THE GOVERNMENT                                                   SOCIALIST REPUBLIC OF VIETNAM

———————————–                                                  Independence – Freedom – Happiness

                                                                                                                           ————————

No. 138/2007/ND-CP5                                                                 Hanoi, August 28, 2007 

DECREE

ON THE ORGANIZATION AND OPERATION OF LOCAL DEVELOPMENT INVESTMENT FUNDS

THE GOVERNMENT

Pursuant to the December 25, 2001 Law on Organization of the Government;
Pursuant to the November 26, 2003 Law on Organization of Peoples Councils and Peoples Committees;
Pursuant to the December 16, 2002 State Budget Law;
Pursuant to the November 29, 2005 Investment Law;
Pursuant to the December 12, 1997 Law on Credit Institutions and the May 16, 2004 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions;
At the proposal of the Minister of Finance,

DECREES:

Chapter I

GENERAL PROVISIONS

Article 1. Governing scope

This Decree provides for the organization and operation of local Development Investment Funds set up by provinces or centrally run cities.

Article 2. Interpretation of terms

In this Decree, the terms below are construed as follows:

  1. Operating capital means the total of owner capital and raised capital of a local Development Investment Fund at a given point of time.
  2. Direct investment in projects means investment by a local Development Investment Fund of its operating capital in projects, whereby the Fund may directly manage the projects in accordance with the law on investment and construction management.
  3. Syndicated lending means joint provision by a local Development Investment Fund and other organizations of loans for investment in a project, whereby the Fund or another organization acts as the major coordinating body.

Article 3. Legal status of local Development Investment Funds

  1. A local Development Investment Fund is a locally based state financial institution functioning to make financial and development investments. A local Development Investment Fund has the legal person status, charter capital, its own balance sheet and seal. It may open accounts at the State Treasury and commercial banks lawfully operating in Vietnam.
  2. The name of a local Development Investment Fund is Development Investment Fund combined with the name of a province or centrally run city.

Article 4. Scope of activities of local Development Investment Funds

A local Development Investment Fund may carry out the following activities:

  1. To raise medium- and long-term capital from domestic and foreign organizations and individuals in accordance with law.
  2. To make investment, including direct investment, in projects; to provide investment loans; to contribute capital to setting up enterprises engaged in socio-economic infrastructure development.
  3. To entrust others to provide investment loans and recover debts; to be entrusted to manage investment capital, provide investment loans, recover debts, allocate investment capital and issue local administration bonds in order to raise capital for local budgets under authorization of Peoples Committees of provinces or centrally run cities (below referred to as provincial-level Peoples Committees for short).

Article 5. State management of local Development Investment Funds

  1. Provincial-level Peoples Committees shall decide on the setting up of local Development Investment Funds, provide for organizational apparatuses and approve operation charters of local Development Investment Funds, directly manage the operation and decide on other matters of local Development Investment Funds which fall within their competence defined in this Decree and current laws.
  2. The Ministry of Finance shall perform the state management of financial matters; promulgate a model charter on the organization and operation of local Development Investment Funds and a financial management regulation applicable to local Development Investment Funds; and supervise, examine and inspect the operation of local Development Investment Funds.

Chapter II

OPERATION OF LOCAL DEVELOPMENT INVESTMENT FUNDS

Section 1. DIRECT INVESTMENT IN PROJECTS

Article 6. Investment targets

Direct investment is targeted to infrastructure investment projects under programs and objectives according to socio-economic development strategies and plans approved by Peoples Councils of provinces or centrally run cities (below referred to as provincial-level Peoples Councils for short), including:

  1. Projects on the construction of technical infrastructure;
  2. Projects on the construction of infrastructure of industrial parks, export-processing zones, economic zones or hi-tech parks; subsidiary projects outside fences of industrial parks, export-processing zones, economic zones or hi-tech parks;
  3. Investment projects on the construction of dwelling houses and projects on the development of new urban centers;
  4. Projects on environmental protection and improvement;
  5. Other key investment projects as decided by provincial-level Peoples Committees.

