H± PUTNICKI PRIJEVOZ d.o.o., Zagreb SUBSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bank for Reconstruction and Development Loan no. 8501 - HR PROJECT FINANCIAL STATEMENT AND DESIGNATED ACCOUNT STATEMENT TOGETHER WITH IN DEPENDENT AUDITOR'S REPORTS FOR THE YEAR ENDED 31 DECEMBER 2021 CONTENTS Page Independent Auditor's Report 1 -2 Statement of Assets and Liabilities 3 Statements of Sources and Uses of Funds by Project Categories 4 - 5 Statement of Uses of Funds by Project Activities 6 Summary Reports and Statement of Expenditure 7 - 15 Designated Account Statement 1.6 Notes to the Project Financial Statements 17-22 Reconciliation of the Designated Loan Account 23 Management Letter 24 - 25 Checklist 26 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bank for Reconstruction and Development Loan No. 8501- HR - SMOORE Audit d.o.o. za revizijke usluge Trg Johna Fitzgeralda Kennedyja SB 10000 Zagreb HRVATSKA Tel:+385 (0)1 3667 994 E-mail:audit-revizija@audit.hr www.audit.hr INDEPENDENT AUDITOR'S REPORT We have audited the accompanying Financial Statements of the SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT (hereinafter: "the Project") financed under the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8501 - HR ("Loan"), which comprise the Statement of Assets and Liabilities, the Statements of - Sources and Uses of Funds, the Statement of Uses of Funds by Activities, Statement of Expenditure (SOE) and Designated Account Statement for the year ended 31 December 2021 ("Project Financial Statements"). The Project Financial Statements are the responsibility of the Project's management. Our responsibility is to express an opinion on the Project Financial Statements based on our - audit. We conducted our audit in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall statement presentation. We believe our audit provides a reasonable basis for our opinion. The Project management's policy is to prepare the accompanying statements on the cash receipts and payments basis in conformity with International Public Sector Accounting Standards issued by the Public Sector Committee of the International Federation of Accountants. On this basis, cash receipts are recognized when received and cash expenditures are recognized when paid rather than when incurred. In our opinion, the Financial Statements of the Project in all material respects, present truthfully and fairly the state of the Project's assets and liabilities as at 31 December 2021 and the use of funds and costs, as well as cash receipts and payments of the Project during the year ended 31 December 2021 in accordance with International Public Sector Accounting Standards issued by the Public Sector Committee of the International Federation of Accountants. S MOORE With respect to Summary Statement of Expenditure ("SOE") - Application for Loan Withdrawal: (a) Adequate supporting documentation has been maintained to support claims for their settlement (b) the Summary Statement of Expenditure has been reconciled with Project Financial Statements (c) the expenditure disbursements underlying the Summary Statement of Expenditure have been made in accordance with the purposes intended in the Loan Agreement No. 8501 HR In Zagreb, 31 May 2022 Audit d.o,o- Johna Fitzgeralda Kennedyja 6B 10000 Zagreb Darko Kari, director, certified a itor 2 STATEMENT OF ASSETS AND LIABILITIES for the year ended 31 December 2021 Note :31 December2021 31 December 2020 EUR EUR Assets Front end fee 8 107,500 107,500 Project expenditures 8 42,298,166 38,453,424 Designated Account 9 198,156 423,895 TOTAL 42,603,822 38,984,819 Liabilities IBRD Loan NO. 8501 - HR 2 42,603 822 38,984,819 TOTAL 42,603,822 38,984,819 Project is effective as of 4 August 2015 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bankfor Reconstruction and Development Loan No. 8501 - HR � ....» � 5 ' ' у д � о О D �Q О 1 4 � �Я О� t7 С{] Q СО ср р� С.А а гJ N О [О Ср � � .г г [` г С� О р G� CD. 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L с © � г�n � �i а т �_ �_ о� о � � � а � С � � ; а а � � � т. � р а го д i7 L � � . а � � _ � _.-.... {� Q! � U � 1.L Q ��' �} I� Ii r г CV .r [У] ff] ]- l:L. F у С STATEMENT OF SOURGESAND USES OF FUNDS BYPROJECT CATEGORIES for the.ye@r ended 31 Decem ber 2021 - ------ - -- - ---------------- . ............ 