POWER SECTOR FINANCIAL RECOVERY PROGRAM IBRD LOAN NUMBER 8615-AM SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT For the year ended 31 December 2018 YEREVAN March 2019 POWER SECTOR FINANCIAL RECOVERY PROGRAM IBRD LOAN NUMBER 8615-AM TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS 3 INDEPENDENT AUDITOR'S REPORT 4-5 SPECIAL PURPOSE FINANCIAL STATEMENTS For the year ended 31 December 2018: Statement of program expenditures by implementing entities 6 Statement of funds received under categories 7 Statement of funds received under program activities 9 Summary of funds received under each DLI 11 Statement of Segregated Accounts 12 Notes to the special purpose financial statements 13 2 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS The Program is implemented through the Ministry of Energy Infrastructure and Natural Recourses of the Republic of Armenia ("MEINR") with the assistance of "Armenian Nuclear Power Plant" CJSC ("ANPP"), "Yerevan Thermal Power Centre" CJSC ("YTPC") and Public Services Regulator Commission of the Republic of Armenia ("PSRC"). The Program management is responsible for the preparation of the special purpose financial statements of "Power Sector Financial Recovery Program" (hereafter: the Program) financed by Loan Agreement IBRD Loan Number 8615-AM that present fairly the Program's · expenditures by implementing entities, cash flows, Funds received, and movement of segregated ·accounts for the year ended 31 December 2018, in accordance with the International Public Sector Accounting Standard "Financial Reporting under the Cash Basis of Accounting" (IPSAS-Cash Basis) issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC) and the Financial Management Manual for World Bank Financed Investment Operations (WB Guidelines). In preparing the special purpose financial statements, the Program management is responsible for: • Properly selecting and applying accounting policies; • Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • Providing additional required disclosures for the year ended 31 December 2018 . Program management is also responsible for: • Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Program; • Maintaining adequate accounting records that are sufficient to show and explain the Program's transactions, and which enable them to ensure that the special purpose financial statements of the Program comply with IPSAS - Cash Basis and the WB Guidelines; • Taking such steps that are reasonably available to them to safeguard the assets of the Program and to affirm that funds received have been used in accordance with the Loan Agreement IBRD Loan Number 8615-AM signed on 12 May 2016, and World Bank related guidelines, with due attention to economy and efflciency, and only for the purposes for which the financing was provided; and • Preventing and detecting fraud and other errors. The special purpose financial statements for the year ended 31 December 2018 were authorized for issue on 25 March 2019 by the Program management. ~/ 7 M . Sasun Khachatryan it General Director o .YTPC 3 IBDO 23 6 Davi1 Anhaght Str. 5tn Floo . office 7 INDEPENDENT AUDITOR'S REPORT To t he Ministry of Energy Infrastructure and Natural Recourses of the Republic of Armenia ("MEINR") Opinion We have audited the special purpose financial statements of "Power Sector Financial Recovery Program" ("Program") financed by Loan Agreement IBRD Loan Number 8615-AM signed on 12 May 2016 ("Loan Agreement"), and implemented by MEINR, with the assistance of "Armenian Nuclear Power Plant" CJSC ("ANPP"), "Yerevan Thermal Power Centre" CJSC ("YTPC") and Public Services Regulator Commission of the Republic of Armenia ("PSRC"), which comprise the statement of program expenditures by implementing entities, statement of fund received under categories, statement of funds received under program activities, Summary of Funds received under each DLI, and the statement of segregated accounts for the year ended 31 December 2018, and notes to the special purpose financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the cash flows for the year ended 31 December 2018 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting, (IPSAS·Cash Basis). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). 