7. Potential Financial Risks Associated with Tyre Storage
7.1 General
The storage of tyres will create financial risks that include:
- those associated with ownership of the land on which the tyres are stored
- those associated with ownership of a tyre storage facility, in addition to the risks of land ownership if the two ownerships are different, and management of the facility
- those associated with the value of the tyres at the end of a design or permitted storage period
- those associated with tyre degradation or contamination
- those associated with site closure.
These risks are described in this section. The majority of the descriptions are based on previous experience MWH has had in solid waste management.
7.2 Risks Associated with Landowner
There are financial risks associated with owning land on which a tyre storage facility is located. These risks, based on previous MWH experience in solid waste management, include:
- the landowner may abandon the land, creating a large liability associated with the cost of either cleaning up the site or continuing to operate the site
- the landowner may not have sufficient funds to cover future costs associated with the site, again creating potentially large liability associated with the costs of either cleaning up the site or continuing to operate the site
- the landowner may sell the land without informing the new owner that tyres are/were stored on the land. If the new landowner is unaware of the situation, they may not have sufficient funds to cover the costs associated with the site.
If the owner does abandon the site or becomes unable to cover the future costs associated with the site, sufficient funding should be available either to continue to manage the site or to dispose of the tyres in an environmentally sound manner and reinstate the site. This is also true if a new owner is unable to meet the costs associated with site.
7.3 Risks Associated with Facility Owner
There are financial risks associated with the ownership of the storage facility. These risks, based on previous MWH experience, include:
- the facility owner may abandon the facility, leaving potentially large costs associated with operation of the facility, tyre disposal and/or site cleanup
- the facility owner may not have sufficient funds to cover future costs associated with operating the facility, again leaving potentially large costs associated with continuing to operate the facility, tyre disposal and/or site cleanup
- the facility owner may sell the facility without informing the new owner of the correct procedures for operating the facility. The new owner may not have sufficient funds to rectify the consequences of the facility being operated incorrectly
- the facility owner may sell the facility without informing the new owner of any adverse environmental impacts the facility has had on the environment. If the new landowner is unaware of the situation, they may not have sufficient funds to cover the costs associated with cleaning up the site.
Two major potential sources of revenue for a private tyre storage facility are gate fees collected when tyres are received at the facility and monies received when tyres are later on-sold to a reprocessing facility.
Factors that may affect the financial situation of a storage facility, based on previous MWH experience in solid waste management, include:
- collection and transport costs
- regulatory requirements, which could address environment protection measures, environmental monitoring measures, operational control measures, and financial risk mitigation measures
- change in credit rating of facility operator
- change in economic climate, eg, land rental increases (for leased sites), cost of borrowing increases, cost of insurance increases, cost of bonds increases, etc
- underestimation of time before a reprocessing facility will be established
- reprocessing facility is not established and the owner must pay for disposal of stored tyres
- overestimation of tyre volumes or gate fees received at the facility. This may occur if there are no legal requirements to dispose of tyres at a specific type of storage facility
- unexpected remediation requirements.
If the owner does abandon the facility or becomes unable to cover the operating costs of the facility, sufficient funding should be available to either continue to operate the storage facility, or dispose of the tyres in an environmentally sound manner. This is also true if a new owner is unable to meet the costs associated with running the facility.
7.4 Future Value of End-of-life Tyres
The future value of end-of-life tyres is largely dependent on more economically viable reprocessing option being established in New Zealand. The major financial risks associated with reprocessing options identified in previous MWH work [MWH New Zealand Ltd (June 2003)"Development of a Regional Waste Recovery / Processing Sector". A report prepared for the Wellington City Council, Ministry for the Environment and Ministry of Economic Development.] and during this investigation include:
- cost of developing reprocessing technology in New Zealand (which will be dependent on the reprocessing option(s) implemented)
- initial cost of establishing the reprocessing facility (including consents, buildings and equipment)
- cost of retrieving tyres from storage (which will be dependent on the method of storage)
- transport cost of hauling stored tyres to the reprocessing facility (which will be independent of storage method but dependent on the location of the storage site)
- cost of maintaining the reprocessing facility
- supply cost of manufacturing reprocessed tyre product(s) compared to similar product(s) available in the market place
- establishment of product in the market place and continual product demand
- limitations associated with quality of feedstock (such as quality degeneration through dirt contamination on the tyre)
- dependency on volume of feedstock.
7.5 Risks of Contamination and Fire
A site used for tyre storage may become contaminated in two ways:
- there may be a slow release of contaminants into the soil, surface water groundwater (eg heavy metals from tyre leachate) during the normal operation of the facility. This release of contaminants may lead to downstream liability for the owner of the storage facility and/or the landowner
- there may be a rapid release of contaminants into the soil, surface water and groundwater, for example due to flooding of the area. This would also lead to downstream liability for the facility owner and landowner.
Tyre fires are an extreme example of a rapid release of contaminants, resulting in smoke damage to nearby areas and large discharges to air, water and soil. There are generally large costs associated with tyre fires, [International Association of Fire Chiefs (IAFC), Scrap Tyre Management Council (STMC) and National Fire Protection Association (NFPA) (2000)"The Prevention and Management of Scrap Tire Fires".] including:
- costs associated with fire fighting, which are usually large because tyre fires can take weeks or years to extinguish
- costs associated with onsite and offsite environmental clean-up, which tend to be large because of the severe environmental damage caused directly by the fire and smoke plume fallout and indirectly by the water runoff from fire fighting
- financial losses associated with losing the tyre stores
- cost associated with litigation associated with, for example, health and safety matters, and property damage.
In many instances the site contamination will need to be mitigated. The cost of this remedial work will be dependent on factors that include the extent of environmental damage and the sensitivity of the receiving environment. Sufficient funding should be available to carry out the necessary remedial work, and either to continue to operate the storage facility or to dispose of the tyres in an environmentally sound manner.
7.6 Future Disposal Costs
In the event that the tyres at the facility must be disposed of, there should be sufficient funding available to do so in an environmentally sound manner. The cost of disposal will be dependent on factors that, based on previous MWH experience, include:
- volume of tyres for disposal
- availability of suitable disposal site(s)
- costs of transport and technology to shred tyres
- time frame, as it is likely the cost of disposal of tyres will increase with time
- nature of temporary storage
- changes in materials regarded as creating hazards, etc.
7.7 General Factors Influencing Level of Risk
Many factors influence the level of uncertainly posed by the financial risks, some of which have been discussed previously in this section. Some general factors that influence the level of risk, based on previous MWH experience, include:
- length of time in storage: for example, the longer the tyre storage facility is in operation, the greater the risk of the landowner abandoning the land
- quantity of tyres in storage: for example, the greater the number of tyres stored at the facility, the greater the risk of adverse environmental effects on the site or surrounding area
- quality control: for example, the greater the level of quality control, the lower the risk of the tyres being unsuitable for reprocessing options. However, a greater level of quality control is likely to be more expensive
- site infrastructure: for example, a greater level of site infrastructure generally lowers the risk of adverse environmental effects
- site selection: some sites are more suitable for tyre storage facilities than others, and hence pose a lower risk than other sites. For example a storage facility located on a flood plain underlain by permeable soils would pose a higher risk than one located away from surface water bodies on top of relatively impermeable clayey soils.
General mitigation measures to address the financial risks discussed above are outlined in Section 8.9.
