Circular No. 111/2016/TT-BTC dated June 30, 2016, on financial management of programs and projects funded by official development assistance and concessional loans granted by foreign donors

• Official number: 111/2016/TT-BTC
• Legislation Type: Circular
• Organization: The Ministry of Finance
• Signer: Tran Xuan Ha
• Issued Date: 30/06/2016

MINISTRY OF FINANCE -------	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ---------------
No. 111/2016/TT-BTC	Hanoi, June 30, 2016

CIRCULAR

ON FINANCIAL MANAGEMENT OF PROGRAMS AND PROJECTS FUNDED BY OFFICIAL DEVELOPMENT ASSISTANCE AND CONCESSIONAL LOANS GRANTED BY FOREIGN DONORS

Pursuant to the Law on Public debt management No. 29/2009/QH12 dated June 17, 2009;

Pursuant to the Government's Decree No. 78/2010/ND-CP dated July 14, 2010 on on-lending foreign loans taken by the Government;

Pursuant to the Government's Decree No. 79/2010/ND-CP dated July 14, 2010 on public debt management;

Pursuant to the Government's Decree No. 16/2016/ND-CP dated March 16, 2016 on management and use of official development assistance (ODA) and concessional loans granted by foreign donors;

Pursuant to the Government's Decree No. 215/2013/ND-CP dated December 23, 2013 defining the functions, tasks, entitlements and organizational structure of the Ministry of Finance;

At the request of Director of Department of Debt Management and External Finance;

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Chapter I

GENERAL PROVISIONS

Article 1. Scope

1. This Circular provides for financial management of programs and projects funded by ODA and concessional loans granted by foreign donors specified in the Government's Decree No. 16/2016/ND-CP dated March 16, 2016 on management and use of official development assistance (ODA) and concessional loans granted by foreign donors (hereinafter referred to as Decree No. 16/2016/ND-CP), including on-lent grants and allocated grants that are disbursed together with loans and budget assistance.

2. ODA grants in the form of allocation by state budget and separately disbursed to a project or independent component project which is part of a program/project funded by ODA loans or concessional loans regulated by Circular No. 225/2010/TT-BTC dated December 31, 2010 of the Ministry of Finance on financial management of foreign grant aid classified as state budget revenues and its amendments or substitute documents are not regulated by this Circular.

3. In the cases where financial management provisions of this Circular contravene an international treaty on ODA and concessional loans, provisions of the latter shall prevail.

Article 2. Regulated entities

This Circular applies to organizations and individuals participating in or involved in management of programs and projects funded by ODA/concessional loans granted by foreign donors and Vietnam’s reciprocal capital.

Article 3. Definitions

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Article 4. Rules for financial management of programs and projects funded by ODA/concessional loans

1. A program/project funded by ODA/concessional loan must be included in a 5-year public investment plan, annual capital plan and managed in accordance with applicable regulations on state budget capital and public capital.

2. A program/project funded by ODA/concessional loan shall follow processes of state budget accounting, audit, statement and inspection specified in state budget laws, public investment laws and provisions of this Circular.

3. Procedures for management and recovery on-lent ODA and concessional loans, on-lending risk management are specified in the Law on Public debt management, Decree No. 78/2010/ND-CP, and regulations of law on on-lending promulgated by People’s Committees of central-affiliated cities and provinces (hereinafter referred to as “provinces”) and instructional documents thereof.

Article 5. Rules for application of domestic financial mechanism to programs and projects funded by ODA/concessional loans

1. Regarding a program/project funded by ODA/concessional loan for investment in infrastructure, social welfare or other fields in which investment is not recoverable and the expenditures on which are to be covered by state budget:

a) If expenditures on the program/project are to be covered by central government budget, ODA/concessional loan shall be fully allocated by state budget.

b) If expenditures on the program/project are to be covered by local government budget, ODA shall be partially allocated or on-lent and concessional loan shall be partial or full on-lent in accordance with regulations of law on on-lending promulgated by the People’s Committee of the province.

The on-lent funds shall be aggregated with over-expenditure of the local government budget and managed and used in accordance with state budget laws.

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a) If expenditures on the program/project are to be covered by state budget, ODA/concessional loan shall be partially allocated.

b) ODA/bud shall be partially or fully on-lent according to the capital recovery ratio decided by a competent authority.

3. Regarding a PPP project whose expenditures are to be covered by local government budget and funded by ODA/concessional loan, the ODA/concessional loan shall be fully on-lent by the People’s Committee of the province in accordance with Clause 2 Article 8 of Decree No. 16/2016/ND-CP, unless otherwise prescribed by the People’s Committee of the province.

Chapter II

DETERMINATION OF DOMESTIC FINANCIAL MECHANISM AND ON-LENDING MECHANISM APPLIED TO PROGRAMS AND PROJECTS FUNDED BY ODA/CONCESSIONAL LOANS

Article 6. Determination of domestic financial mechanism during the process of program/project proposal and approval

1. Each program/project funded by ODA/concessional loan must apply a domestic financial mechanism to be applied to each of each stage. To be specific:

a) Submission of the proposal of a program/project funded by ODA/concessional loan.

b) Submission of the report on proposal of investment guidelines or pre-feasibility study report, for projects of national importance and Group A projects, to a competent authority.

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2. Contents of the domestic financial mechanism applied to programs/projects funded by ODA/concessional loan:

a) Preparation of the proposal of the program/project funded by ODA/concessional loan:

- Determine whether the investment in the program/project is partially or fully recoverable, which is the basis for determining whether the program/project is eligible for partial or full allocation or on-lending of the ODA/concessional loan as specified in Article 5 of this Circular.

- Determine the ability to provide reciprocal capital for the program/project.

+ If the project is eligible for funding by state budget, the concessional loan shall be provided from the annual the State budget and other funding sources as prescribed by law.

+ If the program/project is eligible for partial or full on-lending, the reciprocal capital shall be provided by the project owner from equity capital or other funding sources of the project owner.

- Carry out preliminary assessment of sources of revenue or repayment in case of on-lending.

