Circular No. 142/2011/TT-BTC guiding financial management for funds borrowed from the Kuwait Fund for Economic Development and the Saudi Fund for Development.

CIRCULAR

Guidelines for financial management of loan funds from the KUWAIT Fund and the SAUDI Fund

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Pursuant to the State Budget Law and the Public Debt Management Law;

Pursuant to the Decree No. 79/2010/NĐ-CP dated July 14, 2010 on state debt management operations;

Pursuant to the Second Additional Agreement attached to the Agreement between the Government of Vietnam and the Government of the Russian Federation on the settlement of Vietnam’s debt to the Russian Federation for previously provided credits, signed on November 21, 2011 (Second Additional Agreement) and the exchange letter dated October 16, 2012 amending Article 1 of the Second Additional Agreement;

Pursuant to Decree No. 60/2003/NĐ-CP dated June 6, 2003 detailing and guiding the implementation of the State Budget Law;

Pursuant to the Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, powers, and organizational structure of the Ministry of Finance;

The Ministry of Finance provides guidelines for financial management of loan funds from the Kuwait Fund for Arab Economic Development and the Saudi Fund for Development for projects as follows:

Part 1

GENERAL PROVISIONS

Article 1. Scope of Application and Regulatory Scope

It refers to entities, organizations, or individuals participating in managing and implementing projects using government loans from the Kuwait Fund for Arab Economic Development and the Saudi Fund for Development under the state budget disbursement mechanism (including cases where the central budget targets support for provincial budgets) or for relending. Financial management, withdrawal, payment, inspection, reporting, settlement, and state budget accounting shall be carried out in accordance with the provisions of this Circular.

Article 2. Interpretation of Terms

1. Kuwait Fund (Kuwait Fund for Arab Economic Development): The Kuwait Fund for Arab Economic Development, which is the agency providing development assistance funding from the State of Kuwait.

2. Saudi Fund (Saudi Fund for Development): The Saudi Fund for Development, which is the agency providing development assistance funding from the Kingdom of Saudi Arabia.

3. Loan Agreement: An agreement on borrowing signed between the State or the Government of the Socialist Republic of Vietnam and one of the Funds, including the Kuwait Fund and the Saudi Fund, to finance investment development projects in Vietnam. These Loan Agreements are specific international treaties on ODA.

Article 3. General Principles

1. Loan funds from the Kuwait Fund and the Saudi Fund for projects are foreign loans of the Government. This source of funds is managed in accordance with the Public Debt Management Law, the State Budget Law, guiding documents for these Laws; regulations on managing ODA funds, and the provisions of this Circular.

2. Loan funds from the Kuwait Fund and the Saudi Fund are disbursed or relended from the central budget to finance projects based on the Prime Minister's decision approving the list of ODA capital financing requirements and the investment decisions of competent authorities, following the principle applicable to local infrastructure investment projects adopting the central budget supplementary targeted capital mechanism for provincial budgets; projects meeting the conditions for relending under the Public Debt Management Law applying the central budget relending mechanism.

3. The Ministry of Finance is responsible for repaying debt to the foreign side when due (including both principal and interest) for projects adopting the central budget disbursement mechanism. For projects adopting the central budget relending mechanism, the relending project borrower must repay the debt to the Ministry of Finance to repay the foreign side. The relending project borrower's repayment to the Ministry of Finance must be completed no later than the deadline for repaying the foreign side.

The project owner is responsible for allocating sufficient funds to cover legitimate project expenses, including tax costs, withdrawal fees, bank charges, insurance fees, transportation fees, storage fees, and other legitimate expenses incurred during project implementation. In the event that any legitimate project expense is not covered by the foreign loan fund according to the Loan Agreement, the project owner must allocate from the counterpart funding to promptly and fully pay such expenses.

5. Domestic counterpart funding:

a. Domestic counterpart funding for projects under the state budget disbursement level is guaranteed by the corresponding level budget; for projects fully or partially relented, it is guaranteed by the relending project owner. The allocation and payment of domestic counterpart funding need to be balanced with the progress of foreign fund disbursement.

b. Domestic counterpart funding includes funds to pay tax costs, withdrawal fees, bank charges, insurance fees, transportation fees, storage fees, and other legitimate expenses if these costs are not covered by the foreign loan fund according to the Loan Agreement. Audit costs, if not covered by the sponsor according to the Loan Agreement, shall be allocated from the domestic counterpart funding.

c. The project implementing agency must allocate or submit to the competent authority for allocation sufficient domestic counterpart funding for the project to ensure its effectiveness and the progress of foreign fund disbursement.

