Local Government Units Development and Lending Fund Municipal Development Program – Phase II Financial Statements For the Year Ended December 31, 2017 Together With Independent Auditors’ Report Table of Contents Page Independent Auditors’ Report 1-3 Statement of Financial Position 4 Statement of Activities 5 Cash Flow Statement 6 Notes to the Financial Statements 7- 25 Local Government Units Development and Lending Fund Municipal Development Program – Phase II Statement of Activities For the Year Ended December 31, 2017 (Currency: USD) Note 2017 2016 Changes in unrestricted net assets: Revenues Released from temporarily restricted net assets 6 37,583,576 41,424,329 Interest income 164,710 80,186 Other revenues 7,470 - Currency variance gain (loss) 8 1,293,891 (391,109) Total unrestricted revenues 39,049,647 41,113,406 Expenses Project’s expenses 7 37,637,013 41,424,329 Transfer of interest revenue accumulated balance to LGUDLF general fund 71,389 15,506 Total expenses 37,708,402 41,439,835 Net change in unrestricted net assets 1,341,245 (326,429) Changes in temporarily restricted net assets: Grants and donations 6 1,219,857 30,021,820 Net assets released from restriction 6 (37,583,576) (41,424,329) Currency variance 6 3,798,633 (1,631,699) Grants written off during the year - (219,511) Refunds to donor - (5,114) Net change in temporarily restricted net assets (32,565,086) (13,258,833) Change in net assets (31,223,841) (13,585,262) Net assets, beginning of year 46,382,939 59,968,201 Net assets, end of year 15,159,098 46,382,939 The accompanying notes form an integral part of these financial statements 5 Local Government Units Development and Lending Fund Municipal Development Program – Phase II Cash Flows Statement For the Year Ended December 31, 2017 (Currency: USD) 2017 2016 Cash Flow from Operating Activities Change in net assets (31,223,841) (13,585,262) Adjustments to reconcile change in net assets to net cash flow from operating activities: Decrease in pledges receivable 40,826,732 8,885,699 (Increase) in advances to contractors (21,645) (39,154) (Decrease) increase in due to contractors (835,304) 4,248,961 (Decrease) increase in due to LGUDLF (764,065) 230,023 (Decrease) increase in due to other grants (798,403) 798,403 Net cash flow provided by operating activities 7,183,474 538,670 Net increase in cash at banks 7,183,474 538,670 Cash at bank, beginning of year 14,664,237 14,125,567 Cash at bank, end of year 21,847,711 14,664,237 The accompanying notes form an integral part of these financial statements 6 Local Government Units Development and Lending Fund Municipal Development Program – Phase II Notes to the Financial Statements For the Year Ended December 31, 2017 (Currency: USD) 1. LGUDLF and its Activities The Local Government Units Development and Lending Fund (LGUDLF) had been established under the name of the Municipal Development and Lending Fund (MDLF) according to Cabinet Decree No. 05/13/12 dated August 2007. As of November 10, 2016, Decree by Law No. 25 has been issued which changed the name of MDLF to the Local Government Units Development and Lending Fund (LGUDLF). LGUDLF is a semi-governmental juridical independent organization aiming at accelerating Palestine’s drive toward self-sustained, decentralized, prosperous and creditworthy local government units. The main objective of LGUDLF is to encourage the flow of financial resources to Local Government Units (LGU). According to Decree by Law No. 25 dated November 10, 2016, LGUDLF shall undertake the following missions: - • Management of funds received through support from the Palestinian National Authority (PNA) or provided by donor countries or any other sources in compliance with the terms and conditions specified in LGUDLF’s internal bylaws. • Assist local authorities develop their capacities in compliance with the bases of modern management practices to help them provide better services to the public. • Guide assistance from donor countries and provide modern fiscal services to support and develop the services offered to local authorities and to improve their credit abilities. • Encourage local authorities to adopt developmental projects to expand their geographic jurisdiction so as to serve their developmental plans. • Facilitate and provide loans to local authorities and follow up the expenditures thereof from their revenues. LGUDLF is structured to ensure an efficient, transparent, and professional institution capable of fulfilling its mission and objectives, and comprises a Board of Directors, executive departments, and other advisory committees. The Board of Directors is the policy and strategy setting authority responsible for the direction and performance of LGUDLF. The Board comprises nine voting directors and includes representatives of the core ministries involved in utilizing the fund including the Ministry of Local Government (the Minister is the Chairman of the Board), the Ministry of Finance and Planning, and the Ministry of Public Works and Housing, in addition to the Head of Association of Palestinian Local Authorities (APLA), two members from the local authorities, the Captain of Palestinian Engineers, the Palestine Monetary Authority and a member from the civil society. 