OJSC “BARQI TOJIK” POWER UTILITY FINANCIAL RECOVERY PROGRAM IDA GRANT NUMBER D558-TJ SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT For the year ended 31 December 2022 DUSHANBE November 2023 POWER UTILITY FINANCIAL RECOVERY PROGRAM IDA GRANT NUMBER D558-TJ TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS 3 INDEPENDENT AUDITOR’S REPORT 4 SPECIAL PURPOSE FINANCIAL STATEMENTS For the year ended 31 December 2022: Statement of project expenditures 6 Statement of funds received and used 7 Summary of funds received under each DLI 8 Notes to the special purpose financial statements 9 2 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 1. General information 1.1. The Program The Power Utility Financial Recovery Program (“Program”) development objectives are to improve the financial viability, increase the reliability of electricity supply, and strengthen the governance of OJSC “Barqi Tojik” (“BT”, and/or “implementing entity”), Shabakahoi Intiqoli Barq, and Shabakahoi Taqsimoti Barq (revised September 30, 2022). The program total budget determined is USD 479.1 million, consisting of:  BT own funds (from tariff-regulated revenue) - 305.1 M USD  WB funding (IDA Grant Number D558-TJ) - 134.0 M USD  Non-WB or Non-Government or BT funding - 40.0 M USD. The Grant Agreement was concluded between the Republic of Tajikistan (“ROT”) and the International Development Association (“IDA”, and/or “WB”) on 5 May 2020, based on which the IDA provides grant up to 97,200,000 Special Drawing Rights (“SDR”) for the Program. The Grant became effective on 1 July 2020. The payment currency of IDA Grant Number D558-TJ is United States dollars (USD). The Program carries out through the Ministry of Energy and Water Resources of the Republic of Tajikistan (MENR) and Ministry of Finance of the Republic of Tajikistan (“MOF”), and cause parts of the Program to be carried out by OJSC “Barqi Tojik”. The Closing date of IDA Grant Number D558-TJ is set 31 August 2032. The Grace Period for submitting withdrawal application for expenditures incurred before the Closing date is six months following the Closing date: 28 February 2033. 1.2. Subsidiary agreement According to the Grant Agreement, the BT receives the Grants proceeds subject to the achievement of the Disbursement Linked Results (“DLRs”) and/or Disbursement Linked Indicators (“DLIs”) set forth in the table IV.A.2. of Schedule 2 of the Grant Agreement and corresponding verification process. For this purpose, a subsidiary agreement was concluded between the MOF and the BT on 29 June 2020, according to which BT receives sub-grant in the amount of 97,200,000 SDR as the terms of the Grant Agreement are achieved. 1.3. The Program objectives The Program consists of the following activities: Results Area 1: Achievement of Financial Viability of BT 1. Achievement of cost-recovery end user tariffs. 2. Revision of subsidiary agreements between MOF and BT. 3. Improved prioritization, predictability, and transparency of collection and distribution of revenues in the electricity sector. Results Area 2: Ensuring Electricity Supply Reliability 1. Adequate electricity supply from Sangtuda-1. 2. Timely rehabilitation and upgrade of BT’s key electricity transmission and distribution assets. 3. Reduction of electricity sector costs Results Area 3: Strengthening of BT Governance and Improvement of Transparency 1. Implementation of good-practice corporate governance at BT, SIB and STB. 2. Use of technically, economically, and financially sound principles for investment decision- making in generation, transmission, and distribution. 