Joint Circular No. 90/1997/TTLT/TC-NN guiding the regime of financial management at the State enterprises engaged in public utility activities in the exploitation and protection of water conservancy projects

8 OFFICIAL GAZE.TIE No.5 (20-2-1998) THE MINISTRIES INTER-MINISTERIAL THE MINISTRY OF FINANCE - THE MINISTRY OF AGRICULTURE AND RURAL DEVELOPMENT JOINT CffiCULAR No.90/1997 /TTLT/TC- NN OF DECEMBER 19, 1997 GUIDlNG THE REGIME OF FINANCIAL MANAGEMENT AT THE STATE ENTERPRISES ENGAGED IN PUBLIC UTILITY ACTIVITIES IN THE EXPLOITATION AND PROTECTION OF WATER CONSERVANCY PROJECTS Pursuant to the Law on State Enterprises adopted by the National Assembly on April. 20, 1995; the Ordinance on the Exploitation and Protection of Water Conservancy Projects of August 31, 1994, Decree No.56-CP of October 2, 1996 of the Government on the State Enterprises Engaged in Public Utility Activities, the Ministry ofFinance has issued Circular No.06-TC/ TCDN of February 24, 1997 to guide the financial management regime at State enterprises engaged in public utility activities according to the provisions of Decree No.56-CP of October 2, 1996 of the Government. In view of the characteristic nature of the activities and the mechanism of financial management at the enterprises engaged in the exploitation and protection of water conservancy works, aside from implementing the provisions in Circular No. 06-TC/fCDN ofFebruary 24, 1997 of the Ministry of Finance, the Ministry of Finance and the Ministry of Agriculture and Rural Development now jointly issue the following guidance on some concrete questions regarding the regime of financial management at the State enterprises engaged in public utility activities in the e:\.'J)loitation and protection of water conservancy projects: I. GENERAL PROVISIONS l. Subject to the regulation of this Circular are the State enterprises engaged in public utility activities in the exploitation and protection of water conservancy projects (commonly called agro-hydraulic enterprises) comprising the independent accounting enterprises founded by decision of the Minister of Agriculture and Rural Development or the Presidents of the People's Committees of the provinces and cities No.5 (20-2-1998) OFFICIAL GAZETTE 9 directly under the Central Government according to Finance. the criteria provided for in Articles 1 and 2 of Decree - It is exempted from land use tax on the area No.56-CP of October 2, 1996 of the Government. ~1ssigned by the State for the construction and 2. The agro-hydraulic enterprises conducting protection of water conservancy projects (including irrigation and drainage services according to the the house forthe management of the stations and the assigned tasks or on orders are entitled to collect water group of main pr(ljects, workshops, and storehouses conservancy fees and a number of other charges in service of the exploitation and protection of water provided for by the State. The agro-hydraulic conservancy projects). In case the agro-hydraulic' enterprises which are assigned capital, natural enterprise uses this land for service businesses, it has resources, land and other resources, shall have to use to pay the land rent as provided for in Decree No.85- effectively, preserve and develop the assigned capital, CP ofDecembcr 17, 1996 of the Government. have civil rights and obligations, take on themselves -It is exempted from income ta'\'. on tl1e income made the responsibility for tl1eir activities as assigned by up of the water conservancy fees collected from the the State within the limit of the capital and resources activities in direct service of agricultural production. managed by the enterprises through the mode ofusing revenues to cover expenditures and receiving financial - It does not have to pay tax on the use of State support from the State in the cases stipulated in Article budgetary capital. 11 of the Ordinance on the Exploitation and Protection 5. The agro-hydraulic enterprise is subject to the of Water Conservancy Projects. financial control and supervision by the financial 3. In addition to implementing the irrigation and agency in its capacity as representative of the owner draiiiage task, an agro-hydraulic enterprise is allowed of State capital and property at the enterprise with to make the most of the land, landscape, State capital delegation from the Government. and property managed by t11e enterprise to organize business in supplementary occupations and trades II. MANAGEMENT AND USE OF suitable to the capabilities of the enterprise and the CAPITAL AND PROPERTY demands of the market on the following conditions: - It must get the written consent of the agency 1. CaJlital investment: which decides to found the enterprise; 1. I. A newly founded agro-hydraulic enterprise - It shall not interfere with tl1e execution of the shall be given priority in investment of part or the whole irrigation and drainage tasks assigned or ordered by of the initial regulatory capital, not lower tl1an the the State. prescribed capital provided for in Decree No. 50-CP of - It must register the supplementary businesses as August 28, 1996 of the Government, consistent with currently prescribed. the size and assigned task of irrigation and drainage. - It must make separate accounting of the The enterprise has the duty to continually preserve supplementary businesses. and develop the capital from the results of its business activities. An agro-hydraulic enterprise shall receive - It must fulfil the obligation of paying taxes on the State investments in