INTEGRATED SOLID WASTE MANAGEMENT PROJECT CREDIT NUMBER 7549-AZ AND LOAN NUMBER 8274-AZ Special-Purpose Financial Statements and independent Auditors' Report For the period from January 1, 2018 to August 31, 2018 INTEGRATED SOLID WASTE MANAGEMENT PROJECT TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 1-2 SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY I, 2018 TO AUGUST 31, 2018: Special-purpose balance sheet 3 Statement of summary of sources and uses of ftinds 4-7 Statement of uses of finds by project components 8-10 Statement of designated account 11-12 Statement of letter of credit account 13 Statement of expenditure and summary sheet withdrawal schedule 14-16 Notes to the special-purpose financial statements 17-23 BAKERTILLY AZERBAIJAN Audit, Tax and Consulting Demirchi Tower, 16th floor Khojaly Avenue, 37 AZ1025, Baku Azerbaijan T: + 994 (12) 404 7 666 F:+ 994 (12) 404 7 667 office@bakertilly.az www.bakertilly,az INDEPENDENT AUDITORS' REPORT To the Management of the Project Management Team of the Integrated Solid Waste Management Project: Opinion We have audited the Special-Purpose Financial Statements of the Integrated Solid Waste Management Project (the "Project"), which comprise the Special-PUrpose Balance Sheet as at August 31, 2018, and the Statement of Summary of Sources and Uses of Funds, the Statement of Uses of Funds by Project Components, the Statement of Designated Account, the Statement of Letter of Credit Account and the Statement of Expenditure and Summary Sheet Withdrawal Schedule ("SOE and SSWS") for the period from January 1, 2018 to August 31, 2018 and a summary of basis of accounting and other explanatory notes (hereafter collectively referred to as the "Special-Purpose Financial Statements") financed under the International Bank for Reconstruction and Development (the -IBRD") through credit number 7549-AZ and loan number 8274-AZ (hereafter collectively referred to as the "Loan Agreements"). In our opinion, the accompanying Special-Purpose Financial Statements present fairly, in all material respects, the financial position of the Project as at August 31, 2018 the cash receipts, and disbursements on behalf of the Project and transactions passed through the Project's Designated Account and the Letter of Credit Account for the period from January 1, 2018 to August 31, 2018 in accordance with IPSAS "Financial Reporting under the Cash Basis of Accounting" and basis of accounting of the Loan Agreements as described in Note 2 of the Special-Purpose Financial Statements. In addition, with respect to the SOE and SSWS, all payments reported are eligible for financing under the respective Loan Agreements and adequate documentation have been maintained to support the claims for withdrawal. 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 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 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 Basis cfAccounting and Restriction on Distribution and Use We draw attention to Note 2 to the Special-Purpose Financial Statements, which describes the basis of accounting. The Special-Purpose Financial Statements are prepared to assist the Project's Implementation Unit in complying with the financial reporting provisions of the Loan Agreements referred to above. As a result, the Special-Purpose Financial Statements may not be suitable for any other purpose. Our report is intended solely for the Project Management Team, the Government of the Republic of Azerbaijan and the IBRD and should not be distributed to or used by parties other than Project's Implementation Unit and the IBRD. Our opinion is not modified in respect of this matter. An independent member of Baker Tilly International BAKERTILLY AZERBAIJAN Termination of the Project Without qualifying our opinion, we also draw attention to Note 1, which describes that the Project's completion date was August 31, 2018 and four months grace period for making last disbursement will be ended on December 31, 201 8. Responsibilities of Management for the Special-Purpose Financial Statements Management is responsible for the preparation and fair presentation of the Special-Purpose Financial Statements in accordance with IPSAS and relevant provisions ofthe Loan Agreements as described in Note 2 to the Special- Purpose Financial Statements, and for such internal control as management determines is necessary to enable the preparation of Special-Purpose Financial Statements that are free form material misstatement, whether due to fraud or error. Auditor's Responsibilities for the Audit of the Special-Purpose Financial Statements Our objectives are to obtain reasonable assurance about whether the Special-Purpose 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 Financial Statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the Special-Purpose 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; * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 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. November 15, 2018 Baku, the Republic of Azerbaijan INTEGRATED SOLID WASTE MANAGEMENT PROJECT SPECIAL-PURPOSE BALANCE SHEET AS AT AUGUST 31, 2018 (Amounts expressed in the United States Dollars unless otherwise indicated) Notes August 31, December 31, 2018 2017 ASSETS AND CUMULATIVE USES OF FUNDS Cash at bank 3 379.830 612,282 Cumulative uses of funds 4 96,025,673 95,318,034 Accumulated exchange rate differences 332,022 331,753 TOTAL ASSETS AND CUMULATIVE USES OF FUNDS 96,737,525 96,262,069 SOURCES OF FUNDS Cumulative IBRD Funds 76,604,280 76,211,934 Cumulative Government Funds 20,132-532 20,049,693 Discrepancy 713 442 TOTAL SOURCES OF FUNDS 96,737,525 96,262,069 Approved and signed on behalf of the Project Management Team: Ruslan Rustenili Emil Hirsevnov Project Director Finance Specialist November 15. 