IRRIGATION AND LAND MARKET DEVELOPMENT PROJECT IDA CREDIT NUMBER 5456-GE

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Public Disclosure Authorized IRRIGATION AND LAND MARKET DEVELOPMENT PROJECT IDA CREDIT NUMBER 5456-GE Public Disclosure Authorized IMPLEMENTED BY DONORS PROJECTS MANAGEMENT AND MONITORING UNIT

1 Public Disclosure Authorized IRRIGATION AND LAND MARKET DEVELOPMENT PROJECT IDA CREDIT NUMBER 5456-GE Public Disclosure Authorized IMPLEMENTED BY DONORS PROJECTS MANAGEMENT AND MONITORING UNIT (DPMMU) OF THE MINISTRY OF AGRICULTURE OF GEORGIA AND NATIONAL AGENCY OF PUBLIC REGISTRY (NAPR) OF THE MINISTRY OF JUSTICE OF GEORGIA SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT Public Disclosure Authorized Public Disclosure Authorized TBILISI MAY 2017

IRRIGATION AND LAND MARKET DEVELOPMENT PROJECT IDA CREDIT NUMBER 5456-GE TABLE OF CONTENTS STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE

2 IRRIGATION AND LAND MARKET DEVELOPMENT PROJECT IDA CREDIT NUMBER 5456-GE TABLE OF CONTENTS STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS 3 INDEPENDENT AUDITOR'S REPORT 4-5 SPECIAL PURPOSE FINANCIAL STATEMENTS : Statement of cash receipts and payments 6 Statement of expenditures per components 7 Notes to the special purpose financial statements 8-14 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE DPMMU AND DISBURSED BY THE WORLD BANK 15 Page 2

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM 13 MARCH 2015 TO 31 DECEMBER 2016 The management of the

3 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS FOR THE PERIOD FROM 13 MARCH 2015 TO 31 DECEMBER 2016 The management of the Donors Projects Management and Monitoring Unit ("DPMMU") of the Ministry of Agriculture of Georgia is responsible for the preparation of the special purpose financial statements of "Irrigation and Land Market Development Project" ("Project") financed by Financing Agreement dated 21 November 2014, that present fairly the Project's cash receipts and payments, and expenditures per components for the period from 13 March 2015 to 31 December 2016, in accordance with the International Public Sector Accounting Standard "Financial Reporting under the Cash Basis of Accounting" (IPSAS-Cash Basis) issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC) and the Financial Management Manual for World Bank Financed Investment Operations (WB Guidelines). In preparing the special purpose financial statements, DPMMU's management is responsible for: * Properly selecting and applying accounting policies; * Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * Providing additional required disclosures for the period from 13 March 2015 to 31 December DPMMU's Management is also responsible for: * Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Project; * Maintaining adequate accounting records that are sufficient to show and explain the Project's transactions, and which enable them to ensure that the special purpose financial statements of the Project comply with IPSAS- Cash Basis and the WB Guidelines; Taking such steps that are reasonably available to them to safeguard the assets of the Project and to affirm that funds received have been used in accordance with the Financing Agreement dated 21 November 2014, and World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; and * Preventing and detecting fraud and other errors. The special purpose financial statements for the period from 13 March 2015 to 31 December 2016 were authorized for issue on 16 May 2017 by the DPMMU's Management. Al ash h dr i'lnino e 14 o9f D FinancialMa Tatis l r of DPMMU 3

