JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN LOAN NUMBER 8407 AZ AND 9058 AZ Special-Purpose Financial Statements and Independent Auditors' Report For the year ended December 31, 2020 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 1-3 SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020: Special-purpose balance sheet 4 Statement of cash receipts and payments 5-7 Statement of project activities 8-13 Statement of designated and project accounts 14 Statement of expenditure and summary sheet withdrawal schedule 15-16 Notes to the special-purpose financial statements 17-23 bakertilly City Point Baku, 9'" floor J. Mammadguluzadeh str., 102A Baku, AZ1 022, Azerbaijan T: +994 (12) 404 7 666 F: +994 (12) 404 7 667 office@bakertilly.az www.bakertilly.az INDEPENDENT AUDITORS' REPORT To the Management of the Judicial Services and Smart Infrastructure Project of the Republic of Azerbaijan: Opinion We have audited the Special-Purpose Financial Statements of the Judicial Services and Smart Infrastructure Project of the Republic of Azerbaijan (the "Project"), which comprise the Special-Purpose Balance Sheet as at December 31, 2020, and the Statement of Cash Receipts and Payments, the Statement of Project Activities, the Statement of Designated and Project Accounts and the Statement of Expenditure and Summary Sheet Withdrawal Schedule ("SOE and SSWS") for the year then ended, and a summary of basis of accounting and other explanatory notes (collectively referred to as the "Special-Purpose Financial Statements") financed under the International Bank for Reconstruction and Development (the "IBRD") through loan agreement number 8407 AZ and 9058 AZ (the "Loan Agreement"). In our opinion, the accompanying Special-Purpose Financial Statements present fairly, in all material respects, the financial position of the Project as at December 31, 2020, the cash receipts and disbursements on behalf of the Project and transactions passed through the Project's special accounts for the year then ended in accordance with IPSAS "Financial Reporting under the Cash Basis of Accounting" and relevant provisions of the Loan Agreement as described in Note 2 to the Special-Purpose Financial Statements. In addition, with respect to the SOE and SSWS, all payments reported are eligible for financing under the Loan Agreement and adequate documentation have been maintained to support the claims for withdrawal. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Special- Purpose Financial Statements section of our report. We are independent of the Project in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ASSURANCE ADVISORY TAX LEGAL Baker Tilly Audit Azerbaijan CJSC trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. bakertilty Emphasis of Matter Basis ofAccounting and Restriction on Distribution and Use We draw attention to Note 2 to the Special-Purpose Financial Statements, which describes the basis of accounting. The Special-Purpose Financial Statements are prepared to assist the Project's Implementation Unit in complying with the financial reporting provisions of the Loan Agreement referred to above. As a result, the Special-Purpose Financial Statements may not be suitable for any other purpose. Our report is intended solely for the Project Management Team, the Government of the Republic of Azerbaijan and the IBRD and should not be distributed to or used by parties other than Project's Implementation Unit and the IBRD. Our opinion is not modified in respect of this matter. Responsibilities of Management for the Special-Purpose Financial Statements Management is responsible for the preparation and fair presentation of the Special-Purpose Financial Statements in accordance with IPSAS and relevant provisions of the Loan Agreements as described in Note 2 to the Special- Purpose Financial Statements, and for such internal control as management determines is necessary to enable the preparation of Special-Purpose Financial Statements that are free form material misstatement, whether due to fraud or error. Auditor's Responsibilities for the Audit of the Special-Purpose Financial Statements Our objectives are to obtain reasonable assurance about whether the Special-Purpose Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Special- Purpose Financial Statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the Special-Purpose Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control; * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. bakertilly We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. October 18, 2021 Baku, the Republic of Azerbaijan JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN SPECIAL-PURPOSE BALANCE SHEET AS AT DECEMBER 31, 2020 (Amounts expressed in the United States Dollars unless otherwise indicated) Note As at As at December 31, December 31, 2020 2019 ASSETS AND CUMULATIVE USES OF FUNDS Cash and cash equivalents 3 6,386,531 1,254,208 Project expenditure 201,529,526 185,983,583 Accumulated foreign exchange rate differences 209,016 208,958 TOTAL ASSETS AND CUMULATIVE USES OF FUNDS 208,125,073 187,446,749 SOURCES OF FUNDS Cumulative IBRD Funds 107,000,000 96,387,852 Cumulative Government Funds 101,122,665 91,056,489 Other funds 2,408 2,408 TOTAL SOURCES OF FUNDS 208,125,073 187,446,749 Approved and signed on behalf of the Judicial Services and Smart Infrastructure Team: Azer Jafarov Zaur Nasrullayev Project Director Finance Manager October 18, 2021 October 18, 2021 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an integral part of these Special-Purpose Financial Statements. 