REPUBLIC OF TURKEY PRIME MINISTRY Undersecretariat of Treasury 79046 INDEPENDENT AUDITOR'S REPORT On ENERGY COMMUNITY OF SOUTH EAST EUROPE (AP . ~~ple~n\~by{ , Stilevrrt~~BIYtK. J ~--'f y ~.1\lS~Jifah OZTURK Treasury Contrdller ·Treasury Controller Semih SAHiN Junior Treasury Controller TABLE OF CONTENTS I. EXECUTIVE SUMMARY 2. FINANCIAL STATEMENTS OF THE PROJECT 2.1 Independent Auditor's Report 2.2 Statements of Sources and Uses of Funds 2.3 Statements of Cumulative Investments 2.4 Statement of Special Account 2.5 Notes to the Project Financial Statements I. The Objective and Nature of the Project Main Accounting Policies 3. Limitations on The Use The Funds and Other Entities 4. Cash Balance as of 31 December 2012 5. The Amounts Planned in the Project Assessment Document 6. Exchange Rate 7. Interest I EXECUTIVE SUMMARY EXECUTIVE SUMMARY A. PROJECT SUMMARY The Loan Agreement numbered 7957-TU was signed between International Bank for Reconstruction and Development (IBRD) and Turkish Electricity Transmission Company (TEIAS). to finance Energy Community of South East Europe (l:CSEE) Adaptable Program Loan (APL) VI (Turkey Component) Project (the ··Project"). The amount of the Loan is EURO 169.200.000 The objective of the Project is to increase the reliability and capacity of the power transmission system in the Republic of Turkey and improve its ability to integrate renewable e., into the svstem. eneruv .. The Project is part of the Energy Community of South East Europe Program and consists of the following parts: Part A: Transmission Svstem Strengthening and Expansion Carrying out of sub-project investments by the Project Implementation Entit) to Expand and capacity and increase the reliability of the power transmission system and to enhance the ability of the transmission system to integrate renewable energy. including investments in substations. cables and related systems. · Pltrt B:hlstitlltlonnlStrengthening ···· I Provision of technical assistance. training and goods to strengthen the institutional and operation capacity of the Project Implementation Entity, including in the areas of financial management. acconnting. audit. enterprise resource planning, and wholesale markets (balancing and day-ahead electricity markets). The closing date of the Project is December 31.2015. The repayments of the loan will be made ti·om September 15. 2015 to March 15. 2025 111 every March and September in equal installments. B. OBJECTIVES OF A UniT The objectives of our audit are: a) To give an opinion on whether the financial statements. prepared as of December 31. 2012 and for the year then ended present fairly in all material respects the tlmmcial position of the Project in accordance with the cash receipts and disbursements basis of accounting, and b) To detem1ine, as of December 3L 2012, whether TEIAS has complied, in all material respects, with the rules and procedures of the Loan /\grecmcnt numbered 7957-TU, C. SCOPE OF AUDIT We have performed an audit of financial statements of the Project as of December 31, 2012 and for the year then ended in accordance with the cash receipts and disbursements basis of accounting, We have also performed a compliance audit on whether Project activities are in line \Vith Loan Agreement and related World Bank guidelines, Our audit was conducted in accordance with International Standards on Auditing published by International Federation of Accountants (IFAC) applicable to the audit of linancial statements and compliance auditing, There was no limitation in our scope for the Project's audit D. AUDIT RESULTS: For the financial statements of project; our audit resulted with an unqualified opinion, In addition. as of December 3 L 2012, TEJAS has complied, in all material respects. with the . M . O • . • •••.