Joint Circular No. 02/2003/TTLT/BKH-BTC guiding the preparation of financial plans for programs and projects using Official Development Assistance (ODA) funds.

JOINT CIRCULAR

Guidelines for Financial Planning for Programs and Projects Using Official Development Assistance (ODA) Funds

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Pursuant to Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government on the issuance of regulations governing the management and utilization of Official Development Assistance (ODA) funds;

The Ministry of Planning and Investment and the Ministry of Finance jointly issue guidelines for the financial planning process for programs and projects using Official Development Assistance (hereinafter referred to as ODA programs and projects) as follows:

I. GENERAL PROVISIONS

2. Applicability:

These guidelines include provisions guiding the financial planning for ODA programs and projects during the ODA solicitation phase; the preparation, review, approval of ODA programs and projects, and the preparation and implementation of ODA programs and projects.

2. Principles for Financial Planning for ODA Programs and Projects:

Financial planning for ODA programs and projects must ensure:

- Compliance with current Vietnamese laws and commitments between the Vietnamese Government and foreign donors in implementing ODA programs and projects.

- Efficient mobilization and allocation of ODA funds and counterpart funds, avoiding waste, and being consistent with the actual progress and capacity to implement ODA programs and projects.

3. Content of Financial Plans for ODA Programs and Projects:

It includes the ODA capital plan (debt financing, non-reimbursable aid, categorized by country or organization providing assistance); domestic capital (central government budget, local government budget, domestic credit, own capital of the project sponsor, contributions from project beneficiaries, and other sources as stipulated by Vietnamese law).

4. Methods for Financial Planning for ODA Programs and Projects:

4.1. In accordance with the domestic financial mechanism, ODA programs and projects are classified as follows:

- ODA programs and projects funded directly from the State Budget.

- ODA programs and projects where the State provides loans.

- ODA programs and projects partially funded from the State Budget and partially provided through loans.

4.2. Financial planning for all or part of ODA programs and projects funded directly from the State Budget shall be carried out in the following forms:

a. Construction investment projects must prepare financial plans according to construction investment capital.

b. Administrative and public service projects must prepare financial plans according to administrative and public service capital, specifically according to each spending area.

c. For ODA programs and projects with mixed expenditure components including both construction investment and administrative and public service expenditures (hereinafter referred to as hybrid projects), financial planning and execution shall follow the principle that for the construction investment component, the financial plan, expenditure management, and settlement of accounts shall be conducted according to construction investment projects, while for the administrative and public service component, the financial plan, expenditure management, and settlement of accounts shall be conducted according to administrative and public service projects.

In special cases, if one of the two components of a hybrid project is very small and the project sponsor or the managing agency requests a unified financial plan according to either construction investment or administrative and public service projects, the Ministry of Planning and Investment will take the lead in coordinating with the Ministry of Finance to examine and decide.

4.3. In the decision to invest in ODA programs and projects, it must clearly specify whether the ODA program or project falls under construction investment, administrative and public service expenditure, or a hybrid form as stipulated in Section 4.2 above.

5. Counterpart Funds:

Counterpart funds are allocated according to the provisions set forth in Clause 12, Article 5 of the Regulations on Management and Utilization of Official Development Assistance issued together with Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government. Specifically, as follows:

5.1. All ODA programs and projects requiring annual counterpart funds must prepare a counterpart fund plan. Managing agencies are responsible for compiling requirements and preparing the counterpart fund plan for ODA programs and projects they directly manage.

5.2. Counterpart funds do not apply to ODA programs and projects where international agreements do not specifically require Vietnam to contribute, including contributions in cash, in kind, or other responsibilities.

5.3. For ODA programs and projects where the State Budget provides loans or where the State partially funds and partially provides loans, the project sponsor must arrange the entire counterpart funds themselves and must fully explain their ability to secure counterpart funds during the project preparation and approval process.

For such projects, sponsors are prioritized to borrow counterpart funds from state credit sources and have the responsibility to repay the loan (principal and interest) according to the credit agreement.

5.4. For projects funded directly from the State Budget, the counterpart funds are guaranteed by the State Budget, allocated in the annual State Budget estimate according to construction investment or administrative and public service capital, and specifically divided as follows:

- The Central Budget guarantees counterpart funds for ODA programs and projects managed and implemented directly by central ministries and agencies as project sponsors.