- Determine whether the sub-borrower satisfies conditions for on-lending, such as:

+ If the sub-borrower is the People’s Committee of a province, the on-lent funds do not exceed the limits on debt and over-expenditure of the local government budget as prescribed by state budget laws.

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+ If the sub-borrower is a financial institution or credit institution, it must achieve the capital adequacy ratio prescribed by law.

b) Preparation of the report on proposal of investment guidelines or pre-feasibility study report:

- If the program/project is eligible for partial funding by state budget, the items and components eligible for funding by state budget or funding ratio must be clarified.

- If the program/project is eligible for partial or full on-lending, it is required to determine:

+ The amount of on-lent funds sorted by component and the schedule for disbursement.

+ The ability to repay from the project owner’s lawful sources of funding, including: depreciation capital, retained profit and other sources of funding (if any).

+ The project owner’s financial capacity, including equity capital, ratio of liabilities to equity capital; post-tax profit and other relevant financial indicators according to the audited financial statement of the year preceding the year in which the report on proposal of investment guidelines or pre-feasibility study report is submitted.

- Regarding a program/project eligible for partial on-lending of ODA, partial or full on-lending of concessional loan by the People’s Committee of the province as capital contribution to PPP projects:

+ Current debts owed by the local government, including all the loans.

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+ Estimated increase in loan amount in case of on-lending of ODA/concessional loan which does not exceed the prescribed debt limit.

+ The ability of local government budget to repay due debts.

c) The feasibility study report or program/project instrument shall be prepared in accordance with the decision on investment guidelines and domestic financial mechanism approved by a competent authority.

3. On the basis of documents sent by other Ministries, central and local agencies, the Ministry of Finance shall offer its opinions about the domestic financial mechanism applied to each program/project funded by ODA/concessional loan as follows:

a) On the basis of the program/project proposal which follows the rules specified in Article 5 and Clause 2(a) of this Article, the Ministry of Finance shall comment on the ability to take loans and domestic financial mechanism to the Ministry of Planning and Investment for submission to the Prime Minister.

b) Regarding a report on proposal of investment guidelines or pre-feasibility study report of a Group A program/project funded by ODA/concessional loan, the Ministry of Finance shall take charge and cooperate with its supervisory body, the Ministry of Planning and Investment and relevant authorities in offering their opinions about the domestic financial mechanism and on-lending method to the interdisciplinary appraisal council or an appraising authority.

c) Regarding a report on proposal of investment guidelines or pre-feasibility study report of a program/project within the authority of the Prime Minister (except Group A projects), the Ministry of Finance shall take charge and cooperate with its supervisory body, the Ministry of Planning and Investment and relevant authorities in offering their opinions about the domestic financial mechanism and on-lending method to the Prime Minister.

d) Pursuant to the Prime Minister’s directive on domestic financial mechanism applied to the program/project, opinions of the Ministry of Finance, the owner of the program/project shall complete the program/project instrument and submit it to a competent authority for approval.

dd) If the program/project instrument does not specify the financial mechanism or the financing plan is not feasible, the Ministry of Finance shall take charge and cooperate with its supervisory body and relevant agencies in submitting a report to the Prime Minister.

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g) If the content of the program/project and proposal of use of redundant capital is changed during the process of execution of the program/project, its governing body shall follow the procedures specified in Article 53 of Decree No. 16/2016/ND-CP and send the revised project dossier to the Ministry of Finance. The Ministry of Finance shall take charge and cooperate with the governing body and relevant authorities in submitting a report on the revised domestic financial mechanism to the Prime Minister.

Article 7. On-lending mechanism

1. Sub-borrowers:

a) The People’s Committee of the province shall take the on-lent ODA/concessional loan from the Ministry of Finance in the cases specified in Clause 1(b) and Clause 3 Article 5 of this Circular.

b) Owners of programs and projects in which investment is partially or fully recoverable specified in Clause 2(b) Article 5 of this Circular.

2. On-lending terms applied to the People’s Committees of provinces and program/project owners:

a) On-lending terms include duration, interest rates, repayment of principal and interest, other terms (if any) applied to program/project owners specified in Decree No. 78/2010/ND-CP; those applied to the People’s Committees of provinces are specified in regulations of law on on-lending to the People’s Committees of provinces.

b) Where a financial/ credit institution partially or fully take the credit risk, apart from the on-lending terms specified in Decree No. 78/2010/ND-CP, such institution may collect credit risk fees in accordance with regulations of law on on-lending via financial/credit institutions taking credit risk.

3. On-lending ratio:

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b) The on-lending ratio applied to a program/project in which investment is fully recoverable, is 100% of the ODA/concessional loan.

c) The Prime Minister shall decide the on-lending ratio applied to projects in which investment is partially recoverable according to each project’s investment recoverability.

4. On-lending method applied to programs and projects in which investment is recoverable:

a) On-lend funds to the project owner via an on-lending body that does not take credit risk.

b) On-lend funds to the project owner via an on-lending body that partially or fully takes credit risk.

c) On-lend funds to a financial/credit institution that takes credit risk under a credit program.

5. Identification of on-lending body:

a) Regarding a program/project in which investment is fully recoverable:

- Regarding a program/project taking a on-lend loan (subsidiary loan) via a on-lending body that takes credit risk: the on-lending body and the credit risk shall be determined in accordance with Decree No. 78/2010/ND-CP and relevant regulations of law.

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The appointed financial institution shall assess the repayment plan specified in the pre-feasibility study report or report on proposal of investment guidelines and submit a report to the Ministry of Finance for comments as prescribed in Clause 2 Article 6 of this Circular.

- The financial/credit institution shall directly take the subsidiary loan from the Ministry of Finance and fully take the credit risk.

b) Regarding a program/project in which investment is partially recoverable:

- The Ministry of Finance send propose the allocation or on-lending ratio on the basis of the state budget capacity and the project’s capital recoverability and send the proposal to the Ministry of Planning and Investment for submission to the Prime Minister. On the basis of the Prime Minister’s approval, the organization authorized by the Ministry of Finance shall cooperate with the project owner in preparing the pre-feasibility study report or report on proposal of investment guidelines.

