Republic of the Philippines COMMISSION ON AUDIT Commonwealth Ave., Quezon City CORPORATE GOVERNMENT SECTOR CLUSTER I- BANKING AND CREDIT INDEPENDENT AUDITOR'S REPORT The Board of Directors Land Bank of the Philippines Malate, Manila REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of Metro Manila Wastewater Management Project, a Project implemented by Land Bank of the Philippines and funded by International Bank for Reconstruction and Development of World Bank under Loan No. 8162-Ph, which comprise the statements of financial position as at December 31, 2015 and 2014, statements of financial performance, and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, 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. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Philippine Public Sector Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Metro Manila Wastewater Management Project as at December 31, 2015 and 2014, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. COMMISSION ON AUDIT tai LAND BANK OF THE PHILIPPINES olliclat Depository Bank of the Republic of the Philippines Fehruoi I I. 2016 MS. CORA D. NIARQtII:z Su 11CI'V king And itor Land Bank olthe Philippines s Marquee Dear Ni, In connection 6ith k our examination of the Financial Statements For the Metro Nflanila wast e(kater Management Project as of ,:Muss (:. s and for the 'ear then ended. for the purpose of expressing an () pini o n as to 6 tether the financial position. results of operations and changes in financial position. rte confirm to the best of our knots ledge and belief. the I( Illo»inc representations made to you during tour examinations: \NB are responsible Ibr the hur presentation in the financial statements of dna' position. results of operations and changes in Financial position in conlbrmik ttiIh gent:rank accepted rikcountinu principles: NC lune made ;Bailable to t a u all linuncinl records and Fated data: There hose been at,: invol‘ ing management or employees tutu have r- IITCL1111:1111ICS 1211 Meant roles in the system 01' internal accounting records: Irregularities invoicing oilier emplm ces that could hate a mate effect on the financial statements. Communications Gum I egulatory agencies concerning non-compliance ith or deficiencies in financial reporting practices that could have material e ffect on the 11 nancial .statements. \ e hat e no plans or intentions that imb mate ri Iffy affect the carrk inu s (due of classification of assets awl lizMilities: here me no material transaction that lune not been propelh aided in the accounting records under i5 ins the financial statements: LAND BANK OF THE PHILIPPINES LANDBANK PLAZA 1:S3 trl II sal E'ar co: Dr J Orpritus Streets Manta 1004 manila. PhtiPPE 755 Tel. Nos 52200-00 00 • 551-2200 • 450 7001 6. lbe hank has stnsthcion Lille w all itemsmad and equipment shown in the limns I statements: 7. Provision base been made tip in material loss For the non-performing loans classified as substandard as idithe period audited: 8. We hat e completed with all aspects oh contractual agreements that ttotikl has e material el em on the financial statements in the ex ent of non-compliance: 9 Nn events have occurred subsequent to the balance sheet date up to signing ol this letter that would require adjustment to disclosure in the Financial statements. \tern tru It NOUN, LAND BANK OF THE PHILIPPINES terms/ EDELWINA D. CARRFON CON ADb B. Ic OXAS Assistant Vice President First Vice-President Loans Implementation Department Ranking Operations Group METRO MANILA WASTEWATER MANAGEMENT PROJECT (A project of Land Bank of the Philippines Funded by IBRD Loan 8162-Ph) STATEMENTS OF FINANCIAL POSITION December 31, 2015 and 2014 (Comparative in US Dollars translated in Philippine Peso based on PDS dosing rate at year end) 2015 2014 Note USD PHP USD PHP ASSETS Cash and Cash Equivalents - FCDU 3 467,121 21,982,698 78,488 3,509,962 Loans and Receivables - FCDU 4 65,649,451 3,089,463,161 14,861,640 664,612,542 TOTAL ASSETS 66,116,572 3,111,445,859 14,940,128 668,122,504 LIABILITIES AND EQUITY Liabilities Bills payable others - FCDU 5 65,452,716 3,080,204,825 14,823,388 662,901,903 Accrued interest expense-BP - FCDU 6 87,258 4,106340 15,264 682,611 65,539,974 3,084,311,165 14838652 663,584514 Equity Retained Earnings 101,476 4175,443 6,546 292,717 Net income 475,122 22,359,251 94,930 4,245,273 576,598 27,134,694 101476 4,537,990 TOTAL LIABILITIES AND EQUITY 66,116,572 3,111,44E859 14,940,128 668,122,504 The Notes on pages 8 to 10 form pert of these financial statements. 