Circular No. 129/1999/TT-BTC guiding the mechanism for managing loans for specialized credit programs of the Japan Bank for International Cooperation (JBIC).

CIRCULAR

Guidelines for the management mechanism of loan capital for

the Special Credit Program of Japan Bank for International Cooperation (JBIC)

Pursuant to Decree No. 90/CP dated November 7, 1998 of the Government on Loan and Debt Repayment Regulations and Decree No. 87/CP dated August 5, 1997 of the Government on Management and Utilization Regulations for Official Development Assistance (ODA) sources;

Pursuant to the credit agreements signed between the Government of the Socialist Republic of Vietnam and the Overseas Economic Cooperation Fund (OECF) for the Special Credit Program. The Overseas Economic Cooperation Fund has been merged into the Japan Bank for International Cooperation (hereinafter referred to as JBIC);

After soliciting opinions from relevant agencies, the Ministry of Finance provides guidelines for the management mechanism of JBIC's loan capital for the Special Credit Program as follows:

I. GENERAL PROVISIONS

1- The Rural Infrastructure Development and Livelihood Improvement Program (referred to as the Special Credit Program) is a program using JBIC loan capital to construct infrastructure projects at local levels nationwide, including areas specified in the Agreement.

2- The loan capital under the Special Credit Program is JBIC's loan capital of the Government allocated to the State Budget and used for annual investment in construction projects in provinces. Projects and programs under the Special Credit Program that are determined to have a rescheduling mechanism will be implemented according to the Rescheduling Regulations issued by Decree No. 90/1998/NĐ-CP dated November 7, 1998 of the Government. This capital is managed in accordance with the State Budget Law and related guiding documents, current expenditure regulations. The Ministry of Finance is responsible for repaying foreign debt when due (including principal and interest).

3- The Ministry of Planning and Investment (designated as the Program Leader) is primarily responsible for planning the use of Special Credit Program capital for projects with sufficient counterpart funds (taking into account JBIC standards); drafting guiding documents for local administrative agencies regarding planning and implementation of projects in their respective regions. The Program Leader establishes a dedicated Program Management Board to oversee and monitor the implementation of the program.

4- The Vietnam Bank for Foreign Trade (Vietcombank) is entrusted by the Ministry of Finance to handle foreign exchange transactions and is responsible for signing bank agreements with foreign parties based on the JBIC loan agreement.

5- Provincial People's Committees and local state management agencies are responsible for organizing the management of capital usage in accordance with their functions as guided by the Program Leader and the Ministry of Finance, consistent with Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government and commitments made in the signed credit agreement with JBIC.

II. SPECIFIC CONTENT

1- JBIC Loan Capital: accounting for 75% to 85% of the project value for the following purposes:

- Allocation for hiring foreign consultants.

- Allocation for purchasing materials, goods, and equipment both domestically and internationally for projects.

- Allocation for paying construction work volumes and implementing domestic programs and projects.

- A fee for withdrawing JBIC loan capital at a rate of 0.1% of the withdrawn amount recorded by JBIC upon withdrawal.

2- Domestic Counterpart Capital:

Domestic counterpart capital can be sourced from local government budgets or other sources, ensuring balance with the progress of foreign capital utilization during each period of the project plan. This capital must be allocated approximately 15-25% of the project value to cover:

- Domestic costs paid to importers: commission fees for importing goods, import duties, value-added tax (if applicable), costs for receiving, supplying, and transporting goods from ports to the project site (for projects requiring imported goods).

- Compensation and land clearance costs, surveying, design, and construction project management fees (during the project construction process).

- Domestic banking service fees.

- Construction project insurance fees.

- Retention payments pending post-warranty period settlement.

Localities must ensure the source of domestic counterpart capital. The counterpart capital must be included in the annual budget balance of local governments. The principle of allocating counterpart capital is carried out as stipulated in Circular Joint No. 06/1998/TTLT-BKH-BTC on the management mechanism for counterpart capital for ODA-funded programs and projects.

