PKF МАК ALYANS LLC A c c o u n ta n ts & b u s in e s s a d v is o rs W ORLD BANK M O D E R N IZ A T IO N A N D U P G R A D E O F T R A N S M IS S IO N S U B S T A T IO N S P R O JE C T (P R O J E C T M A N A G E M E N T U N IT ) J O IN T -S T O C K C O M P A N Y “ U Z B E K IS T A N N A T IO N A L P O W E R N E T W O R K S ” (P R O J E C T IM P L E M E N T IN G E N T IT Y I E X E C U T IN G A G E N C Y ) IN T E R N A T IO N A L B A N K F O R R E C O N S T R U C T IO N A N D D E V E L O P M E N T L O A N No. 8 6 6 4 -U Z IN T E R N A T IO N A L D E V E L O P M E N T A S S O C IA T IO N C R E D IT No. 5 9 1 6 -U Z IN T E R N A T IO N A L D E V E L O P M E N T A S S O C IA T IO N C R E D IT No. 5 9 1 7 -U Z S P E C IA L -P U R P O S E C A S H -B A S IS F IN A N C IA L S T A T E M E N T S A N D S T A T E M E N T O F E X P E N D IT U R E F O R TH E P E R IO D F R O M D E C E M B E R 2 8 ,2 0 1 7 (L O A N E F F E C T IV E N E S S D A T E ) T O D E C E M B E R 31, 2018 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT TABLE OF CONTENTS Page STATEMENT OF M ANAG EM ENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL-PURPOSE FINANCIAL STATEM ENTS FOR THE YEAR ENDED DECEMBER 31, 2018 3 INDEPENDENT A U D ITO R S 'R E P O R T 4 INTERNATIONAL BANK OF RECONSTRUCTION AND DEVELOPM ENT INTERNATIONAL DEVELOPM ENT ASSOCIATION SPECIAL- PURPOSE CASH - BASIS FINANCIAL STATEM ENTS FOR THE YEAR ENDED DECEMBER 31, 2018: S p e c ia l-P u rp o se S ta te m e n t o f C a sh R e ce ip ts and P a ym e n ts 6 S ta te m e n t o f F in a n cia l P osition 7 S p e c ia l-P u rp o se S ta te m e n t o f C o sts by C a te g o rie s 8 S p e c ia l-P u rp o se S ta te m e n t o f C o s ts by C o m p o n e n ts 9 N otes to S p e c ia l-P u rp o s e C a s h -B a s is F ina n cia l S ta te m e n ts 11-17 2 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW O RKS” PROJECT M ANAGEM ENT UNIT M ODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT STATEMENT OF M ANAGEM ENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL-PURPOSE CASH-BASIS FINANCIAL STATEMENTS FOR YEAR ENDED 31 DECEMBER 2018 The Managem ent o f the “M odernization and Upgrade of Transm ission Substations Project’’ (hereinafter - “Project”) is responsible for the preparation o f the Special-Purpose Cash-Basis Financial Statem ents (hereinafter - “Financial Statem ents”) implementing by Project Implementing Entity (hereinafter - “ PIE") - Joint Stock Com pany “Uzbekistan National Power Networks”, funded by the Loan facility of International Bank for Reconstruction and Development (hereinafter - “IBRD”) and Credit facilities of International Development Association (hereinafter - “IDA”) those present fairly the financial position o f the Project as of 31 December 2018, and the funds received, and expenditures incurred for the year ended 31 Decem ber 2018, in compliance with International Public Sector Accounting Standards "Financial Reporting under the Cash Basis o f Accounting" (h ere in a fte r-"IP S A S -C a sh Basis"). In preparing the Financial Statements, the m anagem ent of the Project is responsible for: Selecting suitable accounting policies and applying them consistently; Presenting information, including accounting policies, in a m anner that provides relevant, reliable, comparable, and understandable information; Providing additional disclosures when compliance with the specific requirem ents in IPSAS-Cash Basis are insufficient to enable users to understand the impact o f particular transactions, other events, and conditions on the Project's Financial Statements. The M anagement of the Project is also responsible for: Designing, implem enting and maintaining an effective and sound system of internal controls, throughout the Project; Maintaining adequate accounting records that are sufficient to show and explain the Project's transactions and disclose with reasonable accuracy at any time the fund balance of the Project, and which enable them to ensure that the Financial Statem ents of the Project comply with specific requirem ents in IPSAS-Cash Basis; Maintaining statutory accounting records in compliance with legislation of the Republic of Uzbekistan; Taking such steps as are reasonably available to them to safeguard the assets o f the Project; and Preventing and detecting fraud and other irregularities. The Financial Statem ents of the Project for the year ended 31 December 2018 were authorized for issue by the Project's Managem ent on Novem ber 12, 2019. On behalf of the Project's Management: B. J. Kh