11 JUL 2017 RECEIVED Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No. 56750-LA) Financial Statements 31 December 2016 Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No. 56750-LA) CONTENTS Pages Report of the Project's Management 1 Independent auditors' report 2-3 Statement of receipts and disbursements 4 Statement of fund balance 5 Notes to the financial statements 6-12 Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No.56750-LA) REPORT OF THE PROJECT'S MANAGEMENT MANAGEMENT'S RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS The Project's Management is responsible for the preparation of the Project's financial statements which comprise the statement of fund balance as at 31 December 2016 and the statement of receipts and disbursements for the year then ended, together with the explanatory notes thereto. In preparing the financial statements, Management is required to: > adopt accounting policies as described in Note 3 to the financial statements and apply them consistently in accordance with the requirements of International Development Association ("IDA") for Government-executed projects' financial statements; > make judgements and estimates that are reasonable and prudent; > maintain proper financial operations and controls; > maintain adequacy of the management structure and general control environment; > ensure that all non-expendable properties are used solely for and by the Project, and maintain proper control over those properties. Management is responsible for ensuring that proper accounting records are kept which disclose, with reasonable accuracy at any time, the funds requested, authorized for, received and disbursed by the Project and to ensure that the accounting records comply with the accounting policies described in Note 3 to the financial statements. Management is also responsible for safeguarding the assets of the Project, and for taking reasonable steps for the prevention and detection of fraud and other irregularities. Management confirms that it has complied with the above requirements in preparing the financial statements. APPROVAL OF THE FINANCIAL STATEMENTS We hereby approve the accompanying financial statements as at and for the year ended 31 December 2016, which are prepared in accordance with the accounting policies as described in Note 3 to the financial statements and comply with the related grant agreements. The financial statements are prepared to assist the Project's Management in meeting the reporting requirements of the IDA. As a result, the financial statements may not be suitable for any other purpose. F Management: Noanagiilg Director I?1nfhaneth XAYS0M H(- N-tq Mr Kanthaneth Xaysompheng Managing Director Deputy Manager of Project-Loan Electricite Du Laos Accounting Office Electricite Du Laos Vientiane, Lao PDR 30 June 2017 1 Ernst & Young Lao Company Limited. Tel : +856 21 455 077 6th Floor, Capital Tower Fax: +856 21 455 078 23 Singha Road, Nongbone Village ey.com Building a better Saysettha District, Vientiane Capital, Lao PDR working world Reference: 61324242/19102628 INDEPENDENT AUDITORS' REPORT To: The Project's Management of Power Grid Improvement Project Opinion We have audited the accompanying financial statements of Power Grid Improvement Project ("the Project") as set out on pages 4 to 12, which comprise the statement of fund balance as at 31 December 2016 and statement of receipts and disbursements for the year then ended, and the notes thereto ("the R financial statements"). In our opinion, the accompanying financial statements are prepared, in all material respects, in accordance with the accounting policies as described in Note 3 to the financial statements. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Project in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the ethical requirements that are relevant to our audit of the statement of expenditures in Lao P.D.R, and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter - basis of accounting and restriction on distribution and use We draw attention to Note 3 to the financial statements which describes the accounting policies adopted by the Project. These accounting policies are not intended to present the financial position, the results of operations and cash flows of the Project in accordance with international generally accepted accounting principles. As also disclosed in Note 2 to the financial statements, the financial statements are prepared to assist the Project's management in meeting the reporting requirements of its Donors. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the information and use of the Project's management and its Donors, and should not be distributed to or used by other parties. Our opinion is not modified in respect of these matters. Other matter The financial statements of the Project for the period from 17 August 2015 to 31 December 2015 were audited by another audit firm whose auditor's report dated 15 August 2016 expressed an unmodified opinion on those financial statements. Project management's responsibility for the financial statements The Project's management is responsible for the preparation of the financial statements in accordance with the accounting policies as described in Note 3 to the financial statements and for such internal control as the management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. A member firm of Ernst & Young Global Limited EY Building a better working world 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 a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. i Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. i Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures nagement. Vientiane, Lao PDR ERNST & YOUNG LA0 Co.,LTD 30 June 2017 A member firm of Ermst & Young Global Limited Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No.56750-LA) STATEMENT OF RECEIPTS AND DISBURSEMENTS for the year ended 31 December 2016 For the period Accumulated as For the year from 17 August at 31 December ended 31 2015 to 31 2016 December 2016 December 2015 Notes USD USD USD Receipts Advances received from Electricite Du Laos 376,855 - 376,855 Counterpart funds 4 144,313 126,590 17,723 International Development U Association funds 5 2,066,870 2,066,870 - H Total receipts 2,588,038 2,193,460 394,578 Disbursements by component 0 Consultant services fees 6 741,022 447,497 293,525 Administrative and other expenses 7 1,104,365 1,003,312 101,053 Reimbursement to Electricite Du Laos's advance in prior year 5 259,521 259,521 - Total disbursements 2,104,908 1,710,330 394,578 483,130 483,130 - Komonchahll P1KT-ASA E DL Mputy manasggDrco anthaneth XAYSOMPHENG Mr Kanthaneth Xaysompheng Managing Director Deputy Manager of Project-Loan Electricite Du Laos Accounting Office Electricite Du Laos Vientiane, Lao PDR 30 June 2017 4 Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No. 56750-LA) STATEMENT OF FUND BALANCE As at 31 December 2016 For the period For the year from 17 August ended31 2015to31 December 2016 December 2015 Notes USD USD Opening fund balance Net receipts 483,130 Closing fund balance 483,130 - Represented by: 0 Cash at banks 8 483,130 483,130 - ~~Xr Konionchanh~ PHEIf-ASA F DqmDeputy Managing Director Kanthanoth XAYSOMPHENG Mr Kanthaneth Xaysompheng ector Deputy Manager of Project-Loan Electricite Du Laos Accounting Office Electricite Du Laos Vientiane, Lao PDR 30 June 2017 5 Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No. 56750-LA) NOTES TO THE FINANCIAL STATEMENTS as at and for the year ended 31 December 2016 1. PROJECT BACKGROUND The Power Grid Improvement Project ("PGI" or "the Project") is funded by International Development Association ("IDA") under Specific Investment Lending Instrument Grant No.56750-LA dated 17 August 2015. The Project is implemented by Electricite Du Laos ("EDL"). IDA and EDL have entered into a Development Financing Agreement, the purpose of which is to finance the eligible expenditures necessary in carrying out the objectives of the Project. IDA has agreed to provide 87% of the said financing assistance in an aggregate principle amount of SDR 21,400,000 (equivalent to USD 30,000,000) and the Government of Lao PDR ("GOL") to provide 13% amounting to SDR 3,210,000 (equivalent to USD 4,500,000). 32 Repayment of the proceeds of the loan is over a period of twenty (20) years, inclusive of a grace period of the three (3) years. Payment of interest on the principle amount of the loan withdrawn and outstanding from time 3 to time is at the rate of 2% per annum or any other rate which may be agreed between the GOL and EDL and which is satisctory to IDA, and payment of service charge of one percent (1%) per annum on each withdrawn of an amount of the subsidiary loan. Remaining cash balance for over payments and cash balance with no movements at project closure date are required to be refunded. A refund is recognized once the project transfers the related balance to the Project designated amount to the World Bank. The main purpose of the Project is to help improve the efficiency and reliability of power distribution in the selected load areas served by EDL in Xaythany district of Vientiane Capital. The project consist of th'e following parts: 0- Smart Metering, Distribution Improvement and