Public Disclosure Authorized - documents.worldbank.orgdocuments.worldbank.org/curated/en/671861473841634169/pdf/HZP... · FINANCIAL STATEMENTS OF ... INTERNATIONAL BANK FOR RECONSTRUCTION

HZ PUTNICKI PRIJEVOZ d.o.o., ZagrebSUSTAINABLE CROATIAN RAILWAYS IN EUROPE

PROJECTINTERNATIONAL BANK FOR RECONSTRUCTION AND

DEVELOPMENT LOAN No. 8501HR

FINANCIAL STATEMENTS OF THE PROJECT

AND

SPECIAL ACCOUNT STATEMENT

TOGETHER WITH INDEPENDENT AUDITOR'S REPORTS

FOR THE YEAR ENDED

31 December 2015

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SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECTINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8501 HR

CONTENTS

Page

Independent Auditor's Report on Financial Statements of the Project 1 -2

Statement of Assets and Liabilities 3

Statements of Sources and Uses of Funds 4

Statement of Uses of Funds 5

Summary Reports and Statement of Expenditure withdrawal 6

Designated Account Statement 7

Notes to the Project Financial Statements 8- 12

Reconciliation of the Loan account 13

Management Letter 14- 15

Checklist 16

Tel: +385 1 2395 741 BDO Croatia d.a.o.Fax: +385 1 2303 691 10000 ZagrebE-maiL: bdo-croatia.hr Trg J. F. Kennedy 6b

INDEPENDENT AUDITOR'S REPORT

1. We have audited the accompanying Financial Statements of the SUSTAINABLECROATIAN RAILWAYS IN EUROPE PROJECT (hereinafter: the "Project) financed under theINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8501 HR(Loan),which comprise the Statement of Assets and Liabilities, Statements of Sources and Uses ofFunds, Statement of Uses of Funds by Activities, Statement of Expenditure (SOE) andDesignated Account Statement for the year ended 31 December 2015 (all together, the"Project Financial Statements").

2. The Project Financial Statements are the responsibility of the Project'smanagement. Our responsibility is to express an opinion on the Project FinancialStatements based on our audit.

3. We conducted our audit in accordance with International Standards on Auditingissued by the International Auditing and Assurance Standards Board of the InternationalFederation of Accountants. These standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management as well asevaluating the overall statement presentation. We believe our audit provides a reasonablebasis for our opinion.

The Project management's policy is to prepare the accompanying statements on the cashreceipts and payments basis in conformity with International Public Sector AccountingStandards issued by the Public Sector Committee of the International Federation ofAccountants. On this basis, cash receipts are recognized when received and cashexpenditures are recognized when paid rather than when incurred.

4. In our opinion, Financial Statements of the SUSTAINABLE CROATIAN RAILWAYS INEUROPE PROJECT present fairly in all material respects the cash receipts and payments ofthe Project during the year ended 31 December 2015 in accordance with InternationalPublic Sector Accounting Standards issued by the Public Sector Committee of theInternational Federation of Accountants.

1Registrirano kod Trgovakog suda u Zagrebu pod brojem 080044149OlB 76394522236

Tel: +385 1 2395 741 BDO Croatia d.o.o.Fax: +385 1 2303 691 10000 Zagreb1,B D OE-mail: bdo-croatia.hr Trg J. F. Kennedy 6b

5. With respect to Summary Statement of Expenditure ("SOE") - Application for LoanWithdrawal:

(a) adequate supporting documentation has been maintained to support claims forreimbursements of expenditures incurred; (b) the Summary Statement of Expenditure hasbeen reconciled to the other Project Financial Statements and (c) the expendituredisbursements underlying the Summary Statement of Expenditure have been made inaccordance with the purposes intended in the Loan Agreement No. 8501 HR.

BDO CROATIA d.o.o., ZagrebTrg J. F. Kennedy 6b JBDO10000 ZagrebRepublic of Croatia 7A pr2 1 i

Zdenko Balen, certified auditor, Member of the Management Board

Zagreb, 2 June 2016

2Registrirano kod Trgovakog suda u Zagrebu pod brojem 08004414901B 76394522236

STATEMENT OF ASSETS AND LIABILITIESFor the years ended 31 December 2015

Note 31.dec.15 31.dec.14

EUR EURAssets

Front end fee 8 107,500Project expenditures 1 8 514,702

Designated account 9 3,498TOTAL 625,700-

Liabilities

IBRD Loan No. 8501 HR 2 625,700TOTAL 625,700

Project is effective as of 4 August 2015.

