“Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)” Grant No. H9410, Grant No. TF0A4615, Loan TJK-0055 The project financial statements for the year ended December 31, 2018 and independent auditors’ report “CENTRAL ASIA SOUTH ASIA ELECTRICITY TRANSMISSION AND TRADE PROJECT (CASA- 1000)” GRANT NO. H9410, GRANT NO. TF0A4615, LOAN TJK-0055 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 Notes to the project financial statements 7-11 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 “Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)” under the State establishment “Project management unit for electro-energy sector” 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 “Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)” (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 Accounting 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 “World Bank 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 describes the basis of accounting. These project financial statements were prepared for complying with the appropriate World Bank Guidelines and Financing and Grant agreements 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 “CENTRAL ASIA SOUTH ASIA ELECTRICITY TRANSMISSION AND TRADE PROJECT (CASA- 1000)” GRANT NO. H9410, GRANT NO. TF0A4615, LOAN TJK-0055 NOTES TO THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 (in US dollars) 1. GENERAL INFORMATION According to the Agreement between the Republic of Tajikistan and International Development Association (the “IDA”, “World Bank”) dated April 24, 2015 the Grant No. H9410 was provided in the amount of 29,400,000 Special Drawing Rights to assist in financing the Project “Central Asia South Asia Electricity Transmission and Trade Project (Casa-1000)” (the “Project”). Moreover, according to the Agreement between the Republic of Tajikistan and International Bank of Reconstruction and Development and International Development Association (together “World Bank”) dated September 14, 2017, the World Bank provided a Multi-Donor Trust Fund Grant No TF0A4615 in the amount of 1,000,000 US dollars to the Republic of Tajikistan. According to Agreement between the Republic of Tajikistan and Islamic Development Bank (the “IDB”) dated October 10, 2015, IDB contributed to finance the Project with issuing the Loan TJK-0055 in the amount of 46,600,000 Islamic dinar (the “ID”). Project purpose The purpose of the Project is the construction of a 500 kV high voltage overhead transmission line that will connect four IDB member countries (Tajikistan, Kyrgyzstan, Afghanistan, and Pakistan). The line will be utilized to export the surplus electricity from the Republic of Tajikistan and the Kyrgyz Republic to their neighboring countries Afghanistan and Pakistan during summer months. The transmission line between Tajikistan and Kyrgyzstan will be an Alternating Current (AC) line, which connects to the national grid in both countries. This connection will allow feeding the line from any substation on the national grid. The transmission line between Tajikistan, Afghanistan, and Pakistan will be a Direct Current (DC) line, which allow for the long distance transmission of the high voltage current with minimum amount of technical losses. The Project consists of the following parts: Part A: Construction of High Voltage Transmission Infrastructure Part B: Technical Assistance and Project Implementation Support Part C: Community Support Program Part A: Construction of High Voltage Transmission Infrastructure - High Voltage DC Transmission Line: Construction of about 750 km of 500 kV high voltage DC overhead transmission line to interconnect the electricity network of Tajikistan from the Sangtuda converter station through Afghanistan to Pakistan- Nowshera converter station. - High Voltage DC Converter Stations: Engineering, design, construction, and commission of two high voltage DC converter stations: Sangtuda in Tajikistan and Nowshera in Pakistan. - High Voltage AC Transmission Interconnection between Kyrgyzstan and Tajikistan: Construction of about 475 km of 500 kV high voltage AC overhead transmission line to interconnect the electricity network of Kyrgyzstan, from Datka station, to Tajikistan, at the Khujand substation, along with substation equipment. - Tajikistan Grid Reinforcement: Reinforcements, including construction f 500kV line from Regar substation to Sangtuda converter station and other parts of the network necessary to ensure transfer of Tajikistan and Kyrgyzstan export power to Sangtuda. 7 Part B: Technical Assistance and Project Implementation Support - High Voltage AC and DC Engineers: Provision of consultancy services of two owner’s engineers for the high voltage DC and AC portions of the Project, including for third party monitoring and supervision during construction. - Environment and Social Management Support: Strengthening of the Project implementing entities’ capacity to develop and supervise environmental and social safeguard documents, including country specific Environmental and Social Impact Assessment and Resettlement Action Plans. - Audit, Financial and Revenue Management: Carrying out annual audits of the project accounts in the 4 Participating Countries and of entity audits of the Project Implementing Entities where such audits are not financed from other resources, and supporting transparent financial management of revenues generated by the Project, including the implementation of a financial management