3. Improvement of operational and financial transparency of BT, SIB and STB. 9 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 1.4. The Grant Budget The IDA Grant Number D558-TJ funding budget consists of the following DLIs: IDA Grant Number D558-TJ Category SDR USD equivalent Initial Initial (a) Updated (b) (1) DLI#1: Achievement of cost-recovery end- user tariffs 13,781,000 18,998,498 18,894,774 (2) DLI#2: Revision of subsidiary agreements between the MOF and BT 23,938,000 33,000,947 32,820,775 (3) DLI#3: Reduction of BT’s Cash Deficit 20,309,000 27,998,004 27,845,147 (4) DLI#5: Adequate electricity supply is received by BT from Sangtuda-1 12,329,000 16,996,770 16,903,974 (5) DLI#7: Use of technically, economically, and financially sound principles for the investment decision-making in electricity generation, transmission, and distribution 10,812,000 14,905,432 14,824,055 (6) DLI#8: Implementation of good practice corporate governance at BT 12,332,000 17,000,905 16,908,087 (7) DLI#9: Improvement of BT’s operational and financial transparency 3,699,000 5,099,444 5,071,604 Total 97,200,000 134,000,000 133,268,416 (a) The SDR/USD equivalent applied at inception was 1.37860. (b) The updated budget as at reporting date in USD equivalent for IDA Grant D558-TJ, with underling currency of SDR, is calculated based on cumulative funds received as at reporting date in USD, plus, if any, USD equivalent of undisbursed funds in SDR as at reporting date. SDR/USD rate as at 31.12.2022 is set at 1.33084 (31.12.2021: 1.39959) 1.5. Program Implementation The Program carries out through the Ministry of Energy and Water Resources of the Republic of Tajikistan (MEWR) and Ministry of Finance of the Republic of Tajikistan (“MOF”), and cause parts of the Program to be carried out by OJSC “Barqi Tojik” (“BT”, and/or “implementing entity”). The MEWR address is: Samsi 5/1,Dushanbe, Republic of Tajikistan, 734064; The MOF address is: Rajabovykh 3, Republic of Tajikistan, 734025; The BT address is: Ismoili Somoni Ave 64, 734026,Dushanbe, Republic of Tajikistan. 10 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 2. Summary of significant accounting policies 2.1. Preparation and presentation of financial statements The special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (IPSAS-Cash Basis), issued by the International Public Sector Accounting Standards Board (IPSASB), and presented in accordance with Financial Management Manual for World Bank Financed Investment Operations (March 2010): RM 3 – Financial Reporting and Auditing. The principal accounting policies applied in the preparation of these special purpose financial statements are set out below. These policies have been consistently applied to all the periods presented. 2.2 Cash basis of accounting Program financing is recognized as a source of Program funds when the cash is received. Program expenditures are recognized as a use of Program funds when the payments are made. 2.3 Reporting currency The reporting currency of these special purpose financial statements is United States dollars (USD), on which the payments are made. However, the Funding budget underlining currency is Special Drawing Rights (“SDR”) and the DLIs implementation and reimbursement budget underlining currency is SDR. (Note 1.1) Therefore, some reports relating to DLIs implementation and reimbursement are presented in SDR currency. 11 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 3. Progress of Grant proceeds withdrawal Cumulative Cumulative total Withdrawal budget of the as at 31 Dec 2022 Project Execution Category SDR SDR % DLI#1: Achievement of cost-recovery end-user tariffs 5,480,000.00 13,781,000.00 40% DLI#2: Revision of subsidiary agreements between the 15,814,000.00 23,938,000.00 66% MOF and BT DLI#3: Electricity Sector's Cash deficit - 20,309,000.00 0% DLI#5: Adequate electricity supply is received by BT or 10,154,000.00 12,329,000.00 82% the Designed Off-Taker from Sangtuda-1 DLI#7: Use of technically, economically, and financially sound principles for the Recipient's investment - 10,812,000.00 0% decision-making in electricity generation, transmission, and distribution DLI#8: Implementation of good practice corporate - 12,332,000.00 0% governance at BT, SIB and STB DLI#9: