Circular No. 46/2011/TT-BCT stipulates the method for establishing, procedures, and approval process for annual standard cost of multi-purpose strategic hydropower plants.

CIRCULAR

Specifies the method for establishing, procedures, and approval process for annual standard cost expenses

of multi-purpose strategic hydropower plants

___________________________

Pursuant to Decree No. 189/2007/NĐ-CP dated December 27, 2007 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Industry and Trade; Decree No. 44/2011/NĐ-CP dated June 14, 2011 of the Government amending and supplementing Article 3 of Decree No. 189/2007/NĐ-CP dated December 27, 2007 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Industry and Trade;

Pursuant to the Electricity Law dated December 3, 2004;

Pursuant to Decree No. 105/2005/NĐ-CP dated August 17, 2005 of the Government detailing and guiding the implementation of certain provisions of the Electricity Law;

The Minister of Industry and Trade stipulates the method for establishing, procedures, and approval process for annual standard cost expenses of multi-purpose strategic hydropower plants as follows:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability

1. This Circular stipulates the method for establishing, procedures, and approval process for annual standard cost expenses of multi-purpose strategic hydropower plants.

2. This Circular applies to Vietnam Electricity Corporation and Power Generation Units.

Article 2. Interpretation of Terms

In this Circular, the following terms shall be understood as follows:

1. Power Generation Unit is the unit entrusted by Vietnam Electricity Corporation to manage and operate one or more multi-purpose strategic hydropower plants at the same cascade.

2. Year N is the calendar year from January 1 to December 31 of the same year.

3. Year N-1 is the year immediately preceding Year N and is the year in which the standard cost expenses of multi-purpose strategic hydropower plants for Year N are constructed.

4. Year N-2 is the year immediately preceding Year N-1.

5. Multi-purpose strategic hydropower plant is a hydropower plant affiliated with Vietnam Electricity Corporation, having the function of power generation and other functions such as flood control, irrigation, etc., listed by the Ministry of Industry and Trade (hereinafter referred to as the plant).

Chapter II

METHOD FOR ESTABLISHING ANNUAL STANDARD COST EXPENSES OF MULTI-PURPOSE STRATEGIC HYDROPOWER PLANTS

Article 3. Principles for determining annual total standard cost expenses

The annual total standard cost expenses of the group of multi-purpose strategic hydropower plants are established on the principle of ensuring sufficient compensation for reasonable and valid actual costs necessary for multi-purpose strategic hydropower plants.

Article 4. Method for determining annual total standard cost expenses of the plant

1. Total standard cost expense Year N (C_{N |||}= C

C_{N |||} TTĐ_SCL ĐMT_LVDH ĐMT_KH ĐMT_TL ĐMT_MN ĐMT_BTK ĐMT_K + DC_{, excluding abnormal one-off costs in year}

Where:

C_SCL: Total depreciation cost of fixed assets Year N (VND);

C_LVDH: Total interest cost and fees for long-term loans payable in Year N for investment in plant assets (VND).

C_KH: Total material cost Year N (VND);

C_TL: Total labor cost Year N (VND);

C_MN: Total major repair cost Year N (VND);

C_BTK: Total external service cost Year N (VND);

C_K: Total other monetary cost Year N (VND).

DC_{, excluding abnormal one-off costs in year}: Adjustment amount of cost Year N-2 (VND) adjusted into the total standard cost expense Year N of the plant (VND), determined according to the method prescribed in Article 5 of this Circular.

2. Total depreciation cost Year N (C_SCL) of the plant is determined according to the regulations on useful life and depreciation methods for fixed assets prescribed in Circular No. 203/2009/TT-BTC dated October 20, 2009 of the Ministry of Finance guiding management, use, and depreciation of fixed assets and subsequent replacement and supplementary documents.

3. Total interest cost and fees for long-term loans payable in Year N (C_LVDH) is determined according to loan contracts for investment in plant assets.

For foreign currency interest payable in Year N, the interest cost is determined corresponding to the average foreign exchange rate applied in the electricity price plan Year N.

4. Total material cost Year N (C_KHVL

C_KH = A_GN,KH x Đ_KH

Where:

A_GN,KH: Total power delivered/received Year N of the plant, determined according to the optimal operation plan based on minimum system-wide cost Year N approved by the competent authority (kWh);

3. Amend Clause 3 Article 2 as follows:_KH: Material cost standard of the plant in VND/kWh, being the material cost to produce one kWh of power at the point of power delivery/receipt of the multi-purpose strategic hydropower plant.

Vietnam Electricity Corporation is responsible for developing and issuing material cost standards suitable to the economic and technical characteristics and equipment of the plant to serve as a basis for calculating annual standard cost expenses of the plant, reporting to the Electricity Regulatory Authority on the actual material cost situation annually compared to the issued standard.

5. Total labor cost

Total labor cost year N (C_TL) includes total labor cost and other costs with wage nature.

