Financial Statements and Independent Auditor's Report Armenia Renewable Resources and Energy Efficiency Fund December 31, 2016 444 Armenia Renewable Resources and Energy Efficiency Fund Financial statements December 31, 2016 Contents Page Independent auditor's report 1 Statement of financial position 4 Statement of comprehensive income 5 Statement of changes in net assets 6 Statement of cash flows 7 Notes to the financial statements 9 GrantThornton Independent auditor's report To the Board of Trustees of Armenia Renewable Resources and Energy Efficiency Fund Opinion We have audited the financial statements of Armemia Renewable Resources and Energy Efficiency Fund (the "Fund'), which comprise the statement of financial position as of December 31, 2016, and the statement of profit or loss and other comprehensive income, statement of changes in net assets and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as of December 31, 2016, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRSs'). 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 Responsibihtierfor the Audi ofthe FinanialStatements section of our report. We are independent of the Fund in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (the "IESBA Code") together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Armenia, and we have fulfilled our other ethical responsibilities in accordance with those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Otber matter The financial statements of the Fund as of and for the year ended December 31, 2015 were audited by another auditor, whose report dated March 16, 2016 expressed an unmodified audit opinion on these financial statements. As described in note 26, these financial statements were restated by the management of the Fund. We have also audited these restatements GrantThornton Responsibilities ofManagement and Those Charged inth Gowrane for the Finandal Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, 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. In preparing the financial statements, management is responsible for assessing the Fund's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Fund's financial reporting process. Auditorrs Reiponsibikties for the Amdit of th Finandal 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 anse 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 on the effectiveness of the Fund's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * 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 Fund'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 GrantThornton obtained up to the date of our auditor's report. However, future events or conditions may cause the Fund to cease to continue as a going concern. * 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. 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 Grant Thornton Audit SRL, Romania Emil Vassilya , F Partner Grant Thornton CJSC Gagik Gyulbudaghyan Mana er Grant Thornton CJSC April 28, 2017 Armenia Renewable Resources and Energy Efficiency Fund 4 Financial statements December 31, 2016 Statement of financial position In thousand drams As of December As of January As of December 31, 2015 1,2015 Note 31, 2016 (restated) (restated) Assets Non-current assets Property and equipment 4 247.783 56,023 35,651 Intangible assets 5.078 909 2.167 Accounts receivables 5 3,143,342 1.447,494 501,181 Borrowings provided 6 - 113,000 3,396.203 1.504.425 651,999 Current assets Inventories 13,380 2,859 645 Accounts receivables 5 782,061 642,236 276,384 Borrowings provided 6 548 165,260 457,005 Term deposits 7 - 1.939,877 2,203,852 Current tax assets 104 4,159 Cash and cash equivalent 8 979,403 736,200 1,064.398 1,775,496 3.486,432 4.006,443 Total assets 5,171,699 4.990,858 4,658.442 Liabilities and net assets Non-current liabilities Grants related to assets 9 247,052 331,396 259,570 Borrowings received 10 3.894,816 3,951,457 4,017,038 4,141,868 4,282,853 4,276,608 Current liabikties Borrowings received 10 60,287 59,226 29,933 Deferred Income 11 138,643 313,596 139,912 Accounts payable 12 563,753 274,599 76,040 Current tax liabililles - 3.347 - 762,683 650.768 245,885 Net assets Accumulated result 267.148 57.237 135.949 267,148 57,237 135,949 Total liabilities and net assets 5.171.699 4,990.850 4.658.442 The financial statement.awdre upproved on April 28, 2017 by- Tamara Babayan Siranush Gorgyan Director J Fmancial Manager The starunent FfinaniT *r t2tQ )g ?acron with the notc to and forrrng part 4 the financial statemcnts set out on pages 9 - Armenia Renewable Resources and Energy Efficiency Fund S Financial statements December 31, 2016 Statement of profit or loss and other comprehensive income in thousand drams Year ended Year ended December 31, December 31, Note 2016 2015 Income from grants 13 3,769,323 970,387 Finance income 14 22,435 41,060 Income from services 15 57,167 18,045 Other income 13,737 20,467 Project expenses 16 (3.423,526) (1,015.237) Administrative expenses 17 (187,879) (149,409) Finance costs 10 (29.806) (30,041) Result from operating activities 221,451 (144,728) Impairment losses on borrowings provided 6 (15,357) (2.026) Interest income from term deposits 48,047 100,763 Other financial results 18 (25,392) (7,467) Result before taxes 228.749 (53458) Income tax expense 19 (18.838) (25.254) Result for the year 209.911 (78.712) Other comprehensive result . . Total comprehensive income for the year 209,911 (78,712) The statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 9 to 38. Armenia Renewable Resources and Energy Efficiency Fund a Financial statements December 31, 2016 Statement of changes in net assets In thousand drams Accumulated result Total as of January 1, 2015 135,949 135,949 Result for the year (78,712) (78,712) Total comprehensive Income for the year (78,712) (78,712) as of December 31, 2015 57,237 57,237 Result for the year 209.911 209,911 Total comprehensive Income for the year 209,911 209,911 as of December 31, 2016 267.148 267.148 The statement of changes in net assets is to be read in conjunction wnh the notes to and fornung part of the financial statements set out on pages 9 to 38. Armenia Renewable Resources and Energy Efficiency Fund 7 Financial statements December 31, 2016 Statement of cash flows in thousand drams Year ended Year ended December 31. December 31. 2016 2015 Cash flows from operating activities Result for the year 209,911 (78,712) Adjustments for Depreciation and amortization 45,228 16,208 Income tax expense 18,838 25,254 Interest expense 29,806 30,041 Interest income from borrowings (22.435) (41,060) Interest income from term deposits (48,047) (100,763) Income from grants (3,769,323) (970,387) Movement of the allowance for bad and doubtful borrowings 15.357 2.026 Foreign exchange rate losses 25.392 7,467 Operating loss before working capital changes (3.495.273) (1,109.926) Movement of advances and receivables (1,791.160) (1,322.048) Movement of Inventories (10.521) (2,214) Movement of payables 287,837 199,080 Cash used in operations (5.009,117) (2,235,108) Interest paid (29,853) (30,303) Income tax paid (22,289) (17.749) Net cash used in operating activities (5,061,259) (2,283.160) Cash flows from investing activities Acquisition of property and equipment and intangible assets (241,157) (35,322) Term deposits investedl(repayments of term deposits), net 1,913,986 253,630 Grants received and retum of grants, net 3,466,092 1,213,916 Interest Income received 73,285 137,454 Borrowings providedl(repayments of borrowings), net 151,471 408.467 Net cash from investing activities 5,363,677 1.978.145 Armenia Renewable Resources and Energy Efficiency Fund 9 Financial statements December 31, 2016 Notes to the financial statements I Nature of operations and general Information Armenia Renewable Resources and Energy Efficiency Fund (the "Fund") has been established in accordance with the resolution N799 of the Government of