“Zarafshon Irrigation Rehabilitation and Management Improvement Project” Grant No. TF0A6507 The project financial statements for the year ended December 31, 2018 and independent auditors’ report “ZARAFSHON IRRIGATION REHABILITATION AND MANAGEMENT IMPROVEMENT PROJECT” GRANT NO. TF0A6507 TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 2 INDEPENDENT AUDITORS’ REPORT 3-4 THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 Summary of funds received and expenditures paid 5 Summary of expenditures paid by project components 6 Notes to the project financial statements 7-13 1 65 Stefan cel Mare şi Sfânt Blvd 5th Floor, Office 507 2001 Chisinau Moldova T: +373 22 233003 F: +373 22 234044 info@bakertilly.md www.bakertilly.md INDEPENDENT AUDITORS’ REPORT To the management of the Project “Zarafshon Irrigation Rehabilitation and Management Improvement Project”, under the Agency for the Land Reclamation and Irrigation under the Government of the Republic of Tajikistan and the State Committee on Investments and Government Property Management of the Republic of Tajikistan: Report on the project financial statements Opinion [1] We have audited the project financial statements of the Project “Zarafshon Irrigation Rehabilitation and Management Improvement Project” (the “Project”), which comprise the summary of funds received and expenditures paid and the summary of expenditures paid by project components for the year ended December 31, 2018, and a summary of significant accounting policies and other explanatory information (the “project financial statements”). [2] In our opinion, the accompanying project financial statements present fairly, in all material respects, the summary of funds received and expenditures paid and the summary of expenditures paid by project components of the Project for the year ended December 31, 2018 in accordance with International Public Sector Accounting Standard “Financial Reporting Under the Cash Basis of Accounting” (the “IPSAS”) issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, and the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities” (the “World Bank Guidelines”) Basis for opinion [3] 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 project financial statements section of our report. We are independent of the Project 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 of the financial statements, 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. Emphasis of matter [4] Without qualifying our opinion, we draw attention to Note 2 to the project financial statements, which describes the basis of accounting. These project financial statements were prepared for complying with the appropriate World Bank Guidelines and Financing and Grant agreements requirements. Other matter [5] The project financial statements are prepared to assist the Project to comply with the requirements of the World Bank. As a result the project financial statements may not be suitable for another purpose. ADVISORY  ASSURANCE  TAX ICS Baker Tilly Klitou & Partners SRL trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. 3 “ZARAFSHON IRRIGATION REHABILITATION AND MANAGEMENT IMPROVEMENT PROJECT” GRANT NO. TF0A6507 NOTES TO THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 (in US dollars) 1. GENERAL INFORMATION According to the Agreement between the Republic of Tajikistan and International Development Association (the “IDA”) signed on January 16, 2018, IDA provided the Grant No. TF0A6507 in the amount of 13,962,000 Euro to the Republic of Tajikistan (the “Project”). The financing was provided for the Project “Zarafshon Irrigation Rehabilitation and Management Improvement Project” (the “Project”)” Project purpose The objectives of the Project are: (i) to strengthen the institutional basis for irrigation planning and management in the Zarafshon River Basin; and (ii) to improve the condition and management of irrigation infrastructure in the Zarafshon River Basin and adjacent districts in the Syr-Darya Basin. The Project consists of the following parts: Part I: Rehabilitation of irrigation infrastructure Part II: Development and strengthening of irrigation and water resources management institutions Part III: Project management Part 1: Rehabilitation of irrigation infrastructure Small scale irrigation canal rehabilitation program through generating short-tern employment for low- income people from food insecure households to manually clean and rehabilitate badly deteriorated on- farm irrigation canals