OSS Group

Source: Energy Digital

Date :27/09/2007 12:31:27

Waste Not

OSS has quickly become one of the country’s leading innovators when it comes to getting rid of hazardous waste in an environmentally acceptable way. Held up by red tape it has now secured a famous legal victory that will benefit it and UK industry alike.

Written by John O’Hanlon: produced by Alex Smith

OSS’s headquarters are at Knowsley near Liverpool, its fons et origo back in 2000 when the company was founded, however I met Group Managing Director Andy McNair at the Morley, Leeds office, an airy administration block far removed from the traditional image of a company that disposes of the detritus we create from transportation.

The group was founded when OSS acquired a family owned business called Waste Oils Ltd. Waste Oils had a further waste collection operation in Bridgend, Glamorgan called ActionSmart and a satellite fuel distribution business in Liverpool called FitzOil (now OSS Fuels) which was subsequently divested. It was, says McNair, too small to be big and too big to be small. After many years and many senior roles within the former industrial conglomerate BET, (and not liking the way it was going after it was acquired by Rentokil), he had identified the waste industry as a sector with room to grow and management deficiencies that stood in the way.

OSS presented the right opportunity at the right time. “There seemed to be two options,” he says. “Either settle for the quite satisfactory returns the business was delivering or, if we really wanted to move the business forward, get critical mass by acquisition.”

The problem of oil

The latter path was chosen. McNair brought in Edinburgh-based venture capital firm Dunedin Capital Partners, and in March 2000 OSS bought Greenway Holdings plc of Leeds, a major quoted player in the oil reclamation market, with a re-refining operation at Stourport. The £7.6 million acquisition took Greenway out of public ownership, and at once quadrupled the size of the company and gave it the platform McNair needed to make it the leader in the growing secondary oil market. The restructured group was established with Dunedin retaining 47 percent of the shares and a majority being held by senior management including McNair himself.

Most venture capital companies expect to invest on a three to five year timescale, however Dunedin’s exit strategy was stymied by an extraordinary series of events that until recently prevented OSS from realising its full potential.

Waste oil is a huge headache for the country as a whole and for the recycling and transportation industries in particular. European regulation has placed further restrictions on what can be done with recycled oil: the Waste Incineration Directive (WID), implemented in January 2006, places significant restrictions on the burning of recycled fuel oil (RFO) stopping virtually all of the commercially viable outlets for RFO from using this product in the UK.

To put this into perspective, OSS collects oil from up to 18,000 locations in the UK, taking it back to its 12 transfer stations for refinement at its three processing plants. But there’s a lot more waste oil in the system, says McNair, from the cars, buses, planes, trains, ships, trucks and industrial machinery. “About 800,000 tonnes of lubricating oil is sold into the UK every year, but the waste oil industry only collects about 350,000 tonnes. That means that around 450,000 tonnes is either going up in smoke or down into the ground, both now illegal!” he says.

The group also collects other hazardous waste streams from garages and other businesses, and this is separated and processed at Knowsley Altogether 90 plus percent of the material, liquid or solid, that the company handles is recycled. “Landfill is not a word we like to use,” says Andy McNair. “Landfill means failure in our vocabulary.”

The fight for CFO

Some 80 percent of what is recycled is contaminated engine oil. OSS had spent two years developing an entirely new contaminant removal process, to enable production of a new clean fuel oil (CFO) product from waste oil. It invested £3.5 million and finally started CFO production from its new plant at its Stourport site in mid-2005.

Unlike recycled fuel oil, CFO is virtually indistinguishable as a product from virgin fuel oil. RFO was never analogous to a virgin fuel, he explains, and to burn it a company would need a special licence confirming compliance with the provisions of the WID. CFO on the other hand is a residual fuel oil produced to the BS2869: 2006 specification for use in industrial burner and boiler applications.

However, with a higher calorific value than both RFO and the equivalent virgin fuel and significantly more cost effective than virgin fuel oil, CFO had a ready market as well as being environmentally friendly. There appeared to be no problem connected either with the WID or WOD (the Waste Oils Directive) as far as they applied in Europe, however their interpretation is a matter for individual member states, a process administered in this country by DEFRA and the Environment Agency.

But getting their approval, which seemed a formality, proved more difficult than imagined and an elaborate dance ensued when the EA notified OSS in December 2005 that CFO would be classified as waste. in a classic case of ‘gold plating’ of the WID, the EA decided that because CFO was once a waste oil, no amount of processing could reclassify it as a non-waste product, even if they were the same thing! Suddenly OSS was obliged to sell its new product only to customers who for one reason or another, had an exemption allowing them to burn a waste oil derived fuel.

Corus was the only significant customer, possessing the necessary licence for historical reasons at its Redcar blast furnace and coking plant (its use of oil in its blast furnaces is classified as ‘use as a reductant’ not ‘use as a fuel’ and is consequently allowed). OSS applied to the High Court for a judicial review of the EA’s decision on CFO.

