Circular No. 56/2004/TT-BTC guiding the financial handling for restructuring production and ownership conversion of Sugar Companies and Factories.

CIRCULAR

Guidelines for financial handling in restructuring production and

ownership conversion for sugar companies and factories

Pursuant to Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister on restructuring production and implementing certain measures to address difficulties faced by sugar factories and companies; Decision No. 49/2004/QĐ-TTg dated March 30, 2004 of the Prime Minister supplementing Article 5 of Decision No. 28/2004/QĐ-TTg mentioned above; the Ministry of Finance issues guidelines on financial handling in restructuring production and ownership conversion for sugar companies and factories as follows:

Section 1:
GENERAL PROVISIONS

Article 1. Scope of Application:

This Circular shall be applied to handle existing financial issues and debts, to restructure production for sugar manufacturing enterprises experiencing business difficulties or losses.

2. Objectives and principles for applying support measures and financial handling:

2.1. The objects of this Circular include sugar companies and factories (hereinafter referred to as sugar manufacturing enterprises) listed in the annex accompanying Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister.

2.2. Support measures and financial handling up to December 31, 2003 for enterprises belonging to Group 1 and Group 2 in the annex accompanying Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister shall not exceed the cumulative losses incurred by the enterprise up to December 31, 2003.

2.3. Enterprises belonging to Group 2 in the annex accompanying Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister, after applying support measures and financial handling, if the financial restructuring plan of the enterprise does not meet the conditions for shareholding reform, sale, lease, or business contracting, then the enterprise shall be dissolved or declared bankrupt according to current laws.

Section 2:
SPECIFIC PROVISIONS

A- FINANCIAL SUPPORT HANDLING FOR ENTERPRISES BELONGING TO GROUP 1 IN THE ANNEX ACCOMPANYING DECISION NO. 28/2004/QĐ-TTG DATED MARCH 4, 2004 OF THE PRIME MINISTER:

1. Write-off tax arrears payable to the State budget:

1.1. Sugar manufacturing enterprises that pay value-added tax (VAT) under the deduction method and encounter difficulties in production and business operations leading to losses shall have their VAT tax arrears from 2001-2003 for sugar products and by-products recovered from sugar production sold off written off. The amount written off corresponds to the outstanding tax debt to the State budget as of December 31, 2003.

1.2. Documentation for tax write-off:

Enterprises eligible for tax write-off must submit a dossier to the provincial or municipal Tax Bureau where the enterprise's headquarters is located. The dossier includes:

+ An enterprise's request for tax write-off, detailing the reasons for losses and the amount requested for write-off.

+ Finalized tax returns for the years 2001-2003, specifying the cumulative VAT tax arrears as of December 31, 2003.

+ Financial statements of the enterprise for the years 2001-2003.

1.3. Procedure and authority for resolution:

The Tax Bureau receives the enterprise's dossier, is responsible for reviewing the dossier, verifying the accuracy of the tax arrears, and sends a detailed proposal regarding the tax write-off to the General Department of Taxation for review and submission to the Ministry of Finance for a decision to write off the tax debt for the enterprise.

2. Adjustment of loan interest rates and compensation for interest rate differences:

In accordance with point b, Clause 1, Article 3 of Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister, for sugar factories that are joint-stock companies borrowing funds for investment in factory construction or state-owned enterprises borrowing from domestic credit institutions for statutory capital contributions in joint ventures producing and processing sugar, in addition to the tax write-off mentioned above, they shall also apply the current state development investment credit interest rate from January 1, 2004 for domestic loans (Development Fund, commercial banks) with different interest rates during each period, with balances as of December 31, 2003. The state budget will compensate the difference between commercial interest rates and adjusted interest rates for lending institutions.

The procedure for adjusting interest rates for these enterprises and compensating interest rate differences for lending institutions shall be carried out in accordance with the provisions of Point 1, Part B of this Circular.

