Circular No. 11/2000/TT-BXD guiding the method for converting the actual investment capital of construction projects to the price level at the time of handover and commencement of operation of the investment and construction project.

CIRCULAR

Guidelines for converting the actual investment capital of construction projects to the price level at the time of handover and commencement of operation of the investment and construction project.

Pursuant to Decree No. 15/CP dated March 4, 1994 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Construction;

Pursuant to Clause 5, Article 56 of the Investment and Construction Management Regulation issued together with Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government.

After reaching consensus with the Ministry of Finance and the Ministry of Planning and Investment, the Ministry of Construction shall provide guidelines on the method of converting the actual investment capital of construction projects to the price level at the time of handover and commencement of operation of the investment and construction project, for the Investor to implement when preparing the final account report on investment capital as follows:

I. GENERAL PROVISIONS

1. Converting the actual investment capital of construction projects involves calculating and transferring the construction works, equipment, and other costs invested annually for construction projects to the price level at the time of handover and commencement of operation of the investment and construction project, serving as the basis for preparing the final account report on investment capital according to completed projects, determining the value of new fixed assets and current assets increased due to investment, handed over for production and use, forming the basis for capital transfer or determining the asset transfer price in state investment and construction.

2. Construction projects of investment programs, after completing investment and construction and being put into operation, the Investor must prepare the final account report on investment capital in accordance with the provisions of the Investment and Construction Management Regulation. For construction projects of multi-year investment programs, when preparing the final account report on investment capital, the Investor must calculate to convert the actual investment capital of construction projects to the price level at the time of handover and commencement of operation.

3. The amount of construction works, equipment, and other costs invested annually for construction projects, which serve as the basis for calculating conversion, includes the total value of basic construction volume completed according to the structure of the investment capital that has been disbursed annually or audited (if applicable) as required by the authorized person approving the final accounts (hereinafter referred to as the value of construction works, equipment, and other costs already implemented); excluding VAT (for the value of construction works, equipment, and other costs implemented after January 1, 1999), costs not included in the value of the project such as losses due to natural disasters, enemy actions, and other force majeure factors not within the scope and objects covered by insurance, the value of quantities canceled by the competent authority during the investment and construction process. The value of construction works, equipment, and other costs already implemented is calculated from the investment preparation stage, implementation stage, up to the completion of construction and putting the project into operation.

4. Calculating the conversion of the value of construction works, equipment, and other costs already implemented for construction projects depends on factors such as the period of investment implementation, changes in state policies regarding wages, interest rates, exchange rates, and market price changes in domestic and international construction markets; while ensuring the principle of accurately and fully accounting for the above factors and complying with current state regulations.

5. For projects permitted to be divided into component projects (or sub-projects), when the construction project of a component project (or sub-project) is completed and handed over for operation, the Investor, when preparing the final account report on investment capital, must calculate the conversion of the annual investment capital already implemented for the construction project to the price level at the time of handover and commencement of operation according to the guidelines of this Circular.

6. For certain types of construction projects with long construction periods, consisting of multiple projects and sub-projects, including projects and sub-projects divided into two stages: the construction stage of each project and sub-project and the operation stage, when preparing the final account report on investment capital for the entire completed project, the Investor must convert the investment capital already implemented in the construction stage to the time when the project or sub-project is completed and put into operation.

II. GUIDELINES FOR THE METHOD OF CONVERTING THE ACTUAL INVESTMENT CAPITAL OF CONSTRUCTION PROJECTS

1. PROCEDURE FOR CALCULATING CONVERSION

The conversion of the value of construction works, the value of equipment, and other costs of the actual investment capital of construction projects to the price level at the time of handover and commencement of operation is carried out according to the following 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.: Prepare a summary table based on the value of construction works, equipment, and other costs already implemented annually for the entire project or each sub-project (for projects consisting of multiple sub-projects);

Step 2: Determine the conversion factor for the value of construction works already implemented annually to the time of handover and commencement of operation according to the guidelines in Appendix 1 of this Circular;

Step 3: Determine the actual annual interest rate (%) according to the guidelines in Section 3.2; 3.3; 3.4; 3.5; 3.6 Point 3 of Section II, serving as the basis for calculating the change in the value of money already invested over time under the influence of interest rates as guided in Appendix 2 of this Circular;

Evaluating the event: Calculate the conversion of the value of construction works, equipment, and other costs already implemented annually (summarized in Step 1) to the price level at the time of handover and commencement of operation according to the formulas in Section 2.1; 2.2; 2.3 Point 2 of Section II;

Step 5: Determine the total value of construction works, equipment, and other costs already implemented and converted to the price level at the time of handover and commencement of operation for the entire project or each sub-project (for projects consisting of multiple sub-projects) based on the results summarized in Step 1 and the calculation results in Step 4 above.

