Greater Manchester contract awarded to Costain but other deals could prove difficult to finance. By Paul Sanderson
Costain was last week awarded a £397 million contract by Viridor Laing to design and build municipal waste treatment infrastructure as part of the Greater Manchester Waste Disposal Authority’s 25-year PFI Waste and Recycling Contract.
With £529.5 million of funding eventually coming from public sources in the form of either direct finance or loans, the contract has proven extremely difficult to finance commercially.
The insider said: “The whole concept of how to fund these waste PFIs has been questioned now. You have to wonder whether the likes of Merseyside, North London, Cheshire and the rest will go through.
“Greater Manchester was a very complex structure with two tiers, one of which was the Ineos Chlor combined heat and power plant, and the other being the rest of the facilities for Greater Manchester. That made it more difficult to finance than others.
“But in the end, it was very difficult to get the financial close on this, and local authorities are going to find it very tricky and expensive to get these deals through in the current climate.”
The Manchester deal was the first to be signed, while next to be decided is the £3 billion Merseyside waste deal.
Tenders for the £3 billion North London Waste Authority job are expected to be invited in April 2010 and include a £520 million construction package.
Greater Manchester has revealed that £640 million will be used for capital expenditure, but the actual deal costs will be much higher.
The GMWDA received £124.5 million in PFI credits from the Department for Environment, Food and Rural Affairs along with £120 million from the HM Treasury Infrastructure Finance Unit – the first PFI deal to receive loans from the newly created body.
GMWDA is itself putting in a capital contribution of £68 million as well as an additional loan amount of £35 million.
The European Investment Bank has also revealed that it lent £182 million to the deal, with Viridor Laing receiving £100 million to treat Manchester’s waste and Ineos Runcorn TPS getting a loan of £82 million to incinerate solid municipal waste from Greater Manchester for combined heat and power.
Commercial lending from the banks amounted to £245 million, with Bank of Ireland providing £95 million, BBVA £55 million, Lloyds Banking Group £55 million and SMBC £40 million.
Construction News’ sister magazine Infrastructure Journal said Viridor Laing had made an equity contribution of £90 million to the deal.
GMWDA has revealed that the 25-year life of the PFI deal will be worth £3.8 billion to Viridor Laing, making it Europe’s largest waste PFI contract.