Greater Manchester Waste Disposal Authority

Image caption The contract has involved developing and operating 42 recycling, composting and waste management plants in Greater Manchester

A £3bn contract signed to recycle waste and use some of it as fuel to generate electricity is to be terminated 17 years early over "cost savings".

Greater Manchester Waste Disposal Authority (GMWDA) said it would seek to cancel its 25-year private finance initiative deal with Viridor Laing Ltd.

GMWDA, which signed the contract in 2009, faces financial challenges, Viridor's parent company Pennon said.

It indicated the firm would seek compensation over the termination.

Viridor Laing is a consortium of the waste and resources firm Viridor and construction group John Laing Infrastructure.

In December last year, John Laing PLC reported that GMWDA said it was "not satisfied with the current status" of the project and that it continued to "seek significant cost savings and efficiencies".

'Lower budgets'

In a statement, GMWDA confirmed it had agreed to terminate the deal.

The authority added: "The decision allows for delegation for officers to progress termination. At this time we are unable to comment further."

Dominic Nash, a financial analyst at Macquarie, believes it could be "up to three years before there is any clarity".

He said: "The main driver is to save money. It does not come down to Viridor Laing doing a bad job because I don't think they have. The council budget is lower and they will want to reduce bills for customers."

Mr Nash said jobs would be transferred to any new contractor, and compensation would be paid.

He warned: "How the compensation is calculated is a good indicator for investment perception in the UK...If it is handled badly it has the potential to damage investor sentiment, as it would increase risk for investors."