Total labor cost is determined according to the provisions of Decree No. 141/2007/NĐ-CP dated September 5, 2007 of the Government stipulating wage regulations for state-owned parent companies and subsidiaries within economic groups, circulars guiding, replacing, and supplementing thereafter, and other related regulations.

Costs with wage nature such as health insurance, social insurance, unemployment insurance, and trade union fees are determined according to relevant laws.

6. Total major repair cost

Total major repair cost (C_MN) of the plant is determined according to the total budget estimate for major repairs of items due for major repairs in Year N.

7. Total external service cost

Total external service cost of Year N (C_BTK) is the total cost paid to organizations and individuals outside the unit for services performed upon request including water, telephone, books and newspapers; purchased electricity cost; audit consulting fee; asset rental fee; asset insurance cost; reservoir sediment treatment cost and other service costs under signed service supply contracts to support the management and operation of the power plant in Year N.

Total external service cost of Year N is determined based on the anticipated external service needs for Year N based on the actual costs incurred and audited in Year N-2 (in external service contracts and external service costs) and estimated costs for Year N-1.

8. Total other monetary cost

Total other monetary costs year N (C_KThe expenses include: travel expenses for leave, transportation costs; conference and reception costs; training costs; scientific research, innovation, and improvement costs; meal allowances; civilian defense, security, flood prevention, fire protection costs; labor protection, work attire, safety, industrial hygiene, and environmental costs; drinking water costs during working hours, night shift and hazardous job subsidies; first aid costs for workplace accidents, common medical treatment costs, and functional recovery costs for workers; unemployment assistance costs, recruitment costs; land rental fees; interest payments on short-term loans for regular activities; resource tax costs for water usage and environmental forest fees determined according to relevant laws; other monetary costs for year N.

Total other monetary costs for year N are determined based on the anticipated costs for year N, taking into account the actual audited costs from year N-2 and the estimated implementation costs for year N-1. Specifically, the resource tax cost for water usage and environmental forest fee for year N (C_TVL

C_T­ = (T_MT + T_TN­) x A_GN,KH

Where:

A_GN,KH: Planned total electricity power exchange for year N of the plant, determined according to the optimal operation plan for the minimum system-wide cost for year N approved by the competent authority (kWh);

T_MT: Environmental forest fee for the power plant (VND/kWh), determined according to Decree No. 99/2010/NĐ-CP of the Government dated September 24, 2010 on policies for payment for forest environmental services and subsequent amendments and supplements;

T_{N |||}: Resource tax rate for water usage for power production (VND/kWh), determined as follows:

T_TN = t_TN x G_TN

Where:

organize credit institutions, foreign bank branches are responsible for organizing the implementation of this Circular._TN: Resource tax rate (%);

of_TN: Taxable value for resource tax (VND/kWh).

The resource tax rate and taxable value for resource tax are determined according to Resolution No. 928/2010/UBTVQH12 dated April 19, 2010 promulgating the scale of resource tax rates, Decree No. 50/2010/NĐ-CP of the Government dated May 14, 2010 detailing and guiding the implementation of certain provisions of the Law on Resource Tax, and subsequent amendments and supplements.

Article 5. Method for Determining Annual Cost Adjustment Amounts

1. Annual standard cost expenses shall be reviewed for adjustment when there are actual expense occurrences in the following cases:

a) Occurrence of reasonable and valid actual expense differences for year , excluding abnormal one-off costs in year (based on financial reports) compared to calculated approved expenses for year , excluding abnormal one-off costs in year including: depreciation costs; long-term loan interest costs; wage costs; major repair costs; external service purchase costs; realized exchange rate differences; differences in resource tax costs for water usage and environmental forest fees for year (due to actual total electricity power exchange differing from planned total electricity power exchange and due to changes in national resource tax policies for water usage and environmental forest fees);

b) Mitigation of consequences from natural disasters and handling of force majeure incidents.

2. The annual cost adjustment amount (DC_{, excluding abnormal one-off costs in year}) shall be adjusted into the total standard cost for year N of the plant, determined by the following formula:

DC_{, excluding abnormal one-off costs in year} = (∆C_{, excluding abnormal one-off costs in year} + SV_{, excluding abnormal one-off costs in year}) x (1 + I_N-1)

Where:

∆C_{, excluding abnormal one-off costs in year}: Total valid actual expense differences compared to approved expenses for year N-2 as stipulated at point a, Clause 1 of this Article (VND);

SV_{, excluding abnormal one-off costs in year}: Total reasonable expenses incurred for natural disaster mitigation and force majeure incident handling in year N-2 (VND);

I_N-1: Average interest rate of 12-month post-payment deposit interest rates in VND for corporate customers on July 31, year N-1 of four commercial banks (Vietnam Joint Stock Commercial Bank for Foreign Trade, Vietnam Joint Stock Commercial Bank for Industry and Trade, Vietnam Investment and Development Bank, Vietnam Agricultural and Rural Development Bank) plus 3%.

Within 15 days from the date of occurrence of a force majeure incident, the Power Generation Unit has the responsibility to report on events and projected costs for mitigation, submit to Vietnam Electricity Corporation for approval, and report to the Electricity Regulatory Authority for monitoring implementation.