6. The project supervising agency and the project owner are responsible for organizing the management of the use of funds for their intended purpose and effective use in accordance with the Loan Agreement and domestic regulations on project investment construction management and ODA fund management.

Part 2

SPECIFIC PROVISIONS

Article 4. Principles for managing and using borrowed funds:

1. The Kuwait Fund loan funds for investment items in the project shall be provided at the ratio specified in Supplement No. 1 to the Loan Agreement on "List of Goods Financed from Borrowed Funds."

2. The Saudi Fund loan funds for investment items in the project shall be provided at the ratio specified in Appendix 1 to the Loan Agreement on "Loan Withdrawal."

3. The financing ratio stipulated in the Loan Agreement is calculated based on the costs of investment items excluding tax costs. This ratio may change upon agreement between the financier and the borrower. Each withdrawal of borrowed funds for payment of investment items shall apply corresponding financing ratios to determine the amount withdrawn from borrowed funds.

4. All withdrawals from borrowed funds must be completed before the loan account closing date (or the extended loan account closing date) as prescribed in the Loan Agreement.

5. Borrowed funds shall not be used to pay for goods not specified in the Loan Agreement.

Article 5. Signing Contracts and Preparing for Payment and Disbursement Work.

1. Procurement and bidding shall be carried out in accordance with the Loan Agreement and current domestic regulations. In case of discrepancies between domestic regulations and those of the Loan Agreement, the provisions of the Loan Agreement shall prevail. The selection of contractors must have prior approval from the financier, except when the financier agrees to allow the project to select contractors beforehand and subsequently approve them, as stipulated in the Loan Agreement.

2. After signing the contract, the Project Management Board sends a copy of the contract to the financier and the Ministry of Finance (Debt Management and Foreign Financial Affairs Department) to prepare for disbursement. The financier will enter information about the contract into its contract management system to monitor implementation and payments according to the contract. The total amount paid by the financier under the contract shall not exceed the foreign loan limit of the contract, unless the contract is adjusted and approved by the financier.

Article 6. Principles for Repaying Foreign Loans

1. Repayment of foreign loan funds for projects shall be carried out in accordance with current state regulations, the Loan Agreement, and Circulars issued by the Ministry of Finance on managing and repaying investment construction funds, including this Circular, and regulations on managing financial resources from ODA.

Article 7. Methods of Withdrawing Foreign Funds

1. Eligible project expenses shall be paid from foreign funds through procedures such as direct payment; reimbursement; letter of commitment for credit payment; and payment through a special account.

2. Direct Payment Procedure

a. Direct payment is a method where, at the borrower's request, the financier transfers payment directly to the contractor/supplier/service provider.

b. To apply the direct payment procedure, the Project Management Board submits a set of documents including the following to the Ministry of Finance (Debt Management and Foreign Financial Affairs Department):

- A letter requesting fund withdrawal accompanied by a withdrawal form and relevant statements (original copies) and necessary supporting documents as required by the financier. For the Kuwait Fund, follow Case II, Forms 2-1 and 2-2 in the Kuwait Fund’s "Disbursement Procedures" document. For the Saudi Fund, follow Forms 1-1 and 1-2 in the Saudi Fund’s "Guidelines for Borrowers on Disbursement Procedures for Saudi Fund Loans."

- Invoice/payment request from the contractor (a copy for sales invoices; original for contractor payment requests).

- A payment request for investment capital;

- Confirmation (original) from the Expenditure Control Agency regarding the proposed payment.

c. Within five working days of receiving complete and valid documentation, the Ministry of Finance (Debt Management and Foreign Financial Affairs Department) reviews and signs/approves the withdrawal form sent to the financier for consideration. If the financier accepts, it will transfer the funds directly into the contractor's account.

3. Reimbursement Procedure

a. The reimbursement procedure involves the financier paying money from the loan account into an account designated by the borrower to reimburse the borrower/project implementing agency for eligible expenses previously paid from their own funds.

b. A special case of the reimbursement procedure is retroactive payment. Retroactive payment is a method where the financier finances eligible project expenses that occurred before the effective date of the project and were previously paid by the borrower from their own funds. Retroactive payment can only be applied with the financier's agreement and is specified in the financing agreement, which determines the time period and limit of the amount subject to retroactive payment.

c. When there is a need to withdraw funds for reimbursement or retroactive payment, the Project Management Board submits a set of documents including the following to the Ministry of Finance (Debt Management and Foreign Financial Affairs Department):

- A letter requesting fund withdrawal accompanied by a withdrawal form and relevant statements (original copies) and necessary supporting documents as required by the financier. For the Kuwait Fund, follow Case I, Forms 1-1 and 1-2 in the Kuwait Fund’s "Disbursement Procedures" document. For the Saudi Fund, follow Forms 1-1 and 1-2 in the Saudi Fund’s "Guidelines for Borrowers on Disbursement Procedures for Saudi Fund Loans."

