Nepal Electricity Authority Statutory Audit for Fiscal Year 2075/76 (2018/19) Power Sector Reform and Sustainable Hydropower Development Project (PSRSHDP) IDA Credit Number: 5728-NP Financed By: World Bank (WB) Final Audit Report, Project Financial Statements and Management Letter Submitted By: Office of the Auditor General Nepal Indep e Atditors' Report The Secretary Ministry of Finance Government of Nepal Singh Durbar, Kathmandu Nepal ORL LA 1. Report on the Financial Statements We have audited the accompanying financial statements of Power Sector Reform and Sustainable Hydropower Development Project (hereinafter referred as project) funded by World Bank (WB), International Development Association (IDA) Credit Number 5728-NP and implemented by Nepal Electricity Authority (NEA) which comprise the project financial statements showing sources and applications of project fund for the year ended 31 Ashadh 2076 (16 July 2019), including Statement of Designated Account as at 31 Ashadh 2076 (16 July 2019) and a summary of significant accounting policies and notes to account. These project financial statements have been prepared by Nepal Electricity Authority's (NEA) management to meet the financial reporting requirement of the financing agreement Schedule 2 Section 11 (B3) with the WB signed between Government of Nepal (GoN) and the WB dated 4 February 2016 for the project. 2. Management's Responsibilities for the Project Financial Statements NEA management is responsible for the preparation of the project financial statements in accordance with the financial reporting requirement of the financing agreement with the WB and for such internal control as NEA management determines is necessary to enable the preparation of the project financial statements that are free from material misstatement, whether due to fraud or error. 3. Auditors' Responsibilities Our responsibility is to express an opinion on the project financial statements based on our audit. We conducted our audit in accordance with Nepal Standards on Auditing (NSAs). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the project financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the project financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the project financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to NEA's preparation of the project financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by NEA's management, as well as evaluating the overall presentation of the project financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. 4. Basis for Qualified Opinion 4.1 GoN share amount does not correspond to amount actually received and used by the project. The GoN share amount is not accounted for on the basis of actual amount received and used by the project. Out of NPR. 61.9 million booked as GoN Share during the reporting period, the project has not actually received and used budget for project activities. This has resulted in negative balance (that means receivable from NEA central office) under NEA Sources of NPR. 90.90 million. 4.2 Foreign Exchange gain/(loss) resulting from the transactions not accounted. The project has not accounted for the exchange gain/(loss) resulting from the exchange rates fluctuation in books of account of the project, though it has been separately shown in project financial statements. A total of foreign exchange gain of NPR. 12.01 million, (out of which foreign exchange gain NPR. 4.95 million that pertains to this fiscal year) has not been booked in Computerized Accounting Information System (CAIS) of the project and hence the project financial statements do not correspond to the books of accounts maintained by the project. 4.3 Interest booked on loan not eligible to capitalize has been capitalized as Interest During Construction (IDC). The project has booked interest on IDA Credit outstanding from the WB for the whole period as IDC period i.e. under Capital Work in Progress (CWIP), for the expenditure incurred which has not met the qualification of qualifying assets (i.e. loan has been utilized for feasibility study of Upper Arun Hydropower Project). Interest of NPR. 1.66 million booked has been booked under Consultancy under CWIP and overstated by same amount. 4.4 Considerable delays in project progress. In comparison to the time elapsed till FY 2075/76 (2018/19) from the start of the project, the physical and financial progress of the project as per their progress report is significantly low (i.e. approximately 39.89% physical progress, 13.79% financial progress and time elapsed 67%). The progress report do not provide linkages with and justifications for variation between physical and financial progress. This may result in cost-overrun of the project. 