“Second Dushanbe Water Supply Project” Grant No. H692-TJ, Grant No. D087-TJ, Credit No. 5709-TJ

Special purpose project financial statements for the year ended December 31, 2016

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

Page

STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION

AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2016 2

INDEPENDENT AUDITORS’ REPORT 3-5

SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2016

Statement of cash proceeds and disbursements 6

Statement of uses of funds by project components 7-8

Notes to the special purpose project financial statements 9-17

7

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

STATEMENT OF FUNDS BY PROJECT COMPONENTS FOR THE YEAR ENDED DECEMBER 31, 2016 (in US Dollars)

For the year

ended

December 31,

2016

Cumulative For the year

ended

December 31,

2015

Cumulative

Component 1: Metering and

demand management 131,509 5,877,624 1,395,241 5,746,115

Installation of 76,500 residential

water meters 115,928 2,593,908 1,046,591 2,477,980

Customer satisfaction surveys 15,581 50,238 15,582 34,657

Purchase of 76,500 residential

water meters - 2,901,173 273,716 2,901,173

Purchase and installation of bulk

flow meters at water production

facilities - 216,253 22,416 216,253

Purchase of Network Information

System - 31,500 - 31,500

Communication strategy and

public awareness campaigns to

promote metering and demand

management - 84,552 36,936 84,552

Component 2: Water quality

improvement 2,851,061 4,903,270 1,332,485 2,052,209

Partial renewal of filtration

capacity at Samotechnaya Water

Treatment Plant 2,793,551 4,162,368 1,237,462 1,368,817

Purchase and installation of re-

chlorination units at 5 reservoirs 47,475 47,475

Cleaning network sections and

reservoirs 10,035 294,334 95,023 284,299

Purchase of hydraulic excavator - 281,996 - 281,996

Purchase of laboratory equipment - 63,275 - 63,275

Purchase of the measuring

equipment for leakage detection - 53,822 - 53,822

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“SECOND DUSHANBE WATER SUPPLY PROJECT” GRANT NO. H692-TJ, GRANT NO. D087-TJ, CREDIT NO. 5709-TJ NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 (in US Dollars)

1. GENERAL INFORMATION

According to the Financing Agreement between the Republic of Tajikistan and International Development

Association (“IDA”) dated July 13, 2011, the IDA provided a Grant No. H692-TJ in the amount of

10,100,000 Special Drawing Rights (“SDR”) to the Republic of Tajikistan.

According to Financing agreements between the Republic of Tajikistan and International Development

Association (“IDA”) dated August 7, 2015 the IDA provided an additional financing in the form of Grant

No.D087-TJ in the amount of 3,300,000 SDR and Credit No. 5709-TJ in the amount of 4,000,000 SDR.

The Grant and Credit were provided for the implementation of “Second Dushanbe Water Supply Project”

(the “Project”).

Effective date of the Project is October 12, 2011. Project completion date is September 30, 2018.

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 (NIS); (v) communication strategy and public awareness campaigns to promote

metering and demand management; and (vi) installation of SCADA system.

Component 2. Water quality improvement

The component supports system upgrades for improved quality of water, including: (i) partial renewal of

filtration capacity at Samotechnaya Water Treatment Plant (the “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.

10

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 modern 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 SCADA system; and (v) implementation of

training programs for DVK staff.

Component 4. 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 SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS

Basis of preparation

These special purpose 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.

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 special purpose project financial statements consist of:

Statement of cash proceeds and disbursements;

Statement of uses of funds by project components;

Notes to the special purpose project financial statements, including short description of main

statements of accounting policy and other descriptive notes.

The reporting currency of these special purpose project financial statements is US Dollars (the “USD”).

11

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash basis of accounting

Special purpose 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 entity. Special purpose 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 special purpose 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 the commercial bank on a date of operation.

Funds received are translated into USD 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 USD at the official exchange

rate defined by commercial bank, at the date of transaction.

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 statement of cash

proceeds and disbursements.

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.

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 replenishment of designated account or

through direct payment to the end supplier of goods and/or services.

