Zero Waste Study Tour LONDON 31 AUGUST 2018 CAMERON SMITH PARTNER, ASHURST LLP Contents 1. Introduction to Ashurst 2. Working with Cory Environmental 3. Typical PPP and merchant waste project structures 4. Differences between PPP deals and “merchant” EfW deals 5. Riverside EfW contractual and commercial structure 6. Making EfW projects “bankable” 7. Public Sector concerns: bringing a project “to market” 8. Questions? 2 1. Introduction to Ashurst GLOBAL REACH Glasgow Brussels London Frankfurt Paris Munich Milan Beijing New York Madrid Washington DC New Delhi Tokyo Shanghai Abu Dhabi Hong Kong Jeddah Dubai Mumbai Singapore Ashurst offices Jakarta Port Moresby Indian Law Partners (Best Friend Firm with Ashurst) Oentoeng Suria & Partners Brisbane Perth (Associated Office with Ashurst) Sydney Canberra Melbourne Faisal Adnan Baassiri Law Firm In Association with Ashurst LLP ADTLaw LLC (Singapore Formal Law Alliance) 3 ASHURST’S PPP AND WASTE EXPERIENCE - AWARDS Best Energy from Waste Initiative (Barnsley, Legal Adviser of the Year - Renewables Doncaster and Rotherham PFI) IJ AWARDS 2014 NATIONAL RECYCLING AWARDS 2016 Europe and Africa Law Firm of the Year Best Renewables Law Firm of the Year IJ GLOBAL AWARDS 2014 TOPLEGAL AWARDS 2016 Europe Refinancing Deal of the Year (Castor) Projects, Energy and Natural Resources: Firm PROJECT FINANCE MAGAZINE DEAL OF THE of the Year YEAR AWARDS 2013 LEGAL 500 AWARDS 2015 Europe Onshore Wind Deal of the Year Legal Adviser of the Year, Gold Award (Infinis) PARTNERSHIPS AWARDS 2015 PROJECT FINANCE MAGAZINE DEAL OF THE YEAR AWARDS 2013 Europe Biomass Deal of the Year European Power Deal of the Year (Carrington (Cramlington) CCGT) IJ AWARDS 2015 PFI AWARDS 2012 Best Waste/Energy/Water Project (Dublin Waste-to-Energy PPP, Ireland) PARTNERSHIP AWARDS 2015 4 INTERNATIONAL EFW EXPERIENCE Our extensive waste management and power experience enables us to provide a unique depth of specialist knowledge on EfW projects around the world. WHEELABRATOR FCC KUWAITI GOVERNMENT BANK GROUP in respect of its bid for the in relation to its ongoing bid for in relation to its landmark Kabd on the financing of the Dublin Cayman Islands EfW PPP project the Belgrade Waste PPP project Waste to Energy PPP project Waste to Energy PPP project CAYMAN ISLANDS SERBIA KUWAIT IRELAND GLOBAL RENEWABLE RE.GROUP PTY LTD USITALL AB SATAREM S.A. EASTERN CREEK PTY LTD on the prospective divestment by in relation to the development of in relation to the contract for the on the development of a RDF the Southern Metropolitan three energy from waste facilities collection of all waste in Conakry Circuit at the Eastern Creek Regional Council of waste in Galati, Ploesti and Bucharest Waste Facility processing assets GUINEA ROMANIA AUSTRALIA AUSTRALIA 5 KEY PROJECTS - SNAPSHOT Hybrid EfW PPP/municipal projects Merchant EfW projects projects Worcestershire Viridor/Laing/Ineos County Council (as Cory Environmental Funders consortium lender) Wheelabrator on the on the on the on the Riverside Waste on the Allington Waste Greater Manchester Herefordshire & EFW PPP/semi- Kemsley Waste CHP EfW Waste EfW PFI Worcestershire merchant Waste EfW PFI Shanks/Interserve Funders Covanta Energy / Covanta Energy/ Club of six funders Biffa Veolia on the on the on the on the on the Derbyshire and Edinburgh & Dublin Waste EfW Newhurst & Protos Rookery EfW Derby City Waste Midlothian Waste PPP project EfW projects project Gasification PPP EfW PPP (on-going) (on-going) Brockwell Energy and RBS (as lead Green Investment Funders arranger) Group on the on the on the Cornwall Waste Earls Gate Northumberland EfW PPP (Grangemouth) EfW Waste EfW PPP CHP project (on- going) 6 2. Working with Cory Environmental 10+ YEAR RELATIONSHIP Development of the EfW Negotiating contracts with Facility and the MRF Western Riverside Waste facility at Smugglers Authority Way Transfer Station Original Financing Bidding for and winning of Riverside EfW the Waste Disposal Facility Contract with London Borough of Bexley ASHURST & CORY Refinancing of RRRL and its EfW facility Bidding for and winning the Waste Disposal Contract with London Borough of Tower Hamlets Bids for Waste Disposal Contracts 7 3. Typical PPP and merchant EfW project structures TYPICAL PFI/PPP WASTE DEAL Local Authority/Council Sponsors Funders Direct Agreement Project Leases Agreement Equity Subscription Agreement Insurance Contracts Banks Insurers Finance and Security Documents ProjectCo ("SPV") Operating and EPC/Construction Other Agreements: Maintenance Sub-Contract Sub-Contract • Collateral Warranties etc • Subcontract Direct Agreements • Parent Company Guarantees • Shareholders Agreement(?) • Management Services Agreement(?) Interface Agreement • Performance Bond/LCs Construction Operating Sub-Contractor