rov C hief Accountant 3 PKF МАК ALYANS LLC A c c o u n ta n ts & b u s in e s s a d v is o rs INDEPENDENT AU DITO R’S REPORT TO THE M ANAG EM ENT OF THE JO INT- STO CK C O M P A N Y "UZBEKISTAN NATIONAL POW ER N ETW O RKS’’ Opinion We have audited the Special-Purpose Cash-Basis Financial Statem ents (hereinafter - the “SPFS”) of “ Modernization and Upgrade o f Transm ission Substations Project" (hereinafter - the "Project") financed from Loan facility of the International Bank for Reconstruction and Development (Loan No.8664-UZ) and Credit facilities o f the International Development Association (Credit No. 5916-UZ and No. 5917-UZ), which com prise the special-purpose statem ent of cash receipt and paym ents for the period from 28 December 2017 (Loan Effectiveness Date) to 31 December 2018, the statem ent of expenditures (hereinafter - the “SOE”), and a summ ary o f significant accounting policies and other explanatory notes. The SPFS have been prepared by Managem ent of the Project M anagem ent Unit (hereinafter - “PMU") under the Project Implementing Entity (hereinafter - “PIE") - JSC “Uzbekistan National Power Networks" using the International Public Sector Accounting Standards “Financial Reporting under the Cash Basis of A ccounting” (h e re in a fte r-“ IPSAS - Cash Basis"). During the reporting period from 28 December 2017 (Loan Effectiveness Date) to 31 Decem ber 2018, the Project had no any Special Designated Accounts at the dom estic comm ercial banks either in foreign or in local currencies. The payments of the Credit facilities o f the IDA No. 5916-UZ and No. 5917-UZ were made via the Direct Payments. In our opinion, I. The accom panying Special-Purpose Cash-Basis Financial Statem ents, in all material respects, give a true and fair view of the Financial Position o f the Project as o f 31 December 2018, as well as Sources and Uses o f Funds for the period then ended, in all aspects comply with the conditions of the Loan and Financing Agreem ents and in accordance with International Public Sector Accounting Standard “Financial Reporting under the Cash Basis of A ccounting”; II. Moreover, (a) with respect to the SOE for the year ended 31 December 2018 adequate supporting documents, records and accounts have been maintained to support claims to the IDA fo r reim bursem ents of expenditures incurred; and (b) the expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the Financing Agreem ent. Basis for Opinion We conducted our audit in accordance with the International Standards on Auditing (ISAs). O ur responsibilities under those standards are further described in the A uditor’s Responsibilities for the A udit o f the Financial Statements section of our report. We are independent of the Project in accordance with the International Ethics Standards Board for Accountants’ Code o f Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit o f the SPFSs in the Republic o f Uzbekistan and we have fulfilled our other responsibilities under these requirem ents and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of M anagem ent for the Special-Purpose Cash-Basis Financial Statem ents The M anagement of the Project is responsible for the preparation and fair presentation o f these SPFSs in accordance with the IPSAS - Cash Basis and for such internal control as m anagem ent determ ines is necessary to enable the preparation o f SPFSs that are free from material misstatement, whether due to fraud or error. Tel: +99871 294-73-86 • Fax: +99871 294-73-85 • info@pkf.uz • www.pkf.uz • www.pkf.com PKF MAK ALYANS LLC • 22, Aviasozlar street • 1 passage • Tashkent, Uzbekistan • 100016 ISO 9001:2015 PKF MAK ALYANS LLC is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Cert. No: QMS-01 B5/B Auditor’s Responsibility for the Audit of the Special-Purpose Cash-Basis Financial Statem ents Our objectives are to obtain reasonable assurance about whether the SPFSs 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 o f assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material m isstatem ent when it exists. M isstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the econom ic decisions of users taken on the basis of these SPFSs. As part o f an audit in accordance with ISAs, we exercise professional judgm ent and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material m isstatem ent of the SPFSs, 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 m isstatem ent resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, m isrepresentations, or the