Financial Contractual Methods: Available Funding routes and types of UK Government Contracs Let
Financing and Contracting Methods for UK Government Biogas Plants
I am frequently being asked to include more information in the blog and here at the web site about financing and contracting routes for the larger waste feedstock Anaerobic Digestion Plants. So here is some guidance based the Defra WIP compiled programme information which was published a few years back.
Development of Advanced Biological Treatment (ABT) plant will involve capital expenditure of several million pounds. There are a number of potential funding sources for Local Authorities planning to develop such facilities, including:
General grants may be available from national economic initiatives and EU structural funds;
Prudential Borrowing: the Local Government Act 2003 provides for a new 'prudential' system of capital finance controls;
PFI Credits and Private Sector
Financing: under the Private Finance Initiative a waste authority can obtain an annual subsidy from central government through a Special Grant;
Other Private-Sector Financing: A contractor may be willing to enter a contract to provide a new facility and operate it. The contractor's charges for this may be expressed as gate fees; and
Existing sources of local authority funding:
for example National Non-Domestic Rate payments (distributed by central government), credit (borrowing) approvals, local tax raising powers (council tax), income from rents, fees, charges and asset sales (capital receipts). In practice there will be limited opportunity to take advantage of these.
Medium and large scale municipal waste management contracts are usually procured through the negotiated procedure of the Official Journal of the European Union (OJEU) process. The type of contractor which provides these “All-in” and “Turnkey” Contracts are often known as EPC Contractors.
The available contractual arrangement between the private sector provider (PSP) and the waste disposal authority (or partnership) may be one of the following:
Separate Design; Build; Operate; and Finance:
The waste authority contracts separately for the works and services needed, and provides funding by raising capital for each of the main contracts. The contract to build the facility would
be based on the council's design and specification and the council would own the facility once constructed;
Design & Build; Operate; Finance:
A contract is let for the private sector to provide both the design and construction of a facility to specified performance requirements. The waste authority owns the facility that is constructed and makes separate arrangements to raise capital. Operation would be arranged through a separate Operation and Maintenance contract;
Design, Build and Operate; Finance:
The Design and Build and Operation and Maintenance Contracts are combined. The waste authority owns the facility once constructed and makes separate arrangements to raise capital;
Design, Build, Finance and Operate (DBFO):
This contract is a Design and Build and Operate but the contractor also provides the financing of the project. The contractor designs, constructs and operates the plant to agreed performance requirements. Regular performance payments are made over a fixed term to recover capital and financing costs, operating and maintenance expenses, plus a reasonable return. At the end of the contract, the facility is usually transferred back to the client in a specified condition; and
DBFO with PFI:
This is a Design, Build, Finance and Operate contract, but it is procured under the Private Finance Initiative. In this case the waste authority obtains funding for future payment obligations from Government as a supplement to finance from its own and private sector sources.
The majority of large scale waste management contracts currently being procured in England are Design, Build, Finance and Operate contracts and many Waste Disposal Authorities in two tier English arrangements (County Councils) seek to partner with their Waste Collection Authorities (usually District or Borough Councils). Sometimes partnerships are also formed with neighbouring Unitary Authorities to maximise the efficiency of the waste management service and make the contract more attractive to the Private Sector Provider.
Return to the AD Finance Articles Contents page.
Return to the Articles Contents page.