3- Signing and Approving Contracts: The signing and approval of contracts shall be carried out as follows:

3.1- For consulting contracts and procurement contracts for imported goods and materials:

- The Program Leader shall organize bidding and negotiate consulting contracts and procurement contracts for goods and materials for the program or project with legitimate suppliers according to the Agreement.

- The Program Leader selects units to act as agents for import transactions, sign import contracts, and handle receipt and delivery procedures to the project site (hereinafter referred to as the Importer). The Program Leader directly signs foreign consulting contracts for the entire program.

- After signing the contract, the party signing the contract shall make two copies of the signed contract, one copy sent to JBIC and one copy sent to the Ministry of Finance for contract approval procedures.

- Upon receipt of JBIC's contract approval notice, the Ministry of Finance (Department of Foreign Financial Affairs) will review and approve the contract and notify the Program Leader and the Importer to proceed with contract execution, while also notifying Vietcombank to handle foreign payment procedures for the supplier or foreign contractor (if applicable).

3.2- For construction volume contracts and program/project implementation contracts executed by domestic contractors:

- After being assigned JBIC capital plans, investors shall conduct bidding in accordance with current regulations and sign contracts with contractors.

- In special cases without bidding, the managing agency must issue a tender designation decision in accordance with current regulations and instruct the investor to sign a contract with the contractor.

- The contract must specify the value supported by JBIC loan capital.

- Contracts must be approved by the investment management agency and submitted to the Provincial Investment Planning Department (KHĐT), which is authorized by the Program Director to organize, manage, and oversee projects using JBIC funds in the locality, for the purpose of processing the contracts to utilize JBIC loans.

- Contracts with a value under VND 30 billion (equivalent to JPY 300 million) will be reviewed by the Provincial Investment Planning Department (KHĐT) and included in a list sent to the Program Director as having been approved. The Program Director must send these lists of contracts to JBIC and the Ministry of Finance for coordination in implementation.

- For contracts with a value exceeding VND 30 billion (or equivalent to JPY 300 million), the contract must be approved by the investment management agency and submitted to the Ministry of Finance and JBIC for the purpose of processing the contracts to utilize JBIC loans.

4- Methods of drawing down funds:

- For consulting contracts and foreign equipment procurement: The portion of the contract paid in foreign currency shall be drawn down through either a Letter of Commitment or a Special Account (SA). The portion paid in domestic currency (VND) shall be drawn down through a Transfer or Refund method for payment.

- For contracts signed to procure domestic equipment and carry out domestic construction works, the Special Account (SA) method shall be applied for payment according to the procedures stipulated in Section III below.

- Upon the authorization of the Ministry of Finance, Vietcombank opens a Yen-denominated Special Account (SA) and an interest account for the SA at the Tokyo-Mitsubishi Bank, with the Ministry of Finance (Department of Foreign Financial Affairs - TCĐN) as the account holder. The Ministry of Finance (Department of TCĐN) processes the initial drawdown and subsequent drawdowns into the aforementioned SA in accordance with the Agreement. The first drawdown does not require accompanying documentation.

- Within the country, the Ministry of Finance requests Vietcombank to open dedicated accounts corresponding to the Special Account (SA) and the interest account of the SA, named after the Ministry of Finance (Department of Foreign Financial Affairs), to monitor and record the amount of funds drawn down and interest accrued on the SA, as well as future debt repayments.

III. PAYMENT PROCEDURES FOR DOMESTIC CONTRACTORS

1- Payment Recipients:

- Projects (hereinafter referred to as projects) that are to be paid from the Special Credit Program are those projects included in the annual plan for utilizing JBIC funds allocated and announced by the Ministry of Planning and Investment to localities.

- A legitimate contractor is a contractor listed in the winning bid decision for the project or designated to implement the project in compliance with current regulations (hereinafter referred to as the contractor).

2- Payment Request Documentation and Requirements for the Documentation Set:

When requesting payment, the project sponsors must prepare the following payment documentation set:

- All payment request documentation for JBIC funds prepared in accordance with the current domestic basic construction payment procedures.

- The contract between the Project Sponsor and the Contractor (a copy from the original) approved for the use of JBIC funds.

- The Contractor's payment request form (two original copies) approved by the Project Sponsor.

