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

JOINT CIRCULAR

Guidelines on principles, methods for determining and authority to decide

water consumption prices in urban areas, industrial zones, and rural residential clusters

industrial zones, rural residential clusters

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Pursuant to Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government stipulating the functions, tasks, authorities, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 36/2003/NĐ-CP dated April 4, 2003 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Construction;

Pursuant to Decree No. 170/2003/ND-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 management of water supply 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 water consumption prices in urban areas, industrial zones, and rural residential clusters as follows:

I - PRINCIPLES FOR DETERMINING CLEAN WATER CONSUMPTION PRICES

Clean water consumption prices shall be determined based on the following principles:

1. Clean water consumption prices must accurately cover all cost factors of the total production cost and a reasonable profit margin during the production, distribution, and consumption processes to enable clean water production and business enterprises to maintain and develop their operations. Such prices should encourage water supply units to improve water quality, enhance service quality to meet customer needs, and strive to reduce costs and water losses; they should also encourage customers to use water efficiently.

2. Clean water consumption prices shall be set according to the volume consumed and the purpose of water usage such as: water for daily living of residents, administrative agencies, public institutions, water for production, business, and services, consistent with local water consumption characteristics, water sources, and water production conditions; clean water consumption prices shall not differentiate based on economic components or whether individuals are Vietnamese or foreigners residing in Vietnam.

3. Clean water consumption prices shall be uniformly established regarding principles and methods of price determination. Adjustments to consumption prices may be made when there are changes in clean water production costs or related state policies.

Residential clean water consumption prices shall be guided by the State within a framework suitable for each locality and region.

II - METHODS FOR DETERMINING TOTAL COST AND CLEAN WATER CONSUMPTION PRICES

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

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

The details of each cost item are as follows:

a. Direct material costs are expenses for raw materials and utilities directly used in producing the product, such as: raw water purchase costs (for businesses 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 respective unit prices:

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

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

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

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

- Meal allowances between shifts (if applicable) for employees participating in 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 include general expenses incurred in production workshops and business departments such as: depreciation of fixed assets; wages, allowances, and meal allowances (if applicable) paid to workshop staff; material, tool, and equipment costs for workshops; social insurance, health insurance, and trade union fees for workshop staff; external service costs and other monetary expenses.

Depreciation of fixed assets (Tangible Fixed Assets - TFA) is calculated according to the following principle:

- For TFA formed from state budget funds and self-supplemented capital of the enterprise: management, use, and depreciation of TFA shall be carried out in accordance with the regulations of the Ministry of Finance and other relevant legal documents.

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

d. Business management costs include expenses for the management and operation of the enterprise, general expenses for the entire enterprise such as: depreciation of TFA serving the management and operation of the enterprise (according to the principle as stated under common production costs); wages, salaries, allowances, and meal allowances (if applicable) paid to the board of directors and management staff in various departments; social insurance, health insurance, and trade union fees for the enterprise's management staff; office material and utility costs, taxes, fees, and external service costs for the enterprise's office; other general expenses for the entire enterprise such as: interest payments, inventory reserve write-downs, bad debt reserves, hospitality and transaction costs, contributions to higher authorities, scientific research and technological innovation costs, incentive and improvement costs, environmental protection costs, education and training costs, medical costs for employees, female worker costs, and other expenses as prescribed by current regulations.

d. Selling expenses include all costs related to the consumption of products and services, such as: depreciation of water pipelines from production sites to consumers, wages, allowances, meal fees during work shifts (if applicable), social insurance, health insurance, and trade union funds for sales staff; advertising costs, service procurement costs, and other costs as prescribed by current regulations.

2. Water consumption 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 of each water plant 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 the actual technical conditions and management level during the production and distribution process in each locality. The specific water loss rate is stipulated by the People's Committee of the province or centrally-administered city and included in the quota within the water consumption price with 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 consumption network has been put into use with overlapping periods as mentioned in 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 reduction to achieve the lowest possible water loss rate. In special cases, the water loss rate shall be 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 water consumption price

The average water consumption price (excluding value-added tax) is determined according to the following formula:

GTtb

Gttbq = (1 + Pđm)

SLtp

Where:

- Gttbq is the average consumption price (unit: dong/m3).³).

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

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

the total cost of clean water.

2. 3. Water consumption price for different purposes:

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

The pricing coefficient for water consumption is determined according to the table below:

Pricing coefficient

- Over 2.5 m3³- Up to 5 m3

/person/month SH2 1.0³- Over 5 m3

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

/person/month SH4 2.0³ In places where there is excess water supply capacity compared to consumption, a progressive pricing system may not be implemented to encourage water users to consume clean and safe water; this also provides opportunities for water supply enterprises to develop distribution networks and improve production efficiency.³For residential households consuming clean water without installed water meters, a temporary quota charge of 16 m3/month based on the SH2 consumption level will be applied.

In special cases, if the main production water volume consumed by residential households does not meet the maximum pricing coefficient when calculating the water consumption price, the pricing coefficient for the first SH1 level can be adjusted beyond the maximum coefficient to ensure the average water consumption price coefficient equals 1.³For other water users such as administrative agencies, public institutions, businesses engaged in material production, and business services, the water consumption 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 water usage for different purposes in the locality.

III - AUTHORITY TO DECIDE WATER CONSUMPTION PRICES AND MANAGE WATER CONSUMPTION PRICES

1. The Ministry of Finance stipulates the framework of residential water consumption prices applicable nationwide, consistent with the production and consumption characteristics of clean water in localities and regions.³2. The Chairman of the People's Committee of the province or centrally-administered city decides the residential water consumption price in the locality, consistent with the framework of residential water consumption prices as prescribed by the Ministry of Finance. In special cases, the provincial or centrally-administered city People's Committee may decide to increase the residential water consumption price by up to 20% above the maximum level of the residential water consumption price framework; an increase exceeding 20% above the maximum level of the residential water consumption price framework requires the agreement of the Ministry of Finance.