Improvement of operational and financial 2,248,000.00 3,699,000.00 61% transparency of BT, SIB and STB Total 33,696,000.00 97,200,000.00 35% Actual Budget* Variance Cumulative Cumulative Cumulative as Year ended Year ended Year ended 31 Program Activities DLI as at 31 Dec as at 31 Dec at 31 Dec 31 Dec 2022 31 Dec 2022 Dec 2022 2022 2022 2022 SDR SDR SDR SDR SDR SDR Results Area 1: Achievement of Financial Viability of BT 7,512,000 21,294,000 18,540,000 33,338,000 (11,028,000) (12,044,000) 1.1. Achievement of cost-recovery end DLI 1 user tariffs 5,480,000 5,480,000 7,980,000 7,980,000 (2,500,000) (2,500,000) 1.2. Revision of subsidiary agreements DLI 2 between MOF and BT 2,032,000 15,814,000 9,140,000 23,938,000 (7,108,000) (8,124,000) 1.3. Improved prioritization, predictability, and transparency of DLI 3 collection and distribution of revenues in the electricity sector - - 1,420,000 1,420,000 (1,420,000) (1,420,000) Results Area 2: Ensuring Electricity Supply Reliability 5,802,000 10,154,000 4,280,000 12,984,000 1,522,000 (2,830,000) 2.1. Adequate electricity supply from DLI 5 Sangtuda-1 5,802,000 10,154,000 1,450,000 10,154,000 4,352,000 - 2.2. Timely rehabilitation and upgrade of DLI 7 SIB's and STB's electricity transmission (DLR and distribution assets BT’s key 7.4- electricity transmission and distribution 7.6) assets - - 2,830,000 2,830,000 (2,830,000) (2,830,000) 2.3 Reduction of electricity sector - - - - - - Results Area 3: Strengthening of BT, SIB and STB Governance and Improvement of Transparency 1,450,000 2,248,000 10,156,000 11,679,000 (8,706,000) (9,431,000) 3.1. Implementation of good-practice DLI 8 corporate governance at BT, SIB and STB - - 9,431,000 9,431,000 (9,431,000) (9,431,000) 3.2. Use of technically, economically, DLI 7 and financially sound principles for (DLR investment decision-making in 7.1- generation, transmission, and 7.3) distribution - - - - - - 3.3. Improvement of operational and financial transparency of BT, SIB and DLI 3, 9 STB. 1,450,000 2,248,000 725,000 2,248,000 725,000 - Total 14,764,000 33,696,000 32,976,000 58,001,000 (18,212,000) (24,305,000) *The 2021 budget was revised by Amendment N3 dated September 30, 2022. 12 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 4. Financing IDA Grant Number D558-TJ a) IDA Grant funding Year ended Cumulative as Year ended Cumulative as 31 Dec 2022 at 31 Dec 2022 31 Dec 2021 at 31 Dec 2021 USD USD USD USD DLI advance/ - 31,471,659 (advance recovery) - 31,471,659 DLI payment 19,787,533 47,035,352 24,150,740 27,247,819 Total 19,787,533 78,507,011 24,150,740 58,719,478 Total financing 133,268,416 budget 136,973,354 Percentage of 58% finance provided 42% Year ended Cumulative as Year ended Cumulative as 31 Dec 2022 at 31 Dec 2022 31 Dec 2021 at 31 Dec 2021 SDR SDR SDR SDR DLI advance/ - 22,356,000 (advance recovery) - 22,356,000 DLI payment 14,764,000 33,696,000 16,756,000 18,932,000 Total 14,764,000 56,052,000 16,756,000 41,288,000 Total financing 97,200,000 budget 97,200,000 Percentage of 58% finance provided 42% b) Funding from OJSC “Barqi Tojik” The funding from OJSC “Barqi Tojik” is the difference between payments for “Cost of electricity from Sangtuda-1” and closing cash balance of the dedicated account and funding received from WB (IDA Grant). c) Funding from OJSC "Distribution electric grids” and OJSC "Transmission electrical grids” The funding from OJSC "Distribution electric grids” and OJSC "Transmission electrical grids” is the total payments made by those entities for the expenditures incurred. 