B- FINANCIAL SUPPORT HANDLING FOR ENTERPRISES BELONGING TO GROUP 2 IN THE ANNEX ACCOMPANYING DECISION NO. 28/2004/QĐ-TTG DATED MARCH 4, 2004 OF THE PRIME MINISTER:

1. Adjustment of loan interest rates and compensation for interest rate differences:

1.1. Adjustment of loan interest rates:

Sugar manufacturing enterprises that borrow from the Development Fund and commercial banks for equipment imports, factory construction, and sugarcane raw material areas, with different interest rates during each period, and balances as of December 31, 2003, shall adjust to the current state development investment credit interest rate of 5.4% per annum from January 1, 2004.

1.1.1. Loans subject to adjustment to the state development investment credit interest rate of 5.4% per annum from January 1, 2004 include the outstanding loan balances as of December 31, 2003 from the following sources:

- State-planned development investment credit.

- Domestic currency commercial loan mobilization (including mandatory debt received after January 1, 2004), foreign currency loans from commercial banks.

- Government development assistance funds (ODA) for sugar manufacturing enterprises to borrow (including foreign currency from ODA funds that the Ministry of Finance lends to commercial banks to lend again to sugar factories).

1.1.2. Exchange rate for converting foreign currency loan balances as of December 31, 2003 to Vietnamese dong:

- For foreign currency loans from commercial banks (including foreign currency from ODA funds that the Ministry of Finance lends to commercial banks to lend again to sugar factories), it shall be converted to Vietnamese dong at the average inter-bank foreign exchange rate published by the State Bank of Vietnam as of December 31, 2003.

- For foreign currency from ODA capital loaned through the Development Support Fund and foreign currency accumulated by the Ministry of Finance for guaranteed loans, it shall be converted to Vietnamese dong at the accounting exchange rate published by the Ministry of Finance as of December 31, 2003.

1.1.3. Implement adjustments to interest rates on loans and loan terms:

- Based on Decision No. 28/2004/QD-TTg dated March 4, 2004 of the Prime Minister, enterprises producing sugar are allowed to apply the current interest rate of state investment credit; loan contracts, loan guarantee contracts, and guidelines set forth in this Circular; lending organizations and sugar-producing enterprises shall prepare reconciliation statements confirming the outstanding loan balance as of December 31, 2003, and sign loan agreements with an interest rate of 5.4% per annum, starting from January 1, 2004, according to state investment credit.

- For foreign currency loans that are converted to domestic currency at the conversion rate specified in this Circular and applied with an interest rate of 5.4% per annum, if the amount of interest payable exceeds the amount of interest payable in foreign currency calculated based on the aforementioned conversion rate, then after converting the foreign currency loans to domestic currency, sugar-producing enterprises may apply the interest rate on foreign currency loans stipulated in loan contracts signed before January 1, 2004.

- In cases where the interest rate on state investment credit changes after January 1, 2004, the Ministry of Finance will base its decision on actual conditions and the business performance of sugar-producing enterprises and submit a proposal to the Prime Minister for adjusting the loan interest rate for these enterprises.

- The loan term for balances outstanding as of December 31, 2003, adjusted according to the state investment credit interest rate shall be a maximum of 15 years from January 1, 2004. If the remaining loan term under the loan agreement signed before January 1, 2004, exceeds 15 years, the loan term shall be implemented according to the term in the agreement signed before January 1, 2004.

- Reconciliation statements confirming the loan balance as of December 31, 2003, and loan agreements adjusted according to the state investment credit interest rate between sugar-producing enterprises and lending organizations shall be submitted by sugar-producing enterprises to the Ministry of Finance simultaneously with submission to the relevant industry management ministries,总公司部门；对于属于地方管理的企业，提交给地方财政局和省、市人民政府。文件包括：

- Commercial banks and the Development Support Fund shall consolidate all loan contracts for sugar-producing enterprises and submit them to the Ministry of Finance as the basis for annual interest rate subsidies.

1.2. Interest rate subsidy:

1.2.1. The beneficiaries of the subsidy are: domestic credit institutions (commercial banks, Development Support Fund) that have signed loan contracts with state-owned enterprises and joint-stock companies to provide statutory capital in sugar-producing enterprises operating under the Law on Foreign Investment and for sugar-producing enterprises in Group 2 attached to Decision No. 28/2004/QD-TTg dated March 4, 2004, of the Prime Minister, to import equipment, invest in building sugar factories and sugarcane cultivation areas.

