Circular No. 89 TC/VT GUIDING THE MANAGEMENT OF FINANCIAL RESOURCES AND THE USE OF AID FROM THE FEDERAL REPUBLIC OF GERMANY UNDER THE FINANCIAL AGREEMENTS OF 1991, 1992, AND 1993.

CIRCULAR

Guidelines for Financial Management and Utilization of Aid from the Government of the Federal Republic of GermanyGovernment of the Federal Republic of Germany

under the Financial Agreements of 1991, 1992, and 1993 Finance 1991, 1992, 1993

Pursuant to the Financial Agreements signed between the Government of the Socialist Republic of Vietnam and the Government of the Federal Republic of Germany regarding the financial support provided by the Federal Republic of Germany for projects under the 1991, 1992, and 1993 budgets;

Pursuant to the borrowing and repayment regulations for foreign debts issued together with Decree No. 58/CP dated August 30, 1993 of the Government and the Circulars guiding the implementation of this Decree;

Pursuant to the management and utilization regulations for official development assistance issued pursuant to Decree No. 20/CP dated March 15, 1994 of the Government and the accompanying guiding documents;

In accordance with the directive of the Prime Minister in Document No. 4166/QHQT dated July 30, 1994 on the financial management mechanism for projects under the Financial Cooperation Agreement with the Federal Republic of Germany, the Ministry of Finance hereby guides the management and utilization mechanism for aid from the Government of the Federal Republic of Germany for the 1991, 1992, and 1993 budgets as follows:

II- SUPPORT MEASURES FOR STATE-OWNED AGRICULTURAL FARMS AND FORESTRY COMPANIES IN THE FIELD OF SCIENCE AND TECHNOLOGY

1. The aid from the Government of the Federal Republic of Germany to the Government of Vietnam (including both non-repayable aid and concessional loans) is a source of revenue for the State Budget, which is balanced into the annual budget revenue and expenditure plan compiled by the Ministry of Finance and reported to the Government for submission to the National Assembly for approval.

2. Based on the objectives and nature of use of each project, projects utilizing German aid are classified into two categories as follows:

- Projects funded by the State Budget include technical cooperation projects, economic and social infrastructure construction projects, environmental protection projects, and ecological projects (as listed in Appendix I attached).

- Projects funded through State Budget re-lending include production and business projects with the ability to recover capital (as listed in Appendix II attached).

3. The Vietnam Investment and Development Bank is responsible for implementing re-lending to project sponsors, with the responsibility to fully recover principal and interest to repay the Ministry of Finance on time. The Vietnam Investment and Development Bank is the final decision-maker for re-lending to projects.

4. Project sponsors are responsible for using German aid for its intended purpose effectively; strictly adhering to current state financial management systems, the borrowing and repayment regulations for foreign debts issued together with Decree No. 58/CP dated August 30, 1993 of the Government, and the guiding documents No. 17-TC/TCĐN, 18-TC/TCĐN dated March 5, 1994 of the Ministry of Finance.

5. Project managing agencies are responsible for regularly guiding and inspecting project sponsors in the strict implementation of current management systems as well as the effective use, recovery of capital to repay debt on schedule according to committed credit agreements.

II - SPECIFIC PROVISIONS

1. Based on the Financial Cooperation Agreements that have been ratified by the Governments of both countries, the Ministries in charge and Provincial People's Committees are responsible for guiding project sponsors to conduct the appraisal and approval procedures for projects in accordance with the current state regulations on project appraisal and approval.

After the project has been appraised and approved, the project sponsor shall implement tender procedures and sign commercial contracts for the supply of goods and services in accordance with the guidelines of the German Reconstruction Credit Institute (KfW) on procurement procedures using German-funded resources;

Commercial contracts must be approved by the managing agency and the Ministry of Trade after signing. Contract approval procedures shall be carried out in accordance with Decision No. 91/TTg dated November 13, 1992 of the Prime Minister and the accompanying guiding documents.

The project sponsor is responsible for submitting commercial contracts and contract approval documents to the State Planning Commission, the Ministry of Finance (International Aid Management and Reception Board), the State Bank of Vietnam, the Vietnam Investment and Development Bank, and the German Commercial Attaché in Hanoi to proceed with further procedures with the German side.

