AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT LOAN No. 8286-AZ from International Bank for Reconstruction and Development INDEPENDENT AUDITORS' REPORT AND SPECIAL PURPOSE PROJECTFINANCIAL STATEMENTS For the year ended 31 December 2018 CONTENTS Page Independent Auditors' Report 3-4 Special Purpose Project Statement of Financial Position 5 Special Purpose Project Statement of Sources and Uses of Funds 6-7 Special Purpose Project Statement of Uses of Funds by Project Activities 8 Special Purpose Project Statement of Designated Account 9 Notes to the Special Purpose Project Financial Statements 10-14 MOORE STEPHENS Moore Stephens Azerbaijan Limited 13, Zeynalabdin Taghiyev Street Baku AZ1005, Azerbaijan +994 12 490 77 47/48/49 +994 12 490 77 50 INDEPENDENT AUDITORS' REPORT On Special Purpose Project Financial Statements To the Management of Agency for Agro Credit and Development Opinion We have audited the accompanying special purpose project financial statements of the Agricultural Competitiveness Improvement Project (the "Project"), implemented by Agency for Agro Credit and Development (the "Project Executing Agency"), which comprise the special purpose project statement of financial position, the special purpose project statement of sources and uses of funds, the special purpose project statement of project, statement of designated account, statement of expenditure withdrawal schedule activities as of and for the year ended 31 December 2018 and notes, comprising a summary of significant accounting policies and other explanatory information, In our opinion. the accompanying special purpose project financial statements for the year ended 31 December 2018 are prepared in all material respects, in accordance with financial reporting provisions of Section 11 of the Loan agreement for Loan No. 8286-AZ dated 12 June 2014 between Republic of Azerbaijan and the International Bank of Reconstruction and Development (the "Financial agreement"). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) applicable to the audit of financial statements and to compliance auditing, with special reference to ISA 800. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Azerbaijan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter We draw attention to Note 2 to the special purpose project financial statements, which describes the basis of accounting. The special purpose project financial statements are prepared to assist the Project Executing Agency in complying with the financial reporting provisions of the Financial agreement referred to above. As a result, the special purpose project financial statements may not be suitable for another purpose. Our report is intended solely for the Project Executing Agency and International Bank for Reconstruction and Development should not be distributed to or used by parties other than the Project Executing Agency, International Bank for Reconstruction and Development. Our opinion is not modified in respect of this matter. Other Matter on Which We Are Required to Report We have audited the utilization of proceeds of the Loan withdrawn from the International Bank for Reconstruction and Development In our opinion, the Project Executing Agency has utilized, in all material respects, the proceeds of the Loan withdrawn from the International Bank for Reconstruction and Development only for purposes of the Project as agreed between the International Bank for Reconstruction and Development and the Project Executing Agency, in accordance with the Financial agreement and no proceeds of the Loan have been unutilized for other purposes. In our opinion, the Counterpart funds have been provided and used in accordance with the financing arrangements detailed in Note 2 to these special purpose project financial statements. In our opinion, goods and services financed have been procured in accordance with the relevant Financial agreement. 3 MOORE STEPHENS Responsibilities of Management and Those Charged with Governance for the Special Purpose Financial Statements Management is responsible for the preparation of the special purpose project financial statements in accordance with the financial reporting provisions of Schedule 2 Section II of the Financial agreement and for such internal control as management determines is necessary to enable the preparation of the special purpose project financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Project's financial reporting process. Auditor's Responsibility for the Audit of the Special Purpose Project Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose project 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 our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement 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 special purpose project financial statements. As part of our audit in accordance with ISAs, we exercise professional judgement maintain professional scepticism throughout the audit. We also: - identify and assess the risks of