Shares in construction firm Interserve have fallen by a third after the board announced that the costs of quitting the energy-from-waste (EfW) business are more than double those originally expected.

The construction firm announced in August that it was leaving the EfW field after issues arose with its six contracts in the sector, noting that the ‘unique challenges’ of the market had led it to take the decision to quit the industry.

As part of the decision, the board set aside a provision of £70 million to cover the anticipated losses associated with the business.

However, in an update posted with the stock exchange this morning (20 February), the board says that it has now determined that the exceptional provision has had to be increased to £160 million.

‘Continuing challenges in the supply chain’ meant that the firm’s main project, constructing the gasification plants for Viridor’s planned Glasgow Recycling and Renewable Energy Centre (GRREC), suffered overruns and delays in early 2016, and in May the company confirmed that issues with the design, procurement and installation of the project had led to the deterioration of the contract.

Interserve served notice of termination to the GRREC project in November and today’s update explains that the board has ‘considered the implications of this development with [its] legal advisers and expect a lengthy period of litigation to ensue’.

Alongside that process, a review of other operational developments relating to Interserve’s exit from EfW, including the impact of the administration of principal gasification subcontractor Energos and the likelihood of potential recoveries and claims from third parties, determined that the original £70-million provision would not be enough to cover losses.

Investment firm Liberum has told clients that even the new provision ‘may not be enough’ and that it has ‘no confidence’ that the provision will be adequate, concluding: ‘We struggle to see how this can be anything but problematic given the challenges around gasification and the insolvency of the sub-contractor.’

The Interserve update states that ‘the adverse cash impact of the EfW business was substantially offset in 2016 by tight control of working capital throughout the rest of the group’. However the cash outflow on the EfW contracts has had a significant negative impact on Interserve’s average net debt, which was £390 million during 2016, and which is anticipated to be approximately £450 million in 2017.

As a result of the announcement this morning, Interserve’s shares have fallen by over 32 per cent since the opening of the stock exchange today.