Closure arrangements for the giant Greater Manchester waste management contract, awarded in 2009 to Viridor Laing Greater Manchester (VLGM), were announced today (24 August).
The Greater Manchester Waste Disposal Authority, which is the client for the contract, said that since autumn 2015 it had been working “with all parties exploring a number of options to secure a reduction in costs and operational improvements to fulfil the required budget savings.”
One of the recycling facilities under the Viridor Laing contract
In April this year the Authority voted to end the waste and recycling private finance initiative (PFI) contract with VLGM and now legally binding “Heads of Terms” have been agreed, ahead of a conclusion planned for 29 September 2017.
The Authority explained that contract and efficiency savings had been sought to help mitigate levy increases and next year the rise would be 7.6%. It also explained that until now levy increases had been softened by having to pay less to VLGM because of delays in the construction of facilities. The cost of the recycling and waste management services provided under the contract are £165 million per year.
The GMWDA said it will be exiting the contractual arrangements by “acquiring VLGM via a negotiated settlement for £1. As part of the arrangements GMWDA will be paying back outstanding bank loans at full value.”
Difficulties
The contract has seen a number of difficulties on the construction/equipment front. Rather than opting for energy recovery by incineration within Greater Manchester, the authority opted for a contract which would see waste treated in an MBT process and then transported out of the area for incineration at Runcorn.
A vast number of facilities were built under an EPC contract awarded to Costain which in turn appointed a number of contractors to build different types of facilities. But, some of these ran into difficulties such as for composting plants built by TEG which ended up in dispute with Costain.
List of contract facilities (source: GMWDA)
Apart from the technical problems, local authorities have in recent years started to review their PFI type contracts in the face of austerity and a changing legislative landscape where there is less pressure on councils to hit recycling targets and energy from waste is becoming more easy to access without preparation of material such as through MBT plants.
Landfill diversion targets for the contract have been met but recycling is lagging behind.
Other local authorities reviewing their contracts include Sheffield with Veolia and Essex where the authority is involved in legal action with Urbaser Balfour Beatty over an MBT plant.
Heads of Terms
Pennon Group – parent company of Viridor – said today that “Viridor and its partners have been working with GMWDA to agree the principles of an exit. These principles have now been agreed and a heads of terms between GMWDA and Viridor Laing (Greater Manchester) Limited has been signed.”
And, on the financial front, Pennon said that for the joint venture entities, “Viridor Laing (Greater Manchester) Holdings Limited and INEOS Runcorn (TPS) Holdings Limited, Pennon anticipates at this stage a net one-off nonmaterial impact to the income statement in 2017/18. This takes into account a reduction in the book value investment in joint ventures and an expected one-off gain on joint venture profit after tax.”
Paul Boote, Pennon Group financial controller, told letsrecycle.com that the “non-material” side applied to the fact that “Pennon Group is a large top-end FTSE 100 company”. He would not be drawn on the size of any losses as a result of the contract, explaining that heads of terms of agreement are to finalised by the end of September.
Savings
Greater Manchester Waste Disposal Authority said that “Immediately following the termination on the 29th September, refinancing arrangements will have been completed. This works on the same principles as a mortgage and the GMWDA has been able to secure significantly reduced rates. From this alone the savings are £20 million per year.
Future operation of HWRCs will be put out to tender
“In addition, modifications (which are yet to be fully determined) to the current suite of facilities are forecast to generate further savings in operational costs.”
Under the proposed agreement, residual waste will continue to be treated at the Runcorn I Energy Recovery Facility which Viridor will continue to operate for the remainder of the original 25-year contract with no significant operational changes. And, it is expected that Viridor will continue to provide these services for a period of not less than 18 months. Viridor will also be eligible to bid for the new contract.
New contract to be let in the wake of Viridor’s planned departure will include for operating residual processing sites and activities, plus any associated HWRC, TLS, and MRF based on those sites. Also included is the Bolton TRF and preparation and delivery of fuel to the Runcorn ERF by rail.
And, tenders will be invited to run civic amenity and bio-waste facilities.
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Source: letsrecycle.com Waste Managment
