U Technical Assistance to the Company "Koridori Srbije " d.o.o. Belgrade - World Bank - Financial Statements of the Project for the Period from 1 January to 31 December 2019 and Independent Auditor's Report KORIDORI SRBIJE d.o.o. BELGRADE Page INDEPENDENT AUDITOR'S REPORT 1 - 3 FINANCIAL STATEMENTS OF THE PROJECT Statement of Sources and Use of Funds for the Period from 1 January to 31 December 2019 4 Statement of Designated Account for the Period from 1 January to 31 December 2019 5 Notes to the Project Financial Statements for the Period from 1 January to 31 December 2019 6 - 9 1 BDO INDEPENDENT AUDITOR'S REPORT TO THE GENERAL ASSEMBLY OF "KORIDORI SRBIJE" d.o.o. BELGRADE, THE WORLD BANK AND THE GOVERNMENT OF THE REPUBLIC OF SERBIA Opinion We have audited the financial statements of the Technical Assistance Project to the Limited liability company "Koridori Srbije" d.o.o. Belgrade ("the Company") for the project of the motorway construction on the Corridor 10 ("the Project"), which comprise the Statement of sources and use of funds and the Statement of designated account for the period from 1 January to 31 December 2019, and notes to these financial statements, including a summary of significant accounting policies (together "the financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the cash receipts and disbursements of the Project for the period from 1 January to 31 December 2019, in accordance with the cash receipts and disbursements basis of accounting described in Note 2. 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 our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Serbia 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. Emphasis of Matter - Basis of Accounting and Restriction on Distribution and Use We draw attention to Note 2 to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist the Company to meet the requirements set out in the Financing Agreement concluded between the World Bank, the Government of the Republic of Serbia and the Company, as well as to provide information to the World Bank and the Government of the Republic of Serbia. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the Company, the World Bank and the Government of Serbia and should not be distributed to or used by third parties without our prior consent. Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for preparation and fair presentation of the financial statements in accordance with the cash receipts and disbursements basis of accounting described in Note 2; this includes determining that the cash receipts and disbursements basis of accounting is an acceptable basis for the preparation of the financial statements in the circumstances, 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. I BDO INDEPENDENT AUDITOR'S REPORT TO THE GENERAL ASSEMBLY OF "KORIDORI SRBIJE" d.o.o. BELGRADE, THE WORLD BANK AND THE GOVERNMENT OF THE REPUBLIC OF SERBIA (Continued) Responsibilities of Management and Those Charged with Governance for the Financial Statements (Continued) In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives 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 skepticism throughout 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 of the effectiveness of the Company's internal control. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates, if any, 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. 2 I BDO INDEPENDENT AUDITOR'S REPORT TO THE GENERAL ASSEMBLY OF "KORIDORI SRBIJE" d.o.o. BELGRADE, THE WORLD BANK AND THE GOVERNMENT OF THE REPUBLIC OF SERBIA (Continued) Auditor's Responsibilities for the Audit of the Financial Statements (Continued) We 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. Belgrade, 28 July 2020 Ksenija Ristic Kostic Certified Auditor BDO d.o.o. Belgrade 3 I PROJECT "Technical Assistance to Koridori Srbije d.o.o. Belgrade" - World Bank - STATEMENT OF SOURCES AND USE OF FUNDS For the Period from 1 January to 31 December 2019 PROJECT FUNDING AND EXPENDITURE In EUR Unused funds provided by the World Bank as of 1 January 2019 335,445 Funds provided by the World Bank for the period from 1 January to 31 December 2019 (Modification 4 of the Contract*) 462,105 Total funds provided 797,550 Total project expenditure in the period from 1 January to 31 December 2019: Invoice no. F23/ROlE149 dated 4 April 2019, paid on 9 April 2019** (314,407) Invoice no. F24/ROlE149 dated 5 May 2019, paid on 7 May 2019 (181,887) Invoice no. F25/ROlE149 dated 30 August 2019, paid on 6 September 2019 (168,500) Invoice