"GD BURTGEL AUDIT" LLC INDEPENDENT AUDITOR'S REPORT MINING INFRASTRUCTURE INVESTMENT SUPPORT PROJECT CREDIT M4888-MN, GRANT N!?TF016382-MN Audited financial statements as at 31 December 2017 Ulaanbaatar city U OD BURTGEL-AUDIT AUDITING, WARRANT, ACCOUNTING, CONSULTING U U INDEPENDENT AUDITOR'S REPORT U TO: ARIUNCHIMEG.B, PMU COORDINATOR OF MINING INFRASTRUCTURE INVESTMENT SUPPORT PROJECT We have audited the Financial Statements comprising the Balance Sheet, the Statement of Project Sources and Uses of Funds, the Statements of Expenditure and the Designated account statements of Miining Infrastructure Investment Support Project funded by International Development Association (Credit No: 4888-MN) and Mongolia-Australia Partnership for Sustainable Development Trust Fund (Grant No: TFO 16382-MN) for the year ended December 31, .2017. t The project management is responsible for the preparation and presentation of the Financial Statements in accordance with the requirements of the International Public Sector Accounting Standards. the IDA Financing Agreement, the Grant. Agreement, the Project implementation manual and other relevant instructions and procedures. These responsibilities include responsibility for the establishment, implementation, and application of internal controls relating to the preparation and presentation of Financial Statements without material misstatement that may arise from fraud and error. We will be responsible for making a conclusion on the Financial Statements based on our audit work. We conducted our audit in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the Financial Statements are free from material misstatement. An audit includes examining on test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by project management as well as evaluating the overall statement presentation. We believe our audit procedure provides a reasonable basis and evidences for our opinion. The management policy of the Mining Infrastructure Investment Support Project is to prepare the I inancial Statemieits on the cash receipts and payments basis in conformity with International Public Sector Accounting Standards (IPSAS). On this basis cash receipts recognized when received and cash expenditures are recognized when paid rather than when incurred. U l.o6ypTr3n . AUV4 Auditor's opillion in our opinion., the Financial Statenents of the Mining nfrastructure Investment Support Project. as at December 3 1. 20! 7. have been accurately and objcctively disclosed in accordance with the requirements of International Public Sector Accounting Standard issued by the Public Sector Committee of the Federation of Accountants, Financing Agreement (IDA Credit No: 4888-MN and AUSAID Grant TF016382-MN). tile Project implementation manual and other relevant guidelines and procedures. YnSAAHAATAP X GENERAL DIRECTOV OYUNAA.U S1180851 Date: . p "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 The Government of Mongolia & The International Development Association Credit N4888-MN Mongolia-Australia Partnership for Sustainable Development Trust Fund Grant TF016382-MN Mining Infrastructure Investment Support Project: P118109 BALANCE SHEET For the year ended December 31, 2017 (in USD) Note Cumulative to Cumulative to pASSETS No Dec 31, 2017 Dec 31, 2016 1. Cash and cash equivalent: 4 2,790,275.65 2,568,052.12 1.1 Cash on hand 4 1.04 1.04 1.2 Cash at bank Designated account-IDA 4888-MN 2,408,334.52 2,497,507.27 Designated account-AUSAID TF016382 379,211.21 63,272.35 Operating account-PIU 4 2,096.77 5,732.96 Operating account-RBA 17 4 324.06 1,071.77 Operating account-RBA 18 4 205.92 382.23 Operating account-RBA 20 4 102.13 84.50 2. Cumulative project expenditures: 18,155,294.52 15,548,480.80 2.1 International development association 14,814,761.94 12,731,116.23 1. Goods and non consulting services 1,281,076.98 1,281,076.98 2. Consultant's services 10,814,631.62 8,949,793.98 3. Training and workshops 1,799,722.92 1,738,470.69 4. Incremental operating costs 919,330.42 761,774.57 2.2 Trust fund 3,340,532.58 2,817,364.54 1. Goods and non consulting services 1,119,557.79 1,097,344.10 2. Consultant's services 1,791,431.97 1,429,838.57 3. Training and workshops 309,602.21 213,481.94 4. Incremental operating costs 119,940.61 76,699.92 TOTAL ASSETS 20,945,570.17 18,116,532.92 SOURCES 1. Project funds 20,688,945.09 17,750,910.62 IDA Funds - 4888-MN 17,005,563.80 14,893,092.96 AUSAID TF016382 3,683,381.29 2,857,817.66 2. Net interest earnings 258,545.52 367,561.08 3. Foreign exchange gain (loss) (1,992.01) (2,010.36) 4. Other revenue 71.57 71.57 TOTAL SOURCES OF FUNDS 20,945,570.17 18,116,532.92 Prepared by Approved by Narangaray. Ariunchimeg. B PMUfFMS PMU Coordinator aOD BURTGEL AUDIT" LLC, a correspondent firm of MoorAhens International Network OD BURTGEL-AUDIT AUDITING, WARRANT, ACCOUNTING, CONSULTING INDEPENDENT AUDITOR'S REPORT TO: ARIUNCHIMEG.B, PMU COORDINATOR OF MINING INFRASTRUCTURE INVESTMENT SUPPORT PROJECT We have audited the accompanying Statement of Project Sourccs and Uses of Funds of N/ining In frastructure Investment Support Project limded by International Development Association (Credit No: 4888-MN) and Mongolia-Australia Partnership for Sustainable Development 1rust Fund (Grant No: TFO I 6382-MN) for the year ended December 31. 