Prostor LLC UH Audit & Consulting Co. V Y INDEPENDENT AUDITOR'S REPORT To the National Commission for State Energy and Public Utilities Regulation Under the Contract NQ DHRRSP-CQS-06 dated 18.10.2017 we, the independent audit firm LLC "Audit company "UHY PROSTIR LTD" (the certificate of including to the Register of audit activity subjects # 3388 valid till 30 January 2019), have conducted the audit of attached financial statements of the National Commission for State Energy and Public Utilities Regulation (hereinafter - the Commission) on the project ((District Heating Regulatory Reform Support Program>> (hereinafter - the Project) for the period from January 01, 2017 til April, 24 2018 (hereinafter - the financial statements), prepared in accordance with Letter Agreement No.TF017571 between the International Bank for Reconstruction and Development (hereinafter - IBRD), acting as administrator of grant funds provided by the Swedish International Development Cooperation Agency (hereinafter - SIDA), and Ukraine signed by IBRD on June 23, 2014 and countersigned by Ukraine on August 18, 2014, with amendments and additions (hereinafter - the Agreement). Management's responsibility for the financial statements Management is responsible for the preparation and presentation of these financial statements in accordance with requirements of the Agreement and IBRD, and for such system of internal control, which management considers being necessary to ensure the preparation of financial statements without significant misstatements as a result of fraud or mistake. Auditor's responsibility Auditor's responsibility is to express the opinion concerning these financial statements based on the results of audit. We have conducted the audit in accordance with the Ukrainian Law "On Audit Activity" dated April, the 22nd, 1993 # 3125 and the International Standards on Auditing. These Z standards require us to comply with the appropriate ethical requirements and to plan and conduct the audit to obtain reasonable assurance whether the financial statements contain no significant misstatements. Z The audit involves performing of audit procedures to obtain audit evidence concerning amounts and disclosures in the financial statements. The procedures selected depend in the auditor's opinion, including assessment of risks of significant misstatement of financial statements as a result of fraud or mistake. While assessment of these risks the auditor considers internal control measures concerning the preparation and the reliable submission of the financial statements by the business entity to develop audit procedures corresponding to the circumstances but not to express opinion concerning the effectiveness of business entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. A member of UHY International, a network of independent accounting and consulting firms The UHY network is a member of the Forum of Firms UH Prostor LLC y Audit & Consulting Co. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the attached financial statements for the period from January 01, 2017 till April, 24 2018 are prepared, in all material respects, in accordance with the requirements of the Agreement and IBRD. Basis of Accounting and Restriction on Distribution and Use Without modifying our opinion, we draw your attention to the note # 2 ((Basis for preparation and submission)) to the financial statements which states that the attached financial statements have been prepared on a ((cash basis)) - receipts were registered as they are made on bank accounts; expenses are registered at the date of drawing from accounts. These financial statements were prepared in order to meet the Commission's obligations under the Agreement. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the National Commission for State Energy and Public Utilities Regulation and International Bank for Reconstruction and Development and should not be distributed to parties other than the National Commission for State Energy and Public Utilities Regulation or International Bank for Reconstruction and Development. Director LLC "Audit company #UHY Prostir Ltd" Safinskiy V.L. 27.04.2018 Office # 315, 14 Vasylkivska Str. Kyiv, Ukraine, 03040 Certificate of including to the Register of audit activity subjects # 3388 valid till 30 January 2019 Register number A member of UHY International, a network of independent accounting and consulIting firms The UHY network is a member of the Forum of Firms District Heating Regulatory Reform Support Program Summary of Funds Received