Joint Circular No. 90/1997/TTLT/BTC-BNN guiding the financial management regime for state-owned enterprises engaged in public welfare activities in the field of irrigation works exploitation and protection.

JOINT CIRCULAR

Guidelines for financial management of state-owned enterprises engaged in public services in the field of water conservancy works exploitation and protection

public interest in the field of exploitation and protection of irrigation works

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Pursuant to the State Enterprise Law adopted by the National Assembly on April 20, 1995; the Water Conservancy Works Exploitation and Protection Ordinance dated August 31, 1994; Government Decree No. 56/CP dated October 2, 1996 on state-owned enterprises engaged in public services, the Ministry of Finance issued Circular No. 06-TC/TCDN dated February 24, 1997 to provide guidelines for financial management of state-owned enterprises engaged in public services according to the provisions of Government Decree No. 56/CP dated October 2, 1996.

Given the specific nature of operations and financial management mechanisms of enterprises operating in the field of water conservancy works exploitation and protection; in addition to implementing the provisions of Circular No. 06-TCTCDN dated February 24, 1997 of the Ministry of Finance, the Joint Ministry of Finance - Agriculture and Rural Development provides detailed guidance on certain issues regarding financial management of state-owned enterprises engaged in public services in the field of water conservancy works exploitation and protection as follows:

I. GENERAL PROVISIONS

1. The subject of this Circular is state-owned enterprises engaged in public services in the field of water conservancy works exploitation and protection (referred to as water conservancy enterprises): including independent accounting enterprises established by the Minister of Agriculture and Rural Development, the Chairman of the People's Committee of provinces and centrally-administered cities according to the criteria stipulated in Article 1 and Article 2 of Government Decree No. 56/CP dated October 2, 1996.

2. Water conservancy enterprises implement irrigation services according to assigned tasks or orders; they are entitled to collect water fees and other revenues as prescribed by the State. Water conservancy enterprises are allocated capital, resources, land, and other sources by the State, with the responsibility to use them efficiently, preserve and develop the allocated capital, have rights and obligations under civil law, and bear responsibility for their activities within the scope of the capital and assets managed by the enterprise under the principle of self-financing with State financial support in cases as provided in Article 11 of the Water Conservancy Works Exploitation and Protection Ordinance.

3. In addition to performing irrigation tasks, water conservancy enterprises may utilize land, scenery, State capital, and assets managed by the enterprise to organize supplementary business activities suitable to the enterprise's capacity and market demand subject to the following conditions:

- Must be approved in writing by the authority that established the enterprise.

- Shall not affect the performance of assigned irrigation tasks.

- Registering additional business lines in accordance with current regulations.

- Shall maintain separate accounting for supplementary business activities.

- Shall fulfill tax obligations for supplementary business activities according to the law.

4. Water conservancy enterprises are eligible for certain financial policies:

- Priority investment in capital, provision of part or all of the charter capital, preferential loans, or support through official funding sources for projects and works in the field of water conservancy works exploitation.

- Exemption from depreciation charges for constructed and earthworks structures, pumps with a capacity of 8,000 m3/h or more, as well as attached fixed assets and some other assets as specified in Decision No. 1062/TC/QĐ/CSTC dated November 14, 1996 of the Ministry of Finance.

- No payment of land use tax for the area of land allocated by the State for construction and protection of water conservancy works (including management houses of stations, main complexes, workshops, warehouses for serving exploitation and protection of water conservancy works). If water conservancy enterprises use such areas for commercial purposes, they must pay rent according to Government Decree No. 85/CP dated December 17, 1996.

- No payment of business income tax on water fees collected from direct agricultural production services.

- No payment of budget capital usage fee.

5. Water conservancy enterprises are subject to financial inspection and supervision by the finance authority as the representative of the State owner regarding capital and State assets at the enterprise pursuant to the authorization of the Government.

II. MANAGEMENT AND USE OF CAPITAL AND ASSETS

1. Capital Investment:

1.1. Newly established water conservancy enterprises are prioritized by the State to invest part or all of the initial charter capital, not less than the statutory minimum capital stipulated in Government Decree No. 50/CP dated August 28, 1996, commensurate with the scale of assigned irrigation tasks. Enterprises are responsible for continuously preserving and developing capital from their business results. Water conservancy enterprises are invested by the State in works, assets, machinery, and equipment that do not require depreciation when these assets are no longer usable; or additional capital is provided when the State deems it necessary to support the enterprise to fulfill additional assigned tasks or when the enterprise truly lacks capital relative to the assigned irrigation tasks (after mobilizing existing capital within the enterprise). Sources of additional investment for operating enterprises include:

- For profitable enterprises, tax benefits can be considered to supplement the enterprise's capital according to the law.

