adriatic sea pollution control project i gef ......2016/12/31 · neretva county) and the...

ADRIATIC SEA POLLUTION CONTROL PROJECT IGEF GRANT TF 017706

PROJECT FINANCIAL STATEMENTS,DESIGNATED ACCOUNTS STATEMENT AND

INDEPENDENT AUDITORS REPORTfor the period from I January 2016 to 31 December 2016

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ADRIATIC SEA POLLUTION CONTROL PROJECT IGEF Grant TF 017706

CONTENTS

Project Financial Statements and Independent Auditor's Report:

Independent Auditor's Report

Statement of Assets and Liabilities 2

Statements of Sources and Uses of Funds3-5

Statement of Uses of Funds by Activities of the Project 6

Summary Statement of Expenditure (SOE) - Application for Loan Withdrawal 7 - 9

Notes to the Project Financial Statements- 10 -12

Payments made into Designated Grant Account13

Designated Grant Account Statement 14

Auditing Documentation Checklist

ALTDIT MOORE STEPHEN5AUDIT ZAOREB

REVIZilSKE TSLUGE. ZAGREB

Audit d.o.o. za revizijske uslugeRadni6ka cesta 54

10000 ZagrebHRVATSKA

Tel:+385 (0) 1 3667 994Fax:+395 (0) 1 3667 997

E-mail:[email protected]

INDEPENDENT AUDITOR'S REPORT

1. We have audited the accompanying Financial Statements of the ADRIATIC SEAPOLLUTION CONTROL PROJECT I (hereinafter: the "Project") financed under GEF Grant No. TF017706, which comprise: the Statement of Assets and Liabilities of the Project as of 31 December 2016,the Statements of Sources and Uses of Funds of the Project and the Statement of Uses of Funds byActivities of the Project for the period since 1 January 2016 till 31 December 2016 (all together: the"Project Financial Statements").

2. The Project Financial Statements are the responsibility of the Project's management. Ourresponsibility is to express an opinion on the Project Financial Statements based on our audit.

3. We conducted our audit in accordance with International Standards of Auditing and InternationalBank for Reconstruction and Development Guidelines. Those standards and guidelines require that we

plan and perform audit to obtain reasonable assurance about whether the Project Financial Statements arefree of material misstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by Project's management, as well as evaluating the overall Project FinancialStatements presentation. We believe that our audit provides a reasonable basis for our opinion.

4. In our opinion, the Financial Statements of the ADRIATIC SEA POLLUTION CONTROLPROJECT 1, in all significant terms of reference, truthfully and fairly present, assets and liabilities of theProject as of 31 December 2016, sources and uses of funds of the Project and uses of funds by activitiesof the Project, and cash receipts and payments of the Project in the Designated Account for the year ended31 December 2016, in accordance with International Accounting Standards for public sector andInternational Bank for Reconstruction and Development Guidelines.

9 5. With respect to Summary Statement of Expenditure ("SOE") - Application for LoanWithdrawal:(a) adequate supporting documentation has been maintained to support claims for reimbursements ofexpenditures incurred; (b) the Summary Statement of Expenditure has been reconciled to the other ProjectFinancial Statements without exception and (c) the expenditure disbursements underlying the SummaryStatement of Expenditure have been made in accordance with International Bank for Reconstruction andDevelopment requirements.

Zagreb, 2 May 2017

Audit d.o.o.

Radni6ka cesta 54

10000 Zagreb k

Marijana Pranji, director Marijana Pr (j6, certified auditor

th.ore tephens fnternan-al

Lankedn- mehers 'bnprncipedni,aud zestru1 1 he wor/ld

I1

ADRIATIC SEA POLLITION CONTROL PROJECT IGEF Grant TF 017706

STATEMENT OF ASSETS AND LIABILITIES

(in IIRK

At 31 At 31 At 31December December December

Notes 2016 2015') 2014

ASSETSCash assets - Designated Grant Account 3 1,105,357 1,732,121Paid from the Grant Account 8 February 2016 0 (390,000)Eligible costs of the Project 4 5,684,752 3,254,466 706,710Project Expenditures - Environmental Protection andEnergy Efficiency Fund 1,414,281 813,617 176,677Fees - Designated Grant Account 3 2,356 1,156 -

8,206,746 5,411,360 883,387

SOURCES

Grant 5/i/ 6,766,475 4,583,324 706,710Environmental Protection and Energy Efficiency Fund 5/ii/ 1,414,281 813,617 176,677

8,180,756 5,396,941 883,387

NET ASSETS2 ) 6 25,990 14,419 -

1) The first costs associated with the Project were created in 2014, but they are reimbursed from theproceeds of the Grant in 2015 when there has been a first deposit into the Designated Grants Accountand when the preparation of the financial statements of the Project have been started

2) Net assets represents interest on the Designated Grant Account

Notes from page 10 to 12 form an integral part of these Project Financial Statements.Independent Auditor's Report - page 1.

