Circular No. 95TC/DT guiding the management regime of loan funds from the Japan Overseas Co-operation Fund (OECF) for construction projects.

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 95 TC/ĐT DATED NOVEMBER 14, 1994 GUIDING THE MANAGEMENT REGIME

OF JAPAN OVERSEAS ECONOMIC COOPERATION FUND (OECF) LOANS FOR BASIC CONSTRUCTION PROJECTS

PROJECTS FOR CONSTRUCTING BASIC INFRASTRUCTURE

Pursuant to Decree No. 117/CP dated October 20, 1994 of the Government promulgating the Investment Management and Construction Regulations, Decree No. 58/CP dated August 30, 1993 of the Government promulgating the Regulations on Borrowing and Repaying Foreign Debts, and Decree No. 20-CP dated March 15, 1994 of the Government promulgating the Regulations on Managing and Using Official Development Assistance;

Based on the credit agreements concluded between the Socialist Republic of Vietnam's Government and the Japan Overseas Economic Cooperation Fund (OECF);

After consultation with the State Planning Commission and the National Bank of Vietnam;

The Ministry of Finance guides the management regime of OECF loans for basic construction projects as follows: 

I. GENERAL PROVISIONS

1. ODA funds are foreign debts of the Government, therefore the entire loan amount must be balanced in the state budget. The Ministry of Finance is responsible for balancing the loan funds into the state budget and repaying foreign debts when due (including both principal and interest).

2. Basic construction investment projects using these funds are divided into two categories:

- Projects eligible for capital allocation according to the current regulations on allocating capital for basic construction from the state budget include infrastructure construction projects, social welfare projects, and other projects that cannot recover capital as stipulated in Decree No. 177-CP dated October 20, 1994 of the Government.

- Projects not falling into the above category, the Project Sponsor must re-borrow the funds.

3. The Ministry of Finance directly manages, allocates funds to projects eligible for state budget allocation, and provides loans to projects eligible for preferential credit.

4. The competent investment management agency and project sponsors are responsible for preparing and approving annual basic construction investment plans from these funds and necessary domestic counterpart funds according to prescribed regulations.

5. Project sponsors are responsible for using the funds for their intended purposes and in accordance with the conditions committed to in the credit agreement. For projects required to re-borrow, project sponsors are responsible for repaying the debt (both principal and interest) as stipulated.

II. SPECIFIC PROVISIONS

1. The Vietnam Bank for Foreign Trade is authorized by the Ministry of Finance to handle foreign exchange transactions and manage the OECF loan and is entitled to a service fee of 0.07% per annum on the outstanding OECF debt balance.

2. The Ministry of Finance (Investment Development General Department) shall implement the allocation and payment of funds to projects eligible for state budget allocation and provide loans to projects required to re-borrow. For projects required to re-borrow, the Investment Development General Department is entitled to a service fee of 0.20% per annum on the outstanding debt balance.

Immediately upon withdrawing the loan, the Vietnam Bank for Foreign Trade sends the Ministry of Finance (Department of Foreign Financial Affairs and Investment Development General Department) a statement of loan withdrawal along with the payment notification from the Japanese bank. The Ministry of Finance will process the recording of state budget revenue and expenditure for fund allocation or loan provision for investment.

The exchange rate between the Japanese Yen and the Vietnamese Dong for budget accounting purposes is the selling rate published by the Vietnam Bank for Foreign Trade at the time of state budget settlement.

4. The annual basic construction investment plan of the project must fully reflect all sources of funding and the schedule for loan withdrawals including:

a) OECF loan funds, of which:

- Portion paid in Japanese Yen.

- Portion paid in Vietnamese Dong.

b) Necessary domestic counterpart funds.

5. The necessary annual domestic counterpart funds are handled as follows: Projects eligible for state budget allocation are balanced within the annual basic construction investment plan from the state budget. For projects required to re-borrow, project sponsors prepare plans to arrange state credit funds, other loan sources, and legally raised self-financing sources.

6. The Vietnam Bank for Foreign Trade must sign a contract with the Ministry of Finance (Department of Foreign Financial Affairs) regarding the implementation of foreign exchange transactions and loan management services with OECF as authorized by the Ministry of Finance.