the Republic of Armenia dated April 28, 2005. The founder of the Fund (the "Founder") is the Republic of Armenia, The objectives of the Fund are to: a) facilitate investments in the energy efficiency and renewable energy sectors; b) promote the development of Armenian energy efficiency and renewable energy market; c) contribute to the reduction of adverse anthropogenic impact on the environment and human health; d) develop mechanisms aimed at increasing energy safety and reliability of energy system; e) when respective authority is received from the Ministry of Finance of the Republic of Armenia (the "MoF"), initiate credit and grant programs to promote the sector development on behalf of the MoF based on the agreements signed with the MoF. On July 30, 2012 a new Agency agreement was signed between the Fund and the MoF, pursuant to resolution 174-N of the Government of the Republic of Armenia dated February 16,2012, whereby the Fund agrees to implement Energy Efficiency and Renewable Energy Financing Project. This project envisages the following components: Component I Program funds are provided to the participant financial institutions to finance investments by qualifying beneficiaries in energy efficiency and renewable energy projects. Component 2 The Fund makes energy efficiency investments in public buildings. In 2015-2016 the Fund implemented the following projects: * "Energy Efficiency Project", which is financed under the GEF Grant TF 012163 Agreement signed between the International Bank for Reconstruction and Development acting as an implementing agency of Global Environment Facility and the Republic of Armenia on April 20, 2012. The objective of the project is to reduce energy consumption in social and other public facilities through the removal of barriers to the implementation of energy efficiency investments in the public sector. * "Black Sea Basin 2007-2013 Buildings Energy Efficiency Plan Project", which is financed by the European Union under a partnership agreement signed between mayor's office of Kavala and the Fund on September 26, 2012. The objective of the project is to improve the system of buildings energy efficiency and to share know-how in energy sphere, Armenia Renewable Resources and Energy Efficiency Fund 10 Financial statements December 31, 2016 "Project Preparation for Industrial Scope Solar Power Project", which is financed through project preparation grant dated June 30, 2015 signed between the Government of the Republic of Armenia and International Bank for Reconstruction and Development. The goal of the project is to support the Republic of Armenia for the preparation of the expected project on industrial scope of solar energy, which includes the determining possible locations of solar power stations, conducting technical and business feasibility study of possible locations, mapping initial resources, assessing the capability to connect to local set, and assessing connection costs. * "Geothermal Exploratory Drilling Project", which is financed by the Grant Agreement TF0A0544 dated June 16, 2015 signed between the Government of the Republic of Armenia and the International Bank for Reconstruction and Development. The goal of the project is to perform exploratory drilling in Qarqar, a possible geothermal location, in order to assess the sufficiency of resources, approve the quality and attract the pnvate sector to build a geothermal station. The ultimate goal of the project is to build geothermal station in Qarqar. * "Syunik man sustainable development project", which is financed based on Syunik marz sustainable development grant agreement signed between the Fund and the OSCE Office in Yerevan dated July 1, 2016. The objective of the Project is the renewable energy improvement for the purpose of power and environmental security support, as well as increasing public awareness in the field of power security, use of innovative projects in the renewable energy sector, power security improvement in the local communities of Syunik marz, significant increase in energy efficiency, as well as cost savings in infrastructure to ensure power stability as a result of the increase in community investments, use of natural gas and electricity for the reduction of C02 emissions, improvement of dialogue and civil society participation during the events on power secuaty in Syunik marz. The legal address of the Fund is 1 Melik Adamyan street, Yerevan, Republic of Armenia. The average number of employees of the Fund during 2016 was 15 (2015: 15). Armenia Renewable Resources and Energy Efficiency Fund 11 Financial statements December 31, 2016 2 Basis of preparation 2.1 Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards C'IFRS') as issued by the International Accounting Standards Board ("IASB'). 2.2 Basis of measurement The financial statements have been prepared on the historical cost basis, and fair values, as applicable. 2.3 Functional and presentation currency The national currency of Armenia is the Armenian dram ("dram"), which is the Fund's functional currency, since this currency best reflects the economic substance of the underlying events and transactions of the Fund These financial statements are presented in Armenian dranms, since management believes that this currency is more useful for the users of these financial statements. All financial information presented in Armenian drams has been rounded to the nearest thousand. 2.4 Use of estimates and judgment The preparation of financial statements in conformity with IFRS requires management to make cntical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 20 to the financial statements. 2.5 Adoption of new and revised standards In the current year the Fund has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the "lASB") and International Financial Reporting Interpretations Committee (the "IFRIC") of the IASB that are relevant to its operations and effective for annual reporting periods beginning on January 1, 2016. The nature and the effect of these changes are disclosed below. Although these new standards and amendments are applied for the first time in 2016, they did not have a material impact on the annual financial statements of the Fund. New and revised standards and interpretations that are effective for annual periods beginning on or after January 1, 2016 Amendments to LAS 16 Propery, Plant and Equioment and lAS 38 Intagi Arsetr Clarification of Acceptable Methods of Depreciation and Amortization The amendments clarify the principle in lAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. Armenia Renewable Resources and Energy Efficiency Fund 12 Financial statements December 31, 2016 Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Fund At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Fund. Management anticipates that all of the relevant pronouncements will be adopted in the Fund's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Fund's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Fund's financial statements. Amendments to LAS 12 Income Taxes The IASB has issued Recognidon of Deferred TaxAssets for Unnalised Losses, which makes narrow-scope amendments to LAS 12 Income Taxes. The focus of these amendments is to clarify how to account for deferred tax assets related to debt instruments measured at fair value, particularly where changes in the market interest rate decrease the fair value of a debt instrument below cost. These amendments clarify the following aspects: * unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use; * the carrying amount of an asset does not limit the estimation of probable future taxable profits; * estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences; * an entity should consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of the deductible temporary difference- If tax law imposes no such restrictions, an entity assesses a deductible temporary difference in combination with all of its other deductible temporary differences. The Amendments are effective for annual periods beginning on or after January 1, 201'7 and are required to be applied retrospectively. Management does not anticipate a matenal impact on the Fund's financial statements from these Amendments. IFRS 9 FinandalInstruments (2014) The IASB released IFRS 9 FinandalInstruments (2014), representing the completion of its project to replace IAS 39 FinanalInstruments: Recognition and Measerment. The new standard introduces extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduces a new "expected credit loss" model for the impairment of financial assets. IRS 9 also provides new guidance on the application of hedge accounting. Armenia Renewable Resources and Energy Efficiency Fund 13 Financial statements December 31, 2016 The changes in the accounting policies from this new standard may result to the increase in the amount of the allowance for doubtful debts. The new standard is required to be applied for annual reporting periods beginning on or after January 1, 2018. 