MINISTRY of AGRICULTURE and FORESTRY General Directorate of State Hydraulic Works Financed Under IBRD Loan Numbered 8919-TR As of December 3 1, 2 02 2 and For the Year Then Ended Prepared by Neslihan ONDER 1nanV KAPLAN Senior Treasury Controller Junior Treasury Controller Report's Number 91/3 - 20/4 NDEPENJDENT AUDOR'S REPORT June 09, 2023 REPUBLIC OF TORKIYE MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers CONTENTS E X E C U T IV E S U M M A R Y .... .............. ....... ......... ......... ...- - ...... ..................................... ..................................... 1 A . P r o je c t S u m m a ry ,.............. .... ...... ........ ............... ...................... .......... ................ ...... ................. ..... ...... 2 B . O b je ctiv es of A u d it ........................................................... ,,,,,,,,,,,,,,....... . . .....................,..........2 C . S c o p e o f A u d it ............... ..... ................................................,,,,,,.............,,,, ,,,,,,,,.,.................,....................... 3 D . A u d it R e su lts ............... .........................................................,,..........,,,,,,,,,, ,,,,,............................................. 3 E . M an agem ent R ecom m en dation .............................................................................................................. 3 INDEPENDENT AUDITOR'S REPORT & FINANCIAL STATEMENTS OF THE PROJECT..............4 IND E P EN D E N T A U D IT O R 'S REEPPRO RT.............................................................................................................. 5 O p in ion........................,............... ,...... ,,,,. .....................................................................................................i.n5 B asis fo r O p in io n .......................................................f,or,,............. ..............,,,,......................... 5 Emphasis of Matter in the Financial Statement................. ............................................................ 5 G o in g C o n c e r n ..................................................,,,............................................................................................. 5 Responsibilities of Management and Those Charged with Governance or Other Appropriate Terms for the Financial Statements................................................................................6 Auditor's Responsibilities for the Audit of the Financial Statements........................................6 A N N EX 1: Finan cial Statem ents............................................................,,,,,................ .,, ......,, .,8 EXECUTIVE SUMMARY REPUBLIC OF TURKIYE MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers EXECUTIVE SUMMARY A. Project Summary The Republic of Tirkiye was provided a loan equivalent to C 222.300.000,00 (approximately USD 252.000.000,00) by the loan agreement signed with International Bank for Reconstruction and Development (IBRD) on February 15, 2019. Having approved by the Presidency of the Republic of Tirkiye on April 16, 2019 the loan agreement came into force on May 30, 2019 and accordingly, the implementation of the Project started. This project is implemented by Ministry Agriculture and Forestry, General Directorate of State Hydraulic Works (DSI). The overall objective of this Project is to improve irrigation service delivery, through rehabilitation and modernization of distribution infrastructure in selected schemes, and through strengthening of capacity of Water User Associations ("WUAs"). Project consists of the following three components: A. Irrigation Systems Modernization B. Innovation and Institutional Support C. Project Management The total amount of the Project is estimated as $ 254.000.000,00 of which -E 222.300.000,00 (approximately $ 252.000.000,00) International Bank for Reconstruction and Development (IBRD) loan and $ 2.000.000,00 Global Environment Facility ("GEF") grant. Total opening balance of the Central Bank of the Republic of Tilrkiye (TCMB) designated account for loan, as of January 1, 2022 is -E 4.810.260,43 and closing balance as of December 31, 2022 is -E 3.464.181,79. Accordingto the Project Financial Statements, -E 30.346.078,64 was disbursed in this audit period and -C 53.035.818,21 was disbursed cumulatively. This report is prepared for all components of the Project. B. Objectives of Audit The objectives of our audit are; a) To give an opinion on whether the financial statements, prepared as of December 31, 2022 present fairly in all material respects the financial position of the Project in accordance with the cash receipts and disbursements basis of accounting, 2 b) To determine, as of December 31, 2022, whether the General Directorate of State Hydraulic Works (DSI) has complied, in all material respects, with the rules and procedures of the Loan Agreement, c) To examine whether adequate supporting documentation has been maintained to