2017. The project management is responsible for the preparation and presentation of the Statement of Project Sources and Uses of Funds in accordance with the requirements of the IDA Financing Agreement. the Grant Agreement, the Project implementation manual and other relevant gIuidelines and procedures. These responsibilities include responsibility for the establishment, implementation. and application of internal controls relating to the preparation and presentation of the Statement of Project Sources and Uses of Funds without material misstatement that may arise from fraud and errOr% We will be responsible for making a conclusion on the Statement of Pr'oject Sources and Uses of Funds based on our audit work. We conducted our audit in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. These standards require that We plan and perform the audit to obtain reasonable assurance about whether the Statement of Project Sources and Uses of lunds is free from material misstatement. An audit includes examining on test basis. evidence supporting the amounts and disclosures in the Statement of Project Sources and Uses of Funds. We believe our audit procedure provides a reasonable basis and evidences for our opinion. E nZyp I Auditor's opinion Iii our opinion. the Statement of Project Sources and Uses of Funds of the Mining Infrastructure Investient Support Project. for the period between January 01. 201 7 and December 3 1. 20 17. has been accurately and objectively disclosed in accordance with the requirements of the Financing Agreement (IDA Credit No: 4888-MN and AUSAID Grant TF016382-MN). thc Project implementation manual and other rclevant guidelines and procedures. -yI1AH T P GENERAL DIRECT i OYUNAA.U J 5XXK X1411806 51 Date: ... . ön BYPTF3nI AY114T "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 The Government of Mongolia & The International Development Association Credit .Ni4888-MN Mongolia-Australia Partnership for Sustainable Development Trust Fund Grant TF016382-MN Mining Infrastructure Investment Support Project: P118109 STATEMENT OF PROJECT SOURCES AND USES OF FUNDS For the year ended December 31, 2017 (in USD) Cumulative to For 2017 Cumulative to Dec 31, 2017 Dec 31,2016 SOURCES Funds 20,688,945.09 2,938,034.47 17,750,910.62 IDA 4888-MN 17,005,563.80 2,112,470.84 14,893,092.96 AUSAID TFO 16382 3,683,381.29 825,563.63 2,857,817.66 Other sources 256,625.08 (108,997.22) 365,622.30 Net interest earnings 258,545.52 (109,015.56) 367,561.08 Other revenue (1,920.44) 18.34 (1,938.78) TOTAL SOURCES OF FUNDS 20,945,570.17 2,829,037.25 18,116,532.92 USES OF FUNDS Uses of IDA Funds: 14,814,761.94 2,083,645.71 12,731,116.23 Goods and Non consulting services 1,281,076.98 - 1,281,076.98 Consultant's services 10,814,631.62 1,864,837.64 8,949,793.98 Training and Workshops 1,799,722.92 61,252.23 1,738,470.69 Incremental operating costs 919,330.42 157,555.85 761,774.57 Uses of AusAID Funds: 3,340,532.58 523,168.01 2,817,364.54 Goods and Non consulting services 1,119,557.79 22,213.68 1,097,344.10 Consultant's services 1,791,431.97 361,593.39 1,429,838.57 Training and Workshops 309,602.21 96,120.26 213,481.94 Incremental operating costs 119,940.61 43,240.68 76,699.92 TOTAL USES OF FUNDS 18,155,294.52 2,606,813.72 15,548,480.80 Surplus of receipts over expenditure: Cash on hand 1.04 - 1.04 Cash at bank Designated account-IDA 4888-MN 2,408,334.52 (89,172.75) 2,497,507.27 Operating account-PIU 2,096.77 (61,175.58) 63,272.35 "OD BURTGEL AUDIT" LLC, a correspondent firm ns International Network 1o BYPTr l( AY A "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 Designated account-AUSAID TF016382 379,211.21 373,478.25 5,732.96 Operating account-RBA 17 324.06 (747.71) 1,071.77 Operating account-RBA 18 205.92 (176.31) 382.23 Operating account-RBA 20 102.13 17.63 84.50 Balance of cash and cash equivalents 2,790,275.65 222,223.53 2,568,052.12 Prepared by Apprve""y Narangar . B Ariunchimeg, B PMU FMS PMU Coordinator "OD BURTGEL AUDIT" LLC, a correspoldent firm o ens International Network i AY V IT OD BURTGEL-AUDIT AUDITING, WARRANT, ACCOUNTING, CONSULTING INDEPENDENT AUDITOR'S REPORT TO: ARIUNCHIMEG.B, PMU COORDINATOR OF MINING INFRASTRUCTURE INVESTMENT SUPPORT PROJECT We have audited the accompanying Statement of Expenditures (SOEs) of Mining Infr1astructure Investment Support Project funded by International Development Association (Credit No: 4888- MN) and Mongolia-Australia Partnership For Sustainable Development Trust Fund (Grant No: TFO16382-MN) for the year ended December 31. 