99576 l ., 0 GrantThornton Special Purpose Project Financial Statements and Independent Auditor's Report ., "High Voltage Electric Networks" CJSC .., Electricity Supply Reliability Project Loan 8055-A.M: As of and for the year ended December 31, 2014 .J J J ,..., .., Electricity Supply Reliability Project Special purpose project financial statements As of and for the year ended December 31, 2014 l ,.., Contents 'l Page Independent auditor's report 1 Statement of financial position 3 Statement of the Project sources and uses of funds 4 Statement of uses of funds by Project activities 5 SOE withdrawal schedule 6 Designated account statement 7 Notes to the special purpose project financial statements B .J l j J ., ., 0 Grant Thornton Independent auditor's report Qpwhp lan111tpnh ePI! 0012 :l,:l,ol! ont.Lwh ~WrtWI'IZJWIJ 8/1 "+ 't + 374 10 260 964 37410 260961 Grant Thornton CJSC 8/1 Vaghanhyan Str 0012 Yerevan, Armenia T • 37-4 10 260 964 F • 37410 260 961 www.grantthomton.am To the shareholders of"High Voltage Electric Networks" CJSC We have audited the accompanying special purpose project fmancial statements of the Electricity Supply Reliability Project (the "Project"), financed by the International Bank for Reconstruction and Development (the "IBRD'') Loan Agreement 8055-AM, which comprise the statement of financial position as of December 31,2014, the statement of the Project sources and uses of ..I funds, the statement of uses of funds by Project activities, the designated account statement as of and for the year ended December 31, 2014, as well as the statement of expenditures ("SOE'') submitted to the World Bank for the year ended December 31,2014 in support of the Loan Agreement 8055-AM withdrawals, and a summary of significant accounting policies and other explanatory information. Managements &poniibili!J for the Speda/ Purpose Project Finamia/ Statement! Management of"High Voltage Electric Networks" CJSC (the "Company'') is responsible for the preparation and fair presentation of these special purpose project financial statements in accordance with the accounting policies described in the note 2 to the special purpose project financial statements, the World Bank guidelines, and the relevant points of the Loan Agreement 8055-Alv[, and for such internal control as management determines is necessary to enable the preparation of these special purpose project financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Rtponsibili!J Our responsibility is to express an opinion on these special purpose project 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 about whether the special purpose project financial statements are free from material misstatement. J UnU111111. ~....ljll,, l.n...IUI- olmPinlll Alldii.TU.MvhOIY Gp~Wlo li! nplljonll ~IJliCI'I&zU!~ ~4 - ciGrn 'l'llomm- L I I I 0 GrantThornton An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the special purpose project 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 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 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the special purpose project financial statements give a true and fair view of the fmancial position of the Electricity Supply Reliability Project as of December 31, 2014, and of the funds received and expenses incurred for the year then ended, in accordance with the accounting policies described in the note 2 to the special purpose project financial statements, .J the World Bank guidelines, and the relevant points of the Loan Agreement 8055-AM. ., In addition, in our opinion, the SOEs submitted together \vith the internal controls and procedures involved in their preparation can be relied upon to support the applications for the Loan Agreement 8055-AM withdrawals. Basis ofAt·co11nting ... Without modifying our opinion, we draw attention to note 2 to the special purpose project fmancial statements, which describes the basis of accounting. The special purpose project ., financial statements are prepared to assist the management of the "High Voltage Electric J Networks" CJSC to meet the requirements of the fmancial reporting of the World Bank. As a result, the special purpose project financial statements may not be suitable for another purpose. J Other molter The special purpose financial statements of the Electricity Supply Reliability Project for the year ended December 31,2013 were audited by other auditors, whose auditor's report dated june 17, 2014 expresses an unqualified opinion on those special purpose financial statements. June 24, 2015 J j UnUIIM, ~IIIPI!tloo "'"~h~ll''""~"'"""" Audit. Tu. Advltay Q,...,U,.