MINISTRY F TRMURY AND FINANCE BOARD OF TREASURY CONTROLLERS RENEWABLE ENERGY INTEGRATION Implemented by TURKISH ELECTRICITY TRANSMISSION COMPANY Financed Under World Bank Loan Agreement Numbered 83710-TR As of December 31, 2018 and For the Year Then Ended Prepared by jBilgehan GOKMEN - Mustafa Emre BAYKAL Senior Treasury Controller Treasury Controller Report's Number 123/32 65/4 Jne Al,S 10O1 June 18, 2019 REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE Board of Treasur Controllers CONTENTS EX ECUTIVE SUM MAR Y ........................................... ........................... ....................................................................................... O A. Project Sum m ar y ................................................................................................................................................................... 3 B . Obj jectives of Audit ................................................................................................................................................................. 4 C. Scope of Audit ........................................................................................................................................................................... 4 D. Audit Results .............................................................................................................................................................................5 E. M anagem ent Recom m endation .................................................. .......................... .......................................................... 5 INDEPENDENT AUDIT REPOR T' S & F IN ANCIAL STATEMENTS OF THE PROJECT .................................. 2 IN DEPENDENT AUD ITO R'S SREPORT ................................................................................................................................. 7 O p in io n .............................................................................................................................................................................................. 7 Bas is for Opinion ..................................................................................... ..................................................................................... 7 Em phasis of M atter in the Financi al Statem ent t............................................................................................................ 8 Go ing Concern ................................................................................................................................................................................ 8 Responsibilities of Management and Those Charged with Governance or other appropriate terms for the Financial Statem ents ................................................................................................................................................... 8 Auditor's Responsibilities for the Audit of the Financial Statem ents...............................................................8 E. Mnageent ecomendaion1 EXECUTIVE SUMMARY REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers EXECUTIVE SUMMARY A. Project Summary The Loan Agreement for "Renewable Energy Integration Project No 83710-TR" has been signed between the International Bank for Reconstruction and Development, acting in its capacity as an implementing entity of the Clean Technology Fund (CTF) and Turkish Electricity Transmission Company on 10 July 2014. The objective of the Project is to assist the Republic of Turkey in meeting its increased power demand by strengthening the transmission system and facilitating large-scale renewable energy generation. The project consists of the following parts: 1- Development of transmission infrastructure: Construction and equipping of highly digitalized substations, namely Can Basin 380 kV, Izmir Basin 380 kV, Vize Basin 380 kV substations and any other substations agreed with the Bank, together with associated grid connection structures for evacuation of wind power in the Selected Provinces. 