- Local budgets guarantee counterpart funds for projects managed and implemented by local authorities as project sponsors (including component or sub-projects within ODA programs and projects managed by central ministries and agencies).

5.5. Counterpart funds are allocated annually for projects meeting the following conditions:

- International agreements regarding the project are effective.

- Domestic investment procedures have been completed.

5.6. For ODA programs and projects where international treaties regarding the projects have been signed but are not yet effective, or are already effective but have not completed domestic investment procedures, the project management agencies shall be responsible for reporting to the Ministry of Planning and Investment and the Ministry of Finance (during the budget preparation period) to allocate within the contingency reserve for construction investment or specific areas of administrative and public service expenses (according to the nature of counterpart funds), and submit to the competent authority for decision-making (if the central government budget is responsible for allocating counterpart funds); or the project managers shall be responsible for reporting to the project management agencies (during the budget preparation period) to allocate within the contingency reserve of the local government budget, and submit to the competent authority for decision-making (if the local government budget is responsible for allocating counterpart funds).

5.7. Project management agencies must prioritize the allocation of sufficient counterpart funds in the annual budget to fulfill commitments under signed international treaties on ODA and align with the actual disbursement capacity of ODA programs and projects annually.

Project managers are responsible for using counterpart funds for their intended purposes and effectively.

II. SPECIFIC PROVISIONS

1. Forecasting sources of funding and financial mechanisms for programs and projects during the mobilization phase. ODA:

1.1. When drafting the program and project framework for ODA, the management agencies must clearly propose financial recommendations including anticipated levels of ODA funding (loans and non-refundable aid), counterpart funds, and proposed domestic financial mechanisms (details of the program and project framework template are provided in Appendix 3 of Circular No. 06/2001/TT-BKH dated September 20, 2001 issued by the Ministry of Planning and Investment guiding the implementation of the Regulation on Management and Use of Official Development Assistance).

1.2. The list of ODA programs and projects approved by the Prime Minister and the consent of foreign donors serves as the basis for preparing feasibility studies for ODA programs and projects and domestic financial mechanisms.

1.3. Program and project preparation funds:

Based on the list of ODA programs and projects announced by the Ministry of Planning and Investment, the management agency shall develop a plan for ODA program and project preparation funds according to the same process for establishing and approving financial plans as stipulated in Sections 3 and 4 below, specifying the portion of funds provided by donors, self-arranged funds, and requested budget support, and send it to the Ministry of Planning and Investment and the Ministry of Finance.

For ODA programs and projects provided individually by donors outside the plan (or priority mobilization list for ODA) and without signing a framework international treaty on ODA, after approval by the Prime Minister, the management agency shall develop a plan for ODA program and project preparation funds and send it to the Ministry of Planning and Investment and the Ministry of Finance.

2. Forecasting investment funds and financial mechanisms for programs and projects during the construction phase, review, and approval of project documents: Based on the written notification from the Ministry of Planning and Investment regarding ODA programs and projects that have been agreed to be considered for funding in each period by donors, the management agencies shall direct project managers to prepare preliminary feasibility reports and feasibility reports or project documents for submission to the competent authority for approval.

In accordance with the written notification from the Ministry of Planning and Investment regarding ODA programs and projects that have been agreed to be considered for funding in each period by donors, the management agencies shall instruct project managers to prepare preliminary feasibility reports and feasibility reports or project documents for submission to the competent authority for approval.

2.1. Content of the Preliminary Feasibility Report for ODA Programs and Projects:

In the preliminary feasibility report for ODA programs and projects prepared in accordance with the provisions of Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government on Investment Management and Construction and Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government on Issuing the Regulation on Management and Use of ODA, the following contents must be clearly reflected:

- Anticipated structure and form of financing or co-financing by specific donors for components of ODA programs and projects.

- Ability to ensure counterpart funds from sources such as the project manager's own balance, credit funds, contributions from beneficiaries, and other sources of funds.

In cases where the rescheduling mechanism is applied, project managers must base on the conditions for rescheduling set out in the Government's Rescheduling Mechanism for Foreign Loans issued pursuant to Decision No. 02/2000/QĐ-BTC dated January 6, 2000 of the Minister of Finance to prepare a preliminary repayment plan for the project.

