Agenda item

Report for Decision.

ORDERED that Executive:

 

1.    Approves an amendment to the report so that recommendations in the report that reference delegated authority in consultation with the Mayor should also include “relevant Executive Member with portfolio responsibility” where applicable.  

2.    Approves the creation of the Local Authority Special Purpose Vehicle (LA SPV).

3.    Appoints the Director of Environment and Community Services as the Council’s Director on the Board of the LA SPV and authorises them and any successors; or any substitute or deputy appointed by the Director of Environment and Community Services should they be unavailable, to take all decisions on behalf of the Council as Director on the Board of the LA SPV for the good governance of the LA SPV and the Energy Recovery Facility.

4.    Authorises the Council to subscribe for shares in and to be a shareholder of the LA SPV; and to issue a Shareholder Resolution to approve and adopt the Articles of Association.

5.    Appoints the Section 151 Officer as the Council’s Shareholder Representative and Authorises that Shareholder Representative to appoint an alternative representative to act as their substitute or deputy and authorises the Shareholder Representative and their alternative to make decisions under the Shareholder Agreement, articles of association etc including the making of shareholder resolutions, including a shareholder resolution to approve and adopt the Articles of Association on behalf of the Council.

6.    Authorises the Council to enter into the Shareholders’ Agreement and Delegates Authority to Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree and enter into the Shareholder Agreement.

7.    Delegates Authority to Director of Environment and Community Services (in

8.    consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into the Shareholder Agreement.

9.    Authorises the LA SPV the enter into the Service Level Agreement and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Service Level Agreement.

10.  Authorises the Council to enter into the Waste Supply and Support Agreement (“WSSA”) and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise, agree and enter into the WSSA with the LA SPV.

11.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into the WSSA.

12.  Authorises the LA SPV to award the Contract, enter into the Project Agreement with the successful Contractor and to enter into the 50 year lease with Teesworks for the site and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Project Agreement, Lease and any associated agreements and documentation.

13.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Business Plan for the LA SPV and provide sufficient resources to allow the LA SPV to reach Financial Close and then to monitor and manage the Contract on behalf of, and with, the Councils for the term.

14.  Delegates Authority to Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to enter into Local Government (Contracts) Act 1997 Council certificates in relation to the WSSA.

15.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Secondment Agreement and to authorise the LA SPV to enter into the Secondment Agreement.

16.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise, finalise, agree and enter into the Cost Equalisation Agreement.  Authorises the Council to enter into a Guarantee of the Project Agreement and a Guarantee of the Lease and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to agree finalise and to enter into the Council Guarantees.

17.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into and be a party to the Council’s Guarantee of the Project Agreement and the Guarantee of the Lease.

18.  Delegates Authority to the Director of Environment and Community Service (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into a Novation of the Option Agreement, Side Deed with the Estate Owner and Environmental Deed and to authorise the LA SPV to enter into all other necessary agreements or legal documentation to enable the project to reach financial completion and to monitor and manage the contract.

19.  Delegates Authority to the Director of Environment and Community Service (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the Council to act as Guarantor in respect of the LA SPV Side Deed with the Estate Owner and Environmental Deed and to authorise the Council to enter into all other necessary agreements or legal documentation on behalf of the Council to enable the project to reach financial completion and to monitor and manage the contract.

The Executive Member for Environment and Sustainability submitted a report for Executive consideration. The purpose of the report was to set out the decisions and delegations the Council needs to take to be able to work with the other authorities in respect of undertaking financial close with the preferred bidder and the subsequent structures for managing the disposal contract.

 

Seven Local Authorities had joined together to procure a contractor to design, build, operate and finance a new Energy Recovery Facility to be located in the Tees Valley (TV ERF).

 

The seven Councils which include Darlington Borough Council, Durham County Council, Hartlepool Borough Council, Middlesbrough Council, Newcastle City Council, Redcar and Cleveland Borough Council and Stockton Borough Council (the Authorities) had a statutory obligation to provide waste management services to their collective 1.5m residents. The Tees Valley Councils currently operated residual waste disposal services as a group under a single contract with Suez and which included Redcar and Cleveland Borough Council, Hartlepool Borough Council, Stockton Borough Council and Middlesbrough Borough Council. Darlington Borough Council was part of the group but currently had its own separate waste treatment and disposal contract. Durham County Council and Newcastle City Council currently had their own separate residual waste disposal contracts with SUEZ.

 

All existing waste treatment / disposal contracts with SUEZ had been extended to cover the period until the new ERF was in operation.

 

To align with these dates, the procurement programme was originally due to have Final Tenders submitted and evaluated in early 2022, with a Preferred Tenderer to be appointed by July 2022 and Contract Award / Financial Close aimed to be achieved by November 2022.

