Project Financial Statements and Independent Auditor's Report Renewable Resources and Energy Efficiency Fund Preparation of the Utility-Scale Solar Power Project Grant No. TFOAO418 As of and for the year ended 31 December 2018 Independent auditor's report 3 Statement of financial position 5 Statement of the Project sources and uses of funds 6 Statement of uses of funds by Project activities 7 SOE withdrawal schedule 8 Designated account statement 9 Notes to the Project financial statements 10 Preparation of the UtL ySaeS tPwrPrjc rn oT0O1 Prde F acatSaeet GrantThornton Indep nden audior'sGrant Thornton Audit S.R.L. Independent auditor's Herastrau str Green Court Bucharest - building C report floor Bucharest, Romania 20334 T +40 21 32 02 328 F +40 21 32 02 327 To the board of trustees of the Renewable Resources and Energy Efficiency Fund Opinion We have audited the accompanying project financial statements of the Preparation of the Utility-Scale Solar Power Project (the "Project"), financed by the International Bank for Reconstruction and Development (the "IBRD") acting as an implementing agency of the Scaling-up Renewable Energy Program (the "SREP") under the Strategic Climate Fund (the "SCF") Grant Agreement SCF Grant No. TFOAO418, which comprise the statement of financial position as of 31 December 2018, the statement of the Project sources and uses of funds, the statement of uses of funds by Project activities, the designated account statement as of and for the year ended 31 December 2018 as well as the statement of expenditures ("SOE") submitted to the World Bank for the year ended 31 December 2018 in support of the Grant Agreement SCF Grant No. TF0AO418 withdrawals, and a summary of significant accounting policies and other explanatory information. In our opinion, the project financial statements are prepared, in all material respects, in accordance with the accounting policies described in note 2 to the project financial statements, the World Bank guidelines, and the relevant points of the Grant Agreement SCF Grant No. TFOAO418. In addition, in our opinion, the SOEs submitted together with the internal controls and procedures involved in their preparation can be relied upon to support the applications for the Grant Agreement SCF Grant No. TFOAO418 withdrawals. 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 Project Financial Statements section of our report. We are independent of the "Renewable Resources and Energy Efficiency Fund" (the "R2E2 Fund") in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (the "IESBA Code") together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Armenia, and we have fulfilled our other ethical responsibilities in accordance with those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matters * We draw attention to note 2 to the project financial statements, which describes the basis of accounting. The project financial statements are prepared to assist the management of the Renewable Resources and Energy Efficiency Fund to meet the requirements of the financial reporting of the World Bank. As a result, the project financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. * We draw attention to note 3 to the project financial statements which states that the closing date of the Project was defined as 30 June 2019. Our opinion is not modified in respect of this matter. Grant Thomlon Audit S R L is a member firm of Grant Thornton international Ltd (Grant Thorton Intemational). References to www.grantthornton.ro 'Grant Thornton' are to the brand under which fie Grant Thornton member firms operate and refer to one or more member firms as the context requres. Grant Thornton Intemadona and the member firms are not a worldwide partnership Services are delivered independently by member firms, which are not responsible for the services or activities of one another. Grant Thromton international does not provide semces to clients. GrantThornton Responsibilities of Management and Those Charged with Governance for the Project Financial Statements Management of R2E2 Fund is responsible for the preparation and fair presentation of the project financial statements in accordance with the accounting policies described in note 2 to the project financial statements, the World Bank guidelines, and the relevant points of the Grant Agreement SCF Grant No. TFOAO418, and for such internal control as management determines is necessary to enable the preparation of project financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibilities for the Audit of the Project Financial Statements Our objectives are to obtain reasonable assurance about whether the project 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 project 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 project 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 R2E2 Fund's