Councils consider 165m loan for Hartlebury EfW

Worcestershire and Herefordshire councils may need to lend a total of 165 million to contractor Mercia in order to construct a planned energy-from-waste (EfW) incinerator at Hartlebury.

A report to be put before both councils cabinets this week (December 12), recommends that Worcestershire council provide a 125 million loan through prudential borrowing, while Herefordshire loan 40 million in order to develop the facility.

The plant is being developed by Mercia Waste Management in partnership with its sister company Severn Waste Services under a 25-year, PFI funded waste management contract signed in 1999. Mercia is a joint venture between Urbaser Ltd and FCC Environment.

Defras PFI credits to the project are worth 5.5 million each year and planning permission has already been confirmed for the 200,000 tonnes-per-year capacity plant, known as EnviRecover, following a public inquiry last year.

Funding

However, it emerged in October 2013 that wrangling over PFI funding options would cause further delays to the construction of the 120 million plant a full 15 years after the two councils first signed a joint deal for the project (see letsrecycle.com story).

The councils, in discussions with Defra, had been pursuing alternative methods of funding the project due to concerns that plans for the plant were based on relatively expensive bank debt financing.

Now, the councils are instead seeking to authorise loans to Mercia, which would need to conform to the Prudential Code requiring that councils borrowing can be serviced from their revenue resources.

The prudential borrowing option is recommended as the best value for money ahead of several financing options outlined in the report set to go before the cabinets this week. It states that this would be 128 million cheaper than continuing to send waste to landfill without an EfW plant.

Options

Other options include: combination of prudential borrowing and private financing; complete commercial financing; procuring an entirely new contract with an EfW plant; procuring a new contract without an EfW plant; or continuing as is (sending waste to landfill with no EfW plant).

However, not varying the current contract may lead to additional and immediate termination costs as well as the prospect of paying 100 per tonne in landfill tax in 2023, the report states. Furthermore, forecasts suggest the councils existing landfill capacity may be full by 2024.

Should the reports recommendations for lending Mercia 165 million be accepted by the two councils cabinets, it would then need to before full council meetings in February 2014 for final confirmation.

It is then expected that the project would reach financial close and begin construction in the first quarter of 2014, with the EfW plant slated to begin operations in January 2017. The facility would then be handed back to the councils at the expiry of the contract in 2023.

As outlined in the original contract, costs are apportioned between the councils on a 75:25 basis, with Worcestershire council undertaking the majority of the costs as the larger authority.