and to repair flood damaged critical sections of on-farm irrigation canals. Large-scale irrigation system rehabilitation through: (i) mechanized cleaning and restoration of larger-sized irrigation canals; (ii) repair and rehabilitation of irrigation canal and water control structures, irrigation pipelines and selected irrigation pump station; (iii) supply and installation of irrigation system water control gates, control fixtures and fittings and electro-mechanical equipment for the rehabilitated pump stations; (iv) rehabilitation, on a pilot basis, of selected irrigation tube wells, including testing, cleaning and development of existing vertical wells, and repair, supply and installation of corresponding electromechanical equipment; (v) supply and installation of flow measurement devices at key irrigation system water flow capture improvement schemes; (vii) selected pumped-to-gravity irrigation system conversion and/or connection works (where feasible); and (viii) engineering planning, design and supervision services for the above activities, as appropriate. Emergency flood works and equipment procurement , including: (i) emergency repairs of flood-related damage to irrigation infrastructure systems that may occur during the Project implementation period; (ii) selective river bank protection works; (iii) the provision of appropriate machinery for both emergency repairs and routine maintenance of irrigation schemes and related flood protection infrastructure system; and (iv) engineering planning, design and supervision services for the above activities, as appropriate. Part II: Development and strengthening of irrigation and water resources management institutions Irrigation main system and river basin management supporting ALRI and MEWR through the revitalization and strengthening of ALRI’s capacity as an irrigation and drainage services provider, including (i) restructuring ALRI to operate along hydraulic boundaries; (ii) introducing streamlined digitally-based operational, administrative, and financial management practices; (iii) providing ALRI with improved communications technology; (iv) introducing volume-based management of main system canal flows and water deliveries to WUAs; (v) building the capacity of ALRI staff to manage main system and work effectively with WUAs; (vi) assisting ALRI in carrying out a GIS-based inventory of hydraulic infrastructure in selected districts and establishing an irrigation assets database for Zarafshon River Basin; and (vii) assisting MEWR with the establishment of its offices in Zarafshon River Basin. 7 Local level irrigation system management: supporting water user associations through the strengthening of WUAs’ capacity, including (i) dividing WUAs’ into designated areas to ensure that their Board members know and represent all farmers in their area at Board meetings; (ii) training WUA Board members in leadership and budget preparation; (iii) training WUA office staff in accounting, financial management, record-keeping and reporting; (iv) providing technical assistance and Training to improve system operational practices, including internal irrigation scheduling; (v) working with ALRI staff to optimize the scheduling of irrigation water delivery; (vi) establishing water measurement system, including joint measurement with ALRI staff of bulk water deliveries; and (vii) training WUAs operational staff in asset inventory use and maintenance of irrigation infrastructure. Renovation and equipment of ancillary structures through constructions and rehabilitation of selected building and supply of equipment, including: (i) construction of office space for the new Zarafshon River Basin office in Ayni; (ii) renovating and equipping part of an existing ALRI building in Panjakent; (iii) construction of a new ALRI pump and motor repair workshop in Panjakent; (iv) improving and re- equipping smaller ALRI pump and motor repair facilities in the basin to upgrade their capacity for minor repairs to pumps , motors, piping and machinery; and (v) construction or rehabilitation of the WUAs’ offices where necessary. Part III: Project management Strengthening the PMU’s Project management, coordination, supervision, communication and implementation capacity. Project management The Project is implemented by Fergana Valley Water Resource Management Project Management Unit (the “PMU”) that has the status of a legal entity and was established based on the Decree of the Government of the Republic of Tajikistan. Duration of the Project is from January 16, 2018 until December 31, 2020. 