4 "UOU-iFt-IlS" U(1il! "SOS-AUDIT" LTD To the Ministry of Agriculture of Georgia Okpinion INDEPENDENT AUDITOR'S REPORT We have audited the special purpose financial statements of "Irrigation and Land Market Development Project" ("Project") financed by Financing Agreement dated 21 November 2014 ("Financing Agreement"), and implemented jointly by Donors Projects Management and Monitoring Unit ("DPMMU") of the Ministry of Agriculture of Georgia and National Agency of Public Registry ("NAPR") of the Ministry of Justice of Georgia, which comprise the statement of cash receipts and payments and the statement of expenditures per components for the period from 13 March 2015 to 31 December 2016, and notes to the special purpose financial statements, including a summary of significant accounting policies. In our opinion, I. the accompanying financial statements present fairly, in all material respects, the cash flows for the period from 13 March 2015 to 31 December 2016 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting, (IPSAS- Cash Basis); 2. funds have been used in accordance with the conditions of the Financing Agreement concluded between the International Development Association (IDA) and the Georgia, and WB Guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 3. supporting documents, records and accounts have been maintained to support claims for reimbursement of expenditures incurred. Expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the Financing Agreement; Interim Unaudited Financial Statements (IFSs) issued by DPMMU during the reporting period are in agreement with the underlying books of account; 4. The Designated Accounts used has been maintained in accordance with the provision of the Financing Agreement, and World Bank related guidelines; 5. Works, Goods and Services financed have been procured in accordance with the Financing Agreement and World Bank related guidelines. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). 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 Project, of the DPMMU and of the NAPR in accordance with the International Ethics Standards Boardfor Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled out other ethical requirements in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter-delays in the Project implementation Without qualifying our opinion, we draw your attention to Note 7 of these special purpose financial statements disclosing delays of the Project implementation and the measures taken by the management of the DPMMU and the NAPR. 4 TI; p.btlwg 0037, U. SIiqpwujwb 38155; Aba. (+37410) ; WWw sosauditam t-0num' info@sosauditam 38/55A. Tigranyan, 0037 Yerevan, RA; Tel.; (+37410' 20'1 51 www sosauditam E-ma'' nfo@isosaudit.an

"UOU-Unfl%b-MS" Uil "SOS-AUDIT" LTD Responsibilities of the Management for the Financial Statements Management of the DPMMU is responsible for the preparation and fair presentation of the special

5 "UOU-Unfl%b-MS" Uil "SOS-AUDIT" LTD Responsibilities of the Management for the Financial Statements Management of the DPMMU is responsible for the preparation and fair presentation of the special purpose financial statements in accordance with IPSAS-Cash Basis issued by the International Public Sector Accounting Standards Board (IPSASB) of the IFAC and Financial Management Manual for World Bank Financed Investment Operations ("WB Guidelines"), and for such internal control as management determines is necessary to enable the preparation of special purpose financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility for the Audit of the Special Purpose Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose 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 high level of assurance, but is not a guaranty that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements arise from fraud and 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the special purpose 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 from fraud is higher than for one resulting from 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 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 financial statements, including the disclosures, and whether the special purpose financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with management regarding, 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. "SOS-Audit" LLC 16 May 2017 M affri ri ect nel Khachatryan, FCCA Auditor 5 T3; fp.bpllug 0037, UL Sbqpw.ljulb 38/55; lbr).' (+37410) ; www. sosaudit.arn; tt-*lnuln' info@sosaudit,am 38/55 A. Tigranyan, 0037 Yerevan, RA: Tel.: (+37410) ; www. sosauditamn; info@sosaudit.am

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8 Notes to the special purpose financial statements 1. General information The Project The Financing Agreement was signed on 21 November 2014 between the Georgia and the International Development Association ("IDA"), according to which IDA provided financing to the Georgia in the amount of 32,400,000 Special Drawing Rights (SDR). The Financing Agreement became effective on 13 March The financing was provided for the implementation of "Irrigation and Land Market Development Project" (the Project). The payment currency of is United States dollars (USD). The Closing date of is set 31 July The Grace Period for submitting withdrawal application for expenditures incurred before the Closing date is four months following the Closing date: 30 November LZ The Project objectives The objective of this project is to: (i) improve the delivery of irrigation and drainage services in selected areas; and (ii) develop improved policies and procedures as a basis for a national program of land registration. The Project consists of the following parts: Part A: Irrigation and Drainage Improvement 1. Rehabilitation and modernization of existing irrigation and drainage schemes selected under the Project; 2, Provision of goods and consultants' services for strengthening of irrigation and dr-ainage institutions. Part B: Land Market Development 1. Development of policies and procedures for land registration; 2. Carrying out a pilot for land registration in selected areas; 3. Development and implementation of system for monitoring and registration, and evaluating its economic impact. Part C: Project Management 1. Supporting project management for Pan A of the Project; 2. Supporting project management for Part B of the Project. 8

