Government of Nepal Ministry of Energy, Water Resource and Irrigation Alternative Energy Promotion Centre Private Sector-led Mini-grid Energy Access Project (TFOA8382 and TFOA8336) Audited Project Account Fiscal Year 2021/022 (Period between 16 July 2021 to 16 July 2022) Ir- Office of the Auditor General Babarmahal /t) hnagar, Kathmandu, Nepal (Energy, Water Resources and Tourism Directorate) Reference No. 1 -201,9 V-D Date: 13th January, 2023 To, The Secretary, Ministry of Finance, Singh Durbar, Kathmandu. Subject: Independent Auditor's Report. Opinion We have audited the accompanying project financial statements of "Private Sector led Mini-grid Energy Access Project" financed by IDA Grant No. TFOA 8382 and loan TFOA 8336,which comprise the project financial statements showing sources and applications of project fund for the year ended 32nd Ashadh 2079 (16th July 2022), including Statement of Designated Account as at 32nd Ashadh 2079 (16th July 2022) and a summary of significant accounting policies and notes related to project financial statements. In our opinion, the accompanying project financial statements for the year ended on 32nd Ashadh 2079 (16th July 2022)are prepared in all material respects, in accordance with the terms of project financing agreement signed between International Development Association (IDA) and Government of Nepal (GoN). We also report that the fund provided under said agreement have been utilized in intended purpose. Basis for Opinion We conducted our audit in accordance with Nepal Government Auditing Standards (NGASs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Project in accordance with the ethical requirements that are relevant to our audit of the financial statements and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Management Letter Management Letter highlighting the areas of,improvement for the internal control system and other aspects in this project is enclosed with this report. Responsibilities of Management and Those Charged with Governance for the Project Financial Statements Management of Alternative Energy Promotion Centre (AEPC) is responsible for the preparation of the project financial statements in accordance with the financial reporting requirement of financing agreement with the WB and for such internal control as AEPC Phone: 01-4772220, 4771270, 4262958, PosbB 3328 email: aag.mgmt@oagnep.gov.np/ dir.mgnt@oagnep.gov.np/ Web Page: www.oag,gov.np management determines is neces ary to enable the preparation of the project financial statements and that are free from matei misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the project 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 Medium level of assurance, but is not a guarantee that an audit conducted in accordance with Nepal Government Auditing Standard (NGASs) 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 a part of audit in accordance with Nepal Government Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risk of material misstatement of the financial statement whether due to fraud or error, design and perform audit procedure responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide an opinion. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve collusion, forgery, intentional omission, misrepresentation, or the override of internal control. 2. 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 internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Evaluate the overall presentation, structure, & content of financial statement including the disclosures, and whether the financial statement represent the underlying transactions and events in a manner that achieves fair presentation. 5. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities to express an opinion on the financial statements. We remain solely responsible for our audit opinion. We communicate with those charges 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. ammaya Kunwar) Deputy Auditor General Office of the Auditor General Babarinahal /Anamnagar, Kathmandu, Nepal Ref No..