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 Program, of the MEINR, of the ANPP, of the YTPC and of the PSRC 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 opinion. Emphasis of Matter- Special purpose framework We draw attention to Note 2 to the financial statements, which describes that financial statements are prepared in accordance with special purpose framework, as a result, they may not be suitable for another purposes. Our opinion is not modified in respect of this matter. ResponsibilWes of the Management for the Financial Statements Management of the Program is responsible for the preparation and fair presentation of the special purpose financial statements in accordance with IPSAS-Cash Basis issued by the International Public Sector Accounting Standards Board (I PSASB) of the IFAC and Financial Management Manual for World Bank Financed Investment Operations ("WB Guidelines"), and for such internal control as management determines is necessary to enable the preparation of special purpose financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility for the Audit of the Special Purpose Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose financial statements as a whole are free from material misstatement, whether due to fraud or error, and t o 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 special purpose financia l 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 special purpose 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 pu rpose of expressing an opinion on the effectiveness of the internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Evaluate the overall presentation, structure and content of the special purpose financial statements, including the disclosures, and whether the special purpose 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. Report on Other Legal Requirements To comply with the terms of the Loan Agreement, the Program's management shall insure that: 1. funds have been used in accordance with the conditions of the Loan Agreement concluded between the International Bank for Reconstruction and Development (IBRD) and the Republic of Armenia, and WB Guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 2. supporting documents, records and accounts have been kept in respect of all Program ventures. Respective reports issued during the period were in agreement with the underlying books of account; 3. The Segregated accounts used has been maintained in accordance with the provision of the Loan Agreement, and World Bank related guidelines; In our opinion, the Program 's management has complied with the above requirements for the year ended 31 December 2018. We also check that the persons or entities debarred or suspended by the WB are not awarded contract under the Program from the Program inception to 31 December 2018. ·. ?Ji~, "BDO Armenia" CJSC 25 March 2019 FCCA .... ,. ·. ~ngagement Partner IBDO Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Statement of program expenditure by implementing entities For the year ended 31 December 2018 (Amounts are shown in US dollars) Program Expenditure Actual* Budget Implementation Reporting Cumulative as Cumulative for period at 31.Dec.2018 the Project Cumulative % ANPP Refinancing of commercial loans 8,525, 191 8,525, 191 100% 8,525, 191 8,525, 191 100% YTPC Repayment of the payable for natural gas (the payable under the contract with Yerevan GGM of Gazprom Armenia CJSC for supply of gas to generate power for domestic needs) 18,807,670 16,973 ,996 111% Overhaul of the gas turbine 15,584,667 20,661, 173 12,821 ,981 161% Refinancing of commercial loans 4,604,073 4,603,522 100% Program audits and IVA 45, 512 86,961 300,000 29% 15,630, 179 44, 159,877 34,699,499 127% Total 15, 630, 179 52,685,068 43,224,690 122% (*)Actual amounts paid in AMO or EUR translated into USO applying exchange rate as at 9.aseline date, 1 February 2016 (Note 2.3). A~ r~. /~ ,-:..:J.. /L £\. l' l. ll A/ (' .... <.{. ,,- ;,.· :.,·' -11 •·\t "'- •/~ •11v ~ fA · · ~ 1 1'~ ~ ''· I/ ' .., 'I .J .7 . ...... .. Qo ,>(<-~ -----~-----"' 7, __ .... _ ..., ' ":' • ~ F- ._.; ' 0-:- C: _,. '.. - ~ '< ';,'.I C1 Sasun"'hachatryan · ~· 1 '·-L-t ,-:W'·1~ CJ..~,~: ~ General Director of v:r:Pc :~~--:--1..;r·,, 11' )' tl;~ General Director of ANPP ~ :::!.?'-;. • (.'.. ,-:;" ' '-\:..,.. t ?lf .JN.. 1 ! ., .• <..""I: :.:: ... 25 March 2019 > ,.,.,), 1 ,;,~c-. 1 . The notes on pages 1J•20'form an iotegr:_at.p~ttpf these special purpose financial statements. .... , ., - ~ '\ . . • " .,,;-~-}.~·~~·-'"'·!""