public enterprise for state roads

PUBLIC ENTERPRISE FOR STATE ROADS

Independent Auditors report,Project Financial Statementsfor the period ending 31 December 2018and Management Letter for

NATIONAL AND REGIONAL ROADSREHABILITATION PROJECT(LOAN NUMBER 8420 MK)

Skopje, June 2019

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

PUBLIC ENTERPRISE FOR STATE ROADSNATIONAL AND REGIONAL ROADS REHABILITATION PROJECT

CONTENTS Page

Independent Auditors' Report 1-2

Project Financial Statements (PFS)

Statement of Sources and Uses of Funds 3

Statement of Uses of Funds by Project Activity 4

Statement of Expenditure (SOE) Withdrawals 5

Statement of Designated Account 6

Notes to the Project Financial Statements 7-10

Management Letter

MOORE STEPHENSSKOPJE

Sv.Kiril i Metodij 20, 1000 Skopje,Republic of Macedonia

Tel: +389 (2) 32 14 706Fax: +389 (2) 32 14 707

www.mooretsephens.mkwww.moorestephens.com

INDEPENDENT AUDITOR'S REPORTTO THEPROJECT COORDINATION UNIT (IBRD LOAN 8420 MK)OF THEPUBLIC ENTERPRISE FOR STATE ROADS

We have audited the accompanying Project Financial Statements of the National and RegionalRoads Rehabilitation Project ("the Project"), financed under IBRD Loan 8420 MK, for the yearended 31 December 2018 and prepared by the Public Enterprise for State Roads ("furthermorethe Public Enterprise for State Roads"). The Project Financial Statements which compriseStatement of Sources and Uses of Funds, Statement of Uses of Funds by Project Acftivity,Statement of Expenditure Withdrawals and Statement of Designated Account are prepared inaccordance with the International Bank for Reconstruction and Development (IBRD)Guidelines.

Management's Responsibility for the Project Financial Statements

The Public Enterprise for State Roads management is responsible for the preparation and fairpresentation of these Project Financial Statements. This responsibility includes: designing,implementing and maintaining internal control relevant to the preparation and fair presentationof financial statements that are free from material misstatement, whether due to fraud or error;selecting and applying appropriate accounting policies; and making accounting estimates thatare reasonable in the circumstances.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with the International Standards on Auditing accepted inthe Republic of Macedonia. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether the financialstatements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor'sjudgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity's internal control. An audit also includes evaluating the appropriateness of accountingpolices used and the reasonableness of accounting estimates made by the management, aswell as evaluating the overall presentation of the financial statements.

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

An independent memberfinn ofMoore Stephens

Intemational Limited- members in principal

cities throughoutthe world

MOORE STEPHENSSKOPJE

INDEPENDENT AUDITOR'S REPORT (Continued)TO THEPROJECT COORDINATION UNIT (IBRD LOAN 8420 MK)OF THEPUBLIC ENTERPRISE FOR STATE ROADS

Opinion

In our opinion, the project financial statements for the year ended 31 December 2018, preparedby the Public Enterprise for State Roads, give true and fair view of sources and uses of fundsof the Project, in accordance with the IBRD Guidelines, which are financed under IBRD Loan8420 MK.

In our opinion, the project financial statements as at 31 December 2018, prepared by thePublic Enterprise for State Roads, give true and fair view of the financial position of theDesignated Account, in accordance with the IBRD Guidelines, which are financed under IBRDLoan 8420 MK.

In addition, with respect to SOEs, adequate supporting documentation has been maintained tosupport claims to the World Bank for reimbursements of expenditures incurred, and whichexpenditures are eligible for financing under IBRD Loan 8420 MK.

Skopje, 28 June 2019

Certified Auditor Manager and Certified Auditor

A2

e Hristov A4nt 6 Ve' ov

'~ z/s,


STATEMENT OF SOURCES AND USES OF FUNDSIBRD LOAN 8420 MKDuring the Years Ended 2018 and 2017and Accumulated up to 31 December 2018(Expressed in EUR)

AccumulatedDuring the Year Ended up

Note 31 December to 31 December2018 2017 2018

SOURCES OF FUNDSIBRD Loan 8420 MKInitial advance to Designated Account (DA) - 4 000 000.00Replenishments on the DA 4,942,896.06 8886,702.87 30 791,629.82Reimbursements -

Direct Payments -IBRD front-end fee - - 130,000.00Return of funds to IBRD -Total IBRD Loan 8420 MK 4,942,896.06 8,886,702.87 34,921,629.82