2018 November 15, 2018 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an iic' t p Purpose Financial Statements. 3 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF SUMMARY OF SOURCES AND USES OF FUNDS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Amounts expressed in the United States Dollars unless otherwise indicated) August 31, December 31, Cumulative 2018 2017 to date August 31, 2018 OPENING BALANCE IBRD Designated Account 7549-AZ 319 169 IBRD Designated Account 8274-AZ 592,209 351.861 Project Account 19.754 5,185 Letter of Credit USD Account - 150 TOTAL OPENING BALANCE 612,282 357,365 ADD: FUNDS RECEIVED IBRD Credit Ntumber 7549-AZ Designated Account advances - 5.300,000 SOE and SSWS replenishment - 24.126,251 Front-end fee - 73,750 Other receipts - - 4,279 Subtotal IBRD Credit funds - - 29,504,280 IBRD Loan Number 8274-AZ Designated Account advances - 1,000,000 Direct payment - 40.682,454 SOE and SSWS replenishment 392.346 2,217,369 5.299,796 Front-end fee - - 117,750 Subtotal IBRD Loan funds 392,346 2,217,369 47,100,000 Total IBRD Loan funds 392,346 2,217,369 76,604,280 Government of Azerbaijan 7549-AZ Project Account Advance - 11.288,422 Other receipts - - 8,565 Subtotal Government of Azerbaijan funds - - 11,296,987 Government of Azerbaijan 8274-AZ Project Account Advance 82,839 329,954 8,831,401 Other receipts - - 4,144 Subtotal Government of Azerbaijan funds 82,839 329,954 8,835,545 Total Goverment of Azerbaijan funds 82,839 329,954 20,132,532 TOTAL FUNDS RECEIVED 475,185 2,547,323 96,736,812 4 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF SUMMARY OF SOURCES AND USES OF FUNDS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) August 31, December 31, Cumulative 2018 2017 to date August 31, 2018 NET TRANSFERS BETWEEN ACCOUNTS AND CASH WITHDRAWALS Transfer from the IBRD Designated Account 7549-AZ to the Project Account - (23,700) Transfer to the Project Account from the IBRD Designated Account 7549-AZ - 23,700 Transfer from the IBRD Designated Account to the Letter of Credit USD Account - - (941,181) Transfer to the Letter of Credit USD Account from the IBRD Designated Account - - 941,181 Transfer from the Project Account to the IBRD Designated Account - - (3,089,603) Transfer to the IBRD Designated Account from the Project Account - - 3.089,603 Transfer from the Project Account to the Letter of Credit USD Account - 1.302,752 Transfer to the Letter of Credit USD Account fiom the Project Account - (1,302,752) Transfer fi-om the IBRD Designated Account 7549-AZ to IBRD Designated Account 8274-AZ - (1,488,114) Transfer to the IBRD Designated Account 8274-AZ from the IBRD Designated Account 7549-AZ - 1,488,114 Transfer from the IBRD Designated Account 7549-AZ to the Project Account - 5,629 Transfer to the Project Account from the IBRD Designated Account 7549-AZ - (5.629) Transfer from Letter of Credit USD Account to IBRD Designated Account (150) (150) Transfer to IBRD Designated Account from Letter of Credit USD Account - 150 150 Total net transfers between accotuts - - - 5 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF SUMMARY OF SOURCES AND USES OF FUNDS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) August 31, December 31, Cumulative as 2018 2017 at August 31, 2018 LESS: EXPENDITURE Expenditures paid through IBRD Designated Account 7549-AZ 1. Consultants' services - (9,346,931) 2. Goods - - (2.083,413) 3. Incremental Operating Costs - - (794,394) 4. Civil works - - (14.678,114) 5. Training - - (82,556) Subtotal expenditures paid through IBRD Designated Account 7549-AZ - - (26,985,408) Front-end fee 7549-AZ - - (73,750) Expenditures paid through Letter of Credit USD Account S1. Goods - - (941,181) Total expenditures paid through Letter of Credit USD Account - - (941,181) Expenditures paid through Letter of Credit USD Account 1. Goods - (1.302,752) Expenditures paid through Letter of Credit EUR Account 1. Goods - (3.149,623) Expenditures paid through Project Account 7549- 1. Goods - (1,091,966) Government of Azerbaijan 7549-AZ VAT expenses - - (5,773,238) Total Government of Azerbaijan expenditure - - (11,317,579) Subtotal IBRD Credit 7549-AZ expenditures - - (39,317,918) Expenditures paid through IBRD Designated Account 8274-AZ 1. Consultants' services (597,906) (1,886,408) (5,978,998) 2. Goods (5,487) (2.375) (75,162) 3. Incremental Operating Costs (18,405) (84,588) (314,511) 4. Civil works - (41,727,648) 5. Training (1,354) (4.317) (13,296) Subtotal expenditures paid through IBRD Designated Account 8274-AZ (623,152) (1,977,688) (48,109,615) Front-end fee 8274-AZ - - (117,750) 6 MTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF SUMMARY OF SOURCES AND USES OF FUNDS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) August 31, December 31, Cumulative 2018 2017 to date August 31, 2018 Government of Azerbaijan 8274-AZ VAT expenses (84,487) (314.619) (8,480,390) Total Government of Azerbaijan expenditure (84,487) (314,619) (8,480,390) Subtotal IBRD Loan 8274-AZ expenditures (707,639) (2,292,307) (56,707,755) TOTAL EXPENDITURE (707,639) (2,292,307) (96,025,673) DISCREPANCY IBRD Designated Account 7549-AZ - - 673 IBRD Designated Account 8274-AZ 271 667 1,015 Project Account - (975) TOTAL DISCREPANCY 271 667 713 FOREIGN EXCHANGE RATE DIFFERENCES IBRD Designated Account 7549-AZ - - (15,312) IBRD Designated Account 8274-AZ - (1,165) Letter of Credit EUR Account - - 60,020 Government of Azerbaijan 8274-AZ (269) (766) (1,832) Project Account - - (373,733) TOTAL FOREIGN EXCHANGE RATE DIFFERENCES (269) (766) (332,022) CLOSING BALANCE IBRD Designated Account 7549-AZ 319 319 IBRD Designated Account 8274-AZ 361,674 592.209 Project Account 17,837 19,754 TOTAL CLOSING BALANCE 379,830 612,282 Approved and signed on behalf of the Project Management Team: ,2 Ruslan RustemliU, Emil Ifisevuov Project Director Finance Specialist November 15, 2018 November 15, 2018 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an "s ial-Purpose Financial Statements. 