MUNICIPAL WATER PROJECT IBRD Loan 8129-AM Implemented by ARMENIAN WATER AND SEWERAGE CJSC SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT For the period from 1 January 2015 to 12 October 2015 YEREVAN October 2015 TABLE OF CONTENT Page INDEPENDENT AUDITOR' REPORT .............................................................................................. 3 STATEMENT OF FINANCIAL POSITION ..........................................................................................5 STATEMENT OF SOURCES AND USES OF FUNDS.........................................................................6 STATEMENT OF USES OF FUNDS BY PROJECT ACTIVITY.........................................................7 SUMMARY OF SUMMARY REPORTS ANDSOEs ........................................................................... STATEMENT OF DESIGNATED ACCOUN ......................................................................................9 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS...............................................10 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE COMPANY AND DISBURSED BY THE WORLD BANK ..................................................................................... 14 Municipal Water Project Special Purpose Financial Statements for the period from I January 2015 to 12 October 2015 2 "UOU-Uf1Thl-S" U¶I "SOS-AUDIT" LTD INDEPENDENT AUDITOR'S REPORT N 91 On the special purpose financial statements of Municipal Water Project for the period from 1 January 2015 to 12 October 2015 To the management of "Armenian Water and Sewerage" CJSC We have audited the accompanying special purpose financial statements of "Municipal Water Project" (the Project) financed by IBRD Loan 8129-AM and implemented by "Armenian Water and Sewerage" CJSC (the Company), which comprise the Statement of Financial Position as at 12 October 2015, the Statement of Sources and Uses of Funds, the Statement of Uses of Funds by Project Activity, Summary of summary reports and SOEs, Statement of Designated Account for the period from I January 2015 to 12 October 2015, and a summary of significant accounting policies and other explanatory notes. Management's Responsibility for the Financial Statements The management of the Company is responsible for the preparation and fair presentation of these special purpose financial statements in accordance with the accrual basis of accounting described in the Note 2 accompanying these 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 from material misstatements, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these special purpose financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the special purpose financial statements are free from material misstatement. An audit involves performing procedures to obtain reasonable audit evidence about the amounts and disclosures in the special purpose financial statements. The procedures selected depend on the auditor's judgment including the assessment of the risk of material misstatement of the special purpose financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the special purpose financial statement 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 entity's internal control. An audit also includes the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the special purpose financial statements. RpnnL9n np[wp PqGbu UUuGuh Uung|wgw6 UGqwd :1; p. bpLwD 0037, U.SlqpwuiDuaD 38/55; bn.' (+37410) 20 11 51; bua3u' (+37410) 20 11 50 www sosaudit am; tt-inut info@sosaudit.am An Associate of the Crowe Horwath Business Alliance 3B/55 A.Tigranyan, 0037 Yerevan, RA; Tel: (+37410) 20 11 51; Fax (+37410) 20 11 50; wwwsosauditam. E-mail, info@sosaudit am "UOU-UflUHixS" U¶I "SOS-AUDIT" LTD We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, 1. the special purpose financial statements present fairly in all material respects the financial position of the Project as of 12 October 2015, as well as sources and uses of funds for the period from I January 2015 to 12 October 2015 in accordance with the accrual basis of accounting described in the Note 2 accompanying these special purpose financial statements; 2. funds have been used in accordance with the conditions of the Loan Agreement 8129- AM signed between the Republic of Armenia and International Bank for Reconstruction and Development (IBRD), and World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 3. supporting documents, records and accounts have been maintained to support claims for reimbursement of expenditures incurred. Expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the IBRD Loan 8129-AM; 4. The Designated account used has been maintained in accordance with the provision of the IBRD Loan 8129-AM, and World Bank related guidelines. Emphasis of matters Without qualifying our opinion we draw your attention to Note 8 of these special purpose financial statements which disclosed that the Project was completed as at the reporting date. "SOS-Audit" LLC 26 October 2015 ManVel a n Nazik Chitchyan Disict Auditor Rpnnit 9nnwp PhqObu UuwGuh UunghwgQw6 Ulqwd Ri, p. bpLw0 0037, U.Sfqpwjw0D 38/55; 9br. (+37410)2011 51; 3Lwpu' (+37410)2011 50; wwwsosaudit.am; tL-numn Info@sosaudit.am An Associate of the Crowe Horwath Business Alliance 38/55 A.Tigranyan, 0037 Yerevan, RA; Tel.: (+37410) 20 11 51; Fax: (+37410) 20 11 50; www sosauditam: E-mail: Info@sosaudit.am STATEMENT OF FINANCIAL POSITION Municipal Water Project IBRD Loan 8129-AM As at 12 October 2015 As at 12.10.2015 As at 31.12.2014 Note USD USD ASSETS Cash Designated account (USD) 102,297.46 456,513.97 GoA account (AMD) 4,948.18 396,558.94 Total Cash 4 107,245.64 853,072.91 Prepayments 6 6,902.45 326,890.98 Cumulative project expenditures 3 17,923,500.34 13,889,855.74 Foreign exchange loss 108,488.37 71,787.67 TOTAL ASSETS 18,146,136.80 15,141,607.30 FUNDS AND LIABILITIES Accounts payable 5 - 525,709.14 Cumulative Funds 1BRD Loan 8129-AM 7 15,000,000.00 11,816,419.14 GoA 3,133,287.52 2,791,300.40 Other 12,849.28 8,178.62 Total Funds 18,146,136.80 14,615,898.16 TOTAL FUNDS AND LIABILITIES 18,146,136.80 15,141,607.30 The special purpose financial statements were approved by the management of the "Armenian Water and Sewerage" CISC and signed on its behalf on 26 October 2015. The accomp a g notes form an integral part of these special purpose financial statements Norik Gevorgyan J C / Davit Gasparyan Director ofInvest Pr p Deputy of dministrative and Financial Directorate, irector Armenian Water a ewera ( ' Municipal Water Project Special Purpose Financial Statements for the periodfrom I January 2015 to 12 October 2015 5 Sg $ SS о$$g $�� о�• бд о �о $ �о q оо о о � g� $ с о N г�ё г� g а о� а� ао �а м q о о г.� оо ьр р� о и м оо ао � 1� [� оё ^ � .. 1 `� й сOOV а°е '^ - о `G + � `�' '^ r о+ �с с` `д - �о оо а м а+ � с о� о� �i°у ноо.. �� м м q �" о ^'_• � � 0O N г n � W � лi z С} - а а ги и � в + и �с � �с ° � 1 е >� о�о °n й о� о+ о а; а; �'� м v t� а' ? м а v� � `� Nv °O� гиi n � � " �,г� oS + °о оФо,°- °$°о,$ �N °og � тri мрΡрΡ g рΡа о О м О О И и О •д� 00 b �� м �г+^i S р, � г.i g� � о а+ rn а, � и м оё о-- +л r' ос Z U - ." 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U U Lт7 R� � s�, � Е" •$ �� й 3 3� а а" -' у� � ���� QQd U о `� ;�ё� {j� ��CL� ..: riи иi цL. F°- � ц� � �� SUMMARY OF SUMMARY REPORTS AND SOES Municipal Water Project IBRD Loan 8129-AM For the periodfrom I January 2015 to 12 October 2015 In USD Application Application Loan account - IBRDS129-AM number value date 1. Goods, works, non-consulting Total services, consultants' services and operating costs for the Project Is 24-Feb-2015 816,717.98 816,717.98 19 06-Apr-2015 388,946.68 388,946.68 20 15-May-2015 499,843.34 499,843.34 21 22-Jun-2015 943,981.00 943,981.00 22 24-Jun-2015 602,895.00 602,895.00 23 11 -Sep-2015 824,288.81 824,288.81 24 12-Oct-2015 2,923.71 2,923.71 Total 4,079,596.52 4,079,596.52 Mutucipal Water Project Special Purpose Financial Statements for the perladfron) I January 2015 to 12 October 2015 8 STATEMENT OF DESIGNATED ACCOUNT Municipal Water Project IBRD Loan 8129-AM For the periodfrom I January 2015 to 12 October 2015 In USD Designated Account IBRD Loan 8129-AM Currency USD Account number 900000920018 Bank Central Treasury 4 Tigran Mets str., 1-st floor, Yerevan, Location Republic of Armenia, 0010 2015 USD 1. Opening balance as at 01.01.2015 456,513.97 Add: 2. Cumulative opening discrepancy . 