Circular No. 59/1999/TT-BTC guides the financial management mechanism for water supply and sanitation projects in cities and towns borrowing from the Asian Development Bank (ADB).

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 59/1999/TT-BTC OF MAY 24, 1999 GUIDING THE MANAGEMENT MECHANISM FOR FINANCIAL INVESTMENTS IN WATER SUPPLY AND SANITATION PROJECTS IN CITIES AND TOWNHOODS BORROWING FROM ADB

Pursuant to:

The credit agreements on water supply and sanitation projects for cities and townhoods signed between the Socialist Republic of Vietnam and the Asian Development Bank (ADB);

Decree Decision No. 90/1998/NĐ-CP dated November 7, 1998 of the Government on Issuing the Regulation on Management of Foreign Borrowing and Debt Repayment;

Decree Decision No. 42/CP dated July 16, 1996 of the Government on the issuance of the Charter for Investment and Construction Management;

Circular Jointly Issued No. 81/1998/TTLT-BTC-NHNN dated June 17, 1998 between the Ministry of Finance and the State Bank of Vietnam guiding the procedures and management of withdrawing funds from official development assistance sources, and Decision No. 1860a/1998/QD-BTC dated December 16, 1998 of the Minister of Finance promulgating detailed guidance on the procedures and processes for withdrawing ODA funds;

The Prime Minister's Decisions on investment in water supply and sanitation projects in cities and townhoods;

The Ministry of Finance guides the management, disbursement, and utilization of investment capital for water supply and sanitation projects in cities and townhoods borrowing from ADB as follows:

I. GENERAL PROVISIONS:

1. Definitions: Unless otherwise specified, the concepts and terms used in this circular have the same meanings as those in the Loan Agreements and Subsidiary Loan Agreements.

1.1 Project: Refers to investment projects for water supply and sanitation systems in cities and townhoods according to the Loan Agreements signed with ADB. Each project includes component projects implemented in the cities and townhoods specified in the Loan Agreements.

1.2 The project management agency is the Ministry of Construction. The central project management unit is established within the Water Supply and Sewerage Development Project Management Board under the Ministry of Construction to implement, coordinate, and manage the activities of the Projects.

1.3 The project implementing agency (Project Sponsor) is the water supply companies in provinces where the projects are located. The local project management units are established at the water supply companies in cities and townhoods, responsible for organizing the implementation of component projects.

2. Management principles:

2.1 The ADB loan capital is foreign borrowing of the Vietnamese Government, therefore, all borrowed funds must be reflected in the State Budget.

The Ministry of Finance manages and monitors the implementation of the loan and repayment to ADB when due according to the provisions of the Agreement and in accordance with current regulations in Vietnam.

2.2 The allocation and lending of capital from foreign loans and domestic counterpart funds to component projects are carried out as follows:

ADB loan capital is used to allocate and lend again to water supply companies in cities and townhoods with projects according to the ratio stipulated in the Loan Agreement and the Government's Investment Decision, based on the principle that during the initial phase, ADB capital is allocated to component projects until the predetermined allocation limit is reached; thereafter, ADB loan capital will be lent again to water supply companies.

- ADB loan capital for allocating to component projects is implemented through the Central Budget subsidizing the Local Budget, which then allocates to the component projects.

2.3 The accounting principles for allocated capital are as follows:

For direct payment capital: After receiving ADB's notification of disbursement according to the request for direct payment withdrawal, the Department of Foreign Finance issues a notice approving the budget estimate and sends it to the Department of State Budget regarding the amount disbursed. The Department of State Budget then proceeds with recording the State Budget revenue and expenditure. Provincial Departments of Finance base on the revenue and expenditure orders from the Department of State Budget to record local budget revenue and expenditure, and allocate to the Provincial Investment and Development Bureau to disburse to the Project Sponsor.

For advance payment capital: Upon receipt of the notification from the Central Investment and Development Bank that has disbursed according to the payment request from the local project management board's advance account, the Department of Foreign Finance issues a notice approving the budget estimate and sends it to the Department of State Budget regarding the amount disbursed. The Department of State Budget then proceeds with recording the State Budget revenue and expenditure. Provincial Departments of Finance base on the revenue and expenditure orders from the Department of State Budget to record local budget revenue and expenditure, and allocate to the Provincial Investment and Development Bureau to disburse to the Project Sponsor.

