SECOND POWER TRANSMISSION PROJECT, PART 3 SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2019 to 31 December 2019 In USD Contents: INDEPENDENT AUDITORS’ REPORT І-ІІІ SUMMARY OF SOURCES AND USES OF FUNDS 6 STATEMENT OF WITHDRAWALS FROM THE LOAN ACCOUNT 7 STATEMENT OF WITHDRAWALS THROUGH THE SUMMARY OF STATEMENTS OF EXPENDITURES 8 STATEMENT OF CASH WITHDRAWAL FROM SPECIAL ACCOUNTS 9 SPECIAL ACCOUNT STATEMENT 10 STATEMENT OF FACTUAL EXPENDITURES IN NATIONAL CURRENCY 11 RECONCILIATION BETWEEN RECORDS OF PIU AND THE BANK 12 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS 13 WORLD BANK AUDIT DOCUMENTATION CHECKLIST 17 SECOND POWER TRANSMISSION PROJECT, PART 3 SUMMARY OF SOURCES AND USES OF FUNDS For the period from 01 January 2019 to 31 December 2019 In USD Factual For the period Total Opening balance Special account with JSC Ukreximbank - USD - Current account with JSC Ukreximbank - UAH 2,696 Total available funds at the beginning of period: 2,696 Sources of funds: Loan of the International Bank for Reconstruction and Development 302,012 648,128 Total financing: 302,012 648,128 Project expenditure: Category 2: Goods, non-consulting services, consultants’ services, and Training for Part 3 of the Project 93,832 437,252 Total Project expenditure: 93,832 437,252 Closing balance Special account with JSC Ukreximbank - USD 210,112 210,112 Current account with JSC Ukreximbank - UAH 764 764 210,876 210,876 Notes on pages 13 – 16 are an integral part of these financial statements. 6 SECOND POWER TRANSMISSION PROJECT, PART 3 STATEMENT OF WITHDRAWALS FROM THE LOAN ACCOUNT For the period from 01 January 2019 to 31 December 2019 In USD Payment USD Number of Date of application Category withdrawal Currency Amount equivalent 6-MECI/SA DA-C 07.01.2019 USD 85,987 85,987 7-MECI/SA DA-C 24.09.2019 USD 216,025 216,025 Total: 302,012 Summary schedule by categories: DA-C 302,012 Total: 302,012 Notes on pages 13 – 16 are an integral part of these financial statements. 7 SECOND POWER TRANSMISSION PROJECT, PART 3 STATEMENT OF WITHDRAWALS THROUGH THE SUMMARY OF STATEMENTS OF EXPENDITURES For the period from 01 January 2019 to 31 December 2019 In USD Category 2 Total Number of application 1. Expenditures factually incurred up to 01.01.2019 and compensated by the World Bank during the period from 01.01.2019 - 31.12.2019 6-MECI/SA 85,987 85,987 7-MECI/SA 9,575 9,575 Total 95,562 95,562 2. Applications submitted to the World Bank and reimbursed for the period 01.01.2019 - 31.12.2019 7-MECI/SA 75,812 75,812 Total 75,812 75,812 3. Costs actually incurred for the period from 01 January 2019 to 31 December 2019 From the Loan account - - From Special Accounts - - From current accounts in national currency 93,832 93,832 Total 93,832 93,832 4. Table of differences in Project costs between the World Bank records and PIU for the period from 01 January 2019 to 31 December 2019 Reimbursed according to 75,812 75,812 IBRD information Amount of costs not provided for reimbursement as at 31 18,020 18,020 December 2019 According to PIU data 93,832 93,832 Notes on pages 13 – 16 are an integral part of these financial statements. 8 SECOND POWER TRANSMISSION PROJECT, PART 3 STATEMENT OF CASH WITHDRAWAL FROM SPECIAL ACCOUNTS For the period from 01 January 2019 to 31 December 2019 In USD Payment USD Equivalent Category Date of withdrawal Currency Amount amount Sub_account 09.01.2019 USD 7,500 7,500 Sub_account 19.02.2019 USD 7,500 7,500 Sub_account 25.03.2019 USD 17,000 17,000 Sub_account 24.05.2019 USD 8,000 8,000 Sub_account 24.05.2019 USD 8,800 8,800 Sub_account 03.07.2019 USD 23,000 23,000 Sub_account 15.07.2019 USD 1,500 1,500 Sub_account 20.08.2019 USD 10,900 10,900 Sub_account 25.09.2019 USD 7,700 7,700 Total: 91,900 Summary by categories Category 2 - Sub_account 91,900 Total: 91,900 Notes on pages 13 – 16 are an integral part of these financial statements. 9 SECOND POWER TRANSMISSION PROJECT, PART 3 SPECIAL ACCOUNT STATEMENT For the period from 01 January 2019 to 31 December 2019 In USD Deposit bank Ukreximbank Account No. 25235000000000 Loan No. 84620 Currency USD OPENING BALANCE - Receipts: Funds received 302,012 Accrued interest - TOTAL FUNDS RECEIVED 302,012 Holdback: expenditure Translation of funds in national currency 91,900 Direct payments from special account - Payment of bank services - TOTAL EXPENDITURE 91,900 CLOSING BALANCE 210,112 Notes on pages 13 – 16 are an integral part of these financial statements. 