REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED

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1 THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED KARUMA INTERCONNECTION PROJECT FEASIBILITY STUDY FOR PERIOD 5 TH NOVEMBER, 2009 TO 31 ST DECEMBER, 2013 OFFICE OF THE AUDITOR GENERAL KAMPALA

2 TABLE OF CONTENTS PAGE LIST OF ACRONYMS... 1 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED-KARUMA INTERCONNECTION PROJECT FEASIBILITY STUDY FOR THE PERIOD 5 TH NOVEMBER, 2009 TO 31 ST DECEMBER, DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED-KARUMA INTERCONNECTION PROJECT FEASIBILITY STUDY FOR THE PERIOD 5 TH NOVEMBER, 2009 TO 31 ST DECEMBER, INTRODUCTION BACKGROUND INFORMATION THE PROJECT SCOPE AUDIT OBJECTIVES PROCEDURES PERFORMED FINDINGS DETAILED FINDINGS... 9 i

3 LIST OF ACRONYMS Acronym EA RAP UGX TOR GoU USD MW Environmental Analysis Resettlement Action Plan Uganda Shillings Terms of Reference Government of Uganda United States Dollars Mega Watts 1

4 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED-KARUMA INTERCONNECTION PROJECT FEASIBILITY STUDY FOR THE PERIOD 5 TH NOVEMBER, 2009 TO 31 ST DECEMBER, 2013 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of the Karuma Interconnection Project Feasibility Study for the Period 5 th November, 2009 to 31 st December, 2013 which comprise of the statement of income and expenditure, statement of accumulated fund for the period then ended, together with other accompanying schedules, notes and accounting policies. Management Responsibility for the Financial Statements Project Management is responsible for the preparation and fair presentation of the Financial Statements in accordance with the Grant Contract, guidelines and procedures and Generally Accepted Accounting Principles. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility My responsibility as required by Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended) and Sections 13 and 19 of the National Audit Act, 2008 is to audit and express an opinion on these statements based on my audit. I conducted the audit in accordance with the International Standards on Auditing (ISAs). These standards require that I comply with the ethical requirements, plan and perform the audit to obtain reasonable assurance on whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the Auditor s judgment, including the assessment of the risks of material misstatements of financial statements whether due to fraud or error. In making those risk assessments, the Auditor 2

5 considers internal controls relevant to the entity s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my opinion. Part A of this report sets out my opinion on the financial statements. Part B which forms an integral part of this report presents in detail all the significant audit findings made during the audit which have been brought to the attention of management. PART A Audit Opinion In my opinion, the accompanying financial statements give a true and fair view of the state of financial affairs of the project as at 31 st December 2013, its Statement of Income and Expenditure for the period 5 th November 2009 to 31 st December 2013 and Statement of Accumulated Fund as at 31 st December 2013 in accordance with the Generally Accepted Accounting Principles. John F.S. Muwanga AUDITOR GENERAL 30 th September,

6 PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED-KARUMA INTERCONNECTION PROJECT FEASIBILITY STUDY FOR THE PERIOD 5 TH NOVEMBER, 2009 TO 31 ST DECEMBER, 2013 This section outlines the detailed audit findings, management responses and my recommendations in respect thereof INTRODUCTION Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended), requires me to audit and report on the public accounts of Uganda and all public offices, including the courts, the central and local government administrations, universities and public institutions of a like nature, and any public corporation or other bodies or organisations established by an Act of Parliament. Accordingly, I carried out the audit of the above Project to enable me report to Parliament and Norwegian Ministry of Foreign Affairs BACKGROUND INFORMATION Uganda s energy sector was liberalized with the enactment of the electricity Act in The Act allows for the establishment of Independent Power Producers (IPP) and Private Distribution Companies. The government of Uganda encourages all Independent Power Producers to generate power in Uganda. The government of Uganda is in the final stages of packaging the implementation of Karuma Hydropower Project to generate 250 MW as part of its medium to long term power generation development strategy. Uganda Electricity Transmission Company Limited has a Grid Development Plan that is used in assessing development of hydropower sites, developing new transmission lines, up- rating transmission lines and substations. This Grid Development Plan also covers Transmission lines also related to Karuma Hydro Power Project. The lines include Karuma - Kawanda 400kv (approximately 250km), Karuma Lira 132kv (approximately 80km), Karuma- 4

7 Olwiyo 132kv (approximately 60km), Olwiyo Pakwach 33kv (approximately 60km), Olwiyo Adjumani 33kv (approximately 181km). The proposed lines are an integral part of Karuma Hydro Power Project. These lines will evacuate the generated power at Karuma to major load centers in Kampala City, Lira and West Nile THE PROJECT SCOPE The proposed transmission lines evacuate the generated power at Karuma to major load centers in Kampala and other parts of the country with possible export to countries within the region. The proposed transmission lines will be constructed to the nearest existing network points in Lira 132/33KV substation and the planned Kawanda 400/220/132/33/11 KV substation. Due to the proximity of the Lira substation to the Karuma Hydro Power Station site, power will be evacuated at 132KV and therefore a 132KV transmission line is proposed between Karuma and Lira substations. In order to provide power to the west Nile area a new substation shall be constructed at Olwiyo (60km from Karuma dam site). From Olwiyo two 33KV lines shall be constructed to load centers of Pakwach and Adjumani. A 400KV transmission line is proposed between Karuma and Kawanda substations considering the future generation plans and subsequent evacuation requirements. The areas of Apac,Masindi. Mijera and the surroundings shall be served by a substation at Kibangya that shall have a 400/220/132/33KV transformer in order to minimize loses. The proposed construction of the transmission lines is as follows; Karuma - Kawanda 400kv (approximately 250km) Karuma Lira 132kv (approximately 80km) Karuma- Olwiyo 132kv (approximately 60km) Olwiyo Pakwach 33kv (approximately 60km) Olwiyo Adjumani 33kv (approximately 181km) And all the associated substations Clearing of right of way as necessary 5

