Karnataka Urban Infrastructure m£ SorsroTi: Development and Finance Corporation Ltd., (Srrary^ Tteardd wt^s*) (Government of Karnataka Undertaking) No. KUIDFC/FIN/WB/KUWSMP/2023-24/^/ 20th October, 2023 Ms. Upneet Singh Senior Water Specialist Task Team Leader - KUWSMP The World Bank, 70, Lodi Estate, New Delhi - 110 003. Madam, Sub : Audit Certification for World Bank assisted KUWSMP Loan No. IBRD 8601 IN Ref : KUWSMP Loan and Project Agreements With reference to the subject cited above, as per covenants of the Loan Agreement No. 8601 IN, we are forwarding herewith the signed Audit Certificate (Audited Project Accounts) for FY 2022-23 for the World Bank assisted Karnataka Urban Water Supply Modernization Project (KUWSMP) Loan No. 8601 IN certified by M/s. MNS & Co., Chartered Accountants, Bangalore vide audit report dated 19.10.2023 for your information & records. Thanking you, Yours faithfully, 7^ 2-^/,s/2J> General Manager (Finance) Enel : As above Copy to : 1. Controller of Aid Accounts & Audit, Ministry of Finance (DEA), 5th Floor, 'B' Wing, Janpath Bhavan, New Delhi - 110001. 2. Mr. Krishna Murthy, Financial Management Specialist, The World Bank, 70, Lodi Estate, New Delhi - 11 0003. 3. The Secretary to Government (FR), Finance Department, 4th Floor, 4th Gate, M.S. Building, Dr. Ambedkar Veedhi, Bangalore Regd. Office : Nagarabhivruddi Bhavan, # 22, 17th ‘F’ Cross, Old Madras Road, Indira Nagar 2nd Stage , Bengaluru-560 038. Phone : 080-25196124-129 Fax : 080-25196110 E-mail: info@kuidfc.com, website : www.kuidfc.com PAN : AAACK6953F TAN : BLRK01111F GST No. : 29AAACK6953F1ZC CIN : U85110KA1993SGC014869. # 163, 2nd Floor, (An M N S & Co. R.V. Road, Near Minerva Circle, J Chartered Accountants Bangalore - 560 004. Phone : 080 - 2657 2290 / 2657 3319 E-mail : camnsco@gmail.com Independent Auditor"s Report To. The Board of Directors, Karnataka Urban Infrastructure Development & Finance Corporation Limited. Nagarabhivruddi Bhavana, #22,17^ ' F1 cross. Old Madras Road, Indiranagar 2nd Stage, Bangalore- 560 038 Report on the Audit of the Special Purpose Project Financial Statements Opinion We have audited the accompanying Special Purpose Project Financial Statements (herein after referred to as the "PFS") of Karnataka Urban Water Supply Modernization Project (herein after referred to as the project") financed by the International Bank for Reconstruction and Development (IBRD) under Loan No. 8601-IN, project implemented by Hubballi- Dharwad Municipal Corporation, Belagavi Municipal Corporation and Kalaburagi Municipal Corporation arid Karnataka Urban Infrastructure Development & Finance Corporation Limited (KUIDFCL) the implementing and monitoring agency, which comprise Expenditure eligible for financing and Reconciliation of claims with claimable expenditure under the loan/credit agreement vides Loan No. 8601-IN for the year ended 31st March 2023. In our opinion, the accompanying Special Purpose Project Financial Statements give a true and fair view of the component wise expenditure eligible for financing under the said loan and Reconciliation of Claims with claimable expenditure of the Project for the year ended March 31, 2023 in accordance with the financial reporting provisions as required under Section 5.09 of the General Conditions for IBRD financing of the World Bank read with the Financing/ Loan Agreement and Project Agreement both dated24/ 05/ 2016. Basis for Opinion We conducted our audit in accordance with the Standards on Auditing issued by Institute of Chartered Accountants of India (ICAI). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Special Purpose Project Financial Statements section of our report. We are independent of the implementing agency in accordance with the ICAI's Code of Ethics for undertaking this assignment, 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. Responsibilities of Management and those charged with Governance for the Special Purpose Project Financial Statements The Management of the implementing agency is responsible for the preparation and fair presentation of the Special Purpose Project Financial Statements in accordance with the financial reporting provisions of Section 5.09 of the General Conditions for IBRD financing of the World Bank, and for such internal control as management detennines necessary to enable the preparation of the aforesaid Special Purpose Project Financial Statements. This responsibility includes : designing, implementing and maintaining internal control relevant to the preparation and fair presentation of special purpose project financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The Management and those charged with governance are responsible for overseeing the implementing agency's financial management arid reporting process. Auditor's Responsibilities for the Audit of the Special Purpose Project Financial Statements Our objectives are to obtain reasonable assurance about whether the Special Purpose 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 high level or assurance but is not a guarantee that an audit conducted in accordance with the Standards of Auditing 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 Standard of Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also : • Identify and assess the risks of material misstatement or the Special Purpose Project 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. Hie 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. • Evaluate the appropriateness of accounting policies used and the reasonableness o r accounting estimates and related disclosures made by management. • Evaluate the overall presentation, structure and content or the Special Purpose Project Financial Statements, including the disclosures and whether these special purpose project financial statements present the Project's operations and underlying transactions arid events in a manner that achieves fair presentation in accordance with the financial reporting provisions. • Conununicate 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. • 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. Other Matter The implementing and monitoring agency of the project - KUIDFCL has prepared a separate set of entity financial statements for the year ended 31.03.2023 on which we, M N S & Co, Qiartered Accountants, have issued a separate independent Auditor's Report dated 19/09/2023 to the Shareholders of the Company and expressed qualified opinion. Qualified opinion on the standalone financial statements has no material adverse effects on tire Special Purpose Project Financial Statements. This report on PFS to KUIDFCL, implementing and monitoring agency of the project is to meet the financial reporting requirements relating to Loan No. 8601-IN dated 24-05-2016 financed by International Bank for Reconstruction and Development (IBRD) to reflect the Component wise Expenditure eligible for financing under tire said loan and Reconciliation of Clainrs for year ended 31sl March 2023. As a result, these Special Purpose Project Financial Statements may not be suitable for airotlrer purpose. Report on Other Legal and Regulatory Requirements Further to our opinion