Circular No. 87/1999/TT-BTC on guiding the financial mechanism for the sugarcane development project in Tây Ninh Province to borrow from the French Development Agency

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 87-1999/TT/BTC ON JULY 9, 1999
GUIDING THE FINANCIAL MECHANISM FOR THE SUGARCANE DEVELOPMENT PROJECT IN TAY NINH PROVINCE LOANED FROM THE FRENCH DEVELOPMENT AGENCY

Pursuant to Decree No. 87/CP dated August 5, 1997 of the Government promulgating the Regulation on Management and Use of Official Development Assistance (ODA) Sources and Decree No. 90/1998/NĐ-CP dated November 7, 1998 of the Government promulgating the Regulation on Management of Foreign Borrowing and Repayment and related guiding documents;

Pursuant to Decree No. 42/CP dated July 16, 1996 of the Government promulgating the Regulation on Investment and Construction Management and Decree No. 92/CP dated August 23, 1997 of the Government amending and supplementing certain articles of the Regulation on Investment and Construction Management and related guiding documents;

Pursuant to Circular Joint No. 06/1998/TTLT-BKH-BTC dated August 14, 1998 of the Ministry of Planning and Investment and the Ministry of Finance guiding the management mechanism for counterpart funds for programs and projects using ODA sources;

Pursuant to Decision No. 1077/QD dated December 1, 1998 of the Prime Minister approving the Sugarcane Development Project in Tay Ninh Province;

Pursuant to the Credit Agreement No. CVN 1026 02 E signed on June 3, 1999 (hereinafter referred to as the "Agreement") for the Sugarcane Development Project in Tay Ninh Province (hereinafter referred to as the "Project") between the Ministry of Finance and the French Development Agency (hereinafter abbreviated as "AFD");

Pursuant to Circular No. 493/CP-NN dated May 15, 1999 of the Government approving the Credit Agreement and the loan mechanism for the AFD loan applied to the Project;

The Ministry of Finance guides the financial mechanism for the Sugarcane Development Project in Tay Ninh Province, which is the main project of the Tay Ninh Provincial People's Committee, as follows:

I. GENERAL PROVISIONS:

1. The AFD loan for implementing the Project is a foreign government debt. 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.

2. The Tay Ninh Provincial People's Committee is the main project subject and the organization implementing the entire Project, responsible for using the AFD loan effectively according to the plan and in accordance with the conditions stipulated in the Agreement signed with AFD, and guiding units using funds under the Project to repay the State Budget according to the rescheduling loan contract signed with the General Department of Investment Development and the provisions of this Circular.

3. The General Department of Investment Development is responsible for implementing the rescheduling of the AFD loan, managing and recovering the loan from the Project implementation units and earning fees for rescheduling state credit funds according to regulations.

II. SPECIFIC PROVISIONS:

1. Regarding the organization, management, and implementation of the Project:

The Tay Ninh Provincial People's Committee is responsible for organizing and managing the entire Project, with specific tasks as follows:

- Establishing the Provincial Project Management Board with representatives from the Departments of Planning and Investment, Finance and Price, Agriculture and Rural Development, Transport, the Investment Development Bureau, and the borrowing units under the Project (hereinafter referred to as "Sub-project Units"), including the Tay Ninh Sugarcane Company, the Bien Hoa - Tay Ninh Sugarcane Company, the Tay Ninh Waterworks Exploitation Company, and the Tay Ninh Bridge and Road Management and Repair Company.

- Drafting the Provincial Project Management Board Charter, clearly defining responsibilities such as planning (investment, disbursement of loan funds, counterpart funds), production organization, financial management, and accounting...

- Organizing the appraisal and approval of investment items of Sub-project Units, ensuring compliance with current regulations on investment and construction management as well as consistency with approved investment plans.

- Directing the Tay Ninh Sugarcane Company, the Bien Hoa - Tay Ninh Sugarcane Company, the Tay Ninh Waterworks Exploitation Company, and the Tay Ninh Bridge and Road Management and Repair Company to sign rescheduling loan contracts with the General Department of Investment Development or the local Investment Development Bureau authorized (hereinafter referred to as "Investment Development Authority") and being responsible for repayment when due.

