Why a decommissioning engineer should sit at the finance table
01 June 2022
It sounds an odd statement to make, that decommissioning engineers deserve – and may desire – a seat at the finance table. They have enough to think about after all. Methodology, environment health and safety compliance, resource planning, project scheduling – the list goes on.
So why would these professionals want to sit with accountants and finance directors? And vice versa?
Quite simply, because when it comes to the mothballing, rationalisation, or clearance of an industrial site, communication with finance stakeholders is critical.
The specific front-end engineering service that a finance decision-maker will benefit from discussing with a decommissioning specialist, is a costings study for a decontamination, dismantling or demolition job.
Admittedly one of the least obvious elements of a decommissioning project, the execution of such a study is in fact one of the most crucial and sophisticated uses of engineering acumen, when it comes to securing a safe, commercially and environmentally sound assignment outcome.
Costings information can then be used to compile sanction grade estimates, funding applications, cashflow projections, and even determine the programme and duration of works – not to mention financial milestones to support ongoing cost control when a project is underway.
When undertaking these evidenced cost assessments, direct costs such as contractor fees are also evaluated alongside wider factors including the potential plant resale value, market conditions, and the possible effect of legislative changes, for example – as well as the specifics of the site itself, of course.
Costings are also critical when undertaking longer-term liability planning for a site. In fact, such information is required by accounting law, to drive asset owners’ compliance with international financial provisioning standards such as FAS143 in the USA and IAS 37 in Europe.
These standards ensure that when the time comes to decommission a site, the owner has been reporting an accurate picture to shareholders and there are adequate funds set aside for this process, even if nothing will physically happen for a number of years.
With the tendency for assets to now change ownership perhaps more often than in the past, variations of this type of longer-term liability study can even be used by prospective purchasers and vendors, as a due diligence tool. The information gathered gives clarity on the legacies that will remain with the site, and costs that will crystallise in the future.
Of course, such numbers need to be rigorously revisited on a periodic basis, maybe every five years. This means that any changes to the assets, as well as waste and scrap rates, annual inflation figures, and the tightening of regulations, can all be accommodated, and the true liability of a site fully understood. A fluid and reconfigurable spreadsheet should therefore lie at the heart of any longer-term costings studies.
Interestingly, it is becoming increasingly acknowledged that dialogue between the decommissioning and finance professions should begin during the planning stages of a facility coming to life. In other words, before it has even been built. This information is not only essential in assessing the actual cost of ownership of an asset over the full life cycle, but is often demanded by funding institutions, landlords and other involved parties, so the true risk exposure of involvement in a project, can be assessed.
This may seem unnecessarily premature. However, at some point, possibly many years ahead, decommissioning will come around. And, as with most undertakings, the quality of inputs in the earliest stages of a decommissioning project usually dictate the level of success that can be achieved, longer term. Thinking about the end of life of an asset in such a manner, brings about indisputable environmental benefits too, not least because the desire for a circular economy – where resources are reused as much as possible – has never been greater.
Sometimes some indicative financial provisioning is all that a fiscal stakeholder will seek, and in these circumstances, there is typically a greater degree of tolerance surrounding the numbers. Either way, the involvement of an experienced decommissioning professional is without doubt, a value-adding move.
- Richard Vann is managing director of the international consultancy RVA Group. Article first published in the May-June 2022 issue of Demolition & Recycling International