2017. The project management is responsible for the preparation and presentation of the SOEs in accordance with the requirements of the llDA Financing Agrecement, the Grant Agreement. the Project implementation manual and other relevant guidelines and procedures. These responsibilities include responsibility for the establishment, implementation. and application oF internal controls relating to the preparation and presentation of the SOEs without material misstatement that may arise From fraud and error. We will be responsible for making a conclusion on the SOEs based on our audit work. We conducted our audit in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. These standards require that we plan and perflorm the audit to obtain reasonable assurance about whether the SOEs are free from material misstatement. An audit includes examining on test basis, evidence supporting the amounts and disclosures in the SOEs. We believe our audit procedure provides a reasonable basis and evidences For our ol)inion. AY.12. T Auditor's opinion in our opinion, the SOEs of the Mining Infrastructure Investment Support Piroject for the year ended December 31, 2017. has been accurately and objectively disclosed in accordance with tile requirements of tile Financing Agreement (IDA Credit No: 4888-MN and AUSAID Grant TF16382-MN), tle Project implement evant guidelines and procedures. 11AAHSAATAP XOT og 5 GENERAL DIRECTO OYUNAA.U H11180 51897 Date: .k( * "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 The Government of Mongolia & The International Development Association Credit X24888-MN Mongolia-Australia Partnership for Sustainable Development Trust Fund Grant TF016382-MN Mining Infrastructure Investment Support Project: P118109 STATEMENT OF EXPENDITURES (IDA & AUSAID Withdrawals) For the year ended December 31, 2017 (in USD) WA Application Claimed Credited claimed Amount Dierence numbers type date date Amount credited IDA 4888-MN withdrawals Up to December 31, 2016 (WA 1-35) 14,893,092.96 14,893,092.96 - WA-361 Replenishment 2016.12.31 2017.03.17 338,023.26 338,023.26 - WA-37 Replenishment 2017.03.31 2017.04.24 753,216.11 753,216.11 - WA-38 Replenishment 2017.05.31 2017.07.19 157,542.21 157,542.21 - WA-39 Replenishment 2017.07.31 2017.08.24 638,765.50 638,765.50 - WA-40 Replenishment 2017.09.30 2017.11.16 76,183.39 76,183.39 - WA-41 Replenishment 2017.10.31 2017.11.16 54,665.06 54,665.06 - WA-42 Replenishment 2017.11.30 2017.12.06 94,075.31 94,075.31 - WA-43 Replenishment 2017.12.31 309,669.682 - 309,669.68 For the reporting period 2017 (WA 36-43) 2,422,140.52 2,112,470.84 309,669.68 Up to December 31, 2017 (WA 1-43) 17,315,233.48 17,005,563.8 309,669.68 1.The expenditure of USD 338,023.26 expensed in 2016, was claimed and credited through WA-36 in 2017. 2. In preparing WA-28 in 2015 the project had misclassified operating cost amounting USD 711.56 as consulting service cost. This misclassification was amended through WA-43 in 2017. I I I I "OD BURTGEL AUDIT" LLC, a correspo ep as International Network on 5yPTT30Jr IAyflVT 7. "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TFO16382 Financial Statements for the year ended December 31, 2017 WA Application Claimed Credited Amount Amount Difference numbers type date date claimed credited AUSAID TF016382 withdrawals Up to December 31, 2016 (WA 1-15) 2,857,817.66 2,857,817.66 WA-201 Replenishment 2016.12.31 2017.03.17 360,151.80 360,151.80 WA-21 Replenishment 2017.03.31 2017.04.24 75,108.01 75,108.01 WA-22 Replenishment 2017.05.31 2017.07.19 115,630.00 115,630.00 WA-23 Replenishment 2017.07.31 2017.08.24 119,088.66 119,088.66 WA-24 Replenishment 2017.09.30 2017.11.16 91,906.63 91,906.63 WA-25 Replenishment 2017.10.31 2017.11.16 43,255.37 43,255.37 WA-26 Replenishment 2017.11.30 2017.12.05 20,423.16 20,423.16 WA-27 Replenishment 2017.12.31 57,151.272 - 57,151.27 For the reporting period 2017 (WA 20-27) 882,714.90 825,563.63 57,151.27 Up to December 31, 2017 (WA 1-27) 3,740,532.56 3,683,381.29 57,151.27 1. The expenditure of USD 360,151.8 expensed in 2016, was claimed and credited through WA-20 in 2017. 2. The expenditure of USD 1,006.82 expensed in 2016, was not claimed in its respective year. Therefore in 2017, it was claimed within WA-27 and has not yet credited by December 31, 2017. Prepared by Approved by Narangarav. Ariunchimeg. B PMU FMS PMU Coordinator "OD BURTGEL AUDIT" LLC, a correspond s International Network oaBYPrFn гиСглд �� �� t1E11dA9i70 , � N -- � О v „_, . v и � а'�., .�������`C�t7 = - 3 � � � ц � W N,%i.D�.wc'�,�wwD ?� ° r � � о � ,.о о и оо ��..А.. `�' а' ам _ � n со"о �. � � гл � �. � � Q.: О -Р O° � у_ а з' � � ��� и° � о т � � � v с � `° °° � � � � �_ -Э �' cv -n г.► г' � _ У � � ь.+ �О �1 -Р .А �'."' ГЛ W а. С г�^- � Г � �' V� �.1w,--NN�.10rO�iN�' �' ° � � Гi D N � 1л оАо �О � р О W�1 N у �7 й � � W ы. W О и v О О� О� й А. � '< � г° W � L''� N�1 А О� W t� � � ам�. � � �� � О �rnr.�иrnrn�v� •.� � О � ^ � � т � � й О ° W !п0 � С. 