Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project # P122540

Report and financial informationfor the period from I January 2017 to 31 December 2017

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Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project # Pl22540

Report and financial informationfor the period from 1 January 2017 to 31 December 2017

Page

Independent auditor's report 1-3

Statement of cash receipts and payments by category 4

Statement of cash payments classifying the uses of funds 5

Statement of movements in the Designated Account 6

Notes to the financial information 7-10

List of signed contracts Appendix A

pwcIndependent auditor's reportto the Ministry of Environment, Republic of Lebanon

Report on the audit of the financial information

Our opinion

In our opinion, the financial information of PCB Management in the Power Sector ("theProject") are prepared, in all material respects, in accordance with the accounting policiesdescribed in note 2 to the financial information.

What we have audited

The Project's financial information comprise:

* the statement of cash receipts and payments by category for the period fromI January 2017 to 31 December 2017;

* the statement of cash payments classifying the uses of funds for the period then ended;* the statement of movements in the Designated Account for the period then ended; and* the notes to the financial information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Ourresponsibilities under those standards are further described in the Auditor's responsibilities forthe audit of the financial informations section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

Independence

We are independent of the Ministry of Environment in accordance with the International EthicsStandard Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code)and the ethical requirements that are relevant to our audit of the financial information inLebanon. We have fulfilled our other ethical responsibilities in accordance with the IESBACode.

Other information

The Project Management Unit ("PMU") of the Ministry of Environment is responsible for theother information. The other information comprises the list of signed contracts of the Projectincluded in Appendix A (but does not include the financial information and our auditor's reportthereon).

Our opinion on the financial information does not cover the other information and we do notexpress any form of assurance conclusion thereon.

In connection with our audit of the financial information, our responsibility is to read the otherinformation identified above and, in doing so, consider whether the other information ismaterially inconsistent with the financial information or our knowledge obtained in the audit,or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement ofthis other information, we are required to report that fact. We have nothing to report in thisregard.

Pricewaterhousecoopers, Saba House Bldg., Block B/C, Said Freiha Str., Hazmieh, Lebanon, MoF 95693P.O. Box 1i-3i55, Beirut, Lebanon, Telephone +961 (5) 4286oo, Facsimile +961 (5) 951979, Ii piec r rAHI r

Independent auditor's report (continued)to the Ministry of Environment, Republic of Lebanon

Basis of accounting and restriction on distribution and use

We draw attention to note 2 to the financial information, which describes the basis ofaccounting. The financial information is prepared to enable the PMU to meet its reportingobligations to the World Bank under the terns of the Grant Agreement No. TF-01 8030. As aresult, the financial information may not be suitable for another purpose.

Our report is intended solely for the Ministry of Environment, Republic of Lebanon and theWorld Bank and should not be distributed to or used by parties other than the Ministry ofEnvironment, Republic of Lebanon and the World Bank. Our report is not modified in respectof this matter.

Responsibilities of management and those charged with governance for the financialinformation

The PMU is responsible for the preparation of the financial information in accordance with theaccounting policies described in note 2 to the financial information and for such internalcontrol as management determines is necessary to enable the preparation of the financialinformation that is free from material misstatement, whether due to fraud or error.

Those charged with governance are responsible for overseeing the Project's financial reportingprocess.

Auditor's responsibilities for the audit of the financial information

Our objectives are to obtain reasonable assurance about whether the financial information as awhole is free from material misstatement, whether due to fraud or error, and to issue anauditor'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 ISAs will always detect amaterial misstatement when it exists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of this financial information.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintainprofessional scepticism through the audit. We also:

* Identify and assess the risks of material misstatement of the financial information, whetherdue to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.The risk of not detecting a material misstatement resulting from fraud is higher than forone resulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.

* Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the Project's internal control.

* Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.

Independent auditor's report (continued)to the Ministry of Environment, Republic of Lebanon

Auditor's responsibilities for the audit of the financial information (continued)

We communicate with those charged with governance regarding, among other matters, theplanned scope and timing of the audit and significant audit findings, including any significantdeficiencies in internal control that we identify during our audit.

