THE MINISTRY OF FINANCE
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SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No. 132/2008/TT-BTC
Hanoi, December 29, 2008
 
CIRCULAR
GUIDING THE LOAN MANAGEMENT MECHANISM APPLICABLE TO THE JAPAN INTERNATIONAL COOPERATION AGENCY (JICA)'S SPECIALIZED CREDIT PROGRAM
THE MINISTRY OF FINANCE
Pursuant to the Government's Decree No. 134/2005/ND-CP of November 1, 2005, promulgating the Regulation on borrowing of foreign loans and repayment of foreign debts, and the Government's Decree No. 131/2006/ND-CP of November 9, 2006, promulgating the Regulation on management and use of official development assistance (ODA );
Pursuant to Credit Agreements concluded between the Government of the Socialist Republic of Vietnam and the Japan Bank for International Cooperation, now the Japan International Cooperation Agency (JICA), to finance the Rural Infrastructure Development and Living Standard Improvement Program;
Pursuant to the Government's Decree No. 118/2008/ND-CPof November 27. 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;
The Ministry of Finance guides the mechanism for management of JICA loans for the Rural Infrastructure Development and Living Standard Improvement Program as follows:
Part I
GENERAL PROVISIONS
1. The Rural Infrastructure Development and Living Standard Improvement Program (below referred to as the specialized credit program) is a program funded with JICA loans to build infrastructure facilities in localities nationwide, covering the sectors specified in the Agreements.
2. The specialized credit program's loans are government loans which shall be managed under the State Budget Law, its guiding documents and current spending regulations. The Ministry of Finance shall repay due loans (both principal and interest) to foreign partners. These loans shall be included in the state budget for allocation to local infrastructure construction investment projects in the form of targeted additional allocations from the central budget to local budgets. For the specialized credit program's sectors and projects which are funded under the re-lending mechanism, the Regulation on re-lending from the Government's foreign loans and aid. promulgated together with the Prime Minister's Decision No. I81/2(K)7/QD-TTg of November 26. 2007. will apply.
3. Program implementation organization: The specialized credit program consists of different component projects in the sectors of rural transport, rural electricity, daily-life water supply and irrigation. Localities shall be assigned to act as investors of local component projects. The program owner shall set up a central program management board to manage and supervise the program implementation. Each province covered by the project shall, under the program owners guidance, set up a project management unit (below referred to as provincial JICA project management unit) to manage and supervise the implementation of JICA projects in the locality.
a/ The Ministry of Planning and Investment, as the program owner, shall plan the use of the specialized credit program's loans for projects. It shall set up the Central Program Management Board to direct and supervise the program implementation and guide localities in managing the implementation of projects and allocating contributed domestic capital under regulations.
b/ The Vietnam Joint-Stock Commercial Bank for Foreign Trade (Vietcombank), which is authorized by the Ministry of Finance to conduct foreign payment operations, shall sign banking agreements with foreign partners on the basis of JICA loan agreements.
c/ Provincial-level People's Committees and local state management agencies shall manage the use of loans for proper purposes and with efficiency under the guidance of the program owner and the Ministry of Finance in accordance with current regulations on management of domestic capital construction investment projects and commitments under the Credit Agreements signed with JICA.
4. This Circular applies to all JICA-funded specialized credit programs. Particularly for forestation. the Finance Ministry's Circular No. 104/2002/TT-BTC of November 15. 2002. guiding the mechanism for management of JICA loans for forestation under the specialized credit program, would apply.
Part II
SPECIFIC PROVISIONS
1. JICA loans
1.1. JICA loan accounts for 75-85% of the value of a work and shall be used for:
a/ Hiring foreign consultants;
b/ Procuring local and foreign supplies, goods and equipment for the work;
c/ Paying for work construction volumes and program or project implementation performed in the country;
d/ Paying charges for JICA loan withdrawal (at 0.1% of the withdrawn loan amount debited by JICA upon withdrawal);
d Paying sums of money which are retained till final settlement at the end of the warranty duration; refunding advances from local budgets within the time limit for JICA loan withdrawal under the Agreement;
1.2. JICA loans may not be used to pay ground clearance compensations; costs of exploration, survey and designing for project formulation; taxes, management expenses, domestic banking service charges and work insurance premiums.
