TRANSPORT REFORM AND REHABILITATION CENTER LOAN NO.8263-GE (FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT) Special Purpose Project Financial Statements For the Year Ended 31 December 2018 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN NO.8263-GE TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS 1 INDEPENDENT AUDITORS' REPORT 2-3 SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018: Statement of Sources and Uses of Funds 4 Statement of Balance Sheet 6 Statement of Expenditure Withdrawal Schedule 7 Statement of Designated Account 8 Notes to the Special Purpose Project Financial Statements 9-14 IM Ul TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Management of the Fourth East-West Highway Improvement Project (the "Project") implemented by the Transport Reform and Rehabilitation Center ("TRRC") is responsible for the preparation of the special purpose project financial statements that present fairly the financial position of the Project as at 31 December 2018, and its sources and uses of funds and movement in designated account for the year ended 31 December 2018, in compliance with the Cash Basis International Public Sector Accounting Standard, Financial Reporting under the Cash Basis of Accounting ("IPSAS - Cash Basis"), and in conformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities" (the "World Bank Guidelines"). In preparing the special purpose project financial statements, management is responsible for: * Properly selecting and applying accounting policies; * Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * Providing additional disclosures when compliance with the specific requirements in IPSAS - Cash Basis are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Project, financial position and its sources and uses of funds and movements in designated accounts; * Making an assessment of the Projects ability to continue as a going concern. Management is also responsible for: * Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Project; * Maintaining adequate accounting records that are sufficient to show and explain the Project's transactions and disclose with reasonable accuracy at any time the financial position of the Project, and which enable them to ensure that the special purpose project financial statements of the Project comply with the Guidelines on Annual Financial Reporting and Auditing for World Bank - Financed Activities issued by the World Bank's Financial Management Sector Board; * Maintaining statutory accounting records in compliance with Georgian legislation; * Taking such steps that are reasonably available to them to safeguard the assets of the Project; and Preventing and detecting fraud and other irregularities. The special purpose project financial statements for the year ended 31 December 2018 were authorized for issue on 29 June 2019 by the Management. On behalf of Management: Giorgi Tsagareli Marina Majagaladze Director Financial Manager 29 June 2019 29 June 2019 1 KPMG Georgia LLC GMT Plaza 5th floor, 4 Liberty Square Tbilisi, Georgia 0105 Telephone +995 322 93 57 13 Internet www.kpmg.ge Independent Auditors' Report on Special Purpose Project Financial Statements To the management of Transport Reform and Rehabilitation Center Opinion We have audited the accompanying special purpose project financial statements of the Fourth East-West Highway Improvement Poject (the "Project"), financed under the International Bank for Reconstruction and Development (the "IBRD"), Loan Agreement No. 8263-GE, dated 6 June 2013, implemented by the Transport Reform and Rehabilitation Center (the "Center"), which comprise the Statement of Balance Sheet as at 31 December 2018 and the Statements of Sources and Uses of Funds, Expenditure Withdrawal Schedule ("SOEs") and Designated Account for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. The special purpose project financial statements have been prepared by management in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and in conformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities" (the "World Bank Guidelines") as described in Note 2 to the special purpose project financial statements. In our opinion, the accompanying special purpose project financial statements present fairly, in all material respects, the financial position of the Project as at 31 December 2018, and its sources and uses of funds for the year then ended 31 December 2018 in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and the World Bank Guidelines. 