Circular No. 34/TC-TCĐN guiding the management and use of preferential mixed credit loans from Denmark

CIRCULAR

OF THE MINISTRY OF FINANCE

Guidelines for managing and using preferential mixed credit loans from Denmark
credit facility with preferential terms of Denmark

Pursuant to Decree No. 58/CP dated August 30, 1993 of the Government on borrowing and repaying foreign debts and Decree No. 20/CP dated March 15, 1994 of the Government on the management and use of official development assistance.

Pursuant to the Agreement on the mixed credit limit signed between the Ministry of Finance of the Socialist Republic of Vietnam and the Export Financing Company of Denmark on March 13, 1996 (hereinafter referred to as the Agreement).

Implementing the Prime Minister's decision on the mechanism for using the Danish credit at Circular No. 1200/QHQT dated March 15, 1997.

The Ministry of Finance guides the management and use of preferential mixed credit loan funds from the Export Financing Company of Denmark according to the above Agreement as follows:

A. GENERAL PROVISIONS

1. The loan capital of the Export Financing Company of Denmark is a foreign debt of the Government. Therefore, the entire loan amount will be recorded in the State Budget. The Ministry of Finance is responsible for repaying the foreign side when due (including both principal and other amounts payable).

2. Project owners are responsible for using the capital for its intended purpose, in accordance with the conditions stipulated in the Agreement signed with Denmark, and repay to the State Budget (for projects eligible for rescheduling) in accordance with the Rescheduling Loan Contract signed with the Investment Development General Department.

3. The Investment Development General Department is responsible for implementing the management, allocation, rescheduling, and recovery of debts from project owners and is entitled to service fees for rescheduling state credit funds in accordance with regulations.

4. The Vietnam Commercial Bank is the bank designated by the Ministry of Finance to handle foreign transactions to implement the project and is entitled to service fees in accordance with regulations.

B. SPECIFIC PROVISIONS

I. PROJECT IMPLEMENTATION STEPS

1. For projects that have been approved by the Government to be included in the list of proposals for Denmark's financial support through the Export Financing Company of Denmark, project owners shall prepare feasibility reports and submit them for approval in accordance with Decree No. 42/CP dated July 16, 1996 of the Government.

2. After obtaining investment decisions from competent authorities (the Prime Minister or the Minister of Planning and Investment), project owners shall prepare withdrawal plans and counterpart capital plans and send them to the Ministry of Finance and the Ministry of Planning and Investment, while simultaneously conducting bidding, negotiating, and signing commercial contracts with suppliers in accordance with current government regulations and the signed Agreement.

3. Before negotiating and signing contracts, project owners must submit bidding results (or selection results) for approval by competent authorities.

During the negotiation and signing of commercial contracts, project owners need to pay attention to the provisions in the Agreement that Denmark only agrees to finance contracts meeting the following requirements:

Except in exceptional cases, financing is limited to a maximum of 85% of the value of the commercial contract. The remaining 15% of the contract value must be covered by Vietnam.

The portion of goods purchased from third countries (outside Denmark and Vietnam) shall not exceed 30% of the contract value.

The commercial contract must be signed no later than March 13, 1998, and the delivery period shall not be later than December 31, 1998.

The value of each contract shall not be less than 5 million DKK (equivalent to 0.85 million USD) and not more than 25 million DKK (equivalent to 4.2 million USD).

To ensure the rights of Vietnamese buyers regarding advance payments under the contract and to guarantee the proper performance of foreign suppliers, the commercial contract should clearly specify that the foreign side (the serving bank of the Danish supplier) provides advance payment guarantees (Advance Payment Guarantee) of at least 15% of the contract value and performance guarantees (Performance Guarantee) of at least 10% of the contract value.

4. After the commercial contract has been approved, the project owner must submit a copy of the contract along with the feasibility report, a report on counterpart capital preparation, and investment preparation work, accompanied by a letter requesting the Ministry of Finance to officially request Denmark to finance the project. Project owners should pay attention to the timing of the formal financing request because from the date of issuance of the approval letter consistent with Appendix B of the Agreement, Denmark begins charging commitment fees on the loan amount requested but not yet withdrawn.