7 2. MDP II and its Financing Municipal Development Program - Phase II (MDP II), is supported by the Palestinian National Authority along with the World Bank, the Partnership for Infrastructure Development in the West Bank and Gaza Multi-Donor Trust Fund (MDTF) through the World Bank, Kreditanstalt für Wiederaufbau (KfW), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), the Netherlands (through VNG International), the Switzerland (through the Swiss Federal Department of Foreign Affairs (FDFA)), the Agence Française de Development (AFD), the Belgian Development Agency (Enabel, formerly BTC) through its program (Local Government Reform and Development Programme – LGRDP) and the European Union (EU) through the KfW. MDP II was planned to be implemented over a period of 3 years in two cycles of approximately 18 months each starting in March 2014. However, the implementation of MDP II cycle II is still ongoing as of the date of these financial statements. MDP II has five windows/components as follows: Window 1 - Provides municipalities with performance-based grants for municipal service delivery per mandate of municipalities defined in the Local Councils Law No. 1 of 1997, for sectors described as eligible in the Operations Manual as well as for operating expenditures for municipalities in Gaza. The municipalities’ allocation for this window will be calculated using the newly created Grant Allocation Mechanism. Municipalities decide on how to use the funds based on their Strategic Development and Investment Plans (SDIP) and consultation with citizens. Window 2 - Pilots learning and innovation for municipal development, including implementation of the Ministry of Local Government (MoLG) policy decisions. This window finances goods, works and consultant services for capacity building and capital investments, including: (a) Strengthening Newly Amalgamated Municipalities that will support newly amalgamated municipalities towards achieving service levels in existing municipalities through financing small-scale social infrastructure and demand driven municipal capacity building packages. It will finance goods, works and consultant services. (b) Piloting Innovations for improved municipal responsiveness that will support: • Introduction of E-governance in four selected municipalities for more responsive service provision. • Renewable Energy that will assist municipalities in piloting sub-projects with a focus on solar energy for public buildings. • Support to Local Economic Development (LED) initiatives that will develop a municipal approach to LED and pilot the approach in 12 municipalities (6 per each cycle). Window 3 - Helps municipalities to improve their performance rankings in accordance to the new Grants Allocation Mechanism. It provides technical assistance to improve financial management, planning capacities and technical capabilities, particularly in operations and maintenance. This component would finance goods, works and consultants’ services and would be implemented in two cycles of approximately 18 months each. Window 4 - This component will finance goods and consultants’ services for monitoring and evaluation, outreach and communication and local technical consultants for the 8 engineering supervision of sub-projects under window 1 and the LGUDLF management fee. Window 5 - This window was designed under MDP II in response to Gaza emergency needs following the 51-day war in the summer of 2014 to restore municipal services in the Gaza Strip. 3. Summary of Significant Accounting Policies The financial statements have been prepared under the historical cost convention, the significant accounting policies follow: a. General Net assets, revenues, expenses, and gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as unrestricted, temporarily restricted and permanently restricted. Unrestricted net assets are those whose use by LGUDLF is not subject to donor-imposed stipulations. Temporarily restricted net assets are those whose use by LGUDLF has been limited by donors’ specific time period or purpose. Permanently restricted net assets are those restricted by donors to be maintained by LGUDLF in perpetuity. During the years 2017 and 2016, LGUDLF had no permanently restricted net assets. b. Temporarily Restricted Net Assets Unconditional promises to give cash, with no donor-imposed restriction on use, are recognized