- An itemized list of payments made under the contract (in cases where a single contract is paid in multiple installments).

- A quantity certification of completed construction work by the direct capital investment management authority (abbreviated as CQQLĐT), clearly stating the amount requested for payment using JBIC funds (two original copies).

3- Payment Procedures and Additional Drawdowns:

a) Advance Payment Scenario: Contractors may receive advance payments according to the level specified in Decree No. 52/1999/NĐ-CP dated July 8, 1999, of the Government, provided that the advance payment terms are specifically defined in the Contract and the payment request documentation includes a Guarantee for Advance Payment issued by a state commercial bank or a reputable joint venture bank (the Guarantee form is attached). The payment process is similar to scenario (b) below.

b) Completed Work Payment Scenario:

- After the contractor completes the project volume, the project sponsor collects all necessary documentation and submits it to the direct capital investment management authority in the locality for verification of the completed construction work volume in accordance with current construction investment regulations. The total amount requested for payment must equal the appraised value of the completed construction work volume and fall within the JBIC-funded amount specified in the contract.

- Following the completion of the review by the CQQLĐT, the project sponsor compiles the documentation set (as stipulated in Section 2 above) and submits it to the Program Director.

- Every two weeks, the Program Director collects and reviews the valid documentation sets received, compares them with the allocated budget plan and the contract list prepared by the Provincial Investment Planning Department (KHĐT) and submitted to the Ministry of Finance (Department of TCĐN). The documentation submitted to the Ministry of Finance includes one original Contractor's payment request form, an itemized list of payments made (if applicable), one original quantity certification of completed construction work, and an original summary of payment requests signed by the Director of the Project Management Board located at the Ministry of Planning and Investment.

- Within seven days of receiving complete documentation from the Program Director, the Ministry of Finance, based on the balance in the Special Account (SA), requests Vietcombank to transfer funds to contractors within three days, according to the account number specified by the contractor in the payment request form. After transferring the funds, Vietcombank sends the Ministry of Finance the Bank Transfer Notification forms along with the bank transfer documentation for each contractor to facilitate additional drawdowns into the Special Account (SA).

c) Other advances (when there is completed work but has not yet been paid from JBIC funds) are sourced from local funds. When preparing the payment request documentation, the contractor requests the transfer of funds into the local government budget account, accompanied by a Confirmation of Receipt of Funds and a copy of the payment documentation for the advance payment to repay the temporarily advanced funds to the local government budget.

IV. TYPES OF CHARGES INCURRED

1- Banking Fees: Includes:

- Domestic payment service fees: Vietcombank charges fees according to the fee schedule for JBIC project programs as prescribed by the General Director of the Foreign Trade Bank.

- Foreign payment service fees: charged based on the actual amount required by foreign banks.

Specific fee collection procedures are as follows:

- For transfer fees when repaying foreign debts: Vietcombank automatically debits the State Budget Deposit Account (opened at Vietcombank).

- For fees related to opening and processing import LCs for goods and service consultancy: Vietcombank collects such fees from the importer entrustee or from the Interest Account on the Deposit Account in the case where the LC opener is the Program Owner. In cases where the interest account does not have sufficient funds to cover the fees, Vietcombank will notify the Ministry of Finance to find sources for fee payment.

- For transferring funds to domestic contractors: Bank charges are deducted from the amount paid to the contractor. Depending on the contract signed with the Project Owner, the Contractor may bear these charges or request the Project Owner to reimburse them based on Vietcombank's notification regarding the charges.

2- Importer Fees:

- The importer selected by the Program Owner is responsible for negotiating and signing purchase contracts with foreign companies that have won the bid, handling all import procedures under the supervision of the Program Owner, and receiving entrustment import fees, supply fees agreed upon with the Program Owner, and current state regulations. These fees are collected from the receiving units and included in the corresponding project's counterpart fund.

