Circular No. 143/99/TT-BTC guiding the management and use of preferential credit funds from Denmark

CIRCULAR

GUIDELINES FOR THE MANAGEMENT AND USE OF LOANS FROM DANISH GRANT CREDIT

CREDIT FACILITIES WITH FAVORABLE TERMS OF DENMARK

Pursuant to Decree No. 87/CP dated August 5, 1997 of the Government promulgating the Regulations on the Management and Use of Official Development Assistance (ODA).

Pursuant to the Framework Agreement on Mixed Credit signed between the Governments of Denmark and Vietnam on January 29, 1999, with a value of 40 million USD (hereinafter referred to as the Framework Agreement).

Pursuant to the Agreement on the Amount of Preferential Credit signed on October 6, 1999 between the Ministry of Finance and the Danish Industrial Foundation (hereinafter referred to as the Agreement), with a value of 25 million USD.

Implementing the Prime Minister's decision regarding the domestic financial mechanism applicable to projects using this Danish funding as stated in the Government's letter No. 1141/CP-QHQT dated November 1, 1999.

The Ministry of Finance hereby provides guidelines for the management and use of the preferential credit amount from Denmark based on the above documents as follows:

A. General Provisions :

1. The preferential credit amount from Denmark is a foreign debt of the Government. The entire loan amount will be recorded in the State Budget. The Ministry of Finance is responsible for repaying the debt to the foreign party when due (including both principal and other payable amounts).

2. Project sponsors are responsible for using the funds for their intended purpose, in accordance with the conditions stipulated in the agreements signed with Denmark, and returning the funds to the State Budget (for projects eligible for refinancing) according to the Refinancing Loan Contract signed with the refinancing agency authorized by the Ministry of Finance (from January 1, 2000 through the Development Support Fund).

3. The refinancing agency is responsible for implementing the refinancing lending and recovery of debts from project sponsors and is entitled to refinancing fees for state credit loans according to current regulations.

4. The Ministry of Finance has agreed with the State Bank of Vietnam to designate the Vietnam Investment and Development Bank as the bank to handle foreign transactions for the projects.

B/ Specific Provisions :

I/ Implementation Steps for Projects:

1. For projects already approved by the Government to be included in the list of proposals for Danish funding, project sponsors shall prepare feasibility study reports and submit them for approval according to Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government on the Management of Investment and Construction.

All projects approved by the Government to be included in the list of proposals for funding must be approved by the Danish Ministry of Foreign Affairs (DANIDA) based on an assessment of the feasibility study report prepared by the project sponsor regarding financial analysis, social issues, environmental issues, and other relevant matters. The final approval of the project by DANIDA will be based on the feasibility report and the trade contract approved by the Vietnamese side. The project sponsor is responsible for submitting the feasibility study report of the project to the Ministry of Planning and Investment to request DANIDA to review and approve.

2. After obtaining investment approval from the competent authority, project sponsors shall conduct bidding in accordance with the current regulations of the Government. Based on the results of the bidding approved by the competent authority, the project sponsors shall negotiate and sign the Trade Contract with the supplier.

During the negotiation and signing of the Trade Contract, project sponsors must comply with the following provisions of Denmark and Vietnam:

- For industrial projects, Denmark only finances up to 85% of the value of the Trade Contract, so the remaining 15% of the value of the Trade Contract must be arranged by the project sponsors themselves. Projects in other fields may be financed up to 100% of the value of the Trade Contract.

- In the Trade Contract, it must clearly specify that the supplier's bank in Denmark will provide guarantees: Down Payment Bank Guarantee equivalent to the deposit amount; Performance Bond/Guarantee as stipulated in Article 32 of Decree No. 88/1999/NĐ-CP dated September 1, 1999 of the Government, and Mechanical Period Guarantee as stipulated in Article 54 of Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government.

The project sponsor must submit a copy of the approved Trade Contract along with the feasibility study report, the report on the preparation of counterpart funds, and the investment preparation report, accompanied by a letter requesting the Ministry of Finance to officially request Danish funding for the project.

3. The Ministry of Finance (Department of Foreign Financial Affairs) will, based on the project sponsor's request and the project dossier mentioned in point 2 above, prepare a Funding Request (Request for Finance) to send to the Danish Industrial Foundation.

4. After receiving notification from the Ministry of Finance that all procedures have been completed to withdraw funds, the Vietnam Investment and Development Bank is responsible for guiding the project sponsors to implement the procedures for opening letters of credit (L/C) and withdrawing funds according to the Agreement.

II/ Financial Mechanism

The financial mechanism applied to projects using mixed credit from Denmark is implemented according to the Prime Minister's decision in the Government's letter No. 1141/CP-QHQT dated November 1, 1999, specifically as follows:

1. Projects funded by the State Budget: projects without direct repayment capability listed in Appendix 1 of this Circular.

2. Projects eligible for refinancing: projects with direct repayment capability listed in Appendix 2 of this Circular.

The conditions for refinancing are as follows:

a) The currency for refinancing and repayment is US dollars (USD). If the project sponsor repays in Vietnamese dong, the exchange rate for conversion will be applied according to Circular No. 3000-TC/TCĐN dated August 10, 1998 of the Ministry of Finance on guidance for exchange rates for loan repayment.

b) The term for refinancing is the same as the term Denmark grants to Vietnam, specifically:

- For industrial projects: 8 years, including 1 year grace period starting from the first withdrawal date.