2- Smart-grid investments: Carry out investments that enable the Borrower to monitor the transmission grid network status in real-time and to operate the entire network reliably and securely, including: (a) Upgrading of the hardware and software of the existing Supervisory Control and Data Acquisition ("SCADA"] system at National Control Center, the Emergency National Control Center and nine Regional Control Centers and the addition of a Renewable Energy Resource ("RER") Operator Desk on the SCADA system. (b) Installation of Remote Terminal Units (RTU) in substations and power plants to facilitate acquisition of real-time transmission network data. (c) Installation of digital protection relays in the power grid to accelerate fault clearing and minimize network disturbances and outage area. (d) Installation of shunt reactors in the bulk-transmission network to control load flow and to secure appropriate system voltage. 3- Lapseki-Sutluce submarine power cable: Construction of a second double- circuit submarine cable across the Dardanelles Strait. 4- Strengthening of transmission networks: Carry out investments to 3 REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE Board of T'reasury Controllers strengthen the transmission networks, including: (a) Construction of an underground cable to connect the Yeni Ambarli substation to the Yeni Bosna substation. (b) Construction of four [4) 380/154/33 kV substations and related facilities in the province of Istanbul, Antalya and Urgup. (c) Construction of four (4) 154/33 kV substations and related facilities in the provinces Istanbul and Antalya. (d) Construction of four (4] 154 kV underground cables in the provinces of Istanbul and lzmir. Through the Loan Agreement dated 10 July 2014, a loan of 217.600.000 Euro is envisaged to be used by Turkish Electricity Transmission Company within the framework of the "Renewable Energy Integration Project". As of 31.12.2018, Turkish Electricity Transmission Company has used an amount of 156.758.621,30 Euro and an amount of 60.841.378,70 Euro has not been used yet. Turkish Electricity Transmission Company has used an amount of 42.537.458,90 Euro from World Bank sources between 01.01.2018 and 31.12.2018. B. Objectives of Audit The objectives of our audit are; a) To give an opinion on whether the financial statements, prepared as of December 31, 2018 present fairly in all material respects the financial position of the Project in accordance with the cash receipts and disbursements basis of accounting, b) To determine, as of December 31, 2018, whether the Turkish Electricity Transmission Company has complied, in all material respects, with the rules and procedures of the Loan Agreement, c) To examine whether adequate supporting documentation has been maintained to support claims to the World Bank for reimbursements of expenditures incurred with respect to Statement of Expenditures and evaluate eligibility of these expenditures for financing under the World Bank Loan Agreement. C. Scope of Audit We have performed an audit of financial statements of the project as of December 31, 2018 and for the year then ended in accordance with the cash receipts and disbursements basis 4 REPUBLIC OF TURKEY 11 MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers of accounting. We have also performed a compliance audit on whether Project activities are in line with the Loan Agreement and related World Bank Guidelines. Our audit was conducted in accordance with the International Standards on Auditing published by International Federation of Accountants and related World Bank guidelines. There was no limitation in our scope for the Project's audit. D. Audit Results For the financial statements of the project; our audit resulted with an unqualified opinion. In addition, as of December 31, 2018, Turkish Electricity Transmission Company has complied, in all material respects, with the rules and procedures of the Loan Agreement. In our audit period, there was not any disbursement under the Statement of Expenditures (SOE). E. Management Recommendation A management letter, dated June 18, 2019, to the attention of the Turkish Electricity Transmission Company was issued separately from this report. The objective of this Management Letter is to enable the auditors to communicate appropriately to those charged with governance and management deficiencies in internal control that the auditors have identified during the audit and that, in the auditors' professional judgment, are of sufficient importance to merit their respective attentions. For this purpose, our recommendations in order of priorities are attached to the Letter. 