Sub-Contract Equipment Civils Offtake Transport Recyclate Others Others Supplier Contractor Agreement Contractor Offtaker 8 MERCHANT WASTE DEAL Waste Supplier(s) Finance and Landlord Security Documents (and standby waste agreement(s) Banks Lease/Property Waste Supply Documents Agreement(s) Other Agreements: Insurance Contracts • Shareholders Agreement(?) • Management Services Agreement(?) Insurers • Direct Agreements between Banks and sub-contractors/waste suppliers ProjectCo Equity Subscription • Parent Company Guarantees Agreement ("Borrower") • Performance Bonds/LCs • Sponsor support agreement EPC/Construction Sub-Contract Sponsors Operation & Maintenance Sub-Contract Operating Sub- Construction contract Sub-Contractor Interface Agreement Equipment Civils Recyclate RDF Offtake Transport Landfill Others Others Supplier Contractor Contract Agreement Contract Operator 9 4. Differences between PPP and “merchant” EfW deals KEY DIFFERENCES Subject PPP/PFI projects Merchant projects Tender • Long and expensive tender process • No tender phase involving a municipal body Documentation: • Use of rigid standardised project documents • Greater flexibility with respect to documentation • Subcontracts reflect pass-down of all project and risk allocation risks • Greater scope for negotiation • Strategic approach needs to be adopted Project • Generally maximum of 25-30 years • 35+ years duration: • Plant is then handed over to the Authority with • No handback to municipal body associated handback requirements • Dependent on commercial life of asset and site access rights Design / • Authority will generally provide a detailed • Owners have greater flexibility with designing specification output specification with which the facility must facility as it sees fit flexibility: comply • Scope for expansion, repowering and • Limited flexibility once designed modification Site • Site owned my municipal body with access • Sponsors will either own the site or be deliverability: rights provided to project company responsible for procuring a long-term lease • Site risks borne by Authority to some extent • Site & title issues are far more critical • Royalties often payable to landlord Planning: • All key planning and permitting risk allocated • Planning and permitting risk will be dealt with prior to Financial Close but permits etc. may be prior to Financial Close obtained after contract award 10 KEY DIFFERENCES (CONT.) Subject PPP/PFI projects Merchant projects Source of fuel: • Majority of waste received from Authority • Municipal or C&I waste may be contracted • Authority has priority over all capacity at • Single fuel supplier or several key fuel the facility suppliers • Guaranteed minimum tonnages and • Credit strength of suppliers determines exclusivity over waste arisings bankability of project • Put-or-pay arrangements Insurance: • Protection for uninsurability – municipal • No protection for uninsurability body may elect to self-insure Termination • Payment of termination compensation in all • No termination compensation payable by any compensation: scenarios (including project company Authority or third party if project defaults default) • ProjectCo/Funders bear subcontract termination and replacement risk Change in law • Authority will bear risk associated with • ProjectCo/Funders will bear the principal / regulatory Qualifying Changes in Law and certain risks associated with changes in changes: regulatory changes law/regulations • Change of law risk difficult to allocate to counterparties (e.g. Operator or Fuel Supplier) during operation 11 5. Riverside EfW contractual and commercial structure 12 6. Making EfW projects “bankable” Subject Requirement 1. Counterparties: • Experienced; substantial balance sheet; prepared to bear adequate levels of project risk • Recent trends show that banks like to see O&M Contractors with other roles on projects (e.g. dual EPC/O&M roles or equity stakes) 2. EfW technology: • Used in multiple UK/European/Asian reference plants; used to process feedstock of similar composition 3. Security: • Parent company guarantees • Performance bonding, warranty bonding and/or letters of credit, as required • Net asset value or credit ratings tests to be satisfied, as required • Key sub-contractor step-in arrangements 4. Feedstock: • Long term guaranteed waste stream is key • Sufficient fuel must be available from tier 1 or 2 waste management companies or a public sector body • Must be available under long term fuel supply agreement(s) (i.e. exceeding tenor of debt by 2-3 years minimum) at a sufficient gate fee on a “put-or-pay” basis to meet debt base case assumptions and debt sizing model assumptions • Alternative fuel supply arrangements might range from a single tier 1 or 2 waste supplier to several tier