City of Kwinana Minutes – SMRC RRRC WCF Odour Issue – 9 February 2011
16. Reports – Public Health:
16.1 SOUTHERN METROPOLITAN REGIONAL COUNCIL (SMRC) AMENDED BUSINESS PLANS & PROPORTIONAL ENTITLEMENT/LIABILITY REPORT 1 DECEMBER 2010 – PREPARED FOR THE WITHDRAWAL OF THE CITY OF CANNING EFFECTIVE 30 JUNE 2010
SUMMARY:
The Regional Council resolved to accept the amended business plans and proportional entitlements/liability report dated the 1 December 2010, prepared for the withdrawal of the City of Canning effective from the 30 June 2010. It now seeks our Council, as a continuing project participant for the Office Accommodation Project and the Regional Community Greenhouse Gases Project, to confirm its consent for the City of Canning to withdraw (retire) from loan obligations in the West Australian Treasury Corporation’s (WATC’s) $2 million secured lending facility, effective from the 30 June 2010.
OFFICER RECOMMENDATION:
That Council:
1. Acknowledges receipt of the amended business plans and proportional entitlement/liability report prepared for the withdrawal of the City of Canning, effective from the 30 June 2010 as provided by the Southern Metropolitan Regional Council (SMRC).
2. As a continuing Project Participant for the Office Accommodation Project and Regional Community Greenhouse Gases Project, confirms its consent of the City of Canning’s notice to withdraw from these projects effective from the 30 June 2010.
3. As a Project Participant in the Office Accommodation Project confirms its consent for the City of Canning to withdraw (retire) from loan obligations in WATC’s $2 million secured lending facility.
4. Advises the SMRC that it has considered and resolved, in relation to its correspondence to Council dated 10 January 2011, to satisfy its requirements in accordance with the Agreements following the notice of withdrawal of the City of Canning from the SMRC and its associated projects.
DISCUSSION:
The SMRC received notice from the City of Canning of its intention to withdraw from the SMRC and the Regional Resource Recovery Centre (RRRC) Project in March 2009, resulting in an effective withdrawal date of the 30 June 2010. Subsequently, the City of Canning advised the remaining project participants by letter dated 1 December 2009 that its intention to withdraw from the SMRC and the RRRC Project included the Greenhouse Gas Project and the Office Accommodation Project.
Clause 8.10 of the Establishment Agreement states that a project participant may, at anytime, give notice of its intention to withdraw from a project.
As a result of the notice of withdrawal of a project participant, and at the request by a project participant, the Regional Council is required to prepare a draft amended business plan for each project, which was presented to participants in June 2010.
The SMRC engaged Deloitte Touche Tohmatsu (Deloitte) to assist the SMRC with preparation of Financial Business Plans for each of its projects in relation to the proposed withdrawal of the City of Canning from the SMRC.
The Regional Council resolved at its special meeting on the 16 December 2010 to accept the amended Business Plans and proportional entitlement/liability report dated the 1 December 2010 prepared for the withdrawal of the City of Canning, effective from the 30 June 2010.
The Regional Council resolved at its meeting the following:
1. A copy of the report to be provided to the SMRC’s continuing participants and the City of Canning.
2. The continuing project participants of the Office Accommodation Project and Regional Community Greenhouse Gases Project confirm their consent of the City of Canning’s notice to withdraw from these projects be effective from the 30 June 2010.
3. The Office Accommodation Project participants confirm their consent for the City of Canning to withdraw (retire) from land obligations in the West Australian Treasury Corporation’s $2 million secured lending facility.
4. The City of Canning be advised the amount it owes the SMRC towards the amended business plan preparation.
5. The City of Canning be advised of its obligation to continue to pay the quarterly RRRC project loan contributions until the total borrowings as at the 30 June 2010 has been fully repaid or satisfied or by alternative arrangements, agreed by the continuing participants and the SMRC.
6. The City of Canning be advised of its obligation to pay ongoing contributions for the financial year 2010/11 and financial year 2011/12 pursuant to Clause 2.7(10) of the regional community Greenhouse Gases Project agreement.
The SMRC has now recommended that the Town of Kwinana consider and resolve points 1, 2 and 3 above and forward a copy of its resolution to the SMRC so that they can complete the withdrawal arrangements with the City of Canning.
The Deloitte report provides a summary of each Project amended Financial Business Plans and notional winding up notice which are provided below:
1. Executive Summary – Notional Winding Up.
Pursuant to the agreements, the SMRC with the assistance from Deloitte’s, prepared a notional winding up calculation and based on the assumption set out in the amended business plan reports, the proportional entitlement owing to the City of Canning is $2,698.00 effective as at the 30 June 2010.
The change since the draft prepared in June 2010 is a result of the final year end audited figures and adjustments.
Any assets that were paid by borrowings are not taken into account until the borrowings are fully repaid, i.e. – 30 June 2023. The valuation of the assets will be the depreciated value as at that date.
The following table summarises the net surplus attributed to the City of Canning based on proportional entitlements or liability for each project.
