“Strengthening Critical Infrastructure against Natural Hazards Project” Grant No. D205-TJ, Credit No. 6089-TJ The project financial statements for the year ended December 31, 2018 and independent auditors’ report “STRENGTHENING CRITICAL INFRASTRUCTURE AGAINST NATURAL HAZARDS PROJECT” GRANT NO. D205-TJ, CREDIT NO. 6089-TJ TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 2 INDEPENDENT AUDITORS’ REPORT 3-4 THE PROJECT FINANCIAL STATEMENTS AND FOR THE YEAR ENDED DECEMBER 31, 2018: Summary of funds received and expenditures paid 5 Summary of expenditures paid by project components 6 Notes to the project financial statements 7-14 65 Stefan cel Mare şi Sfânt Blvd 5th Floor, Office 507 2001 Chisinau Moldova T: +373 22 233003 F: +373 22 234044 info@bakertilly.md www.bakertilly.md INDEPENDENT AUDITORS’ REPORT To the management of the Project “Strengthening Critical Infrastructure against Natural Hazards Project” under the Ministry of Finance and the State Committee on Investments and Government Property Management of the Republic of Tajikistan: Report on the project financial statements Opinion [1] We have audited the project financial statements of the Project “Strengthening Critical Infrastructure against Natural Hazards Project” (the “Project”), which comprise the summary of funds received and expenditures paid and the summary of expenditures paid by project components for the year ended December 31, 2018, and a summary of significant accounting policies and other explanatory information (the “project financial statements”). [2] In our opinion, the accompanying project financial statements present fairly, in all material respects, the summary of funds received and expenditures paid and the summary of expenditures paid by project components of the Project for the year ended December 31, 2018 in accordance with International Public Sector Accounting Standard “Financial Reporting Under the Cash Basis of Accounting” (the “IPSAS”) issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, and the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities” (the “WB Guidelines”). Basis for opinion [3] We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the project financial statements section of our report. We are independent of the Project in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the project financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter [4] Without qualifying our opinion, we draw attention to Note 2 to the project financial statements, which describes the basis of accounting. These project financial statements were prepared for complying with the appropriate World Bank Guidelines and Financing agreement requirements. Other matter [5] The project financial statements are prepared to assist the Project to comply with the requirements of the World Bank. As a result, the project financial statements may not be suitable for another purpose. ADVISORY  ASSURANCE  TAX ICS Baker Tilly Klitou & Partners SRL trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. 3 “STRENGTHENING CRITICAL INFRASTRUCTURE AGAINST NATURAL HAZARDS PROJECT” GRANT NO. D205-TJ, CREDIT NO. 6089-TJ NOTES TO THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 (in US dollars) 1. GENERAL INFORMATION According to the Agreement between the Republic of Tajikistan and International Development Association (the “IDA”, “World Bank”) dated May 5, 2016, the IDA provided the Advance No. IDA V0220- TJ in the amount of 2,500,000 US dollars. On April 14, 2017 there was an additional agreement signed and the Advance amount was increased from 2,500,000 US dollars to 6,000,000 US dollars. The increased amount equaled to 3,500,000 US dollars, which is the Advance No. IDA V1410-TJ. The Advance was provided for the Project “Preparation of Proposed Strengthening Critical Infrastructure against Natural Hazards Project”. On August 15, 2017 there was signed the Financing Agreement for the Project “Strengthening Critical Infrastructure against Natural Hazards Project” (the “Project”) between the Republic of Tajikistan and International Development Association (the “IDA”, “World Bank”). According to this Agreement World Bank provides Grant No. D205-TJ and Credit No. 6089-TJ in the amount of 18,300,000 Special Drawing Rights (the “Grant”) and in the amount of to 25,000,000 US dollars (the “Credit”), respectively. The Financing Agreement for the Project “Strengthening Critical Infrastructure against Natural Hazards Project” came into the force on February 8, 2018. Project purpose The objectives of the Project are to strengthen the Recipient’s disaster risk management capacities, enhance the resilience of its critical infrastructure against natural hazards and improve its capacity to respond to disasters. The Project consist of the following parts: Part А: Strengthening of Disaster