THE WORLD BANK FINANCIAL STATEMENT FOR THE VANUATU RURAL ELECTRIFICATION PROJECT (VREP) TF18003 IN VANUATU For the Year Ended 31 December 2015 Prepared Under IPSAS: Financial Reporting Under the Cash Basis Accounting TABLE OF CONTENTS PROJECT BACKGROUND ........................................................ 3 AUDITOR'S REPORT .........................................................................4 FINANCIAL STATEMENTS........................................................... 5 STATEMENT OF CASH RECEIPTS AND PAYMENTS ................................... 5 STATEMENT OF COMPARISON OF BUDGET AND ACTUAL ................................................ 6 STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015......................................................... 7 1. Accounting Policies ..........................................................7 2. Government counterpart funding..................................................... 9 3. Donor grant assistance .................................. ............................................ 9 4. Operating Expenditure ....................................................... 10 5. Capital Expenditure........................... .............................. 10 6. Closing cash balance............................................................. 10 7. Revenue variance between budget and actual ............................... ............... 10 8. Expenditure variance between budget and actual ............................. ............. 11 9. Debtors and other receivables ................................................... II 10. Creditors and other payables............. ..................................................... II 1. Imprests ................................................................. 11 12. Payments by Third Parties .................................................... 11 13. Statement of Commitments.................................................... 11 14. Related Parties ............................................................ 11 2 1 Vanuatu Rural Electrification Project - Financial Statements, 2015 PROJECT BACKGROUND Vanuatu Rural Electrification Project (VREP) provides Grant Funding of US $ 4.7 million to the Department of Energy (DoE) to support the Government of Vanuatu to increase access to sustainable electricity services for rural households, and aid posts and community halls located in dispersed off- grid areas. The project under the oversight of the Department of Energy (TF 18003) - is planned to target 85 percent of the 20,470 dispersed off-grid households in Vanuatu, which equates to approximately 17,500 households, and 230 aid posts and 2,000 not-for-profit community halls. The Project will subsidize the retail cost of eligible solar photovoltaic (PV) systems by 50 percent. The objective of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off -grid areas. The project consists of the following parts: Part 1: Electrification of off-grid households, aid posts and community halls Provision of Subsidies for the supply of solar photovoltaic systems to eligible off-grid households, aid posts and not-for- profit community halls. Part 2: Technical Assistance and Project Management Carrying out a program of activities to support implementation of the Project. This report provides the financial statements for the Vanuatu Rural Electrification Project (VREP) TF 18003 for the 12 months ended 31 December 2015. The VREP project commenced in December 2014 and will end on 31 December 2019. Mr Jesse Benjamin Director General Ministry of Climate Change Adaptation, Meteorology, Geo-Hazards, Environment & Energy 30 June 2016 3 Vanuatu Rural Electrification Project - Financial Statements 2015 law Hrtners C IARFTERED Af: C-UN TAH TS AND 13U INES AI E Independent Auditors' Report Vanuatu Rural Electrification Project The Auditor-General is the auditor of Vanuatu Rural Electrification Project (VREP). The Auditor-General has appointed Law Partners to undertake the audit of VREP pursuant to Section 24(1) of the Expenditure Review and Audit Act [CAP 2411. Scope We have audited the financial statements of Vanuatu Rural Electrification Project for the financial year ended 31 December 2015 consisting of the statement of cash receipts and payments, statement of comparison of budget and actual amount and accompanying notes set out on pages 5 to I1. Members' responsibility for the financial statements The Director of Ministry of Climate Change Adaption, Meteorology, Geo-Hazards, Environment and Energy is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards: Financial Reporting under Cash Basis of Accounting. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditors' responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements 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 controls. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Opinion In our opinion, the financial statements present fairly in all material respects the cash receipt and payments and cash flows of the Project for the year ended 31 December 2015, in accordance with International Public Sector Accounting Standards - Financial Reporting under Cash Basis of Accounting and the project administration complies with relevant Vanuatu legislation and regulations. A/, /"-4 j LAW PARTNERS Chartered Accountants (Qualified auditors under Section 130 of the Companies Act Port Vila No. 25 of 2012 of the Republic of Vanuatu) 30 June 2016 41 L. 67s 22 091 FAx.678 23 665 mail fdawpartnersvanuatu.com PRINCIPALS LAW PARTNERS HOUSE JONATHAN LAW PO BOX 212 www.lawpartflers vEnuatLt.com VICKI JOE PORT VILA I VANUATU FINANCIAL STATEMENTS VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 2015 Notes Receiptl(Payment) Direct Payments Project Controlled by the to Third Parties Total Government (VUV) (VUV) (VUV) 12 Months CASH RECEIPTS World Bank Grant Received 3 35,000,000 35,000,000 World Bank - Transferred to Development 3 2,998,272 2,998,272 Fund World Bank - Payments made directly to third 12 3,836,224 3,836,224 parties TOTAL CASH RECEIPTS 3 37,998,272 3,836,224 41,834,496 CASH PAYMENTS VREP Subsidies - - - Consultants 3,221,913 3,836,224 7,058,137 Goods 5 179,023 - 179,023 Workshops 349,700 - 349,700 Incrementing operating Costs 191,700 - 191,700 TOTAL CASH PAYMENTS 4 & 5 3,942,336 3,836,224 7,778,560 CASH RECEIPTS LESS CASH PAYMENTS 34,055,936 - 34,055,936 INCREASE/(DECREASE) IN CASH 34,055,936 34,055,936 Cash at I January 2015 - Cash at 31 December 2015 6 34,055,936 34,055,936 This statement is to be read e accompanying notes and accounting policies. Mr Jesse Benjamin Director General Ministry of Climate Change Adaptation, Meteorology, Geo-Hazards, Environment & Energy Port Vila, 30 June 2016 5 Vantata Rural Electrification Project - Financial Statenients 2015 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF COMPARISON OF BUDGET AND ACTUAL FOR THE YEAR ENDED 31 DECEMBER 2015 (Expressed in Vanuatu Vatu) 2015 ACTUAL ANNUAL FINAL BUDGET Difference BUDGET Actual and Notes Annual Budget 12 Months 12 Months 60 Months CASH INFLOWS World Bank Grant 41,834,496 32,606,818 423,000,000 9,227,678 Total Receipts 7 41,834,496 32,606,818 423,000,000 9,227,678 CASH OUTFLOWS Category 1: Consultants 7,058,137 11,273,850 42,650,100 (4,215,713) Goods 179,023 576,000 655,650 (396,977) Workshops and Training 349,700 2,070,000 3,874,590 (1,720,300) Incremental Operating Costs 191,700 771,300 7,241,220 ( 579,600) Category 2: Subsidy Payment under Part 1 of the Project - - 279,000,000 - Unallocated Funds - 17,915,668 89,578,440 (17,915,668) Total Payrnents 8 7,778,560 32,606,818 423,000,000 (24,828,258) NET CASH FLOWS 34,055,936 - - 34,055,936 This statement is to be read in conjunction with the accompanying notes and accounting policies. 6 Vanuatu Rural Electrification Project - Financial Statements, 2015 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015 1. Accounting Policies a. Reporting Entity The Vanuatu Rural Electrification Project (VREP) is administered by the Department of Energy (DoE). The objective of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off-grid areas. The project consists of the following parts: (i) Electrification of off-grid households, aid posts and community halls (ii) Technical assistance and project management b. Authorization Date The financial statements of the Grant TF 18003 was for the 12 months ended 31 December 2015 and was authorized for issue on June 2016 by Mr. Jesse Benjamin for the Department of Energy. No other body has the power to amend these financial statements once they have been issued. c. Basis of Preparation The financial statements of the Grant have been prepared in accordance with requirements of the Public Finance and Economic Management Act [ CAP.244] which includes the requirement to comply with generally accepted accounting practice. The financial statements comply with IPSAS "Financial Reporting under the Cash Basis of Accounting" for the 12 months ended 31 December 2015. As this is the first period of reporting for the project, there are no comparative figures. d. Presentation currency The financial statements are presented in Vanuatu Vatu (VUV). e. Foreign currency The receipts received from the World Bank in foreign currency (USD) and reported in these financial statements have been converted by the Reserve Bank of Vanuatu at the rate on the day of transaction. 7 Vanuatu Rural ElectrifIcation Project - Financial Statements 2015 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015 f. Cash and Cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Department of Energy receives the grant from the World Bank which is managed through the centralized Smartstream system. Under this arrangement the Department of Energy does not control the grant as their own bank account but rather the central entity will make payments on behalf of the department after appropriate authorization and documentation. These transactions have been disclosed in a separate column in the "Statement of cash receipts and payments". g. Property, Plant & Equipment Purchases of fixed assets have been included in the statement of Cash Receipts and Payments under Goods. Separate disclosure has been disclosed in Note 5 of these accounts. Fixed assets are stated at cost at the date of purchase. There are no fixed assets purchased on hire purchase schemes and no depreciation is being charged. h. Budget The budget is prepared on a cash basis when cash is expected to be received and paid. The classification of the budget is prepared on the common revenue sources and expenditure is classified on the nature of expenditure normally incurred by the project. Goods are treated as part of normal operational expenditure. The final budget is the budget that was approved by the World Bank dated 4 December 2014.The approved budget is developed on the same accounting basis, classification basis, as the financial statements. The final budget is for the whole project period of 60 months which is different to the 12-month period prepared for these financial statements. The Grant Agreement identified the budget categories according to the following components to be procured under the project. It encompasses the same entities as the financial statement. 