5 INDEPENDENT AUDIT REPORT'S & FINANCIAL STATEMENTS OF THE PROJECT REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers INDEPENDENT AUDITOR'S REPORT TO TURKISH ELECTRICITY TRANSMISSION COMPANY Opinion We have audited the Statement of Sources and Uses of Funds, Statement of Cumulative Investments and Statement of Special Account of the Renewable Energy Integration Project as of December 31, 2018, and for the period then ended, and a summary of significant accounting policies and other explanatory information. The financial statements have been prepared by Turkish Electricity Transmission Company based on financial reporting provisions of the Loan Agreement Numbered 83710-TR. In our opinion; a) The accompanying Statement of Sources and Uses of Funds, Statement of Cumulative Investments and Statement of Special Account present fairly, in all material respects, the financial position and cash flows of the Renewable Energy Integration Project as of December 31, 2018 and for the period then ended in accordance with the provisions of the Loan Agreement Numbered 83710-TR. b) Turkish Electricity Transmission Company, as of December 31, 2018 has complied with, in all material respects, the requirements of the Loan Agreement Numbered 83710-TR. Basis for Opinion 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 Financial Statements" section of this report. We are independent of the Turkish Electricity Transmission Company within the meaning of "IFAC Code of Ethics for Professional Accountants" ethical requirements and have fulfilled our other responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 7 REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers Emphasis of Matter in the Financial Statement Without modifying our opinion, we draw attention to Note 2 to the financial statements, which describe the basis of accounting. The financial statements are prepared to assist Turkish Electricity Transmission Company to comply with the financial reporting provisions of the contract referred to above. As a result, the financial statements may not be suitable for another purpose. Going Concern The Projects financial statements have not been prepared using the going concern basis of accounting. The project will not be finished on June 30, 2019. It has been requested that the loan completion date is revised as March 31, 2021. Responsibilities of Management and Those Charged with Governance or other appropriate terms for the Financial Statements Turkish Electricity Transmission Company is responsible for the preparation and fair presentation of these financial statements in accordance with Loan Agreement Numbered 83710-TR, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Turkish Electricity Transmission Company's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements The objectives of our audit 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 auditor's 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 planning and performance of 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 8 REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers 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 entity's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We are required to communicate with those charged with governance 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. We are also required to provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thou t to bear on our independence, and where applicable, related safeguards. Ahmet TUT Acting Chairman of Board of Treasury Controllers Akif Bllent BOYACIOGLU (Audit Partner) Vice F"rman Bilge KMEN Mustafa Emre BAYKAL Senior Treasury Controller Treasury Controller Date: June 18, 2019 Address: Ministry of Treasury and Finance Board of Treasury Controllers 06510, Emek, ANKARA/TORKIYE 9 TURKISH ELECTICITY TRANSMISSION CO. 83710-TR (RENEWABLE ENERGY INTEGRATION PROJECT) Statement of Sources and Uses of Funds As of December 31, 2018 and For The Year Then Ended (EURO) Actual PAD Planned Variance Notes YTD Cumulative YTD Cumulative YTD Cumulative I-Sources of Funds A- Government Contributions 8 974,957,30 26.436.343,45 0,00 0,00 0,00 0,00 1- General Budget 8.975.529,99 28.437.987,70 0,00 0,00 0,00 0,00 2- Interest Income (-) 6 572,69 1.644,25 0,00 0,00 0.00 0,00 B- IBRD Loans 42.537.458,90 156.758.621,30 0,00 0.00 0,00 0,00 1- Direct Payments 263.433,50 40,197.710,18 0,00 0,00 0,00 0,00 2- Special Account 42.274.025,40 116.560.911,12 0,00 0,00 0,00 0,00 a) Advance 34.145.025,40 