6 July 2018
Council and Scion will wind up the Terax Limited Partnership if a recommendation from the Operations and Monitoring Committee is adopted by the Full Council later this month.
A report on the matter was taken out of confidential and following a presentation from Chief Financial Officer Thomas Collé, the committee passed the following recommendation:
That the Committee recommends to Council to instruct the Chief Executive to start the process of winding up the Terax Limited Partnership, Terax 2013 Limited by working with Scion on the future ownership, or sale, of the intellectual property and to take all steps necessary to protect Council’s investment should future value be able to be extracted from the TERAX intellectual property.
See below the report which was considered by the committee:
Rotorua Lakes Council (RLC) and the New Zealand Forest Research Institute Limited (Scion) have been in partnership since 2008 for the purpose of commercialising the TERAX waste conversion technology (TERAX).
The Terax technology aims to destroy waste water treatment plant residual biosolids (sludge) and other organic wastes that are typically landfilled. The design scope combines hydrothermal and biological processes to break down complex organic materials into simpler molecules. The benefit of this process, when successful in scale, is the conversion of the organic solids content to beneficial use materials that would otherwise go to landfill.
RLC and Scion have jointly invested into maturing this process since 2008. This joint venture was previously successful in attracting grants from the Ministry for the Environment to evaluate, build and process a pilot plant. This work was successfully completed in 2012.
In 2012 RLC and Scion believed the science, technology and engineering combined in TERAX provided a cost effective way to divert biosolids waste to beneficial use in a commercially viable solution for in an environmentally sustainable manner.
Early 2013 RLC and Scion formed Terax 2013 Limited and the Terax Limited Partnership and moved into the design of a commercial application for a waste water treatment plant in preparation for a full scale plant to be built at the Rotorua waste water treatment plant.
In July 2013 Council’s then Infrastructure Services Committee recommended to Council the adoption of the business plan for Council to construct a TERAX demonstration plant and to make funding available in the 2013-14 Annual Plan and to proceed to a detailed design stage.
Following the 2013 Council elections, the new Council approved a partial continuation of the project pending further work to be undertaken on the financial model and the business case for the TERAX demonstration plant. This work was completed and reported back to in May 2014 and funding for the demonstration plant for $10.9m was included in the 2015-2025 Long Term Plan and the 2017 Annual Plan.
In April 2015 Council delayed the progression of the demonstration plant pending a further and more detailed review and investigation of tertiary treatment options and desired effluent to the lake quality for the new waste water treatment plant design that would replace the forest based effluent land disposal system. The Waste Minimisation Fund (WMF) advised Council that pending that review the funding stream would be placed on-hold.
In December 2015 the deed of funding from Ministry for the Environment expired and a reapplication was made. The new application was declined in August 2016 by the WMF. Due to technical issues with the new proposed waste water treatment plant and the lack of external funding, Council removed the construction of a demonstration plant from its plans.
The sequence of events led Council and Scion to condition any future funding allocation into Terax. This recognised that an external investor would be required to help fund a demonstration plant to enable the value of the TERAX Intellectual property to be realised going forward. Funding contributions from both partners ceased December 2017 and Council has not provided any further funding in the 2018-2028 Long Term Plan.
Discussion and Options
During the last nine months the TERAX Company has been actively pursuing two solid leads, one into India and the second into China.
Funding was provided from a third party to enable a value engineering exercise to assess whether the capital costs of a demonstration plant could be brought down to fit the Indian markets. While this exercise was successful, the third party has elected not to continue on towards construction of a plant.
An offer to acquire shareholding of the company was received from a Chinese consortium but it was rejected due to the poor quality of the offer.
There is still considerable interest in the potential of the technology, but due to a lack of a demonstration plant it has been difficult converting this interest into tangible future sales. With the India and China leads dissipating the Company Directors, Scion and RLC have started the discussion of winding up the formal partnership and company structure in a way that protects Intellectual Property and each partner’s value and having an arrangement where value can be extracted in the future, both Scion and RLC would do so on an agreed basis.
Management seeks the committee’s approval to continue with the discussions and to negotiate commercial terms with Scion on the following:
Formal disestablishment of the Limited Partnership and Company to reduce compliance costs.
Negotiate new ownership structure of the TERAX intellectual property in a way that protects Council’s investment to date at little to no cost going forward.
Recognises that any future value from the Intellectual Property would likely be done on the future efforts of Scion.
Extraction of any future value would be shared on a basis that recognises the investment to date of each partner and the future efforts of Scion and RLC if required.
See the presentation slides from yesterday’s report on Terax at THIS LINK