intemal 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 project financial statements, including the disclosures, and whether the project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the management, 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. Grant Thornton Audit SRL, Romania 5 June 2019 Grint Thamtn Audit SRL is a member firm of Grant Thorton Intemational Ltd (Grant Thomon ntematonal). References to 'Grant www.grantthomton.ro Thorton' are to the brand under which the Grant Thomton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton Intemational and the member firms are not a worldwide partnership Services are delivered independently by member firms which are not responsible for the services or activities of one another Grant Thornton International does not provide services to clients US dollar As of 31 As of 31 Note December 2018 December 2017 Assets Curent assets Balances in bank accounts Designated account 75,911 166,342 75,911 166,342 Non-current assets Accumulated Project expenditures 2,398,113 1,983,963 2,398,113 1,983,963 Total assets 2,474,024 2,150,305 Funds and liabilities Grant Number TF 0A0418 4 2,000,000 1,759,055 Government co-financing 5 480,081 388,715 Exchange rate difference (6,057) (6,805) 2,474,024 2 140,965 Current liabilities Accounts payable - 9,340 Total funds and liabilities 2,474,024 2,150,305 The project financial statements were approved on 5 June 2019 by: Karen Asatryan 'iaram Burnachyan Director Ma~~1nager6 This statement is to be read in conjunction with the notes to and forming part of the special purpose project financial statements set out on pages 11 to 14. R Resources and Energy Eff ency Furd aolar Power Pro ect Grant No TFOAO418 Project F nancia: Statements d for the year ended 31 December 20'8 5 Grant Agreement TF0AO418 As of and for the year ended 31 December 2018 In US dollars Actual Planned Variance Yearended As of 31 Yearended As of 31 Yearended As of 31 31 December December 31 December December 31 December December Life of 2018 2018 2018 2018 2018 2018 Project Sources of funds Grant Number TF 0A0418 (note 4) 240,945 2,000,000 Governmencf cnnt 91,366 480,081 Total 332,311 2,480,081 Exchange rate difference 748 (6,057) Less: Uses of funds Goods, non-consulting services, consultants' services and incremental operating costs under the Project 414,150 2,398,113 501,430 2,500,000 (87,280) (101,887) 2,500,000 Total 414,150 2,398,113 501,430 2,500,000 (87,280) (101,887) 2,500,000 Net increase/(decrease) in working capital (note 6) (81,091) 75,911 This statement is to be read in conjunction with the notes to and forming part of the project financial statements set out on pages 11 to 14. Renewable Resources and Energy Effeiency Fund Preparation of the Utility-Scale Solar Power Project Grant No TF0AO418 Project Financia Statements As of and for the year ended 31 December 2018 6 Grant Agreement TFOAO418 As of and for the year ended 31 December 2018 In US dollars Actual Planned Variance Yearended As of 31 Yearended As of 31 Yearended As of 31 31 December December 31 December December 31 December December Life of 2018 2018 2018 2018 2018 2018 Project Part I. Resource Mapping and 1,356,480 - 1,383,243 - (26,763) 1,381,250 Feasibility Studies Part II. Preparation of Safeguard Instruments - - - - 68,750 Part Ill. Assessment of Legal and Regulatory Environment for Solar PV Development - 29,924 - 29,924 225,000 Part IV. Transaction Advisory Services 361,956 768,575 408,430 774,168 (46,474) (5,593) 562,500 Part V. Operational Manual - - - - - - 12,500 Part VI. Grant Implementation Support 52,194 243,134 93,000 312,665 (40,806) (69,531) 250,000 Total 414,150 2,398,113 501,430 2,500,000 (87,280) (101,887) 2,500,000 This statement is to be read in conjunction with the notes to and forming part of the project financial statements set out on pages 11 to 14. Renewab a Resources and En egy Efr ency Fund Preparation of the Utility-Scale Solar Power Pro ect Gra t N TFOA0418 P ole t F a a Statements As of and for the year e e 3 'e ember 2018 7 Grant Agreement TF0AO418 For the year ended 31 December 2018 In US dollars Category Application No. Goods, non-consulting services, consultants' services and incremental operating costs under the Project 10-DA 40,297 11-DA 21,598 Total 61,895 This statement is to be read in conjunction with the notes to and forming part of the project financial statements set out on pages 11 to 14. Renewable Resources and Energy Efficiency Fund Preparation of the Utility-Scale Solar Power Project Grant No TFDA0418 Project Financia Statements As of and for the year ended 31 December 2018 8 Grant Agreement TF0AO418 As of and for the year ended 31 December 2018 In US dollars Opening balance as of 1 January 2018 166,342 Add: Grant replenishment during the year 240,945 240,945 240,945 Present outstanding amount advanced to the