RUE "Belinvestenergosberezhenie" Financial statements of the "Belarus Biomass District Heating Project" #8351 BY for the year ended 31 December 2018 CONTENTS IN DEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS 3 .1 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 2018 6 STATEMENT OF USES FUNDS BY PROJECT ACTIVITY FOR THE YEAR ENDED 31 DECEMBER 2018 7 SPECIAL ACCOUNT STATEMENT FOR THE YEAR ENDED 31 DECEMBER2018 9 STATEMENT OF EXPENDITURE WITHDRAWAL SCHEDULE FOR THE YEAR ENDED 31 DECEMBER 2018 10 NOTES TO THE FINANCIAL STATEMENTS 11 nUeennent AuJitors' Reoort To the participants and management of RUE "Belinvestenergosberezhenie" We have audited the financial statements of the "Belarus Biomass District Heating Project" #8351 BY (hereinafter - Project) prepared by RUE "Belinvestenergosberezhenie" (hereinafter - Company), 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 2018, and notes to the financial statements comprising main accounting policies and other explanatory information. In our opinion, the accompanying financial statements are prepared, in all material respects, in accordance with the Loan Agreement 8351 BY with the World Bank and in conformity 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"), as described in the Note "Basis of accounting" to the financial statements. 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 Auditors'Responsibilities for the Audit of the Financial Statements section of our report. We are independent of RUE "Belinvestenergosberezhenie" in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Belarus, and we have fulfilled our other ethical responsibilities in accordance with these requirements in the Republic of Belarus 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 - Basis of Accounting and Restriction on Use and Distribution We draw attention to the Note "Basis of accounting" in the financial statements, which describes the basis of accounting. The financial statements are prepared to assist RUE "Belinvestenergosberezhenie" to meet the financial reporting requirements under the Loan Agreement 8351 BY with the World Bank. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for 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. RUE "Belinvestenergosberezhenie" Independent Auditors' Report Page 2 Responsibilities of Management and Those Charged with Governance for the Fmnancial Statements Management is responsible for the preparation of the financial statements in accordance with the Loan Agreement 8351BY with the World Bank and in conformity 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"), as described in the Note "Basis of accounting" to the financial statements, 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. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. 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 Company's internal control. - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. RUE "Belinvestenergosberezhenie" Independent Auditors' Report Page 3 - Conclude on the appropriateness of management'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 Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Company to cease to continue as a going concern. We 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. The engagement partner on the audit resulting in this independent auditors' report is: Vasyl Pay nko Audit Dire r LLC "KPMG" Minsk, Republic elarus April24,2019 Audit company: KPMG, a Limited liability company and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (cKPMG Intemationaix}, a Swss entity. Registration details: registered by Minsk City Executive Committee on 10 February 2011, Registration number in the in the Unified State Register of legal entities and individual entrepreneurs Na 191434140 Legal address: 49 Platonova str., 7th floor, 220012 Minsk Belarus. Audited entity RUE 'BelinvestenergDherezhenie" Registration details: Registration number in the in the Untied State Register of legal entities and individual entrepreneurs N 10145642. Legal address: 29 Masherova an, 220002 Minsk Belarus. 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 2018 Actual Planned For the year For the whole ended 31 Cumulative project period December 2018 total amount poetpro Opening Cash Balance Project Bank Account World Bank Special Account TOTAL Plus: Sources of Funds Government Funds 6 World Bank Funds 6500000 57805 000 Direct payments 6 5 05 000 Special Account 6500000 57805000 TOTAL 6500000 5 7 8 0 5 0 0 0 Less: Uses of Funds Financed by World Bank 7019285 56904427 90000000 Works, goods, consultant's services, training 7019285 56679427 89775000 Front End Fee - 225 000 225000 Financed by Government TOTAL 7019285 56904427 Closing Cash Balance Project Bank Account World Bank Special Account TOTAL 900573 900573 ent vere approved by the management on April 24, 2019 and on behalf of the m Qg c- Chief accountant VV i 6 th T.P. Bushkevich The notes 66-pages from 11 to 14 form an integral part of the financial statements. Statement of Uses of Funds by Project Activity for the year ended 31 December 2018 (in USD) Project activities For the year ended Cumulative total 31 December 2018 amount 1. Contracts for Design, Supply and Installation of Plants MINSK 1 637 403 9 161 027 BDHP/ICB/14/01 177 636 1 721 628 BDHP/ICB/15/05 456889 4568721 BDHP/DC/17/01 1 002 878 2 870 678 Bank commission 35 65 MOGILEV 141 689 8347377 BDHP/ICB/14/02 -3 868 728 BDHP/ICB/14/03 -3 306 000 BDHP/ICB/16/01 141 689 1 172 649 Bank commission - - BREST 855265 10870771 BDHP/ICB/14/04 - 5 199240 BDHP/ICB/15/01 - 1518 633 1 BDHP/ICB/15/02 - 1 909746 IBDHP/DC/17/02 466 215 1 854 102 BDHP/ICB/18/01 389050 389050 Bank commission - 6 GRODNO 1924375 887823 BDHP/ICB/15/03 1924375 8817823 Bank commission - - GOMEL 2357127 18835970 BDHP/ICB/15/04 - 2367548 BDHP/ICB/15/06 2 357 127 13 631 899 BDHP/ICB/15/08 - 2836523 Bank commission 35 171 70 242 Bank commission for Component 1 Total for Component 1 6915929 56033209 2. Consulting services, project management unit's costs 103 335 646 167 7] 7 Bank commission for Component 2 1 34 Total for Component 2 103356 646218 225 000 Front-end Fee Total Project Expenditure 7 56904427 Te approved by the management on April 24, 2019 and on behalf of the Chief accountant V nir6cg.' T.P. Bushkevich The notes on pages from 11 to 14 form an integral part of the financial statements. 