Veolia sues Acciona for $222m over waste contracts
Acciona ‘couldn’t run a pie shop’ says Veolia boss Richard Kirkman as the French giant sues for $222m and lobs a rival bid to control the nation’s only waste-to-energy plant.
French waste giant Veolia is suing Acciona Australia for $222m over breach of contract, after being fired from operating its controversial Kwinana waste to energy plant.
Veolia is understood to have also lobbed a rival bid for the $600m-plus East Rockingham facility and has accused Acciona of deliberately bringing both projects to their knees.
Veolia Australia chief executive Richard Kirkman has come out swinging after Acciona Australia – the builder of Kwinana and East Rockingham plants – managed to seize effective control of them both and squeeze his firm out of its contracts to operate the two sites.
“The word on the street is they couldn’t run a pie shop,“ Kirkman told The Australian of Acciona’s ability to run either plant. “We have filed a legitimate claim for termination without valid reason for $222m of lost opportunity.”
He would not comment on his firm’s bid for East Rockingham, citing confidentiality.
This current battle at its core is over who can wrestle themselves into the box seat to profit from Australia’s long-delayed and partly taxpayer-funded move to burn red bin waste and convert the heat to energy delivered into the grid.
Rubbish might not sound sexy but private Australian companies and offshore listed firms are raking in tens of millions of dollars in profit here each year getting rid of it.
Energy from waste, or EfW as it’s known, is common practice in Europe and the UK where landfill is all but outlawed and energy from fossil fuel shunned. Paris-based Veolia is the biggest player in those markets.
In Australia, the move to a circular economy for rubbish has been much slower. Australia’s only two EfW plants, Kwinana and East Rockingham, have cost taxpayers, equity holders and lenders more than $1.5bn to build and are yet to commercially open.
Both plants are infrastructure plays. Well at least that’s what RBC and Moelis – which are running sales processes on them – say. Albeit with an unusual level of anger and disappointment attached.
Acciona Australia – co-owned by Spanish-listed giant Acciona along with Australian Bede Noonan (who runs the company) and his brother Andre – is the builder of both projects and is currently in the box seat.
Initially it was Macquarie Bank holding the reins at Kwinana. It spearheaded the project in 2018 with its usual web of public and private financing and a leveraged structure of debt and equity. It walked away last year when Acciona’s costs and timings to finish a project that was already three years late continued to blow out.Acciona negotiated a 90c in the dollar deal for control of the plant, which is now built but still in the “snagging” phase four years after it should have been operating commercially. One of Acciona’s first moves when it took control was to fire Veolia.
“I’ve got no animosity against Acciona,” Kirkman says, repeating the exact wording expressed by Noonan towards Veolia several months earlier when the spat was first revealed.
“There’s no bad blood between us,” Kirkman adds. “What frustrates me is the reputation of this sector and ensuring there is confidence in these (EfW) developments on the eastern seaboard.
“There are hundreds of successful facilities across the world. We operate 65 of them, and we need people that are in the projects to be reasonable.”
Kirkman is right to be concerned about the reputation of the sector in Australia. Particularly given there are several more plants planned for the east coast.
Costs at both plants located on the outskirts of Perth have ballooned and the projects are many years late and still to be finished, leading them to financial collapse.
The East Rockingham plant fell into the hands of administrators last year with creditor claims of $740m. The administrator promptly fired all parties including Acciona, but excluding Veolia.
At that point Noonan made the decision to double down. He purchased all the senior debt and put Acciona back in the front seat. From then, his firm was rehired as the builder and Veolia stopped being paid.
For many Veolia staff the first they knew of suddenly being booted off two projects they had been the voice of, was reading about it in The Australian in February. Kirkman is now clearly fighting back.
“This is a modus operandi now which is not acceptable,” he says. “It’s no secret in the industry that these projects have been brought to their knees. And to say that Acciona has bailed them out is not the reality. The reality is two projects went on a go-slow. The project companies were bankrupted and the debt was bought at a discount.”
Kirkman’s views are shared by several financiers and lawyers that have been involved along the long and litigious journeys for both.
Acciona is now trying to have its debt in East Rockingham converted to equity – it already holds a 10 per cent equity interest – while the administrator Cor Cordis has simultaneously appointed investment bank Moelis to run a formal sales process.
Given the administrator must look after the interests of the creditors, which in this case is Acciona, this sales process may be murkier than some. It’s understood there has been limited access to the East Rockingham site and potential bidders have only been given two months to put forward offers.
The Australian Competition and Consumer Commission has flagged concerns about Acciona owning the only two plants in the country, saying it could “increase prices or reduce service quality at these facilities post-acquisition” if it was allowed to own them both.
The ACCC is also believed to be unhappy that Acciona purchased all the senior debt in the company without seeking competition sign-off because it could equate to an equity-style control. The ACCC would not confirm if this was the case.
Kirkman has also raised issues of “significant concern” about the quality of the build at both sites by Acciona and raised similar issues that the Spanish company is having in the UK.
Acciona is in hot water in Aberdeen, Scotland, where it has been reported by industry magazine EWB that a £150m ($309m) waste from energy plant it built, known as North East Scotland Shared (NESS), has been shut down by its management contractor Indaver. Media reports cited allegations there were 1800 snags that Acciona still needed to repair.
In England, the £1.5bn North London Heat and Power Project being built by Acciona is over cost and faces significant delays.
It’s understood Veolia is part of a consortium that has put in a rival bid for East Rockingham. What it’s worth is difficult to gauge because Acciona is yet to finish building it and clearly wants control. It doesn’t yet have cashflow or contracts with local councils for waste and is saddled with about $500m of debt.
One banker described it as “a liability, worth less than zero because it would be so hard for an external party to understand the cost to completion”.
Although if anyone can gauge that, it’s probably Veolia, which wasn’t involved in building either Australian plant but has built many overseas and has familiarity with East Rockingham through the management contract – which it’s not been formally fired from but is no longer being paid for.
Kirkman says he’s put the receiver on notice that “they owe us money,” having not been paid for six months.
Meantime Acciona is now trying to refinance Kwinana and is officially trying to sell just under half of it – although some industry players have speculated that the sales process through RBC is just a ruse to try and appease the ACCC on East Rockingham.
Even that process, if legitimate, might be murky.
“Kwinana is operating, but it’s only processing half the waste it should because the plant goes up and down all the time. The ramps don’t work and the trucks can’t get in, and the industry noise is that these people don’t know how to run it right.”
Kirkman says it’s critical for EfW projects to be in the hands of companies that can showcase just how important a role they can play in the nation’s waste reduction framework.
“There are reputable builders out there that Australia needs to work with to get these projects up in the eastern seaboard,” he says. “My vision is, obviously, to make money as a business, but to do that I need to be keeping councils and people happy, that’s very much our approach. They’re our customers, and they matter.”
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