Agendas, Meetings and Minutes - Agenda and minutes

Agenda and minutes

Venue: County Hall, Worcester

Contact: Simon Lewis  Committee Officer

Items
No. Item

Available papers

The Members had before them the agenda papers (previously circulated).

1.

Named Substitutes (Agenda item 1)

Minutes:

Dr K A Pollock for Mr M H Broomfield.

2.

Apologies/Declarations of Interest (Agenda item 2)

Minutes:

Apologies were received from Mr M H Broomfield and Mr P Denham.

3.

Public Participation (Agenda item 3)

Members of the public wishing to take part should notify the Head of Legal and Democratic Services in writing or by email indicating the nature and content of their proposed participation no later than 9.00am on the working day before the meeting (in this case 17 October 2014). Further details are available on the Council's website. Enquiries can be made through the telephone number/e-mail below.

Minutes:

None.

4.

Waste Credit Governance Committee - Terms of Reference (Agenda item 4) pdf icon PDF 144 KB

Additional documents:

Minutes:

The establishment of the Committee was intended to underline the separation between the Council's two roles as lender and as waste disposal authority. The Cabinet, not the Committee, would remain responsible for decisions in respect of the operation of the waste contract or any waste disposal authority executive functions.  The Cabinet would have no supervisory or other responsibility for the Committee.

 

Council had agreed that Mr W P Gretton would be appointed Chairman and Mr L C R Mallett as Vice-Chairman. Council also agreed that the Committee would be cross-party with 9 members established in accordance with the legal requirements of political balance and would not include any members of Cabinet.

 

At the meeting of Council on 15 May, it was reported that meetings of this Committee would be anticipated to be held approximately every other month during the construction phase of the Energy from Waste plant, and less frequently thereafter.  It was therefore proposed that meetings of the Committee be arranged on this basis.

 

The Chief Financial Officer made the following points in introducing the terms of reference:

 

·         The Chief Financial Officer explained that the Committee needed to understand the risks associated with the contract and be comfortable with how the risks were being discharged or mitigated. A report on the risk register would be brought to a future meeting

·         The Committee needed to be satisfied that the loan repayment targets were being met by Mercia Waste Management (Mercia). It was likely that in the future, Mercia would wish to vary the contract (by means of a waiver or consent). In most circumstances such a request would be delegated to the Chief Financial Officer, however he would bring significant matters to the Committee for example, matters that could lead to default in repayment. However all such matters would be reported to the Committee, whether delegated or not

·         There were various actions that the County Council as lender could take in a default situation to provide security for the loan for example, taking on shares or assets in Mercia in lieu of repayment of the loan. However he anticipated that such arrangements would not be necessary.

      

In the ensuing debate, the following principal points were raised:

 

·         Who had responsibility for monitoring the project management aspects of the contract and for delivering the project on time and to cost? The Chief Financial Officer explained that Mercia Waste Management were responsible for ensuring that the project was delivered on time and to cost. Even if the facility was not built on time, Mercia was still committed to repaying the loan. In addition a number of obligations had been included in the contract (termed a "security package") to protect the loan arrangements. The Council had managed to negotiate arrangements that were better than the market could provide 

·         In response to a query about the governance arrangements associated with the contract, the Chief Financial Officer commented that governance of the loan arrangements for the contract had been separated from the executive function of  ...  view the full minutes text for item 4.

5.

General overview of the waste project (Agenda item 5) pdf icon PDF 72 KB

Additional documents:

Minutes:

The Committee received a presentation by the Chief Financial Officer which clarified the financial relationship with Mercia Waste Management Limited, the relationship of this Committee with Council, Cabinet and officers, features of the loan facility to Mercia Waste Management Ltd, the retained advisors to support the Committee and officers, waivers and consents, and provided a reminder of what the loan facility is for.

 

It was proposed that members of the Committee visited the site of the proposed Energy from Waste plant in Hartlebury.

 

The Chief Financial Officer made the following points in his presentation:

 

·         The Committee's role was to consider how non material issues had been discharged between meetings by the Chief Financial Officer and to consider for escalation to Council any critical issues such as potential defaulting of the loan arrangements. This was a matter that could not be delegated to officers given its consequence and implications for the Council in its Waste Disposal Authority role

·         Complete separation of roles was required in relation to the Senior Term Loan Facility (STLFA) between this Committee and the Cabinet's responsibilities as the Waste Disposal Authority. Members should be aware of this element of separation when considering matters of confidentiality at this Committee

·         The day-to-day management of the STLFA including waivers and consents was delegated to the Section 151 Officer. However he would consult the Chairman and Vice-Chairman of the Committee before taking action in relation to any consents and waivers that were significant in nature

·         The loan arrangements had to be at a commercial rate because the Council could not be seen to be providing Mercia with a commercial advantage. If Mercia were unable to pay back the loan then it was necessary for them to have access to other means of payment

·         Quarterly construction period cash flow tests would be undertaken to ensure that Mercia were turning over enough money to cover their equity for the project. If there were concerns about the company's turnover then controls could be put in place to secure the loan arrangements that were set out within the STLFA

