I I 0 FOREIGN FINANCING PROJECTS MANAGEMENT CENTRE TRADE PROMOTION AND QUALITY INFRASTRUCTURE PROJECT LOAN No. 8390-AM SPECIAL PURPOSE FINANCIAL STATEMENTS Il AND INDEPENDENT AUDITORS' REPORT For the year ended 31 December 2015 C E1 CONTENTS Independent Auditors' Report 3 Statement of Project Sources and Uses of Funds 5 Statement of Uses of Funds by Project Activity 7 Notes to the Special Purpose Financial Statements 8 1 Il 2 PHPAudit CSC Ipwqwupwbwqub hwugh. Lwpwbryjb 474, pbrub. Z bn. (010)204090 Regivtrtion addrv.v: 474 Nalbandyan sir, Yan an, Annnhia rc. (011)204090 R PHP 9np&bbmppub hLugh. thqnhgfi. &7pwq pfiqbbu qhbmpn&. &plhmb 2: tltu genera/{a0hp.ar PHP Audit Actiiftyaddrcvs J.2Adonts .t., Er.zBusinc.vy Center. Ycrvian Armenia E-mail INDEPENDENT AUDITORS' REPORT To the Director of Foreign Financing Projects Management Centre We have audited the accompanying special purpose financial statements of the Trade Promotion and Quality Infrastructure Project, which comprise Statement of Project Sources and Uses of Funds, Statement of Uses of Funds by Project Activity, Reconciliation Statement of Withdrawal Applications, Statement of Designated Account and Government Co-financed Account for the year ended 31 December 2015, and Statement of Financial Position as at 31 December 2015 and a summary of significant accounting policies and other explanatory notes. Management 's Responsibility for the Special Purpose Financial Statements Management is responsible for the preparation and fair presentation of these special purpose financial statements in accordance with the cash basis of accounting in line with International Public Sector Accounting Standards (IPSAS): Financial Reporting under the Cash Basis of Accounting. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of these special purpose financial statements that are free from material misstatements, whether due to fraud or error and selecting and applying appropriate accounting policies. Auditors'Responsibility Our responsibility is to express an opinion on these special purpose financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the special purpose financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the special purpose financial statements and to assess whether funds allocated to the Project were spent both efficiently and in conformity with "Loan Agreement for the Trade Promotion and Quality Infrastructure Project " (Loan # 8390) signed between the International Bank for Reconstruction and Development (IBRD) and Republic of Armenia dated 6 August 2014 (Loan Agreement). The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the special purpose financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements 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 principles used by management, as well as evaluating the overall presentation of the special purpose financial statements. We believe that the audit evidence we have obtained is sufficient appropriate to provide a basis for our opinion. 3 Independent Auditors' Report Page 2 Opinion In our opinion, the special purpose financial statements present fairly in all material respects the project sources and uses of funds, uses of funds by project activity and its cash flows for the year ended 31 December 2015 in accordance with the cash basis of accounting in line with International Public Sector Accounting Standard (IPSAS): Financial Reporting under the Cash Basis of Accounting and Financing Agreement between the Republic of Armenia and International Bank for Reconstruction and Development dated 6 August, 2014 (Loan #8390-AM). Restriction on Use and Distribution The special purpose financial statements have been prepared for providing information to the Government of the Republic of Armenia, the International Bank for Reconstruction and Development to assist them in evaluating the Project implementation. As a result, the special purpose financial statements may not be suitable for another purpose. Davit Yedigaryan / Lilit Minasyan Director Manager, Audit Department PHP Audit cjsc 27 June 2016 4 I Trade Promolion and Qua/ly Infrastructure Project fl Statement of Project Sources and Uses of Funds for thec year ended 31 December 2015 USD PAD Actul PlnnedVarinceLife of Project I Opening Cash Balance Government co- financing account for Credit Designated Account for World Bank financing Total Add: Sources of Funds . -Government co- finincing 9,270 World Bank financing 1,800,000 Total donor funds 1,809,270 Foreign Exchange Difference Government co- financing (15) Total (15) Less: Uses of Funds Procurement of goods (co-financed by Government) - Consultancy services (co-financed by Government) 719 Training (co-financed by Government) - Operating expenses (co-financed by Government) 8,536 Results Based Financing "Improving the Effectiveness of Trade Promotion and Quality Systems" (financed by credit) 1,175,000 Procurement of goods (financed by credit) - 5 Trade Prontofion and Quality Infrastructure Project Statemnent of Project Sources and Uses of unds