Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management Open Joint Stock Company International Development Association Credit No. 4397 AZ International Bank for Reconstruction and Development Loan No. 7518 AZ International Bank for Reconstruction and Development Loan No. 8381 AZ Special Purpose Project Financial Statements for the period from 1 January 2018 to 30 April 2018 and Auditors' Report Contents Page Inde pe nd e nt A ud ito rs' R e po rt......................................................................................... ....3 Statement of Financial Position...................................................................... . ............6 Statement of Sources and Uses of Funds.................................................................................7 S tatem ent of P roject A ctivities..... ................... .......................... ................. ....... ...........9 Statement of Special and Project Accounts.......................... .............................................10 Notes to the Special Purpose Project Financial Staternents......................................................12 "KPMG Audit Azerbaijan" LLC Port Baku South Tower 153 Neftchilar Avenue AZ1010, Baku, Azerbaijan Telephone +994 12 404 89 10 Fax +994 12 404 89 14 Internet www.kpmg.az To the Management of Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration -~ and Water Management Open Joint Stock Company ni. . We have audited the special purpose project financial statements of Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC (the "Project") financed by International Development Association ("IDA"), International Bank for Reconstruction and Development ("IBRD") and the Government of the Republic of Azerbaijan ("GoA"), which comprise the statement of financial position as at 30 April 2018, the statement of sources and uses of funds, statement of project activities, statement of special and project accounts for the 4-month period then ended, and a summary of significant accounting policies and other explanatory notes (collectively referred to as the "special purpose project financial statements"). In our opinion, the accompanying special purpose project financial statements present fairly, in all material respects, the financial position of the Project as at 30 April 2018 and its sources and uses of funds for the period then ended in accordance with the International Public Sector Accounting Standard "Financial Reporting under the Cash Basis of Accounting" ("IPSAS"). 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 Auditors' Responsibilities for the Audit of the Special Purpose 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), 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, Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC k M Independent Auditors' Report Page 2 Emphasis of Matter - Basis of Accounting and Restriction on Use and Distribution We draw attention to Note 2 of the special purpose project financial statements, which describes the basis of accounting. The special purpose project financial statements are prepared to assist the Project to meet the requirements of financing agreements described in Note 1. As a result, the special purpose project financial statements may not be suitable for another purpose. Our report is intended solely for the management of the Project, GoA, IBRD, and IDA and should not be distributed to or used by other parties other than these specified parties. Our opinion is not modified in respect of this matter. Responsibilities of Management for the Special Purpose Project Financial Statements Management is responsible for the preparation and fair presentation of these special purpose project financial statements in accordance with the financial reporting provisions of International Public Sector Accounting Standards "Financial Reporting under the Cash Basis of Accounting" for determining the acceptability of the basis of accounting and for such internal control as management determines is necessary to enable the preparation of the special purpose project financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibilities for the Audit of the Special Purpose Project Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these special purpose project financial statements. 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 special purpose project 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 Project's internal control. Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Independent Auditors' Report Page 3 - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. - Evaluate the overall presentation, structure and content of the financial statements, 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. The engagement partner on the audit resulting in this independent auditors' report is: Ziya Mammadov `KPMG Audit Azerbaijan" LLC 14 June 2018 Second National Water Supply and Sanitation Project implementation Unit under State Amelioration and Water Management OJSC State eon! of Fnnocial Posion as a( 30 Apsi 2018 US Dollars 30 April 31 December Note 2018 2017 Assets and Cumulative Expenditure Cash at bank 3 1,292.951 2 542L609 Cumulative project expenditure 566,153,827 548,217.022 567,446,778 550,759,631 Sources of Funds Project financing 567,786 800 551 099 530 Accumulated foreign exchange difference (340 022) 1339 899) 567,446,778 550,759,631 The special purpose project financal statements were approved by the management of the Project on 14 June 201B and signed on its behalf by: Ayaz Ganramancv Sumru Hapyeva Proiect riplementa:on Urt Head Financial Specialist Tne statement of financial position is to be read in conjunction with the notes to and forming part of the special purpose project financial statements set out on pages 12 to 18 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Statement of Sources and Uses of Funds for the 4-month period ended 30 April 2018 4-month US Dollars periodended Year ended 30 April 31 December Note 2018 2017 Cumulative Opening Balances IDA Credit 4397 AZ - 1,566,458 IBRD Loan 7518 AZ - 2,310,716 IBRD Loan 8381 AZ 2,542,609 - GoA - - 2,542,609 3,877,174 Add: Funds received by sources IDA Credit 4397 AZ (Initial deposits) 4 - 2,954,531 22,898,131 IDA Credit 4397 AZ (Direct payments) 365,954 324,131 4,022,905 IBRD Loan 7518 AZ (Initial deposits) 4 - 1,784,166 35,781,767 IBRD Loan 7518 AZ (Direct payments) - 15,914,127 194,026,562 IBRD Loan 8381 AZ (Initial deposits) 4 - 3,000,000 3,000,000 IBRD Loan 8381 AZ (Direct payments) 7,183,625 21,334,411 99,070,145 GoA 9,137,691 27,377,546 208,990,943 Other (tender fees) - 3,045 102,688 16,687,270 72,691,957 567,893,142 Less: Refund of unused GoA share - - (106,342) - - (106,342) Add/(less): Exchange differences IDA Credit 4397 AZ - (38,472) (82,525) IBRD Loan 7518 AZ - 51,634 (118,743) IBRD Loan 8381 AZ - (5) 3,047 GoA (123) 11,482 (142,211) Other (tender fees) - 7 417 (123) 24,646 (340,022) Less: Expenditures IDA Credit 4397 AZ Goods (365,954) (2,198,737) (2,564,691) Consulting services - (2,255,254) (21,303,233) Incremental operating costs - (352,657) (2,994,260) Transfer fee for IDA funds -(33) (365,954) (4,806,648) (26,862,217) IBRD Loan 7518 AZ Goods - (20,057,598) (229,282,552) Front end fee - - (383,329) - (20,057,598) (229,665,881) IBRD Loan 8381 AZ Goods (9,159,643) (21,702,993) (101,039,745) Consulting services (239,365) (3,750) (243,115) Incremental operating costs (116,714) (29,114) (145,828) Front end fee - - (375,000) Civil works - (58,992) (58,992) (9,515,722) (21,794,849) (101,862,680) The statement of sources and uses of funds is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 12 to 18. 7 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Statement of Sources and Uses of Funds for the 4-month period ended 30 April 2018 4-month period US Dollars ended Year ended 30 April 31 December Note 2018 2017 Cumulative GoA Goods (7,643,422) (25,198,830) (192,897,476) Consulting services (364,749) (2,076,763) (13,658,653) Incremental operating costs (46,958) (79,615) (1,070,002) Civil works - (33,820) (33,820) (8,055,129) (27,389,028) (207,659,951) Other sources (tender fees) Incremental operating costs -(3,045) (106,124) -(3,045) (106,124) TOTAL EXPENDITURE (17,936,805) (74,051,168) (566,153,827) Closing Balances IDA Credit 4397 AZ 3 IBRD Loan 7518 AZ 3 - IBRD Loan 8381 AZ 3 210,512 2,542,609 GoA 3 1,082,439 - 1,292,951 2,542,609 The special purpose project financial statements were approved by the management of the Project on 14 June 2018 and signed on its behalf by: Ayaz Gahraman Gumru Hajiyeva Project Implem ntation Unit Head Financial Specialist The statement of sources and uses of funds is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 12 to 18. 8 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Statement of Project Activities for the 4-month period ended 30 April 2018 4-month period US Dollars ended Year ended 30 April 31 December 2018 2017 Cumulative Component A. Rayon Investment A.1 Main Investments 17,169,019 69,250,970 525,868,993 A-2 Consulting Services 604,114 4,335,767 35,108,163 17,773,512 73,586,737 560,977,535 Component C. Project Implementation and 163,672 464,431 4,418,342 Management Component Front-end fee - - 758,329 17,936,805 74,051,168 566,153,827 The special purpose project financial statements were approved by the management of the Project on 14 June 2018 and signed on its behalf by: Ayaz Gahramanov Gumru Hajiyeva Project Implemenation Unit Head Financial Specialist The statement of project activities is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 12 to 18. 