- Confirmation of receipt of payment from the contractor/beneficiary or proof of funds transferred to the contractor/beneficiary's account.

- The withdrawal form must clearly state the name and account number of the entity that advanced the funds. For advances made by the State Budget, the name and account number of the State Budget level that advanced the funds must be specified. The name and account number of the funding level must be confirmed by the Expenditure Control Agency.

- A payment request for investment capital;

- Confirmation (original) from the Expenditure Control Agency regarding the proposed payment.

d. Within five working days of receiving complete and valid documentation, the Ministry of Finance reviews and signs/approves the withdrawal form sent to the financier.

đ. For withdrawals to repay/reimburse advances made by State Budget levels (or from sources with budget origins), the withdrawn funds must be repaid to the State Budget level that advanced the funds.

4. Letter of Commitment Procedure

a. The Letter of Commitment procedure is a form of payment whereby, at the Borrower's request, the financier issues an irrevocable or revocable letter of commitment guaranteeing to repay the issuing bank (L/C) after this bank has paid out on the letter of credit (L/C) for the project owner (to pay for the import of goods and equipment of the project).

b. When there is a need to withdraw funds through the Letter of Commitment procedure, the Project Management Board sends a set of documents to the Ministry of Finance (Department of Debt Management and External Financial Affairs), including the following documents:

- A letter requesting the issuance of an L/C and the issuance of a Letter of Commitment, accompanied by a Withdrawal Request Form and relevant statements according to the model (original copy) and necessary documents as stipulated by the financier. For the Kuwait Fund, follow Model 3 (Case III, accompanying Forms in Case III) in the "Disbursement Procedures" document of the Kuwait Fund. For the Saudi Fund, follow Models A and B in the "Guidelines for Borrowers on Disbursement Procedures for Saudi Fund Loans" document.

- Draft L/C

c. Within five working days from receipt of complete and valid documentation, the Ministry of Finance will review and sign/or co-sign the Withdrawal Request Form to request the financier to issue the Letter of Commitment.

5. Special Account Payment Procedure:

In certain special cases due to the nature of the project involving multiple small-value contracts, wide implementation areas, and difficulties, the financier permits the use of a special account (a revolving account). In such cases, the payment and management of the special account shall be carried out in accordance with current regulations on financial management of ODA projects. Specifically, the confirmation of expenditure control by the expenditure control agency must be pre-expenditure control for the proposed payments.

Article 8. Exchange Rates for Payments, Bank Fees

1. The exchange rate for payments in different currencies is the market exchange rate applied by the financier to convert the currency of the loan into the currency requested for payment.

2. If the financier's bank charges transfer fees, these fees shall be settled by the Project Management Board negotiating with the contractor, without using loan funds to cover bank fees, except where otherwise provided in the Loan Agreement.

Article 9. State Budget Accounting

1. Loans from the Kuwait Fund and the Saudi Fund must be fully and promptly recorded in the State Budget. The principle of budget accounting is to record central government revenue, and supplementary targeted expenditures for local government budgets (in cases where the project is implemented by provincial authorities and uses the mechanism of central government supplementary targeted funding for provincial budgets); or record expenditures for relending (in cases where the relending mechanism is applied).

2. Based on the disbursement notification from the financier, the Ministry of Finance processes the recording of foreign loan receipts and expenditures to the projects utilizing the funds (recorded as budget allocations or relending based on the financial mechanisms approved by authorized authorities for the project).

3. For projects implemented by provincial authorities, based on the documents sent by the Ministry of Finance, the Provincial Department of Finance prepares local government budget revenue orders and payment orders for units utilizing the funds to be submitted to the State Treasury of the province or centrally-administered city. The State Treasury of the province or centrally-administered city implements the control of foreign fund expenditures in accordance with the State Budget Law and regulations on financial management of ODA sources. The basis for recording expenditures is the Ministry of Finance's payment order, accompanied by detailed information on the Loan Agreement number, project name, sponsor name, amount of payment for each project, and the applicable exchange rate.

Article 10. Settlement of Projects

Projects using funds from the Kuwait Fund and the Saudi Fund shall conduct annual settlement in accordance with Circular No. 210/2010/TT-BTC dated December 20, 2010 of the Ministry of Finance on the settlement of basic construction investment capital sourced from state budget funds on an annual fiscal basis, and shall settle completed projects in accordance with Circular No. 19/2011/TT-BTC dated February 14, 2011 of the Ministry of Finance on the settlement of completed projects sourced from state funds and any supplementary, amended, or replacement circulars (if applicable).

