I I I I I I TRANSPORT REFORM AND REHABILITATION CENTER CREDIT NO. 5245-GE (FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT) Special Purpose Project Financial Statements For the Year Ended 31 December 2016 I I I I I I I I I I I I 1 I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE TABLE OF CONTENTS I Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS 1 INDEPENDENT AUDITOR'S REPORT 2-3 SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS I FOR THE YEAR ENDED 31 DECEMBER 2016: Statement of Sources and Uses of Funds 4 Balance Sheet Statement 6 Statement of Expenditure Withdrawal Schedule 7 Designated Account Statement 8 Notes to the Special Purpose Project Financial Statements 9-14 I I I I I I I I I I 1 TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 I Management of the Fourth East-West Highway Improvement Project (the "Project") implemented by the Transport Reform and Rehabilitation Center ("TRRC") is responsible for the preparation of the special purpose project financial statements that present fairly the financial position of the Project as at 31 December 2016, and its sources and uses of funds and movement in designated account for the year ended 31 December 2016, in compliance with the Cash Basis International Public Sector Accounting Standard, Financial Reporting under the Cash Basis of Accounting ("IPSAS - Cash Basis"), and in conformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities" (the "World Bank Guidelines"). In preparing the special purpose project financial statements, management is responsible for: * Properly selecting and applying accounting policies; * Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * Providing additional disclosures when compliance with the specific requirements in IPSAS - Cash Basis are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Project, financial position and its sources and uses of funds and movements in designated accounts; * Making an assessment of the Projects ability to continue as a going concern. I Management is also responsible for: I* Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Project; * Maintaining adequate accounting records that are sufficient to show and explain the Project's transactions and disclose with reasonable accuracy at any time the financial position of the Project, and which enable them to ensure that the special purpose project financial statements of the Project comply with the Guidelines on Annual Financial Reporting and Auditing for World Bank - Financed Activities issued by the World Bank's Financial Management Sector Board; * Maintaining statutory accounting records in compliance with Georgian legislation; * Taking such steps that are reasonably available to them to safeguard the assets of the Project; and I* Preventing and detecting fraud and other irregularities. The special purpose project financial statements for the year ended 31 December 2016 were authorized for issue on 29 June 2017 by the Management. I On behalf of Management: Giorgi TsagaroW' Marina Maj dzi Director Financial Manager 29 June 2017 29 June 2017 I I1 I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 KPMG Georgia LLC 2nd Floor, Besiki Business Centre 4, Besiki Street 0108 Tbilisi, Georgia Telephone +995 322 93 5713 Internet www.kpmg.ge I Independent Auditors' Report on Special Purpose Project Financial Statements To the management of Transport Reform and Rehabilitation Center Opinion We have audited the special purpose project financial statements of the Fourth East-West Highway Improvement Project (the "Project"), financed under the International Bank for Reconstruction and Development (the "IDA"), Loan Agreement No. 5245-GE, dated 6 June 2013, implemented by the Transport Reform and Rehabilitation Center (the "Center"), which comprise the Statement of Balance Sheet as at 31 December 2016 and the Statements of Sources and Uses of Funds, Statement of Expenditures Withdrawal Schedule ("SOEs") and Special Account Statement for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. The special purpose project financial statements have been prepared by management in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and in conformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities" (the "World