For capital requested by the Central Project Management Board: The budget accounting and allocation for component projects are carried out quarterly. The Department of Foreign Finance bases on ADB's disbursement notifications (direct payments) and the Central Investment and Development Bank's (advance account payments), and the Central Project Management Board's spending plan for component projects, issues a notice approving the budget estimate and sends it to the Department of State Budget. The Department of State Budget then proceeds with recording the State Budget revenue and expenditure. Provincial Departments of Finance base on the revenue and expenditure orders from the Department of State Budget to record local budget revenue and expenditure, and allocate to the Provincial Investment and Development Bureau to disburse to the Project Sponsor.

2.4 ADB loan capital for lending to component projects is implemented through the Investment and Development General Bureau system and adheres to the provisions in the Subsidiary Loan Agreements signed between the Ministry of Finance and the water supply companies. The Investment and Development General Bureau system is responsible for managing and monitoring the implementation of the loaned capital, signing debt acknowledgment contracts, and recovering principal and interest upon maturity.

2.5 The accounting principles for the loaned capital are as follows:

Upon receiving the disbursement notification from ADB in the form of direct payment or the notification from the Development Investment Bank regarding disbursement from the advance account, the Department of Foreign Finance shall issue a resolution approving the budget estimate and send it to the Department of State Budget regarding the amount disbursed. The Department of State Budget shall process the recording of state budget revenue and expenditure for the Development Investment General Department to re-lend, and the Development Investment General Department shall notify the capital to the Development Investment Department to re-lend to component projects. The Development Investment Department shall record the loan accounts of component projects opened at the Development Investment Department according to the credit contracts signed between the Development Investment Department and the component projects.

2.6. Counterpart funds for projects arranged by the People's Committees of provinces from provincial-managed sources (budget, mobilization, basic depreciation, and other sources...) shall be consistent with the project implementation progress committed.

2.7. Funds allocated for the coordination and management activities of the Central Project Management Board shall be included in the total investment cost of the project and allocated within the portion of funds allocated to component projects according to the ratio determined in the Agreement and project documentation. The Ministry of Finance (Development Investment General Department) shall manage, review, and allocate expenditures proposed by the Central Project Management Board.

2.8. Project sponsors are responsible for using funds for the intended purposes and contents of the approved project in accordance with domestic regulations and provisions in loan agreements and sub-loan agreements.

2.9. The Ministry of Finance and the State Bank authorize the Development Investment Bank to serve as the bank for the projects, to implement procedures for withdrawing funds from loans (including direct payment methods, repayment, and letters of commitment) for the project upon the approval of the Ministry of Finance for each withdrawal.

During the process of withdrawing funds, the Development Investment Bank shall charge service fees for each transaction arising (including telegraphic fees, fax fees, document dispatch fees, letter of credit opening fees, etc.) according to the fee schedule of the Development Investment Bank and in compliance with the State Bank's regulations on service fee collection.

The aforementioned banking service fees shall be included in the total investment cost of the project. Project Management Boards may use accrued interest on advance accounts at the Development Investment Bank to pay banking fees. The Development Investment Bank shall be responsible for sending debt notices and detailed statements of banking fees for each transaction to the Project Management Boards.

2.10. The Development Investment General Department under the Ministry of Finance manages the allocation and re-lending of project funds and enjoys re-lending fees for the re-lent portion according to current regulations, and the source of re-lending fees is deducted within the scope of interest paid by Water Supply Companies.

3. Total expenses and capital structure:

Are specifically stipulated in the Prime Minister's investment decisions, loan agreements, and accompanying documents of loan agreements.

II. PLAN DEVELOPMENT:

1. Financial planning for the project:

1.1 Annually, in accordance with the procedure for establishing, submitting, and reviewing the state budget plan, the Project Sponsor shall prepare the financial plan of the component project to be consolidated in the provincial budget plan, submitted and defended with the Ministry of Planning and Investment and the Ministry of Finance, and presented to the Government and National Assembly for approval. The sponsor's plan shall also be sent to the Central Project Management Board.