4.5 Approval from the Department of Labor not obtained. Project has employed foreign citizens to conduct feasibility study. As required by Section 22 of Labor Act, 2074 Labor permit from Department of Labor has not obtained this has resulted non- compliance with Labor Act, 2074. 5. Qualified Opinion In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the accompanying project financial statements including Statement of Designated Account give a true and fair view of the project as of 31 Ashadh 2076 (16 July 2019) in accordance with the financial reporting requirement of the financing agreement Schedule 2 Section II (B3) with WB signed between GoN and WB dated 4 February 2016 for the project. We also report that the funds provided under IDA Credit Number 5728-NP have been utilized for intended purposes. The project has been performing the activities as per the requirement of financial covenants and is incurring the expenditure that are eligible for financing. 6. Management Letter Management letter detailing conditions for qualification and highlighting areas of financial statements, including accounting and internal controls, compliances with the laws, NEA's own policies and financial covenant of the financing agreement are provided separately. 7. Basis of Accounting and Restriction on Distribution and Use Without further modifying our opinion, we draw attention to Note 3 of Schedule 15 "Significant Accounting Policies and Notes relating to project financial statements", which describe the basis of presentation of financial statements. The project financial statements are prepared to assist NEA in complying with the financial reporting requirement of the agreements with the WB referred to above. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for Ministry of Finance; GoN, NEA and the WB and should not be distributed to or used by the parties other than Ministry of Finance; GoN, NEA and the WB. Baburam Gautam Deputy Auditor General Office of the Auditor General Nepal (OAGN) Date: 03 February 2020 Place: Kathmandu, Nepal CA. Gyanendra B. Bhari CA. Hem K. Kafle CA. Anup K. Shrestha Kathmandu, Nepal Kathmandu, Nepal Kathmandu, Nepal 29 January 2020 Reference Number: WP I I)V/ t6 (Ffl A Office of the Auditor General Nepal (OAGN) Organized Sector Audit Directorate Babarmahal, Kathmandu, Nepal Re: Submission of Final Audit Report, Audited Project Financial Statements & Management Letter of Power Sector Reform and Sustainable Hydropower Development Project (PSRSHDP) implemented by Nepal Electricity Authority and financed under World Bank-International Development Association (IDA) Credit Number 5728-NP for fiscal year 2075/76(2018/19). Dear Sir/Madam, We are pleased to enclose herewith Final Audit Report, Audited Project Financial Statements & Management Letter of Power Sector Reform and Sustainable Hydropower Development Project implemented by Nepal Electricity Authority and financed under World Bank-IDA Credit Number - 5728-NP for fiscal year 2075/76(2018/19) for your kind information and needful. We would be happy to discuss the reports, if you wish so, at your convenient time. Thanking you for your kind consideration. Yours truly, CA. Hem Kumar Kafle Joint Auditor Attachments: 1. Final audit report, audited project financial statements and management letter for PSRSHDP (5 sets) Independent Auditors' Report The Secretary Ministry of Finance Government of Nepal Singh Durbar, Kathmandu Nepal 1. Report on the Financial Statements We have audited the accompanying financial statements of Power Sector Reform and Sustainable Hydropower Development Project (hereinafter referred as project) funded by World Bank (WB), International Development Association (IDA) Credit Number 5728-NP and implemented by Nepal Electricity Authority (NEA) which comprise the project financial statements showing sources and applications of project fund for the year ended 31 Ashadh 2076 (16 July 2019), including Statement of Designated Account as at 31 Ashadh 2076 (16 July 2019) and a summary of significant accounting policies and notes to account. These project financial statements have been prepared by Nepal Electricity Authority's (NEA) management to meet the financial reporting requirement of the financing agreement Schedule 2 Section II (B3) with the WB signed between Government of Nepal (GoN) and the WB dated 4 February 2016 for the project. 