1.2.2. The scope of the interest rate subsidy covers: the entire debt to be repaid from the interest rate adjustment date of December 31, 2003, and subsequent years according to the repayment schedule in loan contracts for state investment credit funds, ODA funds (including ODA funds lent by the Ministry of Finance to commercial banks for further lending to sugar factories), and commercial loan funds.

1.2.3. The level of subsidy is the difference between the commercial loan interest rate and the current state investment credit interest rate.

1.2.4. Implementation of interest rate subsidy: The state budget will subsidize the interest rate difference for lending institutions from the interest rate adjustment date of December 31, 2003:

- For the Development Support Fund, the implementation of the interest rate subsidy shall follow the provisions of Circular No. 43/2000/TT-BTC dated May 23, 2000, issued by the Ministry of Finance, guiding the subsidy of the interest rate difference for state investment credit.

- For commercial banks, the implementation of the interest rate subsidy shall follow the provisions of Circular No. 53/2000/TT-BTC dated June 6, 2000, and Circular No. 02/2001/TT-BTC dated January 5, 2001, both issued by the Ministry of Finance, guiding the subsidy of the interest rate difference due to the execution of state investment credit development tasks.

2. Write-off of loan interest, guarantee fees, and re-guarantee fees:

2.1. Sugar-producing enterprises experiencing financial difficulties and operating losses may have their loan interest, guarantee fees, and re-guarantee fees written off for domestic loans including: domestic currency loans, foreign currency loans, and fees for guarantees and re-guarantees for foreign loans (foreign currency loans, deferred payment import equipment loans) guaranteed by domestic organizations up to December 31, 2003.

Domestic organizations providing loans and guarantees to sugar-producing enterprises include commercial banks, the Development Support Fund, and the Accumulation Fund of the Ministry of Finance.

2.2. Documentation for processing write-offs of loan interest, guarantee fees, and re-guarantee fees:

Based on Decision No. 28/2004/QD-TTg dated March 4, 2004, of the Prime Minister, allowing the write-off of loan interest, guarantee fees, and re-guarantee fees for sugar-producing enterprises; domestic lending organizations and enterprises shall prepare reconciliation statements confirming the outstanding loan interest, guarantee fees, and re-guarantee fees owed to domestic lending organizations as of December 31, 2003.

Enterprises eligible for the write-off of loan interest, guarantee fees, and re-guarantee fees shall submit documentation to the Ministry of Finance, the State Bank of Vietnam, and simultaneously to the Ministry of Agriculture and Rural Development, the Corporation for enterprises under the Corporation; provincial People's Committees and provincial Department of Finance for enterprises under local management. The documentation includes:

+ Document proposing the cancellation of interest on loans, fees for guarantees, and re-guarantee fees owed by enterprises, specifying the amount of interest on domestic loans (in domestic currency, foreign currency), guarantee fees, and re-guarantee fees on foreign loans (in foreign currency, import equipment deferred payment loans), the proposed amount to be cancelled, cumulative losses up to December 31, 2003, including losses due to interest on guarantee fees and re-guarantee fees.

+ Loan agreements, loan guarantee agreements, acknowledgment of debt.

+ Minutes of reconciliation confirming the debt of interest on loans, guarantee fees, and re-guarantee fees between sugar production enterprises and domestic lending organizations.

+ Financial statements of the enterprise at the time of December 31, 2003.

2.3. Implement the processing and accounting for the cancellation of interest on loans, guarantee fees, and re-guarantee fees that sugar production enterprises still owe to domestic lending organizations up to December 31, 2003:

After receiving the enterprise's file, the Ministry of Finance will examine and review the file, determine the amount of interest on loans, guarantee fees, and re-guarantee fees to be cancelled for centrally-managed enterprises. The provincial Department of Finance will examine and review the file, determine the amount of interest on loans, guarantee fees, and re-guarantee fees to be cancelled for locally-managed enterprises and notify the enterprise and lending organization in writing. Notifications of cancellation from the provincial Department of Finance for locally-managed enterprises will be simultaneously sent to the Ministry of Finance for monitoring and management.

