Agenda item

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

The Chief Financial Officer introduced the report and made the following comments:

·         None of the security package elements had been required and therefore the risk of a default of the loan repayments by the borrower was considered to be a low risk

·         The loan repayments were due by the end of February 2017 and the Council would be due liquidated damages from Mercia should the plant be delivered late therefore the risk of this delay was considered to be low

·         The cost of borrowing was monitored on a daily basis. Currently the rates accessible by the Councils was lower than the estimates as the continued low gilt rate environment pervaded

·         The rate of loan drawdown was slower than expected however because of the lower cost of borrowing, the business case remained in tact

·         All the drawdowns to date had been completed in the required timescale

·         It was not anticipated that there would be a difficulty with repayments. However Mercia were contractually bound to repay the loan therefore the risk was considered low

·         In relation to the risk associated with the default of the loan repayment as a result of the termination of the Interserve contract, the Council had worked closely with Mercia to ensure that new contracts were in place to replace Interserve. The Council had received appropriate legal and technical advice to confirm that the right plans were in place  

·         The Building Services contract had yet to be signed so at present the risk was rated as low. However he expected to report the signing off of this contract shortly and the risk would then be rated very low.

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

·         In response to a query, the Chief Financial Officer explained that the rate that the Council lent at was commercially sensitive information. The Council lent to Mercia at a fixed rate but the Council's own rate of borrowing was subject to fluctuation  

·         In response to a query, the Chief Financial Officer stated that the long stop date would be 18 months after the planned takeover date

·         Why was the gross impact of the risk associated with the borrowing rates increasing more that the Council's prudential borrowing model considered to be substantial? The Chief Financial Officer stated if the Council could not meet its obligations in this regard, Mercia could claim against the Council for default on the loan agreement

·         What would happen if Herefordshire Council defaulted on the loan agreement? The Chief Financial Officer commented that this Council would also default as a result

·         What impact would the testing period at the plant have on the amenity of local residents? The Chief Financial Officer stated that this was a matter for local residents to take up at the Community Liaison Group

·         Would the planned testing period continue despite the alteration to the takeover date?  The Chief Financial Officer indicated that he had not received any indication that there were any issues with the planned testing programme. 

RESOLVED that

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

b)    Council be informed that the Committee is satisfied so far that the risks associated with the loan being borne by the Council, as lender, are reasonable and appropriate