Examination of Witnesses (Questions 100
MONDAY 4 MARCH 2002
100. When we talked to the Commission they said
that what you have just said is wrong, that is not how they interpreted
it at all. The reality is "if practical" was put in
and the argument was around what was practical and the Government
said it is not practical because we cannot do it at the present
time and the Commission was saying that if it technically was
not possible, it was not practical. It was not something else.
They were saying because it is practicable, if you have the facilities
then it should be implemented. That was the debate and the argument
that went on, not the point that you have made, because we talked
to people from the Commission.
(Mr Bellingham) If I can tackle that one. If the word
"practicable" in item 3 applied to the two above, the
test is one of "is it practicable"? "Practicable"
is quite different to "practical". "Practicable"
would mean can it be done anywhere and, yes, the Germans were
already doing it. In our sense, no matter how you read that paragraph,
the balance of probabilities was that it applied to our products.
101. That was not what you said earlier. You
are starting to backtrack on the logic and coming down on the
side of the Commission.
(Ms Smith) We were not present at the meetings between
the Government and the Commission so it is difficult for us to
know exactly the nature of that argument. At the end of the day
we were waiting on government advice and we had reports back from
DEFRA officials from time to time and meetings with DEFRA officials,
but as to the nature of phrases they were arguing about, we were
102. That did not seem to be the evidence you
(Ms Smith) Our interpretation was "if practicable"
meant "if achievable" and it is achieveable in other
parts of Europe so we assumed the regulation meant
103. That was the argument. The other argument
was that we could not do it in this country because we have not
got equipment. Run me through the export of fridges.
(Ms Smith) If I can run you through what basically
happened when we used to take old fridges back. As the LGA said,
we used to deliver fridges and did more or less a one for one
swap. When we took them back our fridges were either delivered
from our local distribution centres or in some cases direct from
manufacturers who supply direct. We have 18 local distribution
centres. Each of them covers eight to a dozen local authorities
because there are a lot of different local authority regions.
We would deliver the fridge and bring the old fridge back to our
distribution centre. There are clear regulations about how those
fridges are stored. They have to be lined up neatly and so on
and so forth. Retailers are only allowed to hold fridges for a
maximum of 28 days through an exemption on the Waste Regulations
to do so. We could not hold them for longer than that. What happened
is we had contracts with recyclers and refurbishers around the
country, a dozen of them covering our 18 distribution centres,
and they would collect from us on a daily basis because our LDCs
had lorries going in and out all the time to deliver new goods
and we did not have storage space for a lot of kit, never mind
the authority to do so. So they would take stuff from us. They
would then sort it and some of it was taken out of the waste stream
because it was refurbishable for UK use and it was sold at low
cost through local shops and their own plants, 40 quid, whatever
it is. Some of it in fact we also took out because we run two
refurbishment sites of our own. We sponsor New Deal places for
training for the long-term unemployed in white goods refurbishment
and those were also sold at low cost. That takes out a small proportion,
something like 20 per cent of the overall total.
Then something like 70 per cent were until a year ago sent for
export largely to Africa and largely used for hospitals, schools,
small commercial units, and indeed domestic units.
104. Were these exported with CFC gases in them?
(Ms Smith) No, what happened was that our contractors
extracted CFCs in cylinders and then when you get to the other
end you put in R134, which is an alternative to CFC. They were
reinjected at the other end with a CFC substitute.
105. You would have been happy if it had just
been the gases?
(Ms Smith) That would have enabled that part of the
market to continue, yes.
106. Just to be clear, why have you stopped
taking fridges back?
(Ms Smith) Because those contractors have facilities
to extract CFCs from the compressor units and they produce certificates
to verify the fact that they have done that and so on. They received
notification that that was not sufficient and they could neither
export with CFC foam in it nor dispose of it with CFC foam in
it. They therefore had to have the means to remove the foam and
they could not do that, and a number of them gave us notice that
they could not collect from us any longerand some of them
exited the business straight awayso we no longer had any
route to dispose of the fridges that we collected from our consumers
and we faced the prospect of suddenly having hundreds of thousands
of fridges dotted arround our local distribution centres that
we simply could not collect. Even had we collected them, it would
have been illegal for us to hold on to them for more than 28 days
so we really had no alternative.