9 Notes to the special purpose financial statements 1.3. The Project Budget The Project is wholly financed by, inclusive of all taxes. IDA Credit Expenditure Financing Category(inclusive of ategmy Total taxes) SDR USD equivalent (a) USD equivalent (1) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs for: 30,830,000 41,659, ,040 (a) Part A.1 of the Project 27,310,000 36,902,640 36,902, % (b) Part A.2 of the Project 2,270,000 3,067,338 3,067, % (c) Part C.I of the Project 1,250,000,689,062 1,689, % (2) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs for: 1,570,000 2,121,463 2,121,463 (a) Part B.1, B3 and C.2 of the Project , , % (b) Part B.2 of the Project 980,000 1,324,225 1,324, % Total 32,400,000 43,780,503 43,780,503 (a) The budget USD equivalents for with underling currency of SDR, is calculated based on cumulative funds received in USD plus, if any, USD equivalent of undisbursed funds in SDR as at reporting date. SDR/USD rate as at is set at Project Implementation The Project is jointly implemented by Donors Projects Management and Monitoring Unit ("DPMMU") of the Ministry of Agriculture of the Georgia and National Agency of Public Registry ("NAPR") of the Ministry of Justice of the Georgia. The Components A and C.1 are implemented by the DPMMU and the Component B and C.2 by the NAPR (Note 1.2.). The DPMMU is responsible for financial reporting of the Project. The DPMMU address is: 6 Marshal Gelovani Avenue, Tbilisi, Georgia, The NAPR address is: 2, Sanapiro street, Tbilisi, Georgia, 0114 I

10 IDA Credit Number 6456-GE Notes to the special purpose financial statements 2. Summary of significant accounting policies 2.1. Preparation and presentation offinancial statements The special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting (IPSAS-Cash Basis), issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC), and presented in accordance with Financial Management Manual for World Bank Financed Investment Operations. The principal accounting policies applied in the preparation of these special purpose financial statements are set out below. These policies have been consistently applied to all the periods presented. 2.2 Cash basis of accounting Project financing is recognised as a source of project funds when the cash is received. Project expenditures are recognised as a use of project funds when the payments are made. 2.3 Reporting currency The reporting currency of these special purpose financial statements is United States dollars (USD). The expenditures made in local currency, Georgian Lari (GEL), are translated into USD based at the exchange rate prevailing at the date of the transaction as issued by the National Bank of Georgia (NBG). The exchange rate defined by the NBG is as follows: 31 December 2016: USD 1 = GEL Taxes The taxes are paid in accordance with the tax regulation of the Georgia Budget Expenditure budget is created based on actual accumulated expenditures for the last period plus the updated procurement plans for the Reporting year. to

11 Notes to the special purpose financial statements 3. Summary of Summary Reports and SOEs Disbursement categories Total Withdrawal Withdrawal (1) Goods, works, non- (2) Goods, works, nonapplication application consulting services, consulting services, No value date consultants' services, consultants' services, Training and Incremental Training and Incremental Operating Costs Operating Costs 2 16.Mar , , Apr ,725, ,725, Jun ,289, ,289, Dec ,244, ,244, Total 4,723, ,723, Statement of Designated Accounts Financing Agreement Implementing Agency DPMMU NAPR Bank account number Bank National Bank of Georgia Bank location 2 Sanapiro street,, Tbilisi, Georgia, 0114 Account currency USD USD DPMMU NAPR Total USD USD USD 1. Opening balance as at 13 March Add: opening discrepancy IDA advance/replenishment 6,723, ,000 6,973, Less: Refund to IDA from DA Present outstanding amount advanced to DA 6,723, ,000 6,973, DA closing balance as at 31 Dec , ,340 1,172,017 7, Add: Amount of eligible expenditures paid 5,784,530 16,660 S. Less: interest earned (if credited 5,801,190 to DA) Total advance accounted for 6,723, ,000 6,973, Closing discrepancy (5)-(9)

12 Notes to the special purpose financial statements 5. Statement of Financial Position (Statement of Fund balances) The Statement of Financial Position discloses assets, liabilities and net assets of the Project as at reporting date. It is prepared in accrual basis that is transactions are recognized when they occur (and not only when cash is received or paid). Note 31 Dec 2016 USD ASSETS Cash 6 1,179,330 Prepayments (a) 2,361,969 Total assets 3,541,299 LIABILITIES Payables (b) 79,373 Total liabilities 79,373 NET ASSETS Cumulative income 8 6,973,207 Other income 8,154 6,981,361 Cumulative expenses Project expenses 3,518,456 3,518,456 Foreign exchange gain/(loss) (979) Total net assets 3,461,926 (a) Prepayments consist of advances for construction works up to 20% of the contract amount. As at signing these financial statements, USD 441,815 was covered from those advances, (b) Payable consists of warranty amounts of 5% withhold from contractors' invoices for construction works. 6. Cash IDA Credit 5456-GE Implementing Underlying 31 Dec 2016 Agency Currency USD Designated Account DPMMU USD 938,677 Designated Account NAPR USD 233,340 1,172,017 Other Tender account DPMMU GEL 6,234 Tender account DPMMU USD 1,079 7,313 1,179,330 12