1) Counterpart fu nd ing - As descri bed in "Project a ppr@isal document" dated 9 April 2015 , total project cost for support for HZ Putni6ki prijevoz d.o.o. restructuring is stated in the amount of EUR 52.4 million including IBRD financing of 1EUR 43 million and..EUR 9A million -contribution of, H2 Putni6ki prijevoz d.o..o. to the rehabilitation of its respective rolling stock components (partof component 13-2 of the project). These contributions are to be provided in parallel to the lBRD fundingi and: for separate activities: linked to the same objective. These funds and expenditures from these funds are not shown in these report since it is stated in Project appraisal document "the state Would finahce the. works of H2 Putnidki pr#evoz d.o.o. subsidiaries for rehabilitation of its transport vehicles while the IBRD. loan would finance either supply of goods, or finance companies used for rehabilitationfor transport vehicles, which wo.uld.be selected trough public -procurement procedures" Co ntri buti on -to. th e project objectives. from H2 Putni6ki p6jevoz d. o.b., Zag reb. ti 1131 December 2021 amounts to the total of HRK 74 million (EUR 9,844,125.) as per middle exchange rate.at 31 December 2021 of Croatian National Bankand. relate to regular HZ Putni6k! prijevoz d.o.o. expenditu res for m odernization of "rol I ing stock" su b.sidized by the government. These:expenditures were audited.during the audit of annual financial statements of H2 Putnidkj prijevoz d o o. for yea r ended 31 Decern be r 202 1... 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World Bank advances. - into DA dudng the period 380,000 15-1920 961 Interest %earnbd (if credited into.DA) - Funds. available during the period 380,OOD 1.5,920,962 Less: Payments for eligible expenditures during the period 605,739 16,117,0672 Refund to World Bank from the DA during the period. Service charges (if debited to DA) 60.5,739 15,117,067 Closingbalance at the end of the period 198,156 423,895 I The amount is lower by EUR% 26,682,860 in SOE column 9 (EU R% 42,603,822 The difference relates to the compensation for severance pay ment. in the ama unt of EU R 41269P 552) the advance payment for the new trains and direct payment for the delivery of trains in the amount of EUR 22,413,309. 2) The amount is by EUR. 26,682,860 less than the. amount in SOE column 8 (EUR 42,405,666). The difference refers. to the compensation for severance payment (EUR 4,269,552) and advance payment of new trains and direct. payment for train delivery in the amount of EUR.22,413,309. SUSTAINABLE CROATIAN RAILWAYSiN EUROPE PROJECT 16 International Bank for Reconstruction and Development Loan No. 8501 - HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2021 1. GENERAL INFORMATION In May 2015, the International Bank for Reconstruction and Development approved three loans to railway sector in the total amount of EUR 163,5 million, of which EUR 43 million to the company H2 PUTNICKI PRIJEVOZ d.o.o., Zagreb, EUR 41.5 million to the company HZ CARGO d.o.o., Zagreb and EUR 79 million to the company HZ INFRASTRUKTURA d.o.o., Zagreb. All loans are part of Croatian Railways in Europe Project (SUCRE) which became effective on 4 August 2015. The objective of the Project is to improve the operational efficiency and the financial sustainability of the public railway sector in the Republic of Croatia. The Project consists of the following parts: Part A Support to the Sector Restructuring and Coordination 1. Finalizing asset management separation among the railway companies and clarifying the legal status of their main assets, through the provision of consulting services and non-consulting services to Ministry of Maritime Affairs, Transport and Infrastructure. 2. Project coordination support, sector reform monitoring, and definition of railway services obligations with H2 Infrastruktura d.o.o., Zagreb and H2 Putni6ki prijevoz d.o.o., Zagreb, through the provision of consulting services and non- consulting services, training and Operating Costs to Ministry of Maritime Affairs, Transport and Infrastructure. Part B Support to restructuring of the company HZ Putni6ki prijevoz d.o.o., Zagreb 1. Retrenchment of employees. Provision of the retrenchment payments for the company HZ Putni6ki prijevoz d.o.o., Zagreb, including job outplacement and retraining services, counselling and advisory support. .2. Investment to contribute to the restructuring plan of the company H Putni6ki prijevoz d.o.o., Zagreb (a) Purchase of new DMU (amendment based on the Annex to the Loan Agreement as of 28 June 2018) and rehabilitating rolling stock to improve efficiency of the fleet. (b) Modernizing and integrating information technology. (c) Preparing studies to adapt business processes to reorganize operations and improve energy efficiency of operations. (d) Capacity building on management and restructuring 17 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bank for Reconstruction and Development Loan No. 8501 - HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2021 - continued Part C Support to the restructuring of the company H2 Cargo d.o.o., Zagreb 1. Retrenchment of employees. The retrenchment payments for the company HZ Cargo d.o.o., Zagreb, including job outplacement and retraining services, counselling and advisory support. 