Day of reckoning for council and contractor

EXCLUSIVE by DOUGLAS SHEPHERD

Not so long ago they were touting themselves as one of the fastest growing companies in their field with bold predictions of floating the burgeoning business on the London Stock Exchange.

But behind the curtain of commercial spin Scottish Borders Council's favourite waste management Group had a combined financial deficit of more than £157 million when the entire Group crashed out of existence in June, according to two horrendous Statements of Affairs produced by New Earth Solutions' administrators.

And research by Not Just Sheep & Rugby has shown the contractors awarded a huge £80 million deal by the Borders local authority in 2011 were carrying net debts of £27 million in 2010 (up from £19.7 million the previous year) even BEFORE the papers were signed.

So did financial experts commissioned at great cost by SBC, or paid officials at the council make that information available to elected members before they rubber-stamped an agreement which collapsed in chaos four years into the 24-year contract, and cost local taxpayers at least £2.4 million?

And were there regular reports on New Earth Solutions Group's (NESG) finances between 2011 and 2015 as the debt mountain increased? Over the same period the funders for a £21 million Advanced Thermal Technology (ATT) facility at Easter Langlee, Galashiels - Isle of Man-based New Earth Recycling & Renewables [Infrastructure] PLC (NERR) - was also experiencing serious financial difficulties which would lead to liquidation.

How many councillors asked pertinent and probing questions about the state of the NESG and NERR finances as progress on the Easter Langlee ground to a halt? And why was New Earth allowed a lengthy moratorium to sort out chronic technological problems associated with the system of so-called pyrolysis planned for the Borders?

The newly published Statements of Affairs for NESG and its subsidiary New Earth Solutions Facilities Management (NESFM) reveal just how debt-ridden the entire organisation had become when last desperate attempts to save the businesses were finally extinguished.What was left was sold for a pittance to a newly formed company called DM Opco which no-one in the waste management industry had even heard of prior to a swift deal with administrators Duff & Phelps just days after the New Earth collapse.

When NESG entered administration on June 9th 2016 estimated total assets for preferential creditors amounted to just £4.6 million.

But on the other side of the equation - liabilities - lay a list which included debts to NERR of £23.8 million, a shortfall of £4.2 million to a fixed charge holder and an estimated deficiency of assets after a floating charge of £24 million.

So far as non-preferential claims were concerned trade and expense creditors were owed £7.1 million, subsidiary NESFM - also in administration - was due £3.8 million and HM Revenue & Customs £843,000, bringing the unsecured claims to £11.2 million.

The report puts the estimated deficiency as regards all creditors at £35.36 million with issued and called up capital of £39.6 million. So NESG's total deficiency is stated to be £75.024 million.

A separate document dealing with NESFM's assets and liabilities reveals a shortfall to fixed charge holder Landesbank Girozentrale of £37.2 million with total assets available for preferential creditors of just £10.2 million.

The estimated deficiency of assets after floating charge was £66 million plus issued and called up capital of £16.4 million, giving an estimated total deficiency as regards members of £82.4 million.

The NESG and NESFM combined total deficiency is therefore £157.4 million.

As we have reported on previous occasions, the majority of the debts were already weighing down New Earth Group in October 2014 when a delegation of councillors and paid officials from SBC returned from a two-day 'due diligence' trip to NESG's facilities at Avonmouth, near Bristol, and expressed satisfaction with what they had been shown.

Borders council taxpayers were assured SBC was on the right lines with their waste management strategy, and the Easter Langlee plant remained deliverable. Four months later the deal was torn up with nothing to show for four years of dithering and delays.

The original contract between SBC and NESG was signed in March/April 2011. Our trawl through annual reports and sets of accounts produced by the New Earth group prior to those dates show that in June 2010 a financial return for the twelve months to January 31 2010 showed a trading loss of £7.548 million for the period, more than double the deficit of £3.324 million recorded in the previous year.

And at January 31 2010 NESG had net debts of £26.992 million, up from £19.747 million in 2009.

Despite these negative financial results it appears Borders councillors considered New Earth to be best placed to solve their pressing waste management issues as the Scottish Government clock ticked towards a ban on landfilling municipal rubbish.

As a direct result of the flawed decision taken in 2012 when SBC opted for a contract variation to incorporate a completely unproven version of energy recovery from waste the problems facing the local authority more than five years ago have still not been resolved.

In the past we have called for full disclosure of SBC's disastrous involvement with NESG including the release of all documents held on file by the local authority. The council has resisted, citing commercial confidentiality for the liberal censorship of reports, minutes and emails which would undoubtedly be of overwhelming public interest.

Publication of the Statements of Affairs outlined above surely means the case for full disclosure can no longer be denied, and an accompanying independent investigation should also be set in train. Watch this space, but don't hold your breath.

