ENVIRONMENTAL SERVICES PROJECT P130492 and P128412 Special Purpose Financial Information for the period from January 1 to December 31, 2015 (with independent auditor’s report thereon) Contents Page Independent Auditor’s Report 1-2 Statement of Sources and Uses of Funds 3 Statement of Withdrawal Applications 4 Notes to the Special Purpose Financial Information 5-11 Appendixes i-iv Grant Thornton Sh.p.k. Rr: Sami Frasheri, Kompleksi T.I.D, Shk. B, Floor 1, 10 000 Tirana, Albania T +355 4 22 74 832 F +355 4 22 56 560 www.grantthornton.al Independent Auditor’s Report To the Management of the Project “Environmental Services Project” and Ministry of Finance of the Republic of Albania We have audited the accompanying special purpose financial information comprising the statement of sources and uses of funds, statement of withdrawal applications, related notes and appendixes, of the “Environmental Services Project” (further referred to as the “Project”), implemented by the Ministry of Environment financed under International Bank for Reconstruction and Development (‘IBRD’) Loan Agreement Number 8401-AL, Global Environmental Facility (‘GEF’) Grant No.TF017364, Swedish International Development Cooperation Agency ‘(SIDA’) Grant No.TF18238 and Government of Albania Contributions for the period from 1 January to 31 December 2015. The special purpose financial information has been prepared by management of the Project in accordance with policies described in note 2 of the special purpose financial information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the special purpose financial information in accordance with the accounting policies described in note 2 and the relevant provisions set out in the Loan Agreement Number 8401-AL, and for such internal control as management determines is necessary to enable the preparation of the special purpose financial information that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on the special purpose financial information based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the special purpose financial information is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the special purpose financial information. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the special purpose financial information, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the special purpose financial information preparation and fair presentation in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the special purpose fmancial information. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the special purpose financial information of the Project "Environmental Services Project" is prepared, in all material respects, in accordance with the cash receipts and disbursement basis of accounting as set out in note 2 to the special purpose financial information. Restriction on Use and Distribution Without modifying our opinion, we draw attention to note 2 to the special purpose financial information, which describes the basis of accounting. The special purpose financial information are prepared to assist the Project to comply with the financial reporting provisions of the fmancing agreements set out in the note 1 to the special purpose information. As a result, the special purpose financial information may not be suitable for another purpose. Our report is intended solely for the Project, the donors and the Government of Albania and should not be used by or distributed to parties other than the Project, the donors or the Government of Albania. /-- '\ / - ,'30 .t i I./t. Sh.p.lt. ()~ Grant Thornton sh.p.k. \ ! Tirana, Albania 31 October 2016 Tirana 1 itL AN!A Environmental Services Project P130492 and P128412 Statement of Sources and Uses of Funds for the period from 1 January 2015 to 31 December 2015 (in Euro unless otherwise stated) For the period from Note 1 January 2015 to 31-Dec-15 Sources of funds IBRD 3 400,000 GEF 3 100,000 SIDA 3 415,529 GoA contribution 4 35,889 Interest received 227 Total 951,645 Uses of funds Training and workshop 5 34,175 Consultancy services 6 91,571 Incremental operating costs 7 21,164 Goods 8 93,225 Staff salaries 9 45,366 VAT expenses 35,889 Total 321,390 Excess of receipts over disbursements 630,255 Exchange rate differences 8,284 Cash begin period 11 Cash end of period 11 638,539 The Statement of Sources and Uses of Funds is to be read in conjunction with the notes set out on pages 5 to 11 and forming an integral part of the special purpose financial information. The special purpose financial information of Environmental Services Project were authorized for issue by the management of the MiQistry of Environment on 17 October 2016 and signed on its behalf by: 4E 0" '~~~\AE~)'Q li I:::;,~~~'~ Algi Blla ,~ l0~ ! 11,:", Donika Qesja General ,roe. .