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Kenyans stand to lose from Adani airport deal: finance guru explains why.

For Adani Group to achieve this enviable outcome, the Kenyan Airports Authority would have to take a higher risk by accepting a concession fee that fluctuates with the project’s performance while Adani’s cash flows are predetermined by its desired profit.

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Gautam Shantilal Adani, Asia's richest man and owner of the Adani Group which if the Kenya government were to stop processing its proposal and open the tender to all interested investors, Adani might seek legal redress since its competitors would easily design their bids to beat its own. Any unbiased court will find that the “breach of confidentiality” violates Adani’s rights.

By Prof Odongo Kodongo

The proposal submitted early this year by Indian conglomerate Adani Group to Kenya Airports Authority to develop and renovate parts of Jomo Kenyatta International Airport has recently been made public.

To facilitate informed public engagement with the proposal, as a project finance student, I thought it would be useful to provide an expert view on its key technical aspects.

Adani exploits a provision in Kenya’s Public Private Partnerships Act of 2021 that allows private companies to initiate project proposals and channel them to the government for consideration.

Briefly, Adani seeks to run Jomo Kenyatta International Airport via a 30-year build, operate and transfer arrangement. Under this arrangement, ownership of the airport remains with Kenya Airports Authority, known as the deal sponsor. The airport business is handled by Adani’s subsidiary, Airports Infrastructure Plc, called the special purpose vehicle.

  • Airports Infrastructure Plc, which was registered in Nairobi on 31 August 2024, is fully owned by the United Arab Emirates incorporated Global Airports Operator LLC.
  • Global Airports Operator is a subsidiary of Adani Airports Holdings Limited of India, which in turn is fully owned by Adani Group.

The proposal omits information on Adani Airports Holdings Limited’s extent of ownership of Global Airports Operator. This leaves room for speculation about Global Airports Operator’s beneficial owners.

The proposal shows that the project requires a cash outlay of US$2.05 billion including capital expenditures, operating expenses and financing costs. This cost is spread over the project’s development period of about 25 years.

However, my examination identifies important flaws in the structure of the proposed deal.

Airport’s cash flows

The first flaw is that the Adani Group, the project operator, will have access to all of the airport’s cash flows. This should not be the case in a typical private public partnership deal like the one proposed.

In such deals, the project operator should only have access to cash flows generated by the new project – that is, the proposed new terminal building and runway and their associated infrastructure. It should not have access to cash flows from the existing assets and operations of the deal sponsor.

Secondly, the proposal shows that the proposed renovation of the existing terminal buildings will be financed from money generated from the airport’s existing operations. The renovations should therefore be undertaken by Kenyan Airports Authority and not included in Adani’s proposed deal. Including them in the deal would complicate cash flow separation and risk sharing.

To be sure, in instances where there are substantial risks associated with the new project’s capacity to generate cash flows, the project operator might require additional guarantees. In such cases, governments often provide guarantees limited to a small proportion of the required cash flows.

The third flaw is that Adani proposes that the government pay it for the developed assets when the partnership ends. This is wrong: the government must not buy assets that it already owns.

Guaranteed return on investment

There are other provisions that require further scrutiny, as well.

The revenue sharing model proposes a fixed concession fee of US$47 million to the government in 2025. Thereafter, the government would receive a fixed fee plus a variable component calculated to ensure that Adani earns an 18% internal rate of return on its capital investment in the project. Internal rate of return is the average annual profit earned by a project in its lifetime.

For Adani to achieve this enviable outcome, the Kenyan Airports Authority would have to take a higher risk by accepting a concession fee that fluctuates with the project’s performance while Adani’s cash flows are predetermined by its desired profit.

This is neither fair nor equitable risk-sharing. As the project operator and major equity capital provider, Adani must take responsibility for the project’s performance by accepting greater fluctuation in its cash flows.

Affordability of services

Fees for aeronautical services (what airlines pay Adani for using the airport) for the first three years will be determined by the need for Adani’s 18% profit. This is problematic.

The internal rate of return is derived from cash inflows and outflows over the project’s lifetime.

Therefore, to determine user charges for an isolated period of the contract such that the internal rate of return remains fixed would push those fees to very high levels.

Indeed, Adani’s own calculations show that the proposed user charges would make the Jomo Kenyatta International Airport more expensive than the Bole International Airport in Addis Ababa. For some transport corridors, the Nairobi airport’s charges as a proportion of airfares are more than double Bole’s.

Passenger traffic

Adani’s project proposal is flawed when it comes to passenger traffic too.

First, the agreement assumes what it calls a “meteoric surge” in passenger numbers based on an assumed constant annual growth rate of 4.5%. This is too optimistic relative to the airport’s historical performance.