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О � � _ _ �, � w 00 � �О t+� � ¢ . __ __ � `1" �1 С ° м - v � �1 � �.1 �1 � -_ �• �и � � � �Nи Wй � о �о ,� io iл � - й и `а `-' °° �° о аа � оо л _ оо а' � ow� ой!,"о � � с�о �' � ййо°�о~ о n. �'` w и о� O0 �'' оо � R° � °'` o.aw�o°� � С�'� ,..; �«► v� о о � ' � м � и и � � � � � � й й � � � � , � � А � � � ~ А � I� J J J � t/1 а v N � _ � OD BURTGEL-AUDIT AUDITING, WARRANT, ACCOUNTING, CONSULTING INDEPENDENTAUDITOR'S REPORT TO: ARIUNCHIMEG.B, I'MU COORDINATOR OF MINING INFRASTRUCTURE INVESTMENT SUPPORT111ROJECT We haVC aUdited the accompanying Designated ACCOLInt Statements of* Mining I1lI*1-aSt1-L1CtL11'C Investment SLIJ.)POI-t 1'1-0.jCCt I'Lincled by International Development Association (Credit No: 4888- NIN) and Mongolia-ALIstralia Partim-Ship IM SLIstainable Development TRist FLInd (Grant No: -1-1-0 16382-MN) flor the year ended December 31, 2017. The pro * jcct management is responsible lor the preparation and presentation ol'the Designated ACCOLInt Statements in accordance with the reClUil-CillentS Oi'tllC IDA 1--inancing Agreement. the Grant Agreement. the Pro*ect implementation manUal and other relevant LLlidelincs and procedLINS. These responsi bi I i ties inClUde responsibility Im tllL establishment. implementation. and application of internal controls relating to the preparation and presentation of the Designated ACCOLInt Statements WithOLIt unaterial misstatement that may arise fi-oni fi-aUd and error. We vvill be responsible Im making a C011CILISiOn oil the Designated ACCOLInt Statements based oil 0L11- aUdit work. We concILICted 0L11- aLidit in accordance with International Standards oil ALICliting iSSLIed by the International ALicliting and ASSUrance Standards Board of' the International 1'ederation ol'ACCOLIntants. These stanclards I-CCILlil-C that we plan and perlorni the aUdit to obtain reasonable assurance abOLIt Whether [lie Designated ACCOLint Statements are free from material misstatement. An aLidit ifICILides examining oil test basis, evidence SLIPP01-ting the 111110LIMS and disclosures in the Designated Account Statements. We believe our aLiclit procedL11-C IN-OVides a reasonable basis and evidences 1*01- 0L11- Opinion. c)jj GypTr3n AYa14T Auditor's opinion In our opinion. the Designated Account Statemenits ol tle Mining Infi-astructure Investment Support Project. as at December 31. 2017. have been accurately and obJectively discloscd in accordance vitlh the requirements of the Financing Agrecrnent (IDA Credit No: 4888-NIN and \USAID Grant TF 016382-MN), tihe Proect implementation manual and other relevant guidelines and procedures. IYIAAH AATA OT GENERAL DIRECTOR OYUNAA.U K "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 The Government of Mongolia The International Development Association Credit .N4888-MN Mining Infrastructure Investment Support Project: P118109 DESIGNATED ACCOUNT STATEMENT For the year ended December 31, 2017 At Dec 31, 2017 At Dec 31, 2016 (in USD) (in USD) Part A- Account transactions Beginning balance 2,497,507.26 2,369,310.26 Add: Total amount deposited by the fDA for the year 2,112,470.84 3,958,052.13 Total interest earned 71,070.10 69,176.76 Transferred from DA-B 29,373.44 - Transferred from OAs 11,619.02 463.78 Returned interest income disbursement 1,830 - Returned costs 28,921.42 5,324.97 Total amount 2,255,284.82 4,033,017.64 Deduct: Total expenditure 2,014,892.69 3,696,193.37 Transferred to DA-B 5,839.81 - Transferred to OAs 132,790.39 208,367.29 Total bank charges 278.90 259.97 Foreign exchange loss . Tender document income/expense - Expenditure on accrued interest earned 190,655.77 Total amount withdrawn 2,344,457.56 3,904,820.64 Closing balance 2,408,334.52 2,497,507.26 Part B - Account reconciliation Amount advanced by the IDA 2,500,000.00 2,500,000.00 "OD BURTGEL AUDIT" LLC, a correspondent fir 1 os International Network BoSYPTr3flI I_________ __ ___ _____ ___ __AVaOT_ "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 Balance of the Designated account at the end of the year 2,408,334.52 2,497,507.26 Add: Amount withdrawn and not yet claimed 309,669.68 338,023.26 Bank charges 2,929.05 2,647.22 Foreign exchange loss 1,992.01 2,010.36 OAs balance 2,728.88 7,271.46 Petty cash balance 1.04 1.04 Tender expense 1,623.44 1,623.44 Expenditure on accrued interest earned 190,655.77 - Total amount 509,599.87 351,576.79 Deduct: Amount claimed and not yet withdrawn 471.56 - Net interest earned 415,702.72 344,632.62 Net tender material sale revenue 1,695.00 1,695.00 Designated account-AUSAID-TFO 16382 - 2,756.43 Received from OAs 65.11 - Total amount 417,934.39 349,084.05 Total advance to Designated account 2,500,000.00 2,500,000.00 Prepared by Approved by Narangar . Ariunchimeg. B PMU FM PMU Coordinator "OD BURTGEL AUDIT" LLC, a corres phens International Network ona6ypTr3;an . "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 The Government of Mongolia Mongolia-Australia Partnership for Sustainable Development Trust Fund Grant TF016382-MN Mining Infrastructure Investment Support Project: P118109 DESIGNATED ACCOUNT STATEMENT For the year ended December 31, 2017 At Dec 31, 2017 At Dec 31, 2016 (in USD) (in USD) Part A- Account transactions Beginning balance 63,272.35 305,607.44 Add: Total amount deposited by the AUSAID for the year 825,563.63 491,933.04 Net interest earned 9,325.08 10,965.96 Transferred from DA-A 5,839.81 - Transferred from OA PMU 1,523.96 1968.5 Transferred from RBA-18 7.52 - Transferred from RBA-20 25.44 - Returned costs 1,688.27 14,591.43 Foreign exchange gain - 0.04 Total amount 843,973.71 519,458.97 Deduct: Total expenditure 473,027.08 747,588.91 Transferred to Designated account of IDA 29,373.44 Transferred to OAs 25,451.55 14,087.68 Total bank charges 182.78 117.28 Foreign exchange loss - 0.19 Total amount