8 Vanuatu Rural Electrification Project - Financial Statements, 2015 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015 h. Budget (continued) Category 1: Goods, Consultant services, Training and Workshops, and Incremental Operating Costs under the Project. Category 2: Subsidy Payments under Part 1 of the project. The budget was originally designed in USD and was converted into VUV at the rate of USD 1= VUV90 as per summary of disbursements, i. Changes in accounting policies There have been no changes in accounting policies during the financial year. 2. Government counterpart funding The project does not receive any funds from the Vanuatu Government as this project is fully funded by the World Bank. 3. Donor grant assistance In 2014, the Department of Energy signed a grant agreement (World Bank Grant No. TF18003) with the World Bank. The purpose of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off-grid areas the arrangement was for US$ 4,700,000 from 2014 to 2019. The grant agreement specifically sets out the areas for spending of which US$ 1,600,000 allocated for the Goods, Consultant services, Training and Workshops, and Incremental Operating Costs under the Project and US$ 3,100,000 allocated for Subsidy Payments under Part 1 of the Project. As at 31 December 2015, US$ 391,959 (total grant received for the financial year of Vt41,834,496) had been drawn down from the World Bank with a remaining balance of US$ 4,308,041 (approximately VUV473,798,349) to be drawn down from 2016 to 2019. An amount of VUV 2,998,272 was received within the Development Fund account as of 22 December 2015. This transfer was later recorded into Smartstream on 14 January 2016. Spending against this transfer is expected to occur in 2016. 9 Vanuatu Rural Electrification Project - Financial Statements 2015 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015 4. Operating Expenditure 2015 Consultants Fees 7,058,137 Subsistence Allowances 10,000 Vehicles Fuel 5,000 Facilities Hire 227,500 Telephone / Fax- Communications 7,000 Incidential 5,000 Local Travel 5,200 Equipment - Additional General 12,000 Advertising - Communications 127,779 Printing -Communications 90,000 Stationery - Communications 51,921 TOtl 7,599,537 5. Capital Expenditure 2015 Equipment - Additional General 179,023 Total 179,023 6. Closing cash balance 2015 Made up as follows: Smartstream central account 31,057,664 World Bank-Funds Trans fer directly to Development Fund 2,998,272 Total 34,055,936 7. Revenue difference between actual and budget The difference in budget relates to the late commencement of the project which required new systems, processes and procedures. Also, the exchange rate used in the final budget is US$ I = VUV 90 while the actuals used the exchange rate on the transaction date. 10 Vanuatu Rural Electrification Project - Financial Statements, 2015 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015 8. Expenditure variance between budget and actual The project underspent VUV 24,828,258 against the annual budget of VUV32,606,8 18. This is due to the late commencement of the project which required the establishment of new systems, processes and procedures compliant with World Bank requirements. These have now been established and many of the grant activities are progressing well. 9. Debtors and other receivables The Project has no outstanding debtors as at 31 December 2015. 10. Creditors and other payables The total payable of the Project as at 31 December 2015 is VUV765,084. The amount outstanding are for the consultant and audit fee. 11. Imprest Account As at 31st December 2015, there are no outstanding Imprest Account for the Trust Fund. 12. Payments by Third Parties There were three direct payments (total amounting to VUV3,836,224) made to Geoffrey Stapleton (Consultant) in 2015. Direct payment was made in the World Bank Financial System (Client Connection) for the consultant fees. For reporting purposes, the Department of Energy is required to keep a record of every transaction that occurs in Client Connection. Therefore, a general journal has been prepared and processed into Smartstream by debiting the Consultant fees account and crediting the Energy Sector Management Assistance: World Bank Contributions. 13. Statement of Commitments As at 31 December 2015, Vanuatu Rural Electrification Project signed contracts with local consultants. These contracts extended beyond balance date as outlined below: 2015 Contractual Commitments VUV Due not later than one year 9,186,725 Due between I and 5 years 5,100,358 Total 14,287,0831 14. Related Parties There are no related party transactions during the year. 11 Vanuatu Rural Electrification Project - Financial Statements 2015