as revenues at the date promises to give are made. Unconditional promises to give cash, with temporarily donor-imposed restriction on use, are recorded as temporarily restricted net assets at the date promises to give are made, and recognized as revenues when the related costs are incurred. Unconditional promises with temporarily donor-imposed restriction are promises that depend only on passage of time and certain performance requested by the promising donors. Conditional promises to give and indications of intention to give are recorded at the fair market value at the date contribution is received by LGUDLF. c. Pledges Receivable Pledges receivable are stated at the original amount of the signed agreement less the amount received, uncollectable amount (if any) and currency variances resulting from the fact that original agreements with the donors may be in currencies other than USD. d. Revenue Recognition Donations and contributions are recorded as pledges receivable and temporarily restricted net assets upon signing of the agreement with the donor. During the yearly close out process, the amount of expenses incurred is recognized as revenue under net assets released from restrictions and the temporarily restricted net assets account is reduced thereof. e. Accruals and Other Current Liabilities Accruals and other current liabilities are recognized for the amounts to be paid in the future for goods and services received, whether a bill is received from the supplier or not. f. Expenses Expenses are recorded by LGUDLF when incurred in accordance with the accrual basis of accounting, regardless of the date of actual payment. 9 g. Foreign Currencies LGUDLF’s basic functional currency is the U.S. Dollar (USD). Transactions which are expressed or denominated in other currencies were translated to USD using exchange rates in effect at the time of each transaction. Assets and liabilities which are denominated in other currencies are translated to USD using exchange rates prevailing at the date of the statement of financial position. Gains and losses arising from the translation are reflected in the statement of revenues and expenses. Foreign currency exchange rates against USD at December 31, 2017 and 2016 were as follows: - USD 2017 2016 One EUR 1.200 1.046 One NIS 0.287 0.260 4. Cash at Banks Cash at banks comprises: - USD Cycle Donor 2017 2016 MDP II The International Development Association (IDA) 575,583 428,549 Cycle II Multi-Donor Trust Fund (MDTF) 1,185,075 706,454 Kreditanstalt für Wiederaufbau - European Union (KfW - EU) 954,802 2,595,156 Agence Française de Development (AFD) 378,294 2,445,481 The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) 276,590 88,189 Kreditanstalt für Wiederaufbau (KfW) 2,920,680 1,759,979 MDTF 2nd Additional Contribution 677,551 1,465,354 The Belgian Development Agency (Enabel, formerly BTC) Window 2– under LGRDP 2 810,118 752,976 KFW-EU MDP2 Gaza Emergency (Window 5) 4,014,863 - Palestinian National Authority (PNA) 2,884,698 - MDP II Enabel - 5 Cycle I KfW 554,196 1,053,030 The Swiss Federal Department of Foreign Affairs (FDFA) 169,228 877,704 AFD 679,132 707,808 IDA Additional Contribution (Window 5) 50,807 311,000 MDTF Additional Contribution (Window 5) 1,077,644 731,123 PNA 4,527,160 418,992 KfW -Additional Contribution (Window 5) 111,290 322,437 21,847,711 14,664,237 10 5. Pledges Receivable Pledges receivable comprises: - USD Balance, Addition Received beginning of during the during the Currency Balance, Cycle Donor year year year variance Written off end of year MDP II IDA 2,018,417 - (2,018,417) - - - Cycle II MDTF 4,807,454 - (4,889,799) 82,345 - - KfW-EU 537,660 - (584,753) 47,093 - - AFD 1,768,558 - (1,230,895) 140,884 - 678,547 GIZ 221,097 179,970 (230,487) 9,503 - 180,083 KfW Additional Contribution 10,458,000 - (11,094,534) 661,750 - 25,216 PNA 5,030,298 - (5,463,198) 432,900 - - MDTF 2nd Additional Contribution 3,471,229 - (3,678,388) 207,159 - - KFW-EU Window 5 4,456,534 - (4,733,683) 307,176 - 30,027 Enabel 589,831 - - 86,856 - 676,687 MDP II KfW 30,729 - (40,563) 9,834 - - Cycle I FDFA 590,528 - (765,913) 175,385 - - IDA Window 5 144,288 - (144,039) - - 249 MDTF Window 5 2,469,868 - (2,023,817) - - 446,051 AFD 623 - - 91 - 714 PNA 6,269,199 - (6,604,120) 334,928 - 7 42,864,313 179,970 (43,502,606) 2,495,904 - 2,037,581 11 6. Temporarily Restricted Net Assets Temporarily restricted net assets as of December 31, 2017 and movement thereon during the year comprise: - 2017 Released Released Additions- from from Balance, Grants restriction restriction - beginning and - projects' management Currency Balance, Program Donor / Detail of year donations expenses fees variance Write off end of year MDP IDA 2,462,977 - (1,813,384) (130,315) - - 519,278 Phase II Cycle II MDTF 5,030,212 - (3,541,134) (413,743) - - 1,075,335 KfW-EU 2,379,042 1,039,887 * (2,959,247) (166,626) 315,715 - 608,771 AFD 3,059,859 - (2,367,907) (186,899) 276,411 - 781,464 GIZ 286,034 179,970 (233,759) (17,649) 36,850 - 251,446 KfW 3,396,958 - (2,792,948) (215,156) 348,993 - 737,847 KfW Additional Contribution 5,331,012 - (5,210,229) (397,732) 561,668 - 284,719 PNA 4,631,777 - (2,795,830) (179,035) 513,020 - 2,169,932 MDTF 2nd Additional Contribution 3,643,255 - (3,300,124) (236,588) - - 106,543 KFW-EU Window 5 4,455,825 - (3,364,646) (235,121) 626,123 - 1,482,181 Enabel 1,342,807 - (59,300) - 196,043 - 1,479,550 MDP KfW 939,723 - (566,403) (53,066) 118,826 - 439,080 Phase II Cycle I FDFA 817,544 - (844,832) (65,743) 93,031 - - IDA Window 5 469,488 - (455,036) (14,452) - - - MDTF Window 5 2,543,255 - (1,584,810) (130,341) - - 828,104 AFD 686,838 - (106,985) (5) 96,233 - 676,081 PNA 5,802,719 - (2,641,701) (176,414) 582,472 - 3,567,076 KfW Window 5 293,168 - (318,077) (8,339) 33,248 - - 47,572,493 1,219,857 (34,956,352) (2,627,224) 3,798,633 - 15,007,407 * This amount has been transferred to this grant from the PNA contribution into MDP phase II cycle II as a compensation of the Value Added Tax paid from this grant. 12 7. Project’s Expenses Project’s expenses comprise: - 2017 2016 LGUDLF LGUDLF Projects' management Projects' management Program Donor / Detail Note expenses fees Total expenses fees Total MDP IDA 7.1 1,813,384 130,315 1,943,699 1,605,834 115,616 1,721,450 Phase II MDTF 7.2 3,541,134 413,743 3,954,877 7,387,407 572,069 7,959,476 Cycle II KfW - EU 7.3 2,959,247 166,626 3,125,873 4,910,300 256,263 5,166,563 AFD 7.4 2,367,907 186,899 2,554,806 3,121,946 232,566 3,354,512 GIZ 7.5 233,759 17,649 251,408 130,151 8,667 138,818 KfW 7.6 2,792,948 215,156 3,008,104 4,835,594 352,358 5,187,952 KfW Additional Contribution 7.7 5,210,229 397,732 5,607,961 4,933,833 358,709 5,292,542 PNA 7.8 2,795,830 179,035 2,974,865 413,549 - 413,549 MDTF 2nd Additional Contribution 7.9 3,300,124 236,588 3,536,712 3,034,386 222,359 3,256,745 KFW-EU Window 5 7.10 3,364,646 235,121 3,599,767 729 - 729 Enabel 7.11 59,300 - 59,300 - - - MDP Enabel - 5 - 5 986,198 83,366 1,069,564 Phase II KfW 7.12 566,403 53,066 619,469 693,017 100,853 793,870 Cycle I VNG - - - - 643,962 64,809 708,771 FDFA 7.13 873,170 65,743 938,913 1,677,770 100,351 1,778,121 IDA Window 5 7.14 457,907 14,452 472,359 - 41,465 41,465 MDTF Window 5 7.15 1,584,810 130,341 1,715,151 1,617,144 187,118 1,804,262 AFD 7.16 106,985 5 106,990 294,847 20,916 315,763 PNA 7.17 2,641,701 176,414 2,818,115 634,213 56,525 690,738 KfW Window 5 7.18 340,300 8,339 348,639 1,580,682 148,757 1,729,439 35,009,789 2,627,224 37,637,013 38,501,562 2,922,767 41,424,329 Amount covered from unrestricted net assets* (53,437) 34,956,352 13 * This amount represents expenses covered by unrestricted net assets from the following grants: - Project/ grant 2017 2016 Enabel - MDP II cycle I (5) - FDFA - MDP II cycle I (28,338) - IDA Window 5 (2,871) - KfW Window 5 (22,223) - HIMI- SDC - (31,666) (53,437) (31,666) 7.1 International Development Association (IDA) On July 7, 2013 an agreement was signed between the International Development Association (IDA) and the Palestinian Liberation Organization, for the benefit of Palestinian National Authority, to contribute into the finance of Phase II of the Municipal Development Program (MDP II), in the amount of USD 10,000,000. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget USD Window 1: Municipal Grants for Capital Investments 6,913,793 Window 2: Support to Municipal Innovations and Efficiency 827,586 Window 3: Capacity Building for (a) Municipalities 648,276 (b) LGUDLF - Window 4: Project Implementation Support and Management Costs 1,610,345 10,000,000 The closing date of the Agreement with IDA is February 28, 2018. Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 1,431,011 1,297,470 Window 2: Support to Municipal Innovations and Efficiency 37,585 287,579 Window 3: Capacity Building for (a) Municipalities 223,200 18,453 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 251,903 117,948 1,943,699 1,721,450 7.2 Multi-Donor Trust Fund, through the International Development Association (IDA) On March 26, 2014 an agreement was signed between the International Development Association (IDA), in its capacity as administrator of the Partnership for Infrastructure Development in the West Bank and Gaza Multi-Donor Trust Fund (MDTF), and the Palestinian Liberation Organization, for the benefit of Palestinian National Authority, to contribute into the finance of Phase II of the Municipal Development Program (MDP II), in the amount of USD 25,800,000. 