TREASURY AND RESOURCES MINISTER
Energy from Waste Facility – Budget Transfers and Jersey Electricity Company Contract Award
- Purpose of Report
- The Minister is asked to:
- agree to be party to the agreement with the Jersey Electricity Company (JEC) in respect of service provision in relation to the operation of the proposed Energy from Waste Facility project, and
- approve the release of funds estimated at £5.701 million from the Capital Risk Reserve to support the movement in the project budget. The final sum required will depend on the Euro exchange rate prevailing at the time of conversion and the Minister is, therefore, asked to delegate to the Treasurer of the States approval to determine the actual sum required once the exchange rate position has been finalised and effect the budget transfer.
- Background
- The background to the project and the movement in the funding position is set out in the report of the Transport and Technical Services Department attached as Appendix A to this report.
- Comments
JEC Agreement
- The Energy from Waste Facility project incorporates an agreement with the JEC to generate electricity from the by product of the incineration process.
- This arrangement involves the creation of certain rights and wayleaves over land for which Property Holdings is the body responsible for representing the States’ interest.
- For the avoidance of doubt, should any claims or subsequent issues arise from the Energy from Waste Facility project works, and following the advice of the project legal advisers (Eversheds), it has been determined that the Minister is required to be party to the JEC agreement.
Funding Issues
- The States approved the transfer of funds of £7 million to support the Capital Risk Reserve when approving the States Annual Business Plan (P113/2008) in September 2008.
- The funds will not need to be drawn down before 2009 as the project has sufficient funds to meet obligations flowing from the contract in 2008. It is, however, essential that these funds are clearly earmarked within the Capital Risk Reserve in order that the Transport and Technical Services Department can enter into the necessary contracts.
- As a significant element of the project budget is priced in Euros, the outturn budget (in sterling) is not certain. The Treasury has sought advice as to the most cost effective way of providing certainty and concludes that this is best achieved through the opening of a Euro bank account into which the necessary funds will be deposited.
- The cost of operating the Euro account, being principally the differential between interest achievable from it compared with other States cash investments, is estimated at £440,000 across the project life. This cost has been included in the revised project budget.
- The project budget was based on an exchange rate of €1.2729 to the Pound at Preferred Bid submission. The rate is moving with unprecedented volatility and a revised budget position was produced based on the (then) prevailing rate of €1.2256 to the pound. This has had an adverse impact of some £2.2 million on the project budget. The final impact of exchange rate movements will not be known until funds are transferred to a Euro account and timing of the transfer will depend on the prevailing rate.
- The first payments under the contract are due in December 2008 and a decision on fixing arrangements will need to be taken speedily following signing of the EPC contract and JEC agreement. Treasury will consult with its cash management advisers to determine the appropriate course of action.
- Recommendations
- That the Minister agrees to be party to the Jersey Electricity Company (JEC) Agreement for in respect of the provision of essential services in relation to the Energy from Waste facility
- That the Minister approve the transfer of funds estimated at £5.701 million from the Capital Risk Reserve to the Project Budget and that delegated authority be given to the Treasurer of the States to approve the actual sum required, once the exchange rate position has been finalised, and effect the budget transfer.
- Reason for Decision
- These approvals are required in order to progress the Energy from Waste Facility project in accordance with the States approval of P72/2008.
Property Holdings
13 November, 2008 for Meeting 14/11/2008
APPENDIX A
TRANSPORT AND TECHNICAL SERVICES
LA COLLETTE ENERGY FROM WASTE FACILITY
ENGINEERING PROCUREMENT AND CONSTRUCTION (EPC) CONTRACT
AND
JERSEY ELECTRICITY COMPANY (JEC) AGREEMENT
Purpose of the Report
This report seeks the Minister’s approval of the La Collette Energy from Waste Facility Engineering Procurement and Construction (EPC) Contracts and the Jersey Electricity Company (JEC) Agreement for essential related services. The report also seeks approval of the revised Energy from Waste Facility Project Budget and delegated authority to the Chief Officer and Director of Finance to make payments within the Project Budget.
