Most of the Lower Hunter's domestic recycling is now being trucked to Sydney as two industry players head for a Supreme Court dispute this month.
The Gateshead plant that processes recycling from more than 200,000 Hunter homes has been closed for about two weeks after a company called Materials Recovery Management shut the doors.
City of Newcastle and Hunter Resource Recovery, the company formed by Lake Macquarie, Maitland, Cessnock and Singleton councils to handle kerbside recycling, both have recycling contracts with Solo Resource Recovery.
In a complicated business arrangement, Solo subcontracts the sorting to recycling giant Polytrade, which in turn subcontracts the work to Materials Recovery Management, which is owned by Central Coast recycler iQ Renew.
It is understood Materials Recovery Management, which owns the processing equipment, has closed the plant due to a dispute with Polytrade over the Gateshead "gate" fee, which is the amount per tonne materials recovery facility (MRF) operators charge for trucks to enter their plants.
Gate fees have become a crucial component in the recycling chain as operators struggle to find a viable market for their materials.
In a separate, historical dispute, Materials Recovery Management is taking Polytrade to the Supreme Court in a matter listed for a directions hearing on February 21.
The Newcastle Herald attempted to contact Solo, Materials Recovery Management and Polytrade for comment.
Solo's Hunter trucks have been driving to Polytrade's Rydalmere plant in western Sydney since Materials Recovery Management shuttered the Gateshead plant late last month.
Newcastle councillors voted unanimously on Tuesday night to vary the Solo contract so the processing part of the deal is carried out by iQ Renew on the Central Coast.
The council said in a statement that the new arrangements were in response to uncertainty over Polytrade's ability to process recyclables locally and how much processing would cost.
"By signing a new processing contract, City of Newcastle and its residents finally have certainty that local recycled waste will continue to be collected without disruption and, most importantly, processed rather than sent to landfill," council waste manager Troy Uren said.
It is understood the changes will not affect bin collection times, but they will add an estimated $2 million to Newcastle's annual recycling costs, which equates to about an extra $20 a year per household.
Councillors also asked for a report on whether to call for tenders to establish and operate a MRF at the council's Summerhill tip.
The MRF could process recyclable materials for other Hunter councils, including Port Stephens, which sends its recycling to iQ Renew.
The Newcastle Heraldreported in December that Newcastle council chief executive officer Jeremy Bath had rejected Solo's request for a $3 million annual variation in their five-year contract after Polytrade increased the fees it charges Solo's trucks to drop off domestic recycling at Gateshead.
Polytrade told the industry early last year that the Gateshead plant was operating on a week-by-week basis after China slapped a ban on importing many recyclables.
Industry sources have told the Newcastle Herald that, in addition to the China ban, recyclers have not enjoyed the windfall they were expecting from the state's container deposit scheme because households have been sorting out eligible cans and bottles.