Financial Statements ELECTRICIDADE DE MOqAMBIQUE, E.P. (EDM) Mozambique Energy for All Project (ProEnergia) 31 December 2020 EY Building a better working world ELECTRICIDADE DE MO9AMBIQUE, E.P. (EDMI) MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERGIA) CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1-3 FINANCIAL STATEMENTS 4 ACCOUNTING POLICIES 5 NOTES TO THE FINANCIAL STATEMENTS 6-10 Ernst & Young Umitada Tel: +258 21 35 3000 Rua Belmiro Obadias Muianga, N' 179 Fax: +258 21 32 1984 E Y Caixa Postal 366, Email: emst.young@mz.ey.com Maputo NUIT:400 006 245 Building a better Moambique www.ey.com working world INDEPENDENT AUDITOR'S REPORT To the Project Management of ELECTRICIDADE DE MOqAMBIQUE E.P. (EDM) Mozambique Energy for All Project (ProEnergia) Opinion We have audited the financial statements of Mozambique Energy for All Project (ProEnergia) (the project), which comprise the financial statement of receipts and expenditures for the year ended 31 December 2020 and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial present fairly, in all material respects, the Mozambique Energy for All Project (ProEnergia) financial position as at 31 December 2020 and the income and expenditure for the year then ended, in accordance with the accounting principles described in note 2 and the Donor requirements. Basis for our 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 Mozambique Energy for All Project (ProEnergia) in accordance with the ethical requirements that are relevant to our audit of the financial statements in Mozambique, 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. A member firm of Emst & Yomg Global Lrmiled EY Building a better working world Responsibilities of Management for the Financial Statements Management is responsible for the preparation and presentation of the financial statements in accordance with the accounting policies disclosed in note 2 and with the requirements of the donors and by the internal control it determines is necessary to enable the preparation of financial statements free of material misstatement Fraud or error. When preparing financial statements, Management is responsible for assessing the ability to maintain continuity, disclosing, where applicable, matters relating to continuity and using the assumption of continuity unless management intends to cease project activities, or have no realistic alternative but to do so. 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 scepticism 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 on the effectiveness of internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 2 EY Building a better working world 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 project's ability to continue its activities. 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 project to discontinue activities. We communicated with Management 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. The engagement partner on the audit resulting in this independent auditor's report is Paulo Reis. ERNST & YOUNG, LDA. Certified Auditors Firm Represented by: Paulo Jorge Gongalves Afonso dos Reis (Auditor Certificado no 34) Maputo, 3 June 2021 3 MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERGIA) FINANCIAL STATEMENT FOR THE PERIOD COMPRISING 1 JANUARY 2020 TO 31 DECEMBER 2020 STATEMENT OF RECEIPTS AND EXPENDITURES (Accounts expressed in USD) Notes 31-Dec-2020 INCOME Funds received 3 24.208.598 TOTAL INCOME 24.208.598 EXPENDITURES Materialls and Installations 5 16,834.335 Services Consultancys 6 620.393 Operations costs 7 694.333 Special Commitments paid to CROWN AGENTS BANK LIMITED 8 1.570.090 EDM's DA-C1 managed by Socit6 Generale Bank 9 4.352.241 TOTAL EXPENDITURES 24.071.392 Closing balance 10 137.206 FINANCE AND ADMINISTRATION MANAGER PROJECT MANAGER 4 MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERGIA) NOTES TO THE FINANCIAL STATEMENT OF THE PERIOD COMPRISING 1 JANUARY 2020 TO 31 DECEMBER 2020 (Accounts expressed in USD) 1. INTRODUTION World Bank represented by IDA - International Development Association acting as administrator of Norwegian, Sweden and European Union - Trust Fund Project and the Government of Mozambique represented by EDM signed an agreement to carry out a project called Mozambique Energy for All Project (ProEnergia), The national power utility Electricidade de Mogambique, E.P. (EDM) has taken the lead role in the Government of Mozambique's (GoM's) efforts to expand electricity access, complemented by Fundo de Energia (FUNAE) for the provision of electricity services for rural areas and community centres. In its most successful years, 2017, EDM was able to connect about 140,000 new customers per year, across the country, but this figure has sharply decreased over the last few years, mainly due to lack of adequate busines model. Therefore, only 27 percent the population, County wide, benefit from the electricity services from on grid system. To accelerate electrification and achieve universal access by 2030, the GoM has taken the leadership in defining a new model for electrification namely National Electrification Strategy (NES) while preserving the financial viability of the sector. The NES has attracted the attention, interest and granted a financing from development partners to finance the first phase of the implementation strategy with around $20.000.000 from the Trust Funds and $82.000.000 in grant from IDA. ProEnergia Project will support the expansion of access to peri-urban and rural areas by