2. Rescheduling Mechanism for the Project:

The Government through the Ministry of Finance allows Sub-project Units to borrow back the entire amount of 23.78 million Euros borrowed from AFD and recover debts through the Investment Development Authority.

The conditions for loan refinancing are specified according to the components of the Project as follows:

a) For the loan component for "sugarcane cultivation" valued at 6.62 million euros

- Refinancing will be provided to Tây Ninh Sugar Corporation and Biên Hòa - Tây Ninh Sugar Corporation in Vietnamese dong (foreign exchange risk borne by the State budget). Based on the date when AFD transfers the loan funds and records the debt to Vietnam, the sugar corporations will assume the debt with the Development Investment Authority in Vietnamese dong calculated based on the actual amount borrowed in euros converted to Vietnamese dong according to the monthly foreign currency - Vietnamese dong exchange rate set by the Ministry of Finance.

- The refinancing interest rate is 7% per annum, which includes the refinancing fee of the General Department of Investment Development system at 0.2% per annum on the outstanding principal balance of the refinanced loan. The sugar corporations will refinance households engaged in sugarcane cultivation at the current preferential investment credit interest rate of 0.81% per month (or 9.72% per annum) and bear all credit risks themselves. The interest rate differential (9.72% - 7%) will be used by the sugar corporations to cover costs related to lending to households, establish a fund to offset credit risks, and reserve a portion for repayment of project management, training, and general administrative expenses.

- The refinancing period is 12 years, including a 5-year grace period (during the grace period, the sugar corporations only need to pay interest and not the principal loan). Principal and interest payments will be made on April 15 and October 15 each year for loans drawn within each six-month period, specifically as follows:

+ For loans drawn from October 16 of the previous year to April 15 of the following year, the grace period for these loans will be 5 years starting from April 15 of the following year.

+ For loans drawn from April 16 to October 15 of the same year, the grace period for these loans will be 5 years starting from October 15.

- The sugar corporations may directly provide refinancing or through the Agricultural Bank of Vietnam to households engaged in sugarcane cultivation at a unified refinancing interest rate of 0.81% per month (or 9.72% per annum).

- Late payment penalty interest: 10% per annum (equal to the refinancing interest rate plus a 3% late payment penalty).

b) For the loan components for infrastructure investment, including the loan for "transportation" valued at 11.33 million euros and the loan for "irrigation" valued at 5.83 million euros:

- Refinancing will be provided to Tây Ninh Bridge and Road Management and Repair Corporation and Tây Ninh Irrigation Works Operation Corporation in Vietnamese dong according to the calculation and recording method similar to the "sugarcane cultivation" component.

- The refinancing interest rate is 6% per annum, which includes the refinancing fee of the General Department of Investment Development system at 0.2% per annum on the outstanding principal balance of the refinanced loan.

- The refinancing period is 22 years, including an 8-year grace period starting from the date of signing the Agreement. Principal and interest payments will be made on April 15 and October 15 each year.

- Late payment penalty interest: 9% per annum (equal to the refinancing interest rate plus a 3% late payment penalty).

- For the "transportation" and "irrigation" components, the Provincial Project Management Board needs to develop and submit to the People's Committee of Tây Ninh Province for approval a plan regarding sources of fees and charges from projects invested under these components or indirect revenue from raw materials or products of sugar factories to repay the loan. Before signing the refinancing loan contracts between the sub-project units and the Development Investment Authority, the People's Committee of Tây Ninh Province must issue a commitment letter on balancing the repayment sources for the aforementioned enterprises.

In addition to the refinancing interest rates stipulated above, for the entire AFD loan, the sub-project units must bear all additional fees payable to AFD outside the country (if any). These fees will be announced and collected by the Development Investment Authority based on actual amounts payable to AFD.