~ . - >> 9~~ ·~ 1-., nn~~~ • ·"' ~~ ~· ,.; 9 .... ...,..i~~ -- ~ 6 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Statement of funds received under categories For the year ended 31 December 2018 (Amounts are shown in US dollars) Actual Budget Variance Reporting Cumulative as at Reporting Cumulative as Reporting Cumulative as period 31 .Dec.2018 period at 31 . Dec.2018 period at 31. Dec .2018 Opening Uncovered DLI Advance 2,340,000 SOURCES OF FUNDS IBRD Loa n Number 8615-AM 830,000 26,939,595 Co-financing of YTPC 16,607, 567 21 ,861, 124 Total 17,437,567 48,800, 719 WITHDRAWAL CATEGORIES (1) DLl#1 : Decision at shareholder meetings 2,832,000 - 2,832,000 YTPC 2,024,880 - 2,024,880 ANPP 807, 120 807, 120 (2) DLl#2: Liquidation of Haigasard 500,000 1, 500,000 500,000 1, 500, 000 YTPC 357,500 1,072,500 357,500 1,072,500 ANPP 142,500 427,500 142,500 427,500 (3) DLl#3: No new non-core business expenditure of ANPP 200,000 2, 100,000 200,000 2, 100,000 YTPC 143,000 1,501 ,500 143,000 1,501 ,500 ANPP 57,000 598,500 57,000 598,500 (4) DLl#4: No new non-core business expenditure of YTPC 200,000 2, 100,000 200,000 2, 100,000 YTPC 143,000 1,501 ,500 143,000 1, 501 ,500 ANPP 57,000 598,500 57,000 598,500 (5) DLl#5: Reduce of principal amount of loan of ANPP 4,259, 595 - 4,260,000 - (405) YTPC 3,045,611 - 3,045,900 - (289) ANPP 1,213,984 - 1,214,100 - (116) (6) DLl#6: Reduce of principal amount of loan of YTPC 2, 300,000 - 2, 300,000 . YTPC 1,644,500 J 1,644,500 ANPP 655,500 - 655, 500 (7) DLl#7: Reduce of gas payable of YTPC 4, 982,000 - 4,982,000 YTPC 3,562, 130 - 3, 562, 130 ANPP 1,419,870 - 1,419,870 7 I. Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Statement of funds received under categories For the year ended 31 December 2018 (Amounts are shown in US dollars) Actual Budget Variance Cumulative as Cumulative as Cumulative as Reporting at Reporting at Reporting at period 31.Dec.2018 period 31.Dec.2018 period 31.Dec.2018 (8) DLl#8: ENAs tariff margin for each period 200,000 1,600,000 200,000 1,600,000 YTPC 143,000 1, 144,000 143,000 1, 144,000 ANPP 57,000 456,000 57,000 456,000 (9) DLl#9: Tariffs for YTPC and Hrazdan TPP 200,000 1, 600,000 200,000 1,600,000 YTPC 143,000 1, 144,000 143,000 1, 144,000 ANPP 57,000 456,000 57,000 456,000 (10) DLl#10: Electricity supplied by YTPC is maintained 1,630,000 3,351,000 1,630,000 3,351,000 YTPC 1, 165,450 2, 395,965 1, 165,450 2,395,965 ANPP 464,550 955,035 464,550 955,035 ( 11) Front-end fee 75,000 75,000 YTPC 53,625 53,625 ANPP 21 ,375 21 ,375 Renovation of gas-turbine of YTPC 16,607, 567 21 ,861 , 124 8, 148, 184 13,224,690 8,459,383 8, 636, 434 YTPC 16,607,567 21 ,861 ,124 8, 148, 184 13,224,690 8,459,383 8,636,434 Total 19, 537, 567 48, 560, 719 11,078, 184 39, 924,690 8,459, 383 8,636,029 Closing Uncovered DLI Advance 240,000 240,000 Sasun Khachatrya_9 .J. "'"' General Director ot·YTPC • .::i:.. 8 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Statement of funds received under program activities For the year ended 31 December 2018 (Amounts are shown in US dollars) Actual Planned Variance Cumulative as Activity Reporting Cumulative as Reporting at Reporting Cumulative as at period at 31.Dec.2018 period 31.Dec.2018 period 31.Dec. 2018 A. Elimination of non-core business related cash flows 900,000 8,532,000 900,000 8,532,000 A.1. No new non-core business expenditures 400,000 7,032,000 400,000 7,032,000 YTPC 286,000 5,027,880 286,000 5, 027,880 ANPP 114,000 2,004, 120 114,000 2,004, 120 A.2. Liquidation of Haigasard state-owned CJSC 500,000 1,500,000 500,000 1,500,000 YTPC 357,500 1,072,500 357,500 1,072,500 ANPP 142,500 427,500 142,500 427,500 B. Reduction of expensive loans 6,559,595 6,560,000 - (405) YTPC 4,690, 111 4,690,400 - (289) ANPP 1,869,484 1,869,600 - (1 16) C. Repayment of the payable of YTPC with Yerevan 4,982,000 4,982,000 GGM branch of Gazprom Armenia CJSC YTPC 3,562, 130 3,562, 130 ANPP 1,419,870 1,419, 870 D. Modification of tariffs to fully reflect the cost of 400, 000 3,200,000 400,000 3,200,000 electricity supply D.1 . Amendment of ENA's license to allow tariff 200,000 1,600,000 200,000 1,600,000 adjustment related to cost of electricity purchased YTPC 143,000 1, 144,000 143,000 1, 144,000 ANPP 57,000 456,000 57,000 456,000 D.2. Revision of tariff-setting methodology related to 200,000 1,600,000 200,000 1,600,000 FX on gas purchase YTPC 143,000 1, 144,000 143,000 1, 144,000 ANPP 57,000 . 