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 Project Financial Statements section of our report. We are independent of the Center in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), together with the ethical requirements that are relevant to our audit for the special purpose project financial statements in Georgia, 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. I Other Matter Data included on pages 4 to 14 of the accompanying special purpose project financial statements that are marked as "Unaudited" have not been audited. Emphasis of Matter - Basis of Accounting and Restriction on Use We draw attention to Note 2 to the special purpose project financial statements, which describes the basis of accounting. The special purpose project financial statements are prepared to assist the Center to comply with the requirements of IBRD and for providing information to the Government of Georgia and IBRD to assist them in evaluating the Project implementation. As a result, the special purpose project financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG Intemational"), a Swiss entity Transport Reform and Rehabilitation Center Independent Auditors' Repod Page 2 Responsibilities of Management and Those Charged with Governance for the Special Purpose Project Financial Statements Management is responsible for the preparation and fair presentation of these special purpose project financial statements in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and the World Bank Guidelines, for determining the acceptability of the basis of accounting and for such internal control as management determines is necessary to enable the preparation of special purpose project financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Center's financial reporting process. Auditors' Responsibilities for the Audit of the Special Purpose Project Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose project 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 project 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 project 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 I 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 Center's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the special purpose project financial statements, including the disclosures, and whether the special purpose project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 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. The engagement partner on the audit resulting in this independent auditors' report is: K en Safaryan K g ia LLC Tbi is! eo ia 2 9 Ju 201 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) Actual as at Planned as at 31 December 2018 31 December 2018 Variance Year Cumulative Year to Cumulative Year to Cumulative to date to date date to date date to date Unaudited Unaudited Unaudited Unaudited FUNDS RECEIVED BY SOURCES International Bank for Reconstruction and Development ("IBRD") Funds 4,998,785 30,352,935 Government of Georgia ("GoG") co-financing 1,869,608 7,326,205 TOTAL FUNDS RECEIVED 6,868,393 37,679,140 Foreign exchange differences 2,684 2,694 LESS: EXPENDITURES Component 1 - Improvement and asset management of the East-West Highway (IBRD - 80%) 1,161,668 17,629,235 1,161,668 17,629,235 Component 2 - Institutional Strengthening for MRDI and RD (IBRD - 80%) 60,570 269,614 60,570 269,614 - Component 3 - Preparations of supporting studies for future projects (IBRD - 80%) 5,624,837 10,929,920 5,624,837 10,929,920 - Component 4 - Project management Support (IBRD - 80%) 220,535 438,029 220,535 438,029 - IBRD TOTAL 7,067,610 29,266,798 7,067,610 29,266,798 - Component 1 - Improvement and asset management of the East-West Highway (GoG -20%) 311,659 4,357,955 311,659 4,357,955 - - Component 2 - Institutional Strengthening for MRDI and RD (GoG - 20%) 15,142 67,404 15,142 67,404 - - Component 3 - Preparations of supporting studies for future projects (GoG - 20%) 1,471,834 2,754,353 1,471,834 2,754,353 - - Component 4 - Project management support (GoG - 20%) 59,805 135,325 59,805 135,325 - - GoG TOTAL 1,858,440 7,315,037 1,858,440 7,315,037 - TOTAL EXPENDITURES BY COMPONENTS 8,926,050 36,581,835 8,926,050 36,581,835 - UNALLOCATED Contracts without component by Procurement Plan 11,163 11,163 11,163 11,163 Front end fees - 95,000 - 95,000 - TOTAL UNALLOCATED EXPENDITURES 11,163 106,163 11,163 106,163 - TOTAL PROJECT EXPENDITURES 