Article 7. Investment conditions

  1. Investment projects for which investment decisions have been made under the provisions of law.
  2. Investment projects must be efficient and capable of directly retrieving capital.

Article 8. Investment modes

  1. A local Development Investment Fund may make investment in the capacity as an investor or, together with other organizations, contribute capital to making investment, and take responsibility for its investment decisions according to responsibility decentralization by the provincial-level Peoples Committee.
  2. A local Development Investment Fund may directly manage investment projects or hire professional organizations to do so in accordance with law.

Article 9. Investment forms

  1. Depending on specific conditions, a local Development Investment Fund may select the following investment forms:

a/ Making investment under Build-Operate -Transfer (BOT) contracts, Build-Transfer-Operate (BTO) contracts or Build-Transfer (BT) contracts in accordance with law.

b/ Seeking projects, performing investment preparations, then making investment, or transferring projects to other investors for investment.

  1. A local Development Investment Fund shall make investment in accordance with the law on investment and construction management.

Article 10. Investment-deciding competence

  1. A local Development Investment Fund may decide on the investment capital amount for a project accounting for up to 10% of owner capital of the Fund;
  2. The provincial-level People Committee may decide on the investment capital amount for a project accounting for over 10% of owner capital of a local Development Investment Fund.

Section 2. PROVISION OF INVESTMENT LOANS

Article 11. Investment loan-eligible objects

Loan-eligible objects are infrastructure investment projects with direct retrieval capital plans under programs or objectives according to socio-economic development strategies or plans approved by provincial-level Peoples Councils, including:

  1. Projects in the domains of communications; water supply; dwelling houses in urban centers and residential areas; relocation and reorganization of production establishments; and treatment of urban wastes;
  2. Important projects as decided by provincial-level Peoples Committees.

Article 12. Loan provision conditions

A local Development Investment Fund shall only provide loans to an investor that fully meets the following conditions:

  1. Having completely carried out investment procedures in accordance with law;
  2. Having a profitable production and business plan and a plan to secure the payment of debts;
  3. Committing to buy insurance for loan-formed assets subject to compulsory insurance at an insurance company licensed to operate in Vietnam;
  4. Being an organization having the legal person status or an enterprise of any economic sector.

Article 13. Competence to decide on investment loans

  1. A local Development Investment Fund may decide on the loan amount for a project accounting for up to 15% of owner capital of the Fund;
  2. The provincial-level People Committee may decide on the loan amount for a project accounting for over 15% of owner capital of a local Development Investment Fund.

Article 14. Loan term

Loan term shall be determined based on capital retrieval capability suitable to each projects production and business characteristics and the investors debt payment but must not exceed 15 years. Provincial-level Peoples Committees shall make decisions on special loans with a term of over 15 years.

Article 15. Lending interest rates

  1. Lending interest rates set by local Development Investment Funds for projects must, in principle, not be lower than the States investment credit interest rates.
  2. Sub-lending interest rates applied to ODA-funded projects comply with the Governments regulations on management of the provision of foreign loans and the payment of foreign debts.

Article 16. Loan security

Depending on each project, local Development Investment Funds shall apply loan security measures according to law.

Article 17. Provisions on syndicated lending

  1. Local Development Investment Funds may act as major bodies in providing syndicated loans or, together with credit institutions or other organizations, contribute capital to providing loans for projects.
  2. The provision of syndicated loans must be made in contracts and comply with the provisions of Articles 11, 12, 13, 14, 15 and 16 of this Decree.

Article 18. Classification of debts, setting up of risk provisions for investment loans

Local Development Investment Funds shall classify debts and set up risk provisions for investment loans like credit institutions.

Article 19. Handling of risks

Risks incurred due to objective causes to projects borrowing loans of local Development Investment Funds shall be handled as follows:

  1. When state policy changes directly affect project activities, thus causing difficulties to investors in repaying loans, investors may be considered for debt prolongation, loan interest remission or reduction, or debt freezing;
  2. When natural disasters, fires or accidents occur due to objective causes, causing losses of assets, thus making investors incapable of paying debts, with certification of competent state agencies, risks shall be handled in the following order:

a/ Using investors financial sources for debt retrieval according to regulations;

b/ Getting insurance agencies compensations (if any);

c/ Considering the remission of part or all of the remaining debts.