Second, Adani’s projections assume full capacity use over the 30-year period. Any financial modeller knows that full capacity is difficult to achieve.

Overall, because of the long period of projections and optimistic stance, Adani’s forecasting assumptions should be subjected to rigorous stress testing (sensitivity analysis). This has not been done.

Tax holidays

Carefully tucked away in the project’s feasibility report is an unheralded pitch to the government for a tax holiday if Adani wins the tender.

Adani argues that, if granted, a tax holiday would lower the charges to airlines. In my view, this is the proposed project’s deal breaker.

Kenyan policy does allow for tax holidays of various kinds to incentivise capital formation and investments in critical but unattractive sectors. It’s doubtful that the airport business fits this description and therefore merits such an incentive.

Further, the evidence shows that such tax incentives hardly offer meaningful economic growth benefits to African countries. More importantly, an analysis of the proposed tax holiday’s effect on cash flows should be provided to aid its assessment. Adani omits such an analysis.

The land question

A component of Adani’s strategy involves developing and operating facilities, such as offices and convention centres. This is subject to confirmation of land availability. Adani does not propose to buy the land. Rather, it appears that Kenya Airports Authority would have to provide the land.

This begs several clarifications.

If the Kenya Airports Authority owns the land, the opportunity cost of the land utilisation by Adani needs to be incorporated in the cost-benefit analysis.

If the Kenya Airports Authority has to buy the land, the question becomes that of the source of the purchase money and whether land acquisition would be the best use of that money by an authority seeking to outsource tasks, such as renovations, due to cash flow constraints.

Final thoughts

The Public Private Partnerships Act requires a justification when an open tender approach is not used for a proposed project. That this has not been done is worrying, given that the consultant hired by the government to advise on this transaction recommended open tendering.

Adani’s argued benefits of its privately initiated proposal – quicker turnaround time, customisation, and risk mitigation – are not convincing. Such benefits are better realised through an open tender, which provides additional benefits such as competitive pricing and transparency.

Adani labelled its proposal “private and confidential”. It is reasonable to expect that it signed a non-disclosure agreement with Kenya Airports Authority to protect its submission from leaking to potential competitors. The proposal has now been released and its content is open knowledge.

If the government were to stop processing Adani’s proposal and open the tender to all interested investors, Adani might seek legal redress since its competitors would easily design their bids to beat its own. Any unbiased court will find that the “breach of confidentiality” violates Adani’s rights.

Adani will win the suit.

One way or the other, circumstances now make Adani the winner and Kenyans the loser in this fiasco.

Keywords:Public-Private Partnerships:Adani Group:Jomo Kenyatta International Airport:Build-Operate-Transfer:Tax Holiday

The story initially ran @ https://theconversation.com/kenyans-stand-to-lose-from-adani-airport-deal-finance-guru-explains-why-239848

Charles Wachira, Managing Editor of businessworld, has disproportionately worked as a foreign correspondent in Nairobi, Kenya. Formerly an East Africa correspondent with bloomberg, covering the business beat he has since been published by a legion of other authoritative global news platforms including Global Finance Magazine, Toward Freedom, Earth Island Journal, and Dialogue. earth and so on. He is also a co-author of, Success to Significance, a biography of pre-eminent global industrialist and renowned philanthropist Dr. Manu Chandaraia. He’s an alumnus of the University of Nairobi and Nairobi School.

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Ugandans Detained for Insulting Museveni on TikTok

Magistrate Stella Maris Amabilis ordered the detention of two suspects until November 13, 2024, on charges of hate speech and spreading malicious information about the first family and NRM-linked musicians. The pair, who denied the charges, are co-defendants with 19-year-old Julius Tayebwa, already remanded for the same offences. Prosecutors say they posted TikTok content to incite hostility against the first family and government figures.

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Museveni Kaguta
Human rights groups have long criticized Uganda's crackdown on online speech, with the US State Department’s 2023 report accusing the government of using criminal penalties to curb internet freedom. This arrest follows the 2022 case of author Kakwenza Rukirabashaija, charged with offensive communication after criticizing the president and his son.

: Two Ugandans face charges of hate speech after insulting President Museveni, Museveni first wife Lady Janet, and Gen. Muhoozi on TikTok, amid rising concerns over free speech.

Two Ugandans, 21-year-old David Ssengozi, alias Lucky Choice, and 28-year-old Isaiah Ssekagiri, have been remanded in Kigo prison for allegedly insulting President Museveni Kaguta, First Lady Janet Museveni, and their son Gen. Muhoozi Kainerugaba on TikTok.

Ugandans Remanded Over Alleged Insults to First Family on TikTok

Magistrate Stella Maris Amabilis ordered their detention until November 13, 2024, when their case will be heard.