2. Investment to contribute to the restructuring plan of the company HZ Cargo d.o.o., Zagreb (a) Rehabilitating rolling stock to improve efficiency of the fleet. (b) Modernizing and integrating information technology (c) Capacity building on management and restructuring, Part D Support to the restructuring of the company HZ Infrastruktura d.o.o., Zagreb and enabling investment to increase system efficiency 1. Retrenchment of employees. Provision of the retrenchment payments for the company H2 Infrastruktura d.o.o., Zagreb, including job outplacement and retraining services, counselling and advisory support. 2. Installing railway safety crossings based on prioritization criteria set forth in Supplemental Letter 4 3. Undertaking other railway safety works, including: (a) Reinforcing cuts, and slope on the two corridors from Rijeka; (b) Rehabilitating or replacing the Klostar and Ljubo§ina bridges on the Zagreb-Rijeka axis 4. Undertaking emergency infrastructure investments, including: (a) Rehabilitating the Ogulin -; Moravice line; (b) Rehabilitating the Zagreb - Savski Marof line; (c) Replacing switches, electrical, and support systems (for safety and signaling) on international and domestic corridors selected pursuant to criteria set forth in Supplemental Letter 4.;i (d) Constructing and improving the Borongaj, Rijeka-Brajdica i Vinkovci railway stations. 5. Capacity building on management and restructuring. The Company is responsible for the management of the activities under Part B including procurement, disbursement, financial management, monitoring, reporting and coordination. The objective of this component is to support operational and financial reconstruction of the Company in order to deliver better services in a financially sustainable way. 18 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT international Bank for Reconstruction and Development Loan No. 8501 - HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2021 - continued 2. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN AGREEMENT HZ PUTNICKI PRIJEVOZ d.o.o., Zagreb (the Borrower) signed a Loan Agreement with the Ihternational Bank for Reconstruction and Development (the Bank) in the amount of EUR 43 million on 6 May 2015 for the financing of the Sustainable Croatian Railways in Europe Project. Principal, charges, fees and interest are the obligations of the Company as a Borrower. It was agreed that the Borrower will pay to the Bank a front-end fee in the amount of 0.25% from the total loan amount or EUR 107,500 The Commitment charge payable by the Company is 0.25% per annum on the Unwithdrawn Loan Balance. The interest payable by the Company is at a rate equal to reference rate for the loan currency plus the variable spread. Interest, commitment charges on the Unwithdrawn Loan Balance and other charges shall be repayable semi-annually in arrears on June 15 and December 15 in each year. The following table sets forth the principal payment dates of the loan and the percentage of the total principal amount of loan payable on each principal payment date. If the proceeds of the loan have been fully withdrawn as of the first Principal payment date, the principal amount of the loan repayable by the Company on each principal payment date shall be determined by the Bank by multiplying: a) withdrawn loan balance as of the first principal payment date; by b) the instalment share for each principal payment date, such repayable amount to be adjusted, as necessary, to deduct any amounts referred to paragraph 4 of the Loan Agreement, to which a currency conversion applies. Principal payment date Instalment share (Expressed as a percentage) On each 15 June and 15 December - beginning 15 June 2018 3.33% till 15 June 2032 On 15 December 2032 3.43% 19 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bank for Reconstruction and Development Loan No. 8501 - HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year.ended .31 December 2021 - continued According to the Loan Agreement, the Company has to ensure documents on the funds usage and purchase goods, procure services and order works for the Project in accordance with the current edition of the IBRD Guide to Procurement. Regarding to the Loan Agreement the Company will engage management consultant with international experience for the purpose of generally