significant. Whilst
Noosa Council questioned the cost benefit to the community of undertaking a further PBA given
the recent PBA undertaken by the Sunshine Coast Regional Council in 2010, the state government
advised it was still required.
As such Council is now required to undertake a PBA of its financially significant waste
management business activity to determine the most appropriate business structure under
National Competition Policy (NCP) reforms. The reform options under consideration include:
3. The business remains a Council service, and continues with Full Cost Pricing (FCP) reform
(minimum level of reform); and
4. The business becomes a Commercialised Business Unit (CBU).
The objective of the PBA will be to assess whether the benefit to the Noosa community (in terms of
service quality and cost) of applying the competitive neutrality principle in relation to a significant
business activity outweighs the costs of applying the competitive neutrality principle. Under the
competitive neutrality principle, an entity that is conducting a business activity in competition with
the private sector should not enjoy a net advantage over competitors only because the entity is in
the public sector.
1.2 Business Models Under Assessment
It is important to note that both reform options involve setting prices on the same cost base as the
private sector, incorporating:
Direct and indirect costs (e.g. wages, materials, consumables, superannuation);
Administration and management costs;
Return of capital/depreciation;
Return on capital/assets (resources, infrastructure, land, buildings, plant/equipment);
Incorporation of tax equivalents such as Council rates, land tax, payroll tax, FBT and taxes on
business profits; and
Waste Management Public Benefit Assessment Page 6
Section 9
Adjustments for other advantages and disadvantages of public sector ownership.
Under both business models, non-commercial activities undertaken by the business at the direction
of Council (e.g. free waste disposal for community groups) may also need to be funded through
community service obligation payments, if the business is unable to levy a commercial charge for
such services across the community.
The primary differences between the business models under assessment are outlined in the table
on the following page. These are further expanded in Appendix A.
Table 1.1: Differences between the Available Business Models under Assessment
Reform Option Implications
Full Cost Pricing Business is essentially operated as just another branch within
Council’s organisational structure.
Prices are set in accordance with commercial cost recovery.
Council A commercialised business unit (not a separate legal entity) is
Commercialised created by Council to manage the business, with a dedicated
Business Unit business unit manager employed.
The business unit enjoys increased managerial autonomy for day-
to-day operations and strategic decisions.
The business may have a greater ability to source inputs from
outside of Council, subject to the framework adopted.
The business operates under its own business plan.
The business has more of a commercial orientation than under the
full cost pricing reform option, and is subject to separate more
detailed performance reporting (financial and non-financial).
Prices are set in accordance with commercial cost recovery.
Adoption of either of the above business models is intended to make the true costs and
performance levels of Council business activities more transparent and accountable, thereby
facilitating better decisions by Elected Members, Chief Executive Officers and Managers within
Queensland Councils. NCP makes no presumption that public sector business activities are
inefficient. Instead, the aim of the reforms is to encourage productivity improvement and best
practice in the operations of the Council businesses, as well as providing for a level playing field
between the public and private sectors in service provision.
It is also important to note that the two reform options under consideration do not include
privatisation or the ‘selling off’ of the business. In both instances, Council will retain ownership of
the waste management business. The primary differences between the two options pertain to the
level of responsibility ascribed to Council (under FCP) versus the business manager (under CBU)
potentially responsible for the operation of the business.
Waste Management Public Benefit Assessment Page 7
Section 10
1.3 Business Models Adopted by Other Queensland Councils
The following tables provide a summary of the structural reforms currently adopted by other
Queensland Councils for their waste management significant business activities for the 2015/16
financial year. As at the date of this PBA, for comparative purposes Noosa Council is classed as a
category 4 Council.
Table 1.2: Business Reforms Adopted by Other Queensland Councils
Council Council Current Reform Level
Size
Gold Coast 9 Council Commercialised
Cairns 6 Business Unit
Ipswich 7
Logan 7
Mackay 6
Townsville 6
Brisbane NA Full Cost Pricing
Sunshine Coast 8
Moreton Bay 8
Bundaberg 5
Fraser Coast 5
Redland 6
Rockhampton 6
Toowoomba 6
Noosa (current) 4
Note: The Local Government Remuneration and Discipline Tribunal must establish categories of local governments to enable it to
decide the remuneration that is to be paid to mayors and other councillors in each category of local government. Size of the local
government area and population are some of the criteria used when determining category size.
1.4 The PBA Process
The objective of the PBA is to determine whether or not the benefits that may be realised from the
two business models under consideration outweigh the costs, and which business model will
ensure the greatest net benefit for the community.
There are four key stages in the assessment process:
Stage 1 – Definition of the existing structure and operation of the business, including management
and reporting structures, annual income and expenditure, and other financial arrangements;
Stage 2 – Identification of, and consultation with, stakeholders in the community who might be
affected by the outcome of the PBA;
Stage 3 – Assessment of the potential impact of the business models under consideration on the
business activity and identified stakeholders; and
Stage 4 – Based on stages 1-3, the provision of recommendations to Council regarding which of
the business models is most appropriate for the business, including detail on the costs and benefits
of each model as well as a timetable for implementation of the recommended business model.
Along with satisfying the legislative obligations of undertaking a PBA, the final PBA report may also
include consideration of strategic issues identified during the consultation program and
assessment process.
Waste Management Public Benefit Assessment Page 8
Section 11
2. Business Structure and Operations
2.1 Business Background
Noosa Council’s waste management business is responsible for the delivery of waste management
activities for Noosa residents and business. The major services provided to service the Noosa
population include:
Waste collection and transport including commercial and domestic waste, recycling, and green
garden waste.
Operation of the Eumundi Road landfill for waste disposal and resource recovery activities.