Bank Guidelines") as described in Note 2 to the special purpose project financial statements. In our opinion, the accompanying special purpose project financial statements present fairly, in all material respects, the financial position of the Project as at 31 December 2016, and its sources and uses of funds for the year then ended in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and the World Bank Guidelines. I 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 Auditors' Responsibilities for the Audit of the Special Purpose Project Financial Statements section of our report. We are independent of the Center in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Matter Data included on pages 4 to 14 of the accompanying special purpose project financial statements that are marked as "Unaudited" have not been audited. Emphasis of Matter - Basis of Accounting and Restriction on Use We draw attention to Note 2 to the special purpose project financial statements, which describes the basis of accounting. The special purpose project financial statements are prepared to assist the Center to comply with the requirements of IDA and for providing information to the Government of Georgia and IDA to assist them in evaluating the Project implementation. As a result, the special purpose project financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. 1 KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG Intemational Cooperative ("KPMG Intemational), a Swiss entity. I 1 Transport Reform and Rehabilitation Center Independent Auditors' Report 1 Page 2 Responsibilities of Management and Those Charged with Governance for the Special Purpose Project Financial Statements Management is responsible for the preparation and fair presentation of these special purpose project financial statements in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and the World Bank Guidelines, for determining the acceptability of the basis of accounting and for such internal control as management determines is necessary to enable the preparation of special purpose project financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Center's financial reporting process. Auditors' Responsibilities for the Audit of the Special Purpose Project Financial I Statements Our objectives are to obtain reasonable assurance about whether the special purpose project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these special purpose project 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 special purpose project 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 Center's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the special purpose project financial statements, including the disclosures, and whether the special purpose project 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. Th ng gement part er4f the audit resulting in this independent auditors' report is: K n af ryan 0 I G eorg L , I Tbili i, eorgia 29 June 2017 I I g TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED 31 DECEMBER 2016 (in US Dollars) I Actual as at Planned as at 31 December 2016 31 December 2016 Variance Year to Cumulative Year to Cumulative Year to Cumulative date to date date to date date to date Unaudited Unaudited Unaudited Unaudited FUNDS RECEIVED BY SOURCES International Development Association (IDA) funds Government of Georgia ("GoG") 3,789,391 12,807307 co-financing TOTAL FUNDS RECEIVED 14,043,700 48,545,890 Foreign exchange difference (3) (7) LESS: EXPENDITURES Component 1 - Construction of Agara - Zemo Osiauri section 13,082,082 33,628,635 13,082,082 33,628,635 (IDA - 80%) I Component 2 - Institutional 88,052 235,319 88,052 235,319 Strengthening (IDA 80%) Component 3 - Consulting - 1,610,642 - 1,610,642 services (IDA - 80%) Component 4 - Project management (IDA - 80%) IDA TOTAL 13,296,660 35,738,583 13,296,660 35,738,583 I Component 1 - Construction of Agara - Zemo Osiauri section 3,731,900 12,273,211 3,731,900 12,273,211 (GoG - 20%) Component 2 - Institutional 22,016 61,497 22,016 61,497 Strengthening (GoG-20%) Component 3 - Consulting - 403,024 - 403,024 services (GoG - 80%) Component 4 - Project management (GoG - 20%} GoG TOTAL 3,789,388 12,807,300 3,789,388 12,807,300 TOTAL EXPENDITURES BY 17,086,048 48,545,883 COMPONENTS_____ _____ TOTAL PROJECT 17,086,048 48,545,883 EXPENDITURES_____ _____ NET FLOWS OF FUNDS _3,042,351) 23 The special purpose project financial statements were approved by the management of Transport Reform I and Rehabilitation Center on 29 June 2017 and were signed on its behalf by: Giorgi Tsagareli Marina MajioaIaze Director Financial Manager 129 June 2017 29 June 2017 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. 