 

The project was now at a stage where a preferred bidder had been selected, and seven local authorities were working towards financial close of that procurement process.

 

Middlesbrough along with six other Local Authorities in the North East had undertaken a procurement for the disposal of residual waste. The Council was now at a stage in that process where a preferred bidder had been nominated and was working towards financial close of that procurement process. The price per tonne achieved through the procurement process was currently £143, which was the average price over the life of the contract at 25/26 prices and indexed at CPI. This was below the ceiling limit that was set.

 

The negotiations would continue to financial close with a view to reducing the price per tonne further.

 

The 2025/26 budget for residual waste disposal was £5.6m. The price paid under the current arrangements for residual waste disposal was £128.29 per tonne with an estimated inflationary rise to £144.97 per tonne in 2029/2030. The average annual

tonnage was currently around 39,000 tonnes. This was expected to reduce over the next several years following the introduction of the Government’s Simpler Recycling Initiatives.

 

In order to allow the council to fulfil its requirements as part of the process there are a

number of decisions and delegations that need to be made and granted. These are

outlined below in the recommendations.

 

Agreeing to the recommendations is in line with the councils of objectives of delivering Best Value and its Environment objectives. The price per tonne provides value for money in respect of the disposal of Middlesbrough’s residual waste. It also allows Middlesbrough to increase its level of recycling in the town without affecting the contractual arrangements with the successful bidder.

 

A conversation took place regarding the implications of not proceeding with the project as outlined in the report. It was discussed that not proceeding as detailed in the report would have negative financial impacts for the Council as it would lose the negotiation benefits of a wider partnership.

 

In terms of the environmental impacts, Member’s attention was drawn to section 4.85 to 4.95 of the report which detailed the environment factors associated with the Energy Recovery Facility.

 

Following a question from a Member in the public gallery, a conversation took place regarding how recycling could be improved across the town and if waste collected by volunteers could contribute to this. It was clarified that improving recycling rates was challenging but work was underway to address this with  

 

A Member queried if the Council would benefit financially from the energy created at the Energy Recovery Facility and what fuels would be required as part of the start up process. It was clarified the Council could realise some benefit from the Energy Recovery Facility and that diesel generators would be used as part of the start process.

 

The Mayor proposed that the recommendations in the report be amended. The recommendations should state that, where delegated authority was afforded to officers in consultation with the Mayor, this should also include the Executive Member for Environment and Sustainability or relevant portfolio holder.

 

OPTIONS

 

The seven Councils were required to undertake a procurement process due to their existing waste treatment contract arrangements due to expire in 2026. By procuring this contract together, economies of scale provide enhanced value for money for the Councils.

 

if this approach was not agreed, then the Council would have to undertake a fresh procurement of a merchant contract. It was expected that this would deliver a higher gate price due to the lack of competition in the market.

 

The benefits of forming a Local Authority SPV to be the contracting entity with the Contractor included:

 

·         Separate legal entity - The Project would sit on the balance sheet of the Local Authority SPV, rather than the full Project sitting on Hartlepool Borough Council’s balance sheet (with all assets and liabilities running through their accounts);

·         Shared ownership - The Project assets (and liabilities) would be owned by the Local Authority SPV, which in turn would be wholly owned by all of the Councils;

·         Transparency - Each of the Councils would be entitled to appoint a director to the Board, having visibility over the activities of the Local Authority SPV and direct involvement in the decision-making process;

·         Flexibility - The agreement would allow any future changes to the Councils’ relationships to occur.

 

ORDERED that Executive:

 

1.    Where the recommendations in the report that reference delegated authority in consultation with the Mayor should also include “relevant Executive Member with portfolio responsibility” where applicable.  

2.    Approves the creation of the Local Authority Special Purpose Vehicle (LA SPV).

3.    Appoints the Director of Environment and Community Services as the Council’s Director on the Board of the LA SPV and authorises them and any successors; or any substitute or deputy appointed by the Director of Environment and Community Services should they be unavailable, to take all decisions on behalf of the Council as Director on the Board of the LA SPV for the good governance of the LA SPV and the Energy Recovery Facility.

4.    Authorises the Council to subscribe for shares in and to be a shareholder of the LA SPV; and to issue a Shareholder Resolution to approve and adopt the Articles of Association.

5.    Appoints the Section 151 Officer as the Council’s Shareholder Representative and Authorises that Shareholder Representative to appoint an alternative representative to act as their substitute or deputy and authorises the Shareholder Representative and their alternative to make decisions under the Shareholder Agreement, articles of association etc including the making of shareholder resolutions, including a shareholder resolution to approve and adopt the Articles of Association on behalf of the Council.

6.    Authorises the Council to enter into the Shareholders’ Agreement and Delegates Authority to Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree and enter into the Shareholder Agreement.

