Circular No. 88/1999/TT-BTC guides the financial management mechanism for rural infrastructure projects.

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 88/1999/TT-BTC DATED JULY 12, 1999 GUIDING THE MANAGEMENT MECHANISM FOR THE FINANCIAL RESOURCES OF THE RURAL INFRASTRUCTURE SECTOR PROJECT

Pursuant to:

* The Loan Agreement No. 1564 VIE (SF) dated January 23, 1998 between the Socialist Republic of Vietnam and the Asian Development Bank (ADB) for the Rural Infrastructure Sector Project;

* The Credit Facility Agreement No. CVN 1029 01 G dated October 2, 1998 between the Government of the Socialist Republic of Vietnam and the French Development Agency;

* Decree No. 178/CP dated October 28, 1994 of the Government on the tasks, powers, and organizational structure of the Ministry of Finance;

* Decree No. 87/CP dated August 5, 1997 of the Government promulgating the Regulation on Management of Loans and Use of Official Development Assistance Funds;

Decree No. 42/CP dated July 16, 1996 of the Government promulgating the Charter for Investment and Construction Management, and Decree No. 92/CP dated August 23, 1997 supplementing and amending certain points of Decree No. 42/CP;

* Circular Joint No. 81/1998/TTLT/BTC-NHNN of the Ministry of Finance - State Bank of Vietnam dated June 17, 1998 guiding procedures and management of withdrawal of funds from official development assistance;

* Decision No. 1860a/1998/QD-BTC dated December 16, 1998 of the Minister of Finance detailing procedures and processes for withdrawing ODA funds;

* Decision No. 691/TTg dated August 27, 1997 of the Prime Minister approving the investment project to develop rural infrastructure;

* Decision No. 461/QD-TTg dated April 28, 1999 of the Prime Minister adjusting and supplementing certain contents of Decision No. 691/TTg dated August 27, 1997 regarding approval of the investment project to develop rural infrastructure;

After reaching consensus with the Ministry of Agriculture and Rural Development, the Ministry of Finance guides the financial management mechanism for the Rural Infrastructure Sector Project funded by ADB and AFD as follows:

This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

1. Explanation of terms:

The concepts and terms used in this Circular have the same meanings as in the Loan Agreement and are understood as follows:

* The International Financial Institutions financing the Project are the Asian Development Bank (abbreviated as ADB) and the French Development Agency (abbreviated as AFD);

* The Project is the Rural Infrastructure Sector Project funded by ADB and AFD approved by the Prime Minister in Decision No. 691/TTg dated August 27, 1997 and Decision No. 461/QD-TTg dated April 28, 1999;

* The Project Owner is the Ministry of Agriculture and Rural Development, responsible for managing and overseeing the entire project;

* The Sub-project Owner is the People's Committee of the provinces participating in the Project;

* The Central Project Management Board (abbreviated as BQLDATU) is the entity established by the decision of the Ministry of Agriculture and Rural Development to organize the implementation and management of the Project;

* The Provincial Project Management Board (abbreviated as BQLDAT Province) is the entity established by the decision of the People's Committee of the province where the project is located to implement sub-projects within the local scope;

* The Bank serving the Project is the Vietnam Investment and Development Bank;

2. Principles of Management.

2.1. The loan capital from ADB and AFD invested in the Project is the government's borrowing revenue that must be reflected in the state budget. The Ministry of Finance is responsible for unified management and monitoring the implementation of the loan and repayment to ADB and AFD when due.

2.2. The Rural Infrastructure Sector Project is a basic construction investment project. The management and use of capital for the Project must comply with current state regulations on the management and use of capital for basic construction investments.

2.3. The Project Owner is responsible for directing the use of investment capital according to the approved purpose and content of the Project, consistent with the conditions committed in the Loan Agreements signed with ADB and AFD and current Vietnamese regulations.

2.4. The Central Project Management Board is responsible for unified management of the preparation and submission for approval of the investment plan, the withdrawal plan, and the use of loan capital for the entire Project.