override of internal control. • Obtain an understanding o f internal control relevant to the audit in order to design audit procedures that are appropriate in the circum stances, but not for the purpose o f expressing an opinion on the effectiveness o f the Project’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • We conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statem ents or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date o f our auditor’s report. • Evaluate the overall presentation, structure and content of the SPFSs, including the disclosures, arid whether the financial statem ents represent the underlying transactions and events in a m anner that achieves fair presentation. We communicate with regarding, among other matters, the planned scope and tim ing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. f / v • ' Чя — ж x- ^ Audit Organization “ PKF MAK ALYANS LLC" Ikromjon Urinbaev Authorized audit license issued by the Ministry ifr a p i$ fl M A K i | | U General Director of the Republic of Uzbekistan under No.00770 Ш u у fv ^ S / | | If Certificate of Auditor Qualification 05 April 2019. ' A A fi/i 2 unc)er No.04383 dated 10 July 2012 22, Aviasozlar Street, 1st Passage 100016, Tashkent, Uzbekistan 12 November 2019 5 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW O RK S” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT SPECIAL-PURPOSE STATEM ENT OF CASH RECEIPTS AND PAYMENTS FOR YEAR ENDED DECEMBER 31, 2018 Tabular amounts are presented in US D o l l a r s ___________________________________________ 31.12.2018 31.12.2017 Accum ulative Budget Actual Actual Variance Variance % A m ount OPENING FUND BALANCES Cash in USD (Loan IBRD No. 8664-UZ) - - - - - Cash in USD (Credit No. 5916-UZ) - - - - - Cash in USD (Credit No. 5917-UZ) - - - . - TOTAL - - - - - SOURCES OF FUNDS: Funds Received Loan IBRD (8664-UZ) - Direct Payments 92 000 000 - 230 000 230 000 0.25% IDA Credit (5916-UZ) - Special Commitments 39 160 000 15 843 060 - 15 843 060 40.46% IDA Credit (5917-UZ) - Direct Payments 18 840 000 2 183 798 - 2 183 798 11.59% Uzbek Government Contributions 66 799 000 7 530 063 - 7 530 063 11.27% Own funds of JSC PIE 75 353 000 18 949 - 22119 0.03% TOTAL OF FUNDS RECEIVED 292 152 000 25 575 870 230 000 25 809 040 8.83% USES OF FUNDS: Expenditure Incurred by Category 1. Goods, Works, Non-Consulting services, (91 770 000) - - - - Consulting Services 2. Front-end Fee (230 000) - (230 000) (230 000) 0.25% Total of Loan IBRD (8664-UZ) (92 000 000) - (230 000) (230 000) 0.25% 1. Goods, Works, Non-Consulting services, (39 160 000) (15 843 060) (15 843 060) 40.46% Consulting Services Total of Credit IDA (5916-UZ) (39 160 000) (15 843 060) (15 843 060) 40.46% 1. Goods, Works, Non-Consulting services, (18 840 000) (2 183 798) (2 183 798) 11.59% Consulting Services Total of Credit IDA (5917-UZ) (18 840 000) (2 183 798) (2 183 798) 11.59% Tax and Customs benefits (66 799 000) (7 530 063) (7 530 063) 11.27% Total of Uzbek Government Contributions (66 799 000) (7 530 063) (7 530 063) 11.27% Civil Works (40 019 000) - - - Financing during the investment period (18 024 000) - - - Other expenses (10 513 000) (18 949) (22119) 0.21% Cost of existing fixed assets (6 797 000) - - - Total of Own Funds of JSC PIE (75 353 000) (18 949) (22119) 0,03% GRAND TOTAL EXPENDITURE INCURRED (292 152 000) (25 575 870) (230 000) (25 809 040) 8,83% FOREIGN EXCHANGE DIFFERENCE - - - - - CLOSING FUND BALANCES Cash in USD (Loan IBRD No. 8664-UZ) - - - - - Cash in USD (Credit No. 5916-UZ) - - - - - Cash in USD (Credit No. 5917-UZ) - - - - - TOTAL - - - - - JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS" PROJECT MANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2018 Tabular amounts are presented in US Dollars Items Note 31.12.2018 31.12.2017 ASSETS Cash and cash equivalents (IBRD Loans) - - Cash and cash equivalents (IDA Credits) - - TOTAL ASSETS - - OWN FUNDS/FINANCING Financing from IBRD - - Financing from IDA 18 026 858 - Less: Cumulative expenditures, net including: (18 026 858) - FX difference - - TOTAL OWN FUNDS/FINANCING • Notes on pages 1 form an integral part of the Special-Purpose Cash Basis Financial Statements. JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT SPECIAL-PURPOSE STATEMENT OF COSTS BY CATEGORY FOR THE YEAR ENDED DECEMBER 31, 2018 Tabular amounts are presented in US Dollars ____________________________ Category Actual Budget Variance 2018 Cum ulative Cum ulative Cum ulative Loan IBRD (8664-UZ) 1. Goods, Works, Non-Consulting