1) Project expenditures stated in the amout of EUR 514,702 represents correct amount ofproject expenditure as at 31 December 2015. In the Borrowers IFRs ending 31 December2015, it was stated that project expenditure as at 31 December 2015 were EUR 514,810.The difference in the amount of EUR 108 refers to double stated bank fees and charges forthe first transaction on the designated account that occurred on 14 December 2015. Errorin reporting in IFRs is being corrected in subsequent IFRs which will be dated 30 June 2016.For the purpose of this report, correct amout for "Project expenditures" is used in followingtables and notes (EUR 514,702).

3SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECTINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8501 HR

STATEMENT OF SOURCES AND USES OF FUNDS - CUMULATIVEFor the year ended 31 December 2015

Actual in EUR Plan in EUR

In the Cumulative Completionyear till Plan for Progress in2015 31 December Project Life %

in EUR 2015

Sources of Funding 625,700 625,700 43,000,000 1.46%

Counterpart funding*

IBRD Loan Funds 625,700 625,700 43,000,000 1.46%Front-end fee 107,500 107,500Advances to Designated Account 518,200 518,200 - -Reimbursement - -

Direct Payments - - .

Use of funds 625,700 625,700 43,000,000 1.46%Balance at DA account at 31 Dec 2015 3,498 3,498 - -

Project expenditures by loan categories 622,202 622,202 43,000,000 1.45%1. a) Retrenchment Payments - category 2 - retroactive

reimbursement - - 4,600,000 -1. b) Retrenchment Payments - category 2 - current- 514,702 514,702 11,500,000 4.48%2. Goods, works, non-consulting services, consultants'

services and training for Part B of the Project - - - 26,792,500 -category 3

3. Front-end fee -category 8 107,500 107,500 107,500 100.00%

* Counterpart funding - As described in Project appraisal document dated April 9, 2015, totalproject cost for support for HZ Passenger Transport restructuring is stated in the amount of EUR52.4 million including IBRD financing of EUR 43 million and EUR 9.4 million contribution of HZPassenger Transport to the rehabilitation of its respective rotting stock components (part ofcomponent B-2 of the project). These contributions are to be provided in parallel to the WB fundingand for separate activities linked to the same objective. These funds and expenditures from thesefunds are not shown in these report since it is stated in project appraisal document that "the statewould finance the works of HZPs subsidiaries while the IBRD loan would finance either supply ofgoods used for rehabilitation, or finance companies competitively selected to carry out theserehabilitations". Since this was not the case in year 2015, contributions to the project objectiveswere not included in above statement.However, in year 2015, contribution to the project objectives from HZ Passenger Transport wereHRK 39,000,000 (EUR 5,108,023 as per middle exchange rate at December 31, 2015 of CroatianNational Bank), and relate to regular HZPT expenditures for modernization of "rolling stock'subsidized by the government.These expenditures were audited during the audit of annual financial statements of HZPT for yearended 31 December 2015.

** Project expenditures - retrenchment payments include bank fees charged by the bank fortransferring funds from World bank account to DA for the advance at December 1, 2015. (as shown iSOE)

4SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECTINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No. 8501 HR

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DESIGNATED ACCOUNT STATEMENTfor the year ended 31 December, 2015

(EUR)

Account No. HR4123300031553630311

Depository Bank Societe Generate - Splitska banka d.d., Split

Address R. Bogkovica 25, Split

Loan IBRD Loan No. 8501

From thebeginning of

For the year the ProjectEUR EUR

Opening balance at the beginning of the period

Add:World Bank advances into DA during the period 518,200.00 518,200.00interest earned (if credited into DA) - -

Funds available during the period 518,200.00 518,200.00Less:Payments for eligible expenditures during the period 514,592.89 514,592.89Refund to World Bank from the DA during the period - -Service charges (if debited to DA) 108.75 108.75

514,701.64 514,701.64

Closing balance at the end of the period 3,498.36 3,498.36

Payments from the WB Special Accountfor the project expenditures

Amount inEUR HRK

Description/supplier/contract Date

Retrenchment Payments - category 2 - current 14 dec 15. 514,592.89 3,924,800 1

Total .1) Effective rate applied was 7,6270 HRK

for 1 EUR

There were two transactions recorded on the designated account in the period from August4, 2015 till December 31, 2015. At December 1, 2015 amount of EUR 518,200 wastransferred to the account from World Bank. Commercial service charges were debited tothe account in the amount of EUR 108.75 as transfer fees. At December 14, 2015 amount ofEUR 514,592.89 was transferred to HZ Passenger Transport account used for severancespayments of HZ Passenger Transport subsidiary employees (for total of 34 employees) andstated in Project expenditures as "retrenchment payments - cat 2 - current.