7 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF USES OF FUNDS BY PROJECT COMPONENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Amounts expressed in the United States Dollars unless otherwise indicated) August 31, December 31, Cumulative IBRD Government 2018 2017 to date budget for of Azerbaijan August 31, total project budget for 2018 life*** total project (revised) life Project Components IBRD Credit Number 7549-AZ Component A: Institutional Reform, Capacity Building and Project Management Analytical work and action/implementation plan for sector restructuring and establishment of the "Tamiz Shahar" JSC - 1,847,707 Capacity Building for New "Tamiz Shahar" JSC - 2,140,676 Public Awareness and Outreach - 899,120 Consultants' services - 1,362.298 Goods - 229.775 Training - - 82.556 Incremental operating costs - - 794,394 VAT* - - 1,057.375 Total Component A - 8,413,901 7,876,653 1,124,888 Component B: Balakhani Landfill Rehabilitation and 7 tanagement Procurement of Landfill Equipment for Balakhani - 511,481 Site investigations, design of rehabilitation and (partial) closure works, site operations planning - 1,245,011 Mobile equipment (bulldozers, etc.) - 664,983 Fencing of Balakhani Landfill - 312,353 Environmental assessment - 299,980 Urgent procurement of landfill equipment for Balakhani Landfill - 1,618.356 Contract Supervision - 799,764 VAT*-- - 991.204 Total Component B - 6,443,132 5,625,500 1,012,590 Component C: Closure and Management of Other Dumps Closure of unauthorised dumpsites in Greater Baku area - 8,981,250 Rehabilitation of Garadag and Surakhani landfills - 5,384,511 VAT* - 2,585,837 Total Component C - 16,951,598 14,369,835 2,586,570 8 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF USES OF FUNDS BY PROJECT COMPONENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) August 31, December 31, Cumulative IBRD Government 2018 2017 to date budget for of Azerbaijan August 31, total project budget for 2018 life*** total project (revised) life Component D: Urgent Collection Equipment Bins and containers - 1.628,441 Trucks -- 3,915900 VAT* - - 1,003,415 Total Component D - 6,547,756 - 5,900,000 Component E: Tecinical Preparation of Post-Project Investments Environmental assessment for transfer stations - 302379 Site investigations and design for transfer stations and new landfill sites - 449,995 VAT* - 135.407 Total Component E - 887,781 1,554,262 279,767 Front End Fee - - 73,750 73,750 - Price Contingencies - - - - 1,096,185 Total JBRD Credit Number 7549-AZ - - 39,317,918 29,500,000 12,000,000 IBRD Loan Number 8274-AZ Component A: Institutional Reform, Capacity Building and Project Management Consultants' services 153,682 222,937 858,409 Goods 5,487 2,375 75,162 Training 1,354 4,317 13,296 Incremental operating costs 18,405 84.588 314,511 VAT* 4,527 15,194 57,939_ Total Component A 183,455 329,411 1,319,317 1,482,250 104,220 Component B: Balakhani Landfill Rehabilitation and Management Rehabilitation of Balakhani landfill - 41,727,648 Contract Supervision - 21,427 253,932 VAT* - 3,857 7,546,745 Total Component B - 25,284 **49,528,325 41,000,000 7,380,000 9 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF USES OF FUNDS BY PROJECT COMPONENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) - (Amounts expressed in the United States Dollars unless otherwise indicated) August 31, December 31, Cumulative IBRD Government 2018 2017 to date budget for of Azerbaijan August 31, total project budget for 2018 life** total project (revised) life Component E: Technical Preparation of Post-Project Investments Preparation of National Strategy - for Waste Management 444.224 1,145,194 4,022,088 Preparation of Legal Framework for Waste Management - 496,850 844.569 VAT"' 79,960 295.568 875,706 Total Component E 524,184 1,937,612 *5,742,363 4,500,000 810,000 Front End Fee - - 117,750 117,750 - Total IBRD Loan Number 8274-AZ 707,639 2,292,307 **56,707,755 47,100,000 8,294,220 Total Uses of Funds by Project Components 707,639 2,292,307 96,025,673 76,600,000 20,294,220 * V4Tis accrued and paid on total invoice value ofgoods imported, rather than allgoods acquired during the period. On November 2], 2014 IBRD responded by "no objection " to use unutilized loan funds under original loan IBRD Credit Nunber 7549-AZ for financing ofactivities under additional financing IBRD Loan Number 8274-AZ On April 19, 2016 IBRD responded by "'no objection " to the re vised procurement plan represented by PMT related to IBRD Credit Number 7549-AZ On March 8, 2017 IBRD responded bv "no ob/ection " to the revised procurement plan represented hy PMT related to IBRD Loan Nu;nber 8274-AZ Subseqtiendtly , IBRD responded bi "no objection" to the further amendments made to the contracts and PMTmade relevant revised a4j/ustments to the procurement plan. Approved and signed on behalf of the Project Management Team: Ruslan Rustem Emil HhseVnov Project Director n Finance Specialist November 15, 2018 November 15. 