13 Notes to the special purpose financial statements 7. Project Expenditures Implementation Progress Cumulative Expenditures Project total as at 31 Dec 2016 budget Progress (a) Category USD USD % (1) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs for: 5,784,392 41,659,040 14% (a) Part A.] of the Project 4,500,534 36,902,640 12% (c) Part A.2 of the Project 879,774 3,067,338 29% (d) Part C.1 of the Project 404,084 1,689,063 24% (2) Goods, works, non-consulting services, consultants' services, Training and Incremental Operating Costs for: 16,660 2,121,463 1% (a) Part B.1, B.3 and C.2 of the Project 16, ,238 2% (c) Part B.2 of the Project - 1,324,225 - Total 5,801,052 43,780,503 13% (a) There is delay in Project implementation due to late commencement of the major activities: the Project was signed on 21 Nov 2014, however it became effective on 13 May As a result, the main construction contracts commenced on year (i) Under Part A of the Project which is implemented by the DPMMU, tender documentation for civil works Batch I was completed and ICB was announced on July 2015, however, the first contracts were signed only on March 2016, just before irrigation season, as a result the contractor company were not able to launch rehabilitation works in full scale. Also, there were many revisions on construction design, which slowed the progress of the works. The Batch II civil works envisage rehabilitation of on-farm network for the 3 ongoing main irrigation schemes. The mentioned designs will be prepared within the project, currently project is in the stage of preparation of relevant tender documents for QCSB tender for the selection of the international design company. In 2017 the design company will be recruited. It is planned that rehabilitation of Batch 11 civil works will be started in the second half of Due to delay start, it is expected that the Project will be extended for 18 months in order to catch up the activities. (ii) There was no activities conducted under Part B of the Project during the reporting period, which is implemented by the NAPR, This is mainly due to required legislative changes that were necessary to launch the State Project of Land Registration that also encompasses pilot project of systematic registration. At the end of Oct 2016, an international expert was recruited to develop needed procedures and guidelines for commencement of the pilot project. Currently, those procedures are in final stage and pilot project will commence soon. 8. Financing Reporting Cumulative as period at 31 Dec 2016 USD USD Advance/ (advance recovery) 2,250,000 2,250,000 Direct Payment - - SOE and Summary Report 4,723,207 4,723,207 Special Commitment - - Total 6,973,207 6,973,07 Total financing budget 43,780,503 Percentage of finance provided as at 31 Dec % 13

Notes to the special purpose financial statements 9. Reimbursements after the reporting date DPMMU The application N 8 in the total amount of 1,932,375.

14 Notes to the special purpose financial statements 9. Reimbursements after the reporting date DPMMU The application N 8 in the total amount of 1,932, USD, that includes expenditures relating to the reporting period in the amount of 1,061, USD was submitted to WB on 23 Jan 2017 and was approved on 24 January NAPR The application N 3B in the total amount of 16, USD, that consists of expenditures relating to the reporting period was submitted to WB on 25 January 2017 and was approved on I February Litigations There are no pending litigations related to the Project as at reporting date and as at approval date of these financial statements. 14

ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE DPMMU AND DISBURSED BY THE WORLD BANK Expenditure Category Appl. DPMMU WB Difference 1 1-',500,000.00 1,500,000.

15 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE DPMMU AND DISBURSED BY THE WORLD BANK Expenditure Category Appl. DPMMU WB Difference 1 1-',500, ,500, Advance/(recovery) 3 500, , B 250, , ,250, ,250, , , (1) Goods, works, non-consulting services, consultants' 5 1,725, ,725, services, Training and Incremental Operating Costs 6 1,289, ,289, ,244, ,244, ,23, , Total 6,973, ,

SPF-FUNDED BUILDING CAPACITY FOR EFFECTIVE LOCAL GOVERNANCE PROJECT SPF GRANT NO. TF IMPLEMENTED BY COMMUNITY DEVELOPMENT AND INVESTMENT AGENCY

SPF-FUNDED BUILDING CAPACITY FOR EFFECTIVE LOCAL GOVERNANCE PROJECT SPF GRANT NO. TF018720 IMPLEMENTED BY COMMUNITY DEVELOPMENT AND INVESTMENT AGENCY SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT