THE PALESTINIAN MINISTRY OF FINANCE AND PLANNING HEBRON REGIONAL WASTEWATER MANAGEMENT PROJECT- PHASE I – TF018323 FUNDED BY THE INTERNATIONAL DEVELOPMENT ASSOCIATION AND MANAGED BY THE PALESTINIAN WATER AUTHORITY PROJECT FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 10, 2016 TO DECEMBER 31, 2016 TOGETHER WITH INDEPENDENT AUDITORS’ REPORT The Palestinian Ministry of Finance and Planning Hebron Regional Wastewater Management Project - Phase I Funded by the International Development Association And Managed by the Palestinian Water Authority Balance Sheet As at December 31, 2016 Note USD Assets Current Assets Cash at bank 8 405,105 Total Current Assets 405,105 Total Assets 405,105 Liabilities and Fund Balance Fund Balance Fund balance 8 405,105 Total Liabilities and Fund Balance 405,105 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 Funded by the International Development Association And Managed by the Palestinian Water Authority Statement of Sources and Uses of Funds For the Period from February 10, 2016 to December 31, 2016 Note USD FUND BALANCE – BEGINNING OF PERIOD - SOURCES OF FUNDS Advance Payment 3 500,000 Total Sources of Funds 500,000 USES OF FUNDS Project Management, Monitoring and Evaluation 4 and Master Plan Implementation 94,895 Total Uses of Funds 94,895 CHANGE IN FUND BALANCE 405,105 FUND BALANCE – END OF PERIOD 8 405,105 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 Funded by the International Development Association And Managed by the Palestinian Water Authority Designated Bank Account Statement For the Period from February 10, 2016 to December 31, 2016 Account number 0458/2220582/001/3001/000 Depository bank Bank of Palestine Address Ramallah Related loan / credit TF018323 Currency U.S. Dollar (USD) Note USD Balance, beginning of period - Add: Receipts during the period 3 500,000 500,000 Deduct: Payments for project expenditures from designated bank account 5 87,995 87,995 Balance, end of period 8 412,005 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 Funded by the International Development Association And Managed by the Palestinian Water Authority Notes to the Project Financial Statements For the Period from February 10, 2016 to December 31, 2016 (Currency: USD) 1. The Project and its Financing The Palestinian Liberation Organization (for the benefit of the Palestinian Authority) and the International Development Association (the World Bank), acting as an administrator of the Trust Fund for Gaza and West Bank, signed an advance agreement (the Advance Agreement), dated October 17, 2011, whereby the World Bank proposed to advance, to the Palestinian Authority, 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 December 29, 2014, the European Commission, acting on behalf of the European Union, and the Palestinian Authority signed the 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 to finance a project entitled "Hebron Regional Wastewater Management Project - Phase I" (HRWMP- Phase I), managed by the PWA. Further, on November 23, 2015, the Palestinian Authority and the World Bank signed grant agreement number TF018323 (the Agreement), 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 Agreement was February 10, 2016. The Preparation Phase activities were officially closed on December 31, 2015 with total actual costs of USD 429,034, which were subject to a separate audit. The undisbursed amount under the Preparation Phase of USD 170,966 was transferred to HRWMP- Phase I. The total amount allocated to HRWMP-Phase I comprises: Allocated Amount Description USD HRWMP-Phase I - TF018323 3,900,000 Undisbursed amount under the Preparation Phase 170,966 4,070,966 The proceeds of the Agreement may be used to finance the eligible expenditures of category 1 (Goods, Works, Non-consulting Services, Consultants' Services, Training, PMU Incremental Operating Costs, and TOU Operating Costs), as specified in the Agreement. 7 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 the Hebron Governorate. The objective of HRWMP - Phase I is to reduce the environmental pollution from wastewater produced in the Hebron Governorate. The HRWMP - Phase I comprises the following parts: Part A: Wastewater Treatment Infrastructure 1. Design and construction of the 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 the Hebron Municipality to manage the HRWWTP's operation and maintenance, introduce wastewater tariffs, implement 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 the 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. During the Audit Period, all HRWMP - Phase I disbursements were made from the Agreement funds. 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 cash basis of accounting, which is a comprehensive basis of accounting other than International Financial Reporting Standards (IFRSs). Sources of funds are recognized either when cash is received or when the direct payment is effected by 8 donor and uses of funds are recognized when cash payments are made or when expenditure 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 / Advance Payment Sources of funds comprise: Date of fund Received Withdrawal Application (WA) # transfer Advance Category 1 Amount April 20, HRWMP- 3 2016 500,000 - 500,000 Amount received during the Audit Period 500,000 - 500,000 4. Project Management, Monitoring and Evaluation, and Master Plan Implementation This item comprises: 2016 Salaries 82,800 Travel 5,114 Transportation and accommodation 4,387 Audit fees 2,000 Advertising 510 Bank charges 84 94,895 5. Payments for Project Expenditures Below is the reconciliation between HRWMP - Phase I expenditures as presented in the designated bank account statement and HRWMP - Phase I expenditures as presented in the statement of sources and uses of funds: USD Payments from the USD designated bank account 87,995 Add: Outstanding cheques 6,900 Total uses of funds per statement of sources and uses of funds 94,895 9 6. 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   Amount recorded by PWA but not reported to the World Bank as of December 31, 2016 Payment from (Reported subsequently in WA # designated bank HRWMP-2) account. 94,895 94,895 Total amount for the Audit Period 94,895 94,895 7. Reconciliations between World Bank Records (Client Connection) and PWA Records December 31, 2016 HRWMP - Phase I accounts per the client connection Advance payment transferred to PWA 500,000 500,000 HRWMP - Phase I accounts per PWA records Category1: Goods, works, non-consulting services, consultants' services, Training, PMU Incremental Operating Costs, and TOU Operating Costs 94,895 Cash at Bank (note 8) 405,105 500,000 Difference - 8. Fund Balance - End of Period The fund balance as at December 31, 2016 represents:- December 31, 2016 Cash at USD designated bank account 412,005 Less: Outstanding cheques (6,900) 405,105 10