City Of Cockburn Minutes – SMRC RRRC WCF Odour Issue – 13 July 2006
16.2 (MINUTE NO 3208) (OCM 13/07/2006) – SECURED LENDING FACILITY AGREEMENT FOR THE REGIONAL RESOURCE RECOVERY CENTRE (RRRC) PROJECT (4906) (ML) (ATTACH) RECOMMENDATION
That Council:
(1) endorse the Southern Metropolitan Regional Council’s borrowing strategy for the RRRC project’s loan liability to be fully
repaid by 30 June 2023;
(2) resolve to execute the Western Australian Treasury Corporation’s Letter Agreement to increase the Regional Resource Recovery Centre Project Facility Limit to Fifty Five Million Dollars($55,000,000) and to be bound by its terms and conditions;
(3) execute the Western Australian Treasury Corporation’s Letter Agreement subject to the Chief Executive Officer being satisfied with its terms and conditions.
COUNCIL DECISION MOVED Clr S Limbert SECONDED Clr V Oliver That Council
(1) approves the Regional Resource Recovery Centre Project revised detailed “Material Recovery Facility Build; Own and
Operate by the SMRC” Business Plan dated May 2006;
(2) approve the incorporation of the “Material Recovery Facility Build; Own and Operate by the SMRC” Business Plan, as
appended, into the Regional Resource Recovery Centre Business Plan as adopted by the Regional Council on 30 July 1998;
(3) endorse the Southern Metropolitan Regional Council’s borrowing strategy for the RRRC project’s loan liability to be fully repaid by 30 June 2023;
(4) resolve to execute the Western Australian Treasury Corporation’s Letter Agreement to increase the Regional Resource Recovery Centre Project Facility Limit to Fifty Five Million Dollars($55,000,000) and to be bound by its terms and conditions;
(5) authorise the Chief Executive Officer to execute the Western Australian Treasury Corporation’s Letter Agreement subject to the Chief Executive Officer being satisfied with its terms and conditions.
Reason for Decision
Initially the Business Plan supplied by the SMRC did not provide projections of profit and loss. This detail has subsequently been provided and supports the decision to establish the new Materials Recovery Facility. The Business Plan dated May 2006 can now be endorsed and incorporated into the RRRC Business Plan as requested by the SMRC.
Background
1) Council resolved at its meeting 20 April 1999 to participate and enter into a project participants’ agreement for the Regional Resource Recovery Centre (RRRC) project.
2) The project was established through the Southern Metropolitan Regional Council (SMRC) and involves the Cities of Canning, Cockburn, Fremantle, Melville and Town of East Fremantle in the development of an integrated regional facility designed for processing household waste to achieve maximum recovery of resources and divert waste from landfill.
3) The capital construction of the facility would be funded from borrowings, administered by the SMRC and the project participants will make annual contributions towards the repayment of those borrowings as detailed in the project business plan and participants agreement.
4) All Project Participants agreed to enter into a Secured Lending Facility with Western Australian Treasury Corporation (WATC) and the SMRC for $40 million.
5) In accordance with Clause 24H (2)(c) of the Local Government (Functions and General) Amendment (No 2) 2005 and the Project Participants Agreement it is a requirement that each project participant undertake to guarantee or secure the borrowing. A guarantee charge agreement with WATC was approved by Council at its meeting dated 19 September 2000 and is limited to the proportion of liability for each participant (based on population).
Submission
To seek Council approval to an increase in the Secured Lending Facility’s borrowing limit for the Southern Metropolitan Regional Council’s Regional Resource Recovery Centre (RRRC) Project and authorisation of the WA Treasury Corporation Lending Facility to increase the existing RRRC Lending Facility limit
Report
Material Recovery Facility Business Plan (revised May 2006) The regional council tendered the MRF capital construction in September 2005 and resolved to not accept any tender.
The tenders received would have exceeded the Business Plan capital estimates. The Regional Council again invited tenders in March 2006 and has estimated the total cost of the project to be in the order of $10.5M exceeding the original Business Plan estimates of $7M. The Regional Council has revised its Business Plan in May 2006 (refer attached) showing a capital expenditure amount of the project of $10.5 million.
