REPUBLIC OF KENYA OFFICEOF THE AUDITOR-GENERAL Enhancing A ccountability REPORT OF THE AUDITOR-GENERAL ON KENYA ELECTRICITY MODERNISATION PROJECT (IDA CREDIT NO.5587-KE) FOR THE YEAR ENDED 30 JUNE, 2021 RURAL ELECTRIFICATION AND RENEWABLE ENERGY CORPORATION OFFICE OF THE AUDITOR GENEAk P. 0. 1c3 30084 - 00100, NAIROBI 17 DEC 2:1 KENYA ELECTRICITY MODERNIZATION PROJECT (KEMP) RURAL ELECTRIFICATION AND RENEWABLE ENERGY CORPORATION PROJECT CREDIT NUMBER 55870KE ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED JUNE 30, 2021 Prepared in accordance with the Cash Basis of Accounting Method under the International Public Sector Accounting Standards (IPSAS) Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 TABLE CONTENTS 1. PROJECT INFORMATION AND OVERALL PERFORMANCE ......................................................... ii 2. STATEMENT OF PERFORMANCE AGAINST PROJECT'S PREDETRMINED OBJECTIVES ....xiv 3. CORPORATE SOCIAL RESPONSIBILITY STATEMENT/SUSTAINABILITY REPORTING.......xvi 4. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES ................................................xx 5. REPORT OF THE INDENDENT AUDITOR ON THE KEMP PROJECT..........................................xxi 6. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30TH JUNE 2021.......1 7. STATEMENT OF FINANCIAL ASSETS AS AT 30TH JUNE 2021 ....................................................2 8. STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2021...............................................3 9. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS......................................4 10. SIGNIFICANT ACCOUNTIN G POLICIES.........................................................................................5 11. NOTES TO THE FINANCIAL STATEM ENTS ................................................................................13 12. OTHER IM PORTANT DISCLOSURES ............................................................................................ 28 13. PROGRESS ON FOLLOW UP OF PRIOR YEAR AUDITOR'S RECOMMENDATIONS............33 14 . A N N E X E S ........................................................................................................................................... 35 i Kenya ElectricitY Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name: Kenya Electricity Modernization Project (KEMP) Objective: The key objectives of the project are: The Government aims to achieve universal access to electricity by the year 2021. The objective project is to assist the government in achievement of this target by enhancing electrification access in areas that are not likely to be connected to the grid in the medium and short term. The project involves development of 10 solar hybrid mini grid projects to connect households and public facilities in the selected areas. The project headquarters offices are in Nairobi, Kenya The address of its registered office is: Kawi House, Red Cross Road, P.0 Box 34585 - 000100, Telephone: (254) 2341400, 2710955, E-mail: info@reaso.ke, Website: www.rea.co.ke 1.2 Project Information Project Start Date: The roject start date is 29th June 2015 Pro*ect End Date: The roject end date is 30th December 2022 Project Manager: The roject coordinator is Mr. Edward Gakunju Project Sponsor: The project sponsor is International Development Association, which will contribute 100% of project costs. 1.3 Project Overview Line Ministry The project is under the supervision of the Ministry Of Energy and Petroleum Project number The project number is IDA CREDIT NUMBER 55870KE Strategic goals of the The strategic goals of the project are as follows: project (i) To connect public facilities in selected areas (ii) To increase access to electricity. Achievement of The project management aims to achieve the goals through strategic goals (i) mini-grids supplied preferably by hybrid generation 11 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 systems (ii) Construction of necessary distribution infrastructure. 111 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.4 Project Information Project Start Date: The project start date is 29" June 2015 Project End Date: The project end date is 30h December 2021 Project Manager: The project manager is Mr. Edward Gakunju Project Sponsor: The project sponsor is International Development Association, through the National Treasury 1.5 Project Overview Line Ministry/State Department The project is under the supervision of the Ministry of the project Of Energy Project number IDA CREDIT NUMBER 55870KE Strategic goals of the project The strategic goals of the project are as follows: (i) To connect public facilities in selected areas (ii) To connect households in the selected Islands Achievement of strategic goals The project management aims to achieve the goals through the following means: (i) To connect public facilities in selected areas (ii) To connect households in the selected Islands Other important background The project is being implemented in conjunction information of the project with MOE, and KPLC Current situation that the project The project was formed to intervene in the following was formed to intervene areas: The project has two components: (i) Consultancy (ii) Construction of Solar Mini Grids iv Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Project duration The project started on 29th June 2015 and is expected to run until 31st December 2021 V Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.6 Bankers The following are the bankers for the current year: (i) Central Bank of Kenya (Special Account) Account No. 1000250682 Nairobi (ii) Co-operative Bank Nairobi Business Centre Branch Account No. 01136125016302 Nairobi 1.7 Auditors The project is audited by the: Auditor General Office of the Auditor General Anniversary Towers, University Way P 0 Box 30084-00100 Nairobi 1.8 Roles and Responsibilities Names and contact Title Key Qualifications Responsibilities details desi nation Edward Gakunju Project Master's Degree in Overall coordination of Project 0722244879 Coordinator Economic Policy activities egakunju@rea.co.ke Management Responsibilities * Coordinate Project implementation activities as per the work plan * Prepare project implementation reports * Attend project coordination meetings vi Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Lucy Kinyanjui Project Bsc * Preparation of Financi 0722842402 Accountant Admin(Accounting), Reports for the project Ikinyanjui@rea.co.ke C.P.A (K) * Process of project related payments Festus Kasonzo Procurement Master's Degree in * Preparation of projects 0722138880 Specialist Procurement and procurement plans Supplies * Preparation of bid documents fkasomzo@rea.co.ke * Coordinate tendering evaluation and award notifications * Coordination of procurement activities of the project Nicholas Muigai Project Engineer Bsc in Electrical * Review of project designs 0722269540 Engineering * Analyse all the Technical nmuigai@rea.co.ke aspects of the project World Bank and * Project sponsors. Government * Review and approving the projects withdrawal applications, expenditure justifications, no objection requests, annual work plan and budget, expenditure category reallocation request. * Participating in implementation support missions. The Ministry Of * Ensures Project's Energy budget is captured in its development Projects * Disburse the government counterpart funding. * Review and track the Project's annual work plan and budget against the set targets and makes the Vii Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 approvals. * Oversee the execution of the project coordinating team. The Office Of The Mandated to audit all Auditor General national government entities, which include government development projects and present these statutory financial statements to the Parliament. Facilitate submission of the audited report to the project's sponsors by 30"' December each year. 1.9 Funding summary The Project is for duration of (6) years from 2015 to 2021 with an approved budget of US$ 10M equivalent to Kshs 1,013,000,000 as highlighted in the table below: viii _ __ _ �; и � о м .