8 Special Account Statement for the year ended 31 December 2018 (in USD) Bank where the special account was opened OJSC "Belinvestbank" Account Number BY98BLBB36200101458672001006 Opening balance at the beginning of the period 1419858 Add: 6500000 World Bank advances into the SA during the period Less: Withdrawals for the project during the period 7019285 Refunds to World Bank from the S.A. durn the period Total withdrawals during the period Closing balance as at the end of0te5prio ThefA 11-1661' re approved by the management on April 24, 2019 and on behalf of the m .t Chief accountant V.V. Kny.ii T.P. Bushkevich The notes on pages from 11 to 14 form an integral part of the financial statements. Statement of Expenditure Withdrawal Schedule for the year ended 31 December 2018 (in USD) Number of Works, goods, Amount received on application for Date of withdrawal consultant's services, special account withdrawal training 79 23.01.2018 2567 891 80 29.01.2018 2900000 81 02.05.2018 1 289 680 82 13.06.2018 9563706 83 14.06.2018 - 3600000 84 14.09.2018 667 618 85 17.12.2018 2468736 86 28U12,2018 219 468 87 31.12.2018 1 417079 TOTAL 9581171 6500000 The.fia n tIsItere approved by the management on April 24, 2019 and on behalf of the Chief accountant D .ir T.P. Bushkevich The notes on pages from 11 to 14 form an integral part of the financial statements. 10 Notes to the financial statements For the year ended 31 December 2018 (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 2016-2020 State Prograim of "Belarusian Forest" approved by Resolution 215 dated March 18, 2016, of the Council of Ministers of the Republic of Belarus. According to this program annual increase in the production of wood fuel and the production of fuel wood chip is planned. The assignments to the Ministry of Forestry of the Republic of Belarus for the production of wood chip by regions are defined. Wood fuel/wood chips will be supplied for the Project under contracts between facility operators/utilities and regional/district forestry companies. The Project provides for introducing wood chip-fired boilers and upgrading central district heating systems in 13 settlements in the regions of the Republic of Belarus: 1. Grodno region (Volkovyssk Town); 2. Brest region (Baranovichi Town, Berioza Town, Ivanovo Town); 3. Minsk region (Cherven Town, Starye Dorogi Town, Kholopenichi Settlement); 4. Mogilev region (Kadino Settlement, Cherikov Town, Veremeiki Settlement); 5. Gomel region (Kalinkovichi Town, Ziabrovka Settlement, Zarechje Settlement). At 11 settlements, the work was completed by the end of 2018: 1. Brest region (Berioza Town, Ivanovo Town); 2. Minsk region (Starye Dorogi Town, Kholopenichi Settlement); 3. Mogilev region (Kadino Settlement, Cherikov Town, Veremeiki Settlement); 4. Gomel region (Ziabrovka Settlement, Zarechjc Settlement, Kalinkovichi Town); 5. Grodno region (Volkovyssk Town). Work continues on the settlements in Brest Town, Cherven Town. In order to make full use of the loan with account of the directive N 199rp dated 13 December 2017 of the President of the Republic of Belarus, contracts for 2 objects were signed: 1. "Construction of a Block-Modular Domestic Fuel Fired Boiler House on the Territory of Boiler House No.1 in 109 Sovetskaya Str. in the City of Kobryn"; 2. "Construction of a Block-Modular Domestic Fuel Fired Boiler House in Prishchepy Str. in the Town of Buda-Koshelevo with Re-laying of Heating Mains". Construction and upgrading of all considered objects is provided for 2014-2019. This would be due to the additional production and sale of electricity generation, which is planned to begin to be produced on the electric generating set 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 in accordance with the Loan Agreement 835 1BY with the World Bank and in conformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities". 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". RUE "Belinvestenergosberezhenie" keeps its records and prepares its financial statements on the case-based method. Cash inflows are recognized at the moment of cash inflow from the World Bank. Expenses are registered at the date of withdrawal from the special accounts of the Project. 12 Notes to the financial statements For the year ended 31 December 2018 (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 2018. Functional currency and financial statements currency The national currency of the Republic of Belarus is Belarussian ruble and this currency is the functional currency of the Project. In accordance with the requirements of the World Bank USD is the currency of the financial statements. Payments made in Belarusian rubles are presented in the financial statements in USD at the actual bank exchange rate at the date of foreign currency sale. 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". Project accounts Project accounts opened in OJSC "Belinvestbank", which comply with the requirements of the World Bank. Special foreign currency account of the project X9 BY98BLBB36200101458672001006 is opened in USD. Budget project account 2 BY82BLBB36200101458672001003 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 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 funds Percentage of costs to be (in USD) financed (1) Goods, works, consultants' 89 775 000 100 % 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 World Bank Audit Documentation Checklist Name of Loan/Credit: "Belarus Biomass District Heating Project" Loan/Credit # 8351-BY Auditors' Report: April 24, 2019 Check if Check if Included NIA 1. Auditors' Report (Opinion): A. Applicable accounting standards noted X B.Applicable auditing standards noted C.Opinion rendered on all forms of withdrawals: 1. Statement of Expenditures for the year ended 31 December 2018 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 2018 2.Statement on use of designated account X IIII.Notes to the financial statements III1I X IV.Reconciliation between World Bank records and X |project records JV.Management Letter X I A