Council officers warned of severe financial risks if incinerator contract signing goes ahead

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A Green Party councillor has written to the council's most senior officers warning that proceeding with the planned signature on 18th January of a contract to build the new Edmonton Incinerator would expose the local authority to severe financial risks. He urges them to take steps to withdraw the London Borough of Enfield's support from the scheduled signing of the contract between the North London Waste Authority (NLWA) and the Spanish contractor Acciona.

Cllr Charith Gunawardena at Meridian Water

Cllr Charith Gunawardena is warning that the impending signature of a contract to build a new incinerator in Edmonton exposes Enfield Council to financial risk

Charith Gunawardena, a councillor in Southgate ward, sent his message to chief executive officer Ian Davis and executive director of resources Fay Hammond on Sunday. This follows on from an attempt last week to persuade the Mayor of Enfield to convene an extraordinary council meeting which would debate a motion writhdrawing support from the contract. Despite many Enfield residents having written to the Mayor urging him to agree to the meeting, there was no sign that he was preparing to do so, leaving a direct appeal to the council officers with responsibility for the borough's finances as the only option still open.

Cllr Gunawardena lists factors which he says cast serious doubt on the NLWA's business case for proceeding with the contract signature rather than pausing, reviewing the requirement and, if appropriate, initiating a new procurement process. He argues, furthermore, that pausing now may actually reduce the eventual cost. However, the key point he makes is that there are several reasons which create a risk that the NLWA may be forced to abandon the contract after signing it and thus be liable to compensate Acciona:

  • The possibility that an approach by Chingford MP Iain Duncan Smith to Kwasi Kwarteng may result in the business secretary "pulling the plug" on the project by withdrawing the government's Development Consent Order
  • The possibility that environmental campaigners may persuade the Public Works Loan Board (PWLB) to withdraw its loan on the grounds that the project is a "speculative investment" - that a massive new incinerator is being built when it is unclear how much "feedstock" (ie unrecyclable waste) will be collected in future years.
  • The campaigners are also pursuing a legal challenge against the consultation, scrutiny and procurement process which, if successful, may lead to its abandonment.
  • The possibility that the Competition and Markets Authority may uncover unlawful collusion among the bidders for the construction contract.

Should the contract be abandoned for any of these reasons, there would be a significant financial impact on Enfield and the other six boroughs, as "the proposed contract sets out a significant cost penalty on NLWA (and in turn the councils) if the works are abandoned for any reason".

The full text of Cllr Gunawardena's message is reproduced below.

Message from Cllr Charith Gunawardena to Enfield Council's CEO and Executive Director of Resources

From: Cllr Charith Gunawardena

Date: 7 January 2022 at 16:14:50 GMT

To:
Fay Hammond, Executive Director of Resources
Ian Davis, Chief Executive Officer
Cc:
Cllr Sabri Ozaydin, Mayor of Enfield
Cllr Nesil Caliskan, Leader of the Council
Cllr Hass Yusuf, Board Member, NLWA
Cllr Kate Anolue, Board Member, NLWA
Matt Bowmer, Interim Director of Finance
Doug Wilkinson, Director of Environment & Operations, Non-executive Director NLWA

Subject: NLWA / Finance exposure to Enfield

Dear Fay and Ian

Complements for the season.

I have some key concerns over Enfield's exposure to financial liability in relation to the NLWA contact with Acciona. The proposed contract sets out a significant cost penalty on NLWA (and in turn the councils) if the works are abandoned for any reason.

The project is at risk of not proceeding due to four main risks in the very near term:

  1. I understand from residents that lain Duncan Smith is about to meet with Kwasi Kwarteng to discuss withdrawing the Development Consent Order. The signing of the contract should be postponed until the Secretary of State has made clear whether he intends to pull the plug.
  2. PWLB does not fund projects that are "speculative investments". On the basis that campaigners are approaching the PWLB to propose that, based on the huge overcapacity and uncertainty around the source of the full 700,000t waste feedstock, the incinerator constitutes a speculative investment. Therefore, there's a risk that the loan may be withdrawn.
  3. The campaigners are pursuing a legal challenge against the consultation, scrutiny and procurement process and solicitors are already in pre-action correspondence with NLWA. If successful, the contract may be abandoned.
  4. The Competition and Markets Authority (CMA) are currently looking into potential collusion between the bidders on the Edmonton project. In light of Acciona's history of prosecution for corruption in public contracts in Spain, has the council protected itself in case CMA launches a full investigation and uncovers wrongdoing?

