The future of the Vehicular Emission Test Trust Fund (VETTF) hangs in the balance as the Treasury, under new legislative reforms, moves to absorb decentralised public funds into the consolidated fund, stirring controversy and uncertainty over the continuation of key environmental regulatory functions.
The directive comes under the newly enacted Public Financial Management Act No.44 of 2024, which mandates the closure of all standalone public funds operated by various ministries and departments and the reallocation of their resources to the Treasury.
The move, aimed at consolidating Government revenue and enforcing stricter fiscal discipline, has placed the VETTF, a fund instrumental in vehicle emissions regulation, under imminent threat.
“It is not abolished per se,” clarified Treasury Deputy Secretary Ajith Abeysekera, speaking to The Sunday Morning. “According to the act, any fund currently held independently by a department or ministry must be terminated and reverted to the Treasury. The VETTF is no exception.”
Department of Motor Traffic (DMT) Commissioner General Kamal Amarasinghe confirmed that the move stemmed from a Treasury circular issued under the aforesaid legislation, which mandated centralised control of Government-held funds for greater financial accountability.
“This is not something initiated by us,” Amarasinghe told reporters. “The Treasury circular requires that funds that are considered unconstitutional or non-statutory be transferred by 25 August this year. Ours is one of many such trust funds.”
VETTF origins
The VETTF was established with Cabinet approval on 3 September 2008 to support the Vehicle Emission Testing (VET) programme without relying on Treasury funding. Emission testing companies contribute 10% of test fees to the fund, which covers all Government-related costs of the programme.
Governed by a trust deed signed by the Treasury Secretary and a five-member board, the fund is directed towards seven key objectives aimed at improving air quality and traffic regulation. In line with the same Cabinet decision, the VET project office was set up in 2010 under the DMT to implement these goals. The office is led by a project director who reports to the director general of the VET programme, a role held by the Commissioner General of Motor Traffic.
The VETTF plays a crucial role in monitoring and regulating vehicular emissions, helping to reduce air pollution and promoting public health. Despite assurances that the functions of the VETTF can continue under Treasury oversight, stakeholders fear that the dissolution of its financial autonomy could weaken environmental regulation and oversight mechanisms.
Addressing the origins of the VETTF, Amarasinghe said that the trust fund was a result of citizen action initiated in 1998 which culminated in a verdict by the Supreme Court in 2000. “The VETTF is a result of the verdict, so it serves a certain purpose and tries to resolve certain problems,” he said.
A mandate for reform
“The Public Financial Management Act directs that all these scattered funds in various departments and ministries be brought under Treasury control,” said Abeysekera. “It is a statutory requirement, and within one year of the act coming into operation, we have to implement it.”
The rationale, he explained, was rooted in the need for centralised financial accountability. “We cannot have funds floating independently across the Government. The Treasury is the exchequer. It must have ownership of these funds to ensure transparency and efficient use.”
He added that while the VETTF would cease to operate as an autonomous fund, its activities could still be carried out under Treasury control. Proposals for continued emission regulation would be appraised by the National Planning Department and funds could be allocated accordingly through budgetary mechanisms.
However, this transition depends on formal procedural steps. The Ministries of Environment and Transport have been instructed to jointly submit a Cabinet paper outlining the need for the continuation of the VETTF’s functions. “With the concurrence of the Cabinet, they can continue operations in an agreed manner,” Abeysekera said.
Concerns from stakeholders
Central Environmental Authority (CEA) Director General Padmasiri Moonamale expressed concerns about the possible disruptions this reform could cause.
“The VETTF has enabled us to carry out emission testing and regulatory enforcement consistently for over 15 years. It supports a broad range of activities, including enforcement, education, and data collection, which are vital to reducing vehicular emissions and improving air quality,” he pointed out.
Moonamale acknowledged the Government’s right to amend financial policy but emphasised that regulatory functions should not be compromised by fiscal restructuring. He raised alarm about potential administrative and procedural delays that could emerge if the fund were to be brought under centralised control.
“Currently, the fund is agile. If we need to procure testing equipment or launch a public awareness campaign, we can do it without waiting for Treasury disbursement. That might change under the new system,” he said.
However, when questioned on the ease of access to the funds of the VETTF, Moonamale indicated a potential problem, adding that it had also been a factor in the CEA’s acceptance of the fund’s closure.
“Although the VET programme was legally mandated under regulations gazetted by the CEA, there were technical limitations in implementing certain emission control measures, particularly with regulating devices inside vehicle testing machines. Consequently, the operational responsibility primarily rested with the DMT, while the CEA played a collaborative role,” he said.
Transparency, efficiency and political oversight
Abeysekera maintained that the centralisation was not aimed at dismantling operations but improving accountability. “Yes, the fund’s money will come to the Treasury, but that doesn’t mean its purpose will be lost. Allocations can be made with the approval of the Cabinet and the National Planning Department, ensuring continued support for emission testing.”
