HZ INFRASTRUKTURA d.o.o., Zagreb SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR PROJECT FINANCIAL STATEMENTS AND SPECIAL ACCOUNT STATEMENT TOGETHER WITH INDEPENDENT AUDITOR'S REPORT FOR THE YEAR ENDED 31 December 2016 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR CONTENTS Page Independent Auditor's Report 1-2 Statement of Assets and Liabilities 3 Statements of Sources and Uses of Funds 4-5 Statement of Uses of Funds by Activity 6 Cost statement and withdrawal review 7-10 Designated Account Statement 11 Notes to the Project Financial Statements 12-16 Reconciliation of the Loan account 17 Management Letter 18-19 Checklist 20 Tel: +385 1 2395 741 BDO Croatia d.o.o. Fax: +385 1 2303 691 10000 Zagreb IB D L)E-mail: bdo-croatia.hr Trg J. F. Kennedy 6b INDEPENDENT AUDITOR'S REPORT 1. 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. 8500 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 2016 (all together, the "Project Financial Statements"). 2. 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. 3. 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. 4. In our opinion, Financial Statements of the SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT present fairly in all material respects the cash receipts and payments of the Project during the year ended 31 December 2016 in accordance with International Public Sector Accounting Standards issued by the Public Sector Committee of the International Federation of Accountants. 1 Registrirano kod TrgovaEkog suda u Zagrebu pod brojem 080044149 OIB 76394522236 1B D OJ BDO Croatia d.o.o. 5. With respect to Summary Statement of Expenditure ("SOE") - Application for Loan Withdrawal: (a) adequate supporting documentation has been maintained to support claims for reimbursements of expenditures incurred; (b) the Summary Statement of Expenditure has been reconciled to the other Project Financial Statements and (c) the expenditure disbursements underlying the Summary Statement of Expenditure have been made in accordance with the purposes intended in the Loan Agreement No. 8500 HR. BDO CROATIA d.o.o., Zagreb Trg J. F. Kennedy 6b &DO 10000 Zagreb____ Repbtic of Croatia n Zd6'nko Balen, Member of aZdenko Balen, certified auditor the Management Board Zagreb, 30 May 2017 2 STATEMENT OF ASSETS AND LIABILITIES for the years ended 31 December 2016 31 December 2016 31 December 2015 EUR EUR Assets Front-end fee 197,500 197,500 Project expenditures 20,426,968 17,948,316 Designated Account 596,374 TOTAL 21,220842 18,145,816 Liabilities IBRD Loan No. 8500 HR 21,220,814 18,145,816 TOTAL 21,220,814 18,145,816 NET ASSETS 28 - Project is effective as of 4 August 2015. 3 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR STATEMENT OF SOURCES AND USES OF FUNDS - CUMULATIVE for the year ended 31 December 2016 Actual in HRK Plan in HRK Cumulative in HRK till 31 In the year December Plan during Completion 2016 2016 Project life progress in % Sources of Funding 18,882,099 156,373 400 601,490,022 26% Counterpart funding IBRD Loan Funds 18,882,099 156,373,400 601,490,022 26% Front-end Fee - 1,490,022 - - Advances to Designated Account 4,532,744 4,532,744 - - Reimbursement 14,349,355 150,350,634 - - Direct Payments - - - - Less: Use of funds - project expenditures by loan categories 18,882,099 156,373,400 601,490,022 26% 1. Goods, non-consulting services, consultants' services and training for Part A of the Project 303,750 303,750 19,500,000 2% 2. Retrenchment Payments - 104,000,000 - 3.Goods, works, non-consulting services, consultants' services and training for Part D of the Project 18,578,349 154,579,628 476,500,000 32% 4. Front-end fee - 1,490,022 1,490,022 100% Designated account balance is not included in the statement. The report presents counterpart funds used for the project and the loan funds used for eligible project expenditures. The Croatian National Bank middle exchange rate for EUR as of 31 December 2015 of HRK 7.63504 is applied for the data in the column Plan during Project life. Disbursement categories are included in the Loan agreement and overall loan amount of EUR 79 million includes front end fee. Front end fee which is not predicted as a separate disbursement category in the Project appraisal document (PAD) is deducted from the planned disbursement under category goods, works, non-consulting services, consultants' services and training in the column Plan during Project Life in order to make balance with the loan amount. 