1.2 The Central Project Management Board shall develop the financial plan for direct expenditures at the Central Project Management Board, including regular expenditures of the Board and common expenditures for the entire project (consultancy fees, equipment procurement costs). This plan must be detailedly allocated to each component project and sent to the Local Project Management Boards to be consolidated in the financial plans of the component projects.

The annual budget for project management and operation expenses of the Central Project Management Board and Local Project Management Boards shall be approved by the Ministry of Construction.

For other regular expenditures such as training, seminars, office equipment for consultancy offices, etc., implemented by the Central Project Management Board, the Ministry of Construction shall approve the budget estimates and final accounts.

1.3 The financial plan of component projects must reflect the volume of work to be carried out, sources of funding, including foreign loans (ADB), domestic counterpart funds (arranged by the province), loan withdrawal progress and domestic fund utilization, detailed distribution by quarter, year, and by each work category, including the budget for Central Project Management Board activities.

2. The Central Project Management Board is responsible for consolidating the overall financial plan of the project, to be sent to the Ministry of Finance and the Ministry of Planning and Investment as the basis for reviewing the budget plan and overall loan withdrawal plan for the project.

3. The Provincial People's Committee shall notify the approved investment plan to the Project Sponsor after receiving the plan allocation decision from the Prime Minister.

Project sponsors shall notify the approved plan to the Central Project Management Board so that the Central Project Management Board can compile and report to the Ministry of Finance (Department of Foreign Finance, Development Investment General Department) and the Development Investment Bank to monitor the overall loan withdrawal situation of the project.

III. OPENING ACCOUNTS:

1. To receive ADB advance funds for the project, the Central Project Management Board shall open an advance account at the Vietnam Development Investment Bank. This account shall have sub-accounts to track the withdrawal and use of funds for each component project.

2. Project sponsors shall open: - An account for the component project at the Provincial Development Investment Bank to receive ADB advance funds,

- An account for fund allocation at the Provincial Development Investment Department to track fund allocation for the project.

- A loan account at the Provincial Development Investment Department to track the re-lent portion.

IV. WITHDRAWAL OF FUNDS, ALLOCATION AND MANAGEMENT OF FOREIGN LOANS:

1. Withdrawal and Payment through Advance Account:

1.1. Withdrawal to the Advance Account

1.1.1 Withdrawal of Initial Capital to the Advance Account: The Central Project Management Board prepares a budget for the first six months' expenditure phase based on the credit agreement's advance account limit, and submits a request for initial capital withdrawal to the Ministry of Finance (Department of Foreign Financial Affairs) and the Vietnam Development Bank. The dossier includes:

+ Letter requesting capital withdrawal

+ Request for capital withdrawal

+ Budget for expenditure items

Within five working days from receiving a complete and valid dossier, the Ministry of Finance will issue a letter of approval sent to the Vietnam Development Bank and the Central Project Management Board.

After receiving the Ministry of Finance's approval letter and verifying the validity of the withdrawal conditions, the Vietnam Development Bank will jointly sign the withdrawal request with the Central Project Management Board and send it to ADB.

Upon disbursement by ADB, the funds will be transferred to the project's advance account at the Vietnam Development Bank.

1.1.2 Withdrawal of Additional Capital to the Advance Account: The principle of additional withdrawal from the advance account is actual expenditure, meaning that the project can only withdraw additional capital for expenditures that have been actually settled.

Monthly (but not exceeding six months), the Central Project Management Board may submit a request for additional withdrawal from the advance account. The dossier submitted to the Ministry of Finance (Department of Foreign Financial Affairs) and the Vietnam Development Bank includes:

+ Letter requesting capital withdrawal

+ Request for capital withdrawal

+ A copy of the expenditure statement, accompanied by approvals from the Investment Development Department or General Department of Investment Development for expenditure items or payment vouchers.