2


STATEMENTS OF SOURCES AND USES OF FUNDS OF THE PROJECT

I STATEMENT OF SOURCES AND USES OF FUNDS OF THE PROJECT - GRANTFUNDS

(in HRK)Cumulative

2016 2015 2014 until 31 Plan until VarianceDecember 2019

2016

1 2 3 4 5 6(5 minus 4)

FINANCING

From Designated Account 2,431,486 2,191,554 - 4,623,040 -

From Bank Account of FZOEU -refunded from the Grant - 357,358 706,710 1,064,068 -

2,431,486 2,548,912 706,710 5,687,108 27,306,500 21,619,392

EXPENDITURE

Consultants' Services in the Project 2,430,286 2,547,756 706,710 5,684,752 27,306,500 21,621,748

Fees - Designated Grant Account 1,200 1,156 - 2,356 - (2,356)

2,431,486 2,548,912 706,710 5,687,108 27,306,500 21,619,392

* 1) The first expenses associated with the Project were created in 2014, when they are paid to the Fund, but

they are reimbursed from the proceeds of the Grant in 2015.

II STATEMENT OF SOURCES AND USES FUNDS OF THE PROJECT - RESOURCESOF ENVIRONMENTAL PROTECTION AND ENERGY EFFICIENCY FUND

(in HJRK)Cumulative

until 312016 2015 2014 DecemberDecember

2016

1 2 3 4

FINANCINGEnvironmental Protection And EnergyEfficiency Fund 600,664 636,940 176,677 813,617

600,664 636,940 176,677 813,617

EXPENDITURE

Consultants' Services in the project 600,664 636,940 176,677 813,617

600,664 636,940 176,677 813,617

Resources of Environmental Protection and Energy Efficiency Fund were used for payment of VAT

invoices received from suppliers.


3


STATEMENTS OF SOURCES AND USES OF FUNDS - continued

/i/ Adriatic Sea POLLUTION CONTROL PROJECT (Project) is a regional project, which is designed

as part of the wider Adriatic program for the environment. The project includes activities in two riparian

countries of the Adriatic Sea, in Croatia and in Bosnia and Herzegovina.

Project objectives are:

(A) reduce the discharge of pollutants from the cross-border character, especially nitrogen, in selected

"black spots" in the Croatian coast of the Adriatic Sea; and

(B) improve the capacity of the Republic of Croatia and Bosnia and Herzegovina for the preparation of

. pollution control projects in selected localities in Croatian coast of the Adriatic Sea and Herzegovina and

strengthen the capacity for monitoring sea water quality.

The project consists of the following parts:

Part 1. Demonstrative investments to reduce nutrient discharges and improve the ability of monitoring

the quality of sea

- (a) Design and construction works of integrated system with purpose of leachate collection and

management on landfill Sitnica.

. (b) Purchase and installation of equipment for monitoring sea water quality and strengthening regional

capacity for monitoring sea water quality.

Part 2. Technical assistance

(a) support for (i) performing evaluation of sources of nutrients, including spot and non-spot sources in

two sensitive areas / "black spots" in Croatian coast of the Adriatic Sea (Dubrovnik Neretva County) and

in the Neretva's delta, and (ii) preparing policy analysis, legislative and / or institutional reforms needed

. to address the problems related to water quality.

(b) Technical assistance for the preparation of conceptual design and design documentation, including

the preparation of tender documents for access to EU funds for investments in the processing and

management of leachate in accordance with the requirements of the EU in selected places in Croatian

coast of the Adriatic Sea.

Notes from page 10 to 12 form an integral part of these Project Financial Statements.

Independent Auditor's Report - page .4


STATEMENTS OF SOURCES AND USES OF FUNDS - continued

It was agreed that for the implementation of these objectives and monitoring the implementation of

the Project in the Republic of Croatia as the implementing agency Fund for Environmental Protection and

Energy Efficiency Fund (the "Fund") is appointed. For those parts of the Project in the Republic of

Croatia is planned financing from the grant from the Global Environment Facility (Global Environment

Fund - GEF) in the amount of USD 4,330,000.