5 METRO MANILA WASTEWATER MANAGEMENT PROJECT (A project of Land Bank of the Philippines Funded by IBRD Loan 8162-Ph) STATEMENTS OF FINANCIAL PERFORMANCE For the years ended December 31, 2015 and 2014 (Comparative in US Dollars translated in Philippine Peso based on PDS closing rate at year end) 2015 2014 Note USD PHP USD PHP Income Interest income - FCDU 7 829,840 39,052,267 156,189 6,984,764 Expense Interest expense - FCDU 8 354,718 16,693,016 61,259 2,739,491 NET INCOME 475,122 22,359,251 94,930 4,245,273 The Notes on pages 8 to 10 form part of these financial statements. 6 METRO MANILA WASTEWATER MANAGEMENT PROJECT (A project of Land Bank of the Philippines Funded by IBRD Loan 8162-Ph) STATEMENTS OF CASH FLOWS For the years ended December 31, 2015 and 2014 (Comparative in US Dollars translated in Philippine Peso based on PDS closing rate at year end) 2015 2014 USD PHP USD PHP CASH FLOWS FROM OPERATING ACT1VMES: Net Income 475,122 22,359,251 94,930 4,245273 Changes in operating assets and liabilities: Increase in loans and receivables FCDU (50,787,811) (2,398074,381) (12850,702) (574,683,404) Increase in accrued interest expense-BP - FCDU 71,993 2388.011 10.872 486 191 Net cash used in operating activities (50,240,698) (2,364,327,119) (12,744,900) (569,951,940) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in Bills Payable - FCDU 50,629,329 2.382.616.195 12823,388 573,461,902 Net cash provided by financing activities 50,629,329 2,362,616,195 12,823,388 573481,902 Net increase in Cash and cash equivalents 388,633 18,289,076 78,488 3,509862 Cash and cash equivalents, beginning of year 78,488 3.692623 0 0 CASH AND CASH EQUIVALENTS, END 467,121 21 982698 78,488 3509,962 The Notes on pages 8 to 10 form part of these Mendel statements 7 METRO MANILA WASTEWATER MANAGEMENT PROJECT (A Project implemented by LBP Funded by IBRD Loan No 8162-Ph) NOTES TO FINANCIAL STATEMENTS 1. Nature of the Project The term loan was established on May 31, 2012 to partially finance the Metro Manila Wastewater Management Project (MWMP). This Project aims to improve wastewater services in selected sub-catchments of Metro Manila and surrounding areas. The investment cost includes price and physical contingencies and taxes. The US$275 million or around PHP11.968 billion loan borrowed by Land Bank of the Philippines (LBP) from the World Bank would be re-lent to Manila Water Company, Inc. (MWCI) and Maynilad Water Services, Inc. (MWSI) at US$137.5 million for each concessionaire as the implementing entities of the project. It is a 25-year term loan inclusive of seven years grace period, with a guarantee from the Government of the Philippines. The commitment period for the disbursement of the term loan shall be within a period of about five years from date of loan signing. 2. Summary of Significant Accounting Policies The financial statements have been prepared on a historical cost basis, in compliance with the Philippine Financial Reporting Standards (PFRS). In compliance with BSP requirement, recording of MWMP loan transactions is under LBP- Foreign Currency Deposit Unit (FCDU) books. For financial reporting purposes, the monetary assets and liabilities of the foreign currency denominated monetary assets and liabilities are translated in Philippine peso based on the Philippine Dealing System closing rate prevailing at the Statement of Financial Position date. Income is recorded on accrual basis except for interest on past due loans as provided under BSP Circular No. 342 dated April 14, 1983. Expenses are recognized on accrual basis. The effect of transactions and other financial events on the assets and liabilities are recognized at the time they have their primary impact, not necessarily when cash is disbursed. Cost is charged as an expense in the period in which it provides expected services in an effort to generate revenue. 