4 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED TO DECEMBER 31, 2020 (Amounts expressed in the United States Dollars unless otherwise indicated) Year ended Year ended Cumulative as December 31, December 31, at 2020 2019 December 31, 2020 OPENING BALANCE IBRD Designated Account 8407 1,254,208 2,779,270 TOTAL OPENING BALANCE 1,254,208 2,779,270 ADD: FUNDS RECEIVED IBRD Loan Number 8407 AZ Initial deposit to the IBRD Designated Account - 5,000,000 Direct funding - 7,537,357 40,766,336 SOE replenislunent 3,612,148 7,344,213 53,983,664 Front-end fee - - 250,000 Subtotal IBRD Loan fund 8407 AZ 3,612,148 14,881,570 100,000,000 IBRD Loan Number 9058 AZ Initial deposit to the IBRD Designated Account 7,000,000 7,000,000 Subtotal IBRD Loan fund 9058 AZ 7,000,000 7,000,000 Total IBRD Loan funds 10,612,148 14,881,570 107,000,000 Government funding for Loan Number 8407 AZ Advances to the Project Account 9,941,176 23,823,529 100,997,665 Subtotal Government of Azerbaijan fund 8407 AZ 9,941,176 23,823,529 100,997,665 Government funding for Loan Number 9058 AZ Front-end fee 125,000 - 125,000 Subtotal Government of Azerbaijan fund 9058 AZ 125,000 - 125,000 Total Government of Azerbaijan funds 10,066,176 23,823,529 101,122,665 Other funds Tender fees accumulated in the IBRD Designated Account - 735 2,408 Subtotal other funds - 735 2,408 TOTAL FUNDS RECEIVED 20,678,324 38,705,834 208,125,073 Cash withdrawals/IBRD Loan Number 8407 AZ Cash withdrawn from the IBRD Designated Account - - (1,536,186) Total cash withdrawals - - (1,536,186) 5 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED TO DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Year ended Year ended Cumulative as December 31, December 31, at 2020 2019 December 31, 2020 LESS: EXPENDITURE IBRD Loan Number 8407 AZ (bank payments) Civil works (1,843,995) (4,011,621) (24,837,336) Goods (332,163) (7,409,986) (38,406,525) Consultants' services (1,834,936) (4,314,865) (29,325,595) Training - (82,339) (394,686) Incremental operating costs (855,204) (588,544) (5,251,909) Front-end fee - (250,000) Subtotal IBRD Loan Number 8407 AZ expenditure (bank payments) (4,866,298) (16,407,355) (98,466,051) IBRDI Loan Number 9058 AZ (bank payments) Consultants' services (598,861) - (598,861) Incremental operating costs (14,608) - (14,608) Subtotal IBRD Loan Number 9058 AZ expenditure (bank payments) (613,469) - (613,469) IBRD Loan Number 8407 AZ (cash payments) Consultants' services - - (260,679) Training - - (12,178) Incremental operating costs - - (1,265,559) Subtotal IBRD Loan Number 8407 AZ - expenditure (cash payments) - - (1,538,416) Total IBRD Loan expenditure (5,479,767) (16,407,355) (100,617,936) Government of Azerbaijan expenditure for IBRD Loan Number 8407 AZ (bank payments) Civil works (4,459,291) (5,351,522) (39,475,993) Goods (4,020,871) (17,345,688) (53,696,735) Consultants' services (187,450) (876,251) (3,972,435) Training - (112,101) Incremental operating costs (1,273,564) (250,068) (2,021,735) Other costs financed fully by the Government - - (1,507,591) Subtotal Government of Azerbaijan expenditure (9,941,176) (23,823,529) (100,786,590) Government of Azerbaijan expenditure for IBRD Loan Number 9058 AZ Front-end fee (125,000) - (125,000) Subtotal Government of Azerbaijan expenditure (125,000) - (125,000) Total Government of Azerbaijan expenditure (10,066,176) (23,823,529) (100,911,590) TOTAL EXPENDITURE (15,545,943) (40,230,884) (201,529,526) 6 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otheiwise indicated) Year ended Year ended Cumulative as December 31, December 31, at 2020 2019 December 31, 2020 FOREIGN EXCHANGE DIFFERENCE Cash on hand 2,230 Project Account - (211,075) IBRD Designated Account (58) () (171) TOTAL FOREIGN EXCHANGE DIFFERENCE (58) (12) (209,016) CLOSING BALANCE IBRD Designated Account 9058 AZ 6,386,531 IBRD Designated Account 8407 AZ - 1,254,208 TOTAL CLOSING BALANCE 6,386,531 1,254,208 Approved and signed on behalf of the Judicial Services and Smart Infrastructure Team: Azer Jafarov Zaur Nasrullayev Project Director Finance Manager October 18, 2021 October 18, 2021 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an integral part of these Special-Purpose Financial Statements. 7 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF PROJECT ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2020 (Amounts expressed in the United States Dollars unless otherwise indicated) PROJECT COMPONENTS/ACTIVITIES Year ended Year ended Cumulative December 31, December 31, as at 2020 2019 December 31, 2020 I Judicial Service Delivery Improvements IBRD Loan number 8407 AZ 1.1 Expanding Access to Justice for All Consultants' services Barriers to access to justice for internally displaced persons, women, juveniles, minorities and other vulnerable groups - policy and operational analysis and recommendations for improvement - 215,253 - ~ Legal aid: needs analysis, review of policy options and technical support for improving policy and institutional framework and policy capacity - 285,798 Removing barriers to expansion of alternative dispute resolution: (a) needs analysis, (b) review of policy options and (c) technical support for improving policy and operational framework and institutional capacity - 274,786 Analysis of the extent and causes of gender based violence