The dance continued. In March 2006 OSS applied to the High Court and obtained interim relief from the EA’s decision (pending a judicial review) and again started selling CFO, albeit that the EA were not happy and certainly didn’t make life easy for OSS or its customers When finally the Judicial Review was heard in November 2006 the EA conceded that a waste fuel oil could be recycled back to a fuel oil (It’s original use) but maintained that waste lubricant could not be processed into a fuel and won the day in Court on this point.

Andy McNair’s reaction may be imagined. “The judge agreed with the EA that this lubricant could only cease to be waste after it had been burnt – however much processing it had gone through, it could never cease to be waste before that point. 3,500 pages of both technical and legal evidence had been submitted, none of it read. We were appalled.” However the same judge admitted in his summing up ‘I may well be wrong, therefore I grant OSS the right of appeal to the Appeal Court on this point of principle.’

At this point the company had spent over £750,000 in legal fees, apart altogether from its market losses and those associated with under utilisation of the CFO plant. OSS duly lodged its appeal, and in what its legal adviser Semple Fraser described as ‘a robust and unanimous endorsement of the OSS legal position’ overturned the original judgement on June 28th 2007, stating that under certain circumstances waste lubricating oil can indeed be recovered to a non-waste status.

Common sense prevails

Many readers of this article will give heartfelt assent to the conclusion of the Appeal Judge, who said: “I hope … in the light of this judgement, it may be possible for DEFRA and the [Environment] Agency to join forces in providing practical guidance for those affected. It is unfortunate that the difficulties of interpreting pronouncements from Luxembourg are compounded by the failure of the national authorities to agree a common approach. It is important that the national authorities should use their expertise and experience to assist those concerned with the treatment and handling of waste, and also the courts (civil or criminal) who may be faced with deciding individual cases without the benefit of comparable expertise.”

As Andy McNair put it, common sense prevailed, and he is mightily relieved now, though OSS has only been awarded the appeal costs, around £100,000 out of a total of £750,000 it has spent in legal fees. “Three years ago, if we could have sat down sensibly and discussed the issue with the EA and DEFRA we could have avoided all this cost,delay and uncertainty for all concerned.

The CFO market isn’t just of benefit for this company but also for UK industry as a whole. It is a better fuel at a cheaper price, in a market that is massively over supplied by the oil majors. There’s something in the region of 6.5 million tonnes of residual fuels being burnt in the UK. With full production, and all of the waste oil in the UK being processed it would be 200,000 tonnes – it’s not really a great deal!”

However he is absolutely not harbouring any resentment but looking forward to the challenges ahead. The CFO plant has a capacity to process 80,000 tonnes a year, but it has never been able to produce more than 50,000 because (quite separate) red tape has held up the commissioning of an important element of the plant. “We could sell that 50,000 tonnes twice over,” he says. But now there’s plans for a new CFO plant being built at OSS’s Uddingston site near Glasgow, and this will add further UK capacity of up to 20,000 tonnes a year. And of course Scotland has a different and, fortunately more pragmatic regulatory culture than England. Any repeat of the wrangling further south is hopefully very unlikely.

Raising the bar

From the very start, Andy McNair set out to run OSS differently from the rest of the industry. It was part of his motivation, to raise the bar in a sector where it had slipped unacceptably low. None of the short cuts, bad or even illegal practice and shoddy management procedures he had seen elsewhere. This is part of the reason for the company’s ultimate success in the difficult CFO saga, and it can also be seen in the way its other operations are managed.

For example there’s a fleet of 100 vehicles. To keep these and the plant up to date OSS is prepared to spend an average of between £1.5 and 2 million a year, yet the average age of its fleet is only six years. “We want to bring that down to four years, purely to be able to comply with the impending Euro 4 and Euro 5 regulations,” says McNair. “We are constantly investing in improving the carbon footprint of our own operations, upgrading insulation and improving process efficiency.”

The company also spends a lot on training, both internal and external. “A couple of years ago we sent some of our managers to a firm called Sewell’s to experience its Working Miracles programme,” he says. “We are planning to repeat the process, because it was extremely inspirational and some of our people are still benefiting from the positive influence of Will Holden, Sewell’s chairman.” It’s just part of the approach that gives OSS a customer satisfaction rating, from a completely independent assessor, of around 95 percent.

Apart from the expected functional training for management in skills such as interviewing, call centre operation, time management and appraisals recent investment in IT has meant upskilling the whole workforce.

OSS was, McNair claims, first and is the only waste management company in the UK to move to hand held terminals to monitor pickups and drop-offs, a bit of best practice that, together with OSS’s state of the art traffic management system, has won the approval of the same EA that locked with it in legal conflict over CFO.

“We are firmly on the same side as the EA at the end of the day,” Andy McNair insists. “Our objective is to do our job properly, and to serve our niche market well.” OSS is now deservedly well known in that niche. With the ability to sell CFO more widely it is now set to grow as it deserves – 2006 was the company’s best year ever.

This year is not expected to show much growth on that figure, but under realistic and more stable trading conditions profitability should have more than doubled by the end of 2008.

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