Risk Management (DRМ) capacity Strengthening the Recipient's DRМ capacity on disaster risk identification, disaster preparedness, and financial protection against disasters through: 1. Modernizing crisis management centers and systems for improved disaster preparedness, including: (а) building and rehabilitation of national crisis management centers and installation of necessary equipment for early warming and disaster response management and communications systems; (b) purchasing mobile command and communication vehicles for crisis management centers and systems at the regional and local levels; (с) preparation of an operational manual for the crisis management centers and systems; and (d) carrying out staff Training on disaster management and communication. 2. Installation of equipment to conduct probabilistic seismic hazard assessment and development of new seismic micro zoning selected areas of the Recipient's territory. 3. (а) Carrying out of а fiscal risk diagnostics and assessment to identify contingent liabilities, resources available, and funding gaps; (b) preparation of а financial protection strategy to mitigate fiscal shocks caused by natural disasters; and (с) building capacity of key participating stakeholders in the implementation of such strategy. Part В: Making critical infrastructure resilient against natural hazards 1. Reconstruction and strengthening of selected bridges related to transportation network in the districts of GBAO, including river training and bank protection upstream and downstream of the bridges' location as well as slope and embankment protection of access roads to such bridges, and procurement of heavy specialized machinery. 7 2. Rehabilitation and strengthening of flood protection and river bank erosion protection infrastructure in the Кhatlon Oblast, including damaged river embankments, flood protection dykes and infrastructure for the prevention of riverbank erosion, irrigation and drainage intakes and outlets, and procurement of heavy specialized machinery. Part С: Contingency Emergency Response Providing immediate response to an Eligible Crisis or Emergency, as needed. Part D: Project Management Strengthening the Recipient's Project coordination, supervision, financial management, procurement, and implementation capacity through the provision of goods, consultant services, Training, and financing of Operating Costs for: (i) MOF-PIU; (ii) MOT-PIG; and (iii) ALRI-PМU. The Project is implemented jointly by the Ministry of Finance Projects Implementation Unit (the “MOF PIU”), Ministry of Transport Projects Implementation Group (the “MOT PIG"); and the Agency for Land Reclamation and Irrigation Projects Management Unit (the “ALRI PMU”). Duration of the Project is from the May 5, 2016 to December 3, 2023. 2. PRESENTATION OF THE PROJECT FINANCIAL STATEMENTS Basis of preparation These project financial statements have been prepared in accordance with the International Public Sector Accounting Standard (the “IPSAS”) “Financial Reporting under the Cash Basis of Accounting” issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the following principal accounting policies, which have been consistently followed in all material respects and comply with the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities” (the “WB Guidelines”). Under the cash basis system income (or expenditure) is recognized when cash is received (or paid) irrespective of when goods or services are received or provided. The Project’s approved budget disclosed by categories of expenses is not publicly available and as such comparison of budget and actual amounts is not presented. These project financial statements consist of: • Summary of funds received and expenditures paid; • Summary of expenditures paid by project components; • Notes to the project financial statements, including short description of main statements of accounting policy and other descriptive notes. The reporting currency of these project financial statements is US dollars (the “USD”). 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash basis of accounting The project financial statements are prepared on a cash basis of accounting. The cash basis of accounting recognizes transactions and events only when cash (including cash equivalents) is received or paid by the Project. The project financial statements prepared under the cash basis provide information on the sources of funds, the purpose of uses of funds, and cash balances at the reporting date. The measurement focus in the project financial statements is balances of cash and changes therein. Foreign currency Operations in foreign currency initially are counted in functional currency by the official currency exchange rate settled by the National Bank of Tajikistan (the “NBT”) on a date of operation. 