To Chongqing Development and Reform Commission We have audited the special purpose financial statements (from page 5 to page 17) of Chongqing Small Towns Water Environment Management Project Financed by the World Bank, which comprise the Balance Sheet as of December 31, 2018, the Summary of Sources and Uses of Funds by Project Component, the Statement of Implementation of Loan Agreement and the Designated Account Statement for the year then ended, and Notes to the Financial Statements. the Financial Statements The preparation of the Balance Sheet, the Summary of Sources and Uses of Funds by Project Component and the Statement of Implementation of Loan Agreement is the responsibility of your commission, while the preparation of the Designated Account Statement is the responsibility of Chongqing Finance Bureau, which includes: i. Preparing and fair presenting the accompanying financial statements in accordance with Chinese accounting standards and system, and the requirements of the project loan agreement; ii. Designing, implementing and maintaining necessary internal control to ensure that the financial statements are free from material misstatement, whether due to fraud or error. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the China and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers 1 the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the ef includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is appropriate and sufficient to provide a basis for our audit opinion. In our opinion, the financial statements identified in the first paragraph present fairly, in all material respects, financial position of Chongqing Small Towns Water Environment Management Project Financed by the World Bank as of December 31, 2018, its financial receipts and disbursements, the project implementation and the receipts and disbursements of designated account for the year then ended in accordance with Chinese accounting standards and system, and the requirements of the project loan agreement. Other Matter We also examined the withdrawal applications from No.1 to No.3 and the attached documents submitted to the World Bank during the period. In as basis for loan withdrawal. hereinafter: Financial Statements and Notes to the Financial Statements, Audit Findings and Recommendations. Chongqing Municipal Audit June 30, 2019 Address: No.8 Jinshan Road, Longxi Street, Yubei District, Chongqing, P.R. China Postcode: 401147 Tel.: 86-23-67523216 Fax: 86-23-67523216 The English translation is for the convenience of report users; Please take the Chinese audit report as the only official version. 2 . Financial Statements and Notes to the Financial Statements BALANCE SHEET 2018 12 31 (As of December 31, 2018) : Project Name: Chongqing Small Towns Water Environment Management Currency Unit:RMB Yuan Project Financed by the World Bank Application of Fund Line No. Beginning Balance Ending Balance Total Project Expenditures 1 471,206,446.20 263,066,681.26 1 Fixed Assets Transferred 2 - - 2 Construction Expenditures to be Disposed 3 - - 3 Investments Transferred-out 4 - - 4 Construction in Progress 5 471,206,446.20 263,066,681.26 Investments Loan Receivable 6 - - Including: World Bank Investments Loan 7 - - Receivable Appropriation of Investment Loan 8 - - Including: Appropriation of World Bank Loan 9 - - Equipment 10 - - Including: Equipment Losses in Suspense 11 - - Total Cash and Bank 12 89,664,986.60 119,330,701.55 1 Cash in Bank 13 89,623,650.21 119,305,664.11 Including: Designated Account 14 31,354,078.91 62,538,045.40 2 Cash on Hand 15 41,336.39 25,037.44 Total Prepaid and Receivable 16 135,780,113.77 108,018,491.47 Including: World Bank Loan Interest 17 - - Receivable World Bank Loan Commitment Fee 18 - - Receivable World Bank Loan Service-Fee Receivable 19 - - Marketable Securities 20 - - Total Fixed Assets 21 - - Fixed Assets .Cost 22 - - Less: Accumulated Depreciation 23 - - Fixed Assets .Net 24 - - Fixed Assets Pending Disposal 25 - - Fixed Assets Losses in Suspense 26 - - Total Application