2018 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form a 1 fnzt s ial-Purpose Financial Statements. 10 - INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF DESIGNATED ACCOUNT AS AT AUGUST 31, 2018 (Amounts expressed in the United States Dollars unless otherwise indicated) IBRD Credit Nmnber 7549-AZ Account held at: "International Bank of Azerbaijan" OJSC Account no: 33318018401100442120USD Opening IBRD Designated Account 7549-AZ balance as at January 1, 2018 319 Add: Transfer from Letter of Credit USD Account to IBRD Designated Account - Total outstanding amount advanced to IBRD Designated Account 7549-AZ 319 Less: Closing Designated Account balance as at August 31, 2018 carried forward to the next period 319 Transfer to IBRD Designated Account 8274-AZ - Transfer to Project account Amount of eligible expenditures paid through designated account during the year - Total advanced amount for the period from January 1, 2018 to August 31, 2018 319 Discrepancy - Opening IBRD Designated Account 7549-AZ balance as at January 1, 2017 169 Add: Foreign exchange difference 150 Total outstanding amount advanced to IBRD Designated Account 7549-AZ 319 Less: Closing Designated Account balance as at December 31, 2017 carried forward to the next period 319 Transfer to IBRD Designated Account 8274-AZ - Transfer to Project account Amount of eligible expenditures paid through designated account during the year Total advanced amount during 2017 319 Discrepancy - 11 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF DESIGNATED ACCOUNT AS AT AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) IBRD Loan Number 8274-AZ Account held at: "International Bank of Azerbaijan" OJSC Account no: 38190028401100442120USD Opening IBRD Designated Account 8274-AZ balance as at January 1, 2018 592,209 Add: IBRD replenishments during the period from January 1, 2018 to August 31, 2018 392,346 Transfer from IBRD Designated Account 7549-AZ Total outstanding amount advanced to IBRD Designated Account 984,555 Less: Closing IBRD Designated Account 8274-AZ balance as at August 31, 2018 - carried forward to next period 361,674 Amount of eligible expenditures paid through designated account during the year 623,152 Total advanced amount for the period from January 1, 2018 to August 31, 2018 984,826 Discrepancy 271 Opening IBRD Designated Account 8274-AZ balance as at January 1, 2017 351861 Add: IBRD replenishments during the period from January 1 2017 to December 31, 2017 2,217,369 Transfer from IBRD Designated Account 7549-AZ Total outstanding amount advanced to IBRD Designated Account 8274-AZ 2,569,230 Less: Closing IBRD Designated Account 8274-AZ balance as at December 31, 2017 carried forward to next period 592,209 Amount of eligible expenditures paid through designated account during the year 1,977,688 Total advanced amount during 2017 2,569,897 Discrepancy 667 Approved and signed on behalf of the Project Management Team: Ruslan Rustemli Erit fluseil Project Director Finance Specialist November 15, 2018 November 15, 2018 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an mn\r tff.' cial-Purpose Financial Statements. 12 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF LETTER OF CREDIT ACCOUNT AS AT AUGUST 31, 2018 (Amounts expressed in the United States Dollars unless otherwise indicated) Accounts held at: "International Bank of Azerbaijan" OJSC Account no: 33511018401100442120USD 1. Opening Letter of Credit Account balance as at January 1, 2018 Add: Transfer from IBRD Designated Account Total outstanding amount advanced to Letter of Credit Account Less: Transfer from Letter of Credit USD Account to IBRD DesiEnated Account Closing Letter of Credit Account balance as at August 31, 2018 carried forward to next period Total advanced amount for the period from January 1, 2018 to August 31, 2018 Discrepancy 1. Opening Letter of Credit Account balance as at January 1, 2017 150 Add: Transfer from IBRD Designated Account Total outstanding amount advanced to Letter of Credit Account 150 Less: Transfer from Letter of Credit USD Account to IBRD Designated Account 150 Closing Letter of Credit Account balance as at December 31, 2017 carried forward to next period Total advanced amount during 2017 150 Discrepancy Approved and signed on behalf of the Project Management Team: Ruslan RustemTi as n Emil lluseynov Project Director Finance Specialist November 15, 2018 November 15, 2018 Baku, the Republic of Azerbaijan Baku, the Republic of Azerbaijan The notes on pages 17-23 form an aI9 o ial-Purpose Financial Statements. 