on the Special Purpose Project Financial Statements we further report that: a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for tire purposes of our audit; b) hr our opinion, as appears from our examination of the books, the Implementing and the Monitoring Agency has maintained proper books of accoimt, financial management system, supporting documents and records in support of claims for reimbursement of expenditure, expenditure eligible for financing and reconciliation of claims with claimable expenditure under tire loan /credit agreement vide Loan No. 8601-IN for tire year ended 3 1st March 2023; c) The PFS dealt with by this report is in agreement with the books of account; d) The Project funds were utilized for the purposes for which they were provided. Tire pending amount to be claimed for FY 2022-2023 is Rs. 28,97,075/- (20% as per Reimbursable amount in eligible Expenditure of Rs. 1,44,85,374/-). e) Expenditures, including assets created under the project, shown in the PFS are eligible for financing under the Project Financing Agreements. t) Interim Unaudited Financial Reports (IUFR) submitted by the Project implementing and monitoring agency can be relied upon to support applications for withdrawal of the Loan and adequate supporting documentation has been maintained to support these claims; g) Procurements have been generally made in accordance with the agreed procedures as encompassed in the Operations Manual/ Procurement Manual/Project Implementation Plan/Legal Agreements; and h) The Project has an adequate internal financial control system (including IT controls) and such controls were generally operating effectively as at March 3 1 2023 and the Project complies with the provisions on financial management as set forth in the Operations Manual/Project Implementation Plan/ Financial Management Manual and prescribed guidelines from time to time. Date; 19/10/2023 For M N S & Co., Place. Bangalore Chartered Accountants Firm RWistration No. :003968S ASM ) Partner Membership No: 029180 UDIN; 23029180BGUIS03097. —X* A . ANNEXURE - A Expenditure eligible for financing under the loan/credit agreement vide Loan No.8601 IN (Amount in Rupees) O&M Short Total Expenses Outstanding Net SI. Disallowed claimed in Fixed Component Expenditure short claimed Liability of Expenditure No. Expenditure previous Assets Incurred in previous FY -2022-23 Claimable year year Component 1: Capital 1 19,83,32,816 (55,26,273) 49,55,202 (5,64,25,036) 14,13,36,709 Investment Program Component 2 : 2 Institution 86,06,52,915 (3,00,000) 10,99,63,408 (5,63,27,535) 91,39,88,788 Building Component 3 : 3 TA for Sector Development Component 4 : 4 Project 25,07,44,091 4,03,00,871 66,67,594 (2,06,49,291) 27,70,63,265 Management Total 130,97,29,822 (58,26,273) 4,52,56,073 10,99,63,408 66,67,594 (13,34,01,862) 133,23,88,762 Date : 19/10/2023 For MNS & Co Place : Bangalore Chartered Accountants, Firm g. No :003968S TVAS M (Partner) M.No. : 029180 ANNEXURE - B Reconciliation of claims with claimable expenditure vide Loan No. 8601 IN Amount in Rs. Claimed Claims made Period of claims Expenditure Amount Claim No. 22 01/04/22 to 30/06/22 10,41,21,444 3,28,38,575 Claim No.23 01/07/22 to 30/09/22 16,27,93,213 6,67,80,913 Short Claim of Claim No.24 0&M(01/10/21 to 26,36,14,605 13,18,07,303 30/09/22) Claim No.25 01/10/22 to 31/12/22 40,13,56,654 18,47,02,160 Claim No.26 01/01/23 to 31/03/23 38,60,17,473 19,56,22,152 Total amount claimed - 131,79,03,389 61,17,51,103 Amount claimable as per 133,23,88,762 61,46,48,177 annexure -A - (B) Difference (A-B) *1,44,85,374 