7SUSTAINABLE CROATIAN RAILWAYS IN EUROPE PROJECTINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN No.8501 HR

NOTES TO THE PROJECT FINANCIAL STATEMENTSfor the year ended 31 December 2015

1. GENERAL INFORMATION

In May 2015 International Bank for Reconstruction and Development approved threeloans to railway sector totaling to EUR 163.5 million, of which EUR 43 million to thecompany H2 PUTNICKI PRIJEVOZ d.o.o., Zagreb, EUR 41.5 million to the companyHZ CARGO d.o.o., Zagreb and EUR 79 million to the company HZ INFRASTRUKTURAd.o.o., Zagreb. Granted loans are part of the "Sustainable Croatian Railways inEurope Project" (SUCRE) which became effective on August 4, 2015.

The objective of the Project is to improve the operational efficiency and thefinancial sustainability of the public railway sector in the Republic of Croatia.

The Project consists of the following parts:

Part A Support to the Sector Restructuring and Coordination

1. Finalizing asset management separation among the railway companies andclarifying the legal status of their main assets, through the provision ofconsulting services and non-consulting services to Ministry of MaritimeAffairs, Transport and Infrastructure.

2. Project coordination support, sector reform monitoring, and definition ofrailway services obligations with H2 INFRASTRUKTURA d.o.o., Zagreb and H2PUTNICKI PRIJEVOZ d.o.o., Zagreb through the provision of consultingservices, non-consulting services, Training, and Operating Costs to Ministryof Maritime Affairs, Transport and Infrastructure.

Part B Support to restructuring of the company HZ PUTNICKI PRIJEVOZ d.o.o.,Zagreb

1. Retrenchment. Provision of the retrenchment payments for the company HZPUTNICKI PRIJEVOZ d.o.o., Zagreb, including job outplacement andretraining services, counseling and advisory support.

2. Investment to contribute to the restructuring plan of the company HZPUTNICKI PRIJEVOZ d.o.o., Zagreb

(a) Rehabilitating rolling stock to improve efficiency of the fleet.(b) Modernizing and integrating information technology.(c) Preparing studies to adapt business processes to reorganize

operations and improve energy efficiency of operations.(d) Capacity building on management and restructuring.

Part C Support to the restructuring of the company H2 CARGO d.o.o., Zagreb

1. Retrenchment -provision of the retrenchment payments for the company HZCARGO d.o.o., Zagreb, including job outplacement and retraining services,counseling and advisory support.



2. Investment to contribute to the restructuring plan of the company HZCARGO d.o.o., Zagreb

(a) Rehabilitating rotting stock to improve efficiency of the fleet.(b) Modernizing and integrating information technology.(c) Capacity building on management and restructuring.

Part D Support to the restructuring of the company Hi2 INFRASTRUKTURA d.o.o.,Zagreb rand enabling investment to increase system efficiency

1. Retrenchment Provision of the retrenchment payments for the company H2INFRASTRUKTURA d.o.o., Zagreb including job outplacement and retrainingservices, counseling and advisory support.

2. Installing railway safety crossings based on prioritization criteria set forth inSupplemental Letter 4.

3. Undertaking other railway safety works, including:

(a) Reinforcing cuts and slope on the two corridors from Rijeka;(b) Rehabilitating or replacing the Klostar and Ljubosina bridges on the

Zagreb-Rijeka axis.

4. Undertaking emergency infrastructure investments, including:

(a) Rehabilitating the Ogulin - Moravice line;(b) Rehabilitating the Varazdin - Cakovec line; and(c) Replacing switches, electrical, and support systems (for safety and

signaling) on international and national corridors selected pursuantto criteria set forth in Supplemental Letter #4; and

(d) Constructing and improving the Borongaj, Rijeka - Brajdica, andVinkovci railway stations.

5. Capacity building on management and restructuring.

The Company is responsible for the management of the activities under Part Bincluding procurement, disbursement, financial management, monitoring,reporting and coordination. The objective of this components is to supportoperational efficiency and financial situation in order to deliver better services in afinancially sustainable way.



2. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOANAGREEMENT

HZ PUTNICKI PRIJEVOZ d.o.o., Zagreb (the Company) signed a Loan Agreement withthe International Bank for Reconstruction and Development (the Bank) in theamount of EUR 43 millions on 6 May 2015 for the financing of the SustainableCroatian Railways in Europe Project. Principal, charges, fees and interest are theobligations of the Company as a Borrower.