2.5. The Provincial Project Management Boards are responsible for managing and expending funds from the loan capital transferred by the Central Project Management Board, as well as counterpart funds provided by the local budget and contributions from beneficiaries. The Provincial Project Management Boards must provide complete, timely, accurate, and valid documentation and vouchers related to their expenditures to the Central Project Management Board for the withdrawal process and overall expenditure consolidation for the entire Project.

2.6. For sub-projects with the potential for repayment, after the Ministry of Finance reaches agreement with the Project Owner, a mechanism for recovering the capital will be issued subsequently.

2.7. The Vietnam Investment and Development Bank System shall carry out procedures for withdrawing funds from ADB and receiving funds from AFD, making payments according to the requirements of the Central Project Management Board and Provincial Project Management Boards as stipulated in Circular Joint No. 81/1998/TTLT/BTC-NHNN dated June 17, 1998, and Decision No. 1860a/QD/BTC dated December 16, 1998.

During the implementation period, the Vietnam Investment and Development Bank System shall enjoy service fees for each transaction generated according to its fee schedule, in accordance with the State Bank of Vietnam's regulations on bank service fees. These fees shall be accounted for in the total investment cost of the Project. The Project Management Boards at all levels are permitted to deduct interest accrued on their respective Advance Payment Accounts to pay bank service fees; any remaining interest must be refunded to the state budget. In cases where the interest is insufficient, the Project Management Boards at all levels shall consolidate the shortfall into the counterpart fund plan and pay from the counterpart fund of the Board.

2.8. The General Department of Investment and Development is responsible for managing and inspecting the use of various sources of funds (ADB loans, AFD loans; central budget funds, provincial budget funds allocated to the Project; and contributions from beneficiaries) and confirming the volume of work eligible for payment according to current regulations.

II. ESTABLISHMENT OF INVESTMENT CAPITAL PLAN FOR THE PROJECT

1. Annually, in accordance with the system for preparing, submitting, and reviewing the state budget estimates, the Provincial Project Management Boards establish the investment capital plan, including both loan and counterpart funds, for sub-projects in their respective provinces and expenditures of the Provincial Project Management Boards. This plan is submitted to the competent authority at the provincial level for approval and integration of the counterpart funds into the provincial general budget, and sent to the Central Project Management Board no later than the end of July each year before the planning year.

The Project Management Board (BQLDATƯ) is responsible for compiling the overall investment capital plan for the year for the Project, including ADB capital, AFD capital, and the counterpart capital from the central budget to be submitted to the Ministry of Agriculture and Rural Development for the Ministry to incorporate into its general budget estimate and submit to the Ministry of Planning and Investment and the Ministry of Finance for approval by the Government and the National Assembly.

2. After being assigned the investment capital plan by the Government, the Ministry of Agriculture and Rural Development allocates the investment capital plan to the Project, including the counterpart capital for the Project Management Board (BQLDATƯ), detailed loan capital according to sources (ADB loans, AFD loans), and according to implementing units (BQLDATW, Provincial Project Management Boards) and according to expenditure items. The decision on allocating the budget estimate for the Project must be sent concurrently to the Ministry of Planning and Investment and the Ministry of Finance (Department of Foreign Financial Affairs, General Department of Investment and Development).

The People's Committees of the provinces allocate the counterpart capital plan for sub-projects and activities of the Provincial Project Management Board within their province. Decisions on allocating the counterpart capital plans of the provinces must be sent to the Central Project Management Board (BQLDATW).

3. Based on the assigned investment capital plan, the Central Project Management Board (BQLDATW) develops a detailed capital withdrawal plan by quarter, according to sources of capital (ADB capital, AFD capital, counterpart capital from the central budget) for the entire Project; and an expenditure plan from the Advance Payment Accounts by quarter, to be submitted to the General Department of Investment and Development for approval.

The quarterly expenditure plan from the Advance Payment Accounts approved by the General Department of Investment and Development serves as the basis for the Vietnam Development Bank to make payments to the Project in installments. The quarterly expenditure plan from the Advance Payment Accounts may be adjusted according to the progress of the Project. Requests to adjust the quarterly plan must be submitted to the General Department of Investment and Development for approval at least 15 days before the end of the quarter.