8 Funds received are translated into US dollars at official exchange rate of Special Drawing Rights (the “SDR”) at the date of funds receipt. All payments made in local currency are translated into US dollars at the official exchange rate defined by the NBT, at the date of transaction. Monetary assets and liabilities expressed in foreign currency are converted to functional currency at official exchange rate on a date settled by the NBT. All foreign exchange differences resulted from maturity or recounting are included in the summary of funds received and expenditures paid. Non-monetary items are valued according to their historic cost in foreign currency, which are recalculated on rates of the initial operation date. Cash and cash equivalents Cash and cash equivalents include cash on hand and due from banks, which can be converted to the corresponding amount of cash in the short term. Balances of advances paid to employees at the end of the period are also part of closing cash position. Taxes Calculation and payment of personal income tax and social security contributions from income of local staff and consultants is made in accordance with the requirements and rates of the Tax Code of the Republic of Tajikistan and relevant legislation of the Republic of Tajikistan. Project expenses The expenses are recorded in the period when they were actually paid. Sources of funds The funds were provided by the World Bank to the Project by advance, direct payment and reimbursement. 4. RECLASSIFICATION In 2018 the Project made retrospective reclassification to the project financial statements for the period from May 30, 2016 to December 31, 2017 due to coming into force the Financing Agreement. According to the Financing Agreement the Advance’s activities were reclassified to the Project parts. Effect of changes to the project financial statements for the period from May 30, 2016 to December 31, 2017 is presented below: As previously Reclassified As reclassified reported amount For the period For the period from from May 30, May 30, 2016 to 2016 to December 31, December 31, 2017 2017 Activity a: Provision of advisory services 2,140,844 (2,140,844) - Activity b: Procurement of specialized machinery 1,530,003 (1,530,003) - Part В: Making Critical Infrastructure Resilient Against Natural Hazards - 3,120,900 3,120,900 Part D: Project Management - 549,947 549,947 3,670,847 - 3,670,847 9 5. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at December 31, 2018 and 2017 comprise: December 31, December 31, 2018 2017 Currency PIU MOF PIG MOT PMU ALRI Total PIU MOF Designated account USD 468,782 459,467 187,143 1,115,392 589,635 Transit account TJS 3 67 63 133 4 Cash on hand TJS 159 - - 159 - Tender account USD 173 - - 173 173 Tender account TJS 328 - 1,520 1,848 200 Advances to employees TJS - - - - 118 469,445 459,534 188,726 1,117,705 590,130 6. FUNDS RECEIVED The funds received are presented by the following financing methods: For the year ended December 31, For the year ended Cumulative 2018 December 31, 2017 PIU MOF PIG MOT PMU ALRI Total Reimbursement 1,208,230 - - 1,208,230 3,101,392 4,309,622 Direct payment 473,761 - - 473,761 560,003 1,033,764 Advances - 500,000 500,000 1,000,000 - 1,600,000 1,681,991 500,000 500,000 2,681,991 3,661,395 6,943,386 10 7. PROJECT EXPENSES The Project expenses by components are presented in the summary of expenditures paid by project components. The Project expenses on major categories are presented in the summary of funds received and expenditures paid. Breakdown of the Project expenses by nature is presented as follows: For the year ended December 31, For the year ended Cumulative 2018 December 31, 2017 PIU MOF PIG MOT PMU ALRI Total PIU MOF Feasibility study/detail engineering design of bridges 1,286,699 - - 1,286,699 922,246 2,234,083 Purchase of heavy machinery 170,001 - - 170,001 1,530,003 1,700,004 Feasibility study and detail design for flood management activities in Kurgan-Tube area (with additional restoration work) for ALRI 67,653 - - 67,653 348,442 455,622 Feasibility study and detail design for flood management activities in Kulyab area (with additional restoration work) 97,269 - - 97,269 224,714 352,813 Rehabilitation of coas-protecting dams and enclosing ramparts in the Kulyab zone - - 273,693 273,693 - 273,693 Payroll and related taxes 64,894 30,461 38,241 133,596 103,470 265,511 Software 14,672 - - 14,672 99,000 113,672 Vehicle - - - - 98,750 98,750 Purchase of drilling equipment and components - - - - 98,604 98,604 International consultant 5,535 - - 5,535 77,571 83,106 Procurement of IT equipment including software for IoGEES 34,217 - - 34,217 - 34,217 Procurement of seismic stations for IoGEES 30,918 - - 30,918 - 30,918 Office equipment 2,319 7,213 - 9,532 - 24,783 Office furniture for MoT and ALRI - - - - 9,621 9,621 