- The appointed financial institution shall assess the repayment plan specified in the pre-feasibility study report or report on proposal of investment guidelines and submit a report to the Ministry of Finance for comments as prescribed in Clause 3 Article 6 of this Circular.

Chapter III

FINANCIAL PLANS FOR PROGRAMS AND PROJECTS FUNDED BY ODA/CONCESSIONAL LOANS

Article 8. Rules for developing the financial plan for a program/project funded by ODA/concessional loan

1. A program/project funded by ODA/concessional loan, including capital on-lent by the government, shall have a midterm plan, which has to be submitted to a competent authority for approval as specified in the Law on Public Investment, state budget laws and instructional documents thereof. After the midterm plan is approved, the governing body shall send the ODA/concessional loan and reciprocal capital to the Ministry of Finance for monitoring.

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3. On the basis of the midterm plan approved by the competent authority or the revised plan, the governing body shall prepare the annual financial plan for the program funded by ODA/concessional loan in accordance with procedures for making annual State budget estimates specified in state budget laws and instructional documents thereof; Ensure that the allocation of ODA/concessional loan and reciprocal capital in the annual budget estimate is conformable with the concluded international treaty on ODA/concessional loan and suitable for the disbursement ability of the program/project funded by ODA/concessional loan.

4. The Ministry of Planning and Investment shall consolidate ODA/concessional loan plans and reciprocal capital plans for development projects funded by state budget and send them to the Ministry of Finance for aggregation with the annual the State budget estimate.

The Ministry of Planning and Investment shall aggregate ODA/concessional loan plans and reciprocal capital plans for administrative projects funded by state budget with the annual the State budget estimate.

Article 9. Procedures for preparing annual financial plans

1. Regarding a program/project partially or fully funded by state budget:

a) Ministries, central agencies, local agencies, program/project owners shall, together with preparation of the annual State budget estimate, prepare annual financial plans and send them to the Ministry of Finance and the Ministry of Planning and Investment. The annual financial plan shall contain:

- A report on expected implementation of the plan for current year’s disbursement according to the program/project and international treaty on ODA/concessional loan concluded. The capital shall be classified into development capital, administrative capital and on-lent funds.

- The plan for current year’s disbursement according to the program/project and international treaty on ODA/concessional loan concluded. The capital shall be classified into development capital, administrative capital and on-lent funds.

Details of the annual financial plans are provided in Appendix 01 enclosed herewith.

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- Allocated reciprocal capital.

- ODA/concessional loan for investment in development.

- ODA/concessional loan for administrative costs.

Within 05 working days from the day on which approval is granted, the governing body shall send the capital allocation decision to finance authorities and the expenditure control authority.

After the annual capital allocation plan is delivered, Ministries, central and local agencies shall enter their capital in the Treasury And Budget Management Information System (TABMIS) as prescribed in Circular No. 123/2014/TT-BTC.

d) In the cases where a program/project funded by ODA/concessional loan is expected to exceed the capital allocation plan or is not included in the capital allocation plan, its governing body and owner shall submit a report to the Ministry of Finance and the Ministry of Planning and Investment.

dd) The People’s Committees of provinces shall send their on-lending plans to the Ministry of Finance for consolidation.

2. Regarding programs and projects funded by ODA/concessional loan eligible for partial or full on-lending:

a) regarding a program/project taking a subsidiary loan via an on-lending body that does not take credit risk:

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- The financial plan shall contain:

+ Opening balance;

+ The planning year’s disbursement;

+ Repayment plan for the planning year, specified by principal, interest and fees.

- The program/project shall approve and send the annual financial plan to the Ministry of Finance, the Ministry of Planning and Investment and the on-lending body.

b) Regarding a program/project taking a subsidiary loan via an on-lending body that partially or fully takes credit risk:

- The program/project owner shall approve and send the annual financial plan to the Ministry of Finance, the Ministry of Planning and Investment and the on-lending body as prescribed in Clause 1 of this Article.

- Apart from the financial plan, program/project owners may send other documents at the request of on-lending bodies.

- Each financial/credit institution shall prepare and send a financial plan to the Ministry of Finance. The plan shall contain:

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+ The planning year’s disbursement;

+ Repayment plan for the planning year, specified by principal, interest and fees.

Chapter IV

EXPENDITURE CONTROL, CAPITAL DISBURSEMENT AND MANAGEMENT THEREOF

Article 10. Control of expenditures of programs and projects funded by ODA/concessional loan

1. Purposes of expenditure control

Expenditure control is meant to ensure that expenditures of the project are conformable with the international treaty on ODA/concessional loan concluded and domestic financial management regulations.

2. Rules for expenditure control

a) Expenditure control is applied to every expenditure of the project, including those in the form of L/Facility or authorized payment by foreign parties.

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c) The projects or component projects which is part of the development capital plan fully funded by state budget and projects eligible for partial on-lending shall apply the ratios specified in Circular No. 08/2016/TT-BTC and Circular No. 108/2016/TT-BTC.

d) The administrative projects or activities partially or fully funded by state budget or eligible for partial or full on-lending shall apply the ratios specified in Circular No. 161/2012/TT-BTC and Circular No. 39/2016/TT-BTC.

dd) Expenditure control of the land clearance projects or activities funded by ODA/concessional loan (including those taking subsidiary loans) shall comply with Circular No. 107/2007/TT-BTC and Circular No. 08/2016/TT-BTC.

e) Expenditure control of on-lent project

- Credit line: documents and procedures for expenditure control of on-lent project/component within a credit line shall comply with regulations of the credit institution using the on-lent funds in accordance with the international treaty on ODA/concessional loan concluded. The credit institution taking the on-lent ODA/concessional loan shall take legal responsibility for the legitimacy of the loans and non-credit expenditures in the expenditure statement sent to the Ministry of Finance when preparing and sending the application for disbursement of overseas capital.