III. ACCOUNTS

1. The Central Project Management Board (BQLDATW) opens the following accounts:

* Two Advance Payment Accounts at the Vietnam Development Bank to receive advance payment funds from ADB and AFD loans (hereinafter referred to as the Advance Payment Account) for expenditures on Project activities.

* An allocation account at the General Department of Investment and Development to monitor the use of ADB and AFD loans for the entire Project and to allocate counterpart capital from the central budget to the Project.

All these accounts have sub-accounts to track the withdrawal of capital allocated to each province.

2. The Provincial Project Management Boards open the following accounts:

* Two Advance Payment Accounts at the Provincial Vietnam Development Bank to receive advance payment funds from ADB and AFD transferred down by the Central Project Management Board (BQLDATW).

* An allocation account at the Provincial Investment and Development Bureau to receive local government counterpart capital and monitor the use of ADB and AFD funds in the province.

* Another account at the Provincial Investment and Development Bureau to receive and manage the disbursement of beneficiary contribution funds (if any).

IV. WITHDRAWAL OF CAPITAL, ALLOCATION AND MANAGEMENT OF INVESTMENT CAPITAL FOR THE PROJECT

1. Management, Allocation and Payment of Counterpart Capital

Based on the approved provincial budget estimates for counterpart capital and the allocation through the provincial budget, the Provincial Department of Finance will transfer the capital to the Provincial Investment and Development Bureau according to the list of sub-projects and for the activities of the Provincial Project Management Board, for the Provincial Investment and Development Bureau to allocate counterpart capital according to current regulations on management and allocation of domestic construction capital.

Based on the annual budget estimates for counterpart capital approved and allocated by the Ministry of Agriculture and Rural Development, the General Department of Investment and Development allocates counterpart capital to the Central Project Management Board (BQLDATW).

Counterpart capital is allocated according to the agreed financing ratios for each expenditure item of the Project as stipulated in the loan agreements signed with ADB and AFD and the legal documents of the Project.

2. Withdrawal of Capital, Payment from ADB and AFD Loans and Supplementing the Advance Payment Account

Withdrawal of Capital

The withdrawal of capital from ADB and AFD loans for Project activities is carried out according to direct payment methods, commitment letters, reimbursement procedures, and Advance Payment Accounts for the Central Project Management Board (BQLDATW) to implement, in accordance with the provisions of Circular Jointly Issued by the Ministry of Finance and the State Bank of Vietnam No. 81/1998/TTLT/BTC-NHNN dated June 17, 1998 guiding the procedures, formalities, and management of capital withdrawal from official development assistance (ODA) funds and Decision No. 1860a/1998/QĐ-BTC dated December 16, 1998 issued by the Minister of Finance detailing the procedures and formalities for ODA capital withdrawal.

In cases where capital is withdrawn and paid directly, through commitment letters, or reimbursement procedures based on requests from Provincial Project Management Boards, the Provincial Project Management Boards are responsible for providing complete and timely documentation and vouchers related to Project expenditures within their jurisdiction to enable the Central Project Management Board (BQLDATW) to process the withdrawal and payment.

The withdrawal request documents of the Provincial Project Management Board sent to the Central Project Management Board (BQLDATW) include:

+ Letter requesting capital withdrawal

+ Contract already approved by the competent authority

+ Additionally, if:

* Payment to suppliers of goods/services, then an invoice from the supplier of goods/services is also required.

* Payment to construction contractors, then a completion certificate, payment voucher already reviewed and confirmed by the Provincial Investment and Development Bureau as meeting the conditions for payment is also required.

* Payment under reimbursement procedures requires additional proof of payment made and clearly indicating the source of funds used for payment (such as advance budget funds, self-raised funds, or loans, etc.)

Payment

* Payments from ADB and AFD loans must strictly follow the financing ratios for each project activity as stipulated in the loan agreements signed with ADB and AFD and the legal documents of the Project.

