district heating efficiency improvement project loan no...

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"District Heating Efficiency Improvement Project"Loan no.: 8451-MD

Special purpose project financial statements

for the period August 14, 2015 to December 31, 2016

and independent auditor's report

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I "District Heating Efficiency Improvement Project"Loan no.: 8451-MD

TABLE OF CONTENTS

IPage

ISTATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATIONAND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS 3FOR THE PERIOD AUGUST 14, 2015 TO DECEMBER 31, 2016.....................

INDEPENDENT AUDITOR'S REPORT....... ...................................... 4

SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE PERIOD AUGUST 14, 2015 TO DECEMBER 31, 2016:

Summary of funds received. ........................................... .......... 7

Summary of expenditures...................................................... 8

Summary of SOE's........................................................... 9

Statement of designated accounts.................................................. 10

Statem ent of financial position................................................................................ 11

Notes to the special purpose project financial statements................................................. 12

II STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND

APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE PERIOD AUGUST 14, 2015 TO DECEMBER 31, 2016

The following statement should be read in conjunction with the independent auditor's responsibilities statedin the independent auditor's report set out on pages 4-6. This statement is made with a view to distinguishthe respective responsibilities of management and those of the independent auditors in relation to the specialpurpose project financial statements of "District Heating Efficiency Improvement Project", Loan no.: 8451-MD (the "Project").

Management is responsible for the preparation of the special purpose project financial statements that presentfairly, in all material respects, cash proceeds and disbursements and uses of funds by project components ofthe Project for the period August 14, 2015 to December 31, 2016 in accordance with International PublicSector Accounting Standard "Financial Reporting Under the Cash Basis of Accounting" (the "IPSAS")issued by the International Public Accounting Standards Board of the International Federation of Accountantsand the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting andAuditing for World Bank Financed Activities" (the "WB Guidelines").

In preparing the special purpose project financial statements, management is responsible for:

* selecting suitable accounting policies and applying them consistently;* making judgments and estimates that are reasonable and prudent;* stating whether IPSAS and WIB Guidelines have been followed, subject to any material departures

disclosed and explained in the special purpose project financial statements; and* preparing the special purpose project financial statements on a going concern basis, unless it is

inappropriate to presume that the Project will continue its activity for the foreseeable future.

Management is also responsible for:

* designing, implementing and maintaining effective and sound system of internal control and for revealingI risks in system of internal control;I maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financialposition of the Project, and which enable them to ensure that the special purpose project financialstatements of the Project comply with IPSAS and WB Guidelines;

* compliance with laws and regulations of the Republic of Moldova, accounting system of the Project andthe requirements of the World Bank;

* taking such steps as are reasonably available to them to safeguard the assets of the Project; and* detecting and preventing fraud and other irregularities.

The special purpose project financial statements for the period August 14, 2015 to December 31, 2016 wereapproved and authorized for issue on June 12, 2017 by the Management of the Project.

On behalf e Management:

I 'IarosI vBut1 .' Chief Accountant

1 June 12, 2017I of Moldova Chisinau, Republic of Moldova

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IBAKER TILLY

ICS Baker 1illy Kltou and Partners SIU.65 Stefan cc] Mare si SFant Blvd5th Floor. Office 507MD-2)01, Chisinau, Republic of MoldovaT: +373 22 233(03INDEPENDENT AUDITOR'S REPORT R +373 22 234044

Email: [email protected]: www.bakertilly.md

To the Management of the District Heating Efficiency Improvement Project"

Report on the Special Purpose Project Financial Statements

Opinion

[1] We have audited the special purpose project financial statements of "District Heating EfficiencyImprovement Project", (the "Project") which comprise the Summary of funds received, Summary ofexpenditures, Summary of SOE's, Statement of designated accounts and Statement of financial positionfor the period August 14,2015 to December 31, 2016, and a summary of significant accounting policiesand other explanatory information (the "special purpose project financial statements").

[2] In our opinion, the accompanying special purpose project financial statements present fairly, in allmaterial respects, cash proceeds and disbursements and uses of funds by project components ofthe Project for the period August 14, 2015 to December 31, 2016 in accordance with International PublicSector Accounting Standard "Financial Reporting Under the Cash Basis of Accounting" (the "PSAS")issued by the International Public Sector Accounting Standards Board of the International Federationof Accountants, and the World Bank's Financial Management Sector Board's "Guidelines: AnnualFinancial Reporting and Auditing for World Bank Financed Activities" (the "WB Guidelines").

