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.

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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;

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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;

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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:

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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;

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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

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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;

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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;

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- 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;

e/ Within 5 working days after receiving a complete dossier from the provincial JICA management unit, the Ministry of Finance shall, based on the special account's balance, request Vietcombank to transfer, within 3 working days, money to contractors into accounts designated by contractors in their written payment requests. After transferring money, Vietcombank shall send money transfer notices, enclosed with the bank's document of money transfer to each contractor and to the Ministry of Finance for carrying out procedures for additional capital withdrawal and remittance into the special account. At the same time, Vietcombank shall send money transfer notices to the provincial JICA project management unit for disbursement monitoring.

3.3. Refund method:

a/ The refund method is applicable to the refund of JICA loans for JICA loan amounts already advanced from local budgets.

b/ The refund method is applicable in the following cases:

- Local budgets have sufficient capital for immediate payment to contractors, then the paid sums of money will be refunded with JICA loans. This method is applicable at any time within 6 months before the expiration of the time limit for capital withdrawal under the Agreement;

- When local budgets have insufficient capital for immediate payment to contractors, if the payment time is in the last-6-month duration for capital withdrawal under the Agreement, localities shall make budget plans in order to have capital for advance, then the advanced sums of money will be refunded with JICA loans;

Since the time of expiration of the time limit for capital withdrawal varies under different agreements, the provincial JICA project management unit shall contact the Central Program Management Board or the Ministry of Finance to be informed of this time under each specific agreement.

c/ The process of refund from JICA loans is specified as follows:

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- A payment request dossier is similar to an ordinary dossier of request for payment of JICA loans, enclosed with a certified copy of a valid money transfer document evidencing that the sum of money has been advanced from the local budget into the contractor's account;

- In the written request for payment, the contractor shall request the transfer of money into the local budget's account. The sum of money requested to be refunded must be exactly the same as the advanced sum of money;

- The process of handling dossiers and making payment is similar to that specified in Clause 3, Points 3.1 and 3.2 above.

3.4. Additional withdrawal of capital into the special account

Based on the Central Program Management Board's written request, the Ministry of Finance (the Foreign-Relations Finance Department) shall carry out procedures for additional withdrawal of capital into the special account under the Agreement. The Central Program Management Board shall list and gather documents for which payment has been made from the special account (including the contractor's written request for payment and the bank's payment order indicating the sum of money already transferred from the special account into the contractor's account). The additional capital withdrawal level is specified in the Agreement. After making the last capital withdrawal, is, as a result of exchange rate disparity, there is a positive difference between the sum of money withdrawn into the special account and that indicated on the document of payment from the special account, the Ministry of Finance shall request the Central Program Management Board to refund this difference to JICA.

Part IV

DUE CHARGES

1. Banking and payment charges

1.1. Banking charges include:

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b/ Foreign-payment service charges shall be paid according to the requests of foreign banks.

1.2. The payment of charges is specified as follows:

a/ Money transfer charges upon repayment of foreign debts: Vietcombank may automatically debit in the state budget deposit account (opened at Vietcombank);

b/ Charges related to import L/C opening and payment shall be paid by the entrusted importer, which shall then allocate and recover them from the contributed local capital;

c/ Charges related to consultancy-service U C opening and payment shall be paid from an account opened at Vietcombank by the Ministry of Planning and Investment. For contributed capital arranged by the Ministry of Planning and Investment for the specialized credit program;

d/ Transfer of money to domestic construction contractors: Banking charges shall be deducted from the sum of money paid to the contractor. Depending on the contract signed with the investor, the contractor shall pay this charge or, based on Vietcombank's charge notice, request the investor to pay this charge from the contributed domestic capital;

2. Importer charges:

An importer selected by the Central Program Management Board shall negotiate and sign a procurement contract with the successful bidder (foreign supplier) and carry out all import procedures under the supervision of the Central Program Management Board. Such importer will enjoy import entrustment and supply charges as agreed with the Central Program Management Board under the State's current regulations, and may collect these charges from goods recipients, which will be accounted as contributed domestic capital for works.

Part V

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1. JICA loans allocated to local projects must be fully and timely accounted into the state budget. The via-budget accounting principle is that such loans shall be recorded as revenue of the central budget and as targeted additional expenditure of the local budget. Via-budget accounting is specified as follows:

1.1. Allocation of overhead expenses: Overhead expenses include capital withdrawal charge, charge related to direct transactions (under consultancy hiring contract and contract on the import of equipment for which payments are made by the methods of money transfer and letter of commitment), and the Central Program Management Board's management expenses (including expense for monitoring and evaluation). Every December, the Central Program Management Board shall sum up overhead expenses arising in a year and officially request in writing the Ministry of Finance to carry out procedures for mutual ceasing of the state budget: recording as revenue the foreign loan and recording as expense the allocation to the Central Program Management Board under the Ministry of Planning and Investment.