TF01 7571 for the Period from 01.01.2017 to 24.04.2018 in EUR Period Opening cash balance SA (EUR) 50 000,00 TA (UAH) 6 008,11 Total opening cash balance 56 008,11 Sources of funds International Bank for Reconstruction and Development Total sources of funds 0,00 Deduct: Funds used by Components Component 1. Assistance with development of secondary legislation, transitional methodology and its piloting 0,00 Component 2. Assistance with introduction of a sector-wide benchmarking exersice 0,00 Component 3. Capacity building of the Utilities Regulator and selected utilities, including delivery of Consultants' services 0,00 Component 4. Assistance with development of various regulatory tools 0,00 Component 5. Project implementation support 40 588,30 Total funds used 40 588,30 Add: Exchange rate difference 0,00 Closing cash balance SA (EUR) 0,00 TA (UAH) 15 419,81 Total closing cash balance 15 419,81 Deputy Head of Department - Head 0 Accounting and Reporting Unit of F r I Economic Issues, Accounting and Q Department Nataliia Kulakova Co3 Management Expert of PIU PE Svitlana Fichaux, Contract No. DHRRSP-IC-05 dated 05.05.2016, Translator's services Expired 5 099,09 PE Lilia Kuzmych, Contract No.: DHRRSP-IC-09 dd 18.08.2017, services of Project Assistant of PIU Expired 9 142,53 LLC UHY Prostir, Contract No.: DHRRSP-CQS-06 A dd 18.10.2017, Project Audit for 2015-2016 Active 7877,20 Bank charges for currency exchange at SA 150,00 TdtaL6 . . . .40588,30 Total for Component 40___588,30____ 40 588,30 Including SA 0,00 Including direct payments and LCs Total Project Expenditures 40588,30 Deputy Head of Department - Head of Accounting and Reporting Unit of Fin Economic Issues, Accounting and Department Nataliia Kulakova District Heating Regulatory Reform Support Program Statement for Designated Accounts TF01 7571 for the Period from 01.01.2017 to 24.04.2018 in EUR Period Opening designated accounts balance 1 at 01.01.2017 56008,11 SA (EUR) 50 000,00 TA (UAH) 6008,11 2 Add: cumulative unexplained difference 0,00 IBRD advance payment during the 3 period 0,00 SA (EUR) 0,00 TA (UAH) 0,00 Deduct: Refund to IBRD from SAs during 4 the period 0,00 5 Currency sales* 0,00 SA (EUR) -50 000,00 TA (UAH) 50 000,00 Amount of eligible expenditures during 6 the reporting period 40588,30 SA (EUR) 0,00 TA (UAH) 40 588,30 Closing designated accounts cash 7 balance 15419,81 SA (EUR) 0,00 TA (UAH) 15419,81 8 Difference (1 +3)-(5+6) to be explained 0,00 Explanation of difference: * - the amount of currency sold from the special account in JSC 'Ukreximbank' and credited to the transit account in UAH at the State Treasury Service o) Deputy Head of Department - Head of Accounting Reporting Unit of Financial and Economic Issues, A du ng Reporting Department / Nataliia Kulakova (HKPEKP Notes regarding Financial Statements is of the National Commission for State Energy and Public Utilities Regulation Prepared within the Framework of the District LI Heating Regulatory Reform Support Program (Grant Agreement No. TF017571) for the Period from 01.01.2017 to 24.04.2018 M 1. Background The National Commission for State Energy and Public Utilities Regulation (hereinafter referred to as the Regulator) is a permanent independent collegial government body, which has been established with the objective of exercising state regulation, monitoring and controlling the activities of business entities operating in the sectors of energy and utilities. The Regulator exercises state regulation in order to balance the interests of consumers, business entities operating in the sectors of energy and utilities and the state as well as to ensure energy security and European integration of Ukrainian electricity and natural gas markets. Ukraine has received financing in the amount of EUR 1 638 600 under Grant Agreement No.TF017571 between the International Bank for Reconstruction and Development (hereinafter referred to as IBRD). acting as administrator of grant funds provided by the Swedish International Development Cooperation Agency (hereinafter referred to as SIDA), and Ukraine, signed by IBRD on June 23, 2014 and countersigned by Ukraine on August 18, 2014 toward the cost of Technical Assistance Project 'District Heating Regulatory Reform Support Program' (hereinafter referred to as the Project or Grant). The Project supports: (i) development of incentive-based methodologies and auditing principles to improve the capacity of the Regulator for setting cost-recovery tariffs; (ii) introduction of a sector-wide benchmarking exercise that will