It was agreed that the Company will pay to the Bank a front-end fee in the amountof 0.25% from the total Loan amount or EUR 107,500. The Commitment chargepayable by the Company is 0.25% per annum on the Unwithdrawn Loan Balance.

The interest payable by the Company is at a rate equal to reference rate for theloan currency plus the variable spread. Interest, commitment charges on theUnwithdrawn Loan Balance and other charges shall be repayable semi-annually inarrears on June 15 and December 15 in each year.

The following table sets forth the principal payment dates of the loan and thepercentage of the total principal amount of loan payable on each principalpayment date (Installment share). If the proceeds of the loan have been fullywithdrawn as of the first Principal payment date, the principal amount of the loanrepayable by the Company on each principal payment date shall be determined bythe Bank by multiplying: a) withdrawn loan balance as of the first principalpayment date; by b)the installment share for each principal payment date, suchrepayable amount to be adjusted, as necessary, to deduct any amounts referred toparagraph 4 of schedule 3 of loan agreement, to which a currency conversionapplies.

Principal payment date Instalment share(Expressed as a percentage)

On each June 15 and December 15

- beginning June 15, 2018 333%- through June 15, 2032

On December 15, 2032 3.43%



Pursuant to the finance contract, the Company has to ensure documents on theassets/funds usage and shall purchase goods, procure services and order works forthe Project in accordance with the current edition of the IBRD Guide toProcurement.

Pursuant to the finance contract the Company will engage management consultantwith international experience for the purpose of generally supporting theinvestment planning, management of contracts and technical support.Furthermore, the Company shall engage consultants - designers and supervisorsunder selection procedures satisfactory to the Bank.

The Company has to use funds approved by and remitted from the loan exclusivelyfor the purpose they were intended. The Bank is authorized to cancel furtherassets usage if they establish that the approved assets are not used for designatedpurposes.

3. DEBT SERVICE COVERAGE

Except as the Bank shall otherwise agree, the Company shall not incur any debtunless a reasonable forecast of the revenues and expenditures of the Companyshows that the estimated net revenues of the Company for each fiscal year duringthe term of the debt to be incurred:(a) shall be at least 1.0 times the estimated debt service requirements of theCompany in such year on all debt of the Company including the debt to beincurred, up to the Closing Date; and(b) shall be at least 1.1 times the estimated debt service requirements of theCompany in such year on all debt of the Company including the debt to beincurred, after the Closing Date until the repayment of the Loan under thisAgreement.

4. PROJECT COST AND FINANCING

Goods, works,non-consulting

Retrenchment services, andPayments under consultants' Capitalization of

Sources of funds Part B 1 of the services for Part B interest charges 8L(in EUR miLlion) Total Project 2 of the Project front-end fee

IBRD loan 43.0 16.1 26.8 0.1Govern funds 9.4 0 9.4 0Total 52.4 16.1 36.2 0.1

5. PROJECT MANAGEMENT

Project implementation unit ("PIU") has been established within the Company andis in charge for the project implementation.



6. ACCOUNTING RECORDS AND BASE FOR PRESENTATION

Within the business books (general Ledger) of the Company are recorded all Projecttransactions.

Project accounting records are also kept in supporting tables (excel), based onwhich the enclosed Financial Statements of the Project have been made.

In order to realize the Project, special account in foreign currency accounts (EUR)was opened in Societe Generate - Splitska Banka d.d., Split.

7. DEVIATIONS FROM AGREED CONDITIONS

There were no deviations from the contracted terms.

8. PROJECT EXPENDITURES

31 DecemberExpenditures in EUR 2015

Retrenchment payments 514,702

Front end fee 107,500

Total 622,202

9. DESIGNATED ACCOUNT AND NET ASSETS

The Company opened Designated Account at Societe Generate - Splitska Banka d.d.,Split ("SGSB") in order to realize the Project. Designated Account balance as of 31December 2015 in the amount of EUR 3,498.36 is confirmed by the bank statementof SGSB.

10. VALUEADDEDTAX

As per December 31, 2015, Value Added Tax (VAT) was not paid from the loanfunds, as transaction so far did not include VAT taxable transactions.


Reconciliation of the Loan account

in EUR

Loan disbursed until 31 December 2015 625,700

Amount on Designated account 3,498

Add: total expenditures stated in the Statement of sourcesand Uses of funds 514,702Add: Front-end fee 107,500

625,700Add: Foreign exchange differences 0Total recorded 625,700


Documents

Public Disclosure Authorized - documents.worldbank.orgdocuments.worldbank.org/curated/en/671861473841634169/pdf/HZP... · FINANCIAL STATEMENTS OF ... INTERNATIONAL BANK FOR RECONSTRUCTION