Circular No. 89/1997/TT-BTC guides the management of loan capital for specialized credit programs from the Japan Overseas Economic Cooperation Fund (OECF).

 

CIRCULAR

Guidelines for the management of loan capital for the specialized credit program of the Japan Overseas Economic Cooperation Fund (OECF)

Pursuant to Decree No. 58/CP dated August 30, 1993 of the Government promulgating the Regulations on Borrowing and Repaying Foreign Debts and Decree No. 87/CP dated August 5, 1997 of the Government promulgating the Regulations on Management and Utilization of Official Development Assistance (ODA) funds.

Based on the Credit Agreements signed between the Government of the Socialist Republic of Vietnam and the Japan Overseas Economic Cooperation Fund (OECF).

The Ministry of Finance guides the management of OECF loan capital for the specialized credit program as follows:

I. SCOPE AND OBJECTS

1.1. The specialized credit program is a program utilizing OECF loan capital to construct infrastructure projects at local levels throughout the country, including rural power systems, water supply systems, and transportation networks. The official English name of the Program as stated in the Agreements with OECF is SECTOR PROJECT LOAN.

1.2. The loan capital under the specialized credit program is foreign debt borrowed by the Government from OECF and allocated to the State Budget. The Ministry of Finance is responsible for repaying the debt to the foreign party when due (including both principal and interest).

1.3. The Program Director, which is the Ministry of Planning and Investment, is responsible for overall coordination in implementing the program, compiling and reporting final accounts to the Ministry of Finance on the annual use of capital and upon completion of the project.

1.4. The Vietnam Bank for Foreign Trade is entrusted by the Ministry of Finance to handle foreign exchange transactions, responsible for signing bank agreements with foreign parties based on the OECF Loan Agreement, guidance from the Program Director, and investors in transaction procedures.

1.5. The People's Committee of provinces-cities is responsible for the quality and results of construction projects in their respective areas, accountable to the Program Director and the Ministry of Finance for the annual use of capital and final settlement upon completion of the project. Local project management agencies established by the People's Committee are directly responsible for organizing construction work according to the Program Director's directives.

1.6. Local administrative bodies (People's Committees of provinces-cities, Departments of Planning and Investment, Departments of Finance and Prices, Investment Development Bureaus) are responsible for managing the use of allocated capital within their functions and in accordance with the Program Director's guidance, consistent with current regulations on domestic investment and construction management and commitments made in the signed Credit Agreements with OECF.

II. SPECIFIC CONTENTS:

2.1. The Ministry of Planning and Investment is primarily responsible for planning the use of specialized credit capital, drafting guidelines for local administrative bodies regarding such planning work.

2.2. The People's Committee of provinces directs the Department of Planning and Investment to develop detailed investment and construction plans for specific projects of the Program in accordance with current regulations. This plan must fully reflect sources of capital and construction progress and usage. Specifically, as follows:

2.2.1. The OECF loan capital includes:

Part on allocation for hiring foreign consultants (This part is established and announced by the Program Director with specific allocations for each locality).

Part on allocation for importing materials, goods, and equipment both domestically and internationally for projects.

Construction works funded from the Special Credit Fund capital recorded in the approved plan and agreed upon by the OECF side.

Loan handling fee at 0.1% collected by OECF when withdrawing funds.

2.2.2. Domestic counterpart funds include funds for paying the following items:

Domestic costs paid to importers: agency fees for imports, import duties on goods (if applicable), receiving and supplying costs, transportation costs from port to project site, other costs (if applicable).

Material costs, labor costs, and construction management fees not included in the Special Credit Fund loan plan borrowed from OECF.

Costs allocated by the Program Director to localities according to separate regulations not covered in this Circular.

Expenses not covered under the Special Credit Fund source as stipulated in the Agreement signed with OECF.

Localities must ensure domestic counterpart funds. If these funds are not balanced in the local budget at the time of stable budget transfer and the locality cannot allocate them, the Ministry of Planning and Investment will balance the sources to supplement the local budget with targeted funding.

2.2.3. Local project management agencies must develop plans and conduct bidding for projects in accordance with Decree 43/CP issued on July 16, 1996, and Decree 93/CP issued on August 23, 1997, by the Government.

3.1. The signing and approval of contracts shall be carried out as follows:

3.1.1. The Program Director leads the organization of bidding and negotiation of contracts for hiring consultants, purchasing goods, and equipment for the program or project (hereinafter referred to as Contracts) with eligible suppliers as stipulated in the Agreement.

The Program Director selects units to act as agents for transactions and sign import contracts for goods arriving in Vietnam, while directly signing contracts for hiring consultants for the entire Program.

After signing the contract, the transaction agent unit (hereinafter referred to as the Importer) or the Program Director in the case of consultant hiring contracts, through the Program Director, prepares two copies of the signed Contract, one copy sent to OECF and one copy sent to the Ministry of Finance for contract approval procedures.

3.1.2. For the portion of construction work volume eligible to receive Special Credit Fund capital, the Program Director guides local project management agencies to organize bidding and sign contracts in accordance with current domestic regulations on basic construction investment and the loan agreement provisions.