2. Signing of project agreements:

- For projects funded by the State Budget: The Ministry in charge is responsible for leading the process of negotiating with the German side to reach an agreement on the content of the project agreement. The Ministry of Finance will participate and take responsibility for the financial management aspects of the project agreement. The project agreement will be signed through representatives of the Ministry of Finance and the Ministry in charge.

- For projects funded through State Budget re-lending: Based on project documentation and approval documents from the competent authority; based on the signed supply of goods and services contract with the German side, accompanied by the approval document of the competent authority; after receiving the signed credit agreement between the project sponsor and the Vietnam Investment and Development Bank, the Ministry of Finance will proceed to sign loan agreements for each project.

3. Regarding the financial management mechanism:

a. For projects funded by the State Budget:

The Ministry of Finance will issue funds to the project sponsors in Vietnamese dong converted from the foreign currency value at the buying rate announced by the Foreign Trade Bank at the time of receipt of the relevant documents (in case of cash receipt) or at the time of confirmation of donated goods (in case of goods receipt).

Financial management for these projects must comply with the state budget construction investment fund management system and the state budget operating expense management system.

b. For projects funded through State Budget re-lending:

Based on the approved economic and technical justification and the nature of the use of capital for each project, the Ministry of Finance will jointly with the Vietnam Investment and Development Bank determine the interest rate and specific loan terms (including grace period and repayment period) for each project according to the principle: not more favorable than the conditions under which the Government of Vietnam borrows from the Federal Republic of Germany, with a lending interest rate of 4 to 5 percent per annum in Deutsche Marks and a maximum loan term not exceeding 20 years.

The Vietnam Investment and Development Bank is responsible for implementing re-lending to project sponsors. Within the interest rate for re-lending to project sponsors, the Vietnam Investment and Development Bank is entitled to a bank fee of 0.3% calculated on the amount of the resulting debt (including transaction fees in international payment transactions).

The Vietnam Development Bank is responsible for guiding all specific procedures for project owners, while preparing necessary conditions to sign loan contracts with the Ministry of Finance and rescheduling loan contracts with project owners.

The International Aid Management Board (Ministry of Finance) will sign with the Vietnam Development Bank a "credit service contract" specifying the following.

The Ministry of Finance will make payments through the State Budget in the form of recording receipts and expenditures: Recording foreign debt borrowing, recording expenditures for lending to the Vietnam Development Bank.

The difference between the interest rate on loans from the Federal Republic of Germany and the interest rate for rescheduled project owners will be transferred into a separate account of the State Budget (the account holder being the representative of the International Aid Management Board under the Ministry of Finance) at the Vietnam Development Bank. This amount will be used for environmental protection projects, staff training... according to the agreement between the Ministry of Finance and the German Reconstruction Credit Institute (KfW) as stipulated in the Project Agreement. The Ministry of Finance will coordinate with relevant sectors to develop specific plans to submit to the Prime Minister for decision.

4. Management and circulation of documents:

Documents for signing promissory notes (between the Vietnam Development Bank and the International Aid Management Board or between project owners and the Vietnam Development Bank) and for recording receipts and expenditures through the State Budget:

- For the loan capital portion, it includes the set of shipping documents (including transport documents and corresponding invoices of the German Goods Supply and Service Company), the KfW debt notice.

- For the non-reimbursable aid portion, it includes the confirmation of aid funds and goods issued by the International Aid Management Board.

The sequence of document circulation, the format of issuing loans, the time of signing promissory notes, and the specific responsibilities of each agency (for state credit capital) will be discussed and agreed upon specifically by the parties and stipulated in the credit contract.

III- IMPLEMENTATION

1. The competent authorities are responsible for guiding project owners to implement the provisions according to the guidelines set out in this Circular.

2. Periodically (every six months, annually), project owners are responsible for reporting to the Ministry of Finance and the competent authority (or higher financial management agency) on the situation of receiving, using, and repaying borrowed capital.

3. Annually, the Vietnam Development Bank will settle accounts with the Ministry of Finance regarding the situation of receiving borrowed capital, lending, collecting debts, and repaying foreign capital to the Ministry of Finance.

4. This Circular takes effect from the date of signature.

During implementation, if there are any difficulties, units need to promptly reflect them to the Ministry of Finance and related agencies for consideration and resolution.