V. RECORDING IN THE STATE BUDGET

1- JBIC loan capital allocated to local projects must be fully and promptly recorded in the State Budget. The principle of recording through the budget is to record revenue in the Central Budget and record targeted supplementary expenditure in the Local Budget (LB). The specific implementation of recording through the budget is as follows:

1.1- Allocation of consulting fees and withdrawal fees: After the completion of each Agreement's withdrawal process, within one month, the Program Owner consolidates consulting fees and allocated consulting fees for each locality according to the proportion of JBIC capital usage for each project in the locality, coordinates with the Department of Planning and Investment, and officially requests the Ministry of Finance to handle the recording of revenue and expenditure in the budget.

1.2- For the value of imported goods:

- After the completion of withdrawal for each procurement contract, the Program Owner collaborates with the importer and supplier to allocate the value of imported goods corresponding to each project in the localities, coordinates with the Department of Planning and Investment, and officially requests the Ministry of Finance to handle the recording of revenue and expenditure in the budget.

- In cases where there is a discrepancy between the planned allocation and the actual received quantity (including normal losses), the localities work with authorized supply units to confirm this discrepancy and report to the Program Owner for handling according to the principle that the loss at the stage under the responsibility of which entity shall be borne by that entity, specifically as follows:

+ Losses exceeding the standard rate determined during the import process shall be borne by the importer.

+ Losses exceeding the standard rate during the supply process shall be borne by the authorized supply unit.

+ Losses exceeding the standard rate due to delays or postponements by the locality in receiving goods shall be borne by the locality.

Steps for recording items 1.1 and 1.2:

The Department of Planning and Investment informs the unified data with the Program Owner to the Department of Finance for coordination and monitoring.

Upon receipt of the official document from the Ministry of Planning and Investment, the Ministry of Finance records the JBIC loan debt, records targeted supplementary expenditure in the LB; the Department of Finance records revenue from the upper-level source and records provisional expenditure for the Project Management Authority; the Project Management Authority records revenue from the allocated budget and records expenditure for the project.

The recorded value of revenue and expenditure in the budget is the foreign currency value (JPY) multiplied by the exchange rate published by Vietcombank at the time of transfer (for payments to domestic contractors) or the accounting exchange rate prescribed by the Ministry of Finance at the time of accounting (for consulting fees, withdrawal fees, imported goods). Unified vouchers for budget accounting are in accordance with the general provisions of the Ministry of Finance.

1.3- For construction works, implementing programs and projects paying domestic contractors in VND:

- Within seven days of receiving the notification about the transfer of funds from the NHNT, the Ministry of Finance handles the recording of JBIC loan revenue and targeted supplementary expenditure in the central budget for the LB, specifying the amount paid to each project.

- The Department of Finance and Price Control records revenue from the upper-level source, records provisional expenditure for the Project Management Authority; the Project Management Authority records revenue from the allocated budget, records expenditure for project funding. The basis for recording expenditure is the Disbursement Order of the Budget Department of the Ministry of Finance, accompanied by the Notice of the Department of Foreign Capital with the amount paid to each project.

VI. RESPONSIBILITIES OF RELATED AUTHORITIES

1- Program Owner:

- Responsible for guiding local management agencies to prepare vouchers according to the JBIC-prescribed model for each withdrawal method.

- Receiving and reviewing the payment documentation of the Project Owner, comparing it with the JBIC capital plan and contract, compiling and submitting to the Ministry of Finance every two weeks for payment recommendation. If the payment documentation is not accepted, the Program Owner is responsible for contacting the project owner to complete the documentation.

- Selecting importers and suppliers; Allocating the value of imported goods, withdrawal fees, consulting fees to localities.

- Responsible for organizing inspections, supervision, and auditing of projects together with consultants and the Ministry of Finance.

- Responsible for compiling progress reports on program implementation to the Government, the Ministry of Finance, and the financier.

2- Ministry of Finance:

- Processing acceptance for payment after receiving all required documentation. If payment is not accepted, the Ministry of Finance (Department of Foreign Finance) is responsible for immediately notifying the Program Owner.

- Processing recording of revenue and expenditure so that the Department of Finance and Price Control can record in the LB.

- Promptly conducting additional withdrawals into the Deposit Account.