designated account (1) 407,287 Closing balance as of 31 December 2018 75,911 Add: Amount of eligible expenditures paid during the year 331,376 Service charges (if applicable) 331,376 331,376 Total advance accounted for (2) 407,287 Discrepancy (1) - (2) to be explained - This statement is to be read in conjunction with the notes to and forming part of the project financial statements set out on pages 11 to 14. Renewable Resources and Energy Eff ency Fu d Preparation of the Utl ty-Scale Soar Power Project Grant No TFOAO4 I Project Financa State s to As of and for the year ended 31 Dece :ar 8 9 1 Activity Renewable Resources and Energy Efficiency Fund (the "Fund") has been established on 21 November 2005, in accordance with the decree N799 of the Government of the Republic of Armenia ("RA") dated 28 April 2005. The Fund implements the Preparation of the Utility-Scale Solar Power Project (the "Project"), which is financed under the Grant Agreement SCF Grant No. TF0AO418 signed between the International Bank for Reconstruction and Development (the "IBRD") acting as an implementing agency of the Scaling-up Renewable Energy Program (the "SREP") under the Strategic Climate Fund (the "SCF") and the Government of the Republic of Armenia on 5 June 2015. The Project consists of the following parts: Part 1: Resource Mapping and Feasibility Studies Providing support for resource mapping to determine prospective sites for solar power plants, and conducting feasibility studies for prospective sites, including, inter alia: (a) preliminary resource mapping output based on satellite and global atmospheric and meteorological data; (b) ground- based data collection; (c) production of validated resource map(s) based on satellite and ground- based data; (d) determination of the technology for solar photovoltaic plants; (e) evaluation of the potential for grid interconnection at selected sites and the need for grid upgrades if any; (f) assessment of grid interconnection costs; (g) assessment of economic and financial viability of proposed plants; and (h) development of conceptual design. Part II: Preparation of Safequard Instruments Preparing, disclosing, and carrying out public consultations on the necessary safeguard instruments for the proposed SPP Project, which include: (a) site-specific environmental and social impact assessments, including environmental and social management plans; and (b) resettlement policy framework(s) and resettlement action plan(s) for associated facilities. Part Ill: Assessment of Legal and Requlatory Environment for Solar PV Development Identifying bottlenecks and developing recommendations and measures for the legal and regulatory environment for development of solar power, which includes, inter alia: (a) assessment of existing regulatory and legal environment; (b) development of proposals for policy and legislative improvements to attract investments in solar power plants. Part IV: Transaction Advisory Services Providing transaction advisory services which include, inter alia: (a) identification of structuring options for individual projects; (b) development of tender documents for the selection of private developers; (c) developing marketing proposals of the specific projects among potential investors; and (d) support in bidding process and discussions with developers. Part V: Operational Manual Preparation of the Operations Manual for the proposed SPP Project. Part VI: Grant Implementation Support Supporting the R2E2 Fund to implement the Project: (a) through the financing of Incremental Operating Costs during implementation of the Project; and (b) financing the capacity building activities of the R2E2 Fund. Preparation of the Uthl t-cl oa oe r c rn oT O1 As of ancr th erede.Dcmr 208 10 In accordance with the Grant Agreement the financing of the Project is implemented through the following category: Category Percentage of Amount of the grant expenses to be allocated financed (in USD) Goods, non-consulting services, consultants' services and incremental operating costs under the Project 80 % 2,000,000 Total 2,000,000 The legal address of the Fund is 1 Melik Adamyan street, Yerevan, Republic of Armenia. The average number of the Fund's staff in 2018 was 21 (2017: 21). 2 Significant accounting policies 2.1 Basis of preparation The project financial statements were prepared in accordance with the accrual basis of accounting as well as the World Bank guidelines and the relevant points of the Grant Agreement SCF Grant No. TFOAO418. Significant accounting policies are disclosed below. 