“Central Asia roads links project – CARs-2” Grant No. D030-TJ, Credit No. 5593-TJ The project financial statements for the year ended December 31, 2018 and independent auditors’ report “CENTRAL ASIA ROADS LINKS PROJECT – CARS-2” GRANT NO. D030-TJ, CREDIT NO. 5593-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 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 “Central Asia roads links project – CARs-2” under the Ministry of Transport of the Republic of Tajikistan 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 “Central Asia roads links project – CARs- 2” (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 the 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 agreements 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 “CENTRAL ASIA ROADS LINKS PROJECT – CARS-2” GRANT NO. D030-TJ, CREDIT NO. 5593-TJ NOTES TO THE PROJECT FINANCIAL STATEMETS FOR THE YEAR ENDED DECEMBER 31, 2018 (in US dollars) 1. GENERAL INFORMATION According to the Financing Agreements between the Republic of Tajikistan and International Development Association (the “IDA”, “the World Bank”) dated April 16, 2015, the IDA provided a Grant No. D030-TJ and a Credit No. 5593-TJ in the amount of 4,700,000 Special Drawing Rights and 26,500,000 Special Drawing Rights, respectively to the Republic of Tajikistan. The Grant and Credit were provided for implementation of the Project “Central Asia roads links project - CARs-2” (the “Project”). According to the Financing agreements expenses under Category I (Works for Part I) are shared between Grant/Credit and the Government of the Republic of Tajikistan using the following proportion: 83% - contribution of the IDA (Grant/Credit funds) and 17% - contribution of the Government of the Republic of Tajikistan. Project purpose The objective of the Project is to increase transport connectivity between the Republic of Tajikistan and neighboring countries along priority cross-border road links in Sugd Oblast, and to support improvements in road operations and asset management practices. The Project is implemented during 2015-2020, and comprises 3 parts: Part 1: Rehabilitation of priority road sections in Sugd oblast; Part 2: Improvement of road operations and asset management practices; Part 3: Project management and implementation. Part 1: Rehabilitation of priority road sections in Sugd oblast Rehabilitating approximately 70 kilometers of road sections in Sugd Oblast, including and within close proximity of the road linking Kuckkak-Kim-Isfara-Guliston Dehmoi-Proletarsk-Madaniyat, and Kanibadam-Patar through the provision of works and consultants’ services. Part 2: Improvement of road operations and asset management practices Provision of goods and consultants’ services for improving road operations and asset maintenance practices, including: (i) a review of technical standards, norms and parameters on vehicle weight and axle road limits and tariffication, development of an axle loading control plan and financing of equipment necessary to implement the axle loading control plan; (ii) procurement of roughness profiler; and (iii) support towards final deployment of a road asset management system, and preparation of a Transport Sector Development Strategy within the Ministry of Transport of the Recipient. Part : Project management and implementation Providing support for project coordination, implementation and management through the provision of goods, consultants’ services, training, and incremental operating costs, including for Project’s external audit. Project management Project is implemented by Project Implementation Group (the “PIG”) at the Ministry of Transport of the Republic of Tajikistan. Duration of the Project is from April 16, 2015 to August 31, 2020. 7 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: An nual Financial Reporting and Auditing for World Bank Financed Activities” (the “WB Guidelines”). Under the cash basis approach 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 readers with information about the sources of cash raised during the period, the purposes for which cash was used and the 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 currency exchange rate settled by commercial bank on a date of operation. 