WIDP GUIDANCE BRIEFING ACCOUNTING TREATMENT ASSESSMENT FOR NATIONAL ACCOUNTS PURPOSES

Transcription

1 WIDP GUIDANCE BRIEFING ACCOUNTING TREATMENT ASSESSMENT FOR NATIONAL ACCOUNTS PURPOSES Introduction This note has been prepared by the WIDP Commercial team to outline WIDP s requirements in relation to the accounting treatment assessment of the waste projects in the programme for National Accounts purposes. This note is currently subject to review by DEFRA Finance Background On the 2 nd September 2009, HM Treasury published the paper Technical Guidance on the Application of the Standards used in the production of National Accounts to PFI and Similar Transactions ( the Guidance ). The paper describes for simple cases, the tests that should be applied by Central Government Departments in determining whether or not their PFI projects will have to come on balance sheet for National Accounts purposes. Further details on the background to this issue can be found in the guidance at The Risk Transfer Tests For National Accounts and Budgeting purposes, risk tests similar to the UK GAAP Treasury Task Force Technical Note 1 ( TTF TN1 ) are applied. Consequently, the Guidance highlights that the determination should focus on the following three main categories of risk: - Construction risk - Demand risk; and - Availability risk. If the public sector carries the construction risk, then the assets are viewed as being on the public sector balance sheet for the purposes of the National Accounts. Where the private sector holds construction risk, and one of demand or availability risk is transferred to the private sector, then the assets are not considered to be on the public sector balance sheet for National Accounts purposes. The guidance also clarifies that, as is consistent with UK GAAP TTF TN1, risks associated with ancillary services to the asset should not be considered. That is services which can commercially be separated from the provision of the underlying asset, should be excluded from the analysis.

2 WIDP Requirements As outlined in the WIDP FBC Template (V1.3), Authorities should note that projects that score as central government debt under the Guidance (ie are accounted for as on balance sheet for budgetary and National Accounts purposes), are very unlikely to be approved by WIDP at the FBC stage. It is therefore vital that the accounting treatment of a project for budgetary and National Accounts purposes is monitored throughout the procurement process. As this issue relates primarily to Central Government Budgeting and the National Accounts, it is the intention of WIDP to undertake its own assessment for each project. The WIDP assessment will be performed at the following stages; 1. OBC Submission stage ( Initial view) - for projects approved post 1 st April 2009; 2. Call for Final Tenders - ( Provisional View ) - for all bidders remaining in the procurement. This will be conducted as part of the engagement with the WIDP Commercial Team; 3. At pre-preferred Bidder stage ( Updated Provisional View ) - as part of the WIDP approval of the Preferred Bidder appointment; and 4. Financial Close ( Final View ) Consequently, Authorities are not required to produce the assessment of the accounting treatment, however in order to enable WIDP to undertake its assessment, each Authority will be required to provide details of the relevant information surrounding the risks detailed in the Guidance. The precise nature of the information requirements will have to be agreed with WIDP on a project-by-project basis. Authorities are therefore asked to raise this issue with their WIDP Transactor (prior to engagement with the Commercial Team which precedes the close of dialogue). To facilitate this process, a questionnaire will be issued to Authorities, at the assessment stages and this will form the starting point in the information gathering process. A template for the questionnaire is enclosed. For any queries regarding the above please contact Amar Qureshi.

3 WIDP Accounting Assessment for Budgetary and National Accounts Information Requirements Introduction The following questionnaire details the information requirements for WIDP, to enable its assessment of the accounting treatment of the project for Budgetary and National Accounts purposes. The following requirements supplement the information to be reviewed as part of the WIDP Commercial Team review and is not meant to be exhaustive. The questionnaire is the starting point for the WIDP assessment and WIDP reserve the right to request additional information as required. Construction risk 1. Please provide details of all of the facilities to be provided under the PFI Contract? South Kirkby Main Site MBT facility (Residual Waste Reception Hall, Pre and post autoclave sorting systems, Autoclave, Anaerobic Digestion plant, CHP plant) Materials Recovery Facility Enclosed Windrow Composting Plant Education Centre/Office Block Household Waste Recycling Centre RCV Facility (Council Collection Depot) Denby Dale Road Site New Transfer Loading Station New Household Waste Recycling Centre Glasshoughton Site New Household Waste Recycling Centre Welbeck Site Refurbished Household Waste Recycling Centre Calder Vale Road Site Temporary Transfer Loading Station Temporary Household Waste Recycling Centre 2. (a) Please provide details of any assets (excluding land) which are contributed to the PFI Contract Existing Household Waste Recycling Centres and/or transfer stations at the following sites, including existing skips. Owl Lane, Ossett