13 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF EXPENDITURE AND SUMMARY SHEET WITHDRAWAL SCHEDULE FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Amounts expressed in the United States Dollars unless otherwise indicated) Advance Consultants' Civil Goods lucre- Training Total Total payment services works mental required Replenished/ operating Advance costs payment Total applications reimbursed and advance paid during the six months period ended December 31, 2009 500,000 - - - - - 500,000 500,000 ISWMP/2010/01 - 194,030 - 133,771 94,444 11,330 433575 417,775 ISWMP/2010/02 - 94.768 159.165 161,836 20,890 - 436,659 436,659 ISWMP/2010/03 500,000 - - - - - 500,000 500,000 ISWMP/2010/05 1,300,000 - - - - 1,300,000 1,300,000 Total applications reimbursed and advance paid during the year ended December 31, 2010 1,800,000 288,798 159,165 295,607 115,334 11,330 2,670,234 2,654,434 ISWMP/2011/011 - 616,163 121,837 5,008 29,319 - 772,327 772,327 ISWMP/2011/02 - 402,473 31,351 - 74,100 2,490 510,414 510,414 ISWMP/2011/04 - 707.208 - - 13,594 9,609 730,411 730,411 Total applications reimbursed during the year ended December 31, 2011 - 1,725,844 153,188 5,008 117,013 12,099 2,013,152 2,013,152 ISWMP/2012/01 - 813,858 - 161,836 16,486 552 992,732 992,731 - ISWMP/2012/02 - 803,384 - 13,803 5,533 822,720 822,703 ISWMP/2012/03 - 637,328 - - 61,034 966 699,328 699,329 - ISWMP/2012/04 2,000,000 - - - - - 2.000,000 2.000,000 ISWMP/2012/05 1,000,000 - - - - - 1,000,000 1,000,000 - ISWMP/2012/06 - 704,471 1,795,95 - 15,083 31,656 2,547,168 2,547,168 ISWMP/2012/07 - 281,659 1,812.83 549,205 33,164 - 2,676,866 2,676,867 Total applications reimbursed and advance paid during the year ended December 31, 2012 3,000,000 3,240,700 3,608,796 711,041 139,570 38,707 10,738,814 10,738,798 14 INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF EXPENDITURE AND SUMMARY SHEET WITHDRAWAL SCHEDULE FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Advance Consultants' Civil Goods lucre- Training Total Total payment services works mental required Replenished/ operating Advance costs payment ISWMP/2012!08 - 127,754 3,021,482 53,261 36,891 - 3,239,388 3,239,388 ISWMP/2013/01 - 731.121 1,337,347 664,983 96,700 3,762 2.835,913 1,900,913 ISWMP/2013/02 - 871,023 1,013.626 - 20,141 - 1,904,790 2,839,790 Total applications reimbursed during the year ended December 31, 2013 - 1,731,898 5,372,455 718,244 153,732 3,762 7.980,091 7,980,091 ISWMPIAF/2014/01 500.000 - - - - - 500,000 500,000 ISWMP/2014/01 - 889,777 2,083.,178 - 115,342 1.447 3,089,744 3,089,745 ISWMP/2014/02 - 664,767 2,183,080 - 100.561 - 21948,408 2,450,031 Total applications reimbursed and advance paid during the year ended December 31, 2014 500,000 1,554,544 4,266,258 - 215,903 1,447 6,538,152 6,039,776 ISWMP/AF/2015/01 - 118.337 - 67.300 78.974 3,848 268,459 268,459 ISWMP/AF/2015/02 500.000 - - - - - 500,000 500,000 ISVMP/AF/2015/06 - 577,469 - - 24,690 795 602,954 602,954 - ISWMP/AF/2015/10 - 599,162 - - 27.272 - 626,434 626,434 ISWMP/AF/2015/11 - 521,365 - - 790 - 522,155 790 - ISWMP/AF/2015/13 - 684,396 - - 7,428 - 691,824 691,824 - Total applications reimbursed and advance paid during the year ended December 31, 2015 500,000 2,500,729 - 67,300 139,154 4,643 3,211,826 2,690,461 15 - INTEGRATED SOLID WASTE MANAGEMENT PROJECT STATEMENT OF EXPENDITURE AND SUMMARY SHEET WITHDRAWAL SCHEDULE FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Advance Consultants' Civil Goods lucre- Training Total Total payment services works mental required Replenishel operating Advance costs payment ISWMP/AF/2016/05 29 5,45 - - - 295.450 205,45 ISWMP/AF/2016/05 18868 - 13,248 2,754 204.170 294,17 Total applications reimbursed and advance paid during the year ended December 31, 2016 - 483,618 - - 13,248 2,754 499,620 499,62 ISWMP/2017/01 - 627,400 - - 20,349 647,749 647,74 ISWMP/AF/2017/02 - 352-156 - - 38.249 3.794 394,199 394,19 ISWMP/AF/2017/03 - 569,070 - - 8,303 750 578.123 578,12 ISWMP/AF/2017/04 - 582,434 - 2 375 12,489 - 597,298 597,29 Total applications reimbursed and advance paid during the year ended December 31, 2017 - 2,131,060 - 2,375 79,390 4,544 2,217,369 2,217,36 Total applications reimbursed and advance payment as at December 31, 2017 6,300,000 13,657,191 13,559,862 1,799,575 973,344 79,286 36,369,258 35,333,70 ISWMP/AF/2018/01 - 382,758 - - 25,828 - 408,586 392,34 Total applications reimbursed and advance paid for the period from January 1, 2018 to August 31, 2018 - 382,758 - 25,828 - 408,586 392,34 Total applications reimbursed and advance payment as at August 31, 2018 6,300,000 14,039,949 13,559,862 1,799,575 999,172 79,286 36,777,844 35,726,04 Approved and signed on behalf of the Project Management Team: Ruslan Rustemli Emii tlurseynov Project Director Finance Specialist November 15, 2018 November 15, 2018 Baku, the Republic of Azerbaija Baku, the Republic of Azerbaijan The notes on pages 17-23 form a 0z i cIal-Purpose Financial Statements. 16 INTEGRATED SOLID WASTE MANAGEMENT PROJECT NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Amounts expressed in the United States Dollars unless otherwise indicated) L DESCRIPTION OF THE PROJECT Integrated Solid Waste Management Project (the "Project") was formed between the Government of the Republic of Azerbaijan (the "Recipient") and the International Bank for Reconstruction and Development ("IBRD") under a financing agreement Credit Number 7549-AZ dated May 20, 2009 in the amount of USD 29,500,000. In addition to the financing agreement, additional financing (USD 12,000,000) is provided by the Government of the Republic of Azerbaijan. On January 10 2014, the IBRD and the Government of Republic of Azerbaijan have signed loan agreement 8274-AZ regarding the additional financing for the Project in the amount of USD 47,100,000. The Project's original completion date of September 30, 2013 has been extended to August 31, 2018. The Project has four months grace period for disbursement beyond the completion date. The overall project objective is to support the reform of the "Greater Baku" solid waste collection and disposal operations into an effective and sustainable system in the fields of (i) data collection and strategic planning, (ii) build-up of operational, management and