5. The Ministry of Finance (Department of Foreign Finance) based on the project owner's request and the approved commercial contract will submit a funding application consistent with Appendix A of the Agreement to the Export Financing Company of Denmark through the Danish Embassy in Hanoi.

6. After receiving notification from the Ministry of Finance that all procedures for withdrawing funds have been completed, the Vietnam Commercial Bank is responsible for guiding the project owner to complete the procedures for opening Letters of Credit and withdrawing funds in accordance with the signed Agreement.

II. FINANCIAL MANAGEMENT MECHANISM

The mechanism for using Danish credit is applied to projects according to the Prime Minister's decision at Circular No. 1200/QHQT dated March 15, 1997, specifically as follows:

1. The Ministry of Finance (Investment Development General Department) will reschedule projects eligible for rescheduling from the Danish loan fund for a term consistent with the term Denmark grants Vietnam (as stipulated in the Agreement, a maximum of 8 years including a grace period of up to 1 year). This term will be officially announced by Denmark in the Approval Letter for each project, and the Ministry of Finance (Department of Foreign Finance) will notify the projects.

Project owners are responsible for submitting project files to sign the Rescheduling Loan Contract with the Investment Development General Department immediately upon receipt of notification from the Ministry of Finance.

2. Interest rates and fees for rescheduling paid to the Investment Development General Department:

- Projects for building distant fishing fleets and the city water supply project in Son Tay: borrow at an interest rate of 1% per annum. Projects for upgrading seafood processing plants, purchasing airport lighting equipment, processing agricultural products, and animal feed production: borrow at an interest rate of 2% per annum.

Interest shall be paid semi-annually on June 30 and December 31 or March 31 and September 30 each year according to the specific provisions in the Credit Contract signed between the project owner and the General Department of Investment and Development. If payment is delayed, the project owners must bear late payment interest as stipulated in the Credit Contract.

The service fee for loan rescheduling that the General Department of Investment and Development is entitled to receive is 0.5% per annum on the principal balance (excluding the rescheduling interest rate mentioned above).

3. Direct foreign fees payable: the project owners must pay the following direct fees to foreign entities:

- Commitment fee at 0.25% per annum on the undrawn capital amount from the date Denmark issues the approval letter for each project, payable together with the interest payment period.

- Management fee at 0.375% on the total loan amount, payable once within 60 days from the date Denmark issues the approval letter for the project.

- Negotiation and preparation fee for the Agreement at 0.1% on the total loan amount, payable once immediately after the date Denmark issues the approval letter for the project.

For projects funded by the State Budget, the direct fees mentioned above shall be settled by the State Budget. For projects requiring rescheduling, the project owners must pay these fees.

The Vietnam Commercial Bank shall receive transaction fees from the project owners according to the current service fee schedule established by the General Director of the Vietnam Commercial Bank.

The documentation for signing the promissory note between the Project Owners and the General Department of Investment and Development shall be the corresponding invoices from the Danish suppliers and the debt notice from the Danish Export Financing Company.

The time when the project owners recognize their debt with the Ministry of Finance (General Department of Investment and Development) is the time when Denmark records the debt for the Ministry of Finance. The amount recognized as debt by the project owners is the amount recorded by Denmark for the Ministry of Finance in the notification on the commencement date of the principal repayment period as specified in Appendix D of the Agreement.

C. IMPLEMENTATION

1. Monthly, the Vietnam Commercial Bank shall submit to the Ministry of Finance a statement of capital withdrawal for settlement through the State Budget.

2. Periodically (every six months, annually), the project owners are responsible for reporting to the Ministry of Finance (General Department of Investment and Development, Foreign Financial Affairs Division), the Ministry of Planning and Investment, the Vietnam Commercial Bank, and the competent authorities on the status of receipt, utilization, and repayment of the loan.

3. This Circular shall take effect fifteen days from the date of signature. The competent authorities are responsible for guiding the project owners in implementing the provisions in accordance with this Circular. During implementation, if there are any difficulties, the units concerned must promptly report to the Ministry of Finance for consideration and resolution.