Joint Circular No. 104/2004/TTLT/BTC-BXD guides the principles, methods for determining, and the authority to decide on the consumption price of clean water in urban areas, industrial zones, and rural residential clusters.

JOINT CIRCULAR

JOINT CIRCULAR NO. 104/2004/TTLT-BTC-BXD OF THE MINISTRY OF FINANCE AND THE MINISTRY OF CONSTRUCTION DATED NOVEMBER 8, 2004 GUIDING PRINCIPLES, METHODS FOR DETERMINING AND AUTHORITY TO DECIDE THE PRICE OF CLEAN WATER CONSUMPTION IN URBAN AREAS, INDUSTRIAL ZONES, AND RURAL COMMUNITIES

Decree No. 77/2003/NĐ-CP PURSUANT TO DECREE NO. 106/2004/ND-CP OF THE GOVERNMENT DATED APRIL 1, 2004 ON STATE DEVELOPMENT CREDIT;
Decree No. Decree No. 36/2003/NĐ-CP dated April 4, 2003 of the Government stipulating functions, tasks, powers, and organizational structure of the Ministry of Construction;
Pursuant to Decree No. 170/2003/NĐ-CP dated December 25, 2003 of the Government detailing implementation of certain provisions of the Price Ordinance;
Pursuant to Directive No. 04/2004/CT-TTg dated January 20, 2004 of the Prime Minister on accelerating water supply management and clean water consumption;
The Ministry of Finance and the Ministry of Construction jointly issue guidelines on principles, methods for determining and authority to decide the price of clean water consumption in urban areas, industrial zones, and rural communities as follows:

I - PRINCIPLES FOR DETERMINING THE PRICE OF CLEAN WATER CONSUMPTION

The price of clean water consumption shall be determined based on the following principles:

1. The price of clean water consumption must accurately cover all cost factors of the total production cost and a reasonable profit margin during the production, distribution, and consumption process to enable clean water production and trading enterprises to maintain and develop. The price of clean water consumption serves to encourage water supply units to improve the quality of clean water, enhance service quality to meet customer needs, and strive to reduce costs and water loss; it also encourages customers to use water economically.

2. The price of clean water consumption shall be determined based on the volume consumed and the purpose of water usage such as: water for daily use by residents, administrative agencies, organizations, water for production, business, services, in accordance with the characteristics of water consumption, water sources, and conditions of water production in each locality, region; the price of clean water consumption is regulated without distinction based on economic components, Vietnamese citizens or foreigners residing in Vietnam.

3. The price of clean water consumption shall be uniformly regulated regarding principles and methods of determination. Adjustments to the levels of clean water consumption prices will be considered when there are changes in clean water production costs and related state policies.

The price of clean water consumption for daily use shall be guided by the state within a framework suitable for localities and regions.

II - METHODS FOR DETERMINING THE TOTAL COST AND THE PRICE OF CLEAN WATER CONSUMPTION

1. Method for determining the total cost of clean water products:

The total cost of clean water products includes the following costs:

The contents of each cost item are as follows:

a. Direct material costs are the costs of raw materials and energy directly used to produce the product, such as: raw water purchase costs (for enterprises that need to buy raw water), electricity, alum, chlorine, and other auxiliary materials for water treatment.

Direct material costs are calculated by multiplying the quantity of materials used by their corresponding unit prices:

- The quantity of main materials used is determined according to the clean water production norms issued by the Ministry of Construction;

- Material prices are actual purchase prices according to state-set prices or announcements, or reasonable market prices at the time of calculation (for materials not included in the state-set price list or announcements).

b. Direct labor costs are payments made to workers directly involved in production, such as: wages, bonuses, and allowances with wage nature, meal expenses, social insurance, health insurance, and trade union fees for production workers:

- Wages and bonuses are calculated by multiplying the number of working days according to the clean water production norms issued by the Ministry of Construction by the corresponding daily wage rate (the daily wage rate includes basic wages and allowances as prescribed by the state);

- Meal expenses between shifts (if applicable) for workers participating in the enterprise's business activities according to current regulations;

- Social insurance, health insurance, and trade union fees for production workers according to current state regulations.

c. Common production costs are general costs incurred in workshops and business departments of the enterprise, such as: depreciation of fixed assets; wages, bonuses, meal expenses between shifts (if applicable) paid to workshop staff; material, tool, and equipment costs for workshops; social insurance, health insurance, and trade union fees for workshop staff; service procurement costs and other monetary costs.