for the year ended 31 Decembher 2015 USDPA UDActual Planned Variance LfofProec Consultancy services (financed by credit) 3,596 Training (financed by credit) Operating expenses (financed by credit) 25,572 Government co- financing 9,255 156,019 (146,764) 10,040,520 Credit financing 1,204,168 2,280,095 (1,075,927) 49,875,000 Total 1,213,423 2,436,114 (1,222,691) 59,915,520 Front end feo 125,000 125,000 125,000 Closing Cash Balance Government co- financing account for credit Designated Account for credit (World Bank financing) 470,832 Total 470,832 The project special purpose financial statements were approved by the management of Foreign Financing Projects Management Centre and signed on its behalf on 27 June 2016. Edgar Avetyan Aren Shahnazaryan Executive director financial Manager Designate Acon 6 U Trade Promotion and Quality Infrastructure Project Statement of Uses of Funds by Project Activityfor the year ended 31 December 2015 PAD Actual Planned Variance L Pr Life of Project Project Activities Part A: Inproving the Effectiveness of Trade Promotion and Quality Systems 1,175,000 10,000,000 Government co- financing - - Credit financing 1,175,000 10,000,000 fl Part B: Promoting Investment and Exports - 35,761,600 Government co- financing - 6,526,600 Credit financing - 29,235,000 Part C: Modernizing the National Quality Infrastructure - 11,589,920 Government co- financing - 2,949,920 Credit financing - 8,640,000 Part D: Project Managenent, Monitoring and Evaluation 38,422 2,689,000 Government co- financing 9,255 564,000 Credit financing 29,168 2,125,000 Front End Fee 125,000 125,000 - 125,000 Total project expendeture 1,338,423 2,561,114 (1,222,691) 60,040,520 7 Trade Promotion and Quality lifrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2015 1 Background (a) Organisation and operations The Foreign Financing Projects Management Centre (FFPMC) State Institution was established by RoA Minister of Economy Decree No. 37, dated 29 March 2000. Within the scope of its operation the FFPMC is guided by local legal acts and Loan and Grant Agreements, signed between the Government of Armenia and the International Bank for Reconstruction and Development (World Bank). The main objective of operation of FFPMC is to implement projects on the account of loan and grant proceeds allocated to the Republic of Armenia by the World Bank. According to the financing agreement concluded between the International Bank for Reconstruction and Development and Republic of Armenia dated 6 August 2014 (Loan Agreement) a loan in an amount equivalent to fifty million United States Dollars ($50,000,000) was extended for the implementation of Trade Promotion and Quality Infrastructure Project to finance procurement of goods, consultants' services and incremental operating expenses. The Project Management Unit is formed within the Ministry of Economy of the Republic of Armenia. I Tax consequences arising from the procured goods, consultants' services and incurred operating expenses are paid form the proceeds of the co-financing received from the Government of the Republic of Armenia. Total amount of Government co-financing approximates to USD 9,500,000. The Project's objective is to strengthen the Borrower's capacity to provide export promotion, investment attraction and quality management services to firms. The Project consists of the following components: a Part A: Improving the Effectiveness of the Trade Promotion and Quality System The objective of this Component is to promote reforms aimed at improving the trade promotion and quality infrastructure system. * Part B: Promoting Investment and Exports The objective of this component is to strengthen the capacity of local exporters to compete in foreign markets, facilitate cluster development, and attract efficiency seeking FDI (Foreign Direct Investment). * Part C: Modernizing the National Quality Infrastructure The objective of this component is to modernize metrological, accreditation and standards services in order to provide relevant quality assurance services to industry. * Part D: Project Management and Monitoring and Evaluation The objective of this component is to finance project implementation and monitoring. Closing date of the Project is 30 June 2020. (b) Results Based Financing (RBF) In the scope of Part A "Improving the Effectiveness of the Trade Promotion and Quality System" of the Project, the World Bank has made Results Based Financing subject to validation by independent auditor. This RBF component disburses loan funds to the Government of Armenia (GoA) for agreed-upon actions, outputs and outcomes ("Disbursement-Linked Indicators" or DLIs) that result in improvements to the trade promotion and quality system. The GoA receives disbursements based on established amounts allocated to the achieved DLIs to the extent there are sufficient Eligible Expenditure Programs (EEPs) incurred by the Government. 