Article 20. Risk handling competence

  1. An authority which decides to provide loans may decide to prolong debts. The debt prolongation duration must not exceed one-third of the term of the loan.
  2. The Management Council may decide on the remission of interest debts.
  3. Provincial-level Peoples Committee presidents may decide to freeze debts or remit principal debts, and shall, after deciding to remit debts, report such decision to provincial-level Peoples Councils.

Section 3. CAPITAL CONTRIBUTION FOR SETTING UP ECONOMIC ORGANIZATIONS

Article 21. Capital contribution forms

Local Development Investment Funds may contribute capital for setting up joint-stock companies or limited liability companies in accordance with the Enterprise Law in order to directly invest in socioeconomic infrastructure works and projects under programs or objectives according to local socioeconomic development strategies or plans approved by provincial-level Peoples Councils.

Article 22. Competence to decide on capital contribution

  1. A local Development Investment Fund may decide on capital amount contributed to an enterprise accounting for up to 10% of owner capital of the Fund.
  2. The provincial-level Peoples Committee may decide on capital amount contributed to an enterprise accounting for over 10% of owner capital of a local Development Investment Fund.

Section 4. ENTRUSTMENT ACCEPTANCE AND ENTRUSTMENT

Article 23. Entrustment acceptance

  1. Local Development Investment Funds may be entrusted to manage investment capital, provide investment loans and recover debts, and allocate investment capital for works or projects funded with the state budget, by the Vietnam Development Bank, enterprises, and domestic and foreign organizations and individuals under entrustment acceptance contracts between local Development Investment Funds and entrusting organizations or individuals.
  2. Local Development Investment Funds may be entrusted to manage the operation of credit guarantee funds for small- and medium-sized enterprises, and housing development funds set up by provincial-level Peoples Committees.
  3. Local Development Investment Funds may issue local administration bonds under authorization of provincial-level Peoples Committees in order to raise capital for local budgets in accordance with law.
  4. Local Development Investment Funds are entitled to entrustment acceptance service charges. Specific charge levels shall be agreed and written in entrustment acceptance contracts.

Article 24. Entrustment

  1. Local Development Investment Funds may entrust credit institutions and the Vietnam Development Bank to provide loans and recover debts for projects loaned by local Development Investment Funds under entrustment contracts between local Development Investment Funds and entrusted organizations.
  2. Entrusted organizations are entitled to entrustment service charges. Specific charge levels shall be agreed and written in entrustment contracts.

Section 5. INVESTMENT LIMITS

Article 25. Investment limits

  1. Direct investment capital of a local Development Investment Fund in projects must not exceed 50% of its operating capital at the time of investment.
  2. Loans for a project must not exceed 15% of the operating capital of a local Development Investment Fund at the time of lending.
  3. Capital contributed for setting up economic organizations must not exceed 20% of the operating capital of a local Development Investment Fund at the time of capital contribution.

Chapter III

OPERATING CAPITAL OF LOCAL DEVELOPMENT INVESTMENT FUNDS

Article 26. Owner capital

  1. Owner capital of a local Development Investment Fund is formed from the following sources:

a/ Charier capital: is included in the expenditure estimate or the increased revenue of the annual local budget and added with capital from the development investment fund under the provisions of Point b, Clause 6, Article 40 of this Decree;

b/ Voluntary contributions and aid of domestic and foreign organization and individuals, and other revenues as prescribed by law.

  1. The provincial-level Peoples Committee shall decide to adjust the charter capital of a local Development Investment Fund and notify the Ministry of Finance of such adjustment; however, the charter capital must not be lower than the minimum level specified in Clause 2, Article 30 of this Decree.

Article 27. Raised capital

Local Development Investment Funds may raise medium- and long-term capital from domestic and foreign organizations and individuals by:

  1. Borrowing loans from domestic and foreign financial and credit institutions. The borrowing of foreign loans complies with legal provisions on foreign loans and debts;
  2. Issuing their bonds in accordance with law;
  3. Applying other forms of capital raising in accordance with law.

Article 28. Capital raising limits

The total capital amount raised by a local Development Investment Fund in the forms specified in Article 27 of this Decree may be up to 6 times its owner capital at a time.

Article 29. Entrusted capital

Entrusted capital provided for in Article 23 of this Decree is not included in the operating capital of a local Development Investment Fund.

Chapter IV

ORGANIZATION OF LOCAL DEVELOPMENT INVESTMENT FUNDS

Article 30. Conditions for setting up a local Development Investment Fund

  1. There is a scheme on setting up a local Development Investment Fund, approved by the provincial-level Peoples Council.
  2. The charter capital of a local Development Investment Fund by the time of its establishment must be at least VND 100 (one hundred) billion.
  3. Personnel of the organizational apparatus of a local Development Investment Fund must possess professional capacity and skills suitable to the Funds operating requirements.
  4. The director and deputy directors of a local Development Investment Fund must possess a university degree in economics, finance or banking and at least 3 years managerial or administration experience in the economics, finance, banking or investment domain.
  5. The head of the Control Board of a local Development Investment Fund must possess a university degree in finance, accountancy or banking and at least 3 years managerial or administration experience in the finance, accountancy or banking domain.

Article 31. Order of setting up a local Development Investment Fund

  1. The provincial-level Peoples Committee shall elaborate a scheme on setting up a local Development Investment Fund and submit it to the provincial-level Peoples Council for approval. Such a scheme comprises:

a/ The provincial-level Peoples Committees report on the necessity to set up the Fund; operation scale and scope, and organizational structure of the Fund;

b/ The provincial-level Peoples Committees plan to allocate charter capital for the Fund;

c/ A draft charter of organization and operation of the Fund which is compliant with the model charter on organization and operation of local Development Investment Funds, promulgated by the Ministry of Finance;

d/ A tentative operation plan for the first 2 (two) years, attached with a tentative list of investment projects at the time of approval;

dd/ Written explanations on the Funds organizational and operational apparatuses, as required in Clauses 3, 4 and 5, Article 30 of this Decree.

  1. The provincial-level Peoples Committee shall decide to set up, and approve the organization and operation charter of, a local Development Investment Fund.
  2. Within 30 days after issuing a decision to set up a local Development Investment Fund, the provincial-level Peoples Committee shall report such setting up to the Ministry of Finance and publicize it on local and central mass media.

Article 32. Operation principles of local Development Investment Funds

  1. Local Development Investment Funds shall operate on the principles of enjoying financial autonomy, preserving and developing capital, offsetting expenses and taking risks by themselves. State budget funds shall not be allocated for the operation of the apparatuses of local Development Investment Funds.
  2. Local Development Investment Funds shall take limited liability within the limits of their owner capital.

Article 33. Responsibilities of local Development Investment Funds

  1. To make investment under investment plans and structures approved by provincial-level Peoples Committees in each period in conformity with socio-economic development strategies and plans approved by provincial-level Peoples Councils.
  2. To use investment capital for proper purposes.
  3. To implement accounting, statistical and financial reporting regimes in accordance with law.
  4. To submit to inspection and examination by competent state management agencies according to law; to supply data on, and publicize, their financial situation in accordance with law.
  5. To buy asset insurance, risk insurance and insurance of other kinds according to law.
  6. To strictly observe laws and other regulations related to their operation.

Article 34. Powers of local Development Investment Funds

  1. To carry out activities in line with their operation objectives and scope in accordance with this Decree.
  2. To select efficient projects in conformity with provincial-level Peoples Committees investment plans and structures in order to decide on investment. Special cases shall be decided by provincial-level Peoples Committees.
  3. To recruit, arrange, employ and train laborers in accordance with law.
  4. To refuse individuals or organizations request for supply of the Funds information or other resources if such request contravenes laws or their organization and operation charters.
  5. To contact local functional branches and relevant units in order to seek and formulate investment projects.
  6. To invite and receive foreign investment and business partners; send their officials and employees for overseas working missions, study tours or field surveys according to law.

Article 35. Managerial and administration apparatuses of local Development Investment Funds

  1. Local Development Investment Funds are organized to operate on an independent basis.
  2. A local Development Investment Funds organizational structure is composed of a Management Council, a Control Board and an administration apparatus.

Article 36. Composition of the Management Council

  1. The Management Council is composed of up to 7 members. The provincial-level Peoples Committee shall, based on practical conditions, decide on the number of members of the Management Council on the principle that it must be an odd number.
  2. The chairman, the vice chairman and other members of the Management Council shall be appointed, relieved from office or dismissed by the provincial-level Peoples Committee president.
  3. The composition, structure, criteria, number of members and term of the Management Council are specified in the model organization and operation charter of local Development Investment Funds.

Article 37. Tasks and powers of the Management Council

  1. To consider and approve operation orientations, capital raising plans, investment plans, and long-term and annual financial plans for submission to provincial-level Peoples Committee presidents for approval; to verify and approve finalization reports of the local Development Investment Fund.
  2. To supervise and inspect the administration apparatus of the local Development Investment Fund in the observance of policies and laws and the implementation of its decisions.
  3. To consider and approve interest-rate brackets for providing investment loans and submit them to the provincial-level Peoples Committee president for approval.
  4. To consider and decide on investment in projects falling within its competence.
  5. To submit to the provincial-level Peoples Committee for decision amendments to the organization and operation charter of the local Development Investment Fund in accordance with practical requirements and current provisions of law.
  6. To consider and settle complaints lodged by organizations or individuals involved in the operation of the local Development Investment Fund in accordance with law.
  7. To submit to the provincial-level Peoples Committee president the appointment, relief from office or dismissal of the head of the Control Board of the local Development Investment Fund; decide on other members of the Control Board at the proposal of the Control Boards head.
  8. To promulgate its operation regulation and assign tasks to its members.
  9. To promulgate professional regulations of the local Development Investment Fund at the proposal of the Funds director.
  10. Other powers defined in the organization and operation charter of the local Development Investment Fund.

Article 38. Control Board of a local Development Investment Fund

  1. The Control Board has the following tasks and powers:

a/ To inspect and supervise the implementation of policies, regimes and professional operations of the local Development Investment Fund in order to ensure the operation efficiency of and asset security for the Fund;

b/ To work out plans and periodically or extraordinarily report on supervision and inspection work to the Management Council. The Control Boards head may request the Management Councils chairman or, in case of the Management Councils disapproval, request the provincial-level Peoples Committee president to convene an irregular meeting to report on urgent matters that negatively affect the Funds operation;

c/ To present its reports or proposals on control results and results of evaluation of financial finalization reports at the Management Councils meetings but not to vote.

  1. The Control Board is composed of up to 5 members who are entitled to allowances and other benefits as prescribed by the Management Council.

Article 39. Administration apparatus of a local Development Investment Fund

  1. The administration apparatus of a local Development Investment Fund is composed of the Board of Directors (the director and deputy director) and professional sections and departments.
  2. The Funds director is a member of the Management Council and appointed by the provincial-level Peoples Committee president. The director is a legal-person representative of the Fund and answerable before the provincial-level Peoples Committee, the Management Council and law for all professional operations of the Fund.
  3. The Funds director shall propose the Management Council to consider and submit to the provincial-level Peoples Committee president the appointment, relief from office or dismissal of the Funds deputy director and chief accountant.
  4. The Management Council shall, based on the Funds practical operation, decide on the organization of the Funds professional sections and departments in conformity with the guidance in the model organization and operation charter of local Development Investment Funds.
  5. The director of a local Development Investment Fund has the following tasks and powers:

a/ To manage and administer the Funds activities strictly according to the Funds organization and operation charter, the Management Councils decisions and laws;

b/ To submit to the Management Council for promulgation the Regulation on the Funds professional operations;

c/ To be answerable for his/her decisions before the provincial-level Peoples Committee and the Management Council; to sign documents falling within his/her scope of administration;

d/ To periodically or extraordinarily report on the Funds operation to the Management Council, the provincial-level Peoples Committee and the Ministry of Finance;

dd/ To directly manage assets and operating capital, and are responsible for preserving and developing capital and assets of the Fund in accordance with law;

e/ To decide on the appointment, relief from office or dismissal of heads of professional sections or departments or persons holding equivalent and lower posts;

g/ Other powers defined in the Funds organization and operation charter.

Chapter V

FINANCIAL, ACCOUNTING AND AUDIT REGIMES

Article 40. Financial regime

  1. A fiscal year of a local Development Investment Fund starts on January 1 and ends on December 31.
  2. Deductions for risk provisions for providing investment loans shall be accounted as operating expenses of a local Development Investment Fund.
  3. A local Development Investment Fund shall implement salary, bonus and welfare regimes according to regulations applicable to state enterprises.
  4. A local Development Investment Fund shall fulfill its obligations towards the state budget in accordance with law.
  5. The operation outcome of a local Development Investment Fund is the balance between total receivables and total payables which are rational and valid. If total revenues are larger than total expenditures, their balance is distributed in the following order:

a/ Offsetting accumulated loss amounts by the time of finalization;

b/ Paying fines for violation of law which fall within the Funds responsibilities in accordance with law;

c/ Deducting 10% for the financial risk provision until this provisions balance is equal to 25% of the charter capital of the Fund;

d/ The balance after subtracting the amounts specified in Points a, b and c, Clause 5 of this Article shall be deducted in the following order:

- At least 30% for the development investment fund;

- Up to 5% for setting up the reward fund of the Management and Administration Board of the Fund. The deducted amount must not exceed VND 500 million;

- A maximum amount equal to 3 months paid salaries for the reward fund and the welfare fund. The specific deduction level shall be decided by the Management Council of the Fund;

- The remainder shall be added to the development investment fund.

  1. Use purposes of funds

a/ The financial risk provision is used to offset losses resulting from irrecoverable assets or debts in the course of operation;

b/ The development investment fund is used to supplement the charter capital;

c/ The reward fund is used to grant periodical or extraordinary rewards to officials and employees based on their labor productivity and working achievements;

d/ The welfare fund is used to cover expenses for officials and employees public welfare activities and works and for social welfare;

dd/ The Management and Administration Councils reward fund is used to give rewards to the Management Council and the Board of Directors of the Fund.

Article 41. Accounting and audit regimes

  1. A local Development Investment Fund shall implement accounting, statistical and reporting regimes in accordance with current provisions of law.
  2. Financial statements of a local Development Investment Fund must be audited by an independent audit organization.
  3. The Ministry of Finance shall guide in detail accounting regimes, financial management mechanisms and reporting regimes applicable to local Development Investment Funds.

Chapter VI

IMPLEMENTATION PROVISIONS

Article 42. Implementation effect

This Decree takes effect 15 days after its publication in CONG BAO.

Article 43. Reorganization of local Development Investment Funds operating on a pilot basis

  1. Within 12 months from the effective date of this Decree, local Development Investment Funds operating on a pilot basis shall re-register their organization and operation charters and reorganize their operation in accordance with this Decree.
  2. Within 3 years from the effective date of this Decree, local Development Investment Funds which have the actual charter capital of under VND 100 (one hundred) billion each shall increase their charter capital to the level specified in Clause 2, Article 30 of this Decree. Past that time limit, those Funds with the actual charter capital of under VND 100 (one hundred) billion each must terminate their operation.
  3. Within 3 years from the effective date of this Decree, provincial-level Peoples Committees shall direct local Development Investment Funds to reorganize their operation after an independent model in accordance with this Decree. Based on their operation nature, the Funds may organize a complete administration apparatus as stipulated in Article 39 of this Decree or authorize other organizations to conduct some operations such as project evaluation, capital disbursement, debt collection and investment capital management.

Article 44. Implementation guidance

The Ministry of Finance shall guide the implementation of this Decree.

Article 45. Organization of implementation

Ministers, heads of ministerial-level agencies, heads of government-attached agencies and presidents of provincial-level Peoples Committees shall implement this Decree.

                                                                                                        CHUKY

 

Related posts