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Greater Manchester Waste PFI deal completed with Treasury cash

Europe’s largest waste contract, the £3.8bn Greater Manchester Waste PFI, was finally signed yesterday after the Treasury stepped in with money to complete the deal.

The deal will see the joint venture of waste contractor Viridor and infrastructure investor John Laing build and operate waste facilities across the Greater Manchester area for the next 25 years.

It was the first contract to make use of the Treasury’s £2bn Infrastructure Finance Unit.

In total £529.5M of funding for the deal has come from public sources in the form of either direct finance or loans.

Client Greater Manchester Waste Disposal Authority (GMWDA) has revealed that £640M will be used for capital expenditure, but the actual deal costs will be much higher.

The funding breakdown is as follows: £120M is provided by the Treasury’s unit as a loan, £100M has been loaned by the European Investment Bank (EIB), and £124.5M is provided in PFI credits.

GMWDA is putting in a capital contribution of £68M as well as an additional loan amount of £35M.

Private banks contributed an combined total of £245M: Bank of Ireland (£95M), BBVA (£55M), Lloyds Banking Group (£55M) and SMBC (£40M).

Viridor/Laing’s capital contribution remains undisclosed but NCE’s sister title Infrastructure Journal claims the joint venture has stumped up £90M in equity.

The EIB has loaned an additional £82M to waste firm Ineos Runcorn TPS, which will build a Combined Heat and Power Plant to incinerate residual waste from the Mechanical Biological Treatment (MBT) plants built under the deal.

“This will be a major step forward for Greater Manchester and all its communities, creating an innovative and sustainable long-term waste management solution,” said John Laing director David Hardy.

“This is fantastic example of how the public and private sectors can work together, particularly in the current tough financial and economic environment, to create forward-thinking solutions that will benefit communities across the region.”

Completion of the contract has been a lengthy process: Viridor/Laing was named preferred bidder in February 2007 and financial close was scheduled for summer that year. This was pushed back to the end of 2007.

While negotiations between client, contractor and the banks rumbled on, Viridor/Laing named Costain as its main contractor for the waste facilities in January 2008, signing an initial £7M deal to allow Costain to begin designing facilities without waiting for financial close. Subsequent deadlines for financial close have been and gone, the most recent in December 2008 and February this year.

In January, GMWDA chief executive Neil Swannick told NCE: “The complexity of the project and sheer volume of the documentation, coupled with the unforeseen credit crisis, [means that] some delay is not unexpected.”

Of the initial £640M outlay, £405M will be capital investment in new facilities or improvement of existing sites. New facilities to be built by Costain will include:

  • A Materials Recovery Facility
  • Five MBT facilities producing Refuse Derived Fuel for the Ineos Runcorn CHP
  • Four In-Vessel Composting facilities

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