8 Consruction of access roads as necessary Construction of workers camps and storage facilities for the project materials Construction of substations and associated infrastructure 3.1 AIM OF THE EIA/RAP STUDIES The aim of the study was to assess the potential environmental and social impacts (positive and negative) of the proposed construction of the transmission line as described in the above project scope. The study consisted of an Environmental Analysis (EA) and a Resettlement Action Plan (RAP) for the proposed transmission line. The study was carried out in a way that respects Ugandan policies and laws pertaining the environmental management and the handling of the potential social issues, as well as the World Bank s safeguard policies. The EA/ RAP for the above study was implemented within the transmission line corridor established by the feasibility study. The feasibility report, summarizing the line routing, was availed to the consultant as required. 3.2 OBJECTIVES AND ACTIVITIES To carry out an Environmental Analysis, to identify and assess the potential environmental and social impacts and make recommendations for their mitigation. To prepare an Environmental Analysis (EA) Report/ Environmental Statement incorporating the full results of the environmental analysis and establishing a link to the resettlement action plan which will be carried out under separate terms of reference. To prepare a Resettlement Action Plan (RAP) to deal with social issues related to land acquisition such as loss of economic activities and livelihood or resettlement due to the construction activities related to the transmission lines as described in the above scope, the construction of access roads and other related infrastructure. To carry out consultations with relevant stakeholders, including potentially affected persons, to obtain their views and suggestions regarding the environmental and social impacts of the proposed project. The outcome of the consultations will be 6

9 reflected in the EA report incorporated into the project design as appropriate. The results of the consultations will be made available to all relevant stakeholders, including the potentially affected persons. 3.3 DURATION OF IMPLEMENTATION The project was planned to be undertaken from February 2008 until June 2009 but could not be implemented until 2012 and the last transaction out of the grant was effected in GRANT AMOUNT The Government of Uganda received a grant of Norwegian Krona 14,600,000 approx. (UGX.4,843,388,746) to finance the activities of the feasibility study AUDIT OBJECTIVES The audit was carried out in accordance with the International Standards on Auditing and accordingly included a review of the accounting records and agreed procedures as was considered necessary. In conducting my review, special attention was paid to establish whether: a. The financial statements have been prepared in accordance with Generally Accepted Accounting Principles and fairly present the receipts and payments for the period and the accumulated fund for the same. b. The Project was managed in accordance with the Financing Agreement; c. The Project assets are used in the interest of the Project. d. Taxes such as withholding tax were duly deducted and remitted to relevant authorities. e. The Project Managers maintained proper books of accounts and that the expenditure shown in the financial statements reflects the genuine situation of the Project on ground. 7

10 5.0. PROCEDURES PERFORMED The following audit procedures were undertaken: a. Revenue Obtained all schedules of grant funds and reconciled the amounts to the Project s cashbooks and bank statement. b. Expenditure Vouched transactions included in the Statements of Grant Utilization to establish whether documentation in support of expenditure agreed with the amount and description on the payment vouchers and/or applications and bank statements, and was properly controlled and accounted for. c. Internal Control System Reviewed the internal control systems and operations to establish whether sound controls were applied throughout the period. d. Procurement Reviewed the procurement of goods and services under the Project during the period under review and reconciled with the approved procurement plan. e. Financial Statements Examined on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessed the accounting principles used and significant estimates made by management, and evaluated the overall financial statement presentation FINDINGS 6.1 Categorisation of audit findings The following system of profiling of the audit findings has been adopted to better prioritize the implementation of audit recommendations. In OAG, risks are classified as follows: 8

11 Category Description 1. High Significance Has a significant / material impact, has a high likelihood of reoccurrence, and in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. 2. Moderate Significance Has a moderate impact, has a likelihood of reoccurrence, and in the opinion of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. 3. Low Significance Has a low impact, has a remote likelihood of reoccurrence, and in the opinion of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest. 6.2 Summary of Audit Finding No. Title of Finding Significance 7.1 Delayed payment of outstanding project obligations High 7.0 DETAILED FINDINGS 7.1 Delayed payment of outstanding project obligations According to the contract agreement, the consultant was entitled to payment on presentation of invoices together with the relevant milestone requirements as stated in the TORs. On review of the accounting and payment records, it was noted that a total of USD.122, (UGX.254,089,279) remained as an outstanding payment to the consultant until March Meanwhile, another USD.433, in respect of withholding taxes deducted from the consultant was also not paid until July The delay to settle outstanding project obligations was attributed to exhaustion of the project funds before the feasibility activities were concluded. This is an indication that the project funding was not well planned and could lead to unnecessary litigations. It was also not explained why the tax component which was an obligation of GoU could not be paid in time. 9

12 Management explained that the outstanding payments had subsequently been processed from GoU counterpart funds and the obligation settled. I advised management to always ensure adequate planning and budgeting and settlement of obligations. 10

13 FINANCIAL STATEMENTS 11

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) UGANDA

THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) UGANDA COMMUNICATION COMMISSION COMPONENT (IDA CREDIT AGREEMENT