withdrawn 528,034.85 761,794.09 Closing balance 379,211.21 63,272.35 Part B - Account reconciliation Amount advanced by the AUSAID 400,000.00 400,000.00 Balance of the Designated account at the end of the year 379,211.21 63,272.35 Add: Amount withdrawn and not yet claimed 57,151.27 360,151.80 Bank charges 721.78 538.82 Designated account-IDA-4888-MN - 2,756.43 "OD BURTGEL AUDIT" LLC, a correspo oore Step ns International Network 0zEpn *-.v-t,ure Investment Support Project" 4IIrwAM-1N11 & Grant No:TFO 16382 igggggOMMe MrM:S for the year ended December 31, 2017 Total amount 57,873.05 363,447.05 Deduct: Amount claimed and not yet withdrawn 604.95 604.95 Net interest earned 35,439.53 26,114.45 Received from OAs 32.96 - Amount withdrawn in 2015 and not received 1,006.82 Total amount 37,084.26 26,719.40 Total advance to Designated account for 400,000.00 400,000.00 Prepared by Approved by Narangar . 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'.i v� �� н°. д�О О� 4 L"" ,^.г г О. •Од. � b N ��i i:H�ww о`�v'.«SS•ч°$м�,-° �''Ь'г�',��i.л. `�л � � _ �, .� .. ,., �. ... � ._ .... ... �' __ 9 ю rв "Mining Infrastructure Investnient Support Project" Credit No: 4888-111N & Grant No:TF016382 Financial Statements for the year ended December 31. 2017 NOTES TO THE FINANCIAL STATEMENTS 1. Project background On May 24, 2011, the International Development Association and the Government of Mongolia (represented by the Ministry of Finance) signed the Financing Agreement Credit No:4888-MN to assist in financing Mining Infrastructure Investment Support Project. The credit amounted to SDR 16,000,000 (equivalent to original approved amount of US$25,000,000). A grant agreement dated on April 30, 2014 for additional funding of Mongol ia-Austral ia Partnership for Sustainable Development Trust Fund which is managed by International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) (World Bank) shall grant the amount of 2.1 million (two point one million) US dollars as requested by Government of Mongolia The grant agreement amended on April 14, 2015, therefore the grant amount was increased to 4.05 (four point zero five) million US dollars. The closing date of the project is September 30, 2019. The objectives of the Project are to facilitate investments in infrastructure to support mining and downstream processing activities, regardless funding sources, and to build local capacity to prepare and of transact infrastructure projects. The Project consists of the following parts: Component 1: Support for infrastructure investments a) Planning, Feasibili y, and Business Cases 1. 1. Prepare regional inftastructure investments plans, including the determination of priority infrastructure needs based on mineral development planned for a particular region, sequencing of their implementation, and identification of required feasibility studies for specific investments; 1.2. Conduct feasibility studies for priority mining-related infrastructure projects in the energy, transport, information technology and communications, water, housing and social sectors, logistics and border crossing facilities and downstream and value-added activities, including, inter alia: technical assessments, such as engineering designs, geotechnical surveys, econornic and financial analyses, environmental and social impact evaluations, and reviews of specific aspects of the Recipient's legal, regulatory and institutional frameworks. 1.3. Develop business cases for projects proposed to be developed with private investments, including PPPs, including, inter alia. review of government priorities for potential projects, identifying government commitments and obligations under various investment structures, developing investment and financing plans, reviewing the Recipient's legal and regulatory framework governing private investment, determining appropriate allocation of risks and underlying commercial principles for transactions, and undertaking market soundings to gauge investor appetite. b) Rapid Response to Address Emerging Priorities Carry out activities in response to existing or emerging priority issues affecting the potential for private investment in infrastructure facilities and services, and facilitate the export of mineral resources, including support to, inter alia: finalizing ongoing transactions with investors, strengthening the legal frameworks, developing national standards for inftastructure "On RURTC.F1, AlinIT- I i-r "Mining Infrastructure investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 development, facilitating transnational agreements, and establishing mechanisms to coordinate regional Development and ensure that investors are adequately addressing their corporate social responsibilities Component II: Capacity Building and Knowledge Transfer 2.1. Training and Advocacy Programs " Carry out staff skills development, including Training and Workshops, for relevant ministries and agencies, on basic principles, practices techniques on project preparatory activities, including, inter alia: i) technical and engineering reviews, ii) technical designs, drawings and specifications; iii) economic evaluations and