x Abu Dhabi, UAEFriday 21 July 2017

The letter Gems sent to the KHDA

The full text of the letter sent by Sunny Varkey, chairman of Gems Education, to the head of the Knowledge and Development Authority in Dubai.

This is the full text of the letter sent by Sunny Varkey, chairman of Gems Education, to the head of the Knowledge and Development Authority in Dubai: Dear Dr. Karam, As always, I thank you for the guidance and support you have given our Group. Over the past five to six years we have had ongoing discussions with the Ministry of Education, subsequently with Dubai Education Council and finally with KHDA regarding issues which critically affect private schools in Dubai particularly existing old schools. These schools have served the community of Dubai for as many as 40 years charging AED 5,000 average fee that are today, significantly lower than the AED 15,000 and above average fee charged by new schools for the same product with no track record of delivering quality education in UAE. Our earlier communications over the last six years highlighted the problems that are likely to be faced by these old schools if fee restructuring is not approved. The fee restructure would have enabled these old schools to match the facilities and salaries offered by newer schools as well as meet the ever increasing operating costs including land lease charges. Today, we have come to a stage where it is impossible to run old schools at less than half the price of the new ones because we have been losing our quality teachers to the new schools on account of our inability to offer competitive salaries. In fact, we have brought to the Authority's notice the extent of damage done by these new schools to the old schools. We are seriously concerned about the impact of this on the inspection outcomes of the old schools. We have repeatedly shared details with KHDA to show that the fee increases granted in the last three years for these schools have been far too little to absorb fully the increasing operating costs and we have been carrying on the old schools by delaying certain critical maintenance capital expenditure, class size increases and high cost bank debt. More and more of our old schools are being penalised for high rent increases and are being forced to relocate, as these schools are not being allowed to reflect cost increases in the fees. Dubai Modern High School (DMHS) was our first school to be affected by rent increases and the building that was occupied by this school, before, is now available for lease by new school operators who are allowed to charge appropriate fees to meet the landlord's rental demand. Certainly the cost of relocating will be much higher than implementing a one time fee adjustment to reflect the increased rent within the same location. We understand that landlords may be responding to market forces, but in turn, schools must be allowed to do the same by setting prices that will take into account market demand and escalating costs. The issue of high rent increases continues even today, with two more of our schools: Our Own English High School (Oud Mehta) and Cambridge International School (Al Garhoud) facing similar issues with its landlord and we are not getting any support from KHDA to avoid forced relocations. We reiterate that the extent of fee increases on account of increased operating costs within the same campus will be a lot lower than fee increases applicable for relocation. It is imperative that KHDA / MOE finalise a solution to the problems of this nature or they challenge the very existence of these schools that have served the community for over four decades. In the current circumstances, a number of our schools have been driven to breaking point and we as GEMS can no longer commit to maintaining our own internal and KHDA quality standards. Consequently, it is highly likely that we will have no choice but to begin to close down unviable schools over the next two years. Schools need surpluses in order to be self sustaining, in order to continue to enhance and improve quality for their students, parents and faculty, and to keep up the confidence of our bankers in supporting us to fund new schools. Further, it has been our policy to not to distribute dividends to our shareholders in order to fund our new schools and our Balance Sheet is a strong evidence to this. If the Authority had taken the right decision three years back, this problem could have been avoided. Hence, we reiterate that this is the time that your support must move to support the old schools, by approving them in implementing fee restructuring over the next three to five years, so that our schools are in line with the new schools. We look forward to your serious consideration and if you think it would be appropriate for us to join you in making a presentation on the proposal to the higher authorities in the Government, we will be too pleased to do so. Sincerely, Sunny Varkey