� й о о о rn �о и � � ш rn � г� г+ rn о� о �r в� � . .. � rN., °i rn rn о о rn - дб1- й rn о �п �л ai ri � гч и � оо г.i rn и ш � о0 .. ь л lD О 1� _ О 1� О 1� О 01 О � ^�С О от0 и 0�0 � ' � О о О , С�"ч CD N 01 ++ � -1 e�i Cr" О U л О О е-1 W - � � и � ,� � 0�0 � й � . l0 N о с-Э r-j о � оо оо оо оо С�-+ о о о о а о о о о � и и о о � � г� о о oi м о м и и о � W г� г.i � .-� � ri о ~ А °о °о °о °о ; N � о о о о .� о � . о о о о ° м О ��-' � ои ° °о °о � � � [-~i г� c•i г-+ л ° � '� � � •н И � � � � � .� и � г.� � О -д � � � � � � w у� Q Q � °'с� о�, �-Z-+ о +� � +.� � го ��� F.r ,.� а� га с � �� � �. С! ti � � с ш с с ш с L�с .'�'�' �.� V и г� ,� о� о о��� О и .,.ч � .� � � 3 о � � о � � � о � � � v'zs ег О о v� � Е ш v � L и � о� ti С � R�i � .-� �.�., � � ;__► ,й v � U С .ь�✓ �г,) и� а � д :► с р Q" с р Q� ii Н � О � - - �'i �'i �L ―얌《 Kenya Electricity Modernization Project Reports and Financial Statements For thefinancial year ended June 30, 2021 PROJE CT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.10 Summary of Overall Project Performance: i) Budget performance against actual amounts for current year and for cumulative to-date, ii) Physical progress based on outputs, outcomes and impacts since project commencement, iii) Comment on value-for-money achievements, iv) Absorption rate for each year since the commencement of the project. v) Implementation challenges and recommended way forward. 1.10.1 Budget performance against actual amounts for current year and for cumulative to-date, During the year under review, the project received Kshs. 69,000,001 against a final budget of Kshs. 350,000,000 and incurred a total expenditure of Kshs. 71,925,425 against a budget of Kshs 350,000,000 resulting to underutilization of Kshs 278,068,527 or 79%. The projects' cumulative receipts and payments are Kshs 198,088,977 and Kshs 150,166,433 respectively. 1.10.2 Physical progress based on outputs, outcomes and impacts since project commencement, Activities planned for the reporting Activity Implementation Status Narration period Recruitment of consults for Preparation of bid, advertisements, Completed. preliminary designs and opening of bids, evaluation of bids environmental impact assessment and awards of jobs Recruitment of transaction advisor Preparation of bid, advertisements, Completed. opening of bids, evaluation of bids and awards ofjobs Submission of final report on For the ten sites raft final report in Completed preliminary designs and ESIAs 2018 Submission of bid document by the For recruitment of construction Completed transaction advisor contractor Recruitment of Construction Advertisements, opening of bids, Completed xi Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 contractor evaluation of bids and awards of jobs Site handover to the contractor For Seven sites that are ready for Completed implementation Material manufacture Advance payment processed and On going payment done. However manufacturer was affecetd by Covid 19 and has delayed Factory Acceptance Tests For materials already completed was Completed done virtually Delivery of materials Tax exemption obtained, awaiting On going shipping 1.10.3 Comment on value-for-money achievements The project was extended and the new closure date is 3 1S" December 2022. The Corporation is overseeing activities of the construction contractor to ensure implementation of the planned activities is achieved. The following are the achievements: - 1. Preliminary designs for the mini-grids were done and completed on time 2. ESIA reports were done and completed on time 3. Transaction advisor recruited and submitted bidding documents for recruitment of construction contractor, 4. Construction materials awaiting shipping and delivery 5. Construction contractor already on site 1.10.4 Indicate the absorption rate for each year since the commencement of the project. The absorption rate is 13% compared to the disbursement plan in the Project Appraisal Document (PAD) this was due to low budget allocation granted by the National Treasury. As at to date the Bank has disbursed USD 1,958,901 against a commitment of USD 10,000,000. xii Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 1.10.5 Implementation challenges and recommended way forward. a) The world is experiencing a pandemic called COVID-19. An effort to contain the spread is social distancing which has drastically affected the progress in material manufacturer, travel and exchange of documents. b) Lengthy process of land acquisition which has been solved by county and community engagements. 1.11 Summary of Project Compliance: There were no significant cases of non-compliance with applicable laws and regulations, and essential external financing agreements/covenants. xiii Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 2. STATEMENT OF PERFORMANCE AGAINST PROJECT'S PREDETRMINED OBJECTIVES Introduction a) Section 81 (2) (f) of the Public Finance Management Act, 2012 requires that, at the end of each financial year, the Accounting officer when preparing financial statements of each National Government entity in accordance with the standards and formats prescribed by the Public Sector Accounting Standards Board includes a statement of the national government entity's performance against predetermined objectives.This component will finance consultancy services, feasibility studies for new investments, training actions and other activities to support, among others: b) The key development objectives of the project's 2018-2021 plan are to: (i) Preparation of the National Electrification Strategy (NES). The objective of the NES is to achieve universal access to electricity services meeting applicable standards on quality in a sustainable manner in the shortest possible time. The strategy should also optimize allocation of resources from a country perspective. MoEP will implement this activity. (ii) Detailed national technical specifications and. This assistance will support the technical and economic optimization of the design and construction of electricity networks needed to supply new users located in areas that are currently not electrified, meeting applicable standards on service quality. This will result in the addition of new standardized construction units to those currently applied by KPLC and REA. MoEP will implement this activity. (iii) Regulations for enforcing quality on electricity service. Assistance to ERC to implement a regime on service quality, based on systematic monitoring of key parameters through direct access of the records of the information systems used by KPLC. This will also be combined with assessment of KPLC's customers' complaints and commercial systems. MoEP through ERC will implement this activity. (iv) Training and capacity building. This will finance training and capacity building and communications for the sector entities, including MoEP, KPLC, REA, KETRACO, KenGen and ERC. xiv Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Progress on attainment of Strategic development objectives For purposes of implementing and cascading the above development objectives to specific sectors, all the development objectives were made specific, measurable, achievable, realistic and time-bund (SMART) and converted into development outcomes. Attendant indicators were identified for reasons of tracking progress and performance measurement: Below we provide the progress on attaining the stated objectives: Project Objective Outcome Indicator Performance Kenya Provision of electricity Connection of Availability of In FY 20/21 we Electricity in selected islands. public facilities electricity in the were in the Modernization and households. selected islands process of Project. having the construction contractor on site to start project implementation. The project status is at 13% meaning that it is just commenced. xv Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 3. CORPORATE SOCIAL RESPONSIBILITY STATEMENT/SUSTAINABILITY REPORTING The Project exists to transform lives. This is our purpose; the driving force behind everything we do. It's what guides us to deliver our strategy. Below is a brief highlight of our activities that drive towards sustainability. 