Enerkem biofuel plant, backed by City of Edmonton, mired in legal controversy

Already years behind schedule and tens of millions of dollars over budget, a project to turn the city of Edmonton's waste into biofuel is now facing a flurry of lawsuits and countersuits.

Six suppliers, and four subcontractors that worked for a bankrupt seventh supplier, are suing Quebec-based Enerkem for a total of nearly $7.4 million, court documents show. The City of Edmonton is also being sued by eight of the 10 plaintiffs.

There were high hopes for the project when it launched in 2008. Enerkem promised to build a plant that, by 2012, would transform waste into ethanol, a world first for such an enterprise of that scale. The $80-million project has been funded partly by the province of Alberta.

The city also built a $40-million, waste-preparation facility specifically to supply feedstock that Enerkem would then turn into ethanol.

Edmonton transferred funds to Enerkem as part of $23.35 million in grants from the province. So far, Enerkem has received $18 million of that funding, a city spokeswoman said.

Nearly six years later, the project's cost of construction has jumped to an estimated more than $100 million and the production of ethanol has been pushed back to at least 2017.

"We took our time and did things right," Annie Paré, Enerkem's director of communications said, adding that delays are "part of the nature of launching cutting-edge technology, a completely new innovation, on the world market.

"It is still a large-scale plant, so we're making sure that it functions properly, step by step," Paré said.

Suppliers suing Enerkem

But there has been legal and financial friction.

Six of Enerkem's suppliers are now suing the company for more than $6.4 million. CBC News spoke with three suppliers, but only Stéphane Champoux, President of Papillon et Fils Ltd. of Trois Rivières, Quebec, agreed to be interviewed.

"It has been an extremely difficult project to deliver," Champoux said.

Papillon et Fils' job was to design and build modules to be sent to the plant in Edmonton.

"Once the drawings were done and submitted for manufacture, (Enerkem) would re-engineer to see where they could cut costs, and would change the drawings for things that had begun to be built or were already done," he said.

"When drawings are two-three-four months late, it is impossible to deliver on time."

Papillon et Fils is seeking $1,062,000 from Enerkem and the City of Edmonton.

"We delivered all the modules, even though we were asked to make changes to some modules that were ready for delivery," Champoux said. He alleges that about 20 per cent of the bill has not been paid.

"As long as there were still modules in our possession, we would get paid," he said. "As soon as the modules had all been delivered, the payments stopped."

Enerkem spokeswoman Annie Paré would not comment on the details of the case because the matter is before the courts.

None of the allegations from any of the court documents has been proven in court.

Four subcontractors also suing

Four subcontractors of a seventh supplier are also suing Enerkem, alleging unpaid work and supplies.

The subcontractors were initially under contract to Métal Énergie, a Quebec-based company that supplied completed modules to Enerkem. Métal Énergie declared bankruptcy but before it did, it had also sued Enerkem for more than $1 million.

The subcontractors successfully sought to transfer their claims from Métal Énergie to Enerkem and are now suing Enerkem and the City of Edmonton for more than $800,000.

The subcontractors allege Métal Énergie has not been fully paid by Enerkem.

Enerkem maintains its contract was with Métal Énergie, not the subcontractors, and it said part of the company's bill wasn't paid because it could not document its work. It is challenging the subcontractors' right to sue and is hopeful the legal dispute will soon be resolved.

Enerkem defends itself and countersues

Enerkem spokeswoman Annie Paré stresses the legal actions need to be viewed in context.

"Since the very beginning of this plant's construction, we have worked with 256 suppliers. Of these, there are seven with whom we are in dispute," she said, adding, "so there are 249 suppliers with whom we have a healthy and good business relationship."

Enerkem's statements of defence reject all the allegations. In some cases, it claims it is not bound by a contract with the plaintiffs; in other cases, it alleges the incomplete payments are due to delays in delivery or poor construction.

Enerkem has responded to some of the lawsuits by countersuing, alleging some suppliers are responsible for delays, nonconformity and negligence.

The City of Edmonton is named as a defendant in eight of the 10 lawsuits.

"The city should have known there was a problem and should have put a stop to the payments," said Philippe Thibault, the subcontractors' lawyer. "And the city should have funded sufficient reserves, to ensure that suppliers were paid, insofar as it knew there was a risk of nonpayment."

The city declined to provide anyone familiar with the project for an interview. In an emailed statement, a city spokeswoman said it is a matter for the courts to decide.

"The city is confident that it has fulfilled all the conditions of its grant agreement with the province for this project," she said.