support claims to the World Bank for reimbursements of expenditures incurred with respect to Statement of Expenditures and evaluate eligibility of these expenditures for financing under the World Bank Loan Agreement. C. Scope of Audit We have performed an audit of financial statements of the project as of December 31, 2022 and for the year then ended in accordance with the cash receipts and disbursements basis of accounting. We have also performed a compliance audit on whether Project activities are in line with the Loan Agreement and related World Bank Guidelines. Our audit was conducted in accordance with International Standards on Auditing (ISAs) published by International Federation of Accountants (IFAC) applicable to the audit of financial statements and compliance auditing and related World Bank Guidelines. There was no limitation in our scope for the Project's audit. D. Audit Results For the financial statements of Project, our audit resulted with an unmodified opinion. In addition, as of December 31, 2022, General Directorate of State Hydraulic Works (DSI) has complied, in all material respects, with the rules and procedures of the Loan Agreement. With respect to SOEs, adequate supporting documentation has been maintained to support claims to the World Bank for reimbursements of expenditures incurred and these expenditures are eligible for financing under the World Bank Loan Agreement. E. Management Recommendation Since we have not identified any material deficiency in internal control during our audit, we have not issued a Management Letter. 3 INDEPENDENT AUDITOR'S REPORT & FINANCIAL STATEMENTS OF THE PROJECT REPUBLIC OF TORKIYE MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers INDEPENDENT AUDITOR'S REPORT General Directorate of State Hydraulic Works Opinion We have audited the accompanying financial statements of the Turkey Irrigation Modernization Project as of December 31, 2022 and for the period then ended, which comprise the Statement of Sources and Uses of Funds, Statement of Cumulative Investments, Statement of Special Account and the Notes to the Project Financial Statements including the summary of significant accounting policies. The financial statements have been prepared by General Directorate of State Hydraulic Works based on financial reporting provisions of the Loan Agreement Numbered 8919-TR. In our opinion; a) The accompanying the Statement of Sources and Uses of Funds, Statement of Cumulative Investments and Statement of Special Account present fairly, in all material respects, the financial position and cash flows of the Turkey Irrigation Modernization Project as of December 31, 2022 and for the period then ended in accordance with the provisions of the Loan Agreement Numbered 8919-TR. b) General Directorate of State Hydraulic Works, as of December 31, 2022 has complied with, in all material respects, the requirements of the Loan Agreement Numbered 8919-TR. c) With respect to SOEs, adequate supporting documentation has been maintained to support claims to the World Bank for reimbursement of expenditures incurred, and these expenditures are eligible for financing under the Loan Agreement Numbered 8919-TR. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of this report. We are independent of the General Directorate of State Hydraulic Works within the meaning of "IFA C Code of Ethics for Professional Accountants" and ethical requirements and have fulfilled our other responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter in the Financial Statement Without modifying our opinion, we draw attention to Note "2" to the financial statements, which describe the basis of accounting. The financial statements are prepared to assist General Directorate of State Hydraulic Works to comply with the financial reporting provisions of the agreement referred to above. As a result, the financial statements may not be suitable for another purpose. Going Concern The Project's financial statements have not been prepared using the going concern basis of accounting. The project will be completed on February 27, 2026. 5 REPUBLIC OF TURKIYE MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers Responsibilities of Management and Those Charged with Governance or Other Appropriate Terms for the Financial Statements General Directorate of State Hydraulic Works is responsible for the preparation and fair presentation of these financial statements in accordance with Loan Agreement Numbered 8919-TR and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the General Directorate of State Hydraulic Works' financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements The objectives of our audit are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue 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 material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the planning and performance of the audit. We also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain 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 for one 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 audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We are required to 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. 