GN takes a second look at hospital leases

Buy, borrow, or lease?

Until Nunavut government officials decide which method offers the best financial deal for Nunavummiut, construction of three new regional health facilities won’t start any time soon.

Since 1997, officials with the governments of the Northwest Territories and Nunavut have told the public that Nunavut’s three Inuit-owned regional development firms — the Qikiqtaaluk, Sakku and Kitikmeot corporations — will build the hospitals and the government would lease them back.

Along with the Nunasi Corporation, those three Inuit companies now own their own construction company — the Nunavut Construction Corporation.

But with the auditor general of Canada’s recent criticisms of GN leasing practices still ringing in their ears, Nunavut deputy ministers last week told a committee of MLAs they’re not sure if leasing from a private developer is the best way to do the three projects.

“Projects of this size require very detailed analysis and they’re getting that analysis now,” Bob Vardy, Nunavut’s deputy minister of finance, told members of the legislative assembly’s operations committee on Feb. 6.

“The option of purchase versus lease will be looked at very carefully. We, as officials, are looking at the purchase option very, very carefully,” Vardy said.

Ross Mrazek, the deputy minister of public works, said his department is taking the same approach.

“A number of significant calculations and evaluation processes will take place on what is the best possible deal for the government: either to purchase or to borrow money or to lease,” Mrazek said.

“Because it’s a significant expenditure, it will have to be reviewed very carefully to provide the best value for not only the government, but basically for all residents of Nunavut,” Mrazek said.

No construction in Rankin yet

That includes the $15-million health centre that Rankin Inlet residents believe will be built in their community under a series of agreements between the government of Nunavut and the Kivalliq region’s Sakku Corporation.

Last November, a small battalion of GN officials descended on Rankin Inlet for an elaborate sod-turning ceremony punctuated by qulliq-lighting, drum-dancing, a-ya-ya singing and speeches by cabinet ministers, Inuit leaders, and various local worthies.

Rankin residents could even view a scale model showing how the building would look if it’s built.

But Andrew Johnston, Nunavut’s deputy minister of health, said the GN hasn’t yet agreed to build anything in Rankin Inlet.

“We did not agree to build or lease anything….” Johnston told MLAs on Feb. 5. “We did not authorize construction of that facility.”

He explained that GN officials agreed only to a service agreement containing what they call a “functional design” proposal prepared under the direction of Sakku Corporation — a kind of plan that sets out what the building will contain.

Johnston said the GN must negotiate a financing agreement and a development agreement with Sakku before construction can start on the Rankin health structure.

Sheila Fraser, the auditor general of Canada, said that as of March 31, 2000, the government had committed itself to making about $476 million in lease payments, mostly for long-term leases of up to 20 years. The following year, the GN committed itself to another $145 million worth of new leases.

No scrutiny of leases?

But she said MLAs don’t get a chance to properly scrutinize those lease agreements, because the government does not include the information in budget documents tabled in the assembly.

In one lease, the auditor general said, the final cost to the government is 50 per cent higher than if the government had paid cash for the building.

Bob Vardy, Nunavut’s deputy minister of finance, said the government agrees with the auditor general’s opinion that a 50 per cent premium is “too much.” The government will include lease information within budget documents tabled in the assembly.

Vardy also said the government will follow the auditor general’s advice and won’t enter into new lease agreements until it has compared the cost of leasing with the cost of either using its own cash or borrowing the money.

“We are doing a very detailed analysis of the overall value of pursuing the two options, of either purchasing the facilities after they’re constructed through our regular capital budgeting process – either from cash or borrowed money — or to lease the facilities through a capital lease arrangement,” Vardy told operations committee members on Feb. 6.

Vardy said the government now has enough staff to give close scrutiny to future lease agreements, which it didn’t have in 1999.

“We will apply that scrutiny to the three health projects,” Vardy told MLAs.

The government’s evaluation of the benefits of lease agreements for new buildings will also incorporate the application of its NNI policy, Vardy said.