Reporting on Economy, Efficiency & Effectiveness in the use of Public Resources AIN: COAD-2024-159 FINANCIAL AUDIT REPORT OF THE WORLD BANK FUNDED PROJECT ON ‘SUSTAINABEL HYDROPOWER DEVELOPMENT PROJECT’ IMPLEMENTED BY THE DRUK GREEN POWER CORPORATION LIMITED, THIMPHU PERIOD: 01/01/2022 TO 31/12/2023 MAY 2023 “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty the King Jigme Khesar Namgyel Wangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan | Tel: +975-2-322111/328729/328730/324961 | Fax: +975-2-323491 Website: www.bhutanaudit.gov.bt | Email: info@bhutanaudit.gov.bt and auditorgeneral@bhutanaudit.gov.bt རྒྱལ་གཞུང་རྩིས་ཞྩིབ་དབང་འཛིན། ROYAL AUDIT AUTHORITY Bhutan Integrity House Reporting on Economy, Efficiency & Effectiveness in the use of Public Resources RAA/COAD/DGPCL(CERT)/2023-2024/2094 Dated: 28/05/2024 The Director Finance and Investment Department Druk Green Power Corporation Limited Thimphu, Bhutan Subject: Financial Audit Report of the World Bank funded project on ‘Sustainable Hydropower Development Project’ implemented by the Druk Green Power Corporation Limited, Thimphu for the financial year ended 2022 and 2023 Sir, Enclosed herewith, please find the audited financial statements and auditors’ report thereon in respect of the World Bank Funded Project on ‘Sustainable Hydropower Development Project’ implemented by the Druk Green Power Corporation Limited, Thimphu for the year ended 2022 and 2023. The audit was conducted as required under the Audit Act of Bhutan 2018, and in accordance with the International Standards of Supreme Audit Institutions (ISSAIs). Two sets of the audited Financial Statements and Auditors’ Report may please be forwarded to the World Bank Bhutan Country Office, Thimphu. Auditor’s Report on the Financial Statement As may be noted from the auditors’ report, the financial statements prepared by the project implementing partner DGPCL, Thimphu are in all material respects, in accordance with Financial Rules and Regulations of DGPCL (Accounting manual 2021) and as per the Project Agreement. Accordingly, the RAA has expressed unmodified (clean) opinion on the financial statements. Follow-up status of previous audit reports The RAA has attempted to carry out the follow-up audit on unresolved issues of previous audit reports, however, the review revealed that there were no pending reports on the WB funded project implemented by DGPCL. Therefore, the RAA acknowledges the management of implementing partners for the successful implementation of the project. Further, the Royal Audit Authority acknowledges the kind co-operation and assistance extended to the audit team by the officials of the project implementing partner DGPCL, Thimphu which facilitated timely completion of the audit. “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty the King Jigme Khesar Namgyel Wangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan | Tel: +975-2-322111/328729/328730/324961 | Fax: +975-2-323491 Website: www.bhutanaudit.gov.bt | Email: info@bhutanaudit.gov.bt and auditorgeneral@bhutanaudit.gov.bt Yours sincerely, (Nima) Officiating Assistant Auditor General Compliance and Outsource Audit Division Copy to: 1. Department of Macro-Fiscal and Development Finance, MOF 2. The AAG, PP&AARD, RAA, Thimphu 3. The AAG, FUCD, RAA, Thimphu 4. Office Copy TITLE SHEET 1. Title : Financial Audit Report of the WB Funded project on ‘Sustainable Hydropower Development Project’ implemented by DGPCL, Thimphu for the FY 2022 & 2023 2. Head of the Agency : Ugyen Wangchuk, Finance Director (Personnel No.: 224) (CID No.: 10203001292) (From: 1.11.2021 to till date) Email Address: uwangchuk224@drukgreen.bt 3. Drawing and : Ugyen Wangchuk, Finance Director Disbursing Officer (Personnel No.: 224) (CID No.: 10203001292) (From: 1.11.2021 to till date) Email Address: uwangchuk224@drukgreen.bt 4. Finance Personnel : Dodo, Sr. Finance Officer (Personnel No. 1530) (CID No. 10502000891) (From: 01.01.2010 to till date) Email Address: d.dodo1530@drukgreen.bt 5. Period Audited : 01.01.2022 to 31.12.2023 6. Schedule of Audit : Planning: 15.04.2024 to 26.04.2024 Conducting: 15.04.2024 to 26.04.2024 Reporting: 07.06.2024 7. Composition of Teams : Team Leader: Tenzin Wangchuk, Sr. Audit Officer EID No. 20150104960 Team Members: 1. Pema Wangda, Sr. Auditor-II EID No. 9410041 2. Dawa Tshering, AAO EID No. 