Interserve quitting the ‘unique challenges’ of the energy-from-waste industry
An interim management report issued by the firm today (10 August) stated that positives in the company’s first half results for 2016 have been ‘overshadowed’ by the deterioration in outlook on its six EfW contracts and that the ’unique challenges’ of the market had led to the decision to leave it.
While trading across Interserve’s other divisions saw revenue rise by 2.4 per cent to £1.63 billion, an £88-million operating loss on the firm’s EfW projects has led to a £33.8-million pre-tax loss for the first half of 2016.
In May, the firm confirmed that design, procurement and installation issues at Viridor’s planned gasification plant in Glasgow had led to ‘deterioration’ in Interserve’s contract, prompting a £70 million contract provision being imposed on the company.
Construction of the £154-million Glasgow Recycling and Renewable Energy Centre (GRREC) began in 2013 and was meant to begin operating this year, processing 200,000 tonnesof residual waste collected by Glasgow City Council every year to produce enough energy to power the equivalent of 22,000 homes.
The firm stated in a trading update for the first four months of the year that those issues coupled with ‘continuing challenges with the supply chain’ would result in further cost overruns and delays to the project.
In total, Interserve’s EfW business comprises of six contracts with aggregate whole-life revenues of £430 million. Among them was another contract with Viridor to construct the company’s £177-million energy-from-waste plant in Dunbar. Construction on this project, which began in July 2015, is expected to take until 2017
Each of these six contracts was entered between mid-2012 and early 2015. Interserve expects to have completed all of these contracts by the end of 2017, and hopes that the £70 million exceptional loss provision accrued through the Glasgow contract will not be added to.
A statement from Interserve Chairman Glyn Barker in the report read: ‘Managing the challenges of exiting from these complex projects is a significant priority, as is ensuring our processes continue to improve given the lessons we have learned.’
Interserve Chief Executive Adrian Ringrose commented: “Trading in the first half of the year, across the vast majority of our divisions and our regions, has been good, in markets that offer both opportunities and challenges. We delivered a strong cash performance and grew revenue and headline operating profit.
“We are taking action to exit the Energy from Waste sector. Our assessment of the aggregate impact of exiting this sector is in line with the £70 million exceptional charge we announced in May. Despite the increased political and macro-economic uncertainty following the UK’s EU referendum, our outlook for the current year remains unchanged.”
Firms abandoning troubled gasification business
Interserve follows American gas production firm Air Products in quitting the EfW business this year.
In April the company abandoned development of two large incinerator developments in the North East after encountering ‘additional design and operational challenges would require significant time and cost to rectify’. The identical Tees Valley 1 and 2 plants were expected to process 700,000 tonnes of feedstock every year, and the first plant had already been constructed at a cost of £320 million.
However, technical issues meant that the commissioning process could not be completed and work on the plant and the construction on Tees Valley 2, which had begun, were abandoned at an expected cost to the firm of between £630 and £700 million.
Interserve’s interim management document can be read on the firm’s website.