Overview of the Government Owned Enterprises Act, 2025 (Kenya)

The Government Owned Enterprises Act, 2025 (GOE Act) is a recently enacted statute that fundamentally reforms the manner in which the Government of Kenya owns, controls, and supervises its commercial entities, formerly referred to as state corporations or parastatals. The Act marks a deliberate departure from the traditional parastatal model established under the State Corporations Act (Cap. 446) by introducing a corporate, commercially driven framework grounded in modern company law and corporate governance principles.

At its core, the GOE Act seeks to reposition government-owned commercial entities as profit-oriented, professionally managed enterprises, while preserving the State’s ability to pursue clearly defined public policy objectives in a transparent and accountable manner.

 

Key Legal and Structural Reforms Introduced by the Act

1. Conversion of State Corporations into Public Limited Companies

The Act mandates the reconstitution of existing commercial state corporations into public limited companies (PLCs) incorporated under the Companies Act, 2015 (formerly Cap. 486). This restructuring subjects Government Owned Enterprises (GOEs) to the same legal standards that apply to private companies, including fiduciary duties of directors, financial disclosure obligations, and insolvency rules.

This reform aligns public enterprises with Article 227 of the Constitution, which emphasizes efficiency, transparency, and value for money in public entities, and reduces reliance on bespoke statutory frameworks that previously insulated parastatals from market discipline.

2. Clarification of State Ownership and the Role of the National Treasury

The Act designates the National Treasury as the central shareholder and owner representative of all GOEs. This resolves long-standing ambiguities where line ministries exercised overlapping and often politicized control over state corporations.

By consolidating ownership at the Treasury, the Act promotes:

• Clear separation between ownership, policy formulation, and regulation;
• Professional shareholder oversight; and
• Consistency in performance expectations across GOEs.

This approach reflects international best practice and supports Article 201 of the Constitution, which requires responsible and prudent management of public finances.

3. Independent, Competence-Based Boards and Enhanced Corporate Governance

The GOE Act introduces a skills-based, independent board architecture, reducing ministerial discretion in appointments. Directors are selected based on competence, experience, and integrity, and are subject to defined tenure, performance evaluation, and fiduciary responsibilities under company law.

This governance framework:

• Reinforces the duty of directors to act in the best interests of the company;
• Minimizes political interference and patronage; and
• Enhances accountability consistent with Chapter Six of the Constitution on Leadership and Integrity.

4. Commercial Orientation and Performance Accountability

GOEs are required to operate on a commercially viable and self-sustaining basis, with a clear emphasis on profitability, efficiency, and competitiveness. The Act introduces rigorous performance contracts between the National Treasury and each enterprise, setting measurable financial and operational targets.

Where a GOE is required to undertake Public Service Obligations (PSOs)—such as providing non-commercial services in the public interest—these obligations must be:

• Explicitly defined;
• Costed; and
• Separately funded and ring-fenced.

This mechanism prevents the historical problem of commercial inefficiency being masked by vague public mandates and unchecked exchequer support.

5. Controls on the Establishment of New Government Owned Enterprises

To curb the proliferation and duplication of state entities, the Act requires that any proposed GOE be supported by a feasibility study demonstrating:

• Economic necessity;
• Commercial viability; and
• Absence of overlap with existing entities.

This reform promotes rationalization of the public sector and reinforces fiscal discipline, particularly in light of Kenya’s constitutional commitment to sustainable public debt management.

 

Practical and Legal Implications of the Act

For Government Owned Enterprises

GOEs must now function in a manner comparable to private-sector companies, prioritizing revenue generation, cost control, and long-term sustainability. Reliance on government bailouts is discouraged, except where justified through properly structured PSOs.

For Corporate Governance and Management

The Act introduces clear distinctions between:

• The shareholder (National Treasury),
• The board of directors, and
• executive management.

This clarity strengthens internal accountability and reduces governance failures that historically plagued parastatals.

For the Public and the Exchequer

From a public interest perspective, the Act promises:

• Improved service delivery through better-managed enterprises;
• Greater transparency and public accountability;
• Reduced fiscal burden on taxpayers; and
• Enhanced public value from state assets.

 

Conclusion

The Government Owned Enterprises Act, 2025 represents a paradigm shift in Kenya’s management of state-owned commercial entities. By anchoring public enterprises in company law, professional governance, and performance accountability—while maintaining structured mechanisms for public service delivery—the Act establishes a coherent and modern legal framework for the establishment, control, and oversight of GOEs.

In doing so, it aligns Kenya’s public enterprise sector with constitutional principles of good governance, fiscal responsibility, and economic efficiency, marking a decisive move away from politically driven parastatal administration toward performance-based public ownership.