8,937,213 36,687,998 8,937,213 36,687,998 - NET FLOWS OF FUNDS (2,066,136) 993,836 The special purpose project financial statements were approved by the management of Trans rt Reform and Rehabilitation Center on 29 Jr.e 2019 and were signed on its behalf by: Giorgi Tsagareli Marina Maljaadze Director Financial Manager 29 June 2019 29 June 2019 The notes on oaaes 9 to 14 form an intearal nart of these snecial nirnosp rniprt financiql statmpnt. TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE STATEMENT OF SOURCES AND USES OF FUNDS 3 FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) Actual as at Planned as at 31 December 2017 31 December 2017 Variance Year Cumulative Year Cumulative Year Cumulative to date to date to date to date to date to date Unaudited Unaudited Unaudited Unaudited FUNDS RECEIVED BY SOURCES International Bank for Reconstruction and Development ("IBRD") Funds 17,597,571 25,354,150 Government of Georgia ("GoG") co-financing 4,415,730 5,456,597 TOTAL FUNDS RECEIVED 22,013,301 30,810,747 Foreign exchange differences 10 10 LESS: EXPENDITURES Component 1 - Improvement and asset management of the East-West Highway (IBRD - 80%) 11,909,032 16,467,567 11,909,032 16,467,567 - - Component 2 - Institutional Strengthening for MRDI and RD (IBRD - 80%) 115,214 209,044 115,214 209,044 - - Component 3 - Preparations of supporting studies for future projects (IBRD - 80%) 5,240,148 5,305,083 5,240,148 5,305,083 - - Component 4 - Project management Support (IBRD - 80%) 175,951 217,494 175,951 217,494 - - IBRD TOTAL 17,440,345 22,199,188 17,440,345 22,199,188 - Component 1 - Improvement and asset management of the East-West Highway (GoG -20%) 3,049,446 4,046,296 3,049,446 4,046,296 - - Component 2 - Institutional Strengthening for MRDI and RD (GoG - 20%) 28,802 52,262 28,802 52,262 - - Component 3 - Preparations of supporting studies for future projects (GoG - 20%) 1,276,956 1,282,519 1,276,956 1,282,519 - - Component 4 - Project management support (GoG - 20%) 60,526 75,520 60,526 75,520 - - GoG TOTAL 4,415,730 5,456,597 4,415,730 5,456,597 - - TOTAL EXPENDITURES BY COMPONENTS 21,856,075 27,655,785 21,856,075 27,655,785 - - UNALLOCATED Front end fees - 95,000 - 95,000 - - TOTAL UNALLOCATED EXPENDITURES - 95,000 - 95,000 - - TOTAL PROJECT EXPENDITURES 21,856,075 27,750,785 21,856,075 27,750,785 - - NET FLOWS OF FUNDS 157,236 3,059,972 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements 5 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE STATEMENT OF BALANCE SHEET AS OF 31 DECEMBER 2018 (in US Dollars) 31 December 31 December 2018 2017 ASSETS IBRD Designated Account 993,836 3,059,972 TOTAL ASSETS 993,836 3,059,972 Funds received: Funds received from IBRD 30,352,935 25,354,150 Funds received from GoG 7,326,205 5,456,597 Total funds received 37,679,140 30,810,747 Project expenditures: Financed by IBRD (34,723,394) (22,199,188) Financed by GoG (1,869,604) (5,456,597) Unallocated (95,000) (95,000) Total project expenditures (36,687,998) (27,750,785) Foreign exchange difference 2,694 10 TOTAL PROJECT EXPENDITURES AND OTHER FUNDS 993,836 3,059,972 The special purpose project financial statements were approved by the management of Transport Reform and Rehabilitation Center on 29 June 2019 and were signed on its behalf by: Giorgi Tsagareli Marina Majagaladze Director Financial Manager 29 June 2019 29 June 2019 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. 6 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE STATEMENT OF EXPENDITURE WITHDRAWAL SCHEDULE FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) Statement of Expenditure Withdrawal Schedule for the year ended 31 December 2018: WithdrawalWithdrawal Total SOE Total SOE Total SOE AttributableAttributableAttributableAttributable Total SOE No. application in attributableattributable to 2018 - to 2018 - to 2018 - to 2018 - attributable date withdrawal to 2017 to 2018 ComponentComponentComponentComponent to 2019 schedule 1 2 3 4 Unaudited 8 11-Jun-18 338,850 226,952 111,898 111,898 - - 9 27-Mar-19 1,311,969 - 932,908 927,764 - - 5,144 379,061 1,650,819 226,952 1,044,806 1,039,663-6- 5,144 379,061 Statement of Expenditure Withdrawal Schedule for the year ended 31 December 2017: WithdrawalWithdrawal Total SOE Total SOE Total SOE AttributableAttributableAttributableAttributable Total SOE No. application in attributableattributable to 2017 - to 2017 - to 2017 - to 2017 - attributable date withdrawal to 2016 to 2017 