“Second Dushanbe Water Supply Project” Grant No. H692-TJ, Grant No. D087-TJ, Credit No. 5709-TJ The project financial statements for the year ended December 31, 2018 and independent auditors’ report “SECOND DUSHANBE WATER SUPPLY PROJECT” GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ 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 6-7 Notes to the project financial statements 8-16 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 “Second Dushanbe Water Supply Project” under the State Unitary Enterprise “Dushanbe Vodokanal” 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 “Second Dushanbe Water Supply 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 Ac counting 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 “WB 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 describe the basis of accounting. These project financial statements were prepared for complying with the appropriate World Bank Guidelines and Financing agreement 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 “SECOND DUSHANBE WATER SUPPLY PROJECT” GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ SUMMARY OF EXPENDITURES PAID BY PROJECT COMPONENTS FOR THE YEAR ENDED DECEMBER 31, 2018 (in US dollars) For the year For the year Cumulative ended ended December 31, December 31, 2018 2017 Component 1: Metering and demand management 225,595 17,151 6,120,370 Purchase of 76,500 residential water meters - - 2,901,173 Installation of 76,500 residential water meters - - 2,593,908 Purchase and installation of bulk flow meters at water production facilities - - 216,253 Mains replacement and network sectorization for loss reduction 144,567 - 144,567 Communication strategy and public awareness campaigns to promote metering and demand management - - 84,552 Customer satisfaction surveys 12,512 17,151 79,901 Procurement and installation of equipment for energy savings 38,395 - 38,395 Purchase of Network Information System - - 31,500 Procurement of communication support and ICT-based reporting system 30,121 - 30,121 Component 2: Water quality improvement 2,274,842 1,757,387 8,935,499 Partial renewal of filtration capacity at Samotechnaya Water Treatment Plant - 1,116,975 5,279,343 Reconstruction of additional 50% of SAM WTP filters 1,583,512 557,557 2,141,069 Design, build and installation of Rapid Sand Flters at sand 691,330 - 691,330 Cleaning network sections and reservoirs - - 294,334 Purchase of hydraulic excavator - - 281,996 Purchase and installation of re-chlorination units at 5 reservoirs - 82,855 130,330 Purchase of laboratory equipment - - 63,275 Purchase of the measuring equipment for leakage detection - - 53,822 Component 3: Institutional strengthening and capacity-building 47,433 70,378 4,238,792 Technical assistance for operational improvements - - 2,177,968 Technical assistance for corporate development and improvement of financial performance 47,433 69,444 1,287,051 Modernization of accounting, billing and collection systems - 934 374,104 Training programs - - 231,337 Institutional assessment - - 168,332 6 "SECOND DUSHANBE WATER SUPPLY PROJECT,, GRANT No. H692_TJ, GRANT No. D087-TJ, cREDlT No.5709_TJ SUMMARY ОF EXPENDITURES PAID BY PROJECT COMPONENTS FoR тнЕ YEAR ENDED DECEMBER 31,2018 (coNTlNUED) (и US dollars) Fоr the year Fоr the уеаr cumulative ended ended DесеmЬеr 31, DесеmЬеr 3,t, 20,18 2017 Component 4: Project implementation suppoЁ 541,800 663,406 2,419,013 Deslgrл апd supervision of wotks 416,723 534,908 1,317,о74 Рrоjесt mап аgеmе пt operaflng cosfs 85,841 84,673 379,897 Аппчаl audits 39,236 43,825 722,о42 ______lp99ý99_ ______з,59р,322* 21 713,673 Оп behalf of the Management: Rahipoila М. chief Accountant Мау 24,2019 Мау 24,20,19 Dushanbe, Republic of Т Dushanbe, Republic of Tajikistan The notes оп pages 8-16 form statements, The independent auditors' rерогt is оп pages 3-4. 