Based on the notification of cancellation of interest on loans, guarantee fees, and re-guarantee fees issued by the financial authority:

- Credit institutions will adjust their income by the exact amount of the cancelled interest on loans, guarantee fees, and re-guarantee fees. In cases where the interest on loans, guarantee fees, and re-guarantee fees have already been adjusted to reduce income, they will be removed from the off-balance sheet account.

- The Ministry of Finance will adjust the reduction of receivables for interest on loans and guarantee fees for sugar production enterprises directly guaranteed by the State Budget Reserve Fund.

- Sugar production enterprises will adjust their payable debts based on the notification of cancellation of interest on loans, guarantee fees, and re-guarantee fees issued by the financial authority to reduce corresponding losses according to the amount of interest on loans, guarantee fees, and re-guarantee fees that have been cancelled.

3. Cancellation of tax arrears:

- Sugar production enterprises that encounter difficulties in production and business operations leading to losses and pay VAT under the tax deduction method may have their tax arrears from 2001-2003 related to sugar products and products using by-products and waste materials recovered from sugar production cancelled. The amount to be cancelled corresponds to the tax arrears to the state budget as of December 31, 2003.

- Procedures, sequence, and files for cancelling tax arrears follow the guidance at point 1, part A of this Circular.

4. Compensation for exchange rate differences on foreign currency loans:

4.1. Sugar production enterprises that borrow foreign currency from domestic credit institutions and foreign banks (including deferred payment import equipment loans) to invest in building sugar factories and raw material areas according to approved projects under current state regulations on investment and construction management, which result in exchange rate differences leading to losses, will be fully compensated by the state budget for all exchange rate differences arising but not yet resolved as of December 31, 2003.

4.2. The level of compensation for exchange rate differences is:

The increase in exchange rate differences arising from foreign currency loans for importing equipment (including deferred payment import equipment loans) and foreign currency purchased by the enterprise to repay debts, including both principal and interest, based on the actual exchange rate published by the lending bank at the time of equipment import compared to the repayment date stipulated in the loan agreement with foreign entities or lending institutions.

4.3. Files for handling exchange rate difference compensation:

Enterprises eligible for exchange rate difference compensation must submit files to the Ministry of Agriculture and Rural Development and the General Corporation for enterprises under the General Corporation; People's Committee of provinces and cities and Provincial Department of Finance for enterprises under local management. The files include:

+ Enterprise's document requesting exchange rate difference compensation, specifying the amount of foreign currency repaid by guarantors on behalf of the enterprise, the amount of foreign currency repaid by the enterprise itself, cumulative losses up to December 31, 2003, including losses due to exchange rates, and the amount of exchange rate differences requested for compensation.

+ Investment decision for the project and the document approving equipment imports from the competent state management agency.

+ Decision approving the final settlement of the sugar factory investment project and raw material area by the competent authority.

+ Relevant loan contracts related to equipment imports, acknowledgment of debt, and loan guarantees.

+ List of exchange rate differences after being reconciled and confirmed by domestic lending banks for domestic foreign currency loans or by organizations accepting loan guarantees for the enterprise.

+ Financial statements of the enterprise at the time of December 31, 2003.

4.4. Procedure and authority to resolve:

Agencies receiving the enterprise's file are responsible for examining the file, determining the figures of exchange rate differences, issuing specific letters requesting the resolution of exchange rate difference compensation for the enterprise, and sending the entire file to the Ministry of Finance (Enterprise Financial Department) for evaluation and submission to the Ministry of Finance for exchange rate difference compensation for the enterprise.

5. Providing loans to settle completed construction works:

5.1. For completed construction works within the sugar factory investment project that have been approved for final settlement by the competent authority according to current state regulations but have not yet received loans to pay contractors:

- The Development Support Fund will continue to provide loans for sugar factory projects previously funded by the Development Support Fund to pay contractors.

- Commercial banks will continue to provide loans for sugar factory projects previously funded by commercial banks to pay contractors.