The RRRC amended financial business plan takes into consideration the forecast financial results commencing 2010/11 to 2022/23 (the life of the project). The first year estimates are based on the adopted budget for the 2010/11 with the MRF commencing full operations in January 2012. This commencement date impacts on the Town of Kwinana’s current contract for the processing of recyclable material and needs to be taken into consideration in relation of budgeting.
In relation to the borrowings prior to the 30 June 2010, the City of Canning shall continue to pay the SMRC the annual contribution for that borrowing until the borrowing has been repaid or satisfied (Clause 2.9(4) RRRC Project Participants Agreement).
The borrowing liability for the RRRC Project as at the 30 June 2010 was $51.3 million.
The City of Canning’s percentage liability as at the 30 June 2010 was $14 million.
2. Office Accommodation Project
The Office Accommodation Project has a direct impact on the Town of Kwinana as a continuing project participant and member of the SMRC.
The amended financial business plan includes an operational budget for the project. It shows there is no significant financial impact on remaining members following the withdrawal of the City of Canning. This is due to the estimated revenue from leasing the rear warehouse space since December 2009. The revenue matches the City of Canning’s contribution.
The City of Canning’s equity entitlement has been reduced by its share of the loan liability as at the 30 June 2010. The City of Canning is therefore no longer responsible for the contribution towards the borrowing. The loan liability remains at $1.8 million.
The building located at 9 Aldous Place Booragoon is an investment with capital growth and has an income generation for space it does not require. Capital growth is estimated by Deloittes at 5% per annum.
3. Regional Community Greenhouse Gases Project
This Regional Community Greenhouse Gases project directly affects the Town of Kwinana as a continuing project participant and as member of the SMRC.
The project agreement requires a withdrawing participant to continue to make contributions towards any contracts entered into at the time of the notice to withdraw. These relate to fixed employment and vehicle contracts for the duration of the project as at the 30 June 2012.
On this basis, the City of Canning is required to make annual contributions of approximately $21,000 over the next two years.
There are no assets or borrowings for this project.
4. Existing Undertakings
The SMRC establishment agreement defines existing undertakings as activities carried out immediately before the Minister’s approval of the Establishment Agreement – i.e.:
a) Research and education associated with the waste management;
b) The administrative functions related to any purpose other than the project.
The 2010/11 budget took into account the operational contributions required from the remaining project participants due to the withdrawal of the City of Canning. The current expenditure was reduced with contributions increasing by 6%.
Any assets that were paid by borrowings are not taken into account until the borrowings are fully repaid, viz – 30 June 2023. The valuation of the assets will be the depreciated value as at that date.
5. Notice of Withdrawal for the Office Accommodation and Greenhouse Gas Projects
The City of Canning’s notice of its intention to withdraw from SMRC and RRRC project in March 2009 resulted in an effective withdrawal date 30 June 2010. Subsequently, the City of Canning advised the project participants by letter dated 1 December 2009 that its intention to withdraw from the SMRC and RRRC project included the Regional Community Greenhouse Gas Project and Office Accommodation Project.
It is therefore a procedural requirement in accordance with the Establishment Agreement that the continuing project participants consent to the effect of the notice given as at the 30 June 2010 in accordance with Clause 8.11(b) of the Establishment Agreement.
6. Office Accommodation Project – WATC Lending Facility
In accordance with the West Australian Treasury Corporation (WATC) Agreement, participants retiring from their obligations to pay debt must receive consent from the continuing participants. It is recommended that participants consider resolving its consent as part of the withdrawal process.
It is recommended to the Town of Kwinana that it acknowledges receipt of the amended business plans and proportional entitlement/liability report prepared for the withdrawal of the City of Canning effective from the 30 June 2010.
Further, it is recommended that Council confirms its consent that the City of Canning’s notice to withdraw from these projects be effective from 30 June 2010.
Finally, that as an Office Accommodation Project participant, Council confirms its consent for the City of Canning to withdraw (retire) from loan obligations in the West Australian Treasury Corporation’s (WATC) $2 million dollar secured lending facility.
LEGAL/POLICY IMPLICATIONS
The Town of Kwinana, as a member of the SMRC and project participant in the Office Accommodation Project and the Regional Community Greenhouse Gases Project, have obligations and responsibilities which need to be dealt with to resolve this matter of the withdrawal of the City of Canning in accordance with the Establishment Agreement and other legal obligations.
FINANCIAL IMPLICATIONS
The Town of Kwinana has no involvement in the RRRC project and will not be directly impacted upon by the City of Canning’s withdrawal from this project. The current business plan programs, such as education and research and development, have been adjusted to reduce costs and to prevent any increase in governance.
The Office Accommodation Project amended business plan indicates that the Office Project comprises predominantly fixed cost, which the SMRC has assumed cannot be significantly reduced following the withdrawal of a project participant and accordingly, on the withdrawal of a project participant, the proportion of costs payable by the remaining project participants will increase.