 The two are charged with hate speech and spreading malicious information about the first family and musicians linked to the ruling National Resistance Movement (NRM).

The pair, who appeared in court on Monday, denied the charges. They are co-defendants with 19-year-old Julius Tayebwa, who has already been remanded for the same offences.

 Prosecutors allege that the trio posted content on TikTok intended to “degrade, demean, and promote hostility” against the first family and government-aligned figures.

Government Faces Criticism for Crackdown on Online Free Speech

This arrest follows a September warning by police spokesperson Rusoke Kituuma, who stated that insulting the president, the “fountain of honour,” is a criminal offence. 

Kituuma specifically mentioned Lucky Choice as a subject of ongoing investigations. The content leading to the arrests is not entirely clear, but a TikTok video released in April titled “My First Enemies” is believed to have used explicit language to criticize the first family.

The case comes amid increasing concerns over Uganda’s crackdown on freedom of expression.

 In July, a 24-year-old man was sentenced to six years in prison for similar charges after insulting the president on TikTok.

 Human rights organisations have long criticised the Ugandan government for restricting online speech, with the US State Department’s 2023 report accusing Uganda of using criminal penalties to stifle internet freedom.

The arrest also follows the 2022 case of Kakwenza Rukirabashaija, an award-winning Ugandan author who was charged with offensive communication after posting critical remarks about the president and his son.

 Rukirabashaija fled Uganda for Germany after enduring alleged torture during his month-long detention. Rights groups continue to condemn the government’s actions against free speech and the media.

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Politics

Somaliland’s Election: A Key Moment for Democracy & Independence

The election sees President Muse Bihi Abdi’s ruling Kulmiye party facing Abdirahman Mohamed Abdilahi’s opposition Waddani party. Kulmiye touts milestones in Somaliland’s recognition efforts, including ties with Taiwan, while Waddani aims to expand diplomacy across Africa and the Global South. Waddani’s coalition with the KAAH association signals a focus on regional inclusion, especially in Somaliland’s eastern areas affected by unrest.

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Despite the election's significance, risks remain as the Isaaq clan's dominance could heighten minority grievances. Waddani’s inclusivity promise may ease tensions, yet possible fraud claims and Isaaq loyalist unrest pose challenges. Stability hinges on transparency and reconciliation after 2022's postponed elections.

: Explore Somaliland’s 2024 election and its impact on democracy, regional stability, and the push for global recognition as an independent state.

                             Election Context and Significance
Somaliland is set to hold a presidential election on November 13, 2024, an event with substantial implications. The election’s results will shape Somaliland’s democratic credibility and impact its longstanding push for formal recognition as an independent state. Thirty-three years after declaring independence from the Somali Union, Somaliland remains unrecognised, struggling with limited access to global financing and aid, which must often come via Mogadishu.

                             Pursuit of Recognition
Somaliland’s determination for independence was underscored in January 2024 when it reached an agreement with Ethiopia, proposing Ethiopia’s access to the sea in exchange for recognition of Somaliland’s statehood. This pending agreement stirred regional responses, including protests from Somalia, highlighting the sensitivities around Somaliland’s political status.

                            Political Landscape: Kulmiye vs. Waddani
The election pits the ruling Kulmiye party, led by President Muse Bihi Abdi, against the opposition party, Waddani, led by Abdirahman Mohamed Abdilahi. While Kulmiye has championed milestones in Somaliland’s push for recognition, such as building diplomatic ties with Taiwan and lobbying Western states, Waddani is likely to broaden diplomatic efforts toward African and Global South nations. A recent coalition between Waddani and the KAAH association highlights its focus on regional inclusion, particularly in Somaliland’s eastern regions that have faced unrest.

                                 Regional Implications
A peaceful election would bolster Somaliland’s image as a stable democratic entity and strengthen its case for independence. However, Somaliland’s independence push could escalate regional tensions, as Ethiopia and Somaliland grow wary of Somalia’s alliance with Egypt. While a military confrontation with Mogadishu is unlikely, Somaliland remains sensitive to Somalia’s “one Somalia” policy, which has global backing.

                                 Risks of Instability
Despite the election’s importance, risks persist. The dominance of the Isaaq clan in politics and economics could exacerbate grievances among minority clans, even as Waddani promises greater inclusivity. Additionally, tensions among Isaaq loyalists and potential accusations of electoral fraud could lead to unrest. After the violent postponement of elections in 2022, transparency and clan reconciliation will be essential to maintaining stability.

                         A Step Forward for Somaliland
While risks remain, Somaliland’s return to the polls is a positive step for its democratic journey and quest for international recognition. Regardless of the election’s outcome, the event signals continued resilience in Somaliland’s push for independence.