supporting the investment planning, management of contracts and technical support. Furthermore, the Company shall engage consultants, designers and supervisors under selection procedures satisfactory to the Bank. The Company has to use funds approved by and remitted from the loan exclusively for the purpose they were intended. The Bank is authorized to cancel further assets usage if they establish that the approved assets are not used for designated purposes. On 28 June 2018 an Annex I of the Loan Agreement was signed which changed the amount of financing of individual components, so H2PP increased the financing of the acquisition of the new 4 DMUs, resulting in a reduction of the amount for Component B1. - Retrenchment Payments of EUR 3.2 million, for the same amount increased the financing of cormponent B2 - Investments that will contribute to the restructuring plan. In June 2019, Annex II of the loan agreement was signed, which extended. the completion date of the project from May 30, 2020 to November 30, 2021, in order to complete the rehabilitation works on the Savski Marof - Zagreb section and harmonized indicators. 3. DEBT SERVICE COVERAGE Except as the Bank shall otherwise agree, the Company shall not incur any debt unless a reasonable forecast of the revenues and expenditures of the Company shows that the estimated net revenues of the Company for each fiscal year during the term of the debt to be incurred: a) shall be at least 1.0 times the estimated debt service requirements of the Company in such year on all debt of the Company including the debt to be incurred, up to the Closing Date; and b) shall be at least 1.1 times the estimated debt service requirements of the Company in such year on all debt of the Company including the debt to be incurred, after the Closing Date until the repayment of the Loan under this Agreement. 4. PROJECT COST AND FINANCING Goods, works, non-consuiting services, and consultants services and Retrenchment training for Part Payments B 2 of the Sources of funds under PartSI Project (in EUR million) Total of the Project IBRD loan. 43.0 8.0 35.0 Govern funds 9.8 0 98 Total 52.8 8.0 44.8 20 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bank for Reconstruction and Development Loan No. 8501 - HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2021 - continued 5. PROJECT MANAGEMENT Project implementation unit ("PIU) has been established within H2 PUTNICKI PRIJEVOZ d.o.o., Zagreb in charge for the project implementation. 6. ACCOUNTING RECORDS AND BASE FOR PRESENTATION Within the business books (general ledger) of the Company are recorded all Project transactions. Project accounting records are also kept in supporting tables (excel), based on which the enclosed Financial Statements of the Project have been made. In order to realize the Project, special account in foreign currency accounts (EUR) was opened in OTP Bank d.d., Split. 7. DEVIATIONS FROM AGREED CONDITIONS There were no deviations from the contracted terms. 8. PROJECT EXPENDITURES 31 December 31 December Expenditures in EUR 2021 2020 Retrenchment payment 8,004,994 81004j994 Goods, works, non-consulting services, consultants' services and training for part B of the project 34,287,576 30,442,810 Bank charges 5,595 5,620. Front-end-fee. 107,500 107,500 Total. 42,405,665 38,560,924 9. DESIGNATED ACCOUNT AND NET ASSETS The Company opened Designated Account at OTP Bank d.d., Split in order to realize the Project. Designated Account balance as of 31 December 2021 in the amount of EUR 198,156 is confirmed by the OTP Bank d.d,, Split. 21 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bank for Reconstruction and Development Loan No. 8501 - HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2021 -contihued 10. VALUEADDEDTAX In accordance with the change in the remuneration arrangements, the proceeds of the Loan will be used to finance costs for products, consulting and non-consulting services and VAT free training This refers to all future payments from 5 June 2017 within the Project, including outstanding payments for already signed contracts. 22 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT international Bank for Reconstruction and Development Loan No. 8501 - HR RECONCILIATION OF THE DESIGNATED ACCOUNT in EUR Loan disbursed until 31 December 2021 42,603,822 Amount on the Designated account. 198 156 Add: total expenditures stated in the Statement of sources and. Uses of funds 42405.667 42,603,822 Add- Foreign exchange differences Total recorded 42,603,822 .23 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT International Bank for Reconstruction and Development Loan No. 8501 - HR