Local Government Units Development and Lending Fund Gaza Solid Waste Management Project (Grant No. TF 016835) Co-funded by the International Development Association Financial Statements For the Year Ended December 31, 2018 Together with Independent Auditors’ Report Local Government Units Development and Lending Fund Gaza Solid Waste Management Project Co-funded by the International Development Association Statement of Activities For the Year Ended December 31, 2018 (Currency: USD) Note 2018 2017 Changes in unrestricted net assets: Revenues Released from restricted net assets 6 2,864,880 1,286,393 Interest income 5,414 4,545 Total unrestricted revenues 2,870,294 1,290,938 Expenses Project’s expenses 7 2,864,880 1,286,393 Transfer of interest revenue accumulated balance to LGUDLF general fund 6,645 1,539 Currency variance loss (gain) 6,740 )151,632( Total expenses 2,878,265 1,136,300 Net change in unrestricted net assets (7,971) 154,638 Changes in restricted net assets: Net assets released from restriction 6 (2,864,880) (1,286,393) Net change in restricted net assets (2,864,880) (1,286,393) Change in net assets (2,872,851) (1,131,755) Net assets, beginning of year 8,466,883 9,598,638 Net assets, end of year 5,594,032 8,466,883 The accompanying notes form an integral part of these financial statements 5 Local Government Units Development and Lending Fund Gaza Solid Waste Management Project Co-funded by the International Development Association Cash Flows Statement For the Year Ended December 31, 2018 (Currency: USD) 2018 2017 Cash Flow from Operating Activities Change in net assets (2,872,851) (1,131,755) Adjustments to reconcile change in net assets to net cash flow from operating activities: Decrease in pledges receivable 1,940,444 1,344,366 Decrease in advances to contractors 237,077 59,902 Increase in due to contractors 343,608 395,625 Increase in due to LGUDLF – management fees 187,550 - Net cash flow (used in) provided by operating activities (164,172) 668,138 Net (decrease) increase in cash at bank (164,172) 668,138 Cash at bank, beginning of year 1,016,690 348,552 Cash at bank, end of year 852,518 1,016,690 The accompanying notes form an integral part of these financial statements 6 Local Government Units Development and Lending Fund Gaza Solid Waste Management Project Co-funded by the International Development Association Designated Bank Account Statement For the Year Ended December 31, 2018 IBAN number PS24TNBC000000000001002283367 Account number 1002283367 Depository bank The National Bank Address Ramallah Currency EUR 2018 2017 Equivalent Equivalent Note EUR in USD EUR in USD Balance, beginning of year 847,383 1,016,690 333,287 348,552 Add: Receipts during the year 5 1,655,910 1,940,444 1,162,124 1,344,366 Interest income 4,610 5,414 3,959 4,545 1,660,520 1,945,858 1,166,083 1,348,911 Deduct: Payments during the year* 1,756,881 2,096,517 650,555 830,866 Transfer of interest revenue accumulated balance to LGUDLF general fund 5,441 6,645 1,432 1,539 Currency variance loss (gain) - 6,740 - (151,632) 1,762,322 2,109,902 651,987 680,773 Balance, end of year 745,581 852,646 847,383 1,016,690 * Reconciliation of expenses presented in the Designated Bank Account Statement with expenses presented in the Statement of Activities: USD 2018 2017 Expenses per the Statement of Activities 2,864,880 1,286,393 Change on due to contractors during the year (343,608) (395,625) Change on advances to contractors (237,077) (59,902) Change on due to LGUDLF – management fees (187,550) - Outstanding payments (149) - Bank charges (refunded by the bank subsequently) 21 - Expenses per Designated Bank Account Statement 2,096,517 830,866 The accompanying notes form an integral part of these financial statements 7 Local Government Units Development and Lending Fund Gaza Solid Waste Management Project Co-funded by the International Development Association Notes to the Financial Statements For the Year Ended December 31, 2018 (Currency: USD) 1. LGUDLF and its Activities The Local Government Units Development and Lending Fund (LGUDLF) had been established under the name of the Municipal Development and Lending Fund (MDLF) according to Cabinet Decree No. 05/13/12 dated August 2007. As of November 10, 2016, Decree by Law No. 25 has been issued which changed the name of MDLF to the Local Government Units Development and Lending Fund (LGUDLF). LGUDLF is a semi- governmental juridical independent organization aiming at accelerating Palestine’s drive toward self-sustained, decentralized, prosperous and creditworthy local government units. The main objective of LGUDLF is to encourage the flow of financial resources to Local Government Units (LGU). According to Decree by Law No. 25 dated November 10, 2016, LGUDLF shall undertake the following missions: - • Management of funds received through support from the Palestinian National Authority (PNA) or provided by donor countries or any other sources in compliance with the terms and conditions specified in LGUDLF's internal bylaws. • Assist local authorities develop their capacities in compliance with the bases of modern management practices to help them provide better services to the public. • Guide assistance from donor countries and provide modern fiscal services to support and develop the services offered to local authorities and to improve their credit abilities. • Encourage local authorities to adopt developmental projects to expand their geographic jurisdiction so as to serve their developmental plans. • Facilitate and provide loans to local authorities and follow up the expenditures thereof from their revenues. LGUDLF is structured to ensure an efficient, transparent, and professional institution capable of fulfilling its mission and objectives. LGUDLF comprises of Board of Directors, executive departments, and other advisory committees. 2. GSWMP and its Financing Gaza Solid Waste Management Project (GSWMP), (the Project), is co-financed by the following agreements: • Agreement signed between the Agence Francaise De Development (AFD) and the Palestinian National Authority (PNA) on August 24, 2013 to finance part of GSWMP in a maximum grant amount of EUR 14,750,000 (equivalent to USD 19,002,425) made of EUR 10,000,000 from AFD and EUR 4,750,000 from the European Union (EU). 