- ..TJ Financial Specialist - -penment Mingironment 3 Environmental Services Project P130492 and P128412 Statement of withdrawal applications for the period from 1 January to 31 December 2015 (in Euro unless otherwise stated) Withdrawal Date of application withdrawal Type of Other Amount in Original Donor number application Disbursement Training and Workshop expenses Total in EUR Currency CCY IBRD WA-1 I 7/29/2015 Advance - 400,000 400,000 400,000 EUR SIDA WA-1 S 5/22/2015 Advance - 400,000 400,000 400,000 EUR SIDA WA-2 S 5/22/2015 Direct Payment 7,039 - - 7,039 EUR SIDA WA-3 S 5/26/2015 Direct Payment 8,490 - - 8,490 EUR GEF WA-1 G 7/29/2015 Advance - 100,000 100,000 100,000 EUR Total 15,529 900,000 900,000 915,529 4 Environmental Services Project P130492 and P128412 1. General The objective of the Project is to support sustainable land management practices and increase communities’ monetary and non-monetary benefits, in targeted Project areas which are mainly in erosion prone rural upland areas. The Project consists of the following parts: Part 1: Strengthening Institutional Capacity to Improve Environmental Services from Integrated Landscape Management (a) Strengthening the Borrower’s capacity for governance of forests and pastures including: (i) preparing a change detection National Forest Inventory to provide information on how forest cover and volume have changed over an agreed intervening period; (ii) developing a ten year rolling National Forest Inventory whereby plots sampled for forest cover and volume are examined on annual basis for a duration of ten years; (iii) supporting forest management planning in the state managed production forests excluding the protected areas; (iv) establishing the Albanian Forest Information System; (v) strengthening the capacity of the Regional Forest Directorate to carry out its obligations including the independent monitoring of the forests; and (vi) registering forests and pastures transferred by the central government to the communes. (b) Carrying out activities to empower beneficiaries, including Local Government Units (LGUs), CFPUAs and farmers, to practice sustainable land and pasture management practices including: (i) implementing the Gender Action Plan to promote gender equity in natural resource management; (ii) supporting LAGs to contribute to the rural development strategy; (iii) training LGUs and CFPUAs on sustainable use of forests, pastures and agricultural lands; and; (iv) promoting rural income generation, through analysis of values chains and preparation of short and medium-term forest products processing and marketing plans. Part 2. Planning and Provision of Grants to Improve Land Management (a) Carrying out activities to prepare and implement CMCPs to improve land management, including: (i) developing guidelines for the preparation of CMCPs to promote integrated use of natural resources; (ii) preparing CMCPs for new communes; and (iii) Upgrading existing CFPMPs which will expire during the life of the Project into CMCPs. (b) Providing Grants to eligible Beneficiaries to carry out Subprojects. (c) Strengthening the capacity of staff for the Regional Forest Directorates, District Forest Office, ARDA and bodies involved in the agricultural and forests extension services as well as applicants to carry out their responsibilities under the Project. 5 Environmental Services Project P130492 and P128412 Part 3: Introducing Payment for Environmental Services Establishing financing mechanisms for reducing land degradation and supporting sustainable livelihoods including: (a) preparing technical studies for the development of carbon projects and establishing monitoring, reporting and verification systems to quantify carbon sequestered by Project activities; (b) developing mechanisms for Payment for Watershed Services to ensure that those who benefit from environmental services pay those who generate these services; and a model for linking land use practices with the generation of ecosystem services; and (c) Piloting the Payment for Watershed Services mechanism in selected areas. Part 4: Supporting Project Implementation (a) Carrying out activities for Project implementation, including supplying of office equipment, building staff capacity, and the implementation of the environmental safeguards. (b) Supplying and installing a Project monitoring information system to promote effective tracking of project activities; and carrying out surveys, conducting environmental audits and monitoring and evaluation. The Project became effective on 29 January 2015 and will be completed by 30 September 2019. The Project is financed from the following sources: IBRD 84010 AL According to the Loan Agreement dated 25 July 2014 between GoA and IBRD, the Project is entitled to a loan of 7,300,000 Euro. The table below sets forth the items to be financed out of the