THE WORLD BANK FINANCIAL STATEMENT FOR THE VANUATU RURAL ELECTRIFICATION PROJECT (VREP) TF18003 IN VANUATU For the Year Ended 31 December 2016 Prepared Under IPSAS: Financial Reporting Under the Cash Basis Accounting -r -n - TABLE OF CONTENTS PROJECT BACKGROUND......... ......3 AUDITOR'S REPORT............4 STATEMENT OF CASH RECEIPTS AND PAYMENTS ....................... ............ 5 STATEMENT OF COMPARISON OF BUDGET AND ACTUAL .................... .......6 STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS........... ... .... 7 1. Accounting Policies......................................................7 2. Government counterpart funding..................... .................... 3. Donor grant assistance................................................... 4. Operating Expenditure ........................................ .... ...... 0 5. Capital Expenditure .................................................... 10 6. Closing cash balance ..................... .............................................. 10 7. Revenue difference between actual and budget.. ................... ........... 11 8. Expenditure variance between budget and actual................................ 11 9. Imprest Account.......................................................11 10. Payments to Third Parties.... ........................................... 1 11. Related Parties..... 2 Vanuat, Rural Electrification Project - Financial Statements, 2016 PROJECT BACKGROUND Vanuatu Rural Electrification Project (VREP) provides Grant Funding of US$4.7 million to the Department of Energy (DoE) to support the Government of Vanuatu to increase access to sustainable electricity services for rural households, and aid posts and community halls located in dispersed off- grid areas. The project under the oversight of the Department of Energy (TF 18003) - is planned to target 85 percent of the 20,470 dispersed off-grid households in Vanuatu, which equates to approximately 17,500 households, and 230 aid posts and 2,000 not-for-profit community halls. The project will subsidize the retail cost of eligible solar photovoltaic (PV) systems by 50 percent. The objective of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off -grid areas. The Project consists of the following parts: Part 1: Electrification of off-grid households, aid posts and community halls Provision of subsidies for the supply of solar photovoltaic systems to eligible off-grid households, aid posts and not-for- profit community halls. Part 2: Technical Assistance and Project Management Carrying out a program of activities to support implementation of the project. This report provides the financial statements for the Vanuatu Rural Electrification Project (VREP) TF 18003 for the year ended 31 December 2016. The VREP project commenced in December 2014 and will end on 31 December 2019. Mr Jesse Benjamin Director General Ministry of Climate Change Adaptation, Meteorology, Geo-Hazards, Environment & Energy 23 June 2017 3 1 Vanuatu Rural Flectrification Project - Financial Statements 2016 SA partners HARTEFRED ACCOUNTANTS AND BUSINESS ADVISERS Independent Auditors' Report Vanuatu Rural Electrification Project The Auditor-General is the auditor of Vanuatu Rural Electrification Project (VREP). The Auditor-General has appointed Law Partners to undertake the audit of VREP pursuant to Section 24(1) of the Expenditure Review and Audit Act [CAP 241]. Scope We have audited the financial statements of Vanuatu Rural Electrification Project for the financial year ended 31 December 2016 consisting of the statement of cash receipts and payments, statement of comparison of budget and actual amount and accompanying notes set out on pages 5 to 11. Members' responsibility for the financial statements The Director of Ministry of Climate Change Adaption, Meteorology, Geo-Hazards, Environment and Energy is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards: Financial Reporting under Cash Basis of Accounting. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditors' responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on ourjudgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider 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 controls. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Opinion In our opinion, the financial statements present fairly in all material respects the cash receipt and payments and cash flows of the Project for the year ended 31 December 2016, in accordance with International Public Sector Accounting Standards - Financial Reporting under Cash Basis of Accounting and the project administration complies with relevant Vanuatu legislation and regulations. LAW PARTNERS Chartered Accountants (Qualified auditors under Section 130 of the Companies Port Vila Act No. 25 of 2012 of the Republic of Vanuatu) 23 June 2017 TEL+678 22 091 FAX. 678 23 665 41 mai[dWawpartnersvanuatu.com PRINCIPALS LAW PARTNERS HOUSE JONATHAN LAW P0 BOX 212 ,wmw.aw partnersva nuatu.comn VICKI JOE PORT VILA I VANUATU FINANCIAL STATEMENTS VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 2016 2015 Notes Recelpi(Payment) Drect Paymentto feceiptvPayment) Direct Payment to Consolidated Project Controlled by the Third Parties Controlled by the Third Parties Total Gove mm ent Government (VUN) MVN VN i(WyV (VW)v 12Months 12Monthbs 24Montht CASH RECEPTS -"ordBaGrartsRsceived 3 17.813.724 35000000 E2.813.724 V,orld Bank - Funs Transier cirectli to Cevelop-entFuno 3 299.272 V.brid Bwa - P3 TrEnts nie crect0 thrO partes 10 3 aS3.224 TOTAL CA SH RECEIPTS 3 14.811452 379.29272 3.836224 M,649948 CASH PAYMENTS VRPSuesIces 8166'65 - - 8,166.46 L-nsutants 10358,717 - 3.221,913 3836.224 17116854 Goocs 80 - 179.023 . 