2.6 Restatement of financial statements The financial statements including the comparative information for prior periods are presented as if the correction had been made in the period in which such a necessity arose. Therefore, the amount of the correction that relates to each period presented is included in the financial statements of that period. The amount of the correction in the comparative financial statements of prior periods is made in the earliest period presented. However, the correction did not have any impact on the financial results of the prior periods (refer to note 26). 3 Significant accounting policies 3.1 Foreign currencies In preparing the financial statements, transactions in currencies other than the functional currency are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates defined by the Central Bank of Armenia prevailing on the reporung date, which is 483.94 drams for 1 US dollar and 512.20 drams for 1 euro as of December 31, 2016 (December 31, 2015: 483.75 drams for 1 US dollar, 528.69 drams for t euro). Non-monetary items are not retranslated and are measured at historic cost (translated using the exchange rates at the transaction date). Exchange differences arising on the settlement and retranslation of monetary items, are included in the result for the period. 3.2 Property and equipment Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost comprises purchase price including import dunes and non-refundable purchase taxes and other directly attributable costs. When an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment. The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Expenditure to replace a component of an item of property and equipment that is accounted for separately is capitalized with the carrying amount of the component being written off. Other subsequent expenditure is capitalized if future economic benefits will arise from the expenditure. All other expenditure, including repair and maintenance, is recognized in the statement of profit or loss and other comprehensive income as incurred. Depreciation is charged to the result for the year on a straight line basis over the estimated useful lives of the individual assets. Depreciation commences when assets are available for use. The estimated useful lives are as follows: Armenia Renewable Resources and Energy Efficiency Fund 14 Financial statements December 31, 2016 Machinery and equipment - 4-5 years Vehicles - 5 years Fittings - 5 years Other - 1-5 years 3.3 Intangible assets Intangible assets, which are acquired by the Fund and which have finite useful lives, are stated at cost less accumulated amortization and impairment losses. Amortization is charged to the result for the year on a straight line basis over the estimated useful lives of the intangible assets, which is estimated at 5 years for computer software. 3.4 Leased assets Payments on operating lease agreements are recognized as an expense on a straight-line basis. Associated costs, such as maintenance and insurance, are expensed as incurred. 3.5 Inventories Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and brnging them to their existing location and condition. 3.6 Financial Instruments Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognized when the Fund becomes a part to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. Financial liabilities are derecognized when they are extinguished, discharged, cancelled or expire. Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value. Classification and subsequent measurement of financial assets For the purpose of subsequent measurement financial assets are divided into the following categories upon initial recognition: * loans and receivables * financial assets at fair value through profit or loss * available-for-sale financial assets * held-to-maturity investments. Armenia Renewable Resources and Energy Efficiency Fund 15 Financial statements December 31, 2016 Financial assets are assigned to different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial istrument's category is relevant for the way it is measured and whether any resulting income and expenses are recognized in the result or directly in other comprehensive income. Refer to note 21 for a summary of the Fund's financial assets by category. Generally, the Fund recognizes all financial assets using settlement date accounting. An assessment of whether a financial asset is impaired is made at least at each reporting date. All income and expenses relating to financial assets that are recognized in the result are presented within finance costs, finance income or other financial items, except for unpairment of accounts receivable which is presented within other expenses. i. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include accounts receivable, borrowings provided as well as cash and bank balances. Accounts receivable Accounts receivable are initially recognized at fair value. Subsequently they are measured at amortized cost less provision for impairment. A provision for uinpairment of receivables is established, when there is objective evidence that the Fund will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor and default and delinquency in payments (including from donors) are considered indicators that the receivable is impaired. The amount of provision is the difference between the asset's carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. The balance of the allowance is adjusted by recording a charge or income to the result of the reporting period. All accounts receivable for which collection is not considered probable are written-off Grants expected from donors are stated as receivables, when as of the reporting date there is reasonable assurance that they will be received. In the financial statements they are stated as grants receivables. Borowingspronded Targeted borrowings provided to non-financial institution intermediaries and commercial banks are initially recognized at fair value. Subsequently they are measured at amortized cost less provision for impairment, and the difference between this cost and the final settlement cost is recognized in the statement of profit or loss and other comprehensive income during the borrowing period. A provision for impairment of the borrowings is established, when there is an objective evidence that the Fund will not be able to collect all amounts due according to the original terms of the borrowings. Significant financial difficulties of the borrowers and default and delinquency in payments are considered indicators that the borrowings are inpared Armenia Renewable Resources and Energy Efficlency Fund 16 Financial statements December 31, 2016 The balance of the allowance is adjusted by recording a charge or income to the result of the reporting period. Any amount written-off with respect to borrower account balances is charged against the existing allowance for doubtful borrowings. In the statement of cash flows the borrowings provided are stated as cash flows from investing activities. Cash and cash equivaknts The Fund's cash and cash equivalent comprise bank accounts, designated account balances of the Central Treasury and short-term investments with a maturity period of less than 3 months. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. The Fund classifies investments as a cash equivalent if it is readily convertible to a known amount of cash and is subject to an insignificant risk of changes in value. i. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity and include deposits at commercial banks. Investments are classified as held-to-maturity if it is the intention of the Fund's management to hold them until maturity. Deposits are subsequently measured at amortized cost using the effective interest method. In addition, if there is objective evidence, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the deposit are recognized in the comprehensive income of the year. Classification and subsequent measurement of financial liabilities The Fund's financial liabilities include borrowings and accounts payable. A summary of the Fund's financial liabilities by category is given in note 21. i. Borrowings received Borrowings received are recognized initially at fair value, net of issuance costs associated with the borrowings. Subsequent to initial recognition, borrowings are stated at amortized cost with any difference between cost and redemption value recognized in the statement of profit or loss and other comprehensive income over the period of the borrowings on an effective interest basis. Interest and other costs incurred in connection with borrowings are expensed as incurred as part of finance expenses. Partial or complete remittance of borrowings received is immediately recognized as income in the period, when such remittance becomes possible. Management's estimates and assumptions on the borrowings received are disclosed in note 20. Armenia Renewable Resources and Energy Efficiency Fund 17 Financial statements December 31, 2016 In the statement of cash flows the borrowings received are stated as cash flows from financing activities. I. Accounts payable Accounts payable are stated at fair value and subsequently stated at amortized cost 3.7 Impairment Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carned at amortized cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of accounts receivable where the carrying amount is reduced through the use of an allowance account. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the result, to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. 3.8 Grants Grants are not recognized until there is reasonable assurance that the Fund will comply with the conditions attaching to them and the grants will be received. Grants with a primary condition to purchase, construct or otherwise acquire non-current assets are recognized as deferred income in the statement of financial position and transferred to the result on a systematic and rational basis over the useful lives of the related assets. Other grants are recognized as income over the periods necessary to match them with the cost for which they are intended to compensate, on a systematic basis. Grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Fund with no future related costs are recognized as income in the period in which they become receivable. The grant provided to the Fund as a financial support (when no conditions are attached to the grant), is recognized in the result of the year when the Fund receives such a grant. Armenia Renewable Resources and Energy Efficiency Fund is Financial statements December 31, 2016 3.9 Income tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. As a result of changes in the tax legislation of the Republic of Armenia, significant changes have been made to the principles of calculation of depreciation and amortization of the fixed assets and intangible assets. The annual amount of depreciation and amortization of fixed assets and intangible assets acquired after January 1, 2014 is calculated for groups of non-current assets - multiplying the carrying (residual) value of the assets in the group at the end of the reporting period and the annual amortization rate stated for that group of assets. The calculation of the depreciation and amortization for the fixed assets and intangible assets acquired before January 1, 2014 continues to be performed using straight-line method. 3.10 Revenue recognition Revenue of the Fund arises from the contributions received, rendered services, interests on the borrowings provided by the Fund, etc. Income from grants The recognition policy of income from grants is presented in note 3.8. Rendering of services This income is recognized, when services are provided, which is evidenced by documents approved by the counterparty. This income is included in "Income from rendering of services". Interest income Interest revenue is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. Armenia Renewable Resources and Energy Efficiency Fund 19 Financial statements December 31, 2016 4 Property and equipment In thousand drams Machinery and Fittings and equipment Vehicles other Total Cost as of January 1, 2015 53,254 29,470 26,500 109,224 AdditIons 25,322 - 9,767 35,089 Disposals (7.837) - (108) (7,945) as of December 31, 2015 70,739 29,470 36.159 136,368 Additions 234,401 - 1.573 235,974 as of December 31, 2016 305,140 29,470 37.732 372,342 Accumulated depreciation as of January 1, 2015 37,187 16,878 19,528 73,573 Charge for the year 5,082 2,934 6,701 14,717 Eliminated on disposal (7,837) - (108) (7,945) as of December 31, 2015 34.412 19,812 26.121 80.345 Charge for the year 37,643 2.934 3.637 44.214 as of December 31, 2016 72,055 22,746 29,758 124,559 Carrying amount as of December 31, 2015 36,327 9.658 10,038 56,023 as of December 31, 2016 233,085 6,724 7,974 247,783 The additions of 2016 include solar radiation monitoring station of drams 210,401 thousand (2015: nil), as well as expenditures of drams 24,000 thousand capitalized to the cost of the station. Depreciation expense has been allocated as follows: In thousand drains Year ended Year ended December 31. December 31, 2016 2015 Administrative expenses 3,969 9,857 Project expenses 40.245 4,860 44.214 14.717 As of December 31, 2016 the cost of the property and equipment of the Fund with nil carrying amount is drams 66,860 thousand (as of December 31, 2015: drams 63,516 thousand). Armenia Renewable Resources and Energy Efficiency Fund 20 Financial statements December 31, 2016 5 Accounts receivable In thousand drams As of December As of December 31, 2015 31, 2016 (restated) Current Accounts receivable 620,167 293,642 Grants receivable 49,531 4,132 Advances and prepayments 111,288 344,046 Receivables from the State budget 1,075 184 Other - 232 782,061 642.236 Non-current Accounts receivable from energy efficiency investments 3.143,342 1.447,494 3,925.403 2,089,730 Advances and prepayments Miclude the amounts paid to the following organizations: In thousand drams As of December As of December 31,2016 31,2015 "Rediner CJSC 35,920 237,914 "Magh Shinanyut" LLC 19,740 33,558 "Z Profile" LLC and "Araratshin" LLC consortium 49.640 9.800 "Gevorgyan and Nersisyan" LLC - 32,809 "Bedeck" Ltd - 18,751 Other 5,988 11,214 111,288 344,046 As of December 31, 2016 advances include the amounts paid for the construction works at the amount of drams 105,300 thousand (as of December 31, 2015: drams 337,693 thousand). Current accounts receivable include the amounts receivable from the following services: In thousand drams As of December As of December 31, 2015 31, 2016 (restated) Receivables from rendering of consulting