Operation of the Cooroy and Pomona waste transfer stations.
Waste management and waste minimisation promotional activities.
The business provides weekly waste collection services to approximately 26,000 residential
customers and 5,000 commercial customers. Waste collection and landfill services are provided
through contracts with the private sector. These contracts are due to expire soon and are expected
to go out to tender in 2016. Additional business activities undertaken under contract include:
Concrete crushing and screening.
Green waste and wood waste processing and transport.
Landfill gas capture.
Ferrous and non-ferrous metals recovery and sale.
Hazardous liquid waste collection.
Liquid waste collection.
2.2 Business Structure and Governance
The following diagram presents the current structure of the waste management business, and its
relationship within the broader Council organisational structure (where it resides within the
Community Services directorate). The Waste and Environmental Health Manager is responsible for
the waste management operations across the shire and directly reports to the Director Community
Services. The business is operating under an interim Full Cost Pricing (FCP) business model
(pending the outcome of this PBA).
Figure 2.1: Current Business Structure
Council
CEO
Director
Community
Services
Manager Waste and
Environmental
Health
Project
Officers
Waste Co-
ordinator
Waste Management Public Benefit Assessment Page 9
Section 12
2.3 Business Personnel
The following table outlines the resources currently employed by the business to deliver services to
the community.
Table 2.1: Waste Management Business Employees
Team Employees
(FTE)
Management and Co-ordination 4
Collection 1
Disposal 3.6
Total 8.6
Note: Waste collection services are provided under contract
2.4 Support Services
The business utilises a number of support services from Council via internal service arrangements
and is charged a calculated percentage (based on activity-based costing principles) of corporate
overhead costs to represent payment for these services. Support services include Human
Resources, Information Systems, Financial and other services (Accounting, Payroll, Procurement,
Accounts Payable / Receivable, Customer Service, Records Management etc.)
2.5 Business Assets
As at 30 June 2015 the value of assets utilised by the business to provide services to its customers
were as follows (noting that waste collection services are provided under contract).
Table 2.2: Value of Business Assets
Asset Type Replacement Accumulated Written Down
Value Depreciation Value
($’000) ($’000) ($’000)
Land $5,790 $- $5,790
Buildings $986 $201 $785
Other Infrastructure $15,202 $3,774 $11,428
Plant & Equipment $263 $25 $238
Total $22,242 $4,001 $18,241
2.6 Operating Revenue
Waste utility charges account for $10.9 million (or 81%) of operating revenue for the business.
Fees and charges account for a further $2.3 million, with internal sales ($194k) and Community
Service Obligations ($82k) accounting for the remainder of operating revenues.
Waste Management Public Benefit Assessment Page 10
Section 13
Figure 2.2: Operating Revenue Sources
1.4% 0.6%
17.2%
Utility Charges
Fees & Other
Charges
Internal Sales
Community Service
Obligations
80.7%
2.7 Operating Expenditure
Total operating expenses for the business in 2015/16 are $11 million. Significant expenditure items
include materials and services of $8.2 million, employee costs of $0.6 million, depreciation costs of
$0.5 million and corporate overhead costs of $1.1 million.
Figure 2.3: Operating Expenditure Sources
4.6%
10.1%
Employee Benefits
5.0% 5.7% Materials & Services
Depreciation
Internal Expenditure
Competitive
Neutrality
74.5%
2.8 Competition and Pricing
Waste collection charges are based on user pays principles and are levied on all properties
receiving a general waste and recycling service. The collection service includes a weekly general
waste service and a fortnightly recycling service. The 2015/16 annual charge for the service is
$275.00 for one 240L refuse and one 240L recycling bin. The business also offers an optional
fortnightly green waste collection service for customers. The current charge for this service is
$65.00 per 240L bin. Liquid waste collection services are also provided for approximately 78
customers in the shire with waste holding tanks. Charges for this service are also users pays
based according to the frequency of required services.
Collection services in the shire are generally non-competitive in nature, with the business providing
a monopoly service for all standard general waste and recycling bin collections in accordance with
the provisions contained in the Local Government Act 1993. The business also levies commercial
Waste Management Public Benefit Assessment Page 11
Section 14
charges for the disposal of waste at the landfill and transfer stations. Charges are levied for domestic and green waste, as well as compacted and loose commercial waste (with charges based on a per vehicle or load basis). Waste Management Public Benefit Assessment Page 12
Section 15
3. Consultation Process
3.1 Consultation Process
A limited consultation program was undertaken to inform the community of the PBA process given
the level of reform already applied to the business, and previous PBA undertaken by Sunshine
Coast Regional Council in 2010 that included an extensive consultation process.
The consultation process undertaken involved the following:
Table 3.1: PBA Consultation Process
Stage Action
Information Preparation A Stakeholder Information Paper was prepared for distribution
to key stakeholders, setting out the key features of competition
policy and competitive neutrality, as well as the potential
implications of each business model
Public Announcement The PBA process was announced on Council’s internet site with
a corresponding media release (appearing in the local media)
announcing the PBA and seeking community input
A copy of the PBA Information Paper was also made available
for download on Council’s internet site
Interested parties were invited to submit comments on the
implications of each business model by 18th December 2015
Internal Consultation Councillors were made aware of the PBA process and provided
opportunity for input
Council’s CEO and senior management discussed the PBA and
potential outcomes
3.2 Consultation Outcomes
Only one response was received by the due date from an external stakeholder, who supported the
continuation of the current full cost pricing business model.
The lack of detailed comments received from external stakeholders as part of the PBA consultation
process can possibly be attributed to a number of factors, namely:
The waste management function already operates as a business activity in accordance with full
cost pricing principles;
Consumers, both residential and non-residential, have become accustomed to user pays
based waste utility charges that reflect levels of use;
The reform options under discussion are not expected to result in any substantial changes to
the current pricing structure; and
National Competition Policy objectives have largely been achieved since they were introduced
20 years ago.