Basis for opinion

[3] We conducted our audit in accordance with International Standards on Auditing (ISAs). Ourresponsibilities under those standards are further described in the Auditor's Responsibilities for theAudit of the Financial Statements section of our report. We are independent of the Project in accordancewith the International Ethics Standards Board for Accountants' Code of Ethics for ProfessionalAccountants (IESBA Code) together with the ethical requirements that are relevant to our audit of thespecial purpose project financial statements in Republic of Moldova, and we have fulfilled our otherethical responsibilities in accordance with these requirements. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter

[4] Without qualifying our opinion, we draw attention to Note 2 to the special purpose project financialstatements which describe the basis of accounting. These special purpose project financial statementswere prepared for complying with the appropriate World Bank Guidelines and Loan agreementrequirements, and therefore are not intended to be a complete presentation of the "District HeatingEfficiency Improvement Project" (the "Project") operations.

Other matter

[5] The special purpose project financial statements are prepared to assist the Project to comply with therequirements of the World Bank. As a result, the special purpose project financial statements may notbe suitable for another purpose.

5 Offices:Moldova Cyprus Romania Greece BulgariaChisinau T: +373 22 233003 Nicosia T: +357 22 458500 Bucharest T: +40 21 3156100 Athens, Thessaloniki Sofia T: +359 2 9580980

Umassol T: +357 25 591515 T: +30 215 500 6060Lamaca T: +357 24 663299

An independent member of Baker Tilly International

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I BAKER TILLYResponsibilities of Management and Those Charged withGovernance for the special purpose project financial statements

[6] Management is responsible for the preparation and fair presentation of the special purpose projectfinancial statements in accordance with International Public Sector Accounting Standard "FinancialReporting Under the Cash Basis of Accounting" (the "IPSAS") issued by the International PublicAccounting Standards Board of the International Federation of Accountants, and the World Bank'sFinancial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for WorldBank Financed Activities" (the "WB Guidelines"), and for such internal control as managementdetermines is necessary to enable the preparation of the special purpose project financial statements thatare free from material misstatement, whether due to fraud or error.

Auditor's responsibilities for the audit of the special purpose project financial statements

[7] Our objectives are to obtain reasonable assurance about whether the special purpose project financialstatements as a whole are free from material misstatement, whether due to fraud or error, and to issuean auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but isnot a guarantee that an audit conducted in accordance with ISAs will always detect a materialmisstatement 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 decisionsof users taken on the basis of the special purpose project financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:

* Identify and assess the risks of material misstatement of the special purpose project financialstatements, whether due to fraud or error, design and perform audit procedures responsive to thoserisks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.The risk of not detecting a material misstatement resulting from fraud is higher than for oneresulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.

* Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Project's internal control.

* Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

* Conclude on the appropriateness of management's use of the going concern basis of accountingand, based on the audit evidence obtained, whether a material uncertainty exists related to eventsor conditions that may cast significant doubt on the Project's ability to continue as a going concern.If we conclude that a material uncertainty exists, we are required to draw attention in our auditor'sreport to the related disclosures in the special purpose project financial statements or, if suchdisclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However, future events or conditions may cause theProject to cease to continue as a going concern.Evaluate the overall presentation, structure and content of the special purpose project financialstatements, including the disclosures, and whether the special purpose project financial statementsrepresent the underlying transactions and events in a manner that achieves fair presentation.

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[8] We communicate with those charged with governance regarding, BAKER TILLYamong other matters, the planned scope and timing of the audit and significant audit findings, includingany significant deficiencies in internal control that we identify during our audit.