456,000 57,000 456,000 E. Maintenance of the generation capacity of the gas 1,630,000 1,630,000 3,351,000 3,351,000 turbine at the YTPC YTPC 1, 165,450 2,395,965 1, 165,450 2, 395,965 ANPP 464,550 955,035 464,550 955,035 9 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Statement of funds received under program activities For the year ended 31 December 2018 (Amounts are shown in US dollars) Actual Planned Variance Cumulative as Activity Reporting Cumulative as Reporting at Reporting Cumulative as at period at 31.Dec.2018 period 31.Dec.2018 period 31 . Dec.2018 Front-end fee - 75,000 - 75,000 YTPC - 53,625 - 53,625 ANPP - 21,375 - 21,375 Renovation of gas-turbine of YTPC 16,607,567 21,861,124 8, 148, 184 13,224,690 YTPC 16,607,567 21,861,124 8, 148, 184 13,224,690 Total 19,537,567 48,560,719 11,078, 184 39, 924,690 8,459, 383 8,636,029 f(v., ...,~ :·~ vf.l''" ,,, "'. ~ ~ - -H~ Vitfcfanyan \l.. LL "i,(~IJ .~~ ~ ..... ~( .. 1. d ~.,,,...n · ~ . 10 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Summary of funds received under each DLI For the year ended 31 December 2018 (Amounts are shown in US dollars) IBRD Loan Number 8615-AM App Value Dll Disbursement cateqorv documented Total paid lica date Advance/ (1) (2) DLl#2: (3) DLl#3: (4) DL1#4: (5) DLl#5: (6) DLl#6: (7) DLl#7: (8) DLl#8: (9) DLl#9: (10) (11) Total tion (Advance DLl#1: Liquida- No new No new Reduce of Reduce of Reduce of ENAs tariff Tariffs for DLl#10: Front- Documen- # recovery) Decision tion of non-core non-core principal principal gas margin for YTPC and Electricity end fee ted at Haigasard business business amount of amount of payable of each Hrazdan supplied sharehol expenditu expenditu loan of loan of ANPP period TPP byYTPC is der re of ANPP re of YTPC ANPP YTPC maintain- meetings ned 7-Y 8 Feb 2018 (1,015,300 357,500 - - - - - 1,165,450 - 1,522,950 507,650 7-A 8 Feb 2018 (404,700 - 142,500 - - - - - - 464,550 607,050 202,350 8-Y 7 Sep 2018 (486,200 143,000 143,000 - - 143,000 143,000 - 572,000 85,800 8-A 7 Sep 2018 (193,800 - 57,000 57,000 - - 57,000 57,000 - - 228,000 34,200 Total for the reporting period Cumulative as at (2, 100 ,000 - 500,000 200,000 200,000 - - - 200,000 200,000 1,630,000 - 2,930,000 830,000 31.Dec.2018 240,000 2,832,000 1,500,000 2, 100,000 2, 100, 000 4,259, 595 2,300,00C 4,982,000 1,600,000 1,600,000 3,3 51,000 75,000 26, 699,595 26, 939,595 (*)Withdrawal application with "Y" relates to YTPC, and with " A" to ANPP. Sasun Kriachatryan .; ~yan ~~ I General Director of ytpc General Director of ANPP ~ 25 March 2019 ':- ~ The notes on pages 13-20 form an integral-part of these special purpose financial statements. 11 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Statement of Segregated Accounts For the year ended 31 December 2018 (Amounts are shown in US dollars) Entity YTPC ANPP Segregated account (SA) bank number 900000902438 900000902453 Bank Central Treasury of the Republic of Armenia Bank location Meliq Adamyan Street 1, Yerevan, Republic of Armenia, 0010 Account currency USO USO YTPC ANPP Total For the period from 1 Jan 2018 to 31 Dec 2018 1. Opening balance as at 1.Jan. 2018 0.71 0.71 2. Add: opening discrepancy 3. WB advance/replenishment 593,450.00 236,550.00 830,000.00 4. Less: Refund to WB from SA 5. Present outstanding amount advanced to SA 593,450.00 236,550.71 830,000.71 6. SA closing balance as at 31.Dec.2018 Q.71 0.71 7. Add: Amount of eligible expenditures paid 593,450.00 236,550.00 830,000.00 8. Less: interest earned (if credited to SA) 9. Total advance accounted for 593,450.00 236,550.71 830,000.71 10. Closing discrepancy (5)· (9) 25 March 2019 The notes on pages 13-20 form an iptegral part of these special purpose financial statements. 12 - Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Notes to the special purpose financial statements For the year ended 31 December 2018 (Amounts are shown in US dollars) 1. General information 1. 1. The Program The Power Sector Financial Recovery Program ("Program") is implemented in accordance with the Republic of Armenia Government resolution N 6 dated February 18, 2016. The Program objective is to maintain adequate and reliable electricity supply through improvement of the financial standing of the state-owned power generation companies and the private power distribution company. The Program carries out through the Ministry of Energy and Natural Resource of ' the Republic of Armenia (MENR), with the assistance of "Armenian Nuclear Power Plant" CJSC (ANPP), "Yerevan Thermal Power Centre" CJSC (YTPC) and Public Services Regulator Commission (PSRC). The total cost of the Program is assessed 43 ,224,690 United States dollars (USO), of which USO 30,000,000 million is financed under the Loan Agreement 8615-AM signed on May 12, 2016 between the Republic of Armenia and International Bank for Reconstruction and Development ("IBRD" or "WB"). The payment currency of IBRD Loan Number 8615-AM is United States dollars (USO). The Closing date of IBRD Loan Number 8615-AM is set 30 July 2021 . The Grace Period for submitting withdrawal application for expenditures incurred before the Closing date is six months following the Closing date: 31 January 2022. 