services and Consulting Services _ 91 770 000 91 770 000 2. Front-end Fee - 230 000 230 000 - Total - 230 000 92 000 000 91 770 000 Credit IDA (5916-UZ) 1. Goods, Works, Non-Consulting services and Consulting Services 15 843 060 15 843 060 39 160 000 23 316 940 Total 15 843 060 15 843 060 39 160 000 23 316 940 Credit IDA (5917-UZ) 1. Goods, Works, Non-Consulting services and 2 183 798 2 183 798 18 840 000 16 656 202 Consulting Services Total 2 183 798 2 183 798 18 840 000 16 656 202 GRAND TOTAL IBRD & IDA FUNDS’ EXPENDITURE 18 026 858 18 256 858 150 000 000 131 743 142 Uzbek Government Contributions Tax and Customs Benefits 7 530 063 7 530 063 66 799 000 59 268 937 Total Uzbek Governm ent C ontributions’ Expenditure 7 530 063 7 530 063 66 799 000 59 268 937 Own Funds of JSC PIE Civil works, Financing during investm ent period, 18 949 22119 75 353 000 75 330 881 Operational PMU expenses and other expenses Total Own Funds’ of JSC PIE Expenditure 18 949 22119 75 353 000 75 330 881 TOTAL PROJECT EXPENDITURE 25 575 870 25 809 040 292 152 000 266 342 960 Notes on pages 11 to 17'mcmatTintegral part of the Special-Purpose Cash Basis Financial Statements. 8 JOINT STOCK COMPANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT SPECIAL-PURPOSE STATEM ENT OF COSTS BY COMPONENTS FOR THE YEAR ENDED DECEMBER 31, 2018 Tabular amounts are presented in US Dollars ___________________________________________________________________ Component Actual Budget Variance 2018 Cum ulative Cum ulative Cumulative Loan IB RD (8 6 6 4 -U Z ) 1. E le c tric ity T ra n s m is s io n S y s te m U p g ra d e 1.1. R ehabilitation and Upgrade o f Transm ission S ubstations (22 high priority substations fo r which - - m odernization will be prioritized) 1.2.Em ergency O utage M anagem ent System s (build 87 0 00 000 87 0 00 000 resilience to the system through acquisition o f one to tw o 110 kV /m edium -voltage m obile substations (M SSs) and em ergency restoration system fo r speedy repair o f outages in H V transm ission lines, including 500 kV lines) 2. In stitu tio n a l D e v e lo p m e n t S u p p o rt and T e c h n ic a l A s s is ta n c e 2.1.A ssistance with conducting key e lectricity sector studies, including fe a sib ility studies fo r future - - - investm ent projects in the sector 2 .2 .S trengthening the P IE ’s and o th e r sector entities' capacity in new technologies to facilitate m odernization o f the assets and practices in the - - sector, system planning and operations, International - 5 000 000 Financial Reporting S tandards (IFR S ) im plem entation, im plem enting em ergency response 2.3.S trengthening the P IE ’s ca pa city in financial m anagem ent and support in its transition to the full - 230 000 4 770 000 IFRS across the com pany, including PIE audits Total - 230 000 92 000 000 91 770 000 C re d it ID A (5 9 1 6 -U Z ) 1. E le c tric ity T ra n s m is s io n S y s te m U p g ra d e 2.1. R ehabilitation and Upgrade o f Transm ission 15 843 060 15 843 060 39 160 000 23 316 940 S ubstations (22 high priority substations fo r which m odernization will be prioritized) 1.2.Em ergency O utage M anagem ent S ystem s (build resilience to the system through acquisition o f one to two 110 kV /m edium -voltage m obile substations (M SSs) and em ergency restoration system fo r speedy - - - - repair o f outages in H V transm ission lines, including 500 kV lines) 2. In stitu tio n a l D e v e lo p m e n t S u p p o rt and T e c h n ic a l A s s is ta n c e 2.1.A ssistance with conducting key electricity sector studies, including fe a sib ility studies fo r future - - - - investm ent projects in the sector 2 .2 .Strengthening the P IE 's and o th er sector e ntitie s’ capacity in new technologies to facilitate m odernization o f the assets and practices in the sector, system planning and operations, International - - - - Financial Reporting S tandards (IFR S) im plem entation, im plem enting em ergency response 9 Components Act ual Budget Variance 2018 Cum ulative Cum ulative Cum ulative 2 .3 .S trengthening the P IE ’s capacity in financial m anagem ent and support in its transition to the full - - - - IFRS across the com pany, including PIE audits Total 15 843 060 15 843 060 39 160 000 23 316 940 Credit IDA (5917-UZ) 1. E le c tric ity T ra n s m is s io n S y s te m U p g ra d e 2.2. R ehabilitation and Upgrade o f Transm ission Substations (22 high priority substations fo r which 1 991 820 1 991 820 18 840 000 16 848 180 m odernization will be prioritized) 1.2.Em