projects, property, machinery and supplementary businesses as prescribed by law. equipment of the categories not subject to depreciation 4. An agro-hydraulic enterprise is entitled to the cost accounting in the process of construction, following financial policies: purchase, renovation or upgrading when these - It is given preference in capital investment, properties are no longer usable. It is also entitled to supplied with part or tl1e whole of the regulatory capital, supplementary capital allocation if the State deems it given preferential loans or support from the official aid necessary to make additional investment in order to to the projects and programs in the e;,,."J)loitation of the carry out tl1c supplementary task assigned by the State ·water conservancy works. or. if it really falls short of capital compared to the assigned task of irrigation and drainage (after full - It is exempted from capital depreciation deduction mobilization of the existing sources of capital at the for the projects built up or cast or made of earth, enterprise). The supplementary capital sources for an pumping stations with capacity of 8,000 m3/hour operating enterprise comprise: upward as currently stipulated, together with the property and architectural objects associated with the. - A profitable enterprise shall be considered for use and operation of these pumps and a number of profit tax relief in order to supplement the capital of the other properties as defined in Decision No. I 062/TC/ enterprise as prescribed by law. QD/CSTC of November 14, 1996 of the Ministry of - An enterprise which does not make profit in

10 OFFICIAL GAZETTE No.5 (20-2-1998) business or which still runs short of capital after on the book of accounts as well as the fee of sale or enjoying profit tax relief shall be considered for assignment shall be accounted into the business result supplementary allocation of capital by the State. of the enterprise. 1.2. The agency which decides to found the agro- For the properties not subject to deduction of hydraulic enterprise and the financial agency of the depreciation cost the assignment or sale shall be same level have the responsibility to assure the accounted as reduction of the business capital of the regulatory capital at the time of the founding of the enterprise, and the income from the sale or assignment enterprise as stipulated in Article 2 of Decree No.50- (after deduction of the cost of assignment or sale) shall CP of August 28, 1996 of the Government and to be wholly remitted to the State budget (or accounted allocate supplementary capital to the enterprise. as increase ofbusiness capital if the State reinvests in 1.3. Procedures for capital investment: the enterprise). a/ For investment in construction: The agro- - For the important fixed assets and the main hydraulic enterprise shall be allocated investment by production lines, before the assignment or sale, the the State to upgrad.e or build new constructions, enterprise must get the written consent of the agency expand the scop~ ofits activities, conduct major repairs which decides to found the enterprise after receiving of its constructions, machinery and equipment and the written agreement of the agency managing State restore its projects. It shall not have to deduct its capital and properties at the enterprise. depreciation cost with the sources of investment capital - For the properties which are unnecessary or which for basic construction as provided for in the current are leased out because of their inefficient use, the Regulation on the Management of Construction enterprise shall report its plan for their use to the Investment. agency which decides to found the enterprise for b/ In case of supplementary investment for business decision. For the properties which are leased out with .·• capital, the enterprise must file a dossier proposing a view to raising the efficiency of their use and allocation of supplementary capital including: increasing the income of the enterprise they still have to make deduction of the depreciation cost as - The decision to found the enterprise; prescribed and the enterprise shall have to monitor - The certificate ofbusiness registration; and retrieve the properties on expiry of their lease tenn. - The decision of the head of the agency which - The enterprise is entitled to pawn and mortgage decides the founding on the assignment of the public properties in order to borrow capital from the credit utility task; organizations according to provisions of law. The - The production and financial plan of the enterprise enterprise is not allowed to pawn or mortgage already ratified by the competent authority; properties which it borrows or hires or is asked to keep nor accept pawns and mortgages from individuals or - The public financial report of the enterprise in the another enterprise without the consent of the owners previous year (if the enterprise is still operating). of these properties. 