Kenyan taxpayers could face a long-term financial burden under Adani Holdings’ proposal to take over Jomo Kenyatta International Airport (JKIA) through a 30-year concession. The plan, submitted as a Privately Initiated Proposal (PIP) to the Kenya Airports Authority (KAA), suggests a direct substitution agreement with lenders, placing taxpayers on the hook for repaying substantial loans if Adani secures the deal.<\/p>\n
Adani has sparked controversy by advocating against a competitive bidding process. The company argues that public tenders would delay the project. \u201cBased on our previous experience, procuring the project using a competitive bidding process will potentially extend the procurement process by 18 months,\u201d Adani stated in the proposal, which was submitted to KAA earlier this year.<\/p>\n
In its PIP, Adani suggests that the Kenyan government would be responsible for covering outstanding debts and guaranteeing the concessionaire\u2019s equity investment. \u201cThe contracting authority will be responsible for the outstanding debt of the project and must secure the concessionaire\u2019s equity investment,\u201d the company added.<\/p>\n
With Kenya\u2019s national debt at Ksh10 trillion ($68 billion), the potential for taxpayers to bear further burdens has caused alarm. According to a September 2023 National Treasury report, the country\u2019s escalating debt continues to strain public finances. Adding to the weight, the Adani proposal includes a fixed concession fee of Sh6.1 billion ($47 million), with periodic reviews based on feasibility studies.<\/p>\n
Adani, a global conglomerate founded in 1988, has faced criticism for its bid to manage JKIA. Protests, especially from younger Kenyans, and outspoken politicians have questioned the transparency of the negotiations. Martha Karua, the former Justice Minister, has criticized President William Ruto\u2019s administration for what she perceives as a secretive handover of a vital public asset.<\/p>\n
\u201cNobody knows what Kenyans will benefit from this deal,\u201d Karua said. \u201cKenyans and airport officials have been ignored. We must be vigilant and resist. There is this notion that when people are elected, they believe they know what is good for us. It is wrong, and Kenyans must be governed the way they want.\u201d<\/p>\n
JKIA has demonstrated financial stability in recent years. According to KAA, the airport posted an average EBIT of USD 47.5 million over the past five fiscal years (FY18-22), with a net profit of USD 33.8 million in FY23. However, Adani argues that JKIA requires significant capital expenditure, estimated at USD 1.85 billion, with USD 850 million needed over the next five years.<\/p>\n
To fund this, Adani plans to raise money through a combination of debt and equity. The company also advocates for an increase in airport charges, arguing that they are too low compared to other major airports. \u201cThe proposed increase in aeronautical charges will not compromise competitiveness at JKIA. Instead, it will fund enhancements for improved facilities and service levels, making JKIA the preferred airport,\u201d Adani said.<\/p>\n
The company intends to double airport charges, claiming that while the rise will remain affordable for passengers, it will help sustain JKIA\u2019s long-term improvements. \u201cAirport charges are 60% lower for similar routes. We plan to increase aeronautical charges by 100% and fares by 1-2%,\u201d Adani explained in its proposal.<\/p>\n
Taxpayers are expected to bear various risks under the deal, particularly those associated with legal changes during the concession period. Adani has demanded exemptions from new laws that could affect the project. \u201cInvestments made by Adani before the adoption of new legislation may be \u2018grandfathered in\u2019 or excluded from new tax rules when a new tax law or regulation is adopted,\u201d the company asserted.<\/p>\n
The firm also seeks amendments to Kenyan laws to ensure the project\u2019s financial viability. During the concession’s operational phase, once stable revenues are achieved, Adani plans to refinance the construction debt through international debt capital markets.<\/p>\n
Assets developed during the concession will eventually be transferred to the KAA at the end of the term. However, Adani has stipulated that the transfer value will be structured to guarantee the company an 18% equity Internal Rate of Return (IRR). \u201cAssets developed through capital expenditure by the proponent (Adani) will be transferred to KAA at the expiry of the concession term at a value determined and agreed by the parties,\u201d the company said.<\/p>\n
Adani\u2019s PIP includes a provision that prohibits the Kenyan government from building new airports to compete with JKIA for 30 years. This clause directly conflicts with Vision 2030\u2019s goal of making Kenya a regional logistics hub, raising further concerns about the impact of the deal on the country\u2019s aviation sector.<\/p>\n
Martha Karua also questioned the restriction, stating, \u201cThe proposal to block the development of new airports for 30 years is reckless. It undermines Kenya\u2019s long-term ambitions and development plans.\u201d<\/p>\n
The government will be responsible for arranging visas and permits for expatriates needed for the project. While Adani has committed to hiring a percentage of current KAA employees, the firm has also indicated plans to bring in non-Kenyans for certain positions.<\/p>\n
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