·         Cover ratios had to be maintained by Mercia to ensure that they had enough money in reserve to cover future payments. If there were any concerns about the Cover Ratio, then controls would be introduced to secure the loan arrangements

·         Fichtner Consulting Engineers Limited had been appointed as the technical advisors to the project. There were two parts of this company, one of which was advising Mercia. The Council had received guarantees from the company regarding confidentiality and 'chinese walls'

·         Ashurst had been appointed as the legal advisors to the project and had lowered their fees to government rates to ensure that their bid to undertake the work demonstrated good value

·         Subject to the agreement of Cabinet, it was intended to appoint Deloitte as the financial advisor to the contract

·         All costs associated with the work of the advisors was recharged to Mercia and any additional costs would also be borne by Mercia

·         The repayment of  ...  view the full minutes text for item 5.

6.

Questions on the Cabinet Report to Council - 16 January 2014 (Agenda item 6) pdf icon PDF 140 KB

Additional documents:

Minutes:

Members were provided with an opportunity to ask questions around the loan relationship for the Energy from Waste contract.  Members were reminded that the purpose of this Committee was not to review the decision-making process.

 

In the ensuing debate, the following questions were raised:

 

·         Did the £6.6m uplift in the Unitary Charge from the point of operation of the EfW plant, as compared to the £6m indicative affordability envelope, mean that the Council could benefit from an extra £600,000 per annum?  The Chief Financial Officer commented that at the closure of negotiations, an uplift of £3.5m had been agreed which was significantly below the £6 million affordability

·         In response to a query, the Chief Financial Officer explained that a security package had been negotiated with Mercia and the EPC Contractor that protected the Council as the lender from risks associated with the construction of the plant to the extent that would be expected within an STLFA negotiated by a commercial bank

·         Was the interest rate on the loan to Mercia variable?  The Chief Financial Officer explained that the loan was at a fixed rate

·         Would an increase in the interest rate on the PWLB loan have an impact on the financial arrangements for the Council? The Chief Financial Officer commented that such an increase would have an impact on the Council's surplus generated from the loan arrangements however if the rate decreased, it would benefit the Council. The Council's balance sheet had £12m set aside to cover risks of this nature

·         Within the contract, the Council was liaising with Swiss and Spanish companies, had the impact of exchange rates been taken into account in the funding of the loan arrangements? The Chief Financial Officer stated that Mercia's construction firm contractor had entered into forward contracts for the purchase of foreign currencies to mitigate this risk

·         What was the reason for the Council taking over the banking arrangements for the loan? The Chief Financial Officer stated that at the time the arrangements were being negotiated, banks were unwilling to make loan arrangements for these types of projects or offering them at a significant premium due to the impact of the global financial crisis. In addition, the Council was able to put the loan arrangements into effect at a faster rate than a commercial bank would be able to do.

 

RESOLVED that the contents of the Cabinet Report to Council on 16 January 2014 be noted.     

7.

Progress summary from Technical Advisors (Agenda item 7)

Minutes:

Fichtner Consulting Engineers had been appointed as technical advisor to the lender during the construction phase of the Energy from Waste plant and were part of the Council's separate advisor team that had supported negotiations with the Special Purpose Vehicle and the Council's review from a funding perspective of the contract variation. The company had produced a summary report for consideration by the Committee.

 

In the ensuing debate, the following principal points were raised:

 

·         The Chief Financial Officer undertook to circulate an update on the activities of the Council's legal advisors to members of the Committee

·         Had the clay deliveries to the adjacent brick works been concluded? The Chief Financial Officer commented that the matter had not been flagged by Fichtner as an ongoing risk however he would provide an update for members

·         Was the Chief Financial Officer able to provide an update in relation to milestones 2 and 4 which the report indicated would be achieved in October? The Chief Financial Officer indicated that there had been no drawdown request to the lender. It was possible that the arrangements could slip into November. Either way, the arrangements would benefit the Council in terms of the financial arrangements for the loan – and the Technical consultants at this point had not flagged a construction completion date risk

·         The report was dated 6 October and yet it referred to arrangements in September as being in the future. The Chief Financial Officer undertook to discuss the style of the report with Fichtner.  

 

RESOLVED that the summary report from Fichtner Consulting Engineers – Technical Advisors be noted.

8.

Waivers granted (Agenda item 8)

Minutes:

Part of the Committee's Terms of Reference was to monitor and administer the loan to the waste project in line with best banking practice, including the terms of any waivers or amendments which might be required or are desirable.

 

The Chief Financial Officer had delegated authority for the day to day management of the waste management contract including waivers and consents that were not material to the STLFA to the Section 151 Officers.

 

One non material waiver had been granted to date for the extension of time to lodge the financial close financial model with the custodian as this was largely administrative procedure. The Committee was asked to endorse the decision to grant the waiver.

 

In the ensuing debate, it was requested that a future report be brought to the Committee on behalf of the newly appointed Financial Advisors.

 

RESOLVED that the decision by the Chief Financial Officer to grant a waiver for the extension of time to lodge the financial close financial model with the custodian be endorsed.