6 REPUBLIC OF TURKIYE MINISTRY OF TREASURY AND FINANCE Board of Treasury Controllers We are also required to provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Ahmet'[JTAL Chairman of Board of Treasury Controllers Akif 10I efit BOYACIOLU (Audit Partner) Vice Chairnin Neslili, NDER Inang KAPLAN Senior Treasury Controller Junior Treasury Controller Date: June 09, 2023 Address: Ministry of Treasury and Finance Board of Treasury Controllers 06490, Emek, ANKARA/TORKIYE 7 ANNEX I: Financial Statements оо-о-ииооо .✓ rnиГИи с, � � о rn• т о о Г о Г М о о о Г М v о v о е Г оо=о-�г�с�ооо .- �с"г�n�оо о: .�" о оо � N �� е N ОО И- N еГ Г О N И [� о0 1� N - 'и N О О О О О � О� О� � l� О� 'V О М Т М Г д М 'V N М1 �� f�1 Р U о0 - О Г М е Г f М М о� f� 00 О� О� - О� � N N И �О N-- К1 д� И И И И С ь рΡ � О О О О О О О О О О Р� Г п е - ' � ' О о� • г�1 W О О О О О О О О О О�� О N ао 7 а О о а f� 7 О О О О О О О О О О О l� о� г�i �О о0 О о0 -'V е М Г N И р N-�о N N О О О О � 'V О М О� М 7 ? 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N � '.3 �".� 'О Qi ...- _ . о а' О � вУч] N � � С N сб ;� О ¢ � N � � ¢ _ � � Е ^.' � � � _ СП у W � й ... � � �U О s� � ь., 4., у � 'L7 � � � 'б � и ЧО 40 С у 'д � с Q U и С 'b N r с а(i" сб N V О� й � сб b�q V �б �б � р р„ Lт. �" .� р �б ,� �> W � О � � U i р с �¢ О� й 'д � � w °. с .� �� � w R 5, � +� с О � � Q а й Ес- U MINISTRY OF AGRICULTURE AND FORESTRY GENERAL DIRECTORATE OF STATE HYDRAULIC WORKS (DSI) TURKEY IRRIGATION MODERNIZATION PROJECT (Project Loan No: 89190-TR) NOTES TO THE PROJECT FINANCIAL STATEMENTS by December 31, 2022 and for the year then ended OBJECTIVES AND NATURE OF THE PROJECT The Loan Agreement for Turkey Irrigation Modernization Project (TIMP) was signed by 111ternational. Bank for Reconstruction and Development (IBRD) on February 4, 2019 and by the Ministry of Treasury and Finance on behalf of the Republic of Turkey on February 15, 2019. Having approved by the Presidency of the Republic of Turkey on April 16, 2019, the Loan Agreement came into force on May 30, 2019; therefore project implementations began in 2019. Project Duration: 7 years. Project completion is (closure) on February 27, 2026 and financial closure is on December 31, 2026. Project Budget: Republic of Turkey and IBRD signed a Financing Agreement for a loan of EUR 222.300.000,00 (approximately USD 252.000.000,00) and a grant of USD 2.000.000,00. Objective of the Project: The objective of the project is to improve irrigation service delivery, through rehabilitation and modernization of distribution infrastructure in selected schemes, and through strengthening the capacity of Water User Associations (WUAs). Secondary objectives of the Project would include; - Integration of measures to improve irrigation operations, beneficiary participation, and linkages to enhance agricultural productivity, - A systematic approach to strengthening the capacity of WUAs, - Increasing the efficiency of water use and reducing the total water consumption, - Increasing the incomes of the farmers engaged in low-value agriculture, - Contribution to general economic growth in the project implementation areas. Project's Target Group: Approximately 17.300 water users (of which approximately 3 percent are women) will be direct beneficiaries of the irrigation modernization investments under Component 1. Direct beneficiaries of the GEF-funded activities include fanners at the nation-wide level (covering 3,08 in ha), who will benefit from improved water management at the field-level and higher capacity of WUAs. Beneficiaries also include approximately 100 staff from DSI's regional offices and 600 staff from 378 WUAs, who will be equipped and trained in the use of the SUTEM irrigation information system, which will strengthen WUA's capacity for operation and maintenance (O&M), water conservation, financial management, governance, monitoring and evaluation (M&E), and communications. Implementation Area: The Loan will finance investments to modernize DSI's irrigation systems in selected schemes. The selected set of schemes includes Atabey (Isparta), Eregli- Ivr-iz (Konya), Alasehir (Manisa), and Uzunlu (Yozgat), with combined area of approximately 1/4 50.000 hectares. The GEF grant will finance design and implementation activities for developing a national program for WUA's capacity-building for water management. The GEF grant will also support the implementation of a sustainable energy and groundwater nanagement pilot in Bolvadin, Afyon. Main Approaches of the Project: * Co-deciding with locals, a participatory approach, * Supporting collective acting rather than individuality, * Creating awareness between stakeholders, * Encouraging more women to participate in the labour force. The Project consists of 3 main components. 