Background
The Energy from Waste Project arose as a result of the approval of the States approval of P95/2005 “Solid Waste Strategy”, which required the Department to propose a preferred solution for dealing with the Island’s residual non-inert waste and P45/2006 “Energy from Waste Facility Location” which identified La Collette Reclamation Site as the preferred location for the proposed facility.
On 26 October 2007, Outline Planning Consent was granted for the proposed facility and a tender was issued to four short-listed companies for an Engineering Design and Procurement (EPC) Contract on 1 November 2007.
Three tenders were received and, following a robust tender assessment process, the bid from the consortium CNIM / Spie Batignolees / Camerons, (the CNIM consortium), was identified to have scored highest in technical, legal and financial evaluation. Their bid also had the lowest initial capital outlay and has a lower operational cost to the Island. The CNIM consortium was therefore appointed “Preferred Bidder” by Ministerial Decision on 19 May 2008.
The States approved P72/2008 “Energy from Waste Facility: Establishment and Acceptance of Tender” on 9 July 2008, which adopted the preferred solution proposed by the Department with the project budget indicated in Table 1 below.
Subsequently, the States also approved P73/2008 which permitted the withdrawal of an additional £102.810 from the consolidated fund to fund the provision of the preferred solution, in addition to £3.5 million which had been allocated for the project in 2008 - giving a total of £106.310 Million.
Discussion
Developments since Approval of P72/2008
Since approval of P72/2008, negotiations have progressed with the Preferred Bidder - the CNIM Consortium - and the Jersey Electricity Company - who will provide access to their chimney, cooling water system and other auxiliary services as well as buying the electricity generated by the facility.
Negotiations have proceeded to the point that it is proposed that the EPC contract with CSBC (Jersey) Limited - a Special Purpose Vehicle set up to deliver the contract - and the JEC Agreement can both be entered into on 14 November 2008.
The requisite legal, financial and technical checks have been conducted on the consortium companies and the Department’s legal, technical and insurance advisers have provided confirmations that the project is consistent and is aligned with the Client’s requirements.
Cost Variations
The approved budget for the EPC Contract defined within P73/2008 was £93.354 Million. Cost changes for the total project since approval of P73/2008 are summarised below.
Table 1 – Comparison of approved Project Budget with Proposed Project Budget
Element | P73/2008 Approved Budget £ Million | Proposed Budget £ Million | Difference £ Million |
EPC Contract | | | |
Tendered Price | £ 92.26 | £ 92.26 | - |
Scope Adjustments | £ 1.09 | -£ 0.33 | -£ 1.42 |
EPC Total Cost1 |
£ 93.35 |
£91.93 |
-£ 1.42 |
Additional architectural requirements | - | £ 4.09 | £ 4.09 |
EPC Total Cost with architectural requirements 1 |
£ 93.35 |
£ 96.02 |
£ 2.67 |
Euro Exchange Rate Items | | | |
Movement in exchange rate since tender | - | £ 2.20 | £ 2.20 |
Cost to fix exchange rate over contract period | - | £ 0.44 | £ 0.44 |
EPC Total Cost including currency | £93.35 | £ 98.66 |
£ 5.31 |
Other Works | | | |
Enabling Works | £ 3.63 | £ 3.63 | - |
JEC Agreement | £ 0.40 | £ 0.53 | £ 0.13 |
Decommissioning | £ 2.08 | £ 2.08 | - |
Project Management | £ 6.85 | £ 7.11 | £ 0.26 |
Total Project Cost |
£ 106.31 |
£ 112.01 |
£ 5.70 |
1 These costs are shown on the basis of a Euro rate of 1.2729 for comparative purposes.
The significant cost changes within the proposed EPC Contract are:
- revised architectural design elements costing £4.09 Million, which have been imposed as a result of the position, set out during the States debate of P72-2008 on 8 July 2008, that the Minister for Planning and Environment would require high quality materials and standards of finish. These additional costs are a result of refinements to the Hopkins Architects Limited design that achieved Outline Planning Consent and that have been subsequently required by that company. The refined design has subsequently received Reserved Matters approval. These cost changes have been subject to challenge from the Department’s appointed architect and their Quantity Surveyor.