- For projects in other sectors: 10 years without a grace period starting from the first withdrawal date.

c) Interest rate for rescheduling loans: There are three interest rates at 1%/year, 2%/year, and 3%/year (this rescheduling loan interest rate already includes the rescheduling fee of the Rescheduling Agency at 0.2%/year and other foreign fees as stipulated in the Agreement directly transferred by the Ministry of Finance to the foreign side) applicable to each type of project as follows:

- Interest rate of 1%/year: water supply projects in cities and towns.

- Interest rate of 2%/year: agricultural product processing and seafood processing projects.

- Interest rate of 3%/year: other production and business projects.

Interest will be paid every six months according to specific provisions in the Credit Contract signed between the project sponsors and the Rescheduling Agency (on June 30 and December 31 or March 31 and September 30 annually). If payment is delayed, the project sponsors must bear late payment interest as stipulated in the Credit Contract, but not less than 6.8%/year.

3. For projects that continue to be approved by the Prime Minister to be included in the list in the future (not mentioned in the attached annexes of this Circular), the Ministry of Finance will submit to the Government for approval on the application of appropriate financial mechanisms based on the general principles set out in Points 1 and 2 above.

4. The documents for signing the promissory note between the project sponsors and the Rescheduling Agency are the corresponding invoices from Danish suppliers and the budgetary receipts and payments notice issued by the Ministry of Finance.

The time when the project sponsors recognize debt with the Ministry of Finance (through the Rescheduling Agency) is the time when Denmark pays the contractor and records the debt to the Ministry of Finance. The amount of debt recognized by the project sponsors is the actual amount paid under the commercial contract using the Danish credit limit funds and recorded in the state budget - allocated to the project sponsors through the Rescheduling Agency.

5. The project sponsors are responsible for preparing plans and reporting on the implementation of counterpart capital in accordance with the Circular jointly issued by the Ministry of Planning and Investment and the Ministry of Finance No. 06/1998/TTLT-BKH-BTC dated August 14, 1998 on managing counterpart capital for programs and projects using ODA funds, specifically as follows:

- For projects funded by the State Budget: the counterpart capital is guaranteed by the State Budget according to the annual counterpart capital plan.

- For projects rescheduling Danish government loans: the project sponsors are responsible for arranging the counterpart capital to ensure the progress of the project.

The portion of the project's counterpart capital in foreign currency (for deposits, equipment purchases from third countries, construction costs, etc.) can be borrowed from the Nordic Investment Bank (NIB) under the Loan Agreement for the Small Projects Program signed on May 4, 1998. According to this Agreement, the specific loan period will be determined by NIB based on the proposal of Vietnam through the Ministry of Finance, but shall not exceed 20 years with a LIBOR + Margin interest rate (the Margin level will be determined based on the specific conditions of each project).

The NIB loan must meet the following requirements: the minimum loan amount equivalent to 500,000 USD, the maximum loan amount 5 million USD but not exceeding 50% of the total cost of the project. To be able to use this source of funds, the project sponsors need to officially propose to the Ministry of Planning and Investment and the Ministry of Finance along with the content of using the loan to be included in the negotiation list for specific loans with NIB.

C/ Implementation Organization

1. Every six months, the project sponsors are responsible for reporting to the Ministry of Finance, the Ministry of Planning and Investment, the Rescheduling Agency, and the competent authorities on the situation of receiving, using, and repaying the loan.

2. This Circular takes effect 15 days after the date of signature and replaces Circular No. 96-1998/TT-BTC dated July 10, 1998 of the Ministry of Finance.

During the implementation process, if there are any difficulties, units need to promptly reflect them to the Ministry of Finance for consideration and resolution./.

Appendix 1: Projects funded by the State Budget

Appendix 2: Projects eligible for rescheduling

Financial Affairs Department

Report to the Ministry: Regarding the issuance of Circular guiding the use of mixed credit from Denmark

of Denmark

Implementing the Government's directive in Circular No. 1141/CP-QHQT dated November 1, 1999 approving the Agreement on the binding credit limit signed on October 6, 1999 between the Ministry of Finance and the Danish Industrial Development Agency, the Financial Affairs Department has drafted this Circular guiding the use of these funds. After incorporating comments from the State Capital Investment Development General Department (attached), the Financial Affairs Department reports to the Ministry as follows:

1. The supplementation and clarification of the rescheduling loan period and some minor amendments have been reflected in this draft.

2. Regarding the proposal to still clearly state that the Lending Organization is the Investment Development General Department in the Circular: from now until the dissolution of the Investment Development General Department on December 31, 1999, there is only more than one month left, therefore, the Financial Management and Investment Control Department proposes that the Ministry continue to retain the general name of the Lending Organization as the Investment Development General Department to avoid having to amend the Circular later.

The Financial Management and Investment Control Department submits for the Ministry's consideration and issuance of the Circular./.

November 1999

Financial Management and Investment Control Department