*ec Date: January 13, 2023 Subject: Management Letter of "Private Sector-led Mini-grid Energy Access Project" financed by IDA Grant No. TFOA 8382 and loan TFOA 8336" The Secretary, Ministry of Energy, Water Resources & Irrigation, Singha Durbar, Kathmandu. I wish to draw your attention towards the enclosed audit findings regarding the audit of "Private Sector-led Mini-grid Energy Access Project" financed by IDA Grant No. TFOA 8382 and loan TFOA 8336" for the fiscal year 2021/22. These findings have been selected from the Preliminary Audit Report (PAR) sent to you through our letter dated December 05, 2022. I also state that none of the contents of this enclosure will have any material effect on the audit report and opinion of this office sent to you on January 13, 2023 or on the rest of the contents of the Preliminary Audit Report. (Padam Raj Po el) Assistant Auditor General cc: The Financial Comptroller General Office, Anamnagar, Kathmandu Alternative Energy Promotion Centre' Private Sector-led Mini-grid Energy Access Project, Mid Baneswor, Kathmandu. Phone: 01-4772220, 4771270, 4262958, Post Box: 13328 email: aag.mgmt@oagnep.gov.np/ dir.mgnt@oagnep.gov.np/ Web Page: www.oag.gov.np 0 - - Alternative EWeU Promotion Centre Private Sector -Led Min, Energy Access Project" IDA Grant No. TFOA 8382 and loan TFOA 8336" Fiscal Year: 2078.79 (2021.22) Project Description: The Private Sector-Led Mini-Grid Energy Access Project (MGEAP) is the project supported by the Government of Nepal (GoN) and the World Bank (WB). The Ministry of Energy, Water Resources and Irrigation (MoEWRI) is the executing agency and the Alternative Energy Promotion Center (AEPC) is the implementing agency for this project. The project agreement was approved on 22 April 2019 and Strategic Climate Fund (SCF) loan and Grant is effective from September 30, 2019.The project will be completed on 30 April 2023. Out of total aid US Doller 7.61 million, $ 5.61 million is sub loan and balance for technical assistance. The project has the objective to increase electricity generation capacity from renewable energy mini-grids in selected areas by mobilizing energy Service Companies (ESCOs). To meet the objectives of project, IDA (World Bank) approved USS$5.61 million for Grant and USS$2 million for Loan. The grant is divided into three categories as follows:- Category Description/Component Total Amount (USD) 1 Sub-Loans Under part 1 of the Project 3,610,000 2 Goods, Works, Non consulting services, 2,000,000 Training, Incremental Operating Cost and consulting Services under Part 2 of the project 3 Sub Loans under Part I of the projects (Loans) 2,000,000 Total 7,610,000 2. Current Year's Audit Observations: 2.1 Overall Progress: It has already spent 3 years out of 4 years of the project period. The Financial progress is only 14.65 % percent i.e. 131.64 million out of NPR 898 million of total amount. The progress should be accelerated as per plan and milestone to complete on time in order to achieve objective of the project. 2.2 Foreign Aid Utilization: The foreign aid must be utilized within the given time frame. The aid agreement was made with World Bank for The Private Sector-led Mini-grid Energy Access Project (MGEAP) of NRS. 898 million however NRS. 131.64 million (14.65 %) has been spent within three years period out of four years. The volume of expenditure is low in comparison of time expired. Hence, the prcgram should be executed in an efficient way in order to harmonize budget expenditure and time frame. 3. Follow up of previous year finding: S.N. Audit Observation Status 1 The foreign aid must be utilized within the given time frame. The aid Partially agreement was made with World Bank for The Private Sector-led Mini-grid Settled Energy Access Project (MGEAP) of NRS. 898 million however NRS. 96.71 million (10.76 %) has been spent within two years period out of four years. The volume of expenditure is low in comparison of time expired. Hence, the program should be executed in an efficient way in order to harmonize budget expenditure and time frame. Alternative Energy Promotion Centre Private Sector-led Mini-grid Energy Access Project Audited Project Account Contents Report 1 Summary of Sources and Uses of Funds Report 2 Designated