13 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 5. DLIs/DLRs implementation progress WB Grant Proceed Grant Proceed Amount of Grant DLIs DLRs conformation Year ended 31 Cumulative as at Allocated (SDR) date Dec 2022 (SDR) 31 Dec 2022 (SDR) DLR 1.1: By November 30, 2022, at least twelve (12) percent increase of average 14-Dec-22 end-user electricity tariff has been adopted by the Recipient 5,480,000 5,480,000 5,480,000 DLR 1.2: By December 31, 2023, at least annual adjustment of generation, transmission, distribution, and end-user tariffs as per the new tariff methodology and consistent with the targets approved under the Electricity Tariff Paper 2,176,000 - DLR 1.3: By December 31, 2024, at least annual adjustment generation, transmission, distribution, and end-user tariffs as per the new tariff methodology and consistent with the targets approved under the Electricity Tariff Paper 1,450,000 - DLR 1.4: By December 31, 2025, at least annual adjustment of generation, DLI#1: transmission, distribution, and end-user tariffs as per the new tariff methodology Achievement of and consistent with the targets approved under the Electricity Tariff Paper cost-recovery 725,000 - end-user tariffs DLR 1.5: By December 31, 2026, at least annual adjustment of generation, transmission, distribution, and end-user tariffs as per the new tariff methodology and consistent with the targets approved under the Electricity Tariff Paper 725,000 - DLR 1.6: By December 31, 2027, at least annual adjustment of generation, transmission, distribution, and end-user tariffs as per the new tariff methodology and consistent with the targets approved under the Electricity Tariff Paper 725,000 - DLR 1.7: By December 31, 2022, (a) approval by the Recipient's government of the Electricity Tariff Paper satisfactory the Association, with estimated full cost- recovery tariff and tariff adjustment plan to reach full cost-recovery by the end of 2025; and (b) establishment of an adequately staffed Tariff Unit at the AMS 2,500,000 14 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 Subtotal 13,781,000 5,480,000 5,480,000 DLR 2.1: By October 30, 2020, the Recipient converts into equity ownership of BT the outstanding principal amounts and interest payable by BT for ten (10) loans 26-Feb-21 under Group Subsidiary Agreements 5,803,000 5,803,000 DLR 2.2: By October 30, 2020, the terms of any new financing received by BT from the MOF are aligned with the terms in the respective legal agreements 26-Feb-21 between the Recipient and the financiers 1,450,000 1,450,000 DLR 2.3: By December 31, 2020, the Recipient converts into equity ownership of BT the outstanding principal amounts and interest payable under additional four 26-Feb-21 (4) Group 1 Subsidiary Agreements 1,742,000 1,742,000 DLR 2.4: By December 31, 2020, the BT Supervisory Board adopts a formal decision to prohibit BT from receiving new financing from the MOF, unless the 24-Feb-21 terms of such financing are aligned with the terms reflected in the legal DLI#2: Revision documents between the Recipient and the financiers of subsidiary 3,337,000 3,337,000 agreements DLR 2.5: By December 31, 2020, the terms of any new financing received by BT between the from the MOF are aligned with the terms in the respective legal documents 26-Feb-21 MOF and BT between the Recipient and the financiers 1,450,000 1,450,000 DLR 2.6: By December 31, 2022, (a) the MOF and BT revise the terms of ten (10) loans under Group 2 Subsidiary Agreements to align those with the terms in respective legal agreements between the Recipient and the financiers; and (b) the Recipient converts into equity the difference between the original and revised interest payable by BT to the MOF under each of the ten (10) loans from Group 2 Subsidiary Agreements, assuming the revised terms of each such loan were in effect since the effectiveness date of the respective Group 2 Subsidiary Agreements 4,062,000 - DLR 2.7: By September 30,2022, the terms of any new financing received by BT from the MOF are aligned with the terms in the respective legal documents 14-Dec-22 between the Recipient and the financiers. 