harnessing and extending existing grid network and by piloting mini-grids in off-grid area based on solar power generation. The Project will support three (3) components that aim at connecting on-grid and off-grid households based on a sustainable approach to electrification that incorporates proven international experience, technical assistance and capacity building support. The on-grid component will be implemented by EDM and will focus on densification and short-range grid extension to ensure massive connection of existing potential customers without electricity in peri-urban and rural areas across the whole country. The project is carrying out in accordance with the programme document titled "Grant number TF0A9837 and IDA D4410". BACKGROUND The Government of Mozambique has received financing from the World Bank administered Norwegian Trust Fund (NTF) towards the cost of the ProEnergJa Project. The Electricity of Mozambique (EDM), EP - created by Decree No. 38177 of August 27, as State Company and transformed into a Public Company by Decree No. 28/95 of July 17, has as its mandate, the production, transmission, distribution and sale of electricity at national level. Its programs and plans are developed in the light of the Government's Energy Sector Program; With a view to creating conditions for economic and social development, EDM undertook the mission of developing the national electricity grid, with a view to optimizing the exploration of the country's electricity potential, boosting the growth of industries and agriculture, improving the population's living conditions through the electrification of suburban and rural areas. The electricity law (Act 21197), promulgated in 1997, opens up the activities of generation, transmission and distribution of electricity to the private sector. EDM is administratively under the Ministry of Mineral Resources and Energy and will act as the implementing organization for the project. The Project consists of the following components: aj Widespread access to electricity for the population on and off the grid in a techntcally viable, financially sustainable model, attractive to development partners and achieving universal access in 2030; 5 MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERG IA) NOTES TO THE FINANCIAL STATEMENT OF THE PERIOD COMPRISING 1 JANUARY 2020 TO 31 DECEMBER 2020 (Accounts expressed in USD) b) Promote the use of renewable energies and the decentralization of generation sources to the Districts and Administrative Posts, in order to guarantee, with energy, the implementation of the program; c) Promote national private participation in the development of projects and in the provision of associated services (local content) in a transparent and comprehensive manner; d) Improve and promote opportunities for productive activities that lead to increased employment in the short, medium and long term (supply, services, construction, operation and maintenance). The new electrification model provides for Supply: (i) supply of materials (poles, insulators, cables and conductors, distribution transformers, Low Voltage distribution boards, ready boards and pole top boxes and energy meters); (ii) Installation of the materials to be purchased under the ProEnergia scope, and Inspection of the contractors who will install the ProEnergia materials. Under the financing amount of the Project is USD 88,200,000.00 (TF0A9837 and IDA D4410). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statement, compiled from the Project implementation Unit accounting records, was prepared on the cash basis of accounting. Under cash basis of accounting, receipts are not recorded until received in cash and disbursements are assignedtothe period in which cash payment is made. Foreign Cunency Transactions The books of accounts of the Project are maintained in American Dollars (USD). The statement of receipts and payments is also expressed in American Dollars (USD) unless otherwise stated. Transactions in other currencies are converted in American ar (USD) by the Project ana are reflected as expenditure in the year of purchase. Procedures The disbursements of the funds, made available by the International Development Association (IDA), are made by direct transfers or by requests for payments sent to the Special Account, which was created with funds made available by IDA, in a bank account of the Project maintained in Maputo (Central Bank). 6 MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERGIA) NOTES TO THE FINANCIAL STATEMENT OF THE PERIOD COMPRISING 1 JANUARY 2020 TO 31 DECEMBER 2020 (Accounts expressed in USD) 3. FUNDS RECEIVED Funds received from the Donor are analyzed as follows: 2020 Direct payment made by donors (Note 4) 19.716.978 Amount received from IDA to EDM in designated account (Central Banb - 5387601002 - USD): 4.491.620 TOTAL FUNDS RECEIVED 24.208.598 4. LOAN CONTROL DECEMBER 31, 2020 The level of use of the funds of the loan agreement with IDA (World Bank) for the period between 01 January 2020 and 31 December 2020 is as follows: DESCRIPTION Notes AMOUNTS IN USD Total amount of Loan Agreement 1 88.200.000 Amount received from IDA to EDM in designated account Central Bank- USD 5387601002): 139.380 EDM's DA-C1 managed by Socl6td Generale Bank 4.352.240 4.491.620 Payments made by designated account Operations Cost 7 2.172 Bank Charges 1 Total paid by designated account 2.173 Direct Payments Materialls and Installations 5 16.834.335 Services Consultancys 6 620.393 Operations costs 