Account Reconciliation Statement & Cash Projection Report 3 Statement of Expenditure Report 4 Statement of Expenditure for Withdrawal Application Report 5 Disbursement Note 1 GoN Fund and GoN Reimbursable Fund/ IDA Fund Replenishable Statement Note 2 Reconciliation Statement Audited Project Account Report 1 Private Sector-led Mini-grid Energy Access Project (TFOA8382 and TFOA8336) Summary of Sources and Uses of Funds Fiscal Year: 2021/22 Period: 16 July 2021 to 16 July 2022 Amount in NPR Cumulative up to Notes to Current Fiscal Cumulative to Date Description Account Previous Fiscal Year Year Budget Allocation (Proposed Budget of FY 020-21) 484,600,000.00 155,000,000.00 639,600,000.00 A. Opening Cash/Bank Balance B. Sources of Funds 96,718,869.00 23,364,791.00 120,083,660.00 GoN Fund GoN Reimbursable Fund 1 - - IDA Funds Replenishable 1 75,049,440.00 (32,136.00) 75,017,304.00 IDA Funds 1 21,669,429.00 23,396,927.00 45,066,356.00 Total (A+B) 96,718,869.00 23,364,791.00 120,083,660.00 C. Uses of Funds by Category/ Component Sub-Loans Under Part 1 of the Project 61,320,000.00 - 61,320,000.00 Goods,works, non-consulting services,Training,Incremental Operating Costs and consulting services under Part 2 of the Project 35,398,869.00 23,364,791.00 58,763,660.00 Total 96,718,869.00 23,364,791.00 120,083,660.00 D. Closing Balance - Total (C+D) 96,718,869.00 23,364,791.00 120,083,660.00 Designated Account Statement 1 Opening Balance - 9,087,854.05 - 2 Fumd Received from IDA 105,876,504.00 44,400,875.53 150,277,379.53 3 Total Cash Balance (1+2) 105,876,504.00 53,488,729.58 150,277,379.53 4 Less: Transfer to GoN Treasury Account 96,718,869.00 23,364,791.00 120,083,660.00 5 Less: Direct Payment from Designated Account 6 Foreign Exchange Gain/Loss (+/-) [ (69,780.95) 1,388,011.93 1,318,230.98 6. Closing Balance (3-4-5+6)[ 9,087,854.05 31,511,950.51 31,511,950.51 CA Sangan Dulal L' a h t al Dsikari Financial Management Expert Chief Account C ptroller Executive Director AEPC AEPC AEPC asad Dhungana Dinesh Kumar Ghimire .rHarasa Matali Rammaya Kunwar Under Secretary (Account) Secretary Financial Comptrolle General Deputy Auditor General MoEWRI Financial Comptroller General Office of Auditor General Office r �� А ! и о ,°2, � � ' •�, � v х � н � '~'' �+ G�1 � � О ш � С� � v О ь.., �' ' �i+ � .� д р-, v ° � � � � '� v � � v � �--i г-i 00 � М J й�а-�' � о � v � � � � _ � v � � � � � � n '� к � А N N � N ' �w � � `� � Са � и � w � rn � � � ,.�i а"'' � ,� � с�г� о д°�\ N N и .�--, •�--, О � о е°v � с`+�� �� N С� F"' а� _ и � � и v � о о �+ � v о о �-+ оо �, � � � ш и +; � N 1 N N о0 �М � � М.�, �' г� � и и г-+ г� ;,� � с'� � о � о �°у � �о о � `: .� Q, � � � �' � � N о�о о�о о�о � �� о � � � W �� N о V ;�� W , '� ,� � N � ; � о � .,.� о � N , � V bA � � v с°� +, � � .,� N . � }' � � � € �1 v � М �i и ~ ° �� U � � о w � и О °J о � v vo� .� � � � � � � � � о Н � � � о v � ,� и � с� � ° ,.�� °�' А �, v � а� -- v � � ° � � •,�•i � }�,, " 'и а� �. .� � � � v � � � � А � А � � � � о Fд � Н w � Z � � � -� ш о � ._ � '� � О �, � w � �, .__, с�б � ш � �'-�ч ^б с� ,� � � w " v � °�' '� � ; р � Р� о � � � � � bл � й � 0. � �j •� i'и b�д � w . й•�.� �.�v ��� и и � г� bл � � � � А » ; и � � � U " bл � � •й S� 'б '� `� � и U � '� с� О N О О � � � й .° w а� г-+ N с+� д�+ iri Р-, � � С � О z � о � у °и К+ > � С А } р J у � _ ;� ° Б " 1 - а � а � W � !r У о N ем � ¢ у °н � гп �д ' : s С] сUч ' м� и � � :г ` W н д у � � � ' �р К � О О С О О О W С Й О N N О О N : Z ^ ° о ги^, � О �: � � Б о Q �' �с и -. � = v " й °с с °о й т i � � $ О м с ' г"'�i й г� r ° о _ с � �' � и' т �: � '� �� � " ❑ � � .о �д .. . � � Н Е е ь .а 4 м W � со с Ф _ - О � � н ч 3r С г^ч ' м � �`. е с � и ^� д г'� и и Q' т i. о с_ � т L `" о ср й � = нд � '' _о � �о�,� = s 2 � Е^ р, N о Е- " � о 'С н 1 1 J U � ю т,а N ,. , с ис"�. о j, л � � ,">, � 6 �� a�i ^^ � й � о с о оо � с м �� -�ду ,b Q' �' w ti -j о`v ^ о с о о °о :�°' � о у о огуw д д ё б о о - U W Ф а, C° `а �`о - °о о°о °о о р F ^ д° й с й ^ С q � G! 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During Reporting Year MA No. 5 23-Nov-2021 5 23-Nov-2021 13,729,440.00 13,729,440.00 2.NVA No 8 16-jun-22 8 J..