Circular No. 95TC/DT guiding the management of borrowed capital from the Japan Overseas Economic Cooperation Fund (OECF) for construction projects

CIRCULAR

DIRECTED BY THE MINISTRY OF FINANCE DECREE NO. 95 TC/DT ON NOVEMBER 14, 1994 GUIDING THE MANAGEMENT REGIME FOR LOAN FUNDS FROM THE JAPANESE OVERSEAS ECONOMIC COOPERATION FUND (OECF) FOR BASIC CONSTRUCTION PROJECTS

BASED ON THE GOVERNMENT DECREE NO. 117-CP OF OCTOBER 20, 1994 ISSUING THE REGULATIONS ON INVESTMENT AND CONSTRUCTION MANAGEMENT, THE GOVERNMENT DECREE NO. 58-CP OF AUGUST 30, 1993 ISSUING THE REGULATIONS ON FOREIGN DEBT MANAGEMENT AND REPAYMENT, AND THE GOVERNMENT DECREE NO. 20-CP OF MARCH 15, 1994 ISSUING THE REGULATIONS ON MANAGEMENT AND USE OF OFFICIAL DEVELOPMENT ASSISTANCE FUNDS;

BASED ON THE CREDIT AGREEMENTS ALREADY SIGNED BETWEEN THE GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIETNAM AND THE JAPANESE OVERSEAS ECONOMIC COOPERATION FUND (OECF);

AFTER CONSULTATION WITH THE STATE PLANNING COMMITTEE AND THE NATIONAL BANK OF VIETNAM;

THE MINISTRY OF FINANCE GUIDES THE MANAGEMENT REGIME FOR OECF LOAN FUNDS FOR BASIC CONSTRUCTION PROJECTS AS FOLLOWS:

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

1. ODA funds are foreign debts of the Government, therefore, all borrowed funds must be balanced against the state budget. The Ministry of Finance is responsible for balancing the loan funds into the state budget and to repay 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 allocation from the current state budget investment construction fund include infrastructure, social welfare projects, and other projects without the ability to recover capital as stipulated in the Government Decree No. 177-CP dated October 20, 1994.

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

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

4. The competent authority and project sponsor are responsible for preparing and submitting annual basic construction investment plans from these funds and necessary domestic counterpart funds according to the prescribed regulations.

5. Project sponsors are responsible for using funds for their intended purposes and in accordance with the conditions committed in the credit agreement. For projects that must re-borrow, the Project Sponsor is responsible for repaying debt (both principal and interest) as prescribed.

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 loan for OECF 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) handles the allocation and payment of funds for projects eligible for state budget allocation and provides loans for projects that must re-borrow.

For projects that must re-borrow, the Investment Development General Department is entitled to a service fee of 0.20% per annum on the outstanding re-borrowed debt balance.

3. Immediately after 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 withdrawal along with the payment notification from the Japanese Bank. The Ministry of Finance processes the record of state budget revenue and expenditure for fund allocation or loan disbursement.

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.

The annual basic construction investment plan of the project must fully reflect all sources of funds and the withdrawal schedule including:

a) OECF loan funds, which include:

- The portion paid in Japanese Yen.

- The 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 state budget investment construction plan.

- Projects that must re-borrow, the Project Sponsor prepares a plan to arrange state credit funds, other loan sources, and legally self-raised funds.

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 for OECF as authorized by the Ministry of Finance.

The Project Sponsor (for projects that must 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 the deadline specified in the credit agreement by one month.

Early repayment of debt to the state budget is encouraged.

In case the Project Sponsor fails to repay the debt on time to the Ministry of Finance for any reason, the Ministry of Finance will report to the Government for appropriate action. The Project Sponsor shall bear responsibility under national law.

7. For projects that must re-borrow, the Project Sponsor must pay the interest rate on the loan including:

- The interest rate on the OECF loan and service fees collected by OECF as stipulated in the credit agreement.

- Fees charged by the Tokyo Bank.