Chapter III

PROCEDURE AND PROCEDURES FOR REVIEWING AND APPROVING ANNUAL STANDARD COSTS

OF THE MULTIPURPOSE STRATEGIC HYDROELECTRIC PLANT

Article 6. Documents for Approval of Annual Standard Cost

Vietnam Electricity Corporation shall be responsible for preparing the documents for approval of annual standard cost (year N) for each Power Generation Unit, including:

1. Petition for Approval of Standard Cost Year N of the Power Generation Unit.

2. Five (05) sets of detailed explanations and cost calculation tables for the standard cost year N of the Power Generation Unit, including the following main contents:

a) Report on the implementation status of year N-2, actual implementation up to June 30 of year N-1, estimated implementation up to December 31 of year N-1, including the following contents:

- Analysis and evaluation of the implementation of technical indicators of the power plant, including: electricity production volume, monthly delivery and receipt, operation situation of the power plant;

- Report on the implementation of costs of the power plant, including: implementation costs, material costs, labor costs, major repair costs, purchased service costs, other monetary costs, and other incidental costs;

- Report on the equity capital of the strategic multi-purpose hydropower plant group, including: estimated equity capital up to December 31 of year N-1 and projected up to December 31 of year N: explanation and detailed calculation table of changes in equity capital of year N-1 and year N of each power plant.

b) Explanation and calculation of total allowable capital cost for year N of the Power Generation Unit, including:

- Total depreciation cost for year N: Summary table of depreciation of fixed assets for year N and depreciation cost calculation table according to each type of fixed asset of each power plant in year N;

- Total interest payment cost for long-term debt payable for year N: Calculation table of interest on loans expected to be paid in year N of each power plant.

c) Explanation and calculation table of total operating and maintenance cost of the Power Generation Unit, including: Calculation table of total material cost, total labor cost, budgeted major repair cost for each equipment category due for major repair in year N, regular repair cost, purchased service cost, and other monetary costs for each power plant (based on actual implementation data of year N-2, estimated implementation of year N-1, and projected for year N);

d) Explanation and calculation table of total adjusted cost for year N-2 incorporated into the standard cost of each power plant for year N;

đ) Explanation and summary calculation table of total standard cost for year N for the Power Generation Unit;

e) Supporting documents, including:

- List and budget for major repairs for each fixed asset category due for major repair in year N of each power plant;

- Financial report of year N-2, including: balance sheet, income statement, cash flow statement, explanatory report of each Power Generation Unit;

- Decision of Vietnam Electricity Corporation approving the final settlement of large incident or force majeure costs in year N-2;

- Plan for principal repayment and interest payment including foreign currency and domestic currency according to credit contracts;

- Other related documents in the cost calculation explanations.

Article 7. Procedure for Preparation, Review, and Approval of Standard Cost

1. Before October 15 each year, Vietnam Electricity Corporation shall be responsible for preparing the standard cost applicable for the next year (year N) for each Power Generation Unit according to the method prescribed in Chapter II of this Circular for review by the Electricity Regulatory Authority.

2. Within five (05) working days from the date of receiving the documents for approval of standard cost, the Electricity Regulatory Authority shall be responsible for checking the validity of the submitted documents. In case the documents do not meet the conditions for review, the Electricity Regulatory Authority shall send a letter requesting Vietnam Electricity Corporation to supplement or amend the contents in the documents.

3. Before December 10 each year, the Electricity Regulatory Authority shall be responsible for approving the standard cost of each Power Generation Unit.

4. The content of the approval decision includes: standard cost of each Power Generation Unit and input parameters serving as the basis for annual cost adjustment, including average exchange rate, resource tax rate for water used in electricity production.

Chapter IV

IMPLEMENTATION

Article 8. Responsibilities of the Electricity Regulatory Authority

1. Review and approve annual standard cost levels of power generation units.

2. Guide and inspect the implementation of this Circular.

Article 9. Responsibilities of Vietnam Electricity Corporation

1. Direct power generation units to establish annual standard total costs for strategic multi-purpose hydroelectric plants according to the method prescribed in Article 4 of this Circular, and consolidate them for submission to the Electricity Regulatory Authority for review and approval.

2. Annually, Vietnam Electricity Corporation shall be responsible for determining the value of equity capital and proposing profit margins for the plants to ensure that the total power generation costs and average power generation prices in the annual electricity sales price plan are at reasonable levels not exceeding the allowable profit margin for the entire corporation under the current electricity pricing plan.

3. Based on the approved annual standard costs, allocate monthly standard costs to power generation units to ensure that power generation units have the ability to carry out power production activities.

Article 10. Effective Date

1. This Circular takes effect from February 6, 2012.

2. During the implementation process, in case of any difficulties arising, relevant organizations and individuals shall be responsible for reporting to the Ministry of Industry and Trade (Electricity Regulatory Authority) for necessary amendments and supplements to make it appropriate./.