14 November 2008
By Tash Shifrin
Greater Manchester Waste Disposal Authority has more than tripled its borrowing limit to plug a financing gap that threatens to derail its £3bn Private Finance Initiative scheme.
GMWDA, which brings together local authorities across the region, is battling to sign off the 25-year PFI project to build state-of-the-art biological treatment facilities, upgrade household waste recycling centres, and develop facilities to sort recyclable refuse and compost organic material.
Local authorities are under pressure to develop environmentally friendly waste disposal facilities speedily. They face huge fines if they miss EU targets for reducing landfill and the UK government's 'landfill tax escalator', which increases the cost of dumping waste by £8 a tonne each year until 2011.
The PFI scheme has already suffered delays in reaching financial close, but the authority has now confirmed that the credit crunch has hit the financing of the deal.
In a report to the waste authority, its treasurer John Bland warned that the recent crisis in the financial markets had caused problems for the preferred bidder, a consortium led by Viridor Waste Management and John Laing Infrastructure Limited Investments.
'The current turmoil within those markets has alerted the authority to potential difficulties for the preferred bidder in securing the full amounts required to financially close the PFI contract,' he wrote.
GMWDA officers had been investigating potential 'alternative funding options' to fill the gap, he added. 'Consideration is being given to the authority borrowing funds to meet any shortfall, using the provisions of the Prudential Code for Capital Finance for Local Authorities.'
To make this option a possibility, the authority was forced to raise its operational borrowing limits from £31m this year to £101m, with a similar increase to take the borrowing limit to over £100m for each of the next two financial years.
A spokeswoman for GMWDA would not comment on the potential change to the funding arrangements for the deal, but said the authority was 'continuing to make progress towards signing its 25-year PFI contract'.
She added: 'The main commercial aspects of the contract have been agreed. The funders are going through their approval processes in the currently challenging economic climate.
'We are ready to sign the contract as soon as this is completed.'