no. F26/ROE149 dated 4 September 2019, paid on 10 October 2019 (116,142) Utilized for payment of other expenses*** (16,614) Total expenditure for the period (797,550) Unused funds as of 31 December 2019** Notes: * The total amount of funds allocated by the World Bank for financing the technical support was increased from EUR 1,953,281 to the amount of EUR 2,415,386, pursuant to the Modification 4 of the Contract no. CORRX.TAKSDOO.WB dated 18 February 2019. ** Invoice no. F23/ROlE149, related to the services performed in the period from 1 October 2018 to 31 January 2019, was issued by "Egis International", France on 4 April 2019 and paid on 9 April 2019 in the amount of EUR 314,407, i.e., subsequent to the end of the previous reporting period. Consequently, the aforesaid invoice was taken into account when reporting for the observed period from 1 January to 31 December 2019. ** The funds provided by the World Bank in the amount of EUR 16,614 were used for other purposes, considering that the contract validity expired on 30 September 2019, pursuant to the Modification 4 of the Contract no. CORRX.TAKSDOO.WB. Belgrade, 30 June 2020 MiLova ric Radinka Mirkovic 9acdos Miladinovic Deputy trecfr, Financial Director Person responsible for the preparation of the financial statements 4 PROJECT "Technical Assistance to Koridori Srbije d.o.o. Belgrade" - World Bank - STATEMENT OF DESIGNATED ACCOUNT For the Period from 1 January to 31 December 2019 In EUR Opening balance on the designated account as of 1 January 2019 335,445 Additional funds allocated in accordance with the Modification 4 of the Contract* 462,105 Total funds allocated by the World Bank 797,550 Withdrawn funds and payment of project expenditures" (780,936) Utilized for payment of other expenses*** (16,614) Unused funds as of 31 December 2019 Notes: * The total amount of funds aLLocated by the World Bank for financing the technical support was increased from EUR 1,953,281 to the amount of EUR 2,415,386, pursuant to the Modification 4 of the Contract no. CORRX.TAKSDOO.WB dated 18 February 2019. ** Invoice no. F23/ROE149, related to the services performed in the period from 1 October 2018 to 31 January 2019, was issued by "Egis International", France on 4 April 2019 and paid on 9 April 2019 in the amount of EUR 314,407, i.e., subsequent to the end of the previous reporting period. Consequently, the aforesaid invoice was taken into account when reporting for the observed period from 1 January to 31 December 2019. ** The funds provided by the World Bank in the amount of EUR 16,614 were used for other purposes, considering that the contract validity expired on 30 September 2019, pursuant to the Modification 4 of the Contract no. CORRX.TAKSDOO.WB. Belgrade, 30 June 2020 MiLovan Bekric Radinka Mirkovic ados Miladinovic Deputy Director Financial Director Person responsible for the preparation of the financial statements 5 PROJECT "Technical Assistance to Koridori Srbije d.o.o. Belgrade" - World Bank - NOTES TO THE PROJECT FINANCIAL STATEMENTS For the Period from 1 January to 31 December 2019 1. GENERAL INFORMATION The Government of the Republic of Serbia founded a Limited liability company "Koridori Srbije" d.o.o. Belgrade (hereinafter: the "Company") to supervise the Government's program of the infrastructure construction, giving priority to the sections within the Trans-European Network (TEN) in the Republic of Serbia. The program envisages the construction of the southern section of the Corridor 10 motorway, i.e., E 75 motorway, section Grabovnica - Levosoje, which is the spur route "d" of the Corridor 10, whose total length is 74.1 km; E 80 motorway, section Prosek - Dimitrovgrad, which is the spur route "c" of the Corridor 10 in the total length of 84 km, as well as an extension of the northern part of the section Horgos - Novi Sad, which is the spur route "b" of the Corridor 10, whose total length is 118 km. The program is financed by the Government of the Republic of Serbia, World Bank (WB), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD) and Hellenic Plan for the Economic Reconstruction of the Balkans (HiPERB). The works on the Corridor 10(d) and 10(c) include the construction of roads, bridges, tunnels and junctions on a number of sections. Several agreements have been signed for the purpose of performing the works and supervising and monitoring all construction activities. The agreements for works and supervision are subject to the procedures of the international financial institutions (creditors). Financing