Circular No. 142/2011/TT-BTC dated October 20, 2011 of the Ministry of Finance guiding the financial management of loans borrowed from the Kuwait Fund and Saudi Fund

THE MINISTRY OF FINANCE

Circular No. 142/2011/TT-BTC of October 20, 2011, guiding the financial management of loans borrowed from the Kuwait Fund and Saudi Fund

Pursuant to the Law on the State Budget and the Law on Management of Public Debts;

Pursuant to Decree No. 79/2010/ND-CP of July 14, 2010, on management of public debts;

Pursuant to Decree No. 78/2010/ND-CP of July 14, 2010, on on-lending of the Government’s foreign loans;

Pursuant to Decree No. 60/2003/ND-CP of June 6, 2003, detailing and guiding the Law on the State Budget;

Pursuant to the Government’s Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

The Ministry of Finance guides the financial management of loans borrowed from the Kuwait Fund and Saudi Fund for projects as follows:

Part I

GENERAL PROVISIONS

Article 1. Subjects of application and scope of regulation

This Circular applies to agencies, organizations and persons engaged in the management and implementation of projects funded with loans borrowed by the Government from the Kuwait Fund for Arab Economic Development or the Saudi Fund for Development which are allocated (including cases in which loans are allocated as targeted supports from the central budget to provincial-level budgets) or on-lent from the state budget. The financial management, capital withdrawal, inspection, reporting, settlement and accounting of the state budget comply with this Circular.

Article 2. Interpretation of terms

1. Kuwait Fund means the Kuwait Fund for Arab Economic Development, an agency that provides development assistance capital of the State of Kuwait.

2. Saudi Fund means the Saudi Fund for Development, an agency that provides development assistance capital of the State of Saudi Arabia.

3. Loan agreements mean agreements on loan borrowing signed between the State or the Government of the Socialist Republic of Vietnam and the Kuwait Fund or Saudi Fund to finance development investment projects in Vietnam. These loan agreements are specific ODA treaties.

Article 3. General principles

1. Loans borrowed from the Kuwait Fund and Saudi Fund for projects constitute the Government’s foreign loans and shall be managed under the Law on Management of Public Debts, the Law on the State Budget and documents guiding these two laws, regulations on management of ODA capital and this Circular.

2. Loans  borrowed from the Kuwait Fund and Saudi Fund shall be allocated or on-lent from the central budget to finance projects based on the Prime Minister’s decision approving the list of projects calling for ODA capital and competent authorities’ investment decisions on the principle that loans will be allocated as targeted supports from the central budget to provincial-level budgets for investment projects to build local infrastructure facilities, while projects eligible for on-lending under the Law on Management of Public Debts will receive loans on-lent from the central budget.

3. For projects eligible for allocation of loans from the central budget, the Ministry of Finance shall repay these loans (both principle and interest) upon maturity to foreign parties. For projects eligible for loans on-lent from the central budget, within the prescribed time limit for repayment to foreign parties, project owners shall pay debts back to the Ministry of Finance for repayment to foreign parties.

4. Project owners shall arrange funds for payment of projects’ lawful expenses, including taxes, capital withdrawal charges, bank charges, insurance premiums, freights, warehousing charges and other lawful expenses arising in the course of project implementation. In case projects’ lawful expenses are ineligible for financing with foreign loans as provided in loan agreements, project owners shall arrange counterpart funds for prompt and full payment of these expenses.

5. Counterpart funds

a/ For projects eligible for allocation of loans from the state budget, counterpart funds shall be arranged by the relevant budget unit; for projects eligible for on-lending of the whole or part of loans from the state budget, counterpart funds shall be arranged by project owners. The arrangement and payment of counterpart funds must be in line with the schedule of disbursement of foreign capital.

b/ Counterpart funds include also funds for payment of taxes, capital withdrawal charges, bank charges, insurance premiums, freights, warehousing charges and other lawful expenses ineligible for financing with foreign loans as provided in loan agreements. Project owners may also use counterpart funds to pay auditing costs in case such costs are not paid by donors as provided in loan agreements.

c/ Project-implementing agencies shall arrange or propose competent authorities to arrange sufficient counterpart funds for projects so as to assure projects’ effectiveness and disbursement of foreign capital as scheduled.

6. Project-managing agencies and project owners shall manage and assure proper and effective use of capital according to loan agreements and domestic regulations on management of construction investment projects and ODA capital.

