BLANDEDEKREDITTER I VIETNAM

The overall objective of Danish development aid is to reduce poverty, improve standards of living and contribute to economic growth in developing countries. This is also the objective of the Danish Mixed Credit programme that was established by the Danish government in 1993 – a programme that offers interest free or low interest loans. The loans finance equipment and related services for development projects in developing countries.

The immediate objective of mixed credits is to help mobilise funds for projects that are financially “non-viable” and, therefore, would not be carried out without financial subsidies. By offering a mixed credit facility, Denmark is able to support development projects that cannot be financed on normal market conditions or solely by grant aid.

The subsidy of a Danish Mixed Credit consists of up to three elements:
• payment of interest – fully or partly
• payment of the export credit premium and other financial costs
• up-front grant to reduce the principal of the loan (only for projects in least developed countries)

Most types of projects can be taken into consideration. However, experience shows that eligible projects are often found in the following sectors: water supply and sanitation, renewable energy, infrastructure, environment, health, and education. Maturity is normally 10 years.

Two types of Mixed Credits

There are two types of mixed credits – tied and untied.

Almost all Danish Mixed Credits are tied: this means that the supplier must be Danish. However, it is not required that the goods and services are produced in Denmark. The tied mixed credit facility is offered to Denmark’s Programme Countries. Tied credits are always the starting point for any project under this programme.

The other type of Mixed Credits is untied: this means that the supplier does not have to be Danish, but may be from any OECD member country. Untied credits are only available in Denmark’s Programme Countries and South Africa. The two types of mixed credit facilities are based on the same main principles and are subject to the same terms and conditions.

Important when applying

When considering - or applying for - a Mixed Credit it is important to recognise that a series of requirements have to be fulfilled to obtain Danida’s approval of a project under the Mixed Credit programme.

The first step is a screening of the project proposal. It is a preliminary indication of eligibility and a positive indication to continue project preparations. In order to screen a project, Danida will need a full project description including information about project background, poverty reduction objectives, total project investment incl. detailed budget, type of equipment to be delivered, contract amount to be financed, financial set-up including borrower and guarantor (confirmed by a letter of intent), organisational set-up, timetable and milestones in the project.

Local costs – locally paid

The Mixed Credit facility offers a significant subsidy to financial costs. The buyer/borrower who obtains the loan must still repay the loan in equal, semi-annual instalments, normally starting 6 months after the commissioning of the project. All loans are issued in USD or EUR. The borrower will pay only a commitment fee of a maximum of 0.25 per cent p.a. on the undisbursed loan amount and a management fee of a maximum of 0.375 per cent (flat). However, local financial costs – including local costs for a bank guarantee – are to be paid by the buyer. In order to make sure that the local buyer gets the best possible lending terms, Danida must accept all on-lending agreements. Furthermore, the buyer has to contribute to the total investment, and there have to be sufficient funds in the project in order to ensure operation for a minimum of 1-3 years.

Competitive procurement

Danida wishes to obtain the best possible results when providing aid to developing countries. Consequently, the selected bid must be acceptable to Danida. It must be documented that competitive procurement has taken place, not only in relation to price but also with regard to technology and quality.

Mixed credit support requires that the commercial contract is based on international competitive bidding, e.g. FIDIC. If there are a sufficient number of Danish suppliers, the bidding will be limited to Danish suppliers. It is a requirement that an acceptable commercial bank/financial institution with a representation in Denmark has agreed to act as lender for the project in question.

Danida will typically provide technical assistance for the tender procedure.

The minimum contract amount to be financed is EUR 1 million.

Project selection

Projects in the public sector

The Danish and Vietnamese Government have agreed that the Ministry of Planning and Investment of Vietnam (MPI) will pre-select the projects to be financed. Thus, eligible Vietnamese organisations should submit application for mixed credit support to MPI. However, Danida may also propose projects for financing.

For detailed information on the application procedures for public sector projects, click here. 

Projects in the private sector

Private companies present project descriptions to Danida via the Embassy of Denmark in Hanoi. On the basis of an initial assessment by the Embassy and a recommendation for financial support to a feasibility study, Danida will decide whether to support a feasibility study. On the basis of the feasibility study, Danida will appraise the project and decide whether the project will receive mixed credit financing. It is required that a local bank that is acceptable to the Danish Export Credits Fund (EKF) guarantees the project/the company.

For detailed information on the application procedures for private sector projects, click here. 

More information on the Danish Mixed credit program can be found on www.mixed-credits.dk