* Payments from the Advance Payment Account are made as follows:

Payment upon request of the Central Project Management Board (BQKDATW)

Based on the quarterly expenditure plan from the Advance Payment Account of the Central Project Management Board (BQLDATW) approved by the Ministry of Finance (General Department of Investment and Development), and upon the payment request of the contractor/supplier of goods/services or the approved regular expenditure budget by the Ministry of Agriculture and Rural Development, the Central Project Management Board (BQLDATW) requests the Vietnam Development Bank to make payments from the Advance Payment Account for Project expenditure items according to the financing ratios as stipulated in the loan agreements signed with ADB and AFD and the legal documents of the Project.

For expenditures on training and seminar activities, the Project Management Board (BQLDATW) shall prepare detailed budgets to be submitted for review by the Ministry of Agriculture and Rural Development according to current standards. In cases where there are no established standards for certain expenditures, the Ministry of Agriculture and Rural Development will coordinate with the Ministry of Finance to establish specific regulations.

Documents related to expenditures from the Advance Payment Account of the Project Management Board must be sent to the Provincial Investment Development General Department for post-audit procedures as per current regulations. Specifically, for final payments under contracts or when a contract is paid in one installment, prior confirmation from the Provincial Investment Development General Department is required.

Payment according to the proposal of the Provincial Project Management Board

Provincial Advance Payment Account:

The Project Management Board (BQLDATW) will transfer funds from the Advance Payment Account of the Project at the Vietnam Investment and Development Bank (advance payment) to each Provincial Project Management Board's Advance Payment Account opened at the Provincial Investment and Development Bank the amount:

* For the Advance Payment Account sourced from ADB: 900,000,000 VND

* For the Advance Payment Account sourced from AFD: 100,000,000 VND

Conditions for the first advance payment for Provincial Project Management Boards are: (i) Sub-projects have feasibility studies approved; (ii) Notification of capital plans including foreign and counterpart funds allocated by the province; (iii) Provincial Project Management Board has a letter requesting advance payment.

Payment from the provincial advance payment account

The control regime for expenditures proposed by the Provincial Project Management Board is a pre-control regime, specifically as follows: When there is a need to make expenditures from the provincial advance payment account to pay for the regular operations of the Provincial Project Management Board or to pay contractors, suppliers of goods and services, the Provincial Project Management Board sends relevant documents to the Provincial Investment and Development Department, including:

* Letter requesting payment from the advance payment account.

* Approved regular expenditure budget for the operations of the Provincial Project Management Board by the Provincial People's Committee.

* Contracts approved by competent authorities (if paying contractors).

* Other necessary documents and certificates according to current domestic regulations on payment for basic construction investment activities.

Within five working days from receiving complete files, the Provincial Investment and Development Department is responsible for reviewing, checking documents, quantities performed, confirming the quantity of work meeting conditions for disbursement and payment according to current regulations, paying the counterpart fund, and issuing a written approval for payment to the Provincial Investment and Development Bank to pay the foreign fund. The confirmation of the Provincial Investment and Development Department on the payment voucher must clearly state the total value to be paid, including how much is loaned and how much is counterpart funding.

Supplementing the advance payment account

Supplementing the provincial advance payment account: Monthly or when the provincial advance payment account exceeds 50% of the ceiling, the Provincial Project Management Board prepares a supplementary advance payment account file to send to the Project Management Board (BQLDATW). The file includes:

+ Letter to the Project Management Board requesting supplementary provincial advance payment account.

+ Statement of expenditures from the advance payment account and copies of payment documents confirmed by the Provincial Investment and Development Department.

+ Statement of the provincial advance payment account at the Provincial Investment and Development Bank.

Within five working days from receiving complete files, the Project Management Board (BQLDATW) must check and process the transfer of funds from the central advance payment account of the Project to supplement the provincial advance payment account for the Provincial Project Management Board.

