State plans golden handshakes in parastatal merger

Civil servants working in state corporations are staring at an uncertain future as the government advances plans to merge several parastatals.

The National Treasury has indicated that these reforms will likely lead to significant workforce reductions.

The government plans to offer affected employees voluntary early retirement packages as part of the transition process.

Treasury CS John Mbadi revealed details of the impending changes in notes accompanying 2025-26 budget estimates.

He explained that the restructuring would have a dual financial impact.

Not all affected workers will lose their jobs. Some could be reassigned to positions within the restructured entities.

"Once Cabinet approval is obtained for the implementation of the reforms, the government will allocate budgetary resources to fund voluntary early retirement for employees who choose not to be redeployed," Mbadi said.

In January, the Cabinet approved the merger of 42 state corporations, collapsing them into 20 “more efficient” agencies.

The top governing body observed that the agencies were struggling to meet their contractual and statutory obligations, and plagued by huge pending bills.

Nine corporations were dissolved and their functions transferred to other state agencies, while 16 with outdated functions are to be dissolved.

Careers of chief executive officers, board chairpersons, and members as excess staff are on the line.

There are about 3,100 employees at the state corporations that are tipped for restructuring.

About 520 employees, among them CEOs and board chairpersons, are from nine state agencies that are set for dissolution.

Another 2,600 are at agencies which Cabinet resolved were offering services that can be provided by the private sector.

As such, many public sector employees face difficult decisions about their future employment.

Treasury disclosures show that the implementation is imminent.

Already, a team tasked by Cabinet to execute the reforms is evaluating staff complements and competencies.

Strategic placement or deployment of affected personnel is also underway, the disclosures show.

“This process ensures that individuals are effectively reassigned to pertinent entities or allocated to other MDAs,” the report reads.

“The entire process is expected to be completed by the end of financial year 2024-25,” it adds.

It emerged that a team which was formed to execute the reforms as sanctioned by Cabinet is already on the move.

The committee comprising Office of the President’s, state corporations advisory committee, public service department, attorney general, and inspectorate of state corporations representatives is also listing assets and liabilities of the affected entities.

Treasury disclosed that the multi-agency team has analyzed laws governing the affected agencies and has drawn a new legislative plan to facilitate the reforms.

“The objective is to facilitate a seamless transition for all staff while mitigating the risk of job losses,” Treasury said in the brief to MPs.

After it completes it task, it is expected to prepare a Cabinet memo for the top governing body’s consideration.

Treasury indicates that the memo would require the AG and all CSs to facilitate the full implementation of the reforms.

The memo is to also compel the exchequer to allocate resources for voluntary early retirement.

The scheme appears designed to provide a measure of compensation for those who may choose to leave government service.

Questions remain about how many positions will ultimately be eliminated and what criteria will be used to determine which employees keep their jobs.

But Treasury says the second phase of the plan promises substantial cost savings for the government.

According to Mbadi, the exact amount of budgetary savings will only become clear after the reforms are fully implemented.

The mergers are part of broader public sector reforms that have been under discussion for several years.

The government pumped about Sh106 billion last financial year, hence could save up to Sh53 billion with the proposed merger.

The 2025 Budget Policy Statement says state corporations are the major sources of contingent liabilities to the government.