and preparation of a national strategy and action plan for improving support for victims of such violence 317,028 Juvenile justice: introducing a legal and institutional framework: (a) needs analysis, (b) review of policy options, (c) preparation of national strategy for prevention of offences by juveniles - 200,000 Piloting Innovative Provision of Legal Aid Services in Azerbaijan - University, Law Faculty or Legal Scientific Institute - 276,339 437,039 Piloting Innovative Provision of Legal Aid Services in Azerbaijan - Non-governmental Organizations 117,748 188,842 466,550 Piloting Innovative Provision of Legal Aid Services in Azerbaijan - Private Practitioners - 57,584 233,264 (a) Introducing Mediation (b) Strengthening Legal Profession - 98,547 334,715 Subtotal 117,748 621,312 2,764,433 1.2 Expanding e-justice services across the Republic of Azerbaijan Goods Supply, Installation and Support of ICT Equipment and Related Software for Primary and Reserve Data 2,034,886 9,204,945 33,231,902 Enhancement of Electronic Document Management System (DMS), Case Management System (CMS) and e-bailiff system in Phase-I courts and bailiff offices 907,103 1,615,011 4,945,286 Installation of IT infrastructure in Phase-I courts and bailiff offices - 1,909,680 18,848,673 Accelerating electronic filing in selected high-volume courts and court complexes through digitization - - 1,426,168 Subtotal 2,941,989 12,729,636 58,452,029 8 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF PROJECT ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) PROJECT COMPONENTS/ACTIVITIES Year ended Year ended Cumulative December 31, December 31, as at 2020 2019 December 31, 2020 Consultants' services Upgrading and modernizing court web portal - 5,935 256,419 Electronic Document Management System (DMS) and Case Management System (CMS) software in selected Phase - - 1,763,705 E-library services - design and implementation of a pilot e- library under the Supreme Court - 20,132 247,758 Consultancy services for location-specific site surveys of judicial infrastructure in Baku city Bine - 35,812 Consultancy services for location-specific site surveys of judicial infrastructure 636,696 424,464 1,947,060 Development of Framework to Implement the e-Court Information System _ - 90,000 Subtotal 636,696 450,531 4,340,754 Total Judicial Service Delivery Improvements 3,696,433 13,801,479 65,557,216 2 Strengthening Institutional Capacity, Efficiency and Monitoring and Evaluation ("M&E") IBRD Loan number 8407 AZ 2.1 Improving Sector Efficiency, Performance and M&E Consultants' services Development of the key performance indicators and pilot management dashboard for e-court system - - 217,460 Strengthening Justice Sector M&E Capacity and Quality: (a) assessment of sector M&E capacity, quality 5,068 91,229 1,371,675 Design and conduct of user surveys 246,653 105,708 704,431 Senior judicial information systems advisor - 8,217 227,054 Sector Efficiency and Expenditure Review (SEER): conduct, dissemination of findings and recommendations 6,931 237,025 327,123 Analysis of status of courts' physical and electronic archiving and retrieval policies and practices - 109,381 268,895 Subtotal 258,652 551,560 3,116,638 2.2 Strengthening IT Management and Operational Capacity Goods Procurement of Information Technology Service Management (ITSM) software solutions for MOJ IT Helpdesk _ - 93,080 Subtotal - - 93,080 9 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF PROJECT ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) PROJECT COMPONENTS/ACTIVITIES Year ended Year ended Cumulative December 31, December 31, as at 2020 2019 December 31, 2020 Consultants' services Short-term capacity augmentation for MOJ IT Department and Call Center, Help Desk and asset management - 1,608,800 2,298,326 Policy analysis and options for sourcing and employment of - skilled IT professionals as Ministry of Justice ("MOJ") personnel - 321,388 ICT Development and capacity building manager 13,306 26,446 87,453 ICT Infrastructure specialist - 12,159 53,499 ICT Operation Head - 57,827 Project Controller (Deputy Project Manager) - - 29,833 IT Trainer and support specialist 6,599 13,153 48,718 ICT support specialists 14,287 29,677 116,596 Senior IT Infrastructure (NOC) Specialist 16,297 20,093 54,869 Interim chief information officer for MOJ 21,960 170,305 1,178,088 Information Systems Support Specialist #1 16,297 20,022 43,227 IT System Administration Specialist 11,512 18,971 41,624 e-Court Development Specialist #1 5,043 6,465 16,258 e-Court Development Specialist #2 - 5,443 10,193 e-Court Development Specialist #3 8,030 11,119 25,799 Subtotal 113,331 1,942,653 4,383,698 2.3 Communications, Outreach and Change Management Consultants' services Audio-Visual Media Preparation 38,848 105,669 267,056 Subtotal 38,848 105,669 267,056 2.4 Strengthening Professionalization and Knowledge Consultants' services Improving the quality of judicial decisions in economic and commercial disputes: analysis and recommendations 15,042 343,525 Improving the quality of judicial decisions in first-instance courts - analysis and recommendations;- 20,691 283,123 ICT training for judges, court staff and staff of other justice institutions, Phase 3 - 260,190 1,870,143 Overcoming Gender Barriers in Justice Professions - 26,997 211,976 Justice Academy: Institutional and Training Needs Analysis Update - 2,259 31,754 Subtotal - 325,179 2,740,521 Total Strengthening