2016-02-02 P&O Committee - Item 7 - Attachment 1 - Waste Management PBA Draft Report

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