GrantThornton Water Security and Canal Protection Project (IDA Credit No. 5902-XK) (P133829) Project Financial Statements for the year ended December 31, 2018 (with Independent Auditor's Report thereon) Water Security and Canal Protection Project Content (IDA Credit No. 5902-XK) Page * Management responsibility 1 * Independent Auditor's Report 2-4 * Statement of sources and uses of funds 5 * Notes to the financial statements 6-13 Water Security and Canal Protection Project Management responsibility (IDA Credit No. 5902-XK) For the year ended December 31, 2018 The accompanying project financial statements which comprise the Statement of Sources and Uses of Funds and a summary of significant accounting policies and other explanatory information, of the Kosovo Water Security and Canal Protection Project (IDA Credit 5902 - XK) - (the "Project"), signed between the Republic of Kosovo and the International Development Association ("IDA"), implemented by Iber-Lepenc ("I-L") and the Ministry of Economic Development ("MED"), as at and for the period from 01 January 2018 to 31 December 2018 and included on pages 5 to 13, are the responsibility of, and have been approved by the Project's management. The accompanying Project's financial statements have been compiled by the Project's management, for the purposes of reporting to the Iber-Lepenc Company management, the Ministry of Economic Development and the International Development Association, in conformity with the related requirements of the World Bank guidelines and terms and conditions of the IDA Credit No. 5902 - XK. Project's management, in furtherance of the integrity and objectivity of the Project's financial statements, has developed and maintained an internal control structure, including the appropriate control environment, accounting systems and control procedures. Project's management believes that internal controls provide assurance that financial records are reliable and form a proper basis for the preparation of financial statements, and that assets are properly accounted for and safeguarded. There are, however, inherent limitations that should be recognized in considering the assurances provided by the internal control structure. The internal control process also includes management's communication to employees of policies, which govern ethical business conduct. Grant Thornton LLC Prishtina, Independent Auditors, have been engaged to audit these Project's financial statements in accordance with the International Standards on Auditing. Their report is included on pages 2 and 3. July 09, 2019 Vigan Syla Ga7lend Ba a Project Coordinator Financial Management Specialist GrantThornton Independent Auditor's Report Grant Thornton LLC Rr. Rexhep Mala 18 10 000 Pristina Kosovo T +381 38 247 771 +381 38 247801 F +381 38 247 802 www.grartthornton-ks.com To the Management of the Iber Lepenc Company Opinion We have audited the accompanying project financial statements, which comprise the Statement of Sources and Uses of Funds as at and for the period from 01 January 2018 to 31 December 2018 and a summary of significant accounting policies and other explanatory information of the Kosovo Water Security and Canal Protection Project (IDA Credit 5902 - XK) - (the "Project"), signed between the Republic of Kosovo and the International Development Association ("IDA"), implemented by Iber-Lepenc ("I-L') and the Ministry of Economic Development ("MED"). In our opinion, the accompanying project financial statements present fairly, in all material respects, the balance of the funds as at December 31, 2018 and the movement of the Sources and Uses of Funds of the Project for the period from 01 January 2018 to 31 December 2018 in accordance with cash basis of accounting as set out in Note 2 to the project 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 Company in accordance with International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) and with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Kosovo, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter - Restriction of Use and Distribution We draw attention to Note 2 to the Statement, which describes the basis of preparation. The project financial statements are prepared on the cash basis of accounting and for the purposes of reporting to the Iber-Lepenc Company management, the Ministry of Economic Development and the International Development Association. As a result, the project financial statements may not be suitable for another purpose. Our report is intended solely for the management of the Iber-Lepenc Company management, the Ministry of Economic Development and the International Development Association and should not be distributed to parties other than those. Our opinion is not modified in respect of this matter. CharteredAccouents Member rnr of Grant Thornton International Ltd GrantThornton 3 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the Statements in accordance with cash basis of accounting as set out in Note 2 to the project financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. 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 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 this statement. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism 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. * 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 Company's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the statement or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. Chartered Accountants Memberfirm of Grant ThontDn ternaional Ltd GrantThornton 4 To the Management of the Iber Lepenc Company (continued) * Evaluate the overall presentation, structure and content of the statement, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 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. Grant Thornton LLC Suzana Stavrikj Prishtina, Kosovo Statutory auditor 10 July 2019 Chartered Accountants Member frr ofGrant Thornton Internallona- Ltd Water Security and Canal Protection Project (IDA Credit No. 5902-XK) Statement of Sources and Uses of Funds For the year ended December 31, 2018 (in EUR unless otherwise stated) (Amounts in EUR) For the period from 01 January 2018 to 31 December 2018 Actual Planned Variance Current Cumulative Current Cumulative Current Cumulative Notes period to date period to date period to date Sources of funds IDA Credit No. 5902 - XK funding (Advance to D.A) 4 500,000.00 500,000.00 456,850.00 456,850.00 (43,150.00) (43,150.00) Temporary advances by Government of Kosovo 5 200,000.00 200,000.00 (200,000.00) 200,000.001 Total sources of funds 700,000.0 0 700,000.00 456,850.00 456,850.00 (243,150.00) t243,150.00) Uses of funds Goods 6 30,570.00 30,570.00 33,400.00 33,400.00 2,830.00 2,830.00 Civil works . Consulting services 7 249,895.32 249,895.32 411,450.00 411,450.00 161,554.68 161,554.68 Training and workshop 8 2,279.22 2,279.22 (2,279.22) (2,279.22) Incremental operating costs 9 2,613.77 2,613.77 12,000.00 12,000.00 9,386.23 9,386.23 Total Uses of Funds 285,358.31 285,358.31 456,850.00 456,850.00 171,491.69 171,491.69 Balance 414,641.69 Bank balances, at beginning of the period- Bank balances, at end of the period 13 414.641.69 The Statement of Sources and Uses of Funds is to be read in conjunction with the notes set out on pages 3 to 10 and forming an integral part of the financial statements. The financial statements of the Water Security and Canal Protection Project (IDA credit No. 5602-XK) were authorised for issue by the management of the Project on July 09, 2019 and signed on its behalf by: Vigan Syla ia n Ind Bajra Project Coordinator Financial Management Specialist 5 Water Security and Canal Protection Project Notes to the Financial Statements (IDA Credit No. 5902-XK) For the year ended December 31, 2018 (in EUR, unless otherwise stated) 1) General The Financing Agreement for the Kosovo Water Security and Canal Protection Project (IDA Credit 5902 - XK) - (the "Project'), was signed between the International Development Association ("Association") and the Republic of Kosovo ("Recipient") on January 27, 2017 June 26, 2017 is the effective date of the project. The Association agrees to extend to the Recipient, on the terms and conditions set forth or referred to the Agreement, a credit (variously, "Credit" and "Financing"), in an amount to twenty two million Euro (Euro 22,000,000) to assist in financing the project. The Project is implemented by Iber-Lepenc ("I-L") and Ministry of Economic Development (MED). Pursuant to the loan agreement the Iber-Lepenc has established a Project Coordination Unit (PCU) with functions, staffing and resources satisfactory to the Association for the purpose of ensuring prompt and efficient overall coordination, day-to-day implementation of, and communication relating to, Project activities and results. At December 31, 2018, the Project Coordination Unit had 3 employees. Project Description The objectives of the Project The objective of the Project is to contribute to restoring the Iber Canal to its original capacity to improve water resource management for various canal water users in Central Kosovo. The Project consists of the following Parts: Part 1. Infrastructure Rehabilitation and Modernization Re-establish the transit capacity of the Iber Canal, enable closure of the canal for maintenance, strengthen the canal's structural safety against extreme events, and enhance the Gazivoda dam safety by carrying out activities, Including: (a) Carrying out small works for Gazivoda dam safety, and canal repair and increased stability for protection against renewed physical damage from landslides and unstable soils; (b) Constructing a new balancing and emergency reservoir along the canal in the Mihaliq area(in Vushtri municipality) for short-term water storage to bridge peak water demend and to enable continuation of water supply to the users during the temporary outages for canal repair,or during extreme events that disrupt the canal flow; Part 2. Water Resources Protection and Management Implement water resources protection and management measures to increase the Gazivoda-Iber system operational efficiency and to protect canal ambient water quality, including: (a) Carrying out works(such as selective fencing and covering of certain canal sections) to protect the canal against renewed pollution, accidental pollution and other threats and man-made disruptions; (b) Installing equipment for better management of gates and regulation of water flows,as well as for water monitoring(for the main Tber Canal and for its secondary delivery system),including provisions for remote monitoring and controlling of related structures. Part 3. Project Management Provision of support for Project implementation, coordination and monitoring and evaluation, including enhancing capacity of the Project Implementing Entity (through hiring of consultants), training and financing of Incremental Operating Costs. 