ComponentComponentComponentComponent to 2018 schedule 1 2 3 4 4 4-May-17 800,409 - 800,409 755,652 3,235 12,143 29,379 - 5 19-Jun-17 139,682 - 139,682 129,626 - - 10,056 - 6 5-Sep-17 592,262 - 592,262 560,426 30,520 - 1,316 - 7 1-Dec-17 1,526,646 - 1,526,646 1,493,534 - 33,112 - - 8 11-Jun-18 338,850 - 226,952 226,952 - - - 111,898 3,397,849 - 3,285,951 3,166,190 33,755 45,255 40,751 111,898 The special purpose project financial statements were approved by the management of Transport Reform and Rehabilitation Center on 29 June 2019 and were signed on its behalf by: Giorgi Tsagareli Marina Majagaladze Director Financial Manager 29 June 2019 29 June 2019 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. 7 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE DESIGNATED ACCOUNT STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) Account No. 202250038 Depository Bank State Treasury Address 16 V. Gorgasali street Tbilisi, 0114 Georgia Balance as at 1 January 2018 3,059,972 ADD Funds received from IBRD in 2018 4,998,785 Foreign exchange difference in 2018 2,689 DEDUCT Funds used for the Project expenditures in 2018 (7,067,610) Balance as at 31 December 2018 993,836 Balance as at 1 January 2017 2,902,736 ADD Funds received from IBRD in 2017 17,597,571 Foreign exchange difference in 2017 10 DEDUCT Funds used for the Project expenditures in 2017 (17,440,345) Balance as at 31 December 2017 3,059,972 The special purpose project financial statements were approved by the management of Transport Reform and Rehabilitation Center on 29 June 2019 and were signed on its behalf by: Giorgi Tsagareli Marina Majagaladze Director Financial Manager 29 June 2019 29 June 2019 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. 8 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE 3l NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) 1. BACKGROUND The Investment Center for Euro-Asian Transport Corridor was established in 1995 as a non- entrepreneurial and non-profit legal entity under the laws of Georgia in accordance with the Georgian Presidential Decree. The founder of the Investment Center for Euro-Asian Transport Corridor is the Georgian Government. N119 dated 16 April 1995. The founder of the investment center for Euro- Asian Transport Corridor is the Georgian Government. A project unit named "Transport Reform and Rehabilitation Center" (the "Center") was formed within the Investment Center for Euro-Asian Transport Corridor. The Center's principal activity is to manage allocated credits/loans received from the International Development Association ("IDA"), the International Bank for Reconstruction and Development ("IBRD"), the Asian Development Bank (ADB) and the European Investment Bank (EIB) and monitor the implementation of transport sector projects. The Center implements the Forth East-West Highway Improvement Project (the "Project"), financed under the International Bank for Reconstruction and Development (the "IBRD"). Loan Agreement No.8263-GE (the "Agreement") in the amount of 38 million United States Dollars ("USD") was signed between the Government of Georgia ("GoG") and IBRD on 6 June 2013 ("inception"). The main objectives of the Project are: contribution to the gradual reduction of road transport cost and improving road safety along the section upgraded under the Project and strengthening the capacity of Government of Georgia, Road Department of the Ministry of Regional Development and Infrastructure of Georgia (RDMRDI) and the local road construction industry to plan and better manage and improve road traffic safety. 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES Statement of compliance - These special purpose project financial statements have been prepared in accordance with the Cash Basis International Public Sector Accounting Standard, Financial Reporting under a Cash Basis of Accounting and in conformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank- Financed Activities" (the "World Bank Guidelines"). The purpose of these special purpose project financial statements is to provide information to the Government of Georgia and International Bank for Reconstruction and Development (IBRD) to assist them in evaluating the Project implementation. Cash basis of accounting - Project financing is recognized as a source of project funds when the cash is received. Project expenditures are recognized as a use of Project funds on the cash basis when the payments are made. Presentation currency - The national currency of Georgia is the Georgian Lari ("GEL"). These special purpose project financial statements are presented in United States Dollars ("US Dollar" or "USD"), in conformity with World Bank Guidelines. All financial information presented in USD has been rounded to the nearest USD unless otherwise stated. Transactions in other currencies - Transactions in currencies other than reporting currencies are converted to US Dollars at the exchange rate prevailing at the date of the transaction. Cash - Cash represents balances with State Treasury. 