1.4. The process of allocating capital to the enterprise shall comply with the decision of the 3. Liquidation of properties: Ministry of Finance. An agro-hydraulic enterprise is allowed to liquidat~ 2. Assigning, selling, leasing, mortgaging and properties which are not necessary or are obsolete pawning prope11y: technically and cannot be used, are out of order or substandard. - An agro-hydraulic enterprise may assign or sell Important equipment and properties, the main unnecessary or technically obsolete properties in order production lines of a decisive character for the to recover capital after the agency deciding to found operation of the enterprise such as the mechanical the enterprise decides to that effect. Before assigning pumps or canals ... must get the written consent of the or selling the enterprise .must set up a Price Setting agency which decides to found the enterprise and the Council and conduct a public bidding as prescribed agency managing the State capital and properties at by law. The Council must be composedat least of the the enterprise before their liquidation. representatives of the Board of Directors, a technically knowledgeable person, the chief accountant and the Before the liquidation, a Property Liquidation person directly managing the property of the Council must be set up, composed of at least the enterprise ... The difference between the selling or representative of the enterprise leadership, a technician, assignment of the property and the remaining value the chiefaccountant and the manager of properties ... No.5 (20-2-1998) OFFICIAL GAZETIE 11 In case the spare parts, discarded materials and other joint ventures, to the stock companies as required by properties resulting from the liquidation are used for law. production and business purposes, the enterprise shall The handling of the results of the inventory and have to organize the evaluation and organize bidding revaluation of properties must comply with the as required by law if these properties are put on sale. regulations of the State. The difference between the income resulting from the liquidation (including the value of the part used for investment in business) and the value remaining on III. TURNOVER, EXPENDITURES AND the book of accounts of the liquidated properties as DISTRIBUTION OF PROFITS well as the liquidation fees shall be accounted in the business results of the enterprise. In particular, for 1. The turnover of an agro-hydraulic enterprise those properties not subject to deduction of the com1>riscs the revenue from the irrigation and drainage deprecation cost, they shall be accounted as reduction service (under the policy of collection of water of business capital of the enterprise. The income from conservancy fees); revenue from business activities the liquidation, after deduction of the liquidation in the integrated exploitation of the water conservancy expenditures, shall have to be remitted wholly to the projects; revenue from the aid allowances of the State State budget (or accounted as increase of the business as prescribed; and other revenues ... capital if the State reinvests it in the enterprise). 1.1. Revenue from irrigation and drainage service is the money collected as water conservancy fee and 4. The a~rro-hydraulic cntc11nises shall carry out tested on completion according to the contract. The the regime of deduction and use of the fixed asset level of this fee shall be set bytl1c People's Committees dcJ)rcciation cost as provided for by the Ministry of of the provinces and cities directly under tl1e Central Finance. The following assets shall not be subject to Government. deduction of depreciation cost: For the inter-provincial agro-hydraulic enterprises, - The cast-built or earth works. the income is the remittances fro!'n the agro-hydraulic - Mechanical pumps with capacity of 8,000 1113/h enterprises in the system determined by the System upward as currently provided for together with Management Council. architectural objects used in the operation of the works. 1.2. The income from the business operations in - Fixed assets coming from the welfare fund of the the integrated exploitation of the water .conservancy enterprise and not directly serving the production and works such as: aquaculture and fisheries, leasing of business activities of the enterprise. water locks, tourist services, electricity and water supply for industrial production, supply of living water - Fixed assets hired for operation. for the industrial zones and other business activities. - Fixed assets still in use though having exhausted 1.3. Income from allowances of the State as their depreciation time. prescribed. - Fixed assets which are not necessary_ wait removal 1.4. Other incomes suehas recovery ofbad debts, or have been kept for more than a year-~nd have been incomes from liquidation and sale or assignment of registered with the financial agen;y. properties, from joint ventures and cooperation, The whole depreciation cost of the fixed assets financial leases and other incomes ... shall be left at the enterprise for reinvestment in renovation and replacement of fixed assets and for use 2. The expenditures of an agro-hydraulic to meet the business requirements as provided for by enterprise comprise: the Ministry ofFinance. 2.1. fa.1>enditures on irrigation and drainage: With regard to the properties not subject to 1. Wages and wage subsidies. depreciation dedication, the enterprise still have to open the book of accounts to monitor and record the 2. Remittances based on wages such as social depreciated value as prescribed. insurance, health insurance, trade union fee of the laborers directly paid by the enterprise. 5. The agro-hydraulic entel"J)rise shall rec"itluate its properties in tile foltowing cases: 3. Basic. depreciation of the fixed assets of the properties subject to depreciation deduction. - Inventorizing and reevaluating properties as 4. Materials and fuel for operating and maintaining decided by the State. constructions, machinery and equipment used in - Using its properties to contribute to the capital of irrigation and drainage service.