The Regional Council at its May 2006 meeting resolved to endorse the revised May 2006 Business Plan and has requested that the project participants consider the plan, together with an increase in the lending facility limit for the RRRC Project obtained by the Western Australian Treasury Corporation. The revised Business Plan dated May 2006 shows a ten year operating and life projection for managing a new material recovery facility. The plan identifies the need for an improved facility designed to meet the current and future needs of the region with the capacity to process the region’s current 827 tonnes of co-mingled recyclables per week in a single shift over a 5 day operation.
The regional council advises that an improved recovery rate of recyclable material will ensure higher revenue returns and further reduce the amount sent to landfill. The existing facility has a design capacity of 770 tonnes per week, however, it currently generates 827 tonnes per week which has resulted in significant operational inefficiencies including higher labour costs, lower recovery rates of recyclable material resulting in lost income and restricted time for equipment maintenance and repairs.
A summary of the financial costs in the revised business plan are:
• Capital program $10,517,000
• Operational program – the project has a design life of 10 years
processing all the regions co-mingled recyclables. Income sources include gate fees from member councils, other commercial operators, sale of recyclable material. Operational costs include annual repayment of principal and interest and annual transfers to a plant replacement reserve.
The council’s estimated annual cost as per the amended May 2006 Business Plan will be the annual gate fee charge of $35.00 per tonne (ex GST) commencing July 2007.
Increase the Secured Lending Facility for the RRRC Project
The Regional Council at its April 2006 meeting resolved as part of its draft 2006/07 budget to seek approval from the RRRC project participants to increase the SMRC’s Western Australian Treasury Corporation Secured Lending Facility limit for the RRRC Project from $47.5 million to $55 million. This takes into account the revised additional $3.5 million required to fund the capital expenditure program in the revised MRF Business Plan, as well as, the capital upgrade for addressing odour issues and consolidating accumulated past operational deficits.
The estimated loan liability to the 30 June 2007 for the RRRC project is divided up as follows:
RRRC Capital Expenditure Program to-date $37,260,000
RRRC Operating Deficits for 04/05 & 005/06 $ 4,248,136
RRRC Materials Recovery Facility $ 2,680,517
Sub – Total $44,188,653
Add proposed expenditure for 2006/07
RRRC Capital Expenditure Program $ 2,779,900
RRRC Materials Recovery Facility $ 7,836,483
Sub – Total $54,805,036
Less Loan Principal repayments in 2006/07 $ 2,309,364
Total (est to 30 June 2007) $52,495,672
The current approved loan limit is $47,500,000
Shortfall $ 4,995,672
It is proposed to increase the loan limit to $55 million. The increase in
the RRRC Lending Facility is represented by:
Current Lending Limit $47.5M
New RRRC Materials Recovery Facility
($10.5M less original cost of $7.0M) $ 3.5M
WCF Odour control ducting $ 2.8M
WCF operational deficit for 2005/06 $ 1.2M
Total $55.0M
The regional council has also reviewed its borrowing strategy relating to the RRRC project and the term of the loan and has recommended that project participants endorse its proposal of extending the term of the loan from 30 June 2021 to 30 June 2023. This is due to the initial delays in the commencement of the waste composting facility from the scheduled 2001 to the actual 2003 and the expected life of the facility being 20 years from that date. The borrowing structure would therefore ensure all loans for the project are fully repaid by 30 June 2023.
Comment
It is important to acknowledge that the item presented has been substantively prepared by the SMRC for consideration by Council. The City of Cockburn currently carries a contingent liability of 25.24% against the accumulated debt of the SMRC. The SMRC requires Councils authorisation to increase its borrowing capacity as each member Council will guarantee repayment of the funds in the event that the SMRC defaults.
The SMRC sought Councils consideration of the following recommendation:
That Council:
(1) approves the Regional Resource Recovery Centre Project revised detailed Materials Recovery Facility Build, Own and
Operate by the SMRC Business Plan dated May 2006;
(2) approve the incorporation of the Business Plan into the Regional Resource Recovery Centre Business Plan as adopted by the Regional Council on 30 July 1998;
(3) endorse the Southern Metropolitan Regional Council’s borrowing strategy for the RRRC project’s loan liability to be fully repaid by 30 June 2023;
(4) resolve to execute the Western Australian Treasury Corporation’s Letter Agreement to increase the Regional
Resource Recovery Centre Project Facility Limit to Fifty Five Million Dollars($55,000,000) and to be bound by its terms and conditions;
(5) authorise the Chief Executive Officer to execute the Western Australian Treasury Corporation’s Letter Agreement subject to the Chief Executive Officer being satisfied with its terms and conditions.