Waste Management Public Benefit Assessment Page 13
Section 16
4. Business Model Assessment 4.1 Community Impact Assessment of Business Models Traditionally, PBAs have assessed the impacts of moving from the current business model adopted by Council to the adoption of the FCP or CBU models (for financially significant business activities). However, when PBAs were originally undertaken following the introduction of NCP reform in the late 1990s, the current business model adopted by Council generally featured no application of competition reforms. Given that Council’s waste management business is reasonably advanced in the application of competition reforms, the traditional assessment method is not appropriate in determining net community impacts. As such, this community impact assessment considers the most appropriate business model moving forward, after taking into account specific regional factors and implications for Council at the local level. It is evident from the analysis contained in the next few pages that most of the differences between the two business models under consideration relate to the extent of managerial autonomy from Council, reporting processes and the level of commercial orientation in business operations. As such, most of the impacts cannot be quantified and are instead qualitatively assessed. The following impact areas are considered in the impact assessment: Financial position of the business; Council budget; Market; Staff; Consumers; Regional development and stability; Social welfare and equity; and Environment. Waste Management Public Benefit Assessment Page 14
Section 17
4.2 Overall Assessment of Business Models
The following tables provide an overall assessment of the alternative business models versus the base case (i.e. the FCP business model) using a
qualitative framework adapted from the Australian/New Zealand Standard for risk management (AS/NZS 31000:2009), with more detail on the
framework provided in Appendix B.
Table 4.1: Impact Assessment of FCP Business Model
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
Business Unit Pricing Benefits The business must continue to apply full cost price-setting n.a. n.a. Nil Benefit
Financial practices and user pays principles in the pricing of goods
Position NET COST (very and services to ensure ongoing financial sustainability.
low) Costs Some potential for political interference in price-setting Very Low Low Very Low Cost
practices, although this also exists under the CBU model.
Non Commercial Benefits Non-commercial activities undertaken are still required to n.a. n.a. Nil Benefit
Activities Costs be identified and funded via CSO payments funded by the n.a. n.a. Nil Cost
general rate to the business, which should ensure
NIL IMPACT appropriate cost recovery for all activities undertaken,
enhanced transparency in service provision and the
removal of any potential hidden cross subsidies between
customer classes.
Administration Benefits Requires the ongoing use of a pricing model for the n.a. n.a. Nil Benefit
Costs business, to ensure legislative requirements regarding full Very High Low Medium Cost
NET COST cost recovery are met.
(medium)
Operational Benefits The identification of true direct and indirect operating and Moderate Low Low Benefit
Efficiency capital costs incurred by the business may improve
decision making.
NET COST Costs There would be a reduced commercial focus for the Moderate Moderate Medium Cost
(low) business, with reporting processes and performance
monitoring limited to minimum statutory requirements and
current Council reporting arrangements (which may
possibly reduce any incentive for the business to operate
efficiently and maximise profitability).
Business Benefits The business would continue to remain separated in Very High Very Low Medium Benefit
Definition Council’s organisational structure under the Community
Services Department, with the Manager Waste and
NET BENEFIT Environmental Health continuing to oversee the day to day
(medium) operations of the business.
Benefits The identification of all costs associated with the business Moderate Low Low Benefit
Waste Management Public Benefit Assessment Page 15
Section 18
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
may be enhanced via continued refinement of cost
attribution to the business, in addition to the recognition
and appropriate cost recovery of any non-commercial
functions and activities via CSO payments from the general
fund.
Costs Nil Identified n.a. n.a. Nil Cost
Noosa Council Community Benefits Non-commercial activities undertaken by the business Very High Very Low Medium Benefit
Budget Position Service Provision would be able to continue without community impact
funded via transparent CSO payments from the general
NET fund.
BENEFIT Costs Nil Identified n.a. n.a. Nil Cost
(medium)
Financial Benefits Requires the business to set prices on a commercial basis Very High Moderate High Benefit
Sustainability Costs in a transparent manner to ensure long-term business n.a. n.a. Nil Cost
viability and contribute to Council’s financial sustainability
NET through the payment of dividends, competitive neutrality
BENEFIT payments and taxation equivalents.
(high)
Ratepayer Impact Benefits There would be a greater focus on ensuring that charges High High High Benefit
Costs are set at cost recovery levels, with dividend and taxation n.a. n.a. Nil Cost
NET payments from the business potentially available to the
BENEFIT Council general fund for broader community benefit.
(high)
Compliance Benefits The application of full cost pricing will ensure that the Very High Moderate High Benefit
business complies with the relevant aspects of competitive
NET neutrality applicable to a significant business activity in a
BENEFIT competitive business environment.
(medium) Costs Some minor compliance relating to the need to support a High Very Low Low Cost
FCP model is required, including reporting the business
within the annual budget and annual report.
Market Market Pricing Benefits The adoption of commercial, full cost recovery pricing Very High Moderate High Benefit
Costs principles will ensure that product prices are targeted at a n.a. n.a. Nil Cost
NET minimum level that reflects the full economic cost of
BENEFIT service, whilst ensuring that competitive neutrality
(high) principles are complied with when considering pricing
strategies with respect to market share.
Competitive Benefits Under both the CBU and FCP models, the business would Very High Moderate High Benefit
Neutrality Costs be required to set prices under the competitive neutrality n.a. n.a. Nil Cost
principle, therefore eliminating any potential advantages
NET associated with local government ownership and ensuring
BENEFIT that prices are set on the same basis as private operators.
(high)
Waste Management Public Benefit Assessment Page 16
Section 19
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
Business Staff Resourcing Benefits Resourcing within the business under the FCP model will n.a. n.a. Nil Benefit
Costs be dependent on customer demand rather than from n.a. n.a. Nil Cost
NIL IMPACT additional compliance related responsibilities.
Morale Benefits Nil identified. n.a. n.a. Nil Benefit
Costs n.a. n.a. Nil Cost
NIL IMPACT
Customers Pricing Benefits The adoption of user pays pricing principles will ensure that Very High Moderate High Benefit
Costs all customers are treated in an equitable manner and there n.a. n.a. Nil Cost
NET are no cross subsidies between customers in product
BENEFIT supply.
(high)
Customer Service Benefits Little, if any, confusion or impact on customer service Moderate Moderate Medium Benefit
Provision Costs provision would be likely, given the current FCP structure in n.a. n.a. Nil Cost
place and ustomer perception of the business as a Council
NET function.
BENEFIT
(medium)
Regional Supporting Benefits Full cost pricing practices provides the funds necessary to Very High Low Medium Benefit
Development Regional Costs ensure appropriate ongoing investment in waste n.a. n.a. Nil Cost
and Economic Development infrastructure to continue to support ongoing regional
Stability demand for waste services, providing business and
NET industry with the resources required to continue ongoing
BENEFIT regional development.
(medium)
Sustainable Benefits Appropriate price signals would be sent to businesses High Low Medium Benefit
Investment looking to invest in the region.
Costs Under the FCP business model, administration and High Very Low Low Cost
NET compliance costs would be minimised and constrained
BENEFIT towards minimum statutory requirements.
(low)
Social Welfare Equity Between Benefits The adoption of full cost pricing principles on a per product Very High Low Medium Benefit
and Equity Customers Costs basis will ensure that individual products are appropriately n.a. n.a. Nil Cost
priced relative to the market (and allow transparent
NET decision making should cross subsidisation between
BENEFIT products and respective customer groups through specific
(medium) pricing arrangements be required).
Ratepayer Equity Benefits Transparent decision making regarding the provision of Moderate Low Low Benefit
Costs non-commercial and community-focused activities should n.a. n.a. Nil Cost
NET occur, with Council directives funded via CSO payments to
BENEFIT the business funded by the general rate (with Council
(low)
Waste Management Public Benefit Assessment Page 17
Section 20
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
decisions being borne by all ratepayers rather than just
business customers).
Inter-generational Benefits Adopting full cost pricing practices and recognition of Very High Moderate High Benefit
Equity Costs landfill lifecycle costs will provide the funds necessary to n.a. n.a. Nil Cost
ensure sustainable service provision through the longer
NET term, ensuring that the incidence of costs is attributed to
BENEFIT the period in which they are incurred rather than left for
(high) future generations.
Community Benefits Council retains greatest control over the setting of product n.a. n.a. Nil Benefit
Affordability Costs prices (and therefore the impact on social welfare from n.a. n.a. Nil Cost
such decisions) under the FCP model, although ongoing
NIL IMPACT pricing levels for products will most likely be determined by
the market regardless of business model applied.
Environment Resource Benefits The FCP model may provide Council with greater flexibility Moderate Low Low Benefit
Sustainability to adopt recycling and reuse strategies that may not be
considered by a CBU on cost grounds.
NET Benefits Council would have greater oversight and control over the Low Moderate Low Benefit
BENEFIT business under the FCP model, where it would be able to
(low) continually review and manage operational plan strategies
in relation to waste management.
Costs Nil identified. n.a. n.a. Nil Cost
Environmental Benefits Environmental outcomes would continue to be High Very Low Low Benefit
Outcomes appropriately regulated under the FCP model.
Costs Service performance may diminish with associated Low Moderate Low Cost
MIXED environmental implications should the business not
IMPACT undertake appropriate levels of operating and capital
investment in infrastructure (in line with identified levels
needed from established asset management plans and
licensing conditions).
Waste Management Public Benefit Assessment Page 18
Section 21
Table 4.2: Impact Assessment of Commercial Business Unit Model
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
Business Unit Pricing Benefits The business must continue to apply full cost price-setting n.a. n.a. Nil Benefit
Financial practices and user pays principles in the pricing of goods
Position NET COST (very and services to ensure ongoing financial sustainability.
low) Costs Some potential for political interference in price-setting Very Low Low Very Low Cost
practices, although this also exists under the FCP model.
Non Commercial Benefits Non-commercial activities undertaken are still required to n.a. n.a. Nil Benefit
Activities Costs be identified and funded via CSO payments funded by the n.a. n.a. Nil Cost
general rate to the business, which should ensure
NIL IMPACT appropriate cost recovery for all activities undertaken,
enhanced transparency in service provision and the
removal of any potential hidden cross subsidies between
customer classes.
Administration Benefits Nil identified n.a. n.a. Nil Benefit
Costs The business would be required to undertake additional Very High Low Medium Cost
NET COST statutory reporting functions associated with a CBU
(medium) structure, including annual performance plans, separate
reporting of performance in Council’s annual report, annual
reporting and submission of tax equivalent returns.
Costs Requires the ongoing use of a pricing model for the Very High Low Medium Cost
business, to ensure legislative requirements regarding full
cost recovery are met.
Operational Benefits The identification of true direct and indirect operating and Moderate Low Low Benefit
Efficiency capital costs incurred by the business may improve
decision making.
NET Benefits Potential for a greater degree of management autonomy Moderate Low Low Benefit
BENEFIT and business independence (via delegated authority from
(low) Council’s Chief Executive Officer) which may allow for
more efficient decision making and more timely responses
to business and customer issues.