4 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR STATEMENT OF SOURCES AND USES OF FUNDS - CUMULATIVE for the year ended 31 December 2016 Actual in EUR Plan in EUR Cumulative in EUR In the year till 31 Plan during Completion 2016 December 2016 Project life progress in % Sources of Funding 2,478,652 20,624,468 79,000,000 26% Counterpart funding - - - IBRD Loan Funds 2,478,652 20,624,468 79,000,000 26% Front-end Fee 197,500 - Advances to Designated Account 603,655 603,655 - - Reimbursement 1,874,997 19,823,313 - - Direct Payments - - Less: Use of funds - project expenditures by loan categories 2478652 20,624,468 79,000,000 26% 1. Goods, non-consulting services, consultants' services and training for Part A of the Project - 40,247 40,247 2,6000,00 2% 2. Retrenchment Payments - 13,700,000 - 3. Goods, works, non-consulting services, consultants' services and training for Part D of the Project 2,438,405 20,386,721 62,502,500 32% 4. Front-end fee -category 8 - 197,500 197,500 100% Designated account balance is not included in the statement. The statement presents counterpart funds used for the project and the loan funds used for eligible project expenditures. 5 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR E E E o %-. 0 E E m c:) C> 0 %0 0~ 0 0 0 ~~ GJG E 4~.-J 1 o 0 4- c CC> o CD C 8. C. c., -'>C D Z 0 C E-o - SC 0 00 0 C> N 0 U E 00 00Ln0 0 C) cn q o0 -n 00 U oS -- - ?oo *E r r'. 0 q) - ~C 0. 00 0. C O2 L GL * 0 E~CL 0 Nz CD E oa E - c- *C 4 E E 0 0 CD% Lnl* I 0 Nr <> Ci a) 4-×z ED C E -D 00 - m m on >-,- .0 E z u. 0o c .c E w 5E- a c W C 0. k- Q) o- C»- c c-- Ea E u.-- 00 c; 4.-1a m a c - an z u~~~c L. s-.ac c o y <.- _ · < _- zJ- - 0 . .1.1 .J .E- a z - i= N- p? 41 4-J J, O EE u tz 0 x~ m a > -VI Ln~ > 0 o tA0 rG aj >n zn* >* ~ ' uJ0 vi 0~ .~ ~ . 03 tV e l Z* inu c- 3 ':L - - COST STATEMENT AND WITHDRAWAL REVIEW for the year ended 31 December 2016 Year 2015: in Loan currency EUR Initial Total Amount Withdrawal Date of receipt Deposit/ Exnditures Ri rDt application of funds (DA, (Recovery of 1 2 3 4 Clxpediure Reivrem(DA No. reimbursement) the SOE 1. 2 November 2015 - 11,637,605 - 11,637,605 11,637,605 2. 4 November 2015 - 6,310,711 - - - 6,310,711 6,310,711 Total - 17,948,316 - - - 17,948,316 17,948,316 During the year 2015, there were two reimbursements paid directly from World Bank account to the H2 INFRASTRUKTURA d.o.o., Zagreb account. There were no transactions recorded on the Designated account in the period from 4 August 2015 till 31 December 2015. 7 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR COST STATEMENT AND WITHDRAWAL REVIEW for the year ended 31 December 2016 Year 2016: Withdrawal Amount of Amount Amount Wpiatran Aonof % Eligible for Paid from Date of application Suppliers Name Type of Good or Service Invoice Financing Financing Designated Payment No. (HRK) (HRK) Account Works on JANAF and PLINCRO PA-EL d.o.o. plant protection against the 13,602.00 100% 13,602.0 30.11.15. impact of the 25 kV, 50 Hz electric traction Work on electro-aggregate ELEKTROCENTAR plants at the Klara, Velika 202,997.11 100% 202,997.11 27.11.15. PETEK d.o.o. Gorica, Turopolje and Lekenik Stations Works on the reconstruction 720,050.72 100% 720,050.72 30.10.15. KONCAR KET d.d. of the 110/25 kV Nova Kapela 809,667.77 100% 809,667.77 30.11.15. Electro-traction Substation 852,831.41 100% 852,831.41 29.12.15. Reconstruction of the 110/25 kV Novska Electro-traction KONAR KET d.d. Substation (EVP) and 102,200.07 100% 102,200.07 30.10.15. construction of the reactive power compensation plant Works on Reconstruction of KONCAR KET d.d. Electro-traction Substation 717,346.34 100% 717,346.34 29.12.15. (EVP) 110/25 kV Mraclin and 25kV Connection line Purchase of equipment and 246,380.48 100% 246,380.48 - 27.10.15. ALTPRO d.o.o. materials for the ZCP insurance with the control 893,774.18 100% 893,774.18 27.10.15. signals Purchase of devices and their 1,437,063.00 100% 1,437,063.00 . 