Why Adani 'sweetheart' deal with JKIA will be painful for taxpayers

Kenya Aviation Workers Union Secretary General Moss Ndiema addresses the press in Nairobi. [Wilberforce Okwiri, Standard]

If Adani Holdings secures the rights to manage and operate Jomo Kenyatta International Airport (JKIA) under a proposed 30-year agreement, Kenyans face an extra tax burden because of new loans agreements.

A proposal, submitted by Adani through a Privately Initiated Proposal (PIP) to the Kenya Airports Authority (KAA), a copy of which The Standard has in its possession, suggests direct new agreements with lenders, whose burden to repay will rest on the shoulders of the taxpayer after Adani takes over JKIA.

“The contracting authority (KAA) will be responsible for the outstanding debt and must secure the concessionaire’s equity investment,” Adani stated in the proposed agreement.

While the deal advocates direct new loan agreements between KAA and lenders, the government will assume obligations of a guarantor and ensure the concessionaire’s equity investment.

The deal also makes the Kenyan government liable for losses, limits its role in operations of the airport, and grants Adani control over land, taxes, fees, and staffing.

The proposed agreement includes raising airport charges to compete with regional facilities and a fixed concession fee to the Kenya Airports Authority, starting at $47 million (Sh6 billion) and increasing by 10 percent every five years.

In a move to ensure Adani gets the best out of the contract, the PIP demands that KAA pays the fixed concession fee subject to review following feasibility studies.

Adani has indicated that it will attract strategic and financial investors for various aspects of the JKIA Master Plan, including terminal, airside, and landside developments.

The firm has also demanded the establishment of a fund by the State to pay damages in case of terminating the deal, irrespective of the reasons.

“The government will remain fully responsible for any existing issues or disputes arising from the concession, with any stakeholders, including Kenyans, in relation to JKIA,” the PIP indicates.

The company also plans to mitigate financial market risks associated with interest rates fluctuations by entering into hedging arrangements.

Taxpayers will bear the risks associated with regulatory changes and any disputes, including those with stakeholders. Adani added that it would be relieved from complying with new laws or policies, and would adhere to the concession terms as per the signed contract under the old laws or be allowed entitlements under new laws.

 “Investments made by Adani before adoption of new legislation may be excluded from tax rules when a new law or regulation is adopted,” the PIP reads. 

Adani, which has already demanded favourable tax terms and exemptions, will have the authority to determine and collect charges for non-commercial and aeronautical activities, as well as any other commercial activities at JKIA.

The Standard established from Adani’s PIP that the company informed the government that using the PIP method would ensure a shorter time frame for the project’s commencement compared to a competitive bidding process.

“Based on our previous experience, procuring the project using a competitive bidding process will potentially extend the procurement process by 18 months from when the bidding process begins, with an additional anticipated time frame of four to six months to logically conclude the evaluation process,” Adani said.

The company argued that procuring through the PIP method would reduce this time frame. 

Adani has promised to provide professionals for the construction works and management of JKIA, and to double airport charges, asserting that the raise will remain affordable to passengers and minimally impact the profits of airlines operating from JKIA.

“As highlighted, the proposed increase in aeronautical charges will not compromise competitiveness at JKIA. Instead, it will fund enhancements for improved facilities and service levels, making JKIA a preferred airport,” Adani said.

Adani argues that current airport charges are too low, with departure charges being 60 percent lower for similar routes. The company wants to increase aeronautical charges by 100 percent and fares by one or two percent.

The Kenyan government will be required to arrange visas and permits for skilled expatriates required for the execution, operation, and maintenance of the concession.

“Adani shall offer employment to a mutually agreed percentage of current KAA employees on terms and conditions as recorded in the concession agreement,” the company said. 

Former Justice Minister Martha Karua has criticised the process, accusing President William Ruto of effectively gifting the airport to Adani.

“Nobody knows what Kenyans will benefit. Kenyans 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,” Karua said.

Adani has further demanded that Kenya be barred from building new airports to compete with JKIA for 30 years. The company’s demands include changes to Kenyan laws and aviation policies to ensure it has a monopoly on JKIA, conflicting with Vision 2030’s goal of making Kenya a logistics hub.

Adani’s proposal restricts upgrade of Kenya’s 38 airports and prevents the construction of new airports without its consent. Existing international airports like Isiolo, Mombasa, Kisumu, and Eldoret would not be enhanced to avoid competition with JKIA.

 “No new competing facility will be constructed in proximity to JKIA by KAA or government instrumentality during the concession,” the proposal states, adding, “In the case of the development of any existing competing facility through private investment, the concessionaire will have the right of first refusal.”

Founded in 1988 as a commodity trading firm, Adani Group, led by Gautam Adani, faces significant criticism over its bid for JKIA.

But the firm has denied claims that the proposed deal was negotiated in secrecy.

“It has become increasingly apparent that a group of publications are working with a clear agenda to malign the reputation of the Adani Group,” the company stated three weeks ago through Oxygene, a local firm handling its communications.

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