14 The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget USD Window 1: Municipal Grants for Capital Investments 18,986,172 Window 2: Support to Municipal Innovations and Efficiency 2,918,927 Window 3: Capacity Building for (a) Municipalities 1,175,871 (b) LGUDLF - Window 4: Project Implementation Support and Management Costs 2,719,030 25,800,000 The closing date of the Agreement with IDA is February 28, 2018. Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 2,566,211 6,214,214 Window 2: Support to Municipal Innovations and Efficiency 263,257 760,347 Window 3: Capacity Building for (a) Municipalities 335,732 144,554 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 789,677 840,361 3,954,877 7,959,476 7.3 Kreditanstalt für Wiederaufbau - European Union (KfW - EU) On December 13, 2014 an agreement was signed between the Kreditanstalt für Wiederaufbau (KfW) and the Palestinian Authority, represented by the Ministry of Planning and Administrative Development and LGUDLF based on the Delegation Agreement No. 2014/345-867, dated November 11, 2014 between the European Union (EU) and KfW, to contribute into the finance of Phase II (cycle II) of the Municipal Development Program (MDP II) in the amount of EUR 6,974,110. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in Budget in EUR USD Window 1: Municipal Grants for Capital Investments 6,017,860 6,844,714 Window 3: Capacity Building for (a) Municipalities 500,000 568,700 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 456,250 518,939 6,974,110 7,932,353 15 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 2,827,137 4,881,490 Window 3 : Capacity Building for (a) Municipalities 132,110 28,810 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 166,626 256,263 3,125,873 5,166,563 7.4 The Agence Francaise De Development (AFD) On September 10, 2015 an agreement was signed between the Agence Française de Development (AFD) and Palestine, represented by the Ministry of Planning and Administrative Development, to contribute into the finance of Phase II cycle II of the Municipal Development Program (MDP II), in the amount of EUR 6,000,000. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in Budget in EUR USD Window 1: Municipal Grants for Capital Investments 5,000,000 5,467,950 Window 2: Support to Municipal Innovations and Efficiency 345,000 377,289 Window 3: Capacity Building for (a) Municipalities - - (b) LGUDLF 170,000 185,910 Window 4: Project Implementation Support and Management Costs 485,000 530,391 6,000,000 6,561,540 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 2,305,870 3,002,120 Window 2: Support to Municipal Innovations and Efficiency - - Window 3 : Capacity Building for (a) Municipalities 777 119,826 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 248,159 232,566 2,554,806 3,354,512 7.5 The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) On January 15, 2016 an agreement was signed between the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the LGUDLF to contribute into the finance of Phase II (cycle II) of the Municipal Development Program (MDP II), in the amount of EUR 400,000. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: 16 Budget in Budget in EUR USD Window 2: Support to Municipal Innovations and Efficiency 92,010 100,355 Window 3: Capacity Building for (a) Municipalities 279,990 305,385 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 28,000 30,540 400,000 436,280 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 2: Support to Municipal Innovations and Efficiency - 109,560 Window 3: Capacity Building for (a) Municipalities 233,759 20,591 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 17,649 8,667 251,408 138,818 7.6 Kreditanstalt für Wiederaufbau (KfW) In accordance with the agreement signed on December 13, 2014 among the Kreditanstalt für Wiederaufbau (KfW), the Palestine Liberation Organization (PLO), represented by the Ministry of Planning and Administrative Development, and LGUDLF, on January 15, 2015 a separate agreement was signed to contribute into the finance of Phase II (cycle II) of the Municipal Development Program (MDP II) in the amount of EUR 8,000,000. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in Budget in EUR USD Window 1: Municipal Grants for Capital Investments 6,840,000 7,480,156 Window 3: Capacity Building for (a) Municipalities 540,000 590,539 (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 620,000 678,025 8,000,000 8,748,720 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 2,541,847 4,835,594 Window 3: Capacity Building for (a) Municipalities 218,954 - (b) LGUDLF - - Window 4: Project Implementation Support and Management Costs 247,303 352,358 3,008,104 5,187,952 17 7.7 Kreditanstalt für Wiederaufbau (KfW) Additional Contribution In accordance with the agreement signed on December 13, 2014 among the Kreditanstalt für Wiederaufbau (KfW), the Palestine Liberation Organization (PLO), represented by the Ministry of Planning and Administrative Development and LGUDLF, on October 31, 2015 KfW promised LGUDLF to additionally finance MDP II Cycle II with EUR 10,000,000, the related agreement was subsequently signed on March 6, 2017, KfW-Reference No.: 2014.68.438. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in Budget in EUR USD Window 1: Municipal Grants for Capital Investments 9,300,000 10,339,647 Window 4: Project Implementation Support and Management Costs 700,000 778,253 10,000,000 11,117,900 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 5,210,229 4,933,833 Window 4: Project Implementation Support and Management Costs 397,732 358,709 5,607,961 5,292,542 7.8 Palestinian National Authority (PNA) The Palestinian National Authority (PNA) will contribute into the finance of MDP II Cycle II in the amount of EUR 4,810,000 representing 10% of the contributions committed by MDP II Cycle II donors. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in Budget in EUR USD Window 1: Municipal Grants for Capital Investments 4,173,300 4,740,034 Window 4: Project Implementation Support and Management Costs 636,700 723,164 4,810,000 5,463,198 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 1,511,216 413,549 Window 4: Project Implementation Support and Management Costs 179,035 - PNA VAT compensation 1,284,614 - 2,974,865 413,549 18 7.9 Multi-Donor Trust Fund (TF0A1061) 2nd Additional Contribution On April 14, 2016 an agreement was signed between the International Development Association (IDA), acting as an administrator of the Partnership for Infrastructure Development in the West Bank and Gaza Multi-Donor Trust Fund (MDTF), and the Palestinian Liberation Organization, for the benefit of Palestinian National Authority, to extend an additional grant (MDTF 2nd Additional Contribution), into the finance of Phase II (cycle II) of the Municipal Development Program (MDP II), in the amount of USD 6,900,000. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in USD Window 1: Municipal Grants for Capital Investments 6,417,000 Window 4: Project Implementation Support and Management Costs 483,000 6,900,000 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 3,300,124 3,034,386 Window 4: Project Implementation Support and Management Costs 236,588 222,359 3,536,712 3,256,745 7.10 Kreditanstalt für Wiederaufbau - European Union (KfW - EU) Additional Contribution Gaza Emergency Response (Window 5) Based on the Delegation Agreement No. ENI/2016/375-788, dated December 5, 2016 between the European Union (EU) and KfW and further to the Financing and Program Agreement dated December 12, 2016 entered into between the Palestinian Liberation Organization, represented by the Ministry of Finance and Planning and LGUDLF, and Kreditanstalt für Wiederaufbau (KfW), a separate agreement (the Agreement) dated December 12, 2016 was signed between KfW and LGUDLF to extend an additional grant (KfW - EU Additional Contribution) into the finance of Phase II of the Municipal Development Program (MDP II), in the amount of EUR 4,261,364 to fund Gaza Emergency Response. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in Budget in EUR USD Window 4: (a) Local Technical Consultant 75,000 83,805 (b) MDLF Management Fee 278,781 311,510 Window 5: Gaza Municipal Emergency Grants 3,907,583 4,366,333 4,261,364 4,761,648 The implementation period of the Agreement has commenced on the date of signing (December 12, 2016) and shall last 18 months. 19 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 4: (a) Local Technical Consultant 38,467 729 (b) LGUDLF Management Fee 235,121 - Window 5: Gaza Municipal Emergency Grants 3,326,179 - 3,599,767 729 7.11 The Belgian Development Agency (Enabel) through its program (Local Government Reform and Development Programme phase II – LGRDP 2) Under the framework of “Local Government Reform and Development Program - Phase II (LGRDP 2)” agreement signed on June 11, 2015 between Kingdom of Belgium and Palestinian Authority, a subsidy agreement (PZA1303311/Grant/049) was signed on December 20, 2016 between the Palestinian Ministry of Local Government (MoLG) and the Belgian Development Agency (Enabel, formerly BTC), jointly referred to as “the Contracting Authority”, on one hand, and LGUDLF on the other hand, to make a grant of EUR 1,284,000 to LGUDLF, including management fees of a maximum sum of EUR 84,000, to execute LGRDP 2 activities under a new component of the result 4 of LGRDP 2 “Investments in Infrastructure of Selected Newly Established (Amalgamated) Municipalities (New Municipalities)”. This new component aims to support newly amalgamated LGUs and new municipalities’ investments in infrastructure within the framework of the Window 2 of Municipal Development Program – Phase II (MDP II). The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget in Budget