2. METHOD FOR CALCULATING CONVERSION

The total converted value of construction works, equipment, and other costs to the price level at the time of handover and commencement of operation (Z_QD) is determined according to the formula:

ZQĐ = ZXL + ZTB +ZCPK (1)

Where:

ZXL: The value of construction works converted to the time of handover and commencement of operation;

ZTB: The value of equipment converted to the time of handover and commencement of operation;

ZCPK: Other costs converted to the time of handover and commencement of operation.

2.1. CONVERTING THE VALUE OF CONSTRUCTION WORKS (Z_XL)

The value of construction works has been converted to the delivery and commissioning time point including: The value of construction works implemented each year at the respective years adjusted to the delivery and commissioning time point due to fluctuations in the constituent factors within the value of construction works and changes in the value of money over time calculated through the conversion of the value of construction works under the influence of interest rates.

The total value of construction works for the entire project has been converted to the delivery and commissioning time point (Z_XL) is determined according to the formula:

k

ZXL = ồ Z^{9. Travel distance is the distance traveled without using mechanical means (cars, motorcycles, motorboats) to reach locations for implementing technical forest management measures and patrolling to protect forests.}_XL (2)

j=1

Where:

k: Number of project items for which the construction work value is converted;

Z^{9. Travel distance is the distance traveled without using mechanical means (cars, motorcycles, motorboats) to reach locations for implementing technical forest management measures and patrolling to protect forests.}_XL: The converted value of construction works for the j-th project item to the delivery and commissioning time point determined according to the formula:

Z^{9. Travel distance is the distance traveled without using mechanical means (cars, motorcycles, motorboats) to reach locations for implementing technical forest management measures and patrolling to protect forests.}XL = Z^{j t}G { (1+KXL) + [ (1 + i) ⁿ -1] } (3)

Where:

Z^{9. Travel distance is the distance traveled without using mechanical means (cars, motorcycles, motorboats) to reach locations for implementing technical forest management measures and patrolling to protect forests.}XL: As per formula (2);

Z^{j t}G: The value of construction works for the j-th project item implemented at time t;

n: Number of years for conversion calculation;

i: Actual annual interest rate; Determined according to the guidance in step 3 of the conversion calculation procedure mentioned above;

KXL: Construction work value conversion factor.

The construction work value conversion factor (K_XL) is used to determine the increase or decrease in the value of construction works implemented each year to the delivery and commissioning time point due to fluctuations in the cost factors constituting the value of construction works and is determined according to the method stated in Appendix 1 of this Circular.

2.2. CONVERSION OF EQUIPMENT VALUE (Z_TB)

The value of equipment already implemented is reflected through procurement contracts (procurement contracts via direct supplier designation or tender results) or equipment purchase price invoices (hereinafter referred to as the value of equipment procurement already implemented) including: technological equipment, facilities, and tools serving production, work, and living activities that have been installed and put into use in the construction project. The value of equipment procurement already implemented includes:

Equipment purchase price up to the Vietnamese port (CIF), or at the place of production or supply in Vietnam (including non-standard equipment if any);

Transportation costs from the port, or from the place of production or supply in Vietnam to the project site;

Storage, maintenance, and warehouse fees;

Import tax (if applicable), insurance, etc.;

The total value of equipment procurement for the entire project has been converted to the delivery and commissioning time point determined according to the formula:

k

ZTB = ồ Fj (4)

j=1

The converted value of equipment procurement for the j-th item to the delivery and commissioning time point (Fj) is determined according to the formula:

Fj = "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:jt x { (1+C_tbj) + [ (1+i)ⁿ 1] } (5)

Where:

ZTB: The total value of equipment procurement for the entire project converted to the delivery and commissioning time point;

Fj: The converted value of equipment procurement for the j-th item to the delivery and commissioning time point;

Pjt: The value of equipment procurement for the j-th item implemented at time t;

k: Number of equipment items procured for the project;

i, n: As per formula (3);

C_tbj: Price adjustment factor for the j-th type of equipment at the delivery and commissioning time point (p_bg) and the price of this type of equipment implemented at time t (p_{organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.}).