10 SECOND POWER TRANSMISSION PROJECT, PART 3 STATEMENT OF FACTUAL EXPENDITURES IN NATIONAL CURRENCY For the period from 01 January 2019 to 31 December 2019 In USD ----- Payment----- USD Equivalent Currency Amount amount Category 2: Goods, non-consulting services, consultants’ services, and Training for Part 3 of the Project UAH 2,467,195 93,832 Total expenditure of the period 2,467,195 93,832 Notes on pages 13 – 16 are an integral part of these financial statements. 11 SECOND POWER TRANSMISSION PROJECT, PART 3 RECONCILIATION BETWEEN RECORDS OF PIU AND THE BANK For the period from 01 January 2019 to 31 December 2019 In USD Loan amount 2,500,000 Subtract: Project costs: Category 2: Goods, non-consulting services, consultants’ services, and Training for Part 3 of the Project 437,252 Total: (437,252) Special account with JSC Ukreximbank - USD 210,112 Current account with JSC Ukreximbank - UAH 764 Total available funds (210,876) Total withdrawals: (648,128) Balance as at 31 December 2019 1,851,872 Notes on pages 13 – 16 are an integral part of these financial statements. 12 SECOND POWER TRANSMISSION PROJECT, PART 3 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2019 to 31 December 2019 In USD 1. PROJECT DESCRIPTION Since 2004, the Ministry of Fuel and Energy (MoFE) and, more recently, the Ministry of Energy and Coal Industry (MoECI), and today the Ministry of Energy of Ukraine together with the World Bank have been implementing measures to prepare and implement the energy sector reform and development program. The program is aimed at increasing the level of security and reliability of energy supply, promoting the uninterrupted operation of the energy market in Ukraine, as well as providing Ukraine with support for legal, institutional and technical harmonization of the energy sector of Ukraine with the EU internal energy market. Launched in 2015, the Second Power Transmission Project is supported by the IBRD loan of USD 330 million and the loan of the Clean Technology Fund of 48,425 million USD. The Project includes Part 3 in the amount of 2.5 million USD to provide the Ministry of Energy and Coal Industry with institutional capacity for reform implementation in the energy sector in accordance with Ukraine's commitments in the framework of the Energy Community membership, as well as the Association Agreement between Ukraine and the EU. According to paragraph B6 Section II of Additional article 2 to the Loan Agreement “The Borrower, through MoECI, shall have the Financial Statements corresponding to Part 3 of the project audited in accordance with the provisions of Section 5.09 (b) of the General Conditions. Each such audit of the Financial Statements shall cover the period of one fiscal year of the Borrower. The audited Financial Statements for each such period shall be furnished to the Bank not later than six (6) months after the end of such period”. Total amount of Part 3 of the Loan No. 8462-UA is USD 2 500 000.00. Part 3 Procurement Plan specifies that the Part funds shall be used to finance consulting services (individual consultants and consulting companies). The first contract under Part 3 was signed on 23 August 2016. The use of funds to finance activities under Part 3 of the Loan No. 8462-UA began in the fourth quarter of 2016. The following accounts were opened for use of funds under Part 3 of the Loan No. 8462-UA: • Special (USD) account in JSC "State Export-Import Bank of Ukraine" (advances from the World Bank Loan Account, settlements in foreign currency, receipt of funds from the Loan Account for resale, remittance of currency funds for further settlements in UAH); • Special account in national currency in JSC "State Export-Import Bank of Ukraine" (enrollment of Ukrainian hryvnias received from the sale of foreign currency funds, payments in UAH); • Special (EUR) account in JSC "State Export-Import Bank of Ukraine" (payment of services in EUR). 2. BASIS OF PRESENTATION These special purpose financial statements of the Project are prepared on a cash basis and include such significant accounting policies that have been consistently applied in all material respects and are in accordance with the recommendations of the World Bank's Financial Management Committee “Recommendations: Annual Financial Reporting and Audit of Activities, funded by the World Bank”. Project financing is recognized as a source of funds for the Project at the time of receipt of funds. Project costs are recognized as the use of funds under the Project at the time of making payments. The reporting currency is US Dollars. Items included in the special purpose financial statements of the Project are valued using the currency that best reflects the economic substance of the Company's relevant events and circumstances ("functional currency"). The functional currency of the Project is US Dollars. 