7 “SECOND DUSHANBE WATER SUPPLY PROJECT” GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ NOTES TO THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 (in US dollars) 1. GENERAL INFORMATION According to the Financing Agreement between the Republic of Tajikistan and International Development Association (the “IDA”) dated July 13, 2011, the IDA provided a Grant No. H692-TJ in the amount of 10,100,000 Special Drawing Rights to the Republic of Tajikistan. According to Financing agreements between the Republic of Tajikistan and IDA dated August 7, 2015 the IDA provided an additional financing in the form of Grant No.D087-TJ in the amount of 3,300,000 SDR and Credit No. 5709-TJ in amount of 4,000,000 SDR. The Grant was provided for the implementation of the Project “Second Dushanbe Water Supply Project” (the “Project”). Effective date of the Project is February 7, 2013. Project completion date is March 31, 2020. Project purpose The purpose of the Project is to assist the State Unitary Enterprise “Dushanbe Vodokanal” (the “DVK”) in improving the efficiency water services company activities and water supply services in certain districts of Dushanbe. The Project comprises the following components: Component 1: Metering and demand management; Component 2: Water quality improvement; Component 3: Institutional strengthening and capacity-building; Component 4: Project implementation support. Component 1. Metering and demand management The component finances consumption metering and bulk metering of water, for increased revenue, reduced wastage, and better tracking of losses, including: (i) supply and installation of 76,500 residential meters (i.e. approximately 46% of DVK users) and installation of 1,500 apartment building master meters in selected areas of the city; (ii) rehabilitation of 1,500 apartment building service connections; (iii) supply and installation of bulk flow meters at water production facilities; (iv) supply and installation of a Network Information System (NIS); (v) communication strategy and public awareness campaigns to promote metering and demand management; and (vi) installation of SCADA system. Component 2. Water qualityi improvement The component supports system upgrades for improved quality of water, including: (i) partial renewal of filtration capacity at Samotechnaya Water Treatment Plant(“WTM”); (ii) network cleaning; (iii) installation of in-network re-chlorination systems; (iv) equipment for water quality monitoring; (v) reconstruction of pumping station and tanks at the Napornaya WTP; and (vi) procurement of maintenance equipment. Component 3. Institutional strengthening and capacity-building The component finances activities to build institutional capacity and improve utility performance of DVK, which includes (i) carrying out an assessment of DVK’s organizational and capacity-building needs; (ii) installation of modern accounting, billing and water revenue collection systems; (iii) provision of technical assistance to the management of DVK to improve its financial performance; (iv) provision of technical assistance, and carrying out of studies to improve the water supply operations of DVK, including studies for hydraulic modeling, and for design of pressure zones and SCADA system; and (v) implementation of training programs for DVK staff. 8 Component 4. Project implementation support The component provides project implementation support including (i) design and supervision of works; (ii) project implementation operating costs, and (iii) annual project audits. Project management The Management is implemented by the Project Administration Unit (the “PAU”) within the scope of the State Unitary Enterprise “Dushanbe Vodokanal”. 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 “WB Guidelines”). Under the cash basis approach 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”). 