Council Minutes - Town of Cambridge

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COUNCIL 20 DECEMBER 2011 PWC note that the value of the City of Stirling’s interest in the MRC is higher under Scenario A “due to the incremental value associated with the assumed acquisition and exploitation of a replacement landfill site when the existing air space at Tamala Park is exhausted”. PWC acknowledge that under this scenario, “the actual costs may be significantly different from those estimates. For this reason we consider the pro-rata values determined under Scenario B to be more robust and our preferred values”. Effectively PWC have rejected Scenario A as a basis for the valuation. The Town supports the view that Scenario A should be rejected as it highlights one of the deficiencies of the DCF method in relation to the validity of the assumptions used and the potential to significantly affect the result as identified in Town’s decision to not support the DCF method in April 2011. The Town considers Scenario A as a highly inappropriate basis to assess the valuation of MRC because it provides the owners (including Stirling) with the benefit of the positive cash flows derived from a future investment decision to purchase a landfill site after the closure of Tamala Park. At the proposed time of the capital investment it is assumed that City of Stirling will not be a member of the MRC, so how could they possibly benefit in terms of this valuation from the speculative decision of the capital purchase of an unknown site, for an unknown amount and at unknown operation and transport costs? This is a purely hypothetical scenario and should not have been considered as a reasonable way of calculating a valuation of MRC. The Town has further concerns about the assumptions used relating to the DCF valuation as it is based on the assumption that the members will sell the operations of MRC to a private operator and that the members will continue to tip at Tamala Park at a higher fee per tonne than the members currently pay so that the new owner will be able to make a return on their investment. Members currently pay a tipping fee of $123 (ex GST) per tonne and the valuation assumes that the Low valuation is based on $135 (ex GST) per tonne and the High valuation at $140 (ex GST) per tonne (refer to the table above). In reality, the market value of tipping is significantly less than this. It is understood that the City of Stirling has negotiated a fee to tip its waste at Red Hill landfill managed by the Eastern Metropolitan Regional Council at $94 (inc GST) per tonne which is $85.50 (ex GST). The City of Canning went to tender several years ago for the disposal of its waste to landfill and is currently in the third year of a contract with Sita and is also paying $94 (inc GST) per tonne. Both these disposal rates demonstrate that the market rate for tipping is much lower than the assumptions made in the PWC valuation. The fees charged by MRC are higher because of their investment in a Resource Recovery Facility to divert waste from landfill which operates at a higher cost. Clearly, if members were ambivalent to resource recovery they could tip their waste direct to landfill at a much lower cost. It is difficult to accept that the members would agree to sell MRC to a private operator and then enter into contracts to pay a higher tipping cost so that the operator could make a profit when there are lower cost alternatives in the market. The MRC operates as a cost recovery business to keep the cost of tipping down for members. It is not operated as an investment or wealth generation facility for the members. Therefore a valuation that assumes profits is a flawed approach to valuing the business operations and this is consistent with the Town’s decision in April 2011 not to support the methodology. The members do not plan to sell the operations of the MRC but to continue to dispose of waste at the site. The method used by PWC does not account for the post closure obligation of the owners of MRC of the Tamala Park site such as monitoring and any possible rehabilitation of the site that are unknown at his stage. Any agreement for the City of Stirling to withdraw should be conditional upon them retaining their post closure liabilities for the Tamala Park landfill in proportion to the tonnes tipped to the total of members’ tonnes over the life of the landfill. H:\Ceo\Gov\Council Minutes\11 MINUTES\December 2011\D Item 10 Onwards.docx 231
COUNCIL 20 DECEMBER 2011 Discount PWC have advised in their valuation that "a discount should be applied to the pro rata value to reflect the fact that the City of Stirling is not able in its own right to force a sale of the business and the realisation of the assets. It can only do so with the agreement of the other Councillors representing the member Councils". They further noted that discounts applied to the valuation of privately held shareholdings are often greater than that applied to publically traded shareholdings which fall in the range 15% to 25%. In this case discounts up to 50% can be applied. City of Stirling - Initial Proposal As noted in the background, the City of Stirling considered the valuation prepared by PWC and determined at its September 2011 meeting that the valuation should be the average of both Scenarios A and B ($12.38 million) and discounted by 10% to assist in resolving this matter equating to a value of $11.14 million. As part of the withdrawal process, they also proposed to withdraw from the financial guarantee withy respect to the Biovison contract relating to the operation of the Resource Recovery Facility (RRF) and to retain their shareholding in the land at the Tamala Park site. It is considered that the City of Stirling should retain its responsibilities under the RRF guarantee as that was part of the condition to enter into the contract with the operator and along with the other members. The Town would not want to accept any further exposure to this guarantee. In relation to the City of Stirling retaining its shareholding in the land, it is not considered that this is a matter for negotiation with respect to the withdrawal of the City of Stirling from the MRC as the MRC lease the land from the seven owners including the Town of Cambridge. Mindarie Regional Council The MRC considered the City of Stirling's proposal to withdraw at its meeting held on 8 December 2011 and decided: That: 1. A Working Group comprising the Mindarie Regional Council Chairman and Chief Executive Officer, and the participant local government mayors and/or their elected representatives, be established to consider options for the membership, structure and the operations of the Mindarie Regional Council. 2. The City of Stirling be requested to seek from the Hon. Minister for Local Government a further 3 months’ extension to their current withdrawal request from the Mindarie Regional Council. 3. The Working Group deliberations include all options, including progressing the withdrawal of the City of Stirling from the Mindarie Regional Council. H:\Ceo\Gov\Council Minutes\11 MINUTES\December 2011\D Item 10 Onwards.docx 232
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Council Minutes 20 December 2011
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Page 183 and 184: COUNCIL MINUTES TUESDAY 20 DECEMBER
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Page 233: COUNCIL 20 DECEMBER 2011 (c) (d) (e
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Page 241 and 242: COUNCIL 20 DECEMBER 2011 (a) (b) (c
Page 243: COUNCIL 20 DECEMBER 2011 14. CLOSUR
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Council Minutes - Town of Cambridge

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