8 3. Cash and Cash Equivalents — FCDU This account consists of: 2015 2014 USD PHP USD PHP Collections of interest 800,232 37,658,908 128,875 5,763,262 Less: Payment to World Bank 333,111 15,676,210 50,387 2,253,300 467,121 21,982,698 78,488 3,509,962 4. Loans and receivables - FCDU The obligations of MWCI and MWSI to LBP are recognized on the same day that World Bank releases the loan to LBP through non-interest bearing US$ Designated Accounts (DAs) of MWCI and MWSI maintained at LBP. MWCI and MWSI acknowledge their obligations to LBP by executing Promissory Notes commencing on the date when World Bank releases the funds to the US$ DAs which will be converted into peso and transferred to MWCI's and MWSI's peso Project Accounts to fund eligible expenditures payable in peso. The term of the loan is twenty five (25) years inclusive of the maximum seven years grace period on payment of the principal. The interest rate is the same rate of interest rate payable by LBP under the World Bank Loan Agreement plus the LBP's fixed spread of 125 per cent per annum. 2015 2014 USD PHP USD PHP Loans to private non- financial corporation 65,452,716 3,080,204,824 14,823,388 662,901,903 Accrued interest receivable - FCDU 196,735 9,258,337 38,252 1,710,639 65,649,451 3,089,463,161 14,861,640 664,612 542 5. Bills payable others - FCDU This pertains to the US$ balance of the loan drawdowns from World Bank that is booked at LBP's FCDU books on the date the loan proceeds was credited to the US$ DAs maintained at LBP which, as of December 31, 2015 amounted to US$ 65,452,716.20. 2015 2014 USD PHP USD PHP Bills payable - FCDU 65,452,716 3,080,204,825 14,823,388 662,901,903 9 6. Accrued interest expense BP others - FCDU This pertains to the balances of the accruals for interest on Bills payable others-FCDU based on the Loan Agreement between LBP and World Bank. The US$ balances are booked at the LBP's FCDU. 2015 2014 USD PHP USD PHP Accrued interest expense - FCDU 87,258 4,106,340 15,264 682,611 7. Interest income - performing loans to private - FCDU The interest income is computed based on the outstanding loans starting from loan availment using the same rate of interest payable under the World Bank Loan Agreement plus LBP's fixed spread of 1.25 per cent per annum. 8. Interest expense BP others - FCDU The interest expense is based on the outstanding loan drawdown computed at World Bank's interest rate (US$ LIBOR plus World Bank spread). g. Final tax The ten per cent final tax on the interest for the MWMP term loan shall be for the accounts of MWCI and MWSI. 10. Foreign exchange (FX) profit/(loss) Since the MWMP term loan was passed on to MWCI and MWSI, being the implementing entities of the Project with LBP's assistance as stated In the Loan Agreement, any foreign exchange revaluation profit/loss shall be for the account of MWCI and MWSI. 11. Guarantee fee The guarantee fee due to the Bureau of the Treasury shall be paid by MWCI and MWSI. It is computed at one per cent per annum based on the amount of each availment to be paid immediately upon receipt and booking of the loan release and thereafter on the anniversary date of each availment until the loan is fully paid. The guarantee fee shall be paid directly by MWCI and MWSI and shall not be accounted for in this Project. 12. Front end fee The front end fee is computed at 0.25 per cent of the amount of the term loan subject to any waiver of a portion of such fee as maybe determined by World Bank from time to time, to be paid by MWCI and MWSI not later than 60 days after the loan effective date. 10 "The original is a PDF file with no Text. We were not able to OCR and extract the Text. Error:PDF01"