communication capabilities of the responsible agency, (iii) the rollout of collection services, (iv) the improvement of environmental conditions at the existing waste disposal sites, (v) improving solid waste disposal management, (vi) increasing waste collection coverage, and (vii) enhancing waste data information and financial management capacity in the Greater Baku area. The Project consists of the following components: CoMonent A: Institutional Reform, Capacity Building and Project Management The component supports (1) finalization of a strategic plan for the sector, which includes: (a) analytical work to assess the existing systems, institutional reform, sector financing, funding and cash flow management; (b) development of legal framework and institutional structure; (c) development of roll- out plans for waste collection services and involvement of private sector; (d) tariff and tariff collection reforms; (e) development of accounting and data systems; and (f) strategy for dealing with 3 municipal and nonhazardous waste, planning for rehabilitation of disposal sites and closure of informal dumps. The component also finances (2) provision of capacity building and management support programs for practical management and operational skills in solid waste collection and disposal; (3) provision of goods and consultants' services for public awareness campaigns and conununication program; and (4) strengthening of the management capacity of the PMT to monitor and administer implementation of the Project. Component B: Balakhani Landfill Rehabilitation and Manaaement The component finances improvement of the capacity of an existing landfill for continuation of disposal activities in an operationally and environmentally sound manner through the rehabilitation of the Balakhani landfill site, including: (1) full remediation and closure of the old waste disposal parts of the site; (2) installation of water and leachate controls; (3) opening of new waste cells at the existing site; and (4) introduction of a methane gas capture system. Component C: Closure and Management of Informal Dumps This component finances closure and cleanup of informal dumps through removal and the transportation of waste from wild dumps, as well as the improvement of management of formal sites, in order to minimize the negative environmental effects associated with informal or non-sanitary waste disposal. 17 INTEGRATED SOLID WASTE MANAGEMENT PROJECT NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) e renttCollection Equipment This component supports provision of goods in order to increase the service quality and availability of solid waste collection coverage and service efficiency. Component E: Technical Preparation of Post-Project Investments The component finances (1) preparation of feasibility studies and environmental impact assessments needed to develop new landfill capacity and introduce transfer stations to maintain an effective enhanced waste collection and disposal system including for waste management systems and regional landfills outside the Greater Baku area; (2) preparation of a national waste management strategy and implementation roll-out plan; (3) preparation of a national legal framework to improve solid waste management. 2. BASIS OF ACCOUNTING Statement of compliance The Special-Purpose Financial Statements have been prepared on the cash basis of accounting in conformity with International Public Sector Accounting Standards ("IPSAS") "Financial Reporting under the Cash Basis of Accounting" issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants and incorporate the principal accounting policies from the "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities". Other basis of preparation criteria The Special-Purpose Financial Statements are prepared under the historical cost basis of accounting. Source fhnding and government contributions are recognized when the related cash is received or paid out on the Project's behalf Expenditures are accounted for on the basis of actual disbursement of funds from the Project's accounts. Foreign currency transactions and translation The Project uses the United States Dollar ("USD") as its functional cuiency for the following reasons: a) The IBRD's funding is received in USD, b) Budgets and financial reports for the Project are prepared in USD. Balance sheet monetary items denominated in currencies other than USD have been translated into USD using the exchange rate of the Central Bank of the Republic of Azerbaijan ("CBAR") effective as at appropriate date. All income and expense transactions denominated in currencies other than USD are converted into USD using the exchange rate of the CBAR prevailing on the date of transaction. 