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 commercial bank at the date of the last conversion . Monetary assets and liabilities expressed in foreign currency are converted to functional currency at official exchange rate on a date settled by the commercial bank. 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. 8 Taxes Calculation and payment of personal income tax and social security contributions from income of 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, replenishment of designated account or through direct payment to the end supplier of goods and/or services. 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at December 31, 2018 and 2017 comprise: Source of financing Currency December 31, December 31, 2018 2017 Designated account Grant No. D030-TJ USD 866,179 1,584,272 Transit account Grant No. D030-TJ TJS - - Contribution of the Government of Transit account the Republic of Tajikistan TJS 1 - Cash on hand Grant No. D030-TJ TJS 40 38 866,220 1,584,310 5. FUNDS RECEIVED The funds received are presented by the following financing methods and sources of financing: For the year For the year Cumulative ended ended (restated) December 31, December 31, 2018 2017 Grant No. D030-TJ Reimbursement of expenses - 2,969,277 3,446,644 Advances - - 2,000,000 Direct payments - 502,585 1,034,560 - 3,471,862 6,481,204 Credit No. 5593-TJ Direct payments 10,499,407 8,204,689 23,274,238 The Government of the Republic of Tajikistan Contribution 1,913,589 2,019,538 5,243,880 12,412,996 13,696,089 34,999,322 9 6. 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 project expenses by categories, natures and sources of financing is presented as follows: Works for Part I For the year ended December 31, 2018 Total Grant Credit Contribution of No. D030-TJ No. 5593-TJ the Government of the Republic of Tajikistan Construction works - 10,499,407 1,761,025 12,260,432 Resettlement action plan - - 130,572 130,572 - 10,499,407 1,891,597 12,391,004 For the year ended December 31, 2017 Total Grant Credit Contribution of No. D030-TJ No. 5593-TJ the Government of the Republic of Tajikistan Construction works 1,487,391 8,204,689 2,257,832 11,949,912 Resettlement action plan - - 3,866 3,866 1,487,391 8,204,689 2,261,698 11,953,778 Cumulative Total Grant Credit Contribution of No. D030-TJ No. 5593-TJ the Government of the Republic of Tajikistan Construction works 2,280,649 23,274,238 4,875,062 30,429,949 Resettlement action plan - - 324,084 324,084 2,280,649 23,274,238 5,199,146 30,754,033 Goods, non-consulting services, consultants’ services, training and incremental operating costs (including audit) For the year ended December 31, 2018 Total Grant Credit Contribution of No. D030-TJ No. 5593-TJ the Government of the Republic of Tajikistan Consulting services for construction supervision 401,469 - - 401,469 Consulting services 207,914 - - 207,914 Payroll and related taxes 87,211 - - 87,211 Bank services 1,115 - 21,992 23,107 Trainings 6,739 - - 6,739 Fuel expenses 5,291 - - 5,291 Stationery 3,582 - - 3,582 Communication 2,671 - - 2,671 Business trips 1,890 - - 1,890 Other 200 - - 200 718,082 - 21,992 740,074 10 For the year ended December 31, 2017 Total Grant No. Credit No. Contribution of D030-TJ 5593-TJ the Government of the Republic of Tajikistan Consulting services for construction supervision 670,910 - - 670,910 Consulting services 114,021 - - 114,021 Payroll and related taxes 89,501 - - 89,501 Bank services 1,335 - 16,101 17,436 Trainings 4,534 - - 4,534 Stationery 4,098 - - 4,098 Fuel expenses 3,769 - - 3,769 Communication 3,390 - - 3,390 Business trips 2,178 - - 2,178 Software 980 - - 980 Other 2,753 - - 2,753 897,469 - 16,101 913,570 Cumulative Total Grant No. Credit No. Contribution of D030-TJ 5593-TJ the Government of the Republic of Tajikistan Consulting services for construction supervision 1,524,934 - - 1,524,934 Traffic counters 664,615 - - 664,615 Consulting services 508,619 - - 508,619 Payroll and related taxes 268,172 - - 268,172 Roughness profiler 165,565 - - 165,565 Vehicles 119,756 - - 119,756 Bank services 3,365 - 38,093 41,458 Trainings 16,490 - - 16,490 Office equipment 14,170 - - 14,170 Stationery 11,582 - - 11,582 Fuel expenses 10,215 - - 10,215 Communication 9,492 - - 9,492 Business trips 4,673 - - 4,673 Software 2,932 - - 2,932 Office renovation 2,097 - - 2,097 Other 2,953 - - 2,953 3,329,630 - 38,039 3,367,723 11 7. FINANCIAL POSITION Financial position as at December 31, 2018 and 2017 comprise: December 31, December 31, 2018 2017 ASSETS AND EXPENDITURES Cash and cash equivalents 866,220 1,584,310 Cumulative expenses 34,121,756 20,990,678 Foreign exchange loss 11,487 11,479 TOTAL ASSETS AND EXPENDITURES 34,999,463 22,586,467 FINANCING Funds received 34,999,322 22,586,326 Other income 141 141 TOTAL FINANCING 34,999,463 22,586,467 8. WITHDRAWAL APPLICATIONS Withdrawal applications for the year ended December 31, 2018 comprise: Sources of Applica- Value Date Direct Works for Goods, non- Total financing tions payments Part I consulting services, consultants' services, training and incremental operating costs (including audit) Credit No. 5593-TJ 25 March 2, 2018 526,816 - - 526,816 28 April 2, 2018 493,439 - - 493,439 27 April 4, 2018 2,096,631 - - 2,096,631 29 May 14, 2018 1,239,198 - - 1,239,198 30 May 16, 2018 229,509 - - 229,509 31 May 30, 2018 845,141 - - 845,141 32 June 1, 2018 155,775 - - 155,775 33 July 12, 2018 1,488,975 - - 1,488,975 34 July 12, 2018 269,346 - - 269,346 35 August 24, 2018 1,327,836 - - 1,327,836 36 August 28, 2018 233,809 - - 233,809 37 October 18, 2018 1,354,440 - - 1,354,440 38 October 22, 2018 238,493 - - 238,493 10,499,407 - - 10,499,407 Contribution of the Government of the Republic of Tajikistan 1,913,589 - - 1,913,589 1,913,589 - - 1,913,589 12,412,996 - - 12,412,996 12 9. STATEMENT OF DESIGNATED ACCOUNT Statement of designated account for the year ended December 31, 2018 comprises: Bank National Bank of Tajikistan Currency US Dollars Bank account 22696840700088 Bank’s location 107A Rudaki ave, Dushanbe, Republic of Tajikistan Balance as at January 1, 2018 1,584,272 Total funds received to the designated account - Transfers to transit account 203,850 Expendetures 507,525 Cash withdrawals 6,718 Balance as at December 31, 2018 866,179 10. UNDRAWN FUNDS As at December 31, 2018 undrawn funds are presented as follows: Grant Credit No. D030-TJ No. 5593-TJ in SDR in SDR Approved financing amount 4,700,000 26,500,000 Disbursed during the period from April 16, 2015 to December 31, 2018 4,697,917 16,479,545 Undrawn financing amount 2,083 10,020,455 Financing received as at January 1, 2018 4,697,917 9,088,362 Disbursed in 2018 - 7,391,183 Financing received as at December 31, 2018 4,697,917 16,479,545 11. 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. Contract Contract Paid up to Paid up to Remaining Remaining Currency value December 31, December 31, amount to be amount to be 2018 2018 paid paid (in TJS) (in USD) (in TJS) (in USD) Branch of China Railway WUJU (Group) Corporation Co. Ltd* CARs-2/ICB-CW TJS 250,890,272 46,973,012 27,773,995 3,205,042 2,541,866 Dohwa Engineering Co. Ltd CARs-СS-QCBS-01 USD 1,660,370 - 1,542,016 - 118,354 Jan Piterka CARs-СS-IC-12 USD 221,650 - 124,913 - 96,737 *According to the contract No. CARs-2/ICB-CW dated March 28, 2016 with Branch of China Railway WUJU (Group) Corporation Co. Ltd, the Project should pay the contractor 80% of the total contract amount in US dollars applying fixed exchange rate of 6.6207. 13 12. LEGAL CASES There were no any legal cases related to the Project. 13. 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: Sources of financing Applications Value Date Direct Total payments Credit No. 5593-TJ 40 January 10, 2019 1,254,483 1,254,483 41 January 14, 2019 220,883 220,883 42 March 27, 2019 1,067,142 1,067,142 43 March 29, 2019 188,095 188,095 2,730,603 2,730,603 Contribution of the Government of the Republic of Tajikistan 231,234 231,234 2,961,837 2,961,837 As at the date of issue of project financial statements no other significant events or transactions occurred, except for the events or transactions described above. 14