Investigation into failed fund to take months, liquidators say

by EWAN LAMB

New information has emerged concerning the disastrous contract between Scottish Borders Council and failed waste treatment firm New Earth Solutions Group (NES) as liquidators and their legal advisers continue a complicated investigation into the collapse of the fund selected to bankroll a £21 million project at Galashiels.

It has been revealed that the original deal which Borders councillors signed in April 2011 for the construction of a Mechanical Biological Treatment (MBT) facility to process the region's rubbish was effectively dead in the water only nine months later due to funding issues.

In January 2012, the managing director of NES told the local authority his company could no longer obtain funding for the construction of the planned MBT, and the two stage process involving completion of the MBT ahead of an Advanced Thermal Technology (ATT) system to convert waste material into energy was not deliverable.

According to sections of a previously redacted council report which have now been released following Freedom of Information requests, this serious setback in the development process would result in months of discussions between the parties in a bid to find a way forward.

Eventually, in October 2012, elected members sanctioned a so-called Deed of Variation in the contract with NES so that MBT and ATT projects could be combined and integrated.

The contract amendment was meant to allow the multi-million pound project at Easter Langlee to finally reach financial closure. But two-and-a-half years later the fatally flawed revised deal had to be abandoned with NES unable to provide satisfactory technology and worthless offshore investment fund New Earth Recycling & Renewables [Infrastructure] PLC (NERR) unable to come up with the cash.

The collapse of the 24-year contract left local taxpayers at least £2.4 million out of pocket, the council choosing merely to write off the losses and move on without a full investigation, and with no interventions from independent watchdogs like Audit Scotland..

However, large swathes of this crucial report to councillors remain hidden underneath black ink with four complete pages and a number of appendices completely censored. It is difficult to see how this veil of secrecy can remain intact for much longer now that all of the businesses associated with the Borders fiasco - NES, NERR and parent organisation Premier Group (Isle of Man) Ltd - are all completely bust with their investors and shareholders unlikely to get a penny back.

NERR succumbed in July with the appointment of Deloitte as liquidators. A newly published update for creditors says: "The joint liquidators, alongside their legal advisers in the Isle of Man and UK. are continuing their investigations into the failure of the Company.

"However, this involves obtaining information and documentation from a variety of sources and a review of a considerable volume of documentation. It is therefore too early in the process to advise whether there are claims which can be brought by the joint liquidators against third parties which, if successful, would enable a return to be made to creditors and shareholders."

Deloitte anticipate providing a further update on their investigation into the failure of NERR towards the end of March 2017.

Meanwhile, the recently released material from SBC shows why the 'Deed of Variation' report was classified as confidential in October 2012. The document contains the following passage: " STATUS OF REPORT - As the contract with Scottish Borders Council represents New Earth Solutions' first project in Scotland, it will strengthen market confidence in NES' ability to deliver projects throughout the United Kingdom.

"Commercial and reputational damage would be caused to NES if the technical or financial details of this report were made public. Due to the confidentiality clauses that are in place within the contract, Scottish Borders Council could be liable for any commercial or reputational damage caused to NES".

New Earth put forward a list of factors which had allegedly rendered a stand-alone MBT facility untenable. These included the unacceptable level of returns for funders without the prospect of ATT and the revenues it would generate.

NES requested that in order for the MBT facility to be constructed the existing version of the project agreement would have to be changed to provide funders with the required return on investment.

"The project team's initial evaluation of the NES proposals indicated that if all of the proposals were conceded by SBC for the term of the contract, it would add an estimated (figure redacted) to the current value of the contract.

"This would mean that the original estimated cost avoidance against the 'do nothing' scenario (i.e. continue to landfill waste for 24 years) would be wiped out. These proposals were therefore unacceptable to the council and NES were informed of this".

The report reveals that negotiations continued without NES being able to provide council officers with a satisfactory solution. Discussions culminated with a letter from NES in MAy 2012 stating that due to irreconcilable differences the MBT only solution would be dropped and a fully integrated MBT and ATT solution would be delivered from day one subject to the appropriate permits and permissions.