8 Trade Promotion and Quality Infrastructure Project Notes to the Special Purpose Financial Statemenis for the year ended 31 December 2015 The Project Management Unit reports the achievement of the DLIs by providing documentation of the achievement of the given DLI and the EEPs. PHP Audit CJSC was selected as an independent auditor for validation of the actual level of EEPs in the scope of agreed upon procedures. Validation of the actual EEPs covered in the financial statements is for the year ended 31 December 2014. The validated amount by the auditor is USD 3,066,15 1. I The World Bank accepted evidence submitted in the fulfillment of nine DLIs for the total amount of USD 1,175,000. Disbursements under Part A, in the form of RBF, were made to the Central Bank of Armenia, in the amount of USD 1,175,000 on 19 October 2015. The proceeds were converted to AMD and transferred to the Treasury Single Account of the Ministry of Finance in the amount of AMD 554,436 thousand on 29 October, 2015, using spot rate defined by the Central Bank of Armenia for October 28, 2015. 2 Basis of preparation (a) Statement of compliance The special purpose financial statements are prepared in accordance with the cash basis of accounting in line with the International Public Sector Accounting Standard (IPSAS): Financial Reporting under the Cash Basis of the Accounting. The special purpose project financial statements consist of: Project Sources and Uses of Funds, Uses of Funds by Project Activity, Statement of Financial Position, Statement of Designated Accounts, Statement of Project Account. Cash basis of accounting recognizes transactions and other events only when cash is received or paid. (b) Reporting currency The reporting currency of special purpose financial statements is US dollar (USD). All financial information presented in USD has been rounded to the nearest USD. 3 Significant accounting policies (a) Foreign currency transactions In the scope of the Project IBRD makes disbursements in USD on the designated account 900000900408 for the project. Payment of eligible and accepted expenditires (goods, services and other) should be made by the FFPMC out of designated account, or FFPMC will submit withdrawal applications to the Bank for payments to contractors, suppliers and consultants directly from loan account. FFPMC converts the amounts received and transfers to contractors, suppliers and consultants. The outstanding balances of the project account are translated to USD based on the USD exchange rate defined by the Central Bank of the Republic of Armenia as at 31 December 2015 equaling to AMD 483.75. 9 Trade Promotion and Quality Infrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2015 (b) Taxes All the applicable tax liabilities are calculated and paid in accordance to tax regulations of the Republic of Armenia. (c) Funds for the Project Funds for the Project are received from the International Development Association and from Government of Armenia. I 10 Trade Promotion and Quality ifrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2015 4 Reconciliation statement of withdrawal applications Withdrawal Amount Amount Paid Application Application Type Requested by by World Difference Reference FFPMC Bank USD USD USD Advance to Designated Al Account 500,000 500,000 Reimbursement/ Results EEP-DA I Based Financing 1,175,000 1,175,000 - 1,675,000 1,675,000 - I IL Trade Promotion and Qualily Infrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2015 5 Statement of Designated Account and Government Co-financed Account B USD 2015 Opening balance - Add.- Advance/replenishment received from World Bank during the current period 500,000 Present outstanding amount advanced to the designated account 500,000 Closing balance carried fonvard to next period 470,832 Add: Amount of eligible expenditures paid during the current period 29,168 Total advance accounted for 500,000 USD 2015 Opening balance - Add: Government co-financing during the current period 9,270 Less: Foreing exchange difference (15) Present outstanding amount advanced to project account 9,255 - Closing balance carried fonvard to next period - Add: Amount of eligible expenditures paid during the current period 9,255 Total advance accounted for 9,255 12 U Trade Promotion and Ouality hifrastructure Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2015 6 Statement of Financial Position USD 2015 ASSETS Current assets Cash and cash equivalents Government co-financing account for credit - Designated Account for credit (World Bank financing) 470,832 Total current assets 470,832 0 Non-current assets Cunulative Project Expenditure Government co-financed cumulative expenditure 9,255 Credit financed cumulative expenditure 1,329,168 Total non-current assets 1,338,423 Total assets 1,809,255 -. FUNDS Project financing Government co-financing account for credit 9,270 Designated Account for credit (World Bank financing) 1,800,000 Total funds 1,809,270 Foreign exchange difference - Government co-financing account for credit (15) Designated Account for credit (World Bank financing) - Total foreign exchange difference (15) Total net assets and liabilities 1,809,255 13