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 readers with information about the sources of cash raised during the period, the purposes for which cash was used and the 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 currency exchange rate settled by the the National Bank of Tajikistan (the “NBT”) on a date of operation. Funds received are translated into US dollars at official exchange rate of Special Drawing Rights (the “SDR”) at the date of funds receipt. All payments made in local currency are translated into US dollars at the official exchange rate defined by the 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. 9 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. 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 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 advance, replenishment of designated account or through direct payment to the end supplier of goods and/or services. 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at December 31, 2018 and 2017 comprise: Source of financing Currency December 31, December 31, 2018 2017 Grant No. D087-TJ Designated account Credit No. 5709-TJ USD 143,446 247 Designated account Grant No. H692-TJ USD - 401 Grant No. D087-TJ Transit account Credit No. 5709-TJ TJS 64 922 Transit account Grant No. H692-TJ EUR - 17 Co-financing account Co-financing by LSEA TJS 599,636 336,526 Co-financing account Co-financing by LSEA USD 130,292 114,518 Tender account Grant No. D087-TJ TJS 296 267 Tender account Grant No. H692-TJ USD - 150 Cash on hand TJS 140 698 Advances to employees USD 122 130 873,996 453,876 10 5. FUNDS RECEIVED The fund received are presented by the following financing methods and sources of financing: For the year For the year Cumulative ended ended December 31, December 31, 2018 2017 Grant No. H692-TJ Reimbursement of expenses 239,575 539,217 6,340,403 Direct payment 220,000 - 5,489,001 Advance - - 600,000 Special commitment - - 2,347,171 459,575 539,217 14,776,575 Grant No. D087-TJ Reimbursement of expenses 881,933 578,718 1,460,651 Direct payment 798,478 501,802 1,300,280 Advance - - 600,000 1,680,411 1,080,520 3,360,931 Credit No. 5709-TJ Reimbursement of expenses 389,771 - 389,771 Direct payment - - - Advance 400,000 - 400,000 789,771 - 789,771 Co-financing by LSEA Reimbursement of expenses 599,866 382,271 3,995,447 3,529,623 2,002,008 22,922,724 11 6. PROJECT EXPENSES The Project expenses on major categories are presented in the summary of funds received and expenditures paid. The Project expenses by components are presented in the summary of expenditures paid by project components. Breakdown of project expenses by nature is presented as follows: For the year ended For the year ended Cumulative December 31, 2018 December 31, 2017 Grant Grant Co-financing Grant Grant Co-financing Grant Grant Co-financing No. H692-TJ No. D087-TJ by LSEA No. H692-TJ No. D087-TJ by LSEA No. H692-TJ No. D087-TJ by LSEA Works 420,620 1,547,763 311,868 568,661 501,802 604,070 6,806,283 2,396,136 2,168,417 Consultants’ services - 464,155 - - 631,670 - 3,499,101 1,115,977 - Goods - 242,272 22,560 934 90,004 10,003 3,358,051 375,004 740,871 Payroll and related taxes - 24,656 - 18,123 7,721 - 131,303 38,356 - Audit - - - - 43,825 - 133,920 43,825 - Business trips - 1,226 - - - - 14,801 1,226 - Stationery - 211 - 860 96 - 18,848 307 - Fuel expenses - 2,362 - 1,757 826 - 16,832 3,188 - Trainings - - - - - - 222,223 - - Communication - 1,220 - 222 352 - 10,814 1,572 - Bank fees 83 957 413 152 909 52 7,341 2,077 465 Advertising expenses - 562 - 372 118 - 4,556 680 - Operating expenses 29,071 16,951 - 15,176 7,908 33 560,700 24,859 33 Other - 1,534 1,186 2,100 525 51 12,612 2,059 1,237 449,774 2,303,869 336,027 608,357 1,285,756 614,209 14,797,385 4,005,266 2,911,023 12 7. FINANCIAL POSITION Financial position as at December 31, 2018 and 2017 comprise: December 31, December 31, 2018 2017 ASSETS AND EXPENDITURES Cash and cash equivalents 873,996 