Audit costs 8,824 - - 8,824 - 8,824 Business trips 1,220 204 - 1,424 4,117 7,614 Consultant’s services 5,705 - - 5,705 - 5,705 Stationery 1,199 1,864 - 3,063 1,779 5,519 Communication (telephone, internet, postal services, advertising) 963 552 757 2,272 1,423 4,681 Bank charges 741 175 195 1,111 1,984 3,287 Trainings 3,227 - - 3,227 - 3,227 Other 6,745 - - 6,745 6,004 12,749 1,802,801 40,469 312,886 2,156,156 3,527,728 5,827,003 11 8. FINANCIAL POSITION Financial position as at December 31, 2018 and 2017 comprises: December 31, December 31, 2018 2017 PIU MOF PIG MOT PMU ALRI Total PIU MOF ASSETS AND EXPENDITURES Cash and cash equivalents 469,445 459,534 188,726 1,117,705 590,130 Cumulative project expenses 5,473,648 40,469 312,886 5,827,003 3,670,847 Foreign exchange loss 821 - - 821 796 TOTAL ASSETS AND EXPENDITURES 5,943,914 500,003 501,612 6,945,529 4,261,773 FINANCING Funds received 5,943,386 500,000 500,000 6,943,386 4,261,395 Foreign exchange gain 5 3 91 99 5 Other income 523 - 1,521 2,044 373 TOTAL FINANCING 5,943,914 500,003 501,612 6,945,529 4,261,773 9. WITHDRAWAL APPLICATIONS Withdrawal applications for the year ended December 31, 2018 comprise: Implementation unit Application Value Date Advance Reimbursement Direct payment Total PIU MOF 11 June 1, 2018 - 492,228 - 492,228 12 August 6, 2018 - 492,058 - 492,058 13 August 8, 2018 - - 473,761 473,761 14 October 5, 2018 - 223,944 - 223,944 - 1,208,230 473,761 1,681,991 PIG MOT 1 June 5, 2018 500,000 - - 500,000 500,000 - - 500,000 PMU ALRI 1 August 28, 2018 500,000 - - 500,000 500,000 - - 500,000 1,000,000 1,208,230 473,761 2,681,991 12 Deleted withdrawal applications for year ended December 31, 2018 comprise: Implementation unit Application Value Date Advance Reimbursement Direct payment Total PIU MOF 12 August 1, 2018 - 492,058 - 492,058 13 August 2, 2018 - - 473,761 473,761 - 492,058 473,761 965,819 PIG MOT 1 August 15, 2018 500,000 - - 500,000 500,000 - - 500,000 500,000 492,058 473,761 1,465,819 10. STATEMENT OF DESIGNATED ACCOUNT Statement of designated account for the year ended December 31, 2018 comprise: Bank OJSC “Bank Eskhata” OJSC “Bank Eskhata” OJSC “Bank Eskhata” Currency US Dollars US Dollars US Dollars Bank account 20206840000020100377 20206840300020100459 20206840700020100392 Bank’s location 16 Nemat Karaboev, Dushanbe, 16 Nemat Karaboev, Dushanbe, 16 Nemat Karaboev, Dushanbe, the Republic of Tajikistan the Republic of Tajikistan the Republic of Tajikistan PIU MOF PIG MOT PMU ALRI Total: Balance as at January 01, 2018 589,635 - - 589,635 Advance - 500,000 500,000 1,000,000 Replenishment of expenses 1,208,230 - - 1,208,230 Transfer from cash on hand 980 - - 980 Total funds received to the designated account 1,209,210 500,000 500,000 2,209,210 Expenses paid 894,544 36 36 894,616 Transfers between accounts 431,509 40,497 312,821 784,827 Transfer to cash on hand 4,010 - - 4,010 Balance as at December 31, 2018 468,782 459,467 187,143 1,115,392 13 11. UNDRAWN FUNDS As at December 31, 2018 undrawn funds are presented as follows: Grant No. D205-TJ In SDR Approved financing amount 18,300,000 Disbursed for the period from May 30, 2016 to December 31, 2018 4,871,264 Undrawn financing amount 13,428,736 Funds received as at January 01, 2018 2,961,755 Disbursed in 2018 1,909,509 Funds received as at December 31, 2018 4,871,264 12. COMMITMENTS In the normal course of activities, the Project concludes agreements with suppliers of goods and services in accordance with the established budget and procurement plan. Contract value of obligations valid as at December 31, 2018 was as follows: Counterparty Contract No. Currency Contract value Paid up to Remaining amount December 31, to be paid 2018 LLC JV “Ittihod Inshoot and Zumrat” SCINHP-NCB-002 TJS 14,806,173 1,480,617 13,325,556 LLC JV “Firuz M & Kudrati Danghara” SCINHP-NCB-001 TJS 10,990,574 1,099,057 9,891,517 OJSC “Obrason” SCINHP-NCB-002 TJS 8,023,202 - 8,023,202 Consolidated Consultants for Engineering and Environment (Consolidated Consultants Group) SCINHP/QCBS- (Jordan) 2017-01 USD 496,913 - 496,913 “Geopro” LLC (Tajikistan) SCINHP/G-SH-1 TJS 582,500 291,250 291,250 13. LEGAL CASES There were no any legal cases related to the Project. 14. EVENTS AFTER THE REPORTING DATE During 2019 until the date of issue of these project financial statements the World Bank provided financing to the Project as follows: Implementation Application Value Date Reimbursement Direct payment Total unit PMU ALRI 2 January 25, 2019 431,153 - 431,153 3 February 8, 2019 - 400,299 400,299 4 March 5, 2019 - 400,299 400,299 5 April 2, 2019 491,239 - 491,239 6 April 16, 2019 499,941 - 499,941 As at the date of issue of the project financial statements no other significant events or transactions occurred, except for the events or transactions described above. 14