Institutional Capacity, Efficiency and Monitoring and Evaluation 410,831 2,925,061 10,600,993 10 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF PROJECT ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) PROJECT COMPONENTS/ACTIVITIES Year ended Year ended Cumulative as December 31, December 31, at 2020 2019 December 31, 2020 3 Expansion and Modernization of Justice Infrastructure IBRD Loan number 8407 AZ Civil Works Construction of Sumgait Court Complex 3,953,690 6,557,242 29,151,554 Construction of Baku City Narimanov District Court 138,918 - 10,638,730 Construction of Surakhani District Court 868,346 900,956 7,381,333 Construction of Masalli District Court 1,342,332 1,904,945 6,800,405 Construction of annex in Sheki Court Complex and capital repair of current Sheki District Court building for further location of the Sheki City Bailiff department - - 10,341,308 Subtotal 6,303,286 9,363,143 64,313,330 Goods ICT and other technical equipment for Sumgait Court Complex 250,770 - 2,530,915 Office equipment and furniture for Baku City Narimanov - - 1,559,609 Office equipment and furniture for Baku City Surakhani District Courts 93,977 - 1,516,158 ICT and other technical equipment for Baku city Binagady District Court - - 1,207,450 ICT and other technical equipment for Imishli District Court - - 527,486 ICT and other technical equipment for Zagatala District Court - - 535,668 ICT and other technical equipment for Qabala District Court - - 560,691 Office equipment and furniture for Baku City Binagadi District Court - - 1,468,995 Office equipment and furniture for Imishli District Court - - 222,112 Office equipment and furniture for Zagatala District Court - - 302,025 Office equipment and furniture for Gabala District Court - - 258,543 ICT and other technical equipment for Masalli District Court - 740,845 929,415 ICT and other technical equipment for Baku City Narimanov - - 1,049,471 ICT and other technical equipment for Baku Surakhani District Courts - - 860,194 ICT and other technical equipment for annexes in Sheki Court Complex - - 885,659 Office equipment and furniture for Sumgait Court Complex - - 4,249,578 Office equipment and furniture for annexes in Sheki Court Complex - - 1,771,411 Office equipment and furniture for Masalli District Court - 569,844 Provision of additional furnishing materials and office supplies to Baku city Binagadi District - - 93,603 Provision of auxiliary power, cooling facility and other equipment for MoJ Main and Reserve data centers 283,970 10,355,641 10,639,611 Provision of additional and Comunication ICT equipment for courts and bailiff offices 782,328 929,552 1,711,880 Provision of additional furnishing materials and office supplies to Zagatala District Court - - 72,823 Subtotal 1,411,045 12,026,038 33,523,141 11 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF PROJECT ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) PROJECT COMPONENTS/ACTIVITIES Year ended Year ended Cumulative December 31, December 31, as at 2020 2019 December 31, 2020 Consultants' services Updating and refinement of courthouse and justice institution buildings designs - 6,202,249 Author supervision of courts to be constructed 69,737 158,952 1,215,757 Independent technical review of technical designs for selected courts - 3,276,016 Independent Technical Review (ITR) of JSSIP civil works for Baku Grave Crimes Courts 164,924 162,821 889,081 Technical supervision of courthouse construction 117,323 204,627 833,443 e-Court System (Data Entry) Operator 32,200 71,527 195,716 Subtotal 384,184 597,927 12,612,262 Total Expansion and Modernization of Justice Infrastructure 8,098,515 21,987,108 110,448,733 4 Project Management and Coordination IBRD Loan number 8407 AZ Goods Vehicle for Project Implementation Unit ("PIU") _ - 35,011 Subtotal _ - 35,011 Consultants' services Remunerations 472,927 596,285 3,439,998 Subtotal 472,927 596,285 3,439,998 Training Training for PIU and MOJ staff and relevant government officials _ 82,339 412,310 Subtotal - 82,339 412,310 Incremental operating costs Operating costs 2,102,526 790,770 8,602327 Salaries of the employees 26,242 47,842 189,644 Subtotal 2,128,768 838,612 8,791,971 Other costs financed fully by the Government - - 1,254,825 Total Project Management and Coordination 2,601,695 1,517,236 13,934,115 5 Project Management and Coordination IBRD Loan number 9058 AZ Consultants' services Remunerations 598,861 - 598,861 Subtotal 598,861 - 598,861 12 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF PROJECT ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) PROJECT COMPONENTS/ACTIVITIES Year ended Year ended Cumulative December 31, December 31, as at 2020 2019 December 31, 2020 Incremental operating costs Operating costs 13,965 - 13,965 Salaries of the employees 643 - 643 Subtotal 14,608 - 14,608 Total Project Management and Coordination 613,469 - 613,469 IBRD Loan number 8407 AZ Front-end-fee - - 250,000 IBRD Loan number 9058 AZ Front-end-fee 125,000 - - Front-end-fee 125,000 - 375,000 TOTAL PROJECT ACTIVITIES 15,545,943 40,230,884 201,529,526 * ICT - Information and Communications Technology. Approved and signed on behalf of the Judicial Services and Smart Infrastructure Team: Azer Jafarov Zaur Nasrullayev Project Director Finance Manager October 18, 2021 October 18, 2021 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an integral part of these Special-Purpose Financial Statements. 