2. PRESENTATION OF THE PROJECT FINANCIAL STATEMENTS Basis of preparation These project financial statements have been prepared in accordance with the International Public Sector Accounting Standard (the “IPSAS”) “Financial Reporting under the Cash Basis of Accounting” issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the following principal accounting policies, which have been consistently followed in all material respects and comply 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”). Under the cash basis system income (or expenditure) is recognized when cash is received (or paid) irrespective of when goods or services are received or provided. The Project’s approved budget disclosed by categories of expenses is not publicly available and as such comparison of budget and actual amounts is not presented. These project financial statements consist of: • Summary of funds received and expenditures paid; • Summary of expenditures paid by project components; • Notes to the project financial statements, including short description of main statements of accounting policy and other descriptive notes. The reporting currency of these project financial statements is US dollars (the “USD”). 8 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash basis of accounting The project financial statements are prepared on a cash basis of accounting. The cash basis of accounting recognizes transactions and events only when cash (including cash equivalents) is received or paid by the Project. The project financial statements prepared under the cash basis provide information on the sources of funds, the purpose of uses of funds, and cash balances at the reporting date. The measurement focus in the project financial statements is balances of cash and changes therein. Foreign currency Operations in foreign currency initially are counted in functional currency by the official currency exchange rate settled by the National Bank of Tajikistan (the “NBT”) on a date of operation. Funds received are translated into US dollars at official exchange rate of Euro (the “EUR”) at the date of funds receipt. All payments made in local currency are translated into US dollars at the official exchange rate defined by NBT, at the date of transaction. Monetary assets and liabilities expressed in foreign currency are converted to functional currency at official exchange rate on a date settled by the NBT. All foreign exchange differences resulted from maturity or recounting are included in the summary of funds received and expenditures paid. Non-monetary items are valued according to their historic cost in foreign currency, which are recalculated on rates of the initial operation date. Cash and cash equivalents Cash and cash equivalents include cash on hand and due from banks, which can be converted to the corresponding amount of cash in the short term. Balances of advances paid to employees at the end of the period are also part of closing cash position. Taxes Calculation and payment of personal income tax and social security contributions from income of local staff and consultants is made in accordance with the requirements and rates of the Tax Code of the Republic of Tajikistan and relevant legislation of the Republic of Tajikistan. Project expenses The expenses are recorded in the period when they were actually paid. Sources of funds The funds were provided by the World Bank to the Project by advances and replenishment. 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at December 31, 2018 comprise: Currency December 31, 2018 Designated account USD 288,191 Tender accounts USD 835 Cash on hand TJS 607 Transit account TJS 17 289,650 9 5. FUNDS RECEIVED The funds received are presented by the following financing methods: For the year Cumulative ended December 31, 2018 Reimbursement of expenses 1,270,044 1,270,044 Advance 1,000,000 1,000,000 2,270,044 2,270,044 6. PROJECT EXPENSES The Project expenses by components are presented in the summary of expenditures paid by project components. The Project expenses on major categories are presented in the summary of funds received and expenditures paid. Breakdown of the Project expenses by nature and by sources of financing is presented as follows: Consulting and services For the year Cumulative ended December 31, 2018 Irrigation system management 489,700 489,700 Rehabilitation of large irrigation canals 215,276 215,276 Software maintenance 