13 SECOND POWER TRANSMISSION PROJECT, PART 3 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2019 to 31 December 2019 In USD Transactions in other currencies are translated into US dollars at the interbank currency exchange rate, which was effective on the date of the respective conversion of US dollars into the payment currency. Cash balances in other currencies are translated into US dollars at the interbank exchange rate of the last conversion of USD into the currency of payment. 3. ACCOUNTING POLICIES Basis of preparation Special purpose financial statements were prepared on the cash basis. The accounting policy was applied consistently throughout the period of using the Loan funds. Reporting period This report covers the Disbursement period of Part 3 of the Loan No. 8462-UA from 01 January 2019 to 31 December 2019. The World Bank has established the closing date – 29 June 2022, or such later date set by the Bank. Special bank account In accordance with the terms of the Loan Agreement and to ensure the implementation of the Project for the Ministry of Energy and Coal Industry of Ukraine, a Special Account in US dollars was opened in PJSC "State Export-Import Bank of Ukraine" under terms and conditions agreed with the IBRD. Recognition of receipts and expenditures The Project keeps its records and prepares its financial statements on the cash basis. Receipts are recorded when they are made on bank accounts, which are supported by advances from the IBRD. Expenditures are recorded on the date of funds withdrawal from accounts. Project Statements are prepared in accordance with the provisions of Section 5.08 of the General Conditions and on the basis of indicators acceptable to the Bank. Each Project Statement covers a period equal to one calendar quarter and is submitted to the Bank no later than forty-five (45) days after the end of the period covering each such report. All goods, works and non-consulting services required for the Project and to be financed out of the proceeds of the Loan shall be procured in accordance with the requirements set forth or referred to in Section I of the Procurement Guidelines and with the provisions of Section III of Supplement 2 to the Loan Agreement. All consultants’ services required for the Project and to be financed out of the proceeds of the L oan shall procured in accordance with the requirements set forth or referred to in Sections I and IV of the Consultant Guidelines and the provisions of Section III, Supplement 2, of the Loan Agreement. Foreign currency transactions The accompanying financial statements are presented in USD. Transactions in other currencies are translated into US dollars at the actual exchange rate at which these currencies were purchased, unless otherwise stated. Statements of expenditures The statements of expenditure are used to recognize the expenditures of the Loan during the calendar quarter that were paid from the Special Account. According to additional withdrawal instructions of the IBRD, all expenditures paid from the Special Account shall be included in the statements of expenditure for the relevant period and submitted to the IBRD. Together with the statements of expenditure, the primary documents are submitted (copies of checks, invoices, works acceptance acts, etc.). 14 SECOND POWER TRANSMISSION PROJECT, PART 3 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2019 to 31 December 2019 In USD 4. BUDGET From the Loan proceeds (Part 3 of the Project), the following items were financed; they were used exclusively for the activities of the established categories: Total allocated Loan funds (USD- % financed Category denominated) expenditures (2): Goods, non-consulting services, consultants’ services, and Training for 2,500,000 100% Part 3 of the Project TOTAL 2,500,000 5. AMORTIZATION SCHEDULE (including Part 3) The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date (“Installment Share”). If the proceeds of the Loan have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined by the Bank be multiplying: (a) Withdrawn Loan Balance as of the first Principal Payment Date; by (b) the Installment Share for each Principal Payment Date, such repayable amount to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of the Supplement to the Loan Agreement to which a Currency Conversion applies. Principal Payment Date Installment Share (Expressed as a Percentage) On each 15 January and 15 July Beginning 15 January 2020 3.85% Through 15 January 2032 On 15 July 2032 3.75% 6. OPERATING ENVIRONMENT The principal economic activity is performed on the territory of Ukraine. The Ukrainian economy is in a protracted crisis, complicated by the military conflict in eastern