Audited Project Financial Statements

Project Number: 38456-037

Loan Number: 3096
Period covered: 01 July 2014 to 30 June 2015

PAK: Power Distribution Enhancement Investment

Program, Tranche 4

Prepared by Hyderabad Electric Supply Company

For the Asian Development Bank

Date received by ADB: 30 December 2015

The audited project financial statements are documents owned by the borrower. The views expressed
herein do not necessarily represent those of ADB’s Board of Directors, Management, or staff. These
documents are made publicly available in accordance with ADB’s Public Communications Policy 2011
and as agreed between ADB and the Hyderabad Electric Supply Company.
Financial Attest Audit Report on the
Accounts of Power Distribution Enhancement
Investment Program Tranche-IV Hyderabad
Electric Supply Company Limited (HESCO),
Asian Development Bank (ADB) Loan No.
3096-PAK
for the Financial Year 2014-15.

ASIAN DEVELOPMENT BANN

3 0 DEC 2015
tr-ct MISSIO
PAKISTAN RESIDENT
BAD
ISLAMA

Auditor General of Pakistan Islamabad

 TABLE OF CONTENTS

Page No.

LIST OF ABBREVIATIONS 1

PREFACE 2

PART-I 3

PROJECT OVERVIEW 4

AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION) 5

FINANCIAL STATEMENTS 6

PART-II 12

EXECUTIVE SUMMARY 13

MANAGEMENT LETTER 14

1 INTRODUCTION 15

2. AUDIT OBJECTIVES 16

3. AUDIT SCOPE AND METHODOLOGY 16

4. AUDIT FINDINGS & RECOMMENDATIONS 17

4.1 Construction & Works 17

4.2 Overall Assessment 17

4.3 Recommendations 17

5. CONCLUSION 18

ACKNOWLEDGEMENT 19
LIST OF ABBREVIATIONS

ADB Asian Development Bank

BOD Board of Directors
GCC General Conditions of Contract
GOP Government of Pakisatn
HESCO Hyderabad Electric Supply Company
IPSAS International Public Sector Accounting Standards
ISSAI International Standards of Supreme Audit Institutions
PC-I Planning Commission Pro-forma-I
PDEIP Power Distribution Enhancement Investment Program
PM U Project Management Unit
WAPDA Water and Power Development Authority
 PREFACE

The Auditor General conducts audit subject to Articles 169 and 170 of the Constitution of
the Islamic Republic of Pakistan 1973, read with sections 8 and 12 of the Auditor
General's (Functions, Powers and Terms and Conditions of Service) Ordinance 2001.
The Audit of Power Distribution Enhancement Investment Program Tranche-IV HESCO
portion (ADB loan 3096) was carried out accordingly.

The Directorate General Audit WAPDA conducted audit of the Power Distribution
Enhancement Investment Program Tranche-IV HESCO portion (ADB loan 3096) during
October 2015 for the financial year 2014-15 with a view to reporting significant findings
to the stakeholders. Audit examined the economy, efficiency, and effectiveness aspects of
the Power Distribution Enhancement Investment Program Tranche-IV HESCO portion
(ADB loan 3096). In addition, Audit also assessed, on test check basis, whether the
management complied with applicable laws, rules, and regulations in managing the
Power Distribution Enhancement Investment Program Tranche-IV HESCO portion (ADB
loan 3096). The Audit Report indicates specific actions that, if taken, will help the
management to realize the objectives of the Power Distribution Enhancement Investment
Program Tranche-IV HESCO portion (ADB loan 3096).

The Report consists of two parts. Part-I contains Auditor's Report (Audit Opinion) and
Financial Statements. Part-II contains Executive Summary, Management Letter and
Audit Findings.

The Report has been prepared for submission to the Asian Development Bank in terms of
Loan Agreement 3096 (HESCO Portion).