ergency O utage M anagem ent System s (build resilience to the system through acquisition o f one to tw o 110 kV /m edium -voltage m obile substations - - - - (M SSs) and em ergency restoration system fo r speedy repair o f outages in HV transm ission lines, including 500 kV lines) 2. In stitu tio n a l D e v e lo p m e n t S u p p o rt and T e c h n ic a l A s s is ta n c e 2.1.A ssistance with conducting key electricity sector studies, including fe a sib ility studies fo r future - - - - investm ent projects in the sector 2 .2 .S trengthening the P IE 's and o th e r sector e ntitie s’ capacity in new technologies to facilitate m odernization o f the assets and practices in the - - - - sector, system planning and operations, International Financial Reporting S tandards (IFR S ) im plem entation, im plem enting e m ergency response 2 .3 .S trengthening the PIE ’s ca pa city in financial m anagem ent and su pp o rt in its transition to the full 191 978 191 978 - -191 978 IFRS across the com pany, including PIE audits Total 2 183 798 2 183 7 98 18 840 000 16 6 56 202 U zb ek G o v e rn m e n t C o n trib u tio n s T a x and C u sto m s B e n e fits 7 5 30 063 7 5 30 063 66 7 99 000 59 268 937 Total 7 530 063 7 530 0 63 66 7 99 000 59 2 68 937 O w n Fun ds o f JS C PIE Civil w orks, F in a n cin g d u rin g in v e s tm e n t period, 18 949 22119 75 3 53 0 00 75 330 881 O p e ra tio n a l PM U e x p e n se s and o th e r e xp e n se s Total 18 9 49 22119 75 353 000 75 330 881 G R A N D T O T A L O F P R O J E C T S ’ E X P E N D IT U R E 2 5 5 7 5 870 2 5 8 09 040 2 9 2 152 000 2 66 342 960 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW O RKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018 Tabular amounts are presented in US D o l l a r s ________________________________________________ 1 PROJECT AND ITS OPERATION In purpose of improving the reliability o f the power transmission networks, and providing a pure transm ission of electricity consumption by econom ic sectors and population o f Uzbekistan, and reduction of expenditure on capital repairs of obsolescent parts of substations, the International Bank for Reconstruction and Development (hereinafter - “IBRD”) and the International Development Association (hereinafter - “IDA”), on Novem ber 23, 2016 have approved the Loan Agreem ent (Loan No.8664-UZ) and the Financing Agreem ents (Credit proceeds No.5916-UZ and No.5917-UZ) for lending to the Republic of Uzbekistan in the am ount o f US Dollars 150.0 Million for implem entation o f the “Modernization and upgrade of transmission substations" (hereinafter - “the Project”) on the term s and conditions stipulated in the Financial Agreements, for the purpose of co-financing the Project with the repaym ent term of 25 years, including 5 years o f grace period. The period of implementation of the Project is from 2017 to 2022. In accordance with the Financial Agreem ents and the Decree o f the President o f the Republic o f Uzbekistan “On measures on implementing of investm ent project named “Modernization and upgrade of transm ission substations” with participation of the World Bank under the No. 3284 dated 16 Septem ber 2017 (hereinafter - “Decree”)”, the Project is implemented by the proceeds of the Loan of IBRD, the financing of IDA, Uzbek Governm ent contributions and by the Own funds of the Joint- Stock Company “ Uzbekenergo” . On 20 Septem ber 2017 the IBRD, the IDA and the Uzbek G overnm ent have signed the Financial Agreements, and at the same date, the Project Agreem ent was signed between the IBRD and the Joint-Stock Com pany “Uzbekenergo" in which JSC “Uzbekenergo” declares its com m itm ents to the objectives of the Project. The plan of financing of the Project by sources o f attracted funds as follows: US Dollars Loan IBRD No. 8664-UZ 92,000,000 Credit IDA No. 5 9 1 6 -U Z /P o rtio n A 39,160,000 Credit IDA No. 5917-UZ / Portion В 18,840,000 Total 150,000,000 The objective of the Project is to improve the technical efficiency and reliability of the pow er transm ission networks in Uzbekistan. According to the Decree, the Joint-Stock Company “Uzbekenergo" is designated as an Executing Agency I Project Implementing Entity and is responsible for the target and effective use o f IBRD Loan proceeds and IDA Financing and implementation coordinating and managing the Project. The expenditures, relating to repaym ent of the IBRD Loan and the IDA Financing terms, and the repaym ent o f the interest, comm issions and other expenditures under