1.2. Subsidiary agreements According to the Loan Agreement, the ANPP receives 28.5% of the Loan proceeds and the YTPC receives 71.5%of the Loan proceeds subject to the achievement of the Disbursement Linked Results ("DLRs") and/or Disbursement Linked Indicators ("Olis") set forth in the table IV.A.2. of Schedule 2 of the Loan Agreement and corresponding verification process. . For this purpose, a subsidiary agreements were concluded between the Ministry of Finance of the Republic of Armenia (MoF) and the ANPP, and the MoF and the YTPC both on 14 June 2016, according to which they will receive sub-loans in the amount of 8,550,000 USO and 21 ,450,000 USO, respectively, as the terms of the Loan agreements are achieved. 1.3. The Program objectives The Program consists of the following activities: A. Elimination of cash outflows of state-owned power companies for non-core business related reasons through: (i) establishment of a prohibition of non-core business related expenditures, lending, and borrowing for ANPP and YTPC; and (ii) liquidation of Haigasard state-owned CJSC. B. Reduction of expensive commercial loans and recovery of receivables through: (i) refinancing of the principal amounts of commercial loans of ANPP and YTPC listed in Supplemental Letter; and (ii) recovery of receivables of ANPP and YTPC for electricity supplied to Electric Networks of Armenia (ENA). C. Repayment of the payable of YTPC with Yerevan GGM branch of Gazprom Armenia CJSC under a contract referred to in Supplemental Letter No. 3. D. Modification of tariffs to fully reflect the cost of electricity supply through: (i) amendment of ENA's license to allow adjusting the tariff margin by the full size of loss (profit) incurred due to mismatch between actual and forecast cost of electricity purchased by ENA; and (ii) revision of tariff-setting methodology to allow adjusting the tariff by the full size of natural gas purchase related loss (profit) incurred due to fluctuation of AMO/USS exchange rate. 13 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Notes to the special purpose financial statements For the year ended 31 December 2018 (Amounts are shown in US dollars) E. Maintenance of the generation capacity of the gas turbine at YTPC's Combined Cycle Gas Turbine plant (CCGT), through replacement of some components of the gas turbine. 1.4. The Program Budget The Program is financed by: • IBRD Loan Number 8615-AM • YTPC internally generated funds. IBRO Loan YTPC Number Category 8615-AM Total USO USO USO equivalent equivalent (1) OLl#1: Decision at shareholder meetings 2,832,000 - 2,832,000 (2) DLl#2: Liquidation of Haigasard 2,000,000 . 2,000,000 (3) DLl#3: No new non-core business expenditure of ANPP 2,500,000 . 2,500,000 (4) DLl#4: No new non-core business expenditure of YTPC 2,500,000 . 2,500,000 (5) DLl#5 : Reduce of principal amount of loan of ANPP 4,260,000 . 4,260,000 (6) DLl#6: Reduce of principal amount of loan of YTPC 2,300,000 . 2,300,000 (7) DLl#7: Reduce of gas payable of YTPC 4,982 ,000 . 4,982,000 8) DLl#8: ENAs tariff margin for each period 2,000,000 . 2,000,000 9) DLl#9: Tariffs for YTPC and Hrazdan TPP 2,000,000 . 2,000,000 10) DLl#10: Electricity supplied by YTPC is maintained 4,551,000 . 4,551 ,000 Renovation of gas-turbine of the YTPC . 13,224,690 13,224,690 Front-end fee 75,000 . 75,000 Total 30,000,000 13,224,690 43,224,690 1.5. Program Implementation The Program is implemented through the Ministry of Energy Infrastructure and Natural Recourses of the Republic of Armenia ("MEINR") with the assistance of "Armenian Nuclear Power Plant" CJSC ("ANPP"), "Yerevan Thermal Power Centre" CJSC ("YTPC") and Public Services Regulator Commission of the Republic of Armenia ("PSRC") (all together "Program management"). The MEINR address is: 2, Pavstos Buzand Street, Yerevan, Republic of Armenia, 0010; The YTPC address is: Building 3, Arin-Berd street 3rd, Yerevan, Republic of Armenia, 0053; The ANPP address is: Town Metsamor, Armavir marz, Republic of Armenia, 0910; The PSRC address is: Building 22, Saryan street, Yerevan, Republic of Armenia, 0002. 