This has meant that Time has forced the hands of the main contractor, Resource Recovery Solutions (Derbyshire) Ltd (RRS) [a joint venture partnership between Interserve and Renewi]. RRS has been given more than ample opportunity, under threat of termination, to deliver a working Incinerator; one that was capable of being approved by an Independent Assessor.
It failed to do so.
In my article from last December “Sinfin Incinerator: Everything you need to know on the contract…and it’s already in the public domain!” I explained the termination process. This gives the banks the opportunity to find an alternative contractor. They have now concluded that there is “No Liquid Market” – i.e. no companies have come forward who can complete the project.
It is at this point that the Councils’ future plans start taking a bizarre twist.
In their joint Press release it states:
“In the immediate future, work will continue on the facility to determine its condition and capability. This work will also be carried out by Renewi and will allow the councils to ascertain what measures need to be in place for the facility to become fully operational.”
Renewi, who is a partner in the company that failed to get the plant working, will now be advising the Councils on how to get the plant working. It does question why the Councils think that Renewi are best placed to provide that insight.
Councillor Chris Poulter, Leader of Derby City Council, said in the same press release:
“…We remain committed to fully completing the plant and we’re confident there is the industry expertise available in the market to help us achieve this.”
It is one thing to be “committed” but this has to be in the context of realism. When the banks, who are heavily motivated to ensure that this project is successful, cannot find any players in the market to offer “industry expertise” why do the Councils now believe that such organisations exist.
The next stage, detailed in the Press Release, is even more concerning :
“The councils will now enter negotiations to pay the banks an “estimated fair value” for the plant that will be worked up by an independent expert, taking into account all of the costs of rectifying ongoing issues at the plant, and the costs of providing the services to meet the agreed contract standards.”
Whilst this is in line with the contract, it is here where the Council needs expert legal advice.
Private Finance Initiative (PFI) contracts were originally created as a way for government bodies to finance large infrastructure projects e.g. roads, hospitals etc. In these situations there would never be a technology risk, simply an availability of money ( it allowed local authorities to finance off balance sheet).
Consequently, termination would only happen if there was a change of political will; in which circumstance it would be right that the contractor is paid a “fair value” for a part completed project. The Sinfin Incinerator is quite different. The Councils have not changed their mind, and they are willing for the original outcome to be delivered – it’s just that it doesn’t work!
This situation was never contemplated in this contract.
The “fair value” compensation includes all capital costs incurred by the contractor plus future expected returns less the costs of “rectification”. When paid, the plant becomes the ownership of the Councils. The unknown figure is the cost of ‘rectification’; a good negotiator would ensure that it equates to the overall costs calculated thus resulting in a compensation payment of zero.
Do the Councils have a “good negotiator”?
The worst outcome that the Councils could allow to happen is to:
- pay the banks substantial compensation and
- to be saddled with the burden and risk of a £200m plant that doesn’t work.
Comforting political words from the Leaders that it will come good, eventually, will only be met with scepticism and ridicule.
If Renewi are the “born again” experts on Incinerator plants then perhaps it should be invited to pay the “fair value” to the banks, make it work, and secure the Acceptance Certificate, all before the Councils pay a penny.
Reverting back to landfill is not an ideal way forwards. It does feel like a backwards step, especially for Councils that are trying to demonstrate their green credentials. But pursuing a strategy which is starting to feel ideological, when common sense suggests that it is a pipe dream could be the single biggest mistake made by this Conservative administration and have the potential for bankrupting the Council.
It could be their “A52 moment”!
Categories: Sinfin Incinerator