Public Disclosure Authorized GrantThornton · December 2016 December 2015 2016 Sources of funds IDA funding 3 6,505,153 - 12,505,152 ... Project Management Unit on 25 October 2017

O GrantThornton

Independent Auditor's Report and Special Purpose

Financial Information

Water Sector Investment Project

For the Period from 1 January to 31 December 2016

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Contents

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Independent Auditor's Report i-iStatement of Sources and Uses of Funds 1

Statement of Withdrawal Applications 2Notes to the Special Purpose Financial Information 3-10Appendices 1-iv

O GrantThornton

Grant Thornton Sh.p.k.Rr: Sami Frasheri, Kompleksi TID,Shk. B, Floor 1, 10 000Tirana, Albania

T +355 4 22 74 832F +355 4 22 56 [email protected]

Independent Auditor's Report

To the Management of the project "Water Sector Investment" and Ministry of Finance and

Economy of the Republic of Albania

Opinion

We have audited the accompanying special purpose financial information comprising thestatement of sources and uses of funds, statement of withdrawal applications and the relatednotes of the "Water Sector Investment Project" (further referred to as the "Project"), financedunder International Bank for Reconstruction and Development ('IBRD') Loan AgreementNumber 8323-AL and Government of Albania Contribution for the period from 1 January to 31December 2016. The special purpose financial information has been prepared by themanagement of the Project in accordance with policies described in note 2 of the special purposefinancial information.

In our opinion, the special purpose financial information of the Project "Water SectorInvestment" is prepared, in all material respects, in accordance with the cash receipts anddisbursement basis of accounting as set out in note 2 to the special purpose financialinformation.

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 special purpose financial information section of out report. We are independentof the entity in accordance with the International Ethics Standards Board for Accountants' Codeof Ethics for Professional Accountants (IESBA Code) together with the ethical requirements thatare relevant to our audit of the special purpose financial information in Albania, and we havefulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe thatthe audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

Emphasis of Matter - Basis of Accounting and Restriction on Use and Distribution

Without modifying our opinion, we draw attention to note 2 to the special purpose financialinformation, which describes the basis of accounting. The special purpose financial information isprepared to assist the Project to comply with the financial reporting provisions of the financingagreements set out in the note 1 to the special purpose information. As a result, the special purposefinancial information may not be suitable for another purpose. Our report is intended solely for theProject, the donors and the Ministry of Finance and Economy and should not be used by ordistributed to parties other than the Project, the donors or the Ministry of Finance and Economy.

Responsibilities of Management for the Special Purpose Financial Information

Management is responsible for preparation and fair presentation of the special purpose financialinformation in accordance with the basis of accounting described in notes 2; this includesdetermining that the cash receipts and disbursements basis of accounting is an acceptable basis forthe preparation of the special purpose financial information in the circumstances, and for suchinternal control as management determines is necessary to enable the preparation of a specialpurpose financial information that is free from material misstatement, whether due to fraud or error.

Auditor's Responsibility for the Audit of the Special Purpose Financial Information

Our objectives are to obtain reasonable assurance about whether the special purpose financialinformation as a whole is free from material misstatement, whether due to fraud or error, and toissue 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 ISAs will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered materialif, individually or in the aggregate, they could reasonably be expected to influence the economicdecisions of users taken on the basis of this special purpose financial information.

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

* Identify and assess the risks of material misstatement of the special purpose financialinformation, whether due to fraud or error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for ouropinion. 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 expressing anopinion on the effectiveness of the entity's internal control.

* Conclude on the appropriateness of management's use of the going concern basis of accountingand based on the audit evidence obtained, whether a material uncertainty exists related to eventsor conditions that may cast significant doubt on the entity's ability to continue as a goingconcern. If we conclude that a material uncertainty exists, we are required to draw attention inour auditor's report to the related disclosures in the special purpose financial information or, ifsuch disclosures are inadequate, to modify our opinion. Our conclusions are based on the auditevidence obtained up to the date of our auditor's report. However, future events or conditionsmay cause the entity to cease to continue as a going concern.

II

* Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates, if any, and related disclosures made by management.

* Evaluate the overall presentation, structure and content of the special purpose financialinformation, including the disclosures, and whether the special purpose financial informationrepresents the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies in

internal control that we identify during our audit

Grant Thornton sh.p.k.