[9] We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

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ICS Baker Tilly Klitou and Partners SRL S"

Chisinau, Moldova * .June 12, 2017

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"DISTRICT HEATING EFFICIENCY IMPROVEMENT PROJECT"LOAN NO.: 8451-MD(in US Dollars)

SUMMARY OF FUNDS RECEIVEDFOR THE PERIOD AUGUST 14,2015 TO DECEMBER 31,2016

Note From August 14, Cumulative to date2015 to December 31,

2016Financing method I sources of financing:

Loan No. 8451 - MDPayment to Designated account 6 6,554,592 6,554,592Direct payments 5 10,625,848 10,625,848Front-end Fee 5 101,250 101,250

17,281,690 17,281,0

Bids revenue 5,612 5,612

7,287,302 17,287,30

On behalf of th Management:

0 S laIn va B& cChief Accountant

1/'of Moldova June 12, 20170 _0 eChisinau, Republic of Moldova

The notes on pages 12-20 form an integral part of the special purpose project financial statements.The Independent Auditor's Report is on pages 4-6.

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p"DISTRICT HEATING EFFICIENCY IMPROVEMENT PROJECT'LOAN NO.: 8451-MD(in US Dollars)

SUMMARY OF EXPENDITURESFOR THE PERIOD AUGUST 14,2015 TO DECEMBER 31,2016

From August 14,Note 2015 to December 31, Cumulative to date

2016

Project expenses(1) Goods, works, Non-ConsultingServices, consultants' services, Trainingand Operating Costs under Parts 1, 2(a),2( c) and 3 of the Project 8 16,468,335 16,468,335(2) Severance Payments and Trainingunder Part 2 (b) of the Project 8 52,282 52,282(3) Front-end Fee 8 101,250 101,250Bids expenditures 8 3,001 3,001

Total project expenses 16,624,868 16,624,868

On behalf oft e anagement:

e loP ar#V aBocC Accountant

June 12, 2017inau of Moldova Chisinau, Republic of Moldova

Thehti on pages 12-20 form an integral part of the special purpose project financial statements.The Independent Auditor's Report is on pages 4-6.

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SUMMARY OF SOE'SFOR THE PERIOD AUGUST 14,2015 TO DECEMBER 31,2016

NR For the period Amount

SOE 1 10.09.2015 - 31.12.2015 1,612,849SOE 2 01.01.2016 - 31.03.2016 68,118SOE 3 01.04.2016 - 30.06.2016 55,137SOE 4 01.07.2016 - 06.09.2016 557,802SOE 5 07.09.2016 - 15.09.2016 1,139,147SOE 6 16.09.2016 - 31.10.2016 1,121,539SOE 7 01.11.2016 - 31.12.2016 1,340,177

5,894,769

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IIOn behalf of the Management:

Chef Accountant

, 7June 12, 2017ina ic of Moldova Chisinau, Republic of Moldova

The no es on pages 12-20 form an integral part of the special purpose project financial statements,The Independent Auditor's Report is on pages 4-6.

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STATEMENT OF DESIGNATED ACCOUNTSFOR THE PERIOD AUGUST 14, 2015 TO DECEMBER 31, 2016

Banik Chisinau Territorial Treasury State Budget

Currency US Dollars EUR MDL

Bank account 3261584057 3261197826 227201

Bank address 7 Constantin TAnase str., ChiqinAu, Moldova

Description Note Total

Balance asat September 14, 2015Withdrawal applications 6 6,554,592 - - 6,554,592Movements between (5894742) 5,894,742accountsBids revenue - 1,197 4,415 5,612Total funds received 659,850 1,197 5,899,157 6,560,204The amount of eligibleexpenditures paid - - (5,894,769) (5,894,769)Foreign exchange ratedifferences- (75) 28 (47)Bids expenditures - - (3,001) (3,001)

Balance as atDecember 31, 2016 4 659,850 1,122 1,415 662,387

On behalf of the anagement:

Ch Accountant

June 12, 2017n lic of Moldova Chisinau, Republic of Moldova

The no es on pages 12-20 form an integral part of the special purpose project financial statements.The Independent Auditor's Report is on pages 4-6.

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"DISTRICT HEATING EFFICIENCY IMPROVEMENT PROJECT"LOAN NO.: 8451-MD(in US Datters)

STATEMENT OF FINANCIAL POSITIONAS AT DECEMBER 31, 2016

ASSETS Notes 31 December 2016

Cash and cash equivalents 4 662,387Cumulative project expenditures 7 16,624,868Other expenditures 8 47

TOTAL ASSETS 17,287,302

FINANCING

Loan received 5,6 17,281,690Other sources (bids revenue) 5,612

TOTAL FINANCING 17,287,302

On behalf of t anagement:

msdmlares ButD Chie ccountant

June 12, 2017blic of Moldova Chisinau, Republic of Moldova

The notes on pages 12-20 form an integral part of the special purpose project financial statements.The Independent Auditor's Report is on pages 4-6.

