Explained: Why Kenya cancelled Adani airport development deal after US indictment

Hours after a US court indicted industrialist Gautam Adani in an alleged bribery and fraud scheme on Thursday, the Kenyan government cancelled the procurement process for a $1.85 billion deal with his Indian conglomerate to expand the airport in Nairobi. It also scrapped a $736 million deal to build power transmission lines in the country.

The Adani Group had in March submitted the proposal to operate the Nairobi airport on a lease for 30 years in exchange for expanding it. As a Scroll analysis showed, this was part of a trend in which Adani projects in foreign countries are announced shortly after Prime Minister Narendra Modi visiting the country or meeting its head of state. Kenyan President William Ruto had visited New Delhi in December 2023.

The Adani proposal to build another runway and upgrade the passenger terminal at Nairobi airport became public knowledge only in July when whistleblower Nelson Amenya released government documents showing that the deal was in process.

On Friday, Amenya alleged to Scroll that the Adani proposal in March and government approval for an investment plan for the airport three months later in June had not been in the public domain because the deal had been brokered through backroom negotiations. These talks are alleged to have been underway since at least April 2023.

In Kenya, Opposition leaders, activists and lawyers have questioned the lack of transparency in the matter and accused the government of corruption. In September, Kenyan Senator Richard Onyonka alleged to The Hindu in a podcast that “money has already exchanged hands between the government and Adani”.

Amenya told Scroll that the Kenyan government was using the Adani indictment in the US as an opportunity to cover up its wrongdoings. “The government was under immense pressure over corruption charges and is trying to wash its hands off now by cancelling the deal,” Amenya said.

The Adani Group has denied the allegations from US prosecutors, describing them as "baseless".

On Thursday Kenya’s Energy Minister Opiyo Wandayi told a parliamentary committee that there was no corruption involved in the deal to construct power transmission lines.

Red flags

Tom Maliti, an independent journalist in Nairobi, told Scroll that the biggest red flag about the airport plan was the secrecy around it. “At first the government did not say that it had received a proposal from Adani, and after the documents became public it changed its stance saying that due diligence had been followed in the matter,” Maliti said.

He said that the Kenyan authorities advocated for the proposal even as there was evidence to suggest that the deal could expose the country to fiscal risks and result in job losses.

Whistleblower Amenya told Scroll that the proposal should not have been considered in the first place because a feasibility study for expanding the airport conducted in February had recommended using a competitive bidding procedure for the project, inviting tenders from interested entities.

Instead, the Adani Group floated a privately-initiated proposal under which a single private firm makes its proposal to the contracting authority. Even though the proposal did not match the feasibility study’s recommendation, it was approved to proceed to the project development phase. This entailed consultation and negotiation between the government and the Adani Group, Amenya said.

In June, the Kenyan Human Rights Commission and the country’s bar association filed a legal challenge citing whistleblower documents to contend that the Cabinet had approved the National Aviation Policy and an investment plan for the Nairobi airport only three months after Adani made the proposal.

The investment plan involved “upgrading the passenger terminal, runway, taxiway, apron, and airside facilities” – all of which were subjects of the Adani proposal, the petition filed in a Nairobi High Court noted. In September, the court temporarily halted the proposed deal with Adani.

Experts added that even for a privately-initiated proposal, the Adani bid failed the requirements mandated by the law that the project should “provide value for money” and “support the efficient transfer of risk from the public sector”.

Odongo Kodongo, a professor of finance at the University of Witwatersrand in Johannesburg, said that the Adani proposal sought to have access to all cash flows of the airport, which is not typically the case in private public partnerships. “The project operator should only get cash flows generated by the new project and not from existing assets,” Kodongo said.

Moreover, Kodongo said that the Adani Group proposed to finance more than half of the $2.05 billion cash outlay for the project from the airport’s existing operations. “If revenues from the airport itself are used to expand it, then we can carry out the project on our own,” Kodongo said.

Another contentious element in the Adani proposal was a clause that the conglomerate would have the right to fix the fees that airlines have to pay to use the airport. These fees would be determined to ensure that the Adani Group earned an 18% annual return on its capital investment in the project.

Kodongo said that these high fees for airlines airlines would make Nairobi airport less competitive than the Addis Ababa airport in Kenya’s neighbour Ethiopia.

Amenya added that the proposal also sought to transfer the title deed of the airport from the Kenya Airports Authority to the Adani Group during the 30-year lease period, and an 18% equity stake of the facility after that. “Adani would have used the airport as a collateral to raise capital in other parts of the world,” Amenya said. “We do not want to give the title deed to a crony capitalist whose only motivation is profit.”

Why the public anger?

Journalist Maliti said that the anger over the Adani proposal resonated with large sections of the Kenyan population because the revelations came close on the heels of widespread protests in the country in June over a new tax regime that imposed duties on items like bread and cooking oil.

Furthermore, the airport deal was also seen as a threat to jobs. In September, aviation workers went on a strike with the Kenya Airport Workers Union saying that the Adani deal would result in job losses and “inferior terms and conditions of service” for those who stay.

“The feeling was that not only is the government making living unaffordable, but it is also involved in secret deals that hurt the country’s interests,” Maliti said.

Amenya agreed. The popular public perception in Kenya is that the deal is corrupt even though there is no concrete evidence to prove so, he said. Since his exposé in July, the government’s credibility has taken a beating on several occasions, he said.

In September, the Kenyan economic adviser said that Adani had expressed interest in the Nairobi airport in December 2023 during President Ruto’s visit to India, but this had not been made public earlier.

The economic advisor was made party to another petition filed by a group of Kenyan Opposition leaders in October which alleged that the Adani Group had submitted a proposal to expand the airport back in April 2023. The petition alleged that Adani Group was not the only firm to have shown interest in developing the airport, as the government has claimed.

These developments had put the government under pressure, Amenya said. He added that the Nairobi airport holds not just strategic importance for Kenya, but is also seen as part of the country’s legacy that should not be undermined.

“Nobody in the history of Kenya has tried to lease the airport,” he said.