Agenda and minutes

The members had before them:

A.    The Agenda papers (previously circulated); and

B.    The Minutes of the meeting held on 15 December 2014 (previously circulated).

A copy of document A will be attached to the signed Minutes.

None.

An apology was received from Mrs S Askins.

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 20 February 2015). Further details are available on the Council's website. Enquiries can be made through the telephone number/e-mail below.

Mrs Eve Jones addressed the Committee. She asked questions in relation to Agenda item 6 – progress report from technical advisors. The full text of the representation is appended to these Minutes together with the response that was sent to her.

Mr Rob Wilden addressed the Committee. He asked questions in relation to Agenda item 7 – Risk Register. The full text of the representation is appended to these Minutes together with the response that was sent to him.

Mr Sheridan Tranter addressed the Committee. He asked questions in relation to Agenda item 6 – progress report from technical advisors. The full text of the representation is appended to these Minutes together with the response that was sent to him.

Why had the public participants to been prevented from raising other questions/comments?  The representative of the Head of Legal and Democratic Services commented that public participation comments must be on matters on the agenda of the meeting.  Some of the comments and queries raised by Mrs Jones and Mr Wilden related to the business of previous meetings.  The agenda item on the minutes was a procedural one limited to approving the minutes as a true record of the previous meeting.  It did not open up any wider discussion of matters in the minutes, even for elected members.  Therefore Mrs Jones and Mr Wilden were informed that those comments and queries did not meet the constitutional requirements and were out of order and could not be presented.

In response to comments made by the public participants, the Chairman commented that he was satisfied that members of the Committee understood their role and provided necessary challenge to the advice provided by officers.

To confirm the Minutes of the meeting held on 15 December 2014. (previously circulated)

RESOLVED that the Minutes of the meeting held on 15 December 2014 be confirmed as a correct record and signed by the Chairman.

Report to follow.

The Committee received a verbal update from the Chief Financial Officer and a representative of Deloitte, the financial advisors to the Council.

The Chief Financial Officer introduced the item and made the following points:

·         The cash-flow test was necessary to provide assurance to the Council that Mercia Waste Management (Mercia) were able to sustain sufficient cash to qualify as equity. Two tests had been submitted both of which had satisfied the Council's criteria by some distance. The first test showed an in excess cash-flow of £1.6m against a target of £4.7m and the second test an in excess cash-flow of £1.19 against a target of £7.05m. Deloitte had been asked to confirm those numbers

·         The majority of the cash-flow tests had been completed and Deloitte were now proceeding with the Partner Review process. He would liaise with the Chairman and Vice-Chairman to demonstrate that the Chief Financial Officer had signed-off the cash-flow test, following the Partner Review

·         As the project moved onto the construction phase, ratio tests would be undertaken, which were financial health indicators. However these tests would not be required to be undertaken for some time

·         The Council would only be concerned if the cash-flow test failed which was not the case at this stage. He expected that following the partner review, Deloitte would be in a position to sign-off the cash-flow certificate.

Tim Dean on behalf of Deloitte addressed the Committee. He commented that:

·         The cash-flow tests would be carried out through the construction period on a quarterly basis with reference to the model agreed as part of the financial close in May 2014. In December 2014, Deloitte agreed the methodology for the cash-flow testing with all parties. An updated test for the previous period May – September 2014 and a test for October – December had been completed

·         Two or three clarification questions had been raised with Mercia. However as explained by the Chief Financial Officer, the initial opinion was that the tests were satisfactory. The clarifications sought from Mercia were not significant or complicated and should Mercia be unable to supply satisfactory responses to them, it would not be a major issue. He anticipated a response from Mercia imminently.

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

·         It appeared to take a significant period of time to receive the outcome of these tests, was there any way that the process could be speeded up? Tim Dean commented that the initial test had taken some time to provide because it was necessary to find an agreement with Mercia over the methodology for the cash-flow tests. This had now been agreed and there should not be any difficulty in providing timely information for future quarterly reports 

·         Was the representative of Deloitte concerned about the variation in both the ceiling of the cash-flow and the excess levels results between the two tests?  Tim Dean responded that he was not concerned at this stage that the variations indicated a trend. He argued that the timing of the  ...  view the full minutes text for item 21.

