DUSHANBEVODOKANAL SUE Financial Statements and Independent Auditor's Report For the year ended 31 December 2018 DUSHANBEVODOKANAL SUE Contents 3 Independent auditor's report 5 Statement of financial position 6 Statement of comprehensive income 7 Statement of cash flows 8 Statement of changes in equity 9 Index to notes forming part of the financial statements 10 Notes forming part of the financial statements Country of incorporation: 14a S. Aini str., Dushanbe, the Republic of Tajikistan Legal form: State Unitary Enterprise Principal activities: Water treatment, provision of the drinking water to customers of Dushanbe city and maintenance of the water- supply and disposal canals in Dushanbe city Director: Ubaydzoda M.D Tel: +374 60 528899 23/6, Davit Anhaght E-mail: bdo@bdoarmenia.am St., 5th Floor, office 7 www.bdoarmenia.am Yerevan, Armenia Independent Auditor's Report To the Management of the "Dushonbevodokanal" SUE Qualified opinion We have audited the accompanying financial statements of "Dushanbevodokanal" SUE ("Company") which comprise the statement of financial position as at 31 December 2018, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. In our opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraph, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of 31 December 2018, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Qualified Opinion The Company received significant amounts of grants through international donors' financed Projects to develop water supply system in Dushanbe. The Project's created assets and liabilities, as well as related incomes and expenses are not completely and properly accounted and reported in these financial statements as required by the ISA 20, Accounting for Government grants and Disclosure of Government Assistance. We were unable to obtain sufficient appropriate audit evidence due to deficiencies in accounting system related to grants in the Company. Consequently, we were unable to determine amount of adjustments to related items. The Company supplies water to users with water-measures installed (all organizations and 55% of population-users) as well as population-users without water-measures installed. During the reporting year the water supplied to population-users without water-measures amounted to 10 million TJS (or 17% of annual revenue) with numerous adjustments made to amounts initially recorded. We could not obtain sufficient and appropriate evidence supporting those adjustments to revenue due to deficiencies in control system related to revenue on those users. 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 our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical requirements in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Material Uncertainty Related to Going Concern We draw attention to Note 3.3 of the financial statements, which describes that the Company incurred a net loss of 15 million Somoni ("TJS") during the year ended 31 Dec 2018 (for the year ended 31 Dec 2017: 33 million TJS), and as of that date, the Company's accumulated loss is 171 million TJS (as of 31 Dec 2017: 166 million TJS). As stated in Note 3.3, these conditions, along with other matters as set in Note 3.3, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Plans of the Company's management related to this issue are described in Note 3.3 as well. Our opinion is not modified in respect of this matter. Responsibilities of the Management for the Financial Statements Management of the Company is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, 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. BO Armenia cjsc, is a member of BDO International Limited, a UK company Ornited by guarantee, and forms part of the interatfonal BDO network of independent member firms. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as 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 operation, or has no realistic alternative but to do so. Auditor's Responsibility 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 auditor's report that includes our opinion. Reasonable assurance is high level of assurance, but is not a guaranty that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements arise from fraud and 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 judgement 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. * Conclude on the appropriateness of management's use of 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 auditor's 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 auditor's report. However, future events or conditions may cause the Company 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, We communicate with management 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. 21 June 2019 "BDO Armenia" CJSC b Gnet Khachatryan QtF Engagement Part r BDO DUSHANBEVODOKANAL SUE Statement of financial position As at 31 December 2018 In thousands of Somoni Notes As 31.12,2018 As 31.12.2017 Assets Non-current assets Property, plant and equipment 4 300,190 288,402 Intangible assets 2,182 2,396 Prepayments for PPE 3,310 4,423 305,682 295,221 Current assets Inventories 5 5,600 5,842 Taxes recoverable 344 1,255 Trade receivables 6 3,848 4,861 Advances paid 3,220 5,724 Other current assets 83 26 Cash and cash equivalents 7 10,231 4,784 23,326 22,492 Total assets 329,008 317,713 Equity and liabilities Equity Charter capital 8 4,441 4,441 Additional paid-in capital 8 103,617 100,383 Accumulated toss (171,384) (166,201) Revaluation reserve 49,544 59,405 (13,782) (1,972) Non-current liabilities Loans and borrowings 9 221,876 200,611 Grants related to assets TO 80,493 70,852 Deferred tax liabilities 16 11,864 16,043 314,233 -28 7,506 Current liabilities Loans and borrowings 9 11,802 19,560 Trade payables 14,691 9,892 Advances received 215 587 Taxes payable 597 1,091 Other current liabilities 1,252 1,049 28,557 32,179 Total liabilities 342,790 319,685 Total equity and liabilities 329,008 317,713 Signed and authori7ed for issue on 21 June 2019. DMrector,/ Ubaydzoda *tD.. Chief Accouintant Rahirnbvo M. The accompanying notes on pages II to 29 are an integral part of these financial statements. 6 DUSHANBEVODOKANAL SUE Statement of comprehensive income For the year ended 31 December 2018 Year ended Year ended Note 31.12.2018 31.12,2017 Revenue 11 57,377 52,223 Cost of sales 12 (37,018) (38,159) Gross profit 20,359 14,064 Administrative expenses 13 (16,961) (11,838) Selling expenses 14 (9,711) (8,120) Operating loss (6,313) (5,894) Finance costs 15 (8,466) (8,798) Foreign exchange loss, net (11,635) (22,117) Other income 12,267 8,109 Other expenses (4,276) (1,565) Loss before income tax (18,423) (30,265) Income tax (expensel/reimbursement 16 3,379 (2,609) Loss for the year (15,044) (32,874) Other comprehensive income Total comprehensive loss for the year (15,044) 132,874) Signed and authorized for issue on 21 June 2019. Director Ubaydc 0 iDM. D M & C Chief Accountant Rahimqp M. The accompanying notes on pages I1 to 29 ore an integral part of these financial statements. 