Circular No. 151/2007/TT-BTC guides the financial management mechanism and disbursement for the Forestry Development Project to improve the livelihoods in the Central Highlands region.

CIRCULAR

Guidelines for the financial management and disbursement mechanism for the forestry development project to improve the livelihoods in the Central Highlands region

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Pursuant to:

- The Loan Agreement No. 2269-VIE(SF) signed on December 7, 2006 between the Socialist Republic of Vietnam and the Asian Development Bank (ADB) financing the Forestry Development Project to Improve Livelihoods in the Central Highlands Region (the Project);

- The Financial Agreement No. 4859-VIE(SF) signed on June 6, 2007 between the Socialist Republic of Vietnam and ADB regarding the co-financing contribution from the Forest Investment Fund (TFF) for the Project;

- Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government stipulating the functions, tasks, and organizational structure of the Ministry of Finance;

- Decree No. 131/2006/NĐ-CP dated November 9, 2006 of the Government promulgating the Regulation on Management and Use of Official Development Assistance (ODA) sources;

- Decision No. 813/QĐ-TTg dated June 7, 2006 of the Prime Minister, Decision No. 1052/QĐ-BNN-LN dated April 16, 2007 of the Minister of Agriculture and Rural Development approving the Preliminary Feasibility Study Report and the Detailed Feasibility Study Report of the Project;

- Decision No. 166/2007/QĐ-TTg dated October 30, 2007 of the Prime Minister on issuing policies to support investment and benefits for households, village communities, and organizations participating in the "Forestry Development Project to Improve Livelihoods in the Central Highlands Region";

After reaching consensus with the Ministry of Agriculture and Rural Development, the Ministry of Finance provides guidelines for the financial management and disbursement mechanisms for the Forestry Development Project to Improve Livelihoods in the Central Highlands Region as follows:

I. GENERAL PROVISIONS

1. Scope of application: This Circular guides the state financial management of the Forestry Development Project to Improve Livelihoods in the Central Highlands Region, which is financed by ADB loans, non-reimbursable aid from the Forest Investment Fund (TFF), and counterpart funds.

2. Principles of management

- The loan and non-reimbursable aid invested in the Project are state budget funds, managed according to regulations governing state budget funds and the provisions of the financiers.

- The Forestry Development Project to Improve Livelihoods in the Central Highlands Region is an investment project in the forestry sector combined with infrastructure, managed under the current state budget system for basic construction investment and forestry investment. The domestic financial mechanism for using ADB loans and TFF aid for the Project is implemented through state budget allocations, where the ODA portion of the Project at the local level is supplemented by the central budget for the local budget. The central budget ensures the allocation of counterpart funds for Project activities within its responsibility, directly managed and implemented by the Ministry of Agriculture and Rural Development through the Central Project Management Board. Local budgets are responsible for ensuring the allocation of counterpart funds for Project activities within their responsibility, led by the locality. For localities unable to balance sufficient counterpart funds, the central budget will consider supporting them according to the current provisions of the State Budget Law. Beneficiaries are responsible for contributing labor and materials according to the Project design.

- The Ministry of Agriculture and Rural Development and People's Committees of provinces participating in the Project (Gia Lai, Kon Tum, Dak Lak, Dak Nong, Lam Dong, and Phu Yen) are responsible for directing the use of funds for the approved purposes and contents of the Project, consistent with the conditions committed in the Agreements and current Vietnamese regulations.

- Financial management of the Project shall be carried out in accordance with Circular No. 108/2007/TT-BTC dated September 7, 2007 of the Ministry of Finance guiding the financial management mechanism for official development assistance (ODA) programs and projects.

- The Central Project Management Board is responsible for unified management of foreign fund withdrawal, payment for Central Project Management Board activities, and transferring funds to participating provinces according to the Project design and the Withdrawal Request Forms of provincial Project Management Boards. Provincial Project Management Boards, District Project Management Boards, and Village Development Boards are responsible for providing complete and timely documentation and vouchers related to foreign-funded expenditures within their province, district, and commune scope for the Central Project Management Board to process withdrawals.

- The expenditure control agency of the Project is the State Treasury (Trading Department) and the State Treasuries of participating provinces implement expenditure control, inspection, and confirmation of the value of funds meeting the conditions for payment/prepayment so that Project implementation units can withdraw foreign funds, while allocating the counterpart funds for the Project.