7 692.160 Special Commitments paid to CROWN AGENTS BANK LIMITED 8 1.570,090 EDM's DA-C1 managed by Soci6t6 Generale Bank 9 4.352.241 Total direct payments 19.716.978 Cumulative payments of the Project: Payments in2020 19.719.151 Payments from prior year . Total cumulative payments of the Project until December 31, 2020 19.719.151 Loan amount left to use 68.480.849 Loan amount left to use % 78% EXPENSES Between January 1, 2020 up to December 31, 2020, approximately USD 18.149.061 of expenditures were executed, with the following activities agreed with the Funder, 7 MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERGIA) NOTES TO THE FINANCIAL STATEMENT OF THE PERIOD COMPRISING I JANUARY2020 TO 31 DECEMBER 2020 (Accounts expressed in USD) 5. MATERIALS AND INSTALLATIONS Expenses with Materials and Installations are made as follows: Notes 2020 LTL Transformers Limited a) 301969 Joint Venture Celmocjue &Visabeira b) 310628 Rousant international c) 926898 Gupta Power Infrastructure d) 566924 Laser Power Infrastructure e) 2736956 Tesia Transformer f 374953 Shenzhen Clou 9) 637034 Ningxia LGG Instruments h) 2941438 Hexing Electrical 150 308 PowerGen D 822946 Tes Top Limited ) 2825568 Electrotec k) 3568796 Vukatimbers 1) 369154 Toshiba m) 275262 Guangdong Kang Dewel Flectrical 25 501 TOTAL MATERIALLS AND INSTALLATIONS 16 834 335 a) The payment registered under this heading are related with supply of three phase distribution transforms (10% to be paid against in advance payment guarantee). b) This amount refers 10% paid in advanced of the supply wooden poles contract- Package B Lot 1 - South Region. c) This direct payment includes: (i) the advance payment of (10%) of the installation of cable and conductors RFF (Nampula, Nacala, Angoche, Pemba Lichinga and Cuamba); and (ii) the advance payment of 10% of the contract for supply of 33kv line post insulator, 12.5kv complete with all necessary hardware's and fittings as specified. d) Advanced payment of 10% of the contract for supply of ABC Cable and conductor - South region. e) Advanced payment of 10% of the contract to supply of 2.346 Km of cables LV -ABC and 1.694 Km of conductors. for central Zone- Lote 2. f) 10% advanced payment towards supply of LV distribution boards and Supply of three phase LV distribution boards for 75kvA distribution transformer, complete with all accessories as specified (Nacala). g) 10% advanced payment related with the acquisition of a single-phase smart prepayment wireless split meter PLC complete, with all accessories as specified, and a three-phase smart prepayment wireless split meter PLC complete, with all accessories as specified - L:' 1 & 2. h) 10% advance payment of the contract for acquisition of a single-phase smart prepayment wireless split meter PLC 230V and three phase smart prepayment wireless split meter PLC 3*230/400V to Nacala Port. i) 10% advance payment of the supply of MV lines hardware, installation and commissioning of MV and LV lines and the services connections. j) Advance payment 20% of the contract for execution supply of MV and LV hand wanes; installation and commissioning of MV and LV lines; services connection; and acquisition of 5 vehicles - 4WD Double cabin pick-up and 8 4WD single cabin Pick-up. 8 MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERGIA) NOTES TO THE FINANCIAL STATEMENT OF THE PERIOD COMPRISING 1 JANUARY 2020 TO 31 DECEMBER 2020 (Accounts expressed in USD) k) Acquisition of 7 vehicles double cabin pick-up e 9 vehicles single cabin pick-up and a Site establishment and provision of facilities as per the Specifications. 1) Supply of wood poles (9m and 12m) in North region. m) Acquisition of three phase distribution transformers, for the execution of supply of 1.051 distribution transformers Lot-2. 6. CONSULTANCY SERVICES Expenses with Consultancy are made as follows: 2020 Wapco Limited 620 393 TOTAL CONSULTANCY SERVICES 620393 The payments made to Wapco Limited are related with the consultants who was provide services to ensure high standards of quality assurance in the execution and completion of work within stipulated time period, and to supervise the project implementation activities carried out by the contractor to ensure compliance with the drawings, technical specifications and other stipulations contained in the contract. 7. OPERATIONS COSTS Expenses with Operations costs are made as follows: 2020 Salaries 196 874 Rent 135 264 Fuel 5 472 Office supply 117 818 Consultancy 37997 Bank charges (Credit of Letters) 176 558 Others 24350 TOTAL OPERATIONS COSTS 694 333 B. SPECIAL COMMITMENTS PAID TO CROWN AGENTS BANK LIMITED This balance refers to the disbursement made by the World Bank to pay letters of credit from CROWN AGENTS BANK LIMITED. 9 MOZAMBIQUE ENERGY FOR ALL PROJECT (PROENERGIA) NOTES TO THE FINANCIAL STATEMENT OF THE PERIOD COMPRISING 1 JANUARY 2020 TO 31 DECEMBER 2020 (Accounts expressed in USD) 9. EDM'S DA-C1 MANAGED BY SOCIETE GENERALE BANK Likewise, the disbursement made to Soci tA Generale Bank designated account to pay letters of credit, with the no objection from Worl bank. 10. CLOSING BALANCE The final balance corresponds to the existing amount in banks at 31 December 2020, which is represented by: 2020 Central Bank - 5387601002 - USD 137206 137 206 11. TAXES The possibility exists that the fiscal authorities could review the amount of company tax as well as other taxes paid by the company including employee tax and withholding taxes. 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