+ Statement of the advance account at the Vietnam Development Bank

+ Other necessary documents.

Within five working days from receiving a complete and valid dossier, the Ministry of Finance will issue a letter of approval for the withdrawal request sent to the Central Project Management Board and the Vietnam Development Bank.

Within two working days after receiving the Ministry of Finance's approval letter and verifying the validity of the withdrawal dossier, the Vietnam Development Bank will jointly sign the withdrawal request with the Central Project Management Board and send it to ADB.

Funds disbursed by ADB will be transferred to the advance account at the Vietnam Development Bank.

1.2 Payment from the Advance Account:

1.2.1 Quarterly Plan for Expenditure from the Advance Account: Every quarter, the Central Project Management Board compiles and establishes a quarterly expenditure plan from the advance account for the entire project, which includes the projected amount to be transferred to the component project account for the regular operations of the local project management board office. This plan is submitted to the Ministry of Finance (General Department of Investment Development) for approval and registration with the Vietnam Development Bank. The quarterly expenditure plan approved by the General Department of Investment Development serves as a basis for implementing periodic withdrawals and payments.

Local Project Management Boards are responsible for compiling quarterly expenditure plans from the advance account for activities of the local component projects, and submitting them to the Central Project Management Board for consolidation into the overall project plan.

The quarterly expenditure plan from the advance account may be adjusted according to the project's progress. Requests for adjustment of the quarterly expenditure plan must be submitted to the General Department of Investment Development at least fifteen days before the end of the quarter.

1.2.2 Payment Based on the Central Project Management Board's Request:

Based on the quarterly expenditure plan from the advance account approved by the General Department of Investment Development, when there is a need for expenditure for the Central Project Management Board's office activities or tasks directly contracted by the Central Project Management Board on behalf of the component projects with contractors or suppliers, the Central Project Management Board is responsible for reviewing payment documents in accordance with current budget expenditure regulations, calculating and determining the amount payable using ADB funds and counterpart funds according to the project's specified ratio, and requesting the Vietnam Development Bank to deduct funds from the advance account for payment.

Immediately after withdrawing funds from the advance account for payment, the project management board sends the required documentation to the General Department of Investment Development for subsequent review procedures.

In cases of one-time payment contracts or final payments for contracts, the payment request dossier must be submitted to the General Department of Investment Development for review before requesting the Vietnam Development Bank to make the payment.

1.2.3 Payment Based on Local Project Management Boards' Requests:

- For Regular Operating Expenses of Local Project Management Boards:

+ Based on the monthly regular operating budget, the local project management board issues a letter requesting the Central Project Management Board to transfer provisional funds to the component project account, with the maximum amount transferred by the Central Project Management Board not exceeding US$50,000.

When there is a need for expenditure for office activities, the local project management board sends the following documents to the Provincial Investment Development Department and the Provincial Vietnam Development Bank:

+ Letter requesting payment specifying the amount to be paid from counterpart funds and the amount to be paid from ADB funds - Component Project Account

+ Annual expenditure plan approved by the Ministry of Construction (sent once)

+ Budget for expenditure or necessary receipts and vouchers.

Within five days from receiving complete and valid documentation, the Provincial Investment Development Department is responsible for reviewing the payment documents, issuing a confirmation letter specifying the amount to be paid, including the amount to be paid from counterpart funds and the amount to be paid from ADB funds.

Upon receipt of the Provincial Investment Development Department's acceptance letter, the Provincial Vietnam Development Bank will proceed with the payment as requested by the local project management board.

Provisional funds for regular operating expenses of local project management boards will be replenished when the local project management board completes settlement procedures for expenditures with the Central Project Management Board.

- For Construction Work or Equipment Procurement Payments:

The local project management board sends the following documents to the Provincial Investment Development Department:

+ Request for approval of payment items specifying clearly the amount to be paid from counterpart funds, the amount to be paid from ADB funds (Advance Account).

+ Technical design and total budget estimate approved by the competent authority (to be sent once).

+ Contract and decisions approving the tender results, contract approval, and ADB's non-objection letter (if applicable) (to be sent once).

+ Certificate of acceptance, payment voucher.