C_tbj = (6)

2.3. CONVERSION OF OTHER COSTS (Z_CPK)

Other costs already implemented during various stages of investment and construction, including: costs implemented during the investment preparation stage (costs for preparing feasibility studies (if any), feasibility reports, or investment reports, advertising and promotion costs for the project, review fees, etc.); costs implemented during the implementation stage (land compensation and organization costs during land compensation, crop compensation, land rental fees, project management board costs, and other consulting costs) and costs implemented during the final construction and commissioning stage (training costs for workers and production managers, auditing costs, costs for trial operation, etc.).

According to the method of determining each item of other costs implemented during the investment and construction process, these costs include two groups:

Group of costs, fees, and charges determined by fixed percentage rates;

Group of costs determined by separate budget estimates.

Based on the above content, other costs have been converted to the delivery and commissioning time point determined by the following formula:

ZCPK = (7)

Where:

ZCPK: Other cost items converted to the delivery and commissioning time point;

Ti: The i-th other cost item determined by fixed percentage rates converted to the delivery and commissioning time point;

Dj: The j-th other cost item determined by separate budget estimates converted to the delivery and commissioning time point.

n, m: Number of other cost items in each group.

Other costs T_{international} have been converted to the delivery and commissioning time point determined according to the formula:

n

Ti = d.1. Amount of taxable income in Vietnam:kt x (1+i) (8)

Where:

Tkt: The i-th other cost item implemented at time t;

i, n: As per formula (3).

Other costs D_{9. Travel distance is the distance traveled without using mechanical means (cars, motorcycles, motorboats) to reach locations for implementing technical forest management measures and patrolling to protect forests.} have been converted to the delivery and commissioning time point similarly to the formula (3) mentioned above.

3. Some provisions during the conversion process

3.1 This Circular provides guidance on the method of converting the actual investment capital of construction projects to the price level at the delivery and commissioning time point of the investment and construction project, without taking into account the exchange rate changes between domestic currency and foreign currency (for investments made in foreign currency) when performing the conversion calculation.

3.2 If the value of construction works, equipment, and other costs implemented each year uses loans from multiple sources with different actual loan interest rates for different terms, then the average actual loan interest rate for the term must be determined according to the following formula:

h

ồ V_Vk. i_k

k=1

i = (9)

h

ồ V_Vk

k=1

Where:

V_Vk: Amount borrowed from each source;

international_k: Actual loan interest rate for the term from each source;

h: Number of loan sources.

3.3 When the value of construction works, equipment, and other costs implemented each year uses borrowed funds based on actual loan interest rates (i_{organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.}) with short-term periods t (months, quarters, six months), then it is necessary to convert the short-term actual loan interest rates to annual actual loan interest rates (i) according to the following formula:

i = (1 + i_{organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular.})^{Granite, gabbro, decorative stone...} 1 (% per annum) (10)

Where: m is the number of short-term periods t within the annual period.

3.4 In cases where the construction work value, equipment, and other costs have been implemented annually using borrowed funds from a single source with different loan amounts and varying actual interest rates for the same short-term period, the average actual interest rate for the same short-term period must be determined according to a similar calculation method to formula (9) to serve as the basis for determining the average annual actual interest rate for the term year according to formula (10).

3.5 When the construction work value, equipment, and other costs have been implemented annually using state budget funds, state-owned enterprise development capital (excluding the commercial credit portion for development investment as specified in Section 3 Clause 6 Article 1 of Decree No. 12/2000/NĐ-CP dated May 5, 2000 of the Government on amending and supplementing certain provisions of the Investment Management and Construction Regulations issued pursuant to Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government), then the actual annual interest rate used for conversion purposes is the actual deposit interest rate of commercial banks.

3.6 In cases where the construction work value, equipment, and other costs have been implemented annually using two or all three sources of capital (borrowed funds, state budget funds, state-owned enterprise development capital), the actual annual interest rate for conversion purposes is calculated as an average similar to the calculation method mentioned above according to formula (9).

3.7 Appendix 2 attached hereto is a pre-calculated table of the value of money changing over time under the influence of interest rates in formulas for conversion numbers 3, 5, and 8 mentioned above.

