Circular No. 27/2005/TT-BTC guiding disbursement and financial mechanisms for the Credit Limit of the Nordic Investment Bank (NIB)

CIRCULAR

Guidelines for disbursement and financial mechanism for

Credit limit of the Nordic Investment Bank

 

Pursuant to Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government on the issuance of the Regulation on management and use of Official Development Assistance funds;

Pursuant to Decision No. 02/2000/QĐ-BTC dated January 14, 2000 of the Minister of Finance on the issuance of the Regulation on relending from foreign loan/grant funds of the Government;

Pursuant to the Loan Agreement No. PIL 04/11 signed on September 21, 2004 between the Ministry of Finance representing the Government of Vietnam and the Nordic Investment Bank (NIB) (hereinafter referred to as the Agreement) regarding NIB providing Vietnam with a credit limit worth 30 million USD (hereinafter referred to as the Credit Limit);

The Ministry of Finance guides the financial mechanism and disbursement of the Credit Limit as follows:

I. GENERAL PROVISIONS

1. The NIB's Credit Limit is a foreign loan of the Government, the entire loan amount is recorded in the State budget. The Ministry of Finance is responsible for repaying the debt to the NIB when due.

2. Projects using loan funds from the Credit Limit (hereinafter referred to as the Project) must be included in the list of projects approved by the Prime Minister. The feasibility study report of the Project, which has been approved by the competent authority according to regulations, serves as the basis for the Ministry of Finance to request the NIB to finance the Project under the Credit Limit.

3. The domestic financial mechanism applied to the Project is the relending mechanism approved by the Prime Minister (in Circular No. 1259/CP-QHQT dated September 3, 2004 of the Government) and according to specific conditions stipulated in Point 2, Part II of this Circular.

The Vietnam Development Bank is the Relending Agency authorized by the Ministry of Finance to implement relending of loan funds from the Credit Limit according to the Authorization Contract signed on September 21, 2004 between the Ministry of Finance and the Vietnam Development Bank (hereinafter referred to as the Authorization Contract).

5. Project Owners have the responsibility to use funds for their intended purpose and effectively, in accordance with the conditions specified in the Agreement and fulfill their repayment obligations according to the provisions of the Loan Contract signed with the Vietnam Development Bank (hereinafter referred to as the Loan Contract).

1. Scope of handling risky debts

1. Main borrowing conditions according to the Agreement :

- The currency of the loan is US Dollar (USD) or Euro (EUR), depending on the specific Project approved by the NIB.

- The total value of the Credit Limit is equivalent to 30 million USD, where each loan under the Credit Limit (hereinafter referred to as the Sub Loan) has a minimum value equivalent to 1 million USD and a maximum value equivalent to 10 million USD, but not exceeding 50% of the total investment cost of the Project.

- Interest rate: LIBOR + Margin (if the Sub Loan is disbursed in USD) or EURIBOR + Margin (if the Sub Loan is disbursed in EUR). The Margin will be specifically determined by the NIB for each Sub Loan (the current level is 0.85%/year).

- For Sub Loans with a value of 2 million USD or more, after fully disbursing the Sub Loan, the Ministry of Finance and the NIB may agree to apply a fixed interest rate for the entire Sub Loan if the Project Owner submits a written request to the Ministry of Finance at least 60 days before the first repayment period immediately following the final disbursement of the Sub Loan.

- Repayment period (principal and interest) and the time for principal repayment of each Sub Loan will be specifically determined in the notice of project financing decision of the NIB (stated in Point 3.2 below) according to the principle that the repayment period of the Sub Loan (including the grace period for principal repayment up to 5 years) shall not exceed 17 years from the date the NIB notifies the project financing decision.

- The drawdown period for the entire Credit Limit is December 15, 2007, and may be extended by agreement between the Ministry of Finance and the NIB.

- Arrangement Fee (out-of-pocket fee): 5,000 USD calculated once for the entire Credit Limit, prepaid by the Ministry of Finance to the NIB upon signing the Agreement.

- Commitment Fee: 0.25%/year calculated on the committed but undisbursed amount of each Sub Loan and starts from the date Vietnam accepts the Sub Loan from the NIB or 30 days from the date the NIB notifies the project financing decision, whichever is earlier. The Commitment Fee must be paid every six months during the repayment periods (principal and interest) of the Sub Loan.

- Late payment penalty interest rate is 2% per year added to the loan interest rate, calculated on overdue principal and interest and starting from the due date until the actual repayment date.

2. Conditions for relending :

The Government, through the Ministry of Finance, lends the Project Owner the loan funds from the Credit Limit according to the borrowing conditions of the NIB stated in Point 1 above.

The Vietnam Development Bank is the Relending Agency authorized by the Ministry of Finance to implement relending of the Credit Limit for the Project Owner and receives a relending fee of 0.15%/year as stipulated in the Authorization Contract.

