MMK Governance Insights. Understanding the Government-Owned Enterprises Act, 2025 and its Implications

For decades, Kenya’s State corporations, established through sector-specific statutes and overseen by line ministries, have accumulated persistent losses, exhibited significant governance deficiencies, and operated within opaque accountability frameworks. To address these challenges, the government enacted, in 2025, one of the most far-reaching public sector reforms in decades: the Government-Owned Enterprises Act No. 25 of 2025 (the “GOE Act”). The Act represents a deliberate shift from administrative control to shareholder governance, aligning Kenya’s State-Owned Enterprises (SOE) framework with OECD-informed global best practice.

The GOE Act emerged from the Ownership Policy for Government-Owned Enterprises in Kenya, which was approved by the Cabinet in November 2023 as part of broader governance reforms aimed at streamlining the performance of state corporations. After being assented to on 21st November 2025 and coming into effect on 5th December 2025, the Act sought to centralise ownership rights within the National Treasury and to transition commercial state entities into limited liability companies.

It is important to examine the GOE Act in relation to the State Corporations Act. Under the State Corporations Act, all gov­ernmental institutions, whether regulatory, commercial or ser­vice-oriented, have been treat­ed the same as “state corpora­tions” irrespective of the charac­ter, objective and business model being described. This led to the bureaucratic oversight of government businesses and commerce’s interests. The Gov­ernment-Owned Enterprises Act thus removes from the ambit of the State Corporations Act those entities that meet the stat­utory definition of a Govern­ment-Owned Enterprise, namely entities that:

1. Are legal persons owned and controlled by the national government.
2. The national government holds more than fifty per cent of its share capital.
3. Have financial and operational powers to conduct business activities.
4. The principal business is the supply of goods or services on ordinary commercial principles. They should be capable, at least in principle, of financial self-sufficiency.
5. Are financed wholly or substantially from sources that do not require annual appropriation by the National Assembly or the imposition of taxes, levies, or other statutory charges.

Under the Goverment-Owned Enterprises Act 2025, some state corporations engaged in commercial or profit-oriented business activities are reclassi­fied as Government-Owned Enterprises (GOEs). Some of these state entities include:

1. Kenya Airports Authority.
2. Kenya Ports Authority (commercial port services).
3. Kenya Railways Corporation (for its commercial operations).
4. Kenya Power and Lighting Company (KPLC).
5. Kenya Electricity Generating Company (KenGen).
6. Postal Corporation of Kenya (Posta).
7. National Housing Corporation (NHC).
8. Agricultural Finance Corporation (AFC).
9. Kenyatta International Convention Centre (KICC).
10. Kenya Broadcasting Corporation (KBC).
11. Kenya Literature Bureau.
12. National Cereals and Produce Board.

These are, in general, commercial entities that compete in markets, generate revenue, and operate in ways similar to commercial corporations. The GOE Act now governs them rather than the legacy State Corporations Act. Conversely, regulatory and public policy bodies such as the Energy and Petroleum Regulatory Authority (EPRA), the Water Services Regulatory Board (WASREB), and the Kenya Bureau of Standards (KEBS) are subject to the provisions of other legislation or the State Corporations Act, where such statutes require it. As a result, commercial state corporations previously under the State Corporations Act shall be transferred to the GOE Act as set out in the 1st Schedule of the GOE Act or as designated by the National Treasury as that institution of State ownership.

The transitioned entities are therefore not identified merely by name, but by their functional character as commercial enterprises, distinct from regulatory and social service entities. This functional differentiation constitutes the core objective of reform under the GOE Act.

What led the Government to enact this law?

A convergence of structural, fiscal, and governance pres­sures drove the enactment of the Government Owned Enter­prises Act, 2025.

Over time, many State-owned enterprises exhibited chronic underperformance, character­ised by weak governance, blurred commercial and public mandates, and persistent reli­ance on Treasury bailouts. This pattern became increasingly unsustainable amid mounting fiscal constraints and concerns about debt sustainability, as the Government could no longer absorb SOE losses, issue implic­it guarantees, or finance ineffi­ciencies through the national budget.

At the same time, development partners and creditors intensified demands for transparent SOE accounts, clearer ownership arrangements, and explicit funding of public service obligations, aligning Kenya’s reform agenda with international best practice, particularly the OECD standards on State-owned enterprise governance.

The Act also reflects constitu­tional imperatives by operation­alising the principles of integrity under Chapter Six, sound public finance management, and en­hanced accountability and trans­parency, thereby embedding SOE reform within Kenya’s broader constitutional gover­nance framework.

What does this new law mean for State Corporations in Kenya?

