Herefordshire Council and Worcestershire County Council
Waste Management Service Contract: Variation Business Case
Worcestershire County Council and Herefordshire Council have a Waste Management Service Contract (WMSC) with Mercia Waste Management (Mercia). This was signed in 1998 for a period of 25 years. The contract includes the provision, management and operation of various facilities including; Household Recycling Centres, landfill site, material recycling facilities and transfer stations. The contract also included provision for a Waste to Energy Plant.
Planning permission for an Energy from Waste (EfW) Plant at Hartlebury Trading Estate was given in July 2012. Since then the authorities have worked with the Department for Environment, Food & Rural Affairs (DEFRA) and in 2013 submitted a draft Variation Business Case including a value for money assessment considering a number of options including: variation to design, build and operate an EfW Plant at Hartlebury, continue as is and termination of the existing contract. In addition a number of financing options were considered. Following a period of clarification with DEFRA, an additional financing option was considered.
In December 2013 the Cabinets (Herefordshire and Worcestershire), responsible for waste management, decided to vary the existing waste contract and have an EfW plant at Hartlebury. The reports to Cabinets included an updated Value for Money assessment as well as information regarding affordability.
In December 2013, DEFRA confirmed the reassessment of PFI Waste Infrastructure Grant Credits. This recognised the councils' decision, based on their preferred option – as per the December 2013 Cabinets – was to vary the contract to design, build, finance and operate the EfW Plant at Hartlebury, where Mercia would source finance from the Councils who in turn would use their prudential borrowing to provide a loan. This means that from 1 April 2014, the councils will not receive any Waste Infrastructure Grant payments from DEFRA to contribute to the running costs of the EfW facility. At this point the councils agreed with DEFRA to update the Variation Business Case once the variation to the WMSC was concluded with Mercia.
Further to this, the Councils progressed negotiations with Mercia and finalised a variation to the Waste Management Service Contract in May 2014. Since then the Councils have updated the VBC to reflect the position reached when concluding the variation. This shows an improved financial position since the December 2013 Cabinet Decision in that:
- The Net Present Cost of the agreed Option (Option 2 as defined in the Cabinet Reports and Variation Business Case) is £680 million over the full asset life of the EfW Plant. This was £700 million in December 2013
- In December 2013 it was reported that the agreed Option would save £128million when comparing to continuing as is, as things stand today (Net Present Cost). Following agreement of the contract variation in May 2014, this saving is now £163 million
- In Nominal Cost terms the agreed Option is £577 million cheaper over the full asset life of the EfW Plant than continuing as is (it was £517 million cheaper in December 2013)
- The December 2013 Cabinet reports defined our 'uplift' affordability envelope (both Worcestershire and Herefordshire) at the point the EfW Plant becomes operational at £6million. At that time the price being asked by Mercia was an uplift of £6.5million. As a result of our negotiations with the contractor, the 'uplift' cost to both authorities has significantly reduced with the final position being a like-for-like saving of £2.2 million per annum below the affordability envelope.
The Variation Business Case provides the updated financial information based on the position reached at financial close of the contract variation in May 2014. This should be read in conjunction with the December 2013 Cabinet Report:
Site mobilisation and work is underway, with the EfW Plant scheduled to be operational in 2017.
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