JKIA lease: The fine print in Adani's demands

A section of Terminal 1A at the Jomo Kenyatta International Airport, Nairobi, May 8, 2018. [Elvis Ogina, Standard]

The Kenyan government will not build a new airport in the next 30 years that can compete with Jomo Kenyatta International Airport (JKIA) if Adani Airport Holdings takes over its operations, according to the demands set forth by the Indian conglomerate.

Adani will also propose amendments to Kenyan laws and change of national aviation policies to enjoy the sole mandate for running JKIA, stop competition in a bid to maximise returns. This demand overrides Vision 2030, initiated during the late President Mwai Kibaki’s tenure, which aimed to transform Kenya into a logistical and service hub in the region.

Under these proposals, the 38 airports in Kenya will not be upgraded to compete globally, leaving them stagnant for the duration of Adani’s 30-year plan to operate JKIA, the primary gateway to East Africa. This condition also prevents any private investor from establishing a new airport without Adani’s approval.

“No new competing facility will be constructed in proximity to JKIA by authority or government instrumentality during the concession,” the proposal states.

It further explains, “In the case of the development of any existing competing facility through private investment, the concessionaire will have the right of first refusal.”

The proposal implies that airports such as Isiolo, envisioned under Vision 2030 to become a tourism hub, as well as Mombasa, Kisumu, and Eldoret international airports, will not be upgraded to avoid competition with JKIA.

Adani states clearly that the government will be responsible for all losses, regardless of the cause, including in cases of termination of the JKIA-Adani deal.

“The existing litigations in respect to the land at JKIA to be the responsibility of the Kenyan government,” the Private Investment Proposal (PIP) said. Adani has also demanded the establishment of a fund by the State to pay damages in case of terminating the JKIA deal, irrespective of the reasons.

The agreement significantly reduces the government’s role in key airport operations, including communications, navigation, and surveillance systems for air traffic management, security services, mandatory health services, customs, quarantine, and immigration services.

In return, Adani will enjoy unlimited access to any size of land, tax exemptions, and the authority to set and collect levies across the airport.

“An additional runway is not required until the end of the concession period in 2054,” Adani said.

The deal also grants Adani the power to manage a percentage of the Kenya Airports Authority (KAA) staff, potentially leading to retrenchments and the employment of foreign workers.

Furthermore, the agreement obligates the government to borrow funds instead of Adani, who will finance the project through debt.

“Adani will have the sole and exclusive right to determine, invoice, collect, retain, and appropriate fees from users for all services in US dollars.

The firm may repatriate any of its earnings to countries outside Kenya, subject to the payment of concession fees to the authority,” the PIP explained.

The conglomerate will also decide what to give to Kenya, what to be paid in case of termination, and the amount it will retain.

In a bid to control passenger fees at JKIA, the firm has proposed raising airport charges.

According to their proposal, KAA has been undercharging passengers compared to other regional hubs like Addis Ababa, resulting in revenue losses. Doubling the fees, Adani argues, could secure JKIA’s future.

“Government to remain fully responsible for any existing issues/disputes or arising pursuant to the award concession, with any of the above stakeholders holders (Kenyans included) in relation to JKIA,” the PIP said. 

The proposal has sparked controversy, with concerns that the government may bypass standard procedures in involving a private operator for JKIA. The firm plans to invest Sh246 billion ($1.85 billion) in three phases, starting with Sh97.5 billion ($750 million) for a new terminal by 2029.

Adani emphasises that setting passenger and rental fees is crucial for an 18 per cent return on investment, asserting that a 100 per cent increase in user fees would only result in a modest two per cent rise in ticket prices, making JKIA competitive with airports like Addis Ababa’s Bole.

The proposal includes a fixed concession fee to KAA, starting at $47 million (Sh6 billion) and increasing by 10 per cent every five years. 

Despite generating over 80% of KAA’s revenue, JKIA struggles with underinvestment, handling 10 million passengers annually despite being designed for 7.5 million.

Kenya’s aviation infrastructure requires Sh260 billion for upgrades, with JKIA needing half of this amount.

Adani discourages competitive bidding, citing potential delays, and aims to complete phase one by 2029, aligning with Kenya’s Vision 2030 goals. However, Adani has faced criticism in India for increasing user fees at the airports it manages, leading to higher ticket prices.