3. Guidelines for drawing down funds:

a) Counterpart funds:

According to Decision No. 1077/QĐ-TTg dated December 1, 1998 of the Prime Minister, the counterpart funds are 222 billion Vietnamese dong allocated from local government budgets and self-raised funds by the province, and private investment.

After the sub-project units have calculated and balanced the counterpart funds from the sources according to the above investment decision, if it still falls short, they can borrow preferential state investment credit to supplement the annual counterpart funds according to the project implementation schedule. The counterpart fund plan must be prepared together with the disbursement plan for the AFD loan. The need for additional counterpart funds from the aforementioned preferential credit source will be compiled and worked out by the project sponsor, the People's Committee of Tây Ninh Province, with the Ministry of Planning and Investment and the Ministry of Finance (General Department of Investment Development) to determine and allocate the counterpart fund plan for each specific locality and unit according to Circular Joint No. 06/1998/TTLT-BKH-BTC dated August 14, 1998 of the Ministry of Planning and Investment and the Ministry of Finance guiding the mechanism for managing counterpart funds for programs and projects using official development assistance (ODA) sources. Based on the allocation plan, the sub-project units will implement and sign specific investment credit contracts with the lending institution.

b) Drawing down AFD loan funds:

- Based on the Agreement and the project implementation schedule, the Provincial Project Management Board will compile and submit the annual disbursement plan for the AFD loan to the Ministry of Finance and AFD.

- Prior to the first drawdown according to the annual plan mentioned above, the People's Committee of Tây Ninh Province and the Provincial Project Management Board need to send the following documents to the Ministry of Finance for forwarding to AFD:

+ A confirmation letter on annual sponsorship by the province for the entire investment part undertaken by the province for each "transportation" and "irrigation" component over the three-year project implementation period.

+ Relevant plans, cost estimates, purchase orders, service and equipment supply contracts... related to each drawdown request for AFD to review and confirm permission to use credit based on these documents.

- Goods and services financed by the AFD loan must originate from France or Vietnam.

- The Project Management Board of the province and the units of Sub-projects shall be responsible for strictly complying with the current regulations on procedures for selecting contractors, tender documents... for the project's investment components and sending written reports to the Ministry of Finance (Department of Foreign Financial Affairs) and/or AFD if requested.

- Any changes in the cost allocation and financial plan of the Project that differ from the provisions in Appendix 2 of the Agreement must be approved in advance by the Ministry of Finance and AFD.

- The level of investment from AFD loan:

For the sugarcane planting component, it will be possible to borrow up to 8 million dong per hectare, equivalent to 70% of the total new planting costs. The remaining portion will be invested by farmers using their own capital.

For the transportation and irrigation components, borrowing will be up to 69.05% of the total construction costs, excluding any type of tax. The remainder will be invested by the province and recorded in the provincial budget.

The level of investment from the above AFD loan will be applied when preparing disbursement plans and requesting disbursements according to each loan component.

Depending on the actual requirements of the Project and the requests of the Sub-project units, the withdrawal of AFD loans may be carried out in one of the following methods:

* Refunding previously incurred expenses by the Sub-project units:

This method is mainly used for the "transportation" and "irrigation" components.

Based on invoices and supporting documents for expenditures by the Sub-project units, the Ministry of Finance will request AFD to refund funds into the accounts of each Sub-project unit. Payment vouchers can be in the form of certified copies of original documents issued by the Sub-project units and clearly stating the payment date to contractors or suppliers.

Specifically, for requests to withdraw funds for invoices valued under 500 EURO, the Sub-project units only need to submit a statement of expenditure for the Ministry of Finance (Department of Foreign Financial Affairs) to process the request for AFD to withdraw funds.

If AFD requires, the Sub-project units or the Provincial Project Management Board shall be responsible for providing necessary documents to prove that these expenses have been effectively invested.

Specifically, for the payment of completed basic construction volumes according to construction contracts, the application package submitted to the Ministry of Finance (Department of Foreign Financial Affairs) must include acceptance certificates and valuation forms confirmed by the Development Investment Agency.

