RUE "Belinvestenergosberezhenie"
Financial statements of the "Belarus Biomass District
Heating Project"
#8351
for the year ended 31 December 2016


CONTENTS
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS                        3
FINANCIAL STATEMENTS OF THE PROJECT "BELARUS BIOMASS DISTRICT HEATING PROJECT", FINANCED
BY WORLD BANK LOAN 8351                                                     6
STATEMENT OF PROJECT SOURCES AND USES OF FUNDS FOR THE YEAR ENDED 31 DECEMBER 2016  6
STATEMENT OF USES FUNDS BY PROJECT ACTIVITY FOR THE YEAR ENDED 31 DECEMBER 2016  7
SPECIAL ACCOUNT STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016               8
STATEMENT OF EXPENDITURE WITHDRAWAL SCHEDULE FOR THE YEAR ENDED 31 DECEMBER 2016  9
NOTES TO THE FINANCIAL STATEMENTS                                          10
2


KPMG, Limited liability company  Telephone  +375 17 372 72 57
57 Dziar2ynskaha avenue         Fax         +375 17 372 72 58
premises 53, office 53-2        Internet    www.kpmg.by
220089 Minsk Belarus
Independent Auditors' Report on Financial Statements
To: Mr. V.V. Knysh
Director
RUE "Belinvestenergosberezhenie"
12 Dolgobrotskaya St.
Minsk, 220037, Republic of Belarus
Certificate of state registration is issued under ruling of
Minsk City Executive Committee on 4 July 2000
Registration number NL,101458672
Out ref.: 2704-05
Opinion
We have audited the accompanying financial statements of the "Belarus Biomass District
Heating     Project"    #8351      (hereinafter    -    Project)   prepared      by    RUE
"Belinvestenergosberezhenie", which comprise the statement of project sources and
uses of funds, statement of uses of funds by project activity, special account statement,
statement of expenditure withdrawal schedule for the year ended 31 December 2016,
and notes to the financial statements. The financial statements have been prepared by
management on the basis of cash accounting and in accordance with the relevant
guidelines of the World Bank.
In our opinion, the financial statements of the Project for the year ended
31 December 2016 are prepared, in all material respects, on the basis of cash accounting
and in accordance with the relevant guidelines of the World Bank.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs).
Our responsibilities under those provisions and standards are further described in the
"Auditor's responsibilities for the audit of the Financial Statements" section of our report.
We are independent of RUE "Belinvestenergosberezhenie" in accordance with
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 in Republic of Belarus, and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
KPMG, a Limited liability company and a member firm of the  Registered in Belarus  191434140
KPMG network of independent member firms affiliated with  Registered office: 57 Dziariynskaha av.
KPMG International Cooperative (<KPMG International-), a  premises 53, office 53-2
Swiss entity.                         220089 Minsk Belarus


Emphasis of Matter - Basis of Accounting and Restriction of Use and Distribution
We draw attention to Notes to the financial statements, which describe the basis of
accounting.  The    financial  statements  are    prepared  to    assist
RUE "Belinvestenergosberezhenie" to comply with the financial reporting provisions of
the World Bank. As a result, the financial statements may not be suitable for another
purpose. Our report is intended solely for the RUE "Belinvestenergosberezhenie" and
the World Bank and should not be used by or distributed to parties other than
RUE "Belinvestenergosberezhenie" or the World Bank. Our opinion is not modified in
respect of this matter.
Responsibilities of Management and Director for the World Bank's Projects
Implementation for the Financial Statements
The Management is responsible for the preparation of these financial statements on the
basis of cash accounting and in accordance with the relevant guidelines of the World
Bank, as well as for such internal control as management determines necessary to
enable the preparation of these financial statements that are free from material
misstatement, whether due to fraud or error.
Director for the World Bank's projects implementation is responsible for overseeing the
financial reporting process of RUE "Belinvestenergosberezhenie".
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditors' report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
* Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
* Obtain an understanding of internal control relevant to the audit 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 internal control of RUE
"Belinvestenergosberezhenie".


* Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
We communicate with director for the World Bank's projects implementation regarding,
among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during
our audit.
Vasyl Pavlenko",
Deputy Audit Ofreqt,
27 April 2017
Minsk, Republic of Belarus
LLC "KPMG"
Certificate of state registration is issued by
Minsk Municipal Executive Committee
under ruling of 10.02.2011, Registration number 191434140


Financial Statements of the project "Belarus biomass district heating project", financed by
World Bank loan 8351-BY
Statement of Project Sources and Uses of Funds for the year ended 31 December 2016
(in USD)
Actual            Planned
For the year ended  Cumulative total   For the whole
31 December 2016        amount         project period
Opening Cash Balance
Project Bank Account                               -
World Bank Special Account                   355 857
World Bank Special Account                                                              -
(Belarusian
rubles in the USD equivalent
on the account in Belarusian rubles)
TOTAL                                        355 857
Sources of Funds
Government Funds
World Bank Funds                           16360000          25205000
Direct payments                                    -            225 000
Special Account                            16360000          24980000
TOTAL                                      16360000          25205000
Less:
Uses of Funds
Financed by World Bank                     15 674 522        24 163 665         90 000 000
Works, goods, consultant's services,
training                                   15674522          23938665           89775000
Front End Fee                                      -            225 000           225 000
Financed by Government                             -                  -                 -
TOTAL                                      15674522          24163665
Closing Cash Balance
Project Bank Account                               -                  -
World Bank Special Account                  1 041 335         1 041 335
TOTAL                                       1 041 335         1 041 335
Chief engineer acting director                Chief accountant
G.A. Kirilchik                                T.P. Bushkevich
The notes on pages from 10 to 12 form an integral part of the financial statements.
6


Statement of Uses Funds by Project Activity for the year ended 31 December 2016
(in USD)
Project activities          For the year ended 31    Cumulative total amount
December 2016
1. Contracts for Design, Supply and
Installation of Plants
MINSK                                               491 180                   491 180
BDHP/ICB/14/01                                      491 180                   491 180
MOGLEV                                           1127776                   7292653
BDHP/ICB/14/02                                     615 251                  3 868 728
BDHP/ICB/14/03                                     394 600                  3 306 000
BDHP/ICB/16/01                                     117925                     117925
Bank commission                                          -                          -
BREST                                            6407932                    7991830
BDHP/ICB/14/04                                   3 886948                   4563451
BDHP/ICB/15/01                                     789 238                  1 518 633
BDHP/ICB/15/02                                    1 731 746                 1 909 746
Bank commission                                         12                         12
GOMEL                                            7480370                    7718370
BDHP/ICB/15/04                                   2129548                    2367548
BDHP/ICB/15/06                                   2860449                    2860449
BDHP/ICB/15/08                                   2490373                    2490373
Bank commission                                          3                          3
Bank commission for Component 1                         15                         15
Total for Component 1                            15507273                   23494048
2. Consulting services, PMU's costs                167 249                    444 617
Bank commission for Component 2                         10                         30
Total for Component 2                               167 249                   444 617
Front-end Fee                                            -                    225 000
Total Project Expenditure                        15 674 522                 24 163 665
Chief engineer acting director              Chief accountant
G.A. Kirilchik                               T.P. Bushkevich
The notes on pages from 10 to 12 form an integral part of the financial statements.
7


Special Account Statement for the year ended 31 December 2016
(in USD)
Bank where the special account was opened                          OJSC "Belinvestbank"
Currency                                                                          USD
Account Number 3620933616134
Opening balance at the beginning of the period                                 355857
Add:
World Bank advances into the SA during the period                            16 360 000
Less:
Withdrawals for the project during the period                                15 674 522
Refunds to World Bank from the S.A. during the period                                -
Total withdrawals during the period                                          15 674 522
Closing balance as at the end of the period                                   1 041 335
Chief engineer acting director                Chief accountant
G.A. Kirilchik                               T.P. Bushkevich
The notes on pages from 10 to 12 form an integral part of the financial statements.
8