The most consequential change is that commercial State Corporations are being transformed into companies incorporated under the Companies Act. The Second Schedule of the Act lists State corporations that must be incorporated as public liability companies. These companies become the legal successors of the former corporations, with all assets, liabilities, contracts, staff, and pending litigation automatically transferred. The State Corporations Act model is effectively dismantled for commercial entities, while non-commercial state bodies are expressly excluded from the GOE Act.

With respect to ownership, policy, and management, a central innovation of the GOE Act is the formal separation of roles. The National Treasury shall assume the ownership function by holding shares in trust for the State. Line ministries shall focus on sectoral policy formulation, and Boards of directors shall exercise full managerial and strategic authority through risk governance, performance evaluation, and the appointment of the CEO. This model mirrors the OECD Guidelines on Corporate Governance of State-Owned Enterprises and will directly address the historic problem of ministerial micromanagement, which frequently undermines board autonomy and commercial decision-making.

The Act establishes a board-cen­tric governance model character­ised by: a majority of indepen­dent directors; competitive, pan­el-led appointment processes; explicit political disqualification criteria; and security of tenure subject to defined statutory grounds. These provisions repre­sent a clear legislative attempt to insulate GOE governance from partisan influence, thereby en­hancing fiduciary accountability and professional decision-mak­ing.

One of the most legally significant reforms is the codification of Public Service Obligations (PSOs). Previously, public service man­dates were implied, uncosted, and frequently used to justify financial underperformance.

The GOE Act requires that PSOs be: expressly approved by Cabinet, separately costed and funded by the Government, time-bound and independently audited, and excluded from performance contracts.

Notably, the Act prohibits the assignment of PSOs to listed GOEs, reflecting sensitivity to capital market integrity and minority shareholder protection.

With respect to performance management and transparency, the GOE Act establishes a uniform performance regime anchored in mandatory business plans, performance contracts with Treasury, periodic performance evaluations, and extensive public disclosure obligations. These measures embed fiscal discipline and enable Parliamentary and public scrutiny, reinforcing constitutional principles of transparency and accountability in public finance.

Implications for Selected Gov­ernment-Owned Enterprises

Kenya Ports Authority (KPA)
For entities such as the KPA, the Act mandates a transition to a commercially oriented port operator, with public interest functions treated as compensable PSOs. This shall enhance tariff transparency and support investor confidence in port concessions and logistics infrastructure.

Kenya Power and Lighting Company (KPLC)
As a listed entity, KPLC is shielded from unfunded social mandates. Electrification and tariff subsidies must now be addressed through explicit fiscal instruments to improve balance-sheet clarity and governance credibility.

National Housing Corporation (NHC)
For the NHC, the Act disentangles commercial housing development from social housing policy. Affordable housing initiatives must be contractually structured as PSOs, while land and real estate assets are subject to corporate fiduciary stewardship.

Agricultural Finance Corporation (AFC)
AFC, which provides subsidised credit to farmers, will now receive direct funding for its PSOs, rather than relying on revenues from its commercial operations. This separation enhances financial discipline and ensures that government subsidies are used efficiently.

Potential Implementation Challenges and Legal Risks

Despite its robust design, the Act’s success will depend on: po­litical restraint in board appoint­ments, faithful enforcement of PSO funding requirements, effective oversight by Treasury and Parliament, and manage­ment of transitional labour and asset risks.

We should anticipate judicial scrutiny where legacy practices conflict with the new.

What should we look forward to in the future?

In the immediate term, imple­menting the Govern­ment-Owned Enterprises Act, 2025, is likely to involve complex transition exercises, including incorporation under the Companies Act, comprehensive audits, and asset valuation.

These changes may give rise to legal and labour disputes as en­tities adjust to new governance and operational frameworks. At the same time, resistance can be expected from entrenched inter­ests whose influence is curtailed by the new regime.

In the medium term, the ratio­nalisation of the public enter­prise portfolio through consoli­dation, mergers, or dissolution of non-viable entities is likely, ac­companied by improved finan­cial reporting and a gradual reduction of fiscal pressure on the Exchequer.

Over the longer term, the recon­stituted enterprises are expected to enjoy enhanced capacity to raise capital, enter into joint ven­tures, and list minority stakes, transforming State-owned enter­prises into value-creating national assets rather than persistent fiscal liabilities.

If faithfully implemented, the Act promises reduced political inter­ference, clearer separation be­tween commercial activity and public service obligations, im­proved service delivery without hidden subsidies, and a stronger investment climate that positions Kenya as a more credible destina­tion for institutional investors and development finance.

Conclusion

The Government-Owned Enterprises Act, 2025, represents a decisive shift from administrative State capitalism to shareholder-based public enterprise governance. It offers a legally coherent framework that can improve performance, transparency, and fiscal discipline. Whether it ultimately succeeds will depend not on legislative text alone, but on sustained political and institutional commitment to its underlying prin­ciples.