THE WORLD BANK FINANCIAL STATEMENT FOR THE VANUATU RURAL ELECTRIFICATION PROJECT (VREP) TF18003 IN VANUATU For the Year Ended 31 December 2018 Prepared Under IPSAS: Financial Reporting Under the Cash Basis Accounting 1'Vanuatu Rural Electrification Project - Financial Statements, 2018 -7 TABLE OF CONTENTS P R O J E C T B A C K G R O U N D ..................................................................................................... .......... 3 A U D IT O R 'S R E P O R T ............... ................... ........................ ............................ ......... 4 -5 STATEMENT OF CASH RECEIPTS AND PAYMENTS.................... ..................................................6 STATEMENT OF COMPARISON OF BUDGET AND ACTUAL.... ...................................................7 STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS................................8 1 . A c c o u n tin g p o lic ie s .....................................................................................................8................. 8 2. Government counterpart funding................................. ................................................................10 3 . D o n o r g ra n t a s s ista n c e ................................................................................................................1 0 4 . O p e ra tin g e x p e n d itu re ................................................................................................................ 1 1 5 . C a p ita l e x p e n d itu re................................................ ................................................................1 1 6 . C lo s in g c a s h b a la n ce.................................. .............................- ..................................................1 2 7. Revenue variance between budget and actual........................................................................ 12 8. Expenditure variance between budget and actual.....................................................................12 9 . Im p re s t a c c o u nt ..........................................................................................................................1 2 1 0 . P a y m e n ts to th ird p a rtie s ................................ ............................................................. .......... 1 2 1 1. R e la te d p a rtie s ......................................................................................................................... 1 2 2 1Vauatu Rural Electrification Project - Financial Statements, 2018 PROJECT BACKGROUND Vanuatu Rural Electrification Project (VREP) provides Grant Funding of US$4.7 million to the Department of Energy (DoE) to support the Government of Vanuatu to increase access to sustainable electricity services for rural households, aid posts and community halls located in dispersed off-grid areas. The Project under the oversight of the Department of Energy (TF 18003) - is planned to target 85 percent of the 20,470 dispersed off-grid households in Vanuatu, which equates to approximately 17,500 households, and 230 aid posts and 2,000 not-for-profit community halls. The project will subsidize the retail cost of eligible solar photovoltaic (PV) systems by 50 percent. The objective of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off -grid areas. The Project consists of the following parts: Part 1: Electrification of off-grid households, aid posts and community halls Provision of subsidies for the supply of solar photovoltaic systems to eligible off-grid households, aid posts and not-for- profit community halls. Part 2: Technical Assistance and Project Management Carrying out a program of activities to support implementation of the Project. PROJECT STATUS As of 31 December 2018, the Project achieved the following; * 9,852 households received subsidised solar systems (56% of the 17,500 target households). * 10 Aid posts and 401 community halls have also received subsidised solar systems (4% of the targeted 236 Aid posts and 20% of the targeted community halls). The Grant funding for the Project is US$4.7 million. From the start of the Project up to 31 December 2018, a total of US$1,724,300.87 was released by World Bank. This is 30% of the total Grant. This report provides the financial statements for the Vanuatu Rural Electrification Project (VREP) TF 18003 for the year ended 31 December 2018. The VREP Project commenced in December 2014 and will end on 31 December 2019 OF Ministry of Cfimte Change Aaptation, Meerolgy Geoalrd Environmenti Energy & NDMO Le Mriniste&e Du Cl1imnat Charge W AdaptatioR. Meteorologie Mrs Esline Garaebiti Georiequs, Enironement, Acting Director General E e Ministry of Climate Change eorology, Geo-Hazards, Environment & Energy 13 November 2019 3 :Vanuatu Rural Electrification Project - Financial Statements, 2018 law Farters Independent Auditors' Report to the members of Vanuatu Rural Electrification Project The Auditor-General is the auditor of the Vanuatu Rural Electrification Project (VREP). The Auditor- General has appointed Law Partners to undertake the audit of VREP pursuant to Section 24(1) of the Expenditure Review and Audit Act [CAP 241]. Audit Opinion We have audited the accompanying financial statements of the Vanuatu Rural Electrification Project (VREP) for the financial year ended 31 December 2018 consisting of the statement of cash receipts and payments, statement of comparison of budget and actual amount and accompanying notes set out on pages 6 to 12. In our opinion, the financial statements present fairly in all material respects the cash receipt and payments and cash flows of the Project for the year ended 31 December 2018, in accordance with International Public-Sector Accounting Standards - Financial Reporting under Cash Basis of Accounting and the project administration complies with relevant Vanuatu legislation and regulations. Basis for Opinion We have conducted our audit in accordance with International Standards on Auditing. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the Financial Report section of our report. We are independent of the project in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial statements in Vanuatu. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Responsibilities of the members for the financial statements The members of the project is responsible for: * the preparation and fair presentation of these financial statements and the information they contain, in accordance with International Public-Sector Accounting Standards: Financial Reporting under Cash Basis of Accounting; * implementing necessary internal controls to enable the preparation of the financial statements that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and * assessing the project's ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to cease operations or have no realistic alternative but to do so. TEL+678 22091 FAX 678 23665 LAW PARTNERS HOUSE PO BOX 212 vwww aIlartnersv, i 'It m V O PORT VLA I VANUATU law partoers Independent Auditors' Report to the members of Vanuatu Rural Electrification Project (continued) Auditors' responsibilities for the audit of the financial statements Our objective is: * to obtain reasonable assurance about whether the financial statements as a whole is free from material misstatement, whether due to fraud or error; and * to issue an auditor's 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 International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 financial statements. As part of an audit in accordance with the International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. A further description of our responsibilities for the audit of the financial statements is located at the website https://www.ifac.orq/system/files/publications/files/ISA-700-Revised 3.pdf. This description forms part of our auditor's report. 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Ш г� а £ 5 И Ш и тs n `т � п � 1- � И у � го 4 Е° � � й � � � а � а� а с Q R Ci iy и О � т а ы 1L Z'О С ш � �`�" `а" .� у� й� ~ г�7, 4 U � � 2 °`` tY � о о 4 °` V� о о А С�р �с а V й�� � � v а� tэ �_5с) д и�п �� cai � й � " г- � � � VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2018 1. Accounting Policies a. Reporting Entity The Vanuatu Rural Electrification Project (VREP) is administered by the Department of Energy (DoE). The objective of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off-grid areas. The project consists of the following parts: (i) Electrification of off-grid households, aid posts and community halls (ii) Technical assistance and project management b. Authorization Date The financial statements of the Grant TF 18003 was for the year ended 31 December 2018 and was authorized for issue on 13 November 2019 by Mrs Esline Garaebiti for the Department of Energy. No other body has the power to amend these financial statements once they have been issued. c. Basis of Preparation The financial statements of the Grant have been prepared in accordance with requirements of the Public Finance and Economic Management Act [CAP.244] which includes the requirement to comply with generally accepted accounting practice. The financial statements comply with IPSAS "Financial Reporting under the Cash Basis of Accounting" for the year ended 31 December 2018. d. Presentation currency The financial statements are presented in Vanuatu Vatu (VUV), e. Foreign currency The grant funding payment received from the World Bank are in USD and have been converted by the Reserve Bank of Vanuatu at the rate on the day of the transaction. s Vanuatu Rural Electrification Project - Financial Statentents, 2018 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2018 1. Accounting Policies (continued) f. Cash and Cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Department of Energy receives the grant from the World Bank which is managed through the centralized Smart stream system. Under this arrangement, the Department of Energy does not control the grant as their own bank account but rather the central entity will make payments on behalf of the department after appropriate authorization and documentation. These transactions have been disclosed in a separate column in the "Statement of cash receipts and payments". g. Property, Plant & Equipment Purchases of fixed assets have been included in the Statement of cash receipts and payments under Goods. Separate disclosure has been disclosed in Note 5 of these accounts. Fixed assets are stated at cost at the date of purchase. There are no fixed assets purchased on hire purchase schemes and no depreciation is being charged. h. Budget The budget is prepared on a cash basis when cash is expected to be received and paid. The classification of the budget is prepared on the common revenue sources and expenditure is classified on the nature of expenditure normally incurred by the Project. Goods are treated as part of normal operational expenditure. The final budget is the budget that was approved by the World Bank dated 4 December 2014. The approved budget is developed on the same accounting basis, classification basis, as the financial statements. The final budget is for the whole project period of 60 months which is different to the 12-month period prepared for these financial statements. The Grant Agreement identified the budget categories according to the following components to be procured under the project. It encompasses the same entities as the financial statement. 9 Va,uat Rural Electrification Project - Financial Statenents, 2018 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2018 1. Accounting Policies (continued) h. Budget (continued) Category 1: Goods, Consultant services, Training and Workshops, and Incremental Operating Costs under the Project. Category 2: Subsidy Payments under Part 1 of the project. The budget was originally designed in USD and was converted into VUV at the rate of USD 1= VUV90 as per summary of disbursements. i. Changes in accounting policies There have been no changes in accounting policies during the financial year. j. Comparatives Where necessary, comparative information is reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. It must be noted that the Consultant - Smartstream and bank charges expenses account for the financial year ended 31 December 2017 was re-stated by Vt998,908 and Vt2,500 respectively. Refer to Note 6 Closing cash balance for details. 