November 19, 1998

To:Works and Utilities Committee

From:A. Bacopoulos

General Manager - Solid Waste Management Services

Subject:Sale of Paper Fibre from the Grey Box Program

Purpose:

To seek authority to enter into agreements with Canada Fibres Ltd. and Donohue Recycling Inc. for the purchase of mixed paper fibre from Toronto's grey box program.

Funding Sources, Financial Implications and Impact Statement:

Although the recommended paper fibre bids are very attractive under current market conditions, the impact on revenue is expected to be significant. We are currently receiving a price of approximately $84.00 per tonne which is expected to continue until May 15, 1999, when our current contract with Donohue Recycling expires. The existing price is a result of floor prices that we were able to secure when negotiating our current contract, at a time when market demand for fibre was extremely high and market prices were in excess of $200.00 per tonne. Based on current market prices, the recommended bids provide a blended price of approximately $39.00 per tonne. The exact impact on revenue will be contingent on market conditions; however, it is projected that fibre revenue from Toronto's grey box program will be $1 million to $2 million lower in 1999 compared to the 1998 budget estimate.

Recommendations:

That authority be granted to enter into agreements with Donohue Recycling Inc. and Canada Fibres Ltd. for the purchase of mixed paper fibre from Toronto's grey box program during the period May 15, 1999 to April 30, 2003, in accordance with the prices stated in this report and terms and conditions satisfactory to the Commissioner of Works and Emergency Services.

Council Reference/Background/History:

Approximately 79,000 tonnes of mixed paper fibre are currently collected annually through Toronto's grey box program. Mixed paper fibre includes waste newspaper, old corrugated containers including pizza boxes, magazines, catalogues, telephone books, boxboard, writing and computer paper, junk mail, envelopes, gift wrap, cards, books and paper egg cartons, rolls and bags. This fibre is currently sold to Donohue Recycling, under contract until May 15, 1999. Approximately 20,000 tonnes of fibre collected annually from the North York Community Council Area are marketed separately to Metro Waste Paper Inc. under a contract that expires in April 2003.

Discussion and Justification:

In order to secure a market for our grey box fibre after our current contract with Donohue Recycling expires, a Request for Quotations (RFQ) was issued through the Purchasing and Materials Management Division of the Finance Department on October 23, 1998.

Bidders were provided with the option of bidding on the entire quantity (estimated to be in the range of 75,000 - 90,000 tonnes annually) and/or a portion of the quantity based on: a) fibre that would be delivered directly to the bidder's facility by collection vehicles from the communities of Toronto and East York (45% of total), and b) fibre received at our transfer stations from the communities of Scarborough, Etobicoke and York and then delivered in bulk by transfer trailers to the bidder's facility (55% of total). The term identified in the tender was approximately four years, May 15, 1999 to April 30, 2003, to coincide with the North York/Metro Waste Paper Fibre contract which expires on April 30, 2003.

The premise of the RFQ was that Toronto would receive market price for its fibre, which would be determined monthly based on a pre-defined formula that is tied to the Official Board Markets (OBM) Yellow Sheet, a U.S. industry publication that tracks market prices monthly for various grades of sorted paper and is currently used to determine market prices in our contracts with Donohue Recycling and Metro Waste Paper. The formula also takes into account conversion to Canadian dollars. Since this market price is for sorted paper, whereas the fibre received is unsorted, mixed paper, as collected from the street, bidders were asked to submit a processing cost. We also asked bidders to identify a per tonne premium, if any, that they would be willing to pay.

The RFQ closed on November 12, 1998, and we received four bids. Please see Attachment (1) for a summary of the bids.

The bids were evaluated based on the per tonne processing cost and premium submitted by the bidders. Since the monthly market price for sorted paper is fixed monthly according to a pre-defined formula, and therefore the same for all bidders, the only pricing variables were the processing cost and premium. Evaluation of the quotations also included Toronto's cost of transporting the fibre to the bidder's facility.

Based on our evaluation, we recommend acceptance of the highest bids which are from Donohue Recycling for the quantity delivered directly to the bidder's facility (processing cost of $35.00 per tonne and a premium of $25.00 per tonne), and from Canada Fibres for the quantity delivered in bulk by transfer trailers (processing cost of $39.00 per tonne and a premium of $33.00 per tonne). When transportation costs were taken into account these companies were still the highest bidders.

The price Toronto will receive for its fibre will fluctuate each month according to market conditions and will be based on the following formula:

PRICE=A-B+C

Where PRICE=the monthly per tonne price paid to Toronto. This price can never fall below zero.

A=the monthly per tonne market price for sorted paper which fluctuates monthly according to a pre-defined formula that is tied to the OBM Yellow Sheet and takes into account conversion to Canadian dollars.

B=the per tonne processing cost submitted by the bidders, which is set for the duration of the contract.

C=the per tonne premium offered by the bidders, which is set for the duration of the contract.

Assuming October, 1998 market conditions, the prices Toronto would receive for its unsorted fibre after May 15, 1999 would be:

Donohue RecyclingCanada Fibres

Price=A-B+CPrice=A-B+C

=$47.00 - $35.00 + $25.00=$47.00 - $39.00 + $33.00

=$37.00 per tonne=$41.00 per tonne

These prices would be very attractive for unsorted, mixed paper as collected from the street at a time when market demand and prices for waste paper are low. It should also be noted that if market prices for waste paper are, in fact, higher after May 15, 1999 than they are now, the prices paid to Toronto will increase accordingly.

As illustrated in the table below, Toronto and the North York Community Council Area have been realizing higher than market prices for its fibre since May, 1995, when the pricing and floor prices in our current contracts came into effect. This trend will continue beyond May 15, 1999 if the aforementioned tenders are accepted.

FIBRE REVENUE

Price Per Tonne

Conclusions:

Acceptance of the bids from Donohue Recycling and Canada Fibres will ensure that Toronto receives market price plus a significant premium for its grey box fibre until April 30, 2003. It is therefore recommended that we enter into agreements with Donohue Recycling and Canada Fibres in accordance with the prices offered.

Contact Name:

Tim Michael

Manager - Waste Diversion

Solid Waste Management Services

Metro Hall

Phone: (416) 392-8506

Fax: (416) 392-4754

E-mail: Tim_Michael@metrodesk.metrotor.on.ca

Angelos Bacopoulos

General Manager

Solid Waste Management Division

Barry H. Gutteridge

Commissioner

Works & Emergency Services

TM:klPaper-GBP

Attachment 1

Donohue RecyclingCanada FibresGlobal RecyclingMetro Waste Paper

Estimated AnnualProcessing CostPremiumProcessing CostPremiumProcessing CostPremiumProcessing CostPremium

TonnesPer TonnePer TonnePer TonnePer TonnePer TonnePer TonnePer TonnePer Tonne

Total Quantity75,000 - 90,000$35.00$25.00$39.00$24.00N/AN/AN/AN/A

Split Quantities35,000 - 42,000$35.00$25.00$39.00$19.00N/AN/AN/AN/A

(delivery by communities

of Toronto & East York

collection vehicles)

40,000 - 48,000$35.00$25.00$39.00$33.00$39.850$38.50$8.50

(delivered in bulk by

transfer trailers)