Emaiwl: inl@l gg u0 11 Wbi www.oa(.o.ug V/SION: "To be1 an effecive and5 eiticient Spo AudIit Instiutot (SAl) in p omioting ifeive public (ccountabiliy" M/ SS/N: "7 AIludit and r to mi a thereby make an effecive contibution to) im vn g puic accountabi/l and value /or Mone lpt linid ! IN ANY COR I SPONDE NCE ON -HIS SU[3JECT PLEASE QUOE NO: .. . DCG.304/370/019 12th December, 2018 The Chief Executive Officer, Rural Electrification Agency Kampala MANAGEMENT LETTER ON THE AUDIT OF ENERGY FOR RURAL TRANSFORMATION II/III PROJECT UNDER THE RURAL ELECTRIFICATION AGENCY FOR THE YEAR ENDED 30TH JUNE 2018 In accordance with Article 163, (4) of the Constitution of Uganda 1995 (as amended), I forward herewith audited Financial Statements of the above project for the year ended 30th June, 2018 together with-My report and opinion thereon. John F. S. Muwanga AUDITOR GENERAL Copy to: The Inspector General of Government, Kampala The Hon. Minister of Ethics & Integrity, Kampala The Permanent Secretary/Secretary to the Treasury Ministry of Finance, Planning & Economic Development The Permanent Secretary, Ministry of Energy & Mineral Development The Country Representative, World Bank The Executive Director, REA Project Coordinator, ERT II-REA Manager Finance & Administration, REA Meimber of the Itfr mNiionc Organisation f Supreme Audit Institutions (INTOSAI) Memberi of the Africa Or ganisation of Supreme Audit Institutions (Af7 ROSAI) ) 一 TABLE OF CONTENTS LIST O F A C RO N Y M S ........................................................................................................ 3 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT III REA-FOR THE YEAR ENDED 30TH JUNE, 2018 ............................ 4 O p in io n ......................................................................................................................... 4 Basis of O pin io n .............................................................................................................. 4 Key A ud it M atte rs ........................................................................................................... 5 Em phasis of M atter ......................................................................................................... 5 0 U nder abso rption of funds ....................................................................................................... 5 O the r M atte r .................................................................................................................. 5 " Delayed commencement of fast track lines ............................................................................... 5 " Need to fast track preparations for grid intensification schemes ................................................. 6 O ther Info rm atio n ........................................................................................................... 6 Responsibilities of the Accounting Officer for the Financial Statements ....................................... 7 Auditor's Responsibilities for the Audit of the Financial Statements ............................................ 7 2 LIST OF ACRONYMS Acronym Meaning ERT Energy for Rural Transformation F/Y Financial Year GOU Government of Uganda GEF Grant Environment Facility IDA International Development Agency INTOSAI International Organization of Supreme Audit Institutions ISSA International Standards on Auditing PAPS Project Affected Persons RAP Resettlement Action Plan UGX Uganda Shillings USD United States Dollar 3 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT (ERT III) RURAL ELECTRIFICATION AGENCY FOR THE YEAR ENDED 30TH JUNE 2018 THE RT. HON. SPEAKER OF PARLIAMEN Opinion I have audited the Financial Statements of the Energy for Rural Transformation III implemented by the Rural Electrification Agency, which comprise the Statement of Receipts and Payments, the project special account statement and a summary of significant accounting policies and other explanatory notes, as set out on pages. In my opinion, the Financial Statements present fairly in all material respects, the financial position of Energy for Rural Transformation Project III - Rural Electrification Agency Component as at 30th June, 2017 and of its receipts and expenditure for the year then ended, in accordance with the basis of accounting set out in note 9.1 (a) to the financial statements and in conformity with the donor reporting guidelines and terms and conditions. Basis of Opinion I conducted my audit in accordance with International Standards of Supreme Audit Institutions (ISSAIs). My responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Project in accordance with the Constitution of the Republic of Uganda (1995) as amended, the National Audit Act, 2008, the International Organization of Supreme Audit Institutions (INTOSAI) Code of Ethics, the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B) (IESBA Code), and other independence requirements applicable to performing audits of Financial Statements in Uganda. I have fulfilled my other ethical responsibilities in accordance with the IESBA Code, and in accordance with other ethical requirements applicable to performing audits in Uganda. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Key Audit Matters Key audit matters are those matters that, in my professional judgment, were of most significance in my audit of the financial statements of the current period. I have determined that there are no key audit matters to communicate in my report. 4 appears to be materially misstated. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard. Responsibilities of the Accounting Officer for the Financial Statements Under Article 164 of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 45 of the Public Finance Management Act, 2015, the Accounting Officer is accountable to Parliament for the funds and resources of the Energy for Rural Transformation Project. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the basis of accounting set out in note 9.1 (a) to the financial statements and in conformity with the donor reporting guidelines and terms and conditions, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. In preparing the financial statements, the Accounting Officer is responsible for assessing the project's ability to continue delivering its mandate, disclosing, as applicable, matters related to affecting the delivery of the mandate of the Energy for Rural Transformation Project, and using the donor reporting guidelines unless the Accounting Officer has a realistic alternative to the contrary. The Accounting Officer is responsible for overseeing the project's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements My 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 auditor's report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect a material misstatement, when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in 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 ISSAIs, I exercise professional judgement and maintain professional scepticism throughout the audit. I 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 7 risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my 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 Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. * Conclude on the appropriateness of the accounting officer's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. * 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. I communicate with the Accounting officer regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit. I also provide the Accounting officer with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. From the matters communicated with the Accounting officer, I determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. I describe these matters in my auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because 8 the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other Reporting Responsibilities In accordance with sections 19(1) of the National Audit Act, 2008, I report to you, based on my work described on the audit of Financial Statements that the activities, financial transactions and information reflected in the financial statements that have come to my notice during the audit, are in all material respects, in compliance with the authorities which govern them. John F.S. Muwanga AUDITOR GENERAL 12th December, 2018 REPUBLIC OF UGANDA ENERGY FOR RURAL TRANSFORMATION III (FUNDED BY WORLD BANK) MINISTRY OF ENERGY & MINERAL DEVELOPMENT FINAL ACCOUNTS FOR THE FINANCIAL YEAR 2017/2018 Reports and Financial Statements for the year ended 30 June 2018- Energy for Rural Transformiation ///(Funded hy Wotl ak 1 ENERGY FOR RURAL TRANSFORMATION PROJECT III (ERTIII) (WORLD BANK) RURAL ELECTRIFICATION AGENCY 1.0 PROJECT INFORMATION FOR THE PERIOD ENDED 30TH JUNE 2018. Principal Office Plot 10, Windsor Loop, Kololo, 2nd & 3rd Floor, House of Hope, P. O. Box 7317, Kampala. Tel: (256) 312 264 095 / 6 (256) 312 264 103/ 4 / 5 Fax: (256) 414 346 013 Website: www.rea.or.ug Members of the Rural Electrification Board. Mr. Robert Kasande -Chairman (PS, Ministry of Energy and Mineral Development) Mr. Keith Muhakanizi -Member (PS, Ministry of Finance, Planning & Economic Development) Mr. Ben Kumumanya -Member (PS, Ministry of Local Government) Ms. Olivia Kabaale Kwagala (Representing NGOs) -Member Mrs. Ida Wanendeya (Representing Private Sector) -Member Mrs. Annet Nakawunde Mulindwa -Member (Representing Banking Sector) The Principal Officers of the Project During the Year Mr. Godfrey Turyahikayo - Executive Director/Board Secretary Mr. Godfrey Werikhe - Deputy Executive Director, Operations Mr. Patrick Kyakulaga - Manager, Finance and Administration Mr. Benon Bena - Manager, Off Grid and Renewable