Benefits Greater potential scope for the business to implement Low Low Low Benefit
formal service level agreements for internal services
provided by Council to ensure value for money and more
accurate cost inputs for pricing determination.
Costs Nil identified n.a. n.a. Nil Benefit
Business Benefits An enhancement in the clarity of business objectives / Moderate Low Low Benefit
Waste Management Public Benefit Assessment Page 19
Section 22
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
Definition targets as a result of the adoption of the CBU model may
provide for increased marketing activities and external
NET product sales (and profitability)..
BENEFIT Benefits The identification of all costs associated with the business Low Low Low Benefit
(low) may be enhanced via continued refinement of cost
attribution to the business, in addition to the recognition
and appropriate cost recovery of any non-commercial
functions and activities via CSO payments from the general
fund.
Costs Additional costs associated with CBU marketing and Moderate Low Low Cost
branding may not realise increased product sales due to
the competitive nature of the market.
Noosa Council Community Benefits Non-commercial activities undertaken by the business Very High Very Low Medium Benefit
Budget Position Service Provision would be able to continue without community impact
funded via transparent CSO payments from the general
NET fund.
BENEFIT Costs Nil Identified n.a. n.a. Nil Cost
(medium)
Financial Benefits Requires the business to set prices on a commercial basis Very High Moderate High Benefit
Sustainability in a transparent manner to ensure long-term business
viability and contribute to Council’s financial sustainability
NET through the payment of dividends, competitive neutrality
BENEFIT payments and taxation equivalents.
(medium) Benefits Clearly defined service levels and performance standards Low Low Low Benefit
documented in service level agreements between Council
and the CBU may assist Council in gaining productivity
improvements for internal services.
Costs Possibility that reduced payments for internal support Low Moderate Low Cost
services from the business (via formal service level
agreements) would still need to be funded through other
areas of Council’s operations (provided existing levels of
internal services remain).
Ratepayer Impact Benefits There would be a greater focus on ensuring that charges High High High Benefit
are set at cost recovery levels, with dividend and taxation
NET payments from the business potentially available to the
BENEFIT Council general fund for broader community benefit.
(medium)
Costs There may be negative ratepayer impacts of more Low Moderate Low Cost
commercial decisions in the provision of waste services to
Waste Management Public Benefit Assessment Page 20
Section 23
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
the community under the CBU model (e.g.
reduced network of transfer stations, reduced recycling),
although Council still retains the ultimate decision-making
power regarding the setting of rates and charges under
both business models.
Compliance Benefits The application of full cost pricing will ensure that the Very High Moderate High Benefit
business complies with the relevant aspects of competitive
MIXED IMPACT neutrality applicable to a significant business activity in a
competitive business environment.
Costs Council would face increased compliance relating to the Very High Low Medium Cost
need to support the CBU, including service level
agreement negotiation and documentation, corporate plan
reporting requirements, taxation equivalent returns,
reporting the business separately within the annual budget
and consolidating the business annual performance plan
outcomes within Council’s annual report, etc.
Market Market Pricing Benefits The adoption of commercial, full cost recovery pricing Very High Moderate High Benefit
principles will ensure that product prices are targeted at a
NET minimum level that reflects the full economic cost of
BENEFIT service, whilst ensuring that competitive neutrality
(low) principles are complied with when considering pricing
strategies with respect to market share.
Costs Additional costs associated with the CBU model Very High Low Medium Cost
(compliance costs) would need to be recovered through
prices charged to customers.
Competitive Benefits Under both the CBU and FCP models, the business would Very High Moderate High Benefit
Neutrality Costs be required to set prices under the competitive neutrality n.a. n.a. Nil Cost
principle, therefore eliminating any potential advantages
NET associated with local government ownership and ensuring
BENEFIT that prices are set on the same basis as private operators.
(high)
Business Staff Resourcing Benefits Nil identified n.a. n.a. Nil Benefit
Costs Additional costs would likely be incurred to allow the Very High Moderate High Cost
NET COST business to maximise commercial opportunities as well as
(low) to ensure CBU compliance with additional statutory
reporting requirements.
Morale Benefits The management autonomy created by CBU reforms may Moderate Low Low Benefit
potentially assign a certain degree of responsibility and a
MIXED IMPACT stronger performance culture to the business and therefore
its employees.
Costs The adoption of the CBU model would result in additional Moderate Low Low Cost
compliance related responsibilities for the business
Waste Management Public Benefit Assessment Page 21
Section 24
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
manager and administrative staff, and may impact
adversely on staff morale if resources were insufficient to
cope with any increased workload (and additional
resources were not provided).
Customers Pricing Benefits The adoption of user pays pricing principles will ensure that Very High Moderate High Benefit
Costs all customers are treated in an equitable manner and there n.a. n.a. Nil Cost
NET are no cross subsidies between customers in product
BENEFIT supply.
(high)
Customer Service Benefits Waste and recycling services would be provided by the Moderate Low Low Benefit
Provision CBU which would be branded as such to deal with
customer service issues directly in accordance with its
MIXED IMPACT established service level performance targets.
Costs Some confusion may occur in the community regarding Low Low Low Cost
whether the CBU is focussed on maximising profits or
meeting social and environmental objectives
Regional Supporting Benefits Full cost pricing practices provides the funds necessary to Very High Low Medium Benefit
Development Regional ensure appropriate ongoing investment in waste
and Economic Development infrastructure to continue to support ongoing regional
Stability demand for waste services, providing business and
NET industry with the resources required to continue ongoing
BENEFIT regional development.
(low) Costs Additional costs would be incurred under a CBU model due Moderate Low Low Cost
to additional compliance related responsibilities for the
business manager and administrative staff.
