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.