•••• •• ml~§ @LlRf.Q.9\;\ll!r".~·gf !h;;J"Qan.A!lr"emenL . I In our audit period. there was no withdrawn under the Statement of Expenditures (SOE), E. MANAGEMENT RECOMMENDATIONS: Because we have not identified any material deficiency in internal control during our audit. we did not issue a Management Letter, FINANCIAL STATEMENTS OF THE PRO.JECT REPUBLIC OF TURKEY PRIME MINISTRY Undersecretariat of Treasury INDEPENDENT AUDITOR'S REPORT TO TURKISH ELECTRICITY TRANSMISSION COMPANY ANKARA We have audited the accompanying Statements of Sources and Uses of Funds. Statements of Cumulative Investments and Statement of Special Account of the Energy Community of South East Europe (APL VI) Project as of December 31. 2012. and for the period then ended. and a summary of significant accounting policies and other explanatory inf(>rmation. The financial statements have been prepared by the Turkish Electricity Transmission Company based on relevant provisions of the Loan i\greement. numbered 7957-TU. Management's Responsibility for the Financial Statements Turkish Electricity Transmission Company is responsible for the preparation and fair presentation of these llnancial statements in accordance with the relevant provisions of the Loan Agreement. numbered 7957-TU. and for such internal control as management determines is necessary to enable the preparation of llnancial statements that are free from material misstatement. whether due to fraud or error. Our responsibility is to express an opinion on these financial statements based on our audit. and to determine whether Turkish Electricity Transmission Company has complied with. in all material respects. the requirements of the Loan Agreement. numbered 7957-TU. We conducted our audit in accordance vvith 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 financial statements are tree !rom material misstatement and whether Turkish Electricity Transmission Company has complied with. in all material respects. the requirements of the Loan Agreement. numbered 7957-Tl . An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in financial statements. The procedures selected depend on the auditor" s judgment. including the assessment of the risks of material misstatement of the tinancial statements, whether due to fi·aud 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 etlcctiveness 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 vvcll as evaluating the overall presentation of the consolidated llnancial statements. 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; a) The accompanying Statements of Sources and Uses of Funds. Statements of Cumulative Investments and Statement of Special Accouut present fairly. in all material respects. the financial position of the Energy Community of South East Europe (APL VI) Project accounting policies and as of December 31. 2012 and tor the period then ended in accordance with the provisions of the Loan Agreement. numbered 7957-TU. b) Turkish Electricity Transmission Company. as of December 31. 