Monday, 12 October 2015

£60 million Avonmouth energy plant changes hands for no cash


The offshore owners of the energy business which Borders councillors believed would earn them the title of leading waste management authority in Scotland has admitted their £60 million pilot plant has been a costly and disappointing failure for shareholders and investors.

A catalogue of devastating information which forced New Earth Recycling & Renewables (NERR) to dispose of its energy recovery facility (ERF) at Avonmouth, near Bristol without any cash consideration has been posted on the group's website.

The shocking revelations seems bound to pile even more pressure on Scottish Borders Council to explain in detail why it was prepared to gamble and lose £2 million in a bid to provide its residents with a similar form of so-called pyrolysis to convert household rubbish into heat and power.

A visit to the Avonmouth plant by a delegation from SBC a year ago concluded the technology being used there was right for the Borders. But by February 2015 the contract with New Earth Solutions (NES) was dead and buried, and the local waste management strategy lay in tatters.

Premier Group Isle of Man, the parent company of NERR, has revealed it had been trying to offload the Avonmouth energy business for months because the facility was performing so poorly.

The company say: "A performance improvement plan was undertaken earlier this year in an attempt to boost the Avonmouth ERF's performance, which included the appointment of external specialist consultants who conducted a full review of all aspects of its operations.

"One of their key recommendations was the need for substantial further remedial capital expenditure, which carried no guarantee of success that the plant would reach a sustainable level of financial performance."

This part of the statement is particularly significant as SBC had signed up for an Avonmouth-type of ERF as far back as October 2012 when the technology was in its very infancy. So what persuaded the council to commit so early?

And the latest communication from the New Earth owners adds: "These capital expenditure requirements were greater than New Earth or the Fund could finance or were willing to commit given the experience to date with the Avonmouth ERF."

Because of the poor financial performance and the level of additional investment required, and the continuing technology and operating risks, it was not possible to find an external buyer, reveals the statement. So it was decided to "sell" the energy business to Australian bank Macquarie, the project's senior lender, and an institutional investor, who were between them prepared to refinance the business.

"The deal stemmed the continuing financial drain on the resources of New Earth and the Fund in continuing to support the energy business. However, there was no material cash consideration for the transaction." It would appear the plant on which SBC once pinned their entire waste management strategy has turned out to be worthless. Even the consideration paid for the shares "was only nominal".

A letter to stakeholders from NERR director Michael Richardson concludes: "Ultimately, the development of the energy business at a cost of nearly £60 million with its ambition to provide an integrated waste and energy solution for the UK market has not worked and has been a very costly and disappointing exercise for the Fund, its shareholders and New Earth."

One waste management insider commented: "It should not have taken too much for SBC to realise this wasn't going to work. This should have been obvious by the end of 2011, especially given the advisors they had on board. This goes back to the decision to insist on this technology instead of the MBT (Mechanical Biological Treatment) only. I hope they do hold people accountable for the decision. It is becoming more indefensible".

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