- For unprofitable enterprises or those still lacking capital after tax benefits, the State will consider additional investment.

1.2. The authority that established the water conservancy enterprise and the corresponding finance authority are responsible for ensuring the charter capital at the time of establishment of the enterprise according to Article 2 of Government Decree No. 50/CP dated August 28, 1996, and for supplementing the capital of the enterprise.

1.3. Investment procedures:

a. For construction investment: Water conservancy enterprises are invested by the State for upgrading, constructing new, expanding the scale of operation, major repairs of works, machinery, and equipment, and restoring non-depreciable works using basic construction investment funds according to the current regulations of the Construction Investment Management Charter.

b. For additional investment in business capital: The enterprise must prepare a file requesting additional capital including:

- Decision on establishment of the enterprise.

- A business registration certificate.

- Decision of the head of the agency deciding on establishment regarding the assignment of public service tasks.

- Production and financial plans of the enterprise that have been approved by the competent authority.

- Financial public report of the enterprise for the previous year (if it is an operating enterprise).

1.4. The procedure for providing capital to enterprises shall be carried out in accordance with the regulations of the Ministry of Finance.

2. Sale, lease, mortgage, pledge of assets:

- Irrigation enterprises may sell assets not needed, obsolete technology to recover capital after obtaining the opinion of the agency deciding on establishment of the enterprise. Before selling, the enterprise must establish a Valuation and Public Auction Committee in accordance with the provisions of the law. The committee must include at least representatives from the Board of Directors, technical staff, accounting manager, and direct managers of the enterprise's assets... The difference between the proceeds from the sale of assets and their remaining book value and sale expenses shall be recorded in the enterprise's business results. For assets that do not require depreciation when sold, they shall be recorded as a reduction in the enterprise's business capital, and the proceeds from the sale (after deducting sale expenses) shall be fully remitted to the state budget (or recorded as an increase in business capital if reinvested by the state).

- For important fixed assets and main production lines: before selling such assets, the enterprise must obtain written consent from the agency deciding on establishment of the enterprise after obtaining written agreement from the state asset management agency at the enterprise.

- For unused, inefficiently used assets that are leased, the enterprise must prepare a plan and report to the agency deciding on establishment of the enterprise for approval. For leased assets aimed at improving utilization efficiency and increasing income, the enterprise must still accrue depreciation according to regulations and recover the assets upon expiration of the lease period.

- The enterprise may mortgage, pledge, and borrow funds from credit organizations in accordance with the provisions of the law. The enterprise may not mortgage or pledge assets borrowed, rented, held in custody, or received as pledges or mortgages from other individuals or enterprises without the owner's consent.

3. Liquidation of assets:

Irrigation enterprises may liquidate assets not needed, technologically obsolete, unusable, damaged, and of poor quality...

Machinery, equipment, important assets, and main production lines that are crucial to the operation of the enterprise, such as pumps, canals... must obtain written consent from the agency deciding on establishment of the enterprise and the state asset management agency at the enterprise when being liquidated.

When liquidating, a Liquidation Asset Committee must be established, which must include at least representatives from enterprise leadership, technical staff, accounting manager, and asset managers... If spare parts, scrap, and assets from liquidation are used for production and business operations, the enterprise must organize valuation, and if the liquidated assets are sold, public auction must be organized in accordance with the law. The difference between the proceeds from the liquidation of assets (including the value used for business investment) and the remaining book value of the liquidated assets and liquidation expenses shall be recorded in the enterprise's business results. For fixed assets that do not require depreciation, the enterprise may record a reduction in business capital, and the net proceeds from liquidation after deducting liquidation expenses must be fully remitted to the state budget (or recorded as an increase in business capital if reinvested by the state).

4. Irrigation enterprises implement the system of depreciation and use of fixed assets in accordance with the regulations of the Ministry of Finance. The following assets do not require depreciation:

- Construction works made of cast and earth...

- Water pumps with a capacity of 8,000 m³/h or more as currently defined, along with structures for use and operation of the works.

- Fixed assets formed from welfare funds of the enterprise that do not directly serve the production and business operations of the enterprise.

- Leased fixed assets.

- Fully depreciated fixed assets that are still in use.

- Unused fixed assets awaiting relocation, stored for over one year and registered with the finance agency.

All depreciation of fixed assets retained by the enterprise for reinvestment, replacement of fixed assets, and use for business needs shall be in accordance with the regulations of the Ministry of Finance.