Tirana, Albania

30 November 2017

4k'6gct~ ~III

WATER SECTOR INVESTMENT PROJECT

For ahe poriod from 1 Januwry to 31 December 2016(awounts ar expressed in EUR unless otherwise statedl

Statement of Sources and Uses of Funds

Note Period from Period from Cumulative from 141 January to 31 1 January to 31 May 2014 to 31December 2016 December 2015 December 2016

Sources of funds

IDA funding 3 6,505,153 - 12,505,152

GOA contribution 4 39,740 99,186 138,926

Interest received 1,322 356 2,015

Total 6,546,215 99,542 12,646,093

Uses of funds

GOA Contribution. 4 (39,740) (99,186) (138,929)

Consultancy services 5 (1,135,460) (197,032) (1,385,297)

Goods 6 (526,644) (158,085) (791,267)

Civil Works 7 (7,162,425) - (7,162,424)

Incremental operating costs 8 (59,490) (62,843) (141,974)

Total (8,923,759) (517,146) (9,619,891)

Excessl(deficit) of receipts overdisbursements (2,377,544) (417,604) 3,026,202

Exchange rate differences (736) (3,526) (4,264)

Cash at the beginning of the period 10 5,400,218 5,821,348 -

Cash at the end of the period 10 3,021,938 5,400,218 3,021,938

The Statement of Sources and Uses of Funds is to be read in conjunction with the notes set out on pages 3 to 10 andforming an integral part of the special purpose financial information.

The financial statements of Water Sector Investment Project were authorized for issue by the management of theProject Management Unit on 25 October 2017 and signed on its behalf by:

Ilir Sallaku Dburata Hoti

Acting P%ject Diector Project Financial Expeu

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For the period frorn I Januory to 31 Decor ber 20 16

(amounts ar e expmssed in EUR uness othervise stated)

Notes to the Special Purpose FinancialInformation

1. General

In order to significantly improve services quality in the Durres area, the Government of Albania hasrequested the World Bank support for a Water Sector Investment Project (WSIP). The Water SectorInvestment Project was approved by the World Bank on 20 December 2013 and declared effective on14 May 2014. The World Bank Loan amount is 85.3 million US$, equivalent to 62.5 million EUR andthe expected Project Closing Date is 30 June 2019.

The table below sets forth the items to be financed out of the proceeds of the loan, the allocation ofthe loan amount and the percentage of expenditures to be financed:

Amount of the Loan allocated Percentage of Expenditures to be financedCategory (expressed In EUR) (inclusive of taxes)

1) Works 53,900,000 100%2)Goods, non-consulting services 3,700,000 100%

3)Consultanls' Services and Training 4,500,000 100%4)Operating Costs 243,750 100%

AmountPayablepursuanttoSection2.03ofthisAgreementinaccordancowithSection2.07(b)ofth

5)Front-end fee 156,250 eGeneralConditionsTotal Amount 62,500,000

The WSIP is being implemented by the Ministry of Transport and Infrastructure (MTI) through the WaterProject Implementation Unit (PIU) of the General Directorate of Water and Sanitation Services (GDWSS). TheDurres Water Supply and Sanitation Utility (DWU) is the beneficiary of the infrastructure services and is alsodirectly involved in the decision making process.

The Project Development Objectives (PDO) of the WSIP are to:

(i) improve the quality of water and wastewater services in the Durres Water Utility ServiceArea; and(ii) improve the financial performance ofDurres Water Utility.

3

WATER SECTOR INVESTMENT PROJECTFor tho period from 1 Jaruary to 31 Decomber 2016(antsare e ssed in EUR unlss otherwise stated)

These objectives will be achieved by building upon the important foundation established under earlierinvestment programs in the Durres region and scaling up the Bank's level of engagement by: (a)implementing priority water supply investments, including additional water abstraction approximately13 km to the northeast of the existing source, and construction of a bulk water transmission pipelineto address the acute water shortages experienced especially during peak seasons; ancillary investmentslinking villages and settlements along the transmission route to the city's water supply system; andpriority investments to reduce losses in the city's water distribution network; (b) implementing priorityinvestments to enhance the existing sewerage network's capacity to reduce blockages and unsanitaryconditions caused by sewage overflow, and expanding the sewerage network to transfer wastewaterfrom the touristic beach area to the newly constructed Durres Wastewater Treatment Plant (WWTP);(c) consolidating and further improving the operations and sustainability of the Durres Water Utilitythrough effective enhancements in financial management and cost recovery; and (d) supportingproject implementation through an established Project Implementation Unit (PIU).