In accordance with the concluded Grant Agreement dated 8 September 2014, the Closing Date

was 15 March 2017, but in accordance with Amendment of the Grant Agreement as of 26 September

2016 the Closing Date was extended until 15 February 2019, as well as the use of funds and the

reallocation of demonstrative investments funds. Consequently, a restructuring of the Project was carried

out, in which the rehabilitation of the landfill site of Sitnica on Kor6ula was included in the Project,instead of the Diklo landfill in Zadar.

The first costs related to the project were made in July 2014 and have been paid from the Fund's bank

. account. In 2015 these costs have been reimbursed to the Fund after the opening of the Designated

Account.


5


STATEMENT OF USES OF FUNDS BY ACTIVITIES OF THE PROJECT

(in HRK)

Cumulative201620152014until 31201620152014 December

2016

2 3 4

Part 1. Demonstrative investments to reduce nutrient dischargesand improve the ability of monitoring the quality of sea

(a) Design and construction works of integrated system with

purpose of leachate collection and management on landfill Sitnica. -

(b) Purchase and installation of equipment for monitoring seawater quality and strengthening regional capacity for monitoringsea water quality. ______________________________

Part 2. Technical assistance(a) support for (i) performing evaluation of sources of nutrients,including spot and non-spot sources in two sensitive areas / "black

* spots" in the Croatian coast of the Adriatic Sea (Dubrovnik -

Neretva County) and the Neretva's delta, and (ii) preparing policyanalysis, legislative and I or institutional reforms needed toaddress the problems. related to water quality. --

* (b) Technical assistance for the preparation of conceptual designand design documentation, including the preparation of tenderdocuments for access to EU funds for investments in theprocessing and management of leachate in accordance with the

* requirements of the EU in the Croatian coast of the Adriatic Sea. 2,430,286 2,547,756 706,710_ 5,684,752

2,430,286 2,547,756 706,710 5,684,752

TOTAL EXPENDITURE 2,430,286 2,547,756 706,710 5,684,752


206

ADRIATIC SEA POLLUTION CONTROL PROJECT 1GEF Grant TF 017706

SUMMARY STATEMENT OF EXPENDITURE ("SOE") - APPLICATION FOR

LOAN WITHDRAWAL

Amount of Amount paid Payment date

Invoice eligible from the from the

Type of amount expense - account of account of

Application No. 1 - Refunding expenditure HRK HRK Fund - HRK Fund

Summary sheetNo. 1 Consulting 440,136 352,109 352,109 25 July 2014

Total Application No.1 440,136 352,109 352,109

Amount of Amount paid Payment date

Account eligible from the from the

Type of amount expense - account of account of

Application No. 2 - Refunding expense HRK HRK Fund - HRK Fund

26 January

Summary sheet No. 1 Consulting 443,251 354,601 354,601 201506 March

Summary sheet No. 1 Consulting 446,698 357,358 357,358 2015


Application No. 3 is related to the request for pre-financing payment to the Designated Grant Account and there are

no expenses reported in the Summary sheet.

Amount of Amount paidInvoice eligible from the Exchange

Type of amount expense - Designated Date of rate USD

Application No. 4 expenditure HRK H4RK account - USD payment /HRK

10 August

Summary sheet No. I Consulting 441,487 353,190 51,561 2015 6.850I1 September

Summary sheet No. I Consulting 487,500 390,000 59,252 2015 6.582



Independent Auditor's Report - page 1.7

ADRIATIC SEA POLLUTION CONTROL PROJECT I

GEF Grant TF 017706

SUMMARY STATEMENT OF EXPENDITURE ("SOE") - APPLICATION FOR

LOAN WITHDRAWAL - continued

Amount of Amount paidInvoice eligible from the Exchange

Type of amount expense - Designated Date of rate USD

Application No. 5 expenditure HRK HRK account - USD payment /HRK25 September

Summary sheet No. I Consulting 438,623 350,898 52,608 2015 6.67025 September

Summary sheet No. 1 Fees - 1,156 170 2015 6.670


Amount paid

Amount of from the

Invoice eligible Designated Exchange

Type of amount expense - account - Date of rate USD

Application No. 6 expenditure HRK HRK USD payment /HRK28 December

Summary sheet No. I Consulting 882,888 706,310 102,661 2015 6.8808 February


Total AppLication No.6 1,370,388 1,096,310 160,697

1) In accordance with generally accepted accounting policies in the Operations Manual of the Project, modified