- Documents and procedures for expenditure control of other on-lent projects or components are the same as those of development projects and component projects funded by ODA/concessional loan allocated by state budget.

g) In consideration of the payment request submitted by the project owner, the expenditure control body, pursuant to payment terms in the contract (number of instalments, payment period, payment time and payment conditions), or the approved cost estimate for non-contractual payments, and the amount of each payment, shall control expenditures and pay the project owner. The project owner is responsible for the contractor selection method, the accuracy and legitimacy of the volume of works paid for, norms, unit prices and cost estimates of works, construction quality and compliance with construction investment procedures. The expenditure control body is not responsible for the aforementioned issues.

h) The expenditure control body shall decide whether to control the expenditures within 5 working days from the day on which adequate and valid documents are received.

3. Expenditure control bodies

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b) The on-lending bodies authorized by the Ministry of Finance shall control payment documents of projects or project components eligible for full on-lending.

c) On-lending financial/credit institutions

Financial/credit institutions taking subsidiary loans under credit programs and take credit risk shall control expenditure when on-lending funds to end borrowers.

d) The Ministry of Finance shall determine expenditure control bodies for programs and projects other than those specified in Points a to c of this Clause, provided an expenditure is not under control of more than one expenditure control body.

4. Expenditure control methods

a) Pre-disbursement expenditure control means the expenditure control body inspecting and verifying the legitimacy of expenditures before capital is disbursed to pay contractors and other beneficiaries. Expenditures subject to early pre-disbursement expenditure control:

- Direct payments to contractors and suppliers for projects or component projects eligible for allocation.

- Direct lump sum payments or final instalments to contractors and suppliers for on-lending project.

- Money transfer from the advance account to the imprest account to pay for independence audit costs after the advance account is closed.

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- Lump sum payment in the form of an L/C or authorized payment by the foreign party.

b) Post-disbursement expenditure control means the expenditure control body inspecting and verifying the legitimacy of expenditures after capital is disbursed to pay contractors and other beneficiaries. Post-disbursement expenditure control applies to:

- Payments from JICA sources.

- Instalments in the form of LCs or authorized payment by the foreign party.

- Expenditures other than those specified in Point a of this Clause.

Within 30 days from the disbursement date, the project owner shall complete the payment document and send it to the expenditure control body as the basis for the next payment.

Where necessary, the project owner may reach an agreement with the contractor on application of pre-disbursement expenditure control to such expenditure and send the agreement to the expenditure control body for cooperation.

5. Expenditure control documents

Apart from the documents specified in Circular No. 08/2016/TT-BTC and Circular No. 161/2012/TT-BTC, the project owner or an authorized unit shall send the following documents to the expenditure control body as the basis for control of expenditures of each program/project from ODA and concessional loan:

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b) The Vietnamese translations of payment terms of the contracts bearing the project owner’s signature and seal if the contracts between the project owner and contractors and enclosures thereof are made in foreign languages. The project owner is legally responsible for the accuracy of the Vietnamese translations.

c) Agreements or “no objection” documents of the donor; the agreement with the contractor on project execution (list of legitimate costs, contract execution guarantee, advance guarantee stipulated by the contract). If the contract is made in a foreign language, a Vietnamese translation shall be enclosed.

d) Request for opening of a cost estimate account at the State Treasury to serve disbursement of ODA/concessional loan.

The project owner shall send only original copies or certified true copies of the aforementioned documents only one time. The project owner is legally responsible for the authenticity of the copies submitted to the Ministry of Finance.

6. Deadline for document certification

a) The deadline for verifying the application for advance payment is December 31 of the planning year (or January 31 of the succeeding year for advance payment for compensation for land clearance and relocation). The project owner shall send documents to the expenditure control body before December 30 every year.

a) The deadline for verifying the application for advance payment for finished works that have undergone commissioning is December 31 of the planning; the deadline for paying for finished works is January 31 of the succeeding year (including reimbursement for advance payment). The project owner shall send documents to the expenditure control body before January 27 of the succeeding year.

7. Special contents:

a) The advance payment and reimbursement of advance payment, retained amount pending warranty shall comply with the contract between the project owner and the contractor, regulations of law on contracts (the project owner is entitled to reach an agreement with the contractor on advance payment guarantee if the advance payment value does not exceed 01 billion dong). The project owner shall manage and collect advance payments given to the contractor. If an advance payment cannot be collected, the project owner shall repay the donor themselves.

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c) The project owner shall keep a log of the transfer of warranty deposits and send it to the expenditure control body for comparison and certification in order to transfer such deposits to the contractor.

d) In the cases where a project management board is appointed to manage or execute more than one project funded by ODA/concessional loan, the distribution of operating costs of component projects or sub-projects shall be done every 6 month and every year as follows:

- Relevant direct costs shall be distributed to corresponding component projects or sub-projects.

- Remaining costs shall be distributed according to the ratio of total investment in component projects or sub-projects to total investment in the project.

- The value of distributed operating costs shall be aggregated with the investment in each component project or sub-project in the financial statement of the finished project.

Article 11. Disbursement methods

The donor shall specify the ODA/concessional loan disbursement methods, including:

1. Budget assistance:

ODA/concessional loan shall be transferred to state budget or provided as outcome-based assistance.

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The project-based donation shall be provided in one of the following manners:

a) Direct payment and wire transfer

- Direct payment: the donor agrees to directly pay the contractors and suppliers of the project at the request of the borrower.

- Wire transfer: means direct payment or reimbursement in VND as specified in Point c of this Clause.

b) Payment under guarantee letter: At the request of the borrower, the donor issues a letter to guarantee that the commercial bank will be reimbursed for the amounts paid to the contractors and suppliers in the form of LCs via the commercial bank system (loaning bank and serving bank).

c) Reimbursement: The donor transfers money from the loan account to an account provided by the borrower to reimburse the project owner for the legitimate costs of the project. Legitimate costs may be incurred before or after the international treaty on ODA/concessional loan is concluded and must comply with provisions of such treaty.

d) Advance account

The donor transfers an advance at the request of the borrower to an account exclusively opened for the project at the serving bank in order for the borrower to pay the legitimate overhead costs of the project and reduce the number of withdrawals. Withdrawals from the advance account shall be closely controlled by the Ministry of Finance and the donor.

