"Second Dushanbe Water Supply Project" Grant No. H692-T J, Grant No. D087-T J, Credit No. 5709-T J

The project financial statements for the year ended December 31 , 2017

and independent auditors' report

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"SECOND DUSHANBE WATER SUPPLY PROJECT" GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ

TABLE OF CONTENTS

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE PROJECT FINANCIAL STATEMENTS

Page

FOR THE YEAR ENDED DECEMBER 31, 2017 2

INDEPENDENT AUDITORS' REPORT 3-5

THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017

Summary of funds received and expenditures paid

Summary of expenditures paid by project components

Notes to the project financial statements

6

7

8-15

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017

The following statement, which should be read in conjunction with the independent auditors' responsibilities is made with a view to distinguish the respective responsibilities of management and those of the independent auditors in relation to the project financial statements of the Project "Second Dushanbe Water Supply Project", Grant No. H692-TJ, Grant No. D087-TJ, Credit No. 5709-TJ (the "Project").

Management is responsible for the preparation of the project financial statements that present fairly, in all material respects,the summary of funds received and ~xpenditures paid and the summary of expenditures paid by project components of the Project for the year ended December 31, 2017 in accordance with International Public Sector Accounting Standard "Financial Reporting Under the Cash Basis of Accounting" (the "IPSAS") issued by the International Public 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").

In preparing the project financial statements, management is responsible for:

• selecting suitable accounting policies and applying them consistently; • makingjudgments and estimates that are reasonable and prudent; • stating whether IPSAS and WB Guidelines have been followed, subject to any material departures disclosed

and explained in the project financial statements; and • preparing the project financial statements on a going concern basis, unless it is inappropriate to presume

that the Project will continue its activity for the foreseeable future.

Management is also responsible for:

• designing, implementing and maintaining effective and sound system of internal control and for revealing risks in system of internal control;

• maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Project, and which enable them to ensure that the project financial statements of the Project comply with IPSAS and WB Guidelines;

• compliance with laws and regulations of the Republic of Tajikistan, accounting system of the Project and the requirements of the World Bank;

• taking such steps as are reasonably available to them to safeguard the assets of the Project; and • detecting and preventing fraud and other irregularities.

The project financial statements for the year ended December 31, 2017 were approved and authorized for issue on May 18, 2018 by the management of the Project.

May 18, 2018 Dushanbe, Republic of Tajikistan

2

"SECOND DUSHANBE WATER SUPPLY PROJECT" GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ

SUMMARY OF FUNDS RECEIVED AND EXPENDITURES PAID FOR THE YEAR ENDED DECEMBER 31, 2017 (in US dollars)

Notes For the year For the year Cumulative ended ended

December 31, December 31, ! 2017 2016

Opening balance 4 981,264 918,186

Funds received Grant No. H692-TJ 5 539,217 3,126,851 14,317,000 Grant No. D087-TJ 5 1,080,520 600,000 1,680,520 Co-financing by the Local State Executive Authority ("LSEA") 5 382,271 236,461 3,395,581

Total funds received 2,002,008 3,963,312 19,393,101

Other income 451 62 50,549

Total receipts 2,002,459 3,963,374 19,443,650

Project expenses Works and non-advisory services 6 2,209,440 3,266,085 9,625,492 Goods and non-advisory services 6 83,732 252,426 4,187,186 Advisory services, including audit 6 157,375 323,372 4,552,927 Operating costs 6 57,775 40,349 258,399

Total project expenses 2,508,322 3,882,232 18,624,004

Net loss on foreign exchange 21,271 17,904 156,417 Other expenses 254 160 209,353

Closing balance 4 453,876 981,264 453,876

I On behalf of the Management:

May 18, 2018 Dushanbe, Republic of Tajikistan

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"SECOND DUSHANBE WATER SUPPLY PROJECT" GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ

SUMMARY OF EXPENDITURES PAID BY PROJECT COMPONENTS FOR THE YEAR ENDED DECEMBER 31, 2017 (in US dollars)

Component 1: Metering and demand management Installation of76,500 residential water meters Customer satisfaction surveys Purchase of76,500 residential water meters Purchase and installation of bulk flow meters at water production facilities Purchase of Network Information System Communication strategy and public awareness cam-