For assets that do not require depreciation, the enterprise must still maintain records and reflect the value of wear and tear as prescribed.

5. Irrigation enterprises shall revalue assets in the following cases:

- Inventory and revaluation of assets as decided by the State.

- Using assets to contribute to joint ventures or share capital in accordance with the law.

The handling of the results of inventory and revaluation of assets must comply with the State's regulations.

III. REVENUE, EXPENSES AND DISTRIBUTION OF PROFITS

1. Revenue of irrigation enterprises includes revenue from irrigation services (in accordance with water fee policies); revenue from comprehensive exploitation activities of water conservancy works; revenue from state support as prescribed; other revenues...

1.1. Revenue from irrigation service activities: Is the amount of water fees collected and verified according to contracts. The level of water fees is determined by the People's Committee of the province or centrally-administered city.

For inter-provincial irrigation enterprises, revenue is the amount paid up by irrigation enterprises within the system as decided by the Management Council of the system.

1.2. Revenue from comprehensive exploitation activities of water conservancy works includes: aquaculture, boat mooring rental, tourism, power generation, industrial water supply, residential water supply for industrial zones, or other business activities...

1.3. Revenue from State support as prescribed.

1.4. Other revenue: such as collection of difficult-to-collect debts that have been written off and now recovered, proceeds from liquidation, sale of assets, joint ventures, financial leasing, and other revenues...

2. Expenses of irrigation enterprises include:

2.1. Expenses for irrigation and drainage operations:

1. Wages and allowances.

2. Social insurance, health insurance, and trade union fees calculated based on wages paid directly by the enterprise to employees.

3. Depreciation of fixed assets subject to depreciation.

4. Raw materials and supplies for operation and maintenance of machinery and equipment used for irrigation and drainage services.

5. Major repairs of fixed assets.

6. Regular repairs of fixed assets.

7. Electricity costs for pumping water for irrigation and drainage.

8. Costs for water source generation (if applicable).

9. Management expenses (including communication costs for operating computer systems to manage water supply for production).

10. Costs for flood prevention and drought management. 11. Contributions to flood prevention funds.

12. Training, scientific research, and application of new technology costs for establishing economic and technical standards.

13. Costs for labor protection, safety, and hydraulic works protection...

14. Costs for collecting water resource fees.

15. Other costs...

2.2. Expenses for comprehensive exploitation business activities include expenses for aquaculture, fishing, protection, and other business activities...

2.3. Other activity expenses include expenses for recovering difficult-to-collect debts that have been written off, fines collection, and asset liquidation and sale expenses...

In addition to the above expenses, the enterprise may also include severance pay for employees according to Decree No. 198/CP dated December 31, 1994, guiding certain provisions of the Labor Code.

All expense items must be supported by lawful vouchers as stipulated.

3. Irrigation enterprises may use revenue to cover expenses, including:

- Revenue from irrigation and drainage service activities to cover expenses for irrigation and drainage service activities, taxes, and other State revenues as prescribed by law (excluding income tax).

- Revenue from comprehensive exploitation business activities to cover expenses for comprehensive exploitation business activities, taxes, and other State revenues as prescribed by law (excluding income tax).

- Revenue from other activities to cover expenses for other activities, taxes, and other State revenues as prescribed by law (excluding income tax).

Irrigation enterprises conducting supplementary business activities must ensure profitability and not offset losses from commercial activities with profits from public welfare activities.

3. Distribution of profits:

1. For irrigation enterprises with actual profits realized in the year (including both business profits and other activities), distribution shall follow the following order:

a. Pay corporate income tax as required by law.

b. Deduct penalties for breach of contract, overdue payments, and legitimate expenses not deducted when determining taxable profit.

c. Deduct losses not deductible before tax.

d. The remaining profit after deducting items a, b, and c shall be allocated to the following reserve funds at the following rates and limits:

+ Development Investment Fund: Minimum 50%.

+ Financial Reserve Fund: 10%, with the balance of this fund not exceeding 25% of the registered capital.

+ Allocate two bonus and welfare funds equal to three months' actual salary if the budget submission plan approved by the competent authority is completed. In other cases, allocate two bonus and welfare funds equal to two months' actual salary.

After deducting items a, b, c, and d, if there is a surplus after allocating to the Development Investment Fund and the Financial Reserve Fund, the excess will be transferred entirely to the Development Investment Fund. If there is insufficient funding to allocate two bonus and welfare funds equal to two months' actual salary, the State will provide the shortfall.

2. For irrigation enterprises where revenue is insufficient to cover reasonable expenses, after using 50% of business activity profits (if any) to cover expenses, if there is still a loss, the State will support as follows: - Provide sufficient subsidy for the remaining loss.