services 1.823 - Receivables from rendering of energy efficiency services 618,344 293,642 620.167 293.642 Receivables from energy efficiency investments and services consist of the following components; In thousand drams As of December 31, 2016 As of December 31, 2015 (restated) Current Non-current Current Non-current Energy efficiency investments 613.785 3,143,342 291,758 1.447.494 Energy service 4.559 - 1.884 - 618,344 3,143,342 293,642 1.447,494 Armenia Renewable Resources and Energy Efficiency Fund 21 Financial statements December 31, 2016 The description of receivables from services on energy efficiency is disclosed below. According to the resolution No. 174-N of the Government of the Republic of Armenia dated February 16, 2012 and the agency contract concluded between the Fund and the Ministry of Finance of the Republic of Armenia in 2012, the Ministry of Finance of the Republic of Armenia has transferred cash resources to the Fund under its custody to further finance the implementation of energy efficiency and renewable energy project. These resources were provided to the Fund at the interest rate of 0.75%0 and with the maturity period until 2045. These resources are recognized ms the statement of financial position as borrowings received, and the accrued interest expenses on these funds received are presented in the statement of profit or loss and other comprehensive income as finance costs (refer to note 10). The Fund unplements the "Energy Efficiency Project" using the resources received in its custody from the Ministry of Finance of the Republic of Armenia as well as those received from the Grant agreement TF012163 concluded between the International Bank for Reconstruction and Development and the Government of the Republic of Armenia on April 20, 2012. In the framework of the Project the Fund makes investments in public facilities in the form of rendering of services, which consist of two components. a) energy efficiency investments; and b) energy services. These services are provided by the Fund as follows: - the Fund selects beneficiaries (public facilities) which have functional and realistic mechanisms available to secure the timely redemption of the borrowed resources, then the Fund concludes contracts with contractors, which oblige the contractors to implement construction works in the public facilities selected in advance to ensure the defined energy efficiency level (component I -energy efideng investments); - the Fund implements preparation, investigation in the energy sector, procurement, financial management, monitoring, energy efficiency measurements and assurances, as well as other services in relation to "Energy Efficiency Project" (component 2-power servaes). In order to implement energy efficiency services the Fund, together with the contract with the contractor, concludes energy efficiency services provision contract with the beneficiary (public facilities) as well. This contract defines the cost of energy efficiency services (energy efficiency investments and energy services) rendered by the Fund, as well as the redemption schedule for the deferred payments of this cost. As a result, in the statement of financial position the Fund recognizes both payables to the contractors and receivables on the services of energy efficiency (energy efficiency investments) related to the component 1. The Fund recognizes the receivables on energy services in relation to the component 2, when the services are provided. Income from energy services is presented in the statement of profit or loss and other comprehensive income under income from services (refer to note 15). Armenia Renewable Resources and Energy Efficiency Fund 22 Financial statements December 31, 2016 Net carrying amount of accounts receivable is the reasonable estimation of the fair value. No interest is charged on receivables arising from rendered services. The Fund makes provisions for all receivables that are considered to be irrecoverable and considers all receivables on the basis of individual and collective impairment. Al individually significant receivables are then individually assessed for impairment. If individual impairment evidence is not detected for all individually significant receivables then they are collectively assessed for impairment. Receivables that are not individually significant, they are collectively assessed for impairment by grouping the receivables with similar risk characteristics. While determining the collective irrecoverability of receivables, the Fund considers previously existing trends and the maturity terms adjusted based on management's assumptions. Management believes that receivables from the State budget are fully recoverable. As of December 31, 2016 and as of December 31, 2015 there are not impaired receivables or receivables which are past due but not impaired Refer to note 22 to disclose the currency of the receivables. и °� е� ° и . ' г�' ,� т cv Г w rn � � N г� м т � ы `� е I N �ъ � й т а � о ш т � � °, � v �� О а0 Ф N Ф ` С N N '7 1� - r � t°1 N и N О � и � Ф � т � и N О Г� I� т tv ' го s� � С т Ф у И � р � N О � N т Ф W N т � с'1 р О � N О С ^ � L N � Н] Ф Ф f6 1� � т й � И ° т � т OiS �� а г N г т � С Ф О ю � ' ' С] 1 Г �'1 Ф уΡг т и � й uqi ё С � т т Г Ф � т о О N ry 1� N i4 � � а R И С Ф � r � г а � � � . п � � � г � и И L7 _ � и � N (О [О � О И '� Ф N N N N N R п 10 А вF tC сС И N гО Ф о о С С G � Ф N О � Г � т т т О SP О А л о а �" а� лf ,- о � r т д � � ° о т а NсрΡ N r°v n°q1i с°� О Е Ф а С � С О � () � � � О о О "�3 v � ш€ т г� и v € о и и и о€ r сл а С ы N` � цJ h i� м а � r т N 9 е �,-Ф,�Е й й й й '� т � U �'�а� � � � а � � л = V О t С °: Ф Q � i.1 � � S ° и ш �о _� � ерΡ �' 'с3 ° й Е о$ ср и е Ч: ш а��� �� т W н � о � с а � л т � ц� � т и � уу л � � � аиi ы т т � т � 3 М U е°Е � А _�т т _= j io ы С � � а� с�i О °� л : € � Ё � Ё с: � е� т�! т �, ,е �i а; т т � 'с т д Фг � е с с с ,� с о`о �� N � т о о о д о ''.' Ё д Ф т т�м т � tU � у5 '5 � � � п � : � ia А� а� с с с ° с с � � iu � т тF с т � 4с �о т а Ё > а � pы� � С° � д 16 Ф cR 1с9 т О •�- с�тб Ф Q 1i � #� V т _� �G 5 т= т т R � � � � � � Z ¢ а Z Z Z Z U �рΡ�рΡj�j� � � � � S"ьI � �i г � � С 19 � o O i `�' r � Q � н л О Ф и N С С) И Ё� а т п rn Ф г U� Я Я С О у 7 й �0 L_ L � G Ф Q - С l6 Q1 т С N ' ' ' lL V с •с 0. � Ф� а й й ё �° v м н ш и ш 7в � N CV N � Ф ЕО �О [+} �а о о о � � � д� Ф �п и и с io а о о Ф Я N iV N Е С N N N Е т � � У t°� Е о о о с О G О � � 7 ..7 U Я е а � л � т р, с � о � •е� о а °а_ $ 4J � н `� '- N а � Ф С ш Я с Ф � � � 'о� � й й й ззз � � Ф � � � С С С � � `� � а ¢ а ��ю � ~ й с с с А т� Ф т гд т т ё� Ф Я т т т �10 Е � и и и е а�. r� г � х ? ? Armenia Renewable Resources and Energy Efficiency Fund 25 Financial statements December 31, 2016 a Cash and cash equivalents In thousand drams As of December As of December 31,2016 31,2015 Current bank accounts 647.123 285,904 Designated accounts In the Central Treasury-agency contracts 173,512 70,946 Designated accounts In the Central Treasury-grant contracts 158,768 282,600 Cash equivalents - 96,750 979.403 736,200 Cash equivalents are term deposits with the mamrity period of 3 months invested in "HSBC Bank Armenia" CJSC and are subject to repayment on TMarch 8, 2016. Refer to note 22 for the currencies in which the Central Treasury and bank balances are denominated, 0 Grants related to assets In thousand drams 2016 2015 Balance at the beginning of the year 331,396 259,570 Additions (property and equipment and Intangible assets) 239.853 37,343 Energy efficiency Investments 79,276 Repayments of energy efficiency investments (86,068) (39,933) Realized to Income (refer to note 13) (238,129) (4,860) Balance at the end of the year 247.052 331.396 Additions of 2016 include property and equipment of drams 235,601 thousand (2015: drams 37,343 thousand) and intangible assets of drams 4,252 thousand (2015: nil). In the framework of "Energy efficiency project" the energy efficiency investments are invested in public facilities (refer to note 5). In the framework of "Energy efficiency project" the repayment amounts of energy efficiency investments are the return amounts of the investments made in the public facilities. This repayments is transferred to defe:rred income. According to memorandum provided to the Fund in May 2016 by the World Bank, the "Energy Efficiency Project" is considered successful- Accordingly, the Fund has been grven an opportunity to consider the resources received from the energy efficiency investments as own resources and use the funds originated from their return (repayments of energy efficiency investments) for the implementation of other energy efficiency projects - As a result, during 2016 drams 197,245 thousand from funds directed to energy efficiency investments were transferred to the statement of profit or loss and other comprehensive income as 'income. � у 1�г� � N# О 07� � _С 7 д "'� О � г г [�+� С Х г у щ й С и О а � � � � N � С С Й Е N N [О W ��''-_� г г N у � � ы "�L � С7 й °о w �i д �С р � � м Г• . � � ,ы gь г н v "� ++ С о а ,� 3 т Ч О й � l] �'+ Т`�,+, �Z7 м N ,� $ � u�i � � � � м °' ' и Е� а � N � г W.� � � � 4-� W Q1 G О С 91 С4 в; 6i р т V � +,� .� Ф= � ti м о �[,+р� О'� �- ы � e+i v �_ р'� а С = о о�а° у т т п � � О �'n а�СΡ С н rn ц7 v_ � +� Я Га р ,р N А 4 QJ '� и �G С о v i � Е� G = n н и � и.� 7 а � N�i с. а� > � п •� а � п � о а � -д у � и О и у � � 7 ь'i у�_ . � � Ф�� А � �: 4�ав Од г .� с о о ¢� , � ;� � � U � С'i' � � � cCi � С с¢� 't Q � О 7� д � � {С Г � 1] � Q1 � � �� о о v д��.0 � �� � 'р р �" � .� � С С� � и t-'. � , О у � ,� fl ,� й т � г '� �.� а ыv • � ��� и е� о'д Ё ы с с С й � О,С С V Е! ��� м н Q � '� Сг�., � � � С � v .n о р 'й у о � ; с ЬА � �.�.• '�" 'д С � � с Е i1 :� °J � „� `� и ё � € а � О . � .гJ�. � � � V Q м � � � и Q q.y i'"' 4.� 4 Ш V''�S г.� ¢i й р � � � г� й С � € � ы а� �i � � С ro� xj � � � �° °v r c�i CL 7 G++.. и ы Ф д� � а �� I" � у а� т � � � � � Э � � � Ч О � � � р о � � �+ ¢�+ '� й й ы С � .�т. � а •� � и � а � _ гв ,� io 'а �+ у С Ф�f С С С С � ��' fl О СФ �D � 01 � Ф '� V Г,� �иГуΡ а'ч (�J l6 F р g С� С� U�� ул �S nE ��С� С е¢са �" О О � р � т `р д р� � 4� и� С � Q � �' ы. �" 3 � 3 -о 'а°, о F=m � � с�сОС о � р���у ti QCU.� � г г � Н р G..u� ы'n "��' Armenia Renewable Resources. and Energy Efficiency Fund 20 Financial statementB December 31, 2016 11 Deferred Income In thousand drams 2016 2015 Balance at the beginning of the year 313.596 139,912 Additions 3.523,076 1,236,693 Return of grants (11,585) (20,796) Transferred from grant related to assets 86.068 39,933 Transferred to grant related to assets (239,853) (116,619) Income recognition (refer to note 13) (3,531,194) (965,527) Other movements (1,465) - Balance at the end of the year 138.643 313,596 The balance of deferred income at the end of the year consists of the following sources: In thousand drams As of December 31 As of December 31, 2016 2015 International International Development RA Development RA Assodallon Government Association Government "Solar power project preparation" 47,755 2,142 140,226 'Geothermal exploratory drilling project" 86,394 - 93,420 "Energy efficiency project" 2.352 79,950 136,501 2,142 313,596 As of December 31, 2015 the balance of deferred income on the International Development Association includes the repayments on energy efficiency investments of drams 60,415 thousand, which have been completely recognized in income based on the memorandum provided to the Fund in May 2016 by the World Bank, according to which the "Energy efficiency project" is considered successK and the Fund is given an opportunity to consider the funds from energy efficiency "investments as own resources and use the ftinds originated from their return for the implementation of other energy efficiency projects. 12 Accounts payable In thousand drams As of December As of December 31,2015 31,2016 (restated) Payables on works and services 506.348 225,880 Advances from customers 28,091 16822 Taxes and duties payable 21,775 4.918 Employee benefts 7,194 6.101 Other 345 20,878 563.753 274.599 Payables on works and services include drams 4773,836 thousand (2015: drams 190,530 thousand.) arisen firom the contracts concluded with the counterparties for the implementation of the "Energy efficiency project". Armenia Renewable Resources and Energy Efficiency Fund 29 Financial statements December 31, 2016 Taxes and duties payable include the balances on the following types of duties: In thousand drams As of December As of December 31,2016 31,2015 Value Added Tax 10,309 1,300 Non-resident profit tax 7,769 - Income tax 3,638 3,563 Other 59 55 21,775 4,918 No interest is charged on payables. The Fund has financial risk management policies to ensure that all payables are paid within the credit timeframe. Refer to note 22 for more information about the Fund's exposure to foreign currency risk. 13 Income from grants In thousand drams Year ended Year ended December 31, December 31, 2016 2015 Income from grants related to assets (refer to note 9) 238,129 4,860 Income from deferred income (refer to note 11) 3.531,194 965.527 3.769,323 970,387 14 Finance Income In thousand drams Year ended Year ended December 31. December 31. 2016 2015 Interest Income from borrowings provided (refer to note 6) 17,924 27.197 Interest Income charged to bank account balances 4,511 13.863 22.435 41,060 15 Income from services In thousand drams Year ended Year ended December 31, December 31, 2016 2015 Consulting services 22.043 - Energy services (refer to note 5) 34.916 17,878 Other 208 167 57,167 18.045 Armenia Renewable Resources and Energy Efficiency Fund 30 Financial statements December 31, 2016 16 Project expenses In thousand drams 2016 2015 Grants Funds Total Grants Funds Total 'Geothermal exploratory drilling project- 2,955,354 - 2,955,354 663,156 - 663,166 "Solar power project preparation" 285,957 - 285.957 3,863 - 3,863 'Energy efficiency project" 151,175 20,170 171,345 253,298 21.540 274,838 "Sustainable development project in Syunik region" 10,265 10,265 -- "Black Sea Basin 2007-2013 Energy Efficiency Project" 605 - 605 5,609 432 6,041 "Geothermal exploratory drilling project" - - - 67.329 - 67.329 3,403,356 20,170 3.423,526 993.265 21.972 1,015,237 17 Administrative expenses In thousand drams Year ended Year ended December 31, December 31, 2016 2015 Employee benefits 95,928 88,305 Services received 33,434 5,148 Post and communication expenses 2,292 2,301 Trip and representation expenses 6,524 6,210 Office and utility expenses 4,936 5,247 Depreciation and amortization 4,345 11,349 Audit and consulting services 6,678 4.070 Bank and insurance charges 3,294 3,229 Lease expenses 13.332 13,332 Other 17,118 10,218 187,879 149.409 1B Other financial Items In thousand drams Year ended Year ended December 31, December 31, 2016 2015 Loss from foreign exchange rate differences Held-to-maturity investments (21,014) (11,026) Loans and receivables (5.182) 55,140 Financial liabilities at amortized cost 804 (51.581) (25.392) (7.467) 19 Income tax expense In thousand drams Year ended Year ended December 31, December 31, 2016 2015 Current tax 18,838 25,254 18.838 25,254 Armenia Renewable Resources and Energy Efficiency Fund 31 Financial statements December 31, 2016 Reconciliation of effective tax rate is as follows: In thousand drams Year ended Year ended December 31, Effective tax December 31, Effective tax 2016 rate(%) 2015 rate(%} Result before taxation (under IFRS) 228,749 (53.458) Income tax calculated at a tax rate of 20% (2015: 20%) 45,750 20% (10,692) 20% Non-deductiblet(taxable) items, net (26.912) (12%) 35,946 (67%) Income tax expense 18,838 8% 25.254 47-) 20 Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 20.1 Critical accounting estimates The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates may be different from the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Useful ives ofpropeqy and eqmpment Management has estimated useful lives of the property and equipment, Management believes that estimated useful lives of the property and equipment are not materially different from economical lives of those assets. If actual useful lives of property and equipment are different from estimations, financial statements may be materially different. Accunts receivable - As described in note 5 receivables from rendering of energy efficiency services are generated by the implementation of energy efficiency investments m public facilities. Within the scope of these services the Fund enters into contracts with contractors that perform construction works on public facilities directed to energy efficiency. The Fund records the cost of energy efficiency investments on the basis of acts of acceptance on construction work submitted by the contractors as accounts receivable from public facilities and defines their repayment schedule. As of the reporting date the receivables from rendering of energy efficiency services also include the cost of construction works, which have not yet been fully completed, which means that tripartite (Fund-contractor-public facility) completion acts on construction works (certifying that construction works are also accepted by public facilities) are missing. Instead, there are only acts of acceptance on current construction works signed between two parties: the Fund and the contractor. Therefore, receivables related to constructions not yet fully completed are not attributable to a specific counterparty. However, the management of the Fund estimates that the construction works will be duly completed on time, and the probability that it will be accepted by public facilities is high. The receivables from rendering of energy efficiency services on constructions not yet completed amount to drams 116,920 thousand as of December 31, 2016 (December 31, 2015; drams 194,740 thousand, Armenia Renewable Resources and Energy Efficiency Fund 32 Financial statements December 31, 2016 - Management believes that the carrying amounts of receivables from rendering of energy efficiency services (energy efficiency investments and energy services) approximate their fant values; accordingly they are not discounted using market rates, for the following reasons: - the Fund is a non-for profit organization, and it does not pursue purpose to gain profit; - the amounts received for rendering of services are to be used for a predefined purpose; - the amounts are not under the control of the Fund, - due to the small size of the financial markets in Armenia, it is not practical to define a reasonable discount rate. - Management believes that receivables from rendering of energy efficiency services (energy efficiency investments and energy services) are filly recoverable, and, therefore, have not been provided for, taking into account the past experience and the fact, that the counterparties are under the State control - Management believes that the receivables from rendering of energy efficiency services (energy efficiency investments and energy services) are the assets of the Fund and should be recorded as such in the statement of financial position (although legally the Fund is the agent of the Ministry of Finance of the Republic of Armenia and acts on behalf of it) for the following reasons: - services were provided using the resources received from the Ministry of Finance of the Republic of Armenia, and the Fund has a habdity to pay to the Ministry of Finance of the Republic of Armenia; - the Fund bears a foreign currency risk related to this transaction, since the amounts received from the Ministry of Finance of the Republic of Armenia are generally denominated in US dollar, and the payments for the energy services provided by the Fund made done in the Armenian dram. Bormwings received The Fund received borrowings for implementation of "Energy efficiency project" as presented in note 10. Management believes that the carrying amounts of the borrowings provided approximate their fair values, so they are not discounted by market rates considenag the absence of appropriate financial market in the Republic of Armenia for receiving and providing borrowings of such amounts and with such terms, as well as the fact that the Fund is a non-for-profit organization, and it does not pursue a purpose to gain profit. However, if management changes its estimations, the financial statements of the Fund may be changed significantly. Armenia Renewable Resources and Energy Efficiency Fund 33 Financial statements December 31, 2016 21 Financial Instruments 21.1 Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition and the basis on which income and expenses are recognized, in respect of each class of financial asset and financial liability are disclosed in note 3.6. 21.2 Categories of financial Instruments The carrying amounts presented in the statement of financial position relate to the following categories of assets and liabilities: Financial assets In thousand drams As of December As of December 31,2016 31.2015 Loans and receivables Accounts receivable 3,813,040 1,745,500 Borrowings provided 548 165,260 Cash and cash equivalents 979,403 736,200 Held-to-maturity investments Term deposits - 1,939.877 4.792,991 4,586.837 Financial liabilities In thousand drams As of December As of December 31,2016 31. 2015 Financial liabilities measured at amortized cost. Borrowings received 3,955,103 4,010,683 Accounts payable 513.887 246,129 4,468,990 4,256.812 22 Financial risk management The Fund is exposed to various risks in relation to financial instruments. The mai types of risks are market risk, credit risk and liquidity risk. Financial risk factors a) Market risk The Fund is exposed to market risk through its use of financial instruments and specifically to currency risk, which result from both its operating and investing activities. Foreign currency risk The Fund undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations anise. Exposures to currency exchange rates arse from the Fund's borrowings received, which are primarily denominated in US dollar. Armenia Renewable Resources and Energy Efficiency Fund 34 Financial statements December 31, 2016 Foreign currency denominated financial assets and liabilities which expose the Fund to currency risk are disclosed below. The amounts shown are those reported to key management translated into Armenian drams at the closing rate: Item As of December 31, 2016 US dollar Euro Financial assets Accounts receIvable - 4,003 Cash and cash equivalents 791,993 . 791.993 4,003 Financial liabilities Borrowings received 2,248,715 - 2,248,715 - Net position (1,456,722) 4,003 Item As of December 31, 2015 US dollar Euro Financial assets Accounts receivable - 4,132 Borrowings provided 38,473 - Cash and cash equivalents 425,380 Term deposits 1,935,000 - 2.398,853 4.132 Financial liabilities Borrowings received 2,269,443 - 2.269,443 - Net position 129.410 4.132 The following table details the Fund's sensitivity to a 10%o (2015: 10%0) increase and decrease m dram against US dollar and Euro. 10% (2015: 10%) represents management's assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% (2015: 10/6) change in foreign currency rates. If Armenian dram had strengthened/(weakened) against US dollar and Euro by 10" (2015: 10 o) then this would have had the following impact: In thousand drams US dollar impact Euro Impact 2016 2015 2016 2015 Result (145.672) 12,941 400 413 (145.672) 12,941 400 413 Armenia Renewable Resources and Energy Efficiency Fund 3 Financial statements December 31, 2016 b) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Fund. The effect of this risk for the Fund arises from different financial instruments, such as accounts receivable, borrowings provided and term