Supplementing the central advance payment account: Monthly or when the central advance payment account exceeds 20% of the specified ceiling, the Project Management Board (BQLDATW) will proceed to supplement the central advance payment account. The Project Management Board (BQLDATW) sends the Ministry of Finance (Department of Foreign Financial Affairs) a supplementary advance payment account file including:

+ Letter requesting capital withdrawal

+ Withdrawal form according to ADB's model for ADB-funded withdrawals.

+ Statement of the advance payment account at the Vietnam Investment and Development Bank.

+ Supporting documents proving valid expenditures confirmed by the National Investment and Development General Department or the Provincial Investment and Development Department.

Within five working days from receiving complete files, the Ministry of Finance will review, prepare, and sign withdrawal forms for AFD funds or issue an acceptance letter for the Project Management Board's withdrawal request to the Vietnam Investment and Development Bank for ADB funds. Within two working days after receiving the acceptance letter from the Ministry of Finance, the Vietnam Investment and Development Bank signs the withdrawal form for ADB funds.

3. Mobilizing and using beneficiary contributions

The Provincial Project Management Board proposes mechanisms to the competent authorities of the Province to mobilize sufficient counterpart funds contributed by beneficiaries for sub-projects within the province. If beneficiaries contribute in cash, the Provincial Project Management Board is responsible for collecting and transferring the funds into the Provincial Project Management Board's account at the Provincial Investment and Development Department for disbursement and payment according to the prescribed ratio.

V. REPORTING, AUDITING, ACCOUNTING AND SETTLEMENT REGIME

1. Reporting and Settlement

* The Project Management Board (BQLDATW) is responsible for compiling all project expenditures to report to the Ministry of Agriculture and Rural Development, the Ministry of Finance (Provincial Investment and Development General Department, Department of Foreign Financial Affairs) on the implementation of the project, particularly the withdrawal of funds, use of ADB and AFD funds and counterpart funds quarterly, annual accounting reports, and completion settlement reports.

* The verification and approval of completion settlement of sub-projects are carried out according to the分级制度规定在决定第691-TTg号（1997年8月27日）和政府总理决定第461/QĐ-TTg号（1999年4月28日）。

* To implement comprehensive reporting and settlement of projects, the Project Management Board (BQLDATW) is responsible for guiding the Provincial Project Management Boards to comply with Circular No. 66/ĐTPT dated November 2, 1996 of the Ministry of Finance on the guidance for the settlement of basic construction investment funds.

* The Provincial Project Management Board maintains accounting records of all expenditures of sub-projects in the locality, quarterly and annual reports on the implementation of sub-projects, especially the use of ADB and AFD funds and counterpart funds, and prepares annual settlement reports and completion settlement reports of sub-projects to send to the Provincial People's Committee, the Ministry of Agriculture and Rural Development, and the Project Management Board (BQLDATW).

2. Inspection

Periodically and on an ad hoc basis, the Ministry of Finance shall coordinate with the Ministry of Agriculture and Rural Development to inspect the implementation of the Project and the use of funds, particularly those from the Advance Payment Account. If improper use of funds is discovered, the Ministry of Finance will suspend fund transfers and handle violations according to current regulations.

3. Audit

* Annually, the Advance Payment Accounts, accounts of the Provincial Project Management Board, accounting books, and vouchers of the Project must be audited by an independent auditing company approved by the Ministry of Finance and the financier in accordance with Vietnamese and ADB regulations.

* The selection of the auditing company shall be conducted through a bidding process for consulting services in accordance with current regulations. The results of the selection must be approved by the Ministry of Finance and the financier.

* The audit report must be submitted to the Ministry of Finance (Investment Development General Department, Foreign Financial Affairs Department), the Ministry of Agriculture and Rural Development, the People's Committee of the Province, and the State Bank of Vietnam (International Relations Department).

VI. IMPLEMENTATION PROVISIONS

This Circular takes effect fifteen days from the date of signature. During its implementation, if there are any difficulties, relevant agencies must promptly reflect them to the Ministry of Finance and the Ministry of Agriculture and Rural Development for study and amendment.

                                                              Le Thi Bang Tam

                                                              (Signed)