New PPPs model opens door for local firms after Adani deals flop

Modernisation of the Jomo Kenyatta International Airport (JKIA) was one of the projects to be undertaken by the disgraced Adani Group. [Boniface Okendo, Standard] Kenyan firms are angling to invest in the country's key mega infrastructure projects, including the Jomo Kenyatta International Airport (JKIA), months after the cancellation of lucrative deals to the Indian conglomerate Adani Group. The government cancelled over $2.5 billion (Sh322.5 billion) in deals with Indian businessman Gautam Adani's firm after his indictment for fraud, including the modernisation of Kenya's biggest airport and the construction of power transmission lines. The government also terminated the contract awarded to the consortium of French firms, the Rift Valley Consortium, to construct and operate the Rironi-Mau Summit Road. The different projects were to be undertaken through the Public-Private Partnership (PPP), where they would employ their capital in building the projects and operate them for nearly three decades while charging Kenyans fees to use them and recoup their investments. Local lenders, pension funds and insurance firms are now lining up to undertake these and other infrastructure projects through a revised PPP model. In a new report, a committee of experts drawing from both the public and private sectors notes that there is adequate capital available locally. The committee, which was constituted in February by the Treasury and tasked with evaluating modalities of mobilising domestic capital for PPP projects, notes 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," says the report. "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 cites 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. In the case of Ketraco, the committee, chaired by CPF Group Managing Director Dr Hosea Kili, found that there is limited transparency in selecting Engineering, Procurement, and Construction (EPC) contractors, which it noted affects investor confidence. It also notes that there is a risk to land acquisition, something it says needs government involvement for effective mitigation. It has recommended ensuring transparency in the selection of firms undertaking the construction of power transmission lines, combining local and Development Finance Institution (DFI) financing to enhance credibility, and strengthening public participation and education for local investors. On the expansion and upgrading of JKIA, the Committee notes that "the project offers significant potential for revenue-backed financing due to stable aeronautical and non-aeronautical income streams." The airport gets fees from passengers and airlines using the airport as well as from auxiliary services, such as parking and renting out space to businesses that offer services to travellers and airlines. In its report, the committee notes that the government can secure debt financing through these income streams from local pension funds and insurance firms. It has recommended the government "utilise a mix of debt (bonds) and equity financing, targeting institutional investors (including pension funds and insurance firms)" but also "implement a Regulated Asset Base (RAB) model to ensure a predictable revenue stream for investors." It also notes that the Rironi-Mau Summit Road offers local investors potential for good returns, noting that, as with other tolled roads, investors are keen on funding it, as "toll revenues can be securitised to raise capital from institutional investors." "Kenya's road network represents a key infrastructure category for PPP financing. Toll roads are particularly suited for securitisation models, where future toll revenues back project financing," says the report. 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. Its sister company Adani Energy Solutions had also been given another PPP deal for the construction of power transmission lines, whereby it would construct power lines and later get payments from Kenya Power, which would use the lines to transport electricity to consumers. The deal was also cancelled following uproar from local power sector players and consumers as well as on account of the charges that the firm faced in the US. Kenya also cancelled a deal with the French consortium Rift Valley Highway Ltd, which was to build and operate the Rironi-Mau Summit road. The consortium, made up of Vinci Highways SAS, Meridian Infrastructure Africa Fund and Vinci Concessions SAS, was to design, finance and build the road, then operate it for about 27 years, during which it would be charging road users toll fees to recoup investments. The government last year, however, said it had cancelled the deal, with expectations now being that Chinese firms will undertake the jobs, also through a PPP model. Kenya is expected to pay the consortium Sh6 billion for terminating the deal.

New PPPs model opens door for local firms after Adani deals flop

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