Financial Statements REPUBLIC OF MOZAMBIQUE FIPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTERNATIONAL DEVELOPMENT ASSOCIATION INTEGRATED GROWTH POLES PROJECT - CREDIT AGREEMENT NR 52370 - MZ 31 December 2018 EY Building a better working world FIPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NR0 52370 - 001 MZ FINANCIAL STATEMENTS - FOR THE YEAR ENDED 31 DECEMBER 2018 CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1 -4 STATEMENT OF SOURCES AND USES OF FUNDS 5 DESIGNATED ACCOUNT STATEMENT 6 CREDIT ACCOUNT STATEMENT 7 NOTES TO THE FINANCIAL STATEMENTS 8 to11 Eirist & YouIag Limitada Tel: +26B 21 35 3000 Roa Belmiro Obadias MLanga, N' 179 Fax: +258 21 32 1984 L Caixa Postal 366, Emai ernst.yourg ey.com Maputo NUiT400 006 245 Bu;olinj ah 1UCer MogaIbque wyey.com INDEPENDENT AUDITOR'S REPORT To the Board of Directors of FIPAG - WATER SUPPLY ASSETS AND INVESTIMENT FUND Report on the Financial Statements Opinion We have audited the financial statements of the Integrated Growth Poles Project - Credit Agreement Nr 52370 - 001 MZ, financed under IDA - International Development Association Development Credit Agreement Number 52370 - 001 MZ and implemented by FIPAG - Water Supply Assets and Investment Fund, which comprise the Statement of Sources and Uses of funds, the Designated Account and the Grant Account Statement for the year ended 31 December 2018, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements of the Company are prepared, in all material respects, in accordance with accounting basis set out in note 4. 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 Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Mozambique, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. A A memnber frm of Ern5t & Young Global Lim ted Ruilding a betier Wor1king world Responsibilities of the Board of Directors for the Financial Statements The Board of Directors is responsible for the preparation of financial statements that give a true and fair view in accordance with the accounting basis set out in note 4, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Board of Directors are responsible for overseeing the Company's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the 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. 2 fluilding a better working world 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 Company's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors. Conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Board of Directors 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. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 3 Diilding a bettor wor king wiorkId From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. The engagement partner on the audit resulting in this independent auditor's report is Manuel Relvas. ERNST & YOUNG, LDA Certified Auditors Firm Re nted by: Manuel Marques Relvas (Certified Auditor NO 5) Maputo, 24 May 2019 4 FlPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NRD 5237- MZ STATEMENT OF SOURCES AND USES OF FUNDS - FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in United States Dolars) Notes 2018 Opening Cash Balance IDA Designated Account 940.149 Add: Sources of Funds IDA Funds Replanisment to designated account 5 2,686.725 Direct Payments 6 3.064.736 Interest - 5.751.461 6.691.610 Less: UsesofFunds Direct Payments (2A1) Works, goods and consultanst serNces 6 3.064.735 Eligible expenditure paid (2.A1) Works, goods and consultanst servces 7 2.890032 Bank charges 7 183 5.954.951 5.954.951 Closing Cash Balance IDA Designated Account 8 736.659 FINANCE AND ADMINISTRATION DIRECTOR DIRECTOR GENERAL 5 FIPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NRO 5237- MZ DESIGNATED ACCOUNT STATEMENT - FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in United States Dollars - USD) Notes 2018 Opening Cash Balance IDA Designated Account 940.149 Add: Sources of Funds IDA Funds Replenisment to designated account 5 2.686.725 3.626.874 Less: Uses of Funds Eligible expendture paid (2.A) Works, goods and consultanst services 2.890.032 Bank charges 183 7 2.890.215 Closing Cash Balance IDA Designated Account 8 736.659 FINANCE AND ADMINISTRATION DIRECTOR DIRECTOR GENERAL 6 FIPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NR' 5237- MZ DESIGNATED ACCOUNT STATEMENT - FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in United States Dollars - USD) Budgetper IDA Budget CATEGORY credit Statement Used d Toal balance as agreement until 2017 at 31.12.18 (2.A1) Works, goods and consultanst sertces 16,190.000 5.334.695 4.081.274 9.415.970 6 774.030 Designated account advance - 646626 646.626 (646.626) 16.190.000 5.981.321 4.081.274 10.062.595 6.127.405 FINANCE AND ADMINISTRATION DIRECTOR DIRECTOR GENERAL 7 FIPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NRO 5237-MOZ- NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 1. PROJECT BACKGROUND 1.1. Objectives On 27 May 2013 a development credit agreement was signed between the Republic of Mozambique and International Development Association (IDA), wherein IDA agreed to provide a credit of an amount equivalent to SDR 66 100 000 to implement the integrated Growth Poles Project - Credit Agreement N.5237 - Moz. The objective of the Project is to improve the performance of enterprises and Smallholders in the Zambezi Valley and Nacala Corridor, focusing on identified high growth potential zones (growth poles). The objectives of the Project are: (i) Support for the Tete agribusiness growth polo in the Zambezi Valley; A. Upgrading of local infrastructure; B. Innovation and Demonstration Catalvite Fund investi 11 ells in the Zambezi Valley. (ii) Support for the Nacala Special