Monday, March 12, 2018

News: Renewi struggling with Rotherham waste contract


Renewi plc (formerly Shanks plc) has been forced to make a £27m provision in its accounts as a result of its loss-making contract at the 220,000 sq ft "BDR" waste facility in Rotherham.

The Manvers centre creates material suitable for recovery and recycling and includes Mechanical Biological Treatment (MBT) and Anaerobic Digestion (AD) facilities.

Barnsley, Doncaster and Rotherham (BDR) Councils secured £77m through the Private Finance Initiative (PFI) for the scheme and Shanks Group plc joined in partnership with SSE (Scottish and Southern Energy plc) to progress the plans. Known as 3SE, the operators signed a 25 year contract worth in excess of £750m with the councils for the treatment of black bag waste.

In an update to the stock exchange on its municipal division, Renewi detailed increased onerous contract provisions in respect of the BDR and Wakefield PFI operating contracts, "reflecting prudent recognition of expected future losses over the remaining lives of the contracts."

An onerous contract is a contract where costs to fulfill terms are higher than the financial and economic benefit that is received.

Last year, Renewi said that PFI contracts had come under pressure as a result of austerity measures, poor performance or because the contracts are inappropriate in the current market environment.


In a statement, Renewi said: "While the contracts at BDR and Wakefield both date back to 2011, the current financial year is the first full year of operation for both. Accordingly, given the financial and operational performance of these assets this year and specifically the material underperformance in organic throughput, subsidies and off-take pricing compared with the original contractual assumptions made many years ago, the Board has concluded that additional onerous contract provisions of £27m and £30m respectively are now required.

"These provisions will be accounted for in the Group's results for the year ending 31 March 2018 using a prudent discount rate. While these long term contracts may be subject to material changes in conditions over their remaining lives of up to 22 years, the Board does not anticipate any further provisions, assuming no material and lasting change in market conditions for off-take."

For example, paper and cardboard recycling markets in the UK and throughout the globe have faced a dramatic slump following China putting in place limitations on imports.

The firm previously reported that the operating contracts of Wakefield and BDR continue to be loss making in the current market conditions, despite substantial operational improvements. It added that underlying trading in the municipal division was on track for the current financial year and that good operational progress is being made against the recovery plans.

At Manvers, where 95% of waste is diverted from landfill, the contractor is currently performing at 15.17% for recycling and is on target to achieve the 12.5% recycling performance by the end of the financial year. The contract includes a 12.5% termination trigger and a 19% target.

Rotherham Council recently approved its budget which sees around a million pounds committed to allow the Council to move towards the introduction of kerbside collection of plastics – an issue that has been raised as a priority by residents in the recent waste service consultation.

It is not clear what affect this move would have on the the PFI contract which sees plastics, and other recyclables, processed from Rotherham's black bin waste.

BDR website
Renewi website

Images: Renewi


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