29.12.15. ALTPRO d.o.o. associated parts for Half Barrier - On-off elements 191,337.00 100% 191,337.00 05.01.16. 3 430,605.00 100% 430,605.00 - 16.11.15. 287,070.00 100% 287,070.00 . 16.11.15. 287,070.00 100% 287,070.00 . 27.11.15. 260,430.00 100% 260,430.00 . 10.12.15. 313,710.00 100% 313,710.00 - 10.12.15. 195,322.50 100% 195,322.50 . 16.12.15. 90,845.19 100% 90,845.19 - 16.12.15. 162,727.06 100% 162,727.06 - 18.12.15. V.o.o. Purchase of impregnated 65,107.50 100% 65,107.50 - 18.12.15. beech trusses 65,107.50 100% 65,107.50 . 24.12.15. 138,555.25 100% 138,555.25 . 24.12.15. 65,107.50 100% 65,107.50 . 24.12.15. 78,427.50 100% 78,427.50 - 24.12.15. 65,107.50 100% 65,107.50 . 24.12.15. 73,983.28 100% 73,983.28 . 24.12.15. 227,876.25 100% 227,876.25 - 11.01.16. 43,657.98 100% 43,657.98 . 11.01.16. Works on the reconstruction TEHNO-ELEKTRO of the Vinkovci railway 30,489.65 100% 30,489.65 04.01.16. d.o.o. station, the platform's canopies DIV d.o.o. Train Railroad buying and 5,280,904.78 100% 5,280,904.78 04.12.15. selling a 100m7pcs 8 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR COST STATEMENT AND WITHDRAWAL REVIEW for the year ended 31 December 2016 Withdrawal Amount of Amount AmountmPaid Supplier's % Eligible for from Date of application Name Type of Good or Service Invoice Financing Financing Designated Payment No. (HRK) (HRK) Account Selection of consultancy KPMG services: for Croatian Railways 4 CROATIA -Audit of the request for EUR Category d.o.o. ZA reimbursement of costs 168,750.00 100% 168,750.00 22,174.77 16.02.2016. REVIZIJU related to payment for decreasing number of employees 5 KONtAR-KET Works on the reconstruction of EUR Category 7 d.d. the 110/25 kV Nova Kapela 631,618.00 100% 631,618.00 82,943.93 29.02.2016. Electro-traction Substation Works on the reconstruction of 5 KONCAR-KET the 110/25 kV Mractin Electro- 282,534.53 100% 282,534.53 EUR 29.03.2016. Category 7 d.d. traction Substation and 25 kV 37,571.08 Connection line 6 AG ZLODI Preparing of Study about EUR Category 1 j.d.o.o. HZ Cargo d.o.o. real estate 135,000.00 100% 135,000.00 18,072.29 09.08.2016. valuation 7 VIEVICA Buying impregnated beech 235,282.50 100% 235,282.50 EUR 18.01.2016. Category 7 KOMP d.o.o. trusses 31,480.13 Works on the removal and 7 building of the replacement EUR Category 7 PALIR d.o.o. platform canopies of the 1st 356,446.54 100% 356,446.54 47,691.54 22.01.2016. and 2nd floors of the railway station Slavonski Brod 7 KONCAR-KET Works on the reconstruction of EUR Category 7 d.d. the 110/25 kV Nova Kapela 700,728.66 100% 700,728.66 93,755.51 29.01.2016. Electro-traction Substation Works on the reconstruction of 7 KONCAR-KET the 110/25 kV Mractin Electro- 365,196.84 100% 365,196.84 EUR 29.01.2016. Category 7 d.d. traction Substation and the 48,862.30 25kV Connection line Zajednica ponuditeLja: ENERGOINVE ST - Sistemi upravLjanja energijom Installation of Dugo Selo - Category 7 .o.o. Zagreb Novska electro - aggregate 496,500.00 100% 496,500.00 66,R.29 15.02.2016. ENERGOINVE ST - Sistemi upravljanja energijom d.o.o. Sarajevo, BiH Zajednica ponuditeLja: ENERGOINVE ST - Sistemi upravljanja energijom Installation of Dugo Selo - 7 .o.o. Zagreb Novska electro - aggregate 403,900.00 100% 403,900.00 EUR 29.07.2016. Category 7 i plns53,997.33 ENERGOINVE ST - Sistemi upravljanja energijom d.o.o. Sarajevo, BiH 9 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR COST STATEMENT AND WITHDRAWAL REVIEW for the year ended 31 December 2016 Withdrawal Amount of Amount Amount application Suppliers Name Type of Good or Service Invoice % Eligible for Paid from Date of No. (HRK) Financing Financing Designated Payment (HRK) Account Works on the reconstruction of 8 KONCAR-KET the 110/25 kV Nova KapeLa 468,187.28 100% 468,187.28 62,424.97 27.12.2016 Category 7 d.d. ELectro-traction Substation Zajednica ponudite1ja: ENERGOINVEST - Sistemi upravijanja Installation of Dugo Selo energijom 8 d.o.o. Zagreb i Novska eectro aggregate 288,600.00 100% 288,600.00 38,250.50 30.12.2016 Category 7 ENERGOINVEST - plants Sistemi upravtjanja energijom d.o.o. Sarajevo, BiH 10 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR DESIGNATED ACCOUNT STATEMENT for the year ended 31 December 2016 (EUR) Account No. HR1923900011300034560 Depository Bank Hrvatska pogtanska banka d.d., Zagreb Address Jurigieva 4, Zagreb Loan IBRD Loan No. 8500 From the beginning For the year of the Project EUR EUR 1 Opening balance at the beginning of the period 457,328 Add: 2 World Bank advances into DA during the period 600,000 1,200,001 3 Interest earned (if credited into DA) 11 28 Funds available during the period 600,011 1,200,029 Less: 4 Payments for eligible expenditures during the period (460,965) (603,655) 5 Refund to World Bank from the DA during the period 6 Service charges (if debited to DA) (460,965) (603,655) 7 Closing balance at the end of the period 596,374 596,374 Payments from the WB Special Account for the project expenditures Description/supplier/contract Date EUR HRK VI EVICA KOMP d.o.o. 55/14 01.09. 31,480 235,283 2016 PALIR d.o.o. 272/13 01.09.47,692 356,447 2016 01.09. KONCAR-KET d.d. 29/13 201 93,756 700,729 27.12. KONCAR-KET d.d. 29/13 2 62,425 468,187 2016 KONCAR-KET d.d. 404/13 01.09. 48,863 365,196 2016 Zajednica ponuditelja: ENERGOINVEST - Sistemi upravljanja energijom d.o.o. Zagreb i 01.09. 66,430 496,500 ENERGOINVEST - Sistemi uprav1janja energijom 2016 d.o.o. Sarajevo, BiH 268/14 Zajednica ponuditelja: ENERGOINVEST - Sistemi upravljanja energijom d.o.o. Zagreb i 29.07. 53,997 403,900 ENERGOINVEST - Sistemi uprav1janja energijom 2016 d.o.o. Sarajevo, BiH Zajednica ponuditelja: ENERGOINVEST - Sistemi uprav(janja energijom d.o.o. Zagreb i 30.12. 38,250 288,600 ENERGOINVEST - Sistemi upravljanja energijom 2016 d.o.o. Sarajevo, BiH 268/14 AG ZLODI j.d.o.o. SUCRE-HZI-NC-Shopping-01- 09.08. 18,072 135,000 2015 2016, Total 460,965 3,449,842 11 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2016 1. GENERAL INFORMATION In May 2015 International Bank for Reconstruction and Development approved three loans to railway sector totalling to EUR 163.5 million, of which EUR 43 million to the company HZ PUTNICKI PRIJEVOZ d.o.o., Zagreb, EUR 41,5 million to the company H2 CARGO d.o.o., Zagreb and EUR 79 million to the company HZ INFRASTRUKTURA d.o.o., Zagreb. Granted loans are part of the "Sustainable 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 HZ INFRASTRUKTURA d.o.o., Zagreb and HZ PUTNICKI PRIJEVOZ d.o.o., Zagreb through the provision of consulting services, non-consulting services, Training, and Operating Costs to Ministry of Maritime Affairs, Transport and Infrastructure. Part B Support to restructuring of the company HZ PUTNICKI PRIJEVOZ d.o.o., Zagreb 1. Retrenchment. Provision of the retrenchment payments for the company HZ PUTNICKI PRIJEVOZ d.o.o., Zagreb, including job outplacement and retraining services, counseling and advisory support. 2. Investment to contribute to the restructuring plan of the company HZ PUTNICKI PRIJEVOZ d.o.o., Zagreb (a) 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. Part C Support to the restructuring of the company H2 CARGO d.o.o., Zagreb 1. Retrenchment -provision of the retrenchment payments for the company H2 CARGO d.o.o., Zagreb, including job outplacement and retraining services, counselling and advisory support. 12 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2016 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 rand enabling investment to increase system efficiency 1. Retrenchment Provision of the retrenchment payments for the company HZ 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 Ljubosina bridges on the Zagreb-Rijeka axis. 4. Undertaking emergency infrastructure investments, including: (a) Rehabilitating the Ogulin - Moravice line; (b) Rehabilitating the Varazdin-Cakovec line; and (c) Replacing switches, electrical, and support systems (for safety and signaling) on international and national corridors selected pursuant to criteria set forth in Supplemental Letter #4; and (d) Constructing and improving the Borongaj, Rijeka-Brajdica, and Vinkovci railway stations. 