Sustainable Benefits Appropriate price signals would be sent to businesses High Low Medium Benefit
Investment looking to invest in the region.
Costs Additional costs would be incurred under a CBU model due Moderate Low Low Cost
NET to additional compliance related responsibilities for the
BENEFIT business manager and administrative staff.
(low)
Social Welfare Equity Between Benefits The adoption of full cost pricing principles on a per product Very High Low Medium Benefit
and Equity Customers Costs basis will ensure that individual products are appropriately n.a. n.a. Nil Cost
priced relative to the market (and allow transparent
NET decision making should cross subsidisation between
BENEFIT products and respective customer groups through specific
(medium) pricing arrangements be required).
Ratepayer Equity Benefits Transparent decision making regarding the provision of Moderate Low Low Benefit
Costs non-commercial and community-focused activities should n.a. n.a. Nil Cost
Waste Management Public Benefit Assessment Page 22
Section 25
Impact Area Impact Criteria Impact Benefits / Cost Description Qualitative Assessment
Type
Likelihood Consequence Impact
NET occur, with Council directives funded via CSO payments to
BENEFIT the business funded by the general rate (with Council
(low) decisions being borne by all ratepayers rather than just
business customers).
Inter-generational Benefits Adopting full cost pricing practices and recognition of Very High Moderate High Benefit
Equity Costs landfill lifecycle costs will provide the funds necessary to n.a. n.a. Nil Cost
ensure sustainable service provision through the longer
NET term, ensuring that the incidence of costs is attributed to
BENEFIT the period in which they are incurred rather than left for
(high) future generations.
Community Benefits Council retains some control over the setting of product n.a. n.a. Nil Benefit
Affordability prices (and therefore the impact on social welfare from
such decisions) under the CBU model.
NET COST Costs Additional costs associated with the CBU model Low Moderate Low Cost
(low) (compliance costs) would need to be recovered through
prices charged to customers..
Environment Resource Benefits Nil identified n.a. n.a. Nil Benefit
Sustainability Costs The CBU model may provide Council with reduced control Low Moderate Low Cost
and flexibility to drive the achievement of potential future
NET COST waste disposal targets, which may be more achievable
(low) under the FCP model (with a CBU model more likely to
focus on the cheapest solution to maximise profitability).
Costs The CBU model may provide Council with reduced Low Moderate Low Cost
flexibility to adopt recycling and reuse strategies (on cost
grounds).
Environmental Benefits Environmental outcomes would continue to be High Very Low Low Benefit
Outcomes appropriately regulated under the CBU model.
Costs Service performance may diminish with associated Low Moderate Low Cost
MIXED environmental implications should the business not
IMPACT undertake appropriate levels of operating and capital
investment in infrastructure (in line with identified levels
needed from established asset management plans and
licensing conditions).
Waste Management Public Benefit Assessment Page 23
Section 26
4.3 Financial Assessment of Business Models
The impact assessment analysis in the preceding section identified a number of qualitative
financial implications associated with the adoption of each business model, including additional
compliance related costs as well as the potential commercial benefits that may be realised under
the CBU model.
Additional ongoing compliance costs for the CBU business model were estimated according to the
specific legislative obligations that would be incurred if adopted. It was estimated that one
additional employee would be required under the CBU model given the greater level of compliance
required compared to the FCP business model.
In terms of establishment costs for the CBU business model, it was assumed that any incurred
costs could be absorbed within the current business expenditure base. Also, any identified
efficiencies associated with internal service levels negotiated under the CBU model were not
included (given Council will have to reallocate these costs internally). Other operating expenses
associated with compliance were also estimated and included (such as branding and advertising,
recruitment costs, publication costs, etc.). The total ongoing compliance costs under each model
were estimated as follows:
Table 4.3: FCP and CBU Annual Compliance Cost Estimates
Description FCP Model CBU Model
Salaries (including on costs) $- $100,000
Other Operating Expenses $- $40,000
Financial and Pricing Model $20,000 $20,000
Total $20,000 $160,000
4.4 Impact Assessment Outcomes
Table 4.4: Impact Assessment Summary
Impact Area Impact Criteria FCP CBU
Business Unit Pricing NET COST (very low) NET COST (very low)
Financial Position Non-commercial activities NIL IMPACT NIL IMPACT
Administration NET COST (medium) NET COST (medium)
Operational Efficiency NET COST (low) NET BENEFIT (low)
Business Definition NET BENEFIT (medium) NET BENEFIT (low)
Noosa Council Community Service Provision NET BENEFIT (medium) NET BENEFIT
Budget Position (medium)
Financial Sustainability NET BENEFIT (high) NET BENEFIT
(medium)
Ratepayer Impact NET BENEFIT (high) NET BENEFIT
(medium)
Compliance NET BENEFIT (medium) MIXED IMPACT
Market Market Pricing NET BENEFIT (high) NET BENEFIT (low)
Competitive Neutrality NET BENEFIT (high) NET BENEFIT (high)
Business Staff Resourcing NIL IMPACT NET COST (low)
Morale NIL IMPACT MIXED IMPACT
Customers Pricing NET BENEFIT (high) NET BENEFIT (high)
Customer Service Provision NET BENEFIT (medium) MIXED IMPACT
Regional Supporting Regional Development NET BENEFIT (medium) NET BENEFIT (low)
Development and Sustainable Investment NET BENEFIT (low) NET BENEFIT (low)
Economic Stability
Social Welfare and Equity Between Customers NET BENEFIT (medium) NET BENEFIT
Equity (medium)
Ratepayer Equity NET BENEFIT (low) NET BENEFIT (low)
Inter-generational Equity NET BENEFIT (high) NET BENEFIT (high)
Community Affordability NIL IMPACT NET COST (low)
Environment Resource Sustainability NET BENEFIT (low) NET COST (low)
Environmental Outcomes MIXED IMPACT MIXED IMPACT
CONSOLIDATED OUTCOME NET BENEFIT NET BENEFIT
Waste Management Public Benefit Assessment Page 24
Section 27
Impact Area Impact Criteria FCP CBU
(medium) (low)
A brief summary of the net benefit for each impact area is provided below.
