Background
In the State of the Nation address delivered on 20th November 2025, Kenya’s President William Ruto promised, amidst a lengthy wish-list of lofty national aspirations, to promptly assent to the Government-Owned Enterprises Act. With a stroke of the presidential pen, Kenya will hopefully bid farewell to the era of cronyism and patronage in the state-owned sector. The new law rewires ownership, governance and incentives, centralising the shareholder function in the National Treasury, professionalising boards through merit-based, independent appointments, tying leadership rewards to measurable results, and ring-fencing public service obligations so they are transparently costed and funded. This is not administrative tinkering; it is the most far-reaching governance reform of government corporations since independence, aimed at turning legacy parastatals into commercially disciplined companies that still serve the public interest.
This article—first in a three-part series—sets out why this Act matters and what it means for boards, executives, lenders and citizens. In the coming weeks, we will examine the other two legs of Kenya’s three-legged capital-formation “stool”: the forthcoming Kenya Sovereign Wealth Fund Act and the envisaged Infrastructure Fund. Together, these reforms signal a decisive pivot from politically allocated influence to performance-driven stewardship, laying the foundations for a modern ownership state capable of mobilising capital at scale for national development.
A quick process note: Kenyans are renowned for their athletic prowess, but still, the Bill’s sprint through Parliament has raised eyebrows. During the committee stage, it was taken up via a supplementary order paper and driven to third reading amid a fractious sitting, opposition protests were overruled, and the Deputy Minority Leader was suspended for five days, prompting complaints that debate and public participation were truncated. In a low-trust political environment, radical reform is judged as much by process and narrative as by substance. When government communication is sparse or reactive, compressed timelines and technical complexity are easily cast as concealment, inviting suspicion that reforms mask patronage or asset stripping. Yet set against the scale and urgency of reform, and following the National Treasury’s review of roughly 271 state corporations and the Cabinet’s decision to merge, dissolve or restructure several, the case that the speed served a larger fiscal and governance imperative is not without merit. Too often, significant policy reform is paralysed by endless debate, cosmetic public participation, and political grandstanding. It may just be the case that the end justified the means.
A New Governance Playbook for the State-Owned Sector
Kenya’s National Assembly has now passed the Government Owned Enterprises Act, a comprehensive reset of how the State owns, governs, and measures the performance of commercial entities. The Act installs a clear ownership model under the National Treasury, a largely independent, skills-based board architecture, ring-fenced public service obligations (PSOs), and rigorous performance contracting—shifting Government Owned Enterprises (GOEs) decisively toward commercial discipline with public accountability.
Why it matters
The Act reframes GOEs as profit-oriented, self-financing and self-sustaining companies that remain publicly accountable through the National Treasury (s.9). It aims to (i) establish a coherent ownership and legal framework, (ii) embed governance that drives commercial outcomes, and (iii) enhance transparency—including separate treatment and compensation for PSOs (s.3). It will commence on a date appointed by the Cabinet Secretary for the National Treasury by Gazette notice (s.1).
Key changes at a glance
- Central shareholder function. The Cabinet Secretary (National Treasury) acts as the State’s shareholder of record and must: hold shares on behalf of the Republic, run independent board appointment processes, enter performance contracts with each GOE, evaluate performance, and set/approve board remuneration frameworks (s.5).
- Tighter gatekeeping for new GOEs. A ministry proposing a new GOE must clear a viability and necessity test led by the National Treasury—covering fiscal impact, fit with mandate, feasibility via existing entities or the private sector, and proposed Government shareholding—before Cabinet approval (ss.7–8).
- Commercial orientation codified. GOEs must operate “for profit,” be self-financing and self-sustaining; where PSOs are assigned, the Act requires separate operational/accounting treatment and budget compensation (s.9, read with the objectives on PSO ring-fencing in s.3).
- Independent boards as the norm. Boards are comprised predominantly of independent directors, appointed through an independent search and selection panel with strict qualification and disqualification criteria to ensure true independence (ss.10–16). Retirement by rotation is structured to preserve continuity (s.17).
- Board duties and controls. Boards set strategy, budgets and KPIs for CEOs; institute risk governance and internal control systems; ensure compliance; and enter performance contracts with the National Treasury (s.18). Every GOE must have an independent audit committee (s.21).
- Pay for performance (with guardrails). Board fees and sitting allowances follow National Treasury guidelines; a bonus-type annual reward is permissible against targets in the GOE performance contract, while fees/allowances themselves cannot be performance-based (s.20).
- Professionalised executive leadership. CEOs are competitively recruited by the Board, sit as non-voting Board members, and must meet defined academic, experience, and integrity thresholds (s.22).
- Disclosure and transparency. The National Treasury must publish an annual inventory of GOEs in the Kenya Gazette; the Act anticipates enhanced financial transparency and periodic reporting (s.9(5), objectives in s.3).
Policy perspective
This statute is a significant shift from parastatal-era practice toward a modern shareholder model: ownership centralised, boards independent and merit-based, management accountable to measurable targets, and PSOs transparently costed. The framework broadly aligns with international good practice on SOE governance by separating policy, ownership, and enterprise management roles and by elevating disclosure and performance discipline.
