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Decline in demand for Gatorade and Propel fitness water means that the city of Albany, Oregon, will no longer be the site of the long-planned PepsiCo factory.

The construction of the plant was put on hold early in 2007 due to a comprehensive analysis of capacity needs, the results of which have led to PepsiCo's recent change of heart.

SVC Manufacturing, a PepsiCo subsidiary, had a contract with Albany, Linn County and the state of Oregon to build the $165m factory on 244 acres.

City officials said earlier that if the company backed out, it would owe the city tens of millions of dollars because the benefits of the project, including more than 200 jobs, would be lost.

Reportedly, SVC would reimburse the city at least $2m for "out of pocket" costs related to water and sewer lines to the plant site. By giving the notice, the company avoided having to pay the city $700,000 in 2009 and again in 2010, which would have been due had the construction merely been postponed.

City officials are in talks with PepsiCo to try to come to a financial agreement that takes into account the damages to the community because of the decision not to proceed with the plant construction.