107. As responsible retailers contracted with
customers and potential customers that you would take back, given
the difficulties that you were facing and still wanting to be
responsible retailers, etcetera, etcetera, did you explore ways
of continuing to offer that service from the customers' point
of view and did you seek ways of, given the circumstances, maybe
getting some waiver on the licensing restrictions? Did you try
to do that with the Government in order that you meet your environmental
obligations and uphold your standards to customers?
(Ms Smith) We wrote a number of letters to Ministers
basically seeking a way out of this problem. We wrote to Nick
Raynsford about the fact that we thought this would be a problem
for local government and we also tried to see the Local Government
Association. We saw Brian Briscoe in September 2001. We saw a
number of local authority leaders to discuss with them what the
consequences would be. We explored the prospect of whether or
not they could accept refrigerators from us at their local authority
sites but their local authority sites are mainly licensed for
domestic waste, not commercial waste, and while it is in your
kitchen it is domestic waste but if I put it on to my van and
take it to the site for you it suddenly becomes commercial waste,
therefore they could not accept it from us. We did try to find
ways around that but short of breaking the law we were really
in a very difficult position.
108. Do Dixons operate in other EU countries?
(Ms Smith) Yes, we do.
109. What were your overseas EU located operations
doing about the same issue getting information from Member State
governments or, indeed, the Commission which was obviously different
from what you were getting at head office in Britain?
(Ms Smith) Although we operate in other countries,
in most cases we do not sell white goods in other countries, we
sell PCs in Spain and France. The only countries in which we operate
where this takes effect are the Scandinavian countries and Sweden
does have facilities for disposal but the route to that disposal
in most cases is managed by the local authority. In Sweden it
is a much smaller country obviously, although there are not current
statistics, something like just short of 300,000 units were collected
and treated in 1996 and they believe the annual number is similar
now. Appliances are sent for materials recycling after CFC extraction.
They have three to four companies carrying out the actual CFC
extraction and that is managed through the local authority route.
110. The foam issue, which was not a surprise
to you here because you raised it two years ago I think you said
earlier on, was certainly not a surprise to your Swedish operations
that do sell fridges, although you said you do not sell too many
fridges direct from your overseas operation. Surely they were
able to confirm that the disposal of the insulating foam was most
certainly going to be a requirement and it was also good practice
already being carried out. Despite attempts to contact the Government
here and get clarification, did you not already know that this
was firmly on the cards?
(Ms Smith) We have only gone into overseas operations
quite recently and we only bought the Swedish company at the end
111. It is the same time frame.
(Ms Smith) It is, but I have to admit it was not the
first thing we talked about when we bought the new company.
112. We might let you off.
(Ms Smith) Hindsight is a marvellous thing but it
was not our first discussion. The truth is in Sweden they did
have the infrastructure but it mainly operated via the local authority
route. To be truthful, the problem was invisible because it was
solved so it was not the first thing that came up. We did ask
for information once we were alerted to the problem over here
but it was at the end of 2001 that we were alerted to the problem
over here and in Sweden the problem was already being dealt with
but by a completely different infrastructure.
113. Can I move us on to the question you touched
on, the take-back scheme. Just for my information, was it self-funded
because whilst, you are quite right, you put the old refrigerator
or freezer on to your vehicle there would have been a bit of a
cost there, but the vehicle goes back to the depot and there is
not a cost and then subsequently it has got to be taken away by
third parties? How was the finance of that operated? Did the take-back
scheme cost Dixons any money?