1.2. Consultancy charge: 30 days after the end of the capital withdrawal duration under each agreement, the Central Program Management Board shall sum up actual consultancy charges for the whole program under such agreement, and send a document on the allocation of capital to projects, based on the ratio of capital use, to each province and the Ministry of Finance for carrying out procedures for mutual ceasing of the state budget. Based on the Central Program Management Board's notice of capital allocation, the Ministry of Finance shall record as revenue the foreign loan and record as expense the targeted additional allocation to the local budget. 1.3. The value of imported goods:

a/ After completing capital withdrawal for each procurement contract, the program management board shall work with the importer in proportionally allocating the value of imported goods to each local work, and, after reaching agreement with the provincial JICA project management unit, officially request in writing the Ministry of Finance to carry out procedures for mutual ceasing of the state budget;

b/ If there is a difference between the volume of goods planned to be distributed and the actually received volume of goods (including the permitted wastage), localities shall work with authorized goods suppliers in certifying this difference and report it to the Central Program Management Board for handling on the principle that an agency responsible for a wastage shall incur that wastage, specifically:

- The importer shall incur the wastage in excess of the permitted rate which is determined to arise in the course of importation;

- The authorized goods supplier shall incur the wastage in excess of the permitted rate which is determined to arise in the course of supply;

- The locality shall incur the wastage in excess of the permitted rate due to its delay in the receipt of goods;

1.4. Construction and program or project implementation volumes for which payment to domestic contractors is made in Vietnam dong:

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b/ Steps of accounting applicable to Points 1.2,1.3 and 1.4: Based on the Finance Ministry's documents, provincial-level Finance Services shall issue orders of collection of local budget revenues and orders of payment to capital users, then send them to provincial-level State Treasury offices which shall allocate capital in accordance with the State Budget Law. Payment orders, issued by the Budget Department under the Ministry of Finance, enclosed with the Foreign-Relations Finance Department's notice of the list indicating the serial number of agreement, name of project, name of investor, sum of money paid to each project and applicable exchange rate, will serve as a basis for recording as expense.

The value for mutual ceasing of the state budget is the value of foreign currency (JPY) multiplied by the exchange rate announced by Vietcombank at the time of money transfer (in case of payment to domestic contractors) or the accounting exchange rate prescribed by the Ministry of Finance at the time of accounting (for consultancy and capital withdrawal charges and imported goods).

Part VI

RESPONSIBILITIES OF AGENCIES INVOLVED IN PAYMENT

1. The Central Program Management Board shall:

1.1. Organize bidding to select importers and consultants.

1.2. Assume the prime responsibility for. and collaborate with consultants, the donor and the Ministry of Finance in, planning, inspecting, supervising, monitoring, evaluating and auditing programs and projects;

1.3. Provide provincial-level Planning and Investment Services and JICA project management units with guidance on mechanisms and policies related to the specialized credit program;

1.4. Assume the prime responsibility for, and collaborate with the Ministry of Finance in, organizing training courses on management and implementation of the specialized credit program;

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1.6. Gather and send dossiers and documents to the Ministry of Finance for additional withdrawal of capital into the special account;

1.7. Refund to JICA the exchange rate disparity-based positive difference between the sum of money withdrawn into the special account and that indicated in the document of payment from the special account.

2. Provincial JICA project management units shall:

2.1. Act as the focal point in managing projects implemented in their localities and sum up information from planning, implementation and reporting. Regularly collaborate with and notify provincial-level Finance Services of information on local projects;

2.2. Perform the tasks authorized by the program owner in collaborating with provincial-level Planning and Investment Services to draw up JICA loan plans (with reference to JICA standards) and allocate sufficient domestic contributed capital to local projects;

2.3. Assume the prime responsibility for drawing up plans on domestic contributed capital for projects according to their implementation progress, including ordinary contributed capital, and capital advanced from the state budget in case the refund method is applied;

2.4. List contracts and their annexes funded with JICA loans and send them to the program owner and the Ministry of Finance;

2.5. Guide investors and contractors in preparing documents according to the JICA's set forms applicable to each method of capital withdrawal;

2.6. Receive and verify investors' payment dossiers, compare them with JICA loan plans and contracts and, within 5 working days after receiving complete and valid dossiers, gather and send them to the Ministry of Finance for payment. If refusing to accept the dossiers, provincial JICA project management units shall contact project owners for dossier completion;

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2.8. Assist the Central Project Management Board, consultants, the donor and the Ministry of Finance in monitoring and managing projects in their provinces.