cost-benefit analysis; iv) financial assessments and forecasting; v) environmental and social impact evaluations; vi) legal and regulatory reviews; vii) further assessments of potential PPPs to determine viability and viii) market soundings. V Carry out staff skills development, including Training and Workshops, for relevant ministries and agencies in preparation for transactions with investors, including PPP transactions. V Carry out conferences and other communication mechanisms to promote awareness of government officials and the local business community about investment opportunities and the use of PPPs. 2.2 Consultants / Contract full-time and part-time consultants to strengthen abilities of government officials to prepare terms of reference and carry out feasibility studies, including support to, inter alia: strategic planners, engineers, technical specialists, economists, and environmental and social experts, V Contract full-time and part-time consultants to develop the capacity of government officials to prepare transactions with the private sectors, including inter alia: legal counsel, institutional specialists, economic and financial specialist implementation specialist and local staff to support preparation of PPPs transactions. v Contract full-time and part-time consultants to, inter alia: develop a framework to manage contingent liabilities, develop methodology and criteria for issuing guarantees, a process for approving them, and structure to limit the Government's overall exposure. 2.3 Contract Administration Provision of support and training to government officials in ensuring that investors and the government are in compliance with contractual terms and conditions, including, inter alia: ascertaining that required investment, operational and maintenance standards are being met; measuring performance based on pre-determined criteria, calculating payments based on performance, and determining that environmental and social obligations are being fulfilled. Component III: Strengthening Groundwater Management Provide support to strengthen the capacity of local authorities to manage groundwater resources in Southern Mongolia by making operational a new institutional structure in Southern Mongolia with responsibly for, inter alia: establishing at least two (2) groundwater management council and at least "OD BURTGEL AUDIT" LLC. a corresnnndpnt firm nf r. nh In N--- "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 two (2) groundwater management administrations in water basins 17, 18 and 20, preparing groundwater management and monitoring plans, carrying out groundwater explorations, developing a data exchange protocol, monitoring bore hole installations, monitoring and enforcing compliance with licenses to abstract groundwater and reviewing water resource pricing based on economic principles. Component IV. Projects management Establishment of a Project Management unit at the Ministry of Finance to implement and manage the Project. Framework of the Financing Agreement, a Project Steering Committee (PSC) and a Project Management Unit (PMU) have been established. PSC is responsible for inter alia: a. Providing guidance on the use of Project funds and approve procurement plans; b. Soliciting input and cooperation from the relevant ministries and government agencies to prepare infrastructure projects that have cross-sectoral impacts, and c. For projects involving private investment, providing policy guidance to ensure that these are planned, developed and implemented in a comprehensive and coordinated manner. PMU is responsible for inter alia: a. All aspects associated with implementing the Project, including inter alia procurement of all goods and services; financial management and reporting, and disbursements; b. The effective and timely implementation of the environmental and social management framework and all other environmental and social safeguards requirements; and c. Project monitoring and reporting. Following state sector support the Project Management Unit in the management of all technical aspects associated with their respective activities including, inter alia, preparing terms of references for their respective infrastructure projects, and monitoring. Here are: V Ministry of Energy, V Ministry of Finance, v Ministry of Mining and Heavy Industry, v Ministry of Road and Transport Development of Mongolia, V Ministry of Environment and Tourism, V National Development Agency, V National Water Committee etc., Project Steering Committee The Project Steering Committee is newly established as the Minister of Finance order M20 as of I 8' of January. / Director of Development Financing Department of MOF, " Director General of Financial Control and Risk Management Department of MOF, V Director of Heavy Industry Policy Department of Ministry of Mining and Heavy Industry, / Head of International Cooperation division of Public Administration and Management Department of Ministry of Mining and Heavy Industry, "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 / Director of Land Utilization, Integrated Water Policy and Regulatory Department of Ministry of Environment and