1,016,000 1,016,000 1,016,000 15 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 DLR 2.8: By December 31, 2022: (a) the MOF and BT revise the terms of nine (9) additional loans under Group 2 Subsidiary Agreements to align those with the terms in respective legal documents between the Recipient and the financiers; and (b) the Recipient converts into equity the difference between the original and revised interest payable by BT to MOF under each of the nine (9) loans from Group 2 Subsidiary Agreements, assuming the revised terms of each such loan were in effect since the effectiveness date of the respective Group 2 Subsidiary Agreements 4,062,000 - DLR 2.9: By December 31, 2021, the terms of any new financing received by BT from the MOF are aligned with the terms in the respective legal documents 14-Dec-22 between the Recipient and the financiers 1,016,000 1,016,000 1,016,000 Subtotal 23,938,000 2,032,000 15,814,000 DLR 3.1: By December 31, 2022, the Electricity Sector's Cash Deficit does not exceed TJS 14 billion 1,420,000 - DLR 3.2: By December 31, 2023, the Electricity Sector's Cash Deficit does not exceed TJS 16 billion 3,047,000 - DER 3.3: By December 31, 2024, the Electricity Sector's Cash Deficit does not DLI#3: exceed TJS 16 billion 2,640,000 - Electricity Sector's Cash DLR 3.4: By December 31, 2025, the Electricity Sector's Cash Deficit does not deficit exceed TJS 16 billion 3,047,000 - DLR 3.5: By December 31, 2026, the Electricity Sector's Cash Deficit does not exceed TJS 15 billion 6,093,000 - DLR 3.6: By December 31, 2027, the Electricity Sector's Cash Deficit does not exceed TJS 13 billion 4,062,000 - Subtotal 20,309,000 - - DLI#5: DLR 5.1: By June 30, 2020, at least 1,000 GWh is received by BT 19-Nov-20 2,176,000 2,176,000 Adequate DLR 5.2: By December 31, 2020, at least 800 GWh is received by BT 24-Feb-21 2,176,000 2,176,000 electricity supply is DLR 5.3: By June 30, 2021, at least 1,000 GWh is received by BT 13-Apr-22 2,176,000 2,176,000 2,176,000 received by BT DLR 5.4: By December 31, 2021, at least 800 GWh is received by BT 14-Dec-22 2,176,000 2,176,000 2,176,000 16 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 or the Designed DLR 5.5: By December 31, 2022, at least 1,800 GWh is received by BT or the new Off-Taker from 14-Dec-22 Designated Off-taker 1,450,000 1,450,000 1,450,000 Sangtuda-1 DLR 5.6: By December 31, 2023, at least 1,800 GWh is received by BT or the new Designated Off-taker 725,000 - DLR 5.7: By December 31, 2024, at least 1,800 GWh is received by BT or the new Designated Off-taker 725,000 - DLR 5.8: By December 31, 2025, at least 1,800 GWh is received by BT or the new Designated Off-taker 725,000 - Subtotal 12,329,000 5,802,000 10,154,000 DLR 7.1: By December 31, 2022, MEWR completes the update of GEP 2,830,000 - DLR 7.2: By February 28, 2023, MEWR approves the updated GEP 3,629,000 - DLI#7: Use of DLR 7.3: By December 31, 2023, new generation investment decisions are made technically, by the Recipient in accordance with the updated GEP, and transmission and economically, distribution network development plans based on the GEP are prepared by SIB and financially and STB respectively, and are approved by MEWR 2,902,000 - sound principles for DLR 7.4: By December 31, 2024, new generation as well as transmission and the Recipient's distribution projects initiated by BT, SIB, and STB respectively or the Recipient's investment government are consistent with the adopted plans 725,000 - decision- making in DLR 7.5: By December 31, 2025, new generation as well as transmission and electricity distribution projects initiated by BT, SIB, and STB accordingly or the Recipient's generation, government are consistent with the adopted plans 363,000 - transmission and distribution DLR 7.6: By December 31, 2026, new generation as well as transmission and distribution projects initiated by BT, SIB, and STB respectively or the Recipient's government are consistent with the adopted plans 363,000 - Subtotal 10,812,000 - - DLI#8: DLR 8.1: By December 31, 2022, supervisory boards are functional and specialized Implementation