material misstatement of the special purpose project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain 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 one resulting from error, as fraud may involve collusion, forgery, international omissions, misrepresentations, or the override of internal control. - obtain an understanding of internal control relevant to the audit 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 Fund's internal control. - evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. - evaluate the overall presentation, structure and content of the special purpose project financial statements, including the disclosures, and whether the special purpose project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. The engagement partner of the audit report resulting in this independent auditors' report is: Hikmet Allahverdiyev Moore Stephens Azerbaijan Baku, Azerbaijan 10 June 2019 4 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT SPECIAL PURPOSE PROJECT STATEMENT FINANCIAL OF POSITION AS AT 31 DECEMBER 2018 (Expressed in US dollars) Cumulative as at Cumulative as at Note 31 December 2018 31 December 2017 ASSETS AND CUMULATIVE EXPENDITURE Cash in bank 4 4,326,254 5,715,508 Cumulative expenditures; IBRD Loan No. 8286 16,805,176 14,841,312 Government of the Republic of Azerbaijan 7,456,113 6,507,295 28,587,543 27,064,115 SOURCES OF FUNDS Project financing: IBRD Loan No. 8286 19,543,563 18,001,733 Government of the Republic of Azerbaijan 9,282,601 9,281,424 Accumulated foreign exchange difference (238,621) (219,042) 28,587,543 27,064,116 I' o Anar Azimov " Fidan lbrahimova Project Management U it Director Project Managemerit Unit Financial Specialist The notes set out on pages 10-14 form an integral part of these special purpose project financial statements 5 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT SPECIAL PURPOSE PROJECT STATEMENT OF SOURCES AND USES OF FUNDS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) For the year Forthe year Cumulative as ended ended at 31 December 31 December 31 December Note 2018 2017 2018 OPENING BALANCES 4 IBRD Loan No. 8286 3,178,478 3,305,544 11,164,535 Government of Azerbaijan 2,537,030 225,964 2,835,194 5,715,508 3,531,508 13,999,729 ADD: FUNDS RECEIVED BY SOURCES IBRD Loan No 8286 6 1,541,830 3,538,434 19,457,313 IBRO Loan No. 8286 (front-end fee) - 86,250 1,541,830 3,538,434 19,543,563 Government of the Republic of Azerbaijan - 4,104,680 9,274,585 Tender fee 1,177 1,469 8,016 1,643,007 7,644,583 28,826,164 TRANSFERS BETWEEN ACCOUNTS Special account - - 55,774 Project account (55,774) ADDILESS: EXCHANGE DIFFERENCE IBRD Loan No. 8286 (21,057) (66,893) (58,774) Government of the Republic of Azerbaijan 1,478 15,714 (179,847) (19,579) (51,179) (238,621) LESS: EXPENDITURE IBRO Loan No. 8286 Consultants Services including Audit 555,217 362,656 1,594,037 Incremental operating costs 408,670 381,113 1,737,876 Serological Survey Fees 28,301 70,790 194,228 Sub- loans and lease financing - - 8,017,336 Front-end fee - - 86,250 Goods 174,459 2,030,536 2,957.585 Grants 423,799 62,329 486,128 Trainings 116,763 52,335 272,500 Vaccination fees 130,867 528,446 1,203,630 Non-consulting services 8,428 4,625 19,977 Works 117,360 105,777 235,629 1,963,864 3,598,607 16,805,176 Government of the Republic of Azerbaijan Consultants Services including Audit 344,927 223,192 971,581 Incremental operating costs 164,201 152,245 587,452 Serological Survey Fees 11,006 27.343 77,430 Sub- loans and lease financing - - 3,160,880 Goods 88,827 1.088,995 1,606,566 Grants 164,811 24.239 189,050 Trainings 46,505 19,897 105,604 Vaccination fees 50.893 205,507 601,972 Non-consulting services 3,669 1,799 8.161 Works 74,979 67,580 147,417 948,818 1,810,797 7,456,113 TOTAL EXPENDITURE 2,912,682 5,409,404 24,261,289 CLOSING BALANCES 4 IBRD Loan No- 8286 2,735,387 3.178,478 Government of the Republic of Azerbaijan 1,590,867 2,537,030 4,326,254 5,715,508 Anar Azimov , . , Fidan lbrahimova_ Project Management Unit Director Project Management Unit Financial Specialist The notes set out on pages 10-14 form an integral part of these special purpose project financial statements 6 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT SPECIAL PURPOSE PROJECT STATEMENT OF SOURCES AND USES OF FUNDS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) The Revolving Fund ("RF") was set up for the specific purpose of providing microloans to rural businesses, It is a financing tool that recycles funds by providing loan repayment, and then providing further loans. In 2018, RF balances, receipts and expenditure are segregated from the Project and a separate set of special purpose project financial statements is presented. Details on revolving fund as at and for the year ended 31 December 2018 are summarized below: For the year ended Cumulative as at REVOLVING FUND* 31 December 2018 31 December 2018 OPENING BALANCE 753,156 ADDI(LESS) Interest collection 760,657 760,657 Principal collection 2,288,302 