~ ~~l~i/lwlu\W~ _.,Gt... ~lnlom-ltl Electricity Supply Reliability Project 3 Special purpose project financial statements As of and for the year ended December 31 , 2014 ., l.J 1 Statement of financial position '1 u In US dollars As of December 31 , As of December 31 , Note 2014 2013 Assets Non-current assets Accumulated Project expenses 14,198,104 1,943,698 oJ 14,198,104 1,943,698 Current assets ., Advances 4 3,352,610 5,269,683 Bank balances 5 1,336 236 3,353,946 5,269,919 r') Total assets 17,552,050 7,213,617 ..J ., Funds end liabilities .J Funds Accumulated Project financing 14,928,435 6.929,363 .., Exchange rate difference (157,985) 21 ,106 14,770,450 6,950,469 Current liabilities ., Accounts payable 6 2,781,600 263,148 2,781,600 263,148 u Total funds and liabilities 17,552,050 7,213,617 '"' .J ., The special purpose project financial statements were approved on June 23, 2015 by: ..J Artavazd Ghazaryan ,.., c~ ,.., J lbis statement is to be read in conjunction With the notes to and formmg part of the special purpose project financial st:ltem~ nts set out on pages 8 to 14. .) ., Electricity Supply Reliability Project Special purpose project financial statements .J As of and for the year ended December 31, 2014 l Statement of the Project sources and uses of funds , u J As of snd for the yesr ended December 31, 2014 In US dollars J Actual As of Planned As of Variance As of For the December 31 , For the December 31, For the December 31 , Life of ~ear 2014 ~ear 2014 ~ear 2014 Pro!!S l Sources offunds J IBRD Loan Number 8055-AM (note 7) 6,766,787 13,590,387 Government co-financing 1,232,285 1,335,682 "High Vollage Electric Networks" CJSC financing 2,008 Other 358 Total 7.999.072 14.928.435 Exchange rate difference (179,091) (157,985) l Less: Uses of funds Goods, works, non-consulting services, ..1 consultants' services. including training and audit, and operating costs for the ., Project 12.254,406 13,382.151 14.066,600 15,194,345 (1,812,194) (1,812,194) 48,759,310 Land acquisition/grievance mechanisms J under the Project 2,000,000 Refund of the preparation advance 718,453 718,453 1,143,190 'l Front-end Fee 97.500 97,500 97 500 J Total 12,254.406 14,198.104 14.066,600 16,010,298 (1.812, 1941 l1.812. 194~ 52,000.000 Net Increase/(decrease) in working capital ~nole 9l ~4.434 .4252 572.346 1 J ., ... J J J J This St:ltcmcnt is to be read m conjunction with the notes to and forming part of the special purpose project financial statements set o ut on pa~;cs 8 to 14. ., Electricity Supply Reliability Project 5 ] Special purpose project financial statements As of and for the year ended December 31, 2014 J Statement of uses of funds by Project . acttvtttes 1 J J As of and for the year ended December 31, 2014 In US dollars J Actual Planned Variance PAD ., For the As of December For the As of December For the As of December Life of year 31 . 2014 year 31 , 2014 year 31 . 2014 ProJ ect A Strengthening of power transmission network 11,591 .574 12,009.139 13,241.000 13,658,565 (1,649,426) (1.649,426) 45,300,000 ..J B Technical assistance 662,832 2,091 ,465 825,600 2,254,233 (162,768) (162,768) 4,700,000 ] Physical contingencies 1,400,000 ] Price contingencies 500,000 Front-end fee 97,500 97,500 100,000 ] Total 12.254,406 14,198,104 14,066,600 16,010,298 (1 .812.1941 {1.812,194} 52,000,000 ., ..J j 1 .J ,., J ., j j ., ...1 Thi5 St:ltcment is to be read in conjunction with the notes to and formmg part of the special purpose project financial st:ltements set out on pab'CS 8 to 14. ..J J Electricity Supply Rellablllty Project 6 J Special purpose project financial statements As of and for the year ended December 31, 2014 J , SOE withdrawal schedule J Loan 8055-AM .., For the year ended December 31, 2014 J In US dollars ., .J , Category Application No. Goods, works. non-consulting services, consultants' services including training and audit, and operating costs ..., for the Project DA-21 41 ' 117 DA-29 5000 Total 46117 ...J ""i ] J J J ..J This statement is to be read in conjunction with the notes to and forming part of the