Financial Position of the Business - There are negligible impacts on the financial position of the
business from the adoption of either the FCP or CBU models, given both reform options require full
cost pricing principles to be applied to the business.
Noosa Council Budget Position - An overall net benefit for the Noosa Council budget would be
likely if the FCP model was adopted. Under both options Council’s financial sustainability will be
enhanced although Council will also be faced with increased compliance costs to support the
needs of the CBU.
Market - An overall net benefit for the Noosa market would be likely if the FCP model was adopted,
as whilst both reform options require full cost pricing principles to be applied to the business
additional compliance costs would need to be recovered from customers under the CBU model.
Business Staff - There are mixed impacts for business staff from the adoption of either models.
although the creation of additional management autonomy under the CBU model would potentially
realise a stronger business focus for the business employees.
Customers - There is likely to be a net benefit for consumers from the adoption of the FCP model.
Despite price increases being required under both models to ensure that full cost pricing
requirements are being met in accordance with legislative requirements, slightly higher prices may
be required under the CBU model to recoup additional compliance costs.
Regional Development and Economic Stability - An overall net benefit for regional development
and economic stability would be likely if the FCP model was retained, as it would minimise
administration and compliance costs in the provision of waste and recycling services, provided
funds generated by the adoption of full cost pricing practices continue to be invested into waste
infrastructure (and landfill rehabilitation) to ensure sustainable service provision.
Social Welfare and Equity - An overall net benefit for social welfare and equity would be likely if the
FCP model was retained, given that administration and compliance costs are minimised and
Council retains control over what is largely a community service targeted at social and
environmental outcomes, subject to intergenerational equity being promoted by ensuring
appropriate ongoing levels of investment in waste service provision is maintained.
Environment - An overall net benefit on the environment would be likely if the FCP model was
retained, as it will provide Council greater control and flexibility in managing the delivery of the
environmental benefits targeted in waste strategy initiatives.
Waste Management Public Benefit Assessment Page 25
Section 28
5. Recommendations
5.1 PBA Recommendation on Preferred Business Structure
The PBA shows that when comparing the net benefit of the available reform options, the adoption
of the Full Cost Pricing (FCP) business model provides the greater net community benefit when
compared to the Commercialised Business Unit (CBU) business model.
It is therefore recommended that to comply with legislative requirements associated with
the PBA process Council retains the Full Cost Pricing (FCP) business model for the Waste
Management business activity.
The FCP business model is appropriate moving forward as:
The FCP business model is currently adopted by Council for the business and can be easily
retained without any issues;
Council still has the flexibility to voluntarily apply additional commercial principles that it
considers will provide benefit to Council, ratepayers and the broader community at little to no
additional cost to customers.
The business currently has, and will continue to have, considerable legislative obligations
regarding the services it offers to the community, with the provision of waste and recycling
activities considered an essential community service with social and environmental objectives
rather than profit maximisation being the primary focus.
There will be increasing control and intervention in waste service provision resulting from
Federal and State policies and agendas, with these changes likely to require continued
involvement by Council in strategic decision making.
5.2 Timetable for Reform Implementation
Given FCP reforms are currently applied to the business current processes and timings
surrounding the annual review of business expenditure thresholds should be continued.
Waste Management Public Benefit Assessment Page 26
Section 29
6. Appendix A: Implications of adopting
each Business Model
6.1 FCP Model
The FCP model involves setting prices on a commercial basis, but does not necessitate the
creation of a new commercial business unit or corporate entity – i.e. the business remains an
integrated Council program or department. FCP is founded on the principle that, as in the private
sector, the price charged for a good or service should recover sufficient revenue to cover the costs
of production, funds to replace assets as they are consumed and the achievement of a reasonable
return on capital invested.
The following table sets out the key requirements of FCP and notes the progress of the waste
management business in their implementation. Based on current progress any implications of
adopting the FCP model are considered negligible.
Table 6.1: Implications of Adopting the FCP Model
Requirement Comments
Identify all direct costs All direct costs associated with the business have been
identified including an appropriate annual pricing
provision for the future cost of landfill remediation works.
Identify all relevant indirect costs Council has a corporate overheads modelling process in
(including a share of Council place, with internal overhead charges levied to the
overheads/support services) business utilising activity based costing principles.
Identify all relevant capital costs including Council utilises a financial and pricing model for the
depreciation, interest payments, debt waste management business that incorporates cost of
guarantee fees, and an appropriate capital principles in full cost pricing determination.
commercial return on capital employed
Identify and adjust for tax equivalent Tax equivalents are incorporated in the financial and
effects where relevant pricing model for the waste management business and
are also incorporated into the annual budget figures.
Adjust for other factors to ensure costs are Competitive neutrality adjustments are incorporated in
comparable with what would be incurred the financial and pricing model for the waste
by a private entity management business and are also incorporated into the
annual budget figures.
Prepare a cost budget and statement of The budget for the business was endorsed by Council as
assets part of the 2015/16 annual budget adoption
Council’s financial system and asset register recognises
the assets of the business separately for reporting and
pricing purposes.
Develop an appropriate pricing strategy Prices are determined on a service basis utilising the
financial and pricing model for the waste management
business.