13 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF DESIGNATED AND PROJECT ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2020 (Amounts expressed in the United States Dollars unless otherwise indicated) Project Designated Account Cash on hand Account, Main IBRD USD State Treasury Account Opening balance as at January 1, 2020 - 1,254,208 - Add: Project funds received 9,941,176 10,612,148 - Total receipts 9,941,176 10,612,148 - Deduct: Project eligible expenditure (9,941,176) (5,479,767) Total deductions (9,941,176) (5,479,767) - Effect of foreign exchange rate IBRD share - (58) - Total effect of foreign exchange rate - (58) - Closing balance as at December 31, 2020 - 6,386,531 - Opening balance as at January 1, 2019 - 2,779,270 - Add: Project funds received 23,823,529 7,344,213 Other funds received - 735 - Total receipts 23,823,529 7,344,948 - Deduct: Project eligible expenditure (23,823,529) (8,869,998) - Total deductions (23,823,529) (8,869,998) - Effect of foreign exchange rate IBRD share (12) - Total effect of foreign exchange rate (12) - Closing balance as at December 31, 2019 - 1,254,208 - Approved and signed on behalf of the Judicial Services and Smart Infrastructure Team: Azer Jafarov Zaur Nasrullayev Project Director Finance Manager October 18, 2021 October 18, 2021 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an integral part of these Special-Purpose Financial Statements. 14 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF EXPENDITURE AND SUMMARY SHEET WITHDRAWAL SCHEDULE FOR THE YEAR ENDED DECEMBER 31, 2020 (Amounts expressed in the United States Dollars unless otherwise indicated) Application No. Advance Category 1 Category 2 Category 3 Category 4 Category 5 Total Total payment Civil Goods Consultants' Training IOC required replenished works services Total applications reimbursed as at the inception date* - - - - 1 2,000,000 - - - - - 2,000,000 2,000,000 Total applications reimbursed during the year ended December 31, 2014 2,000,000 - - - - 2,000,000 2,000,000 3 3,000,000 - - - - - 3,000,000 3,000,000 4 - - - 95,603 - 110,140 205,743 205,743 5 - - 785,918 689,840 - 103,941 1,579,699 1,579,699 11 - 472,543 382,141 2,338,565 30,781 463,536 3,687,566 3,687,566 13 - 770,230 376,204 1,749,031 16,076 559,209 3,470,750 3,453,857 Total applications reimbursed during the year ended December 31, 2015 3,000,000 1,242,773 1,544,263 4,873,039 46,857 1,236,826 11,943,758 11,926,865 Total applications reimbursed as at December 31, 2015 5,000,000 1,242,773 1,544,263 4,873,039 46,857 1,236,826 13,943,758 13,926,865 14 - 322,104 - 2,438,675 30,805 693,058 3,484,642 3,484,642 15 - 347,564 1,868,465 1,816,190 15,456 230,252 4,277,927 4,277,927 16 - 1,175,728 2,135,964 1,238,920 23,987 205,147 4,779,746 4,779,746 Total applications reimbursed during the year ended December 31, 2016 - 1,845,396 4,004,429 5,493,785 70,248 1,128,457 12,542,315 12,542,315 Total applications reimbursed as at December 31,2016 5,000,000 3,088,169 5,548,692 10,366,824 117,105 2,365,283 26,486,073 26,469,180 18 - 1,752,785 1,208,647 1,699,121 75,009 157,356 4,892,918 4,892,918 22 - - 1,369,141 2,961,371 75,009 149,899 4,555,420 4,555,420 25 - 112,958 3,144,082 548,553 49,336 276,591 4,131,520 4,131,520 Total applications reimbursed during the year ended December 31, 2017 - 1,865,743 5,721,870 5,209,045 199,354 583,846 13,579,858 13,579,858 Total applications reimbursed as at December 31, 2017 5,000,000 4,953,912 11,270,562 15,575,869 316,459 2,949,129 40,065,931 40,049,038 15 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN STATEMENT OF EXPENDITURE AND SUMMARY SHEET WITHDRAWAL SCHEDULE FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Application No. Advance Category 1 Category 2 Category 3 Category 4 Category 5 Total Total payment required replenished Civil Goods Consultants' Training IOC works services 30 - 148,783 73,362 3,711,485 50,238 802,235 4,786,103 4,786,103 31 - 1,259,829 42,812 1,262,417 22,035 605,069 3,192,162 3,192,162 Total applications reimbursed during the year ended December 31, 2018 - 1,408,612 116,174 4,973,902 72,273 1,407,304 7,978,265 7,978,265 Total applications reimbursed as at December 31, 2018 5,000,000 6,362,524 11,386,736 20,549,771 388,732 4,356,433 48,044,196 48,027,303 35 - - 69,109 2,135,824 26,641 731,540 2,963,114 2,963,114 36 - - 3,976,329 753,185 56,127 108,378 4,894,019 4,381,099 Total applications reimbursed during the year ended December 31, 2019 - - 4,045,438 2,889,009 82,768 839,918 7,857,133 7,344,213 Total applications reimbursed as at December 31, 2019 5,000,000 6,362,524 15,432,174 23,438,780 471,500 5,196,351 55,901,329 55,371,516 38 - - 1,603,476 2,773,507 14,035 402,451 4,793,469 3,612,148 1 7,000,000 - - - - 7,000,000 7,000,000 Total applications reimbursed during the year ended December 31, 2020 7,000,000 - 1,603,476 2,773,507 14,035 402,451 11,793,469 10,612,148 Total applications reimbursed as at December 31, 2020 12,000,000 6,362,524 17,035,650 26,212,287 485,535 5,598,802 67,694,798 65,983,664 * The inception date of the Project is October 22, 2014. Approved and signed on behalf of the Judicial Services and Smart Infrastructure Team: Azer Jafarov Zaur Nasrullayev Project Director Finance Manager October 18, 2021 October 18, 2021 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an integral part of these Special-Purpose Financial Statements. 