-2 2 9,667,487.00 9,667,487 0 Total 45,066,356.00 45,066, USD Withdrawal Applicati Auth No. Value Date Category Total No. Date 1 2 3 180,156.85 180,156.85 A. Cumulative as of Last Year - - B. During Reporting Year LWA No. 5 23-Nov-2021 5 23-Nov-2021 117,744.59 117,744.59 2.tVA No 8 16-Jun-22 8 80,483 - 61 80,483.61 Total 378,385.05 378,385.05 SDR Withdrawal Application Auth Category Total No. Date 1 3 Sub Total Total C, CA Sangam DLklaI Labanya Raj Dalial Dr. Madliusudlian Adlukari Financial Management Expert Chief Account Comptroller ExeCLLtive Director AEPC AEPC AEPC .......... ............... ................... A PrasadDhungana Dinesli Kumar Glumire Hali:rasad Main li Rarmnaya Kunwar Under Secretary (AccOLID Secretarv Financial Comptroller General Deputy Auditor General MoEWRI MoEWRI Financial Comptroller General Office Office of Auditor General Audited Project Account Report 5 Private Sector-led Mini-grid Energy Access Project Disbursement NPR Withdrawal Application Auth Value Category DA Advance Total Disbursed No. Date No. Date 1 2 3 Total A. Cumulative as of Last Year 21,669,429.00 21,669,429.00 84,207,075.40 105,876,504.40 B. During Reporting Year 1.WANo 4 18-Aug-2021 - - 1,219,956.08 1,219,956.08 2.WA No 5 23-Nov-2021 13,729,440.00 13,729,440.00 (13,729,440.00) 3.WA No 6 25-Feb-2022 - - 12,776,968.05 12,776,968.05 4.WA No 7 17-Jun-22 - 29,825,734.20 29,825,734.20 5.WA No 8 16-Jun-22 9,667,487.00 9,667,487.00 (9,667,487.00)- Sb Total - 23,396,927.00 - 23,396,927.00 20,425,731.33 43,822,658.33 Total - 45,066,356.00 - 45,t66,356.00 104,632,806.73 149,699,162.73 USD Withdrawal Application Auth No 7alue Dat Category DAAdvance Total Disbursed No. Date 1 2 3 Total A. Cumulative as of Last Year 180,156.85 180,156.85 706,368.15 886,525.00 B. During Reporting Year - - IWA No 4 18-Aug-2021 - - 10,280.24 10,280.24 2.WA No 5 23-Nov-2021 117,744.59 117,744.59 (117,744.59) - 3.VA No 6 25-Feb-2022 - - 105,813.40 105,813.40 4.WANo 7 17-Jun-22 - 243,973.29 243,973.29 5.WA No 8 16-Jun-22 8 0,483.61 80,483.61 (80,483.61) Sub Total 0.00 198,228.20 0.00 198,228.20 161,838.73 360,066.93 Total 0.00 378,385.05 - 378,385.05 868,206.88 1,246,591.93 SDR Withdrawal Application nth No aloe Da- Category Total Initial Deposit No. Date 1 2 3 Total Sub Total - - - - - Total - - - - - CA Sangam Dulal Labanya Raj Dahal Dr. Madhusudhan Adhikari Financial Management Expert Chief Account Comptroller Executive Director AEPC AEPC AEPC Yam Prasad Dhungan Dinesh Kumar Ghimire Hari Prasad Mainali Raummaya Kunwar ' Under Secretary (Accouni Secretary Financial Comptroller General Deputy Auditor General MoEWRI MoEWN Financial Comptroller General Office Office of Auditor General � ш L� а с с � � о оо � о о Z v о о Z о .о �r '� �с �о � �с и о гs й Z � � у .о �о и гn мi ' х д � � � х о�о � ri �о � ', � �, й � � д о о � о о о ° ' р ~ �'ч N N р N � п '.. i. � а д U � � д � � � Q� у W +у+ Л � д '� ° °о, °о, °о °о � � � i � " д `�° а, rn rn rn N`м�° � к и L� t� L� о� i-ч :� W W д д+ � J� �С N � у Vr �G �G О� М уу � о сл cn м т С] v ггi п; п; с�' . � s. с� с� с� с� v ,й й v � � � � G. °о °о °о с °о и v � и н о� о� ' о� а� о Gи1 �ч � � v о`�'о � о�о � � � > о й и �; '� �' оо о� оо � ai �� N �� й п � � � о у !� � о �� w � а � N n ', � О Г? kч N �+ О \ i 03чА д' � U �Е'� � С�. v С� г, ,� � �ч н�, �р у и \ Q О � � N � i" � + �га U � .,�.ч.i � гч ^� w д гС � W ОА w о`�i N a�i v iб v д С+ � д 1 � i" н ¢� � р � .. т� ...� Q � � � р S.y и F ,й О "� у г-, � � и и w�-�i р А � w й ь, � � � b с� ,� � й О1 � .� v у у � 0 'v с�. z z � � ¢�' ++ Nн у о � р-� а, v z �. 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О � ���-Wi�G дй � � О � � � � U _ � � � � _ � i� F-� � � � ° Z � г rn w� w Z�� �� Е � Z� Z W�c� �'�� �� � ��� �о�� �� � ��й ��NNN NN N, � о�" � N N N N N N N N Z � СЛ G �D W° и � й°O. т N� N� � N Еч N ¢ � ^. _ \ \ \ \ \ \ \ L� ��] N'х' р � L� о0 �ч N с+� д� �О .