Part II

SPECIFIC PROVISIONS

Article 4. Principles on management and use of loans

1. Loans borrowed from the Kuwait Fund shall be used to finance investment items of a project at the rates specified in the loan agreement’s Supplementary Letter No. 1 on “The list of goods to be financed with loans”.

2. Loans borrowed from the Saudi Fund shall be used to finance investment items of a project at the rates specified in the loan agreement’s Annex No. 1 on “Withdrawal of capital”.

3. The financing rates specified in a loan agreement are calculated in proportion to investment items’ costs, exclusive of tax expenses, and may be changed under an agreement between the donor and the borrower. These financing rates shall apply to each withdrawal of capital for payment for relevant investment items so as to determine the amount of capital to be withdrawn from loans.

4. All withdrawals of capital from loans must be effected before the date (or extended date) of closing the lending account under the loan agreement.

5. It is prohibited to use loans to pay for goods not specified in the loan agreement.

Article 5. Conclusion of contracts and preparation for payment and disbursement

1. Procurement and bidding comply with loan agreements and current domestic regulations. In case of inconsistency between domestic regulations and a loan agreement, the latter prevails. The selection of contractors must be approved in advance by donors, unless donors, as provided in loan agreements, allow projects to select contractors first and seek donors’ approval later.

2. After concluding a contract, a project management unit shall send copies of the contract to the donor and the Ministry of Finance (the Debt Management and External Finance Department) for disbursement preparation. The donor shall record contractual information into its contract management system for monitoring the performance of and payment for the contract. The total amount paid by the donor for a contract must not exceed the foreign loan limit of such contract, unless adjustments are made to the contract under the donor’s approval.

Article 6. Principles on payment of foreign loans

The payment of foreign loans for projects complies with the State’s current regulations, loan agreements, the Ministry of Finance’s documents guiding the management and payment of construction investment capital and regulations on financial management of ODA capital, including this Circular.

Article 7. Modes of withdrawal of foreign capital

1. Projects’ lawful expenses shall be paid with foreign capital under the procedures for direct payment; refund; issuance of letter of commitment for payment for letter of credit; or payment via special accounts.

2. Procedures for direct payment

a/ Direct payment is a mode of payment by which the donor, at the borrower’s request, transfers money directly to a contractor/supplier of goods/services.

b/ To carry out procedures for direct payment, a project management unit shall send to the Ministry of Finance (the Debt Management and External Finance Department) one dossier set comprising the following documents:

- An official letter requesting capital withdrawal, enclosed with a capital withdrawal application, original summary sheets and documents required by the donor which are made according to forms No. 2-1 and 2-2 provided in Case II of the Kuwait Fund’s “Disbursement Procedures” documentation, for the Kuwait Fund, or forms No. 2-1 and 2-2 provided in the “Guidelines on procedures for disbursement of loans borrowed from the Saudi Fund” documentation, for the Saudi Fund.

- Copies of goods sale invoices or original payment requests of the contractor;

- A request for payment of investment capital;

- The original certification of the requested payment item, issued by the spending control agency.

c/ Within 5 working days after receiving a complete and valid dossier, the Ministry of Finance (the Debt Management and External Finance Department) shall sign/co-sign the capital withdrawal application for sending to the donor for consideration. If approving the withdrawal application, the donor shall transfer money directly to the contractor’s account.

3. Procedures for refund

a/ Refund is a mode of payment by which the donor transfers money from the loan account to an account designated by the borrower to refund money amounts already paid by the borrower/project-implementing agency with its own capital for projects’ lawful expenses eligible for financing with loan capital.

b/ A special form of refund is retrospective payment, a mode of payment by which the donor finances lawful expenses arisen before the validity date of a project and already paid by the borrower with its own capital. Retrospective payment may apply only if the donor so agrees in a financing agreement with specific terms on the period of time and money amount eligible for retrospective payment.

c/ When wishing to withdraw capital according to the refund procedures, a project management unit shall send to the Ministry of Finance (the Debt Management and External Finance Department) one dossier set comprising the following documents:

- An official letter requesting capital withdrawal, enclosed with a capital withdrawal application, original summary sheets and documents required by the donor which are made according to forms No. 1-1 and 1-2 provided in Case I of the Kuwait Fund’s “Disbursement Procedures” documentation, for the Kuwait Fund, or forms No. 1-1 and 1-2 provided in the “Guidelines on procedures for disbursement of loans borrowed from the Saudi Fund”, for the Saudi Fund.