9 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) 3. DESIGNATED ACCOUNT Designated account is a designated disbursement account of the Project maintained in US Dollars at the State Treasury of Georgia to ensure the payment of eligible expenditures, within defined limits, which do not require individual authorization from IBRD in accordance with the Agreement. 4. BASIS OF FUNDING According to the terms of the Agreement, the expenditures of all works, goods and consultant services contracts, including all applicable taxes are co-financed by proceeds received from IBRD and the GoG at a proportional rate of 80% and 20%, respectively. The land acquisition and associated resettlement costs are funded entirely by GoG. 5. METHODS OF WITHDRAWAL The methods of withdrawal used from the inception of the loan to 31 December 2018 were as follows: (a) Designated Account The Center withdraws the eligible amounts from the designated account and prepares and sends replenishment requests to the World Bank with authorized signatures. The replenishment requests and respective documentation are reviewed by the World Bank and an approved amount is transferred to the designated account. (b) Direct Payment Available amounts are drawn from time to time within limits determined under the loan agreement for direct payments of eligible expenditures for sub-projects. Direct payments are made by the World Bank directly to third parties. The Center forms withdrawal applications for request of direct payments and sends it to the World Bank, for settlement. (c) GoG Current Account The Project maintains a separate account where funds from the Government of Georgia are accumulated. The funds are further disbursed to sub-contractors based on the share of expenditures to be incurred. The project has common GEL account and special organization code for their funds in the State Treasury of Georgia. 6. STATEMENT OF EXPENDITURES (SOE) Withdrawals are to be made on the basis of SOEs for expenses on contracts within the following contractual limits: (i) All expenditures for works valued at less than USD 4,000,000; (ii) Consultant services contracts (firms) valued at less than USD 100,000; (iii) Consultant services contracts (individuals) valued at less than USD 50,000; (iv) All expenditures for goods and non-consulting services valued at less than USD 300,000. 10 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) 7. RECONCILIATION OF AMOUNTS SHOWN AS RECEIVED FROM THE IBRD TO ACTUAL EXPENDITURES OF THE PROJECT 31 December 2018 Application of Withdrawals Schedule Expenses incurred in 2018 as per the Applications of Withdrawals Schedule 6,741,278 Expenses incurred in 2018 without Applications of Withdrawals Schedule 326,332 7,067,610 IBRD funds received in 2018 4,998,785 Foreign exchange differences 2,689 Add: Opening Balance Designated Account 3,059,972 3,059,972 Less: Closing Balance Designated Account (993,836) (993,836) TOTAL EXPENDITURES INCURRED IN 2018 7,067,610 31 December 2017 Application of Withdrawals Schedule Expenses incurred in 2017 as per the Applications of Withdrawals Schedule 17,247,257 Expenses incurred in 2017 without Applications of Withdrawals Schedule 193,088 17,440,345 IBRD funds received in 2017 17,597,571 Foreign exchange differences 10 Add: Opening Balance Designated Account 2,902,736 2,902,736 Less: Closing Balance Designated Account (3,059,972) (3,059,972) TOTAL EXPENDITURES INCURRED IN 2017 17,440,345 11 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) 8. PROJECT EXPENDITURES BY COMPONENTS Actual as at Planned as at . 