Thank you, Madam Chair.
As the Auditor General has observed, we have been moving quite aggressively over the past year to lengthen the terms of the leases we sign in order to get better value. We've done this, to some extent, using our own judgment, if you like, because often departments say to us, “I'm not going to need that space for very long. I only need it for three years”, and then we have this issue of renewing.
So we have, to some extent, gone out on a limb and said we're just going to look at history and try to get better value. We may sometimes get caught out, but on the whole we will save a lot of money--and we have been doing that, which is very helpful.
In terms of purchasing versus leasing, you could say it is intuitive that if you're going to be occupying a place for 25 years or more, it might be better to buy than to lease. But that equation has to constantly be re-examined, because economic conditions are changing quite rapidly. For example, there is a lot of excess capital available in the capital markets; pension funds and so forth are ready to invest money. So the cost of capital for private developers versus the cost of capital for the government is narrowing very sharply. It's not as wide as it used to be. The decision to buy versus lease has to re-examined to see if advantages still exist.
This is a relatively new phenomenon, and we're looking at it closely. In each case for which we make a recommendation, we will endeavour to make sure all these factors are taken into account.
In terms of the specific lease or purchase that you referred to, Madam, it is the JDS Uniphase campus that was reported in the newspapers. Certainly, I would expect you to be quite alarmed if we recommended paying $600 million versus $30 million. I'm not sure I'd want to be in town when I dropped that file on someone's desk.
But the reality, Madam Chair, is that various numbers are being reported. We are handicapped by not being able to discuss it. Ministers of the board have not received the file to exercise their judgment on it. We can assure you that we have analyzed the case to determine the implied cost of the property within the lease payments that are being negotiated. So you have a series of lease payments, and they cover not only the implied cost of the property, but also the fit-ups and the maintenance over 25 years.
You have to tease out, if you like, what the implied cost of buying it would be and then what it would cost you, if you bought it, to do the fit-ups and the maintenance, and then compare those two numbers--discounted to net present value.
We have done analyses and we believe the proposal the ministers will be asked to examine is a good value for taxpayers. I hope when you're able to see it in all of its detail you will agree with us.
Obviously we may yet be asked by ministers to go back and.... We can't really discuss the details now.