Kenya risks long-term loss in the Adani JKIA deal due to flawed cash flows, tax breaks, and lack of transparency, says Prof. Odongo Kodongo.
By Prof Odongo Kodongo
Indian conglomerate Adani Group has submitted a proposal to the Kenya Airports Authority (KAA) to develop parts of Jomo Kenyatta International Airport (JKIA) under a Build-Operate-Transfer (BOT) model. The proposal, submitted via a Private-Initiated Proposal (PIP) as allowed under Kenya’s Public Private Partnerships Act, 2021, has stirred debate among experts and civil society.
The Structure: Who Owns What?
The special purpose vehicle (SPV) formed for this deal—Airports Infrastructure Plc—was registered in Nairobi and is fully owned by Global Airports Operator LLC, a UAE firm. The ownership trail traces back to Adani Airports Holdings Limited (India), a subsidiary of Adani Group. However, the proposal leaves out specific details about beneficial ownership, raising transparency concerns.
Project Cost and Cash Flow Concerns
The deal is valued at US$2.05 billion over 25 years, but several flaws emerge:
- Adani wants access to all airport cash flows, including those from existing KAA operations, which is irregular under normal PPP structuring.
- Renovations to existing terminals would be funded from existing operations, meaning KAA—not Adani—should handle them.
- Adani also proposes that KAA buy back assets at the end of the contract—despite the assets being government-owned from the start.
These flaws present significant project finance risks.
Unfair Return Guarantees
Adani seeks a guaranteed 18% internal rate of return (IRR) on capital, regardless of project performance. This is embedded in a fixed plus variable concession fee model, forcing KAA to absorb more risk while Adani locks in profits.
For reference, IRR is a key financial metric used to evaluate the profitability of investments.
Service Affordability and Market Competitiveness
Adani’s proposal shows that airport service charges would be hiked significantly—potentially making JKIA more expensive than Addis Ababa’s Bole International Airport. Charges could double as a portion of airfares, harming Nairobi’s aviation competitiveness.
Passenger Growth Projections: Overly Optimistic
- Adani forecasts a 4.5% annual passenger growth—a “meteoric surge” inconsistent with JKIA’s historical growth.
- Assumes 100% capacity utilization over 30 years, an unrealistic metric even for major global airports.
- Lacks sensitivity analysis or stress testing, critical tools in financial modelling.
Tax Holiday Controversy
The proposal quietly requests a tax holiday to lower airline costs. While Kenya offers tax holidays in select sectors, aviation infrastructure may not qualify. Moreover, evidence suggests such incentives don’t drive meaningful growth in African economies.
Land and Opportunity Cost
Adani plans to develop commercial facilities like offices and hotels on land provided by KAA, but:
- If KAA owns the land, its opportunity cost must be calculated.
- If KAA must purchase it, funding sources and alternative land uses must be considered, especially amid KAA’s reported cash flow issues.
The Tendering Question
Despite a government-hired consultant recommending open tendering, the project was advanced through a Private-Initiated Proposal (PIP) without public justification—contravening the PPP Act.
Though Adani labeled the proposal “private and confidential,” it has since become public. Should the government opt for open tendering now, Adani could sue for breach of confidentiality—and likely win.
Conclusion: Kenya May Lose
Adani’s proposed project, despite promising quick turnaround and customization, is marred by:
- Poor cash flow structuring
- Unfair risk sharing
- Opaque ownership
- Excessive profit guarantees
- Questionable tax incentives
The Kenyan public may ultimately bear the burden of an inequitable deal.
Keywords:
Public-Private Partnerships | Adani Group | JKIA | Build-Operate-Transfer | Tax Holiday
📌 Original Source: The Conversation – Kenyans stand to lose from Adani airport deal