16 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Amounts expressed in the United States Dollars unless othewise indicated) 1. DESCRIPTION OF THE PROJECT On October 22, 2014 the Republic of Azerbaijan (the "Recipient") has concluded loan agreement with the International Bank for Reconstruction and Development (the "IBRD") in the amount of USD 100,000,000 (the "Loan") to assist in improvement of the access, transparency and efficiency of delivery of selected justice services (the "Project"). The Project's original completion date of December 31, 2018 has been extended to June 30, 2020 on October 22, 2018. On June 16, 2020, the Republic of Azerbaijan (the "Recipient") has extended loan agreement with the International Bank for Reconstruction and Development (the "IBRD") in the amount of USD 50,000,000 (the "Loan") additional financing for the period from June 30, 2020 to June 30, 2024 based on the request made by the Ministry of Finance of the Republic of Azerbaijan. The project closing date is June 30, 2024. The Project consists of the following components: Component A: Judicial Service Delivery Improvements (1) 1. Improving access to justice through: (a) piloting innovative, participatory and more efficient ways to provide legal aid services to: (i) the vulnerable and marginalized through the provision of goods, and (ii) small and medium-sized enterprises; (b) analytic and diagnostic studies focusing on: (i) the legal aid system, in particular for vulnerable groups; (ii) the development of alternative dispute resolution systems; (iii) the policies and institutional arrangements on access to justice particularly for vulnerable groups and on gender issues related to justice; and (iv) the development of specific interventions to support access to justice for the Internally Displaced Persons, refugees and other vulnerable groups; and (c) piloting of a private bailiff office focusing on small and medium-sized enterprises. 2. Expanding the provision of electronic access to selected justice services through: (a) the development and rollout of selected justice e-services; (b) the improvement of the infrastructure for the justice sector information and communications technology; and (c) the construction of a data center and the rehabilitation and upgrading of a facility for disaster recovery center, and (d) the replication of standardized court room design, including acquisition of furniture required thereof. Component B: Strengthening Institutional Cpacity. Efficiency and Monitoring and Evaluation (2) 1 Improving justice sector performance through, interalia: (a) a sector efficiency and expenditure review including analyses of court case backlogs, efficiency, justice system revenues; (b) strengthening justice sector monitoring and evaluation capacity and quality including through the development of a justice sector performance monitoring framework and performance indicators and the preparation of a strategy and action plan to improve such capacity; (c) strengthening sector capacity to undertake and apply poverty and social impact analysis to improve service delivery to economically and socially vulnerable groups such as Internally Displaced Persons; and (d) the carrying out of periodic surveys of, inter alia, court users, lawyers, judges, court staff, notaries, and other justice sector service providers . 17 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otheiwise indicated) 2 Improving the justice sector information systems for enhanced institutional performance, through, inter-alia: (a) strengthening ICT functions of Relevant Entities, (b) providing the Constitutional Court and Supreme Court with ICT equipment, (c) developing a digital data base of court decisions (d) installing audio-video recording systems, including the provision of video-conferencing network equipment and electronic applications; (e) supporting and providing technical assistance for the periodic assessment of the performance, in line with international best practice, of the data center referred to in Pafl A.2.(c) of the Project, network infrastructure, and software systems; (f) encouraging the use of secure email services for official communications; (g) designing and implementing a standardized platform for ICT inventory and asset management; and (h) building capacity of the Relevant Entities and otherjustice sector entities such as the Bar Association and the Ombudsman. 3 Strengthening the information systems management and operational capability of the Ministry of Justice to support the provision of selected justice services through the provision of goods, consultant services and training. 4 Carrying out communications, outreach and change management activities aimed at facilitating stakeholder engagement in the justice sector reforms, including but not limited to: (a) the development and implementation of a communications, outreach and change management strategy; and (b) the conduct of stakeholder workshops, roundtables, public awareness campaigns, radio, television and print media/internet programs, all through the provision of consultant services and training. 