Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project # P122540 Report and financial information for the period from I January 2017 to 31 December 2017 Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project # Pl22540 Report and financial information for the period from 1 January 2017 to 31 December 2017 Page Independent auditor's report 1-3 Statement of cash receipts and payments by category 4 Statement of cash payments classifying the uses of funds 5 Statement of movements in the Designated Account 6 Notes to the financial information 7-10 List of signed contracts Appendix A pwc Independent auditor's report to the Ministry of Environment, Republic of Lebanon Report on the audit of the financial information Our opinion In our opinion, the financial information of PCB Management in the Power Sector ("the Project") are prepared, in all material respects, in accordance with the accounting policies described in note 2 to the financial information. What we have audited The Project's financial information comprise: * the statement of cash receipts and payments by category for the period from I January 2017 to 31 December 2017; * the statement of cash payments classifying the uses of funds for the period then ended; * the statement of movements in the Designated Account for the period then ended; and * the notes to the financial information. 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 informations section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Ministry of Environment in accordance with the International Ethics Standard Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the ethical requirements that are relevant to our audit of the financial information in Lebanon. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code. Other information The Project Management Unit ("PMU") of the Ministry of Environment is responsible for the other information. The other information comprises the list of signed contracts of the Project included in Appendix A (but does not include the financial information and our auditor's report thereon). Our opinion on the financial information does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial information, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial information or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Pricewaterhousecoopers, Saba House Bldg., Block B/C, Said Freiha Str., Hazmieh, Lebanon, MoF 95693 P.O. Box 1i-3i55, Beirut, Lebanon, Telephone +961 (5) 4286oo, Facsimile +961 (5) 951979, Ii piec r rAHI r Independent auditor's report (continued) to the Ministry of Environment, Republic of Lebanon Basis of accounting and restriction on distribution and use We draw attention to note 2 to the financial information, which describes the basis of accounting. The financial information is prepared to enable the PMU to meet its reporting obligations to the World Bank under the terns of the Grant Agreement No. TF-01 8030. As a result, the financial information may not be suitable for another purpose. Our report is intended solely for the Ministry of Environment, Republic of Lebanon and the World Bank and should not be distributed to or used by parties other than the Ministry of Environment, Republic of Lebanon and the World Bank. Our report is not modified in respect of this matter. Responsibilities of management and those charged with governance for the financial information The PMU is responsible for the preparation of the financial information in accordance with the accounting policies described in note 2 to the financial information and for such internal control as management determines is necessary to enable the preparation of the financial information that is 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 financial information Our objectives are to obtain reasonable assurance about whether the financial information as a whole is 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 this financial information. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism through the audit. We also: * Identify and assess the risks of material misstatement of the financial information, 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 Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Independent auditor's report (continued) to the Ministry of Environment, Republic of Lebanon Auditor's responsibilities for the audit of the financial information (continued) We communicate with those charged with governance 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. Beirut, Lebanon 19 June 2018 7121 4 Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project # P122540 Statement of cash receipts and payments by category for the year ended 31 December 2017 2017 2016 Note USS US$ Sources of funds IBRD grant funds 4 204,291 173,379 IBRD direct payments 4 540,545 114,062 744,836 287,441 Uses of funds by project component Capacity building and project management 3 150,438 158,505 Inventory of PCB contaminated transformers 309,190 88,340 Disposal of high content PCB equipment and contaminated oil 231,355 - 690,983 246,845 Balance refunded to donor 23,404 - Uses of funds 714,387 246,845 Surplus 30,449 40,596 The financial information on pages 4 to 10 were authonsed by Ms. Lama Mghames Chouchany on 18 June 2018 on behalf of the Project Management Unit ("PMU") of the Ministry of Environment: a M6ames Chouchany roject manager PCBs Management in the Power Sector Project World Bank Ministry of Environment The notes on pages 7 to 10 are an integral part of this financial information, Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project # P122540 Statement of cash payments classifying the uses of funds for the period from 1 January 2017 to 31 December 2017 2017 2016 Note US$ US$ Capacity building and project management Consultants' services 3 141,022 108,490 Goods 3 - 15,202 Operating and training costs 3 9,416 34,813 150,438 158,505 Inventory of PCB contaminated transformers Works 309,190 88,340 Disposal of high content PCB equipment and contaminated oil Works 231,355 - Total expenditures by project component and sub-components 690,983 246,845 The notes on pages 7 to 10 are an integral part of this financial information. Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project # P122540 Statement of movements in the Designated Account for the period from I January 2017 to 31 December 2017 Note US$ Designated Account balance at 1 January 2017 99,488 Add: IBRD grant funds 204,291 IBRD direct payments 540,545 Sources of funds 744,836 Less: Uses of funds (150,438) Direct payments (540,545) (690,983) Balance refunded to donor (23,404) Uses of funds (714,387) Designated Account balance at 31 December 2017 5 129,937 The notes on pages 7 to 10 are an integral part of this financial information. 7 Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project# P122540 Notes to the financial information for the period from 1 January 2017 to 31 December 2017 1 Project background The Government of Lebanon became party to the Stockholm Convention on 3 January 2003. For the planning of appropriate action in the field of controlling Persistent Organic Pollutants ("POPs") substances and releases as well as fulfilling the reporting requirements of the Convention, Lebanon submitted its National Implementation Plan (NIP) on POPs in 2006, According to the NIP, Lebanon's top priorities in POPs management are: (i) awareness raising; (ii) institutional and regulatory strengthening; (iii) PCB management; and (iv) management of emissions of dioxins and furans. The Lebanese Republic has obtained from the International Bank for Reconstruction and Development "IBRD" of the World Bank a grant of US$ 2.5 million to finance the implementation of the PCB Management in the Power Sector Project. The project's effective date was 30 March 2015 and its closing date is 30 June 2020. The objective of this Project is to dispose of high risk PCBs and improve the inventory management of transformers in the power sector in an environmentally sound manner. Given the risk of high content PCB equipment and the priorities set by the Stockholm Convention to eliminate PCB from Lebanon by 2025, this project will take action to: (i) conduct a country-wide inventory of the PCB contaminated transformers in the power sector in Lebanon, which will update the findings of a previously conducted survey in 2010; (ii) dispose of all the high content PCB equipment and OCB contaminated oil; and (iii) provide capacity building to stakeholders for an improved PCB management in the future. The Project Management Unit (PMU) within the Ministry of Environment is responsible for overall coordination and implementation of the Project. During 2017, total cash receipts received from the World Bank amounted to US$ 744,836 (2016 US$ 287,441), disbursements made amounted to US$ 690,983 (2016 US$ 246,845) and refunds to the World Bank amounted to US$ 23,404 (2016 nil). 2 Principal accounting policies and basis of preparation The Project Management Unit ("PMU") prepares the financial information of the PCB Management in the Power Sector ("the Project"). The Project's governing documents provide certain guidelines for governing its financial activities. To ensure observance of limitations and restrictions on the use of financial resources, the PMU classifies the Project's uses of funds for accounting and reporting purposes under the following components: 8 Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project# P122540 2 Principal accounting policies and basis of preparation (continued) Component 1 - Inventory of PCB contaminated transformers (USS 0.79 million): This component supports a countrywide inventory of the PCB contaminated transformers in the power sector in Lebanon including: (i) desk review to identify the number of transformers potentially contaminated, (ii) sampling and (iii) on-site and laboratory testing of PCB. Component 2 - Disposal of high-content PCB equipment and contaminated oil (USS 1.1 million): This component supports the disposal of PCB equipment and contaminated oil, including associated capacitors. Component 3 - Capacity