4 132660 3,3,8 I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED 31 DECEMBER 2016 (in US Dollars) I Actual as at Planned 31 December 2015 31 December 2015 Variance Year to Cumulative Year to Cumulative Year to Cumulative date to date Date to date date to date Unaudited Unaudited Unaudited Unaudited FUNDS RECEIVED BY SOURCES International Development Association (IDA) funds Government of Georgia ("GoG") 2,857,771 9,017,916 co-financing TOTAL FUNDS RECEIVED 12,194,052 34,502,190 Foreign exchange difference - (4) LESS: EXPENDITURES Component 1 - Construction of Agara - Zemo Osiauri 9,367,735 20,546,553 9,367,735 20,546,553 section (IDA - 80%) Component 2 - Institutional 119,980 147,267 119,980 147,267 Strengthening (IDA 80%) Component 3 - Consulting 1,449,800 1610,642 1,449,800 1,610,642 services (IDA - 80%) Component 4 - Project management (IDA - 80%) IDA TOTAL 11,035,682 22,441,923 11,035,682 22,441,923 Component 1- Construction of Agara - Zemo Osiauri section 2,440,686 8,541,311 2,440,686 8,541,311 (GoG - 20%) Component 2 - Institutional 29,990 39,481 29,990 39,481 Strengthening (GoG-20%) Component 3 - Consulting 362,812 403,024 362,812 403,024 services (IDA - 80%) Component 4 - Project management (GoG - 20%} GoG TOTAL 2,857,771 9,017,912 2,857,771 9,017,912 TOTAL EXPENDITURES BY 13,893,453 31,459,535 13,893,453 31,459,835 COMPONENTS ____________________ _________ TOTAL PROJECT 13,893,453 31,459,835 EXPENDITURES __________ NET FLOWS OF FUNDS A69,40) 3,042,351 I The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. 1 5 9817 13,6 I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE BALANCE SHEET STATEMENT AS OF 31 DECEMBER 2016 (in US Dollars) 31 December 31 December ASSETS 2016 2015 IDA Designated Account - 3,042,351 1 TOTAL ASSETS - 3,042,351 Funds received: Funds received from IDA 35,738,583 25,484,274 Funds received from GoG 12,807,307 9,017,916 Total funds received 48,545,890 34,502,190 Project expenditures: Financed by IDA (35,738,583) (22,441,923) Financed by GoG (12,807,300) (9,017,912) Total project expenditures (48,545,883) (31,459,835) Foreign exchange difference (7) (4) TOTAL PROJECT EXPENDITURES AND OTHER FUNDS - 3,042,351 I I I I The special purpose project financial statements were approved by the management of Transport Reform and Rehabilitation Center on 29 June 2017 and were signed on its behalf by: Giorgi Tsagareli Marina Majqg*adze Director Financial Manager 29 June 2017 29 June 2017 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. I 6 I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE STATEMENT OF EXPENDITURE WITHDRAWAL SCHEDULE FOR THE YEAR ENDED 31 DECEMBER 2016 (in US Dollars) Withdrawal Withdrawal Total SOE Total SOE Total SOE Attributable Attributable Attributable Attributable Total SOE No. application in attributable attributable to 2016 - to 2016 - to 2016 - to 2016 - Attributable date withdrawal to 2015 to 2016 Component Component Component Component to 2017 schedule 1 2 3 4 Unaudited 14 15-Mar-16 13,193 10,782 2,411 - - - 2,411 15 19-Apr-16 - - - - - - - 16 23-Apr-16 - - - - - - - 17 19-May-16 29,471 - 29,471 15,794 7,878 - 5,798 18 10-Jun-16 1,397 - 1,397 - - - 1,397 19 12-Aug-16 426,166 - 426,166 419,307 - - 6,859 20 16-Sep-16 179,441 - 179,441 166,899 - - 12,542 649,668 10,782 638,886 602,000 7,878 - 29,007 I Withdrawal Withdrawal Total SOE Total SOE Total SOE Attributable Attributable Attributable Attributable Total SOE No. application in attributable attributable to 2015 - to 2015 - to 2015 - to 2015 - Attributable date withdrawal to 2014 to 2015 Component Component Component Component to 2016 schedule 1 2 3 4 9 23-Feb-15 133,350 133,350 - - - - - 10 9-Jul-15 97,116 - 97,116 - 32,796 - 64,320 11 28-Sep-15 - - - - - 12 11-Dec-15 74,594 - 74,594 - 53,008 - 21,586 - 13 15-Mar-16 13,193 - 10,782 - 2,192 8,590 - 2,411 318,253 133,350 182,492 - 87,996 8,590 85,906 2,411 I I I I The special purpose project financial statements were approved by the management of Transport Reform and Rehabilitation Center on 29 June 2017 and were signed on its behalf by: Giorgi Tsagareli U Marina Majag" Director Financial Ma ager 29 June 2017 29 June 2017 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. 