- Scope adjustments and value engineering savings have been made to the process equipment, specification and contract to maintain sufficient levels of surety but to partially offset the additional Architectural Design Requirements, saving a total of £1.42 Million.
- the cost of changes in the value of the Euro element of the contract from a rate of €1.2729 to the Pound at Preferred Bid submission to the current exchange rate of €1.2256 has had an impact in excess of £2.2 Million. The final impact of exchange rate movements will not be known until funds are transferred to a Euro account, and
- the lost investment income to the States from using part of its investment portfolio to fix at the outset of the contract the Euro element of the contract works that are to be carried out by CNIM and Spie Batignolles within the consortium arrangements, which is anticipated to cost approximately £440,000.
The cost of fixing the Euro element of the contract has been considered by the Funding Working Group, which was established to identify the funding for the Project, and comprised officers from Treasury and Resources and TTSD. Four options were considered, and the preferred option, when balancing cost against risk, is to deposit the relevant Euro sum in a Euro account and make payments when due under the contract.
The value engineering within the EPC Contract has modified the scope of supply of some elements of the process plant and rationalised the JEC / EPC interface. Scope adjustments include an increase from the £10 million Professional Indemnity insurance sum provided in the bid to the £20 million originally requested in the tender and the cost of an Advanced Payment Bond to ensure that the amount of payment outlay to the Contractor does not exceed the value of the Performance Bond plus the value of works carried out.
The additional costs of the JEC Agreement since the approval of P73/2008 are estimated at £132,600. This includes utilising an alternative high voltage electrical supply, revised cost for the cooling water connection, earthing arrangements and of obtaining shareholder approval for the agreement.
The additional cost of retaining a reputed architect (Hopkins Architects Limited) and landscape architect (Townshend Landscape Architects) as required by the Reserved Matters planning conditions are estimated at an additional £260,000. No cost changes to the enabling works or demolition costs are anticipated.
The cost difference between the approved budget of £106.31 Million and the proposed contract cost of £112.01 Million can be met within the capital project risk reserve for the Project maintained by the Treasury and Resources Department.
The required minimum project contingency for the contract of 5% of contract value can be met from remaining contingencies, supported, if required, from the re-allocation of Highways Infrastructure capital budgets held by Transport and Technical Services and/or from further scope adjustments if necessary
The milestone payments within the EPC Contract are beyond the normal approval limits set within the delegated approval for the Department and so delegated authority is sought for the Chief Officer and Director of Finance to be able to authorise these payments. Approval is also sought to formally confirm that the Chief Officer can approve payments under the JEC Agreement and authorise the remaining enabling works, project management activities and decommissioning works identified within the Project Budget.
Recommendation
The Minister for Transport & Technical Services is requested to:
(i) approve the award of the Engineering Procurement and Construction Contract for the La Collette Energy from Waste facility to CSBC (Jersey) Limited
(ii) approve the Jersey Electricity Company (JEC) Agreement with that company for essential related services
(iii) approve the revised Energy from Waste Project Budget outlined in Table 1 above and request the Minister for Treasury and Resources to approve the transfer funds estimated at £5.701 million from the Capital Risk Reserve to the Project Budget held by TTSD. The actual sum to be determined once the exchange rate position has been finalised.
(iv) delegate authority to the Chief Officer for Transport and Technical Services and the Director of Finance for the approval of milestone payments under the EPC Contract, for payments under the JEC Agreement, and procurement of remaining enabling works, project management and decommissioning works identified within the approved Project Budget.
Reason(s) for Decision
To enable a replacement for the Bellozanne Energy from Waste Facility to be procured.
Action Required
That the Minister for Transport and Technical Services agree to:
(i) sign and seal the EPC Contract and JEC Agreement at a ceremony on 14 November 2008.
Written by: | Will Gardiner |
| |
Approved by: | John Richardson |
Supporting Documents (not attached - Exempt – 3.2 (a) (xi) and (xii)):
1. Energy from Waste Project - Engineering Procurement and Construction Contract
2. Energy from Waste Project - Jersey Electricity Company Agreement
3. Energy from Waste Project - Briefing Note on Contract Award for the Chief Minister and Treasury Notice
File Ref: 39/8/11
Date: 12 November 2008
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