After signing, the project management agency prepares three copies of the Contract with legal validity to be sent to the Department of Planning and Investment, the Department of Finance and Price, and the Provincial Investment Development Bureau along with the decision approving the bid award from the competent authority.

The Department of Planning and Investment is responsible for reviewing the Contract and compiling such Contracts to send to the Program Director.

After reviewing and approving the consolidated Contract, the Program Director sends it to the Ministry of Finance (Department of Foreign Financial Affairs) for fund withdrawal procedures.

3.1.3. Upon receipt of the OECF's contract approval notice, the Ministry of Finance (Department of Foreign Financial Affairs) will notify the Program Director and the Importer to proceed with the Contract implementation and inform the Commercial Bank for Foreign Trade to process foreign exchange payment procedures for the supplier or foreign contractor (if any).

3.1.4. With the authorization of the Ministry of Finance, the Commercial Bank for Foreign Trade opens a yen account at the Tokyo-Mitsubishi Bank. The Ministry of Finance (Department of Foreign Financial Affairs) processes the first withdrawal into the aforementioned account according to the Agreement provisions. The first withdrawal does not require accompanying documents.

3.2. Withdrawal of loan funds and contract payments shall be conducted as follows:

3.2.1. For expenditures denominated in foreign currency specified in the contract, the Letter of Commitment withdrawal method shall be applied for payment.

3.2.2. For expenditures denominated in domestic currency (VND) specified in the activity, the Transfer and Refund withdrawal method shall be applied for payment.

3.2.3. For Contracts signed to implement the procurement of equipment and construction of the Road System and Water Supply System mentioned in sections (A) and (B) of the Loan Allocation section of the Agreement, the Special Account withdrawal method shall be applied for payment.

3.2.4. The Program Director is responsible for guiding local management agencies to prepare documents according to the models prescribed by OECF for each withdrawal method. The withdrawal methods for payment and the specific flowcharts of documents for each withdrawal method are stipulated in Circular 95 TC/DT issued on November 14, 1994, and Circular 18 TC/DTP issued on March 12, 1996, by the Ministry of Finance.

3.2.5. The Program Director is responsible for checking and collecting payment request documents from localities, completing them according to the OECF withdrawal model, and sending them to the Ministry of Finance (Department of Foreign Financial Affairs) monthly. These documents must have confirmation from the Provincial Investment Development Bureau regarding the quantity as stipulated in the signed contract.

3.2.6. After receiving the documents, the Ministry of Finance will proceed with payments to localities and process fund withdrawals with OECF.

4.3. Types of fees incurred

4.3.1. Banking service fees for the Commercial Bank for Foreign Trade: The Commercial Bank for Foreign Trade performs foreign exchange settlement operations: opening Letters of Credit (L/Cs) and transferring money to repay foreign debts when due. The Commercial Bank for Foreign Trade collects fees according to the current banking service fee schedule set by the Commercial Bank for Foreign Trade General Manager.

Specific fee collection procedures are as follows:

* For transfer fees when repaying foreign debts: The Commercial Bank for Foreign Trade automatically debits the State Budget Account at the Central Treasury (opened at the Commercial Bank for Foreign Trade).

* For fees related to the opening and settlement of L/Cs for imported goods and consulting services: The Commercial Bank for Foreign Trade collects fees from the importer agent or from the Interest Income Account on the Special Account in the case where the L/C opener is the Program Director.

* The direct payment fees to the construction contractor from the Special Account shall be included in the domestic counterpart capital for payment purposes. The Bank collects this fee from the beneficiary from the beneficiary's deposit account at the Vietnam Bank for Foreign Trade or deducts it from the value of the invoice being paid.

4.3.2. Import agency fees: Units entrusted with importation (Importers) have the responsibility to negotiate and sign purchase contracts with foreign companies selected by the Program Director according to regulations, handle all import procedures under the supervision of the Ministry of Planning and Investment, and enjoy import agency fees and supply fees as stipulated by current state regulations. These fees are collected by the Importer from the units receiving the goods.

Import units are responsible for paying the Vietnam Bank for Foreign Trade all related fees for opening Letters of Credit (L/C) for importing goods, amending L/Cs (if applicable), paying L/Cs, and other fees charged by foreign banks to the Vietnam Bank for Foreign Trade related to the import of such goods.

4.3.3. Fees for the Central Program Management Board: Fees paid to the Central Program Management Board (Ministry of Planning and Investment) will be settled from the domestic counterpart capital of localities according to separate regulations.