3.8 In cases where, based on specific requirements regarding the characteristics, nature, and purpose of use of the construction project, the change in the value of money over time for the construction work value, equipment, and other costs implemented up to the handover and commissioning date is not considered, then the actual annual interest rate i = 0.

III. IMPLEMENTATION

Investors shall base their conversion of invested capital already implemented when preparing final accounts reports on the specific nature, characteristics, and conditions of the construction project, the policies and regulations of the State during each period, and the guidance provided in this Circular to comply with the provisions of the Investment Management and Construction Regulations issued together with Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government and Circular No. 70/2000/TT-BTC dated July 17, 2000 of the Ministry of Finance guiding the settlement of investment capital, serving as the basis for reporting to the competent authority with approval authority for examination and decision-making, while sending the results of the conversion of invested capital already implemented to the Ministry of Construction, the Ministry of Finance, and the Ministry of Planning and Investment for monitoring and inspection when necessary.

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

ANNEX 1

Method for determining the conversion factor for construction work value

The general formula for determining the conversion factor for construction work value is as follows:

signing and implementing AgreementsXL = signing and implementing Agreements_KH + signing and implementing Agreements_NC + signing and implementing Agreements_{Briefly describe technical improvements, production processes, raw materials, designs; new technology applications such as automation, digitalization, clean technology; management, marketing, distribution solutions; products winning awards or certifications related to innovation…):…} + signing and implementing Agreements_C + signing and implementing Agreements_TL (or signing and implementing Agreements_TN) (1)

Where:

signing and implementing AgreementsXL: Conversion factor for construction work value

KVL is the adjustment factor for construction work value due to material cost adjustments, KNC is the adjustment factor for construction work value due to labor cost adjustments, KM is the adjustment factor for construction work value due to machine usage cost adjustments, KC is the adjustment factor for construction work value due to general cost adjustments, KTL is the adjustment factor for construction work value due to tax and interest cost adjustments (for construction work value implemented before January 1, 1999), or KTN is the adjustment factor for construction work value due to taxable income adjustment (for construction work value implemented after January 1, 1999).

The adjustment factor for construction work value due to fluctuations in the constituent cost factors of the construction work value is determined in the following sequence:

. 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.: The investor first determines the average proportion of cost items in the construction work value and the proportion of costs of major building materials relative to the total material costs in the construction work value already implemented in the construction project as shown in Tables 1 and 2 below:

Table 1: Proportion of cost items in the construction work value (%)

construction project

For construction projects and project components completed before January 1, 1999, the proportion of cost items in the construction work value includes: material costs, labor costs, machine usage costs, general costs, taxes, and interest.

For construction projects and project components completed after January 1, 1999, the proportion of cost items in the construction work value includes: material costs, labor costs, machine usage costs, general costs, and pre-tax income.

Table 2: Proportion of costs of major building materials relative to total material costs in the construction work value of the construction project (%)

Step 2 : Determining the adjustment factor for construction work value due to changes in each cost factor constituting the construction work value:

a/ Determining the adjustment factor for construction work value due to material cost adjustments (KVL)

Formula for determining the adjustment factor for construction work value due to material cost adjustments (K_KH) as follows:

signing and implementing AgreementsVL = "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:VL x HVL (2)

Where:

PVL: Proportion of material costs in the construction work value of the project (according to Table 1);

HVL: Adjustment factor for material costs in the construction work value due to changes in material prices and is determined according to the following formula:

n VL

i x

_{ai: Proportion of the cost of the ith type of material relative to the total material costs in the construction work value of the project. This proportion is averaged for each type of material (according to Table 2);}

HVL = ồ an: Number of main types of materials with price changes; hinternational

i=1

Where:

hi: Price adjustment factor for the ith type of material

Price of the ith type of material at the time of handover and commissioning - Price of the ith type of material included in the construction work value already implemented

_KH

_{Price of the ith type of material included in the construction work value already implemented}

_{b/ Determining the adjustment factor for construction work value due to labor cost adjustments (KNC)}

_{Formula for determining the adjustment factor for construction work value due to}

labor cost adjustments (K

NC =

Formula for determining the adjustment factor for construction work value due to NC x_NC ) as follows:

signing and implementing AgreementsNC (3) "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:PNC: Proportion of labor costs in the construction work value of the construction project (according to Table 1); HHNC: Labor cost adjustment factor in the construction work value due to factors such as wage increases, additional allowances, etc.

