Part XVI – STATE CORPORATIONS

210Definitions

For the purposes of this Part—

"governing body" in relation to a public entity, means a commission, a board of directors, a board of trustees, board of governors, and council; and;

"government owned enterprise" means an organisation which—

• (i) is a legal person under the ownership and control of the national government;

(ii) has been assigned financial and operational powers to carry on a business activity; and

(iii) as its main business, supplies goods or services in accordance with ordinary commercial principles; and

(iv) is financed wholly or substantially from sources that do not require annual appropriation by National Assembly, or imposition of a tax, levy or other charge under legislation.

211Declaration of national government entities and classification of state corporations

(1) Pursuant to section 4 of the Act, the Cabinet Secretary may by notice in the Gazette declare and classify national government entities and entities in accordance with the Schedules as indicated in this Regulation.

(2) All State Organs including constitutional institutions and independent offices shall be categorised as Schedule 1 national government entities.

(3) National Government owned enterprises operating on the basis of commercial principles shall be listed as Schedule 2 national government entities.

(4) Regulatory agencies shall be categorised as Schedule 3 national government entities.

(5) Executive agencies, public universities and public tertiary education institutions, national referral health institutions, boards and commissions fully or partially funded through the national government budget shall be categorised as Schedule 4 national government entities.

(6) National Public Funds established under the Constitution, national legislation or subsidiary national legislation shall be classified as Schedule 5 national government entities.

(7) The Cabinet Secretary shall have powers to amend the Schedules classified under this regulation in accordance with the provisions of the Act and this regulation.

212Scope and application

The provisions of the Act and these Regulations shall apply to all national government entities declared under regulation 211 of these Regulations.

213Application for listing by governing bodies of undeclared state corporations

(1) The Cabinet Secretary responsible for a national government entity that should have been declared or ought to be declared under the Act and these regulations as a national entity but has not been declared in either of the Schedules, shall notify the Cabinet Secretary, in writing of that the national government entity is not listed or ought to be listed in the Schedules within 30 days after the gazettement of these Regulations.

(2) The Cabinet Secretaries of the responsible national government entities under paragraph (1) shall submit the following information to the Cabinet Secretary in support of its application for listing—

• (a) name of the public entity;
• (b) its main function or business activities;
• (c) department responsible for the public entity;
• (d) legal instrument under which the entity was established;
• (e) dates of its establishment and financial year end;
• (f) names of members of the governing body controlling the public entity;
• (g) its registered address and telephone numbers;
• (h) name of the chief executive officer;
• (i) name of the chief financial officer;
• (j) name of the company secretary, if any;
• (k) authority responsible for appointing the chief executive officer and governing body;
• (l) subsidiaries, if any, under the ownership control of the entity;
• (m) latest audited financial statements;
• (n) amount of budgetary fiscal transfers received over the past three financial years; and
• (o) most recent strategic plan of the public entity.

214Guiding principles for the establishment of state corporations

The following principles shall apply when determining establishment and dissolution of a Public Corporation under section 86 and 182 of the Act—

• (a) there shall be a role for national government entity to fill a gap left by the market forces through—
• (i) social inclusion, where the national government entity addresses social inequity by redistributing resources in ways that improve opportunity and support for individuals, families and communities, allowing them to participate in the economy and society consistent with the national government's social inclusion agenda; or (ii) correction of market failure, where the national government entity's activity shall address market failures by improving social and economic welfare through improved resource allocation, where the benefits of national government intervention outweigh its cost;

• (b) activities promoted by the corporation shall have clear and consistent objectives and be effective in achieving their national objectives and represent value for money for the expenditure of taxpayer funds;

• (c) a government owned enterprise shall operate on commercial principles and with a defined commercial income stream that substantially supports the associated commercial activities;

• (d) where activities involving tax expenditures demonstrate that public expenditure is less effective in achieving the national government objective but can effectively be undertaken on a commercial basis;

• (e) there is no overlap or duplication of functions when establishing a state corporation within the national government.

215Criteria for establishing state corporations

(1) In exercising the powers under section 182 of the Act, the Cabinet Secretary and National Assembly shall be guided by regulation 214, this regulation and any other relevant regulation of these Regulations.

(2) A state corporation may be established only with the prior approval of the Cabinet, with reference to a legislation enacted to govern the establishment, management and dissolution of such government commercial enterprises.

(3) In order to establish a state corporation or a subsidiary of a state corporation—

• (a) the responsible Cabinet Secretary shall submit a written business case to the Cabinet Secretary, with detailed justification for establishing the state corporation or the subsidiary;
• (b) the business case in paragraph subparagraph(a) shall be informed by a feasibility assessment of the proposed state corporation or the subsidiary for the purpose of ascertaining—
• (i) the economic and financial viability of establishing the state corporation; (ii) whether the proposed activity cannot be conducted through an existing corporation or the parent department; (iii) whether or not there is need to establish a new corporation; (iv) the functions and objective that its establishment is supposed to attain;
• (v) how the activities of the proposed corporation will fit in the department's legislative mandate and medium term strategy, and aid the realization of the objectives of the programmes associated with that department; (vi) how it shall impact the fiscal position of the government; and (vii) the amount of government share;
• (c) the feasibility and viability assessment conducted under subparagraph (b) shall be submitted to the Cabinet for approval.

(4) Upon approval of the business case by the Cabinet, the necessary establishment processes shall be undertaken by the relevant department as required by a legislation on formation, management and dissolution of state corporations to allow it perform the functions stipulated in the instruments for incorporation.