363103 orkshops 1301.403 349,700 1.651103 g Oren goPerEtrg Costs 718,70 1917009 TOTALCASH PAYMENTS 4F55 04N9371 392.336 83522. 227.931 CASH REC EPTSLESSCASHPAYMENTffS 7Fii -- 3425536 3 2844Z017 INCREASE(DECREAS IN CASH .0,61.919 34,055.936 444Z017 Cash at 1 January Xm,055.93 Cash at 31 December 6 20,442,017 34055,93. 28.442017 This statement is to be read in conjunction with the accompanying notes and accounting policies. Mr Jesse Benjamin Director General Ministry of Climate Change Adaptation, Meteorology, Geo-Hazards, Environment & Energy Port Vila, 23 June 2017 5 1 Vanuatu Rural Electrfication Project - Financial Statements 2016 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF COMPARISON OF BUDGET AND ACTUAL FOR THE YEAR ENDED 31 DECEMBER 2016 (Expressed in Vanuatu Vatu) 2016 2015 CONSOUDATED PROJECT TOTAL ACTUAL BUDGET liference ACTUAL BUDGET Wference TOTALACTUAL FINALBUDGET VARIANCE Actual Versus Actual Versus 12 month 12month Notes VU VUN Budget VUV VWV Budget vW VU VW 12 Months 12 Months 12 Months 12 Months 24 Months 60 Months CASH INFLOWS World Bank Grant 14,815452 102,434938 (8761.486) 4,834,496 32,606818 9,227,678 56,49948 423,000,000 (366,350,052) Total Receipts 7 14,815,452 102,434,938 (87,619,486) 41,34,496 3,O06,818 9,227,678 $6,649,948 423,000,000 1366,350,052) CASH OUTFLOWS Category 1: Consulhnts 10,058717 9,713,700 345,017 7,058,137 11,273850 (4,215.713) 17,116,854 42,650,100 (25,533,245) Goods 184,000 494,50 (310,470) 179,023 576,000 (396,977) 363,103 655,650 (292,547) Worlshops and Treaing 1,301,403 2,758,BM0 (1,457,457) 349,700 2,070,000 (1,720,300) 1,861,103 3,874,590 (2,223,487) Inrerontal Operating Costs 718,705 1,802,160 (1,0B3,455) 191,700 771,300 (579.600) 010,405 7,241,220 (6,330.815) Category 2: Subskly Payrrent under Part 1 of the Project 8,166,466 69,750,000 (61,583,534) - - 8,166,466 279000,000 (270833,534) Unalocated Funds - 17,915,668 (17,915,668) 177,91566 0 7,15668) - 89,57,440 (89578,440) Totail Payments 8 20,428,371 102,434,938 (82,005567) 7,778,0 32,606,818 (24,82,258) 28,207,931 423,000,000 (394,792,069) NET CASH FLOWS (6,603,919) (6,613,919) 34,065,936 - 34,055,936 28,442,017 28,442,017 This statement is to be read in conjunction with the accompanying notes and accounting policies. 6 1 Vaiuatu Rural Electri-cation Project - Financial Statemens, 2016 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016 1. Accounting Policies a. Reporting Entity The Vanuatu Rural Electrification Project (VREP) is administered by the Department of Energy (DoE). The objective of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off-grid areas. The project consists of the following parts: (i) Electrification of off-grid households, aid posts and community halls (ii) Technical assistance and project management b. Authorization Date The financial statements of the Grant TF 18003 was for the year ended 31 December 2016 and was authorized for issue on 23 June 2017 by Mr. Jesse Benjamin for the Department of Energy. No other body has the power to amend these financial statements once they have been issued. c. Basis of Preparation The financial statements of the Grant have been prepared in accordance with requirements of the Public Finance and Economic Management Act [CAP.244] which includes the requirement to comply with generally accepted accounting practice. The financial statements comply with IPSAS "Financial Reporting under the Cash Basis of Accounting" for the year ended 31 December 2016. d. Presentation currency The financial statements are presented in Vanuatu Vatu (VUV). e. Foreign currency The grant funding payment received from the World Bank are in USD and have been converted by the Reserve Bank of Vanuatu at the rate on the day of the transaction. 7 1 Vanunatu Rural Electrtficationz Project - Financial Statements 2016 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016 f. Cash and Cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Department of Energy receives the grant from the World Bank which is managed through the centralized Smartstream system. Under this arrangement, the Department of Energy does not control the grant as their own bank account but rather the central entity will make payments on behalf of the department after appropriate authorization and documentation. These transactions have been disclosed in a separate column in the "Statement of cash receipts and payments". g. Property, Plant & Equipment Purchases of fixed assets have been included in the statement of Cash Receipts and Payments under Goods. Separate disclosure