THE PALESTINIAN MINISTRY OF FINANCE AND PLANNING HEBRON REGIONAL WASTEWATER MANAGEMENT PROJECT-PHASE I – TF018323 CO-FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) AND THE AGENCE FRANCAISE DE DEVELOPMENT (AFD) AND MANAGED BY THE PALESTINIAN WATER AUTHORITY PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 TOGETHER WITH INDEPENDENT AUDITORS’ REPORT The Palestinian Ministry of Finance and Planning Hebron Regional Wastewater Management Project - Phase I Co-Funded by the International Development Association (IDA) and the Agence Francaise De Development (AFD) And Managed by the Palestinian Water Authority Balance Sheet As at December 31, 2018 (Currency: USD) Note 2018 2017 Assets Current Assets Cash at bank 10 150,441 469,706 Advance payment to Technical 4 Assistance Consultant 373,359 - Total Current Assets 523,800 469,706 Total Assets 523,800 469,706 Liabilities and Fund Balance Fund Balance Fund balance 10 523,800 469,706 Total Liabilities and Fund Balance 523,800 469,706 The accompanying notes form an integral part of these financial statements 4 The Palestinian Ministry of Finance and Planning Hebron Regional Wastewater Management Project - Phase I Co-Funded by the International Development Association (IDA) and the Agence Francaise De Development (AFD) And Managed by the Palestinian Water Authority Statement of Sources and Uses of Funds For the Year Ended December 31, 2018 (Currency: USD) Cumulative Year Ended December 31, 2018 Year Ended December 31, 2017 up to December 31, Note IDA AFD Total IDA AFD Total 2018 FUND BALANCE – BEGINNING OF YEAR/ PERIOD 469,706 - 469,706 405,105 - 405,105 - SOURCES OF FUNDS Project advance payment from IDA 3 - - - - - - 500,000 Project replenishments received from IDA 3 202,213 - 202,213 349,414 - 349,414 551,627 Direct payment to Technical Assistance Consultant 4 - 373,359 373,359 - - - 373,359 Total sources of funds 202,213 373,359 575,572 349,414 - 349,414 1,424,986 USES OF FUNDS Category 1: Goods, works, non-consulting services, consultants' services, Training, PMU Incremental Operating Costs, and TOU Operating Costs Part B: Sustainable Management, Operation and Maintenance of HRWWTP 5 54,598 - 54,598 - - - 54,598 Part C: Project Management, Monitoring and Evaluation and Master Plan Implementation Planning 6 466,880 - 466,880 284,813 - 284,813 846,588 Total uses of funds 8 521,478 - 521,478 284,813 - 284,813 901,186 CHANGE IN FUND BALANCE (319,265) 373,359 54,094 64,601 - 64,601 523,800 FUND BALANCE – END OF YEAR/ PERIOD 10 150,441 373,359 523,800 469,706 - 469,706 523,800 The accompanying notes form an integral part of these financial statements 5 The Palestinian Ministry of Finance and Planning Hebron Regional Wastewater Management Project - Phase I Co-Funded by the International Development Association (IDA) and the Agence Francaise De Development (AFD) And Managed by the Palestinian Water Authority IDA Designated Bank Account Statement For the Year Ended December 31, 2018 IBAN PS60 PALS 0458 2220 5820 0130 0100 0 Account number 0458/2220582/001/3001/000 Depository bank Bank of Palestine P.L.C Address Ramallah Related loan / credit TF018323 Currency U.S. Dollar (USD) Note 2018 2017 Balance, beginning of year 469,706 412,005 Add: Receipts during the year 3 202,213 349,414 202,213 349,414 Deduct: Payments for project expenditure from designated bank account 7 497,895 291,713 497,895 291,713 Balance, end of year 10 174,024 469,706 The accompanying notes form an integral part of these financial statements 6 The Palestinian Ministry of Finance and Planning Hebron Regional Wastewater Management Project - Phase I Co-Funded by the International Development Association (IDA) and the Agence Francaise De Development (AFD) And Managed by the Palestinian Water Authority Notes to the Financial Statements For the Year Ended December 31, 2018 (Currency: USD) 1. The Project and its Financing The Palestinian Liberation Organization (for the benefit of the Palestinian Authority (PA)) and the International Development Association – IDA (the World Bank), acting as an administrator of the Trust Fund for Gaza and West Bank, signed an advance agreement, dated October 17, 2011, whereby the World Bank proposed to advance, to the PA, an amount not to exceed USD 600,000 from the Trust Fund for Gaza and the West Bank (the Trust Fund), Advance No. TF010527. The aim of the advance agreement is to finance a project entitled "Preparation of Proposed West Bank Waste Water Management Project" (Preparation Phase), managed by the Palestinian Water Authority (PWA). on November 23, 2015, the PA and the World Bank signed grant agreement number TF018323, whereby the World Bank made