2,288,302 CLOSING BALANCE 3,048,959 3,048,959 Anar Azimov L Fidan lbrahimova Project Managemer Unit Director Project Management Int Financial Specialist The notes set out on pages 10-14 form an integral part of these special purpose project financial statements 7 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT SPECIAL PURPOSE PROJECT STATEMENT OF USES OF FUNDS BY PROJECT ACTIVITIES AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) For the year For the year Cumulative as ended ended at 31 December 31 December 31 December Project Component/Activity 2018 2017 2018 A: Support for sanitary and phytosanitary services Al. Food Safety Capacity Building 16,065 18,043 34,108 A2. Upgrading Plant Health and Phytosanitarian Sys 202,703 43,613 370,696 A3, Animal Health and Veterinary Services 724,932 1,768,157 5,379,987 943,700 1,829,813 5,784,791 B: Agribusiness value chain development BI. Agribusiness value chain development 1,294,329 602,284 2,437,902 B2. Seeds Sector Development 96,108 2,516,212 2,636,727 1,390,437 3,118,496 5,074,629 C: Financial Services to Agribusiness 70,176 71,854 11,363,689 D: Project Management 508,369 389,241 1,951,930 Front-end-Fee (IBRD) - - 86,250 2,912,682 5,409,404 24,261,289 Anar Azimov , Fidan lbrahimova Project ManagernenVJnit Director Project Management Unit Financial Specialist The notes set out on pages 10-14 form an integral part of these special purpose project financial statements 8 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT SPECIAL PURPOSE PROJECT STATEMENT OF DESIGNATED ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) IBRD-8286DA: Account number AZ731BAZ38190078409330335120 Depository Bank International Bank of Azerbaijan For the year For the year Cumulative ended ended as at 31 December 31 December 31 December Note 2018 2017 2018 Balance at the beginning of reporting period 3,178,478 3,305,544 3,178,478 3,305,544 ADD: Advances and replenishments 6 1,541,830 3,538,434 19,543,563 1,541,830 3,538,434 19,543,563 DEDUCT: Eligible expenditure (1,963,864) (3,598,607) (16,699,705) Bank charges - (19,221) Front-end fee - 86,250) Total expenditures (1,963,864) (3,598,607) (16,805,176) ADJUSTMENTS: Foreign Exchange gain/loss (21,057) (66,893) (58,774) (21,057) (66,893) (58,774) Transfers between accounts Transfers between accounts - - 55,774 - 55,774 Balance at the end of reporting period 2,735,387 3,178,478 2,735,387 Anar Azimov Fidan Ibrahimova Project Managementknit Director Project Management Unit Financial Specialist The notes set out on pages 10-14 form an integral part of these special purpose project financial statements 9 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT NOTES TO THE SPECIAL PUSRPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) NOTE 1. BACKGROUND IBRD Loan Designated Account No. 8286 Agricultural Competitiveness Improvement Project (the "Project") is a project established and projected by the Government of Azerbaijan and, International Bank For Reconstruction and Development and implemented by the State Service on Management of Agricultural Projects and Credits (the "Project Executing Agency"),The Project Executing Agency has been established under the Ministry of Agriculture of Azerbaijan Republic to facilitate the access of agricultural producers to markets by strengthening sanitary and phytosanitary services, enhancing selected value chains and providing financial services to agribusiness enterprises. The Project consists of the following parts: Part A: Support for sanitary and phytosanitary services Strengthening the efficiency and effectiveness of sanitary and phytosanitary services in order to reduce existing obstacles to agricultural and food trade: 1. Food safety capacity building through the establishment of a national food safety training center and implementing comprehensive training program. 2. Upgrading the State Phytosanitary Control Services (SPCS) by: (a) strengthening pest diagnostic capacity through provision of equipment for SPCS laboratories and Training; (b) enhancing pest control and pest risk analysis capacity through the provision of goods, consultants' services and Training; and (c) supporting biological control program and promoting integrated pest management through the provision of goods, consultants' services and Training. 3. Enhancing animal health and veterinary services by: (a) enhancing access to quality-assured veterinary services to strengthen the State Veterinary Service (SVS) field units and promotion of a complimentary private veterinary service (b) strengthening the disease surveillance and preparedness functions of the SVS by implementing animal disease control programs and development of an animal disease control information system; and (c) providing support to veterinary education, including upgrading the veterinary faculty of the Azerbaijan State Agricultural University, all through the provision of goods, consultants' services and Training. Part B: Agribusiness value chain development 1. Development of the agribusiness value chain through: (a) provision of Training, consultants' services, workshops and awareness campaigns for value chain participants to assist them in establishing productive partnerships and preparing Value-chain Sub-project proposals; and (b) provision of Grants to finance eligible demand-driven Individual investments under Value-chain Sub-projects for the development of value chains in accordance with the Operational Manual. 