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

- Service fees 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 withdrawing funds for payment:

a) Commitment method:

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

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

- The Project Sponsor submits the signed contract with the supplier to the Ministry of Finance. Within seven working days after receiving the contract, the Ministry of Finance informs the Project Sponsor about the result of reviewing the contract, including the amount to be settled through the L/C.

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

- After receiving the notification from OECF confirming the issuance of the commitment letter, the L/C becomes effective.

The letter of credit payment process shall be 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 shall examine, consider, and confirm, then send 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 shall submit the payment request to the bank serving them. Payment under the letter of credit shall be made.

- Upon receipt of the notification from OECF regarding the withdrawal of loan funds, the Vietnam Bank for Foreign Trade shall immediately inform the Ministry of Finance (Department of Foreign Financial Affairs and Investment Development General Department). The Ministry of Finance shall proceed with recording state budget revenue and expenditure for project disbursement or lending.

b) Repayment Method:

This method applies when the Project Owner pays in advance to the supplier using its own capital, and subsequently requests OECF to repay the amount lent through borrowed funds.

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

- Upon receipt of the notification from the Ministry of Finance regarding the examination of the contract between the Project Owner and the supplier (as stipulated in the guarantee method), the supplier shall fulfill their obligations under the Contract with the Project Owner.

- Upon receipt of 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 shall request 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 shall mobilize its own resources or borrow from a bank to make payments to the supplier.

- After receiving all invoices, payment documents, and materials from the supplier, the Project Owner shall review and send to the Ministry of Finance (Department of Foreign Financial Affairs and Investment Development General Department) a repayment request (using OECF loan funds) along with payment documents and confirmation from the supplier that they have received the money.

- Within seven working days, the Ministry of Finance (Department of Foreign Financial Affairs) shall send to OECF a repayment request including the repayment demand, a summary of work, the Project Owner's request, payment documents from the Project Owner, and confirmation from the supplier that they have received the money.

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

- Upon receipt of the notification that the OECF loan has been withdrawn, the Vietnam Bank for Foreign Trade shall inform the Ministry of Finance, which shall proceed 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 through a letter of credit is unsuitable or difficult for the borrower to pay to the supplier.

After receiving the payment request from the supplier, the borrower shall send 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 opened by the borrower at the Japanese Bank. The Japanese Bank shall transfer the money to the supplier according to the terms of the Contract between the borrower and the Japanese Bank.

d) Special Account Method:

OECF shall pre-fund a certain amount into a special account opened by the borrower to enable the borrower to pay small expenses of the supplier or related project costs such as training, air tickets, other expenses, etc., which may be supplemented from the loan.

Subsequently, the repayment method shall be applied.

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

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

+ Conditions for the Project Owner to provide advance funding to the supplier shall be in accordance with the payment terms in the Contract.

+ Conditions and documents for obtaining payment funding from OECF in accordance with the Credit Agreement provisions.

- For projects under the re-lending category, the Project Owner shall mobilize all legitimate sources of capital to ensure availability, borrowing from a bank if insufficient. Interest on the bank loan for this amount shall be capitalized into the construction cost.

10- Auditing shall be conducted in accordance with Circular No. 09 TC-NH dated June 20, 1994, jointly issued by the State Bank of Vietnam and the Ministry of Finance.

III- IMPLEMENTATION

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

2- The Vietnam Bank for Foreign Trade shall report 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 shall report quarterly and annually to the Ministry of Finance, the competent investment management agency, and the National Planning Commission on the receipt, use, and repayment of loan funds.

4- The Ministry of Finance and the State Bank of Vietnam shall periodically 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), management and disbursement shall be carried out as follows:

- For projects under the budget disbursement category, the Ministry of Finance shall transfer capital to the Vietnam Development Bank for disbursement to the Project Owner.

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

IV - EFFECTIVE PROVISIONS

This Circular shall take effect from the date of issuance.

During the implementation process, based on actual circumstances (the projects will 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 so that the Ministry of Finance and relevant agencies can research and resolve them.