The project has four components:

Component 1: Priority Water Supply Investments: This component will finance: (i) six watersupply production wells and a bulk water supply transmission pipeline that will provide up to 6201/sadditional supply capacity to address the acute water shortages in the Durres Utility Service Area; (ii)ancillary investments, including elevated reservoirs, linking municipalities/communes within theDurres area and along the transmission pipeline route to the water supply system in a sustainablemanner; and (iii) priority investments in the water distribution network in Durres, as well as provisionof leak detection equipment and pressure reducing valves to reduce losses.

Component 2: Wastewater Network Investments: This component will finance priority wastewaterinvestments aimed at enhancing the existing sewerage network's capacity to handle the increased watersupply in an environmentally and socially sustainable manner, including:

(i) rehabilitation of critical parts of the existing sewerage system in Durres City to reduce sewageoverflows during heavy rain events and separation of the storm water network where necessary;

(ii) construction of the secondary and tertiary sewerage network in the Durres Beach area; (iii)provision of high-powered sewer cleaning equipment for Durres Water Utility; and (iv) strengtheningDurres Water Utility's initial ability to operate and maintain the new Durres wastewater treatmentplant,

Component 3: Institutional Development Program, Utility Strengthening and Water DemandManagement: This Component will support the Government's broad-based policy and reformagenda at the national level with specific interventions at the local level, focused on the Durres regionand its utility on a pilot basis, Investments would include: (i) design and implementation of a WaterDemand Management Program; (ii) support to the Performance Monitoring and Benchmarking Unit;(iii) preparation and implementation of a Performance Improvement Plan and other support forInstitutional Strengthening of Durres Water Utility to improve efficiency of operations, includingdesign of a customer service survey and public awareness campaign; (iv) consultancy services forTechnical Analysis and Capacity Building, in particular with regards to energy efficiency; and (v) adedicated annual financial audit of the Durres Water Utility.

Component 4: Project Implementation Support: This component will support implementation ofthe project including salaries for PIU staff, the PIU operating costs, provision of needed equipment,consultant services supporting project investment technical reviews, as well as overall projectsupervision, monitoring, evaluation and reporting.

4


For the period from 1 Jnary io 31 Doecember 2016(atnounts are expres.se0 dn EUR unPleSs othAvise stated)

2. Summary of significant accounting policies

A summary of significant accounting policies underlying the preparation of the Project'sfinancial statements is presented below.

a) Basis of preparation

The financial statements have been prepared in accordance with the Cash Basis of Accounting asfurther detailed below.

Cumulative information on cash receipts and disbursements from the Project's inception to date ispresented in the Statement of Sources and uses of Funds for information purposes only.

The financial statements are presented in Euro (EUR).

The financial statements comprise the Statement of Sources and Uses of Funds, the Statements ofExpenditures used as the basis for the submission of withdrawal applications and a summary ofsignificant accounting policies and other explanatory notes.

As supplementary schedules to the financial statements are presented the Statements of Special andAccounts and Single Treasury Account associated with the Project,

b) Foreign currency transactions

The Project has adopted the EUR as its reporting currency for consistency with the reporting needs ofits main donor, the World Bank.

Cash and bank balances in other currencies are converted into EUR at the year-end rate of exchange.Transactions in currencies other than EUR are converted to the reporting currency at the rate ruling atthe date of the transaction. Foreign exchange differences are recognized in the Statement of Sourcesand Uses of Funds.

As at 30 December 2016, 1 EUR was equivalent to 135.23 ALL.

c) Recognition of income and expenses

Income is recognized when received rather than when earned and expenses are recognized when paidrather than when incurred. Accordingly, direct payments of the Project, which are made from theproceeds of the Grant, are recognized as sources and uses of funds at the time the payment is made.

d) Taxation

The Project is exempt from income tax. The Project is liable for withholding tax and personnelincome tax for its staff. The Project of liable for all VAT expenses incurred.

