Shake-up: New law paves way for parastatals NSE listing

THE government is pushing a law that would see key parastatals privatised and listed on the Nairobi Securities Exchange.

The Government Owned Enterprises Bill, 2025, sponsored by Majority Leader Kimani Ichung’wah, would pave the way for the next wave of initial public offers in the country.

While the immediate goal is to impose commercial discipline and remove political interference in the management of the enterprises, it has the implication of easing the sale.

For starters, the state-backed bill proposes that all new government-owned enterprises must be established under the Companies Act.

It also provides that all existing state corporations be reconstituted as public liability companies, with the laws establishing them as parastatals set to be repealed.

“Upon commencement of this Act, any new government-owned enterprise shall only be established as companies under the new Companies Act,” the bill reads.

Large, commercially viable infrastructure and utility state corporations could be the first to be listed in the NSE.

Among state corporations set for conversion to companies are Kenya Ports Authority, Kenya Pipeline, and Kenya Airports Authority.

The Kenya Railways Corporation, Kenya Literature Bureau, Agricultural Development Corporation, Agriculture Finance Corporation, and KICC are also set for the conversion.

The National Cereals and Produce Board, National Housing Corporation, Postal Corporation of Kenya, Kenya Post Office Savings Bank, Kenya Broadcasting Corporation, KEVEVAPI, National Mining Corporation, Kenya Fishing Industries Corporation, Kenya Meat Commission, Commodities Fund and Nyayo Tea Zones are also on the list.

The bill seeks to repeal the laws establishing the listed state corporations, setting them up for major restructuring.

Entities that are already listed are also set for alignment with the proposed law, including KenGen, Kenya Re and National Bank of Kenya.

Since state corporations cannot be listed, the bill makes them companies first.

The entities, along with dozens of others listed in the First and Second Schedules of the proposed law, will be reconstituted as public limited liability companies under the Companies Act.

To facilitate the mass transition, the bill’s Third Schedule provides for the repeal of the specific Acts that establish the corporations, such as the Kenya Railways Corporation Act and the Kenya Ports Authority Act, effectively dissolving their old legal forms.

The proposed transition will involve the transfer of assets, liabilities and business operations to the new corporate structure, ensuring continuity.

The bill anticipates that the companies may not have 100 per cent government ownership and introduces minority shareholders.

“The Cabinet Secretary shall nominate a number of directors proportionate to the government shareholding and shall leave any remaining vacancies…to be filled by persons nominated or elected by minority shareholders,” the bill reads.

The bill creates a framework where private firms, pension funds or other institutional investors can take significant minority stakes.

State corporations are being reorganised to have independent boards, audit committees and to make mandatory disclosures about their performance.

“Every board of a government-owned enterprise shall establish an audit committee and a majority of them, including its chairperson, shall be independent directors,” the bill reads.

State corporation boards, if the law is enacted, would also lead the appointment and removal of an entity’s chief executive officer.

They would also determine the terms and conditions of employment of government-owned enterprise staff, taking into account all relevant factors.

On the disclosures, Clause 33 requires GOEs to make public their audited annual reports, performance evaluations, and anti-corruption reports on their websites.

The bill also seeks to provide that public service obligations handed to the corporations be clearly identified, costed and funded separately.

The bill provides a clear separation of commercial activities from public service obligations.

If a ministry wishes a GOE to perform a non-commercial service, such as providing electricity to remote, unprofitable areas, it must be proposed, costed, and approved by the Cabinet.

These would be managed using a contractual agreement with the National Treasury, paving the way for the commercial evaluations by investors.

The National Treasury will then enter into a separate, fully-funded agreement with the GOE to compensate it for the service.

This is aimed at ensuring that such social mandates do not undermine the enterprise’s commercial viability or become a hidden drain on its resources.

A major overhaul is thus imminent across key state corporations, the bill coming hot on the heels of a state campaign to sell non-commercially viable public entities.

Most of the country’s 260 parastatals have been plagued by inefficiency, political patronage and heavy financial losses.

The proposed GOEs will operate under strict commercial principles, weaning them off reliance on the exchequer to stay afloat.

Treasury recently indicated that it has spent over Sh300 billion in parastatal bailouts over the past decade, with CS John Mbadi underscoring why the reforms are urgent.

The bill also introduces a merit-based selection process for board appointments, establishing an independent panel under the National Treasury to oversee the recruitment of chairpersons and directors.

It is envisaged that the new proposal will effectively end the practice of rewarding political loyalists with positions in state corporations.

Individuals affiliated with political parties in the past five years are automatically disqualified from serving as directors. Those who become officials of political parties get discharged.

Additionally, boards will now elect their chairpersons from among independent directors, unlike the current system, where chairs are appointed by the President.

The board shall comprise the chairperson (an independent director) and six persons who are independent directors, one Treasury nominee, a nominee from the relevant ministry and the CEO.

“A person shall be eligible for appointment as chairperson if the person…has not served in the same GOE as an employee in the immediately preceding five years,” the bill reads.

On performance, GOEs would be required to enter into performance contracts with the National Treasury stating measurable financial and operational targets.

The proposed law is expected to inject vibrancy into the slumping state corporations and open them for public offers to keep them afloat.

The National Treasury, in the 2025 Budget Policy Statement, said state corporations are the major sources of contingent liabilities to the government.

“State corporations can be a major source of fiscal risk to public finances if they underperform financially,” Treasury said.

INSTANT ANALYSIS

The bill does not mandate listing outright, but systematically removes the primary barriers that have previously prevented the sale, effectively setting the stage for a new era of public ownership and investment in Kenya's state-owned assets. The most fundamental step is the proposed law’s requirement that all new state-owned enterprises must be established under the Companies Act (Cap 486) and that existing corporations be reconstituted as public limited liability companies.