the Project would be covered by own funds of the JSC PIE. In the scope of implementing the Project, on 20 December 2017 the Subsidiary Loan Agreem ent between the Government of Uzbekistan and the Joint-Stock Company “Uzbekenergo” as a Project Implementing Entity (hereinafter - “JSC PIE"). To ensure the effective implem entation and coordination of works under the Project, the JSC PIE has established the Project Management Unit (hereinafter - “the PMU”) which is responsible for the overall Project m anagement, control and accounting of the Project funds in com pliance with the Bank guidelines and relevant National regulatory requirements. The Loan Effectiveness Date is December 28,2017. The Uzbek G overnm ent contribution in the amount o f 66 799.0 thousand US Dollars, is in kind o f e xe m p te d ta xe s and cu stom s d utie s incurred w ith in fra m e w o rk o f th e P ro je ct im p le m e n ta tio n until January 01, 2023. Also, tlhe Project would be financed by own funds o f JSC PEI in the am ount o f 75 353.0 thousand US Dollars. 11 JOINT STOCK COMPANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018 Tabular amounts are presented in US D o l l a r s ________________________________________________________ According to the IBRD Loan Agreem ent and the IDA Financing Agreem ent facilities, allocated for implementing the Project, intended for the following categories: IDA Percentage of Financing of expenditures Category IBRD Loan Financing (excluding Uzbek Governm ent contribution and own funds of JSC PIE) 1. Goods, W orks, Non-Consulting 92,000,000 58,000,000 100% services, and Consulting services TOTAL 92,000,000 58,000,000 150,000,000 The Project has organized around two com ponents and its sub-components, as described below: Component 1 - Electricity Transm ission System Upgrade. Subcom ponent 1.1 - Rehabilitation and upgrade o f not less than 22 high priority transm ission substations. Subcom ponent 1.2 -E s ta b lish m e n t of an em ergency outage m anagem ent system through acquisition o f one or two 110 kV/medium-voltage mobile substations and emergency restoration system fo r speedy repair o f outages in high voltage transmission lines. Component 2 - Institutional Development Support and Technical Assistance. Subcom ponent 2.1 - Assistance with conducting key electricity sector studies, including feasibility studies; for future investment projects in the sector and other key sectoral studies that m ight be identified during the Project: implementation. Subcom ponent 2.2 - Strengthening the Project Implementing Entity's and other sector entities' capacity in new technologies to facilitate modernization of the assets and practices in the sector, system planning andl operations, certification on the International Financial Reporting Standards (IFRS) implem entation, implem enting emergency response, and in other areas as needed. Component 2 . 3 - Strengthening the Project Implementing Entity's capacity in financial m anagem ent and in its transition to the full IFRS across the com pany and for Project management, including carrying out the Project and the Project Implementing Entity audit. 12 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018 Tabular amounts are presented in US Dollars __________________________________________________________________________ 2 SIGNIFICANT ACCOUNTING POLICIES Basis of preparation These special-purpose Financial Statem ents have been prepared in accordance with the International Public Sector Accounting Standard (IPSAS) "Financial Reporting under the Cash Basis o f Accounting" promulgated by the International Federation of Accountants (IFAC). Those standards require that cash receipts shall be effective when received and expenditures o f funds shall be effective when they are paid rather than when incurred. The Financial Statements prepared under the cash-basis provide readers with inform ation about the sources o f cash raised during the period, the purpose for which cash was used and the cash balances at the reporting date. The m easurem ent focus in the financial statements is balances of cash and changes therein. The Project’s special-purpose cash-basis Financial Statements are prepared on the basis o f cash receipts and disbursements which are a com prehensive basis of accounting. Cash and cash equivalents Cash and cash equivalents are recognized at cost and include cash at cash desk, cash at Designated and Special accounts at domestic banks and cash in transit. During the reporting period, from 