special purpose project financial statements set out on pages 8 to 14. " J ., Electricity Supply Reliability Project 7 Special purpose project financial statements As of and for the year ended December 31, 2014 ., Designated account statement n J Loan 8055-AM J As of and for the year ended December 31, 2014 In US dollars Opening balance as of January 1, 2014 236 .J Add: , Cumulative unexplained discrepancy Loan replenishment during the year 244,700 'l 244,700 244,700 Less: Refund to the World Bank from the designated account during the year '"'I .J Present outstanding amount advanced to lhe designated account (1) 244.936 'i Closing balance as of December 31 , 2014 1,336 :.I .., Add: Amount of eligible expenditures paid during the year 243,600 iJ ., Service charges (if applicable) J 243,600 243,600 Less: Interest earned (if credited into the designated account) J Total advance accounted for (2) 244.936 Discrepancy (1)- (2) to be explained ., J ., 'Ibis st:ltemenr is to be read in conJunction wuh the notes to and fonnmg part of the special purpose project financial st:lwments st.t out on pages 8 to 14 Electricity Supply Reliability Project 8 J Special purpose project financial statements As of and for the year ended December 31, 2014 'l ..J , N otes to the special purpose project financial statements ., ., 1 Activity ., "High Voltage Electric Networks" CJSC (the "Company") has been established based on the resolution of the Government of the Republic of Armenia N450 dated 20 July, 1998 on u restructuring "High Voltage Electric Networks" subsidiary to a Closed Joint Stock ., Company and on the resolution of the Government of the Republic of Armenia N709 dated 23 November, 1999 on reorganizing "Specialized Security on Energetic Objects" SCJSC through joining it to "High Voltage Electric Networks" SCJSC. The Company is the successor of "High Voltage Electric Networks" subsidiary, "High Voltage Electric Networks" CJSC and "Specialized Security on Energetic Objects" SCJSC. The Company implements the Electricity Supply Reliability Project (the ''Project'') fmanced in accordance with the Loan Agreement 8055·Alvi dated June 1, 2011 signed between the International Bank for Reconstruction and Development (the "IBRD'') and the Republic of ,., Armenia. In accordance with the sub loan agreement dated November 18,2011 signed between the 1-Iinistry of Finance of the Republic of Armenia and the Company, the :Ministry of Finance transferred to the Company the ffiRD loan amount of 39,000,000 US ., dollars, which should be used only for the Project implementation. The objective of the Project is to increase the reliability and capacity of the power ., transmission network. The Project consists of the following parts: ., Part A: Strengthening of the power transmission network Provision of works, goods, and technical assistance for the replacement of an existing .j power transmission line from the Hrazdan Thermal Power Plant to Shinuhayr substation, including compensation and grievance mechanisms for land acquisition and resettlement. ""\ ..J Part B: Technical assistance ., Provision of goods, technical assistance, including Training and Operating Costs, to the HVENC to strengthen its staff capacity in technical supervision, planning, procurement, financial management and Project management and supervision of field works. In addition to the Project components, the Project appraisal document considers physical ., contingencies, price contingencies and front-end fees . Electricity Supply Reliability Project Special purpose project financial statements As of and for the year ended December 31 , 2014 The financing of the Project consists of d1e foUowing category: '1 Category Percentage of Amount of expenses Loan allocated to be financed {in US dollars~ {excluding taxes~ Goods, works, non-consulting services, consultants' services including training and audit, and operating ., costs for the Project 35,902,500 100% Land acquisition/ grievance mechanisms under the J Project 2,000,000 100% Amount tobe reimbursed as per 'l point 2.07(a) of the Refund of the preparation advance 1,000,000 general provision Amount to be paid as per point 2.03 of the loan agreement and l point 2.07(b) of the J Front-end fee 97.500 general provision ., Total 39,000,000 The legal address of the Company is Z. Andranik 1, Yerevan, Armenia. J