Nominations for New Earth 'Hall of Shame'

by DOUG COLLIE

A couple of former Government ministers, the apparently gullible Carbon Trust, and Regen South West have been nominated by Not Just Sheep & Rugby to join Scottish Borders councillors in a special Hall of Shame for those who thought New Earth Solutions Group [NESG] was a world beating waste treatment contractor.

With the bankrupt Group now in its death throes and about to be dissolved together with its equally useless "funder" New Earth Recycling & Renewables [Infrastructure] PLC or NERR we thought it might be interesting to determine whether Scottish Borders Council had been the only party to fall for the partnership's worthless sales patter.

As most readers will know by now council taxpayers who rely on SBC for their local government services were deprived of at least £2.4 million after elected members awarded NESG a £21 million deal to deliver a 'cutting edge' facility to treat the region's annual output of 40,000 tonnes of municipal rubbish.

The troubled contract had to be completely ditched in 2015 after the Dorset-based Group's inappropriately named NEAT technology finally exhausted the council's patience. The form of incineration had been a dud from day one yet local councillors were mightily impressed by what they were shown, and sealed the deal in advance of even the research and development stage being finalised.

Meanwhile the offshore NERR fund with its links to the tax haven of British Virgin Islands repeatedly told SBC their project at Easter Langlee would be the next NESG job to receive financial backing. Unfortunately, behind the scenes, NESG was piling up more than £150 million of debt and owed NERR over £100 million, forcing the Isle of Man fund managers to suspend operations.

NERR now has liquidators from accountants Deloitte in charge with a meeting of no doubt angry investors due to be held at the end of this month. Those who placed their cash in NERR have already been told they will not get their money back.

Yet the twin paths to financial disaster are littered with tributes from politicians, millions of pounds of grants to assist the lame duck Group with technological development and even the occasional "gong" handed over at so-called glittering award ceremonies. It is doubtful whether the unsecured creditors of NESG, between them owed around £9 million, will be very impressed with any of that.

First candidate for the Hall of Shame is the Coalition Government's Secretary of State for Business, Innovation & Skills Vince Cable who toured New Earth's Canford research and development facility in July 2012 to inspect the fledgling New Earth Advanced Thermal (NEAT) unit there.

After watching the system which was later installed in New Earth's Avonmouth treatment plant, Dr Cable declared: "It is very encouraging to see projects such as New Earth's renewable energy recovery plant being developed. The quality of innovation I have seen here -and the potential it offers UK plc - provides encouraging evidence that the entrepreneurial spirit we need to re-build our economy is thriving in this part of Dorset".

So how's that going now Dr. Cable? Well as we all know the Avonmouth power recovery business proved so troublesome and expensive it had to be "sold" to an Australian bank for nothing at all.

Another distinguished visitor to Canford a month later was Secretary of State for Communities and Local Government Eric Pickles accompanied by officers and members of Bournemouth Council. They too were told about the development work on the NEAT process although we could not establish whether Mr Pickles and his group were moved to wax lyrical about their hosts.

Perhaps The Carbon Trust should be afforded pride of place in our Hall of Shame. In 2010 New Earth Solutions was handed £4 million by the Trust from an £18 million fund set up by the UK Department of Energy and Climate Change. It was the first monetary award from the new fund.

A news release at the time told readers: "The company [New Earth] is looking to use gasification and pyrolysis (chemical change brought about by the action of heat) technologies to convert waste-derived fuel into electricity".

This was precisely the system approved by Borders councilors and which was to cost their constituents millions of pounds to hire expensive consultants, lawyers and other specialists who all trousered fat fees before the Easter Langlee venture collapsed in disarray with no-one accepting responsibility for the financial disaster.

Our final nomination (for now) goes to the organisers of the 2013 Regen South West Green Energy Awards. Regen SW, the renewables not-for-profit membership organisation presented New Earth with the award for "Best Renewable Energy Scheme" at a ceremony held in Bath.

The accolade went to the afore-mentioned Avonmouth energy recovery facility "which benefits from patented NEAT advanced thermal technology developed by New Earth". It was recognised by the judging panel as 'disruptive technology'. Depends what they meant by disruptive!

If anyone would like to add to the list of entrants named above then we'll be happy to hear from you and accommodate them if they pass the shame test. We know of a considerable number of financial advisers who persuaded investors to sink substantial sums - often including their hard-earned pension pots - in NERR, never to see a return.

A sizeable collection of distressing stories can be found on the Financial Services Ombudsman's website after unsuspecting clients were charged handsomely for completely worthless advice, and later found their wealth trapped in a suspended entity. Thankfully many of the complaints to the FSA were successful and the advisers were ordered to reimburse their 'victims' in full.

At the same time, as we've also reported here, the directors of the Premier Group Isle of Man, the outfit which controlled and managed NERR and a number of other investment vehicles, were raking in millions of pounds in management fees.

Our newly built Hall of Shame - the job was completed on time and under budget - is already becoming a bit overcrowded, but there's still room for a few more of your nominations.