9 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Statement of Special and Project Accounts for the 4-month period ended 30 April 2018 For the 4-month period ended 30 April 2018 Special Special Project Account Account IBRD IBRD Account IDA IAAN UD AN o US Dollars (USD) (AZN) A Opening balances - - 2,539,557 3,052 Add: Project funds received - - - - 9,137,691 Converted from USD account - - 2,329,060 - - - 2,329,060 9,137,691 Less: Eligible project expenditure - - - 2,332,097 8,055,129 Converted into AZN account- - 2,329,060 - - 2,329,060 2,332,097 8,055,129 Foreign exchange loss - - - - (123) - - - - (123) Closing balances - - 210,497 15 1,082,439 For the year ended 31 December 2017 Special S Account Special IBRD IBRD Proet IDA IDA (AZN) (USD) (AZN) A US Dollars (USD) ID(ANGo Opening balances 1,565,903 555 1,926,871 383,845 - Add: Project funds 2,954,531 - 4,784,166 - 27,377,546 received Tender fee - - 3,045 - - Converted from USD - 4,450,820 - 4,170,716 account - 4402 .076 2,954,531 4,450,820 4,787,211 4,170,716 27,377,546 Less: Eligible project 69,614 4,412,903 3,809 4,603,145 27,389,028 expenditure Converted into AZN 4,450,820 - 4,170,716 - - account 4,520,434 4,412,903 4,174,525 4,603,145 27,389,028 The statement of special and project accounts is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 12 to 18, 10 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Statement of Special and Project Accounts for the 4-month period ended 30 April 2018 Special Special Project Account Account IBRD IBRD Account IDA IDA (USD) (AZN) GoA US Dollars (USD) (AZN) GoA Foreign exchange (38,472) - 51,636 11,482 gain/(loss) - (38,472) - 51,636 11,482 Closing balances - - 2,539,557 3,052 - The special purpose project financial statements were approved by the management of the Project on 14 June 2018 and signed on its behalf by: Ayaz Gahramanov Gumru Hajiyeva Project Implementation Unit Head Financial Specialist The statement of special and project accounts is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 12 to 18. 11 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Notes to the Special Purpose Project Financial Statements for the 4-month period ended 30 April 2018 1. Background The Project is directly implemented by the Project Implementation Unit ("PIU") established under the State Amelioration and Water Management OJSC, which is an Implementing Agency. The PIU is not a legal entity. The objective of the Project is to improve the availability, quality, reliability and sustainability of water supply and sanitation services of the Government of the Republic of Azerbaijan (hereinafter the "Borrower"). According to the signed Agreements the Project consists of the following parts: Part A: Rayon Investment 1. Rehabilitation an extension of water supply and sewerage systems as well as facilities for water, wastewater and sludge treatment in the Selected Rayons in the State Amelioration and Water Management Open Joint Stock Company's (SAWMC) Service Areas. 2. Rehabilitation an extension of water supply and sewerage systems as well as facilities for water, wastewater and sludge treatment in the Selected Rayons in the State Amelioration and Water Management Agency of Nakhchivan Autonomous Republic's (SAWMA) Service Areas. Part B: Institutional Modernisation 1. Capacity building and modernisation of the SAWMC, through (a) the provision of training for management, financial management, customer service, procurement, preventive maintenance and other subjects pertinent to effective and efficient management of the utilities: (b) development of performance monitoring, preventive maintenance and leak detection and repair; and (c) design and technical support for construction management, including procurement support and contract supervision for the investments. 2. Capacity building and modernisation of the SAWMA, through (a) the provision of training for management, financial management, customer service, procurement, preventive maintenance and other subjects pertinent to effective and efficient management of the utilities: (b) development of performance monitoring, preventive maintenance and leak detection and repair; and (c) design and technical support for construction management, including procurement support and contract supervision for the investments. Part C: Project Management 1. Strengthening of the management capacity of the SAWMC to monitor and administer implementation of the Project, including audit. 