2. Contributed domestic capital
2.1. Contributed domestic capital shall be covered by local budgets under current regulations on management of contributed domestic capital for ODA-funded works and projects, included in annual budgets or raised from other sources corresponding to the progress of disbursement of foreign capital in each plan period of the projects. This capital amount must account for 15-25% of the value of a work for:
a/ Paying ground clearance compensations; costs of exploration, survey and designing for project formulation: and management expenses (for the project construction process);
b/ Paying domestic banking service charges (paid for contractors);
c/ Paying indirect taxes on goods and services, applicable to ODA loan-funded programs and projects for distribution to local projects;
d/ Paying domestic expenses to importers: import entrustment charge, import tax. value-added tax (if any), expenses for the receipt, supply and transportation of goods from ports to works (for projects requiring imported goods) for distribution to projects using imported equipment;
e/ Paying work insurance premiums:
f/ Paying sums of money which are retained till the end of the warranty duration or final settlement;
g/ Making advances in case payment is made according to the refund method;
2.2. Domestic capital allocated by the program owner: The Ministry of Planning and Investment shall allocate domestic capital for paying the whole program's overhead expenses, covering:
a/ Program management expenses;
b/ Banking charges for consulting;
c/ Expenses for the program supervision, monitoring and assessment;
3. Economic contract-related procedures: The signing and approval of contracts comply with the Planning and Investment Ministry's guidance applicable to the specialized credit program, and the following regulations:
3.1. For contracts to hire consultants and contracts to procure imported goods, supplies and equipment:
a/ The Central Program Management Board shall organize bidding for and negotiation with eligible suppliers or consultancy service providers on contracts to hire consultants and contracts to procure goods, supplies and equipment for the program or works in accordance with the Agreement;
b/ Tax-related contractual terms comply with current tax regulations applicable to ODA-funded projects;
c/ The Central Program Management Board shall select units (below referred to as importers) and entrust them to conduct transactions, sign import contracts and carry out procedures for receiving goods and delivering them at the work sites. It shall directly sign contracts to hire foreign consultants for the whole program;
d/ After signing a contract, the importer shall submit it to the program owner for approval. JICA and the Ministry of Finance shall carry out contract approval procedures for contracts valued at the level specified in the Agreement. For contracts valued lower than the level prescribed in the Agreement, the importer shall send only a copy of the contract to the Central Program Management Board for monitoring.
e/ The Ministry of Finance shall inform Vietcombank of the contract approval for carrying out foreign procedures for payment to the foreign supplier or contractor (if any).
3.2. Contracts for construction volumes or program or project implementation performed by domestic contractors:
a/ After being assigned a JICA loan plan and informed of the program implementation by the Ministry of Planning and Investment, investors shall conduct bidding under the current Bidding Law and sign contracts with contractors;
b/ In special cases in which bidding is not conducted, the investment-managing agency shall issue a decision on contractor designation under current regulations and assign investors to sign contracts with contractors;
c/ A contract must indicate the funded JICA loan value;
d/ Tax-related contractual terms comply with current tax regulations applicable to ODA-funded projects;
e/ Right after signing a contract, the investor shall send a certified copy of the contract to the provincial JICA project management unit;
f/ For contracts valued at under JPY 0.5 billion (to be converted into Vietnam dong at the JPY/ VND exchange rate announced by Vietcombank at the time of contract signing), the provincial JICA project management unit is only required to notify and send a list of approved contracts to the Central Program Management Board and the Ministry of Finance. For JICA loan-funded contracts valued at JPY 0.5 billion or more (to be converted into Vietnam dong at the exchange rate as prescribed above), JICA and the Ministry of Finance shall carry out procedures for approval thereof.
g/ The Ministry of Finance shall pay only for the volumes under the contracts already notified to it. Payment from JICA loans shall be made in accordance with the progress of projects, not depending on provincial annual budget plans.
