News: £750m PFI waste contract to be taken over

Renewi plc is getting rid of the loss-making contract at the 220,000 sq ft "BDR" waste facility in Rotherham.

It comes as Biffa, a leader in UK sustainable waste management, entered into an agreement to acquire Renewi’s municipal business in the UK. An alternative could have seen the facility handed back to the council.

The waste treatment facility at Brookfield's Park, which became fully operational in 2015, takes around 250,000 tonnes a year and creates a material suitable for recovery and recycling and includes Mechanical Biological Treatment (MBT) and Anaerobic Digestion (AD) facilities. More than 97% of the waste received is diverted from landfill.

Barnsley, Doncaster and Rotherham (BDR) Councils secured £77m through the Private Finance Initiative (PFI) for the scheme and the operators signed a 25 year contract worth in excess of £750m with the councils for the treatment of black bag waste.

Renewi has struggled with its UK municipal waste contracts, which it described as a "cash drag on the group – with a total cash outflow of approximately €28m over the last 24 months."

A strategic review of the business began last year with bosses looking to withdraw completely from the UK market. The company was formed when Shanks plc completed a merger with Dutch waste service provider and raw material and energy supplier, Van Gansewinkel Groep B.V., in 2017.

The deal covers five contracts and will have a net cost of €57m to Renewi but will free them from "unpredictable UK Municipal liabilities" and "Onerous Contract Provisions (OCPs)."

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In a statement, Renewi said: "The contracts were entered into more than ten years ago, by a Renewi predecessor; they are break-even or structurally loss-making and, in the absence of a legislative shift or significant changes in market conditions, can be neither prematurely terminated nor renegotiated by Renewi."

Michael Topham, CEO, Biffa, said: “The addition of these five contracts to our existing contracts in West Sussex, Leicester and Somerset further establishes our reputation as a trusted provider of complex, long-term waste treatment contracts to local governments.

“Our combined expertise will position us well for the future as we seek to help local governments deliver their net zero targets. We look forward to welcoming the Renewi UK team to Biffa and to working with our new customers in due course."

As part of the deal, around 550 Renewi staff will now become part of the Biffa group.

The five contracts are with the Barnsley, Doncaster and Rotherham (BDR) Waste Partnership, Cumbria County Council, Wakefield Council, East London Waste Authority and Argyle & Bute Council.

Renewi website
Biffa website

Images: BDR Waste Partnership

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News: Rotherham Council in talks over changes to PFI waste contract

Rotherham Council believes that the introduction of plastics to the kerbside waste collection service presents a low risk to its joint waste PFI contract.

Rothbiz reported last month that Renewi plc (formerly Shanks plc) was 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.

Barnsley, Doncaster and Rotherham (BDR) Councils secured £77m through the Private Finance Initiative (PFI) for the scheme and the operators signed a 25 year contract worth in excess of £750m with the councils for the treatment of black bag waste.

Following a consultation exercise, Rotherham Council is proposing to make changes to its waste collections. Paid for year round garden waste collections are due to start in Rotherham on October 29 with residents able to opt-in to the service at a cost of £39 a year. Kerbside plastic collections are set to be introduced in "early 2019" with the authority setting aside £5.54m for bins and vehicles.

A detailed paper to Councillors explains that the introduction of plastics to the kerbside waste collection service affects the waste tonnage and its composition being supplied to the residual waste disposal PFI contract which is due to continue until mid-2040.

Legally, the move may qualify as a "Significant Collection Change" and the Council said that it "has begun to engage with DEFRA and the PFI contractor informally around our proposals and will engage formally once the proposal is agreed."

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Since the Manvers facility opened, 96.5% of the waste received has been diverted away from landfill, cutting landfill taxes and C02 emissions.

Plastics from Rotherham black bins are extracted at the facility. Doncaster and Barnsley Councils already operate kerbside plastic collections. The rest is turned into a fuel which is used at the Ferrybridge Multifuel 1 facility in West Yorkshire. Once there, the fuel releases its energy to produce low carbon electricity which is supplied to the National Grid.

Trials may need to be carried out and if the changes affect recycling performance against pre-set targets or vary the PFI project materially then DEFRA may be entitled to withdraw some or all of the Waste Infrastructure Credits which support the PFI project.

Latest figures showed that the contractor was performing at 15.17% for recycling and was 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.

The report concludes: "The Council believes that the proposed new waste arrangements provide mitigation to any potential impact on the contractor and the risk to the PFI contract is therefore low.

"Firstly the removal of plastic from the residual waste stream may reduce costs at the PFI facility and therefore provide better value for money.

"Secondly, the introduction of kerbside plastic recycling will increase the Council's overall recycling rate and provide better value plastic into the market, which will militate against the volatility within low-value recycling markets.

"Finally, the Council believes it would be not in keeping with DEFRAs own priorities, or the South Yorkshire Strategy for the Council to suffer any contractual financial detriment for introducing kerbside plastic recycling, when the other authorities in the BDR Partnership already have it in place."

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

BDR website
Renewi website

Images: RMBC / Renewi

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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.

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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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