accrual principle was applied where the costs are recognized when incurred and revenue when they become

available. This transaction occurred in December 2015 and paid in February 2016

Amount paid

Amount of from theInvoice eligible Designated Exchange

Type of amount expense- account- Date of rate USD

Appliction o. 7 expenitre HRK H1RK USD payment /HRK

Summary sheet No. 1 Consulting 441,488 353,190 53,660 30 March 2016 6.582

Summary sheet No. 1 Consulting 441,488 353,190 54,505 24 June 2016 6.480

Srilanka March, April

Summary sheet No. 2 Conference 27,628 4,016 and June 2016



Independent Auditor's Report - page 1.

HRK SD pymen /HR


Amount paidAmount of from the

Invoice eligible Designated ExchangeType of amount expense - account - Date of rate USD

Application No. 8 expenditure HRK HRK USD payment /HRK

Summary sheet No. 1 Consulting 487,500 390,000 59,091 22 July 2016 6.60002 September


Fees - 1,200 - 18 July 2016


Amount paid

Amount of from the

Invoice eligible Designated Exchange

Type of amount expense - account - rate USD

Application No. 9 xpenditure HRK HRK USD Date of payment /HRK

Summary sheet No. I Consulting 216,359 173,088 25,582 31 October 2016 6.600

Summary sheet No. I Consulting 487,500 390,000 55,319 20 December 2016 7.050

Summary sheet No. 1 Consulting 441,487 353,190 49,977 29 December 2016 7.067

STotal Application No.9 1,145,346 916,278 130,878




NOTES TO THE PROJECT FINANCIAL STATEMENTS

1. GENERAL

The Republic of Croatia signed the Agreement on the grant with the International Bank forReconstruction and Development (IBRD) for the implementation of the GEF Project control pollution of

the Adriatic Sea I.Grant is available to the Environmental Protection and Energy Efficiency Fund ("Fund") as the bodyresponsible for implementation of the Project. Project implementation unit (PIU) was established in theFund with the employees of the Fund.

2. BASIS FOR PREPARATION OF THE PROJECT FINANCIAL STATEMENTSAND THE ACCOUNTING POLICIES

2.1. Accounting policies and the basis for reporting

The financial statements of the Project have been prepared in accordance with generally acceptedaccounting policies in the Operations Manual Project, applying the modified accrual principle accordingto which the costs are recognized when incurred and revenue when they become available, and in

accordance with the International Bank for Reconstruction and Development Guidelines which are

harmonized with International Accounting Standards for the public sector.

2.2. Currency used in reporting

Accounting records of the Project are maintained in local currency - Croatian Kuna ("HRK") and USdollars ( "USD"). The amounts in Project Financial Statements are stated in HRK.

3. CASH ASSETS

For the implementation needs of the Project, the Fund as a project Implementation Entity (PIE) has

opened with Hrvatska pogtanska banka d.d., Zagreb, as the Agent bank, Designated Grant Account where

the inflow of funds and payment of the Project's expenditures are recorded.

(in USD)At 31 December

2016

Designated Grant Account Balance 154,195.60


10

ADRIATIC SE1 POLLUTION CONTROL PROJECT IGEF Grant TF 017706

NOTES TO THE PROJECT FINANCIAL STATEMENTS - continued

Designated Grant Account balance as of 31 December 2016 is confirmed by the bank statement ofHrvatska pogtanska banka d.d., Zagreb.

The balance on Designated Account as of 31 December 2016 stated in HRK in the amount of HRK1,105,356,71 represents equivalent value of USD balance using the middle exchange rate of CroatianNational Bank as of31 December 2016 in the amount of I USD =7.169 HRK.

4. PROJECT EXPENDITURE

Project expenditure comprises of:

(in HRK)

2016 2015 2014

Review by categories

Consultants' Services in the Project 7,099,033 4,068,083 883,387

Fees - Designated Grant Account 2,356 1,156 -

Total 7,101,389 4,069,239 883,387


11

ADRIATIC SEA POLLUTION CONTROL PROJECT ICEF Grant TF 017706

NOTES TO THE PROJECT FINANCIAL STATEMENTS - continued

5. LIABILITIES / SOURCES

li/ Grant

On 08 September 2014, the Republic of Croatia signed the Agreement on the grant from the International

Bank for Reconstruction and Development (IBRD) for the implementation of the GEF Project control

pollution of the Adriatic Sea l.

