Starting Monday 2nd September 2024, the Kenya Airport Workers Union (KAWU) took to protesting against a public-private partnership (PPP) deal that would see the Adani Group take over operations at Jomo Kenyatta International Airport (JKIA). The workers’ strike had initially been planned for August 19th but was postponed for two weeks to give the workers ample time to familiarize themselves with the terms of the takeover deal.
KAWU, through their Secretary General Moses Ndiema claims that the acquisition of the airport by Adani would lead to the loss of local labour to foreign workers.
The ‘Adani Deal’ was cast into the limelight during the height of the ‘Gen Z protests’ in Kenya, when documents detailing the terms of the takeover agreement were posted to X. Consequently, the #OccupyJKIA hashtag trended on the X platform as the youthful protestors threatened to storm JKIA on July 25th, in line with the anti-government protests that were going on in the country. The protestors, and many Kenyans alike, have faulted the government for arguably selling out one of Kenya’s most precious for unfavourable terms in the long term.
Today we seek to unravel the terms of the deal, understanding the true intentions behind it and who Adani Group, the main perpetuator of the deal, is.
Table of Contents
About Adani Group
A Giant Conglomerate.
Adani Group is a multinational conglomerate based in India. The group is made up of several companies under diverse portfolios and operating in a wide array of industries. These industries include airport and civil aviation, defence and aerospace, edible oils and foods, agriculture, mining services, road, metro and rail, energy and power transmission, ports and shipping, solar manufacturing and water services.
Adani Enterprises was founded in 1988 as a commodities trading firm. It is Adani Group’s flagship holding company that oversees and manages the conglomerate’s operations at a global level. Adani Airports Holdings Limited (AAHL), the institution behind the infamous airport takeover deal, is managed under Adani Enterprises. Adani Enterprises is responsible for the incubation of assets and investments acquired by Adani Group.
Adani Enterprises currently has a market cap of US$41.6 Billion.
AAHL is responsible for pursuing Adani Group’s interests in the civil aviation sector. It is currently responsible for running and maintaining seven airports within India with another expected to be launched in December 2024.
AAHL generated US$71.6 Million (Ksh 9.22 Billion) in gross revenue, which amounted to US$20.6 Million (Ksh 2.7 Billion) EBITDA (Earnings before Interest, Taxes, Deductions and Amortisation). The company handled 23% of air passenger traffic and 33% of air cargo traffic in India.
According to its website, AAHL pioneers innovative airport development merging technology and sustainability to elevate passenger experience, revolutionizing aviation in India and setting a global benchmark. It was established in August 2019 and has since embarked on a journey to dominate India’s aviation industry.
The foray into JKIA is the company’s first venture in the international civil aviation market.
The company aims to bank on opportunities present for private sector participation in the global airport services market. The JKIA deal not only allows it to invest in an infrastructural undertaking but also to set up an international hub for its airport services business.
An authoritative and eccentric founder
Gautam Adani is the founder and chairman of Adani Group.
Born in 1962, Adani dropped out of University in 1978 to indulge in a diamond trading business, before switching to Polyvinylchloride (PVC) import business after joining his elder brother’s plastics business.
He has since grown his business from humble beginnings to a multinational juggernaut through expansions, takeovers and acquisitions. The exponential growth has been aided by his close ties to the political class in India and in particular, his close ties to the current Indian Prime Minister, Narendra Modi.
Since Modi’s ascent to power in 2014, Adani Group has managed to;
- Acquire a 74% majority stake in Mumbai International Airport, India’s second busiest airport.
- Build a system of thermal power plants with a capacity of 4620MW; hence becoming India’s largest private energy provider.
- Win the world’s biggest solar energy contract worth US$6 Billion to build an 8000MW photovoltaic solar plant.
Gautam Adani has managed to build his wealth within a close-knit, closed-off circle of individuals mostly made up of his closest relatives who serve as executives in many of his companies. Nonetheless, Adani retains complete control of the Adani Group.
Controversy
In 2009-2012, Adani acquired Abbort Point Port and Carmichael Mine in the Queensland territory of Australia, under Adani Group’s Australian Division of Operations. Despite the company’s commitment to green energy and reduced emissions, the coal export infrastructure surrounding it has contributed to environmental degradation in the country.
In January 2023, Hindenburg Research, a New York-based investment and consultancy firm, published a report exposing malevolent trading and business practices by Adani Enterprises. It alleged that Adani Enterprises committed trading and financial fraud as it indulged in stock manipulation to inflate the company’s value and to mask the unsustainable debt and financial instability that it had accrued.
The report/expose had an immediate impact on the market as it caused Adani Enterprise’s stock price to plummet and Gautam Adani’s wealth to diminish by over 50%.
However, on January 3rd 2024, the Indian Supreme Court dismissed requests for a special investigation by the Security and Exchanges Board of India (SEBI) into the claims fronted by Hindenburg. The court cited a lack of evidence that Adani bypassed any Indian financial security laws meant to prevent share price manipulation.