12 OFFICIAL GAZETTE No.5 (20-2-1998) 5. Major repairs affixed assets. - Income from other activities used to make up for 6. Regular repair of fixed assets. the expenditures on other activities, taxes and other payments to the State as prescribed by law (except for 7. Electricity cost of pumping at irrigation and profit tax). drainage stations. An agro-hydraulic enterprise conducting 8. Pay to the water supply sources (if any). supplementary business activities must ensure that 9. Managerial cost of the enterprise (including the these activities are profitable and it must not use the charges on computerized telephone to re!:,'l.llate the profit in public utility activities to make up for the losses water level in service of production). in other businesses. 10. Expenditures in service of the prevention and 3. Distribution of1>rofits: fight against storms, floods and droughts. 1. The profits achieved by an agro-hydraulic l l. Contributions to the fund for prevention and enterprise in the year (including profit from businesses fight against storms and floods. and other activities) shall be distributed in the 12. Expenditures on training, scientific research, follO\\ing order: application of new technologies and elaboration of a/ Paying profit tax as prescribed by law. economic and technical criteria and norms . b/ Deducting the fines for violations of the contract. 13. Expenditures on labor protection and safety and for overdue debts, and other reasonable expenditures protection of the water conservancy works ... not yet deducted when determining the taxable profits. 14. Expenditures on the collection of water c/ Deducting losses not yet deducted when conservancy fee. determining the taxable profits. 15. Other expenditures ... d/ After making deductions as in Items a, b, and c. 2.2. The expenditures on the business activities in the enterprise may establish its funds according to the the integrated exploitation are the expenditures in the following proportions and ceilings: raising of aquaproducts, fisheries, guard and other + Development investment fund: minimum 50%. businesses ... + Financial reserve fund: 10%, but the balance of 2.3. The expenditures on other activities include this fund must not exceed 25% of the statutory capital. expenditures on the recovery of bad debts which have + Deductions from tl1e reward and welfare funds been written off, expenditures on the collection offines, expenditures on the assignment, sale and liquidation representing real wages for three months if it fulfils the of fixed assets. plan of remittance to the budget ratified by the competent authority. [n other cases, the enterprise is In addition to the above expenditures, the enterprise entitled to make deductions from these two funds is entitled to put into its expenditure accounts the representing the real wages of two months. severance allowances for laborers as stipulated in After making deduction defined in Items a. band c, Decree No. 198-CP of December 31, 1994 of the of the development investment fund and the financial Government guiding a number of provisions in the reserve fund, if the profit fund is not exhausted, the Labor Code. difference shall be transferred wholly to the All expenditures must be provided with the development investment fund. If the remainder is not necessary legal vouchers as currently prescribed. enough to set up the reward and welfare funds 3. The agro-hydraulic enterprises are entitled to equivalent to the real \Vages of two months. the State use their incomes to make up for their expenditures shall make up for the shortfall. including: 2. For the agro-hydraulic enterprises with income - Income from service activities in irrigation and not enough to make up for the reasonable expenditures, drainage used to make up for the expenditures in this after spending 50% of tl1e profits from business and area, tax and other payments to the State as prescribed other activities (if any) to cover the expenditures, the by law (except profit tax). shortfall shall be made up for by the State as follows: - Income from business activities in the integrated - To provide enough to make up for the remaining exploitation used to make up for the e:-.."Penditures in losses. the business activities for integrated exploitation, taxes - To allocate support equivalent to the real wages and other payments to the State as prescribed by law at the enterprises in two months for the reward and (e.-<cept profit tax). welfare funds. No.5 (20-2-1998) OFFICIAL GAZETTE 13 -The remainder of the income from the activities in educational facilities in the places where the schools the integrated exp1oitation and otl1er acti,·;ties (if any) and classes of tlie official educational system ,ire still shall be put into the development investment fund non- existent. (80%) and the financial reserve fond (20%). - Expenditures on health care in the places where * The sources of allocation of the financial hospitals or medical stations are sti11 maintained due subsidies shall derive from the following: to special conditions. - The agro-hydraulic enterprises whose founding is decided by the President of the People's Committees IV- FINANCIAL PLAN of the provinces and cities shall be subsidized by the local budget. 