The costs to Norfolk County Council of terminating its residual waste contract with Cory Wheelabrator are set out in a report to the Council’s Cabinet Scrutiny Committee, which meets on Tuesday 4 June.
The report on the contractual penalties that would arise in the event of the Council withdrawing from the contract was requested at the first meeting of the new Council on 13 May following the elections on 2 May.
The contract itself is a standard form of government contract. It has been reviewed by Defra and the Treasury before the Government confirmed Waste Infrastructure Grant worth £169m over the lifetime of the project, which includes the proposed construction of an energy from waste plant at the Willows, Saddlebow, near King’s Lynn. The contract is available on Norfolk County Council’s website, except for redactions where the Council has nondisclosure obligations.
A public inquiry into the proposals for an energy from waste plant at Saddlebow was ordered by the Government. This ended on 17 May, with a decision by the Secretary of State on whether or not to grant planning permission expected next autumn or winter (2013/14).
The report to Cabinet Scrutiny deals with two main scenarios:
~ Termination of the contract because planning permission has been refused,
~ County Council withdrawal from the contract after planning permission has been granted.
Termination of the contract because of planning failure would trigger compensation to the contractor. It was necessary for the Council to agree to this compensation clause in the contract or the project would have been very unlikely to be funded by the banks. However, the level of compensation was capped at £20.3m.
There would also be a risk of having to meet costs associated with exchange rates and interest rates. At current market rates this would add £11m to the council’s costs. Termination of the contract in these circumstances would also trigger the early repayment of public inquiry costs, expected to be between £1.5m and £2m.
Withdrawal from the contract by the County Council in other circumstances would be significantly higher, with the costs including debt repayments, redundancy costs and lost profits. The £20.3m cap would not apply. The report does not attempt to provide a figure since it would depend upon the timing of the decision to withdraw, and would require the gathering of a range of commercial information. However, it says that the £80m-£90m cost produced for Cornwall Council when considering abandoning its contract provides ‘a useful indication.’
The full amount would be payable within 40 days of contract termination, and the Council would not be allowed to borrow to cover the costs.
In addition, withdrawal from the contract would lead to the loss of Waste Infrastructure Grant worth £169m over the lifetime of the contract. The report points out that it is unlikely that these would be available for an alternative waste solution – there are ten cases where provisional Waste Infrastructure Grant has been withdrawn by Defra, and no equivalent support has been offered to help affected authorities meet future waste costs.
