Waste deals “new powerhouse” in PFI

Speaking last Wednesday (June 10) at the Futuresource conference in London, Mark Dooley, executive director and head of infrastructure at Australian investment firm Macquarries, claimed that, despite the economic downturn proving a “massive obstacle”, the waste management sector could now claim to be the “new powerhouse” in PFI.

Mr Dooley explained that he had previously seen waste PFI as being immune to the global slowdown but conceded that it had been “just a little bit delayed”, leading to major waste infrastructure projects struggling to achieve financial close.

However, Mr Dooley, whose company has European head offices in London, said that the recent signing of Cumbria county council's £720 million PPP project with Shanks Group (see letsrecycle.com story) and the much-delayed Greater Manchester PFI deal (see letsrecycle.com story) proved “even in these times, waste contracts can get done”.

Explaining that this would greatly improve confidence in investing in this area, Mr Dooley said: “PFI works: it is enormously viable and experience has built with the deals that have closed. At the same time the crucial markers with Manchester and Cumbria are showing a willingness to assess and sort these deals.”

The comments by Mr Dooley echo similar sentiments made by senior officials at the Treasury and Defra last month about there being increased optimism that PFI deals would reach close (see letsrecycle.com story).

Optimism

At the same event, Malcolm Ward, chief executive officer of waste management company Cory Environmental, said that that waste industry welcomed the involvement of the European Investment Bank and the Treasury Infrastructure Finance Unit, which both played pivotal roles in closing recent major waste deals.

Mr Ward – who is also chairman of the Environmental Services Association – said that Cory had been fortunate in that it reached financial close on its major development of the Belvedere energy-from-waste project in London before the full slump but now the landscape of investment had changed.

He said: “Expectations were that seven or eight banks would come in and buy £50 million worth of tickets, which would have been quite comfortable a few years ago, but since Lehman Brothers went under that isn't going to go as suggested and the appetite is now for smaller tickets.”

“We have seen prices going up and the requirements from the banks is now to reduce terms from over 20 years to around seven and that is driven by the fact that the number of banks needed to form the local authority plans is less or they have taken decision not to pay,” Mr Ward added.

However, Mr Ward agreed that there was room for optimism and said that legislation affected the waste management sector, such as the EU Landfill Directive, would help to encourage investment in large scale projects.

Mr Ward said: “Some of the banks are now turning and facing and saying that there must be an opportunity here and I think everyone is aware of the opportunity that exists in the waste sector, due to the drivers such as Landfill Tax and Landfill Allowance Trading Scheme.”

Security

Responding to a question on whether banks favoured long-term waste deals based around incineration technology, Mr Dooley explained that there was an element of security for investors in using technology that had been used on a wider scale before.

He said: “Most PFIs have a 25 year view and banks do like to see strong reference technologies and I do concede that we are sometimes a bit held back on what otherwise might be a technology to address it.”

Mr Ward added: “If we are going to be building any infrastructure for £100-200 million then we want to know that it damn well works. The corporate sector needs to get itself comfortable and then allow them to deliver something else.”