proceeds of the grant, the allocation of the amounts of the grant and the percentage of expenditures to be financed: Percentage of Expenditures Amount of the Loan to be financed (inclusive of Category Allocated (expressed in EUR) Taxes) (1) Goods and non- consulting services under Part 1(a), 2(c) and Part 4 (a) of the Project 4,679,850 100% (2) Subprojects under Part 2(b) of the Project 2,601,900 100% Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General (3) Front-end Fee 18,250 Conditions TOTAL AMOUNT 7,300,000 6 Environmental Services Project P130492 and P128412 GEF TF 17364 (P128412) According to the Grant Agreement dated 25 July 2014 between GoA and GEF, the Project is entitled to a grant of 2,880,000 U$. The table below sets forth the items to be financed out of the proceeds of the grant, the allocation of the amounts of the grant and the percentage of expenditures to be financed: Percentage of Amount of the Expenditures to be Grant Allocated Financed (inclusive Category (in USD) Taxes) Non consulting services, training, consultants services and Operating Costs under Parts 1(a), 2(a) and Part 3(a) of the Project 2,880,000 100% Total Amount 2,880,000 SIDA TF 018238 According to the Grant Agreement dated 25 July 2014 between GoA and SIDA, the Project will receive a grant of 7,960,000 U$. The table below sets forth the items to be financed out of the proceeds of the grant, the allocation of the amounts of the grant and the percentage of expenditures to be financed: Percentage of Amount of the Expenditures to be Grant Allocated Financed (inclusive Category (in USD) Taxes) 1) Goods, Works, Consultants and Non- consulting services, Training, Operating Costs under Part 1, Part 2(a) and ( c), Part 3(a) and ( c) and Part4 of the Project 6,142,470 100% 2) Sub project under Part 2(b) of the Project 1,817,530 100% Total Amount 7,960,000 7 Environmental Services Project P130492 and P128412 1. General (continued) The Grant will be used to finance up to 100% of expenditures consisting of goods, consultancy services, meetings and workshops and operating costs for the Project. In addition, the project management costs will be financed on 100%. As at 31 December 2015, Euro 915,529 has been disbursed from the Donors funds. GoA’s contribution The Government of Albania is to finance project expenses relating to VAT. 2. Summary of significant accounting policies A summary of significant accounting policies underlying the preparation of the Project’s financial statements is presented below. a) Basis of preparation The financial statements have been prepared in accordance with Cash Basis of Accounting as further explained below under point C. Cumulative information on cash receipts and disbursements from the Project’s inception to date is presented in the Statement of Sources and uses of Funds for information purposes only. The financial statements are presented in Euro. The financial statements comprise the Statement of Sources and Uses of Funds, the Statements of Expenditures used as the basis for the submission of withdrawal applications and a summary of significant accounting policies and other explanatory notes. As supplementary schedules to the financial statements are presented the Statements of Special and Accounts and Single Treasury Account associated with the Project. b) Foreign currency transactions The Project has adopted the Euro as its reporting currency for consistency with the reporting needs of its main donor, the World Bank. Cash and bank balances in other currencies are converted into Euro at the year-end rate of exchange. Transactions in currencies other than Euro are converted to the reporting currency at the rate ruling at the date of the transaction. Foreign exchange differences are recognized in the Statement of Sources and Uses of Funds. As at 31 December 2015, 1 Euro was equivalent to 137.28 All. c) Recognition of income and expenses Income is recognized when received rather than when earned and expenses are recognized when paid rather than when incurred. Accordingly, direct payments of the Project, which are made from the proceeds of the Project, are recognized as sources and uses of funds at the time the payment is made. d) Taxation The Project is exempt from income tax since its nature is of non-profit activities and the surplus by the end of the project is returned to the financing parties. The Project is liable for withholding tax and personnel income tax for its staff. The Project of liable for all VAT expenses incurred, which are to be settled from the GOA’s contributions. 8 Environmental Services Project P130492 and P128412 3. DONORS funding Funds received from DONORS funding for the period from 1 January 2015 to 31 December 2015 were composed as follows: Period from 1 January to 31 December 2015 Advance 900,000 Direct Payments 15,529 Total 915,529 Direct Payments refer to amounts paid directly from donor to the suppliers in relation to incurred training and workshop expenses of the project. 