201,909 201,909 Local consultant 61,832 61,832 International consultants 47,322 47,322 Restoration and equipment of auxiliary facilities 17,934 17,934 Monitoring and impact assessment 17,901 17,901 Administrative expenses 12,146 12,146 1,064,020 1,064,020 Civil Works For the year Cumulative ended December 31, 2018 Restoration and equipment of auxiliary facilities 349,684 349,684 Rehabilitation of large irrigation canals 174,507 174,507 Rehabilitation of small irrigation canals 107,505 107,505 631,696 631,696 Goods For the year Cumulative ended December 31, 2018 Tools and materials 264,944 264,944 Stationery and fuels 10,886 10,886 275,830 275,830 10 Other operating expenses For the year Cumulative ended December 31, 2018 Travel 5,919 5,919 Training 3,757 3,757 9,676 9,676 7. FINANCIAL POSITION Financial position as at December 31, 2018 comprises: December 31, 2018 ASSETS AND EXPENDITURES Cash and cash equivalents 289,650 Cumulative expenses 1,981,222 Foreign exchange loss 9 Other expenses 168 TOTAL ASSETS AND EXPENDITURES 2,271,049 FINANCING Funds received 2,270,044 Other income 1,005 TOTAL FINANCING 2,271,049 8. WITHDRAWAL APPLICATIONS Withdrawal applications for the year ended December 31, 2018 comprise: Application Date Advance Reimbursement Total of expenses 1 June 6, 2018 300,000 - 300,000 3 August 2, 2018 700,000 - 700,000 2 October 30, 2018 - 846,818 846,818 4 December 3, 2018 - 423,226 423,226 1,000,000 1,270,044 2,270,044 11 9. STATEMENT OF DESIGNATED ACCOUNT Statement of designated account for the year ended December 31, 2018 comprise: Designated account Grant No.TF0A6507 Bank CJSC “FMFB” Currency US Dollars Bank account 20206840518220724083 Bank’s location 71/1 Nusratulo Makhsum str., Dushanbe, 734064, Republic of Tajikistan Balance as at January 1, 2018 - Advances received 1,000,000 Reimbursement of expenses 1,270,044 Total funds received to the designated account 2,270,044 Expenses paid 59,752 Transfer between accounts 1,922,101 Balance as at December 31, 2018 288,191 10. UNDRAWN FUNDS As at December 31, 2018 undrawn funds are presented as follows: Grant No. TF0A6507 in EUR Approved financing amount 13,962,000 Disbursed for the period from January 1, 2018 to December 31, 2018 1,979,242 Undrawn financing amount 11,982,758 Financing received as at January 1, 2018 - Disbursed in 2018 1,979,242 Financing received as at December 31, 2018 11,982,758 11. COMMITMENTS In the normal course of activities, the Project concludes agreements with suppliers of goods and services in accordance with the established budget and procurement plan. Contract value of obligations valid as at December 31, 2018 was as follows: Counterparty Contract Currency Contract Paid up to Remaining No. value December 31, amount to be 2018 paid LLC “Somoniyon-1” NCB-012 USD 534,214 315,164 219,050 LLC “Anas Sokhtmon” NCB-W-014 USD 531,169 106,248 424,920 SO “Sarchashmai Hayot” CQS-010 USD 426,097 85,219 340,878 LLC “Ehson-2010” NCB-W-013 USD 342,546 68,258 274,288 LLC “Cadastre and geographic information systems” CQS-017 USD 310,346 96,207 214,139 LLC “Muhayo” NCB-G-001 USD 241,681 215,988 25,693 LLC “Babilon-T” 23240718-U USD 200,898 39,619 161,279 LLC “Muhayo” NCB-G-003 USD 179,980 35,996 143,984 12 Counterparty Contract Currency Contract Paid up to Remaining No. value December 31, amount to be 2018 paid LLC “Bunyod Loiha” CQS-012 USD 116,401 38,947 77,453 SO “Umedbakhsh” CQS-005 USD 99,842 59,890 39,952 SO “Loihai ob” CQS-007 USD 97,266 19,389 77,877 LLC “Consulting Engineering Service” CQS-011 USD 87,343 17,469 69,875 SO “Eho-Farhang va Tarakiyot” CQS-003 USD 81,648 36,899 44,749 SO “Nakukor” CQS-006 USD 69,488 22,236 47,252 LLC “Sugdshakhrofar-M” CQS-013 USD 58,999 40,027 18,972 LLC “Nematulloh-2009” CQS-014 USD 58,659 11,732 46,927 SO “Loihai ob” CQS-015 USD 22,417 17,934 4,483 12. LEGAL CASES There were no any legal cases related to the Project. 13. EVENTS AFTER THE REPORTING DATE During 2019 until the date of issue of these project financial statements the World Bank provided financing to the Project as follows: Application Value date Reimbursement Direct Payment Total 5 January 29, 2019 604,936 - 604,936 6 March 08, 2019 393,880 - 393,880 7 March 18, 2019 - 352,080 352,080 8 March 26, 2019 599,720 - 599,720 9 April 18, 2019 574,246 - 574,246 2,172,782 352,080 2,524,862 As at the date of issue of the project financial statements no other significant events or transactions occurred, except for the events or transactions described above. 13