City cuts ties with Plasco as company can’t pay bills
On the same day city officials recommended that Ottawa end its relationship with Plasco Energy Group, the waste-management firm filed for creditor protection, resulting in the loss of 80 jobs and the end of an era for a company once considered a shining light in the local clean-tech industry.
The city’s relationship with Plasco is “for all intents and purposes” done, Mayor Jim Watson said.
“While it’s regrettable the Plasco arrangement did not work out, the fact is we have to move forward and find other technologies other than burying garbage in a hole.”
The 80 laid-off employees — all local — are to receive one month’s salary and benefits, as well as any vacation and other time owed to them. The remaining 25 employees, including president and CEO Ray Floyd, have been retained because they are considered key in helping Plasco move into whatever its next phase might be, according to a source with knowledge of the proceedings.
It appears Plasco simply ran out of time and money. An attempt to secure a grant from the Sustainable Development Technology Canada fund was unsuccessful at the end of January.
(The federal fund had granted Plasco $9.5 million in 2005.)
Then on Feb. 1, Plasco missed a $3.5-million payment owed to a creditor, according to court documents. Following a grace period of 10 days, the creditor could have demanded immediate payment of $18 million.
But the Companies’ Creditors Arrangement Act proceedings has bought Plasco protection from its creditors and time to figure out what to do next. It’s still unclear how long the stay of proceedings is, but the usual time is 30 days.
Although it has raised more than $300 million over the years, Plasco was unable to secure financing for its commercial plant by Dec. 31, missing its third and final deadline under the 20-year contract that would have paid Plasco $9.1 million a year to take up to 300 tonnes of garbage a day.
That final missed deadline opened the door for the city to walk away from the contract and explore other options. Early last month, the city posted a Request for Information for residual waste management technologies and received 37 submissions from places as far away as Korea, Japan, Germany and Spain, as well across Canada and the United States.
While the city’s contract with Plasco called for the company to build the commercial plant, the capital costs for the various technologies described in the report, which include incineration, range from $50 to $275 million, while annual operating costs range from $3 to $75 million.
Only four firms provided the city with documentation that demonstrated the operation of a commercial-sized facility that processes municipal solid waste, according to a report to the environment committee by city manager Kent Kirkpatrick. However, the report recommends that council not proceed with the procurement strategy for residual waste management until after the green bin program review is completed later this year.
As for Plasco, Kirkpatrick seeks council’s permission to terminate not just the contract, but the lease for the company’s demonstration facility on city land.
The lease agreement gives the company 18 months to decommission its site. The company will not be required to pay rent during that time and has provided a $300,000 decommission security. The city can use the money to complete the decommission of the site should Plasco fail to do so. Plasco also owes the city $27,824. The report to the environment committee had already been prepared when news broke that the company had applied for creditors’ protection, so questions remain over how exactly the city can move forward when the committee meets next Tuesday.
It’s not clear what’s next for Plasco, which appears to have sold many of its assets and is leasing them back. Randall Benson, a partner and turnaround specialist with KPMG, was hired by the company to oversee the restructuring. In a statement, he said that "Plasco will explore potential strategic alternatives that may provide the company the funding required to pursue commercial development of its technology.”
It’s also possible that in addition to financial troubles, Plasco may have been dealing with technical issues. In November, Plasco informed the Ministry of Environment that it planned to reduce its plant size, which included changes to its drying and cooling system, storm-water management, and a reduction in engines from 10 to seven. Plasco did not publicly address why it was making those changes.
In 2005, Plasco was a company with eight employees led by a bullish Rod Bryden who was set on proving that the company’s proprietary technology could use plasma — a very high-temperature gas — to convert garbage into energy. By 2008, Bryden had convinced a council led by then-mayor Larry O’Brien to provide city land for a demonstration project. After years of trials — and promises from Bryden that the approvals to expand the operations were imminent — Plasco finally received its certification from the environment ministry in 2011, which allowed the company to move ahead with a commercial plant.
Later that year, Plasco and the city entered into an agreement, but the terms of the contract were ultimately not met. In November 2013, Bryden was replaced as CEO by Floyd, who brought with him experience as a senior executive at General Motors, Exxon Mobil and Suncor Energy.
Bryden, who remained executive chairman, said Tuesday only that he was “sad and disappointed.”
Plasco has signed a number of international agreements, but none of them were confirmed contracts to construct commercial plants.