2012 has complied with. in all material respects. the requirements of the Loan Agreement, numbered 795 7-n . Basis of Accounting and Restriction on Distribution and Usc Without modifying our opinion, we draw attention to Note 2 to the tinancial statement which describes the basis of accounting. The financial statements are prepared to assist the Turkish Electricity Transmission Company to comply with the financial reporting provisions of the Loan Agreement. numbered 7957-TU. As a result. the financial statements may not be suitable for another purpose. Our report is intended solely for World Bank. Undcrsecrctariat of Treasury. and the Turkish Electricity Transmission Company. and should not be distributed or used by other parties. II I . ' .. I irmanof f GOq ,./ Board of Trem\ury Controllers Mustafa GO IX:~ EN (Audit Partner) Vice-Chairman ~-f. ,_AJ Siileyman BIYIK Abdullah ()zTORK ~~ll~ Treasury Controller Treasury Controller Junior Treasury Cuntrolkr May 17.2013 "'-'""''L...... T.C. Hazine Mlistesarllgr Hazinc Kontroliirleri Kurulu Baskanlrgr Emek ANKARA/TiJRKiYE ~:::r:;:;:;TKIS~~'f:ffiTICI~~M~0~~ ····:~'!i'·TUTECSE -~PROJE"Cl') Statd?.~nt of Sources andj:Oses of Funds As of December 31, 2012 and Fo~jhe Year Then Ended {EURO) Actual PAD Planned Variance Notes YTD Cumulative YTD Cumulative YTD Cumulative !..Sources of Funds A~ Government Contributions 5.327.504,94 10.542.693.~0 0,00 0,00 0,00 0.00 B- IBRO Loans 40 921 000,00 68.081530./IB 0,00 0,00 0.00 0,00 1~ Direct Payments 0,00 6 037 759,46 o_oo 0,00 0,00 o_oo 2- Special Account 40 921 000,00 62.043 771.42 0,00 0,00 0,00 0,00 a} Advance 28.186000,00 38.671 .ooo.qo 0,00 o_oo o_oo 0.00 b) SOE Procedures 0,00 MO 0,00 0,00 0,00 o_oo c) Summary Sheet 12.735 000,00 23372 771.42 0,00 o_oo 0,00 0,00 C· Refunds to Speda! Acrnunts 0,00 0,~0 0,00 0,00 o_oo 0,00 0- Foreign Exchange Gains 6 194.676,44 316.70MO 0,00 o_oo 0,00 0,00 Totaf Sources of Funds 46.443.181,38 78.940.933_~ 0,00 0,00 0,00 0,00 U~Uses of Funds 1~Direct Project Expenses A-Transmission Facilities 42.346.642,75 73.600.337,~9 0,00 132.669.054,26 0,00 59.068.716,97 A 1-3-80 Kv Substations 15.401.325,13 34421 015,t5 0,00 33.082.866,51 0,00 ·1 338 148,64 A 1• 1~ Yebibosna GIS 15.919,65 4 o4s 3ss.ds 0,00 4.315.757,59 o_oo 267.358,51 A 1-2·Van 1.776.090,07 12 867 716,~5 0,00 10,157.082,12 0.00 ·2 710 634.43 A1-3-Hatay 8.323.998,93 11353 999J)9 0,00 9 818.485,00 0.00 ·1.535514,09 A1-4-Maltepe 5.285.316,48 6,150 900,~3 0,00 8.791.541,80 o_oo 2 640 641.37 A2~380 Kv Underground Cable 0,00 35.235,297,~0 0,00 94.697.542,65 o_oo 59.462.245,45 A2~1-Davutpa~a-Yenibosna GIS 0,00 8.523 059.~1 0,00 7.218.938,51 0,00 -1 304120,60 A2-2-KOyOkbakkalk6y GIS-Maltepe GIS 16 701.721.44 16 701721.44 0,00 20.741.826.47 0,00 4.040,105,03 A2-3-Lapseki--SOt!Oce Denizattt Kablo 10.010.516,65 10 010516,~5 0,00 6-6.736J77,67 0,00 56.726.261 _02 A3-Ba!ancing and Settlement Sys.& Strengthtening of National Load Dispatch 131.154,27 3.944.024,9'4 0,00 4.888.645,10 0,00 944 620,16 A3~1+Market Management System 74.993,30 142765.49 0,00 373.397_30 0.00 230_631 ,a 1 A3-2-SCADA 56.160,97 3 699 334.~9 0,00 4,143.476.32 0,00 444.142,13 A3-3-AMR 101.925,26 101.925 46 0,00 371.77i ,48 o_oo 269.846,22 B~Machine and Equipement 2.053.788,35 2.053.788,:!5 o_oo 1.887.168,42 0,00 -166.619,93 81-Mobi! Cranes 2 053 788_35 2 053 788,35 0,00 1,887.168,42 0,00 ·166 619,93 C-Consultants Services 849.526,95 1 259 579,04 0,00 1A54.769,27 0,00 195 190,23 C1-DMU 849526,95 1259 579,~4 0,00 1454 769,27 o_oo 195.190,23 Sub-total 45.249.958,04 76.913.704,~7 0,00 136.010.991,95 0,00 59.097.287,28 2~lndirect Project Expenses A-Front and Fee 0,00 423DOO.