Confirming this, Moonamale said: “The Treasury has assured the CEA, Ministry of Environment, and DMT that it will release funds for any viable and beneficial proposals submitted to maintain and enhance air quality. In essence, while the fund as a separate entity will be closed, its core functions, such as monitoring programmes and equipment procurement, will continue, but under Treasury allocations.”
Abeysekera also addressed alternative options being considered. “They could seek parliamentary sanction to continue the fund through a dedicated act. But that’s cumbersome and not the route we recommend. The better course is Treasury management with defined allocations.”
DMT Commissioner General Amarasinghe, on the other hand, chose the alternative. “There is no objection to dissolving the fund itself, but the objectives it serves, like environmental protection and emissions reduction, must continue.
“We’re working with the Ministry of Environment and the Ministry of Transport to submit a joint Cabinet paper proposing the conversion of this trust fund into a statutory fund so that it complies with regulations and can continue without hindrance,” he said.
Abeysekera claimed that this was a possibility. “If a particular trust serves a valid public purpose, it can be continued, but only as a statutory fund under Treasury monitoring,” he said.
Legal and administrative transition
Questions also remain about the technical process of terminating the VETTF, as the trust fund will have to be liquidated.
Moonamale explained: “The fund cannot be immediately dissolved without going through a liquidation process. Presently, revenue from vehicle emission tests goes partly to the fund and partly to the operating companies. Once the VETTF is closed, this revenue will be directed to the Treasury, which will then allocate funds to key stakeholders like the CEA, Ministry of Health, and National Building Research Organisation (NBRO) for air quality management.”
Treasury Deputy Secretary Abeysekera confirmed that no liquidator had been appointed to assess the fund’s assets and liabilities yet. “Actions will be taken according to rules and regulations. So far, no specific liquidation steps have been undertaken, but they will follow in due course because it is a requirement of the law.”
He noted that discussions had been held in both the VETTF Management Committee and the Project Investment Management Committee, which he co-chairs with the Senior Assistant Secretary to the President. “These are high-level discussions. We are taking a considered approach.”
Abeysekera reiterated that all remaining funds must be transferred to the Treasury upon the termination of the fund. “We don’t want misappropriation. Consolidating funds ensures they are used for their intended purpose with oversight.”
Amarasinghe concurred, saying: “The funds would be redirected to the Consolidated Fund. This will not be a problem for the DMT, but we are partnered with the CEA on this and it will be affected.”
The environmental imperative
CEA Director General Moonamale underscored the environmental risks of delaying or weakening emission regulation, noting: “Sri Lanka already faces significant air quality challenges, especially in urban areas. The VETTF has been our backbone in addressing these issues. Any reform should prioritise maintaining that momentum.”
He also highlighted the importance of retaining technical expertise and institutional knowledge. “If operations are paused or disrupted, we risk losing qualified staff and institutional memory. That would set us back years.”
However, if terminated, he also confirmed that the vehicle emission testing itself would continue without hindrance. “The programme will continue as usual. The only change is the channelling of funds, previously managed by the trust fund, through the Treasury. Discontinuing the emission testing programme would be a significant setback,” Moonamale asserted.
Mandating continuity of the VETTF
As per the law, the consolidation process must be completed within a year from the enactment of the Public Financial Management Act, meaning all necessary transitions should be finalised before the end of 2025. As informed by Amarasinghe, the circular requires termination of the fund by 25 August.
Meanwhile, the Ministries of Environment and Transport are racing to finalise the joint Cabinet paper seeking to mandate the continuity of the VETTF. This document will outline the operational necessity of the VETTF and propose mechanisms for its continuation under Treasury oversight.
“We intend to submit a Cabinet paper proposing the conversion of the trust fund into a statutory fund to ensure its continuation. The Finance Ministry’s objective is not to assume control over all such initiatives, but rather to establish a framework where ongoing programmes are formalised through statutory provisions. While no final decision has been made yet, we aim to hold further discussions and arrive at a resolution within the next three months,” Amarasekera said.
In any case, Moonamale noted that the current agreement on the VET programme would continue till 2028, after which changes to the programme would become inevitable. “The current agreement is valid until 2028. After that, a new and improved system will be introduced. It’s still in the planning phase, but the aim is to implement a more efficient and user-friendly model for vehicle emission testing and control,” he said.
When questioned about the changes that are likely to be introduced, Moonamale said: “While I can’t delve into the technical specifics, the goal is to rectify existing flaws. For example, certain vehicles, like heavily loaded buses emitting visible smoke, sometimes pass tests because they are evaluated without their actual load. These gaps will be addressed in the new system.”
The fate of the VETTF serves as a test case for how Sri Lanka balances economic governance with environmental sustainability. While the consolidation of public funds may improve transparency and control, the true measure of success will lie in whether the country can maintain robust emission regulation amid sweeping fiscal reform.