Article 12. Procedures for disbursement in the form of budget assistance

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a) The project owner and governing body shall take charge or cooperate with the Ministry of Finance, the State bank and relevant agencies in fulfilling its commitment to the donor to fulfill the prerequisites for disbursement specified in the international treaty on ODA/concessional loan concluded.

b) The project owner and the governing body shall take charge or cooperate with relevant authorities in preparing and submitting applications for disbursement to the Ministry of Finance as prescribed by the donor. The time limit for processing an application for disbursement is specified in Clause 3 Article 13 of this Circular.

c) For general budget assistance, the Ministry of Finance shall process the applications for disbursement and send them to the donor; cooperate with the State bank of Vietnam (if the international treaty specifies that the State bank of Vietnam is the disbursing body and responsible for proposing negotiations as prescribed in Clause 3 Article 32 of Decree No. 16/2016/ND-CP) in disbursement and transfer of the withdrawals to state budget as agreed with the donor.

d) If the ODA/concessional loan is budget assistance for a specific industry:

- The governing body of the program/project shall reach an agreement with the Ministry of Finance and the State bank (if the international treaty specifies that the State bank of Vietnam is responsible for proposing negotiations as prescribed in Clause 3 Article 32 of Decree No. 16/2016/ND-CP) on the time for disbursement and the disbursed amount; cooperate with the Ministry of Finance and relevant authorities in planning the distribution of capital among component projects.

- Disbursed ODA/concessional loan shall be distributed to component projects in accordance with applicable procedures for state budget capital management.

2. Regarding an outcome-based donation:

a) The project owner and governing body shall take charge or cooperate with relevant authorities in fulfillment of disbursement conditions as agreed with the donor. The project owner may receive advance payment as prescribed by the donor to perform certain works as agreed in order to fulfill their disbursement-related commitments.

b) The project owner and the governing body shall take charge or cooperate with relevant authorities in preparing reports, documents or providing the donor with documents proving fulfillment of disbursement conditions specified in the treaty. The project owner shall prepare and submit the application for disbursement to the Ministry of Finance as prescribed by the donor. The time limit for processing an application for disbursement is specified in Clause 3 Article 13 of this Circular.

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Article 13. Procedures for disbursement in the form of project donation

1. After the donor announces the prerequisites for disbursement under the international treaty on ODA/concessional loan, the project owner or project management board shall prepare an application for disbursement and send it to the Ministry of Finance.

2. The application for disbursement shall be prepared according to the donor’s specimen and the disbursement method specified in Article 14 of this Circular.

3. Within 05 working days from the day on which the satisfactory application is received, the Ministry of Finance shall sign it and send it to the donor.

4. In the cases where additional documents are required by the donor or the donor only partially accepts the application, the Ministry of Finance or the donor shall promptly inform the project owner.

Article 14. Application for disbursement

The project owner or authorized unit shall send the documents specified in Clause 5 (except Point d) Article 10 of this Circular. The project owner or authorized unit shall submit 01 application to the Ministry of Finance. The composition application depends on the disbursement method as follows:

1. Direct payment

a) A written request for disbursement, the application form, statements and necessary documents requested by the donor;

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c) The payment request certified by the expenditure control body (original copy);

d) Apart from the aforementioned documents, the project owner shall send the Ministry of Finance the advance payment guarantee of the commercial bank (if any) on which the guarantee value is the same as the advance payment and guarantee expiration is the day on which the project owner collects all the advance payments.

dd) In case of post-disbursement expenditure control, the project owner shall divide the disbursement into several stages as follows:

- During the middle stage, if the value on the payment certification issued by the expenditure control body is different from the actual expenditure of the previous stage, the project owner shall adjust the payment value of the next stage.

- During the last stage: the project owner shall send the payment request certified by the expenditure control body to ensure that all payments of the project contract have undergone expenditure control.

2. Disbursement under guarantee letter.

a) The project owner shall send an application to the Ministry of Finance. Such application consists of:

- A written request for issuance of the guarantee letter by the donor which specifies the disbursed amount according to the annual financial plans and that the undisbursed amount is not smaller than the guarantee value.

- Copies of the conformably concluded contract which specifies one of the conditions or the documents proving the instalment payments under LCs are certified by the expenditure control body.

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b) Payment by LC without guarantee letter: if the commercial contract permits payment by LC without a guarantee letter, the project owner shall send the documents specified in Point a of this Clause for comments about the opening of an LC to the Ministry of Finance, the project management board and the serving bank and send a notice of irrevocable authorization to the bank by the donor to make the payment by LC.

The payment by LC, with or without a guarantee letter, shall undergo post-disbursement expenditure control. Apart from the invoices and documents for making payment by LC under international practice, the payment documents sent to the paying bank shall include the payment request certified by the expenditure control body (if the paying bank is a foreign bank, the project owner shall provide a translation certified by the project owner’s). Every time a payment is made, the project owner shall provide the previous payment request certified by the expenditure control body.

3. Reimbursement:

The project owner shall send an application to the Ministry of Finance. Such application consists of:

- A written request for disbursement, the application form and statements using the donor’s specimen;

The application form must specify the name and account number of each unit that advanced money. Regarding the amount advanced by state budget (capital for project preparation, advance payment), the level of state budget must be specified.

- Money transfer documents proving the contractors and beneficiaries have been reimbursed by the project owner or a debt comparison table between the project owner, the contractors and beneficiaries;

- The reimbursement request certified by the expenditure control body (original copy).

The Ministry of Finance may request submission of additional documents at the request of the donor.

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a) Rules for withdrawing money from the advance account

The currency of the advance account and secondary account (if any) is a foreign currency. Transfer of advance payment in VND to the secondary account is subject to approval by the Ministry of Finance. The withdrawal of money from the advance account shall comply with Article 10 of this Circular and the taxpayer’s regulations.

b) First transfer of capital to the advance account

The first transfer of capital to the advance account shall not exceed the limit specified in the international treaty on ODA/concessional loan concluded. The transfer of capital to the secondary account shall be made via the advance account.

