Circular No. 108/2003/TT-BTC dated November 07, 2003 of the Ministry of Finance guiding the financial mechanisms applicable to environmental sanitation projects funded with official development assistance (ODA) capital sources

CIRCULAR

GUIDING THE FINANCIAL MECHANISMS APPLICABLE TO ENVIRONMENTAL SANITATION PROJECTS FUNDED WITH OFFICIAL DEVELOPMENT ASSISTANCE (ODA) CAPITAL SOURCES

Pursuant to the Governments Decree No. 90/1998/ND-CP of November 7, 1998 promulgating the Regulation on foreign loan borrowing and debt repayment;

Pursuant to the Governments Decree No. 17/2001/ND-CP of May 4, 2001 promulgating the Regulation on management and use of official development assistance sources;

Pursuant to the Governments Decree No. 77/2003/ND-CP of July 1, 2003 prescribing the functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Finance Ministers Decision No. 02/2000/QD-BTC of January 6, 2000 promulgating the Regulation on re-lending of the Governments foreign loan/aid capital;

Pursuant to the Governments Official Dispatch No. 1073/CP-QHQT of August 12, 2003 approving the principles for adjustment of financial mechanisms applicable to ODA-funded environmental sanitation projects;

The Ministry of Finance hereby guides the implementation thereof as follows:

I. GENERAL PROVISIONS

A. ODA-FUNDED PROJECTS IN THE FIELD OF ENVIRONMENTAL SANITATION INCLUDE:

- Projects on water drainage and waste water treatment in cities, towns and population quarters;

- Projects on treatment of urban garbage and solid waste;

- Projects on treatment of medical waste and environmental sanitation in hospitals;

- Projects on treatment of industrial waste water, solid waste and gaseous waste in industrial parks, export-processing zones and hi-tech parks;

The above-stated projects may stand independently or constitute separate environmental sanitation components of a multi-domain investment project/program. The environmental sanitation components of mixed projects/programs are also entitled to the application of corresponding financial mechanisms as prescribed in this Circular.

B. DOMESTIC FINANCIAL MECHANISMS APPLICABLE TO ODA-FUNDED PROJECTS IN THE FIELD OF ENVIRONMENTAL SANITATION:

Basing itself on the nature and specific conditions of each project and each locality, as well as the

1. For projects on water drainage and treatment of waste water in urban centers and population quarters, the applicable mechanism shall be as follows: the projects ODA capital shall be wholly allocated from the State budget (the central budget) while their reciprocal capital shall be apportioned from the local budgets.

2. For projects on treatment of urban garbage and solid waste, the applicable mechanism shall be as follows: the State budget (the central budget) shall re-lend part of the ODA capital in strict accordance with the conditions on foreign borrowing and allocate part of ODA loan at a proportion suitable to the debt-repayment capability of each project; and the projects reciprocal capital shall be apportioned from the local budgets and the project owners.

The Ministry of Finance shall assume the prime responsibility for, and coordinate with the Ministry of Planning and Investment in, considering the projects on a case-by-case basis and submitting them to the Prime Minister for decision on the above-stated proportion of allocated/re-lent ODA capital.

In cases where the projects on treatment of urban garbage and solid waste are funded with non-refundable ODA capital, they shall be entitled to the mechanism that aid capital shall be wholly allocated from the State budget (the central budget) to the projects and the projects reciprocal capital shall be apportioned from the local budgets and the project owners.

3. For projects on treatment of medical waste and environmental sanitation in hospitals, the applicable mechanism shall be as follows: ODA capital shall be wholly allocated from the State budget (the central budget) to the projects. For projects invested by ministries or central branches, the projects reciprocal capital shall be allocated from the State budget (the central budget) under the managing ministries or branches plans on capital construction funding approved annually. For projects invested by localities, the reciprocal capital shall be apportioned from the local budgets.

4. For projects on treatment of industrial waste water, solid waste and gaseous waste of industrial parks, export-processing zones and hi-tech parks, the applicable mechanism shall be as follows: ODA loans shall be wholly re-lent from the State budget (the central budget) to owners of the projects in industrial parks, export-processing zones or hi-tech parks in strict accordance with the conditions on foreign loans by the Government (loan interest rates and loan terms). The projects owners shall have to reimburse the loan capital to the State budget (the central budget) in strict accordance with the re-lending agreement and pay domestic re-lending charges to the agencies authorized by the Finance Ministry to re-lend capital (the re-lending agencies) according to current regulations. The projects reciprocal capital shall be apportioned by their owners.