- Allocate two bonus and welfare funds equal to two months' actual salary of the enterprise.

- Remaining revenue from comprehensive exploitation business activities and other activities (if any) will be allocated to the Development Investment Fund at 80% and the Financial Reserve Fund at 20%.

* Sources for disbursing financial support are implemented as follows:

- For irrigation enterprises established by the Chairman of the People's Committee of provinces and cities, they will be supported from local budgets.

- For irrigation enterprises established by the Ministry of Agriculture and Rural Development, the Ministry of Agriculture and Rural Development will lead together with the Ministry of Finance to determine the level of support from the central budget.

In case of extraordinary natural disasters or floods, if after mobilizing all current legal sources of the enterprise and receiving subsidies from budgetary plans at various levels and still cannot cover the losses, it will be handled separately according to the Government's decision.

The management and use of financial support disbursement shall be carried out according to Circular No. 68-TC/TCDN dated September 25, 1997, issued by the Ministry of Finance regarding guidance on certain financial support items for state-owned enterprises and other regulations of the Ministry of Finance.

3. Procedures, timing for setting up, and purposes of using the funds of the enterprise shall be conducted similarly to those of commercial enterprises.

Within the total amount allocated to the two bonus and welfare funds, the enterprise director has the right to decide the allocation ratio to each fund after consulting with the enterprise trade union.

Waterworks enterprises shall not establish a reserve fund for unemployment. In special cases where it is necessary to reduce the scale of irrigation activities, the agency deciding on the establishment of the enterprise and the financial authority at the same level shall consider providing subsidies to workers who lose their jobs according to the prescribed regulations. 4. For waterworks enterprises located in remote, border, island areas, or strategic regions with particularly difficult conditions, the State shall consider supporting the following expenses:

- Expenses for kindergartens and education in areas without schools under the educational system.

- Expenses for public health services in places that must maintain hospitals or clinics due to special conditions.

IV. FINANCIAL PLAN

1. Annually, based on the provisions and guidelines of the agency deciding on the establishment of the enterprise and the financial authority, waterworks enterprises must prepare production and service plans for irrigation, financial revenue and expenditure budgets (including subsidy plans), report to the agency deciding on the establishment of the enterprise and the financial authority at the same level. The agency deciding on the establishment has the responsibility to approve, compile reports, and submit them to the financial authority and related agencies.

2. Within the annual budget revenue and expenditure plan approved, the head of the agency deciding on the establishment of the enterprise assigns irrigation plans and allocates the state budget for waterworks enterprises and sends it to the financial authority at the same level for coordination. The state budget only supports within the approved budget. If the approved budget is exceeded, it will be handled according to the State Budget Law and current regulations.

V. ACCOUNTING AUDIT, FINANCIAL REPORTING AND FINANCIAL DISCLOSURE

1. Preparing financial reports

- Quarterly and annually, waterworks enterprises are responsible for preparing financial statements in accordance with current regulations. The enterprise director is responsible before the State and the law for the accuracy and truthfulness of the financial statements.

- Financial statements quarterly and annually are submitted to the agency deciding on the establishment of the enterprise, tax authorities, state asset management agencies at the enterprise, and statistical agencies.

2. Accounting Audit and Financial Reporting:

- Quarterly and annually, waterworks enterprises must conduct self-audits of accounting and financial statements.

- The agency deciding on the establishment of the enterprise, together with the state asset management agency at the same level, is responsible for organizing the audit and approval of the annual financial statements of the enterprise.

- The financial authority shall inspect compliance with financial accounting systems, budget revenue discipline, and the accuracy and truthfulness of financial statements.

- Violations of accounting systems, financial revenue and expenditure systems, budget revenue submission, and the establishment and use of enterprise funds shall be subject to administrative penalties and economic sanctions according to the law.

3. Public disclosure of annual financial statements:

- Based on the annual financial statements approved by the competent authority, the enterprise shall publicly disclose certain financial indicators according to the regulations of the Ministry of Finance.

- The content of the disclosed indicators shall follow the model attached to this Circular.

VI. IMPLEMENTATION PROVISIONS

1. In addition to the specific provisions for waterworks enterprises in this Circular, waterworks enterprises must also comply with other legal provisions applicable to state-owned enterprises.

2. This Circular takes effect from the date of issuance. All previous regulations on financial management for waterworks enterprises that conflict with this Circular are abolished.

3. During implementation, if there are any difficulties, enterprises are requested to report to the Ministry of Agriculture and Rural Development and the Ministry of Finance for study and appropriate amendments and supplements./.