National Electrical Grid of Kyrgyzstan OJSC Financial statements For the year ended 31 December 2018 with independent auditor's report Building a better working world National Electrical Grid of Kyrgyzstan OJSC Financial statements CONTENTS Independent auditor 's report Financial statements Statement of financial position j Statement of comprehensive income 2 Statement of cash flows 3.4 Statement of changes in equity 5 Notes to the financial statements 5.38 «Эрнст ЭНД Янг Аудит» ЖЧК ООО «Эрнст энд Янг Аудит» Ernst & Young Audit LLC £Y Building a better Абдрахманов к., 191 Бишкек ш „ 720011 Кыргыз Республикась! ул. Абдрахманова, 191 г. Бишкек, 720011 Кыргызская Республика Abdrakhmanov Str., 191 Bishkek, 720011 Kyrgyz Republic working world Independent auditor's report To the Shareholders of Open Joint Stock Company National Electrical Grid of Kyrgyzstan Qualified opinion We have audited the financial statements of OJSC National Electrical Grid of Kyrgyzstan (the Company), which comprise the statement of financial position as at 3 1 December 2 0 1 8 , and the statement of comprehensive loss, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. ^^ In our opinion, except for the effects'of the matters described in paragraphs 1 and 3-7 of the Basis for a qualified opinion section of our report, and except for the possible effects of the m^atter described in paragraphs 2 and 8 of the Basis for a qualified opinion section of our report, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 3 1 December 2 0 1 8 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for a qualified opinion 1. The Company's accounting policy in respect of property, plant and equipment is historical cost model. However, during the period from 2 0 1 1 to 2 0 1 7 , the Company revalued land plots and recognised the results in asset revaluation reserve, which was fully reclassified to retained earnings in 2 0 1 7 . The carrying value of land plots, resulted from revaluation, was fully reversed through retained earnings in 2 0 1 8 . The effects of this departure from the Company's accounting policy and IFRSs on the financial statements for 2 0 1 8 and 2 0 1 7 have not been determined. 2. As at 3 1 December 2 0 1 8 , the Company recognized deferred tax asset in respect of tax losses carried forward f r o m prior periods of 7 2 0 , 9 4 7 thousand soms. We were unable to obtain sufficient appropriate audit evidence in respect of certain assumptions used by the Company in projections of taxable income. Consequently, we were unable to determine whether any adjustments to these amounts were necessary. Our audit opinion on the financial statements for the year then ended 3 1 December 2 0 1 7 was modified in respect of the following matters. Our opinion on the current period's financial statements is also modified because of the effects or possible effects of these matters on the comparability of the current period's figures and the corresponding figures. 3. In 2 0 1 3 - 2 0 1 5 , the Company incorrectly capitalised foreign exchange losses of 1 0 , 6 9 7 , 0 9 5 thousand soms into the cost of construction of property, plant and equipment. Such foreign exchange losses related to long-term loans denominated in foreign currencies and obtained for construction purposes. This error was corrected in the statement of comprehensive loss for 2 0 1 7 . A member firm of Ernst & Young Global Limited EY Building a better working world Such practice is not in connpliance with IAS 8 "Accounting Policies, Changes in Accomting Estimates and Errors" which requires prior period errors to be corrected retrospecti: "i_ Our responsibilities under those standards are further described in the Auditor's respon'sibilities for the aud^t of the financial statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (lESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the lESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Responsibilities of management and the Board of directors for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going conc^i"h basis of-accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Board of directors is responsible for overseeing the preparation of the financial statements of the Company. Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, 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 f r o m fraud is higher than for one resulting f r o m 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 procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. »• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company'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's report to the related disclosures in the A member firm of Ernst & Young Global Limited EY Building a better worltinq world financial statements or, if such disclosures are inadequate, to modify our opinioVvypur conclusions are based on the audit evidence obtained up to the date of our audifo^'s report. However, future events or conditions may cause the Company to cease to continue as a going concern; • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Board of directors, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Paul Cohn Audit Partner Elizaveta T s o y / Auditor / General Director «Ernst & Young LLC» Qualification certificate of the auditor: Series A, License to perform audit activities series A No. 003, registration number No.00098 of № 0 0 3 6 registration No. 0 0 6 5 dated February 26, 2 0 0 6 20 February 2 0 1 0 issued by The State Service for Financial Market Regulation and Supervision under the Government of Kyrgyz Republic Abdrakhmanov Str., 191 Bishkek 7 2 0 0 1 1 , Kyrgyz Republic 5 April 2 0 1 9 A member firm of Ernst & Young Global Limited National Electrical Grid of Kyrgyzstan О J S C Financial statements STATEMENT OF FINANCIAL POSITION As at 31 December 2018 » » 31 December 3l'D'ecember In thousands of soms Notes 2018 2017 Assets Non-current assets Property, plant and equipment 5 37,210,200 38,074,499 Intangible assets 58,110 26,601 Advances paid for non-current assets 6 133,693 - Investments 18,399 18,399 Deferred tax asset 25 - 149,937 Other non-current assets 1,809 2,679 37,422,211 38,272,115 Current assets Inventories 7 295,429 266,796 Trade accounts receivable 8 257,554 1,407,123 VAT receivable and other prepaid taxes 9 20,684 42,330 Advances paid and other current assets 10 7,968 39,325 Cash and cash equivalents 11 680,299 330,173 • • - - 1,261,934 2,085,747 Total assets 38,684,145 40,357,862 r Equity and liabilities •Equity Share capital 12 1,597,377 1,597,377 Reserve capital 12 159,738 159,738 (Accumulated deficit) / retained earnings (1,895,208) 720,792 (138,093) 2,477,907 Non-current liabilities Borrowings- non-current portion 13 36,272,263 34,471,336 Contract liabilities 18 46,092 - Employee benefits obligations 14 49,237 66,343 36,367,592 34,537,679 Current liabilities Borrowings- current portion 13 1,848,943 2,667,549 Trade and other accounts payable 15 220,456 313,502 Taxes and other liabilities to state budget 16 208,442 205,691 Other current liabilities 17 176,805 155,534 2,454,646 3,342,276 Total liabilities ss^ 38,822,238 37,879,955 Total equity and liabilities 40,357,862 General director kitkulov M.A. /// Chief accountant Batyrbekova N.K. The explanatory notes 1-28 are an integral part of these financial statements. 1 National Electrical Grid of Kyrgyzstan О J S C Financial statements STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2018 In thousands of soms Notes 2018 2017 r Revenue from contracts with customers 18 3,666,553 3,377,220 Cost of sales 19 (3,486,916) (3,250,849) Gross profit 179,637 126,371 General and administrative expenses 20 (331,641) (439,354) Reversal of provision for expected credit losses 257,407 266,092 Other operating income 46,838 36,353 Other operating expenses (17,149) (17,714) Operating profit/(loss) 135,092 (28,252) Finance income 21,417 10,234 Finance costs 21 (2,237,199) (2,302,461) Foreign exchange (loss)/gain, net 22 (520,209) (10,565,078) Other income 23 69,021 90,847 Other expenses 24 (72,710) (27,908) Loss before tax (2,604,588) (12,822,618) Income tax expense • - 25 (278,017) 804,506 Loss for the year (2,882,605) (12,018,112) r Other comprehensive income - 'Other comprehensive income/(loss) that will not be reclassified to profit or loss in subsequent periods Remeasurement gain on employee benefits obligations 14 23,545 Other comprehensive income for the year, net of tax 23,545 - Total comprehensive loss for the year, net of tax (12,018,112) General director Chief accountant The explanatory notes 1-28 are an integral part of these financial statements. 