Specifically, the depreciation of fixed assets (Tangible Fixed Assets - TFA) is calculated based on the following principle:

- For TFA formed from state budget funds and self-supplemented capital of the enterprise: management, use, and depreciation of TFA are carried out according to the regulations of the Ministry of Finance and other relevant legal documents.

- For TFA formed from borrowed capital: the depreciation of TFA is calculated based on the loan repayment period of the water supply project.

Point d. Administrative expenses are costs incurred for the management and operation of the enterprise, general expenses of the entire enterprise such as: depreciation of fixed assets serving the management and operation within the enterprise (in accordance with the principle as stated in common production costs); salaries, wages, and allowances paid to the board of directors and managerial staff in various departments; social insurance, health insurance, and trade union fees of the enterprise's management body; office supplies, taxes, fees, and service costs purchased externally belonging to the enterprise's office; other general expenses for the entire enterprise such as: interest payments, inventory write-down provisions, bad debt provisions, hospitality and transaction costs, contributions to higher authorities, scientific research costs, technological innovation costs, initiative and improvement costs, environmental protection costs, education and training costs, medical costs for the enterprise's employees, costs for female workers, and other expenses according to current regulations.

Point d. Selling expenses include all costs related to the consumption of products and services such as: depreciation of pipelines from the place of production to consumers, salaries, wage allowances, meal allowances (if any), social insurance, health insurance, and trade union fees of sales personnel; advertising costs, external service costs, and other expenses according to current regulations.

2. Retail water price

2.1. Commercial water volume:

The commercial water volume is determined as follows:

SLtp = SLsx - KLhh

Where:

- SLtp is the commercial water volume (unit: m3/year);

- SLsx is the production water volume calculated according to the annual exploitation plan approved by the People's Committee of the province or centrally-administered city (unit: m3/year);

- KLhh is the volume of water loss, leakage, and uncollected revenue compared to the production water volume (unit: m3); the water loss rate is determined as a percentage (%) relative to the production water volume, varying depending on each locality's actual technical conditions and management level during production and distribution. The specific water loss rate is stipulated by the People's Committee of the province or centrally-administered city and included in the retail water price quota at the following ratio:

a. For the entire water supply network that has been put into use for less than 10 years, the maximum water loss rate shall not exceed 25%.

b. For the entire water supply network that has been put into use for 10 years or more, the maximum water loss rate shall not exceed 35%.

In cases where the water supply network has been put into use for a period overlapping between points a and b above, the maximum water loss rate shall not exceed 30%.

This water loss rate must be monitored and adjusted annually towards a gradual reduction to achieve the lowest possible water loss rate. In special cases, the water loss rate is decided by the People's Committee of the province or centrally-administered city after obtaining the unified opinion of the Ministry of Construction.

2.2. Average retail water price

The average retail water price (excluding VAT) is determined by the following formula:

GTtb

Gttbq = (1 + Pđm)

SLtp

Where:

- Gttbq is the average retail price (unit: VND/m3).³).

- GTtb is the total cost of clean water (unit: VND/year).

- SLtp is the commercial water volume (unit: m3/year).³- Pđm is the regulated profit margin set at 3% of

the total cost of clean water.

2.3. Retail water prices for different uses:

Based on the determined average retail water price, referring to the framework of residential retail water prices as prescribed by the Ministry of Finance, and considering the structure of water users in the locality, the pricing coefficient for retail water prices is determined appropriately, following the principle that the weighted average of water prices for all user categories equals the average retail water price.

The pricing coefficient for retail water prices is determined as follows:

Pricing coefficient

- Over 2.5 m3³ - 5 m3

/person/month SH2 1.0³- Over 5 m3

 - 7.5 m3³/person/month SH3 1.2³- Over 7.5 m3

/person/month SH4 2.0³In areas with excess water sources and supply capacity compared to consumption, progressive pricing may not be implemented to encourage water usage and ensure hygiene safety; this also facilitates the expansion of water distribution networks and improves production efficiency for water supply enterprises.³For residential households consuming clean water without metering devices installed, a temporary quota charge of 16 m3/month based on the SH2 retail price level is applied.

In special cases, if the main purpose of producing and selling water is for residential use and the retail water price calculation does not meet the maximum pricing coefficient for SH1, adjustments exceeding the maximum coefficient for SH1 may be made to ensure the average retail water price coefficient equals 1.³For other water users such as administrative agencies, public institutions, businesses engaged in material production, and business services, the retail water price is determined by the clean water production and trading enterprise but shall not exceed the maximum pricing coefficient specified in this Circular. Based on the table of maximum pricing coefficients compared to the average price, the appropriate pricing coefficient is determined according to the characteristics of water consumption and the proportion of different purposes in the locality.