Agreement and Consulting Contract On 7 December 2011 the Republic of Serbia (as the Beneficiary) entered into the Financing Agreement with the European Investment Bank and the Company, as the ultimate user of the funds, to the maximum amount of EUR 3,000,000. Namely, the Republic of Serbia has asked for financial assistance from the European Investment Bank (EIB) to enable the Company procurement of services from a consulting company, which should provide technical assistance related to the following works: - The construction of a 83.4 km long motorway on the Corridor section between Nis and the border with Bulgaria near Dimitrovgrad; - The construction of a 74.1 km long motorway on the Corridor section between Leskovac and the border with North Macedonia; and - The completion of the sections of A and B bypasses around Belgrade. The Managing Board of the Western Balkans Investment Framework approved the funds for the aforementioned technical assistance and agreed to finance a part of the consulting services from the European Investment Bank budget (EUR 1.5 million) and the budget of the European Western Balkans Joint Fund -EUR 1.5 million) under the WBIF for technical assistance. In August 2011 the Company initiated a procurement procedure for consulting services for the purpose of providing technical assistance financially supported by the European Investment Bank. After the procedure was conducted in accordance with the procurement provisions of the Government of the Republic of Serbia and the European Investment Bank, the contract was awarded to the consulting company "Egis International", France in June 2012. 6 PROJECT "Technical Assistance to Koridori Srbije d.o.o. Belgrade" - World Bank - NOTES TO THE PROJECT FINANCIAL STATEMENTS For the Period from 1 January to 31 December 2019 I1. GENERAL INFORMATION (Continued) Financing Agreement and Consulting Contract (Continued) The Contract no. CORRX.TAKSDOO. EIB was signed on 1 August 2012 between the Company and "Egis International", France. The technical assistance team started with the mobilization on 20 August 2012. Pursuant to the Modification 4 dated 15 April 2016, the duration of the initial Contract no. CORRX.TAKSDOO.EIB was extended until 15 September 2016, being the period during which the technical assistance provided by "Egis International", France, was financed from the European Investment Bank funds. On 16 September 2016 the Company entered into the Contract on Technical Assistance no. CORRX.TAKSDOO.WB with "Egis International", France, and the technical assistance team started with the mobilization on 16 September 2016. Pursuant to the Modification 1 of the Contract no. CORRX.TAKSDOO.WB dated 30 December 2016, the duration of the aforesaid Contract was extended until 31 December 2017, being the period during which the technical assistance provided by "Egis International", France, was financed from the World Bank funds. On 26 December 2017 the Modification 2 of the Contract no. CORRX.TAKSDOO.WB, which extended the term of the above mentioned Contract until 30 June 2018, was signed. In that period the technical support by "Egis International", France, was financed from the World Bank funds. Pursuant to the Modification 3 of the Contract no. CORRX,TAKSDOO.WB dated 20 July 2018, the duration of Contract was extended until 31 January 2019, being the period during which the technical assistance provided by "Egis International", France, was financed from the World Bank funds. Furthermore, pursuant to the Modification 3 of the Contract, the amount of funds allocated by the World Bank for financing the technical support was increased from EUR 1,445,096 to the amount of EUR 1,953,281. On 18 February 2019 the Modification 4 of the Contract no. CORRX.TAKSDOO.WB, which extended the term of the above mentioned Contract until 30 September 2019, was signed. During that period, technical support provided by "Egis International", France, was financed from the World Bank funds. In addition, the total amount of funds allocated by the World Bank for financing the technical support was increased from EUR 1,953,281 to the amount of EUR 2,415,386. Project Objectives The general objective of the consulting services to the Company is to provide professional, efficient and optimal execution of the works. The consultant assists the Company to provide resources for the organization and ensure that adequate controls and organizational systems are in place in an appropriate manner in order for the Project to be efficiently managed. The specific objective of the consulting services is to provide support to the Company in terms of designing and supervising, contract preparation, procurement and implementation, programming, monitoring and reporting with the aim of achieving high- quality and timely completion of the project in accordance with the technical description, and to support the introduction of modern transport technologies, which wit help the preparation of detailed reports for the creditors. 