28,97,075 (Pending for claim) * Reimbursement claims of Rs. 28,97,075/- against eligible expenditure of Rs. 1,44,85,374 /- of FY 2022-23 needs to be claimed subsequently during FY 2023-24. For M N S & Co For Karnataka Urban Infrastructure Development Chaiwed Accountants, & Finance Corporation Limited, Firm Registration No. 003968S PARTNER M.NO: 029180 Manjunath B. General Manager (Finance) Date : 19/10/2023 Place : Bangalore \ KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION LIMITED Karnataka Urban Water Supply & Modernisation Project - KUWSMP Loan No. : IBRD 8601-IN Details of Component and Sub-Component wise Expenditure for the period from 01/04/2022 to 31/03/2023 As per Audit - 2022-23 Actual Claim Submitted Short Claimed Total Actual elegible Disallowed Short Claimed O&M Expenses Outstanding Eligible Eligible Categ Percen Expenditure Fixed Reimbursable Reimbursement Reimbursible Components Nature expenditure in Previous (Previous Liability of expenditure for Expenditure for Expenditure for ory tage Incurred FY Assets Amount Amount Amount /Withheld Year Year) FY -2022-23 Claim Reimbursement Reimbursement 2022-2023 Component 1- Capital Investment Program Capital Expenditure 1 Civil Works 75% 19,83,32,816 -55,26,273 -5,64,25,036 13.63.81,507 10.22.86.130 13,63,81,507 10,22,86,130 0 0 Capex Efficiency Bonus 0% 0 0 Start up period fee 2 Op Fee 50% 0 0 Contract Management Fee 2 Op Fee 50% 0 0 I DC 0% 0 0 land acquisition 0% 49,55,202 49.55.202 49,55,202 0 0 Sub Total - A 19.83.32.816 -55.26.273 49.55.202 -5.64.25.036 14,13,36,709 10.22.86.130 14.13.36.709 10.22,86.130 0 0 Component 2-Institution Building Utility System Fee 2 Op Fee 50% 0 0 SOP Fee 2 Op Fee S0% 0 0 50% of O&M fee for transition period 2 O&M Fee 50% 86,02,02,915 10,99,63,408 -5,63,27,535 91.38.38.788 45.69.19.394 91,38,38,789 45,69,19,394 -0 0 Utility System Envelope 3 Goods 20% 0 0 Institutional Study for Utility 3 Consultancy 20% 0 0 SPV Equipment Costs 3 Goods 20% 0 0 SPV Staff Costs 3 IOC 20% 0 0 SPV Training Costs 3 Training 20% 0 0 Other Studies 3 Consultancy 20% 4,50,000 -3,00,000 1.50,000 30.000 1,50,000 30,000 0 0 Sub Total - B 86.06.52.915 -3.00.000 10.99.63.408 -5.63.27.535 91.39.88.788 45.69.49.394 91.39.88.789 45.69.49.394 0 1! Component 3- TA for Sector Development City Level Impart assessment 3 Consultancy 20% o 0 SIB Implementation 3 Consultancy 20% 0 0 Dam Safety 3 Consultancy 20% 0 0 Sub Total - C 0 0 Component 4-Project Management PMU & PIU and Est Costs 3 IOC 20% 12,31,08,677 2,13,27,572 66,67,594 -78,16,573 14.32.87.270 2.86.57.454 12,88,01,896 2,57,60,379 1,44,85,374 28,97,075 TA Costs 3 Consultancy 20% 11,02,49,648 1,25,35,872 -1,18,75,989 11.09.09.531 2.21.81.906 11,09,09,531 2,21,81,906 0 0 ER Costs 3 Consultancy 20% 81,60,180 53,24,473 1.34.84.653 26.96.931 1,34,84,653 26,96,931 0 0 EMP monitoring plan 3 Consultancy 20% 0 0 Communication Activities 3 Consultancy 20% 92,25,586 11,12,954 -9,56,729 93.81.811 18.76.362 93,81,811 18,76,362 0 0 Audit and Compliance 3 Consultancy 20% 0 0 Sub Total - D 25.07,44.091 4.03.00.871 66.67.594 -2.06.49.291 27.70.63.265 5.54.12.653 26,25.77.891 5.25.15.578 1.44.85.374 28.97,075 Total (A + B+C + D) 1,30.97,29.822 -58.26,273 4,52.56,073 10.99,63.408 66,67,594 -13,34.01,862 1,33,23,88,762 61,46,48,177 1,31.79.03,389 61,17,51.103 1,44,85.374 28,97,075 Note : 1. Previous year (2021-22) short claimed amount of Rs. 4,52,56,072/- has been claimed in current year (2022-23) (Rs. 3,03,82,713/- included In IUFR No. 22 Dtd. 20.08.22 for the period 01.04.22 to 30.06.22 and Rs. 11,12,954/- is included in IUFR - 23 Dtd.27.10.22 for the period 01.07.22 to 30.09.22 and Rs. 1,37,60,406/- Is included in IUFR - 25 Dtd. 19.01.23 for the penod from 01.10.22 to 31.12.22). 