Within 30 days from receiving the notification from the Ministry of Finance on the specific conditions of the Sub Loan for the Project, the Vietnam Development Bank is responsible for signing the Loan Contract with the Project Owner specifying the relending conditions of the Sub Loan for the Project. At the same time, the Project Owner must transfer the arrangement fee (1,000 USD/project) prepaid by the Ministry of Finance to the NIB through the Vietnam Development Bank.

At each repayment period of the Sub Loan, based on the notification from the NIB, the Project Owner is responsible for paying the commitment fee fully and on time as stipulated in the Agreement and repaying the principal and interest and the relending fee to the Vietnam Development Bank as stipulated in the Loan Contract.

Based on the Loan Contract, the drawdown notice from the NIB, and the accounting vouchers for foreign loan withdrawals through the State budget of the Ministry of Finance, the Vietnam Development Bank is responsible for notifying and signing the promissory note for each loan drawdown with the Project Owner.

3. NIB's Financing Procedures :

3.1 General Principles:The source of NIB's loan capital is tied credit, to be used solely to finance goods and services originating from Nordic countries (Finland, Denmark, Sweden, Norway, Iceland) and Baltic countries (Estonia, Lithuania, Latvia), or co-finance projects involving participation (in terms of capital, technology...) from these countries. Typically, the level of NIB funding for a project will depend on the participation ratio of the aforementioned Nordic and Baltic countries in that project but shall not exceed 50% of the total investment cost of the project.

3.2 Application Procedures for Project Financing:

Based on the list of projects using Credit Limits approved by the Prime Minister, the Project Owner organizes the appraisal and approval of the Project, while simultaneously implementing tender procedures for purchasing materials and equipment for the Project in accordance with current state regulations on bidding, investment management, and construction, as well as the financing conditions stipulated by NIB.

The currency for payment in commercial contracts providing materials and equipment for the Project (hereinafter referred to as Commercial Contracts) shall be US dollars or Euros to align with the loan currency under the Agreement and to mitigate foreign exchange risks (if any).

After completing the investment procedures for the Project as prescribed, the Project Owner must submit the following documents to the Ministry of Finance to apply for Project financing from NIB:

Request for Project Approval (Request for Project Approval) according to the model in Appendix 1 of this Circular.

Decision approving the Feasibility Study Report of the Project.

Decision approving the Commercial Contract.

Two copies of the Commercial Contract (original or certified true copy).

Project drawdown plan (maximum five tranches).

Notification of the name, position, seal imprint, and signature of authorized representatives of the Project Owner who will confirm the drawdown application documents.

In the event that NIB agrees to finance the Project, the Ministry of Finance will notify the Project Owner and the Vietnam Development Bank in writing about NIB’s decision to finance the Project and the specific terms of the Loan including: loan amount, loan and repayment currency, interest rate and margin applied, repayment period, time for principal repayment... serving as the basis for signing the Loan Agreement detailing the conditions for relending the Loan for the Project.

4. Guidelines for Disbursement of Credit Limits :

4.1 General Principles:According to the Agreement, NIB will only disburse based on the Drawdown Request submitted by the Ministry of Finance accompanied by relevant payment documents. The drawdown request file must be transferred to NIB at least 15 days before the drawdown date. At the request of the Ministry of Finance, NIB may transfer payment directly to the Seller/Supplier in the Commercial Contract or consider other drawdown methods (advance payments, refunds) suitable for the Project's payment requirements but must be pre-approved by NIB.

Each Loan within the Credit Limit can only be disbursed in a maximum of five tranches (Tranche) consistent with the Project's drawdown plan.

4.2 Specific Drawdown Procedures:

a) Direct Payment:

Based on the Project's drawdown plan and the progress of the Commercial Contract implementation, when there is a payment request, the Project Owner sends the Ministry of Finance a drawdown request file containing the following documents:

A letter requesting drawdown, specifying the legal grounds for drawdown, along with necessary payment instructions (name, account number, and bank of the Seller/Supplier).

Invoice or Payment Request from the Seller/Supplier, which has been reviewed and confirmed by the Project Owner agreeing to pay according to the terms of the signed Commercial Contract.

Other documents specified in the Commercial Contract (Performance Bond, Advance Payment Guarantee, Acceptance Certificate, handover operation of machinery and equipment...) or supplementary documents if requested by the Ministry of Finance and NIB.

Within a maximum of five working days from receiving complete and valid payment documents, the Ministry of Finance will review and sign the Drawdown Request to send to NIB.

Within a maximum of fifteen working days from receiving the Ministry of Finance's drawdown request, NIB will review and transfer funds directly to the Seller/Supplier's account if payment is accepted (or will send a letter to the Ministry of Finance explaining the reasons if payment is not accepted).

b) Refund Payment:

As stipulated in point (i), Section IV, Appendix I of the Agreement, NIB may consider refunding reasonable and legitimate costs of the Project paid by the Project Owner within six months prior to the signing date of the Agreement (September 21, 2004).