a grant, to the Palestinian Authority, in an amount equals to USD 4,500,000 (including the advance agreement of USD 600,000 – Preparation Phase TF 010527) to finance HRWMP-Phase I. The effective date of the World Bank agreement was February 10, 2016. The Preparation Phase activities, with actual costs amounting to USD 429,034, had been officially closed on December 31, 2015 and were subject to a separate audit. The Preparation Phase costs have been classified as category 2 under TF018323. The undisbursed amount under the Preparation Phase of USD 170,966 has been transferred to HRWMP-Phase I. The total amount allocated by the World Bank to HRWMP-Phase I comprises: Allocated Description Amount USD HRWMP-Phase I - TF018323 3,900,000 Undisbursed amount under the Preparation Phase 170,966 4,070,966 The categories to be financed by the World Bank are as follows: Allocated Category Amount (USD) (1) Goods, Works, Non-consulting Services, Consultants' Services, Training, PMU Incremental Operating Costs, and TOU Operating Costs 4,070,966 (2) Refund of Preparation Advance (the total incurred cost for the Preparation Phase activities) 429,034 4,500,000 7 Further, on December 29, 2014, the European Commission (EC), acting on behalf of the European Union, and the PA signed a financing agreement (CRIS number ENI/2014/30-874) to provide joint co-financing, through a delegation arrangement with Agence Francaise de Development (AFD), for EUR 15,000,000 from EC and EUR 10,000,000 from AFD. The purpose of the financing agreement is to finance a project entitled "Hebron Regional Wastewater Management Project - Phase I" (HRWMP- Phase I) to be managed by the PWA. The EC contribution has been allocated as follows: Amount Model (EUR) Indirect management with AFD as the contracting authority 14,000,000 Communication and visibility (direct management) 100,000 Evaluation and audit (direct management) 50,000 Contingencies 850,000 15,000,000 Accordingly, AFD signed two financing agreements with the Palestinian Ministry of Finance and Planning (MoFP) as follows: Financing Financing Agreement Amount in Donor Agreement Number Signing Date EUR AFD CPS 1049 01 H September 10, 2015 10,000,000 EC – through AFD* CPS 1049 02 J May 24, 2016 *13,300,000 23,300,000 *Net of AFD remuneration of EUR 700,000. The HRWMP - Phase I is the first phase of a series of projects with the overarching objective to improve wastewater management and reuse for the benefit of water users and the environment in Hebron Governorate. The objective of HRWMP - Phase I is to reduce the environmental pollution from wastewater produced in Hebron Governorate. The HRWMP - Phase I comprises the following parts: Part A: Wastewater Treatment Infrastructure 1. Design and construction of Hebron Regional Waste Water Treatment Plant (HRWWTP) providing secondary treatment with a design capacity of about 15,000 cubic meters per day. 2. Financing of engineering services to supervise HRWWTP and related infrastructure construction. Part B: Sustainable Management, Operation and Maintenance of HRWWTP 1. Supporting the HRWWTP's operation and maintenance. 2. Provision of technical assistance to Hebron Municipality to manage the HR WWTP's operation and maintenance, introduce wastewater tariffs, implement 8 water and wastewater tariff reforms, improve the collection of fees, and increase the financial revenue of the sector towards cost recovery. Part C: Project Management, Monitoring and Evaluation, and Master Plan Implementation Planning 1. Strengthening of the PWA's capacity for Project management, monitoring and evaluation through provision of consulting services, including audit, training and financing of the PMU Incremental Operating Costs. 2. Provision of technical assistance and training for the establishment and operation of the Technical Operations Unit (TOU) within Hebron Municipality and financing the TOU Operating Costs. 3. Provision of technical assistance to design a proposed Hebron Municipal Wastewater Management Project Phase II. HRWMP-Phase I started officially on February 10, 2016. The closing date of HRWMP - Phase I is December 31, 2022. 2. Summary of Significant Accounting Policies HRWMP - Phase I financial statements are prepared under the historical cost convention. Significant accounting policies follow: - Basis of accounting - HRWMP - Phase I financial statements are prepared using the modified accrual basis of accounting, which is a comprehensive basis of accounting other than International Financial Reporting Standards (IFRS). Sources of funds are recognized either when cash is received or when the direct payment is effected by donor. Uses of funds are recognized when related expenditures are incurred or when expenditures are due for direct payment. - Foreign currency - HRWMP - Phase I basic functional currency is the United States Dollar (USD). Transactions that are expressed or denominated in other currencies were translated to USD using exchange rates in effect at the time of each transaction. Differences arising from the fluctuations in exchange rates were treated as exchange gains or losses in the Statement of Sources and Uses of Funds and Designated Bank Account Statement. 