7 DUSHANBEVODOKANAL SUE Statement of cash flows For the year ended 31 December 2018 Year ended Year ended 31.12.2018 31.12.2017 Operating activities Loss before income tax (18,423) (30,265) Adjustments for: Depreciation 15,813 18,247 Amortization 317 330 Finance costs 8,466 8,798 Addition/{reduction) of allowance on doubtfit debts 239 (236) Income from grants related to assets (6,003) (5,344) Disposal Write off PPE 896 2,377 PPE (added)/written-off as result of inventarization (69) 938 Foreign exchange loss 11,635 22,117 Cash flows from operating activities before changes in working capital 12,871 16,962 Working capital adjustments (Increase)/decreose in operating assets Inventories 242 750 Trade receivables 774 (665) Advances paid 2,504 (1,169) Taxes recoverable 911 (731) Other current assets (57) 61 Increase! (decrease) in operating liabilities Trade payables 4,799 1,785 Taxes payable 523 729 Advances received (372) 133 Grants related to income (1,317) Other current liabilities 203 (1,608) Cash flows used in operating activities 22,398 14,930 Interest paid (4,506) (7,858) Income tax paid (825) (522) Net cash used in operating activities (5,331) 6,550 Investment activities Purchase of property, plant and equipment (24,081) (32,791) Purchase of intangible assets (103) (75) Grants received related to non-current assets 15,644 20,230 Net cash flows used in investing activities (8,540) -12,636) Financing activities Receipt of loans and borrowings 2,297 3,369 Repayment of toans and borrowings (5,630) (4,296) Net cash flows from financing activities (3,333) (927) Net increase/(decrease) in cash and cash equivalents 5,194 (7,013) Effect of foreign exchange difference on cash and cash equivalents 253 1,622 Cash and cash equivalents at the beginning of the year 4,784 10,175 Cash and cash equivalents at the end of the year 10,231 4,784 NON-CASH TRANSACTIONS- property, plant and equipment During the year ended 31 December 2018 the Company received property. plant and equipment from the Government in the amount of 3,234 thousand Somoni (in 2017: 1,632 thousandS50momi. Signed and authorized for issue on 21 June 2019. Director Ub6ydzyo M. D. Chief Accountant Rohimovd M. The accompanying notes on pages 11 to 29 are an integral part of these financial statements. 8 DUSHANBEVODOKANAL SUE Statement of changes in equity For the Year ended 31 December 2018 Additional paid- Revaluation Accumulated in thousands of Somoni Charter capital in capital reserve loss Total As at I January 2017 4,441 98,751 70,989 (144,911) 29,270 Loss for the year -- (32,874) (32,874) Contribution to charter capital - 1,632 1,632 Amortization of revaluation reserve (11,584) 11,584 31 December 2017 4,441 100,383 59,405 (166,201) (1,972) Loss for the year - (15,044) (15,044) Contribution to charter capital 3,234 . 3,234 Amortization of revaluation reserve - (9,861) 9,861 - 31 December 2018 4,441 103,617 49,544 (171,384) (13,782) Signed and authorized for issue on 21 June 2019. Director Chief Accountant RahirnDvo M. The accompanying notes on poges 11 to 29 ore an integral part of these financial statements 9 DUS HAN BEVODOKANAL SUE Index to notes forming part of the financial statements For the Year ended 31 December 2018 CONTENTS 1. G eneral inform ation...................................................................... ... 11 2. Basis of preparation ..........................................................................12 3. Summary of significant accounting policies.................................................13 4. Property, Plant and Equipm ent.............................................................. 19 5. Invento ries.............. ..............................torie.0.....................................20 6. T rad e receivab les.............................................................................. 2 1 7. Cash and cash equivalents......................................................................21 8 . Eq uity ..........................................2. -. ...............................................2 1 9. Loans and borrow ings ...........................................................................22 10. G rants related to assets .....................................................................se-22 1 1 . R e ve n u e ..................... ..................................................................... 2 3 12 . C o st of sa le s ......................................................................................24 13. Adm inistrative expenses............ .......................................................... 24 14. Se tting expe nses.................................................................................24 15. Fina nce costs................... ................... ..............................................24 16. Incom e tax expense ........................... ................................................pe25 17. Related party transactions .....................................................................26 18. Financial instruments and financial risk management objectives and policies.........26 19 . C o ntinge ncie s ............ .......................................................................28 20. Capital m anagem ent ...........................................................................28 21. Fair Value measurement disclosures.......................................................29 1) DUSHANBEVODOKANAL SUE Notes forming part of the financial statermeiits For the year ended 31 December 2018 1. GENERAL INFORMATION Dushanbevodokanal SUE ("DVK" or the "Company") was incorporated in the Republic of Tajikistan as a state unitary enterprise on 11 November 2005 on the basis of the Chairman's decree of the Government of the City of Dushanbe # 379 dated 20 September 2005. The Company's registered office is: 14a S. Aini str., Dushanbe, the Republic of Tajikistan. The principal activity of the Company is water treatment, provision of the drinking water to customers of Dushanbe city and maintenance of the water-supply and disposal canals in Dushanbe city. The average number of employees of the Company during 2018 was 1,248 employees (2017 was 1,214). Share Capital The Government of the City of Dushanbe is the sole Shareholder in reporting and prior years. Share capital of the Company as at 31.12.2018 was 4,441 thousand TJS (as at 31.12,2017: 4,441 thousand TJS). DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 2. BASIS OF PREPARATION 2. 1 Basis of preparation and presentation of Financial Statements These financial statements have been prepared and presented in accordance with International Finandal Reporting Standards (hereinafter IFR5s). IFRSs are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise: * International Financial Reporting Standards; * International Accounting Standards; * International Financial Reporting Interpretations Committee IiFRIC) Interpretations; and * Standing Interpretations Committee (SIC) Interpretations. The principal accounting policies applied in the preparation of these financial statements are set in note 3. These policies have been consistently applied. The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Company management to exercise judgment in applying the Company's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in note 3.4. 