79,898.790,09 0,00 0.00 0,00 0,00 b) SOE Procedures 0,00 0,00 0.00 0,00 0,00 0,00 c) Summary Sheet 8.129.000,00 36,662.121,03 0,00 0,00 0,00 0,00 C- Refunds to Special Accounts 0,00 0,00 0,00 0,00 0,00 0,00 D- Net Interest Income 6 572,69 1,644.25 0,00 0,00 0,00 0,00 E- Foreign Exchange Gains 7 206.319,03 41.901,80 000 0,00 0,00 0,00 Total Sources of Funds 51.719.307,92 185.648.510,80 0,00 0,00 0,00 0,00 fl- Uses of Funds A- Direct Project Expenses 1-Development of transmission infrastructure 9.329.895,48 10.997.322,90 0,00 29.343.503,47 0,00 18.346.180,57 VIZE HAVZA Substation 3.702.321,74 4.332.486,09 0,00 8.593.995,00 0,00 4,261.508,92 IZMIR HAVZA Substation 1.197.536,84 1.653.149,91 0,00 9.116.508,47 0,00 7.463.358,56 QAN Substation 4430.036,91 5.011.686,91 0,00 11.633.000,00 0,00 6.621.313,10 2-Smart-grid investments 1.127.387,25 11.157.126,91 0,00 26.795.321,20 0,00 15.638.194,29 SCADA/EMS 8 429.748,75 3.112.144,11 0,00 6.920.171,20 0,00 3.808.027,09 2015-1D/11 a 30.140,00 5.841.134,30 0,00 12.509.900,00 0.00 6.668.765,70 RTU 323,433,50 521.283,50 0,00 3.995.000,00 0,00 3.473.716,50 Numerical Protection Relay 344.065,00 1.682.565,00 0,00 3.370.250,00 0,00 1.687.685,00 3-Lapseki 2-Sutluce 2 submarine power cable 0,00 69.025.912,98 0,00 58.577.490,00 0,00 -10.448.422,98 Lapseki 2-SUtl0ce 2 Submarine Cable 0,00 69.025.912,98 0,00 58.577.490,00 0,00 -10.448.422,98 4-Strengthening of transmission networks 49.390.084,26 93.197.374,60 0,00 125.893.185,06 0,00 32.695.810,56 Yeniambarli-Yenibosna Underground Cable 576.018,56 15A27221,77 0,00 12.037.931,35 0.00 -3.389.290,42 Hadimkay OSB GIS Substation 22.403.737,20 30.380.252,63 0,00 25.860.149,12 0,00 -4.520.103,51 K.Bakkalkby-Kadik6y Underground Cable 40,021,34 7.392.349,94 0,00 6.717.189,14 0,00 -675,160,80 Yakuplu GIS-Ambarli DGKQS Underground Cal 1.360.271,66 5.712.509,63 0,00 4.992,421,00 0.00 -720.088,63 Yakuplu GIS Substation 5.884.650,03 8.777.441,15 0,00 6.581.117,09 0,00 -198.324,06 Omraniye GIS-Dudullu Metro GIS-Dudulku Subs 1.144.056,73 9.165.258,29 0,00 8.551.950,13 0,00 -613.308,16 Selguk GIS Substation 2.885.357,87 3.248.370,22 0,00 3.665.732,38 0,00 419.362,14 KarabaoIar-Buca Underground Cable 5.712.970,08 5.712.970,08 0,00 7,372.780,00 0,00 1.659.809,92 Gbksu GIS Substation 916.849,61 918.849,61 0,00 4.977.786,91 0,00 4.060.937,30 Manavgat Substation 3 950.471,40 3.950.471,40 0,00 12.440.000,00 0,00 8.489.528,60 Atl§alani-Aksaray Underground Cable 1.923.221,46 1.923.221,46 0,00 7.158.105,00 0,00 5.234,883,54 Org0p Substation 2.592.458,32 2.592.458,32 0,00 25.538.022,96 0,00 22.945.564,64 Sub-total 59.847.366,99 184,377.737,29 0,00 240.609.499,73 0,00 56,231.762,44 B- Indirect Project Expenses 1-Front and Fee 0,00 544.000,00 0,00 0,00 0.00 -544.000,00 2-Loan Fee o,00 239360,00 0.00 0,00 0,00 -239.360,00 3-Foreign Exchange Loses 7 89.976,42 266.410,40 0,00 0,00 0,00 -266,410,40 Sub-total 89.976,42 1.049.770,40 0,00 0,00 0,00 -1.049.770,40 Total Project Investments 69.937.343,40 185.427.507,68 0,00 240.609.499,73 0,00 55.181.992,05 Opening Balance 8.439.038,60 Closing Balance 4 221.003,12 221.003,12 Mu AG 1i v Z TURKISH ELECTICITY TRANSMISSION CO. 83710-TR (RENEWABLE ENERGY INTEGRATION PROJECT) STATEMENT OF CUMULATIVE INVESTMENTS As of December 31, 2018 and For The Year Then Ended (EURO) Actual PAD Planned Variance A- DIRECT PROJECT COSTS YTD cumulative YTD Cumulative YTO Cumulative 1-Development of transmission infrastructure 9.329.895,48 10.997.322,90 0,00 29.343.503,47 0,00 27.676,076,05 VIZE HAVZA Substation 3.702.321,74 4.332.486,09 0,00 8.593.995,00 0,00 7.963,830,65 IZMIR HAVZA Substation 1.197.536,84 1.653.149,91 0,00 9.116.508,47 0,00 8.660.895,40 QAN Substation 4.430.036.91 5.011.686,91 0,00 11.633.000,00 0,00 11.051.350,00 2-Smart-grid investments 1.127.387,25 11.157.126,91 0,00 26.118.071,20 0,00 15.628.442,79 SCADA/EMS 429.748,75 3.112.144,11 0,00 6.920.171,20 0,00 3.808.027,09 2015-ISD/1 1 30.140,00 5.841.134,30 0,00 12.509.900,00 0,00 6.668.765,70 RTU 323.433,50 521.283,50 0,00 3.995.000,00 0,00 3.797,150,00 Numerical Protection Relay 344.065,00 1.682.565,00 0,00 2.693.000,00 0,00 1.354.500,00 'I-Lapseki 2-Sutluce 2 submarine power cable 0,00 69.025.912,98 0,00 58.577.490,00 0,00 -10.448.422,98 Lapseki 2-SOtlOce 2 Submarine Cable 0,00 69.025.912,98 0,00 58.577.490,00 0,00 -10.448.422,98 4-Strengthening of transmission networks 49.390.084,26 93.197.374,50 