For the year ended

December 31, 2017

17,151

17,151

paigns to promote metering and demand management ___ ___ _

Component 2: Water quality improvement Partial renewal of filtration capacity at Samotechnaya Water Treatment Plant Purchase and installation of re-chlorination units at 5 reservoirs

Reconstruction of additional 50% of SAM WTP filters Cleaning network sections and reservoirs Purchase of hydraulic excavator Purchase of laboratory equipment Purchase of the measuring equipment for leakage detection

Component 3: Institutional strengthening and capacity-building Technical assistance for operational improvements Modernization of accounting, billing and collection systems Technical assistance for corporate development and improvement of financial performance Institutional assessment Training programs

Component 4: Project implementation support Design and supervision of works Project management operating costs Annual audits

On behalf of the Management:

Ub 'd d M 0.\\11-11,111 ·00··.r~

1,757,387

1,116,975

82,855

557,557

70,378

934

69,444

663,406 534,908

84,673 43,825

2,508,322

For the year ended

December 31, , 2016

131,509 115,928

15,581

2,851,061

2,793,551

47,475

10,035

488,555 281,814

189,370

17,371

411,107 346,571

49,108 15,428

3,882,232

al a ,, t,.""',•\l~lllAffEEe ~~ Director ~t~t,·~~ct ~ Chief Accountant

/-'"! <..~/:::.. ' . '<>

M 18 2~

, g~ilf/) ··t ._, ~ ... ./ , - M 18 2018 ay , --~ ;= f O\~~J:.;,,/,;-- ~, 1 ay ' Dushanbe, · · t~f~ st~-? Dushanbe, Republic of Tajikistan

The notes on pi~.~~~ in,grat,art of the project financial statements. The independent ~it9rsl rep01:ti~onAfages 3-5.

~'_P•,• ,,;-':,]? -~~:· --.

7

Cumulative

5,894,775 . 2,593,908

67,389 2,901,173

216,253 31,500

84,552

6,660,657

5,279,343

130,330 '

557,557 294,334 281,996

63,275

53,822

4,191,359 2,177,968

374,104

1,239,618 168,332 231,337

1,877,213 900,351 294,056 682,806

18,624,004

"SECOND DUSHANBE WATER SUPPLY PROJECT" GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ

NOTES TO THE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 (in US dollars)

1. GENERAL INFORMATION

According to the Financing Agreement between the Republic of Tajikistan and International Development Association (the "IDA") dated July 13, 2011, the IDA provided a Grant No. H692-TJ in the amount of 10,100,000 Special Drawing Rights to the Republic of Tajikistan.

According to Financing agreements between the Republic of Tajikistan and International Development Association (the "IDA") dated August 7, 2015 the IDA provided an additional financing in the form of GrantNo.D087-TJ in amount of3,300,000 SDR and Credit No. 5709-TJ in amount of 4,000,000 SDR.

The Grant was provided for the implementation of the Project "Second Dushanbe Water Supply Project" (the "Project").

Effective date of the Project is February 7, 2013. Project completion date is March 31, 2020.

Project purpose

The purpose of the Project is to assist the State Unitary Enterprise "Dushanbe Vodokanal" (the "DVK") in improving the efficiency water services company activities and water supply services in certain districts of Dushanbe.

The Project comprises the following components:

Component 1 : Metering and demand management; Component 2: Water quality improvement; Component 3: Institutional strengthening and capacity-building; Component 4: Project implementation support.

Component 1. Metering and demand management

The component finances consumption metering and bulk metering of water, for increased revenue, reduced wastage, and better tracking of losses, including: (i) supply and installation of 76,500 residential meters (i.e. approximately 46% of DVK users) and installation of 1,500 apartment building master meters in selected areas of the city; (ii) rehabilitation of 1,500 apartment building service connections; (iii) supply and installation of bulk flow meters at water production facilities; (iv) supply and installation of a Network Information System (NlS); (v) communication strategy and public awareness campaigns to promote metering and demand management; and (vi) installation ofSCADA system.

Component 2. Water qualityi improvement

The component supports system upgrades for improved quality of water, including: (i) partial renewal of filtration capacity at Samotechnaya Water Treatment Plant("WTM"); (ii) network cleaning; (iii) installation of in-network re-chlorination systems; (iv) equipment for water quality monitoring; (v) reconstruction of pumping station and tanks at the Napornaya WTP; and (vi) procurement of maintenance equipment.

