The cost of Interserve’s exit from the energy from waste market has more than doubled from £70 million to £160 million, the construction firm announced today (20 February).
The ‘exceptional provision’ follows the termination of its multi-million pound contract with Viridor in November to build the Glasgow Recycling & Renewable Energy Centre.
Interserve was served notice on its contract to build Viridor’s Glasgow Recycling and Renewable Energy Centre in November
And, the business has also been hit by issues surrounding its principal gasification subcontractor Energos, which entered administration in July last year (see letsrecycle.com story).
Interserve has announced the expected cost hike ahead of its preliminary results for 2016/17 next week (28 February).
The company has confirmed that having been served a notice of termination on the Glasgow contract, it is expecting ‘a lengthy period of litigation to ensue’.
Interserve has also taken a detailed review of its other contracts in the exited EfW business, as well as the likelihood and timing of potential recoveries and claims from third parties.
Uncertainty
It notes: “In the light of these developments and of the continuing uncertainties in relation to the final conclusion of our EfW contracts, the Board has concluded that the exceptional provision of £70m announced in May 2016 is no longer adequate to reflect the incurred and anticipated losses associated with this business.
“Consequently the Board has determined that it is appropriate to increase the exceptional provision for exiting this market and the associated contracts to £160m.
“We expect to complete substantially the construction and commissioning of the projects during 2017, although our contractual obligations in respect of warranties, and the resolution of claims will continue for a period thereafter.”
Debt
Elsewhere, Interserve’s exit from the EfW market has had a ‘significant negative impact’ on the average net debt of the business, which is forecast to rise from £390 million in 2016 to £450 million in 2017.
In response to additional short-term funding requirements to complete is EfW commitments, the business has put in in place new banking facilities with existing and new lenders.
As a result, Interserve’s debt facility has risen to £573 million – which the company considers is ‘adequate’ to meet all of its exiting and anticipated future commitments.
EfW contracts
Interserve has six outstanding EfW construction contracts, which it entered into between 2012 and 2015. Combined, they have whole life revenues of £430 million.
Among them is the Derby waste gasification project being developed by Resource Recovery Solutions – a joint venture between Interserve and Shanks – which is scheduled to enter operations in the coming weeks.
Both Glasgow and Derby facilities were contracted to use gasification technology supplied by Energos, which closed last year citing contractual disputes on two of its major contracts.
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Source: letsrecycle.com Waste Managment