- The contractor’s/beneficiary’s certification of receipt of capital or documents on money transfer to the contractor’s/beneficiary’s account.

- The capital withdrawal application must clearly state the name and account number of the unit which has made advance payment. For amounts advanced by the state budget, names and account numbers of the state budget unit which has made advance payment must be certified by the spending control agency;

-  A request for payment of investment capital;

- The original certification of the requested payment item, issued by the spending control agency.

d/ Within 5 working days after receiving a complete and valid dossier, the Ministry of Finance shall sign/co-sign and send the capital withdrawal application to the donor.

e/ For withdrawals for refund/retrospective payment to state budget units which have made advance payment (or to other budget sources), withdrawn amounts must be immediately remitted to the budget units which have made advance payment.

4. Procedures for issuance of letter of commitment

a/ Issuance of letter of commitment is a mode of payment by which the donor, at the borrower’s request, issues a revocable or irrevocable letter of commitment to guarantee that it will refund the bank issuing the letter of credit (L/C) to be opened by the project owner (for payment for the project’s import of goods and equipment) after that bank pays for the L/C.

b/ When wishing to withdraw capital according to the procedures for issuance of  letter of commitment, a project management unit shall send to the Ministry of Finance (the Debt Management and External Finance Department) one dossier set comprising the following documents:

- An official letter requesting the opening of an L/C and issuance of a letter of commitment, enclosed with a capital withdrawal application, original summary sheets and documents required by the donor which are made according to forms provided in Case III of the Kuwait Fund’s “Disbursement Procedures” documentation, for the Kuwait Fund, or forms A and B provided in the “Guidelines on procedures for disbursement of loans borrowed from the Saudi Fund” documentation, for the Saudi Fund;

- The draft L/C.

c/ Within 5 working days after receiving a complete and valid dossier, the Ministry of Finance shall sign/co-sign the withdrawal application to request the donor to issue a letter of commitment.

5. Procedures for payment via special accounts

In some special cases, the donor may permit the application of the mode of payment via special accounts (turn-over accounts) in order to suit particular characteristics of projects having many small-value bidding packages or contracts or being implemented in large and difficult-to-access areas. In these cases, the payment via and management of special accounts comply with current regulations on financial management of ODA-funded projects. Particularly, spending control agencies’ certification of requested payment items must be made in advance.

Article 8. Payment exchange rates and bank charges

1. Payment exchange rate is the market exchange rate applied by the donor to convert the loan currency into the currency requested for payment.

2. In case the donor’s bank collects money transfer charges, project management units shall make agreement with contractors on funds for payment of such charges, refraining from using loans unless otherwise provided in loan agreements.

Article 9. State budget accounting

1. Loans borrowed from the Kuwait Fund and Saudi Fund must be fully and promptly accounted into the state budget as revenues of the central budget which are additionally allocated as targeted supports for local budgets (for projects implemented by provincial-level administrations and eligible for allocation of loans as targeted supports from the central budget to provincial-level budgets) or on-lent (for projects eligible for on-lending of loans).

2. Based on the donor’s disbursement notices, the Ministry of Finance shall carry out procedures for recording the receipt and spending of foreign loans (as allocated or on-lent amounts depending on the financial mechanism applicable to projects under competent authorities’ approval) to projects funded with loans.

3. For projects implemented by provincial-level administrations, in pursuance to documents sent from the Ministry of Finance, provincial-level Finance Departments shall make budget collection orders and spending orders which shall be sent by capital users to provincial-level State Treasuries. Provincial-level State Treasuries shall control the spending of foreign capital according to the Law on the State Budget and regulations on financial management of ODA capital. Documents serving as grounds for recording spending items are the Ministry of Finance’s spending orders, enclosed with detailed information on the number of relevant loan agreements, names of projects and project owners, money amounts paid for each project and applied exchange rates.

Article 10. Project settlement

Projects funded with loans borrowed from the Kuwait Fund or Saudi Fund shall make settlement for every budgetary year according to the Ministry of Finance’s Circular No. 210/2010/TT-BTC of December 20, 2010, providing the settlement of capital construction investment capital belonging to the state budget, and make settlement upon project completion according to the Ministry of Finance’s Circular No. 19/2011/TT-BTC of February 14, 2011, providing the settlement of completed projects funded with state budget capital, and documents supplementing, amending or replacing these circulars (if any).

Article 11. Inspection, reporting and audit

1. Managing agencies and project owners/project management units shall report on the project implementation and payment and disbursement schedules according to current regulations on reporting on the implementation of ODA-funded projects or when problems arise for coordinated settlement by related agencies.

