Financial Statements REPUBLIC OF MOZAMBIQUE CONSELHO DE REGULAQAO DE ABASTECIMENTO DE AGUAS (CRA) WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJECT II - CREDIT AGREEMENT NR 5783- MZ AND GRANT NUMBER D110-MZ INTERNATIONAL DEVELOPMENT ASSOCIATION 31 December 2018 EY Building a better working world CONSELHO BE REGULAcAo DE AB3ASTECIMENTO DE AGUASACRA WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJECT 1l - CREDIT AGREEMENT NR 5783- MZ AND GRANT NUMBER D110-MZ INTERNATIONAL DEVELOPMENT ASSOCIATION CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1 -4 STATEMENT OF SOURCES AND USES OF FUNDS 5 DESIGNATED ACCOUNT STATEMENT 6 GRANT ACCOUNT STATEMENT 7 NOTES TO THE FINANCIAL STATEMENTS 8 to 10 ErInt A Younog Ijii(da Tel +258 21 35 3000 Rua Del Imiro Obad[as Muianga, N' 179 Fax: +258 21 32 1984 Caixa Postal 366, Eroal: ernst young ey.coM (l1fildiio a ho'U4r Maputo NUIT:400 006 245 oiwo MogambFque WyAVey.coin INDEPENDENT AUDITOR'S REPORT To the Board of Directors of CONSELHO DE REGULA§AO DO ABASTECIMENTO DE AGUA Report on the audit of the Financial Statements Opinion We have audited the financial statements of Water Services and Instructional Support PROJECT II - Credit Agreement NR 5783- MOZ, implemented by the Conselho de Regulagio do Abastecimento de Agua - CRA, which comprise the Statement of Sources and Uses of funds, the Designated Account and the Grant Account Statement financed under IDA - International Development Association Development Greater Agreement 5783- Moz and Grand Number D110- MZ for the year ended 31 December 2018, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements of the Company are prepared, in all material respects, in accordance with accounting basis set out in note 4. 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 Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Mozambique, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. A niernt r rrn vfflirst&S Young G!oha Liii:!ed1 Bui ingii4 a hotter voj kin old Responsibilities of the Board of Directors for the Financial Statements The Board of Directors is responsible for the preparation of financial statements that give a true and fair view in accordance with the accounting basis set out in note 4, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so, The Board of Directors is also responsible for overseeing the Company's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: 2 "71kinrj lv'oaaI Identify and assess the risks of material misstatement of the 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 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 Company's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors. Conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Board of Directors 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. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 3 DJuilding a better wo rZdijnl ork From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. The engagement partner on the audit resulting in this independent auditor's report is Manuel Relvas. ERNST & YOUNG, LDA Certified Auditors Firm Manuel Marques Relvas (Certified Auditor nr. 5) Maputo, 31 May 2019 4 CONSELIRO DE REGU C WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJECT 11 - CREDIT AGREEMENT NR 5783- MZ AND GRANT NUMBE Di10-MZ STATEMENT OF SOURCES AND USES OF FUNDS- FOR THE YEAR ENDED 31 DECEMBER 2018 Notes 2018 IDA Designated Account 3 500.000 Add Sources of Funds IDA Funds Replenishments to Designated Account A 5 160.054 160.054 660.054 Less: Uses of Funds EligV,e expenditure paid (3E) - Consultant Services/Goods/TrainingOperang Cost 6 162.292 162.292 162.292 Closing Cash Balance IDA Designated Account 8 497.762 FINANCE MANAGER DIRECTOR GENERAL 5 CONSELHO DE REGULAP Ao DEABASTECIMENTOaAGUC WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJEC 1I-CEI GREETN 73- MZ AND GRANT NUMBER D110MZ MOZ GRANT ACCOUNT STATEMENT. FOR THE YEAR ENDED 31 DECEMBER 2018 {ffxprssed i a i l CATEGORY Budget per credit Used during 2018 Total Usaeas agreement at 3112.18 (3E) - Consur lanI SeRieeqGoods/TrainingfOperafng CosI 3.600.000 115.222 115.222 3.484.778 1600.000 115.222 115 222 3484 778 FINANCE MANAGER DIRECTOR GENERAL 6 CONSELHO DE REGULA9AO DE ABASTECIMENTO DE AGUAS (CRA) WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJECT 1i - CREDIT AGREEMENT NR 5783- MZ AND GRANT NUMBER D110MZ NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 1. PROJECT BACKGROUND 1.1. Objectives The objective of the Project are to: (i) increase water services coverage in key cities of the Recipient's territory; and (ii) strengthen the institutional and regulatory capacity for territory; and (iii) support the Recipient to respond promptly and effectively to Eligible Crisis or Emergency. On 11 October 2016 a development Loan agreement was signed between the Republic of Mozambique and International Development Association (IDA), wherein IDA agreed to provide a Loan of an amount equivalent to SOR 65.300,000 to implement the Water Services and Institutional Support Project II, Loan Agreement Nr. 5783-MZ and Grant Number DI10-MZ with allocated amount SDR 17.100.000. The project consists of the following parts, which are included in the Grant Agreement, as CRA is not part of Credit Agreement: Part A: Rehabilitation and Expansion of Water Supply Production and Distribution 1. Rehabilitation and Expansion of Water Supply Production (i) Increase production capacity in the three sytems serving the cities of Pemba, Beira and Dondo, and Tete and Moatiz including through the expansion and refurbishment of wellfields, refurbishment of an existing intake, expansion and refurbishment of water treatment facilities, rehabilitations and expansion of transmission infrastructure, pump stations, and associated fittings. 2. Rehabilitation and Expansion of Water Distribution Increase service coverage in the three water distribution sytems severing the cities of Pemba, Beira and Dondo, and Tete and Moatize, including through the: (i) Construction of new distribution centers and rehabilitation of existing ones to increase storage with ground reservoirs and pressure through elevated water towers within the existing footprint; (ii) Expansion and rehabilitation of water supply networks; (iii) Provision of approximately 60.000 new household meters and associated materials for domestic connections. Part B: Institutional Support The Pad B of the Project consists of the following: 7 CONSELHO DE REGULAQAO DE ABASTECIMENTO DE AGUAS (CRA) WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJECT If - CREDIT AGREEMENT NR 5783- MZ AND GRANT NUMBER Di10-MZ NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 (i) Support the decentralization of FIPAG operations by estabilishing and reinforcing three of the Regiional Utilities, namely Aguas do Sul, Aguas do Centro and Aguas do Node including the purchase and installation of a commercial sytem with sytem components focusing on billing and commercial management, customer service policies and procedures ( including citizen engagement, gender and disability considerations, and complaints handling/ recourse mechanisms), establishment of corporate governance structures, policies and procedures, including human resource issues associated with skill/ professional development and equal opportunity and gender policies, and asset management sytems and indirect NRV - reduction programs. (ii) Support project management, supervision for contract under Part A, audits, training, and various technical studies as needed, as well as technical assistance to FIPAG for the implementation of environmental and social safeguards. Part C: Technical Assistance to FIPAG The Part C of the Project consists of the folowing: (i) Increase access to piped- water connections for low - icome households and in Mapulo region by providing Output - Based Payments to the Regional Utilities to support the provision of water services to the poor households by facilitating the uptake of connections for low - income households through grants payments to reimburse the costs of Eligible Connections. (ii) Support FfPAG to structure tariffs and establish other mechanisms to improve poverty targeting for low - income customers to ensure sustainability of the proposed interventions, including related studies and hiring of the independent verification agent. Part 0: Contingent Emergency Response Support potential disaster - recovery needs in FIPAG water systems by providing immediate response to an Eligible Crisis or Emergency, as needed. Part E: Capacity Building and Operational Support to CRA 1. Expand quality- of- service and