7 PROJECT "Technical Assistance to Koridori Srbije d.o.o. Belgrade" - World Bank - NOTES TO THE PROJECT FINANCIAL STATEMENTS For the Period from 1 January to 31 December 2019 1. GENERAL INFORMATION (Continued) Project Objectives (Continued) The results of the consultant's services should be the following: Provision of the needed technical assistance to the Company in managing the Project; - Supervising and monitoring the implementation of the Project's contracts and agreements; - Establishing co-operation with partners, consultants, contractors and international financial institutions; - Preparation of the project implementation/progress reports for all interested parties; and - Preparation of a strategy and a draft for introducing intelligent transportation systems (ITS) in the Republic of Serbia. Consulting services require inputs from more or less experienced professionals in the following areas: geotechnical engineering, engineering of tunnels, bridges and buildings, pavements, mechanical equipment, electrical installations and equipment, road safety and maintenance, environmental protection, health and safety protection, transport and ITS management, land surveying, financial control and bookkeeping, management of receivables and contracts, etc. The Project duration period, pursuant to the initial contract, was estimated to approximately 42 months. Pursuant to the Modification 4 of the initial Contract no. CORRX.TAKSDOO.EIB dated 15 April 2016, the Project duration period was extended for another six months, i.e., until 15 September 2016. After 15 September 2016 the Project continued to be financed by the World Bank in accordance with the Modification 1 of the Contract no. CORRX.TAKSDOO.WB dated 30 December 2016, which extended the duration of the Contract until 31 December 2017. On 26 December 2017 the Modification 2 of the Contract no. CORRX.TAKSDOO.WB, which extended the term of the above mentioned contract until 30 June 2018, was signed. In that period the technical support by "Egis International", France, was financed from the World Bank funds. Pursuant to the Modification 3 of the Contract no. CORRX.TAKSDOO.WB dated 20 July 2018, the duration of the Contract was extended until 31 January 2019, being the period during which the technical assistance provided by "Egis international", France, was financed from the World Bank funds. On 18 February 2019 the Modification 4 of the Contract no. CORRX.TAKSDOO.WB, which extended the term of the above mentioned Contract until 30 September 2019, was signed. During that period, technical support provided by "Egis International", France, was financed from the World Bank funds. 8 PROJECT "Technical Assistance to Koridori Srbije d.o.o. Belgrade" - World Bank - NOTES TO THE PROJECT FINANCIAL STATEMENTS For the Period from 1 January to 31 December 2019 2. ACCOUNTING POLICIES Basis of Preparation of the Financial Statements The financial statements of the Project have been prepared in accordance with a comprehensive basis of accounting which is neither an international nor a national standard. The comprehensive basis of accounting is in compliance with the requirements of the Financing Agreement no. 7746-YF, concluded on 13 July 2009 between the World Bank, the Government of the Republic of Serbia and the Company (the "Agreement "). The provisions of the financial reporting under the Agreement are based on the generally accepted accounting principles and practices and relevant World Bank guidelines. The Company's policy regarding accounting and recording of the Project related transactions is cash basis, i.e., the Project's financial statements are prepared in accordance with the cash receipts and disbursements basis of accounting, meaning that receipts and expenses are recognized only when cash is received or paid. The amounts in the Project's financial statements are expressed in EUR and rounded to the nearest integer unless otherwise stated. The aforementioned accounting policies are consistently applied to all reporting periods. 9