The Waste Credit Governance Committee was scheduled to consider a technical update on reporting requirements for the Energy from Waste (EFW) plant, review the council's risk register in relation to its loan to Mercia Waste Management, and discuss the committee's future work plan.

Technical Update - Energy from Waste Plant Reporting Requirements

The committee was scheduled to receive an update on the reporting requirements for the Energy from Waste (EFW) plant, specifically concerning the information that the borrower, Mercia Waste Management (MWM), was required to regularly produce. This included reports on the Historic Annual Debt Service Cover Ratio (HADSCR), Projected Annual Debt Service Cover Ratio (PADSCR), and Loan Life Cover Ratio (LLCR). The report was also scheduled to provide an update on the agreed contract extension with MWM.

The report pack indicated that Worcestershire County Council and Herefordshire District Council entered into a joint waste PFI contract in 1998. In 2014, they provided a loan of £163.50m for the construction of an EFW project in Hartlebury. Facility A of this loan has been repaid, and Facility B's repayment was scheduled to be extended to January 2029, with a final bullet payment due. As is standard with such agreements, the borrower was required to report periodically on their compliance with certain requirements, including financial ratios, which serve as a monitoring mechanism to identify potential project distress or default.

The report pack noted that MWM's annual maintenance outage had been successfully completed, with no events since the last committee meeting that could impact their ability to repay the loan. An assurance statement from MWM was also included, confirming their continued satisfactory financial performance and capacity to meet loan repayments.

Risk Register

The Waste Credit Governance Committee was scheduled to consider the risks associated with the funding provided by the Council to Mercia Waste Management. The report pack detailed a risk register that outlined unmitigated and mitigated risks. Three remaining risks were identified as having been substantially mitigated and were categorised as 'green'. The committee was to consider whether any matters should be reported to the full Council.

The risk register highlighted several key risks:

• Weakening of Mercia Waste Management parent company guarantee: This risk arose due to the acquisition of Urbaser's UK business by FCC Servicios Medio Ambiente. Legal advice had been procured to ensure existing protections remained robust, and an independent review by KPMG confirmed FCC Servicios' financial standing.
• Default of loan repayments by borrower: This risk related to Mercia or HZI falling into administration. The council's exposure had been calculated and included in reserve sufficiency assessments. Press articles were monitored for indications of financial strength issues.
• Impact of contract extension on loan repayment: An analysis by KPMG was scheduled to be conducted to assess MWM's ability to repay the loan on the basis of the extended contract period. KPMG was to provide assurance that the revised ratios should not affect the company's repayment capability.
• Loan principal and/or interest repayments below agreed values: The council's treasury team maintains a spreadsheet to track drawdowns and expected future payments, reconciling this with Mercia's repayment schedule and actual receipts. An assurance statement from MWM was also to be provided.

The report pack included a repayment analysis for the Mercia Waste Loan Facility, detailing contracted and actual repayments for both Facility A and Facility B. It was noted that the ownership of the EFW Waste Plant was scheduled to be transferred to the Councils on 11 January 2029, negating the principal repayment obligation for Facility B at that point.

Work Plan

The committee was scheduled to review and comment on an updated work plan for the Waste Credit Governance Committee for the 2026/2027 period. The plan outlined planned activities such as budget information, the STLFA assurance statement, ratio analysis updates, and risk register updates, with scheduled review dates throughout the year.