2. Management's Responsibilities for the Project Financial Statements NEA management is responsible for the preparation of the project financial statements in accordance with the financial reporting requirement of the financing agreement with the WB and for such internal control as NEA management determines is necessary to enable the preparation of the project financial statements that are free from material misstatement, whether due to fraud or error. 3. Auditors' Responsibilities Our responsibility is to express an opinion on the project financial statements based on our audit. We conducted our audit in accordance with Nepal Standards on Auditing (NSAs). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the project financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and - disclosures in the project financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the project financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to NEA's preparation of the project financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by NEA's management, as well as evaluating the overall presentation of the project financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. 4. Basis for Qualified Opinion 4.1 GoN share amount does not correspond to amount actually received and used by the project. The GoN share amount is not accounted for on the basis of actual amount received and used by the project. Out of NPR. 61.9 million booked as GoN Share during the reporting period, the project has not actually received and used budget for project activities. This has resulted in negative balance (that means receivable from NEA central office) under NEA Sources of NPR. 90.90 million. 4.2 Foreign Exchange gain/(loss) resulting from the transactions not accounted. The project has not accounted for the exchange gain/(loss) resulting from the exchange rates fluctuation in books of account of the project, though it has been separately shown in project financial statements. A total of foreign exchange gain of NPR. 12.01 million, (out of which foreign exchange gain NPR. 4.95 million that pertains to this fiscal year) has not been booked in Computerized Accounting Information System (CAIS) of the project and hence the project financial statements do not correspond to the books of accounts maintained by the project. 4.3 Interest booked on loan not eligible to capitalize has been capitalized as Interest During Construction (IDC). The project has booked interest on IDA Credit outstanding from the WB for the whole period as IDC period i.e. under Capital Work in Progress (CWIP), for the expenditure incurred which has not met the qualification of qualifying assets (i.e. loan has been utilized for feasibility study of Upper Arun Hydropower Project). Interest of NPR. 1.66 million booked has been booked under Consultancy under CWIP and overstated by same amount. 4.4 Considerable delays in project progress. In comparison to the time elapsed till FY 2075/76 (2018/19) from the start of the project, the physical and financial progress of the project as per their progress report is significantly low (i.e. approximately 39.89% physical progress, 13.79% financial progress and time elapsed 67%). The progress report do not provide linkages with and justifications for variation between physical and financial progress. This may result in cost-overrun of the project. 4.5 Approval from the Department of Labor not obtained. Project has employed foreign citizens to conduct feasibility study. As required by Section 22 of Labor Act, 2074 Labor permit from Department of Labor has not obtained this has resulted non- compliance with Labor Act, 2074. 5. Qualified Opinion In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the accompanying project financial statements including Statement of Designated Account give a true and fair view of the project as of 31 Ashadh 2076 (16 July 2019) in accordance with the financial reporting requirement of the financing agreement Schedule 2 Section li (B3) with WB signed between GoN and WB dated 4 February 2016 for the project. We also report that the funds provided under IDA Credit Number 5728-NP have been utilized for intended purposes. The project has been performing the activities as per the requirement of financial covenants and is incurring the expenditure that are eligible for financing. 6. Management Letter Management letter detailing conditions for qualification and highlighting areas of financial statements, including accounting and internal controls, compliances with the laws, NEA's own policies and financial covenant of the financing agreement are provided separately. 