Energy Ms. Joan Mutiibwa - Ag. Manager, ERT Ms. Barbara Kasule - Manager, Legal and Board Services Mr. Charles Lutwama - Manager, Investment Planning and Promotion Mr. John Turyagyenda - Manager, Project Development and Management Ms. Deborah Nantume - Manager, Service Territory Development & Operations Bankers Bank of Uganda P.O. Box 7120, Kampala Repots and Financial Statements for the year ended 30 June 2018- Ener for Rural Transformation //(Funded by World Bank) 2 ENERGY FOR RURAL TRANSFORMATION PROJECT III (ERT III). RURAL ELECTRIFICATION AGENCY 2.0 MANAGEMENT REPORT FOR THE YEAR ENDED JUNE 30TH, 2018 The Management of the Energy for Rural Transformation Project (ERT III) submits its annual report and accounts for the financial year ended June 30th, 2018. 2. 1 Project Background The objective of the Project is to increase access to electricity in rural areas of Uganda. The Project constitutes the third phase of a series of projects, and consists of the following parts: Part 1. On-Grid Energy Access, where Rural Electrification Agency is participating. Part 2. Off-grid Energy Access, and; Part 3. Institutional Strengthening and Impact Monitoring ERT III (REA Component) supplements the Rural Electrification Fund (REF) that is administered by the Rural Electrification Board (REB). The Rural Electrification Agency (REA) is the secretariat for the REB. Both REB and the REA are set up by a statutory instrument No. 75, of 2001 under the Electricity Act, 1999. 2.2 Principal Activities The principal activity of the project is as follows: (a) Carrying out of rural electrification investment activities consisting of, inter alia, grid expansion, intensification and associated connections, in particular: (i) construction of approximately 21 priority power distribution lines in accordance with the Indicative Rural Electrification Master Plan; (ii) short grid extensions to medium voltage and low voltage networks; and (iii) last mile/no pole household connections (collectively "REA Subprojects"). (b) Strengthening the capacity of REA through provision of technical advisory services; non-consulting services, training and acquisition of goods for the purpose. Reports and Financial Statements for the year ended 30 June 2018- Energy for Rural Transformation I/(Funded by World Bank) 3 2.3 Operating Results The results for the period ended 30t June 2018 are shown on page 7 of this report. During the year, REA embarked on the procured of contractors for works of the following project areas: * Kiganda-Mile 16 Tee-off Katabalanga and Kyabamirizi. * Ruhumba, Kashwa, Tee-off Rwebishuri. * West Nile (Wandi-Yumbe-Moyo-Onduparaka-Odramachaku-Abiria). The consultancy reports for the Project Affected Persons (PAPs) were completed and the compensation exercise kicked off. Total expenditure amounted to UGX 2,905,466,982 (Two Billion Nine Hundred Five Million Four Hundred Sixty Six Thousand Nine Hundered Eighty Two only) as at 30t"June 2018. Reports and Financial Statements for the year ended 30 June 2018- Energy for Rural Transformation I/(Funded by World Bank) 4 ENERGY FOR RURAL TRANSFORMATION PROJECT III (ERT III). RURAL ELECTRIFICATION AGENCY 3.0 STATEMENT OF MANAGEMENT RESPONSIBILITIES FOR THE PERIOD ENDED JUNE 30TH 2018 The Guidelines for Annual Financial Reporting and Auditing for World Bank-Financed Activities require that annual financial statements are prepared for the project in accordance with the terms acceptable to the bank. It also requires management to ensure that the project keeps proper accounting records, which disclose with reasonable accuracy at any time the financial position and operating results of the project. Rural Electrification Agency (REA) management accepts responsibility for the financial statements for ERT III, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgment and estimates, in conformity with generally accepted accounting practice and in a manner required by the said regulations. REA management is of the opinion that the financial statements give a true and fair view of its operating results. REA management further accepts responsibility for the maintenance of accounting records, which may be relied upon in the preparation of these accounts, as well as adequate systems of internal control. Management is also responsible for safeguarding the assets of the project. Nothing has come to the attention of management to indicate that the operations of the project will not continue into the foreseeable future. Signed on behalf of Rural Electrification Agency: Godfrey R. Turyahikayo Patrick Kya ulaga \ Executive Director Manager Finance & Administration Reports and Financial Statements for the year ended 30 June 2018- Energy for Rural Transformation I(Funded by World Bank) 5 ENERGY FOR RURAL TRANSFORMATION PROJECT III (ERT III) RURAL ELECTRIFICATION AGENCY 4.0 INDEPENDENT REPORT OF THE AUDITORGENERAL TO THE GOVERNMENT