improvement program. - Project Management Support: Provision of: (i) Project management support to Project Implementing Entities, including procurement and contract management, financial management, monitoring, and evaluation of the Project performance and results as well as Incremental Operating Costs; (ii) training and capacity building focusing on high voltage DC operations and maintenance, power dispatch; and (iii) commercial and legal advisory services on the commercial transactions. - Coordination, Strengthening of the Inter-Governmental Council through financing of technical, commercial and legal services and Incremental Operating Costs. - Project Communications: Carrying out of communications campaign and information-sharing activities directed at relevant stakeholders, particularly communities, within the Project area. - Capacity Building: Building capacity of personnel of the Project Implementing Entities and relevant Government officials in order to develop a regional electricity market. Part C: Community Support Program - Carrying out the CSP for the benefit of the communities living in the area of the project. Project management The Project is implemented by the State establishment “Project management unit for electro-energy sector” (the “PMUES”). Duration of the Project is from October 24, 2016 until June 30, 2021. 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 “World Bank Guidelines”). Under the cash basis system income (or expenditure) is recognized when cash is received (or paid) irrespective of when goods or services are received or provided. 8 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 information on the sources of funds, the purpose of uses of funds, and 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 official currency exchange rate settled by 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”) and Islamic dinar (the “ID”) at the date of funds receipt. All payments made in local currency are translated into US dollars at the official exchange rate defined by 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. 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. Taxes Calculation and payment of personal income tax and social security contributions from income of local 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 and Islamic Development Bank to the Project by direct payment. 9 4. FUNDS RECEIVED The funds received are presented by the following financing methods and sources of financing: For the year ended Cumulative December 31, 2018 Grant Loan Grant Loan No. H9410 TJK-0055 No. H9410 TJK-0055 Direct payment 17,169,822 4,507,609 17,169,822 4,507,609 17,169,822 4,507,609 17,169,822 4,507,609 5. PROJECT EXPENSES The Project expenses by components are presented in the summary of expenditures paid by project components. The Project expenses on major categories are presented in the summary of funds received and expenditures paid. Breakdown of the Project expenses by nature and by sources of financing is presented as follows: For the year ended Cumulative December 31, 2018 Grant Loan Grant Loan No. H9410 TJK-0055 No. H9410 TJK-0055 Goods 17,169,822 3,761,642 17,169,822 3,761,642 Transportation and insurance - 699,799 - 699,799 Type test charges - 46,168 - 46,168 17,169,822 4,507,609 17,169,822 4,507,609 6. FINANCIAL POSITION Financial position as at December 31, 2018 comprises: December 31, 2018 ASSETS AND EXPENDITURES Cumulative expenses 21,677,431 TOTAL ASSETS AND EXPENDITURES 21,677,431 FINANCING Funds received 21,677,431 TOTAL FINANCING 21,677,431 7. WITHDRAWAL APPLICATIONS Withdrawal applications for the year ended December 31, 2018 comprise: Sources of financing Application Date Direct Total payment Loan TJK-0055 1 September 7, 2018 4,507,609 4,507,609 Grant No. H9410 1 November 27, 2018 4,519,018 4,519,018 Grant No. H9410 3 November 27, 2018 857,832 857,832 Grant No. H9410 2 November 29, 2018 1,009,545 1,009,545 Grant No. H9410 4 November 30, 2018 10,783,427 10,783,427 21,677,431 21,677,431 10 8. STATEMENT OF DESIGNATED ACCOUNT As of December 31, 2018, the Project did not have a designated account. 9. UNDRAWN FUNDS As at December 31, 2018 undrawn funds are presented as follows: Grant Grant Loan No. H9410 No. TF0A4615 TJK-0055 in SDR in USD in ID Approved financing amount 29,400,000 1,000,000 46,600,000 Disbursed for the period from January 1, 2018 to December 31, 2018 12,418,851 - 3,241,042 Undrawn financing amount 16,981,149 1,000,000 43,358,958 Financing received as at January 1, 2018 - - - Disbursed in 2018 12,418,851 - 3,241,042 Financing received as at December 31, 2018 12,418,851 - 3,241,042 10. 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 be 2018 paid TAJIKISTAN/FIRSTCO JV ABB AB & Cobra NTRACT/CA-I SEK 675,463,517 98,096,837 577,366,680 TAJIKISTAN/FIRSTCO JV ABB AB & Cobra NTRACT/CA-I USD 37,180,011 5,376,850 31,803,161 KALPATARU POWER CASA1000/TL/TW04/T TRANSMISSION LTD AJ USD 22,538,048 4,507,609 18,030,439 TAJIKISTAN/FIRSTCO JV ABB AB & Cobra NTRACT/CA-I EUR 7,132,942 888,254 6,244,688 11. LEGAL CASES There were no any legal cases related to the Project. 12. 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: Financing source Value date Financing method Application Amount Grant No. TF0A4615 March 4, 2019 Reimbursement 3 127,162 Grant No. TF0A4615 April 4, 2019 Direct Payment 2 236,714 Grant No. TF0A4615 April 26, 2019 DA-E 1A 50,000 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. 11