Agenda item

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 on behalf of the Waste Disposal Authority by the Director of BEC in liaison with the Cabinet Member with Responsibility

·         What long term risks were associated with the residual value of the plant, for example depreciation in value of the plant in the market place?  The Chief Financial Officer commented that the report to Cabinet in December 2013 addressed this issue. The Committee would still have a role in overseeing the loan repayments until 2023 to exert due diligence on Mercia. The residual value of the asset did not impact on the obligation for Mercia to repay the outstanding bullet tranche of loan at 2023. The residual value of the plant was a key matter for the Authority as purchaser of the facility and was kept under review by officers supporting the Cabinet Member with Responsibility for Environment

·         What was the reason for the delay of the drawdown for the 31 December? The Chief Financial Officer advised that the manner in which Mercia draw down would inevitably be different to the financial plan. This was kept under review and would be reported to the Committee as it had done at this meeting. The lag in draw-down did not cause a concern at this point but if compared with other information about the project – the one month delay from the early opening planned by the contractor was consistent with other information held on the project

·         The drawdown analysis showed that between August and January only approximately £8m had been drawn down from a planned target of approximately £15m. Why was there such a significant differential from the forecast and was the project on target for its completion in February 2017? The Chief Financial Officer explained that this was not a significant amount in the context of the total loan facility of £165m. He would expect Fichtner to inform him if it thought that the project was put at risk as a result of the drawdown position. The plant remained on schedule to open 2 months earlier that the planned takeover date. In addition, the reduction in the amount drawn down had positive budgetary implications for the Council

·         In response to a query, the Chief Financial Officer explained that there was only one set of loans both of which were termed senior loans. For clarification purposes, future reports would refer to them as the loan facility

·         What was the difference between an A tranche and a B tranche? The Chief Financial Officer stated that the A tranche was a loan that Mercia repaid over the life of the contract. The B tranche was bullet tranche loan which represented a single payment to the Council by Mercia in 2023. 

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