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Pennon and John Laing agree terms over Manchester recycling and waste contract

By Oliver Haill

Date: Thursday 24 Aug 2017

(ShareCast News) - Pennon's Viridor waste treatment arm and John Laing have agreed the terms by which the Greater Manchester Waste Disposal Authority will cancel its 25-year recycling and waste management private finance initiative contract.
The authority, which in April announced the termination of the contract with the Viridor Laing joint venture, will continue sending residual waste for treatment at the Runcorn I Energy Recovery Facility, which Viridor will continue to operate for the remainder of the original 25-year contract with no significant operational changes.

Recycling and reprocessing operations will be subject to a re-procurement process later in 2017, with Viridor expected to continue to provide these services for a period of not less than 18 months and eligible to bid for the new contract.

The JV entered into a legally-binding head of terms deal on Wednesday, Laing said on Thursday, adding that the deal involves a number of transactions which are to be completed by the end of September and will result in termination of the contract, as well as acquisition of Viridor Laing by the authority.

The contract also involves Manchester Waste TPS Co, which is jointly owned by John Laing, Viridor and chemical company Inovyn Chlorvinyls Ltd, which is also contractually linked to Viridor Laing.

The deal includes changes to the long-term contractual arrangements between Manchester Waste TPS and the authority. Manchester Waste TPS will continue to be held by its three existing shareholders.

As a result of the contract termination, Laing said there is a reduction in the value of the two Manchester waste investments by GBP25.5 million at the end of June, compared to the value at the end of 2016.

The company said than an alternative deal with the authority over the termination of the contract "could have been long and costly legal proceedings with an uncertain outcome for the valuation of its two investments".

The fair value of the two investments represented 8% of John Laing's investment portfolio of £1.18bn at the end of 2016.

Pennon said there will be net one-off non-material impact to the income statement in 2017/18 taking into account a reduction in the book value investment in joint ventures and an expected one-off gain on joint venture profit after tax.

As a result of the contract termination, Costain Group has been told to, under its sub-contract with Viridor Laing, to demobilise all of its remaining activities relating to the contract, which is expected to complete by September 29.

Costain said the financial impact of this settlement of the contract is in line with the provisions it previously took for the contract.

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