"DISTRICT HEATING EFFICIENCY IMPROVEMENT PROJECT"LOAN No.: 8451-MDJin US IoaS)

NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE PERIOD AUGUST 14,2015 TO DECEMBER 31,2016

1. GENERAL INFORMATION .

According to the Agreement between the Republic of Moldova and International Bank forReconstruction and Development (113RD) dated April 15, 2015, the Bank provided a Loan 8451 - MDin the amount of 40,500,000 US Dollars to the Republic of Moldova.

Project Development ObjectiveThe objective of the Project is to contribute to improved operational efficiency and financial viabilityof Tenioelectrica SA and to improve quality and reliability of heating services delivered to thepopulation in Chisinau.

Project Name: District Heating Efficiency Improvement ProjectLoan no.: 8451-MDFsigning Date: 15/04/2015Effectiveness Date: 14/08/2015Closing Date: 3/622Loan Aount:30/06/2020Loan Amont: USD 40,500,000.00

The beneficiaries of the Project will be:- The population of Chisinau at large through: (i) increased efficiency of the district heating sector,and (ii) increased reliability of district heating services.- The Moldovan district heating sector stakeholders, including Termoelectrica SA, as well asMoldovagaz and Chisinau-Gaz through Termoelectrica SA increased operational efficiency andimproved corporate governance.

The Project is to be implemented during 2015-2020, and comprises 3 components:Component 1: Investments for the District Heating System;

This component supports priority investments aimed at optimizing and modernizing theheat distribution network, with the objective of reduced heat losses, improved servicequality, and increased efficiency and security of supply of heat and hot water to end-consumers.The financing under this component will be provided for:- Modernizing selected pumping stations of Chisinau's district heating system to reduceelectricity consumption and provide for an efficient operation;- Rehabilitating selected segments of Chisinau's distribution network to ensurecontinued district heating service and reduced losses of heat and hot water- Replacing central heat substations with automated individual heating substations; and- Reconnecting of the selected public institutions, which were earlier disconnected, tothe DH system to improve the usage of the system

Component 2. Support for Streamlining Operations;This component supports the Government's decision to streamline operation and corporatestmucture of Termoelectrica SA, including closing down of the operation of CEIP-1The financing under this component will be provided for:- Ensuring the continuity of heating service provision to the area of Chisinau suppliedby C- through: (i) the connection of consumers to alternative heat distributionnetwork; and (ii) the construction of new pumping station;- Supporting the design and implementation of the Social Impact Mitigation Plan(SIMP) through> (i) financing severance payments for staff of Termoelectrica SAselected in accordance with terms and conditions of the SIMP, pursuant to the

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"DISTRICT HEATING EFFICIENCY IMPROVEMENT PROJECT"LOAN NO.: 8451-MD

Borrower's laws and regulations; (ii) carrying out Training activities to assist staffselected in accordance with the terms and conditions of the SIMP, in the pursuit ofnew employment opportunities; and (iii) designing and implementing grievancemechanisms; and

- Carrying out an Environmental Audit for CHP-1 site.

Component 3. Project Management and Technical Assistance;This component will provide technical and financial support for project management andfinances the following activities:- Carrying out Project Audits;- Carrying out the financial management and procurement requirements under the

Project;- Monitoring and evaluation of Project activities;- Providing capacity building and Operating Costs for the MEPIU;- Carrying out public awareness campaigns for dissemination of the benefits of energy

efficiency improvements and efficiently operating Chisinau's district heating system;- Providing technical assistance to Termoelectrica SA.

Project management

The Ministry of Finance, as the Governor of the Republic of Moldova, is the authorized representativefor the purposes of the Loan. The Loan is lent by the Ministry of Finance to Termoelectrica SA througha subsidiary agreement. The Ministry of Economy, as the responsible line ministry, has theresponsibility of project implementation and its fiduciary requirements with the support of theConsolidated Unit for Implementation and Monitoring of Energy Projects (MEPIU) of the Ministry ofEconomy. Termoelectrica SA will have to provide support in this process.MEPIU, as the fiduciary agent of the Ministry of Economy, has over ten years of experience inimplementing the World Bank and other donor's projects. The unit is staffed with qualified andexperienced professionals, both in technical, as well as in financial management and procurementaspects. Termoelectrica SA, as the successor to Termocom as DH system operator, is expected to havesubstantial experience and capacity in implementing investments in the DH system, as well as ensuringcompliance with the required safeguards.