Where:

Daily wage at the time of handover and commissioning - Daily wage included in the construction work value already implemented

Daily wage included in the construction work value already implemented

c/ Determining the adjustment factor for construction work value due to machine usage cost adjustments (KM)

Formula for determining the adjustment factor for construction work value due to

machine usage cost adjustments (K

M x

Formula for determining the adjustment factor for construction work value due to M (4)_{Briefly describe technical improvements, production processes, raw materials, designs; new technology applications such as automation, digitalization, clean technology; management, marketing, distribution solutions; products winning awards or certifications related to innovation…):…}) as follows:

signing and implementing AgreementsM = "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:M x HM (4)

Where:

PM: The proportion of construction machinery usage costs in the value of building works (as per Table 1);

HM: The adjustment level of construction machinery usage costs in the value of building works due to changes in factors within the machinery shift cost such as basic depreciation, major repair depreciation, regular maintenance costs, fuel and energy costs, labor wages, and other factors.

1 n M^BG_{international} Briefly describe technical improvements, production processes, raw materials, designs; new technology applications such as automation, digitalization, clean technology; management, marketing, distribution solutions; products winning awards or certifications related to innovation…):…^G_{international}

H_{Briefly describe technical improvements, production processes, raw materials, designs; new technology applications such as automation, digitalization, clean technology; management, marketing, distribution solutions; products winning awards or certifications related to innovation…):…} = ồ

n i=1 M^G_{international}

Where:

Briefly describe technical improvements, production processes, raw materials, designs; new technology applications such as automation, digitalization, clean technology; management, marketing, distribution solutions; products winning awards or certifications related to innovation…):…^BG_{international}: The machinery shift cost of the i-th type of construction machinery or equipment at the time of handover for operation;

Briefly describe technical improvements, production processes, raw materials, designs; new technology applications such as automation, digitalization, clean technology; management, marketing, distribution solutions; products winning awards or certifications related to innovation…):…^G_{international}: The machinery shift cost of the i-th type of construction machinery or equipment included in the value of completed building works;

n: The number of types of construction machinery or equipment selected as representatives for calculation;

The basis for calculating the adjustment level of construction machinery usage costs in the value of building works is the machinery shift price list issued by the Ministry of Construction.

d/ Determine the conversion factor for the value of building works due to general cost adjustments (Kc)

Formula for determining the adjustment factor for construction work value due to general cost (K_C) as follows:

KC = "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:C x signing and implementing AgreementsNC (5)

Where:

"5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:C: The proportion of general costs in the value of building works (as per Table 1);

signing and implementing AgreementsNC: The conversion factor for the value of building works due to labor cost adjustments as per formula (3) of this annex;

For building work values where general costs are not calculated based on labor costs, the Project Owner shall recalculate the values of the components in the aforementioned formula (5) in accordance with the State's guidelines for calculating general costs in the value of building works, serving as the basis for determining the conversion factor for the value of building works due to general cost adjustments.

e/ Determine the conversion factor for the budgeted value of building works from tax and interest cost adjustments (KTL) or pre-paid taxable income (KTN)

Formula for determining the conversion factor for the value of building works from adjustments tax and interest costs (K_TL) or pre-paid taxable income (K_TN) as follows:

4

signing and implementing AgreementsTL = "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:TL x ồ signing and implementing Agreementsi (6)

i=1

4

send a text message signing and implementing AgreementsTN = "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:TN x ồ signing and implementing Agreementsinternational

i=1

Where:

"5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:TL or "5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:TN Proportion of tax and interest costs or pre-paid taxable income in the value of building works

HVL: Adjustment factor for material costs in the construction work value due to changes in material prices and is determined according to the following formula:

signing and implementing Agreementsi Conversion factor for the value of building works due to material cost adjustments (KVL),

labor cost (KNC), construction machinery usage cost (KM),

and general costs (KC).

Step 3: After calculating the conversion factors for the value of building works due to material cost adjustments, labor cost adjustments, construction machinery usage cost adjustments, general cost adjustments, and the adjustment of the value of building works from tax and interest cost adjustments or pre-paid taxable income, apply formula (1) of this annex to determine the conversion factor for the value of building works./. material costs, labor costs, construction machinery usage costs, general expenses, and the adjustment factor for the value of construction works from tax cost and interest or pre-tax income adjustments shall be determined using formula (1) of the annex to calculate the conversion factor for the value of construction works./.