7. Basis of Accounting and Restriction on Distribution and Use Without further modifying our opinion, we draw attention to Note 3 of Schedule 15 "Significant Accounting Policies and Notes relating to project financial statements", which describe the basis of presentation of financial statements. The project financial statements are prepared to assist NEA in complying with the financial reporting requirement of the agreements with the WB referred to above. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for Ministry of Finance; GoN, NEA and the WB and should not be distributed to or used by the parties other than Ministry of Finance; GoN, NEA and the WB. Baburam Gautam Deputy Auditor General Office of the Auditor General Nepal (OAGN) Date: Place: Kathmandu, Nepal Project Financial Statements NEPAL ELECTRICITY AUTHORITY EnginevtijiSsrvice Directorate Power Sector Reform and SustarMire Hydropower Development Project (PSRSHDP) Tirpureshwor, Kathmandu IDA CREDIT: 5728-NP Project Financial Statements As of Ashadh 31, 2076 (July 16, 2019) 1 Project Financial Statements 2 Details of Schedule 1-3 3 Details of Schedule 4-7 4 Fixed Assets Schedule 8 5 Depreciation Schedule 8-1 6 Capital Work in Progress Schedule 9 7 Operating Cost Schedule 10 8 Details of Schedule 11-13 9 Exchange Gain/Loss Schedule 14 10 Schedule Showing Details of Exchange Gain/Loss 14-1 11 Designated Bank Account 12 Advance/Reimbursement Account-Designated Bank Account SDR 13 Reconciliation � � '. � т�, 1 з w °t Z ro II у,�. р'� с� й й � ш F� �А "� �9 а+ , M1� � ��N ._ г �s v � �f � � � г- а� n I� w г�ч а�ч й ��• С с#. }� �. .. 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Ly '-`. � . . . . ° л с v v v а а �,� ��''��. а l, � N EPALTLECT R I 15TY-AUT HO R ITY Engfilie4ring Service1 6,ectorate Power Sector Reform and Stisittinable Hyd: 'Opoitier Development Project (P5RSHDP) Tirpureshwar, Katll mandu IDA CREDIT; 572B -NP Pro'lect Fiznamcial St atements As ofAshat1h.31i 2OY6 (July 16, 2019) Amounts in NPR Schedule 11 Bank Balance This Year Description Up to Previous Year Up to This Year I Trimester Ii Trimester III Trimester Total Irlabd Sark Accoum 914,970 00 Total 914,970M 914,970.GO Schedule 12 Loans and Advance This Year Description Up to Previous Year Up to This Year I Trimester 11 Trimester III Trimester Total 5.505- Advance to Supplier/Contractor 6 521- Loan !n Staff 6.5 30- Advarce to Staff l Advance to Others 6.537- Advance Paymeml:5 - Advance to ESSU, Kharipari RhAktaPUF 900,422.25 900,41K 25) (900,482.25) Paympnt made to Chang, ang Survery. Planning, Desgr 8",858.960 00 (21,34 7,797.69) (14,027,916,49l (44,983,745.82) 30.358'960 00) and Research co Ltd. and iratech Erginee-g 6.S33 0.I-erA,tva ce 6 541-Deposit 6 553-C.he, Office Advance Total 81,259,442.25 l21,347,297.l (14,928,398,74)1 (44,983,745,82) l91,259,442.25) Schedule 1 Stockocal This Year Description Up to Previous Year Up to This Year I Trimester 11 Trimester III Trimester Tota 5 101- SiocKs (Local) Total .. л n. f� и Т i� гrч ."ы� й ,� � :д ® г� е� г� � н О и м Iti r� м© ц' � гп т и м N о _ ,� т т о ш а г а � т � � � � � т й а � 'ш � _ ."д' � р �д � +� т т _... о IЧ... ..... .._.. .._.. .^ °ш °� °w I_... � V n °�-, -Oи о 1 , в �п ,-, сс т '� а` и м � О N О О -- е.� и и и .ч e,i � у н !. ос �1 �т � N N . � т. �° n ` � гч гу � а г h � й �р М, � м гч _.. т а и пс ш т у С � � �+ Ci , � р L '. м 6 С Т' � � % Ш а в о , � . � � , т � � и О т iм � �' � , И � ,. г`у'.. а 'н' ✓ " !н', r и __ � Q � �' � � � и , � � ц р',, � С � О ш а � д', � � �........ � �д и ........ j -- а о� .; � т ° о �, N ..... � ~! z � г � с � С'3 о р �, р. _а � «� � _ �. ` (С Z � у, й v С �ш , . , ` F- р7 -� га � \\,у �- а а а.� �.:�, в' !� ш� н г� ., уΡ ��� сс г^� и,,с с у F.'� а У`^ � n т � � Г,�-�!\/ U � 'S3. ь: 1-- •С, {�.� =з , . а . �, v . . 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'т � .. г� ��',., С �О �у . о' ш. й r iI r� д,,,, � i� а гР у 'р ��... т ц 1 й W�а., у,,',. � � д II � д ы 'v v и С ы � ' о v g jt7 � о' �..... а � , ,� т о ...., t с v с с Е � � е л й � й `" �"1 _ �^ С � �л i ы � т х к н г.� .. i б ц с ш w ш ш � i Q I � г - � \� -P一：織entP『。」