5


For theF period From I January to 31 December 2016Iamountsare ox)ressed m EUR unless otherwise stated)

3. IDA Funding

Period from 1 January to 31 Period from 1 January to 31December 2016 December 2015

Replenishments 3,344,865

Direct Payment 3,160,288

Total 6,505,153

4. GoA contribution

GoA contributions for the period from 1 January 2016 to 31 December 2016 were composed asfollows:

Period from 1 January to Period from 1 January to31 December 2016 31 December 2015

Local Tax 995 -

Expropriations - 32,181

Expert for technical services - Public Institution 9,154 2,735

VAT on civil works -AD STAR WD 4 (note 7) 29,591 64,270

Total 39,740 99,186

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WATER SECTOR INVESTMENT PROJECTFor the period from 1 January to 31 December 2016(anounPts are exprssodin EUR uoes otherwse stated)

5. Consultancy services

The consultancy services for the period from 1 January 2016 to 31 December, 2016 were composed asfollows:


Intern. Technical Procurement 2,838

Individual Consultant - Revision of Technical Specification 24,000Individual Consultant for GRP pipes Technical Adviser 6,383Dorch International Consultant 577,545

GYS System for Durres Utility 127,591Lotti Ingegneria Spa (Italy) 59,920Spectrum Engineering Consultant 237,819

Environmental Consultant S.Sinoimeri 26,923

Culture Heritage Consulting 20,450 15,018Social Specialist-Part Time 30,000

Hydrology Expert 11,240

PIU Director N,Braho 5,984

PIU Director I.Shamata 17,417 10,130FM Dhurata Hoti 4,539

FM Erona Ahmetaj 7,080 11,998Procurement- Specialist-M.Zeneli 12,192 10,526

Supervisor - Ilir Sallaku 12,192 8,078Site Engineer - H.Teme 11,145 12,983Field Engineer - Sh.Mulosmani 8,137

Social Environment - Specialist E.Zylalaj 8,641Assistant - MTabaku 4,366 4,409cost of training and seminars 2,485Personal Income Tax 15,203 10,399Social Security-Employees 8,738 6,123Total 1,135,460 197,032

6. Goods

Goods for the period from I January to 31 December 2016 were composed as follows:

Period from 1 January to Period from 1 January to

31 December 2016 31 December 2015GD5 - Support to initial operation and maintenance ofWWTP 118,644 158,085GD4 re bid-Procurement of high pressure 408,000Total 526,644 158,085

GD5 - Support to initial operation and maintenance of WWTP consists of costs in relation to spareparts of project equipment maintenance, additional operation and training provided by the supplierGiovanni Putignano & Fighi as per contract GD5.

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WATER SECTOR INVESTMENT PROJECTFor tkU period from 1 Jnuary to 31 Decomber 201£(amounts are explessed mn EUR uness otherwise stated)

GD 4 re bid- Procurement of High Pressure Sewer Cleaning Equipment for Sewerage Network ofDurres City consists of costs in relation to High Pressure Sewer Cleaning Equipment for SewerageNetwork, as per contract GD 4 - re bid. As per contract GD4 between Ministry of Transport andInfrastructure and Mektrin Mottors Sh.p.k, dated on 13 May 2016 a High Pressure Sewer CleaningEquipment ("Equipment") was acquired. The Equipment was acquired for cleaning of water SewageNetwork and was delivered to the National Agency of Water Supply Durres on 22 12 2016.

7. Civil Works

Civil works for the period from 1 January to 31 December, 2016 were composed as follows:


PWT-WDFK1 4,485,477 -

Alb -Star - WD4 2,676,948Total 7,162,425

PWT- WDFKl corresponds to the component 1 of the project 'Priority Water Supply Investments'

and it is related to the contract no. WDFK1, dated 20 January 2016, signed between Ministry of

Transport and Infrastructure, General Directorate for Water Supply and Sanitation ('Water Sector

Investment Project) and PWT Wasser-und Abwassertechnik GmbH for Durres Bulk Water Supply

Pipeline, Production Wells and Elevated Reservoirs. These civil works were performed during 2016.

EUR 3,160,288 corresponds to the invoice no.1, date 5 May 2016 which represents the advancepayments (10% of the contract amount) and EUR 1,325,189 represents the interim payment certificate

no.1.

Alb Star- WD4 corresponds to the component 2 of the project 'Wastewater Network Investments and

it is related to the contract no. WD4, signed between Ministry of Transport and Infrastructure,General Directorate for Water Supply and Sanitation (Water Sector Investment Project) and ALB

Star sh.p.k for construction work of beach area secondary sewer network in Durres Region. These civil

works were performed during 2016. EUR 792,575 corresponds to the invoice no.279 date 9 December2016 which represents the interim payment certificate no.03; EUR 837,219 corresponds to the invoice

no.219 date 21 October 2016 which represents the interim payment certificate no.02; EUR 548,484corresponds to the invoice no.162 date 11 August 2016 which represents the interim payment

certificate no.01 and EUR 498,670 represents the advance payments as per civil works contract.