453,876 Cumulative expenses 21,713,673 18,624,004 Foreign exchange loss 176,650 156,417 Other expenses 209,404 209,353 TOTAL ASSETS AND EXPENDITURES 22,973,723 19,443,650 FINANCING Funds received 22,922,724 19,393,101 Other income 50,999 50,549 TOTAL FINANCING 22,973,723 19,443,650 13 8. WITHDRAWAL APPLICATIONS Withdrawal applications for the year ended December 31, 2018 comprise: Sources of Applications Date Advance Direct Works, goods, Total financing payment advisory services including audit, operating costs Grant No. H692-TJ 46 January 8, 2018 - 220,000 - 220,000 47 March 7, 2018 - - 235,484 235,484 48 May 30, 2018 - - 4,091 4,091 - 220,000 239,575 459,575 Grant No. D087-TJ 45 February 7, 2018 - - 156,111 156,111 49 May 30, 2018 - 114,399 - 114,399 50 June 19, 2018 - 182,423 - 182,423 51 June 22, 2018 - 95,570 - 95,570 52 June 27, 2018 - 99,777 - 99,777 53 August 17, 2018 - 306,309 - 306,309 54 August 17, 2018 - - 125,822 125,822 57 December 17, 2018 - - 600,000 600,000 - 798,478 881,933 1,680,411 Credit No. 5709-TJ 55 August 17, 2018 400,000 - - 400,000 56 September 4, 2018 - - 389,771 389,771 400,000 - 389,771 789,771 Co-financing by LSEA n/a December 25, 2018 - - 599,866 599,866 400,000 1,018,478 2,111,145 3,529,623 14 9. STATEMENT OF DESIGNATED ACCOUNT Statement of designated accounts for the year ended December 31, 2018 comprise: Designated accounts Grant No. H692-TJ Grant No. D087-TJ Total Credit No. 5709-TJ Currency US Dollars US Dollars Bank account 20206840600240000110 20206840500240000113 Bank OJSC “Bank Eskhata” OJSC “Bank Eskhata” Bank’s location 11 Adhamov str., 11 Adhamov str., Dushanbe, Republic of Dushanbe, Republic of Tajikistan Tajikistan Balance as at January 1, 2018 401 247 648 Reimbursement 239,575 1,271,704 1,511,279 Advance - 400,000 400,000 Transfer between accounts - 158,000 158,000 Total funds received to the designated account 239,575 1,829,704 2,069,279 Expenses paid 83 1,003,493 1,003,576 Transfer between accounts 239,893 683,012 922,905 Balance as at December 31, 2018 - 143,446 143,446 10. UNDRAWN FUNDS As at December 31, 2018 undrawn funds are presented as follows: Grant No. Grant No. Credit No. H692-TJ D087-TJ 5709-TJ in SDR in SDR in SDR Approved financing amount 10,100,000 3,300,000 4,000,000 Disbursed during the period from July 13, 2011 to December 31, 2018 10,099,993 2,401,321 567,590 Undrawn financing amount 7 898,679 3,432,410 Financing received as at January 1, 2018 9,780,784 1,198,768 - Disbursed in 2018 319,209 1,202,553 567,590 Financing received as at December 31, 2018 10,099,993 2,401,321 567,590 15 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 No. Currency Contract Paid up to Remaining value December 31, amount to 2018 be paid Ludwig Pfeiffer Hoch und Tiefbau GmbH & Co.KG DWSP2AF/W- 09 USD 5,575,573 2,141,069 3,434,504 Shahmaran DWSP2AF/W-03 USD 1,445,673 144,567 1,301,106 CES Consulting Engineers Salzgitter GmbH DWSP2AF-14 USD 819,000 667,239 151,761 “Zumrut” DWSP2AF/G-04 TJS 384,000 38,395 345,605 Research Center “Zerkalo” DWSP2AF/CS-20.2 TJS 260,789 29,664 231,125 Firuz Safarov DWSP2AF/IC-17 TJS 41,000 30,095 10,905 Sharifkhon Boboev DWSP2AF/IC-16 TJS 36,715 35,655 1,060 Tehnoplus DWSP2AF-20.1 TJS 31,348 30,121 1,227 Saidasanova Sabina DWSP2AF/IC-17/2 TJS 16,235 1,323 14,912 Zuvaydov Bahtiyor DWSP2AF/IC-23 TJS 13,415 5,697 7,718 Nazirova Malohat DWSP2AF/IC-17/1 TJS 8,958 8,387 571 Karimov Tojiddin DWSP2AF/IC-26 TJS 7,992 7,326 666 Shamsova Gulnora DWSP2AF/IC-26/1 TJS 3,200 789 2,411 12. LEGAL CASES There were no any legal claims 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: Source of financing Date Application Works, goods, advisory services including audit, operating costs Credit No. 5709-TJ February 15, 2019 58 400,000 Grant No. D087-TJ February 8, 2019 59 422,265 April 17, 2019 60 600,000 1,022,265 1,422,265 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. 16