TOTAL FUNDS RECEIVED 4,942,896.06 8,886,702.87 34,921,629.82

USES OF FUNDSFinanced from IBRD Loan 8420 MKRoad Civil Works 4,915,888.56 6.841.538.88 30 667,060 71Institutional Strengthening and Project Management 1,717,283 88 664,128.85 2.550,614.05IBRD front-end fee - - 130,000 00Total Financed from IBRD Loan 8420 MK 6,633,172.44 7,505,667.73 33,347,674.76

TOTAL PROJECT EXPENDITURES 6,633,172.44 7,505,667.73 33,347,674.76

Net increase (decrease) in cash flow (1,690,276.38) 1,381,035.14 1,573,955.06Cash at Beginning of the Period 3,264,231.44 1,883,195.30Cash at End of the Period 1,573,955.06 3,264,231.44 1,573,95506

Public enterprise for state roadsDirector 06

Zoran Kitanov o

Notes comprise an integral part to the Project Financial StatementsAuditors' report is on pages 1 and 2. 3


STATEMENT OF USES OF FUNDS BY PROJECT ACTIVITYIBRD LOAN 8420 MKDuring the Years Ended 2018 and 2017and Accumulated up to 31 December 2018(Expressed in EUR)

AccumulatedDuring the Year Ended up

31 December to 31 December2018 2017 2018

A. Financed from IBRD Loan 8420 MK1. Road Civil Works

Lot 1: Rehabilitation of national road A3 section Bitola-Makazi 173,011.47 1,765,642.48 3,459,066.68Lot 1: Land Slopes improvements Mavroro-Debar - 307,049.79 699,427.65Lot 1: Land Slopes improvements 2 Tetovo-Popova Sapka; Mavrovo-Debar; Gostivar-Kicevo 149,718.55 180,020.85 488,447.41Lot 1: Krivogastani-Obrsani-Vogani - 364,492.32 2,926,185.49Lot 1: Rehabilitation of regional road R2233 section Brvenica-Cegrane - - 2,033,679.20Lot 1: Rehabilitation of national road A3 section Kocani-Delcevo 2,655,793.65 1,230,698.57 5,182,449.95Lot 2: Rehabilitation of regional road R2249 Melnicki Most-CentarZupa - 263,372.79 883,021.39Lot 2: Land Slopes improvements Kratovo-Stracin,Openica; Tetovo-Popova Sapka - 143,688.53 413,108.57Lot 2: Land Slopes improvements 2 Lakavica-Negotino; Delcevo-Berovo; Bitola-Novaci 48,760.47 347,693.77 574,141.59Lot 2: Rehabilitation of regional roads A3 section Resen-Bukovo - 354,078.44 3,099,422.91Lot 2: Rehabilitation of regional roads R1 105 section Nov Dojran-Nikolic and R1402 section Mokrino-Smolari - 286,926.99 2,363,399.98Lot 3: Rehabilitation of regional road R2343 Delcevo-Golak - - 1,524,849.37Lot 3: Rehabilitation of regional road R1202 section Boskov Most-Debar 351,571.04 1,317,894.30 2,950,834.79Lot 4: Rehabilitation of regional roads R1202 section Novo Selo-Mavrovi Anovi - 185,883.89 2,437,896.20Design and Rehabilitation of Lot 1: Mlado Nagoricane-Pelince;Kumanovo-Sveti Nikole; Tetovo-Popova Sapka 395,441.48 - 395,441.48Design and Rehabilitation of Lot 2: Jurumleri-Dracevo; Bitola-DemirHisar; Dracevo-Oresani-Taor 341,345.86 - 341,345.86Design and Rehabilitation of Lot 3: Delcevo-Zvegor; Delcevo-Pehcevo; Berovo-Vinica 332,755.24 - 332,755.24Design and Rehabilitation of Lot 4: Strumica-Novo Selo; Kavadarci-Rosoman; Furka-Bogdanci-Gevgelija 371,374.82 - 371,374.82Independent technical audit 33,100.00 33,100.00 66,200.00Procurement, installation and maintenance of traffic counters 63,015.94 60,996.07 124,012.02

Total 4,915,888.53 6,841,538.79 30,667,060.60

II. Institutional Strengthening and Project ManagementFM specialist 16,698.91 12,243.00 55,647.62Procurement specialist 16,698.91 12,243.00 58,419.02Training of staff - - 5,888.51Advisory services 694,313.84 444,303.61 1,138,617.45Road Asset Management System Implementation 983,253.00 189,020.00 1,172,273.00Equipment - - 103,970.37Audit services 6,319.23 6,319.24 15,798.08

Total 1,717,283.88 664,128.85 2,550,614.05

Ill. IBRD feeIBRD front-end fee - - 130,000.00

Total - - 130,000.00

Total financed from IBRD Loan 8420 MK 6,633,172.41 7,505,667.64 33,347,674.65

Total Project Expenditures 6,633,172.41 7,505,667.64 33,347,674.65

Notes comprise an integral part to the Project Financial Statements.Auditors' report is on pages 1 and 2. 4


