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

JOINT CIRCULAR

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

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

Due to 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 further guides certain issues regarding the financial management regime for state-owned enterprises engaged in public welfare activities in the field of water conservancy works exploitation and protection as follows:

I. GENERAL PROVISIONS

Article 1. The subject of this Circular is state-owned enterprises engaged in public welfare activities 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 governed cities according to the criteria stipulated in Articles 1 and 2 of Decree No. 56/CP dated October 2, 1996 of the Government.

Article 2. Water conservancy enterprises provide irrigation services according to assigned tasks or orders; they 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, responsible for using them efficiently, preserving and developing the allocated capital, having rights and obligations under civil law, and bearing responsibility for their activities within the scope of the capital and assets managed by the enterprise according to 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.

Article 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 capabilities 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 separately account for supplementary business activities.

- Shall fulfill tax obligations for supplementary business activities in accordance with the law.

Article 4. Water conservancy enterprises are entitled to 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 need to pay land use tax for areas 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 these areas for commercial purposes, they must pay rent according to Decree No. 85/CP dated December 17, 1996 of the Government.

- No need to pay turnover tax on water fees collected from direct agricultural production activities.

- No need to pay budgetary fund usage fees.

Article 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 assets at the enterprise pursuant to the Government's authorization.

II. MANAGEMENT AND USE OF CAPITAL AND ASSETS

1. Capital Investment:

Article 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 capital stipulated in Decree No. 50/CP dated August 28, 1996 of the Government, 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 compared to the assigned irrigation tasks (after mobilizing existing capital within the enterprise). Sources of additional investment for operating enterprises include:

- For profit-making enterprises, tax reduction can be considered to supplement the enterprise's capital according to the law.

- For loss-making enterprises or enterprises still lacking capital after tax reduction consideration, the State will consider additional investment.

Article 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 Decree No. 50/CP dated August 28, 1996 of the Government and supplementing capital for the enterprise.

Article 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 assets through basic construction investment funds in accordance with current regulations on investment management and construction.

b. For additional investment capital: The enterprise must prepare a request for 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 from 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 in use or 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 representatives of the Board of Directors, technical staff, the Chief Accountant, and direct managers of the enterprise's assets... The difference between the proceeds from the sale of assets and their remaining book value and disposal costs shall be recorded in the enterprise's business results. For assets that do not require depreciation when sold, the reduction in the enterprise's operating capital shall be recorded, and the net proceeds from the sale (after deducting disposal costs) shall be fully remitted to the state budget (or recorded as an increase in operating 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 receiving written agreement from the state asset management agency at the enterprise.

- For unused or 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 term.

- 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 collateral or pledge from other individuals or enterprises without the owner's consent.

3. Liquidation of assets:

Irrigation enterprises may liquidate assets not in use, obsolete technology-wise, unusable, damaged, or substandard...

Major machinery, equipment, and important production lines essential for the operation of the enterprise, such as pumps and canals, must be approved in writing by the agency deciding on establishment of the enterprise and the state asset management agency at the enterprise before liquidation.

A liquidation committee must be established during liquidation, which must include representatives of enterprise leadership, technical staff, the Chief Accountant, and asset managers... If parts, scrap, or assets from liquidation are used for production and business operations, the enterprise must organize valuation. If assets are sold through liquidation, 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 costs shall be recorded in the enterprise's business results. For fixed assets that do not require depreciation, the enterprise may record a reduction in operating capital, and the net proceeds from liquidation (after deducting liquidation costs) must be fully remitted to the state budget (or recorded as an increase in operating 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:

- Cast-in-place structures and earthworks...

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

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

- Leased fixed assets.

- Fully depreciated fixed assets that are still in use.

- Unused fixed assets awaiting relocation or storage for over one year, registered with the financial 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 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 of water conservancy works, revenue from state support as prescribed, and 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 Committees of provinces and centrally-administered cities.

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 of water conservancy works includes: aquaculture, boat mooring rentals, 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 but 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 and drought prevention, and contributions to flood prevention funds.

11. Training, scientific research, application of new technology, and construction of economic and technical standards.

12. Costs for labor protection, safety, and protection of hydraulic works...

13. Costs for water resource fee collection.

14. 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 recovery costs for difficult-to-collect debts that have been written off, fines collection costs, and asset liquidation and sale costs...

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 of the Government guiding certain provisions of the Labor Code.

All expense items must be supported by valid documentation as stipulated.

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

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

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

- Other revenue is used to cover other activity expenses, taxes, and other State revenues as prescribed by law (excluding income tax).

Irrigation enterprises conducting supplementary business activities must ensure profitability and not use profits from public welfare activities to offset losses from other business 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 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 reward and welfare funds equal to three months' actual salary if the budget submission plan approved by the competent authority is completed. Otherwise, allocate two reward and welfare funds equal to two months' actual salary.

After deducting 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 the resources are insufficient to allocate two reward and welfare funds equal to two months' actual salary, the enterprise will be provided with the shortfall by the State.

2. For irrigation enterprises where revenue is insufficient to cover reasonable expenses, after using 50% of business profits and other activities (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 reward 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 used to allocate 80% to the Development Investment Fund and 20% to the Financial Reserve Fund.

* Allocation of financial support funds shall be 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 cases of abnormal natural disasters or floods, if after mobilizing all current legal sources of funding of the enterprise and receiving subsidies from budgetary plans at various levels and still cannot cover the losses, special handling will be carried out according to the decision of the Government.

The management and use of financial support funds shall be implemented according to Circular No. 68-TC/TCDN dated September 25, 1997 of 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 reward and welfare funds, the director of the enterprise has the right to decide the allocation ratio to each fund after consulting with the enterprise's trade union.

Waterworks enterprises shall not establish an unemployment reserve fund. In special cases where it is necessary to reduce the scale of irrigation activities, the enterprise establishment authority and the financial agency at the same level shall consider providing subsidies for 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:

- Kindergarten and education expenses in areas without schools under the educational system.

- Health service expenses for places that must maintain hospitals or clinics due to special conditions.

IV. FINANCIAL PLAN

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

2. Within the approved annual budget revenue and expenditure plan, the head of the enterprise establishment authority assigns irrigation plans and allocates the state budget to waterworks enterprises and sends it to the financial agency at the same level for coordination. The state budget only supports within the scope of the approved budget. In cases where the approved budget is exceeded, they 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 enterprise establishment authority, tax agency, state asset management agency at the enterprise, and statistical agency.

2. Accounting Audit and Financial Reporting:

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

- The enterprise establishment authority, 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 agency implements the inspection of compliance with financial accounting systems, budget revenue discipline, and the accuracy and truthfulness of financial statements.

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

3. Public disclosure of annual financial statements:

- Based on the annual financial statements approved by the competent authority, the enterprise publicly discloses 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, these 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, any difficulties should be reported by enterprises to the Ministry of Agriculture and Rural Development and the Ministry of Finance for study and appropriate amendments.