7.    Delegates Authority to Director of Environment and Community Services (in

8.    consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into the Shareholder Agreement.

9.    Authorises the LA SPV the enter into the Service Level Agreement and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Service Level Agreement.

10.  Authorises the Council to enter into the Waste Supply and Support Agreement (“WSSA”) and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise, agree and enter into the WSSA with the LA SPV.

11.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into the WSSA.

12.  Authorises the LA SPV to award the Contract, enter into the Project Agreement with the successful Contractor and to enter into the 50 year lease with Teesworks for the site and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Project Agreement, Lease and any associated agreements and documentation.

13.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Business Plan for the LA SPV and provide sufficient resources to allow the LA SPV to reach Financial Close and then to monitor and manage the Contract on behalf of, and with, the Councils for the term.

14.  Delegates Authority to Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to enter into Local Government (Contracts) Act 1997 Council certificates in relation to the WSSA.

15.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to finalise and agree the Secondment Agreement and to authorise the LA SPV to enter into the Secondment Agreement.

16.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise, finalise, agree and enter into the Cost Equalisation Agreement.  Authorises the Council to enter into a Guarantee of the Project Agreement and a Guarantee of the Lease and Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to agree finalise and to enter into the Council Guarantees.

17.  Delegates Authority to the Director of Environment and Community Services (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into and be a party to the Council’s Guarantee of the Project Agreement and the Guarantee of the Lease.

18.  Delegates Authority to the Director of Environment and Community Service (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the LA SPV to enter into a Novation of the Option Agreement, Side Deed with the Estate Owner and Environmental Deed and to authorise the LA SPV to enter into all other necessary agreements or legal documentation to enable the project to reach financial completion and to monitor and manage the contract.

19.  Delegates Authority to the Director of Environment and Community Service (in consultation with the Mayor and supported by the Monitoring Officer and Section 151 Officer) to authorise the Council to act as Guarantor in respect of the LA SPV Side Deed with the Estate Owner and Environmental Deed and to authorise the Council to enter into all other necessary agreements or legal documentation on behalf of the Council to enable the project to reach financial completion and to monitor and manage the contract.

 

REASONS

 

The recommendations allowed the Council to move to financial close on the procurement of the TVERF.

 

The TVERF provided a value for money method of disposing of Middlesbrough’s residual waste.

 

The TVERF met all environmental regulations.

 

The TVERF contract allows Middlesbrough to significantly increase its recycling rates and other environmental objectives of the council.

 

The TVERF has a robust governance and management structure to ensure value for money.

 

A Local Authority Special Purpose Vehicle (LA SPV) is required to be established as a Limited Company incorporated and registered at Companies House. It would be the Contracting entity representing the seven Councils (the Shareholders) and will enter into the Project Agreement with the successful Contractor and the lease with South Tees Development Corporation Teesworks for the site.

 

The regulation and management of the LA SPV shall be governed by the Shareholders’ Agreement (SHA). Each Council (Shareholder) will be required to formally enter into the Shareholders’ Agreement approximately three months in advance of the Project Agreement being entered into with the successful Contractor (Financial Close).

 

There will be a Service Level Agreement between Redcar and Cleveland Borough Council as the ‘host authority’ to provide support services to the LA SPV. The Service Level Agreement is required to be formally entered into by the seven Councils in parallel with the Councils entering into the Shareholders’ Agreement.

 

The terms of the commercial arrangements between the seven Councils (the

Shareholders) in relation to the LA SPV will be defined and governed by the Waste Supply and Support Agreement (WSSA). The WSSA is required to be formally entered into by the seven Councils (Shareholders) in parallel with the LA SPV awarding the Contract and entering into the Project Agreement with the successful Contractor.

 

A Business Plan for the LA SPV was being produced which detailed the ‘structural’ and operational costs of the Company that would administer the ERF contract.

 

As outlined in the Local Government (Contracts) Act 1997 (LGCA) - In a public private project such as the TV ERF Project, it was typical for the Project Agreement (and to the extant applicable, the funder direct agreement) to be certified by the procuring authority. In the case of the Project, the collaborative nature, and innovative structure of the public sector parties means this is not possible (as none of the Councils would be party to the Project Agreement). Each of the Councils was, however, party to the WSSA, pursuant to which the LA SPV would provide waste management services. The WSSA therefore satisfied the LGCA criteria for certification.

 

There would be a Secondment Agreement between the Host Authority (Redcar and Cleveland Borough Council) and the LA SPV, whereby the Host Authority shall second the Secondees to the LA SPV.

 

The five Tees Valley Authorities had previously agreed to equalise all costs in relation to the transfer and haulage of Contract Waste to the TV ERF.