1. Each year, basing itself on the prescriptions - For the agro-hydraulic enterprises whose and guidance of the agency which decides to found founding is decided by the Ministry of Agriculture the enterprise and the financial agency, the agro- and Rural Development, the Ministry of Agriculture hydrau lic enterprise shall draw up the plan of and Rural Development shall take the initiative and production and service in irrigation and drainage, the discuss with the Ministry of Finance to suggest the financial revenue and expenditure plan (including the level of subsidy from the Central Budget. plan of subsidies) and submit it to the agency which decides to found the enterprise and tlle financial In case of unexpected natural calamities such as agency of the same level. The agency which decides stom1s and floods, if the enterprise is still unable to to found the enterprise shall have to ratify the plan 111ake up for the losses even after having mobilized all and submit a general report to the financial agency the existing lawful sources of capital and received and the related agencies. subsidies from the sources of capital in the plans of the yarious budget levels, the enterprise shall be 2. Within the limit of the ratified annual financial allowed a specific solution decided by the Government. revenue and expenditure plan. the Head of the agency which decides to found tl1e enterprise shall assign the The issue, management and use of tl1e financial plan for irrigation and drainage and tl1e financial plan subsidy shall be effected according to Circular No.68- to the agro-hydraulic enterprise and send the plan to TC/TCDN of September 25, 1997 of the Ministry of the financial agency of the same level for coordination. Finance guiding a number of financial subsidies for The State Budget shall provide subsidies only within the State enterprises and other decisions of the the limit of the budgetary plan already ratified. Ministry of Finance. In case of over-fulfillment of the ratified project, 3. The procedures and time for founding and the the enterprise shall receive the treatment provided for objective of use of the fund of the enterprises shall in the Budget Law and the provisions in force. follow t11e same pattern as for an enterprise engaged in business activities. Within the limit of the total that can be contributed V- INSPECTION OF ACCOUNTANCY, to the reward and welfare funds, the Director of the FINANCIAL REPORT AND enterprise is entitled to decide the rate of this FINANCIAL TRi\NSPARENCY contribution to each fund after consulting the trade union of the enterprise. 1. Drawing u1> the financial repmi: An agro-hydrauUc enterprise shall not set up the - Each quarter and each year, the agro-1iydrau1ic • reserve fund for job severance. In particular cases enterprise shall have to make a financial report as where it is necessary to scale down the activities in currently prescribed. The Director of the enterprise is irrigation and drainage, the agency that decides to answerable to the State and law for the accuracy and found the enterprise and the financial agency of the tmthfulness of the financial report. same level shall consider giving allowances to the - The quarterly and annual financial report shall be laborers who have lost their jobs according to the sent to the agency which decides to found the prescribed regime. enterprise, the tax agency, the agency managing the 4. With regard to the agro-hydraulic enterprises in State capital and properties at the enterprise, and the deep lying, remote and border areas or on islands or a statistical agency. strategic area with exceptionally difficult conditions, the State shall consider and give subsidies for the 2. Accountancy check, financial report: following expenditures: - Each quarter and each year, the agro-hydraulic - Expenditures on kindergartens and other enterprise shall have to check its own accountancy

14 OFFICIAL GAZETTE No.5 (20-2-1998) sent to the agency which decides to found the amendment in order to make the Circular more enterprise, the tax agency, the agency managing the appropriate. State capital and properties at the enterprise, and the statistical agency. For the Minister ofAgriculture and Rural Development 2. Accountancy check, financial report: Vice Minister - Each quarter and each year, the agro-hydraulic VUTRONG HONG enterprise shall have to check its own accountancy and financial report. For the Minister of Finance Vice Minister - The agency which decides to found the enterprise PHAMVANTRONG shall assume the main responsibility and together with the agency of the same level managing the State capital and properties at the enterprise organize the checking and ratification of the annual financial report of the enterprise. - The financial agency shall inspect the observance of the financial and accounting regimes, the discipline in budget collection and remittance and the accurancy and truthfulness of the financial report. - The violations of the accountancy regime, the financial collection and remittance regime, the budget collection and remittance regime, the regime of establishment and use of the funds of the enterprise shall be subject to administrative sanctions and economic sanctions according to the prescriptions of law 3. Public annual financial reporting: - Basing itself on the annual financial report ratified by the competent agency, the enterprise shall publicly announce a number of financial criteria as prescribed by the Ministry of Finance. - The contents of the criteria to be publicly announced shall confom1 with the forms attached to this Circular. VI- IMPLEMENTATION PROVISIONS 1. Apart from specific provisions for the agro- hydraulic enterprises laid down in this Circular, the agro-hydraulic enterprises shall have to carry out other provisions of law regarding State enterprises. 2. This Circular takes effect from the date of its promulgation. All earlier provisions on financial management at the agro-hydraulic enterprises which are contrary to this Circular are now annulled. 3. In the process of implementation should any question arise the enterprises would report to the Ministry of Agriculture and Rural Development and the Ministry of Finance for study, modification and