2.2 New standards, interpretations and amendments New standards, interpretations and amendments effective from 1 January 2018 * IFRS 9 Financial Instruments (IFRS 9); * IFRS 15 Revenue from Contracts with Customers (IFRS 15), * IFRIC 22 Foreign Currency Transactions and Advance Consideration (IFRIC 22). None of the above mentioned had significant effect on the Company's financial statements. 2.3 New standards, interpretations and amendments not yet effective The following new standards, interpretations and amendments that are not yet effective and have not been applied early in the financial statements will have or may have an impact on the Company's future financial statements. Date by Date Impact of Pronounceme Nature of the impending change in which Company initial nt accounting policy on adoption of the application i plans to application pronouncement of the IFRS is apply the on financial required pronouncem statements ____ _____ _____ ____ ___ _______ ent iitially _______ Under IFRS 16 a lessee recognizes a right-of-use assets and a lease liability. The right-of-use assets is treated IFRS 16 similarly to other non-financial assets 1 January Material 3Leases (2017) and depreciated accordingly and the Early 2019J y tp liability accrues interest. The lease liability is initially measured at the permitted envisaged present value of tease payments payable over the lease term. The interpretation addresses how to IFRIC 23 determine the taxable profit(loss), tax 1 January Impact is Uncertainty bases, unused tax losses, unused tax 2019 Early 1 January imt is Over Income credits and tax rates, when there is adoption 2019 considered Tax uncertainty over treatment under (AS permitted 12, Income Tax. DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3. 1 Functional and presentation currency The financial statements are presented in Tajikistani Somoni (TJS), which is the functional currency of the Company and presentation currency of the financial statements of the Company. Amounts are rounded to the nearest thousand, unless otherwise stated. 3.2 Basis for measurement The financial statements are prepared on the historical cost basis, except the following items: * PPE measured at revaluated amounts (note 4),. 3.3 Going concern The Company incurred financial losses in the reporting and previous years, particularly for the year ended 31 Dec 2018 financial loss of 15,044 thousand TJS (for year ended 31 Dec 2017: 32,874 thousand TJS); which resulted to accumulated loss as at 31 Dec 2018: 171,384 thousand TJS (as at 31 Dec 2017: 166,201 thousand TJS). The losses are mainly due to some factors, including: * low tariffs on water supply and sewerage that do not cover costs; * High amount of depreciation on property, plant and equipment; * risk of uncollectability of old-aged receivables and receivables on water supply to population-users without water measures; * finance costs on credits and significant foreign exchange losses on credits dominated in USD, Management of the Company develops and consistently performs financial recovery program, permanent control and management of liquidity to ensure that the Company has solid cash balances to perform its obligations. The Company's took the following measures to improve financial performance: * Increase water supply and sewerage tariffs to cover reasonable costs; current tariffs set are low compared to costs incurred; * Installing water measures for population consumers. As at 31.12.2018, 105 thousand population- users have water-measures installed (about 55% of total population-users); * Improving water quality, supply volume and coverage through reconstruction and renovation of water supply and sewerage infrastructure; particularly: a filtration capacity at SAM WTP was build and put into operation in 2017, o construction of another SAM WTP is commenced in 2017 with expected completion in Fall 2019 (Note 4.b); * Considering that Company incurs significant losses in foreign exchange inflation on loans dominated in USD, a proposal was submitted to consider mechanism to reduce exposure to the currency risk; * Considering that the Ministry of Finance charges additional interest on credits, a proposal was submitted to reduce the interest rates; * Considering significant amount of the old-aging receivables on water-supply to population, a proposal submitted to a donor to finance the project on validating those debt; * Evaluating the cost structure of the Company and taking cost-reduction measures. After making assessments, the Company's management has a reasonable expectation that the Company is able to continue its operational existence in the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its financial statements. 13 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 3.4 Use of judgments, estimates and assumptions Management has made a number of judgments, estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with rFRSs. Actual results may differ from those estimates. 3.4.1 Estimates and assumptions having significant impact on the application of accounting policy The following are the significant estimates and assumptions made by the Company's management for applying the Company's accounting policies that have material impact on the amounts recognized in the financial statements: a) Fair value measurement - Note 4.e and 23 Some assets and liabilities included in the Company's financial statements require measurement at and/or disclosure of fair value. The fair value measurement of the Company's financial and non-financial assets and liabilities utilizes market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorized into different levels based on how observable the inputs used in the valuation technique utilized are (the fair value hierarchy'): - Level 1: Quoted prices in active markets for identical items (unadjusted) - Level 2: Observable direct or indirect inputs other than Level 1 inputs - Level 3: Unobservable inputs (i.e. not derived from market data). The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognized in the period they occur. b) Useful lives of property, plant and equipment Notes 4.e Management has estimated useful lives of the property, plant and equipment based on its best estimate of the economic lives of the assets as well as its intentions to continue exploitation of the those assets. Management believes that estimated useful lives of the property, plant and equipment are not materially different from economical lives of those assets. If actual useful loves of property, plant and equipment are different from estimates and financial statements may be materially different. c) Impairment of trade receivables Notes 6 The Company regularly reviews its financial assets to access impairment. As of 31 December 2018, the carrying amount of the Company's impaired trade receivables was 3,848 thousand TJS (31 December 2017: 4,861 thousand TJS). The Company uses judgment to estimate the amount of any impairment Loss in cases where a customer is in financial difficulties estimating the changes of future cash flows. If the actual recoverability of receivables varies from the estimated, the carrying amounts of those assets may be different. 