Pennon has cut the amount it is seeking to claim from Interserve over its Glasgow energy-from-waste project due to the contractor’s low credit levels.
Pennon – the parent company of EfW operator Viridor – had valued its claim against Interserve for extra costs on the Glasgow plant at £72m, but now believes it will only be able to claim £64m.
Presenting its half-year results today, Pennon chief financial officer Susan Davy told investors the company had considered the potential “credit default” level for Interserve and judged the amount it hoped to recover to be around £64m. The remaining £8m has been recorded as a provision.
The £64m has been booked as a receivable in Pennon’s accounts.
Interserve won the £155m contract to build the Glasgow EfW plant for Viridor in 2012.
But in November 2016 the company was kicked off the job when it failed to hit completion deadlines. Doosan Babcock was brought in to finish the plant.
Pennon chief executive Christopher Loughlin told analysts that discussions with Interserve over the final settlement were ongoing.
He said: “The contractual arrangement requires you to complete the build-out so you can quantify the totality of your losses as a consequence of Interserve’s actions [on the Glasgow plant].
“But clearly we might want to get into more of a negotiated settlement with Interserve, if that’s what they wish to do as well.”
Interserve’s share price has been watched closely by the Pennon board, Mr Loughlin added, but he said that the recent update from the company was positive.
He said: “Recently they gave quite a strong statement that they are confident they’ll be able to trade through their current difficulties, so we take some comfort from that.”
In March this year Pennon revealed the expected final cost of the Glasgow plant had increased by £95m to £250m and said it would look to reclaim some of the extra costs from Interserve.
In a trading update last week Interserve revealed it would overshoot the upper limit of its forecast net debt of £575m and would instead end 2018 with net debt in the range of £625m-£650m.
Its blamed the increase on extra costs from its four remaining EfW plants, as well as payments booked as receivables from the Middle East that reduced its cash balance.
However, the contractor said it still expected to benefit from insurance claims related to its EfW projects next year.
“The receipt of further insurance incomes remains a key focus for the group,” its update said.
The company will launch a specific deleveraging programme in the new year, which it said could involve re-capitalising the business with proceeds from new investors along with raising money through the sale of non-core assets.
Interserve has been contacted for comment.