1. Sustainability strategy and profile The Corporation is committed to promoting sustainable environmental management and utilization of natural resources to generate socio- economic benefits. Measures were put in place in 2019/20 to ensure sustainable energy resource management. Among them include: Implementation of the Energy Act 2019 through development and review of various regulations (in draft form) that guides on sustainable utilization of the energy resources; Formulation of the Kenya Energy Efficiency and Conservation Strategy and Bio-energy strategy (which aims at promote the development and utilization of bio-energy resources in Kenya in a sustainable manner) both of which are at draft stage; among others. Other strategies put in place included protection of riparian land and reforestation of hydro dam catchment areas through direct involvement and also supply of seedlings to the communities living in project areas. 2. Environmental performance a. The proposed project was screened by World Bank and assigned an Environmental Category B Partial Assessment, on the assumption that no major civil works will be funded and no major physical or economic displacement will take place. Four safeguard policies have been triggered for the project. They include (a) OP/BP 4.01 (Environmental Assessment); (b) OP/BP 4.04 (Natural Habitats); (c) OP/BP 4.10, (Indigenous Peoples); and (d) OP/BP 4.12 (Involuntary Resettlement). b. The World Bank operational policy on Environmental Assessment (OP/BP 4.01) has been triggered, due to the implementation of the activities outlined under Components 1-3. The main potential environmental impacts anticipated for the project are (a) civil works that would be limited to construction of the mini-grids in remote areas (Component 1), installation of stand-alone systems for households (Component 2 ), installation of solar PV for water pumping (Component 3), and construction of distribution lines to connect new customers and (b) environmental, health, and safety concerns are likely to be associated with recycling and disposal of spent batteries at the end of their useful lives, which is usually 3-5 years after deployment. Rechargeable batteries for storing solar energy may run on nickel-cadmium (Ni-Cad), nickel metal hydride (NiMH), lithium-ion (Li-ion), lead- acid (Pb-A), or lead-gel (Pb-gel). These batteries should not be disposed in standard landfills because xvi Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 they can create long-lasting environmental and human health impacts (for example, headacl abdominal discomfort, seizures and comas, cancers, irritation of skin and respiratory system, burns and damage to skin and eyes, and corrosion) due largely to the heavy metals such as mercury, lead, cadmium, and nickel and acids. The entire management processes including de-manufacturing, collection, storage, recycling, transport, and disposal may present a challenge to this project and, given the scope of this World Bank operation, could result in environmental and social risks and impacts, although these impacts are reversible and localized and can be easily and cost-effectively mitigated. c. The operational policy on Natural Habitats (OP/BP 4.04) has been triggered, on the assumptions that the project activities under Components 1 and 3 are likely to affect the natural habitats through erection of poles, construction of the mini-grids, and the installation of the solar water pumping equipment. 3. Employee welfare The policies that guides the Corporation on recruitment includes: PSC Recruitment and Selection Policy; Delegation of PSC HRM Functions to the Cabinet Secretary, July,2018; Framework for Short Term Employment in the Public Service, May,2019; and Human Resources Policies and Procedure Manual for the Public Service, May,2016. This enabled the Corporation to promote common cadre under the delegated powers as guided by the policy taking into consideration gender and regional balance. For skill improvements and career progression the Corporation is guided by Human Resource Development Policy for the Public Service, June, 2015 and Guidelines on Managing Training in the Public Service. This enabled the Corporation to conducts individual trainings programmes required for career progression/promotion and those required in the Schemes of Service for various cadres and also group trainings for various cadres. The Corporation ensured that all staffs were put on Performance Appraisal System (PAS) as guided by guidelines for Implementation of Performance Reward s and Sanctions in the Public Service and also Performance Rewards and Sanctions framework. The Corporation has developed its own Occupational Safety and Health Policy with reference to made Occupational Safety and Health, ACT of 2007. A Corporation Committee on Occupational Safety and Health is in place which ensures adherence to OSHA and safety and security of the staff and Corporation properties. xvii Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 4. Market place practices a) Responsible competition practice. (Strict adherence to Annex IV of World Bank Regulations on Banks Anti-corruption guidelines) b) Responsible Supply chain-and supplier relations- Procurement undertaken in compliance with WB Procurement Regulations as per Section 3.7 of the regulations are as follows; a. Provide timely and sufficient information to Bidders/Proposers/Consultants, including through the Notification of Intention to Award and debriefing, so that Bidders/Proposers/Consultants can both understand the basis for the Borrower's decision and make an informed decision on whether to lodge a Complaint challenging that decision. b. Promptly acknowledge Complaints received; c. Resolve Complaints promptly and fairly; d. Preserve the confidentiality and proprietary information of other Applicants/ Bidders/Proposers/Consultants, including commercial and financial information and trade secrets as requested by the Bidders/Proposers/Consultants in their Bids/Proposals; d. Maintain complete records of all debriefings and Complaints and their resolution; e. For contracts subject to prior review, inform the Bank promptly of any Complaint submitted and provide the Bank a copy of all relevant documents and information; and f. For contracts subject to prior review, The Client consult with the Bank promptly and forthrightly throughout the Complaint review and resolution process. c) Responsible marketing and advertisement-: Ensuring suppliers are given sufficient time to respond. Provide extensions in even of clarifications lead to substantial changes to bidding documents d) Product stewardship-; we have to ensure adherence to NEMA in project implementation is undertaken and well as pursuing "green procurement "to ensure that suppliers who value the environment are encouraged. 