28 Decem ber 2017 (Loan Effectiveness Date) to 31 Decem ber 2018, the Project had no any Special Designated Accounts at the local commercial banks either in foreign or in local currencies. Financing The financing, from the IBRD Loan facility No. 8664-UZ (amounting to USD 92,000,000), was not made at the reporting period. However, as mentioned above, on 28 December 2017 (Loan Effectiveness Date) the Project has paid the Front-end Fee of 0.25% of the Loan am ount and was equaled to USD 230 000. The financing, from the Credit facilities of the IDA No. 5916-UZ and No. 5917-UZ (total amounting to USD 58,000,000), was made via the Direct Payments at the reporting period amounting to USD 15 843 060.00 and USD 2 183 798.20 accordingly. Disbursement methods of W orld Bank (a) Reimbursement: The World Bank m ay reimburse the borrower for expenditures eligible for financing pursuant to the Financing Agreem ent (eligible expenditures) that the borrower has pre-financed from its own resources. (b) Advance: The World Bank may advance funds from the Financing Account into a Designated Account of the borrower to finance eligible expenditures as they are incurred and for which supporting docum ents will be provided at a later date. (c) Direct Payment: The World Bank may make payments, at the borrower's request, directly to a third party (for example, supplier, contractor, or consultant) for eligible expenditures. (d) Special Comm itment: The World Bank may pay amounts to a third party for eligible expenditures under the special commitments entered into, in writing, at the borrower's request and on term s and conditions agreed between the World Bank and the borrower. 13 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEM BER 31, 2018 Tabular amounts are presented in US Dollars ____________________________________________________________ Project expenditures Accounting of PMU within the JSC PIE is conducted in accordance with the applicable laws o f the Republic of Uzbekistan with the specific implem entation of the Project, including applying cash method. The accounting is carried out using the Accounting software 1C. In accounting, the following articles are used: - Taking into account the actual costs; - Accounting of cash; - Accounting of cash transactions; - Accounting of fixed assets; - Accounting of stocks; - Accounting of remuneration; - Settlements with debtors and creditors; - Reporting. The Financial Managem ent o f the Project is carried out by the following main points: 1) Analysis of the perform ance costs; 2) Analysis of cash expenses and for transfers; 3) Analysis of financial condition; 4) An analysis of budget execution. An analytical account of the sum s received by the Project of funding is separate from the breakdown o f the total amount financed by categories o f expenditure. At the end of each month I quarter are counted up all the items of expenditure for the quarter and total year to-date, in order to identify the remainder and in a sim ilar way to keep records o f cash expenditures for transfers. Foreign currency translation (i) Functional and Presentation currencies The functional currency of the Project is the currency of the primary econom ic environm ent in which it operates. The Project's functional currency is Uzbek Soums (“UZS”), however, as the m ajor portion o f its transactions are in USD via the Direct Payments. These special-purpose Financial Statements of the Program are also presented in the presentation currency of US Dollars ("USD") as this is convenient for the readers of the financial statements. (ii) Transactions The assets’ additions and expenditure paid for in UZS were translated into USD using the following principles of transaction: • The Direct Payments, denominated in UZS, have been translated into USD using the rate o f exchange o f the Central Bank o f Uzbekistan (“CBU”) on the date of conversion. The official exchange rate set by the CBU and effective, as at 31 December 2018 was UZS 8,339.55 to USD 1 (2017: UZS 8,120.07 to USD 1). Since Septem ber 05 2017, the currency exchange exists relating to converting the UZS into other currencies. At present, the UZS is still not a convertible currency outside Uzbekistan. 