0,00 125.893.185,06 0,00 32.695.810,56 Yeniambarli-Yenibosna Underground Cable 576.018,56 15.427.221,77 0,00 12.037.931,35 0,00 -3.389.290,42 Hadimkby OSB GIS Substation 22.403.737,20 30.380.252,63 0,00 25.860.149,12 0,00 -4.520.103,51 K.Bakkalk6y-Kadikoy Underground Cable 40.021,34 7.392.349,94 0,00 6.717.189,14 0,00 -675.160,80 Yakuplu GIS-Ambarli DGKQS Underground C 1.360.271,66 5.712.509,63 0,00 4.992.421,00 0,00 -720.088,63 Yakuplu GIS Substation 5.884.650,03 6.777.441,15 0,00 6.581.117,09 0,00 -196.324,06 Omraniye GIS-Dudullu Metro GIS-Dudullu Su 1.144.056,73 9.165.258,29 0,00 8.551.950,13 0,00 -613.308,16 Sequk GIS Substation 2.885.357,87 3.246.370,22 0,00 3.665.732,36 0,00 419.362,14 Karaba§lar-Buca Underground Cable 5.712.970,08 5.712.970,08 0,00 7.372.780,00 0,00 1.659.809,92 G6ksu GIS Substation 916.849,61 916.849,61 0,00 4.977.786,91 0,00 4.060.937.30 Manavgat Substation 3.950.471,40 3.950.471,40 0,00 12.440.000,00 0,00 8.489.528.60 Ati§alani-Aksaray Underground Cable 1.923.221,46 1.923.221,46 0,00 7.158.105,00 0,00 5.234.883,54 Orgop Substation 2.592.458,32 2.592.458,32 0,00 25.538.022,96 0,00 22.945.564,64 Sub-Total 59.847.366,99 184.377.737,29 0,00 240.609.499,73 0,00 56.231.762,44 TOTAL DIRECT PROJECT COSTS 59.847.366,99 184.377.737,29 0,00 240.609.499,73 0,00 56.231.762,44 'DIRECT PROJECT COSTS 1-Front and Fee 0,00 544.000,00 0,00 0,00 0,00 -544.000,00 2-Loan Fee 0,00 239.360,00 0,00 0,00 0,00 -239.360,00 3-Foreign Exchange Loses (net) 89.976,42 266.410,40 0,00 0,00 0,00 -266.410,40 TOTAL INDIRECT PROJECT COSTS 89.976,42 1.049.770,40 0,00 D,00 0100 -1.049.770,40 TOTAL PROJECT INVESMENTS 59.937.343,40 185.427.507,68 0,00 240.609.499,73 0,00 55.181.992,05 TEiAS RENEWABLE ENERGY INTEGRATION PROJECT 8371 0-TR SPECIAL ACCOUNT STATEMENT ACC.NO: 58000157 AT HALK BANK For The Year Ended December 31, 2018 (EURO) Notes Opening Balance 8.439.038,60 Reimbursement to SA 42.274.025,40 a) Advance 34.145.025,40 b) SOE Procedure 0,00 c) Summary Sheet 8.129.000,00 Refunds to SA 0,00 Intrest Income (net) 6 572,69 Available Funds 50.713.636,69 Payments made for Expenditures 50.492.060,88 Commisions 0,00 Transfer to the general budget 6 572,69 Service charges for the account 0,00 Total Project Investments 50.492.633,57 Closing Balance 4 221.003,12 AN0( GENERAL MANAGEMENT OF TURKISH ELECTRICITY TRANSMISSION COMPANY "RENEWABLE ENERGY INTEGRATION PROJECT LOAN NO 83710-TR" NOTES TO PROJECT FINANCIAL STATEMENTS AS OF THE END OF THE FISCAL YEAR 31.12.2018 1. THE OBJECTIVES AND DESCRIPTION OF THE PROJECT The Loan Agreement for "Renewable Energy Integration Project No 83710-TR" has been signed between the International Bank for Reconstruction and Development and Tiirkiye Elektrik l1etim A.$. (TEIA$) on 10 July 2014. The objective of the Project is to assist the Republic of Turkey in meeting its increased ( power demand by strengthening the transmission system and facilitating large-scale renewable energy generation. The project consists of the following parts: 1- Development of transmission infrastructure; Construction and equipping of highly digitalized substations, namely Can Basin 380 kV, lzmir Basin 380 kV, Vize Basin 380 kV substations and any other substations agreed with the Bank, together with associated grid connection structures for evacuation of wind power in the Selected Provinces. 2- Smart-grid investments; Carry out investments that enable the Borrower to monitor the transmission grid network status in real-time and to operate the entire network reliably and securely, including: (a) Upgrading of the hardware and software of the existing Supervisory Control and Data Acquisition ("SCADA") system at National Control Center, the Emergency National Control Center and nine Regional Control Centers and the addition of a Renewable Energy Resource ("RER") Operator Desk on the SCADA system. (b) Installation of Remote Terminal Units (RTU) in substations and power plants to facilitate acquisition of real-time transmission network data. (c) Installation of digital protection relays in the power grid to accelerate fault clearing and minimize network disturbances and outage area. (d) Installation of shunt reactors in the bulk-transmission network to control load flow and to secure appropriate system voltage. 3- Lapseki 2-Sutluce 2 submarine power cable; Construction of a second double-circuit submarine cable across the Dardanelles Strait. 