5. Community Engagements The Corporation has been carried out the following measures to enhance acceptance of the projects by the communities around the project area; The Ministry and its Agencies put in place mechanism for engagement of the people during project implementation. Among them includes operationalization of Stakeholders Coordination Committees and rolling out of community engagement strategy and policy. xviii Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 In addition the Corporation continued to ensure that local communities were considered for jobs during the implementation of the energy projects. Local communities were also involved during land acquisition. xix REPUBLIC OF KENYA Telephone: +254-(20) 3214000 E-mail: info@oagkenya.go.ke HEADQUARTERS Website: www.oagkenya.go.ke Monrovia Street OFFiCE OF THE AUDITOR-GENERAL P.O. Box 30084-00100 Enhancing Accountability NAIROBI REPORT OF THE AUDITOR-GENERAL ON KENYA ELECTRICITY MODERNISATION PROJECT (IDA CREDIT NO.5587-KE) FOR THE YEAR ENDED 30 JUNE, 2021 - RURAL ELECTRIFICATION AND RENEWABLE ENERGY CORPORATION PREAMBLE I draw your attention to the contents of my report, which is in three parts: A. Report on the Financial Statements that considers whether the financial statements are fairly presented in accordance with the applicable financial reporting framework, accounting standards and the relevant laws and regulations that have a direct effect on the financial statements. B. Report on Lawfulness and Effectiveness in Use of Public Resources which considers compliance with applicable laws, regulations, policies, gazetted notices, circulars, guidelines and manuals and whether public resources are applied in a prudent, efficient, economic, transparent and accountable manner to ensure government achieves value for money and that such funds are applied for intended purpose. C. Report on Effectiveness of Internal Controls, Risk Management and Governance which considers how the entity has instituted checks and balances to guide internal operations. This responds to the effectiveness of the governance structure, the risk management environment, and the internal controls developed and implemented by those charged with governance for orderly, efficient and effective operations of the entity. An unmodified opinion does not necessarily mean that an entity has complied with all relevant laws and regulations, and that its internal control, risk management and governance systems are properly designed and were working effectively in the financial year under review. The three parts of the report are aimed at addressing the statutory roles and responsibilities of the Auditor-General as provided by Article 229 of the Constitution and the Public Audit Act, 2015. The three parts of the report, when read together constitute the report of the Auditor-General. Report of the Auditor-G eneral on Kenya Electricity' M'odernisation Project (IDA redif No. 5587-KE) for the year ended 30 June, 2021 - Rural Electrification and Renewiable Enery Coiporation REPORT ON THE FINANCIAL STATEMENTS Opinion - have audited the accompanying financial statements of Kenya Electricity Modernization Project set out on pages 1 to 42, which comprise the statement of financial assets as at 30 June, 2021, and the statement of receipts and payments, statement of cash flow and statement of comparison of budget and actual amounts for the year then ended, and a summary of significant accounting policies and other explanatory information in accordance with the provisions of Article 229 of the Constitution of Kenya and Section 35 of the Public Audit Act, 2015. I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit. In my opinion, the financial statements present fairly, in all material respects, the financial position of the Kenya Electricity Modernization Project as at 30 June, 2021 and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Cash Basis) and comply with the Public Finance Management Act, 2012 and Financing Agreement No.5587-KE dated 29 June, 2015, between the International Development Association (IDA) and the Republic of Kenya. In addition, the special accounts statement presents fairly the special accounts transaction and the closing balance has been reconciled with the books of account. Basis for Opinion The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls). I am independent of the Kenya Electricity Modernization Project in accordance with ISSAI 130 on Code of Ethics. I have fulfilled other ethical responsibilities in accordance with the ISSAI and in accordance with other ethical requirements applicable to performing audits of financial statements in Kenya. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Key Audit Matters Key audit matters are those matters that, in my professional judgment, are of most significance in the audit of the financial statements. There were no key audit matters to report in the year under review. Other Matter 1.0 Delay in Project Implementation As previously reported in 2019/2020, the KEMP project commenced on 29 June, 2015 with an extended completion date of 31 December, 2022. However, as at Report ofthe Auditor-General on Kenya Electricity Modernisation Project (IDA Credit No.5587-KE) for the year ended 30 June, 2021 - Rural Electrification and Renewable Energy Corporation 2 30 June, 2021 the executed activities were valued at Kshs.150,166,433 or 13.49% of the total project funding of Kshs.1,113,000,000. This is despite the fact that approximately 93% of the project duration had elapsed. In the circumstances, the Project's objectives are-unlikely to be achieved -and hence- affect the benefits that should have accrued to the citizenry. 2.0 Low Budget Absorption During the financial year under review, the project received a total of Kshs.69,000,000 against a budget of Kshs.350,000,000, representing 20% of the project budget for the year. Similarly, a total of Kshs.71,925,425 was paid against the approved budget of Kshs.350,000,000. The under-funding of the project resulted to poor absorption of project's budget. Consequently, low absorption of project's budget is likely to result in a delay in the project implementation. REPORT ON LAWFULNESS AND EFFECTIVENESS IN USE OF PUBLIC RESOURCES Conclusion As required by Article 229(6) of the Constitution, based on the audit procedures performed, I confirm that, except for the matter described in the Basis for Lawfulness and Effectiveness in Use of Public Resources Section of my report, nothing else has come to my attention to cause me to believe that public resources have not been applied lawfully and in an effective way. Basis for Conclusion 1.0 Non-adherence to the Provisions of the Loan Agreement Article IV paragraph 4.2 of the project's subsidiary grant agreement identifies six geographical locations in which the project components would be implemented. Review of the activities relating to the project revealed that Management had increased the project's geographical locations from the original six to ten. No documentation was provided to support the change of scope of the project contrary to the provisions of Article XIII Paragraph 13.02 of the subsidiary grant agreement. Additionally, two projects namely: Kadaina Island in Kilifi County and Chardende in Tana river county and which had been included in the subsidiary grant agreement had not been included in tendering process. In the circumstance, the scope of the project may have been varied without due consideration to the provisions of Article XIII Paragraph 13.02 of the Subsidiary Grant Report ofthe Auditor-General on Kenya Electricity Modernisation Project (IDA Credit No.5587-KE) for the year ended 30 June, 2021 - Rural Electrification and Renewable Energy Corporation 3 Agreement and the project funding may not be sufficient as a result of scope expansion (additional project sites). 2.0 Delay in Signing of Operation and Maintenance Contract Review of the financial records revealed that the contract for operation and maintenance was awarded to a contractor for a contract price of USD4,563,340.8 in respect of foreign currency component and Kshs.34,421,684 for the local currency component on 10 July, 2019. According to the tender documents provided, the contract was to be signed within 120 days from the bid date. However, as at the time of audit in November, 2021, the contract had not been signed. The management has not explained the reasons for not signing the contract. The audit was conducted in accordance with ISSAI 4000. The standard requires that I comply with ethical requirements and plan and perform the audit to obtain assurance about whether the activities, financial transactions and information reflected in the financial statements are in compliance, in all material respects, with the authorities that govern them. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. REPORT ON EFFECTIVENESS OF INTERNAL CONTROLS, RISK MANAGEMENT AND GOVERNANCE Conclusion As required by Section 7(1)(a) of the Public Audit Act, 2015, based on the audit procedures performed, I confirm that, nothing has come to my attention to cause me to believe that internal controls, risk management and overall governance were not effective. Basis for Conclusion The audit was conducted in accordance with ISSAI 2315 and ISSAI 2330. The standards require that I plan and perform the audit to obtain assurance about whether effective processes and systems of internal control, risk management and governance were operating effectively, in all material respects. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion. Responsibilities of Management and those charged with Governance Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Public Sector Accounting Standards (Cash Basis) and for maintaining effective 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 and for its assessment of the effectiveness of internal control, risk management and overall governance. Report ofthe Auditor-General on Kenya Electricity Modernisation Project (IDA Credit No.5587-KE) for the year ended 30 June, 2021 - Rural Electrification and Renewable Enery Corporation 4 In preparing the financial statements, Management is responsible for assessing the ability of the Project to continue sustaining services, disclosing, as applicable, matters related to sustainability of services and using the applicable basis of accounting unless Management is aware of the intention to terminate the Project or cease operations. Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section 47 of the Public Audit Act, 2015. In addition to the responsibility for the preparation and presentation of the financial statements described above, Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them, and that public resources are applied in an effective way. Those charged with governance are responsible for overseeing the financial reporting process, reviewing the effectiveness of how the entity monitors compliance with relevant legislative and regulatory requirements, ensuring that effective processes and systems are in place to address key roles and responsibilities in relation to governance and risk management, and ensuring the adequacy and effectiveness of the control environment. Auditor-General's Responsibilities for the Audit The audit 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 my opinion in accordance with the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAls will always detect a material misstatement and weakness 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. In addition to the audit of the financial statements, a compliance audit is planned and performed to express a conclusion about whether, in all material respects, the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities that govern them and that public resources are applied in an effective way, in accordance with the provisions of Article 229(6) of the Constitution and submit the audit report in compliance with Article 229(7) of the Constitution. Further, in planning and performing the audit of the financial statements and audit of compliance, I consider internal control in order to give an assurance on the effectiveness of internal controls, risk management and overall governance processes Report ofthe Auditor-General on Kenya Electricity Modernisation Project (IDA Credit No.5587-KE) for the year ended 30 June, 2021 - Rural Electrification and Renewable Energy Corporation 5 and systems in accordance with the provisions of Section 7(1)(a) of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229(7) of the Constitution. My consideration of the internal control would not necessarily disclose all matters in the internal control that might be material weaknesses under the ISSAls. A material weakness is a condition in which-the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Because of its inherent limitations, internal control may not prevent or detect misstatements and instances of noncompliance. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. As part of an audit conducted in accordance with ISSAls, I exercise professional judgement and maintain professional skepticism throughout the audit. I also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my 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. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. * Conclude on the appropriateness of the Management's use of the applicable basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Project to sustain its services. If I conclude that a material uncertainty exists, I am required to draw attention in the auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my audit report. However, future events or conditions may cause the Project to cease to sustain its services. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements Report ofthe Auditor-General on Kenya Electricity Modernisation Project (IDA Credit No.5587-KE) for the year ended 30 June, 2021 - Rural Electrification and Renewable Energy Corporation 6 represent the underlying transactions and events in a manner that achieves fair presentation. * Obtain sufficient appropriate audit evidence regarding the financial information -and -business- activities of the Project to express an opinion on-the financial statements. * Perform such other procedures as I consider necessary in the circumstances. I communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that are identified during the audit. I also provide Management with a statement that I have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. CPA Na CBS AUDITOR-GENERAL Nairobi 22 December, 2021 Report ofthe Auditor-General on Kenya Electricity Modernisation Project (IDA Credit No.5587-KE) for the year ended 30 June, 2021 - Rural Electrification and Renewable Energy Corporation 7 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 4. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Chief Executive Officer, Rural Electrification and Renewable Energy Corporation and the Project Manager, are responsible for preparing the project's financial statements, which give a true and fair view of the state of affairs of theproject as at theaend -of the accounting- period.-This responsibility includes: maintaihing adequate financial management arrangements and ensuring that these continue to be effective throughout the reporting period; maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the project; designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements and ensuring that they are free from material misstatements, whether due to fraud or error;'safeguarding the assets of the Project; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The Chief Executive Officer and the Project Manager for KEMP project accept responsibility for the project's financial statements, which have been prepared on the Cash Basis method of Financial Reporting, using appropriate accounting policies in accordance with the International Public Sector Accounting Standards (IPSAS). The Chief Executive Officer and the Project Manager for KEMP project are of the opinion that the financial statements give a true and fair view of the state of the project financial position as at June 30, 2021. The Chief Executive Officer and the Project Manager KEMP project further confirm the completeness of the accounting records maintained for the Project, which have been relied upon on the preparation of the Financial Statements as well as on the adequacy of the internal control systems. The Chief Executive Officer and the Project Manager for KEMP project confirm that the Project has complied fully applicable Government Regulations the terms of the Financing Covenants and that Project funds received during the financial year/period under audit were used for the eligible purposes for which they were intended and were properly accounted for. Approval of the Project financial statements The Project financial statements were approved by the Chief Executive Officer and the Project Manager for KEMP on W- _ 2021 and signed by them. Chief Executive Officer Project Manager Peter Mbugua Edward Gakunju CPA Lucy Kinyanjui ICPAK 4862 xx •° °о о �D � � о о й! о�+ м ,° м_�а _ _ _ _ - �л" о г*i � _ .. ., er и и п7 +с�_5+ •Я О О о р � �D N G ,а � � .