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State overlooks better offer on JKIA expansion, prefers Adani

National

By Benjamin Imende | Sep 23, 2024

The process of allowing Adani Group to upgrade and run the Jomo Kenyatta International Airport (JKIA), contradicted the government’s own feasibility study. But, in a case of fiscal mismanagement, authorities were quick to pick Adani’s offer.

The Standard has combed through two feasibility reports, one commissioned by Kenya Airports Authority (KAA) and another by the Adani Group and now reveals the disregard for financial frugality by authorities, thereby loading the taxpayer with a burden of over Sh25 billion.

KAA had contracted ALG, a firm specialising in transport, infrastructure, and logistics, to explore opportunities for JKIA’s expansion and enhance aviation policy.

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After ALG had submitted its report, the government body failed to follow proper procurement procedures, disregarded other interested parties, and overlooked opportunities identified in the feasibility study in favour of Adani.

It is not clear how Adani arrived on the scene to get the contract. It has been reported that the Indian privately owned entity “read about the plan in the press”

“The overall condition of the airport is generally satisfactory. No substantial investments are anticipated in the short term for the airfield pavements as they are mostly in good condition,” reads part of the ALG feasibility report dated February 2024.

Adani’s Privately Initiated Proposal (PIP) dated March 1 and was accepted by KAA on March 18 2024. The Adani feasibility report, however, lacks a date.

While ALG wanted the project to begin on July 1, 2025, Adani’s was a rushed one. It is already a subject of debate before relevant authorities including the Senate. Head of Corporate Planning and Strategy at KAA Henry Ogoye told stakeholders during a public participation forum early this month that the project should start by November this year.

“I have handled Adani for six months. Let us not get emotional. Even if Adani might be here for 30 years, someone else might take over,” Ogoye told stakeholders at the meeting. The session, which began at 9am and was abruptly adjourned at 1pm, ended as KAA informed participants that their booked time had expired.

The ALG study estimated that JKIA needed Sh211 billion (USD1.63 billion) for a new runway, terminals, and maintenance. In contrast, Adani’s study estimated Sh238 billion over 30 years, a difference of Sh27 billion. ALG also noted in its study that without expansion, maintaining existing assets alone would cost Sh30 billion (USD 237 million) over the same period, while JKIA was generating Sh19 billion annually.

ALG said the government provided only two options for JKIA’s financial assessment: a Full Airport Public Private Partnership (PPP), where a private investor manages all facilities for 30 years, including a second runway, and a Terminal-Only PPP, where the company oversees terminals while KAA manages the runway for 15 years. This indicates that officials focused on a specific outcome, restricting ALG’s ability to explore other growth options.

“The report outlines these two PPP options: a Full Airport PPP, involving a $1.277 billion investment over 30 years, and a Terminals PPP, where the investor would contribute Sh 97 ($755 million) over 15 years, with KAA providing Sh 65.1 bilion ($505 million),” ALG said in its report titled Advisory Services for the Construction of a New Passenger Terminal Building at JKIA, dated February 16, 2024, and adopted by the Cabinet last month.

Adani’s proposal followed in March 2024, despite ALG’s report being intended to guide procurement.

The government blocked competitive bidding despite ALG recommending a three-stage process requiring KAA to submit concept notes and feasibility reports. Authorities ignored the recommendations and awarded the tender to Adani.

ALG also proposed a two-phase competitive bidding process-prequalification and tender-advertised internationally, which KAA disregarded.

The report identifies critical factors for investors, such as clear transaction processes, prequalification criteria, experienced teams, minimal consortium requirements, government-set concession outcomes, and a regulated aeronautical charges framework, as essential for attracting and retaining interest in airport development projects, which KAA failed to follow.

Under the circumstances, ALG said among the options, an Airport PPP offers a more coherent and lower-risk development strategy compared to a Terminal-Only PPP.

ALG, however, included a third option, the No-Project case, where JKIA would see no expansion, only regulatory compliance and major maintenance funding.

But the government preferred a Design-Build-Finance-Operate-Transfer (DBFOT) concession, allowing the private sector to finance, build, and operate the airport with public oversight, evaluating the 30-year Airport PPP for full development.

The report also said JKIA is not listed under Kenya’s Vision 2030 for PPP projects, but is a flagship of the development projects to open up the region to the world.

To cover up its activities, KAA denied ALG access to some key documents, concealing information such as leasing fees, durations, conditions and levies, though it remains unclear if Adani had access to them, ALG states in its report.

Government officials dictated the process of the feasibility study, ending up with the PIP method, which suggests a direct substitution agreement with lenders that could shift the repayment burden of large loans onto Kenyan taxpayers if the company takes over and terminates the deal.

To further limit competition, Adani’s PIP advised against competitive bidding for selecting a PPP partner, claiming it would delay the project.

“Unlike competitive bidding, which can lead to transactional deals, PIP encourages tailored solutions for regional needs and offers a faster, more efficient process,” the Adani proposal said.

However, ALG said that preliminary discussions with investors show strong support for the Airport PPP model, viewed as feasible for building a second runway.

“Compared to competitive bidding, which is lengthy and time-consuming, PIP offers fast-tracked and time-bound procurement,” Adani stated in its proposal.

ALG advised KAA that all communications with bidders should be in writing for transparency, sharing questions and answers with all bidders while anonymising questioners. After each competitive dialogue round, an updated request for proposals (RFP) should be issued, reflecting accepted amendments.

Adani’s report, adopted by KAA, discourages competitive bidding to avoid delays, contradicting ALG’s recommendations and raising concerns about potential taxpayer costs from disruptions or terminations of the Adani-JKIA agreement, despite the need for prequalification to align with the PPP Act.

“Various potential third parties interested in operating the airport may offer different proposals, leading to some infrastructural developments at JKIA, such as a new runway, taxiway system, and terminal, being contractually obligated,” ALG said.

ALG reached out to potential investors for the JKIA PPP, including Grupo Aeroportuario del Pacifico, Vinci Airports, Avialliance, TAV Airports, Groupe ADP, Ferrovial, and MAHA Capital,rity (KCAA) now pay a Sh6,450 ($50) fee. KAA gets Sh3,870 ($30), while KCAA and the Tourism Promotion Fund get Sh1,290 ($10) each.