3.5. Foreign currency transactions Transactions entered into by Company in a currency other than the functional currency, TJS, are recorded at the rates ruLing when the transactions occur. Settlement rate established by the National Bank of Tajikistan ("NBT") is taken as a currency. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettted monetary assets and liabilities are recognised immediately in profit or toss. 14 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 The currency exchange rate of the National Bank of Tajikistan as of 31 December 2018 for 1 US dollar was 9.4296 TJS (as of 31 December 2017: 8.8190 TJS). 3.6. Property, plant and equipment An item of property, plant and equipment that qualifies for recognition as an asset is measured at its cost. After recognition as an asset, property, plant and equipment carried at revalued amount, being its fair value at the date of the revaluation less any accumulated depreciation and any accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the reporting date. Any revaluation increase arising on the revaluation of such property, plant and equipment is recognized in other comprehensive income (except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged) and is shown as revaluation reserve in shareholder's equity. A decrease in the carrying amount arising on the revaluation of such property, plant and equipment is charged to profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. The revaluation surplus included in equity is transferred directly to retained earnings when the property, plant and equipment is used and when it is disposed. Construction-in-progress represents property, plant and equipment under construction and is stated at cost. This includes cost of construction and equipment and other direct costs. Construction-in-progress is not depreciated until such time as construction of such assets is completed and put into operational use. Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to income in the period when such costs are incurred. The expenditures that have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard performance (increase of useful life, capacity, etc.) are capitalized as an additional cost of property, plant and equipment. 3.7. Financial instruments Financial assets and financial Liabilities are recognized when the Company becomes a part to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred to third parties. Financial assets are derecognized when they are extinguished, discharged, cancelled or expire. Financial assets The Company's financial assets measured at amortized cost in statement of financial position include trade and other receivables, as well as cash and cash equivalents. Cash and cash equivalents include cash and demand deposits in banks. The trade receivables arise principally from the provision of water and sewerage services to water users in city Dushanbe (eg trade receivables). They are initially recognised at fair value (that is amount to be charged), and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. For this purpose the Company measures expected credit losses in a way that reflects probability-weighted amount considering the probability of credit Loss occurrence, even if that probability is very low, For assessment the Company uses an unbiased, reasonable and supportable information that is available without undue cost or efforts at the reporting date about past events, current conditions and forecasts of future economic conditions. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. The expected loss rates are based on the Company's historical credit losses 15 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the Near ended 31 December 2018 experienced over the three year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on economic factors affecting the Company's customers. Financial liabilities The Company's financial liabilities include loans and borrowings as well as trade and other payables. Loans and borrowings are initially recognized at fair value, less transaction costs. Subsequent to initial recognition, loans and borrowings are stated at amortized cost with any difference between cost and redemption value recognized in profit or loss over the period of the borrowings on an effective interest basis. Interest and other costs incurred in connection with borrowings are expensed as incurred as part of finance expenses, except for the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, which are capitalized as part of that asset. Trade and other payables are recognized at fair value and subsequently measured at amortized cost. 3.8. Inventory inventories are valued at the lower of cost or net realisable value. Costs comprise charges incurred in bringing inventory to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, Less the estimated costs of completion and estimated costs necessary to make the sale. The same cost formula is used for all inventories having a similar nature and use. All inventories are valued on the weighted-average cost basis. 3.9. Impairment At each reporting date, property, plant and equipment are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset (or group of related assets) is estimated and compared with its carrying amount. If estimated recoverable amount is tower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognized immediately in profit or loss. Similarly, at each reporting date, inventories are assessed for impairment by comparing the carrying amount of each item of inventory (or group of similar items) with its selling price less costs to complete and sell. If an item of inventory (or group of similar items) is impaired, its carrying amount is reduced to selling price less costs to complete and sell, and an impairment loss is recognized immediately in profit or loss. If an impairment loss subsequently reverses, the carrying amount of the asset (or group of related assets) is increased to the revised estimate of its recoverable amount (selling price less costs to complete and sell, in the case of inventories), but not in excess of the amount that would have been determined had no impairment loss been recognized for the asset (group of related assets) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. 3.10. Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the obligation can be made. Where the Company expects a provision to be reimbursed, for instance an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. 