2. Outstanding Liability at year end 31.03.2023 of Rs. 13,34,01,862/- Is not eligible for claim has the payments are effected in the current year. 3. Short Claim made during previous years towards O&M i.e., 25% of DB Period O&M is claimed at 50% towards the allocated amount. L KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION LIMITED >■ Karnataka Urban Water Supply & Modernisation Project - KUWSMP Loan No. : IBRD 8601-IN Details of Reimbursement Claims submitted for the Expenditure incurred during the FY 2022-23 Claim No. : IUFR - 22 IUFR - 23 IUFR - 24 IUFR - 25 IUFR - 26 2022-2023 Claim Date : 20.08.2022 27.10.2022 14.11.2022 19.01.2023 26.04.2023 Total Period : 01/04/22 to 30/06/22 01/07/22 to 30/09/22 01/10/21 to 30/09/22 01/10/22 to 31/12/22 01/01/23 to 31/03/23 01/04/22 to 31/03/23 (Short Claim O&M-now claimed) Cate Percent Expenditure Reimbursible Expenditure Reimbursible Expenditure Reimbursible Expenditure Reimbursible Expenditure Reimbursible Expenditure Reimbursible Components Nature gory age Eligible Expenditure Eligible Expenditure Eligible Expenditure Eligible Expenditure Eligible Expenditure Eligible Expenditure Component 1- Capital Investment Program Capital Expenditure 1 Civil Works 75% 20,58,615 15.43.961 5,79,28,208 4.34.46.156 7,63,94,684 5.72.96.013 13,63,81,507 10,22,86,130 Capex Efficiency bonus 0% Start up period fee 2 Op Fee 50% Contract Management Fee 2 Op Fee 50% IDC 0% Land acquisition 0% 49,55,202 49,55,202 Sub Total - A 49.55.202 20.58.615 15.43 961 5.79.28.208 4.34.46.156 7.63.94,684 5.77.96.013 14.13.36.709 1022 86 130 Component 2-Institution Building Utility System Fee 2 Op Fee 50% SOP Fee 2 Op Fee 50% 50% of O&M fee for transition period 2 O&M Fee 50% 4,33,51,089 2.16.75.545 11,03,00,109 5.51.50.054 26,36,14,605 13.18.07.303 24,19,01,050 12.09.50.525 25,46,71,936 12.73.35.968 91,38,38,789 45,69,19,394 Utility System Envelope 3 Goods 20% Institutional Study for Utility 3 Consultancy 20% SPV Equipment Costs 3 Goods 20% SPV Staff Costs 3 IOC 20% SPV Training Costs 3 Training 20% Other Studies 3 Consultancy 20% 1,50,000 30,000 1,50,000 30,000 Sub Total - B 4.35.01.089 7.17.05.545 11.03.00.109 5.51.50.054 26.36.14.605 13.18.07.303 24.19.01.050 17.09.50.575 25.46.71.936 17.73.35.968 91,39.88.789 45.69.49.394 Component 3- TA for Sector Development City Level Impact assessment 3 Consultancy 20% SLB Implementation 3 Consultancy 20% Dam Safety 3 Consultancy 20% Sub Total - C Component 4-Project Management PMU & PIU and Est Costs 3 IOC 20% 2,17,24,854 43.44.971 2,33,96,493 46.79.299 6,11,11,616 1.22.22.323 2,25,68,933 45.13.787 12,88,01,896 2,57,60,379 TA Costs 3 Consultancy 20% 2,49,63,357 49.92.671 2,25,67,064 45.13.413 3,43,85,227 68.77.045 2,89,93,883 57.98.777 11,09,09,531 2,21,81,906 ER Costs 3 Consultancy 20% 79,24,026 15.84.805 23,39,329 4.67.866 28,31,376 5.66.275 3,89,922 77.984 1,34,84,653 26,96,931 EMP monitoring plan 3 Consultancy 20% Communication Activities 3 Consultancy 20% 10,52,916 2.10.583 21,31,603 4.26.321 31,99,177 6.39.835 29,98,115 5.99.623 93,81,811 18,76,362 Audit and Compliance 3 Consultancy 20% Sub Total - D 5.56.65.153 1.11.33.031 5.04.34.489 1.00.86.898 10.15.27.396 2.03.05.479 5.49.50.853 1.09.90.171 26.25.77.891 5.75.1 5 578 Total (A+B+C+D) 10,41,21,444 3.28.38.575 16,27.93,213 6.67.80.913 26,36,14,605 13.18.07.303 40,13,56,654 18.47.02.160 38,60,17,473 19.56.22.152 1,31,79.03,389 61.17.51.103 5 General KU1DFC, Bengaluru.