Project sponsors (for projects required to re-borrow) must sign a loan contract with the Ministry of Finance (Investment Development General Department), repay interest and principal to the Investment Development General Department ahead of one month compared to the repayment schedule in the credit agreement.

Encouragement is given to project sponsors to repay debts ahead of schedule to the state budget.

In case project sponsors fail to repay debts on time to the Ministry of Finance for any reason, the Ministry of Finance will report to the Government for consideration and handling. Project sponsors are liable under national laws.

7. For projects required to re-borrow, project sponsors must pay the loan interest rate comprising:

- Interest rate on OECF loans and service fees collected by OECF as stipulated in the credit agreement.

- Fees charged by the Tokyo Bank.

- Service fee of the Vietnam Bank for Foreign Trade 0.07% per annum.

- Service fee of the Investment Development General Department 0.20% per annum.

Depending on actual circumstances, the service fees of the Vietnam Bank for Foreign Trade and the Investment Development General Department may be reviewed and adjusted accordingly.

8. Methods of loan withdrawal and payment:

a) Commitment method:

This method is applied for loan withdrawal to purchase goods and services from foreign countries under contracts denominated in foreign currencies. Payment is made through a letter of credit (L/C), with OECF issuing a commitment letter guaranteeing repayment for payments made against the L/C.

(The diagram of this method is attached as Appendix 1).

- The Project Sponsor submits to the Ministry of Finance a copy of the signed contract with the supplier. Within seven working days of receiving the contract, the Ministry of Finance informs the Project Sponsor about the contract review results, including the portion to be paid via L/C.

- Upon receipt of the Ministry of Finance's notification, the Project Sponsor requests the Vietnam Bank for Foreign Trade to open an L/C. Within seven working days of receiving the request, the Vietnam Bank for Foreign Trade requests the Tokyo Bank to open an L/C to settle the amounts specified in the contract.

- Upon receipt of OECF's notification confirming the issuance of the commitment letter, the L/C becomes effective.

The process of payment under the Letter of Credit (L/C) is carried out as follows:

- After receiving the payment request accompanied by a report on completed works and necessary documents from the supplier, the Project Owner checks, reviews, and confirms, sending it to the Ministry of Finance (Investment Development General Department). Within seven working days, if there is no different opinion from the Ministry of Finance regarding the confirmation of the Project Owner, the supplier sends the payment request to the bank serving them. Payment under the L/C will be made.

- Upon receiving the notification from OECF about the withdrawal of loan funds, the Vietnam Bank for Foreign Trade immediately informs the Ministry of Finance (Department of Foreign Finance and Investment Development General Department). The Ministry of Finance proceeds with recording state budget revenue and expenditure for project disbursement or lending.

b) Repayment Method:

This method is applied when the Project Owner pays in advance to the supplier using its own capital and then requests OECF to repay the amount lent with borrowed funds.

(The diagram of this method is outlined in Appendix 2 and Appendix 3 attached.)

- After receiving the notification from the Ministry of Finance regarding the review of the contract between the Project Owner and the supplier (as stipulated in the guarantee method), the supplier performs their obligations according to the Contract with the Project Owner.

- After receiving the payment request from the supplier (including the advance capital and progress payment as specified in the contract):

+ For projects under the budget disbursement category, the Project Owner requests the Ministry of Finance (Investment Development General Department) to provide advance budget capital for payment to the supplier.

+ For projects under the re-lending category, the Project Owner mobilizes its own capital or borrows from a bank to pay the supplier.

- After receiving all invoices, payment documents, and materials from the supplier, the Project Owner checks and sends the Ministry of Finance (Department of Foreign Finance and Investment Development General Department) a repayment request (with OECF loan funds) along with payment documents and the supplier's confirmation of receipt of payment.

- Within seven working days, the Ministry of Finance (Department of Foreign Finance) sends OECF a repayment request including the repayment request, a summary of work, the Project Owner's requirements, payment documents from the Project Owner, and the supplier's confirmation of receipt of payment.