3.11. Revenue from contracts with customers Revenue from water supply and sewerage services is recognised based on actual volumes of services provided during the reporting period. 1 6 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 Performance obligation and timing of revenue recognition The majority of the Company's revenue arises from the provision of water supply and sewerage services to organizations and population in city Dushanbe, Tajikistan. The revenue is recognized at the moment when the control is transferred to the customer. The control transfer is mainly carried out when the water supplied to the customer. There is limited judgement needed in identifying the point control passes; and provision of water supplied and sewerage services is charged to all customers in a monthly basis. Determining the transaction price Company's revenue is derived from fixed tariffs established for the period and therefore the amount of revenue to be earned from each contract is determined by reference to those fixed prices. Allocating amounts to performance obligations The unit price is fixed for each cubic-meter of water supplied (including related sewerage services). Practical Exemptions The Company has taken advantage of the practical exemption, not to account for significant financing components where the time difference between receiving consideration and suppling water to its customer is one year or less. All of the water supply and sewerage services provided by the Company fall into this category. 3.12. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed. 3.13. Current income tax Current income tax assets and tiabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Company operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive loss. 3.14. Deferred tax Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utitised. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive loss or directly in equity. 17 DUSHANBEVODOKANAL SUE Notes forming part of the financial stalemens For the vear ended 31 December 2018 Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 3.15. Contingencies Contingent assets are not recognized in the financial statements. When the realization of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. 3.16. Events after the reporting period The results of post-year-end events that provide additional information on the Company's position at the reporting date (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes to the financial statements when material. I8 DUSHANBEVODOKANAL SUE Notes forming part of the finnilcial statements For the year ended 31 December 2018 4. PROPERTY, PLANT AND EQUIPMENT Movement of property, plant and equipment for the year ended 31 December 2018 is as follows: Machinery Buildings and and Construction in thousands of Somon premises equipment Vehicles Other in-progress Total Cost or Valuation 1 January 2017 213,912 48,925 1,141 43,699 31,570 339,247 Additions 1,893 1,488 396 1,140 18,931 23,848 Reclassifications internat 41,120 - - (44,120) - Disposa/write-off ( 89) (1,706) (1,046 _ (2,841) 31 December 2017 259,836 48,707 1,537 43,793 6,381 360,254 Additions 3,087 1,272 42 596 23,500 28,497 Rectassifications internal 311 85 (85) (311) isposal/write-of _off 1818 (100) _ (65) - (1,043) 31 December 2018 262,356 49,879 1,599 44,304 29,570 387,708 Accumulated depreciation and impairment 1 January 2017 25,901 20,311 353 7,504 - 54,069 Charge for the period 7,548 6,607 135 3,957 18,247 Disposat/wrte-off (24) (394) - (46) -(464) 31 December 2017 33,425 26,524 488 11,415 - 71,852 Charge for the period 7,408 4,473 141 3,791 - 15,813 Disposa:/write-off (69) _ _ 7_ _ 31j7 .1147) 31 December 2018 40,764 30,950 _ 598 15,206 - 87,518 Carrying value 31 December 2017 226,411 22,183 1,049 32,378 6,381 288,402 31 December 2018 221,592 18,929 1,001 29,098 29,570 300,190 (a) PPE additions for the year ended 31 Dec 2018 consist: 2018 TJS'000 From suppliers 25,194 From Government of Republic of Tajikistan (Note 8) 3,234 As a result of inventarizatfon 69 28,497 (b) Assets under reconstruction Assets under construction mainy includes an amount 29,570 thousand TJS relating to Reconstruction of Additional 50% of SAM WTP filters including necessary mains. In accordance with Contract DWSPZAF/W-09 dated 4 October 2017 between the Company and the SAM WTP (Samotechnaya Water Treatment Plant) reconstruction with total contractual price of equivalent of 49,171 thousand TJS, the works commenced in end of 2017 and expected to be completed in Fall 2019. The cost of the buildings will be depreciated once the property is complete and available for use. The financing of Additional 50% of SAM WTP was provided through: 19 DUSHANBEVODOKANAL SUE Notes forming part of the Financial statements For the year ended 31 December 2018 "Additional Financing for the Second Dushanbe Water Supply Project" ("AF Project 2") Financing Agreements IDA Credit Number 5709-TJ and IDA Grant Number D087-TJ both dated 7 August 2015 signed between the iDA and the RoT; and related Subsidiary Credit and Grant Agreement No. TAJ 2015-012 dated 29 December 2015 signed among the RoT, Municipality and the Company; and Project Agreement dated 7 August 2015 between the IDA and the Company. (c) PPE at Nil carrying amount As at 31 December 2018 property, plant and equipment in the amount of 11,161 thousand TJS were fully amortised (as at 31 December 2017: 4,195 thousand TJS). (d) Limitations on PPE As at reporting date, there were no Property, plant and equipment that were pledged as a security for loans and borrowings (as at December 31, 2017: NA), (e) Fair value measurement -Revaluation of PPE The Company's property, plant and equipment are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Last revaluation was performed by an external valuator, and revaluation was reflected in the financial statements as at 31 December 2014. The revaluation resulted to net increase in the PPE value of 103,384 thousand TJS. Due to their unique nature, the fair value of revalued property, plant and equipment are classified into Level 3 of the fair value hierarchy as at reporting date. Without revaluation the carrying value of the property, plant and equipment would been 238,783 thousand Somoni (as at 31 December 2017: 207,410 thousand Somoni). (f) PPE depreciation Depreciation is charged to profit or loss on a straight line basis over the estimated useful lives of the individual assets. Depreciation commences when assets are available for use. The estimated useful lives are as follows: .__ ___ __.