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Component 3. Institutional strengthening and capacity-building

The component finances activities to build institutional capacity and improve utility performance of DVK, which includes (i) carrying out an assessment of DVK's organizational and capacity-building needs; (ii) installation of modem accounting, billing and water revenue collection systems; (iii) provision of technical assistance to the management of DVK to improve its financial performance; (iv) provision of technical assistance, and carrying out of studies to improve the water supply operations of DVK, including studies for hydraulic modeling, and for design of pressure zones and SCAD A system; and (v) implementation of training programs for DVK staff.

Component 4. Project implementation support

The component provides project implementation support including (i) design and supervision of works; (ii) project implementation operating costs, and (iii) annual project audits.

Project management

The Management is implemented by the Project Administration Unit (the "PAU") within the scope of the State Unitary Enterprise "Dushanbe Vodokanal".

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: Annual 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.

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Foreign currency

Operations in foreign currency initially are counted in functional currency by the currency exchange rate settled by the the National Bank of Tajikistan (the "NBT") 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 the National Bank of Tajikistan, at the date of transaction.

Monetary assets and liabilities expressed in foreign currency are converted to fonctional currency at official exchange rate on a date settled by the NBT.

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.

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. ·

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, 2017 and 2016 comprise:

Source of financing Currency December 31, December 31, 2017 2016

Co-financing account Co-financing by LSEA USD 114,518 607,137 Co-financing account Co-financing by LSEA TJS 336,526 127,547 Designated account Grant No. H692-TJ/

Grant No. D087-TJ USD 648 220,610 Transit account Grant No. D087-TJ TJS 922 23,914 Transit account Grant No. D087-TJ EUR 17 Tender account Grant No. D087-TJ TJS 267 1,490 Tender account Grant No. D087-TJ USD 150 394 Cash on hand TJS 698 Advances to employees USD 130 172

453,876 981,264

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5. FUNDS RECEIVED

The fund received are presented by the following financing methods:

For the year For the year Cumulative ended ended

December 31, December 31, 2017 2016

Source of financing:

Grant No. H692-TJ Reimbursement of expenses 539,217 1,674,674 6,1.00,828 Direct payment 1,452,177 5,269,001 Advance 600,000 Special commitment 2,347,171

Grant No. D087-T J Reimbursement of expenses 578,718 578,718 Direct payment 501,802 501,802 Advance 600,000 600,000

Co-financing by LSEA Reimbursement of expenses 382,271 236,461 3,395,581

2,002,008 3,963,312 19,393,101

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6. PROJECT EXPENSES

Project expenses on major categories are presented in the summary of funds received and expenditures paid. Project expenses by components are presented in the summary of expenditures paid by project components. Breakdown of project expenses by nature is presented as follows:

For the year ended For the year ended Cumulative December 31, 2017 December 31, 2016

Grant No. Grant No. Co-financing Grant No. Grant No. Co-financing Grant No. Grant No. Co-financing H692-TJ D087-TJ byLSEA H692-TJ D087-TJ byLSEA H692-TJ D087-TJ byLSEA

Works 568,661 501 ,802 604,070 2,575,837 346,571 343,677 6,385,663 848,373 1,856,549 Payroll and related taxes 18,123 7,721 24,630 5,979 131,303 13,700 Operating expenses 15,176 7,908 33 531,629 7,908 33 Fuel expenses 1,757 826 2,200 16,832 826

Goods 934 90,004 10,003 201,523 42,728 8,175 3,358,051 132,732 718,311 Stationery 860 96 2,248 18,848 96 Advertising expenses 372 118 212 4,556 118 Communication 222 352 1,363 10,814 352 Bank fees 152 909 52 850 211 7,258 1,120 52 Consultants' services 631,670 281,813 20,152 3,499,101 651,822 Audit 43,825 15,428 133,920 43,825

Business trips 6,203 14,801

Trainings 1,545 222,223 Other 2,100 525 51 887 12,612 525 51

608,357 1,285,756 614,209 3,114,739 415,641 351 ,852 14,347,611 1,701,397 2,574,996