2.2 Functional and presentation currency The national currency of the Republic of Armenia is Armenian dram, which is also the functional currency of the Project since this currency best reflects the economic substance of the underlying events and transactions of the Project. These project financial statements are presented in US dollars (presentation currency), since management believes that this currency is more useful for the users of these project financial statements. In preparing the project financial statements, transactions in currencies other than US dollar are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. For direct payments denominated in currencies other than US dollar to the contractor/consultant from the World Bank share, the exchange rate set out for the presentation of the operation in the system client connection (https://clientconnection.worldbank.org) is used. At each reporting date, bank balances and payables denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on that date, which is 483.75 Armenian drams for 1 US dollar as of 31 December 2018 (as of 31 December 2017: 484.10 Armenian drams for 1 US dollar). Any exchange rate differences are recognized in the statement of the Project sources and uses of funds and the accumulated figure of exchange rate difference is disclosed in the Statement of financial position under "Exchange rate differences", 2.3 Project financing The financing received in the framework of the Grant Agreement SCF Grant No- TF0AO418 is recorded in the statement of financial position as "Accumulated Project financing" and is recognized at each replenishment. In addition, the current period funds received are disclosed in the statement of Project sources and uses of funds, showing the sources of funds. 2.4 Project expenses The Project expenses are recognized on the accrual basis of accounting. The accumulated Project expenses are disclosed in the statement of financial position under non-current assets. In addition, current period expenses are disclosed in the statement of Project sources and uses of funds and statement of uses of funds by Project activity. Renewable Reore and Energy Effiaency Fund of the Ut tyiSca e Soar Powe Project Grant No TF0AO418 Project Financil Stmen As of and for the year ended 31 December 2018 11 2.5 The or d -an financing To finance eligible expenditures for the Grant Agreement SCF Grant No. TFOAO418, the World Bank disburses proceeds from the Credit account using one or more of the disbursement methods, which are stated below: a. Reimbursement The Bank may reimburse the borrower to finance eligible expenditures that the borrower has pre- financed from its own resources. b. Advance The Bank may advance loan proceeds into a designated account of the borrower to finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date. c. Direct payment The Bank may make payments, at the borrower's request, directly to a third party for eligible expenditures. d. Special commitment The Bank may pay amounts to a third party for eligible expenditures under special commitments entered into, in writing, at the borrower's request and on terms and conditions agreed between the Bank and the borrower. 3. Closing date of the Project The closing date of the Project initially was 31 May 2018 and subsequently formally extended until 30 June 2019. 4. Grant Number TF 0A0418 US dollar Year ended As of 31 31 December December 2018 2018 SOE procedures 61,895 377,614 Direct payment - 425,774 Designated account advances - 300,000 Other procedures 190,663 908,225 Redemption (11,613) (11,613) 240,945 2,000,000 Under the method of "SOE procedures" of financing, the Fund requests advance to and documentation of designated account accompanied by the statement of expenditure (SOE). Under the method of "Other procedures" of financing, the Fund requests advance to and documentation of designated account accompanied by the records evidencing eligible expenditures for payments against contracts valued at more than the amounts in accordance with the Disbursement Letter and contracts that are subject to the World Bank's prior review. 5. Government co-financing US dollar Year ended As of 31 31 December December 2018 2018 Financing received 93,614 529,308 Refunded amount (2,248) (49,227) 91,366 480,081 Renewable Resources and Energy Effic ency Fund Preparation of the Utility-Scale Solar Power Project Grant No TFOAO418 Project Financial Statements As of and for the year ended 31 December 2018 12 US dol Year ended As of 31 31 December December 2018 2018 Decrease in bank balances (90,431) 75,911 Decrease in accounts payable 9,340 - (81,091) 75,911 7. Reconciliation between the amounts received by the Fund and disbursed by the World Bank Grant Agreement TF0AO418 For the year ended 31 December 2018 In US dollars The World C Appi Bank Difference Goods, non-consulting services, consultants' services and incremental operating costs under the Project 10-DA 149,564 149,564 11-DP 102,994 102,994- 252,558 252,558 Advance redemption (11,613) (11,613) Total 240,945 240,945 - Preparation of the Ui Vt-cl oa oe roetGatN T0D1 As of and fo th eredd3 eeb r 0813