14 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018 Tabular amounts are presented in US Dollars ____________________________________________________________ 3 TAXATION The PMU, being the state non-commercial organization, acting as a subject without legal entity status, is exempted from taxes and levies in line with the Tax Code o f the Republic of Uzbekistan. The President’s Decree of the Republic of Uzbekistan No. PP-3284 dated 16 Septem ber 2017 states that the goods, works and services purchased with the IBRD and the IDA funds within the framework of the Project, are exempted from customs payments, VAT, mandatory contributions to the state funds-in-trust. Such exemption is considered as a contribution of the Uzbek Government toward the implementation of the Project. 4 SUBSEQUENT EVENTS As mentioned above, in the scope o f the Project, on 20 Septem ber 2017 was signed the Project Agreem ent between the IBRD and the JSC "U zbekenergo”, in which JSC "Uzbekenergo" declares its com m itm ent to the objective of the Project. Further, the Subsidiary Financing Agreem ent was signed on 20 December 2017, on credit facilities o f the IDA between the Governm ent o f Uzbekistan and the JSC "Uzbekenergo". However, in line with the Decree o f the President o f Uzbekistan under No. 4249 dated 27 March, 2019 "About strategy o f the further developm ent and reforming o f the power industry of the Republic o f Uzbekistan", the JSC "Uzbekenergo” was re­ organized and the JSC “Uzbekistan National Power Networks" was established. In the scope of the further developm ent of the Project, with regard to the IBRD Loan and the IDA Credit facilities, 2 (two) new additional three-power treaties No.1, to the Subsidiary Agreem ents dated 20 Decem ber 2017, were signed on 07 August 2019 between the G overnm ent o f Uzbekistan (the Ministry of Finance), the JSC "Uzbekenergo” (Subsidiary) and the JSC “Uzbekistan National Power Networks” (New Subsidiary). According to the above-m entioned new additional agreements, the Subsidiary has handed over the full rights and commitments reflected in the Subsidiary Agreem ents to the New S ubsidiary By-turn, the New Subsidiary took over all payments and other com m itm ents towards the Governm ent of Uzbekistan as pointed out in the Subsidiary Agreements. 5 APPROVAL OF SPECIAL-PURPOSE FINANCIAL STATEMENTS The special-purpose financial statem ents were approved by the Managem ent o f the Project for issue on 12 November 2019. 15 JOINT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEM BER 31, 2018 Tabular amounts are presented in US Dollars ____________________________________________________________ 6 IBRD AND IDA FUNDS’ PROCEEDS 31 Decem ber 2018 Accum ulative IDA Credit Facilities Direct Payments (Portion В - IDA Credit No.5917-UZ) 2 183 798.20 2 183 798.20 Special Comm itments (Portion A - IDA Credit No.5916-UZ) 15 843 060.00 15 843 060.00 Total IDA Credit Facilities 18 026 858.20 18 026 858.20 IBRD Loan Facility Direct Payments (IBRD Loan No.8664-UZ) - - Special Commitments - - Front-end Fee - 230 000.00 Total IBRD Loan Facility ■ 230 000.00 7 OWN FUNDS OF JSC PIE 31 Decem ber 2018 Accum ulative Own Funds of JSC PIE Civil W orks (CW)* - - Financing during investm ent period - - Office furniture and equipm ent - 3 16 9 .7 2 Operational expenses of PMU (including salary expenses) 18 949.47 18 949.47 Total Own Funds of JSC PIE 18 949.47 22 119.19 Note: CW expenditures were made on sites, nowever, CW were still in process at the end o f the reporting period and they were not capitalized. 8 DIRECT PAYMENTS I SPECIAL COMMITMENTS 8.1 SPECIAL COMMITMENTS - IDA CREDIT No. 5916-UZ Expenditure by Sub - Com ponent Number Year 1 1. Total SC-01 2018 1 452 160.00 1 452 160.00 SC-01 2018 1 452 160.00 1 452 160.00 SC-01 2018 940 000.00 940 000.00 SC-02 2018 726 080.00 726 080.00 SC-02 2018 1 851 840.00 1 851 840.00 SC-02 2018 1 851 840.00 1 851 840.00 SC-02 2018 1 452 160.00 1 452 160.00 SC-02 2018 1 452 160.00 1 452 160.00 SC-02 2018 1 452 160.00 1 452 160.00 SC-02 2018 1 452 160.00 1 452 160.00 SC-02 2018 1 760 340.00 1 760 340.00 TOTAL 15 843 060.00 15 843 060.00 Note: SC - Special Com m itm ents (in this case on term s o f the Letters o f Credit). 16 JO'I NT STOCK CO M PANY “UZBEKISTAN NATIONAL POW ER NETW ORKS” PROJECT M ANAGEM ENT UNIT MODERNIZATION AND UPGRADE OF TRANSM ISSION SUBSTATIONS PROJECT NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEM BER 31, 2018 Tabular amounts are presented in US Dollars ____________________________________________________________ 8.2 DIRECT PAYMENT - IDA CREDIT No.5917-UZ Expenditures by Sub - Components Number Year 1.1. 2.3. Total 01 2018 1 760 340.00 - 1 760 340.00 02 2018 - 167 980.92 167 980.92 03 2018 - 23 997.28 23 997.28 04 2018 231 480.00 - 231 480.00 TOTA _ 1 991 820.00 191 978.20 2 183 798.20 17