STATEMENT OF EXPENDITURE (SOE) WITHDRAWALSIBRD LOAN 8420MKYear Ended 31 December 2018(Expressed in EUR)

Year Ended 31 December 2018Disbursement Categories

Application #Goods and Consultant Initial Advance

Note Works Services on DA Total Disbursed Difference

14 1 1,771,613.29 234,013.93 - 2,005,627.22 2,004,733.65 893.5715 1 214,600.29 895,421.97 - 1,110,022.27 1,109,309.87 712.4016 1,158,272.52 670,580.02 - 1,828,852.54 1,828,852.54 0.0017 2 2,028,913.11 141,931.97 - 2,170,845.08 - 2,170,845.08

Total: 5,173,399.21 1,941,947.89 - 7,115,347.11 4,942,896.06 2,172,451.05

1 The differences in Application 14 and 15 arise from the fact that the IBRD has not accepted the amount of thepersonal income tax paid for the payments to the FM and procurement Specialist due to the fact that it is consideredto be not eligible as expenditures are financed at 100 per cent exclusive of taxes. This personal income tax isobliged according to the regulations.

2 The amount from Application 17 is disbursed in 2019 in amount of 2,170,310.68 EUR.



STATEMENT OF DESIGNATED ACCOUNTIBRD LOAN 8420 MKDuring the Years Ended 2018 and 2017and Accumulated up to 31 December 2018(Expressed in EUR)

For the year ended 31 December 2018 and 2017Account number 7001000004-6839673Depository Bank Sparkasse Bank Makedonija AD SkopjeAddress St.Makedonija No.9-11Credit Number 8420 MKCurrency EUR

2018 2017 Cumulative

Opening Balance as at 1 January 3,264,231.44 1,883,196.30 -

Additions:Initial advance to Designated Account - 4,000,000.00World Bank Replenishments 4,942,896.06 8,886,702.87 30,791,629.82Return of funds to IBRD - - -

Total additions 4,942,896.06 8,886,702.87 34,791,629.82

Deductions:Project Expenditure Payments (4,915,888.56) (6,841,538.88) (30,667,060.71)Institutional Strengthening and Project Management (1,717,283.88) (664,128.85) (2,550,614.05)IBRD fee

Total deductions (6,633,172.44) (7,505,667.73) (33,217,674.76)

Closing Balance as at 31 December 1,573,955.06 3,264,231.44 1,573,955.06


PUBLIC ENTERPRISE FOR STATE ROADSNATIONAL AND REGIONAL ROADS REHABILITATION PROJECTNOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

On October 21 2014, the Public enterprise for State Roads of the Republic ofMacedonia ("the Borrower") entered into the Loan Agreement with the InternationalBank For Reconstruction and Development ("IBRD") for the amount of EUR 52million.

According to the Section I. of Project Execution of the Loan Agreement, the Borroweris responsible for day-to-day Project implementation and for procurement, financialmanagement, disbursement and monitoring and reporting for the entire Project.

The Borrower may withdraw the proceeds of the Loan in accordance with theprovisions of Article II of the General conditions of the Loan agreement and suchadditional instructions as the IBRD shall specify by notice to the Borrower to financeEligible Expenditures as set forth in the table below.

The table below sets forth the categories of Eligible Expenditures that may befinanced out of the proceeds of the Loan, the allocation of the amounts of the Loan toeach category and the percentage of expenditures to be financed for EligibleExpenditures in each Category:

Amount of the Loan Percentage ofAllocated Expenditures to be

financed (Exclusive ofCategory taxes)

(1) Goods, Works, Consultants' 51,870,000 100%Services, Training and IncrementalOperating Costs for the project(2) Front-end Fee 130,000

Total Amount 52,000,000

The Borrower may withdraw the proceeds of the Loan in accordance with Section IVof Schedule 2 of the Loan Agreement.

The Closing Date for withdrawals is September 30, 2019.

The Borrower shall pay interest on the principal amount of the Loan withdrawn andoutstanding from time to time, at a rate for each interest period equal to TheReference rate for the Loan Currency plus the Variable Spread. The Borrower shallpay front-end Fee equal to one quarter of one percent (0.25%) of the Loan amount.Interest and other charges shall be payable semiannually on October 15 and April 15in each year.

According to the amortization schedule of the Agreement, the Borrower shall repaythe principal amount of the credit in semi-annually installments payable each October15 and April 15, commencing October 15, 2020 and ending April 15, 2037. Theinstallment share is 2.94%, except for the last installment which is in amount of2.98%.

