Background

On 17 November 2011, the Ministry of Finance issued Circular No. 166/2011/TT-BTC (Circular 166) to guide the implementation of some articles of Decree No. 108/2009/ND-CP dated 27 November 2009 on investment on the basis of BOT (Build-Operate- Transfer) contracts, BTO (Build-Transfer-Operate) contracts and BT (Build-Transfer) contracts (Decree 108).

Circular 166 clarifies key financial criteria such as equity, mobilised capital and profit of the investor.  

Among other things, Circular 166 stipulates the conditions and payment for BT projects and guides the finalisation of the value of a BOT, BTO or BT contract (hereinafter collectively referred to as “project contract”).  

Scope and applicability

Circular 166 provides guidelines on:

  • implementing regulations on fees for project preparation and on use of operational funding by authorised State bodies during the process of
  • project administration;
  • financial criteria of project contracts;
  • conditions and methods for making payment to investors implementing BT projects; and
  • finalisation of the value of a project facility implemented on the basis of a BOT, BTO or BT contract.

Circular 166 applies to investors and State bodies authorised to sign and implement project contracts, and relevant bodies, organisations, individuals and enterprises.

Key financial criteria of a project contract

EQUITY OF THE INVESTOR

The investor must ensure the equity ratio of the project enterprise to the total investment capital of the project as stipulated in Decree 108. The equity of the project enterprise is the equity which the investor undertakes to contribute under the charter of the project enterprise. The equity of the investor will be determined on the basis of the investor’s latest financial report audited by an independent auditor. If simultaneously carrying out various projects, the investor must ensure the total equity fully satisfies the ratios specified for all of these projects.

MOBILISED CAPITAL OF INVESTORS

In addition to the equity mentioned above, the investor and the project enterprise may mobilise other lawful capital sources for implementation of the project contract. These sources of capital may be mobilised by the investor up to the time of negotiation of the project contract and must be undertaken or agreed in writing by the investor and the providers of capital.

The investor and the project enterprise must mobilise capital in accordance with the investment schedule specified in the project contract and report such mobilisation to the State body authorised to sign the project contract.  

PROFIT OF THE INVESTOR

  • In the case of open tender for selection of an investor, the profit of the investor will be determined via the selection results in respect of the tender winning investor.
  • In the case of appointment of tenderer, the profit of the investor will be determined on the basis of (i) the estimated profit in the feasibility report of the project and (ii) the results of negotiation between the State authorised body and the investor. The State authorised body must refer to the average profit level of the enterprises operating in the sector, profits of the similar projects and profits of other sectors to consider calculating a reasonable profit level to propose in the feasibility report.
  • In the case of appointment of tenderer for implementing a BT project, in return for which the State will facilitate implementation of other project(s) by the investor in order to recover investment capital and earn profit, the profit of the investor will be determined in the results of implementation of other project(s). The formulation and implementation of other project(s) must comply with current regulations on management and construction of investment projects.

Payment for BT Contracts

The payment conditions must be stipulated in the project contract. The investor will be paid either in cash or by implementation of other project(s).

CONDITIONS FOR PAYMENT

The investor must construct, complete and hand over the BT facility in strict accordance with the project contract.

The authorised State body may make either a one-off payment or instalment payments. In the latter case, the first payment must be made after the completion, acceptance and handover of the BT facility and the final payment must be at least equal to 15% of the value of the project contract. The finalisation report of the project contract must be approved before the final payment.  

PAYMENT IN CASH

After fulfilment of the BT project contract, the State authorised body will pay the investor and the project enterprise for the total value of the signed project contract plus non-contractual variations (if any).  

Within seven days after receipt of the complete dossier, the State Treasury will base on the payment conditions in the project contract to make payment.

  • One-off payment

The payment proposal dossier comprises:

  • minutes of acceptance of the BT facility completed and handed over according to the schedule of commitments in the project contract;
  • minutes of confirmation of the value of non-contractual variations approved by the authorised State body (if any);
  • payment proposal by the authorised State body specifying (i) the contract value proposed to be paid; (ii) value of variations (if any); and (iii) value of the payment proposal;
  • report on finalisation of the completed project contract;
  • audited report on finalisation of the fulfilled project contract; and
  • approval of the finalisation of the fulfilled project contract by the competent level authority.
  • Instalment payments

The payment proposal dossier comprises:

  • minutes of acceptance of the BT facility completed and handed over according to the schedule of commitments in the project contract;
  • minutes of confirmation of the value of non-contractual variations approved by the authorised State body (if any);
  • payment proposal by the authorised State body; and
  • for the final payment, the payment dossier must have the report on finalisation of the completed BT facility (approved by the competent level authority) and the report on finalisation of the fulfilled project contract.

PAYMENT BY ALLOCATION OF OTHER PROJECT(S)

  • Principle of payment

After construction of the BT facility, the investor will transfer it to the State and the authorised State body will make payment by allocating other project(s) under the following provisions:

  • Payment will be made according to the principle of set-off between the value of the BT project and the value of the other project(s).
  • The value of the other project(s) must be determined and approved by the competent level authority in accordance with relevant laws.
  • Payment will be made only after the project contract has been completed. The State authorised body will issue a decision officially allocating other project(s) to the investor.
  • Payment dossier

The payment dossier comprises:

  • project contract between the authorised State body and the investor;
  • minutes confirming the project contract has been fulfilled in accordance with the progress schedule in such project contract;
  • minutes confirming that the value of noncontractual variations has been approved by the authorised State body (if any);
  • decision by the competent level approving the value of the other project(s).
  • Payment for the project contract
  • The authorised State body will send the payment dossier to the State Treasury for the latter to control expenses. Within 7 days, the State Treasury must base on this dossier to certify the value of the completed construction volume eligible for payment. The authorised State body then will make payment by allocating other project(s) to the investor for implementation.
  • The authorised State body must total the capital amounts already paid to the investor, and on a quarterly and annual basis notify the local finance body of such amounts in order for the latter to supervise and account for the payments via the value of other project(s).

Finalisation of contractual value

  • For BOT contracts
  • The State authorised body will reach agreement with the investor on the selection of an independent auditing organisation with capacity and experience to conduct audits of expenditures for investment in construction and other expenses of the project contract already signed.
  • Based on the audited value, the State authorised body will examine and approve the report on finalisation of the value of the project contract.
  • For BTO and BT contracts:
  • The State authorised body will reach agreement with the investor on the selection of an independent auditing organisation in the same manner as in BOT contracts.
  • The State authorised body will make the same examination and approval as applicable to the projects using State budget capital.

Transitional provision

For the project contracts which are being negotiated and unsigned, the authorised State body will base on Circular 166 to review, adjust and update the relevant provisions in such project contracts.  

For the project contracts which have been signed prior to the effective date of Circular 166, they will continue being implemented.  

For other cases, ministries, branches and provincial People’s Committees will give written notification to the Ministry of Finance to study and guide.

Effective date

Circular 166 will be of full force and effect as from 15 January 2012 and replaces Circular No. 149/2007/ TT-BTC dated 14 December 2007 guiding the management and use of State budget funds for operation of authorised State bodies in managing investment projects in the form of BOT, BTO or BT contract.