has been disclosed in Note 5 of these accounts. Fixed assets are stated at cost at the date of purchase. There are no fixed assets purchased on hire purchase schemes and no depreciation is being charged. h. Budget The budget is prepared on a cash basis when cash is expected to be received and paid. The classification of the budget is prepared on the common revenue sources and expenditure is classified on the nature of expenditure normally incurred by the project. Goods are treated as part of normal operational expenditure. The final budget is the budget that was approved by the World Bank dated 4 December 2014. The approved budget is developed on the same accounting basis, classification basis, as the financial statements. The final budget is for the whole project period of 60 months which is different to the 12-month period prepared for these financial statements. The Grant Agreement identified the budget categories according to the following components to be procured under the project. It encompasses the same entities as the financial statement. 8 Vanuatu Rural Elecrifticaion Project - FinancialStatements, 20.16 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016 h. Budget (continued) Category 1: Goods, Consultant services, Training and Workshops, and Incremental Operating Costs under the Project. Category 2: Subsidy Payments under Part 1 of the project. The budget was originally designed in USD and was converted into VUV at the rate of USD 1= VUV90 as per summary of disbursements. i. Changes in accounting policies There have been no changes in accounting policies during the financial year. 2. Government counterpart funding The project does not receive any funds from the Vanuatu Government as this project is fully funded by the World Bank. 3. Donor grant assistance In 2014, the Department of Energy signed a grant agreement (World Bank Grant No. TF18003) with the World Bank. The purpose of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off-grid areas and the arrangement was for US$ 4,700,000 from 2014 to 2019. The grant agreement specifically sets out the areas for spending of which US$ 1,600,000 allocated for the Goods, Consultant services, Training and Workshops, and Incremental Operating Costs under the Project and US$ 3,100,000 allocated for Subsidy Payments under Part 1 of the Project. As at 31 December 2016, US$529,211.29 (total grant received as at 31 December 2016 for the amount equivalent of VUV56,649,948) had been drawn down from the World Bank with a remaining balance of US$ 4,170,789 to be drawn down from 2017 to 2019. 9 Vanuatu Rural Electrification Project - Financial Statements 2016 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016 4. Operating Expenditure 2016 2015 12 MONTHS 12 MONTHS Provident Fund 340,909 40,002 Consultants Fees 9,687,808 7,005,635 Subsistence Allow ances 255,000 10,000 Local Courses 13,333 - Vehicles Fuel - 5,000 Facilities Hire 15,000 227,500 Vehicles Hire 90,000 - Telephone / Fax - Communications 121,000 7,000 General - Materials 19,000 - Incidential 335,000 5,000 Official Entertainment 190,000 - Other Charges - Freight 20,000 Equipment Hire 45,000 - Local Travel 272,070 5,200 Lighting Utilities 8,166,466 - Equipment - Additional General 26,577 12,000 Furniture - Office Furniture 90,000 Advertising - Communications 134,067 127,779 Printing -Communications 258,570 90,000 Stationery - Communications 135,491 51,921 Bank Charges 30,000 12,500 Total 20,245,291 7,599,537 5. Capital Expenditure 2016 2015 Equipment-Additional General 114,747 179,023 Equipment-Computer 69,333 - Total 184,080 179,023 6. Closing cash balance 2016 2015 Made up as follows: SmartStream Central account 28,442,017 31,057,664 World Bank- Funds Transfer directly to Development Fund - 2,998,272 ota R28,442,017 34,055,936 10 JIVanuatu Rural Eletrification Project - Financial Statements, 2016 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2016 7. Revenue difference between actual and budget The difference of VUV 87,619,486 represents the actual amount received being less than the period budget. The variance relates to the funding from the World Bank that was delayed due to the project starting later than anticipated and also the different exchange rate used in the final budget which is US$1 = VUV 90 and the actuals that used the exchange rate on the transaction date. 8. Expenditure variance between budget and actual The project underspent VUV 82,005,567 against the annual budget of VUV102,434,938. This is due to the late commencement of the project which required the establishment of new systems, processes and procedures compliant with World Bank requirements. These have now been established and many of the grant activities are progressing well. 9. Imprest Account As at 31st December 2016, there is no outstanding Imprest Account for the Trust Fund. 10. Payments to Third Parties As at 31s' December 2016, there were no direct payments made to third parties for the Trust Fund, 11. Related Parties There were no related party transactions during the year. 11 Vanuatu Rural Electrfication Project - Financial Statements 2016