Indian firm's takeover of JKIA set to raise passenger, business fees

Passengers at the International Arrival at the JKIA Airport in Nairobi. [File, Standard] India's Adani Airport Holdings will have a free hand in determining how much passengers pay to use the Jomo Kenyatta International Airport and has already proposed a hike in airport fees, according to the proposal that it has made to the Kenya Airports Authority (KAA) to upgrade and operate the aviation hub. The firm has made the Private Investment Proposal to KAA, in which it noted that KAA has been undercharging passengers far much lower than other hubs in the region, including Addis Ababa, and in turn losing revenues and noted that doubling the fees could easily secure the airport's future. The proposal, which was submitted to KAA, but only became public last week, has generated heat, with concerns that the government had been planning to bring on board a private player to run JKIA without following due process. "The proponent will be entitled to set the charges it levies from airlines and other commercial activities without any restrictions," said the firm in its proposal proposing to operate JKIA for 30 years. Adani, which runs eight airports in India including the country's largest Mumbai International Airport in Delhi, (which it co-owns with the government-owned Airports Authority of India) said if given the go-ahead to upgrade and operate JKIA, it would pump Sh246 billion ($1.85 billion) at JKIA in three phases. Over the first phase, which it has given a tentative completion date of 2029, it would invest Sh97.5 billion ($750 million) in the construction of a new terminal building, associated apron and taxiway system. Later phases would include the development of an airport city that will house facilities such as hotels and shopping malls. It noted that having a free hand in determining how much passengers as well as businesses renting space at the airport pay would be one of the ways that would guarantee it an 18 per cent return on investment. In the proposal, the firm noted that "the aero charges to be set in a way that allows Adani Airports to receive Equity IRR (Internal Rate of Return) of 18 per cent on aeronautical business (including entire capex incurred at the airport)". In the proposal, the firm noted that doubling the users' fees would only result in a modest increase in the cost of tickets by two per cent at most. "JKIA is currently charging less than its competitor airports in the East Africa region and a correction can help accelerate revenue," said Adani. "Net increment on total airfare will be in the range of one to two per cent when aero charges are increased by 100 per cent ." It gives an example of Ethiopia's Addis Ababa Bole International Airport, which charges passengers more in airport fees but still remains among the leading aviation hubs in Africa. "The aero charges (at JKIA) are lower than the competitor airports in the region... aero charges at JKIA for departure are almost 50 to 60 per cent lower than Addis Ababa Bole Airport for similar routes," said Adani. This is even as it suggested to pay KAA a "fixed concession fee as will be agreed in the concession agreement". "We are proposing a fixed concession fee as consideration for the contracting authority. For the base year, the fixed concession fee is provisionally estimated at $47 million (Sh6 billion at current exchange rates)," said the firm, adding that it would be updated once it undertook a feasibility study. It, however, said it would increase this by 10 per cent every fifth year to adjust for inflation. JKIA is key for KAA and accounts for more than 80 per cent of the Authority's revenues. According to its latest financial report, KAA made Sh17 billion in revenues in the year to June last year. It however sunk into a loss after tax of Sh4.2 billion, bogged down by high administrative and establishment expenses. The airport has suffered underinvestment over the years, which has resulted in passenger traffic outstripping capacity, with the airport designed to handle 7.5 million passengers annually, but it handled about 10 million last year. Additionally, some of the terminals are designed as temporary facilities but little has been done to transit them to permanent ones. These include terminal two (T2), which had been put up as an emergency measure following the 2023 fire. It was supposed to serve for 10 years while the government constructed a permanent facility. A recent aviation policy approved by the Cabinet notes that the local public aviation infrastructure requires Sh260 billion for upgrades to bring it up to date and enable it to handle anticipated growth in passengers and cargo traffic. JKIA requires half of this amount or Sh130 billion. The government, however, noted that it cannot raise this amount internally but would instead invite private sector firms to pump the money through the PPP framework. Private firms will be allowed to construct and operate new and existing airports under the build, operate and transfer (BOT) and PPP framework, charging users fees that will enable them to maintain and recoup their investments and eventually hand over the facilities to KAA at the end of their contracts. It is this funding gap that Adani is seeking to fill and in its proposal, Adani appears to dissuade KAA from considering other players through a competitive bidding process. "The competitive bidding process, while important, can unintentionally cause delays in airport development. The complexity of bidding procedures, including preparation and submission of comprehensive proposals, often prolongs the project initiation timeline," said Adani. "The proponent envisions swift completion of the proposed project, with phase one targeted for completion in the 2029 financial year. This timeline aligns with GOK's goals in the Fourth Medium Term Plan (of Vision 2030), aiming to enhance aviation infrastructure promptly." Apart from running eight airports in India, Adani handles a third of India's cargo air traffic and 25 per cent of people who use the country's airports. While this could give the credentials in its bid to run and operate JKIA, it has been criticised for increasing user fees after taking over, resulting in higher ticket prices. Indian carriers have in the past protested the increases to the Airport Economic Regulatory Authority (AERA) of India.

Indian firm's takeover of JKIA set to raise passenger, business fees

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

DIGGER JOBS

Digger Motors

Digger Real Estate

Indian firm's takeover of JKIA set to raise passenger, business fees

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS