CIRCULAR

GUIDING THE METHODS OF CONVERTING THE ALREADY DISBURSED INVESTMENT CAPITAL OF CONSTRUCTION WORKS TO THE PRICE FLOOR AT THE TIME OF HANDING OVER AND PUTTING INTO EXPLOITATION AND USE THE INVESTMENT AND CONSTRUCTION PROJECTS

Pursuant to the Government’s Decree No.15/CP of March 4, 1994 defining the functions, tasks, powers and organizational structure of the Ministry of Construction;
Pursuant to Clause 5, Article 56 of the Investment and Construction Management Regulation promulgated together with the Government’s Decree No.52/1999/ND-CP of July 8, 1999;
After reaching agreement with the Ministry of Finance and the Ministry of Planning and Investment, the Ministry of Construction hereby guides the methods of converting the already disbursed investment capital of construction works to the price floor at the time of handing over and putting into exploitation and use the investment and construction projects for implementation by the investors when they make investment capital settlement reports as follows:

I. GENERAL PROVISIONS

1. Converting the already disbursed investment capital of construction works means calculating and transferring the capital amount for construction and installation, equipment and other expenses, which has already been annually invested in the construction works to the price floor at the time of handing over and putting into exploitation and use the construction and investment projects for use as basis for making investment capital settlement reports according to the completed works, determining the value of fixed assets and current assets which have been newly created due to investment and put into operation and use, as basis for allocating capital or determining the value of the assigned property in construction and investment of the State.

2. For construction works of investment projects, which have been completed in terms of investment and construction and put into exploitation and use, the investors shall have to make reports on investment capital settlement in strict accordance with the Investment and Construction Management Regulation. For construction works of multi-year investment projects, when making the investment capital settlement reports, the investors shall have to calculate and convert the already disbursed investment capital of the construction works into the price floor at the time of handing over and putting them into exploitation and use.

3. The capital amount for construction and installation, equipment and other expenses, which has already been annually invested in the construction works serving as basis for the conversion is the entire value of the already completed capital construction volume according to the investment capital structure, which has been allocated the annual payment capital or audited (if any) at the request of the persons competent to approve the settlement (hereinafter called the value of already implemented construction and installation, equipment and other expenses); excluding the value added tax amount (for the value of construction, installation, equipment and other expenses implemented after January 1, 1999), expenses which are not allowed to be included into the works value such as: expenses for losses caused by natural disaster, enemy sabotage and other force majeure incidents, which are beyond the insured scope and objects, the value of cancelled volume under decisions of the competent authorities in the investment and construction process. The value of already implemented construction and installation, equipment and other expenses shall be calculated from the stage of investment preparation, investment implementation to the stage of construction completion and putting the works into exploitation and use.

4. The calculation and conversion of the value of already implemented construction, installation, equipment and other expenses of the construction works depend on such factors as: the time for investment implementation, the changes in the State�s regimes and policies on wages, interest rates, exchange rates and factors affecting the prices on domestic and international construction markets in each period…; and at the same time must ensure the principle of taking into full and accurate account of the above-said factors and must conform to the current regulations of the State.

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6. For some types of construction works which take a long duration for construction and include many constructions and construction items, including those phased out into two: the phase of construction of each work and each item and the phase of exploitation, when making reports on the investment capital settlement of the entire completed projects, the investors shall convert the capital amount already disbursed in the construction phase to the price floor at the time when such works or construction items are completed and put into exploitation.

II. GUIDING THE METHODS OF CONVERTING THE ALREADY DISBURSED INVESTMENT CAPITAL OF CONSTRUCTION WORKS

1. The calculation and conversion order

The conversion of the construction value, the equipment value and other expenses of the already disbursed investment capital of construction works into the price floor at the time of handing over and putting the works into exploitation shall be carried out in the following order:

Step 1: Drawing up the general sheet according to the value of annually implemented construction and installation, equipment and other expenses of the entire works or each construction item (for works with many construction items);

Step 2: Determining the coefficient for conversion of the annually implemented construction and installation value into the price floor at the time of handing over and putting the works or items into exploitation and use under the guidance in Appendix 1 to this Circular;

Step 3: Determining the actual annual interest rate in percentage under the guidance in Items 3.2, 3.3, 3.4, 3.5 and 3.6 of Point 3 of Section II, for use as basis for calculating the value of the money already invested, which has changed according to time under the impact of the interest rates as guided in Appendix 2 to this Circular;

Step 4: Calculating and converting the value of construction, installation, equipment and other expenses already implemented annually (augmented in Step 1) to the price floor at the time of handing over and putting the works or item into exploitation and use according to the formulae in Items 2.1, 2.2, 2.3 of Point 2 of Section II;

Step 5: Determining the already implemented and converted total value of construction, installation, equipment and other expenses of the entire works or each construction item (for works with many construction items) on the basis of the results of augmentation in Step 1 as well as the results of calculation and conversion in Step 4 mentioned above.

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The total construction, installation, equipment and other expense value already converted to the price floor at the time of handing over and putting works or items into exploitation and use (ZQD) shall be determined according to the formula:

Z_QD

=

Z_XL

+

Z_TB

+

Z_CPK

(1)

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Z_XL: The construction and installation value already converted to the price floor at the time of handing over and putting works or items into exploitation and use;

Z_TB: The equipment value already converted to the price floor at the time of handing over and putting works or items into exploitation and use;

Z_CPK: Other expenses already converted to the price floor at the time of handing over and putting works or items into exploitation and use.

2.1. Converting the construction and installation value (Z_XL):

The construction and installation value already converted to the price floor at the time of handing over and putting works or items into exploitation and use shall include: The construction and installation value implemented annually at the time of adjustment to the time of handing over and putting works or items into exploitation and use due to the fluctuation of factors constituting the construction and installation value and the change in currency value according to the time of conversion calculation of the already implemented construction and installation value under the impact of interest rates.

The construction and installation value of the entire works, already converted to the price floor at the time of handing over and putting works or items into exploitation and use (Z_XL) shall be determined according to the following formula:

Z_XL

=

k
Σ  Z ^j_XL
j=1

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...

In which:

k: The number of construction items with construction and installation value converted;

Z ^j_XL: The construction and installation value of item j converted to the time of handing over and putting the item into exploitation and use, which shall be determined according to the following formula:

Z ^j_XL + = Z ^{j t}_G { ( 1 + K_XL ) + [ ( 1 + i )ⁿ – 1 ] }            (3)

In which:

Z ^j_XL: The same as in formula (2);

Z ^{j t}_G: The construction and installation value of item j, already implemented at time t;

n: The number of years for conversion calculation;

i: The actual annual interest rate in %; determined under the guidance in Step 3 of the above-mentioned order for conversion calculation;

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The construction and installation value conversion coefficient (K_XL) shall be used to determine the increase or decrease of the construction and installation value already implemented annually till the time of handing over and putting works or items into exploitation and use due to the fluctuation of spending factors constituting the construction and installation value, and determined according to the method stated in Appendix 1 to this Circular.

2.2. Converting equipment value (Z_TB)

The already implemented equipment value shall be reflected through procurement contracts (the contracts for procurement by mode of appointing the supplier or through bidding) or equipment purchase bills (hereinafter called the already implemented procurement value of equipment), including: technological equipment, equipment and facilities and tools in service of production, working and daily life, which have already been installed and used in the construction works. The already implemented procurement value of equipment shall include:

+ The purchase price of equipment, calculated to Vietnamese ports (CIF price), or at the manufacturing or supplying places in Vietnam (including non-standard equipment (if any));

+ Costs of transport from ports or manufacturing or supplying places in Vietnam to the construction sites;

+ Expenses for preservation, maintenance, warehousing or yard-storing;

+ Import tax (if any), insurance, etc.

The equipment procurement value of the entire works already converted to the price floor at the time of handing over and putting works into exploitation and use shall be determined according to the following formula:

Z_TB

...

...

...

k
Σ   Fj
j = 1

(4)

The equipment j procurement value already converted at the time of handing over and putting in into exploitation and use (Fj) shall be determined according to the following formula:

Fj = Pjt x { ( 1 + C_tbj ) + [ ( 1 + i )ⁿ – 1 ] }               (5)

In which:

Z_TB: The equipment procurement value of the entire work, already converted at the time of handing over and putting the work into exploitation and use;

Fj: The procurement value of equipment of j, already converted to the time of handing over and putting it into exploitation and use;

Pjt: The procurement value of equipment j, already implemented at time t;

k: The number of procured equipment of the work;

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C_tbj: The level of adjustment of prices of equipment j at the time of handing over and putting it into exploitation and use (Pbg) and the price of this type of equipment already implemented at time t (Pt).

C_tbj

=

P_bg - P_t

(6)

P_t

2.3. Converting other expenses (Z_cPk)

The other expenses already implemented according to different stages of the investment and construction process, including: the expenses implemented in the stage of investment preparation (expenses for making pre-feasibility study reports, if any, feasibility study reports or investment reports, expense for project propagation and advertisement, evaluation fee,�); the expenses already implemented in the state of investment execution (expense for compensation and organization of implementation in the process of compensation for land, crops, land rent, for project management board and other consultancy expenses) and the expenses already implemented in the stage of construction completion and project commissioning (expenses for training production workers and managerial cadres, auditing expenses, expenses for test run, etc.)

By the method of determining each spending item of the other expenses already implemented in the investment and construction process, these expenses shall be categorized into two groups:

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- The group of expenses determined by making separate estimates.

According to the above-mentioned contents, the other expenses already calculated and converted to the time of handing over and putting works or items into exploitation and use shall be determined according to the following formula:

Z_CPK

=

n
Σ  Ti
i=1

+

m
Σ  Dj
j=1

(7)

In which:

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Ti: Other expense of No. i determined in percentage (%) already converted at the time of handing over and putting works or items into exploitation and use;

Dj: Other expense of No. j determined by way of making separate estimates, already converted at the time of handing over and putting works or items into exploitation and use.

n, m : The number of items of other expenses of each group.

+ The other expenses Ti already converted at the time of handing over and putting works or items into exploitation and use shall be determined according to the following formula:

Ti = Tkt x ( 1 + i )ⁿ              (8)

In which:

Tkt: Other expense of No. i already implemented at time t;

i, n: Like in formula (3).

+ Other expense Dj already converted at the time of handing over and putting works or items into exploitation and use shall comply with the above-mentioned formula (3).

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3.1. The method of converting the already disbursed investment capital of construction works to the price floor at the time of handing over and putting investment and construction projects into exploitation and use has been guided without taking into account the change in the exchange rate between the local currency and the foreign currency(ies) (for amount of capital already invested in the construction works by foreign currency(ies) when making the calculation and conversion.

3.2. If the annually implemented value of cons-truction, installation, equipment and other expenses has been made with the use of loans of various sources at different annual interest rates, the average annual actual interest rate must be determined according to the following formula:

i

=

h
Σ  V_Vk . i_k
k=1

(9)

h
Σ  V_Vk
k=1

In which:

V_Vk: The capital amount borrowed from each source;

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h: The number of loan sources.

3.3. When the construction, installation, equipment and other expense value implemented annually with the use of borrowed capital at the actual interest rate (it) in short term t (monthly, quarterly, biannually), the actual interest rates for short-term loans must be converted to the annual actual loan interest rate (i) according to the following formula:

i = ( 1 + i _t)^m - 1 (% a year)                    (10)

In which: m is the number of short-term periods, t in the annual term.

3.4. Where the construction, installation, equipment and other expense value has been implemented annually with the use of loans from one source with different loan capital amounts and different short-term interest rates, the average actual short-term interest rate as calculated similarly according to formula (9) must be determined for use as basis for determining the average actual annual loan interest rate according to formula (10).

3.5. When the construction, installation, equipment and other expense value has been implemented annually with the sources of State budget, the development investment capital of State enterprises (excluding the commercial credit capital for development investment prescribed in Item 3, Clause 6, Article 1 of Decree No. 12/2000/ND-CP of May 5, 2000 of the Government amending and supplementing a number of articles of the Investment and Construction Management Regulation promulgated together with Decree No. 52/1999/ND-CP of July 8, 1999 of the Government), the actual annual interest rate level used for conversion calculation is the actual deposit interest rate of the Commercial Bank.

3.6. Where the construction, installation, equipment and other expense value has been implemented annually with the use of 2 or all 3 capital sources (borrowed capital, State budget capital and development investment capital of State enterprises), the actual annual interest rate level used for conversion calculation shall be calculated in average similar to the method of calculation according to formula (9) mentioned above.

3.7. Appendix 2 to this Circular is the table of pre-calculated currency value which change according to time under the impact of interest rate in the above-mentioned conversion calculation formulas No. 3, 5 and 8.

3.8. Where according to specific requirements on characteristics, nature and use purposes of the construction works, the change of currency value according to time of the construction, installation, equipment and other expense value already implemented by the time of handing over and putting the works or items into exploitation and use is not reckoned with, the actual interest rate i shall be 0.

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The investors shall base themselves on the characteristic, nature and concrete conditions of the construction works, the State�s regime and policies in each period and the guidance in this Circular to make the conversion of the already disbursed investment capital when making investment capital settlement reports in strict accordance with the Investment and Construction Management Regulation issued together with Decree No. 52/1999/ND-CP of July 8, 1999 of the Government and Circular No.70/2000/TT-BTC of July 17, 2000 of the Ministry of Finance guiding the final settlement of investment capital, serving as basis for reporting to the competent authorities assigned to approve the investment capital settlement for consideration and decision, and at the same time send the result of conversion of already disbursed investment capital to the Ministry of Construction, the Ministry of Finance and the Ministry of Planning and Investment for monitoring and inspection when necessary.

In the course of application, if problems or irrationalities arise, the ministries, localities and investors are requested to report them to the Ministry of Construction for study and solution.

MINISTER OF CONSTRUCTION




Le Manh Kiem