- Interest rates and loan terms will be implemented according to the provisions at point 1, part B of this Circular.

5.2. Conditions for continued lending to enterprises with sugar factory investment projects:

- Final settlement of the sugar factory investment project has been approved by the competent authority according to current state regulations.

- The document determining the project items and the value of completed work volume of the Ministry of Agriculture and Rural Development (for sugar factories under the Corporation), of the People's Committee of provinces and centrally governed cities (for sugar factories under local management), included in the final settlement of the investment project approved by the competent authority according to current regulations, but not yet borrowed for payment to contractors.

- The file determining the completed work volume for payment according to the current state regulations on investment and construction management.

C ||| FINANCIAL TREATMENT AND POLICY RESOLUTION FOR LABORERS OF ENTERPRISES BELONGING TO GROUP 3 ATTACHED TO DECISION NO. 28/2004/QD-TTg OF THE PRIME MINISTER ON MARCH 4, 2004:

1. For factories that must be relocated to new sites:

1.1. For state-owned enterprises producing sugar that must be relocated to new sites, the relocation must ensure the principle of not forming new enterprises. The relocation investment project must be based on a financial restructuring plan with measures to handle financial issues according to Decision No. 28/2004/QD-TTg dated March 4, 2004 of the Prime Minister, ensuring effectiveness after relocation.

1.2. Based on the above principle, the enterprise shall prepare the relocation investment project report to the Ministry of Agriculture and Rural Development for submission to the Prime Minister for consideration and decision.

2. For sugar-producing enterprises suffering losses and must cease production, the following measures for financial handling and policy for laborers shall be implemented:

2.1. For enterprises that, after ceasing sugar production, are unable to maintain business operations or maintaining the enterprise is unnecessary according to planning, reorganization, and restructuring plans of ministries, sectors, localities, and corporations, dissolution of the enterprise shall be carried out. The procedures, formalities, and financial handling during dissolution shall follow Circular No. 66/2002/TT-BTC dated August 6, 2002 of the Ministry of Finance.

2.2. For enterprises that, after ceasing sugar production, still maintain other business activities permitted by the relevant ministry, provincial people's committee, or centrally governed city to convert and supplement business fields and implement ownership conversion according to the overall restructuring and modernization plan already approved by the Prime Minister, the following measures shall be implemented:

2.2.1. Regarding financial handling:

- Liquidate and sell assets according to the current financial management regulations for state-owned enterprises or through the Company for Debt Purchase and Surplus Assets of Enterprises to recover capital for the State.

- Regarding loan debts for sugar production investment: The remaining bank loans for sugar production investment of the enterprise shall be documented and handled according to the guidance provided in Circular No. 74/2002/TT-BTC dated September 9, 2002 of the Ministry of Finance, which guides the assessment of outstanding debts without collateral according to Decision No. 149/2001/QD-TTg dated October 5, 2001 of the Prime Minister.

- Enterprises that continue other business activities after ceasing sugar production and implement ownership conversion shall exclude the liquidation value of assets and remaining loan debts for sugar production investment when determining the enterprise's value for ownership conversion.

- Regarding loss and difficult-to-collect receivables arising before the cessation of production:

When determining the enterprise's value for ownership conversion, if the losses and difficult-to-collect receivables arising before the cessation of sugar production are too large, even after being handled according to current financial regulations on enterprise conversion, and the state capital at the enterprise is insufficient to implement the approved ownership conversion plan, based on the enterprise's value determination file and the approved ownership conversion plan, the Ministry of Finance will allocate funds from the enterprise reform cost fund to cover the losses and difficult-to-collect receivables for the enterprise. The amount covered will be recorded as part of the state capital at the enterprise.

2.2.2. Policy handling for laborers of enterprises due to cessation of sugar production:

- After ceasing sugar production, during the period of financial restructuring and preparing the ownership conversion plan, surplus laborers of enterprises due to cessation of sugar production shall be supported according to the mechanism for surplus laborers under Decree No. 41/2002/NĐ-CP dated April 11, 2002 of the Government. Laborers who have been resolved surplus laborer benefits due to cessation of sugar production shall not be counted in the labor list of the enterprise when the enterprise formulates the labor adjustment plan for ownership conversion and shall not participate in enjoying preferential share purchase rights or deferred payment preferential shares for the poor when implementing enterprise shareholding.