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Salva Kiir: Independence Hero to Divisive South Sudan Leader

President Salva Kiir has struggled to develop South Sudan’s oil-reliant economy, with oil revenues making up nearly 98% of the national budget. Despite the Petroleum Management Act of 2011, he has faced allegations of diverting oil income, fueling corruption at multiple government levels and hindering national progress.

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President Salva Kiir has faced allegations of using political and economic power to maintain control, deepening divisions among opposition groups and stifling civil society. Critics say his approach, coupled with alleged corruption, has stalled South Sudan’s progress and left a leadership vacuum for meaningful change.

: South Sudan’s Salva Kiir led the nation to independence but later faced criticism for fostering division, violence, and corruption amid ongoing civil strife
By Steven C. Roach

Salva Kiir: From Independence Hero to Controversial Leader
Salva Kiir Mayardit has served as South Sudan’s president since the country gained independence in 2011, following a long and bloody civil war with Sudan. Initially, his leadership was marked by optimism, but within two years, this hope unravelled. A rift between Kiir and his vice president, Riek Machar, plunged the country into civil war, displacing four million people and causing an estimated 388,000 deaths.

                         Civil War and Postponed Elections
The division between Kiir and Machar resulted in violent conflict, and despite attempts to restore peace, the two sides remained at odds. In 2015, unable to reach an agreement, the government postponed elections indefinitely as civil strife continued. A fragile peace agreement was signed in September 2018, which aimed to establish a transitional government and set a roadmap for peace. However, while Machar was reinstated as vice president, much of the agreement remains unimplemented, and little progress has been made toward stability.

                              Repeated Election Delays: 2026 Awaits
Since 2018, elections have been postponed four times, with the government citing a lack of preparedness each time. Most recently, the elections initially scheduled for 2023 were pushed to 2024, then delayed again to 2026. Some critics argue these delays reflect Kiir’s fears of losing power and facing possible prosecution in a yet-to-be-formed war crimes court. His political manoeuvres have effectively divided the opposition and stifled civil society groups pressing for democratic reform.

                           Power Struggles and Alleged Corruption
Throughout his presidency, Kiir has faced allegations of leveraging both political and economic power to remain in control. He has been accused of dividing groups like the Sudan People’s Liberation Movement-in-Opposition (SPLM-IO) and the South Sudan Opposition Alliance while repressing civil society. This divisive approach, combined with alleged widespread corruption, has hindered progress, leaving the country without viable political leaders ready to inspire change.

                                  Early Life and Rise to Leadership
Born in 1951, Kiir grew up in a Dinka family in Warrap State and joined the Anyanya, a South Sudanese rebel movement, at 16. In 1983, he joined the Sudan People’s Liberation Movement/Army (SPLM/A) under John Garang, ultimately succeeding Garang as president of Southern Sudan following his death in 2005. Kiir won the 2010 elections, consolidating control of the political system and paving the way for the 2011 independence referendum, which resulted in South Sudan’s secession.

                    Ethnic Tensions and Military Patronage
As president, Kiir faced the difficult task of unifying and professionalising the army. However, ongoing political infighting had already led some commanders to defect and form their militias. Kiir managed to bring back several of these commanders with cash and official appointments, yet the army remained fractured along ethnic lines. Patronage became a tool for maintaining loyalty, particularly among his Dinka soldiers, instead of dissolving these networks and building a professional military.

                        Economic Dependency and Missteps
One of Kiir’s greatest challenges has been developing South Sudan’s economy, which depends heavily on oil revenues, accounting for nearly 98% of the national budget. Despite the Petroleum Management Act of 2011, which aimed to manage resources responsibly, Kiir allegedly siphoned off significant oil revenue. This practice fueled corruption at both state and local levels, as government figures sought personal gains over national development.

                      Inflation and Civil War erupted again in 2013
In 2012, a dispute over oil transport fees led to the temporary shutdown of oil pipelines to Sudan, which sparked a severe economic crisis. Inflation and interest rates surged, adding to tensions and sparking renewed conflict in 2013. This time, the fighting was between government forces and the newly formed Sudan People’s Liberation Movement/Army in Opposition (SPLM-IO), exacerbating South Sudan’s political and social turmoil.

                     A Legacy of Division and Conflict
Kiir’s presidency, which once symbolised South Sudan’s hope for unity and independence, has become synonymous with division, delayed progress, and corruption. His tactics have deepened ethnic divides and crippled the nation’s economy. Kiir’s future, and that of South Sudan, now hinges on whether he can transcend his reliance on patronage and authoritarian rule to usher in an era of genuine peace, stability, and democracy.

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