Tourism, / Specialist of Environment and Natural Resource Management Department of Ministry of Environment and Tourism, V Director of Policy and Planning Department of Ministry of Energy, / Head of Investment and Industry Division of Policy and Planning Department of Ministry of Energy, / Head of Sector Development Policy and Co-Ordination Division of National Development Agency, / Secretary of National Water Committee, V Specialist of Development Financing Department of MOF, and V Coordinator of Mining Infrastructure Investment Support project - Secretary of PSC. 2. Summary of significant accounting policies a) Statement of compliance The Financial Statements include following statements which are accepted by World Bank. 1. Balance Sheet; 2. Statement of Project Sources and Uses of Funds; 3. Statements of Expenditures; 4. Designated Account statements; and 5. Notes to the Financial Statements. b) Basis of preparation The Financial Statements are prepared in accordance with International Public Sector Accounting Standards (IPSASs) issued by the International Federation of Accountants. The Project's financial statements are prepared on the cash basis of accounting. The recording of the Project accounting should be made according to Financial Management Manual approved by the World Bank. The Project utilizes financial software named "PACS" accounting system developed by "Infosystems" LLC, which is designed for accounting of project activity. c) Basis of measurement The Financial Statements are presented in US Dollars ("USD"). Expenditure transactions denominated in currencies other than USD are translated at rates of the respective fund transaction from Designated Account to Operating Accounts. Any gains and losses are reflected in the Statement of Sources and Uses of Funds. The project records its transactions on "PACS" accounting system in dual currencies, which are USD and MNT. d) Basis of presentation The account balance should be presented by the cumulative amount for the period January 1, 2017 to December 31, 2017 in the Project financial statements. "Mining Infrastructure Investment Support Project" Credit No: 4888-IN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 e) Bank account and petty cash account Designated Account in USD accounts should be opened in banks after World Bank's approval. The ceiling of the Bank Accounts are as follows: 1. IDA Credit - 2,500,000 USD 2. AUSAID Grant - 400,000 USD PMU opened Designated Accounts and Operating Accounts to manage and use the project funds. The eligible expenditures of training and incremental operating costs and local consultant service have been paid from the operating account. The ceiling of the PMU operating account is MNT 27,000,000 and the ceiling of the RBA operating accounts is MNT 13,600,000 according to the Financial Management Manual. 3. Disbursement progress a) Disbursement of IDA Credit 4888-MN As of December 31, 2017, the project had received $17,005,563.8 (74.63% of the total credit) through the DA as financing from IDA Credit 4888-MN and had disbursed $14,814,761.94 (65.0 1% of the total credit). The amount of the IDA Credit re-allocated per the amendment to the agreement dated April 25, 2014 has been compared with the actual disbursements as of December 31, 2017. Amount of the fund re- Actual disbursement M Category allocated In USD In SDR In USD In SDR* Goods and non- 1 consulting services 1.317,320.25 925,000.00 1,281,076.98 873,229.76 2 Consultant services 18,762,912.75 13,175,000.00 10,814,631.62 7,596,059.30 3 Training and 1,744,559.25 1,225,000.00 1,799,722.92 1,222,736.21 Workshops 4 Operating costs 961,287.75 675,000.00 919,330.42 636,956.33 Total 22,786,080.00 16,000,000.00 14,814,761.94 10,328,981.60 *Actual disbursement in USD as of December 31, 2017 have been translated into SDR at the exchange rate stated of https://ww.i imf org/ b) Disbursement of AUSAID Grant TF016382-MN As of December 31, 2017, the project had received $ 3,683,381.29 (90.95% of the total grant) through the DA as financing from AUSAID Grant TF016382-MN and disbursed $ 3,340,532.6 (82.48 % of the total grant). Mongolia - Australia Partnership for Sustainable Development Trust fund (TF016382) re- allocated per the amendment to the agreement dated April 14, 2015 has been compared with the actual disbursements as of December 31, 2017. "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 (in USD) Amount of the Actual disbursement N Category fund re- allocated In USD Percentage I Goods and non-consulting services 1,120,000.00 1,119,557.79 99.96% 2 Consultant services 2,500,000.00 1,791,431.97 71.65% 3 Training and Workshops 310,000.00 309,602.21 99.87% 4 Operating costs 120,000.00 119,940.61 99.95% Total 4,050,000.00 3,340,532.58 82.48 % 4. Items in the balance sheet a) Cash and cash equivalents Summary of transaction statements of Operating Bank Accounts and Petty Cash Accounts for the period between 2017.01.01 and 2017.12.31 are indicated as follow: I. Operating bank account of PMU Credit N94888-MN At December 31, 2017 At December 31, 2016 (in USD) (in USD) Beginning balance 5,732.98 5,296.31 Add: Transferred from DA-A 42,970.17 57,027.84 Transferred from DA-B 25,451.55 - Total interest earnings 111.45 174.48 Returned costs - - Other revenue - 3,064.07 Account receivable 6,213.96 - Advance payment - 3,374.81 Total 74,747.13 63,641.20 Deduct: Total expenditure 62,721.88 53,364.20 Transferred to petty cash - - Transferred to DA-A 7,465.67 484.78 Transferred to DA-B 1,523.96 1,968.50 Total bank charges 51.99 30.37 Uses of other revenue - - O4n n R 1 IDB rTC L A i Drn IT " I I' r fir m -s - - -..