5.1. Accounting through the State Budget:

All OECF loans allocated to local projects must be fully and promptly recorded in the State Budget. The principle of accounting through the State Budget is to record central government revenue, and record central government subsidy expenditure to local budgets. The Department of Finance and Prices transfers OECF funds (recorded as expenditures by the Ministry of Finance) to the Investment Development Bureau to account for the allocation of funds to projects according to plans. The accounting through the budget is carried out as follows: 5.1.1. For consulting service costs:

The Ministry of Finance (Department of Foreign Financial Affairs) prepares detailed lists of each drawdown of funds according to the consulting contract based on notifications from OECF. Quarterly, the Department of Foreign Financial Affairs sends approval notices for the budget estimates to the Department of State Budget to process the recording of loan receipts and advance payments for subsidies to the Department of Finance and Prices of each locality. The Department of Finance and Prices processes the transfer of funds to the Local Investment Development Bureau by recording income and expenditure for the allocation of consulting fees to projects. The basis for allocating consulting costs is the Plan for the Allocation of Special Credit Funds to Projects in Localities prepared by the Program Director as stated above in Section 2.1.1.

After the completion of the distribution of imported goods and construction works according to the plan, the Program Director, the Department of Finance and Prices, and the Local Investment Development Bureau will coordinate with the Department of State Budget and the Department of Foreign Financial Affairs to settle the advance payments made accordingly with actual conditions.

5.1.2. For imported goods:

Each time receiving notifications from the Vietnam Bank for Foreign Trade about drawing down funds from the Special Account of the Ministry of Finance to pay for imported goods shipments, the Program Director issues a document requesting the allocation of capital and quantity of imported goods to localities based on the attached detailed list. The Department of Foreign Financial Affairs sends approval notices for the budget estimates to the Department of State Budget to process the recording of foreign loan receipts and advance payments for subsidies to the Department of Finance and Prices of those localities. The Department of Finance and Prices processes the recording of local budget income and expenditure for transferring funds to the Local Investment Development Bureau to allocate funds to projects.

The basis for recording advance payments to localities is the Distribution Plan for Imported Goods Shipments prepared by the Ministry of Planning and Investment for each shipment.

After the completion of the distribution of imported goods according to the plan, the Program Director and the Local Finance Department will base their settlement of advance payments on delivery and receipt documents, coordinating with the Department of State Budget and the Department of Foreign Financial Affairs to settle accordingly with actual conditions.

The recorded value of the budget income and expenditure is calculated in Japanese Yen based on the exchange rate specified and announced by the Ministry of Finance each time accounting is conducted (the foreign currency receivable value includes the 0.1% withdrawal fee charged by OECF).

The Program Director coordinates with the Importer to submit periodic monthly or quarterly reports on the quantity of imported goods and their allocation to localities to the Ministry of Finance (Department of Foreign Financial Affairs and General Administration of Investment Development) as the basis for State Budget accounting.

In cases where there is a discrepancy between the planned distribution and the actual received goods (including normal losses), localities work with authorized supply units to confirm the discrepancy and report to the Ministry of Planning and Investment for handling according to the principle that the entity responsible for the loss at any stage bears the loss, specifically as follows:

. Losses exceeding the standard during the import process are borne by the Importer.

. Losses exceeding the standard during the supply process are borne by the authorized supply unit.

. Losses exceeding the standard due to local delays or delays in receiving goods are borne by the locality.

5.1.3. For construction contracts paid in Vietnamese Dong, the Department of Foreign Financial Affairs coordinates with the Department of State Budget to record expenditures for allocations to the Local Finance Department immediately upon transferring payment. The Department of Finance and Prices processes the recording of local budget income and expenditure for transferring funds to the Local Investment Development Bureau to allocate funds to projects.

III. MONITORING, REPORTING, AND SETTLEMENT WORK:

6.1. Every quarter, localities (Provincial People's Committees, Departments of Planning and Investment) report to the Ministry of Finance and the Ministry of Planning and Investment on the progress of the Program and the situation of receiving and using loan funds.

6.2. The Ministry of Finance periodically and randomly checks the management and use of loan funds by localities. If misuse of loan funds is discovered, the transferred funds will be recovered or the transfer of funds will be temporarily suspended for handling.

6.3. The program leader shall cooperate with the Department of Planning and Investment, the Department of Finance and Price, and the Local Investment Development Agency to inspect and settle accounts for completed works, compile reports to submit to the Prime Minister, and simultaneously send them to the Ministry of Finance.

6.4. The local Department of Planning and Investment must submit a written report on the situation of material and equipment imports and deliveries, as well as the construction volume of the previous quarter, from the first to the fifteenth day of the first month of each quarter to the program leader. Such reporting serves as the basis for the program leader to allocate funds to the locality for subsequent quarters. If the local managing authority fails to submit the report, the program leader shall not be permitted to continue allocating funds.

6.5. The project investors are responsible before the local managing authorities and the program leader for the quality and progress of the works.

6.6. The program leader is responsible for providing information and data to inspection, audit, and review teams and is accountable for their respective tasks.

IV. EFFECTIVE DATE OF IMPLEMENTATION

This Circular takes effect fifteen days after the date of signature. Matters not addressed in this document shall be governed by Circular 95TC/ĐT dated November 14, 1994, and Circular 18TC/ĐTPT dated March 12, 1996, issued by the Ministry of Finance.

This Circular replaces Circular 39 TC/TCĐN issued by the Ministry of Finance on July 22, 1996.

Any difficulties encountered during implementation should be reported to the Ministry of Finance by relevant agencies.