2 National Electrical Grid of Kyrgyzstan О JSC Financial statements STATEMENT OF CASH FLOWS For the year ended 31 December 2018 » 'i In thousands of soms Notes 2018 2017 r Operating activities Loss before tax (2,604,588) (12,822,618) Adjustments to reconcile (loss)/profit before tax to net cash flows Depreciation and amortization 1,433,575 1,157,776 Finance costs 21 2,237,199 2,302,461 Finance income (21,417) (10,234) Loss/(gain) on disposal of property, plant and equipment 24, 23 4,094 (20,366) Reversal of provision for expected credit losses (257,407) (266,092) Gratuitous receipt of property, plant and equipment 23 (6,074) (57,622) Gratuitous receipt of materials 23 (7,422) VAT provision expense 20 38,121 118,609 Current and past service costs of employee benefits obligations 13,365 66,343 Foreign exchange loss, net 531,674 10,559,289 Working capital adjustments Change in inventories ^ (21,211) 47,384 Change in trade accounts receivable " 125,366 368,571 Change in advance paid and other current assets - 31,357 3,037 Change in VAT receivable and prepaid taxes 21,646 22,368 ^Change in trade and other accounts payable (93,046) (160,084) Change in taxes payable (35,370) (9,813) Change in other current liabilities 17,483 (18,914) Cash flows from operating activities 1,407,345 1,280,095 Interest received 17,950 10,234 Employee benefits obligations paid 14 (6,608) Net cash flows received from operating activities 1,418,687 1,290,329 Investing activities Purchase of property, plant, equipment (1,033,551) (1,329,843) Purchase of intangible assets (19,165) (25,124) Received dividends 3,467 Net cash flows used in investing activities (1,049,249) (1,354,967) The explanatory notes 1-28 are an integral part of these financial statements. 3 National Electrical Grid of Kyrgyzstan О JSC Financial statements STATEMENT OF CASH FLOWS (continued) In thousands of soms Notes 2018 i-.. 2017 • f Financing activities Interest paki (509,887) (445,236) Dividends paid (2,236) Proceeds from borrowings 27 696,385 942,123 Repayment of borrowings (203,574) (354,764) Net cash flows (used in) / from financing activities (19,312) 142,123 Net change in cash and cash equivalents 350,126 77,485 Cash and cash equivalents, as at 1 January 330,173 252,688 Cash and cash equivalents, as at 31 December 11 680,299 330,173 NON-CASH TRANSACTIONS- SUPPLEMENTARY DISCLOSURE The following significant non-cash transactions were excluded from the statement of cash flows: Purchase of fixed assets In 2018 additions to fixed assets in the amount of 46,092 thousand soms were financed by recognition contract liability under the agreement with Alyans Altyn LLC at fair value of the equipment f o r ^ a ^ y r o ^ e s of installation of the Chat-Bazar high-voltage electric grids of 110 k V and transmission of electricity in agreement signed on 22 May 2018 (Note 18). General director Chief accountant BatyrbekovaTl.K. The explanatory notes 1-28 are an integral part of these financial statements. 4 National Electrical Grid of Kyrgyzstan О J S C Financial statements STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 V's * 1 Retained p Asset earnings / Share Reserve revaluation (Accumu- In thousands of soms capital capital reserve lated loss) Total As at 1 January 2017 1,597,377 159,738 851,818 (2,161,182) 447,751 Profit for the year - - - (12,018,112) (12,018,112) Other comprehensive loss for the year Total comprehensive loss - - - (12,018,112) (12,018,112) Recognition of fair value of borrowings - 14,031,860 14,031,860 Reclassification of revaluation reserves into retained earnings - (851,818) 851,818 Revaluation surplus 16,408 16,408 As at 31 December 2017 1,597,377 159,738 - 720,792 2,477,907 As at 1 January 2018 1,597,377 159,738 - 720,792 2,477,907 Effect from adoption of IFRS 9 (1,155,402) (1,155,402) Opening balance modified under IFRS 9 ^ 1:597,377 159,738 (434,610) 1,322,505 r Gain from derecognition of loans and subsequent modification of loan ' terms - 1,764,772 1,764,772 Land revaluation reserves write-off - (366,310) (366,310) Loss for the year (2,882,605) (2,882,605) Other comprehensive income for the year, net of tax 23,545 23,545 Total comprehensive loss for the year _ _ (2,859,060) (2,859,060) As at 31 December 2018 1,597,377 159,738 ^1,895,208) (138,093) WJv 1 ПЛ General director