The Interim Chief Officer – Finance, Performance and Change, presented a report, the purpose of which, was to present to Council for approval the Treasury Management Strategy 2021-22 (Appendix A to the report), which included the Treasury Management Indicators, and the Capital Strategy 2021-22 to 2030-31 (at Appendix B), which contained the Prudential Indicators and the Annual Minimum Revenue Provision Statement 2021-22 (in Schedule A of Appendix B).

She advised that the Treasury Management Strategy 2021-22 confirmed the

Council’s compliance with the CIPFA Code, which required that formal and

comprehensive objectives, policies and practices, strategies and reporting

arrangements are in place for the effective management and control of treasury management activities, and that the effective management and control of risk are the prime objectives of these activities. It also contained the Treasury Management Indicators for a three year rolling period.

The Treasury Management Strategy had been updated to reflect the current

economic context, not least the holding of interest rates at 0.10% by the Bank of England, but also the challenges of the exit from the European Union and the impact of the coronavirus pandemic, the latter of which was ongoing and therefore still a major risk.

The Interim Chief Officer – Finance, Performance and Change added that approved investment counterparties and limits (Table 6 included in the attached TMS) had been simplified and amended to take account of the latest advice from the Council’s Treasury Advisors, Arlingclose. There had been a change to the limits for Money Market Funds, which had previously been increased to £30 million as approved by Council in November 2020. This limit has now been removed so that there is no overall limit on investments in Money Market Funds. However, no more than £6 million would be invested in any single Fund, to minimise any potential impact of default risk to the Council.

The report explained that the Council may make loans to third parties for the purpose of capital expenditure. The proposed limit for such loans has been increased from £1 million to £2 million. This was to support potential investment in a Special Purpose Vehicle to support the delivery of the proposed Bridgend Town Heat Network.

The Interim Chief Officer – Finance, Performance and Change advised that the Capital Strategy, Appendix B, gave a high level overview of how capital expenditure, capital financing and treasury management activity contributes to the provision of services, along with an overview of how associated risk is managed and the implications for future sustainability. In doing so, it included the prescribed Prudential Indicators for a three year rolling period.

The Capital Strategy also sets out a framework for the self-management of capital finance and examines the following areas:-

• Capital expenditure and investment plans

• Prudential Indicators

• External debt

• Treasury Management

It further reports on the delivery, affordability and risks associated with the long-term context in which capital expenditure and investment decisions are made, added the Interim Chief Officer – Finance, Performance and Change.

Whilst much of the content of the Strategy was similar to previous years, there were a number of changes which needed highlighting. These related to Accounting of Leases, Borrowing for Commercial Activities and certain recommendations of an Internal Audit nature.

The Interim Chief Officer – Finance, Performance and Change then concluded her submission, by giving Council an update on key elements of the report’s supporting information, particularly with regards to borrowing and lending and any changes in respect to arrangements regarding these.

A Member referred to the SPV and a proposal to increase lending to any external companies up to the value of £2m. She specifically asked how the Authority intended to protect itself from borrowing up to this amount and then lending for the provision of an SPV. The repayment for this was estimated to be over 40 years at an interest rate of 2.6%. She asked if this form of borrowing/lending would impact on the Council’s ability to borrow, in order to fund its Band B School Programme.

The Interim Chief Officer – Finance, Performance and Change confirmed that Authority had never before been involved with an SPV. However, to give some assurance, she advised that the SPV will have support in terms of representation from the Council, as well as from a company that is very closely linked to BCBC. so we would have an element of control over the investment in this regard. Whilst no organisation was able to mitigate all risks associated with loans, the Interim Chief Officer – Finance, Performance and Change explained that colleagues in the Communities Directorate were ensuring that processes were put in place to reduce these risks.

The Member then asked how much the SPV was going to cost to run and where would BCBC look to, ie a reputable energy company, that has  sufficient and relevant expertise, to adequately support the proposal. Did BCBC have sufficient expertise to support a project of this magnitude she added, bearing in mind it was significantly challenging.

The Cabinet Member – Communities assured the Member that, though this was a new concept for BCBC, other local authorities had taken on a venture such as this, ie an arms-length company to give BCBC the ability to provide a key service on behalf of themselves. The project was also linked to the Council’s new De-carbonisation Strategy, he added.

The Corporate Director – Communities explained that a more detailed report on the SPV would be presented to Cabinet on 9 March next and this report would explain more of the detail of the proposal as part of the Bridgend District Heat Network scheme. She explained that the funding for the venture would be arranged jointly by BCBC and HNIP, a government funding programme, who were committing over £1m for a phased network commencing with Phase 1 in the Bridgend Life Centre. So the investment would come from BCBC and HNIP. One of the recommendations of HNIP in setting up the SPV, was that the project would be 100% owned by BCBC. The Council had recruited the services of legal consultants, Brodies, who had advised how best to set-up SPV’s for local authority District Heat networks, through the support of Project managers amongst others.

The scheme would also be supported by a specialist Contractor, highly experienced in the energy sector, who, whilst working for the SPV, the SPV itself would be owned by BCBC.

Should Phase 1 of the scheme prove to be successful as part of De-carbonisation targets and assist in the creation of a Net Zero Bridgend, then phases 2 and 3 of the scheme would be explored. The SPV would also be used for further such De-carbonisation projects. The initial project was very innovative explained the Corporate Director – Communities and the loan over a proposed 40 year term was normal for projects of this nature, with the average term normally being between 30 – 50 years, where there would be a return on the investment that had been initially committed. The 40 year term of the loan, however, could be reduced dependent upon the success of the scheme.

Should both Cabinet and Council agree upon the scheme and the establishment of an SPV, then it would go out to tender as per other new Contracts.

The Chief Executive and Leader added, in turn, that should the capital funding from HNIP for the project not be accepted by the Council in the support of the project, then this would simply be taken advantage of by another neighbouring local authority for the same purpose. The funding could not be used for any other type of projects by BCBC, it was stressed.

Members agreed by way of assent, to vote on the recommendations of the report, the result of which was as follows:

For:

Councillors S Aspey, SE Baldwin, T Beedle, JP Blundell, NA Burnett, RJ Collins, HJ David, P Davies, PA Davies, DK Edwards, J Gebbie, RM Granville, CA Green, G Howells, RM James, M Jones, M Kearn, DRW Lewis, JE Lewis, JR McCarthy, D Patel, B Sedgebeer, RMI Shaw, CE Smith, SG Smith, JC Spanswick, G Thomas, R Thomas, T Thomas, MC Voisey, L Walters, DBF White, PJ White, HM Williams and RE Young  = 35 Votes

Against: 

Councillor A Pucella  =  1 Vote

Abstentions:

Councillors M Clarke, N Clarke, SK Dendy, T Giffard, A Hussain, B Jones, KL Rowlands, R Stirman, E Venables, S Vidal, KJ Watts, C Webster, A Williams and J Williams  =  14 Votes

As a result of the outcome of the above vote, it was   

RESOLVED:                            That Council approved:-

·         the Treasury Management Strategy 2021-22 including the Treasury

Management Indicators 2021-22 to 2023-24 (Appendix A to the report);

·         the Capital Strategy 2021-22 to 2030-31 including the Prudential Indicators 2021-22 to 2023-24 (Appendix B);

·         the Annual Minimum Revenue Provision (MRP) Statement 2021-22

(Appendix B - Schedule A).