- The files, procedures, and processes for handling surplus laborer benefits according to Decree No. 41/2002/NĐ-CP dated April 11, 2002 of the Government for laborers in enterprises due to cessation of sugar production shall be implemented according to current state guidelines.

D ||| SUPPORT FOR INVESTMENT DEVELOPMENT OF RAW MATERIAL AREAS:

Enterprises producing sugar with investment projects for developing raw material areas approved by the competent authority, or project feasibility study reports for developing raw material areas proposed by the competent authority, shall implement support measures as follows:

1. If the investment project for developing raw material areas of the enterprise is financed by the Development Support Fund, the Development Support Fund shall be responsible for appraising the investment project, financial plan, repayment plan for borrowed capital, and deciding to provide loans within the annual credit limit for development investment assigned by the Government. In cases where sugar-producing enterprises borrow from commercial banks to implement investment projects for developing raw material areas, the Development Support Fund shall provide interest subsidies after investment according to current regulations.

2. The central budget supports the importation and breeding of new varieties, the construction of water reservoirs, major irrigation works (primary and secondary canals), and transportation within the raw material area.

3. The local budget supports investment in infrastructure outside the factory and beyond the raw material area. Localities need to mobilize contributions from residents in the project area to participate in developing the sugarcane region.

4. Based on the funding requirements for the development project of the raw material area, sugar manufacturing enterprises report to the Ministry of Agriculture and Rural Development and the People's Committee of the province/city to allocate and balance capital sources and determine the amount of support for the project according to the provisions set out in points 2 and 3 of Part D above, which are included in the annual state budget estimate as the basis for implementation.

Section 3:
IMPLEMENTATION

1. Based on the guidelines for handling financial issues related to ownership transfer for state-owned enterprises and financial measures for sugar manufacturing enterprises as stipulated in this Circular, sugar manufacturing enterprises belonging to Group 2 in the annex attached to Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister shall conduct a comprehensive inventory of all assets under their management and use, determine the value of the enterprise for transfer, and select the form of transfer: shareholding, sale, lease, business contracting, or enterprise leasing, and develop a plan for transferring the enterprise to be submitted for approval by the competent authority.

2. After the plan for transferring sugar manufacturing enterprises belonging to Group 2 in the annex attached to Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister has been approved by the competent authority and based on the results of the audit of the current investment and financial status of the enterprise conducted by the State Audit Office pursuant to Decision No. 49/2004/QĐ-TTg dated March 30, 2004 of the Prime Minister, the Ministry of Finance and relevant agencies shall implement financial support measures according to Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister and the guidelines in this Circular for the enterprise.

3. Enterprises belonging to Groups 2 and 3 in the annex attached to Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister shall only implement financial handling measures upon receipt of the audit report on the current investment and financial status of the enterprise conducted by the State Audit Office pursuant to Decision No. 49/2004/QĐ-TTg dated March 30, 2004 of the Prime Minister.

4. The handling of losses for sugar manufacturing enterprises during the ownership transfer process, as prescribed in point d, Clause 2, Article 3 of Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister, the Ministry of Finance shall issue separate guidelines for enterprises to follow.

5. The Ministry of Finance requests the Ministry of Agriculture and Rural Development and the People's Committees of centrally governed cities and provinces to direct sugar factories to cooperate with lending organizations and loan guarantors to implement the aforementioned contents.

6. The Boards of Directors of State-owned Corporations have the responsibility to coordinate, participate, guide, and inspect member enterprises during the implementation of financial handling and restructuring production in accordance with ownership transfer as stipulated in Decision No. 28/2004/QĐ-TTg dated March 4, 2004 of the Prime Minister and the guidelines in this Circular.

7. This Circular takes effect fifteen days after its publication in the Official Gazette. Any difficulties encountered during implementation should be promptly reported to the Ministry of Finance by relevant ministries, localities, and enterprises for study and resolution./.