The Committee considered the report from the technical advisors for the period up to the end of January 2015.

The Chief Financial Officer introduced the report and commented that:

·         The aim of this report was to give the Committee assurance that the risk was being appropriately managed, of the plant being handed over in line with the planned takeover date and to ensure that the loan repayments were being made on time

·         Mercia was committed to repay the loan from February 2017 whether the facility was constructed or not. Judgements were made on the progress of the project against that fixed date. Fichtner acknowledged that there had been a degree of slippage as a result of the more complex and difficult work undertaken during the initial development work on site. However there was an expectation that these delays would be recovered through the remainder of the project and it was still anticipated that the project would be completed 2 months ahead of the target date as per the agreed plan period.

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

·         A 4 week delay over a 7 month period caused by a single contractor seemed a significant delay. Were Fichtner satisfied that this delay would not impact on the ability to deliver the project going forward? The Chief Financial Officer advised that Fichtner had acknowledged that there had been a delay but had not flagged it as a significant risk which would put the planned takeover date at risk 

·         The report from the Fichtner indicated that the amendments to the planning consent had been accepted as non-material however it went on to state that there remained a significant risk to the project that the revised drawings had not yet been submitted or approved by the local planning authority. What did the variation consist of and what were the associated risks? The Chief Financial Officer stated that Mercia had worked closely with officers in the Business Environment and Community (BEC) Directorate on these issues. He would circulate details of the variation and associated costs to members of the Committee. He emphasised that Fichtner had not raised this matter as a significant risk   

·         The report from Fichtner had indicated that there had not been any further drawdowns to report and yet a drawdown of £7m had taken place on 11 February 2015. The Chief Financial Officer explained that the drawdown took place after the date of the technical advisor's report and therefore was too late to meet the timetable for the production of the report by Fichtner. This might occur again in the future and if this were to be the case, the Chief Financial Officer would update the Committee to ensure it had the most up to date information

·         Was there a summary project plan available to members that listed the key project details so that members could relate to what was happening on the site? The Chief Financial Officer commented that there was a project plan which was monitored  ...  view the full minutes text for item 22.

The Committee considered the mitigated and unmitigated risks set out in the Risk Register.

The Chief Financial Officer introduced the report and commented that:

·         The previous reports on the Risk Register had provided risk ratings on the basis of a stand-alone project. However it had been decided to bring the project in line with the corporate RAG ratings for consistency and as a consequence there were some small changes since the last report. There had been minimal changes to the risk ratings but the colour associated with the rating had changed in certain areas. Therefore a number of ratings had moved from amber to green  

·         The corporate risk team had been consulted about the revised RAG ratings to ensure they were consistent with the corporate approach

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

·         What would happen if the Council, as the lender, decided to call the loan into default? The Chief Financial Officer commented that the Council would enact its security package which had been negotiated with Mercia and was in line with banking best practice. The Council was in a stronger position with 2 shareholders to indemnify the project so that if one of the shareholders pulled out, the other was obliged to take-over the arrangements. Due diligence checks had been made on these organisations, had been reported within the January 2014 Council report and would continue throughout the life of the contract

·         Who determined the size of the bonds and would they remain the same amount through the life of the contract? The Chief Financial Officer advised that the amount of the bonds had been agreed in consultation with the technical and financial advisors and would remain at the same amount throughout the construction period and the life of the contract, relevant to that particular bond. He would provide members with an explanation of how the construction bond values have been calculated

·         In response to a query, the Chief Financial Officer undertook to provide members with details of the tonnage of waste sent to landfill and associated costs to the Council. 

RESOLVED that:

a)    the unmitigated and mitigated risks set out in the Risk Register be noted; and

b)    a report on the Risk Register be brought to each Committee meeting.

A verbal update will be provided at the meeting.

The Chief Financial Officer confirmed that no waivers or consents had been granted over the last quarter. In future, written reports would be provided for this item. He confirmed that the issues associated with the waiver granted as reported to the October 2014 Committee meeting had subsequently been resolved.  

The Committee noted that no waivers were granted by the Chief Financial Officer in the last quarter.