__Years Buildings and constructions 25-60 Machinery and equipment 5-25 Vehicles 5-15 Other property and equipment 5-15 Depreciation expense has been charged as follows: 2018 2017 TJS'000 TJS'000 Cost of sales (note 12) 9,729 13,095 Administrative expenses (note 13) 2,595 2,373 Selling expenses (note 14) 3,489 2,779 15,813 18,247 5. INVENTORIES As at 31 December, inventories comprised the following: In thousands of Soroni __ __ _ ___ _ _2018 2017 Spare parts 4,848 5,768 Other materials _ ___ 752 74 5,600 5,842 20) DUSHANBEVODOKANAL SUE Notes forming part of the financial statenents For the year ended 31 December 2018 6. TRADE RECEIVABLES In thousards of Somoni 31,12.2018 3 1 .1 2 .2 0 1 7 Trade receivables from citizens 9,950 10,721 Trade receivables from organizations 1,869 1,571 Trade receivabes from state entities 1,509 1,810 Less: allowance for allowance for uncoilectabiity (9,480) (9,241) Total financial assets other than cash and cash equivalents at amortized cost 3,848 4,861 (a) At 31 December 2018 and 2017, the Company's trade receivables were denominated in TJS. (b) The fair value of trade and other receivables classified at amortized cost does not differ materially from the carrying amount. Jc) The Company's receivables are not ensured with collaterat and other guarantees. (d) To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. Similar credit risks relate to type of customers: with water-measures (all organizations, state entities and part of population) and without water-measures (mainly population users). The historical loss rates are then adjusted for current and forward-looking information on economic factors affecting the Company's customers. Current and up to Up to 180 days More than 180 Total 90 days past due past due days past due TJS'000 Consumers with water-measures (organizations, state entities and port of population) Expected credit loss rate 25% 50% 100% Gross carrying amount 3,022 1,424 4,405 8,851 Loss provision 755 712 4,405 5,872 Population without water-measures - Expected credit loss rate 50% 75% 100% Gross carrying amount 1,295 887 2,295 4,477 Loss provision 648 _ 665 2,295 3,608 1,403 _ 1,377 6,700 9,480 (e) The movements in the alowance for uncoilectability for the years ended 31 December were as follows: In thousands of Somoni _ _ . _2018 2017 Opening 9,241 9,477 Change for year 239 236 Ciosing 9,480 9,241 7. CASH AND CASH EQUIVALENTS In thousands of Somoni 31.12.2018 31.12.2017 Cash in current bank accounts in foreign currencies 2,818 1,144 Cash in current bank accounts in Somoni _ 7,413 3,640 10,231 4,784 8. EQUITY As at December 31, 2018 and 2017, charter capital of the Company amounted to 4,441 thousand TJS which was fully paid by the Company's owner. Additional paid-in capital increase for the year ended 31 December 2018 represents property, plant and equipment transferred from the Government to the Company in the amount of 3,234 thousand TJS (as at 31 December 2017: 1,632 thousand TJS). 21 DUSHANBEVODOKANAL SUE Notes forming part of the financial statenents For the Near ended 31 December 2018 9. LOANS AND BORROWINGS Interest in tnousands of Somoni Date of issue Maturity rate Currency 31.12.2018 31.12.2017 Loan # 3664-TJ (a) 3July 2002 1 May 2032 0.75%-5% USD 144,093 147,766 Loan # 3664-1-TJ (b) 26 April 2007 15 Mar 2037 0.75%-5% USD 44,192 39,544 Government Cofinancing (cI 10 Oct 2011 10 Oct 2022 zero USD 28,289 26,457 Credit # 5709-TJ (d) 29 Dec 2015 15 Dec 2053 0.75%-5%S SDR 7,464 - Government Cofinancing (e) 29 Dec 2015 29 Dec 2025 zero USD 9.140 3,489 Other government loans N/A On demand zero TJS 500 2,915 233,678 198,327 Less: amounts due within 12 months from the reporting date 11,802 14,067 Amounts due for settlement after 12 months 221,876 200,611 (a) On 30 July 2002 the Company has entered into loan agreement with the Ministry of Finance of Republic of Tajikistan ("MoF") for the loan of up to 13,500,000 Special Drawing Rights (SDR) for financing of the project on rehabilitation of water supply services and improvement of water quality performance in Dushanbe city (Project # 1). Interest rate varied from 0,75% until 5% p.a. Interest rate in 2018 was 5.0% (2017: 5.0%). In accordance with payment schedule the Company started repayment of principal and interest since 1 November 2007. The maturity of the loan agreement is 1 May 2032. (b) On 26 April 2007, the Company concluded addendum to the loan agreement dated 30 July 2002 for the additional loan of up to 3,400,000 SDR at the interest rate varying from 0.75% until 5% p.a. and with maturity by 2037. Interest rate in 2018 was 5.0% (2017: 5.0%). The purpose of the Loan is financing of further rehabilitation of water supply services in Dushanbe city. (c) On 10 October 2011 the Company has entered into Subsidiary Grant Agreement No. 3 signed among the Local Executive Branch of the Government of the City of Dushanbe ("Municipality") and the MoF for the loan of up to 3,000,000 United States dollars (USD) for co-financing of the construction projects (Note 4). Interest rate for grace period, for first 5 years, is zero. The maturity of the loan agreement is 10 Oct 2021. (d) On 29 December 2015 the Company has entered into Subsidiary Grant Agreement No. 3 dated 10 October 2011 signed with the Municipality and the MoF for the loan of up to 4,000,000 SDR related to the IDA Credit No. 5709-TJ for financing of the project on bui(ding SAM WTP (Note 4.b). The annua. interest rate is set 0.75% during the 6 years of grace period, and after grace period, from 1.175% until 5% p.a. Interest rate in 2018 was 0.75% (2017: 0.75%). In accordance with payment schedule the Company will start repayment of principal and interest since 15 June 2022. The maturity of the loan agreement is 15 December 2053. le) On 29 December 2015 the Company has entered into Subsidiary Grant Agreement No. 2015-012 signed with the Municipality and the MoF for the loan of up to 1,000,000 USD for co-financing of the building SAW WTP (Note 4.b). Interest rate for grace period, for first 5 years, is zero. The maturity of the loan agreement is 29 Dec 2025. 10. GRANTS RELATED TO ASSETS Movements of the grants related to assets were as follows: In thousands of Somoni _ ____ 2018 2017 As at 1 January 70,852 55,966 Receipts of grants 15,644 20,230 Amortization of grants (6,003) (5,344) As at 31 December 80,493 70,852 The grants were provided to the Company by the Republic of Tajikistan for development of water supply system in Dushanbe; particularly relate to construction/reconstruction of SAM WTPs and purchase and installation of water- measures for the population-users at Dushanbe (Note 4): * IDA Grant Number H692-TJ dated 13 July 2011 Project 2: * IDA Grant Number D087-TJ dated 7 August 2015 -Additional financing for Project 2. DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 1. REVENUE Revenue for the year ended 31 December comprised the following: in thousands of Somoni _ ___ 2018 2017 Revenue from population for Water supply 19,813 17,738 Sewerage services 5,114 4,058 Revenue from organizations for Water supply 10,054 9,118 Sewerage services 3,833 3,664 Revenue from state entities for Water supply 13,703 12,784 Sewerage services 4,860 4,861 57,377 52,223 Revenue from water supply and sewerage services is recognised monthly based on actual volumes provided during the reporting period. Water supply tariffs are set by defined by the Government of the City of Dushanbe. 