* Direct payment to goods or service providers:

This method mainly applies to construction contracts, provision of machinery and equipment, consultancy contracts. Based on signed contracts approved for funding by AFD according to the Agreement, invoices from contractors, suppliers, or consulting companies, and requests for direct payment withdrawals by Sub-project units, the Ministry of Finance (Department of Foreign Financial Affairs) will request AFD to make direct payments to contractors, suppliers, or consulting companies.

Specifically, for the payment of completed basic construction volumes according to construction contracts, in addition to the aforementioned documents, Sub-project units must also send to the Ministry of Finance (Department of Foreign Financial Affairs) acceptance certificates and valuation forms confirmed by the Development Investment Agency.

* Continuous advance withdrawal:

This method mainly applies to the "sugarcane planting" component.

Based on the annual sugarcane planting plans established by the Tây Ninh Sugar Company and the Biên Hòa - Tây Ninh Sugar Company, and according to the borrowing limit of 8 million dong per hectare, the Ministry of Finance will request AFD to withdraw funds in the form of continuous annual advances for the "sugarcane planting" component, with the advance amounts transferred into a special account opened by the said companies at a bank accepted by both the Ministry of Finance and AFD.

From the second withdrawal period onwards, before each withdrawal, the sugar companies must prepare and submit to the Ministry of Finance for forwarding to AFD a consolidated file of the funded items from the previous advance, including:

+ The subsidiary ledger of the special account for the previous withdrawal period,

+ Description of the funded investment item,

+ Total cost of the item,

+ Information about the final user of the funds, loan agreements, and corresponding sugarcane planting area,

+ Invoices and supporting documents for expenditures paid by the investor and confirmation by the Development Investment Agency regarding such payments.

For credit lines to households exceeding 25,000 EURO, the sugar companies must obtain prior approval from the AFD Hanoi Branch.

Additionally, the sugar companies are responsible for providing AFD (if requested) with original documents and other relevant materials concerning the use of borrowed funds for verification and comparison. For the final withdrawal of each sugar company, these documents and materials must be submitted to the Ministry of Finance and AFD within six months after the withdrawal is made.

4. Management of loan refinancing and repayment of borrowed funds:

The Sub-project units shall be responsible for signing refinancing loan contracts with the Development Investment Agency based on the conditions for refinancing loans set forth in Part II, Section 2 above, fully and timely repaying the borrowed funds according to the signed refinancing loan contracts, and bearing legal responsibility for the proper use of borrowed funds.

Based on the actual withdrawal of AFD funds recorded in the schedule, and the approval notice of the budget estimate prepared by the Department of Foreign Financial Affairs for the purpose of recording government revenue and expenditure, the Development Investment Agency shall notify the Sub-project units of the actual amount withdrawn and sign promissory notes for the amount withdrawn each time.

The General Department of Investment and Development shall be responsible for supervising the use of borrowed funds and assets formed from government-funded sources, reporting to the Ministry of Finance on the recovery of refinanced loans.

5. Reporting system:

Every six months, the Provincial Project Management Board shall compile general information on the implementation of each component of the Project to report to the Ministry of Finance (Department of Foreign Financial Affairs and General Department of Investment and Development), the Ministry of Planning and Investment, and the competent authority on the receipt, use, and repayment of AFD loans and counterpart funds.

The Sub-project units shall be responsible for providing the Ministry of Finance and AFD with annual audit reports and any other financial information as required by the Agreement.

The Provincial Project Management Board shall be responsible for preparing and submitting to the Ministry of Finance (Department of Foreign Financial Affairs and General Department of Investment Development) and AFD a consolidated report on the implementation status and final settlement report of the entire Project, no later than three months after the completion of the Project.

III. IMPLEMENTATION PROVISIONS

This Circular shall take effect fifteen days from the date of signature. During its implementation, if there are any difficulties, the People's Committee of Tay Ninh Province, the Provincial Project Management Board, the units of Sub-projects, and related agencies are requested to promptly reflect them to the Ministry of Finance for consideration and resolution.