By this Agreement, GEF supported control environmental pollution in the Adriatic Sea through the

financing of projects in Croatia and Bosnia and Herzegovina. Based on this Agreement the IBRD has

granted the Republic of Croatia, a grant in the amount of USD 4,330,000 to assist in financing the Project.

The Agreement entered into force on 5 December 2014 and the Closing Date is 15 February 2019.

In order to facilitate the implementation of the project, the Republic of Croatia on 1 December 2014

entered into a supplemental agreement with the Fund as a body for the implementation of the project,

which sets out the tasks the Fund in the implementation of the project.

Given the ineligibility of remediation of landfill Diklo as demonstration investment under the Project, the

new location was identified that is eligible for co-financing from the Grant - landfill Sitnica, Municipality

of Blato and Municipality of Vela Luka, on island Kor6ula. Accordingly, the Project was restructured

whereby remediation of landfill Sitnica on Kor6ula was included in the Project.

/ii/ Other sources

Since the value-added tax, customs duties and excise duties do not fall into the category of eligible

expenditure and not financed from the proceeds of the Grant, these costs will be settled by the Fund.

6. NET ASSETS

Net assets at 31 December 2016 in the'amount of HRK 25,990 relate to interest accrued on the funds in

the Designated account of the Grant.



ADRIATIC SEA POLLUTION CONTROL PROJECT IGEF Crant TF 017706

PAYMENTS MADE INTO DESIGNATED GRANT ACCOUNT

Account No. HR6623900011500090782 (USD)Depository Bank Hrvatska pogtanska banka d.d., Zagreb

Address Jurigi6eva 4, Zagreb

Related Grant GEF Grant No. TF 017706

ExchangeAmount in Amount in rae

Date HKUDrateHIRK USD HRKIUSD

27 March 2015, 2,780,090 400,000 6.9516 September 2015. 739,066 110,813 6.67

2015. 3,519,156 510,813

18 July 2016 2,192,432 325,697 6.732016 2,192,432 325,697

Total 5,711,588 836,510

Payments calculated according to the mean rate of the Croatian National Bank.



ADRIATIC SEA POLLUTION CONTROL PROJECT IGEFGrani TF017706

DESIGNATED GRANT ACCOUNT STATEMENT

Account No. HR6623900011500090782 (USD)

Depository Bank Hrvatska po tanska banka d.d., ZagrebAddress Jurigi6eva 4, ZagrebRelated Grant GEF Grant No. TF 017706

(in HRK)Balance of Designated Account at 31 December 2015. 1,732,021

Add:

Withdrawal of the Grant to the Designated Grant Account 2,192,4322,192,432

Total 3,924,453

Balance of the Designated account at 31 December 2016 1,105,357

Add:The costs reported in the statement of sources and use of proceeds of theGrant - Paid from the Designated Account 2,430,286Fees 1,200The cost paid from the Designated Account in 2016 390,000Exchange rate differences 9,181

2,830,667Deduct:Interest in the Designated Account (11,571)

(11,571)

Total 3,924,453

Note 1: The Designated Account is recorded in USD. Balance as of 31 December 2016 in theamount of USD 154,195.60 USD is confirmed by the bank statement of Hrvatskapogtanska banka d.d., Zagreb. The balance in the USD is stated in HRK using themiddle exchange rate of Croatian National Bank as of 31 December 2016 in the amountof I USD = 7.169 HRK and amounts to HRK 1,105,356.71


14


AUDIT DOCUMENTATION CHECKLIST

Name of Project Adriatic Sea Pollution control Project I

Grant GEF: TF 017706

Check if Checkincluded if N/A

I Audit Report (Opinion)A. Applicable accounting standards noted

B. Applicable auditing standards noted

C. Opinion rendered on all forms of withdrawals

1. Summary Statement of Expenditure ("SOE") - Application

for Loan Withdrawal

D. All sources of financing for the Project are noted

II Financial Reports:A. Revenue Earning Entity

1. Balance Sheet

2. Cash Flow Statement

3. Income Statement

B. Non-Revenue Earning entity

1. Statement of Assets and Liabilities

2. Statements of Sources and Uses of Funds

C. If applicable (refer to Grant)1. Statement of Uses of Funds by Activities of the Projects

2. Summary Statement of Expenditure ("SOE") - Applicationfor Loan Withdrawal 4

3. Designated Accounts' Statements

III Notes to the Financial Statements

IV Management Letter

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