2. Managing agencies shall assume the prime responsibility for, and coordinate with related agencies and the Ministry of Finance in, regularly and irregularly inspecting the management and use of loans. If detecting cases of using loans in contravention of regulations, they shall recover capital amounts already transferred or suspend capital transfer so as to work out appropriate handling measures.

3. Project management units shall take the main charge for the provision of information and data to inspection, examination and audit teams of donors and the Vietnamese Government.

4. Project owners/project management units shall preserve payment dossiers and documents under current domestic regulations on payment of capital construction investment capital from the date of termination of loan agreements according to regulations on archive of documents to serve the monitoring, evaluation and auditing of programs when requested.

5. Projects funded with foreign loans must be audited every year and upon project completion by the State Audit or independent audit firms. Project owners/project management units shall hire audit firms under current regulations. Copies of audit statements must be sent to finance agencies of the same level and the State Audit (for projects not audited by the State Audit). Auditing costs, if ineligible to be financed by donors as provided in loan agreements, shall be paid by project owners with counterpart funds.

Article 12. Responsibilities of related agencies

1. Project-managing agencies shall:

a/ Thoroughly study characteristics and advantages of assistance capital from the Kuwait Fund and Saudi Fund when proposing projects to borrow loans from these two funds. Direct project owners in elaborating, appraising and approving projects according to current regulations on management of ODA capital.

b/ Assure efficient use of loans borrowed from the Kuwait Fund or Saudi Fund for projects. Strictly comply with relevant commitments stated in loan agreements.

c/ Arrange fully and promptly counterpart funds for project implementation (for projects eligible for allocation of loans from the central budget), including counterpart funds for payment of expenses ineligible for financing with foreign loans such as expenses for ground clearance, taxes, money transfer charges, bank charges, commitment charges when withdrawing capital by the mode of issuance of letter of commitment, salaries and allowances of and working offices for counterparts’ employees and warehousing charges; promptly approve annual financial plans and capital withdrawal plans so as to assure the disbursement of foreign capital as scheduled.

d/ Perform and direct project owners to perform financial management of projects according to current regulations and this Circular;

e/ Discharge their responsibilities and tasks according to the law on construction investment and the law on management of ODA capital.

2. Project owners and project management units shall:

a/ Elaborate capital plans and financial plans for each year and the whole project implementation duration for submission to competent authorities for approval and arrangement of funds or take the initiative in arranging fully and promptly funds for payment of projects’ lawful expenses;

b/ Carry out take-over tests of the volume and quality of works, goods and services for proposing related agencies to make prompt, full and accurate payment of projects’ lawful expenses.

c/ Conduct accounting of incomes (if any) and expenses of projects; preserve projects’ books, dossiers and relevant documents according to commitment with donors in loan agreements and current domestic regulations. Make and report settlement results to authorities competent to approve projects’ settlement according to regulations on project settlement.

d/ Conduct annual audit and audit upon project completion according to regulations.

e/ Discharge their responsibilities and tasks according to the law on construction investment and the law on management of ODA capital.

3. The Ministry of Finance shall:

a/ Organize the negotiation and conclusion of loan agreements with the Kuwait Fund or Saudi Fund to finance projects according to the law on management of public debts.

b/ At the proposal of project owners/project management units, withdraw capital from foreign loans to pay for projects according to loan agreements, domestic regulations and this Circular.

c/ Arrange state budget capital for repayment of foreign loans upon maturity for projects eligible for allocation of loans from the state budget or recover capital from projects elegible for on-lending of loans from the state budget for repayment of foreign loans.

d/ Effect spending control (for projects eligible for allocation of loans from the state budget) or authorize the spending control (for projects subject to on-lending of loans from the state budget) according to regulations to serve as a basis for withdrawal of capital from foreign loans.

e/ Guide the financial management of ODA capital in general and loans borrowed from the Kuwait Fund and Saudi Fund in particular for projects funded with loans borrowed from the Kuwait Fund or Saudi Fund according to regulations and as requested by project owners and project management units; settle or propose competent authorities to settle arising matters concerning regulations on financial management of ODA-funded projects.

Article 13. Organization of implementation

This Circular takes effect on December 15, 2011.

Any problems arising in the course of implementation should be reported to the Ministry of Finance for timely consideration, supplementation and modification.-

For the Minister of Finance
Deputy Minister
TRUONG CHI TRUNG