The amount requested for repayment in Japanese Yen is converted at the exchange rate between the Vietnamese Dong and the Japanese Yen on the day prior to the request date.

- Upon receiving the notification that the OECF loan has been withdrawn, the Vietnam Bank for Foreign Trade reports to the Ministry of Finance, which then proceeds with recording state budget revenue and:

+ Recording disbursement of investment capital for projects under the budget disbursement category, while recovering the advanced capital.

+ Recording disbursement for the Project Owner to borrow for projects under the re-lending category so that the Project Owner can repay the advanced or borrowed bank capital.

c) Direct Payment Method:

This method is applied when payment under the L/C is unsuitable or difficult for the borrower to make payments to the supplier.

After receiving the payment request from the supplier, the borrower sends a payment request together with the required documents to OECF.

Upon verifying valid documents and receiving service fees, OECF will transfer the money into a special account in Japanese Yen opened by the borrower at the Japanese Bank. The Japanese Bank transfers the money to the supplier according to the terms of the Contract between the borrower and the Japanese Bank.

d) Special Account Method:

OECF advances a sum of money to the borrower and may supplement this amount from the loan into a special account opened by the borrower to allow the borrower to pay small expenses of the supplier or related project costs such as training, air tickets, other expenses, etc.

Subsequently, the repayment method will be applied.

9- The domestic funds for the Project Owners to pay in advance to suppliers, which will later be repaid with OECF loan funds (for the repayment method) are handled as follows:

- For projects under the budget disbursement category, this capital is guaranteed by the budget. The Project Owner requests the Ministry of Finance to provide advance capital. The Ministry of Finance recovers the advanced capital immediately after obtaining OECF loan funds.

+ Conditions for the Project Owner to provide advance capital to the supplier are carried out according to the payment terms in the Contract.

+ Conditions and documents for obtaining payment capital with OECF according to the provisions of the Credit Agreement.

- For projects under the re-lending category, the Project Owner mobilizes all legitimate sources of capital to ensure availability, borrowing from a bank if insufficient. Interest on this bank loan is recorded in the construction cost.

10- Auditing is implemented according to Circular No. 09 TC-NH dated June 20, 1994, jointly issued by the State Bank of Vietnam and the Ministry of Finance.

III. IMPLEMENTATION ORGANIZATION

1- The Vietnam Bank for Foreign Trade and the Investment Development General Department (Ministry of Finance) provide detailed guidance to Project Owners on international payment procedures, disbursement, and lending.

2- The Vietnam Bank for Foreign Trade reports quarterly to the Ministry of Finance and the State Bank of Vietnam on the situation of loan withdrawals, interest and principal repayments to OECF.

3- Project Owners report quarterly and annually to the Ministry of Finance, the investment management agency, and the National Planning Commission on the situation of receiving, using, and repaying loan funds.

4- The Ministry of Finance and the State Bank of Vietnam regularly and randomly inspect the management and use of loan funds by Project Owners and the Vietnam Bank for Foreign Trade. If misuse of loan funds is discovered, the transferred funds may be recovered or the transfer temporarily halted for resolution.

5- During the period from the issuance of this Circular until January 1, 1995 (when the Investment Development General Department begins operations), the management of disbursement and lending is carried out as follows:

- For projects under the budget disbursement category, the Ministry of Finance transfers capital to the Vietnam Investment Development Bank for disbursement to Project Owners.

- For projects under the re-lending category, the Ministry of Finance transfers capital to the Vietnam Investment Development Bank for Project Owners to re-borrow. The Vietnam Investment Development Bank receives a service fee of 0.2% per annum on the outstanding loan balance.

IV. IMPLEMENTATION PROVISIONS

This Circular takes effect from the date of issuance.

During implementation, based on actual circumstances (projects to be signed between Vietnam and OECF in future fiscal years), if there are specific issues, the Ministry of Finance will provide separate guidance. If there are any difficulties, units must promptly reflect them to the Ministry of Finance and relevant agencies for research and resolution.