7 I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE DESIGNATED ACCVOUNT STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016 (in US Dollars) Account No. 202250932 Depository Bank State Treasury Address 16 V. Gorgasali street Tbilisi, 0114 Georgia Balance as at 1 January 2016 3,042,351 ADD Funds received from IDA 10,254,309 DEDUCT Funds used for the Project expenditures (13,296,660) Balance as at 31 December 2016 Balance as at 1 January 2015 4,741,752 ADD Funds received from IDA 9,336,281 DEDUCT Funds used for the Project expenditures (11,035,682) Balance as at 31 December 2015 3,042,351 I I I The special purpose project financial statements were approved by the management of Transport Reform and Rehabilitation Center on 29 June 2017 and were signed on its behalf by: Il Giorgi Tsagareli Marina Majap z Director Financial Manager 29 June 2017 29 June 2017 The notes on pages 9 to 14 form an integral part of these special purpose project financial statements. I8 I I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) (in US Dollars) 1. BACKGROUND The Investment Center for Euro-Asian Transport Corridor was established in 1995 as a non- entrepreneurial and non-profit legal entity under the laws of Georgia in accordance with the Georgian Presidential Decree N 199 dated 16 April 1995. The founder of the Investment Center for Euro-Asian Transport Corridor is Georgia represented by the Georgian Government. A project unit named "Transport Reform and Rehabilitation Center" (the "Center") was formed within the Investment Center for Euro-Asian Transport. The Center's principal activity is to manage allocated credits/loans received from the International Development Association ("IDA"), the International Bank for Reconstruction and Development ("IBRD"), the Asian Development Bank (ADB) and the European Investment Bank (EIB) and monitor the implementation of transport sector projects. The Center implements the Forth East-West Highway Improvement Project (the "Project"), financed under the International Development Association ("IDA"). Credit Agreement No. 5245-GE (the "Agreement") in the amount of Special Drawing Rights ("SDR") 24.5 million was signed between the Government of Georgia ("GoG") and "IDA" on 6 June 2013 ("inception"). The main objectives of the Project are: contribution to the gradual reduction of road transport cost and improving road safety along the section upgraded under the Project and strengthening the capacity of Government of Georgia, Road Department of the Ministry of Regional Development and Infrastructure of Georgia and the local road construction industry to plan and better manage and improve road traffic safety. 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES Statement of compliance - These special purpose project financial statements have been prepared in accordance with the Cash Basis International Public Sector Accounting Standard, Financial Reporting under a Cash Basis of Accounting and in conformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank- Financed Activities" (the "World Bank Guidelines"). The purpose of these special purpose project financial statements is to provide information to the Government of Georgia and the International Development Association to assist them in evaluating the Project implementation. Cash basis of accounting - Project financing is recognized as a source of project funds when the cash is received. Project expenditures are recognized as a use of the Project funds on cash basis when the payments are made. Presentation currency - The national currency of Georgia is the Georgian Lari ("GEL"). These. special purpose project financial statements are presented in United States Dollars ("US Dollar" or "USD"), since management believes that this currency is more meaningful for the users of the special purpose project financial statements. All financial