Identify and explicitly recognise any CSOs are currently recognised for the business.
Community Service Obligations (CSOs) –
i.e. non-commercial activities undertaken
at the direction of Council
Waste Management Public Benefit Assessment Page 27
Section 30
Requirement Comments
Prepare revenue forecasts to demonstrate FCP levels are determined utilising the financial and
revenue levels are meeting full cost pricing model for the waste management business.
pricing obligations over a reasonable time
frame
Prepare the relevant governance reports NCP reporting obligations are being complied with by
Council.
6.2 CBU Model
The intention of adopting the CBU model would be to create a more commercial operating
environment in the delivery of waste management activities in the region. Essentially, the day-to-
day operations of the business would be controlled by the commercial business manager and the
strategic direction of the business would be in accordance with established performance plans
approved by Council. Instead of being directly controlled by Council on a day-to-day basis, the
business unit would report its financial and non-financial performance against established targets
to Council on a regular basis.
The following table summarises the additional compliance/governance activities that a CBU model
would require. Under the CBU model, the business would need to prepare an Annual Performance
Plan (including business and operating plans), and Council would need to comply with additional
reporting requirements in its Corporate Plan and Operational Plan, as well as prepare an Annual
Operations Report for inclusion in its Annual Report.
Table 6.2: Implications of Adopting the CBU Model
Requirement Comments
Business Management Managerial control of the business unit would need to be
devolved to the managers within the unit.
Clearly defined objectives/targets for the business unit
would need to be established by Council and agreed by
the business unit.
Regulatory and policy functions would need to be
separated from the business to avoid conflict between
commercial and regulatory demands.
Financial The business unit would be required to more formally
pay notional tax and dividend equivalents to Council
An appropriate commercial capital structure may wish to
be established with a commercial debt to equity ratio.
Operational Plan Council’s Operational Plan would need to include the
outcomes and strategies outlined in the Corporate Plan,
the proposed outputs of the CBU, the activities which will
be carried out to deliver these outputs, and performance
measures concerning the delivery of these outputs.
Corporate Plan Council’s Corporate Plan would need to include the
CBU’s objectives and the nature and scope of its
activities.
Waste Management Public Benefit Assessment Page 28
Section 31
Requirement Comments
Annual Performance Plan An Annual Performance Plan would need to be prepared
annually to set out:
• Performance targets (financial and non-financial)
• Full details of all CSOs
• The objectives and functions of the CBU
• Details of the CBU’s main activities
• The notional capital structure and the treatment of
surpluses
• Proposed investments
• A service level statement
• Details of any outstanding and/or proposed
borrowings
• Extent of managerial autonomy
Annual Operations Report An Annual Operations Report would need to be included
in Council’s Annual Report that features:
• Relevant data that permits a comparison of planned
and actual performance;
• Details of any changes made to the Performance
Plan;
• Assessment of the impact of changes to the
Performance Plan on the CBU’s financial position,
operating surpluses/deficits and prospects;
• Particulars of any Council directions received; and,
• Details of Commonwealth and State tax equivalents
and adjustments for any guarantees by the State
Government
Waste Management Public Benefit Assessment Page 29
Section 32
7. Appendix B: Qualitative Assessment
Methodology
Risk-based impact assessment frameworks are well recognised as an appropriate approach for
assessing economic, social and environmental impacts.
A risk-based approach, adapted from the Australian/New Zealand Standard for risk management
(AS/NZS 31000:2009), is used for the impact assessment. The framework identifies and ranks
risks into relevant levels (very low, low, medium, high and very high) to inform key issues and
impacts for avoidance, mitigation and management measures.
The assessment examines the likelihood of an effect occurring, and the potential consequences
(i.e. a measure of severity/ magnitude of effect) should the effect occur. Table C.1 contains the
descriptors used to classify the likelihood and consequence.
Table 7.1. Descriptors Used to Classify Likelihood and Consequence
Descriptor Description
Likelihood
Very high Is expected to occur
High Will probably occur
Moderate Might occur
Low Unlikely to occur
Very Low May occur in exceptional circumstances
Consequence
Very high Adverse Impact: Extreme permanent loss of human, social, financial or built
capital/wellbeing, with anticipated major public outrage
Beneficial Impact: Significant permanent enhancement of human, social, financial
or built capital/wellbeing
High Adverse Impact: Substantial loss of human, social, financial or built
capital/wellbeing, will attract public concern
Beneficial Impact: Substantial enhancement of human, social, financial or built
capital/wellbeing
Moderate Adverse Impact: Moderate and noticeable loss of human, social, financial or built
capital/wellbeing
Beneficial Impact: Moderate enhancement of human, social, financial or built
capital/wellbeing
Low Adverse Impact: Small but noticeable loss of human, social, financial or built
capital/wellbeing, can be easily rehabilitated
Beneficial Impact: Small enhancement of human, social, financial or built
capital/wellbeing
Very Low Adverse Impact: Negligible loss of human, social, financial or built
capital/wellbeing
Beneficial Impact: Negligible enhancement of human, social, financial or built
capital/wellbeing
Source: Adapted from AS/NZS 31000:2009
Waste Management Public Benefit Assessment Page 30
Section 33
The level of risk associated with each potential impact was then determined by combining
likelihood and consequence using the matrix in Table 7.2.
Table 7.2. Risk Evaluation Matrix
Consequences
Likelihood
Very Low Low Moderate High Very High
Very High Medium Medium High Very Very High
High
High Low Medium Medium High Very High
Moderate Low Low Medium High High
Low Very Low Low Low Medium High
Very Low Very Low Very Low Low Medium Medium
Source: Adapted from AS/NZS 31000:2009
Waste Management Public Benefit Assessment Page 31