5. Capacity building on management and restructuring. The Company is responsible for the management of the activities including procurement, disbursement, financial management, monitoring, reporting and coordination. The objective of this component is to support operational and financial restructuring of the Company and to contribute in restoration of the physical infrastructure's conditions. The Company has also fiduciary responsibility for implementation of the component A in the amount of EUR 2,6 million granted on behalf to the Ministry of Maritime Affairs, Transport and Infrastructure provided under the same loan. 13 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2016 2. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN AGREEMENT HZ INFRASTRUKTURA d.o.o., Zagreb (the Company) signed a Loan Agreement with the International Bank for Reconstruction and Development (the Bank) in the amount of EUR 79 millions 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 Company will pay to the Bank a front-end fee in the amount of 0.25% from the total loan amount or EUR 197.500. 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 1 June and 1 December in each year. The principal amount of the loan repayable on each principal payment date is determined by multiplying: withdrawn loan balance as of the first principal payment date; by the instalment share for each principal payment date as shown in the table below: Instalment share Principal payment (Expressed as a date percentage) 1 June 2018 6.05% 1 December 2018 6.20% 1 June 2019 6.36% 1 December 2019 6.52% 1 June 2020 6.68% 1 December 2020 6.85% 1 June 2021 7.02% 1 December 2021 7.19% 1 June 2022 7.37% 1 December 2022 7.56% 1 June 2023 7.75% 1 December 2023 7.94% 1 June 2024 8.14% 1 December 2024 8.37% 14 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2016 Pursuant to the finance contract, the Company has to ensure documents on the assets/funds usage and shall purchase goods, procure services and order works for the Project in accordance with the current edition of the IBRD Guide to Procurement. Pursuant to the finance contract 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. 3. SUBSIDIARY AGREEMENT The Company has signed a subsidiary agreement with the Republic of Croatian on 7 May 2015, pursuant to which the Republic of Croatia committed to compensate the Company for the amount of the loan paid under the component A "Support sector restructuring and coordination" in the amount of EUR 2.6 million. The objective of this component is to assist the Ministry of Maritime Affairs, Transport and Infrastructure as coordinator of the railway sector to increase its institutional capacity. 4. PROJECT COST AND FINANCING Goods, works, Goods, works, non-consulting non-consulting services, and services, and Retrenchment consultants' consultants' Capitalization Payments services for services for of interest Sources of funds under Part D Part A of the Part D of the charges Et (in EUR million) Total of the Project Project Project front-end fee IBRD loan 79 13.7 2.6 62.7 0.1 Government funds 0 0 0 0 0 Total 79 13.7 2.6 62.7 0.1 5. PROJECT MANAGEMENT Project implementation unit ("PIU") has been established within the Company and is in charge for the project implementation. 15 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR NOTES TO THE PROJECT FINANCIAL STATEMENTS for the year ended 31 December 2016 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 kunas and foreign currency accounts is opened in Hrvatska pogtanska banka d.d., Zagreb. 7. DEVIATIONS FROM AGREED CONDITIONS There were no deviations from the contracted terms. 8. PROJECT EXPENDITURES Expenditures in HRK 31 December 2016 31 December 2015 Goods, non consuttancy services, consultancy services and training 154,883,378 136,001,279 Total 154,883,378 136,001,279 9. VALUE ADDED TAX Value Added Tax (VAT) is calculated under the valid regulations and is paid from the loan funds. 16 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR RECONCILIATION OF THE LOAN ACCOUNT in EUR Loan disbursed until 31 December 2016 21,220,814 Amount on Designated account 596,374 Add: total expenditures stated in the Statement of sources and Uses of funds 20,426,968 Add: Front-end fee 197,500 21,220,842 Less: Interest (28) Total recorded 21,220,814 17 SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8500 HR