8 • Agreement signed between the International Development Association (IDA) and LGUDLF on April 24, 2014 to finance part of GSWMP in a maximum grant amount of USD 10,000,000 (the “IDA co-funding”). GSWMP aims to improve solid waste management services in the Gaza Strip through the provision of efficient and environmentally and socially sound waste disposal schemes, and initiating measures to improve overall solid waste management systems. Specific Objectives of GSWMP: • Increase the capacity and performance of municipal solid waste services through: ➢ Waste treatment; ➢ Waste collection and cleansing; and ➢ Waste recovery (recycling/composting). • Optimize waste management through institutional strengthening of the joint services council. • Create temporary local jobs during the construction and operation phases. • Limit greenhouse gases (GHC) emissions in the atmosphere. The table below describes the components to be financed by the donors: Total Budget Co-financiers Component in (USD) AFD IDA Solid Waste Component 1: Solid Waste Transfer and Disposal Facilities 15,913,986 9,113,986 6,800,000 Component 2: Institutional Strengthening 1,580,568 1,180,568 400,000 Component 3: Primary Collection and Resource Recovery 3,877,819 3,777,819 100,000 Component 4: Project Management 3,570,019 1,700,019 1,870,000 Contingencies 4,060,033 3,230,033 830,000 29,002,425 19,002,425 10,000,000 The accompanying financial statements pertain to the IDA co-funding of the GSWMP. 3. Summary of Significant Accounting Policies The financial statements have been prepared under the historical cost convention, the significant accounting policies follow: a. General Net assets, revenues, expenses, and gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as unrestricted and restricted. Unrestricted net assets are those whose use by LGUDLF is not subject to donor-imposed stipulations. Restricted net assets are those whose use by LGUDLF has been limited by donors’ specific time period or purpose. 9 b. Restricted Net Assets Unconditional promises to give cash, with no donor-imposed restriction on use, are recognized as revenues at the date promises to give are made. Unconditional promises to give cash, with donor-imposed restriction on use, are recorded as restricted net assets at the date promises to give are made, and recognized as revenues when the related costs are incurred. Unconditional promises with donor-imposed restriction are promises that depend only on passage of time and certain performance requested by the promising donors. Conditional promises to give and indications of intention to give are recorded at the fair market value at the date contribution is received by LGUDLF. c. Pledges Receivable Pledges receivable are stated at the original amount of the signed agreement less the amount received, uncollectable amount (if any) and currency variances resulting from the fact that original agreements with the donors may be in currencies other than USD. d. Revenue Recognition Donations and contributions are recorded as pledges receivable and restricted net assets upon signing of the agreement with the donor. During the yearly close out process, the amount of expenses incurred is recognized as revenue under net assets released from restrictions and the restricted net assets account is reduced thereof. e. Accruals and Other Current Liabilities Accruals and other current liabilities are recognized for the amounts to be paid in the future for goods and services received, whether a bill is received from the supplier or not. f. Expenses Expenses are recorded by LGUDLF when incurred in accordance with the accrual basis of accounting, regardless of the date of actual payment. g. Foreign Currencies LGUDLF’s basic functional currency is the U.S. Dollar (USD). Transactions which are expressed or denominated in other currencies were translated to USD using exchange rates in effect at the time of each transaction. Assets and liabilities which are denominated in other currencies are translated to USD using exchange rates prevailing at the date of the statement of financial position. Gains and losses arising from the translation are reflected in the statement of activities. Foreign currency exchange rates against USD at December 31, 2018 and 2017 were as follow: 2018 2017 One EUR 1.144 1.200 4. Cash at Bank The Project’s designated bank account showed the following balance as of December 31, 2018 and 2017: 2018 2017 EUR (a) 745,469 847,383 Equivalent in USD (a) 852,518 1,016,690 10 (a) Reconciliation of bank balance per designated bank account statement and the statement of financial position follows: Equivalent EUR in USD Cash at bank as at December 31, 2018 (as per designated bank account statement) 745,581 852,646 Add: Bank charges (refunded by the bank subsequently) 18 21 Less: Outstanding payment (130) (149) Cash at bank as at December 31, 2018 (as per statement of financial position) 745,469 852,518 5. Pledges Receivable Pledges receivable as of December 31, 2018 and movement thereon during the Year follow: USD Amount Balance, Addition Received Beginning During the During the Balance, of Year Year Year End of Year Pledges receivable 7,524,071 - 5,583,627 (1,940,444) 5 , 6. Restricted Net Assets 5 8 Restricted net assets as of December 31, 2018 and movement thereon during the year follow: 3 , USD Net Assets 6 Balance, Additions Released 2 Beginning (Grants and from 7 Balance, of Year Donations) Restriction End of Year Temporarily restricted net assets 8,385,727 - (2,864,880) 5,520,847 7. Project’s Expenses IDA contribution’s expenses and comparison with budget follow: USD Actual Cumulative up to IDA December Remaining Budget 2018 2017 31, 2018 Budget Component 1: Solid Waste Transfer and Disposal Facilities 6,800,000 2,418,482 1,077,267 3,501,542 3,298,458 Component 2: Institutional Strengthening 400,000 125,476 138,607 429,537 (29,537) Component 3: Primary Collection and Resource Recovery 100,000 28,976 11,481 40,457 59,543 Component 4: Project Management 1,870,000 291,946 59,038 507,617 1,362,383 Contingencies 830,000 - - - 830,000 10,000,000 2,864,880 1,286,393 4,479,153 5,520,847 11