Financial woes of council's waste firm laid bare

by DOUGLAS SHEPHERD

As previously reported here, the specialist waste treatment group handed a £65 million contract by Scottish Borders councillors in 2011 could not even provide a £315,000 bond which was required as part of the application process for a permit to operate their "cutting edge" facility to deal with the region's rubbish.

Now, full details of the embarrassing situation which saw Scottish Borders Council having to step in with a financial guarantee to Scotland's environmental watchdog have been disclosed for the first time after the local authority released thousands of emails and reports previously kept secret by a confidentiality agreement.

And the paperwork also shows that on the day before SBC members and officers signed the multi-million pound deal with New Earth Solutions Group (NESG) on April 15th 2011 the authority's legal adviser wrote: "The council has never, to my knowledge, sought independent verification of funds".

Earlier, a credit check made by officials of the Scottish Environmental Protection Agency (SEPA) on NESG and the so-called Special Project Vehicle (SPV) - a subsidiary company called New Earth Solutions (Scottish Borders) Ltd.- turned up disturbing evidence about New Earth's credit worthiness.

An email sent on August 5th 2011 from SEPA's Finance & Corporate Services section with the names of the sender and recipient redacted declared: "I have run a credit check on the applicant [for a SEPA permit to operate the waste treatment plant at Easter Langlee, Galashiels] and they received a credit rating of £NIL, and their parent company (NESG) received a rating of £77k.

"They will now have to go down the alternative proof route as indicated by the guidance: 'the applicant needs to provide recent evidence (not more than three months old) from a third party as to its financial standing. It must be credible evidence stating that the applicant is in a position to access adequate funds'"

SBC initially refused to provide information of the financial fiasco when asked for details via FOI after the collapse of the NESG deal in 2015. The council argued publication of the details could harm New Earth commercially, but the Scottish Information Commissioner intervened and ordered the release of the withheld words.

The relevant paragraph which was made available after the Commissioner's ruling with the previously redacted words in capital letters stated: "NES cannot obtain £315k of insurance without incurring costs that would have to be passed back directly to the council, NOR CAN THEY AFFORD TO HOLD THE CAPITAL ASIDE TO COVER THIS REQUIREMENT."

Before chief officers sanctioned the 'Letter of Comfort' by the council to SEPA in March 2012 there was an exchange of confidential emails which are now in the public domain.

On March 12th 2012 Ross Sharp-Dent, the council's Waste Manager outlined the urgent issue to David Robertson, Head of Finance, and Ian Wilkie, Head of Legal Services at SBC.

Mr Sharp-Dent said: "In order that the Pollution Prevention Control (PPC) Permit for the Mechanical Biological Treatment (MBT) plant can be sent out for consultation and indeed granted, SEPA have requested that NES provide a Financial Bond up to a limit of £315k. 

"This is required in order that SEPA have funds available that they can call upon, in the event that an environmental event occurs that requires clean-up at the facility. For example to cover costs associated with the clearance of waste left within the facility should NES go out of business. 

"The same requirement is not required in England and Wales from the Environment Agency and NES had therefore not anticipated the cost of providing a financial bond in the their financial model. Given the recent discussions with NES and the fact that the PPC Permit is on the critical path the Project Team has entered into dialogue with NES and SEPA regards the potential of SBC providing a letter of comfort."

And Easter Langlee project manager Ewan Doyle tells Mr Robertson and chief executive Tracey Logan: "The reason that we have agreed to take this on is that NES are currently trading at a loss, due to their recent investments in new facilities, and do not hold a value in the region of £315k, and as the Council are ultimately responsible for the facility, SEPA will accept a letter of comfort from a public body. The approval of the permit (which will be released by SEPA for public consultation on approval of the Bond provision) is part of the Conditions Precedent for the funding, so this activity is on the critical path for commencing construction."

In a separate message to Mr Robertson and Mr Wilkie, Mr Doyle says: "This will go to members as part of the package of contract changes at Council on the 29 March 2012. unfortunately we cannot wait until that point to issue the letter to SEPA as it is on the critical path for getting the permit out to consultation and obtaining financial close on the project's junior debt, so that works can commence on the 29 April 2012."

In fact the New Earth Borders treatment facility had still not started in February 2015 when councillors were advised to pull the plug on the entire venture at a cost of at least £2.4 million to the public purse.

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