This was not Adani’s first run-in with public controversy. Back in 2012, Adani and his younger brother Rajesh Adani were charged in an Indian local court with conspiracy to provide funds to run illegal activities through Adani Exports Limited (currently Adani Enterprises) and Adani Agro Private Limited. They were also accused of share price manipulation to maintain their stake in their company and earn profits.
The case was dismissed in 2014, only for the ruling to be overturned in 2020 by a Mumbai Sessions Court which established that the defendants made unlawful gain.
Rajesh has also been previously charged with fraud and tax evasion. His brother-in-law, Samir Vora has been accused of running a diamond trading scam. Nevertheless, both men still retain top executive positions in the Adani Group ecosystem.
The Adani Airport Takeover Deal
An arduous undertaking
Adani Airports Holdings Limited (AAHL), a subsidiary of Adani Enterprises, initiated a Private Initiated Proposal (PIP) in March 2024 to the Kenyan government, in which it presented its bid to renovate and improve JKIA. The airport, which seemed to be falling apart and in a constant state of disrepair had caused huge backlash from the Kenyan public and the international community as well.
AAHL proposes a ‘long-term concession for Build, Operate and Transfer’ Public-Private Partnership (PPP) model, while the Kenya Airports Authority (KAA) grants concessions over JKIA’s assets for a defined period of 30 years.
Essentially, AAHL proposes to take over the airport’s running and operation from KAA (the government entity entrusted with managing operations at JKIA), to oversee its investment into renovations and improvements. The airport can then be returned to KAA once the terms of acquisition and investment have expired but with yet another caveat; Adani will receive an 18% lifetime ownership stake in the airport.
To facilitate the transfer, management and operationalization of the airport, AAHL also seeks to set up a special purpose company in Kenya, which in itself will be housed under a consortium holding company (Global Airports Operator LLC) in Abu Dhabi, UAE. Global Airports Operator will be under the jurisdiction of Adani Airports Holding Limited.
On August 30th 2024, the special purpose company (SPV) was officially incorporated in Kenya as the Airports Infrastructure PLC (AIP) and it is expected to take over, operate, maintain, develop, design, construct, upgrade, modernize and manage the airport.
All in all, the JKIA renovation deal is expected to be worth about US$2.02 Billion (Ksh 260 Billion) and is to be implemented in three phases. The first phase involves the completion of a new airport terminal worth US$ 750 Million (Ksh 97.5 Billion) to be completed by 2029.
The airport takeover is expected to be finalized by November.
Adani intends to utilize methods such as debt financing and equity to raise the requisite capital required for the project. The debt financing cost will be transferred back to the Kenyan government, hence piling up even more debt burden to the Kenyan taxpayer.
Terms of Adani Airport takeover deal.
During the 30-year takeover period;
- The deal prohibits KAA from setting up a competitive airport to JKIA.
- The deal also prohibits upgrades to Kenya’s 38 other airports without Adani’s consent.
- The deal grants Adani exclusive operating rights at JKIA.
- The deal places the burden for covering losses; including terminating the agreement, on the Kenyan government. Adani also tasks the government with mitigating and managing any public opposition or protestor action against the project.
- The deal relegates the role of managing air traffic and security to Adani. Adani is also set to gain control over fee collection, tax exemption and land access within the airport.
- Adani will be responsible for managing airport staff, which could lead to massive layoffs and hiring of foreign workers.
- Adani will also have control over managing service fees, repatriating earnings and determining payout earnings to the Kenyan government.
The deal provides for a fixed concession fee of US$ 47 Million (Ksh 6 Billion), subject to a 10% increase, every 5 years. Adani predicts an 18% Internal Return on Investment (IRR) for the government in undertaking the project.
Adani also plans to introduce dollar-dominated charges to airline operations to keep the IRR at 18%.
Why the Adani takeover is bad for Kenya
Kenya is currently facing a lot of economic woes, with a massive debt burden worth over US$71.8 Billion (Ksh 10.1 Trillion) as of February 2024. Consequently, the government is faced with a huge deficit in the financing of infrastructure projects and external investment is hereby required to facilitate any massive infrastructural undertaking.
The Adani airport takeover deal only makes a bad situation worse, by piling up extra burden on the country’s fiscal situation all whilst reaping massive profits from the undertaking.
An obscure bidding process.
It remains unclear how a private firm became involved in such an important infrastructure of the public domain. Experts had advised the government to put out a public tender to attract bidding for the project. However, the Kenyan government chose to allow for Adani’s PIP to sail through. The proposal is currently in its final stages.
ALG, a Spanish consulting firm, conducted a feasibility study for the project in February, in which it recommended a competitive bidding process to maximize ‘value for money’ for the Kenyan government.