- The Project service bank is the Vietnam Agricultural and Rural Development Bank. The Vietnam Agricultural and Rural Development Bank performs the function of the Project service bank according to Circular 108/2007/TT-BTC. The Vietnam Agricultural and Rural Development Bank is entitled to fees according to current regulations on charging service fees for services provided to the Project. These service fees are included in the total Project investment cost.

II. SPECIFIC PROVISIONS

1. Preparation of the Project's financial plan

- People's Committees of provinces participating in the Project are responsible for preparing and approving the financial plan for Project activities implemented in their province, including the ADB loan plan, TFF aid, and counterpart funds allocated from the local budget.

- The Ministry of Agriculture and Rural Development is responsible for: (i) preparing and submitting for approval the financial plan of the Project for activities within the central budget expenditure responsibilities and common activities of the Project directly implemented by the Ministry of Agriculture and Rural Development including the ADB loan capital plan, capital from the Forest Investment Fund (TFF) grant and counterpart capital under the central budget responsibility allocation; (ii) compiling the total foreign capital plan of the entire Project; (iii) submitting for approval the overall financial plan of the Project including contents (i) and (ii) in accordance with current regulations.

- The Ministry of Agriculture and Rural Development is responsible for guiding provinces on the content and format of planning to ensure uniform application throughout all Project provinces.

- The central Project Management Board is responsible for consolidating the financial plans of participating provinces into the overall financial plan of the Project.

- Unspent and un-disbursed forest investment capital that has not been fully utilized shall continue to be implemented and disbursed in the following year in accordance with current regulations.

2. Opening Accounts

2.1. The central Project Management Board shall open the following accounts:

- An account at the Vietnam Agricultural and Rural Development Bank to receive advance funds from the ADB loan source (Level 1 Advance Account) in USD with a ceiling of 2,500,000 USD (Two million five hundred thousand US dollars).

- An account at the Vietnam Agricultural and Rural Development Bank to receive advance funds from the non-reimbursable grant of the Forest Investment Fund (TFF) for Project activities with a ceiling of 500,000 USD (Five hundred thousand US dollars).

- A disbursement account at the State Treasury (Treasury Department) to receive and settle counterpart disbursements for the central Project Management Board.

2.2. Provincial Project Management Boards shall open the following accounts:

- An advance account at the provincial branch of the Vietnam Agricultural and Rural Development Bank to receive advance funds transferred from the ADB loan source by the central Project Management Board (Level 2 Advance Account) in USD with a ceiling of 250,000 USD (Two hundred fifty thousand US dollars).

- An advance account at the provincial branch of the Vietnam Agricultural and Rural Development Bank to receive advance funds from the Forest Investment Fund (TFF) source transferred by the central Project Management Board in USD with a ceiling of 60,000 USD (Sixty thousand US dollars).

- A disbursement account at the provincial State Treasury to receive and settle counterpart disbursements for the provincial Project Management Board and for Project activities at the local level.

2.3. District Project Management Boards shall open the following accounts:

- - A VND deposit account at the district branch of the Vietnam Agricultural and Rural Development Bank to receive advance funds and payment funds transferred from the provincial Project Management Board.

2.4. Commune Development Boards shall open the following accounts:

- A VND deposit account at the district branch of the Vietnam Agricultural and Rural Development Bank to receive advance funds and payment funds transferred by the provincial Project Management Board;

- Two VND accounts at the district branch of the Vietnam Agricultural and Rural Development Bank within the framework of the Commune Development Fund: (i) an account to receive funds from the non-reimbursable grant of the Forest Investment Fund (TFF) to implement the livelihood improvement component directly transferred by the provincial Project Management Board, (ii) an account to receive contributions from individuals, organizations, and community groups as well as income generated through community-based forest plantation models submitted by households and village communities according to Decision No. 166/2007/QD-TTg dated October 30, 2007 of the Prime Minister.

2.5. Deposit accounts of household and village community groups

Encourage households/groups/village communities participating in the Project to open deposit accounts at the district branch of the Vietnam Agricultural and Rural Development Bank to receive advance funds and payments for implementing Project activities.