4 Denby Dale Road, Wakefield Welbeck, Normanton Cinder Lane, Castleford Old Great North Road, Ferrybridge Hemsworth Lane, Fitzwilliam Manface Quarry, South Kirkby Each of the above sites have temporary accommodation and welfare facilities. (b) Where assets are contributed to the PFI Contract if so which party bears the risk of latent defects? Contractor 3. Please provide details of any penalties imposed on the contractor (ie liquidated damages), for late delivery of the facilities which form part of the PFI contract? Project includes interim service for all waste streams (not just provision of residual treatment facility) and thus has performance targets based on planned programme. Where facilities are delayed PFI Contractor will be liable for losses resulting from underperformance on landfill diversion (MSW), BMW landfilled, Household Waste Recycling target and Household Waste Recycling Centre target. - Landfill Diversion (MSW) Losses linked to additional gatefee and tax - BMW landfilled Losses capped at - Household Waste Recycling targets Deductions at - Household Waste Recycling Centre targets Deductions at 4. Please confirm that the Authority will not be liable for any construction cost overruns (other than those caused by the Authority) on any of the facilities which form part of the PFI Contract? Confirmed the PFI Contractor is liable for all costs associated with construction overruns unless as a result of failures by the Council. 5. Please provide details of any exposure of the Authority to other construction risks such as covering environmental factors etc? The Council is exposed to contamination risks from existing Council sites prior to take over of sites by the PFI Contractor and for contamination of sites from third party sites which is not preventable by the PFI Contractor. Council is also exposed to ground condition risks outside the scope of the surveys

5 undertaken to assess ground condition risk. Both above risks are mitigated by the PFI Contractor taking first cost risk. Surveys have already identified issues which have been priced into the financial model so risk relates to addition issues not identified in surveys carried out to date. Availability risk 6. Please confirm that the contractor will take the risks (both pricing and volume) associated with the provision of lifecycle and maintenance of the facilities? Confirmed 7. Please provide details of all caps on deductions for non-availability and poor performance as proposed by the bidders? BMW BMW Deduction Cap = Performance Deductions max 3 month grace period following individual service commencement dates Deductions (Mileage Deductions, Recycling Deductions and Performance Deductions) capped at pa in Initial Services and in Full Services 8. Where Caps on deductions have been proposed, please provide details of the significance of the maximum potential capped deduction (for each bidder) compared to the overall value of the contract? 2014/15 Tonnage Payment is in real terms Demand risk 9. To identify whether there is a significant potential sharing of demand risk, please provide a summary analysis of the cash flows that are full recovered by the PFI contractor at the Minimum Guaranteed Tonnage levels? Current Banding Payments in Full Service: Band 1 ( ) = Band 2 ( ) = Band 3 ( ) = Forecast Waste from Day 1 is at the end of the project rising to [NOTE IT IS NOT ANTICPATED THAT THERE WILL BE A SIGNIFICANT SHARING OF DEMAND RISK. HOWEVER IF BASED ON THE RESPONSE TO THE ABOVE QUESTION, IT BECOMES APPARENT THAT THERE IS - FURTHER INFORMATION WILL BE REQUIRED]

6 Residual Value risk 10. Please provide details of the arrangements for the assets on expiry of the PFI Contract and specifically as to which party the will revert to? The initial services assets will return to the Council following provision of the new replacement facilities approx two years from initial services commencement. Welbeck HWRC will return to the Council in 2018 following termination of the planning permission for the overall site subject to no extension of overall planning permission. New facilities at South Kirkby, Glasshoughton and Denby Dale Road will revert to the Council on termination (either full term or early termination) with a minimum of two years residual life. 11. If applicable please provide details of any options (on expiry) retained by the Authority, in relation to acquiring any of the assets provided under the PFI Contract? N/A Funding 12. Please provide details of the value of any proposed upfront capital contributions to be made by the Authority? Currently programmed to provide 5m capital contribution on completion and commissioning of key facilities. This is based on construction costs. 13. If applicable, please provide details surrounding the arrangements for making the capital contributions (including timing etc) and also provide details of any specific assets to which they may relate? Contributions made primarily to additional facilities at South Kirkby not part of original proposals. The capital contribution is payable at.