2. Strengthening of the management capacity of the SAWMA to monitor and administer implementation of the Project, including audit. The Project originally included 21 rayons, however, immediately after effectiveness, the Project faced implementation difficulties. These pertained to: (i) insufficient Project preparation caused by the absence of feasibility and environmental studies; (ii) a shortage of funds due to underestimation of investment costs at appraisal caused by limited record of market costs in the water sector, which resulted in a reduction of Project scope; and (iii) the inability of the original implementing agency to implement the massive countrywide water program with multiple donors. These issues were addressed by a level I restructuring approved on 18 September 2009 to transfer the implementation responsibility from Azersu OJSC to Azerbaijan Amelioration and Water Management OJSC and level I restructuring approved on 18 November 2011 to downsize the original scope to 8 rayons (i.e. Siyazan, Shabran, Aghsu, Ismayilli, Lerik, Yardimli, Masalli and Jalilabad) 12 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Notes to the Special Purpose Project Financial Statements for the 4-month period ended 30 April 2018 1. Background (continued) a) Financing Agreement with the IBRD Loan 7518 AZ A Loan Agreement 7518 AZ dated 16 October 2009 has been signed between the Republic of Azerbaijan ("Borrower") and the International Bank for Reconstruction and Development ("IBRD"). The IBRD agreed to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, the amount of two hundred thirty million Dollars (USD 230,000,000), as such amount may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.07 of the Loan Agreement to assist in financing the project described in Schedule I to the Agreement. SAWMC Subsidiary Agreement To facilitate the carrying out of the SAWMC's Respective Part of the Project the Borrower shall make part of the proceeds of the Loan available to the SAWMC under a subsidiary agreement between the Borrower and the SAWMC, under terms and conditions agreed by the IBRD ("SAWMC Subsidiary Agreement"). Withdrawal of Loan Proceeds 1. The Borrower may withdraw the proceeds of the Loan in accordance with the provisions of Article I of the General Conditions, this Section and such additional instructions as the IBRD shall specify by notice to the Borrower (including the "World Bank Disbursement Guidelines for Projects' dated May 2006, as revised from time to time by the IBRD and as made applicable to this Agreement pursuant to such instructions), to finance Eligible Expenditure as set forth in the table below. 2. The following table specifies the categories of Eligible Expenditure that may be financed out of the proceeds of the Loan ("Category"), the allocation of the amounts of the Loan to each Category and t e percentage of expenditure to be finances or Eligible Expeniture in each Category. Amount of the Loan Percentage of Expenditures Category Allocated to be Financed (net of VAT) Works (USD) Works (a) For Part A.1 of Project 670,000 75% (b) For Part A.2 of Project 330,000 Goods (a) For Part A.1 and B.1 of the Project. 139,645,000 75% (b) For Part A.2 and B.2 of the Project. 68,780,000 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General Front-end fee 575,000 Conditions Premium for Interest Rate Caps and Amount due under Section Interest Rate Collars - 2.07 (c) of this Agreement Unallocated 20,000,000 - Total Amount 230,000,000 Originally, closing date of the loan was agreed to be 28 February 2013. However, due to delays and difficulties encountered during the implementation of the project closing date was prolonged until 31 December 2017. In addition to the agreed closing date, IBRD allowed the PIU additional 4 months of grace period in order to complete all documentation necessary for closing. As at the date of these special purpose project financial statements were authorised for issue, the loan was fully utilised. 13 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Notes to the Special Purpose Project Financial Statements for the 4-month period ended 30 April 2018 1. Background (continued) b) Financing Agreement with the IDA Credit 4397 AZ A Credit Agreement 4397 AZ dated 16 October 2009 has been signed between the Republic of Azerbaijan ("Borrower") and International Development Association ("Association" or "IDA'). The Association agreed to extend to the Borrower, on the terms and conditions set forth or referred to in the Agreement, a credit in an amount equivalent to eighteen million eight hundred thousand Special Drawing Rights (SDR 18,800,000), (variously "Credit" and "Financing") to assist in financing the project described in Schedule I to the Agreement. Withdrawal of the Proceeds of the Financing The following table specifies the categories of Eligible Expenditure that may be financed out of the proceeds of the Financing ("Category"), the allocation of the amounts of the Financing to each Category and the percentage of expenditures to be financed for Eligible Expenditure in each Category. Amount of the Percentage of Expenditure Category Loan Allocated to be Financed (net of (SDR) VAT) (1) Works for Part A.2 of the Project 251,000 75% (2) Goods (a) For Part A.l and B.1 of the Project 7,474,000 75% (b) For Part A.2 and B.2 of the Project 3,681,000 (3) Consultant's Services, including Audit and Training 75% (a) for Parts A.1, B. 1 and C.1 of the Project 3,779,000 (b) for Parts A.2,B.12 and C.2 of the Project (4) Incremental Operating Costs (a) for Parts A.1,B.1 and C.1 of the 75% Project 336,000 (b) for Parts A.2,B.2 and C.2 of the 165,000 Project (5) Unallocated 1,253,000 Total amount 18,800,000 Originally, closing date of the loan was agreed to be 28 February 2013. However, due to delays and difficulties encountered during the implementation of project closing date was prolonged till 31 December 2017. In addition to the agreed closing date, IDA allowed the PIU additional 4 months of grace period in order to complete all documentation necessary for closing. As at the date these special purpose project financial statements were authorised for issue, the loan was fully utilised. 