2.2. Feasibility Study Report for ODA Programs and Projects:

In the feasibility study report for ODA programs and projects prepared in accordance with the provisions of Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government on Investment Management and Construction and Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government on Issuing the Regulation on Management and Use of ODA, the following contents must be clearly reflected:

- Specific conditions for domestic and foreign funding sources supporting the programs and projects (such as loan terms, grace periods, interest rates, types of loan fees, and other conditions...).

- Domestic financial mechanisms applicable to the programs and projects (granting or rescheduling).

In cases where the rescheduling mechanism is applied, the project manager must have a detailed repayment plan (based on repayment periods, sources of income...) based on the conditions for rescheduling set out in the Government's Rescheduling Mechanism for Foreign Loans issued pursuant to Decision No. 02/2000/QĐ-BTC dated January 6, 2000 of the Minister of Finance. If the project cannot be implemented according to these framework conditions, specific reasons must be explained, and appropriate rescheduling conditions for each type of project and source of funding must be proposed for consideration by the Ministry of Finance together with relevant agencies and submitted to the Prime Minister for decision.

2.3. In the decision approving the feasibility report, all specific contents mentioned above in Section 2.2 must be clearly recorded, specifying the domestic financial mechanism for the programs and projects, including the form and method of capital transfer between related parties for the programs and projects; detailing each component of construction investment, administrative and public service expenses, and clearly defining the responsibilities for allocating counterpart funds among different levels of budgets.

2.4. Based on the feasibility study report and project documents that have been approved by the competent authority, the project owner shall establish and submit to the supervising agency, the Ministry of Planning and Investment, and the Ministry of Finance a capital utilization plan according to the project implementation schedule, detailing from the first year to the final year when the entire project is put into operation, distinguishing between ODA funds (by each donor), counterpart funds; state budget disbursements (construction, administrative and public services), loan repayments, and other forms (in accordance with the form at Appendix 1 of this Circular).

3. Procedures for establishing, approving, and allocating annual financial plans for programs and projects using ODA funds: sử dụng vốn ODA:

3.1. The procedures for establishing, approving, and allocating capital for preparing programs and projects, implementing ODA programs and projects are carried out strictly in accordance with the State Budget Law and other legal documents governing investment management and construction.

3.2. Basis for establishing financial plans for ODA programs and projects:

- International agreements signed with foreign donors;

- Regulations on state budget planning and estimates, current financial expenditure systems and standards;

- Project implementation progress and actual capacity;

Annually, in line with the time for preparing the state budget estimate, based on the above regulations and circumstances, the project owner shall prepare the financial plan for ODA programs and projects and submit it to the higher supervising agency for consolidation. If the project uses loan repayment funds, these plans must also be submitted to the lending agency.

Financial plans must be established in accordance with the form specified in Appendix 2 of this Circular, accompanied by detailed explanatory reports specifying the basis for calculation, analysis and evaluation of implementation status, specific issues and difficulties, and recommendations for solutions; and they must be submitted within the time frame stipulated by the supervising agency to ensure the time for consolidating the annual state budget estimate.

3.3. Supervising agencies shall consolidate the implementation status throughout the year and forecast the next year's financial plan for ODA funds and counterpart funds for ODA programs and projects under their jurisdiction and submit them to the Ministry of Planning and Investment and the Ministry of Finance (in accordance with the form specified in Appendix 3 of this Circular).

3.4. Based on the financial plans for ODA programs and projects submitted by supervising agencies, the Ministry of Planning and Investment and the Ministry of Finance shall review and consolidate the annual financial plans for ODA programs and projects, incorporating them into the annual state budget estimate according to the following division of responsibilities:

- The Ministry of Planning and Investment shall take the lead for construction investment projects or construction components in mixed projects.

- The Ministry of Finance shall take the lead for administrative and public service projects or administrative and public service components in mixed projects.

After the state budget estimate is decided by the competent authority, the Ministry of Planning and Investment and the Ministry of Finance shall allocate the state budget estimate to supervising agencies in accordance with current regulations, clearly stating the foreign funds of ODA programs and projects.