£5.5 million more needed for latest waste strategy

by DOUGLAS SHEPHERD

The failure by Scottish Borders Council and their bankrupt contractors  to deliver a £21 million waste treatment plant on the outskirts of Galashiels means a major new transfer station costing more than £5 million will now be built to enable the region's rubbish to be hauled out of the area by road for processing.

Community councils and a residents' association in an area close to the council's landfill site at Easter Langlee have received copies of a so-called Proposal of Application notice from the local authority.

It marks the beginning of a consultation process which will include at least one public event next month, according to paperwork published on the council's planning portal.

The documentation reveals that the building required to facilitate this latest set of waste management proposals will measure 57 metres by 34 metres (1,995 square metres) with 6,800 square metres of roads and hard-standing on the former landfill site.

Apparently this will be classed as a major application. The category of development is described in the following terms: "Waste management facilities exceeding 25,000 tonnes per annum capacity or more than 50 tonnes per day sludge treatment".

In the wake of the disastrous contract which Borders councillors signed in 2011 with New Earth Solutions Group, local taxpayers lost £2.4 million when Isle of Man-based funders (also now bankrupt and wound up) could not finance the deal while New Earth's technology proved unfit for purpose.

A conventional waste plant, capable of diverting 80% of Borders refuse from landfill should have been functioning by 2013 after planning permission and operating certificates were secured.

But then elected members sanctioned a contract variation to include the untested Advanced Thermal Technology. The entire project had to be abandoned in February 2015.

The papers lodged now for the waste transfer station plans state: "In August 2015 Scottish Borders Council approved plans to cease any further development of the Council's current landfill operations and build a new transfer station to direct waste out of the region for processing in line with legislation.

"With current inputs to the landfill site remaining as they are, it is anticipated that the current landfill void will run out in the summer/winter of 2017".

From January 2021, landfill sites in Scotland will no longer be able to accept biodegradable municipal waste that has not met "stringent pre-treatment processes".

A report to council last year estimated that the new transfer facility will cost £5.5m. About 40,000 tonnes of household and commercial waste is put into the Easter Langlee landfill site by the council every year.

The proposed transfer station is described as "a medium term solution to deal with central Borders waste (including growth) until the council complete the review of the current Waste Management Strategy to deliver a plan to meet current and future legislative targets and aspirations".

Yet so-called experts and specialists involved in procuring the contract with New Earth Solutions were warning the local authority in 2010 that to "do nothing" was not an option as the Scottish Government's waste disposal policies evolved. Six years down the line the situation in the Borders seems to remains unchanged.

So who's to blame this time?

by EWAN LAMB

The deterioration in the condition of the Scottish Borders roads network has been faster over the last three years than in any of the country's other 31 local government areas, according to a devastating report from spending watchdog Audit Scotland.

It would appear the council's record on road maintenance is on a par with its recent handling of waste management and disposal which, as regular readers of these columns will know, has cost local taxpayers millions of pounds for no return.

Roads and environmental services should be treated as basic and vital services for residents of any locality. But it is clear that 'customers' of SBC are being sold short with explanations due and a clear lack of grip in evidence. Despite this dismal record now laid bare for all to see a fair smattering of those who should be accountable will soon be campaigning for re-election at next May's municipal contests. Do they deserve your vote?

It seems clear that given the track record of councillors who signed up for the New Earth Solutions Easter Langlee waste treatment fiasco, then spent five years being led up the garden path by contractors with neither the cash nor the technology to deliver, no-one will step from the shadows and admit responsibility for our Borders roads hell either!

According to Maintaining Scotland's Roads - the report looked at trends between 2011/12 and 2014/15 - there is a significant variation among councils in how the condition of local roads has changed over time with SBC at the very bottom of the pile.

Survey results have shown that for 18 councils the proportion of their local roads in acceptable condition increased, while for 14 councils the service levels deteriorated.

And here's the key message for Borders road users: "The extent of variation ranged from an improvement in acceptable conditions of 11% in Comhairle nan Eilean Siar [Western Isles] to a deterioration of 9% in Scottish Borders Council". It represents a full 20% differential between the councils at each end of the road maintenance spectrum.

Across Scotland the condition of council maintained roads has remained stable at around 63% in acceptable condition over three years with significant variations between authorities.

Audit Scotland reports that SBC committed funding from 2015 to slow down the rate of decline in road conditions. The option chosen, on the face of it, will have little impact in achieving future improvements.

"The council selected to invest an additional £67.3 million in roads maintenance over 20 years", adds the report. "This is projected to slow down the rate of decline and achieve a target of 55% of roads in acceptable condition. Current condition is 54.5% of roads in acceptable condition". 

The impression left with Borders council taxpayers is of a council administration with its eyes firmly off the ball and glued instead to financially wasteful vanity projects which should not even be on the radar while the services on which every household depends are being delivered so haphazardly.

Hard working families who hand over their ten instalments of council tax each financial year deserve better than this. But a bumpy road ahead may be all that's on offer from Scottish Borders Council.