一 Schedule14一l ＿一 46 Debited at Designated account (7,13878 7sm 978.03) 128,89 3,576,11 47 Debited at Dmignat ed account (2,,135 691 110.80 (2 58,817 81) 128,634,858.30 48 Debited at Designated account (2,024.26) 110 80 (224,308 27 128,410,5 50.05 (18,75 1.57)1 110.80 (2,077,86 12 6,3 32,683.58 49 Debited at Designated account S D Debitec at Designated account (2,454 00) (2 71,927 74) 126,060,760 84 51 Debited at Designated account (2,12680) 110 so (2 3 5,6 70 71) r.2S,825,090 13 S 2 Debited at Designated account (17,620.31) 11080 (1,952,506 55 123,872,593.58 53 1 Debited at Designated account 12,S47 00) 110.80 (282,233.07) 123,590,350.51 54 Debited at Designated account (2,20740) 2 10.80 12,14,601 99) 123,345,749,52 0'C, 3 , 5111'1' 12i,142,21S,54 55 Debited at Designated account (19,885 66Y 120 80 12,203,529 98) 56 Debqed at Designated account (7,040.64 11080 (780,2 73 32) 12O,362,D4S 22 57 Debited at Designated account (89,54999) 12 0,2 72,4 9 5. 23 58 , Debited at Designated account (93247)1 (aC3,327 00) 110,111,161,21 at Designated account (1,404 00) 110 go (r,55,577 24) 120,013,590 99 60 Debited at Designated account (1,21.6.80) 110.80 (134,833.60) 119,878,7 57.39 61 Debited at Designated account 7r., 705.W 118,507,051.49_ 62 Debited at Designated account 3,169.40) 110.80 (351,201 21 ng,iSS,350.28 63 Debited at Designated account (3,5S70O)l 110.80 (40 5,232 17) 117,750,618 12 64 Debited at Designated account (2 6,867.44) Ila 80 2,977,181.03) 114,773,437.08 55 Debited at Designated account 13,310,03) 110,30 (1,468,761.81), 113,304,6 75.27 66 Debited a t Desig na ted acc ou nt (1,800 OG) 110.40 (198,630,00) 113,106,045.27 67 IDebited at Designated account 1,560.00), 110.40 (172,146,00) 112,93 ,899.27 6B Debit d at Designated account (25,14696 11040 (2,774,967 04) 110,158.932 23 69 1 Debteo at Designated account (3,480 18) 110 30 109,774,894.37 -70 FD, b, t M a ir Designated account 110,40_ 1443,120 36) IC)9,331,7 74.01 110.10 i6,892,303 27) 92,4 39,470 74 71 Debitecl at Designated account (i53,3RS 121 72 Debited at Designated account (2,063 48T 110.10 E217,251 DSL 92,222,219 69 73 IDebiteci at Designated account 217,1011.17) 11010 (26,111,896 63), 66,100,3 23 06 74 DeNted at Designated account (3 51,) 91 12) 65,749,041.94 75 110 10 (6N 449 18) 65,066,S92.76 'Debited at Designated account 6,196.76): 76" 7ebted at Inated account (39,565 18 110 10 (4,357,3 11.2711 60,709,2 79 49 77 Debited at Designated account 70.5 3) 1 0 I592.456.47 6o, I 17,9 2 3.0 2 - - 60, 1161, 171.07 78 Debited at Designated account 15 00) 11M0 (3.6si-9s) a 79 ; Crecl ted at Des gr ated accc u rit 966,596 39 110.90 1015,S18,922 18 166,635,093 25 oLpening Stance 1 204,571.16 109.34 131,707,810-67 Total Cred, t at esg Total Credited at Designated account 2420,5 5 1.44 271,66D,D45.40 Total Debited at Designated account (2,j2j,a29.80)__ ,_ (236,732,762,32) Exchange Gain/(Lossl I Balance at the end of Ashad 2076 1,503,800 So 109 36 161,455,655 49 (2 279,437.76) E cess amount received on rist Reimbishment 7,84 2,233 4 5 (717,7 70 11) 3 Less amount received on Second Reinn'r ITO tal (4,945,025.58 2 NEPAL ELECTRICITY AUTHORITY Engineering ServiceDirectorate Power Sector Reform and Sustainable HVdropower Development Project (PSRSHDP) Tirpureshwor, Kath nandu IDA CREDIT: 572 -NP Project Financial Statements As of Ashadh 31, 2076 (July 16, 2019) Reconciliation IDA Credit 5728-NEP Description NPR USD A Balance of Special Account as at Ashad 31, 2076 (July 16, 2019) / 164,455,555.49 1 503,800.80 B Outstanding Repinishment as at Shrawn 1, 2075 (July 17, 2018) / 82,460,085.25 795,428.84 C Disbursement During thl5 year 236,732,762.82 2,121,329 80 D Replenishment During this year 264,535,582.06 2,420,559.44 E outstanding ReplinishmentAmount as at Ashad 31, 2076 July 16 , 2019) (BC-D) 54,657,266.01 496,199.20 F Balance (A+E) 219,112,921,50 2,000,000.00 The amount Credited during the period G Exchange Gain/(Loss) -12,013,91.50 H Special Account Initial Deposit 207,099,00000 4,000,0 V. zz NEPAL ELECTRICITY AUTHORITY Enginering Service Directorate Power Sector Reform and Sustainable Hydropower Development Project (PSRSHDP) Tirpureshwor, Kathmandu IDA CREDIT: 5728 -NP Project Financial Statements As of Ashadh 31, 2076 (July 16, 2019) A/C no. 1206101/001/045/840 A/C Name Nepal Electricity Authority- Sustan hydropower dev,pjt (PRSHDP) Currency USD Converted into SDR Advance/Reimbursement amount Received of Designated Account (DA) Date Value Date Discription Debit/Credit Balance - .