18 INTEGRATED SOLID WASTE MANAGEMENT PROJECT NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) 3. CASH AT BANK As at August 31, 2018 and December 31, 2017 the Project had cash at bank balances with "International Bank of Azerbaijan" CJSC ("IBA") as follows: August 31, December 31, 2018 2017 IBRD Designated Account in USD 7549-AZ 319 319 IBRD Designated Account in USD 8274-AZ 361,674 592,209 Project Account in AZN 17.837 19,754 Total cash at bank 379,830 612,282 4. CUMULATIVE USES OF FUNDS Cumulative uses of funds comprise the following: August 31, December 31, 2018 2017 IBRD share 76,227,704 75.604,552 Government of Azerbaijan share 19,797-969 19,713,482 Total cumulative uses of funds 96,025,673 95,318,034 5. DESIGNATED ACCOUNT The Recipient has established a Designated Account at a commercial bank acceptable to the IBRD in accordance with the Loan Agreement. Designated Account is established, managed, replenished and liquidated in accordance with the IBRD's "Project's Operations Manual" and detailed arrangements agreed upon between the Recipient and the IBRD. The Designated Account of the Project is maintained in USD with IBA. 6. LETTER OF CREDIT ACCOUNT The Recipient has established a Letter of Credit Account at a commercial bank acceptable to the IBRD in accordance with the Loan Agreement. Letter of Credit Account is established, managed, replenished and liquidated in accordance with the IBRD's "Project's Operations Manual" and detailed arrangenents agreed upon between the Recipient and the IBRD. The Letter of Credit Account of the Project is maintained in USD and EUR with IBA. Contract securities may be provided in the form of a bank guarantee, irrevocable letter of credit, or a surety issued by a financial institution. Retention money on the other hand is a portion of payments due under the contract, which is retained to ensure perfonnanceby the supplier/contractor. When used as a guarantee, it should not exceed 5% of the contract value. Instead of the Borrower retaining part of the due payments, the supplier/contractor may also provide a money retention security in form of a bank guarantee or irrevocable letter of credit. 19 INTEGRATED SOLID WASTE MANAGEMENT PROJECT NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) 7. METHOD OF DISBURSEMENT The methods of disbursements were as follows: Advance - the IBRD may advance proceeds in accordance with the Loan Agreement into a Designated Account of the Recipient to finance eligible expenditure as they are incurred and for which supporting documents will be provided at a later date. Direct funding - the IBRD may make payments, at the Recipient's request, directly to a third party for eligible expenditure. Reimbursement procedure - the IBRD may reimburse the Recipient for expenditure eligible for financing pursuant to the Loan Agreement that the Recipient has pre-financed from its own resources. Commitment procedure - the IBRD may pay amounts to a third party for eligible expenditure under special comnitments entered into, in writing, at the Recipient's request and on terms and conditions agreed between the IBRD and the Recipient. 8. METHOD OF WITHDRAWAL This procedure involves two distinct disbursement procedures used for withdrawing funds under the Loan Agreement: Withdrawal Procedure The World Bank form of Application for Withdrawal shall be used for the followings: * Advance to the Designated Account; * Replenishment of the Designated Account; * Reimbursements of eligible payments already made by the Borrower from its own resources (if any) - pooling and disbursements made on a basis of Statements of Expenditure (SOE); * Direct Payments to a third party. The financial specialist should prepare the Application for Withdrawal, SOE and SSWS forms, Designated Account reconciliation as required. Any supporting documentation should be attached. These documents should be reviewed by the Project Director. The documents (original) should be passed on to the Ministry of Economy of the Republic of Azerbaijan (the "MOE") and then to the Ministry of Finance of the Republic of Azerbaijan (the "MOF") to be reviewed and signed by their authorized representatives if required. The documents then should be returned (within 7 working days) to the Project Management Team for sending by courier to the IBRD. The financial specialist should keep an Invoices Voucher List ("IVL") to record the invoices approval voucher numbers of transactions included in the application for withdrawal. The IVL should be prepared by the financial specialist, reviewed and approved by the Project Director and filed, If the space available on the application for withdrawal is insufficient to provide all the necessary data, summary sheets should be used. Applications for withdrawal must be submitted in duplicate and should be sequentially numbered. Any major alterations or changes made on the form should be initialled by the authorized representatives to verify that the changes are valid. 20 INTEGRATED SOLID WASTE MANAGEMENT PROJECT NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Special Commitment Procedure To finance the purchase of goods under a project from foreign suppliers, the Borrower fi-equently needs to open a letter of credit. If commercial bank is unwilling to open or confirm the letter of credit without some guarantee or security, the World Bank at the request of the Borrower, can provide the commercial bank with the guarantee it requires in the form of a special connitment. This procedure normally covers major contracts for imported goods. The forms will be prepared by the financial specialist, reviewed by the Project Director and given to the MOE and the MOF for their review and signature of authorized representatives and returned to the Project Management Team The financial specialist should check that the documents have been signed by the authorized signatories (specimen signatures of which have been previously advised to the IBRD) before sending the documents by courier to the IBRD. 9. OPERATING ENVIRONMENT The Project's operations are conducted in the Republic of Azerbaijan. As an emerging market, at the present time the Republic of Azerbaijan is developing business and regulatory infrastructure that would generally exist in a more mature market economy. According