In cases where households/groups/village communities do not have favorable conditions to open accounts and conduct transactions through accounts, payment procedures will be carried out in accordance with current domestic regulations.

3. Budget rates and unit prices

- Expenditures from the non-reimbursable grant fund of the Forest Investment Fund (TFF) shall apply budget rates as stipulated by the Forest Investment Fund (TFF) or as agreed upon in the financing agreement.

- Budget rates for expenditures from the ADB loan and counterpart funds shall be implemented in accordance with Decision No. 61/2006/QD-BTC dated November 2, 2006 of the Minister of Finance regarding the issuance of certain budget rates applicable to projects using official development assistance (ODA) funds and current regulations related to procurement unit prices, specialized budget rates, and project-approved regulations.

4. Exchange rate

The exchange rate for payment and accounting of advance account expenditures at various levels shall apply the buying rate of the bank serving at the time of transfer/drawdown.

In case of payment in foreign currency, the exchange rate for accounting purposes shall be the monthly published foreign currency accounting rate by the Ministry of Finance.

5. Control of expenditures and capital disbursement for the project

5.1. Control of expenditures and counterpart capital disbursement

The State Treasury (Treasury Department) shall control expenditures of the central Project Management Board's advance/reimbursement requests and disburse counterpart funds to the central Project Management Board; the provincial State Treasury shall control expenditures of the provincial Project Management Board's advance/reimbursement requests for Project implementation at the provincial, district, commune levels and disburse counterpart funds to the provincial Project Management Board (including all expenditures for Project implementation at the district and commune levels, except for expenditures from the Commune Development Fund which will follow the guidance of the Ministry of Agriculture and Rural Development) in accordance with the approved annual plan and current regulations on capital management.

The ratio of the project's own capital and foreign capital for each component of the Project shall be applied according to the agreement with the financier and announced by the Ministry of Finance.

The specific procedures and payment formalities shall be carried out in accordance with the current regulations of the State.

5.2. Withdrawal of Funds and Repayment of ADB Loan

The withdrawal of funds from the loan to pay for the Project's activities shall be conducted through direct payment methods, letter of commitment forms, repayment/reimbursement procedures, and advance account procedures, all in compliance with Circular No. 108/2007/TT-BTC dated September 7, 2007, issued by the Ministry of Finance, which guides the financial management mechanism for official development assistance (ODA) programs and projects.

The Central Project Management Board may apply direct payment methods, advance accounts, repayment, and letters of commitment based on payment requirements.

Provincial Project Management Boards mainly make payments from second-level advance accounts. In cases requiring direct payments or repayments, provincial Project Management Boards submit official letters requesting the Central Project Management Board to withdraw funds from ADB and provide complete supporting documents and information related to the direct payment or repayment requirements.

Payments from advance accounts at various levels shall follow a pre-expenditure control procedure. When there is a request for payment from an advance account, the Central Project Management Board/provincial Project Management Board submits the payment application documents in accordance with the current expenditure control regulations to the State Treasury (Treasury Department)/provincial State Treasury for expenditure control implementation.

Within five working days from receiving the complete payment application documents, the State Treasury (Treasury Department)/provincial State Treasury will check the supporting documents and confirm the value of completed work/volume sufficient for payment on the Payment Request Form, clearly stating the total amount payable, detailed by loan source and domestic counterpart fund. The Payment Request Form confirmed by the State Treasury (Treasury Department)/provincial State Treasury serves as the basis for the Vietnam Agricultural and Rural Development Bank/branch of the Vietnam Agricultural and Rural Development Bank to disburse the ADB loan from the first-level advance account/second-level advance account of the Project for payment according to the request of the Central Project Management Board/provincial Project Management Board.

For transferring funds from the second-level advance account to the bank accounts of the District Project Management Board and Village Development Board: The provincial Project Management Board transfers funds to the District Project Management Board and Village Development Board based on the approved activity plan and expenditure details by the competent authority. Expenditure vouchers from the District Project Management Board and Village Development Board are submitted to the provincial Project Management Board for expenditure control at the provincial State Treasury.

5.3. Withdrawal of Funds and Management of Non-Reimbursable Grant Co-Financing Source

The co-financing fund from the Forestry Trust Fund (TFF) for the Project under the Financial Agreement shall be managed and utilized in accordance with the current State regulations on managing non-reimbursable grants and the donor's regulations.