8. Incremental operating costs

Incremental operating costs for the period from 1 January to 31 December, 2015 were composed asfollows:


Personnel costs 9,822 8,838Social insurance contributions 12,225 8,643Office supplies 12,787 17,617Bank charges 3,971 1,152Other operating costs 20,685 26,593

Total 59,490 62,843

8

WATER SECTOR INVESTMENT PROJECTF- Ith- priod from 1 Janu ary Io 31 Decm ber 2016(amonnts are expressedn EUR ule0ss othewise ,stated)

Personnel costs consists of salaries for driver and Maintenance & Cleaning.

Social insurance contribution consists of costs in relation of Etnployer's contribution for health andsocial insurance (16.7%).

Other operating costs consist of expenses such as stationery, fuel, maintenance, rent and otheroperating expenses.

9. Project expenditures by category

Expenditures by sources of funds for the period from 1 January 2016 to 31 December 2016 werecomposed as follows:


Civil Works 7,162,425 -Goods 526,644 158,085Consultancy Services 1,135,460 197,032Operating Costs 59,490 62,843Total 8,884,019 417,960

The schedule ahove does not include the GOA contribution.

9


For Uhe period fwn January To 31 Decembei 2016(amounts ae expressed in EUR unoss otherwise staied)

10. Cash at banks

Cash at banks as at 31 December 2016 was composed as follows:

Period from1 January to 31

Period from 1 January to 31 December 2016 December 2015

Total (In EUR Total (In EURAmount in EUR Amount in Lek equivalent) equivalent)

Bank of AlbaniaIBRD Credit Specialaccount 2,894,665 391,445,608 2,894,665 5,000,000

Total 2,894,665 391,445,608 2,894,665 5,000,000

Second Level BankIBRD Credit Projectaccount 127,273 17,211,127 127,273 400,218

Total 127,273 17,211,127 127,273 400,218

Cash at Banks: 3,021,938 408,656,735 3,021,938 5,400,218

11. Subsequent events

There are no other significant events that would require either adjustments or additional disclosures inthe special purpose financial information.

10

APPENDICES


IBRD -83230-001 AL

Statements of Special Accounts and Project Accountsfor the period from 1 January to 31 December 2016

(Supplementary schedulesto the Special Purpose Financial Information)

WATER SECTOR INVESTMENT PROJECTFor the pevid from i1 Jainuary tw 31 December 2016(amnout are expressed ir EUR urless otherwise stated)

Appendix 1

Supplementary Schedule of Special Account Statement

Donor: IBRD

Account No:2117599 EDepository Bank:

Address: "Skenderbeu" Square, No. 1 TiranaCurrency: Euro

31 December 2016 31 December 2015Balance as at beginning of period 5,000,000 5,500,000Funds received:

Replenishments from IBRD 3,344,865 -

Disbursement:Funds transferred toCredins Bank in Euro (5,450,200) (500,000)Balance as at end of period 2,894,665 5,000,000

11

WATER SECTOR INVESTMENT PROJECTFor the period from 1, Jnuary to 31 Decemnber 20 16(ajmounts ore expressed in EUR nlesso therwise statci)

Appendix 2

Supplementary Schedule of Project Account Statement

Donor: IBRDAccount No: 58778Depository Bank: Credins BankAddress: Rr. Vaso Pasha, No.8

31 December 2016 31 December 2015

Opening Balance at beginning of period 400,218Funds received: - 321,348Funds received from IBRD Special Account 5,450,000 500,000Funds received from Treasury Account 39,740 99,186Funds received from the other account

Disbursement:

Project Expenditures 5,763,470 516,745Exchange rate differences (785) 3,571Funds transferred to the other account

Balance at end of period 127,273 400,218

Ill

WATER SECTOR INVESTMENT PROJECTFor the period from I January [o 3i Decepmber 2016,(amounts are expressed in EUR unless otherwise stated)

Appendix 3

Supplementary Schedule of Single Treasury Account

Depository Bank: Treasury AccountAddress: Ministry of FinanceCurrency: ALL

31 December 2016 31 December 2015Opening Balance at beginning of period .Funds received:Funds received from GoA 39,740 99,186

Disbursement:

Transferred to Credins BankTransferred to GoA (39,740) (99,186)

Balance at end of the period

iv

Documents

Public Disclosure Authorized GrantThornton · December 2016 December 2015 2016 Sources of funds IDA funding 3 6,505,153 - 12,505,152 ... Project Management Unit on 25 October 2017