For projects in the field of environmental sanitation of industrial parks, export-processing zones or hi-tech parks, funded with non-refundable ODA capital, the applicable mechanism shall be as follows: the aid capital (principal capital) shall be wholly re-lent from the State budget to the projects. The project owners shall not have to pay interests but have to reimburse the principal capital to the State budget and pay re-lending charges according to regulations. The re-lending terms (including the grace period) shall be determined in compatibility with the capital-recovery period stated in the approved feasibility study reports of the programs/projects. The projects reciprocal capital shall be apportioned by their owners.

5. Currencies used for the re-lending shall be the foreign currencies stated in the loan agreements signed with donors. Projects may reimburse these loans in Vietnam dong at the exchange rate at the reimbursement time according to the current regulations of the Finance Ministry.

6. In cases where international treaties on ODA, already signed with donors, contain agreements on domestic financial mechanisms applicable to projects in the field of environmental sanitation which are different from the principles prescribed in Section I.B of this Circular, the agreements in international treaties on ODA already signed with donors shall apply.

II. SPECIFIC PROVISIONS

A. APPLICATION AND REGULATION SCOPE OF FINANCIAL MECHANISMS FOR ENVIRONMENTAL SANITATION PROJECTS

1. For projects which are newly included into the list of those entitled to foreign donation or projects for which agreements have been signed with foreign donors but specific financial mechanisms have not yet been determined, the provisions of the above-stated Section I.B shall apply.

2. For projects which have already been included into the list of those entitled to donation or projects for which agreements have been signed with foreign donors, if the financial mechanisms, which are different from the provisions in Section I.B were approved by the Government, have been or are being applied thereto, new mechanisms shall apply according to the following handling principles:

a/ For projects formerly entitled to the application of re-lending mechanisms and now entitled to the full ODA capital allocation from the State budget (Point 1 and Point 2 for projects funded with non-refundable aid capital and Point 3 of Section I.B): The Ministry of Finance shall record the unpaid or undue principal capital already allocated to the project owners, and at the same time, write off the arising interest and charge amounts not yet paid. The principals, interests and charges already paid shall not be refunded to the re-lending agencies.

b/ For projects formerly entitled to the application of the mechanism of wholly re-lending ODA capital and now entitled to partial allocation and partial re-lending thereof from the State budget (Point 2 of Section I.B): The project owners must re-calculate capital-recovery plans for the projects according to the re-lending conditions which are compatible with the conditions for the borrowing of foreign preferential loans (with the allocated/re-lent capital proportion being specifically determined) and send such plans to the Ministry of Finance and the Ministry of Planning and Investment. The Ministry of Finance shall assume the prime responsibility for, and coordinate with the Ministry of Planning and Investment in, studying and submitting them to the Prime Minister for consideration and decision.

B. PROCEDURES FOR ADJUSTMENT

1. For projects formerly entitled to the application of the mechanism of re-lending ODA capital and now entitled to partial or full allocation thereof by the State budget:

- The re-lending agencies shall carry out procedures for the liquidation of re-lending contracts with project owners and send the copy of the liquidation reports to the Ministry of Finance, clearly determining the foreign loans already disbursed and acknowledged as the projects debts (the principals). On the basis of the above-stated liquidation reports, the Ministry of Finance shall carry out procedures to convert into capital additionally allocated with purposes to the managing agencies being localities or capital allocated beyond the estimates to the managing agencies being ministries or branches via the State budget.

- On the basis of the vouchers on capital allocation of the Ministry of Finance (written approval of the cost estimates, spending order), the provincial/municipal Finance Services of the localities shall record the increase of State budget capital for the project owners; the ministries and branches shall make the accounting of allocated budget capital with ODA-funded project owners.

2. For projects subject to the adjustment of the re-lending conditions (from the re-lending of the whole ODA capital to partial allocation and partial re-lending thereof, or adjustment of re-lending conditions): The re-lending agencies shall have to revise environmental sanitation projects and report thereon to the Ministry of Finance for consideration and adjustment of the financial mechanism for each project.

III. IMPLEMENTATION ORGANIZATION

This Circular takes effect 15 days after its publication in the Official Gazette. For projects subject to the adjustment of financial mechanisms from the re-lending of the whole ODA capital to partial allocation and partial re-lending thereof, the official dispatches and new financial plans must be sent to the re-lending agencies for the latter to revise and report thereon to the Ministry of Finance and the Ministry of Planning and Investment for submission to the Prime Minister for consideration and decision before June 30, 2004. Past this time limit, if the project owners still fail to send their new financial plans, they shall be considered as having no requests for adjustment and shall be entitled to apply the mechanisms approved earlier.

The project-managing ministries and local Peoples Committees shall have to notify this Circular to owners of ODA-funded projects in the field of environmental sanitation for them to know and coordinate with the Ministry of Finance in directing the implementation under to the guidance therein.

If any problems arise in the course of implementing this Circular, the managing ministries and Peoples Committees and project owners are requested to immediately report them to the Ministry of Finance and the Ministry of Planning and Investment for consideration and settlement.