202201920942 3. Tshering Dema, AAO EID No. 202301922923 8. Supervising Officer : Nima, Officiating Assistant Auditor General Compliance & Outsourced Audit Division (EID No. 20140103324) 9. Overall Supervising : Dorji Wangchuk, Deputy Auditor General Officer Department of Performance and Compliance Audit (EID No. 200201004) 10. Engagement Letter : RAA/Cert-01/SHDP/COAD/23-24/1813 dt. 09/04/24 No 11. Focal Person : Tshering Dema, Asst. Audit Officer 12. Date of Exit Meeting : Not Conducted i Glossary of Abbreviations & Acronyms AAG : Assistant Auditor General AIN : Audit Information Number AR : Audit Report ARA : Audit Recoveries Account ATR : Action Taken Report CID : Citizenship Identity COAD : Compliance and Outsource Audit Division DGPCL : Druk Green Power Corporation Limited DHPP : Dorjilung Hydropower Project DHPS : Department of Hydropower and Power System DPR : Detailed Project Report EID : Employee Identity ESMAP : Energy Sector Management Assistant Program ESIA : Environmental and Social Impact Assessment ESP : Environmental and Social Panel FUCD : Follow-up and Clearance Division ISSAIs : International Standard for Supreme Audit Institutions IUFR : Interim Unaudited Financial Report MoF : Ministry of Finance MoU : Memorandum of Understanding PPAARD : Policy Planning and Annual Audit Report Division PRP : Project Review Panel RAA : Royal Audit Authority RGoB : Royal Government of Bhutan SARIC : South Asia Regional Infrastructure Connectivity Grant SHDP : Sustainable Hydropower Development Project ii TABLE OF CONTENTS AUDITORS’ REPORT ON FINANCIAL STATEMETNS OF THE WORLD BANK FUNDED PROJECT ON SUSTAINABLE HYDROPOWER DEVELOPMENT PROJECT IMPLEMENTED BY THE DRUK GREEN POWER CORPORATION LIMITED, THIMPHU FOR THE FISCAL YEAR ENDED 2022 & 2023 ............................................................................................................................................ 1 ANNEXURE – A: PROFILE ........................................................................................................................ 3 iii AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS རྒྱལ་གཞུང་རྩིས་ཞྩིབ་དབང་འཛིན། ROYAL AUDIT AUTHORITY Bhutan Integrity House Reporting on Economy, Efficiency & Effectiveness in the use of Public Resources AUDITORS’ REPORT ON FINANCIAL STATEMETNS OF THE WORLD BANK FUNDED PROJECT ON SUSTAINABLE HYDROPOWER DEVELOPMENT PROJECT IMPLEMENTED BY THE DRUK GREEN POWER CORPORATION LIMITED, THIMPHU FOR THE FISCAL YEAR ENDED 2022 & 2023 Opinion We have audited the accompanying financial statements of the World Bank funded project on ‘Sustainable Hydropower Development Project’ implemented by the Druk Green Power Corporation Limited, Thimphu which comprise the statement of expenditures and schedules forming a part of financial statements for the fiscal year ended 2022 & 2023. In our opinion, the financial statements are prepared, in all material respects, in accordance with the Financial Rules and Regulations of DGPCL (Accounting Manual 2021) and the Project Agreement. Basis for Opinion We conducted our audit in accordance with International Standards of Supreme Audit Institutions (ISSAIs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Financial Statement section of our report. We are independent of the project management or project implementing partner, DGPCL, Thimphu and we have fulfilled our responsibilities in accordance with the requirements outlined in RAA’s Oath of Good Conduct, Ethics and Secrecy of Auditors. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for preparation of the financial statements in accordance with the Financial Rules and Regulations of DGPCL (Accounting Manual 2021) and project agreement 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. Those charged with governance are responsible for overseeing the DGPC’s project financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of audit in accordance with ISSAIs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty the King Jigme Khesar Namgyel Wangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan | Tel: +975-2-322111/328729/328730/324961 | Fax: +975-2-323491 Website: www.bhutanaudit.gov.bt | Email: info@bhutanaudit.gov.bt and auditorgeneral@bhutanaudit.gov.bt 1 • 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 omission, 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 