Councils signed to Viridor’s flagship Manchester contract are experiencing “significant financial challenges”, the company has said.
In 2009, the Greater Manchester Waste Disposal Authority (GMWDA)’s nine local authorities signed a 25-year £3.8bn private finance initiative (PFI) contract with Viridor and infrastructure firm John Laing.
MRW understands that the costs to the nine member councils of terminating the arrangement could be less than maintaining the current contract.
The discussion is being driven by efforts to reduce agreed increases in the levy each council pays to the GMWDA (see box below).
The GMWDA is England’s largest waste authority, responsible for dealing with more than one million tonnes a year of waste.
Viridor has championed the relationship, using it as the template for its ‘resource network’ idea, which the company has been advocating for other regions.
But now, in response to reports that the contract could be cut short, the authority has conceded that councils are under pressure.
A joint statement with Viridor says: “The parties recognise the significant financial challenges faced by our nine partner councils as a consequence of enhanced and prolonged austerity.
“This is a complex process and all parties are working together to respond accordingly.”
In November, Viridor announced it had served a notice of termination on the principal contractor for its Glasgow energy-from-waste scheme, saying it had “continually and repeatedly failed to meet delivery milestones”.
The project was originally due to complete in March this year but it is understood that Interserve no longer expects to be able to meet a March 2017 completion date.
In 2014, Lancashire County Council cancelled its PFI contract to take control of the operation. The £2bn deal, which was signed in 2007, was terminated with the mutual agreement of operator Global Renewables Lancashire.
Extract from budget discussion document
The authority set its 2016-17 budget on 12 February 2016 and, in so doing, noted the potential requirement for a 9.6% increase in levy in 2017-18 (due in part to the phasing out of the use of reserves) followed by a 7.6% increase in 2018-19 (when no reserves would be available to support the levy). After that time increases would become linked to inflation once more.
The authority agreed an outline plan to seek to reduce costs within the contract, by a number of possible routes, with a view to the identification of significant savings so that the increase in levy could be returned to a more normative inflation increase level, or ideally to provide a 0% increase. Annual savings of around £21m would be needed for an inflation increase, or around £28m to deliver a 0% increase in levy.
Given the commercial nature of those negotiations, update reports have been provided throughout the year to the full authority meeting, in the closed section of the agenda, covering savings potential.