information presented in USD has been rounded to the nearest USD unless otherwise stated. Transactions in other currencies - Transactions in currencies other than reporting currencies are converted to US Dollars at the exchange rate prevailing at the date of the transaction. Cash - Cash represents cash balances with State Treasury. I 1 9 I I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) (in US Dollars) 3. DESIGANTED ACCOUNT Designated account is a designated disbursement account of the Project maintained in US Dollars at the State Treasury of Georgia to ensure the payment of eligible expenditures, within defined limits, which do not require individual authorization from IDA in accordance with the Agreement. 4. BASIS OF FUNDING According to the terms of the Agreement, expenditures of all works, goods and consultant services contracts, including all applicable taxes are co-financed by proceeds received from IDA and the GoG at a proportional rate of 80% and 20%, respectively. I The land acquisition and associated resettlement costs are funded entirely by the GOG. 5. METHODS OF WITHDRAWAL The methods of withdrawal used from the inception of the loan to 31 December 2016 were as follows: I (a) Designated Account The Center withdraws the eligible amounts from the designated account and prepares and sends replenishment requests to the World Bank with authorized signatures. The replenishment requests and respective documentation are reviewed by the World Bank and an approved amount is transferred to the designated account. (b) Direct Payment Available amounts are drawn from time to time within limits determined under the loan agreement for direct payments of eligible expenditures for sub-projects. Direct payments are made by the World Bank directly to third parties. The Center forms withdrawal applications for request of direct payments and sends it to the World Bank, for settlement. (c) GoG Current Account The Project maintains a separate account where funds from the Government of Georgia are accumulated. The funds are further disbursed to sub-contractors based on the share of expenditures to be incurred. The project has a common GEL account and special organization code for their funds in the State Treasury of Georgia. 6. STATEMENT OF EXPENDITURES WITHDRAWAL SCHEDULE Withdrawals are to be made on the basis of SOEs for expenses on contracts within the following contractual limits: (i) All expenditures for works valued at less than USD 4,000,000; (ii) Consultant services contracts (firms) valued at less than USD 100,000; (iii) Consultant services contracts (individuals) valued at less than USD 50,000; (iv) All expenditures for goods and non-consulting services valued at less than USD 300,000. 10 I I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) (in US Dollars) 7. RECONCILIATION OF AMOUNTS SHOWN AS RECEIVED FROM THE IDA TO ACTUAL EXPENDITURES OF THE PROJECT 31 December I Application of Withdrawals Schedule Expenses incurred in 2016 as per the Applications of Withdrawals Schedule 13,296,660 Expenses incurred in 2016 without Applications of Withdrawals Schedule _ 13,296,660 IDA funds received during the year 10,254,309 Add: Opening Balance Designated Account 3,042,351 3,042,351 Less: Closing Balance 3 ~ ~~Designated Account______ 3TOTAL EXPENDITURES INCURRED DURING THE YEAR 13,296,660 31 December 2015 Application of Withdrawals Schedule Expenses incurred in 2015 as per the Applications of Withdrawals Schedule 11,035,682 I ~ ~Expenses incurred in 2015 without Applications of Withdrawals Schedule ___________ 11,035,682 IIDA funds received during the year 9,336,281 3 Add: Opening Balance Designated Account 4,741,752 4,741,752 Less: * Closing Balance Designated Account 3,042,351 3,042,351 TOTAL EXPENDITURES INCURRED DURING THE YEAR 11,035,682 31 ecebe 201 I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) (in US Dollars) 8. PROJECT EXPENDITURES BY COMPONENTS Actual as at Planned as at 31 December 2016 31 December 2016 Variance 3 Project activities Year Cumulative Year Cumulative Year Cumulative to date to date to date to date to date to date Unaudited Unaudited Unaudited Unaudited Component 1 - Construction of Agara - Zemo Osiauri section Civil works 15,648,386 39,333,839 15,648,386 39,333,839 - - Land acquisition 306,505 3,712,478 306,505 3,712,478 Supervision 859,091 2,855,529 859,091 2,855,529 - - TOTAL COMPONENT 1 16,813,982 45,901,846 16,813,982 45,901,846 - - I Component 2 - Institutional Strengthening Training 9,519 56,446 9,519 56,446 - - Consultancy 100,549 240,370 100,549 240,370 TOTAL COMPONENT 2 110,068 296,816 110,068 296,816 - - Component 3 - Consulting services Consultancy - 2,013,666 - 2,013,666 - - TOTAL COMPONENT 3 - 2,013,666 - 2,013,666 - - Component 4 - Project Management Support Goods for RDMRDI 95,740 251,938 95,740 251,938 - - The Center fees and 65,436 80,795 65,436 80,795 - - operating costs Contract without 822 822 822 822 Component TOT AL COMPONENT 4 161,998 333,555 161,998 333,555 - - TOTAL PROJECT 17,086,048 48,545,883 17,086,048 48,545,883 EXPENDITURES __________ ____ _________ ____ I I I I 1 12 1I_______________ I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) (in US Dollars) 3 Actual as at Planned as at Project activities 31 December 2015 31 December 2015 Variance Year Cumulative Year Cumulative Year Cumulative to date to date to date to date to date to date Unaudited Unaudited Unaudited Unaudited Component 1 - Construction of Agara - Zemo Osiaur section Civil works 10,548,992 23,685,453 10,548,992 23,685,453 - - Land acquisition 98,916 3,405,973 98,916 3,405,973 Supervision 1,160,513 1,996,438 1,160,513 1,996,438 - - TOTAL COMPONENT 1 11,808,421 29,087,864 11,808,421 29,087,864 - - Component 2 - Institutional Strengthening Training 10,148 46,926 10,148 46,926 - - Consultancy 139,822 139,822 139,822 139,822 - - TOTAL COMPONENT 2 149,970 186,748 149,970 186,748 - - Component 3 - Consulting services Consultancy 1,812,612 2,013,666 1,812,612 2,013,666 - - 3 TOTAL COMPONENT 3 1,812,612 2,013,666 1,812,612 2,013,666 - - Component 4 - Project Management Support Goods for RDMRDI 107,077 156,196 107,077 156,196 - - The Center fees and 15,373 15,361 15,373 15,361 operating costs TOTAL COMPONENT 4 122,450 171,557 122,450 171,557 - - TOTAL PROJECT 13,893,453 31,459,835 13,893,453 31,459,835 EXPENDITURES______________________ _____ _____ The Project consists of the following main components: * Upgrading of approximately 12 km of the existing 2-lane E60 East-West Highway through the construction of a 2-lane dual carriageway from Agara to Zemo Osiauri including interchanges, two bridges, several overpasses and underpasses and approximately 3.4 km of riverbank protection. * Institutional support to the Road Department of the Ministry of Regional Development and Infrastructure (RDMDI) of Georgia and the Center related to the Project management, financial audits and Project monitoring and evaluation through the provision of goods and consultant's services. The categories of expenditures incurred are presented in line with the categories specified in the I Agreement. Each component of the Project is further divided into four types of expenses for the SOE purposes: civil works, goods, consultants' services and operating costs. 13 1 I TRANSPORT REFORM AND REHABILITATION CENTER FOURTH EAST-WEST HIGHWAY IMPROVEMENT PROJECT CREDIT NO. 5245-GE NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) (in US Dollars) 9. COMMITMENTS AND CONTINGENCIES Management is not aware of any commitments and contingencies which would have a material impact on this special purpose project financial statements as at 31 December 2016 for the year then ended. 10. GEORGIAN OPERATING ENVIRONMENT The Center's operations are located in Georgia. Consequently, the Center is exposed to the economic and financial markets of Georgia, which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in Georgia. The special purpose project financial statements reflect management's assessment of the impact of the Georgian operating environment on the operations of the Center. The future operating environment may differ from management's assessment. 11. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE There were no significant events subsequent to the balance sheet date. 12. APPROVAL OF SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS These special purpose project financial statements were authorized for issue by the management of the Center on 29 June 2017. I I I I I I I 14 I_________________