Yang Ya Foundation’s internal control. We communicate with the management, among others, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit. (Nima) Officiating Assistant Auditor General Date: 28/05/2024 2 FINANCIAL STATEMENTS ANNEXURE – A: PROFILE Background: Project Name : Sustainable Hydropower Development Project, Dorjilung HPP Funding Agency : World Bank (WB) Contract Partner : Ministry of Finance (MOF), Royal Government of Bhutan Implementing Agency : Druk Green Power Corporation Limited Funding Amount : USD 4,300,000.00 (ESMAP -USD 1,500,000.00 & SARIC -USD 2,800,000.00) Project Agreement Date : 18th March 2022 Project End Date : Ongoing Project Description: Druk Green Power Corporation Limited (DGPC) is the implementing agency for the SHDP grant funded by the World Bank (USD 4.3 million) through two trust funds. They are the South Asia Regional Infrastructure Connectivity (SARIC) and the Energy Sector Management Assistance Program (ESMAP). The activities under the SHDP grant are, to update the Detailed Project Report (DPR), including the Environmental and Social Impact Assessment (ESIA) of the 1,125 MW Dorjilung Hydropower Project to the standards of the newly approved Guidelines for Development of Hydropower Projects (MoENR, 2018), and to build capacity for the sustainable development of hydropower. The Grant Agreement was signed between the Royal Government of Bhutan (RGoB) and the World Bank on March 17, 2022, and followed by the signing of the Project Agreement between DGPC and the World Bank on March 18, 2022. The objective of the Project is to strengthen the capacity of the power sector agencies in Bhutan to plan and prepare regional hydropower and transmission line projects following international good practices. The Project consists of the following parts: Part A: Preparation Studies/ technical assistance for DHPP hydropower plant and transmission line projects Provide technical assistance and carry out preparation studies for DHPP and associated transmission lines, through (i) updating the detailed project report (DPR), geotechnical investigations, preparing preliminary engineering designs, and updating of the safeguard documents and (ii) support project implementation and project management and purchase of hardware and software for the DPR updates. Part B: Capacity Building for the Sustainable Development of Hydropower Supporting the capacity building and training activities of DGPC and DHPS for hydropower development and hydropower management through studies, technical advice, computerized analytical tools for (i) project development and management, including monitoring of plant safety, geotechnical monitoring; (ii) supporting activities on regional integration, energy trade, and power market; (iii) designing of hydromechanical equipment and environmental and social risk management, and (iv) establishment of a dam safety panel of experts and an environmental and social risk management panel of experts respectively. 3 The Key interventions of the projects include: ✓ Undertake the detailed pre-feasibility studies for Dorjilung HPP such as Inception report, Freshwater Plankton Assessment, Eflow report, Environmental and social impact assessment and others. ✓ Strengthening of human capacity involved in the use of various software, data management and sustainable development and other geotechnical reports. Context: The project has instituted various software for the use in the pre-feasibility studies and outsourced expertise from over the globe to ensure the development of the Dorjilung Hydro- power Project. Moreover, the upskilling and capacity development of the human capacity involved in the management and the implementation of the project has been prioritized. Thus, the overall expenditure incurred constitutes the rendering of services for the experts and conducting trainings for the manpower involved. The management outsourced technical services from various experts for which in the year 2022, the project didn’t incur any cost; however, the expenditure was undertaken in the subsequent year amounting to Nu. 62,9997,423.97. Budget Utilization: Year Trust Fund Received (Nu.) Expenditure (Nu.) Budget Remaining (Nu.) ESMAP 26,891,240.00 26,805,138.03 86,101.97 2023 SARIC 68,342,040.00 36,192,285.94 32,149,754.06 Total 95,233,280.00 62,997,423.97 32,235,856.03 ************* 4