3. IBRD advance/replenishment 3,183,580.86 Less: 4. Refund to IBRD from DA 5. Present outstanding amount advanced to DA 3,640,094.83 6. DA closing balance as at 12.10.2015 102,297.46 Add: 7. Amount of eligible expenditures paid 3,537,797.37 Less: 8. Interest earned (if credited into DA) 9. Total advance accounted for 3,640,094.83 10. Discrepancy (5)-(9) Municipal Water Project Special Purpose Financial Statements for the periodfrom I January 2015 to 12 October 2015 9 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS Municipal Water Project IBRD Loan 8129-AM For the periodfrom I January 2015 to 12 October 2015 1. General Information 1. Project Financing In accordance with the Loan Agreement concluded between the Republic of Armenia and International Bank for Reconstruction and Development (IBRD) on 24 February 2012, IBRD provided the Republic of Armenia Loan 8129-AM in the amount of 15,000,000 United States dollars (USD). The Loan was provided for implementation of the Municipal Water Project (the Project). The Project implementing entity is the "Armenian Water Sewerage" CJSC (AWSC) with whom the IBRD concluded a relevant Project Agreement and the Ministry of the Finance of the Republic of Armenia concluded a relevant Sub-loan Agreement. The Loan Agreement became effective on 23 June 2012. The expenditures on the Project incurred since May 2012 were financed through Government of the Republic of Armenia (the GoA) cofinancing quarterly reallocations. The expenditures incurred before the effective date to be financed from the loan were covered by the IBRD through retroactive financing. The closing date for financing under the Loan is 30 June 2015. The Grace Period for submitting withdrawal applications for the expenditures incurred before the Closing date is four months following the Closing date. 1.2. Project objectives The objective of the Project is to support improvement of the quality and availability of water supply in selected AWSC Service Area. The Project consists of the following parts: A - Investments in water supply systems (WSS), B - Project implementing entity Investments, C - Project implementing entity management strengthening. 1.3. Project Budget The Project is being financed by the following sources: - International Bank for Reconstruction and Development (IBRD), - The Government of the Republic of Armenia (GoA), Co-financing rate of 17% is applied for goods, works, non-consulting services, and consultants' services and operating costs for the Project. Municipal Water Project Special Purpose Financial Statements for the periodfrom I January 2015 to 12 October 2015 10 IBRD Government Total Category 8129-AM of the RA USD USD USD I.Goods, works, non-consulting services, consultants' services and operating costs for the Project 14,962,500 3,000,000 17,962,500 2.Front-end fee 37,500 - 37,500 Total 15,000,000 3,000,000 18,000,000 1.4. Project Implementation The Project is implemented by the "Armenian Water and Sewerage" CISC (AWSC). The address of the AWSC is: 8a Vardanants deadlock, Yerevan, the Republic of Armenia. 2. Accounting policy 2.1 Preparation and presentation offinancial statements The special purpose financial statements have been prepared based on the accrual basis of accounting and presented in accordance with Financial Management Manual for World Bank Financed Investment Operations (March 2010): RM 3 - Financial Reporting and Auditing. In accordance with the accrual bases of accounting the expenditure is recognized when the transaction occur (expense incurred), and not only when cash or its equivalent is received or paid. The transactions are recorded in the accounting records and recognized in the special purpose financial statements of the periods to which they relate. The special purpose financial statements consist of: - Statement of financial position, - Statement of sources and uses of funds, - Statement of uses of funds by project activity, - Summary of summary reports and SOEs, - Statement of designated account, - Notes to the special purpose financial statements. Reporting currency of special purpose financial statements is US dollar (USD). 