The procedures for withdrawing funds and making payments shall be applied similarly to the loan guidance provided above.

6. Management and Utilization of the Village Development Fund

The management and utilization of the Village Development Fund shall be guided by specific instructions from the Ministry of Agriculture and Rural Development, based on prior agreements with the Ministry of Finance.

7. Reporting, Inspection, Audit, Settlement, Taxation

7.1. Reporting System

- The Central Project Management Board is responsible for compiling all expenditures of the Project, the status of the first-level advance account, the second-level advance account, and the end-of-month balances of these accounts on the last day of each month, reporting to the Ministry of Agriculture and Rural Development and the Ministry of Finance (Investment Department, State Treasury (Treasury Department), Foreign Finance Department) on the Project's implementation progress, detailing the quarterly withdrawal and use of ADB loans, non-reimbursable grants, and domestic counterpart funds, annual accounting reports, and final settlement reports upon completion of the Project.

- To compile reports and settle accounts, the Central Project Management Board is responsible for guiding provincial Project Management Boards to comply with current regulations on final settlement of investment capital and special regulations on forestry investment.

- Provincial Project Management Boards maintain accounting records to track all expenditures of the Project's activities in the province, quarterly and annual reports on the Project's overall implementation and sub-project implementation, the use of ADB loans, non-reimbursable grants, domestic counterpart funds, and annual accounting reports, final settlement reports upon completion of the Project, to be submitted to the People's Committee of the Province, the Ministry of Agriculture and Rural Development, the Central Project Management Board, and relevant agencies as stipulated.

7.2. Inspection

Regularly and unexpectedly, the Ministry of Finance, the Ministry of Agriculture and Rural Development, and the People's Committee of the Province will inspect the Project's implementation progress and capital usage. If improper use of funds is discovered, the Ministry of Finance will suspend capital transfer and handle violations according to current regulations.

7.3. Audit

The audit of the Project shall be conducted in accordance with the guidelines of the Ministry of Finance in Circular No. 108/2007/TT-BTC dated September 7, 2007.

7.4. Accounting and Asset Management

- The Central Project Management Board and provincial Project Management Boards are responsible for conducting accounting work in accordance with the accounting system for principal investors issued by the Ministry of Finance and donor regulations. District Project Management Boards and Village Development Boards are accounting units. Specifically, for the Village Development Fund, accounting shall be conducted in accordance with the guidelines of the Ministry of Agriculture and Rural Development.

- Project Management Boards are responsible for managing and utilizing Project assets and equipment in accordance with current State regulations. The disposal of Project assets after Project completion or during the Project implementation when they are no longer needed shall be carried out in accordance with Circular No. 116/2005/TT-BTC dated December 19, 2005, issued by the Ministry of Finance, guiding the management and disposal of assets of projects using state budget funds upon Project completion and related legal documents.

7.5. Settlement

The Central Project Management Board and the Provincial Project Management Board shall prepare annual project settlement reports and final project settlement reports in accordance with the guidelines issued by the Ministry of Finance on the settlement system for investment capital.

The People's Committee of the province shall participate in the Project to organize the examination and approval of annual project settlements, construction project settlements, completed sub-project settlements, and final project settlements implemented within the province, in accordance with the guidelines issued by the Ministry of Finance on the settlement system for investment capital.

The Central Project Management Board shall compile the total project settlement report of the entire Project for submission to the Ministry of Agriculture and Rural Development.

The Ministry of Agriculture and Rural Development shall review and approve the implementation of investment capital by the Central Project Management Board, and consolidate and approve the final settlement completion of the entire Project in accordance with current regulations on the settlement system for investment capital.

7.6. Tax Policy

The tax policy applicable to the Project shall be governed by Circular No. 123/2007/TT-BTC dated October 23, 2007, issued by the Ministry of Finance, concerning the guidance on implementing tax policies and tax incentives for programs and projects using official development assistance (ODA) funds.

III. IMPLEMENTATION

This Circular shall take effect fifteen days after its publication in the Official Gazette. During the implementation process, if there are any difficulties, the Ministry of Agriculture and Rural Development and other relevant agencies shall promptly reflect them to the Ministry of Finance for study, amendment, and supplementation./.