To make the first transfer of capital, the project owner shall send the following documents to the Ministry of Finance for consideration and send a signed application for disbursement to the donor:

- A written request for disbursement;

- The application form and statements using the donor’s specimen;

- The next three months’ spending plan.

c) Withdrawal from the advance account held by the Ministry of Finance:

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- The program/project owner’s payment request;

- The contractors’, suppliers’ and beneficiaries’ payment requests;

- The payment request certified by the expenditure control body (original copy) for each payment (pre-disbursement expenditure control) or the statement of payments certified by the expenditure control body (original copy). In case of advance payment, bank guarantee documents related to such advance payment shall be provided.

d) Transfer of additional capital to the advance account

To transfer additional capital to the advance account, the project owner shall send the following documents to the Ministry of Finance:

- A written request for transfer of additional capital to the advance account;

- The next three months’ spending plan;

- The application form and statements specified by the donor;

- The revenue and expenditure statements using the specimen provided in Appendix 02-A or Appendix 02-B enclosed herewith; regarding a project whose expenditures are controlled by the on-lending body, the statement using the specimen in Appendix 03 enclosed herewith;

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- Advance account statement by the serving bank which specifies the currency, beneficiaries, transaction dates, exchange rates and amount in VND, opening balance, expenditures and closing balance; statement of the secondary account (if any).

The Ministry of Finance shall consider signing the application form and send it to the donor for transfer of additional capital to the advance account.

5. When an application for disbursement specified in Clauses 1 to 4 of this Article is sent to the Ministry of Finance, project owner shall send it together with the following documents:

- The accounting document certified by the State Treasury and the revenue and expenditure statement (according to the specimen in Appendix 02, Appendix 02-A and Appendix 02-B enclosed herewith) regarding the disbursed amounts. The accounting document certified by the State Treasury and the statements are the basis for the Ministry of Finance to consider granting the application for disbursement.

- An ODA/concessional loan withdrawal statement using the specimen in Appendix 03 enclosed herewith.

- Description of last year’s accumulated foreign capital that was disbursed and capital that is still usable.

- The accounting documents of expenditures incurred by December 31 of the year shall be sent to the Ministry of Finance by January 31 of the succeeding year.

Chapter V

STATE BUDGET ACCOUNTING

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1. ODA and concessional loan allocated from state budget must be fully and accurately accounted for.

Regarding programs and projects that are eligible for full or partial allocation and undergo expenditure controlled by State Treasuries, the ODA and concessional loan shall be accounted for by the State Treasuries making the transactions.

On-lent ODA and concessional loan shall be accounted for by the Ministry of Finance via State Treasuries.

2. State budget accounting shall be done on the basis of ODA/concessional loan disbursement documents sent by the donor to the users. The accounting document certified by the State Treasury specified in Clause 5 Article 14 of this Circular is among the basis for the Ministry of Finance to consider applications for disbursement..

3. Exchange rate

a) In the cases where the donor directly disburses the donation in a foreign currency, the exchange rate announced by the State bank at the time of accounting shall apply. Regarding direct payments in VND, the actual exchange rate between the two currencies shall apply.

b) Transfer of capital in foreign currency to the advance account:

- Payments from the advance account shall apply the buying rate applied by the serving bank at the time of payment.

- Regarding advance payments in VND transferred to a secondary account specified in Clause 3 Article 28 of this Circular, the account holder shall apply the exchange rate applied by the serving bank at the time of advance payment and record the payments on a first-in, first-out basis.

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Exchange differences shall be dealt with in accordance with accounting laws.

Article 16. State budget accounting

1. Regarding disbursement in the form of budget assistance:

According to the payment order or credit note issued by the serving bank, the State Treasury shall record the ODA grant as a revenue and record ODA loan or concessional loan as a state budget loan. In the cases where the ODA or concessional loan is provided in foreign currency, the State Treasury shall record it in foreign currency as prescribed.

2. Regarding disbursement in the form of project donation

a) State budget accounting at state treasury:

- Within 5 working days from the day on which the donor or the Ministry of Finance grants the application for disbursement, the project owner or an authorized unit shall prepare 3 original copies of the accounting document according to the specimen in Appendix 02 enclosed herewith and send it to State Treasury together with the donor’s money transfer note.

- Regarding a joint program/project, within 5 working days from the day on which the donor or the Ministry of Finance grants the application for disbursement, the central governing body of the joint project shall send notifications to the owners of component projects together with disbursement documents as the basis for preparing the accounting document for relevant expenditures as prescribed in Point a of this Clause.

- Regarding payments from the advance account or secondary account, within 5 working days from the disbursement date, the project owner or an authorized unit shall follow expenditure control procedures (in case of post-disbursement expenditure control) and prepare 03 copies of the accounting document using the specimen in Appendix 02 enclosed herewith and a statement of money transfer documents issued by the serving bank where the project owner opens the advance account or a copy of the document certifying that the commercial bank has transferred money to the beneficiary and send them to State Treasury where the transaction was made for expenditure control (in case of post-disbursement expenditure control). If the donor does not accept an expenditure as legitimate or only partially accepts it, the project owner shall submit a report to the State Treasury where the transaction was made to promptly make adjustments.

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+ Where the program/project or project component eligible for on-lending, the Ministry of Finance shall record the on-lent amount and inform the sub-borrower of the on-lent amount and the time of conversion.

+ Where the program/project or project component eligible for allocation, the Ministry of Finance shall record the amount converted into principal as a loan from central government budget.

- Within 3 working days, the State Treasury where the transaction was made shall verify information and sign the accounting document, retain two original copies and send one copy to the Ministry of Finance for disbursement of ODA/concessional loan.

Regarding the allocated amount, the State Treasury shall record the ODA grant as a revenue, record the ODA loan or concessional loan as a loan from state budget, record the allocated capital as expenditure;

- By the 5^th of the succeeding month, the State Treasury of the province shall submit a report on the previous month’s ODA and concessional loans in the province to State Treasury and Departments of Finance for monitoring.

- By the 15^th of the first month of the succeeding quarter, the State Treasury of the province shall submit a report on the previous month’s ODA and concessional loans in the province to State Treasury and Departments of Finance for monitoring.