� � Н г\1ч � � � .. .. � � Гв N N N N N N � о n, >, v а, v i noi cov соч с°� n°i N noi с°v '" . � � z ь�к �уΡ,� � _Г � � � � � � � � _ и Fч � F" iн _ �О У О N с�-+ N Н � v� �� t� w� � с�ч т � й � �� �и й� � Private Sector-led Mini-grid Energy Access Project Accounting Policy and Explanatory Notes 1. Project Background IDA Grant & Loan TFOA8382 & TFOA8336 was signed of 7.61 Million US Dollar out of which US Dollar 5.61 million is Sub-Loans and balance for Technical Assistance. The project agreement was approved on 22 April 2019. 2. Statement of Compliance Project Financial Statements have been prepared in accordance with Audit Guide of Project Financial Statements issued by Office of the Auditor General, Nepal in 2015; Financial Procedural Act and Rules of GON and GON Accounting Guideline 2016 issued by FCGO. 3. Basic of Accounting The project has maintained accounts according to the Government of Nepal Accounting policies on a cash basis of accounting and double entry accounting systems. 4. Fund Flow mechanism After the annual budget is approved by the parliament, MOF issues authorization letter to the Ministry of Energy, Water Resource & Irrigation (MoEWRI). MoEWRI then issues authorization letter to the Executive Director of AEPC to spend budget. GON fund and reimbursable fund is released by District Treasury and Controller Office as per Treasury Single Account System (TSA) as per approved annual program and budget breakdown. AEPC is solely responsible for all payments. AEPC prepares withdrawal applications and sends to IDA for reimbursement and replenishment. 5. Designated Account Separate Designated Account (in USD) have been established. Designated Account is operated with the joint signatories of the Executive Director and Chief of Account Section of AEPC. Separate ledgers have been maintained at AEPC for day to day financial transactions for both Accounts. It is used to transfer the amount to the GON central account for reimbursement purpose. 6. Sources and Uses of Fund Project Financial Statement (Main sheet) reflects thefigures as Source and Uses of Fund. GON fund, GON reimbursable fund, Donor's grant, and Donor fund replenish able amount are the main sources of the project. Category wise total expenditure are shown in the Uses. The expenses made under different category have been reclassified from Interim Financial Monitoring Report as per actual nature of expenditure. 7. Cumulative up to the Previous FY and current FY Cumulative up to Previous FY is shown for cumulative purpose and consists of cumulative amount at the end of previous year from inception of the project. Similarly, cumulative up to the current FY is derived by adding cumulative up to previous year and current year's data. 8. Advances Advances are treated as expenditure. 9. Exchange Rate Applicable Buying rate (exchange rate) as per Nepal Rastra Bank is applied for the unspent balance (USD) in the designated account at the end date of FY to convert it in Nepalese rupees. 10.Nepalese Fiscal Year FY 2021/22 commenced from 16 July 2021 and ended on 16 July 2022. The figures mentioned in this Project Financial Statement are within this reporting period. 11. Budget Vs Expenditure of the Current FY %/ of Annual Budget E e d Category Description/ Component Allocation (Fpe21i22) ovedbue (FY 2-22) (FY 21-22) over budget allocation Sub-Loans Under Part 1 of the 1 Poet50,000,000.00 - 0.00% Project Goods, works, non-consulting services, Training, Incremental 2 Oprtn'ot an oslig 50,000,000.00 23,364,791.00 46.73%o Operating Costs and consulting services under Part 2 of the Project Total Grant Amount (A=1+2) 100,000,000.00 23,364,791.00 23..36% Sub-Loans Under Part 1 of the 55,000,000.00 0.00% 3 Project (Loan) Total Loan Amount (B) 55,000,000.00 23,364,791.00 5.49 % Grand Total (A+B) 155,000,000.00 23,364,791.00 15.07% 12. Reporting currency The reporting currency is in Nepalese Rupees- NPR (currency of Nepal). The amount disbursed from IDA Grant are separately shown in Report-5 of Project Financial Statements. 13. Intended Purpose IDA Grants have been used only for the intended purpose of the project. 14. Date of Authorization These project financial statements have been authorized for issue by the Alternative Energy Promotion Center, Kathmandu on 29 November 2022. Sangam ulal Lanan a a* al Dr. Madhusudhan Adhikari Financial Management Expert Chief Account Comptroller Executive Director