3. Sources of Funds Sources of funds comprise: Date of fund Replenishment/ Received Withdrawal Application (WA) # transfer Advance Category 1 Amount Cumulative amount up to December 31, 2017 500,000 349,414 849,414 September HRWMP- 4 13, 2018 - 202,213 202,213 Amount received during the year 2018 - 202,213 202,213 Cumulative amount up to December 31, 2018 500,000 551,627 1,051,627 9 4. Advance payment to Technical Assistance Consultant On May 28, 2018, PWA signed a contract for consultant services with the joint venture of SEURECA VEOLIA, Sustainable Engineering Solution (SES) and WEE Pros (the TA Consultant) with a total contract (the Contract) amount of EUR 2,155,670 (inclusive of local indirect taxes) for the period of 36 months. On September 27, 2018 the TA Consultant received directly from AFD the advance payment of 15% (EUR 323,351 equivalent to USD 373,359) of the total Contract price signed with PWA. According to the Contract, the advance payment will be set off by applying an amortization rate of 30% to each installment until the advance payment has been fully set off. As of December 31, 2018, only the advance payment was paid to the TA consultant. 5. Part B: Sustainable Management, Operation and Maintenance of HRWWTP This item comprises: Cumulative up to December 2018 2017 31, 2018 Environmental, social and cultural heritage impact assessment for the HRWMP 54,598 - 54,598 54,598 - 54,598 6. Part C: Project Management, Monitoring and Evaluation, and Master Plan Implementation Planning This item comprises: Cumulative up to December 2018 2017 31, 2018 Salaries 226,073 108,300 417,173 Consultancy services 194,123 149,651 343,774 Travel 6,820 5,900 17,834 Transportation, per-diem and accommodation 18,332 15,582 38,301 Office furniture and equipment 9,701 - 9,701 Audit fees 2,610 3,045 7,655 Advertising 7,166 2,199 9,875 Other (hospitality, stationery and telephone) 1,963 - 1,963 Bank charges 92 136 312 466,880 284,813 846,588 10 7. Payments for Project Expenditure Below is the reconciliation between HRWMP - Phase I expenditure as presented in the designated bank account statement and HRWMP - Phase I expenditure as presented in the statement of sources and uses of funds: 2018 2017 Payments from the USD Designated Bank Account 497,895 291,713 Movement on outstanding cheques 23,583 (6,900) Total uses of funds per Statement of Sources and Uses of Funds 521,478 284,813 8. SOE Procedures (Payments from Designated Bank Account) SOE procedures represent amounts disbursed by PWA under HRWMP - Phase I for the following disbursement categories: - Withdrawal Application (WA) # Payment Method Category 1 Total Cumulative amount up to December 31, 2017   379,708 379,708 Amount not replenished by the World Bank as of December 31, 2017 (replenished subsequently in WA# HRWMP-4) (30,294) (30,294) Payment from designated WA# HRWMP-4 bank account. 202,213 202,213 Amount recorded by PWA but not reported to Payment from designated the World Bank as of December 31, 2018 bank account. (replenished subsequently in WA# HRWMP-5) 314,695 314,695 Costs related to 2018 and not reported to IDA as Payment from designated of the date of this report bank account. 34,864 34,864 Total amount disbursed during the year 2018 521,478 521,478 Cumulative amount disbursed up to December 31, 2018 901,186 901,186 9. Reconciliations between World Bank Records (Client Connection) and PWA Records December 31, 2018 HRWMP - Phase I accounts per the client connection Advance payment transferred to PWA 500,000 Category1: Goods, works, non-consulting services, consultants' services, Training, PMU Incremental Operating Costs, and TOU Operating Costs 551,627 1,051,627 HRWMP - Phase I accounts per PWA records Category1: Goods, works, non-consulting services, consultants' services, Training, PMU Incremental Operating Costs, and TOU Operating Costs 901,186 Cash at Bank (note 10) 150,441 1,051,627 Difference - 11 10. Fund Balance - End of Year / Period The fund balance as at December 31, 2018 and 2017 represents: 2018 2017 Cash at USD designated bank account 174,024 469,706 Less: Outstanding cheques (23,583) - 150,441 469,706 12