(jp 0,00 0,00 0.00 0,00 B-Loan Fee 0,00 203 040.00 0,00 0.00 0.00 0,00 C-lnterest 7 535.124,62 633811,~1 0,00 0,00 o_oo -633.811.91 0-Fore-ign Exchan-ge Loses 6 150_671 ,81 234 000}:~ 0,00 0,00 0.00 -234.000,78 Sub-total 685.796,43 1.493.852,~ 0,00 0,00 0,00 -867.812,69 Total Project Investments 45.935.754,47 78.407.557,:16 0,00 136.010,991,95 0,00 58.229.47 4,59 Opening Balance 25.949,31 Closing Balance 4 533,376,21 533376,2:1 I. TURKISH ELECTICITY TRANSMISSION CO. 7957-TU ( ECSEE APL-6 PROJECT) STATEMENT OF CUMULATIVE INVESTMENTS As of December 31, 2012 and For The Year Then Ended (EURO) Actual PAD Planned Variance !:::DIRECT PROJECT COSTS YTD Cumulative YTD Cumulative YTD Cumulative •>> £:::;; A· Transmission Facilities A1-380 Kv Substations AH-Yeblbosna GIS 15.9"19.65 4.048.399.08 0.00 4.315.757,59 0_00 267.358.51 A1-2-Van 1.776.090,07 12 867 716,55 0 00 10.157.082.12 0.00 -2 710.634,43 A1-3-Hatay 8.323.998,93 11.353.999,09 0.00 9 818.485,00 0,00 -L535.514.09 A1-4-Maltepe 5-285_316.48 6.150.900,43 0,00 8.791.541,80 0.00 2.640.64137 A2-380 Kv Underground Cable A2-1-Davutpa~a- Yenibosna GIS 0,00 8.523.059,11 0.00 7.218.938,5i 0,00 -1.304.120,60 " h A2·2-K090kbakkalkoy GIS-Maltepe GIS 16.701.721,44 16.701.721,44 0.00 20.741.826.47 0.00 4.040.105.03 .:~"'' ·Y,v, ;:;::;i;[,"%!-3-Lapseki-SOtiOce Denizalll Kable 10.010_516,65 10.0!0.516,65 0.00 66.736.777.67 0,00 56.726.261,02 >>,•, '~.u '"' A3-Balancing and Settlement Sys.& Strengthtening of National load Dispatch A3-1-Market Management System 74.993,30 142.765,49 0,00 373.397.30 0.00 230.63-1,81 A3-2-SCADA 56.160.97 3 699.334.19 0,00 4_143.476,32 0.00 444.142,13 A3-3-AMR !01.925,26 101.925,26 0,00 371 '771 ,48 0.00 269.846.22 42.346.642,75 73.600.337,29 0,00 132.669.054,26 0,00 59.068.716,97 B·Machine and Equipement ~~::: 81-Mobil Cranes 2.053. 788,3S 2.053.788,35 0,00 1.887.168,42 0,00 ~166.619,93 Sub-Total 2.053. 788,35 2.053. 788,35 0,00 1.887.168.42 0,00 ·166.619,93 ······_:~~~~~~~~~~ ~~~~~~~ C1-DMU 849.526,95 1.259 579,04 0,00 i 454.769,27 0.00 195.190,23 ::::::ub~Total 849.526,95 1.259.579_04 0,00 1.454.769,27 0,00 195.190,23 ~~f~~!{'L DIRECT PROJECT COSTS 4S.249.958,04 76,913.704,67 0,00 136.010,991,95 0,00 59.097.287,28 ~~~~IRECT PROJECT COSTS A-Front and Fee 0,00 423.000,00 0,00 0,00 0.00 0,00 :::'3-Loan Fee 0,00 203 040,00 0.00 0,00 0,00 0,00 ! >Interest 535_124.62 633.811,91 0 00 0.00 0.00 -633,811.91 ··-a-Foreign Exchange Loses (net) 150.67'1,81 234.00CL78 0,00 0,00 0 00 "234 000,78 TOTAL INDIRECT PROJECT COSTS 685.796,43 1.493.852,69 0,00 0,00 0.00 -867.812,69 li'OTAL PROJECT INVESMENTS // TEiAS ENERGY COMMUNITY OF SOUTH EAST EUROPE PROGRAM (APL·6) (LOAN NO: 7957-TU) SPECIAL ACCOUNT STATEMENT ACC.NO : 94 14 32 009 AT CENTRAL BANK OF THE REPUBLIC OF TURKEY For The Year Ended December 31, 2012 (EURO) Notes Opening Balance 25.949.31 Reimbursement to SA 40.921 000.00 a) Advance 28 186 000.00 b) SOE Procedure o.oo c) Summary Sheet 12 735 000.00 Refunds to SA 0,00 Available Funds 40.946.949,31 Payments made for Expenditures 1 40.413.573.10 Commisions 0,00 Transfer to the general budget 0,00 SeNice charges for the account 0.00 4o.4f:i.s73;1o···· I Closing Balance 4 533.376.21 GENERAL MANAGEMENT OF TURKISH ELECTRICITY TRANSMISSION COMPANY "ENERGY COMMUNITY OF SOUTHEAST EUROPE PROJECT (ECSEE-APL-6) LOAN NO 7957-TU" NOTES TO PROJECT FINANCIAL STATEMENTS AS OF THE END OF THE FISCAL YEAR 31.12.2012 l. THE OBJECTIVES AND DESCRIPTION OF THE PROJECT The Loan Agreement for "Energy Community of Southeast Europe Project {EC SEE- APL-6) No 7957-TU"' has been