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7. FINANCIAL POSITION

Financial position as at December 31, 2017 and 2016 comprise:

ASSETS AND EXPENDITURES Cash and cash equivalents Cumulative project expenses Foreign exchange rate differences Other expenses

TOT AL ASSETS AND EXPENDITURES

FINANCING Funds received Other income

TOT AL FINANCING

8. WITHDRAWAL APPLICATIONS

December 31, 2017

453,876 18,624,004

156,417 209,353

19,443,650

19,393,101 50,549

19,443,650

Withdrawal applications for the year ended December 31, 2017 comprise:

Sources of financing Applications Date Direct Works, goods, payment advisory services

including audit, operating costs

Grant No. H692-TJ

42 January 31, 2017 539,217

539,217

Grant No. D087-TJ 43 July 26, 2017 578,718 44 November 27, 2017 501 ,802

501,802 578,718

Co-financing by LSEA n/a October 31, 2017 182,427 n/a December 14, 2017 199,844

382,271

501,802 1,500,206

13

December 31, 2016

981,264 16,115,682

135,146 209,099

17,441,191

17,391,093 50,098

17,441,191

Total

539,217

539,217

578,718 501,802

1,080,520

182,427 199,844

382,271

2,002,008

9. STATEMENT OF DESIGNATED ACCOUNT

Designated accounts for the year ended December 31, 2017 comprise:

Designated accounts Currency Bank account Bank Bank's location

Description

Grant No. H692-T J US Dollars 20206840600240000110

OJSC "Bank Eskhata" 11 Adhamov str., Dushanbe, Tajikistan

US Dollars

Balance as at January 1, 2017 ________ 3_6""",4_0_1_

Reimbursement of expenses Transfer between accounts

Total funds received to the designated account

Expenditures paid Transfer between accounts

Balance as at December 31, 2017

10. UNDRA WN FUNDS

539,217 85,000

624,217

568,661 91,556

401

Grant No. D087-TJ US Dollars 20206840500240000113

OJSC "Bank Eskhata" 11 Adhamov str., Dushanbe, , Tajikistan

US Dollars

184,209

578,718

578,718 .

474,584 288,096

247

As at December 31, 2017 undrawn funds are presented as follows:

Approved grant amount Disbursed during the period from July 13, 2011 to December 31, 2017

Undrawn amount

Grant received as at January 1, 2017 Disbursed in 2017

Grant received as at December 31, 2017

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Grant No. H692-TJ inSDR

10,100,000

9,780,784

319,216

Grant No. H692-TJ in SDR

9,383,959 396,825

9,780,784

Total

US Dollars

220,610

1,117,935 85,000

1,202,935

1,043,245 379,652

648

Grant No. D087-TJ inSDR

3,300,000

1,198,768

2,101,232

Grant No. D087-TJ in SDR

432,628 766,140

1,198,768

11. COMMITMENTS

12.

13.

In the nonnal 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, 2017 was as follows:

Counterparty Contract No. Contract Contract Paid up to Remaining Currency value December 31,. amount to

(in CCY) 2017 be paid (in CCY) (in CCY)

P.J.S.C "Shimbar" DWSP2-09 USO 5,970,673 5,279,343 691,330

Ludwig Pfeiffer Hoch- und Tiefbau GmbH & Co.KG OWSP2AF/W- 09 USO 5,575,573 557,557 5,018,015

CES Consulting Engineers Salzgitter GmbH OWSP2AF-14 USO 819,000 232,693 586,307

Firuz Safarov OWSP2AF/IC-17 TJS 392,500 240,147 152,353

Sharifkhon Boboev OWSP2AF/IC-16 TJS 321 ,480 125,480 196,000

Reseach Center "Zerkalo" OWSP2-20.2 TJS 260,789 142,888 117,901

LEGAL CASES

There were no any legal claims related to the Project.

EVENTS AFTER THE REPORTING DATE

During 2018 until the date of issue of these project financial statements the World Bank provided financing to the Project as follows:

Date Application

February 7, 2018 45 January 8, 2018 46 March 7, 2018 47

Grant No. H692-TJ

220,000 235,484

455,484

Grant No. D087-TJ

156,111

156,111

As at the date of issue of the project financial statements no other significant events or transactions occurred, except for the events or transactions described above.

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