(Mr Bellingham) If you look at it over the time frame
from when we introduced the take-back scheme some years ago there
was a value in recovered steel and we did not just take back fridges,
we took back cookers, washing machines and all of those rather
heavy, large domestic appliances which are a nuisance for householders
to dispose of. In those heady days we were selling the units to
scrap merchants, not for a lot of money, it was pennies, but we
were still selling them and we had a positive cash flow. There
was some work for us involved and it did take time, we had to
put it on the truck and bring it to the depot, but nevertheless
there was a small income. Over the last few years the gate price
of steel has crashed so there is no money in picking up all of
those products, in fact there is a cost involved. We did have
a healthy export market in refrigerators and the income stream
that that generated to our recyclers funded most of the collection
of washing machines and cookers, so the collapse of the export
market was extremely bad news for us because it pushed up the
price of collecting the washing machines and cookers as we go
114. In your evidence to us you told us you
had 12 companies, mainly SMEs, who were involved in a lot of this
work. Has the entire network of those 12 now effectively collapsed
in the light of the current situation?
(Mr Bellingham) The entire network has not collapsed
but we have had notice from several players that they have now
withdrawn from that market and they will not be re-entering it
in the near future. Some of that infrastructure still remains
and we have invited them to the meetings of the working parties
that we have attended to try to re-establish that infrastructure.
115. Just develop that point a bit further if
you can. What action do you think it will take to redevelop that
because the previous evidence that we heard from the LGA suggested
a lot of expense by somebody investing in the quite sophisticated
machinery in different parts of the country? It may well be beyond
the size of enterprise that you previously employed to get this
kind of cash or a question mark over what period of time because
clearly as new fridges and freezers come along the problem is
not as great. Just help us to understand what needs to be done
to reconstruct some kind of network of disposal and, therefore,
the take-back scheme?
(Ms Smith) One of the reasons that we suggested some
sort of lead authority scheme was one of the issues of scale is
a lot of these players are small players, although there are three
large players that cover quite a lot of the country. If there
was a lead authority scheme, for want of a better expression,
that covered several different local authorities each they would
be taking up all refrigerators from a large area and they would
have the scale and the volume to place larger and longer term
contracts which would give the contractor enough certainty to
place contracts to buy these units and also have contracts that
would lower the unit cost of processing. At the moment if you
have lots of different contractors with the uncertainty who are
basically charging a gate price
rather than a long-term fee, the price they will charge for processing
is going to be much higher.
116. Just coming back to the private sector
solution. Do you envisage that some of the partners you formerly
worked with will in some way metamorphose themselves as people
capable of making an investment in the way that we heard earlier
and will reconstruct in some way a network that will be suitable
for you to get the take-back scheme up and running?
(Mr Bellingham) Yes, I think that is possible.
117. And you have had firm indications of that?
(Mr Bellingham) There has been some interest but all
of the interest hinges upon getting a contract that is big enough
to underwrite the capital depreciation required for the £2.5
million before you start.
118. I know that you are very big in the domestic
appliance business but there are other players as well. Have you
had, perhaps through the British Retail Consortium, discussions
with some of the people who are your commercial competitors about
how they are seeing the situation?
(Ms Smith) Throughout this we have discussed it. Our
biggest same size competitor is Comet and we have discussed it
with them but we have also, throughout this process, discussed
it with the Radio and Electrical Trades Retail Association, RETRA,
and also through the BRC. We have close conversations with them
and with the local authorities and with officials at every stage.
Everybody is in a competitive environment, we all want to offer
the service, we all have slightly different routes to disposal
at the end of it but we want to get the system back up and running
and that means keeping our contractors in business if it is possible
to do that.
119. We are going to pursue in a little more
detail this local authority lead scheme but I just want to ask
a question about the timescale for the installation of commercial
investment. Has anybody said to you that given a green light this
is how long it will take?
(Mr Bellingham) I have heard several estimates of
the time required to come from ordering a plant to delivery of
a fully working service. It varies between a best estimate of
seven months, a more realistic estimate of nine months, and the
worst was ten months. It is quite a long, drawn out process. There
are only two or three manufacturers of equipment of that size
and the whole of Europe wants that equipment. Those time-frames
may be longer and whether they are optimistic it is hard to say.
2 The witness later stated the proportion would be
nearer 15 per cent of the overall total. Back
A gate price is the cost per unit on a non-contract basis. Long-term
fees would follow negotiation. Back