OF UGANDA AND THE WORLD BANK ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2018 Reports and Financial Statements for the year ended 30 June 2018- Energy for Rural Transformation Il(Funded by World Bank) 6 MINISTRY OF ENERGY AND MINERAL DEVELOPMENT ENERGY FOR RURAL TRANSFORMATION III PROJECT WORLD BANK- IDA CREDIT No.56530 UG 5.0 STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30.06.18 RECEIPTS Note IDA (SHS) Opening Balance 01.07.2017 9.2 5,611,331,433 IDA Disbursements 9.3 9,739,221,907 GOU Counterpart Funding 15,350,553,340 PROJECT PAYMENTS 221014 - Bank Charges 74,170 Program Costs 225001 - Consultancy Services & Capacity Building 2,905,392,812 221003 - Training Capital Budget 312202 - Projects and Schemes 9.4 Subsidies Motor Vehicles 2,905,466,982 Foreign Exchange Gain 9.5 Balance/Excess of Receipts over Expenditures 9.6 12,445,086,358 Executive Director Manager Finan e & A istration (Accounting Officer) Rep t7s and Financial Statements for the ear ended 30 June 2018- Ener for Rural Transformation II(Funded b World Bank) 7 MINISTRY OF ENERGY AND MINERAL DEVELOPMENT ENERGY FOR RURAL TRANSFORMATION III PROJECT WORLD BANK-IDA CREDIT No.56530 UG 6.0 STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30.06.18 RECEIPTS Note IDA (US$) Opening Balance 01.07.2017 9.2 1,550,114.05 IDA Disbursements 9.3 2,626,189.00 GOU Counterpart Funding 4,176,303.05 PROJECT PAYMENTS 221014 - Bank Charges 20.00 Program Costs 225001 - Consultancy Services & Capacity Building 801,226.13 221003 - Training Capital Budget 312202 - Projects and Schemes 9.4 Subsidies Motor Vehicles 801,246.13 Foreign Exchange Gain 9.5 3,702.38 Balance/Excess of Receipts over Expenditures 9.6 3,378,759.30 Executive Director Manager Financ & Adinis ration (Accounting Officer) Repoits and Financial Statements for the year ended 30 June 2018- Energy for Rural Transformation //(Funded by World Bank) 8 MINISTRY OF ENERGY AND MINERAL DEVELOPMENT ENERGY FOR RURAL TRANSFORMATION PROJECT WORLD BANK IDA CREDIT No.56530 UG 7.0 PROJECT SPECIAL ACCOUNT STATEMENT FOR THE PERIOD ENDED 30.06.2018 ACCOUNT NUMBER: 003270088400006 (REA/ERTIII) DEPOSITING BANK: BANK OF UGANDA CURRENCY: UNITED STATES DOLLARS PART A ACCOUNT IDA (US$) Opening Balance 01.07.2017 1,402,313.02 Add Remittance by Bank 2,626,189.00 Add: Balance in Project Accounts- 01.07.2016 147,801.03 Miscellaneous Income GOU Counterpart Fundmng Sub-total 4,176,303.05 Less Total amount withdrawn for Expenditure (801,246.13) Exchange Rate Gain 3,702.38 Less: Balance in Advance Accounts and Project Accounts-30.06.2018 (189,804.63) Special Account Balance - 30.06.2018 3,188,954.67 Executive Director Manage Finance (Accounting Officer) & Administration Repor9s and Financial Statements for the ear ended 30 June 2018- Ener for Rural Transformation li(FUnded b World Bank) 9 9.0 NOTES TO ACCOUNTS FOR THE YEAR ENDED 30T1" JUNE 2018. 9.1 Accounting Policies The significant accounting policies adopted in the presentation of the Receipts and Expenditure Statement are set out as below: a) Basis of accounting The financial statements are prepared in accordance with the general Guidelines for Accounting and Auditing issued by the World Bank The financial statements are prepared on the cash receipts and disbursement basis of accounting. On this basis, revenue is recognized when received rather than when earned and expenses are recognized when paid rather than when incurred. This basis of accounting is not intended to comply with International Financial Reporting Standards (IFRS). b) Fixed Assets Fixed Assets is expensed in full in the year of purchase. Depreciation is not provided for on those fixed assets since expenditure is written off as incurred. A fixed asset register is maintained to record particulars of fixed assets. c) Foreign Currency Translation The accounting records are maintained in Uganda shillings. Receipts and expenditure in currencies other than Uganda shillings are converted using the exchange rate ruling at the time of receipt of income. 9.2 Opening Balances As at 1/07/2018 (SHS) UGX US$ IDA - Special Dollar Account 5,083,743,825 1,402,313.02 IDA - Project Shillings Account 527,587,608 147,801.03 TOTAL 5,611,331,433 1,550,114.05 9.3 IDA Disbursements (SHS) (US$) World Bank 9,739,221,907 2,626,189 TOTAL 9,739,221,907 2,626,189 9.4 Projects and Schemes No projects undertaken as yet. Repo os and Financial Statements for the ear ended 30 June 2018- Ener for Rural Transformation I(Funded b World Bank) 10 9.5 Exchange Rate Loss/ Gain UGX US$ Exchange Rate Gain 5,872.74 TOTAL 5,872.74 9.6 Fund Balance Statement As at 30/06/2018 (SHS) UGX US$ IDA - Special Dollar Account 11,745,094,473 3,188,954.67 IDA - Project Shillings Account 699,991,885 189,804.63 TOTAL 12,445,086,358 3,378,759.30 Rep os an inancial Statements for the year ended 30 June 2018- Ener for Rural Transformation II(Funded by World Bank) 11