- At the end of the fiscal year, the State Treasury shall consolidate the recorded amounts of ODA and concessional loan and submit a report to the Ministry of Finance.

Procedures for recording state budget revenues and expenditures by State Treasury system and reporting shall be specified by the Ministry of Finance and State Treasury.

b) Recording ODA and concessional loans at the Ministry of Finance.

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- Regarding the Government’s ODA and concessional loans directly on-lent the Ministry of Finance, (even if borrowers are the People’s Committees of provinces) the Ministry of Finance shall record ODA grants as central government budget revenues or record ODA loans and concessional loans as the Government’s loans and record the subsidiary loans as expenditures.

- Regarding ODA and concessional loan on-lent by the Ministry of Finance to the People’s Committees of provinces, Provincial Departments of Finance shall record the loans and expenditures according to the payment orders issued by the Ministry of Finance.

c) By the 15^th of the succeeding year’s February, the project owner shall compare the accounting data that have undergone expenditure control with the recorded state budget revenues and expenditures at the State Treasury, the expenditure control body and the Ministry of Finance. When the ODA or concessional loan is completely disbursed, the project owner shall send a consolidated report and the terminal financial statement to the State Treasury, the expenditure control body, the governing body and the Ministry of Finance.

Regarding on-lent ODA and concessional loans, on-lending bodies and sub-borrowers (including the People’s Committees of provinces) shall compare the disbursed amount, principal, interest, fees (including fines) and closing balance with the Ministry of Finance at the end of the fiscal year according to the accounting data recorded via the State Treasury.

d) ODA and concessional loans that underwent expenditure control in the previous fiscal year shall be recorded in the previous fiscal year if they are disbursed before the 31 of January of the succeeding year and in the succeeding year if disbursed in the succeeding fiscal year.

Article 17. Adjusting state budget accounting data

1. State budget accounting data shall only be adjusted to deal with difference between state budget accounting data and the actual amount of disbursed and used ODA and concessional loan in the following cases:

a) The disbursed capital is not completely used or not properly used and has to be returned to the donor in accordance with the international treaty on ODA/concessional loan concluded;

b) The project owner is replaced under a decision of a competent authority;

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d) Errors to the state budget accounting process must be adjusted according to comparison of data between the State Treasury and the project owner, between the Ministry of Finance and the on-lending body.

2. Adjustment procedures

a) State budget accounting data shall be adjusted at the State Treasury and as instructed by the State Treasury.

b) Regarding a project whose state budget accounting data is kept by the Ministry of Finance, the Ministry of Finance shall prepare the adjustment note and send it to the State Treasury. According to the adjustment note, the State Treasury shall make adjustments to the accounting data and send copies of such adjustment note to the on-lending body and the project owner for making corresponding adjustments to the accounting report and financial statements.

Chapter VI

ACCOUNTING, AUDIT, FINANCIAL STATEMENT, REPORTING, INSPECTION

Article 18. Accounting work of a program/project funded by ODA/concessional loan

1. Accounting rules

The project management board and units using the ODA/concessional loan shall:

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b) Comply with regulations accounting imposed by the donor in the international treaty on ODA/concessional loan concluded or in the project instrument (if any).

2. Accounting apparatus

The accounting apparatus must be appropriate for the scale of the project and the project management method.

a) In the cases where a project management board is not established or the project management board is an independent legal entity which has its own seal, the project owner may employ their accounting personnel as project accountants, provided the revenues and expenditures of the project are separately accounted for.

b) In the cases where a project management board is established as an independent legal entity and has its own seal, it shall establish an accounting department and appoint or hire a chief accountant.

3. Applied accounting mode

a) In the cases specified in Clause 2(a) of this Article: the current accounting mode of the project-executing unit shall be applied.

b) In the cases specified in Clause 2(b) of this Article: an accounting mode specified in Circular No. 195/2012/TT-BTC shall be applied depending on the use of capital and project management method; administrative units shall follow instructions in Decision No. 19/2006/QD-BTC of the Minister of Finance and Circular No. 185/2010/TT-BTC.

Article 19. Auditing financial statements of a program/project funded by ODA/concessional loan

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2. Financial statements shall be audited in accordance with applicable regulations of law, unless otherwise prescribed by the international treaty on ODA/concessional loan.

3. The audit organization appointed to audit the project must be an independent audit organization that is lawfully operating in Vietnam.

4. Each work item, work and completed work may be audited separately at the request of the donor.

5. The project owner shall send the audit report prepared by the independent audit organization to the governing body and State Audit Agency at the same time it is sent to the donor specified in the international treaty on ODA/concessional loan.

Article 20. Financial statements a program/project funded by ODA/concessional loan

1. Annual financial statement

a) Financial statements of administrative projects funded by ODA/concessional loan shall be prepared in accordance with Circular No. 01/2007/TT-BTC dated January 02, 2007 of the Ministry of Finance.

b) Financial statements of construction projects funded by ODA/concessional loan shall be prepared in accordance with Circular No. 210/2010/TT-BTC dated December 20, 2010 of the Ministry of Finance.

2. Terminal financial statement

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b) A terminal financial statement of an investment project funded by ODA/concessional loan shall be prepared in accordance with Circular No. 09/2016/TT-BTC upon its completion.

c) In the cases where a project is shut down, dissolved or acquired in a fiscal year, the Director of such project and the chief accountant shall prepare the terminal financial statement and take legal responsibility for every error therein.

d) Regarding a joint program/project which consists of multiple independent component projects, the project owner shall submit the financial statement of each component project and the result to the governing body of such joint program/project for consolidation.

Article 21. Reporting disbursement and state budget accounting

1. Within 15 working days from the end of a quarter, the project owner shall submit a report on disbursement of ODA/concessional loan in the quarter together with state budget accounting documents certified by the State Treasury to the governing body and a finance authority at the same level.

2. Within 30 working days from the day on which the ODA/concessional loan is closed, the project owner shall send the Ministry of Finance a report on completion of disbursement according to Appendix 06 enclosed herewith as the basis for preparing the terminal financial statement.