+ Payment request from the contractor/supplier.

+ Other documents (if necessary).

Within five days from the date of receiving complete and valid documents, the Provincial Investment Development Department shall be responsible for reviewing and confirming the volume of work or basic usage that has been completed and meets the conditions for payment, and issue a confirmation document specifying the amount to be paid, including the amount to be paid from counterpart funds and the amount to be paid from ADB funds.

After receiving the confirmation document from the Provincial Investment Development Department, the Local Project Management Board sends a request for payment from the Advance Account to the Central Project Management Board, along with the confirmation from the Provincial Investment Development Department and other necessary documents. The Central Project Management Board processes the request for the Central Investment Development Bank to make payment according to the request of the Local Project Management Board.

2. Direct payment:

2.1 Payment based on the request of the Central Project Management Board:

Based on the payment request from the contractor or supplier, to implement the direct payment method, the Central Project Management Board sends the following documents to the Ministry of Finance (Department of Foreign Financial Affairs):

- A letter requesting withdrawal of funds

- Contract and decision approving the contract by the competent authority, ADB's approval letter (if the contract requires ADB's approval) (to be sent once).

- Performance bond (to be sent once).

- Advance payment guarantee (to be sent once).

- Drawdown application and relevant statements according to ADB's format.

- In case of payment for construction works, there must be a certificate of acceptance and payment voucher confirmed by the Provincial Investment Development Department/General Department of Investment Development.

- In case of payment for procurement contracts, there must be delivery invoices and goods acceptance letters (if applicable).

- In case of payment for consultancy services, there must be proof that the consultant has performed the work according to the contract if payment is made upon completion of tasks, or attendance sheets and valid expense vouchers accepted by the Project Management Board.

Within five working days from the date of receiving complete and valid drawdown application documents, the Ministry of Finance will issue a letter approving the drawdown request and send it to the Central Investment Development Bank and the Central Project Management Board.

Within two working days after receiving the Ministry of Finance's approval letter, the Central Investment Development Bank and the Central Project Management Board sign the drawdown application for direct payment and send it to ADB to pay the contractor/supplier.

Upon receipt of ADB's notification regarding the direct payment to the contractor/supplier, the Central Project Management Board is responsible for informing the Ministry of Finance (Department of Foreign Financial Affairs and General Department of Investment Development) to process the budget accounting procedures.

2.2 Payment based on the request of the Local Project Management Board:

When requesting direct payment, the Local Project Management Board must submit the following documents to the Central Project Management Board:

- A letter requesting withdrawal of funds

- Contract and decision approving the contract by the competent authority, ADB's contract approval letter (if the contract requires ADB's approval) (to be sent once).

- Performance bond (to be sent once).

- Advance payment guarantee, if applicable (to be sent once).

- In case of payment for construction works, there must be a certificate of acceptance and payment voucher confirmed by the Provincial Investment Development Department.

- In case of payment for procurement contracts, there must be delivery invoices and goods acceptance letters (if applicable).

The Central Project Management Board will send the documents to the Ministry of Finance (Department of Foreign Financial Affairs) to follow the procedures as stipulated in Section 2.1 above.

3. Payment under the Guarantee Procedure: Applied in cases of paying imported goods through Letters of Credit (L/C).

When requesting payment under the Guarantee Procedure, the Central Project Management Board sends the following documents to the Ministry of Finance (Department of Foreign Financial Affairs):

- Request for opening an L/C and signing a demand for ADB to issue a Guarantee Letter.

- Import contract and decision approving the contract by the competent authority, ADB's No Objection letter if the contract requires ADB's approval, and the Ministry of Trade's approval letter for contract registration (to be sent once).

- Drawdown application and relevant statements according to ADB's format.

Within five working days from the date of receiving complete and valid documents, the Ministry of Finance will issue a letter approving the issuance of the Guarantee Letter and opening the L/C and send it to the Central Investment Development Bank and the Central Project Management Board.

Within two working days based on the Ministry of Finance's approval, the Vietnam Central Investment Development Bank will process the L/C opening and jointly with the Central Project Management Board sign the demand for ADB to issue the Guarantee Letter.