Nonetheless, Adani argued against a competitive bidding process in its PIP. It posits that private partnership creates room for private partnership creates room for ‘mutual consideration’ and a ‘win-win’ scenario for all parties involved. These claims are unsubstantiated, however, given the restrictive and obstructive terms of the agreement. The government would have found a more palatable and sustainable deal through a competitive bidding process.
Furthermore, the lack of public participation in the project delegation process does not do the government any favours and has continued to taint its image, painting it as a corrupt and incompetent entity. Any subsequent public hearings were only done to rubberstamp an already agreed-upon deal, contrary to seeking the public’s input and opinion on the matter.
A misrepresentation of the project’s viability
Adani proposes a fixed concession fee of US$47 Million (Ksh 6 Billion), with a 10% increment, every 5 years. The figure was derived from the aggregated earnings and revenue from the airport over the past five years.
However, consideration must also have been given to the fact that the Kenyan aviation industry is still in its post-COVID recovery and has faced operational setbacks. The figure should, therefore, have been adjusted to account for JKIA’s operation at maximum efficiency.
| Year | Revenue Estimates from JKIA operations (in US$ Millions) | Concession fee to KAA (in US$ Millions) |
| 2025 | 163 | 47 |
| 2030 | 290 | 53 |
| 2045 | 740 | 70 |
| 2055 | 1,200 | 76 |
Any financial analyst (of whom the Kenyan government employs many) worth his/her salt would have been quick to notice the discrepant figures presented, especially when they are disseminated with Kenya’s current economic situation in mind.
Adani projects the revenue from JKIA to grow tenfold over 30 years, yet it only allocates a small sliver of the returns from the project to the Kenyan government, which is expected to still invest heavily into the project. All in all, the concession fee to the Kenyan government will only grow by 77% over 30 years, and one can only assume that Adani will pocket the vast majority of profit from the project in the long term.
Adani has also not specified the terms for the borrowing avenues it intends to utilize to finance the project, and it may end up exposing the country to more unfavourable loans.
Despite reaping huge profits from the project, Adani leaves the Kenyan government with the heaviest burden of carrying the weight of the project’s expenses. Therefore, the return on the project doesn’t warrant the investment.
Adani’s proposal does not account for potential economic upheaval (locally and internationally) that could affect the aviation sector and hinder its ability to finance the project. This would place Kenya in a precarious situation, given the airport’s importance in Kenya’s economy.
The 18% IRR rate is also ridiculously high for a project of such magnitude, especially given the huge borrowing costs involved. If the project proves profitable, Adani will benefit most. If the project fails, the loss will be transferred to the Kenyan taxpayers.
Adani has a reputation for indulging in high-risk investment projects with foreign governments, leveraging its industrial and political dominance to generate returns. Adani-led projects led to huge public backlash in Sri Lanka and Bangladesh and were at the heart of anti-government upheaval in both countries. The Adani airport takeover deal is already unpopular in Kenya and was at the heart of anti-government protests in the country as well.
Many politicians and observers in India and beyond worry that these infrastructural undertakings, previously viewed as tools of India’s benign soft power diplomacy are painting India in a negative light internationally.
Reduced Competitiveness of JKIA
JKIA is already losing its place as a regional powerhouse in civil aviation to upcoming airport hubs in Ethiopia and Tanzania. Ethiopian and Tanzanian governments have been chosen to invest directly in improving their airport infrastructure to woo foreign investors and tourists. Consequently, they are set to reap full returns from these investments as opposed to subletting them to a private company such as Adani.
The government has neglected JKIA for a long time, and by involving Adani as a key stakeholder in its renovation, it will miss out on potential profits and returns.
Adani’s proposal to raise operating fees at the airport could also drive potential clients seeking better services to other regional hubs. For example, Tanzania has in recent years overtaken Kenya as the top tourist destination in the region. Kenya has been trying to ramp up its tourist numbers despite often shooting itself in the foot by overregulating its tourist infrastructure.
Choosing not to involve important stakeholders in Kenya’s aviation and shipping industry could push them to move away to other regional hubs. Many of these businesses, firms and companies could also be run over by Adani’s aggressive business practices, forcing them out of the Kenyan market. This only goes to hurt Kenya’s aviation ecosystem and all other sectors and industries aligned to it.
Adani Group has an established image as a disruptive player in the industries and countries to which its massive tentacles reach out. It has had a wide array of allegations levelled against it ranging from fraudulent business practices to worker exploitation, most of which have solid evidential backing. It is an entity involved in shady financial practices with even shadier financial records.
The Kenyan government has failed to conduct enough due diligence on it and has since established a working relationship without substantiating any of the claims levelled against it. As things stand, it can only be a matter of time before the extent of the ramifications of this deal is exposed.
That said, any deal/partnership between the government and a private entity should be done in a way that benefits both parties. The efficiency for profits brought by private sector players should be balanced by long-term sustainability for the utilization of the project arising from it in the public domain.
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