Statement of Expenditure Withdrawal Schedule for the year ended 31 December 2016
(in USD)
Number of application                       Works, goods,    Amount received on
Date of withdrawal  consultant's services,  special account
for withdrawal                            'tspcianacoun
training
25      18.01.2016                  600000              600000
26      26.01.2016                  200000              200000
27      28.01.2016                  600000              600000
30      23.03.2016                  350000              350000
32      03.05.2016                  650000              650000
33      20.05.2016                1 000000            1 000000
36      07.06.2016                  600000              600000
37      10.06.2016                2000000             2000000
39      24.06.2016                3500000             3500000
41       18.08.2016                 600000              600000
43      30.08.2016                  450000              450000
45      07.09.2016                  450 000             450 000
46       14.09.2016                 650000              650000
49      26.09.2016                  510000              510000
51      11.10.2016                  850000              850000
53      01.11.2016                  750000              750000
55      15.11.2016                  600000              600000
56      19.12.2016                2000000             2000000
Total                                     16360000             16360000
Chief engineer acting director            Chief accountant
G.A. Kirilchik                            T.P. Bushkevich
The notes on pages from 10 to 12 form an integral part of the financial statements.
9


Notes to the financial statements
For the year ended 31 December 2016
(All amounts determined in USD if not otherwise stated)
Project Description
In view of rapidly depleting global stock of conventional exhaustible energy source, during
the last several decades the developed economies have concentrated on developing and
launching national programs aimed to convert their industries to the use of alternative fuels.
Given the expanding worldwide deficit and ongoing growth of prices for conventional fossil
fuels, the Republic of Belarus faces an urgent need to substitute them with local, including
renewable energy resources. The objective to maximize the share of local fuels, including
renewable energy is a top priority for the nation importing 80-85% of all fuel and energy
resources.
Wood is a specific fuel type. The incinerating units should be located near to the fuel bases
to reduce the transportation/harvesting component of the resource cost.
The investment amounts and measures on building wood fuel production infrastructure are
defined in the 2011-2015 State Program of Forest Sector Development approved by
Resolution 1626 dated November 3, 2010, of the Council of Ministers of the Republic of
Belarus. The program provides for annual step-up of the volumes of wood fuel production
and fuel wood chip production. The Ministry of Forestry of the Republic of Belarus has
received regional-level assignments for wood chip production.
Wood fuel/wood chips will be supplied for the Project under contracts between facility
operators/utilities and regional/district forestry companies.
Enhancement of efficient use of renewable wood biomass for electric and heat energy
production in settlements of the Republic of Belarus covered by the Project.
The Project provides for introducing wood chip-fired boilers and upgrading central district
heating systems in 13 settlements of the Republic of Belarus (Berioza Town, Baranovichi
Town, Ivanovo Town, Volkovyssk Town, Ziabrovka Settlement, Zarechje Settlement,
Cherven Town, Kholopenichi Settlement, Kalinkovichi Town, Kadino Settlement,
Veremeiki Settlement, Cherikov Town, Starye Dorogi Town).It is planned to build/upgrade
all 13 facilities in 2014- 2019 due to the electricity generation/supply to be launched in
Baranovichi, Volkovysk and Kalinkovichi.
The overall Project average annual boiler capacity factor is 45.5%, since the installed
capacity is mostly designed for operation in the heating season only (for six months); also,
the load on such boiler plants is unevenly distributed by the seasons; therefore, boiler
equipment has to meet the maximum requirements the coldest periods.
Significant accounting policies.
Basis of accounting
Financial statements have been prepared on a cash basis of accounting. Accounting policies
were used consistently during the whole period of the Loan use. Accounting data of
RUE "Belinvestenergosberezhenie" form the basis for the financial statements preparation.
The project transactions recorded separately from the funds received from other sources of
finance of RUE "Belinvestenergosberezhenie".
10