-N. � оИ � � � О [� U н И V• .-i � О О � И ' � N � � О N � _ О • ^� � � � � � �' � � '� � о о � С п3 н � о � �, � � .. � � `.�i О �i �у а� .сл И к , � 1 (� � j о�о � ш .U °7 � � vj ¢ � д� �-i � ^а :. L "� +� ,� � � о о а Ё'а �. й й •� � си о a�i о р� д.., W �; .с о о о с пt а U � � � �' ' � � N � � N N И ""� 'D >, О О i'7 N r ..pL � � � оо ор �i 1т�1 � С,� � О 7 � U 1+{ О О сб о � Ё ° �' '" '" � �.,� т л с 'G `� "N" �. й д � А � W � ° о '� � м i о А и � о i i i � i � 7 v � /W-, !%� О О N � .�-i н С1. а ^ � � ? QMi� � сд � О � [� r � � W � � � W ^, 0 о о �-ч Rt Г И � О О � р s.Nч i Н F л 'С р р О о с� -�------- .. а � � � � � � � о � � � � N �� � �° � � � � � 1 � о а� � �`�'' С7 Н No � � � N N и � N b �N О [\ [\ ..� � .. , �--� i1 ,� и � � "а й �' м м � � "_' � � о � .� ��� k� N N� й-��, а W р-г � >' о д � СС' �. с� е� и А °' ''� Z � О � `3 о N z --� N м�t и и t� оо � о и м° а �v .� °i W � � � N �, � � U 4 � И О �' 40 С и � � .. � у � � L" С R�j п3 � С,� ш• ад а- и � л [JтQ'.+1 fi' ; � � О .:' � С и й N С1. аУ'j` 1 � Z [�1 � •г7 � и • ^ � С С � � , С,� у r� � с� О л й •� �� � и N ; �" � W � U N С Е у а� � U > и О'D и г' N 4. � i �.' �"' � � +Jи - j я• L1. С 4: 4'ч О С � U 4"а Сб � � � � V � W > � � � a�i и С С � у � ..Fr О / � � � � [ 1 _Q •b � � О'О 4) О N U�-ч р" � � i � � � t�J � � С � С � у w +"С-� � С � �=у � •� -f� 1 � � О � N О R. СЛ � г� •� � р � �у qW � i � � � у р� � �; � � С'а� t'+ •r о С о С д � � о �, , 'r a.J а`"i '6 о � a�i С й °� •� ыи. �с�., i'3" � о Х +�.+ � W а� �t'.. i. ,� С и'� а� i-7 с) а� у О � r� � U С и � Q о `�' " °' С � Е" � `д � � .� �� с4 Н а` �-а° � f� а U а й� Е-�� О НО � н ,.� � Р-, ! U U Kenya Electricity Modernization Project Reports and Financial Statements For thefinancialyear ended June 30, 2021 7. STATEMENT OF FINANCIAL ASSETS AS AT 30TH JUNE 2021 Note 2020-2021 2019-2020 Kshs - - - - Kshs Cas h and Cash Equivalents Bank Balances I ].A 47,922,544 50,854,016 Cash Balances I I.B - - Cash Equivalents (short-term deposits) I I.C - - Total Cash and Cash Equivalents 47,922,544 50,854,016 Accounts receivables - Imprest and Advances 12 - - TOTAL FINANCIAL ASS M, 47,922,544 50,854,016 FINANCIAL LIABILITIES Payables- Deposits and Retentions 13 - - REPRESENTED BY. Fund balance b/fWd 14 50,854,016 61,322,035 Prior year adjustments 15 - - Surplus/Deficit for the year (2,931,472) (10,468,020) NEIP FINANCIAL POS ITION 47,922,544 50,854,015 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The financial statements were approved on 2021 and signed by: Chief Executive Officer Project Manager Project Acc untant CPA Peter Mbugua Edward Gakunju CPA Lucy Kinyanjui ICPAK 4862 2 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 8. STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2021 Note 2020-2021 2019-2020 KSs lis shs CASHFLOWS FROM OPERATING ACTIVITIES Receipts from operating income Transfer from Government entities I - Proceeds flom domestic and foreign grants 2 - Miscellaneous Receipts 4 - Payments from operating expenses Compensation of employees 5 - Purchase ofgoods and services 6 - Social security benefits 7 - Transfers to other government entities and Payments 9 (6,048) (6,780) Adjustments during the year 15 - Decrease/(Increase) in Accounts receivable: 16 - (outstanding imprest) Increase/(Decrease) in Accounts Payable: 17 - (deposits and retention) Net cash flow from operating activities (6,048)- 6,780 CASIHFLOW FROM INVESTING ACTIVITIES Acquisition of Assets 8 (71,925,425) (10,461,240) Net cash flows from Investing Activities (71,925,425) (10,461,240) CASHFLOW FROM BORROWING ACTIVITIES Proceeds fiom Foreign grants 3 69,000,001 Net cash flow from financing activities 69,000,001 NET INCREASE IN CASH AND CASH EQUIVALENT (2,931,472) (10,468,020) Cash and cash equivalent at BEGINNING of the year 50,854,016 61,322,035 Cash and cash equivalent at END of the year 47,922,544 50,854,015 The accounting policies and explanatory notes to these financial statements form an integral part of the financial statements. The entity financial statements were approved on 2021 and signed by- Chief Executive Officer Project Manager Project Accogntant CPA Peter Mbugua Edward Gakunju CPA Lucy Kinyanjui ICPAK 4862 3 _ _ _ о о оо м w � � о � U i N N � i i '" b '�О О • О '�L" �� � ,� 1г�� Ч-r о ,� о� N .-. � �-' � � м о с т � � � � н � � � о � � � � � "r.+ � U и 0�1 � р� � � м и а.. � �1 � .о О� et �-. � О �-"+ N д•N � 1�1 � о� ` � �л `" ^ с� -" coi �' оио G4 �� ш оо а, И � И � ! У Q � д' � N ,r и� д '-' и г� � ` � � ,.� �4 *cf а� � i � � i i �' � р С1, о а' v � о ,Л и оо м ш а, U � � � °о �°�• � � � � � о � � о Ра °о � �л N `° � ° � и ёС .С 'Су -� Q� N � О ^ � •-• � v' \О О� .-I l� ,--� �G � � '�' N l� l� � G�L � О Q V ,� у✓ � � �D � \О N а� � о и � й и � � й ,� О �t �t С/1 0. � � О О о р о -кГ�. Е"� �� � � р� � N F-� С U h 'ct' � у N �. м �у. � � м м � о � � � и � � 'д' О � � и � � й i й � i � и �. � N �, � � с � .ьЯ ..б '� ONi � � � � bA . 1--� •вУ'ч] � � 'S N N .=' (� С�rг� � N � ; `J U � .� ' � � и � � -� о � А а о о о о о � �•°� 3 Z ,b�o � о о � о о � � � о а� ; о�, '.� � о о о о о о с�, �- -�� R, W � � � о о о о о `+� W � и о оо ° о ° 'ti с � N,-, о ги,, о ш А 'ал м м � � О � W `�. и х"' '�1 1-�-1 � ¢• сб � N � bp � О � '� � р у •� � •� •и � М � '� �. и ш а1 ,� с� а � � ч° � � � о о � � � � аэ 'b � � � �--�''- о �ti О � � � '� � � � �, � ,N w0эi � V � � '� .� � � N й � U � � � о ~ � и О �' � о сод � / А 4�-� сб � � � °' � � �°' о � '- � ✓+ о л � •� � Z °' cJ � -fl `' С .� т, и �, � � с� т �, � � � .� о о � с � о � '+ � � � ,.W�., � � о о о � о и и а� .� � � С v р� о � �1 а� �а� о � " � и ,+ v �-ч c�i и О G � � � •�' � •� W й и � -о -.о � °� р .� � � сб ее ,� J �si W +-• •L �� � а � й a�i N � � � ^ й bA i�. �3у Н ,� с�..� Р�-� � � С � �v �V о U U й � � б о ..С .� � о � � � � � � Е"� д � ь�, О О р R V ь�, '-' о z U U � г� Г� tx Е-� а а� Е-{ а.� Q Н О О Е-� ег i � /� � � � � Г � � � Kenya Electricity Modernization Project Reports and Financial Statements For thefinancialyear ended June 30, 2021 10. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below: 10.1 Basis of Preparation 10.2 Statement of compliance and basis of preparation The financial statements have been prepared in accordance with Cash-basis IPSAS financial reporting under the cash basis of accounting, as prescribed by the PSASB and set out in the accounting policy note below. This cash basis of accounting has been supplemented with accounting for; a) receivables that include imprests and salary advances and b) payables that include deposits and retentions. The financial statements comply with and conform to the form of presentation prescribed by the PSASB. The accounting policies adopted have been consistently applied to all the years presented. 10.3 Reporting entity The financial statements are for the Project KEMP under National Government of Kenya. The financial statements encompass the reporting entity as specified in the relevant legislation PFM Act 2012 . 10.3.1 Reporting currency The financial statements are presented in Kenya Shillings (KShs), which is the functional and reporting currency of the Project and all values are rounded to the nearest Kenya Shilling. 