The average number of the PIU's staff during the reporting year was 7 (2013: 3) . ..... J 2 Significant accounting policies ., 2.1 Basis of preparation .J The special purpose project financial statements were prepared in accordance with the accrual basis of accounting as well as the World Bank guidelines and the relevant points of the requirements of the Loan Agreement 8055-AM. Significant accounting policies are disclosed below. '"I 2.2 Functional and presentation currency J The national currency of the Republic of Armenia is Armenian dram. These special purpose project financial statements are presented in US dollars (presentation currency). j In preparing the special purpose project financial statements, transactions in currencies other than US doUar are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. At each reporting date, monet.'U'}' items denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on that date, which is 474.97 Armenian drams for 1 US doUar as of December 31, 2014 (as of December 31, 2013: 405.64 Armenian drams for 1 US dollar). Any exchange rate differences are recognized in the statement of the Project sources and uses of funds and the accumulated figure of exchange rate difference is disclosed in the Statement of financial position under "Funds". J Electricity Supply Reliability Project 10 J Special purpose project financial statements As of and for the year ended December 31, 2014 J 2.3 Project financing The financing received in the framework of the Loan Agreement 8055-A.M is recorded in the statement of financial position as "Accumulated Project financing" and is recognized at each replenishment. In addition, the current year funds received are disclosed in the statement of Project sources and uses of funds, showing the sources of funds. 2.4 Project expenses ,.., The Project expenses are recognized on the accrual basis of accounting. The accumulated Project expenses are disclosed in the statement of financial position under non-current assets. In addition, current year expenses are disclosed in the statement of Project sources and uses of funds and statement of uses of funds by Project activities. Additionally, a .J further breakdown of expenses by categories is disclosed in note 8. 2.5 Advances Advances, which comprise amounts paid for services and goods not yet received are stated at nominal value. .... 2.6 Accounts payable Payables comprise the amounts to be paid and are stated at nominal value. l 2.7 The World Bank financing To finance eligible expenditures for the Loan Agreement 8055-AM, the World Bank disburses proceeds from the Project account using one or more of the disbursement methods, which are stated below: a. Reimbursement J The Bank may reimburse the borrower to finance eligible expenditures that the borrower has prefmanced from its own resources. J b. Advance ., The Bank may advance loan proceeds into a designated account of the borrower to J finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date. J c. Direct payments The Bank may make payments, at the borrower's request, directly to a third party for eligible expenditures. d. Special commitment The Bank may pay amounts to a third party for eligible e.xpenditures under special commitments entered into, in writing, at the borrower's request and on terms and conditions agreed between the Bank and the borrower. 2.8 Planned annual expenses As of the end of the period "Planned Project Expenses" comprise the sum of the amount ...I of "Actual Project Expenses" as of the end of the previous period and the annual budget e.xpenses of the reporting period. Electricity Supply Reliability Project 11 J Special purpose project financial statements As of and for the year ended December 31, 2014 J 3. Closing date of the Project According to the Loan Agreement, the Project closing date was defined as June 30, 2016. J 4. Advances J In US dollars Hifab Oy (contract number HV-CS-1/201 1) As of December 31,2014 As of December 31.2013 104,152 212,700 J Tractebel Engineering S.A (contract number HV.CS-112013) Fichtner GmbH & Co. KG (contract number ETNIP-CS-212013) Kaipataru Power Transmission LTD (contract number HV-W1/2011) 87,883 30,480 2,728,034 5,056,983 l State Budget of the Republic of Armenia 402,061 j 3,352,610 5,269,683 J Advances to the State Budget represent amounts paid to customs bodies from Government co-fmancing source for future customs fee obligations. s. J Bank balances In US dollars As of December As of December 31, 2014 31, 2013 J Designated account 1,336 1,336 236 236 J &. Accounts payable In US dollars As of December As of December 31,2014 31,2013 l Hifab Oy (contract number HV-CS-112011) 171,757 129,864 J Kalpataru Power Transmission LTD (contract number HV-W1/2011) 2,609,843 133,284 2,781,600 263,148 7. Loan 8055-AM In us dollars For the year ended December 31 . 