Based on the state budget estimate assigned or decided by the competent authority, supervising agencies shall detail the allocation plan for funds (including both ODA and counterpart funds) for ODA programs and projects, simultaneously notifying the finance agency and the treasury agency at the same level.

3.5. Based on the notification of funds from the competent authority, the State Treasury shall control and settle counterpart funds according to the current state budget disbursement system (investment funds controlled and settled according to the investment system, administrative and public service funds controlled and settled according to the administrative and public service expenditure system).

4. Adjusting financial plans, transferring counterpart funds, and handling unexpected situations outside the plan: kế hoạch:

4.1. Supervising agencies, based on the implementation status of ODA programs and projects, shall adjust or request the competent authority to adjust the annual financial plan for programs and projects in accordance with current regulations. On this basis, they shall arrange the transfer of counterpart funds allocated from the state budget from programs and projects unable to fully implement to other ODA programs and projects with complete procedures and the ability to exceed the plan in the year, while notifying the finance agency and the treasury agency at the same level. Based on the notification of adjusted funds from the competent authority, the State Treasury shall process the settlement. In case of sudden difficulties with counterpart funds, the project owner must report to the supervising agency to find a solution.

Transferring counterpart funds from surplus projects to deficit projects can only be done within the same spending category. Counterpart funds from infrastructure investment projects cannot be transferred to regular spending projects and vice versa; funds from the health sector cannot be transferred to the education and training sector and vice versa...

4.2. For ODA programs and projects that cannot allocate counterpart funds in the annual state budget plan or have urgent needs for counterpart funds (projects guaranteed by the state budget), supervising agencies must rearrange within the allocated budget. If they cannot rearrange, they may use the reserve fund as stipulated in Point 5.6, Part I of this Circular.

5. Using and repaying advance funds (as provided for in Article 27 of Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government): tháng 5 năm 2001 của Chính phủ):

5.1. Advance funds are state budget funds advanced annually for ODA programs and projects eligible for state budget disbursement to implement certain components of the program or project that have been committed to be funded from ODA sources but have not yet withdrawn ODA funds, thus the project owner lacks funding to proceed with the work. The budget level responsible for allocating counterpart funds (as stipulated in Point 5.4, Part I) shall also be responsible for arranging this advance funding.

5.2. Advance capital shall only be applied to projects or project components that adopt the "reimbursement" withdrawal method as specifically provided for in international agreements on Official Development Assistance (ODA).

Starting from the planning year when this withdrawal method arises, based on the level of expenditure and the time required to withdraw funds from the sponsor, the project must determine and record advance capital in its corresponding capital plan for that year to be allocated an advance capital amount from the State Budget.

5.3. Financial agencies at all levels shall coordinate with planning and investment agencies at the same level to examine and decide on the allocation of capital for programs and projects requiring advance capital.

Annual settlement of advance capital repayment must be conducted, and Treasury agencies at all levels shall be responsible for recovering it for the State Budget (depending on which level of the State Budget has allocated corresponding capital for the project) at the end of the planning year. Financial agencies at all levels shall be responsible for allocating subsequent advance capital according to the next year's plan (if necessary) to ensure the continuity of project implementation.

6. Reporting on the Implementation of Financial Plans:

The project leader and the managing agency have the responsibility to periodically report on the implementation of financial plans in accordance with Circular No. 06/2001/TT-BKH dated September 30, 2001, issued by the Ministry of Planning and Investment guiding the Implementation Regulation on the Management and Use of Official Development Assistance (ODA) accompanying Decree No. 17/2001/NĐ-CP dated May 4, 2001, of the Government. Periodic reports on the implementation of financial plans for ODA programs and projects serve as the basis for mobilizing ODA funds and preparing financial plans for these programs and projects.

III. IMPLEMENTATION PROVISIONS

This Circular takes effect fifteen days after its issuance and replaces Joint Circular No. 6/1998/TTLT-BKH-BTC dated August 14, 1998, of the Ministry of Planning and Investment and the Ministry of Finance on Guidelines for the Management Mechanism of Corresponding Capital for ODA Programs and Projects. Previous provisions contrary to this Circular are no longer in effect. In the course of implementation, any issues arising should be reported to the Ministry of Planning and Investment and the Ministry of Finance for study and amendment.