Thursday, 2 June 2016

Moratorium failed to save disastrous Borders venture


Councillors in the Scottish Borders appear to have 'bent over backwards' as their chosen contractor in a multi-million pound deal struggled to find the money and perfect the technology for a disastrous waste treatment venture.

Papers obtained under Freedom of Information reveal how elected members at Newtown St Boswells granted waste management company New Earth Solutions [NES] a nine-month contract moratorium in 2014 even though the delivery of a £21 million treatment facility at Easter Langlee, Galashiels, was already years behind schedule.

In recent weeks we have disclosed how the company's investments in a pilot energy from waste plant near Bristol were sold for just £2, how NES now faces the prospect of administration unless another business takes on its £60 million debts, and how the firm lost £1.3 million on the abandoned Borders contract while local taxpayers were stung for double that amount, thanks to the actions of their council.

The proposals to "freeze" progress on the contract between February and October 2014 - the expensive deal was scrapped without a brick being laid in February 2015 - were submitted to a private meeting of the council on May 29 2014. It followed letters from NES to the local authority outlining the issues facing the project.

Although the original contract documents had been signed in April 2011, NES was now requesting a pause to allow it to put in place new funding provisions for their future infrastructure projects. The Isle of Man-based New Earth Recycling & Renewables [Infrastructure] Fund (NERR) had been named by NES as the financial backers of the Borders development.

A report from Rob Dickson, SBC's Corporate Transformation & Services Director, recommended the moratorium should be approved.

He wrote: "This proposed pause to the delivery of the Easter Langlee facility does not cause any significant issues to the financial or legislative drivers of the project. The project still represents the best solution for the Council with a market leading gate fee, significant risk transfer and a robust on-site solution that requires minimal waste to leave the site."

Councillors were told the report was private because SBC had a duty to protect the reputation of NES, as a perceived failure of the project could affect the future funding opportunities of the company and as such the funding of the Easter Langlee project.

There was no detailed explanation from NES regarding the closure of the investment fund financed through NERR subscriptions. But in fact dealings in the NERR fund had been suspended on the Channel Islands Stock Exchange in November 2013, and investors have been prevented from recovering their deposits from NERR ever since. The status and future of the fund remains a closely guarded secret by its Isle of Man and British Virgin Islands controllers.

The brand of technology to be installed at Easter Langlee remained unproven in 2014 even though councillors had rubber-stamped its use in 2012. At the end of the day the technological and funding barriers for the Borders project proved insurmountable with at least £2.4 million of public money completely wasted on highly paid consultants and lawyers.

According to the confidential report of May 2014 NES would use the moratorium to determine its new funding arrangements following a review of its options for funding the group, its projects, and its research and development.

The report goes on to claim (perhaps unwisely): "The project is still a very good deal for the council financially and operationally and still has a high percentage of success despite the proposed delay. So it is the opinion of the Project Board, led by the Corporate Transformation & Services Director, that the moratorium period should be accommodated.

"A decision at this point to terminate the contract leaves the Council exposed with no long term solution identified ('Plan B'), that will take in the region of three months to review and identify anyway".

Two years later SBC still has no strategy in place for dealing with waste management going forward.

The moratorium was sanctioned by councilors even though they heard the delay would impact on five other planned schemes including the so-called Business Transformation Project.

A section of Mr. Dickson's report entitled Risks & mitigations stated there was a risk NES could not raise the funding for the project or could not develop their technology sufficiently within an acceptable timescale to obtain project funding.

He added: "The end of the moratorium period will determine the final fate of the project but the Council will be in a position to make an informed decision based on the review of the Business Case".

There appears to have been no dissent from any of the elected members when they were asked to permit the contract delay.

The confidential minute of council proceedings explains that NES had experienced funding and technology issues with their "commercially operational" facility at Avonmouth - the plant which so impressed a SBC delegation on a visit in October 2014 - that was having a knock-on effect to the funding of their future projects, including Easter Langlee.

Furthermore, a separate gas-to-engine research and development plant (the technology now proposed for Galashiels) was not progressing as originally programmed.

In all of the circumstances outlined above why was there not a proposal from any Borders councillor to pull the plug on NES in May 2014 thereby saving more than nine months additional expenditure and delay?

A contracts expert who examined the recently released confidential documents commented: "It is hard to fathom why the members of Borders council bent over backwards to accommodate NES unless it was in a bid to save their own skins after realising their earlier decision to engage this company represented a huge mistake which would come home to roost.

"It is clear neither the funding nor the technical system needed to deliver the Easter Langlee project were in place long after the contract was signed. In my view SBC should have withdrawn at a much earlier stage in the proceedings. A moratorium was simply delaying the inevitable".

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