2014 Special commitment 5,601,746 SOE procedures 46,117 Other procedures 139,141 J Direct payments 931 ,944 Advance 244,700 Redemption of the Designated account advance (185,258) J Refund (11 ,603) 6,766,787 J Under the method of "Other procedures" of financing, the PIU requests advance to and documentation of designated account accompanied by the records evidencing eligible J expenditures for payments against contracts valued at more than the amounts in accordance with the Disbursement Letter and contracts that are subject to the World Bank's prior revtew. J ., .., Electricity Supply Reliability Project 12 Special purpose project financial statements As of and for the year ended December 31, 2014 , Under the method of "SOE procedures" of financing, the PIU requests advance to and , documentation of designated account accompanied by the statement of expenditure (SOE). The PIU reports regularly on the use of loan proceeds advanced to a designated account. , 1bis is disclosed as redemption of the designated account advance. 8. Uses of funds by category descriptions J In US dollars Forthe year ended December 31,2014 As of December 31,2014 Works 11,591,574 12,009,139 J Consultants' services Front-end Fee 662,832 2,091,465 97,500 12,254,406 14.198,104 J .., •• Net lncrease/(decrease) In working capital ..J In US dollars For the year ended December As of December J Increase in bank balances lncrease/(decrease) in advances 31, 2014 1,100 31,2014 1,336 (1,917,073) 3,352,610 Increase in accounts payable (2,518,452) (2,781 ,600) J (4,434,425) 572,346 J J J .J J J Electricity Supply Reliability Project 13 Special purpose project financial statements As of and for the year ended December 31, 2014 1 ,j 10. Reconciliation between the amounts received by the "High '1 Voltage Electric Networks" ~SC and disbursed by the World Bank Loan 8055- AM l For the year ended December 31, 2014 ..J In US dollars Category Appl. HVEN WB Difference Goods, works, non-consulting services, 1 consultants' services, including Training and audit, and Operating Costs for Project ..J ., DA-18 DA-19 82,810 87,.517 82,810 87,517 DA-20 41.495 41.495 DA-21 112,578 112,578 DA-23 49,243 49,243 DA-22 46,612 46,612 DA-24 67,169 67,169 DA-25 59,001 59,001 DA-28 62,134 62,134 DA-27 60,209 60,209 DA-29 72,680 72,680 DA-31 69,270 69,270 ., DA-32 76,345 76,345 DA-34 73,629 73.629 _J DA-35 55,971 55,971 DA-36 55,908 55,908 J DA-37 DA-9A 44,631 5,601,746 6,718,948 44,631 5,601,746 6,718,948 J Advance DA-26 72,500 72,500 DA-30 37,700 37,700 DA-33 100,000 100.000 .J DA-38 34,500 34,500 244,700 - 244,700 Redemption of the Designated account advance DA-21 (112,578) (112,578) DA-29 {72,680} {72,680} 1 (185,258} (185,258) J Refund (11,603) (11,603) l .J 6,766,787 6,766,787 ., J l Electricity Supply Reliability Project 14 J Special purpose project financial statements As of and for the year ended December 31, 2014 n 11. Letter of credit As per the requirements of the Contract# HV-W-1/2011 signed between the Company and K'llpataru Power Transmission CJSC (the "Contractor") on November 21 , 2012 and the Addendum #1 dated April 24, 2013, the Company requested the ffiRD to issue an J irrevocable confirmed documentary Letter of Credit made available to the Contractor in Oriental Bank of Commerce Oocated in India) amounting to USD 11,587,214, which has been issued in 2013 based on the Withdrawal Application# DA-9A. J The amount of the Letter of Credit is not incorporated in the accompanying special purpose financial statements, but are recorded in the World Bank (\VB Client connection} n as Special Commitments. ... The amount of Letter of Credit is stated below: In US dollars As of December At. of December 31,2014 31,2013 Kalpataru Power Transmission CJSC 5,985,468 11 .587,214 ., ., ., J ., J ., J "'I J J J ] J J J J J J J J J 1 ~ ] J ] ] ] ] J