2. Government counterpart funding The Project does not receive any funds from the Vanuatu Government as this Project is fully funded by the World Bank. 3. Donor grant assistance In 2014, the Department of Energy signed a grant agreement (World Bank Grant No. TF18003) with the World Bank. The purpose of the project is to scale up access to electricity services for rural households, aid posts and community halls located in dispersed off-grid areas and the agreement was for US$4,700,000 from 2014 to 2019. The grant agreement specifically sets out the areas for spending of which US$1,600,000 allocated for the Goods, Consultant services, Training and Workshops, and Incremental Operating Costs under the Project and US$3,100,000 allocated for Subsidy Payments under Part 1 of the Project. As at 31 December 2018, an estimate of VUVi89,673,096 (US$1,724,300.87 @ 110) (total grant received as at 31 December 2017 for the amount equivalent of VUV185,707,204) had been drawn down from the World Bank with a remaining balance of US$2,975,699.13 to be drawn down from 2019. 10IVanuatu Rural Electrification Project - Financial Statements, 2018 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2018 4. Operating Expenditure 2018 2017 2017 2016 2015 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS Direct Direct Payments payments Payments Payments Payments payments Payments Payments to third parties parties Restated Audited Financial Financial Statements Statements Provident Fund 193,748 - 346,929 346,929 340,909 40,002 - Consultants Fees 4,770,015 - 14,509,005 13,510,097 9,687,808 3,169,411 3,836,224 Other Fees - - 475,000 475,000 - - - Subsistence Allowances 620,000 - 430,000 430,000 255,000 10,000 - Local Courses - - - - 13,333 - - Vehlcles Fuel - 5,000 5,000 - 5,000 - Facilities Hire 154,900 - 78,666 78,666 15,000 227,500 - Vehicles Hire - - - - 90,000 - Postage- Communications - - 26,000 26,000 - - Telephone / Fax - Communications 145,000 - 219,217 219,217 121,000 7,000 - Audit Fees 490,000 - - - - General - Materials - - - - 19,000 - - Incidental 380,345 - 363,450 363,450 335,000 5,000 - Official Entertainment 46,000 - 29,333 29,333 190,000 - - Equipment Repairs & Maintenance 33,034 - 39,242 39,242 - - - International Travel 280,290 - 20,000 20,000 - - Other Charges - Freight 80,000 - - - 20,000 - - Equipment Hire 40,000 - - 45,000 - - Local Travel 1,481,062 - 791,125 791,125 272,070 5,200 - Lighting Utilities 63,400,177 27,477,252 39,757,465 39,757,465 8,166,466 - - Local Workshops - - 28,000 28,000 - - - Equipment -Additional General 312,615 - - - 141,324 191,023 - Equipment - Computer 49,000 - - - 69,333 - - Furniture - Office Furniture - - - - 90,000 - - Advertising -Communications 296,206 - 340,798 340,798 134,067 127,779 - Printing -Communications 188,549 - 117,000 117,000 258,570 90,000 - Stationery - Communications 83,384 - 120,246 120,246 135,491 51,921 - Bank Charges 3,900- 21,400 18,900 30,000 12,500 - Total 73,048,225 27,477,252 57,717,876 56,716,468 20,429,371 3,942,336 3,836,224 S. Capital Expenditure 2018 2017 2016 2015 Equipment-Additional General 312,615 - 114,747 179,023 Equipment-Computer 49,000- 69,333 - Total 361,615- 184,080 179,023 ]IV(aieuatlu Rural Electrification Project - Financial Statements, 2018 VANUATU RURAL ELECTRIFICATION PROJECT STATEMENT OF ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2018 6. Closing cash balance 2018 2017 2017 2016 2015 (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) Restated Audited Financial Financial Statements Statements Made up as follows. SmartStream Central account 1,099,192 12,264,010 13,265,418 28,442,017 31,057,664 World Bank - Funds Transfer directly _ - - - 2,998,272 to Development Fund Total 1,099,192 12,264,010 13,265,418 28,442,017 34,055,936 Further to Notel (), the Consultant - Smartstream expense account for the financial year ended 31 December 2017 was re-stated by Vt1,001,408. The fee payment was for Geoff Stapleton's consultancy fee for the Mid Term Review Inception report paid in 2017 but deducted as a commitment. As a result, the Statement of Cash receipts and payments depict a cash balance as at 31 December 2017 of Vtl2,264,010 whilst the Smartstream Central Account (tabled above) denotes a cash balance of Vtl3,265,418: the difference being Vtl,001,408 (Vt998,908 and Vt2,500: consultancy and bank fees respectively) clarified above. 7, Revenue variance between budget and actual The difference of VUV 5,486,059 represents the actual amount received being greater than the period budget. The variance relates to the funding from the World Bank that was delayed due to the Project starting later than anticipated and also the different exchange rate used in the final budget which is US$1 = VUV90 and the actuals that used the exchange rate on the transaction date. 8. Expenditure variance between budget and actual The Project overspent VUV 16,650,877 against the annual budget of VUV 83,874,600. This is due to the late commencement of the Project which required the establishment of new systems, processes and procedures compliant with World Bank requirements. These have now been established and many of the grant activities are progressing well. 9. Imprest Account As at 31st December 2018, there is no outstanding Imprest Account for the Trust Fund. 10. Payments to Third Parties For the year ended 31 December 2018, there were two direct payments made to third parties for the Trust Fund. 11. Related Parties There were no related party transactions during the year. 12 Vanuatu Rural Electrificalion Project - Financial Statements, 2018