5 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 10.4 Significant Accounting Policies a) _ Recognition of receipts The Project recognises all receipts from the various sources when the event occurs, and the related cash has actually been received by the Government. i) Transfers from the Exchequer Transfer from Exchequer is be recognized in the books of accounts when cash is received. Cash is considered as received when payment instruction is issued to the bank and notified to the receiving entity. ii) External Assistance External assistance is received through grants and loans from multilateral and bilateral development partners. iii) Other receipts These include Appropriation-in-Aid and relates to receipts such as proceeds from disposal of assets and sale of tender documents. These are recognized in the financial statements the time associated cash is received. b) Donations and grants Grants and donations shall be recognized in the books of accounts when cash is received. Cash is considered as received when a payment advice is received by the recipient entity or by the beneficiary. In case of grant/donation in kind, such grants are recorded upon receipt of the grant item and upon determination of the value. The date of the transaction is the value date indicated on the payment advice. 6 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Significant Accounting Policies (Continued) c) Proceeds from borrowing Borrowing includes Treasury bill, treasury bonds, corporate bonds, sovereign bonds and external loans acquired by the Project or any other debt the Project may take on will be treated on cash basis and recognized as a receipt during the year they were received. d) Undrawn external assistance These are loans and grants at reporting date as specified in a binding agreement and relate to funding for the Project currently under development where conditions have been satisfied or their ongoing satisfaction is highly likely and the project is anticipated to continue to completion. An analysis of the Project's undrawn external assistance is shown in the funding summary e) Recognition of payments The Project recognises all payments when the event occurs, and the related cash has actually been paid out by the Project. i) Compensation of employees Salaries and Wages, Allowances, Statutory Contribution for employees are recognized in the period when the compensation is paid. ii) Use of goods and services Goods and services are recognized as payments in the period when the goods/services are consumed and paid for. If not paid for during the period where goods/services are consumed, they shall be disclosed as pending bills. 7 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Significant Accounting Policies (Continued) iii) Interest on borrowing Borrowing costs that include interest are recognized as payment in the period in which they incurred and paid for. iv) Repayment of borrowing (principal amount) The repayment of principal amount of borrowing is recognized as payment in the period in which the repayment is made. The stock of debt is disclosed as an annexure to the consolidated financial statements. v) Acquisition of fixed assets The payment on acquisition of property plant and equipment items is not capitalized. The cost of acquisition and proceeds from disposal of these items are treated as payments and receipts items respectively. Where an asset is acquired in a non-exchange transaction for nil or nominal consideration and the fair value of the asset can be reliably established, a contra transaction is recorded as receipt and as a payment. A fixed asset register is maintained by each public entity and a summary provided for purposes of consolidation. This summary is disclosed as an annexure to the consolidated financial statements. f) In-kind donations In-kind contributions are donations that are made to the Project in the form of actual goods and/or services rather than in money or cash terms. These donations may include vehicles, equipment or personnel services. Where the financial value received for in-kind contributions can be reliably determined, the Project includes such value in the statement of receipts and payments both as receipts and as payments in equal and opposite amounts; otherwise, the contribution is not recorded. 8 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30 2021 Significant Accounting Policies (Continued) g) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and cash at bank, short-term deposits on call and highly liquid investments with an original maturity of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. Bank account balances include amounts held at the Central Bank of Kenya and at various commercial banks at the end of the financial year. For the purposes of these financial statements, cash and cash equivalents also include short term cash imprests and advances to authorised public officers and/or institutions which were not surrendered or accounted for at the end of the financial year. Restriction on cash Restricted cash represents amounts that are limited/restricted from being used to settle a liability for at least twelve months after the reporting period. This cash is limited for direct use as required by stipulation. Amounts maintained in deposit bank accounts are restricted for use in refunding third part deposits. h) Accounts receivable For the purposes of these financial statements, imprests and advances to authorised public officers and/or institutions which were not surrendered or accounted for at the end of the financial year is treated as receivables. This is in recognition of the government practice where the imprest payments are recognized as payments when fully accounted for by the imprest or AIE holders. This is an enhancement to the cash accounting policy. Other accounts receivables are disclosed in the financial statements. 9 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Significant Accounting Policies (Continued) i)Contingent Liabilities A contingent liability is: a) A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or b) A present obligation that arises from past events but is not recognised because: i) It is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; or ii) The amount of the obligation cannot be measured with sufficient reliability. Some of contingent liabilities may arise from: litigation in progress, guarantees, indemnities. Letters of comfort/ support, insurance, Public Private Partnerships, The Entity does not recognize a contingent liability but discloses details of any contingencies in the notes to the financial statements unless the possibility of an outflow of resources embodying economic benefits or service potential is remote. Annex 5 of this financial statement is a register of the contingent liabilities in the year. Section 89 (2) (i) of the PFM Act requires the National Government to report on the payments made, or losses incurred, by the county government to meet contingent liabilities as a result of loans during the financial year, including payments made in respect of loan write-offs or waiver of interest on loans j) Contingent Assets The Entity does not recognize a contingent asset, but discloses details of a possible asset whose existence is contingent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Entity in the notes to the financial statements. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits or service potential will arise and the asset's value can be measured reliably, the asset and the related revenue are recognized in the financial statements of the period in which the change occurs. 