Further points of concern:

  • The NLWA 16th December report refers to a Procurement Report. Throughout, this document it shows relaxation of performance guarantees, stepping down of Parent Company Guarantees, reduced bond structure, lower liability caps, NLWA taking on risk instead of leaving it with the contractor, allowing variation objections to fall from 5% to 2.5%, enhanced termination payment. This all speaks of risk of spiralling costs throughout construction and inability of the authority to implement punitive measures on the contractor. The above report makes the following statement "Market comparators have been obtained from the Authority's technical advisors to demonstrate that the ISFT Contract Price is broadly in line with the market once adjustments for current adverse market conditions, COVID-19 and ERF project specific risks associated with industrial action". Thisdoes not support the NLWA assertion that a delayed procurement will result in higher costs.
  • The report states that "In November 2021, the Department for Business, Energy, and Industrial Strategy (BEIS) advised that waste management projects would be eligible for support through the Industrial Carbon Capture business model for the next planned tranche of the Government's Cluster Sequencing process and the Project is targeting being a part of this." What happens if the plant is not approved as part of the government's cluster programme for funding? Who pays for the cost of installing CCS?
  • The report states "Once CCUS has been implemented, the ERF will be a priority waste asset able to operate if non-CCUS plants are required to cease operation" - this statement makes it clear that Edmonton may be required to close if it does not install CCS. Have LB Enfield conducted a risk assessment?
  • The Business Case report included in 16th December papers clearly states that NLWA are prepared to run the facility at half capacity. How does this affect the financial viability of the incinerator and what is the economic impact on the boroughs?
  • What are the implications for Energetik of running the incinerator at half capacity, not just on the available heat but also the subsequent utility cost passed on to residents? Can Energetik offer a secure heat supply and market-aligned price if the incinerator only runs at half capacity?
  • All the financial modelling I have seen is based on the highest predicted waste arisings. Actual costs are likely to be far lower since (even by NLWA's admission) waste rates are reducing and the impact of the Environment Act and waste strategy aims to further reduce residual waste. Has the council seen a full set of financial models based on the lowest future waste arisings as a result of best-case waste reduction where central government aspirations and local recycling targets are fully achieved?
  • Other EfW incinerators near Edmonton, including in Essex, Hoddesdon, and Slough, are likely to offer surplus capacity at declining rates, as competition for feedstock increases in response to reductions in waste arisings and the doubling of EfW capacity in England by 2030 (barring government intervention).

Far from increasing costs, a delay may in fact reduce costs. The briefing provided by NLWA for the 16th December vote shows that Acciona only received a commercial score of 4.13/30, yet NLWA maintain that the bid represents value for money. They state that current market volatility in light of Brexit and Covid is the reason for the significantly higher-than-predicted costs, therefore a delay in the signing of the contract would allow for a stabilising of the market following these shocks, increased cost certainty and likely reduction in material and labour costs.

Also, given these cost issues the following statement from the NLWA report of 16th December is important:

The procurement process is intended to identify the Most Economically Advantageous Tender (MEAT), with the successful Tenderer to be appointed to undertake the ERF Contract. In accordance with the ISFT, the Authority is under no obligation to award a Contract following conclusion of the tender process.

Under these circumstances, the prudent and responsible course of action for LB Enfield to take is to immediately withdraw support from the scheduled signing of the contract between NLWA with Acciona on 18 Jan 2022. I urge you to address this issue without delay.

Kind Regards

Cllr Charith Gunawardena

Southgate Ward London Borough of Enfield

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Posts in discussion: Council officers warned of severe financial risks if incinerator contract signing goes ahead
PGC Webmaster posted a reply
#6325
10 Jan 2022 16:10
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A new march to protest about the incinerator project is being held on Sunday 16th January, two days before the planned signing of the contract for its construction.

The march begins (12pm) and ends (3pm) on the green outside Edmonton Green station.
PGC Webmaster posted a reply
#6328
12 Jan 2022 18:38
PGC understands that the Mayor has agreed to convene an extraordinary council meeting to discuss the motion submitted by Cllr Charith Gunawardena. However, he has called the meeting for 26th January when the whole point of the motion was to prevent Enfield Council from supporting signature of the contract between North London Waste Authority and Acciona for construction of the new incinerator. Since the contract is due to be signed on 18th January, the motion, if passed, will be too late to have the desired effect.
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