----. . 1 . "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 Disbursement of interest income 397.57 Account receivable 6,213.96 6,438.88 Foreign exchange loss 8.31 917.80 Total 78,383.34 63,204.53 Ending balance 2,096.77 5,732.98 II. Operating account for the RBA Galba-Uush-Dolood's Gobi At December 31, 2017 At December 31, 2016 (in USD) (in USD) Beginning balance 382.23 735.67 Add: Transferred from DA-A 33,992.05 50,158.71 Transferred from DA-B - 4,741.68 Total interest earnings 68.06 - Returned costs - Other revenue - 94.38 Total 34,060.10 54,994.77 Deduct: Total expenditure 30,982.62 54,487.32 Transferred to petty cash - Transferred to DA-A 3,246.10 771.10 Transferred to DA-B 7.52 - Total bank charges 0.16 Uses of other revenue - Foreign exchange loss - 89.79 Total 34,236.41 55,348.21 Ending balance 205.92 382.23 Ill. Operating account for the RBA Altain Uvur Gobi At December 31, 2017 At December 31, 2016 (in USD) (in USD) Beginning balance 84.49 41.03 S Add: Transferred from DA-A 27,812.23 51,308.61 Transferred from DA-B - 4,544.71 Total interest earnings 53.73 61.02 Returned costs 200.80 Other revenue Mon mic res. l rr"l Ir 9- n A fim nf Moore Stpnhens International Network "Mining Infrastructure Investment Support Project" Credit No: 4888-IN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 Foreign exchange gain 26.64 Total 27,892.60 56,115.14 Deduct: Total expenditure 26,928.77 55,752.68 Transferred to petty cash - Transferred to DA-A 889.75 281.83 Transferred to DA-B 25.44 - Total bank charges 31.00 27.38 Uses of other revenue Foreign exchange loss - 9.79 Total 27,874.96 56,071.68 Ending balance 102.13 84.49 IV. Operating account for the RBA Umard Goviin Guveet - Halhiin Dundad Tal At December 31, 2017 At December 31, 2016 (in USD) (in USD) Beginning balance 1,071.80 89.80 Add: Transferred from DA-A 28,015.94 49,956.13 Transferred from DA-B - 4,801.29 Total interest earnings 128.36 155.98 Returned costs Other revenue Total 28,144.26 54,913.40 Deduct: Total expenditure 27,686.34 53,428.30 Transferred to petty cash 1,184.00 - Transferred to DA-A 17.50 214.84 Total bank charges 4.20 5.25 Uses of other revenue Foreign exchange loss - 283.01 Total 28,892.00 53,931.40 Ending balance 324.06 1,071.80 "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 V. Petty Cash Account of PMU At December 31, 2017 At December 31, 2016 (in USD) (in USD) Beginning balance 1.04 1.04 Add: Transferred from OA 1,184.00 - Total interest earnings - Returned costs Other revenue - Total 1,184.00 Deduct: Total expenditures 1,184.00 Transferred to petty cash - - Transferred to DA-A - - Total bank charges - - Uses of other revenue - - Foreign exchange loss - - Total 1,184.00 - Ending balance 1.04 1.04 5. Procurement contracts In order to assure whether procurement of the project had been conducted in compliant with the Procurement Guidelines issued by the World Bank, we have reviewed six contracts procuring goods /100%/ and fourty five contracts procuring consulting services /77.5%/ Within our audit engagement, out of above 58 consulting services, we have reviewed 45 procurement cases of consultants based on maximum amount selection from Project management unit, RBA Umard Goviin Guveet-Khalkhiin Dundad tal, RBA Galba-Uush-Dolood's Gobi and RBA Altain Uvur Gobi.These procurements were conducted according to the procurement Guidelines issued by the World Bank. 6. Events after reporting period Below expenditure of USD 366,820.95, which refers to the reporting year, had not been claimed to the World Bank as of December 31, 2017. However, it was claimed and replenished in February 2018. International Development Association Credit: IDA 4888-MN Category nAmount in USD SGoods and non consulting services - Consultant services 293,483.76 Training and Workshops - Operating costs 16,185.92 Total 309,669.68 "Mining Infrastructure Investment Support Project" Credit No: 4888-MN & Grant No:TF016382 Financial Statements for the year ended December 31, 2017 Mongolia - Australia Partnership for Sustainable Development Trust fund (TFO16382) Category Amount in USD Goods and non consulting services Consultant services 56,144.45 Training and Workshops 1,006.82 Operating costs - Total 57,151.27 7. Other matters Within our audit engagement, we have requested the project to provide us Lawyer's Letter to assess whether there is any unforeseen obligation, entitlement, and litigation associated with the project. However, we have not received any Lawyer's Letter by the date of Auditor's report. Consequently, we did not evaluate the impact of issues associated with any unforeseen obligation, entitlement, and litigation on the Financial Statements of the project.