building and project management: (US$ 0.65 million): This component supports project management and coordination activities including (i) the establishment and staffing of a Project Management Unit (PMU), (ii) training staff at the Ministry of Environment and other relevant institutions and (iii) building the capacity of technical staff in reviewing, sampling, testing and labelling of PCB contaminated oil. The Project's expenditures are reflected in the unaudited Interim Financial Reports (IFRs) presented to the World Bank office in Beirut on a quarterly basis. The significant accounting policies adopted by the PMU in the preparation of the financial information are as follows: Basis of preparation The financial information has been prepared in accordance with the cash basis of accounting as approved by the World Bank, and as required by the terms of the Financial Management Procedures Manual of the Project, dated December 2016. Sources of Funds Funds received are recognised when cash is received. Use of Funds Uses of funds, expenses and other disbursements are recognised when cash is disbursed. Eligible expenditures under the Grant Agreement are used, accounted for and classified in accordance with the conditions of the Grant Agreement and applicable laws and regulations of the PMU's financial activities. Designated Account The designated account includes deposits held at call with the bank. The movement in the designated account represents the movement in the Project funds received and disbursed during the year. Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project# P122540 3 Capacity Building and Project Management 2017 2016 Us$ US$ Consulting services 141,022 108,490 Operating costs 5,821 17,515 Training costs 3,595 17,298 Goods - 15,202 150,438 158,505 4 IBRD grant funds received The below table lists the IBRD grant funds received in the Designated Account during 2017: Receipt date Us$ 1 July 2017 204,291 The below table lists the IBRD direct payments made by the World Bank for the project during 2017: US$ Receipt dates 25 January 2017 80,974 28 February 2017 132,510 28 June 2017 88,340 25 August 2017 238,721 Total direct payments 540,545 10 Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector - Project# P122540 5 Designated Account The table below shows the movement in the Designated Account at the bank during 2017: UsS Credit Debit Balance At 1 January 2017 99,488 31 January 2017 - 13,008 86,480 28 February 2017 - 626 85,854 31 March 2017 - 18,495 67,359 30 April 2017 - 24,880 42,479 31 May 2017 - 9,832 32,647 30 June 2017 - 9,464 23,183 31 July 2017 204,291 41,350 186,124 31 August 2017 - 10,104 176,020 31 October 2017 - 24,103 151,917 21 December 2017 - 12,100 139,817 31 December 2017 - 9,880 129,937 Designated Account at 31 December 2017 204,291 173,842 129,937 Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector -Project# P122540 Appendix A List of signed contracts Amount Date of Contract Amount paid to Project Component Nature committed paid to signature no. in ~ date in in US$US US$ Capacity building and project management Goods 8 21 2015 SHOO1 3,528 3,528 Capacity building and project management Goods 7 27 2015 SHOO2 3,600 3,600 Capacity building and project management Goods 7 27 2015 SHOO3 1,880 1,880 Capacity building and project management Goods 12 16 2015 SHOO4 511 511 Capacity building and project management Goods 892015 SH005 1,552 1,552 Capacity building and project management Goods 12 24 2015 SH006 12,222 12,222 Capacity building and project management Goods 2 4 2016 SH007 2,215 2,215 Capacity building and project management Goods 1 4 2016 OC16 254 254 Capacity building and project management Consulting 1231 2015 FCO01 17,900 10,740 services Capacity building and project management Consulting 5 1 2015 ICOOI 294,000 162,000 services Capacity building and project management Consulting 5 1 2015 1C002 121,200 66,000 services Capacity building and project management Consulting 12282015 IC003 17,880 12,516 services Capacity building and project management Consulting 1 28 2016 1C004 12,096 12,096 services Capacity building and project management Consulting 8 19 2016 1C005 8,340 8,340 services Capacity building and project management Consulting 9 27 2016 IC006 19,600 19,600 services Capacity building and project management Consulting 10192016 IC007 1,400 1,400 services Capacity building and project management Consulting 932017 IC008 200 200 services Capacity building and project management Consulting 8 1 2017 IC009 10,550 4,220 services Capacity building and project management Consulting 8 122017 1C010 400 400 services Ministry of Environment, Republic of Lebanon PCB Management in the Power Sector -Project# P122540 Appendix A List of signed contracts (continued) Amount Date of Contract paiduto Project Component Nature committed paid to signature no. i date in US$ Inventory of PCB contaminated Works 10 24 2016 PWOOI 883,400 397,530 transformers: Disposal of high-content PCB equipment Works 331 2016 PWO02 231,355 231,355 and contaminated oil