Beirut, Lebanon19 June 2018

7121

4Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project # P122540

Statement of cash receipts and payments by categoryfor the year ended 31 December 2017

2017 2016Note USS US$

Sources of fundsIBRD grant funds 4 204,291 173,379IBRD direct payments 4 540,545 114,062

744,836 287,441

Uses of funds by project componentCapacity building and project management 3 150,438 158,505Inventory of PCB contaminated transformers 309,190 88,340Disposal of high content PCB equipmentand contaminated oil 231,355 -

690,983 246,845

Balance refunded to donor 23,404 -

Uses of funds 714,387 246,845

Surplus 30,449 40,596

The financial information on pages 4 to 10 were authonsed by Ms. Lama Mghames Chouchanyon 18 June 2018 on behalf of the Project Management Unit ("PMU") of the Ministry ofEnvironment:

a M6ames Chouchanyroject manager

PCBs Management in the Power Sector ProjectWorld BankMinistry of Environment

The notes on pages 7 to 10 are an integral part of this financial information,

Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project # P122540

Statement of cash payments classifying the uses of fundsfor the period from 1 January 2017 to 31 December 2017

2017 2016Note US$ US$

Capacity building and project managementConsultants' services 3 141,022 108,490Goods 3 - 15,202Operating and training costs 3 9,416 34,813

150,438 158,505Inventory of PCB contaminated transformersWorks 309,190 88,340Disposal of high content PCB equipmentand contaminated oilWorks 231,355 -

Total expenditures by project componentand sub-components 690,983 246,845

The notes on pages 7 to 10 are an integral part of this financial information.

Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project # P122540

Statement of movements in the Designated Accountfor the period from I January 2017 to 31 December 2017

Note US$

Designated Account balance at 1 January 2017 99,488

Add:IBRD grant funds 204,291IBRD direct payments 540,545

Sources of funds 744,836

Less:Uses of funds (150,438)Direct payments (540,545)

(690,983)

Balance refunded to donor (23,404)

Uses of funds (714,387)

Designated Account balance at 31 December 2017 5 129,937

The notes on pages 7 to 10 are an integral part of this financial information.

7Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project# P122540

Notes to the financial informationfor the period from 1 January 2017 to 31 December 2017

1 Project background

The Government of Lebanon became party to the Stockholm Convention on 3 January 2003.For the planning of appropriate action in the field of controlling Persistent Organic Pollutants("POPs") substances and releases as well as fulfilling the reporting requirements of theConvention, Lebanon submitted its National Implementation Plan (NIP) on POPs in 2006,According to the NIP, Lebanon's top priorities in POPs management are: (i) awareness raising;(ii) institutional and regulatory strengthening; (iii) PCB management; and (iv) managementof emissions of dioxins and furans.

The Lebanese Republic has obtained from the International Bank for Reconstruction andDevelopment "IBRD" of the World Bank a grant of US$ 2.5 million to finance theimplementation of the PCB Management in the Power Sector Project.

The project's effective date was 30 March 2015 and its closing date is 30 June 2020.

The objective of this Project is to dispose of high risk PCBs and improve the inventorymanagement of transformers in the power sector in an environmentally sound manner.

Given the risk of high content PCB equipment and the priorities set by the StockholmConvention to eliminate PCB from Lebanon by 2025, this project will take action to:

(i) conduct a country-wide inventory of the PCB contaminated transformers in the powersector in Lebanon, which will update the findings of a previously conducted survey in2010;

(ii) dispose of all the high content PCB equipment and OCB contaminated oil; and(iii) provide capacity building to stakeholders for an improved PCB management in the

future.

The Project Management Unit (PMU) within the Ministry of Environment is responsible foroverall coordination and implementation of the Project.

During 2017, total cash receipts received from the World Bank amounted to US$ 744,836(2016 US$ 287,441), disbursements made amounted to US$ 690,983 (2016 US$ 246,845)and refunds to the World Bank amounted to US$ 23,404 (2016 nil).

2 Principal accounting policies and basis of preparation

The Project Management Unit ("PMU") prepares the financial information of the PCBManagement in the Power Sector ("the Project").

The Project's governing documents provide certain guidelines for governing its financialactivities. To ensure observance of limitations and restrictions on the use of financialresources, the PMU classifies the Project's uses of funds for accounting and reporting purposesunder the following components:

8Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project# P122540

2 Principal accounting policies and basis of preparation (continued)

Component 1 - Inventory of PCB contaminated transformers (USS 0.79 million):This component supports a countrywide inventory of the PCB contaminated transformers inthe power sector in Lebanon including: (i) desk review to identify the number of transformerspotentially contaminated, (ii) sampling and (iii) on-site and laboratory testing of PCB.

Component 2 - Disposal of high-content PCB equipment and contaminated oil(USS 1.1 million):This component supports the disposal of PCB equipment and contaminated oil, includingassociated capacitors.

Component 3 - Capacity building and project management: (US$ 0.65 million):This component supports project management and coordination activities including (i) theestablishment and staffing of a Project Management Unit (PMU), (ii) training staff at theMinistry of Environment and other relevant institutions and (iii) building the capacity oftechnical staff in reviewing, sampling, testing and labelling of PCB contaminated oil.