A further watershed is the Bill’s legal “clean-up”: it repeals bespoke statutes that created commercial state corporations by legislative fiat and converts them into limited-liability companies under the Companies Act, with an explicit mechanism to transfer their assets, liabilities, and businesses into the new vehicles. Operationally, the framework channels future establishments and governance through the Companies Act and provides portfolio-rationalisation tools (including dissolution/merger provisions and Schedules that map the transition), replacing idiosyncratic Acts with a single, modern corporate law backbone. For transaction planners, this unlocks standard deal pathways—share sales, strategic placements, IPOs/listings, shareholder agreements, charge creation, and predictable takeover/insolvency regimes—making divestitures and privatisations materially faster, cleaner, and cheaper while preserving public-interest levers such as PSO ring-fencing and performance contracts.
Implementation reality—why this will be hard:
The reform now moves from elegant statute to execution at scale, and Kenya has limited institutional muscle memory for programmes of this breadth. Centralising the shareholder function at the National Treasury while simultaneously converting scores of legacy entities into Companies Act vehicles, reconstituting largely independent boards through search panels, negotiating performance contracts, and ring-fencing/compensating PSOs is a multi-year, whole-of-government endeavour.
It will demand new capabilities in portfolio management, valuation, KPI design, and disclosure; extensive legal housekeeping (asset-and-liability transfers, restated accounts, tax and procurement re-classification, novation of contracts and debt covenants); and careful people and union management (fit-for-purpose organograms, CEO and CFO competitive recruitment, remuneration realignment).
Expect sequencing risks (what happens first and who signs), data and systems gaps (quarterly reporting packs, PSO cost ledgers), and litigation exposure from stakeholders unsettled by mergers, dissolutions, or divestitures. Regulators, lenders, auditors and Parliament will all have to learn new rhythms; without disciplined programme management and sustained political backing, the change could stall in transition. The opportunity, however, is commensurate with the complexity; done well, the State’s portfolio becomes bankable, transparent, and ready for orderly privatisations or strategic partnerships.
Practical implications
For two out of three sets of key stakeholders, they will have their work cut out for them for the foreseeable future. Firstly, for parent ministries and the National Treasury, the immediate priority is portfolio rationalisation. They will have to apply the Act’s establishment tests rigorously; where the commercial case is weak, they must plan for mergers or orderly dissolutions. In parallel, they will have to develop a credible ownership/stewardship function: build capacity for performance contracting, KPI design and evaluation, publish the annual inventory of GOEs, and issue remuneration guidance without delay so that boards and executives have clear guidance.
Secondly, for GOE boards and management, as soon as the Act comes into force, and subject to any transitional guidelines, they should move quickly to reconstitute boards and committees to meet independence thresholds and competency matrices, and to check for conflicts against the detailed disqualification rules. They will have to put in place a risk-and-controls framework covering internal audit, audit committee charters, risk registers, whistleblowing and compliance attestation, all aligned to the Act’s governance provisions.
On the flip side, lenders, investors and strategic partners should expect stronger governance and disclosure, more predictable dividend policies and clearer accounting for PSO subsidies, improving credit analysis and deal structuring.
For the most important stakeholder, taxpayers and citizens, the promise is straightforward: fewer bailouts from the public purse, better services, and clearer value for money. By requiring public service obligations to be explicitly costed and compensated, the Act converts opaque subsidies into budgeted line items that Parliament and the public can scrutinise. Independent, merit-based boards, performance contracts, and regular disclosures should curb waste and unmerited political appointments, while profitable GOEs are positioned to return dividends to the Exchequer.
The conversion of legacy corporations into Companies Act companies also enables orderly divestitures and listings, widening opportunities for citizen participation and deepening local capital markets. The transition will not be painless: legacy debt workouts, labour rationalisation and tariff resets will need careful handling and targeted social protection, but the direction of travel is toward a lighter fiscal burden and better-run public enterprises. Ultimately, the public’s role is vigilant oversight: insist on publication of the GOE inventory, performance reports and PSO accounts, and judge success by whether services improve and the bailout bill declines.
The State must, as a matter of necessity, over-index on transparency, proactive briefings, plain-language explanations, published transition timetables and PSO costing methodologies, independent validators and commit to predictable, two-way engagement beyond formal public participation windows. Credible, early proof-points (e.g., signed performance contracts, quarterly performance reporting) will be essential to shift sentiment from scepticism to cautious confidence.
How can we help
For more information and support on operationalisation of the Act, you can reach out to our multidisciplinary Public Policy & Regulatory Affairs and Corporate Advisory teams led by partners Jinaro Kibet jkkibet@tripleoklaw.com, Stephen Mallowah smallowah@tripleoklaw.com or Brian Muinde bmylo@tripleoklaw.com
This client alert provides general information and is not legal advice. For tailored guidance or board/training sessions on the Act, please contact our team.