of Fund 27 490,415,874.28 696,651,546.57 3 BALANCE SHEET 2018 12 31 (As of December 31, 2018) : Project Name: Chongqing Small Towns Water Environment Management Currency Unit:RMB Yuan Project Financed by the World Bank Sources of Fund Line No. Beginning Balance Ending Balance Total Project Appropriation Funds 1 205,316,495.11 374,190,724.78 Project Capital and Capital 2 33,000,000.00 33,000,000.00 Surplus Including: Grants 3 - - Total Project Investment Loan 4 228,862,400.63 254,374,614.79 1 Total Project Investment Loan 5 184,073,969.03 254,374,614.79 1 Foreign Loan 6 123,105,322.18 185,374,614.79 Including: IDA 7 IBRD 8 123,105,322.18 185,374,614.79 Technical Cooperation 9 - - Co-Financing 10 - - 2 Domestic Loan 11 60,968,646.85 69,000,000.00 2 Other Loan 12 44,788,431.60 - Appropriation of Investment Loan 13 - - Including: World Bank Loan 14 - - Bond Fund 15 - - Construction Expenditures to be Offset 16 - - Total Payable 17 21,519,685.78 31,642,879.07 Including: World Bank Loan 18 - - Interest Payable World Bank Loan 19 - - Commitment Fee Payable World Bank Loan 20 - - Service-Fee Payable Other Payables 21 - - Appropriation of Fund 22 - - Retained Earnings 23 1,717,292.76 3,443,327.93 Total Sources of Fund 24 490,415,874.28 696,651,546.57 4 (SUMMARY OF SOURCES AND USES OF FUNDS BY PROJECT COMPONENT I) 2018 12 31 (For the period ended December 31, 2018 : Project Name: Chongqing Small Towns Water Environment Management Currency Unit:RMB Yuan Project Financed by the World Bank Current Period Cumulative Current Current Period Current Year Budget Period % Life of PAD Cumulative Actual Cumulative % Completed Actual Completed Total Sources of Funds 211,154,989.03 194,386,443.83 92.06% 1,252,790,000.00 661,565,339.57 52.81% International Financing 114,514,989.03 62,269,292.61 54.38% 646,084,000.00 185,374,614.79 28.69% 1 IBRD 114,514,989.03 62,269,292.61 54.38% 646,084,000.00 185,374,614.79 28.69% 2 IDA 0.00 Counterpart Financing 96,640,000.00 132,117,151.22 136.71% 606,706,000.00 476,190,724.78 78.49% 1 Counterpart Financing without 88,850,157.65 168,874,229.67 238,316,495.11 407,190,724.78 170.86% compensation 2 Counterpart Financing with 2,321,146.68 -36,757,078.45 105,757,078.45 69,000,000.00 65.24% Compensation 285,340,146.68 208,139,764.94 72.94% 1,252,790,000.00 471,206,446.20 37.61% Total Application of Funds 1 Flood and Wastwater Management 128,475,000.00 37,099,612.79 28.88% 283,240,000.00 110,550,945.17 39.03% in Rongchang District 2 Flood Management in Tongnan 99,544,000.00 85,066,631.82 85.46% 267,650,000.00 142,680,541.09 53.31% District 3 Flood and Wastwater Management 55,000,000.00 68,985,029.91 125.43% 364,630,000.00 154,514,557.16 42.38% in Shizhu County 4 Flood and Wastwater Management 2,321,146.68 16,988,490.42 731.90% 337,270,000.00 63,460,402.78 18.82% in Pengshui County Difference -13,753,321.11 190,358,893.37 1 Chang in Receivables 27,761,622.30 135,780,113.77 2 Chang in Payables -10,123,193.29 -31,642,879.07 3 Chang in Cash and Bank -29,665,714.96 89,664,986.60 4 Other -1,726,035.17 -3,443,327.93 5 (SUMMARY OF SOURCES AND USES OF FUNDS BY PROJECT COMPONENT II) 2018 12 31 (As of December 31, 2018) : Project Name: Chongqing Small Towns Water Environment Management Project Financed by the World Bank Currency Unit:RMB Yuan Project Expenditures Assets Transferred Construction Project Component Investments Cumulative Amount Intangible Deferred Work in Progress Expenditures to Fixed Current Transferred-out Asset Asset be Disposed Asset Asset Total 471,206,446.20 0.00 471,206,446.20 - - 1 Flood and Wastwater Management in 110,550,945.17 110,550,945.17 Rongchang District 2 Flood Management in Tongnan District 142,680,541.09 0.00 142,680,541.09 3 Flood and Wastwater Management in 154,514,557.16 154,514,557.16 Shizhu County 4 Flood and Wastwater Management in 63,460,402.78 63,460,402.78 Pengshui County 6 STATEMENT OF IMPLEMENTATION OF LOAN AGREEMENT 2018 12 31 (For the period ended December 31, 2018 : Project Name: Chongqing Small Towns Water Environment Management Project