Uncovered: consultant's report on failed waste project

DOUGLAS SHEPHERD on first 'expert' paper to emerge from council's secret files

The role played by a team of at least twelve 'specialist' consultancy firms in the disastrous Scottish Borders Council/New Earth Solutions waste treatment project has never been publicly explained since the venture collapsed over two years ago with the loss of millions of pounds of taxpayers' and investors' money.

Experts in the fields of technology, finance and the legal sector were commissioned by the local authority to guide councillors and officials through the minefield of public procurement. Between them these firms collected around £1.6 million in fees, but at the end of four years SBC had nothing to show for that generous expenditure.

Now, for the first time, a consultant's report linked to the Easter Langlee waste treatment project has found its way into the public domain as an appendix to a larger confidential report submitted to a private council session at the dawn of the contract in 2011.

The report from financial consultants Nevin Associates - they were paid a total of £143,000 by SBC over the lifetime of the contract - examines the financial implications which might flow from the non-development of an energy from waste facility (Advanced Thermal Treatment or ATT) alongside a proposed conventional treatment plant.

In particular Nevin looked at various scenarios and how they might affect the solvency or insolvency of New Earth Solutions (Scottish Borders) Ltd. (NESSB), - known as the project company - which was specially set up to carry out the Easter Langlee project.

According to the report: "The construction of the ATT plant is not absolutely essential for service delivery. NES have confirmed that they can still deliver the service as specified in the contract by treating residual waste through a Mechanical Biological Treatment (MBT) plant and then securing an off-take contract for the solid refuse fuel (SRF) produced by the MBT process with a merchant plant outside the Scottish Borders".

Nevin Associates added that while NES intended developing an ATT facility at Easter Langlee, the process that New Earth envisaged using was still being trialled on demonstration plants, and although results appeared to be positive "it cannot yet be confirmed that the technology will prove to be feasible".

That clear marker appears to have been repeatedly ignored by councillors and officers alike for the inappropriately named NEAT technology never proved itself.

The investigation concluded that even if the generating capacity of the ATT plant turned out to be lower than forecast, the solvency of the project company would not be jeopardised, and would be in a position to continue delivering the contracted services.

Nevin went on to examine the likely outcomes for the NESSB if the ATT did not proceed at all, and off-take contracts for the SRF had to be secured. NES had indicated the off-take cost of SRF would equate to £65 per tonne.

Financial modelling showed that if the project company paid an off-take price of £54.01 a profit of £3.25 million would be generated over the project period, and NESSB would "remain solvent (just)".

Under an off-take price of £46.88 the profit over the 24-year contract period would fall to £2.378 million and NESSB would only be marginally solvent. Nevin commented: "Shareholders might not walk away, but to maintain solvency might have to accept suspension of sub-debt interest payments for a period".

NES had named a number of potential facilities that could accept SRF from Easter Langlee including one in Dumfries and another in THe Netherlands. According to Nevin: "It will be noted that some of these potential off-take facilities could have fairly significant transport costs associated with them".

The question therefore arose, wrote Nevin, of what the financial position of the project company would be if it had to meet a SRF off-take cost of £65 per tonne.

When two scenarios were analysed one concluded it was likely interest payments on subordinated debt would need to be suspended for a period while the other warned NESSB would run out of cash and become insolvent.

"In terms of the overall probability of project company insolvency if the ATT plant does not go ahead: The project team assessed that there is a 10% chance of the ATT plant not proceeding as a result of either technical or commercial failure with a somewhat higher risk that the implementation of the ATT plant could be delayed for these reasons.

"In the event of contract termination because project company becomes insolvent, the provisions of the project agreement are that the council will re-tender the contract and pay project company an amount equal to the adjusted highest compliant tender price in full and final settlement of all project company's claims against the council".

Should SBC be unable to re-tender the contract because of a lack of bidders then the council would be required to compensate NESSB for an amount equal to an independent expert's determination of the estimated fair value of the contract.