The deal between the Kenyan government and Adani Airport Holdings Ltd has raised a storm due to the controversial nature of the supposed agreement. What does the deal entail, and why has it received so much backlash and rejection from the Kenyan public?
Over the past months, the Kenyan public has come out in solidarity with the Kenya Airport Authority staff rejecting the handing over of the Jomo Kenyatta International Airport to the management of the Indian company, terming it unlawful due to the lack of public participation in a privately initiated agreement.
Compensation for Interruptions
First, the agreement with Adani Airport Holdings Ltd specifies that any interruptions due to court actions, parliamentary decisions, or protests will require Adani to be compensated for both losses and anticipated profits.
Disputes will be resolved through international arbitration in London, with hearings held in Mauritius. This clause is a move to buffer the agreement from perceived opposition with financial consequences.
Contract Renegotiations and Potential Job Losses
Under Adani’s proposal, KAA employees may need to renegotiate their contracts, with potential job losses for some. Adani will hire only a portion of the current workforce under new terms and conditions with allegations that the company seeks to employ non-Kenyan workers. This has seen the KAA staff go on strike disrupting airport operations in the recent weeks.
Tax Breaks and Financial Transfers
The concessionaire is eligible for tax breaks on corporate income for any 10 years within the first 15 years of the Airport and CSD Concessions. Moreover, all financial matters, including revenues, expenses, insurance, and security deposits, will be transferred to the concessionaire.
Air Passenger Service Charge Act Amendments
Still on finances, the Air Passenger Service Charge Act sets a service charge of $50 for international flights and Ksh600 for domestic flights. Revenue from this charge is divided among Kenya Airports Authority (KAA) (60% for international and 50% for domestic flights), the Kenya Civil Aviation Authority, and the Tourism Promotion Fund.
Adani’s proposal includes amending this Act to allow it to set charge amounts and retain the share usually allocated to KAA. The concessionaire will also manage the collection of these charges.
Control of Non-Aeronautical Assets
Adani Airport Holdings Ltd will also take control of all non-aeronautical assets at JKIA from the Effective Date. The company will handle all operations and financial transactions related to the airport. Adani plans to set its service charges and ensure equity (IRR) of 18%, which is essential for the project’s success and profitability.
As the concessionaire for JKIA, Adani expects to earn revenue from Aeronautical Charges which include; Landing fees, parking fees, boarding bridge charges, and passenger service charges.
Non-aeronautical sources include Duty-free shops, Food and beverage outlets, Retail stores and vending machines, Lounges, Advertising and sponsorships, Parking and transportation facilities, Hotels, and transit.
Adani’s Investment Plan for JKIA
Adani plans to invest ($1.85 billion in upgrading (JKIA). This investment aims to significantly boost revenue, projected to rise from $163 million in 2025 to $1.2 billion by 2054. The proposal includes a new passenger terminal, a second runway, and refurbishing existing facilities, marking the first major overhaul of JKIA in 46 years.
Source: Money Academy
