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Cr Richard Walls said yesterday it was "inevitable" the cost of a new kerbside system in Dunedin would rise during the life of a multi-year contract, possibly lasting up to 15 years.
That was because of uncertainty surrounding the recycling market, which meant private-sector companies were unable to sell the materials they collected to offset their costs, he said.
Regular cost reviews would "have to" be included in any contract, which could expose the Dunedin City Council and ratepayers to increasing costs.
The city's existing blue-bin recycling system showed how costs could increase, he said.
The cost had risen from $24 per household when introduced in 2003 to $35 this year, but cost estimates if the service was to continue put the cost at $50 per household by 2010-11, he said.
"The costs are increasing and there's no way they can be kept as low as they are," Cr Walls said.
Revelations this week the Christchurch City Council had paid $19.1 million to bail out a company providing Christchurch recycling services only underscored the point.
The company, Meta Holdings, ran a recycling plant and depots processing other waste in Christchurch.
It blamed a lack of demand for recyclables and dwindling volumes at its depots for its decline, The Press reported.
"I can hear alarm bells," Cr Walls said of the implications for Dunedin.
The price for recycled glass had dropped from $40 a tonne last year to $15 a tonne, and most recyclable materials were being "stockpiled" in Dunedin because of a lack of demand.
"The uncertainty of that market - is there a market for it? - is one of the reasons we are being too hasty," he said.
His comments followed Monday's decision by the council's infrastructure services committee to approve a scaled-back kerbside collection service as its preferred option for public consultation.
Under the system, black rubbish bags and blue recycling bins would be retained, but new wheelie bins would be added.
If adopted, the system would cost an estimated $70 per household annually and add 1.1% to city rates in 2010-11.
However, councillors at Monday's meeting heard the actual cost could be higher once tenders were received and the expense of variations on the standard service became known.
Yesterday, infrastructure services committee chairman Cr Andrew Noone said the Christchurch bailout reflected the recyclables market and the state of the economy.
However, he acknowledged contractors in Dunedin might be unwilling to carry the risk of on-selling recyclables in future.
If they did, companies vying for council contracts could use the extra risk to argue for more expensive tenders, he said.
Estimated costs for any new service were a "best guess" based on information from the private sector about their fixed costs and variables such as the recycling market.
However, the estimates could change "quite a bit" by the time contracts were tendered in November, he said.