1. Irrigation Systems Modernization (IBRD, US$249 million): This component will finance investments to modernize DSI's irrigation systems in following schemes: a) Alagehir (Manisa), 13.650 hectares, b) Atabey (Isparta), 13.834 hectares, c) Eregli-Ivriz (Konya), 15.280 hectares, d) Uzunlu (Yozgat), 8.000 hectares. 2. Innovation and Institutional Support (GEF, US$2 million): This component will provide direct design and implementation support to DSI in the following areas: a) Designing and Piloting a National Program for WUA Capacity-Building (Nation- wide), b) Groundwater Stewardship Pilot (Bolvadin, Afyon). 3. Project Management (IBRD, US$3 million): This component will finance the multiple activities required for coordination and management of the project; and will include, inter alia, measures for enhancing dam safety in the project schemes, community consultations and partnership program, communications, grievance redress mechanisms, monitoring and evaluation, and environmental and social management. 2. MAIN ACCOUNTING POLICIES 2.1. Applied Accounting Standard and Accounting Basis The accounts and financial statements have been prepared in accordance with Cash Basis, Financial Reporting under the cash basis of accounting. Under that basis, a separate accounting system has been established for Turkey Irrigation Modernization Project. Project Management Team (PMT), which is currently organized within the General Directorate of State Hydraulic Works (DSI), recorded the amount withdrawn from the loan account and paid the amount to the contractor based on the cash basis. Income is recognized when funds are received and expenses are recognized when payment is made. The accounting policies have been applied consistently throughout the period. 2.2. Designated Accounts There are two separate Designated Accounts at TR Central Bank for IBRD Loan (940832042) and GEF Grant (940701054) for the amounts of credit and grant to be used under the Project. 2/4 2.3. Currency Presentation currencies and accounting records are stated as Euro for IBRD Loan which are the currencies provided by the Loan Agreement between the World Bank and the Republic of Turkey. 2.4. Exchange Rates Transactions made in currencies other than Euro are accounted for at the current Euro exchange rate of the transaction that is published by the Central Bank of Republic of Turkey for IBRD Loan. 3. FINANCIAL STATEMENTS In accordance with the loan agreement between the Turkish Government and IBRD, the uses of funds available in the Designated Accounts are restricted to project purposes only. Project funds still unused at the end of the project will be returned to the Ministry of Treasury and Finance for distribution to providers in accordance with the provisions of the corresponding financing agreement. 4. IBRD LOAN In pursuance with the financing agreement signed between the Government of Turkey and IBRD on 4 February 2019 (IBRD) - 15 February 2019 (Ministry of Treasury and Finance), IBRD committed to lend a loan equivalent to EUR 222.300.000,00 (approximately USD 252.000.000,00). The interest rate is the Reference Rate plus the Fixed Spread or such rate as may apply following a Conversion; subject to Section 3.02(e) of the General Conditions. The Commitment Charge is one quarter of one percent (0.25%) per annum on the Unwithdrawn Loan Balance. The Front-end Fee is one quarter of one percent (0.25%) of the Loan amount. The Loan has a payment free period of five (5) years and the principal payment dates are January 15 and July 15 in each year following the payment free period. 5. SOURCES OF FUNDS (Euro) IBRD LOAN (Advance) 0,00 IBRD LOAN (WA) 29.000.000,00 TOTAL 29.000.000,00 There is no Government contribution nor beneficiary contribution as a source of fund in Turkey Irrigation Modernization Project. 3/4 6. PENDING APPLICATIONS There is no pending application in 2022. 7. CASH For IBRD Loan Account: Cash available at January 1, 2022, expressed in Euro, included: Funds Available (In Euro) Loan Account at TR Central Bank (Euro) 4.810.260,43 TOTAL 4.8 10.260,43 Cash available at December 31, 2022, expressed in Euro, included: Funds Available (In Euro) Loan Account at TR Central Bank (Euro) 3.464.181,79 TOTAL 3.464.181,79 8. CASH For IBRD Loan Account: During the current year of 2022, total 170 euro swift commission fees has been charged by banks as operation fees, and the difference in the withdrawn money has been caused from these operation fee. Paid Date of Application Pi at ofmber ApiType of Process Demander Amount Payment NumberEU EUR 24.06.2022 TSMP/KR-14 Swift commission fee Swift - Rabobank E 10,00 28.07.2022 TSMP/KR-16 Swift commission fee Swift - Ing Bank _ 20,00 31.08.2022 TSMP/KR-17 Swift commission fee Swift - Ing Bank C 20,00 Swift - Deutsche 5.10.2022 TSMP/KR-19 Swift commission fee Bank AG 16.12.2022 TSMP/KR-22 Swift commission fee Swift - Rabobank 10,00 28.12.2022 TSMP/KR-24 Swift commission fee Swift - Rabobank C 10,00 Prepared by Approved by Abdullah KARAKU$ aI 1 AS Financial Sevice Expert Directorate of Design and CoIMtruction 4/4