Circular No. 07/2005/TT-BXD guiding the method for converting project investment construction costs to the time of handover and putting into operation.

CIRCULAR

Guidelines for converting project investment costs

at the time of handover and putting into operation

Pursuant to the Construction Law No. 16/2003/QH11 dated November 26, 2003 of the National Assembly;

Pursuant to the Government Decree No. 16/2005/NĐ-CP dated February 7, 2005 on Project Management for Investment in Construction Works;

Pursuant to Decree No. 36/2003/NĐ-CP dated April 4, 2003 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Construction;

The Ministry of Construction provides guidelines for converting project investment costs at the time of handover and putting construction works into operation as follows:

Part I

General Provisions

1. Converting project investment costs involves calculating the conversion of construction costs, equipment costs, land compensation and resettlement costs (if applicable), project management costs, and other costs that have been incurred annually to the price level at the time of handover and putting the works into operation.

2. Construction costs, equipment costs, land compensation and resettlement costs (if applicable), project management costs, and other costs incurred annually are those costs determined by the Investor when preparing the final account report or audited (hereinafter referred to as the implemented investment project costs).

In cases where an investment project includes multiple works, each work or group of works being completed and put into operation independently, the Investor may convert the implemented investment costs of such works or groups of works to the price level at the time of handover and putting them into operation.

The conversion of investment project costs for completed construction works shall be decided by the person deciding on the investment, and when converting, it shall be carried out according to the contents of this Circular.

Part II

Conversion Method

1. Basis for conversion:

- Annual implemented investment project costs.

- Price level and state policies at the time of handover.

- The method of converting implemented investment project costs to the price level at the time of handover and putting into operation as stipulated in this Circular.

2. Conversion procedure:

. Annually, based on the progress of plan formulation, the Departments of Science and Technology refer to the Program's objectives and content and criteria for selecting projects for each region, advise the People's Committee of provinces and cities on the goals, content, scope, and scale of projects within the Program's scope to be included in the annual science and technology plan of the province or city. After discussing the annual plan with relevant departments and agencies at the local level, the project is refined and supplemented to seek the opinion of the provincial or municipal Science and Technology Council.: Aggregate construction costs, equipment costs, land compensation and resettlement costs (if applicable), project management costs, and other costs incurred annually.

Step 2: Determine the conversion factors for construction costs, equipment costs, land compensation and resettlement costs (if applicable), project management costs, and other costs incurred annually to the price level at the time of handover according to the guidance provided in this Circular.

Step 3: Calculate and aggregate the converted values of construction costs, equipment costs, land compensation and resettlement costs (if applicable), project management costs, and other costs incurred annually to the price level at the time of handover and putting into operation.

3. Conversion Method

The converted investment project costs for construction works at the time of handover and putting into operation are calculated using the following formula:

                      _{n                 n}

GQDDA = ∑ GiXD + ∑ GiTB + GĐB + GQLDA (1)

                    ^{i = 1          i = 1}

Wherein:

n : Number of works under the project.

GQDDA : Converted investment project costs.

GiXD : Converted construction costs of work i.

GiTB : Converted equipment costs of work i.

GĐB : Converted land compensation and resettlement costs.

GQLDA : Converted project management costs and other costs.

These costs are determined as follows:

3.1. Conversion of construction costs

The converted construction costs of the work (GiXD) at the time of handover and putting into operation is the total construction costs incurred annually converted to the time of handover due to fluctuations in factors within the construction costs including: materials, labor, machinery, and other remaining cost items in the construction costs such as direct costs, common costs, and pre-tax income according to state regulations at the time of handover and putting into operation.

The converted construction costs of the work (GiXD) are determined by the following formula:

             k

GiXD = ∑ GjXD (2)

           j = 1

Where:

k : Number of years for conversion calculation

GjXD : Converted construction costs of work year j to the price level at the time of handover

The converted construction costs of the work year j (GjXD) are determined by the following formula:

GjXD = (VLj x KjVL + NCj x KjNC + MTCj x KjMTC ) x Hxd (3)

Wherein:

GjXD : Converted construction costs of work year j

VLj, NCj, MTCj : Material, labor, and machinery costs of work year j in construction costs.

_{KjVL, KjNC, KjMTC : Conversion factors for material, labor, and machinery costs in year j to the time of handover and determined according to the method specified in Appendix 1 of this Circular.}

_{Hxd : Factor for other cost items in construction costs including direct costs, common costs, and pre-tax income based on material, labor, and machinery costs of construction costs according to state regulations at the time of handover as specified in Appendix 1 of this Circular.}

_{3.2. Conversion of equipment costs}

_{Implemented equipment costs include:}

_{+ Equipment purchase costs, training, and technology transfer (if applicable); Other equipment costs including transportation, storage, and preservation (hereinafter referred to as other equipment costs)}

_{+ Installation costs and testing/calibration costs (if applicable)}

_{The converted equipment costs of the work (GTB) at the price level at the time of handover and putting into operation is the total of purchased equipment costs, other equipment costs, installation costs, and testing/calibration costs (if applicable) converted according to the following formula: GTB}

_{= QĐMTB + QĐCFKTB + QĐLĐ (4) GTB : Converted equipment costs at the price level at the time of handover}

_Where:

QĐMTB : Converted costs for purchasing equipment (in domestic currency and foreign currency), training, and technology transfer (if applicable).

QDMTB: Costs for purchasing equipment (in domestic currency and foreign currency), training and technology transfer costs (if any), have been converted.

QĐCFKTB: Other costs of equipment have been converted.

QĐLĐ : Installation costs of equipment and testing, calibration (if any) have been converted.

3.2.1 Conversion of equipment purchase costs, technology transfer training costs (if any):

a/ For equipment purchased in foreign currency:

The conversion of equipment purchase costs in foreign currency is calculated by multiplying the actual foreign currency cost with the exchange rate between VND and the foreign currency at the time of handover.

b/ For equipment purchased in domestic currency:

The conversion of equipment purchase costs in domestic currency is calculated by the actual cost incurred (K = 1).

c/ For technology transfer training costs (if any):

The conversion of technology transfer training costs (if any) is calculated by the actual cost incurred (K = 1).

3.2.2 Conversion of other costs of equipment; Installation costs of equipment and testing, calibration (if any):

Other costs of equipment, installation costs of equipment and testing, calibration (if any) are calculated by the actual cost incurred (K = 1).

3.3. Conversion of land clearance compensation costs, resettlement costs

The conversion of land clearance compensation costs, resettlement costs related to project land clearance, land clearance costs within the responsibility of the Project Owner; Land rental costs during construction period, infrastructure investment costs (if any) in the project are calculated by the actual cost incurred (K = 1).

3.4 Conversion of project management costs and other costs

The conversion of project management costs, other costs (GQLDA) is calculated by the actual cost incurred (K = 1).

Part III

Implementation

The Department of Construction shall take the lead in coordinating with relevant departments to calculate and report to the Provincial People's Committee to announce the annual construction cost conversion factor according to the type of construction on the local territory, suitable for specific local conditions as a basis for calculating the conversion of construction project costs.

Based on this Circular, the Project Owner shall convert equipment costs, land clearance compensation costs, resettlement costs (if any), project management costs, and other costs.

This Circular is uniformly applied nationwide 15 days from the date of publication in the Official Gazette and replaces Circular No. 11/2000/TT-BXD dated October 25, 2000 of the Ministry of Construction on guiding the method of converting invested capital already implemented of construction projects to the price level at the time of handover for operation of investment construction projects.

During implementation, if there are any difficulties or inconsistencies, please report to the Ministry of Construction for research and resolution./.