Government

Viridor seeking compensation as GMWDA terminates £3bn PFI deal

The Greater Manchester Waste Disposal Authority (GMWDA) has confirmed its intention to end its 25-year private finance initiative (PFI) contract with Viridor Laing just eight years in, with the consortium indicating it will seek compensation over the termination.

When it was signed in 2009, the contract between the GMWDA and Viridor Laing (Greater Manchester Ltd), a consortium between waste firm Viridor and infrastructure group John Laing, was thought to be worth £3.2 billion over its lifetime, one of the UK’s largest PFI deals.

Manchester makes ‘vital’ change to slimline bins amidst rising costs
The recycling and waste management PFI deal sees the consortium handle around 1.3 million tonnes of waste a year generated by the nine Manchester councils making up the GMWDA. As part of the contract, the firms have developed over 40 waste facilities at a cost of more than £600 million.

However, late last year the authority indicated that it was ‘not satisfied’ with the contract and was looking to make ‘significant cost savings and efficiencies’ and in February, it raised concerns over the progress being made on repairs to some of the facilities and on the volumes of waste being processed, which were lower than expected at the outset of the deal and expensive compared to current market rates.

Following these concerns, the GMWDA last week (26 April) decided to seek termination of the long-term contract.

In a statement, GMWDA said: “The Greater Manchester Waste Disposal Authority can confirm that at the Authority meeting held on Wednesday 26 April 2017 it agreed to terminate its Waste and Recycling PFI contract with Viridor Laing (Greater Manchester) Ltd. The decision allows for delegation for officers to progress termination. At this time we are unable to comment further.”

Viridor to seek compensation

A statement released by Viridor’s parent Pennon Group yesterday (2 May) said that ‘financial challenges’ at the GMWDA caused by ‘prolonged austerity’ were to blame for the collapse of the deal.

Pennon said that levels of diversion of waste from landfill were ahead of contractual commitments and that Viridor Laing was keen to ensure that progress was able to continue and had been working the GMWDA to help evaluate options.

It concluded: ‘Discussions and negotiations are now expected to progress over the coming weeks as we work with GMWDA to ascertain the implications.’

Viridor’s Commercial Director, Paul Ringham, said: “We are obviously disappointed by the decision by Greater Manchester Waste Disposal Authority. We’ve been working with the GMWDA since 2009, helping to transform waste across the North West of England, which has included investing £631million in the region.

“Despite the success of the model and the substantial progress we’ve made together, we recognise the significant impact of enhanced and prolonged austerity on this particularly ambitious and complex contract and the financial challenges faced by the nine partner councils. The timing and nature of a termination has yet to be defined. This is a complex process and to clarify everyone involved continues to work together towards getting the best possible outcome for all parties including and most importantly our people and the communities they serve.  

“Essential public waste and recycling services remain unaffected. Our employees and union partners have been fully briefed and we remain committed to keeping them informed of developments as the situation clarifies.”

The book value of Viridor’s investment in the Greater Manchester project was registered as £72.3 million at the end of March, of which Viridor Laing (Greater Manchester) Limited represented £36.8 million.

Both Viridor and John Laing have made clear that provisions in the PFI contract for compensation to be paid to both on termination of the deal would be sought.

A statement released by John Laing said that should the GMWDA ‘seek to take [the project] into public ownership (through termination or otherwise), the [company] would expect appropriate compensation to be paid to all stakeholders’. ‘Any other outcome would be strongly defended’.

Councils taking action to avoid rocketing disposal costs

Rising disposal costs caused by the PFI contract has forced the nine councils – Bolton, Bury, Manchester, Oldham, Rochdale, Salford, Stockport, Tameside and Trafford – to take action to minimise the amount of residual waste being collected, with most having introduced reduced frequency collections or restricted residual collections in the past few years.

Announcing last June that it was moving to a three-weekly residual collection, Oldham Council revealed that it had to act to avoid costs of £350.58 per tonne to dispose of residual waste. This was due to increase to £366.52 per tonne in 2016/17. In contrast, recyclable waste collected through the council’s kerbside service earned it £25 tonne that year, a saving of over £375 for every tonne collected.

As part of the partnership with the GMWDA, local authorities in Greater Manchester have to pay a levy to the authority. Oldham was set a levy of £15.897 million in 2016/17, calculated to reflect ‘the most up to date waste projections that the council and other Greater Manchester councils have provided’. This figure was set to rise to £17.887 million in 2017/18.

Related Articles