31 December 2018 31 December 2018 Variance ..vYear to Cumulative Year to Cumulative Year Cumulative date to date date to date to date to date Unaudited Unaudited Unaudited Unaudited Component I - Construction of Agara- Zemo Osiauri section Civil works 1,266,636 19,952,325 1,266,636 19,952,325 - - Land acquisition 20,567 104,523 20,567 104,524 - - Supervision 186,124 1,930,341 186,124 1,930,341 - - TOTAL COMPONENT 1 1,473,327 21,987,189 1,473,327 21,987,189 - - Component 2 - Institutional Strengthening Training 1,844 37,902 1,844 37,902 Consultancy 73,867 299,117 73,867 299,117 - - TOTAL COMPONENT 2 75,711 337,019 75,711 337,019 - - Component 3 - Consulting services Consultancy 7,096,672 13,684,274 7,096,672 13,684,274 - - TOTAL COMPONENT 3 7,096,672 13,684,274 7,096,672 13,684,274 - - Component 4 - Project Management Support Goods & Services for RDMRDI 143,889 283,995 143,889 283,995 - - TRRC fees and operating costs 136,451 289,359 136,451 289,359 - - Contract without Component 11,163 11,163 11,163 11,163 - TOTAL COMPONENT 4 291,503 584,517 291,503 584,517 - - TOTAL EXPENDITURES BY COMPONENTS 8,937,213 36,592,998 8,937,214 36,592,998 - - UNALLOCATED Front end fees - 95,000 - 95,000 - - TOTAL UNALLOCATED EXPENDITURE - 95,000 95,000 TOTAL PROJECT EXPENDITURES 8,937,213 36,687,998 8,937,213 36,687,998 - - 12 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) Actual as at Planned as at Project activities 31 December 2017 31 December 2017 Variance Year Cumulative Year Cumulative Year Cumulative to date to date to date to date to date to date Unaudited Unaudited Unaudited Unaudited Component I - Construction of Agara- Zemo Osiauri section Civil works 13,726,265 18,685,690 13,726,265 18,685,690 - - Land acquisition 71,130 83,956 71,130 83,956 Supervision 1,161,083 1,744,217 1,161,083 1,744,217 - - TOTAL COMPONENT 1 14,958,478 20,513,863 14,958,478 20,513,863 - - Component 2 - Institutional Strengthening Training 36,057 36,057 36,057 36,057 Consultancy 107,959 225,249 107,959 225,249 - - TOTAL COMPONENT 2 144,016 261,306 144,016 261,306 - - Component 3 - Consulting services Consultancy 6,517,104 6,587,602 6,517,104 6,587,602 - - TOTAL COMPONENT 3 6,517,104 6,587,602 6,517,104 6,587,602 - - Component 4 - Project Management Support Goods & Services for RDMRDl 109,753 140,105 109,753 140,105 - - TRRC fees and operating costs 126,724 152,909 126,724 152,909 Contract without Component - - - - TOTAL COMPONENT 4 236,477 293,014 236,477 293,014 - - TOTAL EXPENDITURES BY COMPONENTS 21,856,075 27,655,785 21,856,075 27,655,785 - - UNALLOCATED Front end fees - 95,000 - 95,000 - - TOTAL UNALLOCATED EXPENDITURE - 95,000 - 95,000 - - TOTAL PROJECT EXPENDITURES 21,856,075 27,750,785 21,856,075 27,750,785 - - The Project consists of the following main components: * Upgrading of approximately 12 km of the existing 2-lane E60 East-West Highway through the construction of a 2-lane dual carriageway from Agara to Zemo Osiauri including interchanges, two bridges, several overpasses and underpasses and approximately 3.4 km of riverbank protection. Institutional support to the Road Department of the Ministry of Regional Development and Infrastructure (RDMDI) of Georgia and the Center related to the Project management, financial audits and Project monitoring and evaluation through the provision of goods and consultant's services. The categories of expenditures incurred are presented in line with the categories specified in the Agreement. Each component of the Project is further divided into four types of expenses for the SOE purposes: civil works, goods, consultants' services and operating costs. TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT LOAN No.8263-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (in US Dollars) 9. COMMITMENTS AND CONTINGENCIES Management is not aware of any commitments and contingencies which would have a material impact on this special purpose project financial statements as at 31 December 2018 for the year then ended. 10. GEORGIAN OPERATING ENVIRONMENT The Center's operations are located in Georgia. Consequently, the Center is exposed to the economic and financial markets of Georgia, which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in Georgia. The special purpose project financial statements reflect management's assessment of the impact of the Georgian operating environment on the operations of the Center. The future operating environment may differ from management's assessment. 11. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE There were no significant events subsequent to the balance sheet date. 12. APPROVAL OF FINANCIAL STATEMENTS These special purpose project financial statements were authorized for issue by the management of the Center on 29 June 2019. 1 I1