2018 Project Financial Statements 7


2. OBJECTIVES AND NATURE OF THE PROJECT

2.1. Project Objectives

The objectives of the Project are: (i) to enhance the connectivity of selected nationaland regional roads, primarily to Corridors X and VIII; and (ii) to improve theBorrower's capacity for roads safety and climate resilience.

The Project consists of the following parts:

Part 1: Roads Civil WorksPart II: Institutional Strengthening and Project management

The objectives of Part I are:* Carrying out of (i) rehabilitation works on about 112 km of selected national

and regional road sections, and (ii) black spots improvement in selectedareas.

* Carrying out of independent technical audits of rehabilitation works under theProject

* Carrying out of land slide remediation in selected areas.

The objectives of Part II are:

* (i) Strengthening the technical capacity of the Project management team("PMT") through the provision of technical assistance; and (ii) carrying outthe annual financial audits of the Project.

* Carrying out of roads safety activities, including: (i) development of nation-wide roads safety including the identification of black spots and theirimprovement; (ii) preparation of road safety audits guidelines and manuals;(iii) training and (iv) carrying out of an iRAP Survey of the national andregional roads network.

* (i) Provision of equipment for and carrying out of network data collectionactivities to survey road conditions and collect traffic data for three years,and (ii) providing technical assistance for the preparation of a StrategicProgram of periodic maintenance and rehabilitation works.

* Provision of technical assistance for the preparation of potential futureinvestments in the Borrower's road sector, including: (i) the preparationof best practice manuals; (ii) carrying out of Training for the Borrower'sstaff and local contractors; (iii) carrying out of an economic evaluation ofroad investments, road safety audits, and climate resilience measures; (iv)review of current maintenance practices and standards and provision ofrecommendations for improvement; and (v) monitoring activities, beneficiarysatisfaction activities, as well as mid-term and impact evaluation surveys.

2.2. Project Management

The overall responsibility for carrying out the Project is assigned to the Publicenterprise for state roads.



2. OBJECTIVES AND NATURE OF THE PROJECT (Continued)

2.3. Project Execution

The Borrower shall be responsible for day-to-day Project implementation and forprocurement, financial management, disbursement and monitoring, and reportingfor the entire Project. To that end, the Borrower shall maintain a ProjectManagement Team ("PMT") with adequate staff and resources, in a mannersatisfactory to the Bank, with qualifications, terms of reference and a compositionsatisfactory to the Bank, including a Project director, at least three engineeringspecialists, a procurement specialist, a financial management specialist and anoffice administrator/translator.

3. BASIS FOR PREPARATION OF THE PROJECT FINANCIAL STATEMENTS

3.1. General

The accompanying financial statements have been prepared for the purposes ofreporting to the World Bank on the activities of the Project related to funding receivedfor the completion of the Project's objectives in accordance with the respective LoanAgreement. These financial statements include all project-related expendituresincurred, which are financed by the IBRD Loan 8420 MK.

a. Accounting Convention

The Project Financial Statements have been prepared, in all material respects, inaccordance with World Bank Guidelines. Such Guidelines generally comply withInternational Financial Reporting Standards with the exception that Projectexpenditures are accounted for on a cash basis. Certain accounts which are requiredto be maintained under Macedonian accounting regulations have been adjusted orreclassified and, in some cases, combined in order to comply with World BankGuidelines.

b. Comparative figures

The Financial statements have been prepared for the year ended 31 December 2018and 2017 and accumulated up to 31 December 2018. Comparative figures arepresented.

3.4. Reporting Currency

The Project accounts are kept in local currency i.e. in Macedonian Denars ("MKD or"Denars") for the Government's part of financing of the Project. The Project accountscomprising the part financed by IBRD Loan are kept in local currency i.e. inMacedonian Denars and in Euros. The Project Financial Statements are prepared inEUR as this is the reporting currency of the Project.



3. BASIS FOR PREPARATION OF THE PROJECT FINANCIAL STATEMENTS(Continued)

3.4. Reporting Currency (Continued)

The Project Financial Statements are translated from Macedonian Denars into Eurosas it follows:

* The amounts shown in Euro (EUR) are calculated by theexchange rate of IBRD for the currency of payment, on the date ofpayment.

* The amounts shown in Macedonian Denars (MKD) are calculatedby the exchange rate of the Sparkasse Bank Makedonija ADSkopje for the currency of payment, on the date of payment.

* The amounts shown in MKD as at 31 December 2018 arecalculated by the exchange rate of the Sparkasse BankMakedonija AD Skopje on the specified date.

The exchange rates used for translation were as follows:

2018 2017(MKD) (MKD)

As at 31 December 1 EUR 61.40 61.40


public enterprise for state roads

Documents