1/ Tariffs for users with water-measures installed As of 31.12.2018, all organizations and state entities, about 10 thousand units, have water-measures in order to get water supply; while from total 194 thousand population-user only 55% has water-measures installed (as at 31.12,2017: 48%). Tariffs for year 2018 is set as follows (without VAT of 18%): a) Till Oct 31, 2018 in accordance with the Dushanbe Municipa0ty Decree N 52 dated 28 June 2016 per 1 m3 consumed water: in 5omoni per 1m3 Water Sewage Total Organizations 3.00 1.56 4.56 State entities 1.15 0.52 1.67 Population 0.39 0.14 0.53 b) Since Nov 1, 2018 in accordance with the Dushanbe Municipality Decree N 625 dated 17 Sept 2018 per 1 m3 consumed water In Somoni per im3 Water Sewage Total Organizations 3.75 1.95 5.70 State entities l) 1.15 0.52 1.67 Population 1.47 0.51 1.98 (*) Tariff for state entities is changed from Jan 1, 2019, in accordance with the same decision, as fol,ows: Water - 1.55, Sewerage - 0.70, total - 2.25 TJS. 2/ Tariffs for users without water-measures installed For population-users without water-measures installed, the water supply monthly volume is set per each person Living at that user place as follows: a) Till Oct 31, 2018 in accordance with the Dushanbe Municipality Decree N 52 dated Z8 June 2016 Im'): Cube meters Water Sewage Apartments up to 12 floor 10.8 11.0 Apartments over 12 floor 14.4 11.4 Dormitories 9.0 9.0 Houses 7.5 3.0 2 3 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 b) Since Nov 1, 2018 in accordance with the Dushanbe Municipa[ity Decree N 625 dated 17 Sept 2018 (TJS): Cube meters Water Sewage Total Apartments up to 12 floor 5.29 1.84 7.13 Apartments over 12 floor 7.06 1.94 8.99 Dormitories 441 1.53 5.94 Houses 3.68 0.51 4.19 12. COST OF SALES Cost of sales for the year ended 31 December comprised the following: in thousands of Somoni 2018 2017 Depreciaton 9,729 13,095 Materials 10,171 10,870 Salary and related taxes 11,524 10,339 Electricity S,306 3,324 Other 288 531 37,018 38,159 13. ADMINISTRATIVE EXPENSES Administrative expenses for the year ended 31 December comprised: in thousands of 5omoni 2018 2017 Depreciation 2,661 2,373 Salary and related taxes 2,934 3,324 Accrual of allowance receivables uncoliectability 240 - Fines and penalties 972 601 Materials 4,803 3,260 Taxes and other obligatory payments 4,073 1,179 Bank charges 135 122 Other 1,143 979 16,961 11,838 14. SELLING EXPENSES Selling expenses for the year ended 31 December comprised: In thousands of Somoni 2018 2017 Salary and related expenses 4,606 4,223 Depreciation 3,740 2,779 Taxes and other obligatory payments 1,198 1,118 Other 167 9,711 8,120 15. FINANCE COSTS Finance costs for the year ended 31 December comprised: in thousands of Somon 2018 2017 Interest expense on loans and borrowings (Note 10) 8,466 8,798 8,466 8,798 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 16. INCOME TAX EXPENSE The Company is subject to corporate income tax at the statutory rate of 23% (in year 2017: 23%). In accordance with the Republic of Tajikistan legislation, the Company has to incur the minimal current income tax expenses of 1% from revenue. In thousonds of Somani _2018 2017 Deferred income tax expense/(reirnbursement) t4179) 2,087 Current income tax expense __ __ _ _ 800 522 Income tax expense/(reimbursement) (3,379) 2,09 A reconciliation of income tax expense applicable to ioss before income tax at the statutory income tax rate of 23% to current income tax expense Ifor year 2017: 23%) was as follows: in th o usa nds of Som o ni _ _ 20 18 20 17 Loss before income tax (18,423) (30,265) Statutory tax rate ______23% 23% Theoretical tax charge/(reirmbursement) at statutory rate (4,237) (6,961) Tox effect of permanent differences Minimal tax (1% of revenue) 574 522 Effect of foreign exchange loss 2.676 5,087 Effect of other non-deductible expenses/(nori-taxable incnme), net 4,366 3,961 Income tax expense/(reimbursement) 3,379 2,09 The deferred tax balances as at 31 December were as follows: n thousands of Somoni __ 31.122018 3 1 .1 2 .2 0 1 7 Deferred tax assets Trade receivables 2,181 2,125 Inventory 754 755 Deferred tax assets _ _ 2,935 2,880 Deferred tax liabilities Property, plant and equipment (14,799) _ _ (18,923) Deferred tax liabilities (14,799) (18,923) Net deferred tax liabilities (11,864) (16,043) The deferred tax movement for year ended 31 Dec 2018 is as follows: Recognized in profit Recognized in In thousands of Somoni -As at 01.01.2018 and loss Equity As at 31.12.2018 Deferred tax assets Trade receivables 2.125 56 2,181 Inventory _ 754 754 Deferred tax assets 2,879 .56 2,935 Deferred tax liabilities Property, plant and equipment 118,922) 4,123 (14,799 Deferred tax liabilities (18,922) 4,123 - (14,179) Net deferred tax assests/(Iiabilities) (16,043) 4,179 - (11,864) DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 17. RELATED PARTY TRANSACTIONS Related parties include key management personnel of the Company, entities in which a substantial interest in the voting power is owned, directly or indirectly, by the Government of the Republic of Tajikistan. Terms and conditions of transactions with related parties Related party transactions were made on the terms agreed to between the parties that may not necessarily be at market rates, except for water supply and sewerage services, which are provided based on the tariffs defined by the Ministry of Economic Development and Trading of the Republic of Tajikistan. Outstanding balances at the year-end are unsecured, non-interest bearing and settlement occurs in cash, except as indicated below. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the retated party operates. The major transactions with related parties during the year ended December 31, 2018 and 2017 were as follows: In thousands of Somoni _ _ __ _ 2018 2017 Loans and borrowings (Note 9) 9,140 3,369 Grants related to assets (Note 10) 15,644 20,230 Trade receivables (Note 6) 289 1,810 Trade payables 9,602 8,905 Advances received 41 263 Revenue (Note 11) 16,377 15,745 Purchases 3,234 1,632 Finance cost (Note 15) 8,466 8,798 Compensation to key management personnel Key management personnel consist of the Company's Management Board members totalling five persons as at December 31, 2018 and 2017. Total compensation to the key management personnel included in administrative expenses in the amount of 163,348 thousand TJS for the year ended 31 December 2018 (for the year ended 31 December 2017: 120 thousand TJS). Remuneration to key management personnet mainly consists of salaries and other benefits. 