The Project's expenditures are reflected in the unaudited Interim Financial Reports (IFRs)presented to the World Bank office in Beirut on a quarterly basis.

The significant accounting policies adopted by the PMU in the preparation of the financialinformation are as follows:

Basis of preparation

The financial information has been prepared in accordance with the cash basis of accountingas approved by the World Bank, and as required by the terms of the Financial ManagementProcedures Manual of the Project, dated December 2016.

Sources of Funds

Funds received are recognised when cash is received.

Use of Funds

Uses of funds, expenses and other disbursements are recognised when cash is disbursed.Eligible expenditures under the Grant Agreement are used, accounted for and classified inaccordance with the conditions of the Grant Agreement and applicable laws and regulationsof the PMU's financial activities.

Designated Account

The designated account includes deposits held at call with the bank. The movement in thedesignated account represents the movement in the Project funds received and disbursedduring the year.

Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project# P122540

3 Capacity Building and Project Management

2017 2016Us$ US$

Consulting services 141,022 108,490Operating costs 5,821 17,515Training costs 3,595 17,298Goods - 15,202

150,438 158,505

4 IBRD grant funds received

The below table lists the IBRD grant funds received in the Designated Account during 2017:

Receipt dateUs$

1 July 2017 204,291

The below table lists the IBRD direct payments made by the World Bank for the project during2017:

US$Receipt dates25 January 2017 80,97428 February 2017 132,51028 June 2017 88,34025 August 2017 238,721

Total direct payments 540,545

10Ministry of Environment, Republic of LebanonPCB Management in the Power Sector - Project# P122540

5 Designated Account

The table below shows the movement in the Designated Account at the bank during 2017:

UsSCredit Debit Balance

At 1 January 2017 99,48831 January 2017 - 13,008 86,48028 February 2017 - 626 85,85431 March 2017 - 18,495 67,35930 April 2017 - 24,880 42,47931 May 2017 - 9,832 32,64730 June 2017 - 9,464 23,18331 July 2017 204,291 41,350 186,12431 August 2017 - 10,104 176,02031 October 2017 - 24,103 151,91721 December 2017 - 12,100 139,81731 December 2017 - 9,880 129,937

Designated Account at31 December 2017 204,291 173,842 129,937

Ministry of Environment, Republic of LebanonPCB Management in the Power Sector -Project# P122540

Appendix A

List of signed contractsAmount

Date of Contract Amount paid toProject Component Nature committed paid tosignature no. in ~ date in

in US$USUS$

Capacity building and project management Goods 8 21 2015 SHOO1 3,528 3,528

Capacity building and project management Goods 7 27 2015 SHOO2 3,600 3,600

Capacity building and project management Goods 7 27 2015 SHOO3 1,880 1,880

Capacity building and project management Goods 12 16 2015 SHOO4 511 511

Capacity building and project management Goods 892015 SH005 1,552 1,552

Capacity building and project management Goods 12 24 2015 SH006 12,222 12,222

Capacity building and project management Goods 2 4 2016 SH007 2,215 2,215

Capacity building and project management Goods 1 4 2016 OC16 254 254

Capacity building and project management Consulting 1231 2015 FCO01 17,900 10,740services

Capacity building and project management Consulting 5 1 2015 ICOOI 294,000 162,000services

Capacity building and project management Consulting 5 1 2015 1C002 121,200 66,000services

Capacity building and project management Consulting 12282015 IC003 17,880 12,516services

Capacity building and project management Consulting 1 28 2016 1C004 12,096 12,096services

Capacity building and project management Consulting 8 19 2016 1C005 8,340 8,340services

Capacity building and project management Consulting 9 27 2016 IC006 19,600 19,600services

Capacity building and project management Consulting 10192016 IC007 1,400 1,400services

Capacity building and project management Consulting 932017 IC008 200 200services

Capacity building and project management Consulting 8 1 2017 IC009 10,550 4,220services

Capacity building and project management Consulting 8 122017 1C010 400 400services

Ministry of Environment, Republic of LebanonPCB Management in the Power Sector -Project# P122540

Appendix A

List of signed contracts (continued)

AmountDate of Contract paidutoProject Component Nature committed paid tosignature no. i date in

US$Inventory of PCB contaminated Works 10 24 2016 PWOOI 883,400 397,530transformers:

Disposal of high-content PCB equipment Works 331 2016 PWO02 231,355 231,355and contaminated oil