In cases where there is an excess of water sources and supply capacity compared to consumption, progressive pricing may not yet be implemented, with the aim of encouraging consumers to use clean and safe water; at the same time, this also creates conditions for water supply enterprises to develop distribution networks and improve production efficiency.

For residential households consuming clean water that have not been able to install water consumption meters, a temporary quota charge will be applied based on the consumption level for one household, which is 16 m³/month according to the consumption rate at level SH2.³/ month according to the consumption rate at level SH2.

In special cases, for localities where the produced water is mainly consumed by residential households and when calculating the clean water consumption rate does not satisfy the maximum pricing coefficient as prescribed, it is permitted to adjust the pricing coefficient beyond the maximum applicable for the first SH1 level to ensure that the average clean water consumption rate equals 1.

For other users of clean water such as administrative agencies, public institutions, businesses engaged in production and service activities..., the consumption rate of clean water shall be determined by the clean water production and trading enterprise, but it must not exceed the maximum pricing coefficient stipulated in this Circular. Based on the maximum pricing coefficient relative to the average price, and depending on the characteristics of clean water consumption and the ratio of different purposes of clean water usage in the locality, the appropriate pricing coefficient shall be determined.

III - AUTHORITY TO DETERMINE THE CONSUMPTION PRICE OF CLEAN WATER AND MANAGEMENT OF THE CONSUMPTION PRICE OF CLEAN WATER

1. The Ministry of Finance shall stipulate the framework for the consumption price of clean water for domestic use to be applied nationwide, in accordance with the production and consumption characteristics of clean water in each locality and region.

2. The Chairman of the People's Committee of provinces and centrally governed cities shall decide on the consumption price of clean water for domestic use in their localities in accordance with the framework price for clean water for domestic use as prescribed by the Ministry of Finance. In special cases, the provincial or centrally governed city People's Committee may decide on an increased consumption price of clean water up to 20% above the maximum level of the framework price for clean water for domestic use, provided that any increase exceeding 20% of the maximum level of the framework price for clean water for domestic use must have the agreement of the Ministry of Finance.

3. The General Director of enterprises producing and trading in clean water shall base themselves on the contents of this Circular to establish and submit pricing plans for the consumption price of clean water to the People's Committee of provinces and centrally governed cities for consideration and decision on the consumption price of clean water for domestic use in their localities after obtaining the opinions of the specialized management departments and the audit opinion of the Department of Finance.

Based on the pricing plan for the consumption price of clean water and the clean water consumption price stipulated by the Chairman of the provincial People's Committee, the General Director of enterprises producing and trading in clean water shall stipulate the consumption price of clean water for other users in compliance with the principle of not exceeding the maximum pricing coefficient set out in this Circular.

In case customers do not accept the consumption price of clean water stipulated by the enterprise producing and trading in clean water, either party (or both parties) has the right to request price negotiation in accordance with current regulations.

IV - IMPLEMENTATION

1. The Ministry of Finance and the Ministry of Construction shall periodically or at any time implement inspections on the establishment, issuance, and management of the consumption price of clean water in accordance with the contents of this Circular.

2. The Department of Finance shall take the lead in coordinating with the Department of Construction (or the Department of Transport and Public Works) and relevant departments to inspect the implementation of decisions on the consumption price of clean water for domestic use, inspect the establishment, decision-making, and implementation of the consumption price of clean water applicable to users in the locality; and simultaneously compile reports to the Ministry of Finance and the Ministry of Construction for monitoring and adjustment when necessary.

3. Enterprises producing and trading in clean water must have plans to develop sources and distribution networks to meet consumption needs, improve water supply service quality; and must regularly monitor and inspect the situation of clean water consumption, collect water fees according to prices and appropriate to each user category; promptly take measures to address water loss and prevent revenue loss from water sales.

4. Depending on the actual situation of clean water production and consumption in urban areas, industrial zones, and rural clusters during different periods, the Ministry of Finance shall cooperate with the Ministry of Construction to study, amend, and supplement pricing methods for the consumption price of clean water to ensure appropriateness.

This Circular shall take effect fifteen days from the date of publication in the Official Gazette and replace Circular No. 03/1999/TTLB/BXD-BVGCP dated June 16, 1999, issued by the Ministry of Construction and the Government Price Board.

During the implementation process, if there are any difficulties, it is requested that localities promptly reflect them to the Ministry of Finance and the Ministry of Construction for review, supplementation, and amendment as necessary.