5 The Greater Manchester Waste Authority is the largest waste authority in England, covering 5 per cent of national waste. The 25 year recycling and waste management project includes 36 recycling facilities, across 23 sites, and a waste-fred thermal power station. The project will reduce local waste diverted to landfill by 75 per cent.
6 In addition to £184 million from the European Investment Bank, the banks supporting the project set market pricing for £280 million of lending, leaving a gap of £120 million. The Infrastructure Finance Unit provided this balance on the same terms as the banks.
7 It is difficult to benchmark this pricing, in order to be satisfied that lenders did not behave in an opportunistic manner. Unlike a schools project, primarily providing lower risk accommodation, waste projects involve complex industrial processes which rely on the financial and technical ability of companies to perform inter-related contracts. These higher risks result in higher margins and the most similar deal, which had closed in 2008, had a provisional margin of 2 per cent that was increased to 2.75 per cent in January 2009 at the launch of syndication. Subsequently, at least one bank told Bank of Ireland that it could not expect an approval from its credit committee unless the margin was set at more than 3 per cent.
8 Greater Manchester Waste closed with margins on the following sliding scale:
Construction | 3.25% |
Completion to Year 9 | 3.35% |
Years 9 to 15 | 3.70% |
Years 15 to 21 | 3.95% |
Years 21+ | 4.50% |
9 The amount of department credit support accorded to this project, as a result of the banking crisis, was increased from £109.5 million to £124.5 million. In January 2007, the second stage review by Partnerships UK commented "It is also apparent from the bids received, that the Authority's original cost assumptions were excessively conservative, hence the considerable affordability headroom".
Additional Appendices Four and Five are at www.nao.org.uk/infrastructure-financing-2010.