2.2 Foreign currency transactions Project accounts are maintained in USD and Armenian Drams (AMD). Transactions denominated in local currency are translated into USD as follows: - Contributions of the RA Government expressed in AMD are translated into USD at the average exchange rate at currency market issued by the Central Bank of Armenia (CBA) at the date of transfer. - Payments to contractors and suppliers expressed in AMD are translated into USD at the average exchange rate at currency market issued by the CBA at the date of payment. - Monetary assets and liabilities are translated into USD at the average exchange rate at currency market issued by the CBA at the reporting date. - Transaction and translation exchange differences (gains/losses) are recognized and presented in financial statements in net as an Exchange difference. Municipal Water Project Special Purpose Financial Statements for the periodfrom I January 2015 to 12 October 2015 11 The average exchange rate at currency market issued by the CBA as at 31 December 2014 is I USD =474.97 AMD The average exchange rate at currency market issued by the CBA as at 12 October 2015 is I USD -473.99 AMD 2.3 Taxes The Project related taxes and mandatory payments are calculated and paid in accordance with tax regulations of the Republic of Armenia. 3. Project expenditures allocation on funds Reporting period Cumulative as at 12.10.2015 Expenditure IBRD Loan GoA Other Total IBRD Loan GoA Other Total category 8129-AM 8129-AM USD USD USD USD USD USD USD USD 1.Goods, works, non-consulting services, consultants' 3,344,048.39 684,925.56 4,670.65 4,033,644.60 14,834,353.46 3,038,361.59 13285.29 17,886,000.34 services and operating costs for the Project 37,500.00 37,500.00 2.Front-end fee - - - - 37,00.00 - - 37,500.00 Total 3,344,048.39 684,925.56 4,670.65 4,033,644.60 14,871,853.46 3,038,361.59 13,285.29 17,923,500.34 4. Cash Asat As at 12.10.2015 31.12.2014 USD USD Designated account (USD) 102,297.46 456,513.97 GoA account (AMD) 4,948.18 396,558.94 Total 107,245.64 853,072.91 5. Accounts payable As at Asat 12.10.2015 31.12.2014 USD USD Civil works - 497,233.57 Consulting and other services - 28,475.57 Total - 525,709.14 Municipal Water Project Special Purpose Financial Statements for the periodfrom I January 2015 to 12 October 2015 12 6. Prepayments As at As at 12.10.2015 31.12.2014 USD USD Civil works - 305,900.47 Goods - 20,990.51 Consultants' services* 6,902.45 - Total 6,902.45 326,890.98 *payment for audit services (GoA co-financing) 7. IBRD Loan 8129-AM financing Financing was provided with the following disbursement methods: Reporting Cumulative as period at 12.10.2015 USD USD Advance (896,015.66) 103,984.34 Summary Report - 4,578,819.24 SOE 4,079,596.52 10,279,696.42 Front-end fee - 37,500.00 3,183,580.86 15,000,000.00 8. Project completion The Project was completed as at June 30, 2015 (Closing Date), and the transactions were completed as at October 12, 2015 (the Reporting Date). A) As at the date ofsigning these special purpose financial statements: a. No expenses related to the Project were incurred after the Closing Date; the payments made during the Grace period related to expenses incurred before the Closing Date; b. No withdrawals from IBRD Loan 8129-AM were made after Closing date; c. No expenditures related to the Project were submitted to the WB after the Reporting date; d. There were no uncovered prepayments (except advance for audit service) or payables outstanding to contractors related to the Project as at the Reporting Date; e. The cash balance outstanding as at Reporting date consists: - Balance at Designated account at the amount of USD 102,297.46 to be refunded to WB after paying for final audit service, and - Balance at Local currency account at the amount of USD 4,948.18 to be refunded to Government of RA; f. We are not aware about any pending or existing litigations against the Project. Municipal Water Project Special Purpose Financial Statements for the periodfrom I January 2015 to 1 2 October 2015 13 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE COMPANY AND DISBURSED BY THE WORLD BANK Municipal Water Project IBRD Loan 8129-AM For the periodfrom I January 2015 to 12 October 2015 In USD Category Appi. N COMPANY WB Difference Advance (recovery) 22 (68,803.14) 23 (824,288.81) 24 (2,923.71) (896,015.66) 18 816,717.98 816,717.98 - 1.Goods, works, non-consulting 19 388,946.68 388,946.68 - services, consultants' services 20 499,843.34 499,843.34 - and operating costs for the Project 21 943,981.00 943,981.00 - 22 602,895.00 602,895.00 - 23 824,288.81 824,288.81 - 24 2,923.71 2,923.71 F__ 4,079,596.52 4,079,596.52 Total 4,079,596.52 3,183,580.86 Municipal Water Project Special Purpose Financial Statements for the periodfrom I January 2015 to 12 October 2015 14