3- Direct management authority for investment capital at the local level:

- Reviewing the completed construction volume of the project according to current regulations on basic construction investment management, clearly determining the amount of JBIC-funded support as the basis for the Ministry of Finance to pay contractors.

- Notifying the reviewed progress of the completed construction volume to the Department of Finance and Price Control for coordinated management.

4- Departments of Planning and Investment of provinces and cities:

- Serve as the focal point for managing projects implemented at the local level, responsible for compiling from the planning stage, implementation, and reporting to the Program Director. Regularly coordinate and inform the Provincial Department of Finance and Prices of information related to local projects.

- Responsible for performing tasks delegated by the Program Director in establishing the JBIC capital plan according to JBIC standards, and working with the Provincial Department of Finance and Prices to allocate sufficient counterpart funds for local projects.

- Responsible for preparing a list of contracts and contract appendices funded by JBIC capital that have been approved by the competent management agency and submitting it to the Program Director according to the attached form.

5- Provincial Departments of Finance and Prices:

- Implement revenue and expenditure records in the State Budget after receiving the budget revenue and expenditure vouchers from the Ministry of Finance.

- Timely allocate counterpart funds in accordance with the disbursement progress of foreign loans.

6- Vietcombank:

- Execute payments according to the withdrawal methods stipulated in the JBIC loan agreements upon request of the Ministry of Finance and send appropriate payment notifications to the Ministry of Finance and the Program Director.

- Monitor and report to the Ministry of Finance the balance of the dedicated account after each payment and withdrawal.

7- Project Investors:

- Responsible for conducting feasibility studies, technical designs, etc., in accordance with construction investment procedures and organizing tenders or direct awards as per current regulations.

- Responsible for signing contracts with winning bidders or direct award recipients, specifying the amount of funding provided by JBIC capital. Also responsible for inspecting or entrusting supervisory agencies to inspect project quality in accordance with technical designs and confirming the Contractor's Payment Request Form.

- Report on the progress of withdrawing physical goods and cash from JBIC loan sources to relevant management agencies.

- Allocate repayment of costs from domestic counterpart funds.

- Monitor project completion progress based on the contractor payment notices issued by the Ministry of Finance and proceed with final settlement of contracts with contractors.

- Finalize construction works and sub-works in accordance with current regulations on construction investment final settlement.

8- Contractors:

- Responsible for fulfilling contracts in terms of quantity, quality, and schedule.

- Responsible for paying taxes, providing warranties, refunding advance capital, etc., as stipulated and in accordance with contracts with project investors.

- Responsible for finalizing payments, accepting completed projects, handing over, and providing warranties to project investors.

VII. MONITORING, REPORTING, AND FINAL SETTLEMENT WORK

1- Each year, the People's Committee of provinces and centrally-administered cities and the Program Director shall report to the Ministry of Finance and the Ministry of Planning and Investment on the progress of implementing the Program and the situation regarding receipt and use of loan funds.

2- The Program Director shall take the lead in coordinating with the Ministry of Finance to organize regular and spot checks on the management and use of loan funds by localities. If misuse of loan funds is discovered, measures will be taken to recover transferred funds or temporarily halt further transfers until appropriate actions can be taken.

3- The Program Director shall cooperate with project investors, provincial departments of planning and investment, provincial departments of finance and prices, and local investment management agencies to conduct acceptance and final settlement of completed works, compile reports to the Prime Minister, and simultaneously submit them to the Ministry of Finance. Coordinate with the JBIC project evaluation team to review the implementation of the program after the loan agreement withdrawal period ends.

4- The Program Director is primarily responsible for providing information and data to JBIC inspection, audit, and government teams.

VIII. EFFECTIVE DATE OF IMPLEMENTATION

This Circular takes effect fifteen days from the date of signature and replaces Circular No. 89 TC/TCĐN dated December 18, 1997 of the Ministry of Finance. Matters not covered in this document shall be governed by Circular No. 95 TC/ĐT dated November 14, 1994 and Circular No. 18 TC/ĐTPT dated March 12, 1996 of the Ministry of Finance.

In the course of implementation, if there are any difficulties, please reflect them to the Ministry of Finance for appropriate resolution.