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2. PRESENTATION OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS

Basis of preparation

These special purpose project financial statements have been prepared in accordance with theInternational Public Sector Accounting Standard (the "IPSAS") "Financial Reporting under the CashBasis of Accounting" issued by the Public Sector Committee of the International Federation ofAccountants, and incorporate the following principal accounting policies, which have been consistentlyfollowed in all material respects and comply with the World Bank's Financial Management SectorBoard's "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities"(the "WB Guidelines").

Under the cash basis approach income (or expenditure) is recognized when cash is received (or paid)irrespective of when goods or services are received or provided.

The Project's approved budget disclosed by categories of expenses is presented below:

Category Description Amount of the LoanAllocated (USD)

(1) Goods, works, Non-consulting services, consultants' services,Training and Operating Costs under the Parts 1, 2(a), 2(c) and 3 of the 38,398,750Project

(2) Severance Payments and Training under Part 2 (b) of the Project 2,000,000

(3) Front-end Fee 101,250

Total: 40,500,000

These special purpose project financial statements consist of:

* Summary of funds received;* Summary of expenditures;* Summary of SOE's;* Statement of designated accounts;* Statement of financial position;* Significant accounting policies and other explanatory notes.

The reporting currency of these special purpose project financial statements is US Dollars(the "USD").

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash basis of accounting

The special purpose project financial statements are prepared on a cash basis of accounting. The cashbasis of accounting recognizes transactions and events only when cash (including cash equivalents) isreceived or paid by the Project. The special purpose project financial statements prepared under thecash basis provide readers with information about the sources of cash raised during the period, thepurposes for which cash was used and the cash balances at the reporting date. The measurement focusin the special purpose project financial statements is balances of cash and changes therein.

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Foreign currency

Project accounts are maintained and transactions are made in USD, EUR and Moldavian Leu (MDL).Transactions denominated in other currencies are translated into USD as follows:

- Payments in MDL and EUR from designated accounts at the State Treasury are translated into USDat the conversion rate determined by the National Bank of Moldova (BNM) on the date of transaction.- Direct payments in currencies other than USD are translated into the reporting currency at theconversion rate determined by the World Bank on the date of transaction.- As at reporting date, cash balances denominated in MDL and EUR are translated into USD at theexchange rate established by BNM at that date.- Transaction and translation exchange rate differences (gain/loss) are reflected in the ProjectStatement of Designated Accounts.

The exchange rate established by BNM as at 31 December 2016 is I USD 19.9814 MDL.The average exchange rate established by BNM for the year 2016 is I USD = 19.9238 MDL.The exchange rate established by BNM as at 31 December 2015 is 1 USD - 19.6585 MDL.The average exchange rate established by BNM for the year 2015 is 1 USD = 18.8161 MDL.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and due from banks, which can be converted to thecorresponding amount of cash in the short term.

Taxes

Calculation and payment of personal income tax and social security contributions from income of localstaff and consultants is made in accordance with the requirements and rates of the Tax Code of theRepublic of Moldova.

Project expenses

The expenses are recorded in the period when they were actually paid.

As per Loan Agreement signed between the Republic of Moldova and International Bank forReconstruction and Development (IBRD) dated April 15, 2015, for payments made prior to the date ofthe agreement except that, withdrawals up to an aggregate amount not to exceed USD 7,500,000 maybe made for payments made prior to the agreement date but in no case more than 12 months prior tothe agreement for eligible expenditures under Category I and under Category 2 unless the SIMP hasbeen prepared and adopted by the Borrower acceptable to the bank, pursuant to Section 1.A.2 ofschedule 2 of the agreement.

Sources of funds

The funds were provided by the World Bank to the Project by replenishment of special account orthrough direct payment to the end supplier of goods and/or services.