4. GoA contribution GoA contribution represents VAT expenditures for some contracts. Total funding from inception date up to 31 December 2015 was ALL 5,015,150 (Eur 35,889). 5. Training and Workshops The meetings and workshops for the period from 1 January to 31 December 2015 were composed as follows: Period from 1 January to 31 December 2015 Accommodation 8,678 Per diem and Transport expenditures 14,587 Workshop 2,763 Project lunching event 3,365 Other 4,782 Total 34,175 6. Consultancy services The consultancy services for the period from 1 January to 31 December 2015 were composed as follows: Period from 1 January to 31 December 2015 Study of Cost of Land Degradation in Albania 40,425 M&E software 25,848 GAP implementation consultancy 12,841 Baseline Survey consultancy 12,457 Total 91,571 9 Environmental Services Project P130492 and P128412 7. Incremental Operating costs Operating costs for the period from 1 January to 31 December 2015 were composed as follows: Period from 1 January to 31 December 2015 Office Supplies 5,058 Bank Charges 727 Operating Cost Components (Equipment repair, car insurance and repair etc. 9,553 Health & Social Insurance for staff 5,826 Total Incremental Operating Costs 21,164 8. Goods Goods for the period from 1 January to 31 December 2015 were composed as follows: Period from 1 January to 31 December 2015 GNSS goods for IPRO offices 68,450 GIS License for IPRO 14,895 FM Software 9,880 Total 93,225 9. Staff salaries Period from 1 January to 31 December 2015 Net staff Salaries 30,794 Social Securities and health insurance contribution 9,329 PIT 5,243 Total 45,366 10 Environmental Services Project P130492 and P128412 10. Project expenditures by category Expenditures by sources of funds for the period from January 2015 to December 2015 were composed as follows: Period from 1 January to 31 December 2015 Goods 93,224 Training Workshops 34,174 Consultancy services 91,571 Operating costs 21.163 Staff salaries 45,366 Total 264,358 11. Cash at banks Cash at banks as at 31 December 2015 was composed as follows: Period from 1 January to 31 December 2015 GEF Special Account BoA (EUR) - IBRD Special Account BoA (EUR) - SIDA Special Account BoA (EUR) - Single Treasury Account (ALL) - Project Accounts at Local Banks GEF Credins Bank (ALL) 8,338,946 Equivalent in Euro 60,744 GEF Credins Bank( EUR) 43 SIDA Credins Bank (ALL) 15,711,622 Equivalent in Euro 114,449 SIDA Credins Bank (EUR) 143,523 IBRD Credins Bank (ALL) 27,894,507 Equivalent in Euro 203,194 IBRD Credins Bank (EUR) 116,585 Total 638,539 11 APPENDIXES Environmental services Project P130492 and P128412 Statements of Special Accounts and Project Accounts for the period from 1 January to 31 December 2015 (Supplementary schedules to the Special Purpose Financial Information) i Environmental Services Project P130492 and P128412 Appendix 1 Supplementary Schedule of Special Account Statement Donor GEF TF01736 SIDA TF 18238 IBRD 8401-AL Account No: 2117645E 2117632E 2117646E Bank of Bank of Bank of Depository Bank Albania Albania Albania Skenderbeg Skenderbeg Skenderbeg Sqaure, No 1, Sqaure, No 1, Sqaure, No 1, Address Tirana, Albania Tirana, Albania Tirana, Albania Currency EUR EUR EUR 2015 2015 2015 Opening Balance at beginning of period - - - Funds received: Advance 100,000 400,000 400,000 100,000 400,000 400,000 Disbursements: Funds transferred to Credins Bank in EUR 200,000 200,000 Funds transferred to Credins Bank ALL account 100,000 200,000 200,000 TOTAL 100,000 400,000 400,000 Balance at end of the period - - - ii Environmental Services Project P130492 and P128412 Appendix 2 Supplementary Schedule of Project Account Statement IBRD SIDA GEF Account No: 704816 679781 704809 Depository Bank CREDINS BANK CREDINS BANK CREDINS BANK Str.Ismail Str.Ismail Qemali, Qemali, Tirana Str.Ismail Qemali, Address Tirana Albania Tirana Albania Currency EUR EUR EUR 2015 2015 2015 Opening Balance at beginning of period - - - Funds received: Funds received from Special Account 400,000 400,000 100,000 Funds received from the other account 87 15,634 34 400,087 415,634 100,034 Disbursements: Project expenditures 83,463 161,477 40,560 Loss from exchange rate 3,155 3,816 1,313 Balance at end of the period 319,779 257,973 60,787 iii Environmental Services Project P130492 and P128412 Appendix 3 Supplementary Schedule of Single Treasury Account Depository Bank: Treasury Account M260324 Address: Ministry of Finance Currency: ALL 2015 Opening Balance at beginning of period - Funds received: Funds received from GoA 5,015,150 5,015,150 Disbursement: Transferred to Credins Bank - Transferred to GoA - - Balance at end of the period 5,015,150 iv