-~.FC ( USDI LExch.Rate R 7/6/2016 7/16/2017 Balance/bd CR C 300,000.00 237 219.498.81 219,498.81 4/10/2018 4/10/2018 6irmt/96/074/75 Amount deposit on DA Account CR 1,700,000.00 1.45 1169,494 09 1,388,992.90 2/12/2019 2/12/2019 Frst Reimbuehnient CR 2453.963 05 139 1,046,935.48 435928.38 6/28/2019 6/28/2019 RRSecd Re mbuehment CR 965,596.39 139 695,578 24 131 506.62 4420,559.44 Nepal Electricity, Authority Engineerng Service Directorate Power Sector Reform and Sutainable Hydropower Development Project Fiscal Year 2075/76`(2018/19) IDA Credit:`5728-NP Schedule 15: Significant Accounting Policies and Notes Relating to the Project Financial Statements 1. Background The special purpose financial statements are prepared to meet the reporting requirement of the Financing Agreements IDA (International Development Association) Credit No: 5728- NP signed between Government of Nepal (GoN) and World Bank (WB) on February 4, 2016. The project is implemented by Nepal Electricity Authority (NEA), which was incorporated on Bhadra 1, 2042 (August 16, 1985) under the Nepal Electricity Authority Act, 1984, through the merger of the Department of Electricity of Ministry of Water Resources, Nepal Electricity Corporation and related Development Boards. The merger was necessitated to remedy the inherent weaknesses works, and became necessary to achieve efficiency and reliable service. The principal objectives of NEA include generation, transmission and distribution of adequate, reliable and affordable electric power by planning, constructing, operating such facilities in Nepal's power system both interconnected and isolated. The WB Loan was effective from February 14, 2016 and the loan is exclusively used for intended purpose of the project in compliance with the financing agreement. Power Sector Reform and Sustainable Hydropower Development Project is a component unit of NEA and not an independent project in itself. These special purpose financial statements are prepared by consolidating various sub-projects' financial information derived from the NEA's accounting system as of 16 July, 2019 and are part of the NEA's overall financial statements. The sub-project specific income, expenses, assets and liabilities are segregated and presented in accordance with the relevant project agreement. The project financial statements consolidate financial information of the sub-projects under the Power Sector Reform and Sustainable Hydropower Development Project only and do not represent NEA as a whole. 2. Project Information Credit No.: 5728-NP Loan Agreement Date: February 14, 2016 Loan Effective Date: As per Financing Agreement Article V (5.03), the effectiveness deadline is the date ninety (90) days after the date of financing agreement. Loan Closing Date: June 30, 2020. Subsidiary Loan Agreement between GoN and NEA: Baisakh 23, 2073 (May 5, 2016). The objectives of the Project are to strengthen the capacity of the Recipient's power sector agencies to plan and prepare hydropower and transmission line projects following international standard and best practices; and improve the readiness of the power sector agencies for regulatory and institutional reforms. 3. Basis of Presentation A. The special purpose Project's financial statements are prepared in accordance with NEA's Financial Administration Regulations, 2068, terms of financing agreements with WB and GoN and Nepal Accounting Standards, unless otherwise stated. The project financial statements have been prepared on an accrual basis and under historical cost convention, except otherwise stated. The accounting policies adopted in the preparation of the project - financial statements are consistent with those of previous year except for the change in accounting policy, if any explained below. The preparation of financial statements requires NEA's management to make estimates and assumptions that affect the reported balance of assets and liabilities, revenue and expenses and disclosures relating to the contingent liabilities. The management believes that the estimates used in preparation of the financial statements are prudent and reasonable and management is aware that future results could differ from these estimates. Any revision to accounting estimates include provision for employee, net releasable value of long-term investment, non-recoverability of receivable balance etc. B. The figures for previous year are rearranged and reclassified wherever necessary for the purpose of comparison. C. Appropriate disclosure is made for the effect of any change in accounting policy, accounting estimate and an adjustment of error. D. The financial statements are prepared generally on accrual basis. Management believes that the impact of recognizing those revenues on cash basis will not be materially different from the current practice. E. Management has applied estimation while presenting financial statements such specific estimates are disclosed in individual section wherever they have been applied. 4. Reporting Period and Currency Project financial statements are prepared as per Nepalese financial year i.e. Shrawan to Ashad (Mid July to Mid July) and are stated in Nepalese Rupees (NPR). 