"DISTRICT HEATING EFFICIENCY IMPROVEMENT PROJECT"LOAN NO.: 8451-MD

IP~~ (in USDolas

4. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as at December 31, 2016 comprise:

Underlying December 31,Account held at Currency 2016

USDDesignated Account State Treasure of Moldova USD 659,850Designated Account State Treasure of Moldova EUR 1,122Designated Account State Treasure of Moldova MDL 1,415

5. APPLICATIONS FOR DIRECT PAYMENTS

Sources offinancing Application Date From August 14,2015 tofinancingDecember 31, 2016

USDLoan No. 8451 - MD 00001 14-Aug-15 101,250Loan No. 8451 - MD 00003 9-Sep-15 63,000Loan No. 8451 - MD 00004 11-Sep-15 8,391Loan No. 8451 - MD 00002 1I-Sep-15 183,418Loan No. 8451 - MD 00006 4-Mar-16 152,000Loan No. 8451 - MD 00008 23-Mar-16 444,805Loan No. 8451 - MD 00009 26-Apr-16 104,820Loan No. 8451 - MD 00011 13-May-16 134,800Loan No. 8451 - MD 00012 25-May-16 110,799Loan No. 8451 - MD 00013 8-Jun-16 373,111Loan No. 8451 - MD 00014 15-Jun-16 7,500Loan No. 8451 - MD 00015 8-Jul-16 97,067Loan No. 8451 - MD 00016 14-Jul-16 235,090Loan No. 8451 - MD 00017 15-Jul-16 52,282Loan No. 8451 - MD 00020 2 1-Jul-16Loan No. 8451 - MD 00019 21-Jul-16,2Loan No. 8451 - MD 00018 21-Jul-16 98,720Loan No. 8451 - MD 00021 28-Jul-16 666,850Loan No. 8451 - MD 00023 5-Aug-16 29,37Loan No. 8451 - MD 00022 5-Aug-16 8,39Loan No. 8451 - MD 00024 12-Aug-16 493Loan No. 8451 - MD 00028 22-Aug-16 360,993Loan No. 8451 - MD 00027 22-Aug- 16 285,4Loan No. 8451 - MD 00026 22-Aug-16 103,242Loan No. 8451 - MD 00030 2-Sep-16 29,2Loan No. 8451 - MD 00032 19-Sep-16 1,27Loan No. 8451 - MD 00036 29-Sep-16 1,5Loan No. 8451 - MD 00035 29-Sep-16 109,510Loan No. 8451 - MD 00038 3-Oct-16 282,6

Loan No. 8451 - MD 00039 18-Oct-16 1,179,506Loan No. 8451 - MD 00040 25-Oct-16 1,7,81Loan No. 8451 - MD 00041 16-Nov-16 236,895Loan No. 8451 - MD 00042 21-Nov-16 59,064Loan No. 8451 -MD 00044 29-Nov-16 281,834

10,727,098

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6. APPLICATIONS TO DESIGNATED ACCOUNT

Sources of From August 14, 2015 tofinancing December 31, 2016

USDLoan No. 8451 - MD 0005 09/09/2015 2,000,000Loan No. 8451 - MD 0025 08/15/2016 236,104Loan No. 8451 - MD 0029 08/23/2016 1,000,000Loan No. 8451 - MD 0031 09/12/2016 500,000Loan No. 8451 - MD 0033 09/19/2016 557,802Loan No. 8451 - MD 0034 09/22/2016 1,139,147Loan No. 8451 - MD 0043 11118/2016 1,121,539

6,554,592

7. CUMULATIVE PROJECT EXPENDITURES

Type of the expense From August 14, 2015 Cumulative toto December 31, 2016 date

USD USDPart 1. Investments for the District HeatingSystem 13,464,158 13,464,158C 1.2 Lot 1 2,238,097 2,238,097C 1.2 Lot 2 1,541,934 1,541,934C 1.2 Lot 3 1,645,918 1,645,918C 1.3 2,691,915 2,691,915C 1.4 Lot 1 2,375,055 2,375,055C 1.4 Lot 2 1,811,578 1,811,578C 1.5 1,152,161 1,152,161C 3.8 7,500 7,500Part 2. Support for Streamline Operations 2,754,650 2,754,650C 1.1 2,406,669 2,406,669C 3.4 52,282 52,282C 3.5 295,699 295,699Part 3. Project Management and TechnicalAssistance 301,809 301,809Consultant's 225,856 225,856Operating costs for the MEPIU 75,953 75,953Front-end Fee 101,250 101,250Bids expenditures 3,001 3,001Grand total 16,624,868 16,624,868