Notes to the financial statements
For the year ended 31 December 2016
(All amounts determined in USD if not otherwise stated)
Reporting period
This report covers the period of use of the Loan funds for the year ended 31 December 2016.
Financial statements currency
USD is the currency of the financial statements in accordance with the requirements of the
World Bank. Payments made in Belarusian rubles are presented in the financial statements
in USD at the actual exchange rate.
Funds of the project financed by the World Bank
The World Bank provided Project funds upon requests signed by the authorized
representative of RUE "Belinvestenergosberezhenie". In the reporting period, financing
provided by additions to the initial advance to the special account of the project opened in
OJSC "Belinvestbank", as well as by direct payments.
Project accounts
Project accounts opened in OJSC "Belinvestbank", which comply with the requirements of
the World Bank.
Special foreign currency account of the project X2 3620933616134 is opened in USD.
Budget project account K2 3620933610127 is opened in BYN. This account is intended for
depositing the ruble equivalent of sold currency from the special foreign account.
Determination of earnings and expenses
Project management group keeps its records and prepares its financial statements on cash
basis accounting. Cash proceeds are recorded when obtained from the World Bank. Expenses
are recorded at the date of withdrawal of funds from the project accounts. The following
table shows the Categories of components to be funded under the Loan, Loan allocations for
each Category and the percentage of costs of components, which will be financed in each
Category:
Category            Amount of the Loan      Percentage of costs to be
funds                   financed
(in USD)
(1)    Goods,     works,        89 775 000                 100 %
consultants'     services
(including  audits),  and
Training for the Project
(2) Front-end Fee                225 000         Amount payable pursuant to
Section   2.03  of   Loan
Agreement    8351-BY    in
accordance with Section 2.07
(b) of the General Conditions
TOTAL AMOUNT                    90000000


The project 'Reconstruction of the boiler house of the Tekser neighbourhood in the city
of Baranovichi with capacity increase and installation of boilers for MW (6MW)'.
During 2016 in terms of the implementation of the project 'Usage of wood biomass for
central heating' under the Contract No. BHHP/ICB/15/01 dated 25 August 2015
'Reconstruction of the boiler house of the Texer neighbourhood in the city of Baranovichi
with capacity increase and installation of boilers for MW (6MW)', the Contactor violated
the substantial terms of the contract, namely the provided bank guarantee for the fulfillment
of the contract terms is not confirmed by the guarantor.
Due to the detected violations KUPP "Baranovichi communteploset" informed the
Contractor about the suspension of all payments under the above contract. At the moment,
the work on the project is suspended.
12


World Bank Audit Documentation Checklist
Name of Loan/Credit:        World Bank
Loan/Credit #               8351-BY
Auditors' Report:           27 April 2017
Check if    Check if
Included      N/A
I. Auditors' Report (Opinion):
A. Applicable accounting standards noted             X
B.Applicable auditing standards noted                X
C.Opinion rendered on all forms of withdrawals:
1. Statement of Expenditures for the year    X
ended 31 December 2016
2. Designated account                        X
D.All sources of financing for the project are noted  X
II. Financial statements:
A.Revenue Earning Entity (all items are to be filled-
in):
1. Balance sheet                                         X
2. Cash Flow Statement                                   X
3. Income Statement                                      X
B.Non-Revenue Earning Entity (all items are to be
filled-in):
1. Balance sheet                                         X
2. Statement on use of funds by Project      X
components
C.If applicable (refer to Loan Agreement):
1.Statement of Expenditure for the year      X
ended 31 December 2016
2. Statement on use of designated account    X
III.Notes to the financial statements                      X
IV.Reconciliation between World Bank records and
project records
V.Management Letter                                 ZZ     X
13