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Manchester waste: at your disposal

Six weeks ago finance for Western Europe’s largest municipal waste contract − for Greater Manchester − was finally signed off after two years of increasingly nail-biting negotiations. Jackie Whitelaw reports.

In the dark days of recession the Manchester Waste scheme is a cause of celebration for everyone involved: client Greater Manchester Waste Disposal Authority; successful bidder Viridor Laing (Greater Manchester) (VLGM); the banks, the government and design and build contractor Costain.

The deal secures more than 5,000 new jobs and the opportunity to take more than 75% of Greater Manchester’s waste away from landfill. Viridor Laing (Greater Manchester) (VLGM) has a contract worth £3.8bn over the privately financed scheme’s 25-year life; the banks have been able to prove − after months of appalling press − that they can do something useful; and it is the first success for the Treasury’s new Infrastructure Finance Unit set up to chase PFI deals to financial close. And for the government in general the project will help contribute to the UK’s commitment to achieve 50% recycling/composting and 65% diversion of waste from landfill by 2020.

Costain, meanwhile, has secured three years of work in the burgeoning world of green waste management technology worth £397M. On its own this is a healthy boost to workload in a tough construction market, but it also sets the business up to become a leader in the growing waste sector.

Waste: an emerging market

This has been the plan since 2004 when the company decided to investigate the waste industry as an emerging market. Costain group strategy and business development director Stephen Wells explains: “Because we were, and still are, market leader in water and wastewater we were thinking of how else to use our skills and management understanding of process engineering.

“We realised we could transfer our skills and management understanding of process engineering to waste.”

Stephen Wells, Costain

“We were driven by the growth in recycling, landfill tax legislation and the cyclical nature of water workload and realised we could transfer our skills to waste,” he adds. A small team was put together and over three months it developed a waste strategy and got board approval to investigate waste as an emerging market.

It was not just the waste sector that popped out from the first tranche of Wells’ investigations for the business when he joined from Biwater, but the growing sectors of airports and nuclear decommissioning, where Costain has also made inroads.

Developing links and understanding

On waste, the next step was to investigate the sector more thoroughly − it represented a year of investment − pinpointing potential partners, customers, rivals, opportunities and technologies. It didn’t take the waste team long to spot that the biggest rivals were the firms with the best understanding of modern waste recycling and processing technologies and developing the business’s own understanding became a priority.

At the same time, the firm had to get linked in to the waste industry and an invitation to join the UK Trade & Investment environment board, after some concerted networking, was a big help in realising this ambition.

“We started with a £30M design and build opportunity and ended up with one for £397M!”

Mark Huddart, Costain

“We were meeting there with the Environment Agency, Defra [Department for Environment, Food and Rural Affairs], policy makers, technical providers, consultants, some remediation contractors but no major contracting rivals,” Wells says contentedly. “We looked at the models for dealing with waste, got to grips with regulation, legislation, discharge consents and went to meet the operators to establish ourselves in the market and test our market assumptions.”

Its efforts were rewarded when VLGM asked Costain to become its civils partner at the bid stage for the Manchester Waste project. “We had made a presentation to Viridor in May 2006,” says sector director for waste management Mark Huddart. “Initially VLGM was directly engaged with key technology providers as well, but as the bid developed and because of our skills in process in water, it asked us to manage the technology as well.

“We started with a £30M design and build opportunity and ended up with one for £397M!”

Groundbreaking plans

Costain is working with consultant Scott Wilson, which itself has developed a good stream of waste work as engineer for the £2bn Lancashire waste PFI, and the Derbyshire waste treatment PPP. The Greater Manchester deal is worth £10M to Scott and involves 27 sites.

The contractor has also integrated a number of specialist technology providers into its team including Enpure, TEG Environmental, Hasse, Eggersmann and Allgaier from Germany, and CP Manufacturing from the US, which all provide expertise in waste technologies such as mechanical pre-treatment, anaerobic digestion and in-vessel composting. There is a lot of clever stuff going to be happening in the treatment of Manchester’s waste.

“The scheme is going to be dealing with 1.3Mt of municipal waste annually from across the nine districts of Greater Manchester which are responsible for 5% of the UK’s total municipal waste − 30% of that waste is currently recycled or composted but that is going to rise to at least 50% by 2015,” says Huddart. “And we’ll be diverting more than 75% of Greater Manchester’s waste away from landfill.

Greater Manchester waste: what’s being built

Greater Manchester waste treatment

Greater Manchester waste treatment

 

“In terms of technologies, the MBT [mechanical biological treatment] stream is the groundbreaking one for the UK. This deals with the biodegradable stuff that generates the very harmful greenhouse gas methane. We’re going to digest it, extract the gas and use it to create 8MW of energy, some of which will be used to power the MBT plant and the rest can be sold to the grid as one of the revenue streams for the PFI.”

Other projects within the PFI include a combined heat and power plant, a materials recovery facility and an upgrade of Greater Manchester’s network of household waste recycling centres.

Residual waste that cannot be recycled, instead of being sent to landfill, will be processed for fuel to be used by chemicals producer Ineos Chlor to provide energy for its plant at Runcorn in Cheshire, which is being managed as a separate special-purpose vehicle to the VLGM scheme.

An iconic project

Viridor chief executive Colin Drummond describes the Greater Manchester scheme as an iconic project. “It is a very important component of the UK’s waste management and renewable energy strategies and is designed to bring world-class recycling, waste management and renewable energy infrastructure to Greater Manchester. It is a concrete example of major investment in the green economy and will be a showcase of what the UK can offer.”

“It is a concrete example of major investment in the green economy and will be a showcase of what the UK can offer.”

Colin Drummond, Viridor

It was January 2007 when the VLGM team became preferred bidder for the project and at the same time waste became a core business sector for Costain with Huddart leading it. There followed the two years of negotiation with the banks. “A lot of the money being lent is for capital works so we were integrated into those negotiations,” explains Huddart. “Though they took a lot longer than we were expecting!”

Costain had wanted to become an investor in the PFI special-purpose company, but its overtures were politely declined mainly because the existing partnership was so bedded in. On future waste PFIs, however, the contractor’s intention is to be an investor. “It creates two income streams for the company,” says Wells.

Working to a tight deadline

Protracted financial negotiations for Greater Manchester mean the timetable is tight to get all the work done on programme by the beginning of 2012. Costain also has another 12 months after that on the project’s operation and maintenance. But advance works were well under way ahead of the deal being signed and a composting plant in Rochdale is due to start commissioning soon.

“We had plenty of time to do the planning because of the financing delays,” Huddart says. “So we couldn’t be more planned. The programme is a challenge, but its nothing beyond our capability,” he concludes in bravura style.

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