5. Summary of Significant Accounting Policies A. Capital Work in Progress (CWIP) and Fixed Assets Ali expenditures incurred in developing property, plants and equipment not yet completed or not ready to use are categorized as CWIP. The CWIP comprises of all directly attributable costs for the specific sub-projects including the balances with contractors and suppliers for the value yet to be received. All direct costs incurred by the project for its operations, including interest during construction period are shown under operating costs. These are capitalized upon commissioning or identified as being ready to use. Fixed assets used by the project have been transferred during fiscal year 2075/76 and at the closing of fiscal year no fixed assets have been used by the project. Depreciation on those fixed assets has also been transferred. B. Interest during Construction (IDC): interest on WB Credit amounts are calculated as per the terms of agreements with GoN and accounted for under Interest during Construction Period, except stated below and included under operating cost for project financial statement purpose. C. Sources of fund There are three sources of fund for the project. The sources are as follows; * GoN (Share) * IDA (WB Credit) * NEA sources All project incomes received in the form of loan, share, contributions are accounted for on cash basis. GoN (share) financing are accounted for based on amount reflected in GoN Red Book and received by NEA and allocated by Engineering Service Directorate. WB (Credit) financing are accounted for based on amount released by WB on the Designated Account. NEA contribution includes contribution made both in cash and kinds for concerned project purposes other than financed by GoN and WB. D. Share Capital Share Capital amount received in the form of cash and cash equivalent from Government of Nepal are accounted as and when received. Such amount includes contribution made by GoN. Eligible amounts are capitalized as share capital such as interest during construction period as per the agreement of GoN and NEA. E. Foreign Currency Transactions and Exchange Gain/Loss NEA translates foreign currency payments made by WB for project purposes at the spot rate of the day as per Nepal Rastra Bank published rate. Foreign currency liabilities as at the balance sheet date are translated in Nepalese rupees by applying closing exchange rates. F. Cash and Cash Equivalents Cash and cash equivalents are carried at cost. They include deposits with banks which may or may not bear interest. G. Designated Account The project has a special designated dollar account maintained in Nepal Rastra Bank (NRB) to manage fund from the funding agency. Deposit in the designated account is treated as advance and the loan is booked after the expenditure is replenished by the funding agency. These accounts are operated by NEA for specific purpose governed by the terms and conditions of WB. Therefore, these accounts have not been incorporated in the books of NEA. 6. Notes to the Accounts a. Cash and Cash equivalent Balance at designated Account in NRB is NPR. 164,455,655.49 And the balance at Nabil Bank Limited is NPR. 914,970. b. Grant and loan. The status of sources of funding as at 16 July, 2019 is as under: Description Up to Previous Year This Year (NPR) Up to this year (NPR) GoN Share 30,215,488,54 63,346,434.49 93,561,92303 2460,085 236,732,76282 319,192,848.07 C. Capital Work in Progress [Particulars 2075/76 (in NPR) A: Capital Work in Progress: Opening CWIP 1,200,643 Add: Addition during the year 319,654,128.10 Less: Capitalization during the year 0 Closing CWIP 320,854,771.10 d. GoN Share have been shown in the project financial statements based on allocation of fund to Projects by the Engineering Service Directorate and not based on the amount transferred/used by the Projects. This has resulted in negative balance under NEA sources due to less amount utilized by the sub-projects. e. Interests on loan used for feasibility study for construction of hydropower are also included in interest during construction period. This is not in line with the provision of NAS-23: Borrowing Costs. >611G "o/½try o < esources 201A Go nath MainaN 1a Dinesh Kumar Ghiimire t .1' Financial (Comptroller General W\VRIGONFCGO GoN KIIl Man Ghisin Lckhanath Koirala Managing Director DD [ NIA Finance Directorate, NEA Samecer Prasad Pokharel Rain Chandra Pauidel Sury Bahadur N1 %1iL Officiatin Director Officiatine Director Deput Direcor I IS. A Account Department. NEA PSRSI IDP, NFA \shok Kumar ihapa 1PSRSHIDA, NiA