to Moody's, real GDP growth accelerated further after growing 0.1% in 2017 over the first five months of 2018 by 1.6% compared with the year-earlier period, and expects the economy to grow by 2% in 2018 and 3% in 2019. Growth will be aided by higher oil prices and increased gas exports. Moody's Investors Service says that the credit profile of Azerbaijan (Ba2 stable) reflects its relatively high levels of gross govermnent debt and guarantees, and fragile banking sector. These features reflect the legacy impact of the fall in oil prices and steep depreciation in the manat over 2014-2016. Conversely, the country's large financial assets provide significant support to the credit profile. Moody's conclusions are contained in its annual credit analysis, "Govermnent of Azerbaijan - Ba2 stable". This credit analysis elaborates on Azerbaijan's credit profile in terms of economic strength, low (+); institutional strength, low (-); fiscal strength, high; and susceptibility to event risk, moderate. These are the four main analytic factors in Moody's Sovereign Bond Rating methodology. Manat has remained stable during 2018. However, uncertainty over the exchange rate in the future and the ongoing fragility of the banking system hinder policy transmission into the real economy. The Azerbaijani economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. While the Government has introduced a range of stabilization measures and plans to expedite reforms and support to banking system in response to current economic challenges. The Management believes it is taking appropriate measures to support the sustainability of the Project's business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Project's results and financial position in manner not currently determinable. The future economic growth of the Republic of Azerbaijan is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory and political developments. The Management is unable to predict, all developments in the economic environment which would have an impact on the Project's operations and consequently what effect, if any, they could have on the financial position of the Project. 21 INTEGRATED SOLID WASTE MANAGEMENT PROJECT NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) Azerbaijan is also trying to benefit from regional connectivity initiatives to boost transit and trade. In particular, the country is one of the sponsors of the East-West and North-South transport corridors. Construction of the Baku-Tbilisi-Kars railway line, connecting the Caspian region with Turkey, was completed in 2017. The Trans-Anatolian Natural Gas Pipeline (TANAP) and Trans-Adriatic Pipeline (TAP) will deliver natural gas from Azerbaijan's Shah Deniz gas field to Turkey and Europe. The economy is expected to expand from 2018 onward, supported by an acceleration of oil GDP as the Shah Deniz gas field-one of the largest gas fields in the world-begins production. Non-oil output will continue to grow at a slow pace due to limited credit growth and the weak business environment. 10. EVENTS AFTER THE REPORTING PERIOD After the reporting period, on September 12, 2018 Government has transferred the amount of USD 56,388 to settle its share commitments. The following expenditures have been paid through IBRD Loan Number 8274-AZ Designated Account and Project Account after August 31, 2018. For the period Cumulative as at from September 1, October 16, 2018 2018 EXPENDITURE Expenditures paid through BRD Designated Account 7549-AZ 1. Consultants' services 11.920 9,358,851 2. Goods - 2,083,413 3. Incremental Operating Costs 1,203 795,597 4. Civil works - 14,678,114 5. Training - 82,556 Subtotal expenditures paid through IBRD Designated Account 7549-AZ 13,123 26,998,531 Front-end fee 7549-AZ - 73,750 Expenditures paid through Letter of Credit USD Account 1. Goods - 941,181 Total expenditures paid through Letter of Credit USD Account - 941,181 Expenditures paid through Letter of Credit USD Account 1. Goods - 1.302,752 Expenditures paid through Letter of Credit EUR Account 1. Goods - 3.149,623 Expenditures paid through Project Account 7549- AZ 1. Goods - 1,091,966 Government of Azerbaijan 7549-AZ VAT expenses 136 5,773,374 Total Government of Azerbaijan expenditure 136 11,317,715 Subtotal IBRD Credit 7549-AZ expenditures 13,259 39,331,177 22 INTEGRATED SOLID WASTE MANAGEMENT PROJECT NOTES TO THE SPECIAL-PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2018 TO AUGUST 31, 2018 (Continued) (Amounts expressed in the United States Dollars unless otherwise indicated) For the period from Cumulative as at September 1, 2018 October 16, 2018 to October 16, 2018 Expenditures paid through IBRD Designated Account 8274-AZ 1. Consultants' services 3 19.613 6,298,611 2. Goods - 75,162 3. Incremental Operating Costs 6,453 320,964 4. Civil works - 41,727,648 5. Training - 13.296 Subtotal expenditures paid through IBRD Designated Account 8274-AZ 326,066 48,435,681 Front-end fee 8274-AZ - 117,750 Government of Azerbaijan 8274-AZ VAT expenses 56,684 8.537,074 Total Government of Azerbaijan expenditure 56,684 8,537,074 Subtotal IBRD Loan 8274-AZ expenditures 382,750 57,090,505 TOTAL EXPENDITURE 396,009 96,421,682 Commitment represents amounts due to subcontractor by IBRD and Government to be paid through their share of funding. As at October 16, 2018 total commitment amounted to USD 10,444. Commitment per expenditure categories were as follows: October 16, 2018 Category Consultants' services 8,851 VAT expenses 1,593 Total commitment 10,444 23