deposits. The maximum exposure to credit risk is represented by the carrying amounts of the following financial instruments: In thousand drams As of December As of December 31,2016 31,2015 Financial assets at carrying amounts Borrowings provided 548 165,260 Term deposits - 1,939,877 Accounts receivable 3,813.040 1,745,500 Bank balances 979,403 738,200 4.792,991 4.586,837 Management believes that there is no credit risk related to receivables since the Fund cooperates with the counterparties under the State control and are controlled by the Government. The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks. At the reporting date there was no significant concentration of credit risk in respect of accounts receivables, c) Liquidity risk Liquidity risk is the risk that the Fund will be unable to meet its obligations. The Fund's policy is to run a prudent liquidity management policy by means of holding sufficient cash and bank balances, as well as highly liquid assets for making all operational and debt service related payments when those become due. The following table details the Fund's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Fund can be required to pay. The table includes both interest and principal cash flows. In thousand drams 2016 Fixed Interest rate Non-interest bearing Instruments Total Weighted average effective Interest rate (%) 0.75% Less than 6 months - 32,838 32,838 6 months to 1 year 513,887 28,750 542,637 1-5 years - 320,588 320,588 More than 5 years . 3.572,927 3,572,927 513,887 3,955,103 4.468,990 Armenia Renewable Resources and Energy Efficiency Fund 36 Financial statements December 31, 2016 In thousand drams 2015 Fixed interest rate Weighted average effective interest Non-interest bearing instruments Total rate (%) 0.75% Less than 6 months - 41,380 41,380 6 months to 1 year 246,129 43,700 289,829 1-5 years - 416,355 416,355 More than 5 years - 3.509,248 3.509,248 246.129 4,010.683 4.256.812 The Fund considers expected cash flows from financial assets in assessing and managing liquidity risk, particularly its cash resources and accounts receivable. 23 Commitments 23.1 Operating lease commitments The Fund as lessee Non-cancelable operating lease commitments are disclosed below: In thousand drams As of December As of December 31,2016 31, 2015 Within one year 9.999 9,999 9.999 9,999 24 Contingencies 24.1 Business environment Armenia continues to undergo political and economic changes. As an emerging market, Armenia does not possess a developed business and regulatory infrastructure that generally exists in a more mature free market economy. In addition, economic conditions conttnue to limit the volume of activity in the financial markets, wich may not be reflective of the values for financial instruments. The main obstacle to further economic development is a low level of economic and institutional development, along with a centralized economic base, regional instability and international economic crisis. Deterioration of economic situation of countries collaborating with the Republic of Armenia led to the shortage of money transfers from abroad, upon which the economy of Armenia is significantly dependant. Further decline in international prices of mining products, uncertainties due to possibilities of attraction of direct capital investments, inflation, may lead to deterioration of the situation of Armenian economy and of the Fund. However, as the number of variables and assumptions involved in these uncertainties is big, management cannot make a reliable estimate of the amounts by which the carrying amounts of assets and liabilities of the Fund may be affected. Management of the Fund believes that in the current conditions appropriate measures are implemented in order to ensure economic stability of the Fund. Armenia Renewable Resources and Energy Efficiency Fund 37 Financial statements December 31, 2016 24.2 Insurance The Armenian insurance industry is in its development stage and many forms of insurance protection common in other parts of the world are not yet generally available in Armenia. The Fund does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on the Fund property or relating to the Fund operations. Until the Fund obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets or environmental damage could have a materially adverse effect on the Fund's operations and financial position. 24.3 Taxes The taxation system in Armenia is relatively new and is characterized by frequently changing legislation, which is often subject to interpretation. Often differing interpretations exist among various taxation authorities and jurisdictions. Taxes are subject to review and investigations by tax authorities, which are enabled by law to impose severe fines and penalties. These facts may create tax risks in Armenia substantially more than in other developed countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the relevant authorities may have differing interpretations and the effects could be significant. 24.4 Environmental matters Management is of the opinion that the Fund has met the Government's requirements concerning environmental matters and, therefore, believes that the Fund does not have any current material environmental liabilities. However, environmental legislation in Armenia is in process of development and potential changes in the legislation and its interpretation may give rise to material habilines in the future. 25 Related parties 25.1 Control relationships The Fund's founder and the final controller is the Republic of Armenia, 25.2 Transactions with management Key management received the following remuneration during the year In thousand drams Year ended Year ended December 31, December 31, 2016 2015 Salaries and bonuses 13,705 12,535 13,705 12.535 Armenia Renewable Resources and Energy Efficiency Fund 38 Financial statements December 31, 2016 25.3 Transactions with Ministry of Finance of the Republic of Armenia In thousand drams Year ended Year ended December 31, December 31, Transactions 2016 2015 Repayment of borrowings 54,876 77,353 Interest expense 29.806 30,039 84.682 107.391 In thousand drams As of December As of December Outstanding balances 31,2016 31,2015 Borrowings received 3,955,103 4,010,683 Accounts payable - 5,318 3,955.103 4,016,001 26 Restatement of comparative financial statements As disclosed in note 2.6, the policy of the Fund is the retrospective adjustment of errors disclosed in the current year. During 2015 management of the Fund has decided that some items of the statement of financial position as of December 31, 2014 and as of December 31, 2015 are not classified properly. As a result, those items have been reclassified in the reporting period. The reclassifications are presented below. a) Reclassification of amounts receivable on energy investments to receivables in accordance with the Fund's accounting policy (refer to note 3.8). Previously the receivables on energy investments were included in the borrowings provided. b) Reclassification of the interest payable borrowings received to the carrying amount of the borrowings received in accordance with the Fund's accounting policy (refer to note 3.8). Previously the amount of the interest payable was presented in the accounts payable. c) Reclassification of accrued interests on term deposits to the carrying amount of term deposits in accordance with the Fund's accounting policy (refer to note 3.8). Previously the accrued interests were presented in accounts receivable. d) Reclassification of accrued interests on borrowings provided to non-financial intermediary organizations and financial organizations to the carrying amount of the borrowings provided in accordance with the Fund's accounting policy (refer to note 3.8). Previously the accrued interests were presented in accounts receivable. 27 Subsequent events There are no significant subsequent events