The business plan appears to lack some key detail (more specifically predictions of profit & loss and financial position) which needs to be included before officers would be comfortable recommending its acceptance. Its not apparent that adoption of the business plan is critical to authorising the borrowing strategy or the increase in the loan threshold from $47.5Million to $55 Million. On this basis it is recommended to delete items 1 & 2 from the recommendation above.
The proposal for the SMRC to build, own and operate a recycling plant at Canning Vale is recommended. The capacity of the current facility cannot cater for the recyclables generated by member Councils and planning for the new facility is well progressed. The business plan identifies an opportunity to return significant funds to the SMRC from the ongoing operation of the new MRF that can be used to offset gate fees, reduce debt or a combination of both. The alternative of using a private operator to own and operate the recycling plant has proved to be unsuccessful.
The SMRC currently own and operate the Waste Composting facility as well as the Green Waste Processing Facility. The Business Plan suggests that the Materials Recovery Facility (MRF) is financially viable. The community sees recycling as a very important issue and this proposal allows them to be in control of the way their material is to be processed and reused.
Strategic Plan/Policy Implications
The Corporate Strategic Plan Key Result Areas which apply to this item are:
• “To manage the City’s waste stream in an environmentally acceptable manner.”
Budget/Financial Implications
The Council’s estimated share of the $55M lending facility is based on population percentages (census figures each 5 years) over the term of the loan. The Council’s share at the commencement of the loan will be:
Participants
POP
2001 % Share Liability
City of Canning 73,727 28.02% $ 15,411,689
City of Cockburn 66,417 25.24% $ 13,883,627
Town Of East Fremantle 6,383 2.43% $ 1,334,285
City of Fremantle 25,199 9.58% $ 5,267,530
City of Melville 91,385 34.73% $ 19,102,869
Total 263,111 100.00% $ 55,000,000
The estimated annual loan repayments will be paid in the following manner.
Estimated Annual Loan Repayments
Project MRF
Participants Budget
Term of Loan 17 yrs 10 yrs
Loan maturity 30 June 2023 30 June 2017
Interest rate based on 6.09%
Outstanding Loans
$ 44,500,000 $ 4,651,737
$ 10,500,000 $1,404,560
$ 55,000,000
Participants % Share Repayments
City of Canning 28.02% $ 1,303,475
City of Cockburn 25.24% $ 1,174,236
Town Of East Fremantle 2.43% $ 112,850
City of Fremantle 9.58% $ 445,512
City of Melville 34.73% $ 1,615,664
Total 100.00% $ 4,651,737
The MRF annual loan repayments (capital + interest) will be paid from funds within the MRF Budget, (refer Financial model in the MRF Business Plan May 2006) thus there will be no nett increase to the City’s capital loan repayments as a result of the additional loan funds required for the MRF.
The graph below shows the Council’s share of the estimated outstanding loan liability at each year-year period following census adjustments until the loan is fully repaid in June 2023. (note: any surplus funds during the period may be used for loan debt reduction and therefore reduce Council’s share of the RRRC loan liability)
Cockburn’s Estimated Share of the RRRC
$55M Loan Liability
9,772,559
16,127,160
11,193,000
4,524,760
0 0
5000000
10000000
15000000
20000000
2005 2008 2013 2018 2023
Year Loan Liabiliblity Share
Legal Implications
A Council either local or regional can undertake any service that is considered beneficial to its community. There is currently no similar facility with the capacity to process the recyclables from the seven (7) members of the Regional Council.
Section 6.21(2) of the Local Government Act 1995 and Clause 24H (2)(c) of the Local Government (Functions and General) Amendment (No 2) 2005 apply in this instance.
Community Consultation
A previous version of The Materials Recovery Facility Business Plan prepared by the SMRC was advertised for public comment on Saturday, 2 April 2005 for a period of six (6) weeks closing on Monday 16 May 2005. This is the statutory business plan version that does not include confidential information associated with the operations and settlement details.
Attachment(s)
(1) SMRC Detailed Business Plan May 2006 Advice to Proponent(s)/Submissioners The Proponent(s) have been advised that this matter is to be considered at the 13 July 2006 Council Meeting. Implications of Section 3.18(3) Local Government Act, 1995