Financed by the World Bank Currency Unit: RMB Yuan Loan Amount Current-period Withdrawals Cumulative Withdrawals Category USD USD RMB USD RMB 1 Civil Works 89,830,000.00 7,528,687.16 51,670,885.72 15,328,745.56 105,204,246.53 2 Goods, Non-Consulting Services, Consultants 9,920,000.00 641,099.90 4,399,996.83 1,431,193.65 9,822,568.26 Service, Training, Study Tours & Workshops, Incremental Operating Expenses (3) Front-end Fee 250,000.00 - - 250,000.00 1,715,800.00 4 Designated Account - - - 10,000,000.00 68,632,000.00 Total 100,000,000.00 8,169,787.06 56,070,882.55 27,009,939.21 185,374,614.79 7 DISIGNATED ACCOUNT STATEMENT LN8456 Loan No. LN8456 2018 Depository Bank: Chongqing Branch, China Fiscal Year: 2018 Everbright Bank, Prepared by : Chongqing Finance Bureau 39411488000037562 Account No.:39411488000037562 Project Name: Chongqing Small Towns Water Environment Management Project Financed by the World Bank Currency: USD A Part a: Activity for the Period Item Amount 9,570,880.20 Beginning Balance Add: 1. 8,169,787.06 Total Amount Deposited by World Bank 1 Civil works - 2 Equipment - 3 Consultants Service and Training - 2. 3,666.58 Total Interest Earned this Period Deduct 1. 13,175,899.45 Total Amount Withdrawn 1 Civil Works - 2 Equipment - 3 - Consultants' Services and Training 2. Interest Earnings Transferred-out 3. Total Amount Recovered by World Bank 4. Other Bank Charges Ending Balance 4,568,434.39 8 ( ) DISIGNATED ACCOUNT STATEMENT Continued Prepared by: Chongqing Finance Bureau Project Name: Chongqing Small Towns Water Environment Management Project Financed by the World Bank Currency: USD B PART B-Account Reconciliation 1. 10,000,000.00 Amount Advanced by the World Bank Deduct: 2. Total Amount Recovered by World Bank 3. 10,000,000.00 Outstanding Amount Advanced to the Designated Account at the End of this Period 4. 4,568,434.39 Ending Balance of Designated Account at the End of this Period Add 5. 2018 12 31 Amount Claimed but not yet Credited at December 31, 2018 Application No. 6. 2018 12 31 5,437,878.69 Amount Withdrawn but not yet Claimed at December 31, 2018 7. Cumulative Service Charges(If not Included in Item 5 or 6) Deduct 8. 6,313.08 Interest Earned (if Included in Designated Account) 9. 10,000,000.00 Total Advance to Designated Account Accounted for at the End of this Period 9 1. 8456-CN 2015 3 5 12.53 1 20 5 5 2020 12 31 4 2. 4 3. 3.1 1 1 12 31 3.2 3.3 2018 12 28 1 = 6.8632 3.4 3.5 10 4. 4.1 471,206,446.2 110,550,945.17 142,680,541.09 154,514,557.16 63,460,402.78 4.2 0 4.3 0 4.4 89,664,986.6 4,568,434.39 31,354,078.91 4.5 135,780,113.77 1. 40,017,109.73 3300 2,073,138.47 2. 69,418,190.94 9,397,336.96 59,530,146.2 213,000 50,000 3. 14,703,307.70 11,563,517.00 3,139,790.70 ( 360,100.00 2,779,690.70 ) 4. 11,641,505.40 4.6 31,642,879.07 4.7 0 11 4.8 3,443,327.93 4.9 27,009,939.21 185,374,614.79 27% 4.10 96,640,000.00 132,117,151.22 136.71% 476,190,724.78 78.49% 407,190,724.78 69,000,000.00 5. 2015 39411488000037562 2018 8,169,787.06 3,666.58 13,175,899.45 4,568,434.39 31,354,078.91 12 ( ) Notes to Financial Statements Notes to Financial Statements 1. Project Overview The Loan No. of Chongqing Small Towns Water Environment Management Project is 8456-CN. The objective of the Project is to reduce flood risks and improve wastewater infrastructure service in selected counties (districts), and the Loan Agreement was signed on March 5, 2015. The total investment is RMB1.253 billion yuan, including USD100 million of the World Bank loan. The loan period is 20 years, a five-year grace period within. The planned implementation period is 5 years, and the account will be closed on December 31, 2020. The Project covers 2 counties and 2 districts, and the main activities include: 1. Flood and Wastewater Management Project of Laixihe in Rongchang District ; 2.Water Environment Protection and Flood Management Project of Dafoba area in Tongnan District; 3. Flood and Wastewater Management Project of Longhe area in Shizhu County; 4. Flood and Wastewater Management of Wujiang in Pengshui County. 2. Consolidation Scope of the Financial Statements Chongqing Small Towns Water Environment Management Project Financed by the World Bank covers 4 sub-projects Rongchang, Tongnan, Pengshui, Shizhu ). Consolidation scope of the financial statements covers the financial statements of all the sub-projects and the Designated Account statements prepared by Chongqing Finance Bureau. 3. Accounting Policies A specialized account is set for the financial management of the Project in accordance with relevant provisions of the World Bank to ensure the capital can be used for specified purpose only. 3.1 In accounting practice, the Gregorian calendar year is adopted as the fiscal year from January 1 to December 31. 3.2 The accrual basis and the debit/credit double entry bookkeeping method are adopted. 3.3 The exchange rate adopted to calculate exchange gains and losses was the exchange rate on December 28, 2018, which is USD1= RMB6.8632 yuan. 3.4 RMB is used as the recording currency of bookkeeping. 13 3.5 The financial statements were prepared according to the requirements of Accounting Methods for the World Bank Financed Project. 4. Explanation of Subjects 4.1 Project Expenditures The accumulated project expenditure by the end of this year was RMB471,206,446.2 yuan, including: Rongchang Sub-project RMB 110,550,945.17 yuan Tongnan Sub-project RMB142,680,541.09 yuan Shizhu Sub-project RMB154,514,557.16 yuan Pengshui Sub-project RMB63,460,402.78 yuan. 4.2 Appropriation of Investment Loan The ending balance was RMB 0 yuan. 4.3 Equipment The ending balance was RMB 0 yuan. 4.4 Cash and Bank The ending balance was RMB89,664,986.6 yuan among which the fund in the Designated Account was USD4,568,434.39 equivalent to RMB31,354,078.91 yuan . 4.5 Prepaid and Receivable The ending balance was RMB135,780,113.77 yuan, including: 1. RMB40,017,109.73 yuan of prepaid and receivable funds of Tongnan Sub-project, mainly RMB33 million yuan appropriated to Construction Engineering Group and RMB2,073,138.47 yuan of unalloted appropriation of the local finance bureau; 2. RMB69,418,190.94 yuan of prepaid and receivable funds of Rongchang Sub-project,mainly prepaid project funds of RMB9,397,336.96 yuan, prepaid compensation for land acquisition of RMB59,530,146.2 yuan etc.; 3. Prepaid and receivable funds of RMB14,703,307.70 of Shizhu Sub-project, mainly prepaid project funds of RMB11,563,517.00 yuan and other receivables of RMB3,139,790.70 yuan; 4. RMB11,641,505.40 yuan of Pengshui Sub-project, mainly prepaid project funds. 4.6 Payable The ending balance was RMB31,642,879.07 yuan, mainly the payable project funds and the quality guarantee deposit. 4.7 Other Payable The ending balance was RMB0 yuan. 14 4.8 Retained Earnings The ending balance was RMB3,443,327.93 yuan, mainly the tender bond confiscated by Shizhu Sub-project from Shandong Water Conservancy Bureau Company Limited and Guangdong No. 2 Hydropower Engineering Company, Ltd.. 4.9 The World Bank Loan By the end of the year, the accumulated utilization amount of the World Bank loan was USD27,009,939.21(equivalent to RMB185,374,614.79 yuan) , accounting for 27% of the total loan. 4.10 Counterpart Funds The counterpart fund of 2018 in place was RMB132,117,151.22 yuan, accounting for 136.71% of the annual plan(RMB96,640,000.00 yuan). The cumulative counterpart fund in place was RMB476,190,724.78 yuan, accounting for 78.49% of the total plan. Hereinto, the counterpart fund without compensation was RMB407,190,724.78 yuan, and the counterpart fund with compensation was RMB69,000,000.00 yuan. 5. Designated Account According to the Loan Agreement, the Designated Account is set in Chongqing Branch, China Everbright Bank in 2015, with the account number of 39411488000037562. This account is in the charge of Chongqing Finance Bureau. In 2018, the withdrawal amount from the World Bank was USD8,169,787.06, the interest earned was USD3,666.58, and the disbursement was USD13,175,899.45. Thus, the ending balance was USD4,568,434.39 (equivalent to RMB31,354,078.91 yuan.) 15