3. The Ministry of Finance shall:

3.1. Carry out payment acceptance procedures after receiving complete dossiers as required. In case of non-acceptance, immediately notify such to the Central Program Management Board and concerned provincial JICA project management units;

3.2. Promptly carry out mutual ceasing procedures so that provincial-level Finance Services can conduct accounting payments into local budgets;

3.3. Timely withdraw additional capital into the special account;

3.4. Refund loan principals and interests as prescribed in the Agreement;

3.5. Collaborate with the Central Program Management Board and the donor in monitoring and evaluating the program.

4. Provincial-level State Treasury offices shall:

4.1. Control expenses for projects' completed capital construction volumes under current regulations on capital construction investment management, indicating sums of money funded with JICA loans, as a basis for the Ministry of Finance to pay contractors. JICA loans shall be controlled according to the implementation progress of projects, not depending on provincial annual budgets;

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5. Provincial-level Finance Services shall conduct mutual ceasing of local budgets after receiving the Finance Ministry's documents on mutual ceasing of the state budget.

6. Vietcombank shall:

6.1. Make payment based on the capital withdrawal methods specified in JICA loan Agreements at the request of the Ministry of Finance and send notices thereof suitable to each payment method to the Ministry of Finance, the Central Program Management Board and contractors;

6.2. Monitor the special account balance and notify it to the Ministry of Finance after each payment and capital withdrawal into the special account.

7. Investors shall:

7.1. Make feasibility study reports and technical designs according to capital construction investment procedures and select contractors under current regulations on bidding;

7.2. Sign contracts with successful bidders or designated contractors, indicating the sums of money funded with JICA loans. Inspect or assign supervision consultants to inspect works' quality against their technical designs and give certifications in contractors' requests for payment;

7.3. Report on the progress of withdrawing JICA loan in kind or in cash to concerned management agencies;

7.4. Pay domestic contributed capital in a timely manner according to the progress of projects;

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7.6. Make settlement for works and work items under current regulations on finalization of capital construction capital;

7.7. Assist the program owner, the Ministry of Finance and the donor in supervising, monitoring, evaluating and auditing the program.

8. Contractors shall:

8.1. Perform contracts according to the committed volumes, quality and schedule;

8.2. Fulfill tax and warranty obligations and refund advanced capital under regulations and contracts signed with investors;

8.3. Make payment, settlement, take-over, hand-over and warranty of completed projects with investors.

Part VII

INSPECTION. REPORTING AND SETTLEMENT

1. Provincial-level People's Committees and the Central Program Management Board shall annually report to the Ministry of Finance and the Ministry of Planning and Investment on the progress of implementation of the program and problems arising in the receipt and use of loans;

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3. Investors shall collaborate with concerned units in taking over and making settlement for completed works;

4. Provinces and centrally run cities shall sum up local budget settlements and send them to the Ministry of Finance and the Ministry of Planning and Investment for synthesis according to regulations. The Central Program Management Board shall make settlement for the program;

5. The Ministry of Planning and Investment shall sum up and report to the Prime Minister and the Ministry of Finance on the allocation of loans and implementation of projects in localities. The Central Program Management Board shall collaborate with the JICA project evaluation team in re-inspecting the implementation of the program after the expiration of the loan withdrawal duration under the Agreement;

6. The Central Program Management Board shall supply information and data to examination, inspection and audit teams of JICA and the Vietnamese Government;

7. Provincial program management boards and investors shall, in accordance with regulations on archive of documents, keep payment dossiers and documents under current regulations on payment of domestic capital construction investment capital after the completion of the Agreement in order to produce them upon request for the program supervision, monitoring, evaluation and audit.

Part VIII

ORGANIZATION OF IMPLEMENTATION

This Circular takes effect 15 days after its publication in "CONG BAO" and replaces the Finance Ministry's Circular No. 129/1999/TT-BTC of November 5. 1999.

Any problems arising in the course of implementation should be reported to the Ministry of Finance for appropriate settlement.

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FOR THE MINISTER OF FINANCE
VICE MINISTER




Tran Xuan Ha