Based on the collection of payment documents for Project costs meeting the above deadline requirement (six months) and the total amount requested for refund not exceeding the value of the Project Loan, the Project Owner needs to submit the following documents to the Ministry of Finance:

A letter requesting refund payment, clearly stating the legal grounds for requesting a refund, along with necessary payment instructions (name, account number, bank of the Beneficiary who prepaid the Project costs).

Payment documents (mandate, cashier's check, telegraphic transfer...) proving the amount and source of payment (detailed by each source) and a confirmation document from the Seller/Supplier acknowledging receipt of the full payment. These documents may be provided in certified true copies by the Project Owner.

Supplementary documents if requested by NIB.

Within a maximum of five working days from receiving complete and valid payment documents, the Ministry of Finance will review and sign the Drawdown Request to send to NIB.

Within a maximum of fifteen working days from receiving the Ministry of Finance's drawdown request, NIB will review and transfer the refund amount to the Beneficiary's account if payment is accepted (or will send a letter to the Ministry of Finance explaining the reasons if payment is not accepted).

c) Settling advance payments:

In certain special cases, NIB may consider making advance payments to the Project Owner into a provisional account opened at the Vietnam Development Bank to allow the Project Owner to manage and facilitate small expenses of the Project, reducing the number of drawdowns from NIB.

The provisional account limit depends on the scale, characteristics, and expenditure needs of the Project and will be decided by NIB for each specific Project.

* First drawdown to the provisional account :

Pursuant to the agreed account advance limit and capital utilization plan with NIB, the Project Owner shall submit to the Ministry of Finance the following documents:

A letter requesting the withdrawal of advance funds, clearly stating the legal basis for requesting advance funds, accompanied by necessary payment instructions (the maximum amount requested for advance funding shall be equal to the account advance limit, along with the account number).

The disbursement plan from the advance account of the Project.

Supplementary documents if requested by NIB.

Within a maximum of five working days from receiving complete and valid payment documents, the Ministry of Finance will review and sign the Drawdown Request to send to NIB.

Within a maximum of 15 working days from the date of receipt of the request for withdrawal submitted by the Ministry of Finance, NIB will review and transfer funds into the Project's advance account if it agrees to make the advance payment (or will send a letter to the Ministry of Finance explaining the reasons if it does not agree to make the payment).

* Withdrawal of additional advance funds :

To withdraw additional funds based on actual expenditures from the advance account, the Project Owner shall submit to the Ministry of Finance the following documents:

A letter requesting the withdrawal of additional advance funds, clearly stating the legal basis for requesting additional funds and necessary payment instructions (the amount requested for additional funding may be lower or equal to the amount already advanced).

A statement of expenditures from the advance account prepared by the Project Owner, detailing each expenditure (date of payment, gross amount in local currency, exchange rate, converted amount in USD/EUR, purpose of payment, beneficiary) certified by the Vietnam Development Bank.

The Project's advance account statement.

The promissory note signed between the Project Owner and the Vietnam Development Bank.

Within a maximum of five working days from receiving complete and valid payment documents, the Ministry of Finance will review and sign the Drawdown Request to send to NIB.

Within a maximum of 15 working days from the date of receipt of the request for withdrawal submitted by the Ministry of Finance, NIB will review and transfer funds into the Project's advance account if it agrees to make the additional advance payment (or will send a letter to the Ministry of Finance explaining the reasons if it does not agree to make the payment).

5. Reporting System :

5.1 During the implementation of the Project, the Project Owner is responsible for submitting to the Ministry of Finance, the Ministry of Planning and Investment, and the Vietnam Development Bank the following reports:

Semi-annual and annual reports on the progress of the Project according to the model prescribed in Circular No. 06/2001/TT-BKH dated September 20, 2001, issued by the Ministry of Planning and Investment guiding the implementation of the Regulation on Management and Utilization of Official Development Assistance Funds promulgated together with Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government.

Final report and project settlement report within six months after the completion of the Project.

Annual audit reports and provision of all other financial information about the Project Owner upon request by the Ministry of Finance and NIB.

These reports must be translated into English and simultaneously submitted to NIB in accordance with the Agreement.

5.2 Every six months, the Vietnam Development Bank is responsible for reporting to the Ministry of Finance the plan and status of loan recovery from the Credit Limit.

III. IMPLEMENTATION

This Circular takes effect fifteen days after its publication in the Official Gazette.

The Vietnam Development Bank and the Project Owners are responsible for complying with the provisions of this Circular.

During the implementation of the Project and the deployment of the Credit Limit, if there are any difficulties, the relevant agencies and units should promptly reflect them to the Ministry of Finance for study and resolution.