6 Water Security and Canal Protection Project Notes to the Financial Statements (IDA Credit No. 5902-XK) For the year ended December 31, 2018 (in EUR, unless otherwise stated) Withdrawal Conditions; Withdrawal Period 1. Notwithstanding the provisions of Part, A of the Section IV of Financing Agreement, no withdrawal shall be made for payments made prior to the date of this Agreement, except that withdrawals up to an aggregate amount not exceed Euro 250,000.00 may be made for payments made prior to this date but on or after the date, which is twelve months prior to the date of this Agreement, for Eligible Expenditure. 2. The Closing Date is April 30, 2022. IDA Credit No.5902-XK The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the financing ("Category"), the allocations of the amounts of the financing to each Category and the percentage of expenditures to be financed for Eligible Expenditures in each category: Amount of the % of expenditures Category financing allocated to be financed - - (expressed in EUR) (inclusive of taxes) 1) Goods, works, non-consulting services, consultants' services and Incremental Operating Costs under Part 1(b) of the Project 7,000,000 100% 2) Goods, works, non-consulting services, consultants? services under all Parts of the Project (except Part 1(b), Incremental Operating Costs and Training_ 15,000,000 100% Total amount 22,000,000 The Government of Kosovo will repay the principal amount of the Credit in semi-annual instalments payable as of describe in following: Date Payment Due Principal Amount of the Credit repayable - (expressed as a percentage)* On each April 15 and October 15, in each year: * Commencing on October 15, 2021, to and including, April 15, 2031 1.65% * Commencing April 15, 2031, to and including, April 15, 2041. 3.35% *The percentages represent the percentage of the principal amount of the Credit to be repaid, except as the Association may otherwise specify pursuant to Section 3.03 (b) of the General Conditions. The maximum Commitment Charge Rate payable by the Recipient on the unwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per annum. The Service Charge payable by the Recipient on the Withdrawn Credit Balance shall be equal to three-fourths of one percent (3/4 of 1%). The Interest Charge payable by the Recipient on the Withdrawn Credit Balance shall be equal to one and a quarter percent (1.25%) per annum. As at December 31, 2018, there is no disbursement from the Credit. 7 Water Security and Canal Protection Project Notes to the Financial Statements (IDA Credit No. 5902-XK) For the year ended December 31, 2018 (in EUR, unless otherwise stated) 2) Basis of preparation The financial statements of the project for the year ended December 31, 2018 have been prepared for the purpose of complying with the provisions of the Project's objectives, the World Bank guidelines and terms and conditions of the IDA Credit No. 5902 - XK. The financial statements comprise the statement of sources (Cash Receipts) and uses (Payments) of funds for the year ended December 31, 2018, and a summary of significant accounting policies and other explanatory notes. Cumulative information on receipts and disbursements from the Project's inception date to December 31, 2018 is presented in the Statement of Sources and Uses of Funds for information purposes only. The financial statements have been prepared in accordance with cash basis IPSAS - Financial Reporting under the Cash Basis of Accounting which differs from the Republic of Kosovo and the International Financial Reporting Standards. On this basis, income is recognised when received rather than when earned and expenses are recognised when paid rather than when incurred. Accordingly, direct and indirect payments of the Project's expenses, which are made from the proceeds of the credit, are recognised as sources and uses of funds at the time the payment is made. The financial statements prepared for the special purpose are presented in Euro ("EUR"), unless otherwise stated. 3) Summary of significant accounting policies A summary of significant accounting policies underlying the preparation of the Project's financial statements is presented below. 3.1 Foreign currency transactions The project accounts are maintained in Euro ("EUR"). Transactions in foreign currencies are translated to the functional currency at exchange rates on the dates of the transactions. Initial credit amount is maintained at the historical exchange rates. The project translates the undrawn credit balance at the rates in effect on the year end. The exchange rates in effect as at December 31, 2018 were as follows: Currency December 31, 2018 EUR/ USD 1.15 USD/EUR 0.87 SDR/EUR 1.21 SDR/USD 1.39 3.2 Recognition of income and expenses Income is recognised when received rather than when earned, and expenses are recognised when paid rather than when incurred. 3.3 Taxation The Project is not exempt from Value Added Tax (VAT) and Custom Duties for the credits part. The local employees of the project are liable for personal income tax and social security contributions. 