committees (audit and compensation) are formed at BT, SIB, and STB comprising of good of members of supervisory boards and chaired by independent supervisory board practice members corporate 2,902,000 - governance at DLR 8.2: By December 31, 2022, supervisory boards and specialized committees BT, SIB and STB are functional 3,627,000 - 17 Power Utility Financial Recovery Program IDA Grant Number D558-TJ Notes to the special purpose financial statements For the year ended 31 December 2022 DLR 8.3: By December 31, 2022, supervisory boards and specialized committees are functional 2,902,000 - DLR 8.4: By December 31, 2023, supervisory boards and specialized committees are functional 1,450,000 - DLR 8.5: By December 31, 2024, supervisory boards and specialized committees are functional 725,000 - DLR 8.6: By December 31, 2025, supervisory boards and specialized committees are functional 363,000 - DLR 8.7: By December 31, 2026, supervisory boards and specialized committees are functional 363,000 - Subtotal 12,332,000 - - DLR 9.1: By 31 Dec 2020, BT publishes on its website key quarterly operational 24-Feb-21 data and unaudited financial statement for 2019 798,000 798,000 DLR 9.2: By December 31, 2021, BT publishes on its website key quarterly 13-Apr-22 operational data and unaudited financial statement for 2020 725,000 725,000 725,000 DLI#9: DLR 9.3: By December 31, 2022, BT, SIB, and STB publish on their websites key 27-Dec-22 Improvement quarterly operational data and unaudited financial statements for 2021 725,000 725,000 725,000 of operational and financial DLR 9.4: By December 31, 2023, BT, SIB, and STB publish on their websites key transparency of quarterly operational data and unaudited financial statements for 2022 725,000 - BT, SIB and STB DLR 9.5: By December 31, 2024, BT, SIB, and STB publish on their websites key quarterly operational data and unaudited financial statements for 2023 363,000 - DLR 9.6: By December 31, 2025, BT, SIB, and STB publish on their websites key quarterly operational data and unaudited financial statements for 2024 363,000 - Subtotal 3,699,000 1,450,000 2,248,000 TOTAL 97,200,000 14,764,000 33,696,000 18 6. Statement of dedicated account Fund IDA Grant Number D558-TJ Dedicated account (DA) number 20206840701473101000 Account currency USD SUE Saving Bank of the Republic of Bank Tajikistan “Amonatbonk” Bank location Rudaki avenue 105, Dushanbe, Tajikistan IDA Grant Number D558-TJ Year ended 31 Year ended 31 Dec 2022 Dec 2021 USD USD 1. Opening balance - 1 2. Add: opening discrepancy - - 3. IDA advance/replenishment 19,787,533 24,150,740 4. Less: Refund to IDA from DA - - 5. Present outstanding amount advanced to DA 19,787,533 24,150,741 6. DA closing balance 964,849 - 7. Add: Amount of eligible expenditures paid* 18,822,684 24,150,741 8. Less: interest earned (if credited to DA) - - 9. Total advance accounted for 19,787,533 24,150,741 10. Closing discrepancy (5)-(9) - - * These are repayments for commercial bank loans (Note 9). 7. Events after reporting date After the reporting date, the following conformation of DLI results achieved was approved by the WB. Documented amount DLI# Approved SDR DLI 1 09-Feb-23 2,500,000 DLI 7 09-Feb-23 2,830,000 DLI 2 17-Aug-23 8,124,000 Total 13,454,000 8. Litigations There are no pending litigations related to the Program as at reporting date and as at approval date of these financial statements. 9. Other payments For the purpose of improving financial position, in addition to payments reported at “Statement of funds received and used” above, the BT made USD 19,787,533 repayment of the commercial loans, including USD 3,965,686 repayment of the commercial loan at Orienbank (Tajikistan) and TJS 150,798,225 (equivalent USD 14,856,961) repayment of sub-loan to Ministry of Finance of the Republic of Tajikistan for construction of a high-voltage power transmission line 500/220 kV South- North, Lolazor-Khatlon (Exim Bank). 19