ANNEX 1

PAYMENT BY GUARANTEE METHOD

PART I. OPENING OF LETTER OF CREDIT AND ISSUANCE OF GUARANTEE LETTER:

(9)

(7)

(8)

(1) (5) (6) (10)

 

(4) (10)

(3) (4)

 

 

1. Credit Agreement

2. SIGNING THE CONTRACT.

3. The Project Owner sends the contract to the Ministry of Finance for examination and review.

4. Notification of the result of reviewing the contract. Including the portion of capital to be paid through Letter of Credit.

5. Request to open Letter of Credit to pay amounts specified in the contract.

6. Request to open Letter of Credit

7. The Tokyo Bank opens Letter of Credit (Letter of Credit not yet effective)

8. Request to issue Guarantee Letter

9. Issuance of Guarantee Letter (Letter of Credit becomes effective)

10. Notification of issuance of Guarantee Letter.

PART II: PAYMENT:

 

(6) (7)

(5)

(8) (9)

(9)

 

 

(9)

(3) (4)

(1) (2) (10)

 

 

 

1. Payment Proposal.

2. Confirmation of completed works for payment.

3. Payment Proposal

4. Request for repayment of capital.

6. Request for withdrawal of capital.

7. Withdrawal of loaned capital after inspection.

8. Repayment of capital.

9. Notification after withdrawal of capital.

10. Processing of income and expenditure records for disbursement or lending.

ANNEX 2

PAYMENT BY REPAYMENT METHOD
(For projects with capital disbursement)

(11)

(13) (12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Credit Agreement

2. Signing of Contract

3. After the contract becomes effective, implement the contract.

4. Payment Proposal (including advance payment, followed by periodic payments according to the contract), amount proposed in Vietnamese Dong.

5. Project Owner requests (advance) capital.

6. Capital Disbursement (Advance).

7. Payment (Vietnamese Dong).

8. Invoice, payment documents, settlement materials.

9. Submit request for repayment, along with all payment documents in Vietnamese Dong.

10. Convert from Vietnamese Dong to Japanese Yen according to the exchange rate on the day before submitting the repayment request in Japanese Yen including one request, one summary of work, attached with the project owner's request, payment confirmation documents of the project owner, supplier's receipt confirmation.

11. Payment (Yen). Loan begins to accrue.

12. Transfer funds.

13. Notification of fund transfer.

14. Transfer funds.

15. Disburse funds to the project, recover advance.

ANNEX 3

PAYMENT BY REPAYMENT METHOD.

(For projects requiring re-loans)

 

 

(11)

 

 

 

(13) (12)

 

 

(14)

 

(9) (15)

 

(5)

(6)

(16)

(2) (3) (4) (7) (8)

 

1. Credit Agreement

2. Signing of Contract

3. Implementing the contract.

4. Payment proposal according to the contract.

5. Raise capital or apply for loans.

6. Raised capital or bank loan.

7. Payment.

8. Invoice, payment documents.

9. Request for repayment.

10. Request for repayment of money.

11. Payment.

12. Transfer funds.

13. Notification of fund transfer.

14. Transfer funds.

15. Lend.

16. Repayment of raised capital or loan repayment to the bank.

Higher-level authority of the project owner.

Project sponsors

CAPITAL INVESTMENT PLAN FOR YEAR 199...

Project:........................................

Place of Receipt:

- Higher-level authority of the project owner.

- U.B.K.H.N.N.

- Ministry of Finance (Department of State Budget).

- Investment Development General Department

- Foreign Trade Bank of Vietnam.

Local Department.

Project Owner

REPORT

SITUATION OF RECEIVING, USING, AND REPAYING OECF LOANS

Quarter... Year...

Project

Place of issuance:

- Ministry of Finance (Department of State Budget).

- U.B.K.H.N.N.

- Foreign Trade Bank.

- State Bank of Vietnam

VIETNAM FOREIGN TRADE BANK

REPORT

SITUATION OF WITHDRAWAL OF LOANS AND REPAYMENT OF OECF LOANS

Quarter…Year…

Place of Receipt:

- Ministry of Finance (Department of State Budget).

- Investment Development General Department

- State Bank of Vietnam