3. The project owner shall prepare and send financial statements to the donor as prescribed in the project instrument and the international treaty on ODA/concessional loan concluded, the governing body and finance authority at the same level for monitoring and guidance.

4. Within 15 working days from the end of a quarter, the project owner shall send the Ministry of Finance a quarterly report on use of ODA/concessional loan according to Appendix 04 enclosed herewith. The report may be sent as a physical copy or in another form as instructed by the Ministry of Finance.

5. Every 6 month and every year, within 30 days from the end of the reporting period, for the purpose of comparing accounting data and actual disbursed amount, the governing body shall prepare and submit a report on disbursement and state budget accounting to the Ministry of Finance according to Appendix 05 enclosed herewith.

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Ministries, central agencies, the People’s Committees of provinces and finance authorities may take charge or cooperate with relevant authorities in carrying out periodic inspections or surprise inspection of the compliance with financial management regulations of this Circular by projects funded by ODA/concessional loan.

Chapter VII

OTHER PROVISIONS

Article 23. Selection of the serving bank

1. The serving bank is a commercial bank selected from a list of commercial banks qualified for international transactions and provision of banking services for projects funded by ODA and concessional loans. The list of qualified commercial banks shall be compiled and published by the State bank of Vietnam before December 31 every year and applied in the next year. In the cases where the State bank has not published the new list, the previous year’s list shall be applied.

2. The State bank of Vietnam shall select serving banks for the programs and projects funded by ODA/concessional loans specified in Clause 3 Article 32 of Decree No. 16/2016/ND-CP. The Ministry of Finance shall select serving banks for the programs and projects funded by ODA/concessional loans specified in Clause 2 Article 32 of Decree No. 16/2016/ND-CP. The serving bank shall be selected after the international treaty on ODA/concessional loan is concluded.

Article 24. Opening a checking account a program/project funded by ODA/concessional loan in the system of the State Treasury

1. ODA/concessional loan account

a) State budget loans of each level shall be managed and monitored separately. Regarding a project eligible for full allocation, partial allocation or partial on-lending, the State Treasury will be a favorable serving agency.

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2. Reciprocal capital account: the project owner shall open an account at the State Treasury to control and transfer payments from the project’s sources of reciprocal capital.

3. The State Treasury shall control and transfer payments from the ODA/concessional loan and reciprocal capital and send monthly statements to the account holders which specify the transactions, amounts, beneficiaries, transaction dates, applied exchange rates, amounts in VND, opening balance and closing balance.

Article 25. Opening an account at a serving bank

1. In the cases where the international treaty on ODA/concessional loan requires direct disbursement to the program/project or the project or component project eligible for full on-lending, the project owner or the Ministry of Finance shall open the advance account at a serving bank that is suitable for the project.

If a project has more than one source of funding, each of them shall have a separate account.

2. If a project has to undergo multiple level of management, the project owner, under an agreement with the donor, shall open the secondary advance account at a branch of the serving bank. The currency of the account shall be the same as the currency of the foreign loan (unless a VND account is permitted by the Ministry of Finance.

3. Responsibility of the serving bank

a) The serving bank, at the request of the project owner that is also the account holder, shall open relevant accounts of the project and make transactions as prescribed by law.

b) The serving bank shall provide instructions and information for the project to make domestic and overseas payments via the banking system.

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d) Every month, under an agreement between the serving bank and the account holder and at the request of the account holder, the serving bank shall inform the account holder of the interest accrued in the account (if any), the fees collected by the serving bank, the difference between the interest and fees, the opening balance and closing balance.

dd) Within 2 working days from the day on which the donor’s notice of disbursement is received, the serving bank shall credit the disbursed amount to the project’s account and inform its holder.

4. Management of advance account

a) Interest accrued in the advance account shall be separately recorded and monitored and used to cover the fees for banking services imposed by the serving bank. Fees for banking services are considered expenditures of the project. If the interest accrued is not sufficient to cover the fees for banking services, the project owner shall prepare a cost estimate and use reciprocal capital to pay.

b) Regarding a project eligible for full allocation, the project owner shall transfer redundant interest to state budget. Regarding a project eligible for full on-lending, the redundant interest will be the project owner’s revenue. Regarding a project eligible for partial on-lending, the redundant interest will be distributed according to the on-lending ratio.

Article 26. Taxes, fees and asset management

1. Regulations on taxes, fees and management of assets of programs and projects funded by ODA/concessional loan shall comply with regulations of law, international treaties on ODA/concessional loan, relevant regulations of law and instructions of the Ministry of Finance.

2. Tax policies applied to private programs and projects funded by ODA/concessional loan: at the request of the project owner, the governing body, the on-lending body or the authority that grants the access to the ODA/concessional loan to the private sector shall confirm the funding method applied to each program/project to tax authorities.

Article 27. Financial management handbook

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Chapter VIII

ORGANIZATION OF IMPLEMENTATION

Article 28. Transition clauses

1. Regarding LCs or contracts that authorize the foreign party to directly make payment approved before the effective date are still eligible for disbursement as prescribed in Circular No. 218/2013/TT-BTC or under the agreement between the project owner and contractors.

2. State budget accounting procedures specified in Circular No. 218/2013/TT-BTC shall be applied until the end of the fiscal year 2016. The state budget accounting procedures specified in this Circular shall apply from the fiscal year 2017. Any errors made during the accounting process in the fiscal year 2016 and earlier and discovered after the end of the fiscal year 2016 shall be adjusted in accordance with Circular No. 218/2013/TT-BTC.

3. Holders of secondary accounts in VND opened under agreement with donors before the effective date of this Circular shall convert them into foreign currencies within 6 months from the effective date of this Circular.

Article 29. Effect

1. This Circular comes into force from November 01, 2016 and replaces Circular No. 218/2013/TT-BTC. The Ministry of Finance shall cooperate with relevant authorities in providing guidelines for special programs and projects funded by ODA/concessional loan.

2. In the cases where any legislative documents referred to in this Circular are amended or replaced, the newest ones shall apply.

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PP MINISTER
DEPUTY MINISTER




Tran Xuan Ha