The financial model indicates that the Town of Kwinana contribution will increase from 6.5% or $9,008 in the financial year 2010/11 to 8.4% or $10,543 in the financial year 2011/12.
The above proportional contributions are recharged through the existing undertakings, RRRC Project and the Greenhouse Gases Project and are not an additional contribution payable by remaining members.
Following the withdrawal of the City of Canning (post 30 June 2010) the changing contingent liability between financial year 2010/11 and financial 2011/12 for the project participants (percentage and dollar changes) is provided and shows the Town of Kwinana contribution in financial year 2010/11 at 6.5% or $117,730 increasing to 8.4% or $150,655 in financial 2011/12 making it net impact of $32,925. This cost will be offset by a two year lease of the storage facility at the rear of the office. If the facility is not leased after two years then Council’s contribution will increase to cover the net impact to Council.
Based on the notional winding up assumptions and the City of Canning’s proportional entitlement to surplus funds in the office project upon withdrawal is $70,328. This amount will be payable by SMRC to the City of Canning upon winding up effective from 30 June 2010.
The Regional Community Greenhouse Gases Project amended business plan shows that the Regional Community Greenhouse Gas Project comprises predominantly fixed costs (employment costs), which the SMRC has assumed cannot be reduced following the withdrawal of a project participant. Accordingly, on the withdrawal of a project participant, the proportion of costs payable by the remaining participants will increase. The Town of Kwinana’s contribution for the financial year 2010/11 is 8.5% or $13,991 and will increase in financial year 2011/12 to 11.6% or $19,502 and in the final year 2012/13 will increase to 11.9% or $22,745.
Based on the assumptions in the report the City of Canning’s proportional liability for the Regional Community Greenhouse Gas Project is calculated to be $7,112 and payable to the SMRC following their withdrawal from the project effective from the 30 June 2010.
ASSET MANAGEMENT IMPLICATIONS
Council, as a project participant in the Office Accommodation Project, will receive capital growth estimated to be 5% per annum and the asset will be managed by the SMRC as part of its operational responsibilities.
ENVIRONMENTAL IMPLICATIONS
The withdrawal of the City of Canning increases the responsibilities to Council under the Greenhouse Gas Project and proportionally Council will be entitled to further work to be undertaken within the Town of Kwinana based on the increased percentage of input to the project.
STRATEGIC/SOCIAL IMPLICATIONS
The withdrawal of the City of Canning from the SMRC places strategic and social implications on all member Councils due to the significant input of waste to the RRRC Project and their contributions to the Regional Community Greenhouse Gas Project and Office Accommodation Project. With the MRF being reconstructed and recommencement of operations effective from January 2012 there will be additional capacity available at both the MRF and the waste processing facility as part of the RRRC Project. New Council partners and business customers are required to support the SMRC and to fulfil the loss of waste and recovery of resources to make these projects more viable to reduce the impact on member Councils.
The SMRC has taken into account the withdrawal of the City of Canning in the MRF business plan and has advised that the gate fee/processing costs should remain the same as Council is currently paying Perth Engineering. This cost takes into account market prices and that both the City of Rockingham and the Town of Kwinana will recommence disposing of recyclables at the SMRC MRF as SMRC members – non project participants. This matter has not been finally determined as yet and until current negotiations with other parties are finalised, it is difficult to accurately predict what the immediate impact will be.
With the withdrawal of the City of Canning, the SMRC and member Councils have suffered some loss of customer confidence including some loss of creditability of performance and governance. These branding images and loyalty issues are related to the social impacts and need to be rebuilt to a higher level with careful marketing, good governance and improved business management and performance.
RISK IMPLICATIONS
The withdrawal of the City of Canning has increased the level of financial risk and increases the potential of higher operating costs which flow back to member Councils and commercial customers, if additional waste and recycling resources cannot be attracted to the RRRC to be processed and on-sold into the market place.
The social and political implications of a significant Local Government withdrawing from the operations, even though it is countenance within the Establishment Agreement, does cause a great deal of uneasiness to all member Councils and their communities. This raises the risk of the loss of community confidence in large scale high capital infrastructure projects. Much will need to be done by the SMRC to reduce this risk.
COUNCIL DECISION
MOVED CR LEE
SECONDED CR S WOOD
That Council:
1. Acknowledges receipt of the amended business plans and proportional entitlement/liability report prepared for the withdrawal of the City of Canning, effective from the 30 June 2010 as provided by the Southern Metropolitan Regional Council (SMRC).
2. As a continuing Project Participant for the Office Accommodation Project and Regional Community Greenhouse Gases Project, confirms its consent of the City of Canning’s notice to withdraw from these projects effective from the 30 June 2010.
3. As a Project Participant in the Office Accommodation Project confirms its consent for the City of Canning to withdraw (retire) from loan obligations in WATC’s $2 million secured lending facility.
4. Advises the SMRC that it has considered and resolved, in relation to its correspondence to Council dated 10 January 2011, to satisfy its requirements in accordance with the Agreements following the notice of withdrawal of the City of Canning from the SMRC and its associated projects.
CARRIED
7/0