(5) The national government entity responsible for investment portfolio management in the National Treasury shall be constantly updated on the progress of a state corporation.

(6) The department responsible for investment portfolio management in the National Treasury shall conduct regular review of state corporation to assess the relevance of the mandate and the justification for their continued existence and where necessary make recommendations to the Cabinet for the dissolution or merger of corporations.

216Dissolution of State Corporations

(1) A state corporation may be dissolved only with the prior approval of the Cabinet, with reference to legislation enacted to govern the establishment, management and dissolution of such state corporation.

(2) Subject to the provisions of a legislation enacted for the formation, management and dissolution of state corporations, a state corporation may be dissolved—

• (a) upon expiry of the lifespan of the state corporation as may be defined in the instrument of establishment;
• (b) where a state corporation has carried out the mandate for which it was created;
• (c) upon reorganization of the corporation and associated government functions, and
• (d) upon a merger of the corporation with another.

(3) The accounting officer related to the corporation in question shall follow-up implementation of' the findings and eventual recommendations for dissolution to ensure compliance.

(4) The Cabinet Secretary may by notice in the gazette prescribe guidelines for dissolution and mergers of state corporations.

(5) Upon approval by Cabinet of the recommendations to dissolve or merge state corporations, the Cabinet Secretary shall cause the dissolution or merge the corporation with another.

(6) Upon dissolution of a state corporation, the funds corresponding to government equity in the corporation shall be deposited into the Consolidated Fund.

(7) Upon ceasing of an entity to be a public entity, the Cabinet Secretary shall vest all the assets and liabilities to the responsible national government entity.

(8) No national state corporation shall vest its assets in another entity without prior approval of the Cabinet.

(9) The provisions of this regulation shall be subject to the provisions of a legislation enacted for the formation, management and dissolution of state corporations, or the Act of Parliament establishing that state corporation.

217Evaluation of state corporation's performance

(1) The Cabinet Secretary responsible for public investments, in consultation with Cabinet Secretary shall annually agree on the performance targets with the governing body for a national government entity listed in Schedule 2 and 3.

(2) The annual performance contract shall document the mandated key performance measures and indicators to be attained by the national government entity as agreed between the governing body and the responsible Cabinet Secretary, who shall give the governing board policy direction.

(3) The Cabinet Secretary responsible for finance shall establish procedures for quarterly reporting to the Cabinet Secretary responsible for the controlling department in order to facilitate effective performance monitoring, evaluation and implementation of corrective actions.

(4) Without limiting the provisions of paragraph (3) of this regulation, the National Treasury shall design the procedures by which the Cabinet Secretary shall monitor the implementation of strategic plans of Schedules 2 and 3 national government entities and assess their performance and achievements.

(5) The Cabinet Secretary responsible for public investments shall issue guidelines on performance reward and sanctions of Schedules 2 and 3 national entities.

218Annual budget

(1) The Cabinet Secretary responsible for the state corporation shall approve the estimates of budget for the state corporation and shall not later than January every year, submit to the National Treasury for approval those estimates for the following financial year.

(2) The National Treasury shall provide guidelines and the format on which the budget shall be prepared.

(3) Budget estimates submitted under paragraph (1), shall be classified as follows—

• (a) compensation of employees;
• (b) use of goods and services;
• (c) transfers to other levels of government; and
• (d) capital.

219Dividends policy and surplus funds

(1) The National Treasury shall prepare and issue dividend policy guidelines on how national government entities referred to under regulation 211(3) and (4) and remit dividends to the National Treasury.

(2) A regulatory authority established by an Act of Parliament and referred to under regulation 211(4) shall remit to the Collector ninety per centum of its surplus funds reported by the management in the financial statements by the 31st October of each year.

(2A) For the purpose of this regulation, "Collector" means the Commissioner-General appointed under section 11 of the Kenya Revenue Authority Act (Cap. 469).

(3) A regulatory authority to which this section applies shall be exempt from the income tax.

(4) The governing body of a public entity listed in Schedule 2 referred to under regulation 211(3), shall formulate an appropriate dividend policy in line with the policy guidelines referred under paragraph (1), and submit to the National Treasury and the respective County Treasury. [ L.N. 141/2018, r. 2, L.N. 90/2019, r. 2.]

220Quarterly reporting by governing bodies

(1) Pursuant to section 83(6) of the Act, the accounting officer of a national government entity listed in Schedules 2, 3 and 4 shall prepare and submit quarterly financial and non-financial statements within 15 days after the end of the each quarter to the Cabinet Secretary responsible for the national government entity with a copy to the National Treasury and the Auditor-General.

(2) The quarterly reports prepared under paragraph (1) shall be in the format gazette by the Cabinet Secretary and shall include information on—

• (a) revenue, including funding from grants,
• (b) expenditure;
• (c) borrowing, including guarantees issued by the national government and any outstanding loan arrears; and
• (d) amount of profit or loss of the public entity for the quarter.

221Annual financial statements

(1) The accounting officer for a national government entity listed in Schedule 2 and 3 shall prepare and submit annual financial and non-financial statements in the format gazetted by the Cabinet Secretary within three months to the Auditor General with copies to the responsible Cabinet Secretary and the National Treasury.

(2) The annual financial and non-financial statements referred to under paragraph (1), shall be prepared—

• (a) in compliance with the International Financial Reporting Standards and as prescribed by the Public Sector Accounting Standard Board from time to time; and
• (b) the annual financial statements must be approved by the governing body.