14 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Notes to the Special Purpose Project Financial Statements for the 4-month period ended 30 April 2018 c) Financing Agreement with the IBRD Loan 8381 AZ A Loan Agreement 8381 AZ dated 22 October 2014 was signed between the Republic of Azerbaijan ("Borrower") and the International Bank for Reconstruction and Development ("IBRD"). IBRD agreed to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, the amount of one hundred fifty million Dollars (USD 150,000,000), as such amount may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.07 of the Loan Agreement to assist in financing the project described in Schedule I to the Agreement. Amount of the Percentage of Category Loan Allocated Expenditures to be (USD) Financed (net of VAT) (1) Goods, works, non- consulting services, and consultants' services, Training and Incremental Operating Costs for the Project 149,625,000 75% Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the (2) Front-end fee 375,000 General Conditions Amount due pursuant to (3) Interest Rate Cap or Interest Rate Collar Section 2.07(c) of the premium - Agreement Total Amount 160,000,000 d) Financing from GoA Counterpart financing (25%), as stipulated by all the agreements mentioned above, is to be provided by the Government of the Republic of Azerbaijan. 2. Accounting Policies These special purpose project financial statements cover the part of the project implemented by PIU under the State Amelioration and Water Management OJSC. Transactions related to the part of the project implemented by the State Amelioration and Water Management Agency of Nakhchivan Autonomous Republic were excluded, a) Basis of Accounting These special purpose project financial statements are prepared in accordance with the International Public Sector Accounting Standard ("IPSAS") Financial Reporting under the Cash Basis of Accounting issued by the International Public Sector Accounting Standards Board ("IPSASB"), an independent standard-setting body within the International Federation of Accountants ("IFAC") and incorporate the following principal accounting policies, which have been consistently followed in all material respects. These Special Purpose Project Financial Statements have been prepared under the historical cost convention. Project financing is recognised as a source of project funds when a cash is received. Project expenditure is recognised as a use of project funds when a payment is made. 15 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Notes to the Special Purpose Project Financial Statements for the 4-month period ended 30 April 2018 2. Accounting Policies (continued) b) Period of accounts These special purpose project financial statements cover the period from 1 January 2018 to 30 April 2018. c) Transactions and balances in foreign currencies The Project is domiciled in the Republic of Azerbaijan where the local currency is the Azerbaijani Manat ("AZN"). The Project's transactions are funded and used in USD, AZN and EUR. In accordance with the requirements of the World Bank, these special purpose project financial statements are presented in USD, which is the reporting currency of the Project. Transactions in other currencies are treated as transactions in foreign currencies. Cash receipts and payments arising from transactions in a foreign currency are recorded in the Project's reporting currency by applying respective exchange rates at the date of receipt or payment. Cash balances held in a foreign currency are reported using the closing rate, which is the spot exchange rate at the reporting date. Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash receipts and payments. However, the effect of exchange rate changes on cash held in a foreign currency is reported in the statement of sources and uses of funds and other statements in order to reconcile cash at the beginning and the end of the period. These amounts are presented separately from cash receipts and payments and include the differences, if any, had those cash receipts, payments and balances been reported at end-of-period exchange rates. At 30 April 2018, the official exchange rate set by the Central Bank of Azerbaijan Republic (CBAR") was 1.7001 (31 December 2017: 1.7707) for AZN/USD and 2.0307 (2017:1.8644) for AZN/EUR. Average exchange rate during the 4-month period ended 30 April 2018 was 1.7001 (year ended 31 December 2017: 1.7205) for AZN/USD and 2.0848 (year ended 31 December 2017: 1.9464) for AZN/EUR. 3. Cash at bank 30 April 31 December 2018 (USD) 2017 (USD) IDA 4397 Special account IBRD 7516 AZ Special Account - - IBRD 8381 AZ Special Account 201,512 2,542,609 GoA Project Account 1,082,439 - 1,292,951 2,542,609 16 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Notes to the Special Purpose Project Financial Statements for the 4-month period ended 30 April 2018 4. Statement of Expenditure (SOE) Withdrawal Schedule (US Dollars) IDA Credit No. 4397 AZ for the 4-month period ended 30 April 2018 No SOE was submitted to IDA in accordance with terms of IDA Credit No. 4397 AZ during the period. IDA Credit No. 4397 AZ for the year ended 31 December 2017 Application Required for Category Requested Advancel T.Consulting ncremental Reimbursed Date # amount Initial deposit oodsservices operating costs amount 10 May 2017 14 1,317,534 - - - 1,175,719 141,816 1,317,534 10 Nov 2017 15 1,636,997 - 570,615 - 928,512 137,870 1,636,997 Total I -T 2,954,531 - 570,615 2,104,231 279,686 2,954,531 IBRD Credit No. 7518 AZ. for the 4-month period ended 30 April 2018 No SOE was submitted to IBRD in accordance with terms of IBRD Credit No. 7518 AZ during the period. IBRD Credit No. 7518 AZ for the year ended 31 December 2017 Application Requested - Required for Category aAdvance/ G T Consulting ncremental Reimbursed Date # Initial deposit services operating costs amount 10 May 2017 14 1,711,603 - 1,711,603 - - _ - 1,711,603 10 Nov 2017 15 72,562 72,562 - - - - 72,562 Total 1,784,165 72,562 1,711,603 - - _ 1,784,165 IBRD Credit No. 8381 AZ for the 4-month period ended 30 April 2018 No SOE was submitted to IBRD in accordance with terms of IBRD Credit No. 8381 AZ during the period. IBRD Credit No. 8381 AZ for the year ended 31 December 2017 Application Requested Required for Category 1Advance/ G Consulting ncremental Reimbursed Dat U amount I GoodvTrnren Date # Initial deposit services operating costs amount 3 Nov 2017 1 3,000,000 3,000,000 - - - 3,000,000 Total 3,000,000 3,000,000 --- - 3,000,000 17 Second National Water Supply and Sanitation Project Implementation Unit under State Amelioration and Water Management OJSC Notes to the Special Purpose Financial Statements for the 4-month period ended 30 April 2018 5. Method of Withdrawal a) Designated or Special Account The Special Accounts held with the Kapital Bank ASC in the Republic of Azerbaijan are designated disbursement accounts of the Project to effect the payment of eligible expenditure, within defined limits, which do not require individual authorisation from IDA and IBRD. The Project is authorized to make payments out of the special account exclusively for eligible expenditures in accordance with the provisions of the Financing Agreement. To replenish the designated account the Project furnishes to the requests for deposits into the special account, supporting documents and other evidence verifying that payments in respect of which replenishment is requested are made exclusively for eligible expenditures. The special accounts usually comprise: a) deposits and replenishments received from IDA and IBRD; b) payments substantiated by withdrawal applications; c) the remaining balances at the end of each financial period. b) Direct payments from the Credit Account Under this method, the PIU prepares applications based on supporting documents which are submitted to the IDA and IBRD. Payments are made from the credit account directly to the contractors. c) Project account (GoA) The Project maintains a separate account in Treasury Office No. 12 of the State Treasury Agency under the Ministry of Finance where the Government funds are accumulated. The funds are further disbursed to contractors based on the shares of expenditure to be incurred by each party to the Agreement. d) Statement of expenditure ("SOE") Under the SOE method, the Project forwards to the IDA and IBRD an application for reimbursement of payments already made using an application for withdrawal with SOE forms as the only documentation. 6. Operating Environment The Project's principal activities are within the Republic of Azerbaijan. Laws and regulations affecting entities operating in Azerbaijan are subject to rapid changes and the Project's operations could be at risk as a result of negative changes in the political and economic environment. 7. Actual vs. Budget The Project does not make its approved budget publicly available, therefore there is not a comparison of budget versus actual amounts in these special purpose project financial statements. 8. Project status In accordance with the Financing Agreement No. 8381 AZ dated 22 October 2014 between GoA and IBRD, the expected date of the loan's account closing was determined as 30 April 2018. According to the IBRD approval letter dated 13 June 2018 the project deadline was prolonged to 31 December 2018. 18