Millions of pounds might have to be paid to Bristol's neighbours if the city council decides next year to pull out of a major waste treatment deal.

That's the fear of leading opposition councillor Gary Hopkins (Lib Dem, Knowle).

His party – which is the largest on the Labour-led hung council – might well want to withdraw from the arrangement between the city council and neighbouring authorities in North Somerset and South Gloucestershire if it is returned to power in the local elections next spring.

But the Liberal Democrats fear Bristol council taxpayers could be liable to pay the other councils millions of pounds in compensation.

This would be to cover consultancy fees and other costs involved in drawing up and seeing through the current waste policy, Mr Hopkins fears.

The Lib Dems would, if elected, consider withdrawal because of their opposition to an incinerator, possibly at Avonmouth, which is one of the options in the West of England Partnership's current strategy.

The party wants to stall the bid for up to £80 million of public funding which the partnership, including Bristol, North Somerset and South Gloucestershire Council, wants to make to ministers by the end of October.

The partnership insists no technology for dealing with the waste the West cannot recycle will be decided for another two years.

But the partnership is working to ensure an indemnity clause – to compensate councils if one of the partners decides later to pull out – is included as part of the private finance initiative (PFI) funding bid next month.

The Lib Dems, the Greens and Friends of the Earth have formed protest group Bambi (Bristol Against Mass-Burn Incineration) to campaign against the incinerator option.

Mr Hopkins said: "We don't want to find our hands are tied by the fear of having to make a multi-million-pound compensation payment if we want to change the council's policy next year."

On behalf of the West of England Partnership, Councillor Heather Goddard, a member of the ruling cabinet of South Gloucestershire Council, said: "The councils in the West of England have been preparing a bid for major government investment in a contract to provide new facilities for the treatment of household waste.

"This work is urgent if we are to avoid severe government penalties for not reducing the amount of waste going to landfill.

"The cost of this is very considerable, taking into account the amount of work involved and the specialist consultancy advice required.

"But we must not miss this last opportunity for government investment. For these reasons the councils involved are adopting normal practice.

"When large, long-term investment in essential services is being planned, in partnership, it is vital to have formal contractual arrangements for managing the process and protecting the councils' joint interests should any party pull out at a critical and costly stage.

"We don't expect anyone to withdraw as the partnership is strong and well-advanced in the work it began in 2006.

"Every council taxpayer would expect the councils to make these provisions in order to protect their interests."

A Bristol City Council spokeswoman said: "We are working to try to finalise the indemnity clause before the PFI bid is submitted. This is good practice."