2. Provision of goods, consultants' services and Training to support: (a) seed research and variety development program; (b) seed production and processing capabilities; (c) state seed inspection and variety testing services and seed testing laboratories; and (d) private seed growers. Part C: Financial services to agribusiness Enhancing the financial services to agribusiness through: 1. The expansion of access to rural financial services provided by eligible PFIs through the provision of Sub-loans and Lease Financing to agribusiness enterprises (Sub-loan Beneficiaries and/or Lease Financing Beneficiaries) in accordance with the AIG. 2. The implementation of a capacity building program to improve skills in agricultural lending through provision of consultants' service and Training. 3. Support to the development of the agricultural insurance program through the provision of consultants' services and Training. 10 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT NOTES TO THE SPECIAL PUSRPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) Part D: Project Management Support of the Project for the effective implementation of the Project, through provision of goods, works, consultants' services, Training and Operating Costs. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Loan ("Category"), the allocation of the amounts of the Loan to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category. Percentage of Amount of the Loan Expenditure to finance, Category Allocated in USD Net of Value added tax 1. Goods, works, non-consulting services, consultants' services including audit, Training, Incremental Operating Costs, Serological Survey Fees, Vaccination Fees, Grants, Lease Financing and Sub-loans 34,413,750 72% Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General 2. Front-end Fee 86,250 Conditions Amount due pursuant to 3. Interest Rate Cap or Interest Rate Section 2.07 (c) of this Collar premium - Agreement Total: 34,500,000 Government Contribution. The Government's contribution of USD 18,750,000 to finance project expenditures will be disbursed from budget allocations through the treasury system of the Ministry of Finance of the Republic of Azerbaijan and managed by the Project. Funds will be released to the project to finance project expenditures as expenditures are incurred and the Project Account shall be replenished regularly to minimize delays in project implementation. The registered address of the Project is Nobel Avenue 25E, Baku White City Office Building, Baku, Azerbaijan. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of Accounting These special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard ("IPSAS") Financial Reporting under the Cash Basis of Accounting issued by the International Public Sector Accounting Standards Board ("IPSASB"), an independent standard-setting body within the International Federation of Accountants ("IFAC") and incorporate the following principal accounting policies, which have been consistently followed in all material respects and comply with the "Guidelines: Annual Financial Reporting and Auditing for International Bank for Reconstruction and Development - Financed Activities" issued by the International Bank for Reconstruction and Development Financial Management Sector Board. Project financing is recognised as a source of project funds when the cash is received. Project expenditure is recognised as a use of project funds when payment is made. 2.2 Period of accounts These special purpose financial statements cover year ended 31 December 2018. 2.3. Transactions and balances in foreign currencies The Project is domiciled in the Republic of Azerbaijan where the local currency is the Azerbaijani manat ('AZN"). Because the majority of the Project's transactions are funded and expended in United States 11 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT NOTES TO THE SPECIAL PUSRPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) dollars and in accordance with the requirements of the International Bank -for Reconstruction and Development, these special purpose financial statements are presented in United States dollars ("US dollar" or "USD"), which is the reporting currency of the Project. Transactions in other currencies are treated as transactions in foreign currencies. Cash receipts and payments arising from transactions in a foreign currency are recorded in the Project's reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of receipt and payment. Cash balances held in a foreign currency are reported using the closing rate, which is the spot exchange rate at the reporting date. Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash receipts and payments. However, the effect of exchange rate changes on cash held in a foreign currency is reported in the statement of sources and uses of funds and other statements in order to reconcile cash at the beginning and the end of the period. These amounts are presented separately from cash receipts and payments and include the differences, if any, had those cash receipts and payments and balances been reported at end-of-period exchange rates. At 31 December 2018, the official AZN/USD exchange rate set by the Central Bank of Azerbaijan ("CBAR") was AZN1.7001 (31 December 2017: AZN 1.7707). 2.4. DESIGNATED ACCOUNT The Designated Account is a disbursement account of the Project maintained in US dollars with the International Bank of Azerbaijan in order to effect payment of eligible expenditure within defined limits, which do not require individual authorisation from IBRD, in accordance with the Agreement. NOTE 3. CLOSING DATE OF THE PROJECT Based on letter from 4 May 2018, the closing date of the Project was established on 30 June 2020. NOTE 4. CASH IN BANK As at As at 31 December 31 December 2018 2017 IBRD Loan No 8286 AZ, USD 2.735,387 3,178,478 Government Project Account USD 1,590,867 2.537,030 4,326,254 5,715,508 NOTE 5. METHODS OF WITHDRAWAL The methods of withdrawal used from the inception of the IBRD Loan up to 31 December 2018 were as follows: 5.1 Designated account Available amounts were drawn from time to time within limits determined by the loan agreements for the direct payment of eligible expenditure for sub-projects from the designated account. 5.2 Project account The Project maintains a separate account where the Government counterpart funds are accumulated. The funds are further disbursed to contractors based on the shares of expenditure to be incurred by each contractor. 5.3 Statement of expenditure SOE The Project submits to the International Bank For Reconstruction and Development an application for reimbursement of payments already made using an Application for Withdrawal Form 2380 E with SOE forms, bank reconciliation forms and the bank account statement. 12 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT NOTES TO THE SPECIAL PUSRPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) NOTE 6. STATEMENT OF EXPENDITURE WITHDRAWAL SCHEDULE For the year ended 31 December 2018 Required for Category Consultants Incremental Services Non- Sub-loans Application operating including Serological consulting Vaccination and lease Date Application # costs Goods Audit Survey Fees Trainings Works services fees Grants financing Reimbursed 12/1012018 ACIP/IBRD-16 297,158 144,069 446,661 46,398 70,066 23.780 171 339.296 174,238 1,541,837 Total 297,158 144,069 446,661 46,398 70,066 23,780 171 339,296 174,238 - 1,541,837 For each withdrawal of application, IBRD charged service fee with total amount of USD 7. There were one in total; therefore, the amount of service fees was equal to USD 7 For the year ended 31 December 2017 Required for Category Consultants Incremental Services Non- Sub-loans Application operating including Serological consulting Vaccination and lease Date Application # costs Goods Audit Survey Fees Tralnings Works services fees Grants financing Reimbursed 06/0312017 ACiP/IBRD-12 97,022 337,364 134,944 6,505 47,271 - 20,457 12,420 - 75,078 731,061 06/06/2017 ACIP/IBRD-13 98,164 1,131,267 53,103 - 9,035 81,908 - 111,780 - - 1,485,257 19109/2017 ACIP/iBRD-14 99,932 554,222 19,534 - 3,027 10,230 - 195,840 - 882,785 13/12/2017 ACIPIBRD-¶5 99.704 63.500 142,825 64,242 16,537 - - - 62.495 439,303 Total 394,822 2,086,353 350,406 60,747 75,870 92,138 20,457 320,040 62,495 75,078 3,538,406 For each withdrawal of application, IBRD charged service fee with total amount of USD 7. There were four in total; therefore, the amount of service fees was equal to USD 28. 13 AGENCY FOR AGRO CREDIT AND DEVELOPMENT AGRICULTURAL COMPETITIVENESS IMPROVEMENT PROJECT NOTES TO THE SPECIAL PUSRPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (Expressed in US dollars) NOTE 7. OPERATING ENVIRONMENT The Project's principal activities are within Republic of Azerbaijan. Consequently, the Project is exposed to economic and financial markets of Republic of Azerbaijan, which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with the other legal and fiscal impediments contribute to the challenges faced by entities operating in Republic of Azerbaijan. The special purpose project financial statements reflect management's assessment of the impact of the operating environment in Republic of Azerbaijan on the operations of the Project. The future operating environment may differ from management's assessment. NOTE 8. POST BALANCE SHEET EVENTS There were no adjusting or significant non-adjusting events that occurred between the reporting date and the date of authorization. 14