10 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Significant Accounting Policies (Continued) k) Pending bills Pending bills consist of unpaid liabilities at the end of the financial year arising from contracted goods or services during the year or in past years. As pending bills do not involve the payment of cash in the reporting period, they recorded as 'memorandum' or 'off-balance' items to provide a sense of the overall net cash position of the Project at the end of the year. When the pending bills are finally settled, such payments are included in the statement of receipts and payments in the year in which the payments are made. 1)Budget The budget is developed on a comparable accounting basis (cash basis), the same accounts classification basis (except for accounts receivable - outstanding imprest and clearance accounts and accounts payable - deposits, which are accounted for on an accrual basis), and for the same period as the financial statements. The Project's budget was approved as required by Law and National Treasury Regulations, as well as by the participating development partners, as detailed in the Government of Kenya Budget Printed Estimates for the year. The Development Projects are budgeted for under the MDAs but receive budgeted funds as transfers and account for them separately. These transfers are recognised as inter-entity transfers and are eliminated upon consolidation. A high-level assessment of the Project's actual performance against the comparable budget for the financial year/period under review has been included in an annex to these financial statements. m) Third party payments Included in the receipts and payments, are payments made on its behalf by to third parties in form of loans and grants. These payments do not constitute cash receipts and payments and are disclosed in the payment to third parties column in the statement of receipts and payments. During the year Kshs 69 Million being grant disbursements were received in form of direct payments from third parties. 11 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 Significant Accounting Policies (Continued) n) Exchange rate differences The accounting records are maintained in the functional currency of the primary economic environment in which the Project operates, Kenya Shillings. Transactions in foreign currencies during the year/period are converted into the functional currency using the exchange rates prevailing at the dates of the transactions. Any foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statements of receipts and payments. o) 'Comparative figures Where necessary comparative figures for the previous financial year/period have been amended or reconfigured to conform to the required changes in financial statement presentation. p) Subsequent events There have been no events subsequent to the financial year/period end with a significant impact on the financial statements for the year ended June 30, 2021. q) Errors Material prior period errors shall be corrected retrospectively in the first set of financial statements authorized for issue after their discovery by: i. Restating the comparative amounts for prior period(s) presented in which the error occurred; or ii. If the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets/equity for the earliest prior period presented. 12 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 11. NOTES TO THE FINANCIAL STATEMENTS 1. RECEIPTS FROM GOVERNMENT OF KENYA These represent counterpart funding and other receipts from government as follows: 20120/2 AW2~' 'Cumulatv KSh kSh date(fro Counterpart funding through Ministry xxx CounteprfudQurr1 Coun-terpart funds Quarter 2 Counterpart funds Quarter 3- Counterpart funds Quarter 4 Total (See Annex 2) Other transfers from government entities Ministry xx Ministry xy Project zxy Agency xz Appropriations-in-Aid Total 13 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 NOTES TO THE FINANCIAL STATEMENTS (Continued) 2. PROCEEDS FROM DOMESTIC AND FOREIGN GRANTS During the 12-months to 30 June 2021 we received grants from donors as detailed in the table below: Amount Gat Grants Grants Grants Naeo DnrDate received inreivda Name of Donor received in received as received in Total amount in KShs received donor direct cash diet kind currency payment* 2020/21 2019/20 KShs KShs KShs KShs KShs Grants Received from Multilateral Donors (International Organisations) International Development 16.07.2020 684,501 69,000,001 69,000,001 Association (IDA) Total 684,501 - 69,000,001 - 69,000,001 - * The direct payment grants represent payments for goods and services done directly by the donor on behalf of the project. Projects should ensure that the adequate documents and support document is requested from the donors to support this grant. 14 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 NOTES TO THE FINANCIAL STATEMENTS (Continued) 3. LOAN FROM EXTERNAL DEVELOPMENT PARTNERS During the 12 months to 30 June 2021-we received funding fromdevelopment partners in f6n-of loans negotiated by the National Treasury donors as detailed in the table below: Name of Donor Date Amount in loan Loans received in Loans received as receiwd currene cash direct payment* Total amount in Kshs FY2020/21 FY2019/20 Kshs Kshs Rshs Kshs Loans Received from Bilateral Donors (Foreign Governments) Loans Received from Multilateral Donors (International Organisations) International Developnent Association IDA DA-C Total 15 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 NOTES TO THE FINANCIAL STATEMENTS (Continued 4. MISCELLANEOUS RECEIPTS 2020/21 2019/20 Cumulative to- d Receipts Receipts controlled by controlled by Total Receipts (from inception the entity in third parties Cash KShs KShs KShs KShs K Property income - - Sales of goods and services - - Administrative fees and charges Voluntary transfers other than grants Other receipts not classified elsewhere 16 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 NOTES TO THE FINANCIAL STATEMENTS (Continued) 5. COMPENSATION OF EMPLOYEES 2020/21 -2019/20 Cumulat Payments made by Payments made by Total the Entity in Cash third parties Payments KShs KShs KShs KShs K! Basic salaries of permanent employees Basic wages of temporary employees --- Personal allowances paid as reimbursements . Pension and other social security contributions - . Compulsory national social security schemes . Compulsory national health insurance schemes - Social benefit schemes outside government . Other personnel payments Total 17 Kenya Electricity Modernization Project Reports and Financial Statements For the financial year ended June 30, 2021 NOTES TO THE FINANCIAL STATEMENTS (Continued) 6. PURCHASE OF GOODS AND SERVICES 2020/21 2019/20 Cumulative to- date Payments made by Payments made Total Payments the Entity in Cash by third parties KShs KShs KShs KShs KShs Utilities, supplies and services -_-_ - - - Communication, supplies and services Domestic travel and subsistence Foreign travel and subsistence Printing, advertising and - information supplies & services - - - - Rentals ofproduced assets -_-_-_-_- Training payments -_-_-_-_ - Hospitality supplies and services Insurance costs Specialised materials and services -_-_-_-_- Other operating payments - - -_-_- Routine maintenance - vehicles and other transport equipment - - - - Routine maintenance- - other assets -_-_-_-_- Exchange rate losses/gains (net) - - -_-_- Total - -_-_-_- 18 Kenya Eleetricity Modernization Project Reports and Financial Statements For the financialyear ended June 30, 2021 NOTES TO THE FINANCIAL STATEMENTS (Continued) 7. SOCIAL SECURITY BENEFITS Payments Pa y nts made by the m,Éade',by iintiTotal Total C lativ Cash parties Pa mens Pants t ae i. K8hs iKShs у N а о � .а �.� L� ш�'� о о �-в �� .� ° � с � > г� � -- 0 � � L г�с г\л � � °�..+' � � � ,�и, е� о zw., ' Ё n. � � �, �. гv •� ,� � � � � О � � �. � � -в � о °' � L � � -в .� о е� ,' � � n- Q v о�:� Q_n. � о ��°J п. � о ''� � о +--+ �ш � .^`�' �'� � �.-� га О v р о с� �о ,ш ш ш � fs. � �.� и � oioo'- ьло��� ��, � z о о �,_.. �,о �^ �, �отsо .� `,�' � ш ш N � О пs О ° � eoi О `� о с� � � -� �. �� n. °'� о г,, > � С� v� � � ш о,� о�°� � � ш,.� j и ...-. О ..� .��.� � -Q � � � �о о ,'� v�:-�o'� л�� •� � � � _� � о �,, � � о � :- о ш I,.� .� гv 'Сз С�.� � о � а� bA "' rt1 � �..+-'- О,=� Ш Ш�' о м+-�' � V � '� � � ° 'L7 N � 'в ,.� � О � s.. и i- �.i V � •� W С� р„� и � "� и� и N о �� ш и�2' 'л ""' L' .ti с, r-� т F- �v ..n `..С L. 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У v'r., W .� .. -д "�1 а' U++: W'' _ i�,, О `i' b -� � {у L, F-� и � • � н � 'С7 Е-� .� � у О � .^ � О G ��w � '� � со �о � �ow х г�� � � 3 � 一！一 Kenya Electricity Modernization Project Reports and Financial Statements For thefinancial year ended June 30, 2021 APPPENDICES i. Bank Reconciliations statement as at 3 01h June 2021 ii. Special Deposit Account(s) reconciliation statement 42