Economic Zone (SEZ) A. Upgrading of the Nacala (SEZ) physical infrastructure; B. Innovation and Demonstration Catalytic Fund Investment in Nacala Corridor. (iii) Institutional development and capacity building A. Strengthening of the capacity of the Ministry of Planning and Development for Planning, coordination, implementation and monitoring and evaluation of public investment programs and support for the ministry of industry and commerce; B. Strengthening of the capacity of the Zambezi Valley Development Agency (ZVDA) and the provincial authorities in the Zambezi Valley; C. Strengthening of the capacity of the GAZEDA UCODIN and the provincial authorities in the Nacala Corridor. (iv) Project implementation Provision of comprehensive support for Project implementation, including as required the provision of consultants' services, goods. Training and the financing of operating Cost for the Project Coordination Unit. In addition, FIPAG is the Project implementing entity responsible to carry out the expansion and extension of approximately 110km of water supply networks and distribution systems in Nacala including drilling of about six boreholes, construction of transmission lines, rehabilitation and construction of distribution centres, and installation of connections to approximately 26 000 new households, all through provision of works, goods, services and technical assistance recruited for the purpose, under Part II.A.l of the project. The amount of the financing allocated is SDR 16.190.000. 8 FIPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NRo 5237-MOZ - NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 2, PERCENTAGE OF EXPENDITURES FINANCED BY THE CREDIT The percentages of expenditures for items to be financed by Credit are as following: %of Expenditures Category to be financed (2) Works, Goods and consultants services 100% of all expenses (Including taxes) 3. DESIGNATED ACCOUNT FOR THE IDA CREDIT The Development Credit Agreement requires the opening of a Designated Account in USD. The purpose of the Designated Account is for payment of eligible expenditures. These payments will be subsequently justified to IDA with respective documentation or issuance of SOEs (Statement of Expenditures) for replenishment of the Designated Account or refunding of the initial deposit. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statement, compiled from FIPAG accounting records, was prepared on a cash basis from the information reflected in the financial and accounting reports of the Project, Under this basis, receipts are not recorded unlil received in cash and disbursements are assigned to the year in which the respective cash payment is made. Foreign Currency Transactions The accounting records of the Project are maintained in United States Dollars (USD). The statement of receipts and payments is also expressed in United States Dollars (USD) unless otherwise stated. Transactions in other currencies are translated to USD at the official exchange rate ruling at the date of the transaction. Fixed assets Fixed assets acquired by the Project are reflected as expenditure in the year of purchase and payment. Procedures The disbursements of the funds, made available by the International Development Association (IDA), are carried out by direct transfers or by requests for payments sent to the Designated Account, which was started with funds made available by IDA, in a bank account of the Project in Maputo (FNB). 9 FiPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NR0 5237-MOZ - NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 5. DIRECT PAYMENTS The following applications were used for direct payments: Application number Supplier Category USD SDR Equivalent 28 Sinohydro Corporacion Ltd 2 891 356 618.177 29A Sinohydro Corporaction Ltd 2 391.237 268.945 32 Sinohydro Corporaction Ltd 2 290.680 204.660 34 China Geo Engineering 2 704.903 500.783 35v China Geo Engineering 2 191.189 136.583 36 . Sinohyiro Corporaction Ltd 2 408.985 292.174 38 j Nicholas 0 Dwyer 2 186.387 133.858 3.064.735 2.155.180 6. REPLENISHMENT OF DESIGNATED ACCOUNT During the current year the following applications were used to replenish the Designated Account: Not SDR Application number Requested Replenished Replenished Equivalent 27 43.625 43.625 - 30.255 30A 16.226 16.226 - 11.187 59.851 59 .851 - 41.442 Current year expenses 31A 241.900 241.900 - 170.591 33 310.836 310.836 - 220.827 37 473.513 473.513 - 337.239 39A 871.525 871.525 - 628.149 40A 729.101 729,101 - 527.848 2.626.874 2.626.874 - 1.884.653 2.686,725 2.686.725 - 1.926.095 7. DESIGNATED ACCOUNT PAYMENTS DURING THE YEAR Designated Account payments by categories during the year can be summarized as follows: Category USD (2AI) Works, goods and consultanst senices Expenditure paid and reimbursed during the year 2.626.874 Expenditure submited on 8 February2019 under WA43 (not yet reimbursed) 263,341 2.890.215 10 FIPAG - WATER SUPPLY ASSETS AND INVESTMENT FUND INTEGRATED GROWTH POLES PROJECT CREDIT AGREEMENT NRO 5237-MOZ - NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2018 8. DESIGNATED ACCOUNT USD Balance as per Project records as at31 December 2018 736.659 No open items - Balance as per Project statement as at 31 December 2018 736.659 9. DESIGNATED ACCOUNT ADVANCE RECONCILIATION USD Mdvance i.000.000 Represented by a) Bank balance 736.659 b) Expenditure submited on 8 February 2019 under WA43 (not ye 263.341 reimbursed) 1.000.000 1 11 EY I Assurance I Tax I Transactions I Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. @ 2019 EYGM Limited. All Rights Reserved. EY refers to the global organization and/or one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.