Inside Ruto's new Sh206b JKIA upgrade plan after Adani deal flop

President William Ruto’s Kenya Kwanza administration is charting a high-stakes course to secure $1.63 billion (Sh206 billion) from international development lenders to overhaul the Jomo Kenyatta International Airport (JKIA).

The detailed confidential plan, according to a government briefing document seen by The Standard from the State Department for Aviation and Aerospace Development, outlines a pivot to bilateral and multilateral financiers after the collapse of a high-profile deal with India’s Adani Group.

The government had handed JKIA to India’s Adani Airport Holdings for upgrading and expansion. The firm was to operate the airport for 30 years.

This was, however, cancelled as local aviation industry players queried the process used in onboarding Adani, noting its Privately Initiated Proposal (PIP) had not been subjected to public participation. The firm was also indicted in the United States on bribery allegations.

The new strategy will now see the Kenya Airports Authority (KAA) take direct debt onto its balance sheet to fund a phased expansion of JKIA.

However, the funding push comes as frontier markets like Kenya face high borrowing costs and limited access to global capital, raising questions about the feasibility of securing concessional terms for the massive project.

The new ambitious plan will particularly be immediately tested by tight global credit conditions and Kenya’s own strained public finances.

Analysts say the new plan signals an apparent shift in strategy, with the plan notably focusing on traditional Western and multilateral development partners, appearing to shun the large-scale infrastructure lending from Chinese development banks that financed previous mega-projects like the Standard Gauge Railway (SGR).

The Kenya Kwanza confidential document paints a picture of an airport at a breaking point. JKIA, which handled 8.7 million of Kenya’s 12.7 million passengers in the last financial year, is operating beyond its seven-million passenger design capacity. Traffic is projected to soar to 31 million by 2055.

The internal document states the single runway will hit saturation by 2035, and two temporary terminals built after a 2013 fire have “outlived their life.”

The government estimates a capital investment of $1.63 billion is urgently needed for new terminals, a second runway, and associated infrastructure.

Faced with “limited fiscal headroom,” the Cabinet approved a plan to “engage various bilateral Development Finance Institutions (DFIs).”

The funding will be sought under frameworks with institutions like the World Bank’s IFC, the African Development Bank, and European DFIs like Germany’s KfW or France’s Proparco.

“Given the constraints on internal revenue to fund other critical social programmes,” the document states, external DFI financing is deemed the only viable path forward.

The government’s new approach mirrors a common model in East Africa, though the scale is significant.

Kenya’s neighbours have turned to DFIs for critical transport upgrades, with mixed fiscal outcomes.

Ethiopia, the influential and dominant regional aviation hub, has utilised funding from the World Bank and the European Investment Bank to finance expansion phases at Addis Ababa Bole International Airport, cementing its status as Africa’s premier aviation hub.

However, Ethiopia has also struggled with high public debt.

Senegal’s new Blaise Diagne International Airport (AIBD) outside Dakar was financed through a mix of Chinese debt and funding from the Saudi Fund for Development and other Arab-based financiers, demonstrating a blended approach.

Meanwhile, Rwanda’s expansion of Bugesera International Airport is being developed in partnership with Qatar Airways, representing a different model of airline-led equity investment.

“The proposed borrowing will leverage the balance sheet of the Kenya Airports Authority,” the government notes, aiming to ringfence the debt from the sovereign balance sheet.

However, analysts say Kenya will almost certainly be required to provide guarantees, adding to the country’s contingent liabilities.

The success of the plan also hinges on Kenya’s ability to convince multiple development lenders to form a consortium, a complex and often slow process based on previous mega projects.

With global interest rates remaining elevated and many developing nations queuing for limited concessional financing, Kenya will be forced to compete fiercely for the required capital, analysts say.

“The country’s need to mobilise financing... is against the backdrop of global financial turbulence that has limited access to global financial markets for frontier market countries,” the briefing acknowledges.

The government intends to use an Engineering, Procurement, Construction, and Financing (EPCF) model.

While the document promises “open and transparent processes,” Kenya has a mixed record on managing large-scale infrastructure projects, with many suffering cost overruns and delays.

If successful, the project is projected to create 32,000 jobs and sustain key sectors like tourism and horticulture exports. The aviation sector already contributes $1.5 billion (Sh194.2 billion) to GDP and supports 130,000 jobs.

For President Ruto, the JKIA plan is a calculated gamble. It is an attempt to deliver a signature infrastructure project without resorting to the politically contentious private partnerships that have faltered or the expensive commercial debt that has crippled the national finances, analysts say.

“The tightrope walk will be securing the money on favourable terms in an unforgiving market,” said an investment banker who sought anonymity to speak freely.

Also, as part of mobilising funds for mega infrastructural projects, the National Treasury in February this year constituted a committee of experts drawn from both the public and private sectors tasked with evaluating modalities of mobilising domestic capital for PPP projects.

The committee noted in its report that while there is adequate money to finance projects, there are many entry barriers for local institutional investors trying to get into PPP projects.

It points to factors such as systemic government failures in policy formulation, fiscal mismanagement, lack of legal enforcement, and low levels of transparency, which have seen investors hold back investments and led to failed PPP projects and even losses of billions of taxpayers’ money.

“The full potential of domestic capital remains largely untapped,” says the committee in the report released Friday, noting that as of December last year, Kenya’s retirement benefits assets under management (AUM) reached Sh2.25 trillion,” said the committee in its report released in May.

“However, domestic capital—particularly pension funds, insurance funds, Sacco savings, collective investment schemes, and Islamic finance assets—has played a minimal role in PPP financing. Pension schemes, for instance, are predominantly invested in low-risk, short-term assets, with 52.5 per cent allocated to government securities and 19.4 per cent to guaranteed funds, while investments in PPP infrastructure remain negligible.

“This significant underutilisation of domestic capital represents a missed opportunity. Pension and insurance assets, inherently long-term in nature, are perfectly suited to finance large-scale infrastructure projects that require stable, patient capital. Increasing their participation in PPPs would not only ensure a sustainable, self-reliant approach to infrastructure financing but also reduce overreliance on foreign capital.”

The report cited the upgrading and expansion of JKIA, partnerships with the Kenya Electricity Transmission Company (Ketraco) for the construction of power transmission and the construction of the Rironi-Mau Summit Road, among the projects that are ripe for undertaking through PPPs.