4. Capital withdrawal methods
a/ For contracts to hire foreign consultants and procure foreign equipment: Foreign currency expenses under contracts shall be paid in the form of capital withdrawn by letters of commitment or via a special account). Vietnam dong expenses shall be paid in the form of capital withdrawn by money transfer or refund.
b/ For contracts signed for procurement of domestic equipment or domestic construction, payment shall be made in the form of capita! withdrawal via the special account or refund according to the process specified in Section III below.
c/ Under the authorization of the Ministry of Finance. Vietcombank shall open a JPY special account and its interest account at Tokyo-Mitsubishi bank with the Ministry of Finance acting as the account owner. Vietcombank may conduct transactions via these accounts only at the request of the Ministry of Finance.
d/ The Ministry of Finance shall carry out procedures for the first and additional withdrawal of capital into the above special account in accordance with the Agreement. Payment documents are not required for the first capital withdrawal.
e/ The Ministry of Finance shall request Vietcombank to open special-purpose accounts corresponding to the special account and interest account under the name of the Ministry of Finance (the Foreign-Relations Finance Department) for monitoring and accounting the sums of money already withdrawn, the interest accrued on the special account, and subsequent debt payments.
Part III
PROCESS OF PAYMENT TO DOMESTIC CONTRACTORS
1. Entities eligible for payment
1.1. Works (below referred to as projects) eligible for payment under the specialized credit program are works included in JICA loan use plans allocated and notified to localities by the Ministry of Planning and Investment.
1.2. Eligible contractors are contractors named in decisions on the projects' successful bidders or designated to implement the projects under current regulations (below referred to as contractors).
2. Payment request dossiers
2.1. Investors requesting payment shall prepare a payment dossier comprising:
a/ All documents of request for JICA loan payment, made according to current payment procedures for domestic capital construction;
b/ The contract signed between the investor and contractor (a copy certified by the investor);
c/ The contractor's written request for payment (two originals), with the investor's approval;
d/ The list of amounts paid for the completed capital construction volumes (two originals), made by the State Treasury office in the locality where the transaction account is opened, indicating the sum of money requested to be paid with JICA loans;
e/ The written advance guarantee (in case of advance), made according to a set form;
2.2. Payment dossiers shall be submitted to provincial JICA project management units for handling under regulations.
3. Process of payment and additional capital withdrawal into the special account
3.1. Advance payment method: Advances shall be paid for contractors at the levels specified in the contracts. An advance request dossier must also comprise a copy of the written advance guarantee (this copy must be certified by the investor) issued by a prestigious commercial bank or a joint-venture bank accepted by the investor. The guarantee duration must be long enough for the investor to recover the advance. The payment process is similar to that specified at Point 3.2 below.
3.2. Method of payment for the completed volume:
a/ After the contractor completed the project volume, the investor shall compile and send a payment request dossier to the local State Treasury office for control under current regulations on payment of domestic capital construction capital;
b/ The total sum of money requested to be paid with JICA loans must equal the value of a completed capital construction volume already evaluated, minus the advance at a percentage specified in the contract, and not exceed the sum of money payable with JICA loans indicated in the contract. When the sum of money evaluated by the local State Treasury office is smaller than that requested by the contractor, the contractor shall make another written request for payment according to the evaluated sum of money;
c/ After obtaining the payment control results from the local State Treasury office, the investor shall compile a dossier (as specified in Section 2 above) and send it to the provincial JICA project management unit;
d/ Within 5 working days after receiving the dossier, the provincial JICA project management unit shall:
- Gather and verify the dossier and compare it with the loan allocation plans and the list of contracts;
- Give feedback to the investor if the dossier is ineligible for payment;
- Send the dossiers eligible for payment to the Ministry of Finance (the Foreign-Relations Finance Department), enclosed with an official letter listing the projects requested for payment. Such a dossier comprises the original of the contractor's written request for payment, the original of the list of amounts paid for completed construction volumes), and the original of the list of payment requests, made by the provincial JICA management unit;