8. CASH PROCEEDS AND DISBURSEMENTS

From August 14,2015 Cumulativeto December 31, 2016

USD USDOpening balance -

Funding sourcesLoan No. 8451 - MD 17,281,690 17,281,690Other sources (bids revenue) 5,612 5,612

Total financing 17,287,302 17,287,302

Project expenses(1) Goods, works, Non-Consulting Services,consultants' services, Training and OperatingCosts under Parts 1,2(a), 2( c) and 3 of the Project 16,468,335 16,468,335(2) Severance Payments and Training under Part 2(b) of the Project 52,282 52,282(3) Front-end Fee 101,250 101,250Bids expenditures 3,001 3,001

Total project expenses 16,624,868 16,624,868

Foreign currency gain/(loss) 47 47

Closing balance 662,387 662,387

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9. COMMITMENTS

In the normal course of activities, the Project concludes agreements with suppliers of goods, works andservices in accordance with the established budget and Project Procurement Plan.

- As at December 31, 2016 the Project had the following commitments:

Contract ContractDate of Cotat aonIuCounterparty reference CCY Cost per Contract Contract amount due

Contract Signing amount due (USDequivalent)

PROGRESS-92&ENERGQRESRS- C 1.5 MDL 25,397;555 9-Aug-16 2,369,513 118,586INVEST&F.C.P.SOLDI S.R.L.ENGUL S.R.O&S.C.PROMINTERGAZ C 1.4 Lot I MDL 54,327,263 13-Jun-16 7,362,661 368,476S.R.L.ENGUL S.R.O&S.C.PROMINTERGAZ C 1.4 Lot 2 MDL 40,244,948 13-Jun-16 4,400,988 220,254S.R.L.SC ELSACOELECTRONIC SRL C 1.2 Lot 2 EUR 1,623,857 21-Apr-16 226,036 236,309SC ELSACOELECTRONIC SRL C 1.2 Lot 3 EUR 1,775,376 21-Apr-16 284,774 297,716CONSORTIUM LED EUR 1,643,637 82,182 85,917BY POLIMER GAZ C 1.1 MDL 1,615,000 21-Jul-15 39,500 1,977CONDUCTE SRL USD 639,441 31,972 31,972CONSORTIUM LED EUR 2,261,538 288,002 301,091BY POLIMER GAZ C 1.2 Lot 1 21-Apr-1CONDUCTE SRL MDL 712,000 1CONSORTIUM LED EUR 4,039,364 1,629,532 1,703,590BY POLIMER GAZ C 1.3 8-Dec- 1,568,532 78,500CONDUCTE SRL MDL 2,398,569 15BT-ENGINEERING C3LTD C 3.5 EUR 609,852 21-Mar-16 346,792 362,553S.C.TEHNOCONSULTING AND C 3.4 522,819 25-Feb-16 470,537 470,537DESIGN USDMR. VELI-MAITII 3KIVISTO C 3 USD 40,000 10-Feb-16 32,500 32,500MRPEKKATAPANI C USDKOURI C 3.11 20,000 25-Nov-16 20,000 20,000PROGRESS- EUR 1,453,283 1,453,283 1,519,33192&ENERGORESURS- C1.6 MDLINVEST&F.C.P. Lot 1 23,629,454 30-Dec-16 23,629,454 1,182,572SOLDI S.R.L. IPROGRESS- EUR 1,591,325 1,591,325 1,663,64692&ENERGORESURS- C1.6 MDLINVEST&F.C.P. Lot 2 22,998,648 30-Dec-16 22,998,648 1,151,003SOLDI S.R.L.Total 9,850,093


10. LEGAL CASES

There were no legal cases related to the Project.

11. EVENTS AFTER THE REPORTING DATE

As at the date of issue of the special purpose project financial statements no significant events ortransactions occurred which should be disclosed in the special purpose project financial statementsexcept for the application presented below:

Date Application Type of payment AmountLoan No. 8451 - MD USD

11-Apr-17 49 Designated account 1,340,1771,340,177

20

district heating efficiency improvement project loan no...

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