4. Payment under the Refund Procedure:

Applied in cases where payments to contractors/suppliers within the scope and percentage of ADB funding have already been prepaid using government funds or other sources (such as own capital or loans...).

To withdraw ADB loan to refund the pre-paid funds, local project management boards must compile documents proving legitimate expenses (expenses within the project scope as per ADB regulations, confirmed by the Provincial Investment Development Department) and submit them to the Central Project Management Board.

The Central Project Management Board sends the following documents to the Ministry of Finance (Department of Foreign Financial Affairs):

- Request for withdrawal of funds.

- Signed contract and decision approving the contract by the competent authority (to be sent once).

- Statements and documents proving the amount paid, payment date, and source of funds used for payment.

- Drawdown application and relevant statements according to ADB's format.

Within five working days from the date of receiving complete and valid documents, the Ministry of Finance will issue a letter approving the withdrawal request and send it to the Central Investment Development Bank and the Central Project Management Board.

Within two working days after receiving the Ministry of Finance's approval letter, the Central Investment Development Bank and the Central Project Management Board sign the withdrawal request and send it to ADB.

The funds disbursed by ADB shall be refunded to the source from which they were borrowed for payment (if the budget was used for borrowing, it shall be refunded to the budget; if own capital or borrowed capital was used for borrowing, it shall be refunded to the place from which the borrowing was made for payment).

V. PAYMENT WITH DOMESTIC CONTRIBUTING FUNDS:

Domestic contributing funds for component projects shall be allocated from sources managed by the provincial People's Committee (budget, mobilization, basic depreciation, and other sources...).

The allocation of contributing funds shall be quarterly, and expenditure management shall be consistent with the progress of loan withdrawal, project implementation progress, and current domestic regulations on expenditure management of construction investment capital.

VI. REPORTING, AUDITING, SETTLEMENT SYSTEM:

1. Quarterly, annually, and upon completion of the project construction period, the local Project Management Board shall report on the implementation of the project, prepare the annual settlement, and submit the settlement of completed component projects to the provincial People's Committee, Department of Finance, Provincial Investment Development Department, and Central Project Management Board.

The review and approval of settlements shall be carried out in accordance with current regulations.

The Central Project Management Board shall be responsible for compiling and reporting to the Ministry of Finance (Investment Development General Department, Foreign Finance Department), the Ministry of Planning and Investment, the State Bank, and ADB on the implementation of the project, especially the withdrawal and use of ADB loans and domestic contributing funds, and the compilation of the project settlement report. To fulfill its responsibility for compiling reports and settlements, the Central Project Management Board shall design and guide component projects to apply a unified accounting model and reporting forms.

Monthly, the Vietnam Development Bank shall notify the Ministry of Finance (Foreign Finance Department, Investment Development General Department), the Central Project Management Board of detailed statements of the advance account, and the provincial development banks shall send detailed statements of component project accounts to the provincial Department of Finance and Provincial Investment Development Department, and the local project management board. The statement shall clearly indicate the monthly interest accrued on the balance of the account and the date of transferring the interest to the Ministry of Finance.

2. Periodically and urgently, the Ministry of Finance, the Ministry of Construction, and the People's Committees of provinces with projects shall inspect the implementation of the project and the use of funds. If improper use of funds is discovered, the Ministry of Finance will suspend the withdrawal and transfer of funds to handle violations according to current regulations.

3. Annually, the advance account and the accounts of component projects, books, vouchers, and accounting records of the project must be audited by independent auditing companies approved by the Ministry of Finance in compliance with the provisions stipulated in Circular Joint No. 81/1998/TTLT/BTC-NHNN dated June 17, 1998 issued by the Ministry of Finance and the State Bank.

VII. IMPLEMENTATION PROVISIONS:

This Circular shall take effect fifteen days after the date of signature and replace Circular No. 16-TC/TCĐN dated March 31, 1997 issued by the Ministry of Finance.

During implementation, if there are difficulties, relevant agencies should promptly reflect them to the Ministry of Finance for study and amendment.