GMWDA confirms landmark contract exit with nominal purchase of Viridor Laing
The Greater Manchester Waste Disposal Authority (GMWDA) is to exit its record contract with the Viridor Laing consortium next month by acquiring the company for £1.announced in April that it would be terminating the 25-year, £3.2-billion private finance initiative (PFI) with the joint venture between waste firm Viridor and infrastructure group John Laing – Viridor Laing (Greater Manchester) Ltd (VLGM) – over unrectifiable budgeting reasons.
The contract sees VLGM handle around 1.3 million tonnes of material from 2.2 million residents a year, and has developed over 40 waste facilities at a cost of more than £600 million.
However, rising disposal costs have made the contract unsustainable, and since the autumn of 2015, GMWDA has been working with VLGM and the district councils to find a cost-effective solution.
The cost of recycling and waste management services currently provided under the contract are £165.88 million a year, a sum that is paid for through a levy of each of the nine local authorities within the GMWDA. As a result of this huge cost, each of the councils have taken steps to reduce the amount of residual waste being collected, including the introduction of slim bins and the reduction of bin collection to three-weekly.
From 2014/15 to 2016/17, the GMWDA has been able to use reserves built up as a result of the construction of facilities under the contract being delayed. By using these reserves, it has managed to reduce the forecasted rise in levy payments, however it says that with the levy expected to rise by 7.6 per cent in 2018/19, action needed to be taken.
The GMWDA agreed unanimously in April to terminate the contract and terms were agreed between the authority and VLGM that this termination will be completed on 29 September, conditional upon the completion of the transfer of Viridor Laing into GMWDA ownership and the approval of the terms of the consensual termination by the lenders to the project.
The contract included targets of 50 per cent recycling in 2015/16 and 75 per cent landfill diversion by 2020. As of March, GMWDA says that the recycling rate had risen from 32 per cent in 2009/10 to 44 per cent, missing its target, while landfill diversion has increased to 89 per cent from 20 per cent, already surpassing its goal.
Decision ‘not taken lightly’
In a statement, Councillor Nigel Murphy, Chair of the GMWDA, said: “Whilst a range of efficiency savings options have been explored in partnership with VLGM and their sub-contractor Viridor, constraints within the new EU Procurement Regulations (2014) have meant that the savings identified cannot be taken forward through the existing contractual arrangements.
“Coupled with some technical and operational challenges in the contract, it is with some regret that GMWDA and VLGM have mutually agreed to terminate the Recycling and Waste Management PFI Contract from 29 September 2017.
“Whilst this decision has not been taken lightly, GMWDA will work closely with all stakeholders to provide updates as quickly as possible. With the support of Viridor, interim arrangements have been agreed to enable GMWDA to continue to provide recycling and waste processing and treatment while GMWDA procures new recycling and waste services. This arrangement will ensure that kerbside collection and household waste recycling centre services will continue as normal for residents of Greater Manchester.”
Impact of termination
The GMWDA will be purchasing VLGM for £1 and as part of those arrangements will be paying back outstanding bank loans at full value.
Following the purchase of the company in September, VLGM will be renamed but will continue to carry out services across Manchester on an interim basis. Procurement for the next contract will commence in October, with contract commencement scheduled for April 2019, at which point the newly-named company will hand over services.
As a result of the termination, the GMWDA says that refinancing arrangements will be completed as soon as the deal is over next month. From this work, which the authority says works on the same basis as a mortgage, it will save £20 million a year, with additional operational savings to be gained from modifications to facilities developed through the contract.
Since the contract was signed in April 2009 – making it the largest ever combined waste and energy contract, a record it still holds – the partnership has developed a network of 37 recycling, composting and waste management facilities across Greater Manchester, including 20 household waste recycling centres (HWRCs), six of which have since closed; five mechanical biological treatment facilities (MBT), four in-vessel composting (IVC) facilities, one materials recovery facility (MRF) and one energy recovery facility.
While GMWDA admits that some changes will need to be made to these facilities, the full scope of which have yet to be finalised, there will be no impact on the operational workforce for the time being.
The GMWDA expects to create more savings when the new contract begins in April 2019. In total, it predicts savings of around £37 million per year from that month.