in Activity EUR USD A 04 03: Support investments under MDP II – window 2 (Newly Amalgamated LGUs) (LGUDLF) 1,200,000 1,254,948 A 04 04: LGUDLF management fees (7%) 84,000 87,846 1,284,000 1,342,794 The implementation period of New Municipalities is 18 months, starting from December 15, 2016 and ending on June 15, 2018. Details of expenses are as follows: USD 2017 2016 Actual Actual A 04 03: Support investments under MDP II – window 2 (Newly Amalgamated LGUs) (LGUDLF) 59,300 - A 04 04: LGUDLF management fees (7%) - - 59,300 - 20 7.12 Kreditanstalt für Wiederaufbau (KfW) On July 15, 2013 an agreement was signed between the Kreditanstalt für Wiederaufbau (KfW) and the Palestinian Authority, represented by the Ministry of Planning and Administrative Development and LGUDLF, to contribute into the finance of Phase II (cycle I) of the Municipal Development Program (MDP II) in the amount of EUR 13,500,000. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget Budget EUR USD Window 1: Municipal Grants for Capital Investments 12,085,000 16,683,343 Window 3: Capacity Building for (a) Municipalities 410,000 566,005 Window 4: Project Implementation Support and Management Costs 1,005,000 1,387,402 13,500,000 18,636,750 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments 304,871 657,417 Window 3: Capacity Building for (a) Municipalities 261,532 35,600 Window 4: (b) LGUDLF Management Fee 53,066 100,853 619,469 793,870 7.13 Swiss Confederation, represented by the Swiss Federal Department of Foreign Affairs (FDFA) On September 4, 2013 an agreement was signed between the Swiss Confederation, represented by the Swiss Federal Department of Foreign Affairs (FDFA), acting through the Swiss Cooperation Office- Gaza and West Bank, and the LGUDLF to contribute into the finance of Phase II of the Municipal Development Program (MDP II), in the amount of EUR 2,500,000. On December 1, 2015, FDFA and LGUDLF signed a contract whereby FDFA contributes an additional amount of EUR 833,000 to finance Window 5 of MDP II “Gaza Municipal Emergency Grants” (Additional Contribution). The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Overall Budget, Including the Additional Contribution EUR USD Window 1: Municipal Grants for Capital Investments 1,085,000 1,471,694 Window 3: Capacity Building for (a) Municipalities 1,240,000 1,681,936 Window 4: (a) Local Technical Consultant 45,350 47,985 (b) LGUDLF Management Fee 233,300 299,057 Window 5: Gaza Municipal Emergency Grants 729,350 771,725 3,333,000 4,272,397 21 * On February 29, 2016, FDFA approved the budget reallocation to the Additional Contribution, as follows: - Additional Contribution Original Revised Revised Budget in Budget in Budget in EUR EUR USD Window 4: (a) Local Technical Consultant 24,700 45,350 47,985 (b) LGUDLF Management Fee 58,300 58,300 61,687 Window 5: Gaza Municipal Emergency Grants 750,000 729,350 771,725 833,000 833,000 881,397 The closing date of the original agreement with FDFA was December 31, 2017, as amended, and for the Additional Contribution was December 31, 2016. Details of expenses are as follows: USD 2017 2016 Actual Actual Window 1: Municipal Grants for Capital Investments - 653,614 Window 3: Capacity Building for (a) Municipalities 873,170 208,667 Window 4: (a) Local technical consultant - 48,257 (b) LGUDLF Management Fee 65,743 100,351 Window 5: Gaza Municipal Emergency Grants - 767,232 938,913 1,778,121 7.14 The International Development Association (IDA) Additional Contribution – Window 5 On July 7, 2013 an agreement (the Original Agreement) was signed between the International Development Association (IDA) and the Palestinian Liberation Organization, for the benefit of Palestinian National Authority, to contribute into the finance of Phase II (cycle I) of the Municipal Development Program (MDP II), in the amount of USD 10,000,000. In addition, on December 7, 2015, an amendment to the Original Agreement was signed between the two parties to extend an additional grant, in an amount equal to USD 3,000,000 to fund Window 5 - Gaza Municipal Emergency Grants. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Additional Contribution Budget (USD) Window 4: Project Implementation Support and Management Costs 210,000 Window 5: Gaza Municipal Emergency Grants 2,790,000 3,000,000 The closing date of the Agreement with IDA is February 28, 2018. 22 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 4: (b) LGUDLF Management Fee 14,452 41,465 Window 5: Gaza Municipal Emergency Grants 457,907 - 472,359 41,465 7.15 Multi-Donor Trust Fund, through the International Development Association (IDA) Additional Contribution – Window 5 On December 7, 2014 an agreement was signed between the International Development Association (IDA), acting as an administrator of the Partnership for Infrastructure Development in the West Bank and Gaza Multi-Donor Trust Fund (MDTF), and the Palestinian Liberation Organization, for the benefit of Palestinian National Authority, to extend an additional grant (MDTF Additional Contribution), into the finance of Phase II (cycle I) of the Municipal Development Program (MDP II), in the amount of USD 12,000,000 to fund Window 5 - Gaza Municipal Emergency Grants. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget USD Window 4: Project Implementation Support and Management Costs 840,000 Window 5: Gaza Municipal Emergency Grants 11,160,000 12,000,000 The closing date of the Agreement with IDA is February 28, 2018. Details of expenses are as follows: USD 2017 2016 Actual Actual Window 4: (b) LGUDLF Management Fee 130,341 187,118 Window 5: Gaza Municipal Emergency Grants 1,584,810 1,617,144 1,715,151 1,804,262 7.16 Agence Française de Development (AFD) On August 2014 an agreement was signed between the Agence Française de Development (AFD) and the Palestinian Authority, represented by the Ministry of Planning and Administrative Development, to contribute into the finance of Phase II cycle I of the Municipal Development Program (MDP II), in the amount of EUR one million. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: 23 Budget Euro Budget USD Window 2: Support to Municipal Innovations and Efficiency 700,000 850,920 Window 3: Capacity Building for (a) Municipalities and (b) LGUDLF 230,000 279,588 Window 4: Project Implementation Support and Management Costs 70,000 85,092 1,000,000 1,215,600 Details of expenses are as follows: USD 2017 2016 Actual Actual Window 2: Support to Municipal Innovations and Efficiency 63,991 220,482 Window 3: Capacity Building for (a) Municipalities 42,994 74,365 Window 4: Project Implementation Support and Management Costs 5 20,916 106,990 315,763 7.17 Palestinian National Authority (PNA) On July 1, 2013, an agreement was signed between the Palestinian National Authority (PNA) and the LGUDLF to contribute into the finance of the Municipal Development Program – Phase II (MDP II) in the amount of ILS 20,000,000 (PNA Additional Contribution) in addition to 10% of the contributions committed by MDP II donors other than BTC (PNA Contribution to MDP II). The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Budget USD PNA PNA Contribution Additional to MDP II Contribution Total Window 1: Municipal Grants for Capital Investments 4,273,320 4,770,454 9,043,774 Window 4: Project Implementation Support and Management Costs 321,648 359,066 680,714 4,594,968 5,129,520 9,724,488 Details of expenses are as follows: USD 2017 Actual 2016 Actual PNA PNA PNA PNA Contribution Additional Contribution Additional to MDP II Contribution Total to MDP II Contribution Total Window 1: Municipal Grants for Capital Investments 663,623 1,978,078 2,641,701 215,725 418,488 634,213 Window 4: (b) LGUDLF Management Fee 94,830 81,584 176,414 15,687 40,838 56,525 758,453 2,059,662 2,818,115 231,412 459,326 690,738 24 7.18 Kreditanstalt für Wiederaufbau (KfW) Additional Contribution – Window 5 On May 21, 2016 an agreement was signed between the Kreditanstalt für Wiederaufbau (KfW) and the Palestinian Liberation Organization, represented by the Ministry of Planning and Administrative Development and LGUDLF to extend an additional grant (KfW Additional Contribution), into the finance of Phase II (cycle I) of the Municipal Development Program (MDP II), in the amount of EUR 5,000,000 to fund Window 5 - Gaza Municipal Emergency Grants. The following table specifies the window/categories of eligible expenditures that may be financed out of the proceeds of the grant and the allocations of the amounts of the grant to each window: Original Revised Original Revised Budget in Budget in Budget in Budget in EUR EUR * USD USD * Window 4: (a) Local Technical Consultant - 29,370 - 32,219 (b) MDLF Management Fee 450,000 350,000 493,650 383,950 Window 5: Gaza Municipal Emergency Grants 4,550,000 4,620,630 4,991,350 5,068,831 5,000,000 5,000,000 5,485,000 5,485,000 * KfW approved this budget reallocation on November 30, 2016. Details of expenses are as follows: USD 2017 2016 Actual Actual Window 4: (a) Local Technical Consultant - 19,989 (b) LGUDLF Management Fee 8,339 148,757 Window 5: Gaza Municipal Emergency Grants 340,300 1,560,693 348,639 1,729,439 8. Currency Variance gain (loss) Major items resulted in currency variances are as follows: 2017 2016 Temporarily restricted net assets – year end revaluation (note 6) (3,798,633) 1,631,699 Pledges receivable – year end revaluation (note 5) 2,495,904 (853,928) Currency variances from daily transactions and year end revaluation of other monetary assets and liabilities balances 2,596,620 (1,168,880) Gain (loss) included in changes of unrestricted net assets 1,293,891 (391,109) 25