8 Water Security and Canal Protection Project Notes to the Financial Statements (IDA Credit No. 5902-XK) For the year ended December 31, 2018 (in EUR, unless otherwise stated)- 4) IDA Credit No. 5902-XK financing IDA funding is detailed by method of disbursement as follows: Year ended Year ended on December 31, on December 31, S -_ -_ - - - - - -2018 2017 IDA Advance to Designated Account 500,000.00 . Reimbursements - - - iLTotal _ 500,000.00 J- Reimbursements represent the IDA funds for cover the payments already made by Government of Kosovo for this project using withdrawal applications prepared by the Project. 5) Temporary advances received by government of Kosovo The temporary advances received by Government of Kosovo for the year ended 31 December 2018 and cumulative is composed as follows: -_ -_ -_ - -_ -_ - - _ _2018 _ __ 2017 Temporary advances received by GOK 200,000.00 Government Funds Movement during the year 200,000.00 Government Funds as at December 31 200,000.00 The payment made in the amount of 200,000.00 Euro at the end of December 2018 for consulting services was made from the funds allocated from the Republic of Kosovo budget, and the reimbursement was made with the application KWSCP-002 on 26.03.2019. 6) Goods Year ended Year ended on December 31, on December 31, S -_ -_ -_ - - - - - 2018 2017 Vehicle for PJU 23,900.00 IT equipment -Data Com Pr 4,428.00 Ekuipment for PIm-Ilir Kosova,Pr - 2,242.00 Total --a_ 0,570.00 9 Water Security and Canal Protection Project Notes to the Financial Statements (IDA Credit No. 5902-XK) For the year ended December 31, 2018 (in EUR, unless otherwise stated) 7) Consultant services Expenditures for Consultant services are detailed as follows: Year ended Year ended on December 31, on December 31, _ -_ -_ -__ -__ -__ -2018 _ _ 2017 WSCP-CS-QCBS-2 - contract for the design and implementation services of the project -_advance pavment 209,520.77 Debabrata Maiumdar _ - - - - 28,460.84 Project coordination unit WCU istaff net salaries 9,192.08 Personal income tax for PCU staff 910.68 1 Employee pension contribution for PCU staff 491.25 Employer pension contribution for PCU staff 528.25 Personal Income tax for non-resident staff 791.45 Total 249,895.32 8) Training and workshop Year ended Year ended on December 31, on December 31, - _ -_ - - -_ -_ -_ 2018 2017 Study tour, Strezhevo 583.41 . Regional Procurement Training, Podgorica _ 1,695.81 Total 2,279.22 9) Incremental operating costs Expenditures for incremental operating costs are detailed as follows: Year ended Year ended on December 31, on December 31, S -_ - - - - - - - 2018 _2017 Costs for B kFe 977.92 Vehicle registration 309.81 Publications of advertisements 80 0 -- - Fuel for PIU 526.04 - Total 2,613.77 10 Water Security and Canal Protection Project Notes to the Financial Statements (IDA Credit No. 5902-XK) For the year ended December 31, 2018 (in EUR, unless otherwise stated) 10) Expenditure by project activities The expenditures by Project Parts for the year ended December 31, 2018 is as follows: Training Incremental Total Year Parts Goods Consulting eng Ieerag Works Tdd on services shop costs December 31, - -_ - -_ - - - - _ -2018 Part Infrastructure 1 Rehabilitation and Modernization - 200,000.00 - - 200,000.00 Water Resources 2 Protection and Management Part Project 3 Management_ 30,570.00 49,895.32 2,279.22 2,613.77 - 85,358.31 Total Year ended on December 31. 2018 30,570.00 249.89532 2,279.22 2.613.77 - 28535831 Total Year ended on December 31. 2017 - 11) Expenditures by category sources of funds Expenditures by sources of funds for the year ended 31 December 2018 are composed as follows: Item IDA Credit No. 5902 Temporary advances by funding Government Total Goods 30,570.00 - 30,570.00 Consultants' services 49,895.32 200,000.00 249,895.32 Training and workshops 2,279.22 2,279.22 Incremental operating costs 2,613.77 2,613.77 Works - - Total December 31. 2018 _ 85.358.31 200,000.00 _ _ 285,358.31 Total December 31. 2017 . 11 � b � � � 51 � ~ W д °' й � и •�, а) �" N е�+ .,� ', � ' N р� � о н , р и � � � •о � д Z а `° � � а �° � � � а � � � � 1 � � о ,у � и А t� .� � � д � � й о и � � " о и � '�✓ bд ' ь� .,. С .� Е� � о р � � ... � е� � U а ед � Д и ^,Г й °' .� U и � 'д О О � "О О р у � � О i. о о � � W � о А � и и о о о � �, о о � � � о о° оо �� о о о � �у �р+ Р� д' о и а� �--� � М 1 �,' а� � ы q й � � � о � � �'и д �� с� Q � � �ts, и � abi � а � 4 � � � � А � и � т � � о �, � � � � о �' а> RL � � и а � +'г�• w '� д„ й i� о а � N ,3 � � о z Г.т� �. ,� Е' Water Security and Canal Protection Project Notes to the Financial Statements (IDA Credit No. 5902-XK) For the year ended December 31, 2018 (in EUR, unless otherwise stated) 13) -Statement of Designated Account Account number 1901217935041302 Depository Bank Banka Kombetare Tregtare - Njesia Pejton Prishtine Address Rr. Ukshin Hoti Nr 29 Qyteza Pejton Loan Number 5902-YK Currency Euro (Amounts in EUR) For the period from I January 2018 to 31 December 2018 At 1 January 2018 - Add: Inflows Replenishment during the period - advance payment 500,000.00 Return of unspent funds for advances given for trainings and workshops 1,758.78 501,758.78 Deduct: Outflows Amount of eligible expenses paid during the period (83,079.09) Advances given for trainings and workshops (4,038.00) (87,117.09) At 31 December 2018 414,641.69 13