5 Strengthening the professional capacity ofjudges, staff of courts and the Ministry of Justice and the Justice Academy through, inter alia: (a) the preparation of a justice sector gender strategy and action plan based on an assessment of gender-based barriers to employment for judges, lawyers and other justice professionals and an analysis of training and sensitization needs on gender issues for justice professionals; (b) the development of training courses and curricula and the delivery of training for judges and other justice professionals aimed at, but not limited, to improving the quality ofjudicial decisions in economic and commercial disputes and in first- instance courts; and (c) the carrying out of knowledge-sharing activities between judges and other justice sector professionals in Azerbaijan and between Azerbaijan and other judiciaries, justice training institutions and professional networks, through the provision of goods, consultant services and training. Component C: Expansion and Modernization of Justice Infrastructure (3) Construction and rehabilitation of about six courthouses and court complexes at the locations selected in accordance with criteria set forth in the Operational Manual. Component D: Project Management and Coordination (4) Strengthening the capacity of the Ministry of Justice in Project management, monitoring and coordination including audits of: (a) Project financial statements, (b) environmental and social safeguard compliance; and (c) implementation of information and communications technology activities under the Project. 18 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Component E: Piloting of Transformative Technology for Justice Sector (5) 1. Improving justice sector perfonnance and service delivery in line with best international practice through, inter-alia, the development of policy, legal, ethical and governance guidelines for using Artificial intelligence and Business intelligence in judicial services, including, inter-alia: (a) the establishment of the required policy framework, and (b) the carrying out of an assessment (including recommendations) of (i) the readiness and risk mitigation capabilities of digital applications and other related software systems, and (ii) the applicable policy, legal, ethical and governance frameworks, including without limitation appropriate provisions regarding data protection, related to these activities. 2. Piloting new means for legal and judicial service delivery by leveraging the capacity of new data centers and the E-Courts, including, inter-alia: (a) the piloting of Artificial Intelligence tools for judicial and legal service delivery in selected topics; (b) the application of Business Intelligence systems to facilitate court and justice performance management, including a performance monitoring center for the Supreme Court; and (c) the introduction of databases, including unified database of court decisions. 3. Promoting a culture of digital excellence in judicial service provision, including: (a) introduction of sector-wide performance management tools to promote service deli very innovations and interconnection with stakeholders; and (b) promoting knowledge sharing by carrying out activities to showcase Azerbaijan's development towards becoming a leader in strengthening judicial service provision using ICT solutions, including the seeking of feedback. 2. BASIS OF ACCOUNTING Statement of compliance The Special-Purpose Financial Statements have been prepared on the cash basis of accounting in conformity with the International Public Sector Accounting Standards ("IPSAS") "Financial Reporting under the Cash Basis of Accounting" issued by the Public Sector Committee of the International Federation of Accountants ("IFAC-PSC") and incorporate the principal accounting policies from the "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities". Other basis of preparation criteria The Special-Purpose Financial Statements are prepared under the historical cost basis of accounting. Source funding and government contributions are recognized when the related cash is received or paid out on the Project's behalf. Expenditure is accounted for on the basis of actual disbursement of funds from the Project accounts. Foreign currency transactions and translation The Project uses the United States Dollar ("USD") as its functional currency for the following reasons: a) The IBRD's funding is received in USD; b) A substantial share of the Project's expenditure is denominated in USD; and c) Budgets and financial reports for the Project are prepared in USD. Balance sheet monetary items denominated in currencies other than USD have been translated into USD using the exchange rate of the International Bank of Azerbaijan ("IBAR") effective as at appropriate date. All income and expense transactions denominated in currencies other than USD are converted into USD using the exchange rate of the IBAR prevailing on the date of transaction. 19 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) 3. CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the Special-Purpose Financial Statements comprise balance with resident financial institution. December 31, December 31, 2020 2019 IBRD Designated Account USD 6,386,531 1,254,208 Total cash and cash equivalents 6,386,531 1,254,208 4. DESIGNATED ACCOUNT The Recipient has established Designated Account at a commercial bank acceptable to the IBRD in accordance with the Loan Agreement. Designated Account is established, managed, replenished and liquidated in accordance with the World Bank's "Disbursement Guidelines for Projects" dated September 2006 and detailed arrangements agreed upon between the Recipient and the IBRD. The Project maintains its Designated Account in USD with "International Bank of Azerbaijan" OJSC (located in the Republic of Azerbaijan). 