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4. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at December 31, 2016 and 2015 comprise:

Source of financing Currency December 31,

2016

December 31,

2015

Special account Grant No. H692-TJ USD 36,401 48,607

Special account Grant No. D087-TJ USD 184,209 -

Co-financing account Co-financing by LSEA USD 607,137 719,168

Co-financing account Co-financing by LSEA TJS 118,992 147,832

Co-financing account -

Additional financing Co-financing by LSEA TJS 8,554 -

Transit account Grant No. H692-TJ TJS 23,881 58

Transit account Grant No. D087-TJ TJS 33 -

Tender account Grant No. H692-TJ TJS 1,490 1,679

Tender account Grant No. H692-TJ USD 394 394

Advances to employees Grant No. H692-TJ USD 172 448

981,263 918,186

5. FUNDS RECEIVED

The fund received was presented by the following methods:

For the year

ended

December 31,

2016

Cumulative For the year

ended

December 31,

2015

Cumulative

Financing method /

source of financing:

Grant No. H692-TJ

Reimbursement of

expenses 1,674,674 5,561,611 2,091,119 3,886,937

Direct payment 1,452,177 5,269,001 553,530 3,816,824

Advance - 600,000 - 600,000

Special commitment - 2,347,171 - 2,347,171

Grant No. D087-TJ

Advance 600,000 600,000 - -

Co-financing by LSEA

Replenishment of

account 236,461 3,013,310 1,365,093 2,776,849

3,963,312 17,391,093 4,009,742 13,427,781

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6. PROJECT EXPENDITURES

Project expenditures on major categories are presented in the statement of cash proceeds and

disbursements. Project expenditures by components are presented in the statement of funds by project

components. Breakdown of project expenses by nature and grants is presented as follows:

Works, goods, advisory services including audit and operating costs:

For the year ended December 31, 2016 Cumulative For the year ended December 31, 2015 Cumulative

Grant

No.

H692-TJ

Grant

No.

D087-TJ

Co-

financing

by LSEA

Grant

No.

H692-TJ

Grant

No.

D087-TJ

Co-

financing

by LSEA

Grant

No.

H692-TJ

Grant

No.

D087-TJ

Co-

financing

by LSEA

Grant

No.

H692-TJ

Grant

No.

D087-TJ

Co-

financing

by LSEA

Works 2,575,837 346,571 343,677 5,817,002 346,571 1,252,479 1,958,182 - 420,893 3,241,165 - 908,802

Consultants’ services 281,813 20,152 - 3,499,101 20,152 - 594,499 - - 3,217,288 - -

Goods 201,523 42,728 8,175 3,357,117 42,728 708,308 112,803 - 299,013 3,155,594 - 700,133

Payroll and related taxes 24,630 5,979 - 113,180 5,979 - 25,317 - - 88,550 - -

Audit 15,428 - - 133,920 - - 17,346 - - 118,492 - -

Business trips 6,203 - - 14,801 - - - - - 8,598 - -

Stationery 2,248 - - 17,988 - - 1,309 - - 15,740 - -

Fuel expenses 2,200 - - 15,075 - - 2,912 - - 12,875 - -

Trainings 1,545 - - 222,223 - - 25,875 - - 220,678 - -

Communication 1,363 - - 10,592 - - 2,267 - - 9,229 - -

Bank fees 850 211 - 7,106 211 - 351 - - 6,256 - -

Advertising expenses 212 - - 4,184 - - 51 - - 3,972 - -

Operating expenses - - - 516,453 - - 50,515 - - 516,453 - -

Other 887 - - 10,512 - - 366 - - 9,625 - -

3,114,739 415,641 351,852 13,739,254 415,641 1,960,787 2,791,793 - 719,906 10,624,515 - 1,608,935

14

7. FINANCIAL POSITION

Financial position as at December 31, 2016 and 2015 comprise:

December 31,

2016

December 31,

2015

ASSETS AND EXPENDITURES

Cash and cash equivalents 981,263 918,186

Cumulative project expenditures 16,115,682 12,233,450

Foreign exchange rate differences 135,146 117,242

Other expenditures 209,100 208,939

TOTAL ASSETS AND EXPENDITURES 17,441,191 13,477,817

FINANCING

Funds received 17,391,093 13,427,781

Other income 50,098 50,036

TOTAL FINANCING 17,441,191 13,477,817

8. WITHDRAWAL APPLICATIONS

Withdrawal applications for the year ended December 31, 2016 comprise:

Sources of financing Applications Date Advance Works, goods,

advisory

services

including audit,

operating costs

Total

Grant No. H692-TJ

32 February 3, 2016 - 124,832 124,832

33 February 26, 2016 - 176,070 176,070

35 May 4, 2016 - 156,982 156,982

36 May 4, 2016 - 564,870 564,870

37 June 16, 2016 - 564,636 564,636

38 July 6, 2016 - 751,553 751,553

40 October 26, 2016 - 545,168 545,168

41 December 30, 2016 - 242,740 242,740

- 3,126,851 3,126,851

Grant No. D087-TJ

39 July 26, 2016 600,000 - 600,000

600,000 - 600,000

Co-financing by LSEA

August 9, 2016 - 223,162 223,162

December 14, 2016 - 13,299 13,299

- 236,461 236,461

600,000 3,363,312 3,963,312

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9. SPECIAL ACCOUNT

Special accounts for the year ended December 31, 2016 comprise:

Special accounts Grant No. H692-TJ Grant No. H692-TJ Grant No. D087-TJ Total

Currency US Dollars US Dollars US Dollars

Bank account 20206840800000013801 20206840600240000110 20206840500240000113

Bank OJSC “Tojiksodirot Bank” OJSC “Bank Eskhata” OJSC “Bank Eskhata”

Bank’s location 47 Bekhzod str.,

Dushanbe, Tajikistan

11 Adhamov str.,

Dushanbe, Tajikistan

11 Adhamov str.,

Dushanbe, Tajikistan

Description

Balance as at January 1, 2015 192,738 - - 192,738

Reimbursement of expenses 2,091,119 - - 2,091,119

Total funds received to a special account 2,091,119 - - 2,091,119

Expenditures paid 2,235,250 - - 2,235,250

Balance as at December 31, 2015 48,607 - - 48,607

Reimbursement of expenses - 1,674,674 - 1,674,674

Advance - - 600,000 600,000

Transfer between accounts - 329,000 329,000 658,000

Total funds received to a special account - 2,003,674 929,000 2,932,674

Expenditures paid - 1,495,878 334,631 1,830,509

Transfer between accounts 48,607 471,395 410,160 930,162

Balance as at December 31, 2016 - 36,401 184,209 220,610

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10. UNDRAWN FUNDS

As at December 31, 2016 undrawn funds with breakdown by grants are presented as follows:

Grant No.

H692-TJ

in SDR

Grant No.

D087-TJ

in SDR

Approved grant amount 10,100,000 3,300,000

Disbursed during the period from

July 13, 2011 to December 31, 2016 9,383,959 432,628

Undrawn amount 716,041 2,867,372

Grant received as at January 1, 2016 7,140,451 -

Disbursed in 2016 2,243,508 432,628

Grant received as at December 31, 2016 9,383,959 432,628

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, 2016 was as follows:

Counterparty Contract No. Contract

value

(in USD)

Paid up to

December 31,

2016

Remaining

amount to

be paid

P.J.S.C “Shimbar” DWSP2- 09 5,970,673 4,162,367 1,808,306

LLC “Adolat-2013” DWSP2AF-13 132,250 47,475 84,775

Counterparty Contract No. Contract

value

(in TJS)

Paid up to

December 31,

2016

Remaining

amount to

be paid

Firuz Safarov DWSP2AF/IC-17 392,500 47,100 345,400

LLC “Komroni Aziz” DWSP2AF/CS-07 230,000 69,000 161,000

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12. LEGAL CASES

There were no any legal claims related to the Project.

13. EVENTS AFTER THE REPORTING DATE

During 2017 until the date of issue of these special purpose project financial statements the World Bank

provided financing to the Project as follows:

Source of financing Financing method Date Application Grant No.

H692-TJ

Grant No. H692-TJ Reimbursement of expenses January 31, 2016 42 539,217

539,217

As at the date of issue of the special purpose project financial statements no other significant events or

transactions happened, which should be disclosed in the special purpose project financial statements,

except for the events or transactions described above.