18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Company's principal financial instruments comprise interest bearing loans and borrowings, trade and other receivables, cash and cash equivalents and accounts payable. The Company is exposed to liquidity risk, credit risk and foreign currency risk. The Company's senior management oversees the management of these risks. The senior management ensures activities of the Company exposed to financial risks are carried out in accordance with the appropriate policies and procedures and financial risks are determined, assessed and managed as per the Company policies and based on its readiness to assume the risks. Financial instruments by category a) Financial assets In thousands of Somoni 31.12,2018 31.12.2017 Loans and receivables Trade receivables (Note 6) 3,847 4,861 Cash and cash equivalents (Note 7) 10,231 4,784 Total financial assets 14,079 9,645 a) Financial liabilities In thousands of Somoni 31.12.2018 31.12.2017 Financial liabilities at amortised cost Loans and borrowings (Note 9) 233,678 220,171 Trade payables 14,691 9,892 Tota.l financial assets _ ___ _ 248,369 230,063 Interest rate risk 216 DUSHANBEVODOKANAL SUE N otes forming part of (he finaincial statements For the.%ear ended 31 December 2018 Interest rate risk is the risk that tne fair vatue or future cash flows of a financial instrument wilt fluctuate because of changes in market interest rates. The Company's has no exposure to the risk of changes in market interest rates as long-term borrowings carry fixed interest rates, Cash in bank A significant amount of cash is held with the following instituions: In thousands of Somoni ______ ___ ____31.12.2018 31,12,2017 PLC "Eskhata Bank" 8,236 2,710 OJSC "To]iksodirotbank" 15 1,285 SSB "Amonatbonk" 1,581 789 CJSC "lnternau onal Bank of Tajikistan" 396 Total cash at bank accounts 10,229 4,784 Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument wilU fluctuate because of changes in foreign exchange rates. The Company's exposure to tne currency risk relates to the commercial transactions, recognized assets and (iabilities expressed in a currency different from the functional currency. The major currency risk exposure relates to borrowMngs oalances in USD. As of 31.12.2018 the Company had the following financial assets and liabilities in foreign currencies (amounts in thousands TJIS). In other Db/(Cr) In USD -- -currencies_ Total Current assets Cash and cash equivalents 2,799 17 2,816 Liabilities Trade payabile Loans and borrowings (233,1781 - (233,178) (230,379) 17 (230,362) The currency excnange rate of the National Bank of Tajikistan as of 31 December 2018 was 9.4296 Tajikistani Somoni per 1 US dollar (as of 31 December 2017: 8.81 90 Tajikistani Somoni per i US dollar). Annual inflation of TJS against USD for year ended 31 Dec 2018 was 6. 5%, Sensitivity Analysis The 10% of depreciation of rho TJS against the mentioned currencies in comparison to that of 31 December 2018 will reduce the equity by 23,038 thousand TJS. This analysis assumes that all the otner variables, particuiarty the interest rates will remain unchanged. The 10% of appreciation of the TJS against tie mentioned currencies in comparison to that of 31 December 2018 would have the same amount but an opposite impact on the equity based on the assumption that all the other variables would stay unchanged. Credit risk Credit risk is the risk that one party with financial instrument will not be able to fulfil an obtigation and cause the other party to incur a financial loss. The Company is exposed to credit risk as a resuLt of its operating activities. With respect to credit risk arising from other financial assets of the Company, which comprise cash and cash equivalents, trade receivables, the Company's exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying value of these instruments. The impacted of credit risk is presented at foLtowing carrying amount of financial assets. As of 31 December As of 31 2018 December 2017 TJS'000 TJS'000 Trade and other receivabtes 3,847 4,861 Bank balances 10,231 ___ 4,784 14,079 9,645 27 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 The information on the aging and uncollectible risk of trade and other receivables are presented in note 6. The credit risk of cash and cash equivalents is acceptable, as the contractual partners are reputable banks. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from inability to sell a financial asset immediately at the value approximating its fair value. The Company monitors its risk to a shortage of funds using a recurring liquidity p(anning tool. This tool considers the maturity of both its financial investments and financial assets. The table below summarizes the maturity profile of the Company's financial liabilities at 31 December based on contractual undiscounted payments. Less than 1-5 >5 In thousands of 50moni 6 months 6 to 12 months years _ars At 31 December 2018 Loans and borrowings 4,050 8,059 37,630 183,879 Trade payables 14,691 - 18,741 8,059 37,630 183,879 19. CONTINGENCIES Insurance The Company does not have coverage for its facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Company's property or relating to Company's operations, except for third party liabilities arising from car accidents. Contingent liabilities and provisions As at 31.12.2018 and date of signing these financial statements there were no litigations initiated against the Company. During the reporting year, the Company initiated 565 disputes against the water-users regarding to delays in the payments for water supplier in the total amount of 3,078 thousand TJS (In year 2017: 533 disputes with total amount of 2,992). During the year about 1,500 thousand TJS was coltected from those debts. Environmental matters Management is of the opinion that the Company has met the Government's requirements concerning environmental matters and, therefore, believes that the Company does not have any current material environmental liabilities. However, environmental legislation in Tajikistan is in process of development and potential changes in the legislation and its interpretation may give rise to material liabilities in the future. 20. CAPITAL MANAGEMENT The Company manages its capital to ensure that it will be able to continue as going concerns. The capital structure of the Company consists of borrowings (current and non-current liabilities) and equity comprising issued capitai, reserves and retained earnings. 28 DUSHANBEVODOKANAL SUE Notes forming part of the financial statements For the year ended 31 December 2018 The Company's as capital-managed amounts are summarized below: In thousand TJS As of 31 December As of 31 December 2018 2017 Borrowings 233,678 220,171 Less: cash and cash equivalents (10,231) (4,784) Net debt 223,447 215,387 Total equity (13,782) (1,972) Capital/Debt Ratio n/a 0% 21. FAIR VALUE MEASUREMENT DISCLOSURES The following table sets out the assets and liabilities for which fair values are disclosed in the notes: Fair value Fair value Significant Item TJS'000 Valuation technique hierarchy level unobservable inputs Current Loans and 233,678 The carrying amount of borrowings N/A Borrowings approximates its fair values. Current The carrying amount of short term Trade 3,847 (tess than 12 months) trade Level 3 N/A receivables receivables approximates its fair values. Current The carrying amount of short term Trade payables 14,691 (less than 12 months) trade Level 3 N/A payabtes approximates its fair va.ues. 29