Ukraine and the unrecognized separation of the Autonomous Republic of Crimea. Stabilization of the situation in Ukraine will largely depend on the government's actions aimed at resolving the military conflict, reforming the country's financial, administrative, fiscal and legal systems. To solve the above-mentioned tasks, the government of the country introduces rather severe and unpopular measures, such as partial mobilization of the population liable to military service, introduction of new taxes and fees, as well as restrictions on cash and non- cash foreign currency transactions, etc. 7. EVENTS AFTER THE REPORTING DATE Pandemic of coronavirus SARS-CoV-2 At the end of 2019, the SARS-CoV-2 coronavirus epidemic began, starting in China, and in early 2020, becoming a pandemic and spreading world-wide. In order to contain the effects of the pandemic, significant restrictive measures have been introduced in most countries of the world. All the financial, economic and physical measures aimed at protecting the lives of the population are slowing down the pace of global economic development and can cause a global economic crisis. At present, it is impossible 15 SECOND POWER TRANSMISSION PROJECT, PART 3 NOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2019 to 31 December 2019 In USD to reliably estimate the duration of restrictive measures and the potential impact of the current situation on the economy of particular countries and business environment of legal entities and individuals. On 11 March 2020, the Cabinet of Ministers of Ukraine a dopted a Resolution “On Prevention of COVID-19 Coronavirus Spread in Ukraine”, whereby a quarantine was instituted in Ukraine from 12 March to 3 April 2020 with an option to extend. On 17 March 2020, t he Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine aimed at Preventing the Emergence and Spread of Coronavirus Disease (COVID- 19)” was adopted, whereby some laws of Ukraine were amended. On 25 March, the Cabinet of Ministers of Ukraine extended the quarantine until 24 April 2020 and introduced an emergency situation (ES) regime throughout Ukraine. In the face of continuing Covid-19 epidemic and during the quarantine period, business conditions are significantly complicated due to significant prohibitions aimed at preventing the spread of the disease, thus significantly affecting the Ministry of Energy of Ukraine and Project’s operations. In addition, there is a significant risk that, due to the spread of the disease, the Ministry of Energy of Ukraine and Project's employees will be exposed to the risk of illness and inability to fulfill their responsibilities for some period of time. Currently, the Ministry of Energy of Ukraine and Project’s management believes that the Project will be able to continue as a going concern and that the special purpose financial statements do not require adjustments due to the restrictions imposed by the current circumstances on the Project implementation and the Ministry of Energy of Ukraine and Project and their counterprties’ inability to fulfill their responsibilities on time and in full. The Ministry of Energy of Ukraine and Project’s management constantly monitors the current situation in respect of the Project implementation and the region as a whole. In case of a material change in the current situation, or the imposition of a state of emergency or other events that can have material effect on the operations of the Ministry of Energy of Ukraine and Project, the Ministry of Energy of Ukraine and Project's management will evaluate the impact of those events on the Project and decide on the necessity to adjust these special purpose financial statements. 16 WORLD BANK AUDIT DOCUMENTATION CHECKLIST Name of Loan/Credit: World Bank UKRAINE Loan/Credit # 8462-UA Audit Report: Year ended December 31, 2019 Check if Check if Included N/A I. Audit report (Opinion): A. Applicable accounting standards noted X B. Applicable auditing standards noted X C. Opinion rendered on all forms of withdrawals: 1. Statement of Expenditures X 2. Special Account X D. All sources of financing for the project are noted X II. Financial Reports: A. Revenue Earning Entity (all of the following are required): 1. Balance sheet X 2. Cash Flow Statement X 3. Income Statement X B. Non-Revenue Earning Entity (all of the following are required): 1. Balance sheet X 2. Summary of Sources and Uses of Funds X C. If applicable (refer to Loan Agreement): 1. Statement of Expenditure (SOE) Statement X 2. Special Account Statement X III. Notes to the Financial Statements X IV. Reconciliation between World Bank records and project records X V. Management Letter X 17