3. The General Director of the clean water production and trading enterprise is responsible for preparing and submitting the water consumption price plan based on this Circular for the People's Committee of the province or centrally-administered city to consider and decide the residential water consumption price in the locality after obtaining the opinions of the specialized management department and the audit opinion of the Department of Finance.

For other clean water users such as administrative agencies, public institutions, businesses engaged in production and service provision activities, the consumption price of clean water shall be determined by the clean water production and business enterprises, but it must not exceed the maximum pricing coefficient stipulated in this Circular. Based on the table of maximum pricing coefficients relative to the average price, the pricing coefficient should be determined appropriately according to the characteristics of clean water consumption and the ratio of clean water usage for different purposes in the locality.

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 establish a framework for the consumption price of clean water for daily use applicable nationwide, consistent with the production and consumption characteristics of clean water in localities and regions.

2. The Chairman of the People's Committee of provinces and centrally governed cities shall determine the consumption price of clean water for daily use in their localities, consistent with the framework price for clean water for daily use as prescribed by the Ministry of Finance. In special cases, the provincial or centrally governed city People's Committee may decide to increase the consumption price of clean water up to 20% above the maximum level of the framework price for clean water for daily use; however, if the increase exceeds 20% of the maximum level of the framework price for clean water for daily use, the agreement of the Ministry of Finance is required.

3. The General Director of clean water production and business enterprises shall, based on the contents of this Circular, be responsible for preparing and submitting a pricing plan for clean water consumption to the People's Committee of provinces and centrally governed cities for consideration and decision on the consumption price of clean water for daily use in the locality, after obtaining the opinions of the specialized management department and the audit opinion of the Department of Finance;

BASED ON THE RETAIL WATER PRICE AND DOMESTIC WATER USE PRICE REGULATED BY THE PROVINCE PEOPLE'S COMMITTEE CHAIRMAN, THE DIRECTOR OF THE CLEAN WATER PRODUCTION AND DISTRIBUTION ENTERPRISE SHALL ESTABLISH THE RETAIL WATER PRICES FOR OTHER USERS IN ACCORDANCE WITH THE MAXIMUM PRICING RATIO SET OUT IN THIS CIRCULAR.

IF A CUSTOMER DOES NOT ACCEPT THE RETAIL WATER PRICE SET BY THE CLEAN WATER PRODUCTION AND DISTRIBUTION ENTERPRISE, 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 SUDDENLY MONITOR THE DEVELOPMENT, ISSUANCE, AND MANAGEMENT OF RETAIL WATER PRICES AS PROVIDED IN THIS CIRCULAR.

2. THE DEPARTMENT OF FINANCE SHALL LEAD AND COOPERATE WITH THE DEPARTMENT OF URBAN DEVELOPMENT (OR THE DEPARTMENT OF TRANSPORTATION AND PUBLIC WORKS) AND OTHER RELEVANT DEPARTMENTS TO MONITOR THE IMPLEMENTATION OF DECISIONS REGARDING DOMESTIC WATER USE RETAIL PRICES, THE DEVELOPMENT, DECISION-MAKING, AND APPLICATION OF RETAIL WATER PRICES FOR LOCAL WATER USERS; SIMULTANEOUSLY, THEY SHALL COLLECT DATA AND REPORT TO THE MINISTRY OF FINANCE AND THE MINISTRY OF CONSTRUCTION FOR MONITORING AND ADJUSTMENT AS NECESSARY.

3. CLEAN WATER PRODUCTION AND DISTRIBUTION ENTERPRISES MUST HAVE PLANS TO DEVELOP WATER SOURCES AND DISTRIBUTION NETWORKS TO MEET CONSUMPTION NEEDS AND IMPROVE WATER SERVICE QUALITY; AT THE SAME TIME, THEY MUST REGULARLY MONITOR AND CHECK WATER CONSUMPTION, COLLECT WATER FEES ACCORDING TO PRICES AND APPLICABLE TO EACH USER GROUP; PROMPTLY TAKE MEASURES TO ADDRESS WATER LEAKAGE AND PREVENT WATER FEES LOSS.

4. IN ACCORDANCE WITH THE ACTUAL SITUATION OF CLEAN WATER PRODUCTION AND CONSUMPTION IN URBAN AREAS, INDUSTRIAL ZONES, AND RURAL COMMUNITIES IN EACH PERIOD, THE MINISTRY OF FINANCE SHALL COOPERATE WITH THE MINISTRY OF CONSTRUCTION TO STUDY, REVISE, AND SUPPLEMENT THE METHODS FOR DETERMINING RETAIL WATER PRICES TO BE APPROPRIATE.

THIS CIRCULAR SHALL TAKE EFFECT 15 DAYS AFTER ITS PUBLICATION IN THE OFFICIAL GAZETTE AND SHALL REPLACE CIRCULAR NUMBER 03/1999/TTLB/BXD-BVGCP, DATED JUNE 16, 1999, ISSUED BY THE MINISTRY OF CONSTRUCTION AND THE STATE PRICING BOARD.

DURING THE IMPLEMENTATION PROCESS, ANY DIFFICULTIES SHOULD BE PROMPTLY REPORTED TO THE MINISTRY OF FINANCE AND THE MINISTRY OF CONSTRUCTION FOR REVIEW, COMPLETION, AND AMENDMENT AS NECESSARY.