enable the Regulator to assess DH companies' performance over time and incentivize them to improve their efficiency; (iii) capacity building of the Regulator; and (iv) miscellaneous regulatory tools. The Project is a Recipient-executed World Bank-Swedish International Development Cooperation Agency (SIDA) trust fund and shall be implemented under overall responsibility of the Regulator in close cooperation with the Ministry of Economic Development and Trade of Ukraine. The Utilities Regulator created a Projecl Implementation Unit for day-to-day management and coordination of the procurement, disbursement, financial management, reporting and other activities related to the Project. The financial statements under Grant Agreement No. TF017571 cover the period from 01.01 2017 to 24.04.2018. 2. Basis for preparation and submission The financial statements have been prepared by the Regulator in order to meet requirements of Grant Agreement No. TF017571. The financial statements have been made out based on a cash method, which does not guarantee the compliance with the International Financial Reporting Standards and National Accounting Standards. In accordance with this method incoming receivables are shown at the date they are credited to bank accounts; the expenditures are registered at the date they are debited from accounts. The currency used by the Regulator is UAH. The financial statements of the Project are presented in EUR. The funds that were actually paid in UAH and the cash balance at the UAH account have been converted into EUR in financial statements using a commercial rate for selling currency and a FIFO method, except for currency exchange bank charges, which were converted using a commercial rate of the relevant batch of the currency sold. The funds paid in EUR are shown in statements as they are without using conversion rates. The currency exchange rates are provided below: I I Amount sold in Rate of Amount in UAH received as Date of a result of selling the Currency Sale currency 04.04.2017 50 000,00 28,83 1 441 500,00 Total: 50 000,00 X 1 441 500,00 3. Disclosing some details of financial statements The row 'Component 5. Project implementation support' includes Regulator's expenditures resulting from payment for consultants' services (Procurement Expert, Financial Management Expert and Translator) and bank charges for selling currency. The cost of consultants' services in the Procurement Plan, Contracts and Handover Acts is stated in EUR (for audit services - in USD). These services have been paid in UAH using an official rate of NBU at the date of signing Handover Acts. In the financial statements the amount, which was actually paid in UAH, has been converted in EUR using a currency selling rate (please see note 2). Such conversion results in a difference between the cost of consultants' services stated in row 'Component 5. Project implementation support' of financial statements and the cost of these services in Handover Acts (Contracts with consultants and the Procurement Plan), which is shown in the table below: Consultant Cost of services in EUR In financial In Handover Acts Difference statements PE Youri Parshukov, Contract No. DHRRSP-IC- 03 dated 24.12.2015, services of Procurement 6152,74 5720,00 432,74 Expert of PIU PE Olga Klymenko, Contract No. DHRRSP-IC-04 dated 24.12.2015, servi-es of Financial 12 166,75 11 440,00 726,75 Management Expert of PIU PE Svitlana Fichaux, Contract No. DHRRSP-IC- 5099,09 4594,92 504,17 05 dated 05.05.2016, Translator's services PE Lilia Kuzmych, Contract No.: DHRRSP-IC-09 dd 18.08.2017, services of Project Assistant of 9 142,53 8 357,00 785,53 PlU LLC UHY Prostir, Contract No.: DHRRSP-CQS-06 7877,20 7 134,25* 742,95 dd 18.10.2017, Project Audit for 2015-2018 Total 40 438,30 37 246,17 3 192,14 *- cost of servises are stated in USD in Handover Acts, which is converted for this Table in EUR by using official NBU cross-rate USD/EUR as at the date of signing of these Handover Acts Row 'Component 5. Project implementation support' also includes the cost of services provided by the consultants in December 2016 as these services were paid by h tor in 2017 Deputy Head of Department - Head of Accounting and Reporting Unit of Financial and Economic Issues, Accou g Reporting Department ' Nataliia Kulakova _. _ _.. Э , �� �^ti� �. �I� 1 • �1 "'"�� r С С � _ �• ы � А � '� г.} И � � о � � � r � ��п�� r � � � D � � _ � �' а , Q � � � г� � � � О Qq � � s п и О � С . � � �G �" ш � � ii � i Ш г13 t1. ��`.` _ � i < � п' �« о � и v -н �� и � �G� i i �