Article 11. Inspection, Reporting, and Audit Work

1. The project management agency/project owner shall report on the implementation status, payment progress, and disbursement according to current regulations on reporting on the implementation of ODA projects; or when issues arise for relevant agencies to coordinate in formulating solutions.

2. The project management agency shall take the lead in coordinating with relevant agencies and the Ministry of Finance to conduct regular and spot inspections of the management and use of loan funds. If misuse of loan funds is discovered, the transferred funds will be recovered or the transfer of funds will be temporarily suspended to implement appropriate measures.

3. The project management agency shall be responsible for providing information and data to inspection, audit, and review teams of the funding organizations and the Vietnamese Government.

4. The project owner/project management agency shall be responsible for retaining payment documentation in compliance with current domestic regulations on the settlement of basic construction investment capital from the date of the agreement's conclusion, in accordance with archival regulations, to present upon request for monitoring, tracking, evaluation, and auditing purposes.

5. Projects utilizing foreign loans must undergo annual audits and final project audits by the State Audit Agency or independent auditing agencies. The project owner/project management agency shall organize the selection of auditing agencies in accordance with current regulations. A copy of the audit report must be submitted to the corresponding financial authority and the State Audit Agency (in cases where the State Audit Agency does not conduct the audit). If the audit costs are not covered by the funding organization under the loan agreement, they shall be arranged from the counterpart fund by the project owner.

Article 12. Responsibilities of Relevant Agencies

1. Project Management Agency: The project management agency has the following responsibilities:

a. Carefully study the characteristics and advantages of Kuwait Fund and Saudi Fund financing when proposing projects to utilize loans from these two funds. Direct the project owner to develop, review, and approve projects in accordance with current regulations on managing ODA funds.

b. Ensure the quality and effectiveness of the use of foreign loan funds from the Kuwait Fund or the Saudi Fund. Strictly fulfill commitments related to the project management agency as stipulated in the loan agreement.

c. Allocate sufficient and timely counterpart funds to implement the project (in cases of allocated projects), including counterpart funds to cover non-covered foreign-funded expenses such as land clearance costs, taxes, transfer fees, bank service fees, commitment fees when applying the Letter of Commitment withdrawal method, salaries and allowances, working facilities for partner staff, storage fees... Approve the annual financial plan and the foreign loan withdrawal plan of the project in a timely manner to ensure the disbursement schedule of foreign funds.

d. Implement and direct the project owner to manage the project finances in accordance with current regulations and this Circular.

đ. Fulfill the responsibilities and tasks of the project management agency as prescribed by laws on construction investment and laws on managing ODA funds.

2. Project Owner, Project Management Agency: The project owner and project management agency have the responsibility:

a. Develop the capital plan, annual financial plan, and overall project plan to submit to the competent authority for approval to allocate or proactively allocate sufficient and timely funds for legitimate project expenditures.

b. Conduct quantity and quality acceptance of works, goods, and services, and propose to relevant agencies to promptly, fully, accurately, and in accordance with regulations pay legitimate project expenses.

c. Maintain accounting records and bookkeeping for project revenues (if any) and expenses in accordance with commitments with the funding organization in the loan agreement and current domestic regulations. Organize settlement and report to the competent authority for approval of the project settlement in accordance with project settlement regulations.

d. Conduct annual and final project audits in accordance with regulations.

đ. Fulfill the responsibilities and tasks of the project investor, project owner, and project management agency as prescribed by laws on construction investment and laws on managing ODA funds.

3. Ministry of Finance: The Ministry of Finance has the responsibility:

a. Negotiate and sign loan agreements with the Kuwait Fund or the Saudi Fund to finance projects in accordance with laws on public debt management.

b. Based on the proposal of the project owner/project management agency, withdraw foreign loans to pay for the project according to the loan agreement, domestic regulations, and this Circular.

c. Allocate state budget funds to repay foreign debts when due for projects using allocated state budget loans; or recover funds from lending projects to repay foreign parties for projects using state budget lending loans.

d. Control expenditures (for allocated state budget projects) or delegate expenditure control (for state budget lending projects) in accordance with regulations, serving as the basis for withdrawing foreign loans.

đ. Guide the financial management system for ODA funds generally and for loans from the Kuwait Fund and the Saudi Fund specifically for projects utilizing loans from these funds in accordance with regulations and based on proposals from the project owner and project management agency; resolve or submit to the competent authority for resolution any issues of the project related to ODA project financial management regulations.

Article 13. Implementation Organization

This Circular takes effect from December 15, 2011.

During implementation, if there are any difficulties, agencies are requested to report to the Ministry of Finance for timely review and supplementation or amendment./.