Terminating its contract with Cory Wheelabrator to develop a 24 MW waste to energy facility in Kings Lynn could cost Norfolk County Council £90 million, according to a new report to the Council’s Cabinet Scrutiny Committee.
The facility, which is being built by a consortium of UK waste management company, Cory Environmental and U.S. waste to energy firm, Wheelabrator – a subsidiary of Waste Management (NYSE: WM) – is planned to have a capacity of some 275,000 tonnes of waste per year.
The council had previously awarded planning permission to the controversial facility in July last year, but it was later ‘called in’ by the Secretary of State for Communities and Local Government, Eric Pickles. (See WMW Story)
A public inquiry into the Willows Power & Recycling Centre, located at Saddlebow, was ordered by the Government and ended earlier this month. A decision Pickles on whether or not to grant planning permission is expected in the third of fourth quarter of 2013.
Contracts and elections
Further to the public enquiry, following the recent local elections, a report into the costs to Norfolk County Council of terminating its residual waste contract with Cory Wheelabrator was requested at the first meeting of the new Council.
The council said that the contract itself is a standard government contract which has been reviewed by Defra and the Treasury before the Government confirmed a Waste Infrastructure Grant worth £169 million over the lifetime of the project.
However, the grant which includes the proposed construction of the waste to energy plant, and withdrawal from the contract would likely lead to the loss of the grant.
The report to the Cabinet Scrutiny Committee deals with two main scenarios. The termination of the contract because planning permission has been refused, and the termination f the contract because of a withdrawal by the council after planning permission has been granted.
Costs
According to the council, termination of the contract because of planning failure would trigger compensation to the contractor. It was necessary for the Council to agree to this compensation clause in the contract or the project would have been very unlikely to be funded by the banks. However, the level of compensation was capped at £20.3 million.
The council added that there would also be a risk of having to meet costs associated with exchange rates and interest rates, which at current market rates would add £11 million to the bill. This scenario would also trigger the early repayment of public inquiry costs, expected to be between £1.5 million and £2 million.
However, the council explained that its withdrawal from the contract in other circumstances would be significantly higher, with the costs including debt repayments, redundancy costs and lost profits, and the £20.3 million cap would not apply.
The council claimed that while report does not attempt to provide a figures, it found that the £80 million – £90 million cost produced for Cornwall Council when considering abandoning its contract provides ‘a useful indication’.
Furthermore, the full amount would be payable within 40 days of contract termination, and the council would not be allowed to borrow to cover the costs.
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