14 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Notes to the special purpose financial statements For the year ended 31 December 2018 (Amounts are shown in US dollars) 2. Summary of significant accounting policies 2. 1. Preparation and presentatfon of financial statements The special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (IPSAS-Cash Basis), issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC), and presented in accordance with Financial Management Manual for World Bank Financed Investment Operations (March 2010): RM 3 - Financial Reporting and Auditing. The principal accounting policies applied in the preparation of these special purpose financial statements are set out below. These policies have been consistently applied to all the periods presented. 2.2 Cash basis of accounting Program financing is recognised as a source of Program funds when the cash is received. Program expenditures are recognised as a use of Program funds when the payments are made. 2.3 Reporting currency The reporting currency of these special purpose financial statements is United States dollars (USO). The cofinancing received and expenditures made in local currency, Armenian Drams (AMO), or Euro (EUR) are translated into USO based at the exchange rate prevailing at the date of the transaction as issued by the Central Bank of the Republic of Armenia ("CBRA"). However, for the purpose of presenting Statement of Program Expenditures by Implementing Entities, the exchange rate of non-USO expenditures are translated applying CBRA issued exchanged rates prevailing at the baseline year, 1 February 2016, as that exchange rate is applied to assess the compliance of results achieved, as measured to Olis (Note 1.2) that has results monetary thresholds determined in USO underlying currency. The exchange rate defined by the CBRA on USD/ EUR rate on AMO is as follows: Date USO EUR 1 February 2016 489.16 531 .03 31 December 2017 484. 10 580.10 31 December 2018 483.75 553.65 15 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Notes to the special purpose financial statements For the year ended 31 December 2018 (Amounts are shown in US dollars) 3. Progress of Loan proceeds withdrawal Cumulative Cumulative Withdrawal total budget of as at 31 Dec 2018 the Project Execution Category USO USO % (1) DLl#1 : Decision at shareholder meetings 2,832,000 2,832,000 100% (2) DLl#2: Liquidation of Haigasard 1, 500,000 2,000,000 75% (3) DLl#3: No new non-core business expenditure of ANPP 2, 100,000 2,500,000 84% (4) DLl#4: No new non-core business expenditure of YTPC 2, 100,000 2, 500,000 84% (5) DLl#5: Reduce of principal amount of loan of ANPP 4,259,595 4,260,000 100% (6) DLl#6: Reduce of principal amount of loan of YTPC 2,300,000 2,300,000 100% (7) DLl#7: Reduce of gas payable of YTPC 4,982 ,000 4,982,000 100% (8) DLl#8: ENAs tariff margin for each period 1,600,000 2,000,000 80% (9) DLl#9: Tariffs for YTPC and Hrazdan TPP 1,600,000 2,000,000 80% (10) DLl#10: Electricity supplied by YTPC is maintained 3,351,000 4,551 ,000 74% Renovation of ~as-turbine of the YTPC* 21 ,861,124 13,224,690 165% Front-end fee 75,000 75,000 100% Total 48, 560,719 43,224,690 112% 4. Financing 4.1. IBRD Loan Number 8615-AM Reporting Cumulative as year at 31 Dec 2018 USO USO DLI advance/ (advance recovery) (2, 100,000.00) 240,000.00 DLI payment 2,930,000.00 26,624,595.49 Front-end fee 75 ,000.00 Total 830,000.00 26, 939, 595.49 Total financing budget 30,000,000 Percentage of finance provided as at 31 Dec 2018 90% 4.2. YTPC co-financing Reporting Cumulative as year at 31 Dec 2018 USO USO In-cash 16,607,567 21 ,861 ,124 Total financing budget 13,224,690 Percentage of finance provided as at 31 Dec 2018 165% 16 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Notes to the special purpose financial statements For the year ended 31 December 2018 (Amounts are shown in US dollars) 5. DLls/DLRs implementation progress Olis DLRs Progress of Corresponding Amount of Amount of Loan implementation verification Loan Proceed as at 31 Dec process Allocated Cumulative as 2018 (USO) at 31 Dec 2018 (USO) (1) DLl#1: Decision at DLR #1 : Shareholders of ANPP and YTPC have mat and made a decision Implement ed by WB conformed shareholder meetings prohibitin2 their non-core business related expenditures 30.06.2016 on 16.08.2016 2,832,000 2,832, 000 DLR#2.1: Shareholders of Haigasard met and (i) made a decision to Implemented by WB conformed liquidate, and (ii) approved the liquidation plan 31.12.2016 on 16.02.2017 1,000,000 1,000,000 DLR#2.2: Liquidation Commission appointed has completed the revaluation Implemented by WB conformed of assets of the company 31 .12.2017 on 24.01 .2018 500,000 500,000 DLR#2.3: Haigasard's liquidation is completed and registered by State (2) DLl#2: Liquidation Registry of the Legal Entities 500,000 - of Haigasard Subtotal 2,000,000 1,500,000 DLR#3.1: ANPP has not incurred in any new non-core business related Implemented by WB conformed exoenditures, borrowin2 and lending for FY 2016 31 .12.2016 on 11 .07.2017 1,900,000 1,900,000 DLR#3.2: ANPP has not incurred in any new non-core business related Implemented by WB conformed exoenditures, borrowing and lending for FY 2017 31.12.2017 on 16.08.2018 200,000 200,000 DLR#3.3: ANPP has not incurred in any new non-core business related exoenditures, borrowing and lending for FY 2018 200,000 - (3) DLl#3: No new non- DLR#3.4: ANPP has not incurred in any new non-core business related core business expenditures, borrowin2 and lending for FY 2019 200,000 - expenditure of ANPP Subtotal 2,500,000 2, 100,000 DLR#4. 1: YTPC has not incurred in any new non-core business related Implemented by WB conformed expenditures, borrowing and lendin2 for FY 2016 31 .12.2016 on 11 .07.2017 1,900,000 1,900,000 DLR#4.2: YTPC has not incurred in any new non-core business related Implemented by WB conformed expenditures, borrowing and lending for FY 2017 31.12.2017 on 16.08.2018 200,000 200,000 DLR#4.3: YTPC has not incurred in any new non-core business related expenditures, borrowin2 and lendin2 for FY 2018 200,000 - (4) DLl#4: No new non- DLR#4.4: YTPC has not incurred in any new non-core busi ness related core business expenditures, borrowin2 and lending for FY 2019 200,000 - expenditure of YTPC Subtotal - - 2,500,000 2,100,000 17 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Notes to the special purpose financial statements For the year ended 31 December 2018 (Amounts are shown in US dollars) OLRs Progress of Corresponding Amount of Loan Amount of Loan implementation as verification Allocated Proceed at 31 Dec 20 18 process (USO) Cumulative a s at Olis 31 Dec 2018 (USO) OLR#5.1: ANPP has reduced the principal amount of the outstanding Implemented as at WB conformed commercial loans bv at least USO 2, 172,000 durinl! 01.02.2016-11.05.2016 11.05.2016 on 16.08.2016 1,086,000 1,085,595 OLR#5.2: ANPP has reduced the principal amount of the outstanding Implemented as at (5) OLl#5: commercial loans by at least USO 2,828,000 during 12.05.2016-31.12.2016 30.06.2016, so settling 1,414,000 1,414,000 Reduce of OLR#5.3: ANPP has reduced the principal amount of the outstanding all selected loans principal amount commercial loans by at least USO 3,520,000 during FY 2017 1,760,000 1,760,000 of loan of ANPP Subtotal 4, 260,000 4,259, 595 OLR#6. 1: YTPC has reduced the principal amount of the outstanding Implemented as at WB conformed commercial loans by at least USO 1,000,000 durim101.02.2016-30.06.2016 11.05.2016 on 06.09.2016 500,000 500,000 OLR#6.2: YTPC has reduced the principal amount of the outstanding Implemented as at (6) OLl#6: commercial loans by at least USO 1,600,000 during 01.07.2016-31.12.2016 10.08.2016, so settling 800,000 800,000 Reduce of OLR#6.3: YTPC has reduced the principal amount of the outstanding all selected loans principal amount commercial loans by at least USO 3,520,000 durinl! FY 2017 1,000,000 1,000,000 of loan of YTPC Subtotal 2, 300,000 2,300,000 OLR#7.1: YTPC's payable under this contract reduced to AMO Implemented as at WB conformed 10,861,961,848 as at 12.05.2016 11.05.2016 on 16.08.2016 780,000 780,000 OLR#7.2: YTPC's payable under this contract reduced to AMO Implemented as at 10,661 ,961 ,848 as at 30.06.2016 30.06.2016 120,000 120,000 OLR#7.3: YTPC's payable under this contract reduced to AMO 9,661, 961,848 as at 31.12.2016 600,000 600,000 OLR#7.4: YTPC's payable under this contract reduced to AMO 8, 161 ,961,848 as at 30.06.2017 900,000 900,000 OLR#7. 5: YTPC's payable under this contract reduced to AMO 6,661, 961,848 as at 31.12.2017 1,200, 000 1,200,000 OLR#7.6: YTPC's payable under this contract reduced to AMO 5, 161,961,848 as at 31.12.2018 600,000 600,000 OLR#7.7: YTPC's payable under this contract reduced to AMO 4, 161 ,961,848 as at 31.12.2019 - 600,000 600,000 (7) OLl#7: OLR#7. 