4- Strengthening of transmission networks; Carry out investments to strengthen the transmission networks, including: (a) Construction of an underground cable to connect the YeniAmbarli substation to the YeniBosna substation. (b) Construction of four (4) 380/154/33 kV substations and related facilitiesin the province of Istanbul, Antalya and Urgup. (c) Construction of four (4) 154/33 kV substations and related facilities in the provinces Istanbul and Antalya. 1 (d) Construction of four (4) 154 kV underground cablesin the provinces of Istanbul and Izmir. Through the Loan Agreement dated 10 July 2014, a loan of 217.600.000 Euro is envisaged to be used by TEIAS within the framework of the "Renewable Energy Integration Project". As of31.12.2018, TEIAS has used an amount of 156.758.621,30 Euro and an amount of 60.841.378,70 Euro has not been used yet. TEIAS has used an amount of 42.537.458,90 Euro from World Bank sources between 0 1.01.2018 and 3 1.12.2018. As of 31.12.2018, some 116.560.911,12 Euro out of the total loan has been used through the Special Account and some 40.197.710,18 Euro has been used through Direct Payment/Reimbursement. 544.000 Euro as the Front-end Fee and 239.360 Euro as loan payable have been paid from own funds. 2. MAIN ACCOUNTING POLICIES In TEIAS, a separate accounting system has not been established for the World Bank projects. TEIAS obtains a number of loans from the Bank, and other international organizations, by which it utilized a substantial amount of funds at total. Financial statements of the project has been established according to the accounting principles based on cash collection and payment. 3. LIMITATIONS ON THE USE THE FUNDS AND OTHER ENTITIES In accordance with the Loan Agreement between the Turkish Government and the World Bank, the use of the funds in the Special Account is limited to the project objectives. Project funds left in the Account at the end of the project will be returned to the World Bank. 4. CASH BALANCE AS OF 31 DECEMBER 2018 The cash balance in Euro as of 31 December 2018 is as follows: Loan Funds Counter Part Total Funds Special Account Specil Acount221.003,12 0,00 221.003,12 (Halkbank Ankara Corporate Branch) Fixed Funds 0,00 0,00 0,00 Checking Accounts (Local Bank 0,00 0,00 0,00 Account) Total 221.003,12 0,00 221.003,12 5. AMOUNTS PLANNED IN PAD The cumulative amounts for the financing of TEIAS projects under REIP (837 10-TR) are not included in PAD, however the project amounts in the Table of Sources and Utilization of Funds have been taken from the relevant Departments in TEIAS. 2 Ar-1_ 6. INTEREST INCOME The interest is charged by Halk Bank to the Special Account at Ankara Corporate Branch of Halkbank. Since the net interest of 572,69 Euro earned which was acquired from TEIAS's Special Account belonging to year 2017, was accrued on 08.01.2018, it is shown in the Table of Sources and Utilization of Funds belonging to year 2018 and the beginning of 2018, mentioned interest income has been transferred to our running account in the same Bank with the instructions of our Company. However, since the interest income belonging to year 2018 was accrued on 07.01.2019, it hasn't shown in the current period. Those gains are not used for the Project's purposes, they are used to finance ordinary business activities of TEIAS and accounted in the accounting system of TEIAS. 7. EXCHANGE RATE The currency of the credit no. 83710-TR is Euro. However contracts for projects involve one or more currency. Therefore, payments are made the currency specified in the contract. Due to the time and parity difference between invoice amounts and payments dates may occur favorable or unfavorable foreign exchange gain or loss. Related issues has been given a place in the Statement of Sources and Uses of Funds. 8. UNDER DISBURSEMENT The project "2015-!$D/1 1 reference Shunt Reactor Supply" of 2.390.408,75 Euro and "SCADA/EMS System Upgrade" of 38.551,19 Euro were made under payment under 837 10-TR. Paying the invoices at %100 for these projects under 83710-TR until providing the disbursement equality under and over payment between 83710-TR and 16958-TR was found appropriate by World Bank. In 2017, the inequality was eliminated in the project "SCADA/EMS System Upgrade". As of 31.12.2018, 237.701,10 Euro from the project "2015-ISD/11 reference Shunt Reactor Supply" has remained under disbursement from 83710-TR. 04k . AA - 3V