Distribution losses Redution > Electric Utility Information System > Institutional Capacity Building and Project Implementation Support 2. BASIS OF PREPARATION The Project's financial statements comprise the statements of fund balance, statement of receipts and disbursements, together with the notes thereto. The Project maintained its accounting records and presented its financial statements in United State Dollar ("USD"). The Project's financial statements have been prepared in accordance with the accounting policies as described in Note 3. These accounting policies are not intended to present the statement of fund balance, statement of receipts and disbursements of the Project in accordance with international generally accepted accounting principles. The financial statements are prepared to assist the Project in meeting the reporting requirements of the donors. As a result, they may not be suitable for another purpose. 6 Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No. 56750-LA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Receipts International Development Association ("IDA") funds IDA funds include direct disbursements and designated account replenishment. IDA funds - direct disbursements related to payments made by IDA, directly to the Projects' suppliers and consultants. These payments are accounted for as direct receipts and disbursements when payments are made by and upon receipt of advice from IDA. IDA funds - designated account replenishments are recognized as receipts when cash is debited to the Project's designated account replenishment managed by the Ministry of Finance. The Project records such receipts when notified by the Ministry of Finance based on the amount received in related bank accounts. Counterpart funds Counterpart fund related to payments made by EDL directly to the Project's suppliers and staffs. These payment are recognized as both receipts (from counterpart funds) and disbursements upon receipt of advice from EDL. 3.2. Disbursements Expenditure under each compont is recognized when incurred and documents substantiating the Project's transactions are submitted and approved by the project's management and payments are made. 3.3. Advances received from EDL Advances received from EDL for the payment of consultancy fees is recognized as receipts and the refunds from IDA to EDL to settle such advance is recognised as disbursements. 3.4. Foreign exchange differences The Project maintains its accounting records in LAK. For the purpose of preparing these financial statements, the receipts and disbursements arising in currencies other than USD are translated into USD by using the average rates of each month that transactions occurred. Fund balances denoted in foreign currencies are translated into USD at the closing exchange rate at the reporting date (as at 31 December 2016: 8,204 KIP/USD). Foreign exchange differences arising from such translation are presented as net foreign exchange gains/(losses) in the statement of receipts and disbursements. 7 Power Grid Improvement Project (Funded by International Development Association under Specific Investment Lending Instrument Grant No. 56750-LA) NOTES TO THE FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2016 4. COUNTERPART FUNDS Counterpart funds are payments made by EDL directly to the Project's suppliers and staffs, mainly for administrative expenses such salary, perdiem, accommodation, fuel and vehicle maintenance of EDL's working team at Xaythany station. 5. INTERNATIONAL DEVELOPMENT ASSOCIATION FUNDS For the year ended 31 December 2016 Borrower reference Application type Date of receipt USD EDL-001 DA-1 11 April 2016 500,000 C EDL-002 Reimbursement (*) 6 June 2016 259,521' U EDL-003 DA-1 25 July 2016 188,032 EDL-004 Direct payment 18 July 2016 685,900 EDL-005 Direct payment 22 August 2016 224,425 EDL-006 DA-1 19 December 2016 208,992 Total receipt 2,066,870 (*) This is the fund transferred to settle with EDL's advance received in prior year. 8 ■し→→→→→→→→→図 % しも --:、、‘-----(1-----―・「 C) " N V) Cp V) CD N Ln c,ý Cl uý q Cý) q- M V- OD 0 Q) c ó ) -o c:) C> - c: M m clý C4) C> CO OD C\i r_ CD C\j C\! q «) CL. d> LL N r-- «) cm (o U.) 0) cý (0 r3 00 C<) C,) CD CCý a> R cri Q) Q2 N 0 CO <» o U) w U) z oco w cu (0 N 00 u-) LO CD - C) V) " (D C-4 co c> LO r- c:) m (u C\j crý z ø -o C\i -0 w E w U) E -i < w > 0 > LO z ca> M >U q, n o c c uc ~C U CDZa)- Q>> csJ ýn o o o 0 < :3 0> Q> -( 0u 0 08 > Z c .2 .2 E2 sæ 0> -- ( 0 00 0 U)l E co ýý I CD 0 E~ cn U) 0) -s - -=> 'I CD) 0 CO 0g 0 e > z- c Q) < LL 0 - (D 000 0 > 0c > Q 0 oLn o c - ) ( E > m CD ~ ( 00 0 ~ >0 0 co 0 C c) 52 o 0 " - L, ICo,NJ