5. CONTRACTUAL COMMITMENTS The contractual commitments per expenditure categories were as follows: Year ended Year ended December 31, December 31, 2020 2019 Category (1) Civil Works - 6,303,283 (2) Consultants' services - 2,380,621 (3) Goods - 4,336,569 Total contractual commitments - 13,020,473 20 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless othenrwise indicated) 6. BASIS OF FUNDING AND ELIGIBLE EXPENDITURE The following tables specify the categories of eligible expenditure that may be financed out of the allocations of the amounts indicated in the Loan to each category, and the percentage of expenditure to be financed for eligible expenditure in each category: Category of Amount of the Percentage of expenditure Loan agreement 8407 AZ Loan allocated to be financed (Net of VAT) (expressed in USD) (1) Goods, works and non-consulting services for the Project 65,734,738 49% (2) Consultants' services including audits, training and incremental operating costs for the Project 31,340,359 100% (3) Unallocated 2,674,903 . (4) Front-end fee 250,000 0.25% of the Loan amount (5) Interest Rate Cap or Interest Rate Collar Premium to be paid out of the premium - proceeds of the Loan Total eligible expenditure 100,000,000 During the year ended December 31, 2017 other costs in the amount of USD 580,838, and USD 221,360 were financed fully by the Government of the Republic of Azerbaijan regarding purchase of firefighting equipment" and "safety gates for front doors of courts", respectively. During the year ended December 31, 2016 other costs in the amount of USD 265,572, USD 125,465 and USD 61,590 were financed fully by the Government of the Republic of Azerbaijan regarding "purchase of firefighting equipment", "cleaning of ecological wastage and establishment of technical water drainage" and "safety gates for front doors of courts", respectively. During the year ended December 31, 2015 other costs in the arount of USD 133,682, USD 53,627 and USD 65,457 were financed fully by the Government of the Republic of Azerbaijan regarding "billboard and fencing for courts under construction", "blind lanes" and "program software for implementation of e-court", respectively. On November 25, 2014, the IBRD responded by "no objection" to request of government to finance the construction of Annexes in Sheki Court Complex using 100% funding from the Government of the Republic of Azerbaijan. The procurement plan was revised accordingly. 21 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Category of Amount of the Percentage of expenditure Loan agreement 9058 AZ Loan allocated to be financed (Net of VAT) (expressed in USD) (1)Works and non-consulting services, consulting services, training and incremental operating costs 19,700,000 100% (2) Goods for Parts A,B,D and E of the Project 30,300,000 76% Total eligible expenditure 50,000,000 7. METHODS OF DISBURSEMENT The methods of disbursement used from the inception of the financing up to and including for the year ended December 31, 2020 were as follows: Advance - the IBRD may advance loan proceeds into the Designated Account of the Recipient to finance eligible expenditure as they are incurred and for which supporting documents will be provided at a later date. Direct funding - the IBRD may make payments, at the Recipient's request, directly to a third party for eligible expenditure. Reimbursement procedure - the IBRD may reimburse the Recipient for expenditure eligible for financing pursuant to the Loan Agreement ("eligible expenditure") that the Recipient has pre-financed from its own resources. Commitment procedure - the IBRD may pay amounts to a third party for eligible expenditure under special commitments entered into, in writing, at the Recipient's request and on terms and conditions agreed between the IBRD and the Recipient. 8. METHOD OF WITHDRAWAL IBRD DesignatedAccount Designated Account is designated disbursement account of the Project to effect the payment of eligible expenditure, within defined limits, which do not require individual authorization from the IBRD. Available amounts were drawn down within the limits determined by the relevant loan agreement for the payment of eligible expenditure for sub-contractors from the Designated Account. Direct payments from the IBRD Designated Account Under this method, the Project management prepares applications based on supporting documents which are submitted to the IBRD. Payments are made from the Loan Account directly to the contractors. 22 JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT OF THE REPUBLIC OF AZERBAIJAN NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Project Account The Project maintains a separate account in the State Treasury Agency where the Government funds are accumulated. The funds are further disbursed to sub-contractors based on the shares of expenditure to be incurred by each funding source. Statement of expenditure ("SOE") Under the SOE method, the Project forwards to the IBRD an application for reimbursement of payments already made using an application for withdrawal with SOE forms as the only documentation. 9. OPERATING ENVIRONMENT The Project's principal business activities are within the Republic of Azerbaijan. Laws and regulations affecting the Project's operations in the Republic of Azerbaijan are subject to rapid changes and the Project's operations could be at a certain level of risk due to changes in the political and business environment. 23