8: YTPC's payable under this contract reduced to AMO 3,858, 961,848 Reduce of gas as at 31 .12.2020 182,000 182,000 payable of YTPC Subtotal 4,982,000 4,982,000 18 Power Sector Financial Recovery Program IBRD Loan Number 8615-AM Notes to the special purpose financial statements For the year ended 31 December 2018 (Amounts are shown in US dollars) DLRs Progress of Corresponding Amount of Loan Amount of Loan implementation as verification Allocated Proceed at 31 Dec 2018 process (USO) Cumulative as at Olis 31 Dec 2018 (USO) DLR#8.1 : ENA's license is amended by PSRC by 30.06.2016 and ENA's margin Implemented by WB conformed is adjusted by 31 .12.2016 30.06.2016 on 16.08.201 6 1,000,000 1,000,000 DLR#8.2: ENA's margin is adjusted by PSRC by 31.12.2017 Implemented by WB conformed 01.02.2017 on 11.07.2017 400,000 400,000 DLR#8.3: ENA's margin is adjusted by PSRC by 31 .12.2018 Implemented by WB conformed 20.06.2018 on 16.08.2018 200,000 200,000 (8) DLl#8: ENAs DLR#8.4: ENA' s margin is adjusted by PSRC by 31 .12.2019 200,000 - tariff margin for DLR#8.5: ENA's margin is adjust ed by PSRC by 31 .12.2020 200,000 - each period Subtotal 2,000,000 1,600,000 DLR#9. 1: Tariff setting methodology is revised by PSRC by 30.06.2016 and Implemented by WB conformed tariffs for YTPC and Hrazdan TPP for each new tariff period are revised by 30.06.2016 on 16.08.2016 PSRC by 31.12.2016 1,000,000 1,000,000 DLR#9.2: Tariffs for YTPC and Hrazdan TPP for each new tariff period are Implemented by WB conformed revised by PSRC by 31 . 12. 2017 01.02.2017 on 11 .07.2017 400,000 400,000 DLR#9.3: Tariffs for YTPC and Hrazdan TPP for each new tariff period are Implemented by WB conformed revised by PSRC by 31 .12.2018 20.06.2018 on 16.08.2018 200,000 200,000 DLR#9.4: Tariffs for YTPC and Hrazdan TPP for each new t ariff period are revised by PSRC by 31 . 12. 2019 200,000 - (9) DLl#9: Tariffs DLR#9.5: Tariffs for YTPC and Hrazdan TPP for eac h new tariff period are for YTPC and revised by PSRC by 31.12.2020 200,000 - Hrazdan TPP Subtotal 2,000,000 1,600,000 DLR#10.1: YTPC supplied to the power transmission network at least Implemented WB conformed 1400GWh of electricity during FY2016 on 16.02.2017 1,721,000 1,721,000 DLR#10.2: YTPC supplied t o the power transmission netw ork at least Implemented by WB conformed 1400GWh of electricity during FY2017 31 . 12.2017 on 24. 01.2018 1,630,000 1,630,000 DLR#10.3: YTPC supplied to the power transmission network at least 1400GWh of electricity during FY2018 400,000 - DLR#10.4: YTPC suppli~d to the power transmission network at least - (10) DLl#10: 1400GWh of electricity during FY2019 400,000 - Electricity DLR#10.5: YTPC supplied to the power transmission network at least supplied by YTPC 1400GWh of electricity during FY2020 400,000 - is maintained Subtotal 4, 551,000 3,351 ,000 (11) Front-end fee N/ a n/ a n/ a 75,000 75,000 Total 30,000,000 26,699,595 19 6. Program Expenditures in underlying currencies Program Expenditure Actual Reporting year Cumulative as at ended 31 . 12.2018 31 . 12.2018 ANPP Refinancing of commercial loans - EUR 2,000,000.00 - USO 6,354,000.00 YTPC Repayment of the payable for natural gas (the payable under the contract with Yerevan GGM of Gazprom Armenia CJSC for supply of gas to generate power for domestic needs) - AMO 9, 199,959,708.00 Overhaul of the gas turbine EUR 14,355,866.55 EUR 19,032, 106.55 Refinancing of commercial loans - USO 650,000.00 - EUR 3,642,307.45 Program audits and IVA AMO 22,262,515.07 AMO 42,537,955.07 7. Use of Loan proceeds by YTPC and ANPP Nature of proceeds used YTPC ANPP Total USO USO USO Use of Loan Proceeds Cumulative as at 01.01.2018 Paying for energy input supply 13,924,625 6,982,669 20,907,294 Repayment of commercial loan balance 4,690, 11 1 - 4,690, 111 Maintenance and operation of Plant - 368,963 368,963 18,614,736 7,351,632 25,966, 368 Reporting year ended 31. 12. 2018 Paying for energy input supply 593 ,450 304,778 898,228 593,450 304,778 898,228 Cumulative as at 31.12. 2018 Paying for energy input supply 14,518,075 7,287,447 21,805,522 Repayment of commercial loan balance 4,690, 111 - 4,690, 111 Maintenance and operation of Plant - 368,963 368,963 19,208, 186 7,656,410 26,864, 596 Proceeds Received Cumulative as at 01 .01.2018 18,614,736 7,419,860 26,034,596 Year ended 31.12.2018 593,450 236,550 830,000 19,208, 186 7,656,410 26,864,596 Unused amount outstanding As at 01 .01 .2018 - 68,228 68,228 As at 31.12.2018 - - - 8. Litigations There are no pending litigations related to the Program as at report ing date and as at approval date of these financial statements. 20