financial regulatory mechanisms for urban water supply in the recipient's territory, including through the; (i) Carrying out of impact evaluation activities to measure the outcomes of the project; (ti) Scaling up of the information and communication technology (ICT) - base platform for customer complaints and support recourse mechanisms (RECO) and roll-out thereof within the Recipients territory; (ilm) Creation of local regulatory mechanisms to monitor and enforce parameters of local regulations, including the establishment of CORALs and carrying out of training of community representative and focal points; amd (iv) Review of subsidies for low - income customers. 8 CONSELHO DE REGULAQAO DE ABASTECIMENTO DE AGUAS (CRA) WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJECT II - CREDIT AGREEMENT NR 5783- MZ AND GRANT NUMBER Di10-MZ NOTES TO THE FINANCIAL STATEMENTS Forthe year ended 31 December 2018 2. Support the Regional Utilities, through CRA to improve key performance indicators and data management sytem by establishing procedures for the Reguional Utilities to report information within a country sytem that is aligned with IBNET database. 2. Percentage of Expenditures financed by the Grant The percentages of expenditures for items to be financed by Credit are as following: %of Exoenditures Category to be financed (3E) Works, goods, non-consulting services, consultant services and training 100% of all expenses (Including taxes) 3. DESIGNATED ACCOUNT FOR THE IDA CREDIT The Development Credit Agreement requires the opening of a Designated Account in USD, The purpose of the Designated Account is for payment of eligible expenditures. These payments will be subsequently justified to IDA with respective documentation or issuance of SOEs (Statement of Expenditures) for replenishment of the Designated Account or refunding of the initial deposit. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statement, compiled from CRA accounting records, was prepared on a cash basis from the information reflected in the financial and accounting reports of the Project. Under this basis, receipts are not recorded until received in cash and disbursements are assigned to the year in which the respective cash payment is made. Foreign Currency Transactions The accounting records of the Project are maintained in United States Dollars (USD). The statement of receipts and payments is also expressed in United States Dollars (USD) unless otherwise stated. Transactions in other currencies are translated to USD at the official exchange rate ruling at the date of the transaction. Fixed assets Fixed assets acquired by the Project are reflected as expenditure in the year of purchase and payment. 9 CONSELHO DE REGULAQA0 DE ABASTECIMENTO DE AGUAS (CRA) WATER SERVICES AND INSTRUCTIONAL SUPPORT PROJECT II - CREDIT AGREEMENT NR 5783- MZ AND GRANT NUMBER D110-MZ NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 Procedures The disbursements of the funds, made available by the international Development Association (IDA), are carded out by direct transfers or by requests for payments sent to the Designated Account, which was started with funds made available by IDA, in a bank account of the Project in Maputo (Bank BCI). 5. Replenishments to Designated Account A The following applications were used for replenishments to the designated account A: SDR Application number Requested Replenished Not Replenished Equivalent 74 1 62.516 - 44.768 77 1 97.538 - 70.454 160.054 - 115.222 6. DESIGNATED ACCOUNT PAYMENTS DURING THE YEAR Designated Account payments by categories during the year can be summarized as follows: Category USID (3E) Consultant Services/Goods/Training/Operating Cost Expenditure paid and reimbursed during the)ear 160.054 Expenditure submited on December 2018 (not yet reimbursed) 2.238 162.292 7. DESIGNATED ACCOUNT USD Balance as per Project records as at 31 December2018 497.762 No open items Balance as per Projectstatementas at31 December2018 497.762 8. DESIGNETED ACCOUNT PAYMENTS ADVANCE RECONCILIATION USD Adwce 500.000 Represented by. Bank balance 497.762 Expenditure submited on December2018 (notet reimbursed) 2.238 500 000 10 EY Assurance j Tax I Transactions I Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. 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