signed between the International Bank for Reconstruction and Development and Republic of Turkey on 4 October 20 I 0. The objective of the Project is to increase the reliability and capacity of the power transmission system in the Republic of Turkey and improve its ability to integrate renewable energy into the system. The project is part of the Energy Community of South East Europe Program and consists of the following parts: A- Transmission System Strengthening and Expansion; Carrying out of sub-project investments to expand the capacity and increase the reliability of the power transmission system and to enhance the ability of the transmission system to integrate renewable energy, including u I ......... ········· ... · investments ins:IJbstationsycables.at!d telated systems, · B- Institutional Strengthening; Provision of technical assistance, training and goods to strengthen the institutional and operation capacity, including in the areas of financial management, accounting, audit, enterprise resource planning, and wholesale markets {balancing and day-ahead electricity markets). Through the Loan Agreement, executed with Undersecretariat of Treasury on 4 October 2010, a loan of 169.200.000 Euro is envisaged to be used by TE!AS as the Project Implementing Entity within the framework of the "Project of Energy Community of Southeast Europe (ECSEE- APL-6)". As of31.12.2012, TEIAS has used an amount of68.081.530,88 Euro and an amount of 101.118.469,12 Euro has not been used yet. As of 31.12.2012, some 62.043.771,42 Euro out of the total loan has been used through the Special Account and some 6.037.759,46 has been used through Direct Payment. 423.000 Euro as the Front-end Fee and 203.040 Euro as loan payable have been paid from own funds. 2. MAIN ACCOUNTING POLICIES In TEIAS, a separate accounting system has not been established for the World Bank projects. TEIAS obtains a number of loans from the Bank, and other international organizations, by which it utilizes a substantial amount of funds at total. Financial statements of the project has been established according to the accounting principles based on cash collection and payment. 3. LIMITATIONS ON THE USE THE FUNDS AND OTHER ENTITIES In accordance with the Loan Agreement between the Turkish Government and the World Bank, the use of the funds in the Special Account is limited to the project objectives. Project funds left in the Account at the end of the project will be returned to the World Bank. 4. CASH BALANCE AS OF 31 DECEMBER 2012 The cash balance in Euro as of 31 December 2012 is as follows: : Counter Part 'r Loan Funds Total Funds I Special Account 533.376,21 0,00: i 533.376,21 I (Central Bank of the Republic of Turkey) !Fixed Funds 0'-',0~0"-ic--~---'0-'-',0:.c:O-ri·~~~·~ I Checking Accounts (Local Bank [ o.oo , o.oo 1 o,oo ' I Account) .... _J . LTotal ...... I . 533.376,21 : 0,00 : 533.376,2lj 5. AMOUNTS PLANNED IN PAD ······'Fhe·cumulative·amotmtsforthe·finam::ingofTEIASptojects··onlfef·EcsEFAPr:6afenor included in PAD, however the project amounts in the Table of Sources and Utilization of Funds have been taken from the relevant Departments in TEIAS. 6. EXCHANGE RATE The currency of the credit no. 7957- TU is Euro. However contracts for projects involve one or more currency. Therefore, payments are made the currency specified in the contract. 7. INTEREST Our company undertakes interest payments for the used part of the credit twice a year (March-September) according to the credit contracts. 2