Dated: BILAL MAJEE

Place: Lahore DIRECTOR GENERAL
AUDIT WAPDA, LAHORE

2
 PART-I

1. PROJECT OVERVIEW

2. AUDITOR'S REPORT TO THE MANAGEMENT

(AUDIT OPINION)

3. FINANCIAL STATEMENTS
 PROJECT OVERVIEW

Name of Project Power Distribution Enhancement Investment

Program Tranche-IV HESCO portion (ADB
loan 3096)

(a) Sponsoring Authority Asian Development Bank

(b) Implementing Authority Hyderabad Electric Supply Company

(HESCO)

Date of Commencement April 18, 2014

Date of closing December 31, 2016

Total Project Cost as per PC-I US $ 13.200 million

Donor's Share US $ 11.000 million

Counterpart Funds US $ 2.200 million

Expenditure during the Year 2014-15 US $ 0.048 million

(Rs.4.889 million)

Progressive Expenditure up to June US $ 0.048 million

30,2015 (Rs.4.889 million)

4
AUDITOR'S REPORT TO THE MANAGEMENT (AUDIT OPINION)

We have audited the accompanying financial statements of the Power Distribution

Enhancement Investment Program Tranche-IV Hyderabad Electric Supply Company
Limited (HESCO) financed under the Asian Development Bank Loan No.3096 as of June
30, 2015, and for the year then ended.

These financial statements are the responsibility of the management of Hyderabad

Electric Supply Company Limited (HESCO). Our responsibility is to express an opinion
on the accompanying statements based on our audit.

We conducted our examination in accordance with International Standards of Supreme

Audit Institutions. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of misstatement. Our
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our audit also includes assessing the accounting
principles and significant estimates made by management, as well as evaluating the
overall statement presentation. We believe that our audit provides a reasonable basis for
our opinion.

The HESCO's policy is to prepare the accompanying statements in the format agreed
between the Asian Development Bank and the Government of Pakistan as noted in the
Minutes of Negotiations for the Loan, on a cash receipts and disbursements basis in
which cash is recognized when received and expenses are recognized when paid, rather
than when incurred.

In our opinion, (A) the aforementioned financial statements and appended notes that were
also subject of the audit, fairly present in all material respects the financial position of the
Power Distribution Enhancement Investment Program Tranche-IV Hyderabad Electric
Supply Company Limited (HESCO) as at June 30, 2015 and the results of its operations
for the year ended June 30, 2015, in conformity with International Public Sector
Accounting Standards, applied on a basis consistent in all material respects with that of
the previous years; (B) the HESCO has utilized all proceeds of the loan withdrawn from
the Asian Development Bank only for purposes of the Project as agreed between the
Asian Development Bank and HESCO in accordance with the Loan Agreement; and no
proceeds of the loan have been utilized for other purposes; and (C) the HESCO was in
compliance as at the date of the balance sheet of the year of audit with all financial
covenants of the Loan Agreement.

BILAL MAJEE
DIRECTOR GENERAL
AUDIT WAPDA, LAHORE

Dated:

5
FINANCIAL STATEMENTS
Hyderabad Electric Supply Company (HESCO)
Power Distribution Enhancement Investment Program
ADB Loan No. 3096-PAK (Tranche-IV)
Satetment of Receipts and Payments
For the year ended June 30, 2015

Rupees in million

Note 2014-15 2013-14

Receipts (Payments) Payment by Third Receipts (Payments) Payment by
Controlled by Project Parties Controlled by Project Third Parties

Receipts
External Assistance 5 4.456
Counterpart Funds 6 0.433
Total Receipts 0.433 4.456
Payments
Consultancy Services 7
Operating Expenses 8 0.433
Supplies and Consumables 9
Purchase of Plant and Equipment 4.456
Cvil Works
Training 10
Total Payments 0.433 4.456

Inrease (Decrease In Cash

Cash at Beginning of Year
Cash at End of Year 12
Contigencies and Commitments 13
The accompanying notes form an integral part of these financial statements and are to be read Virewith.

of Engineer (Dev:)

C ans 'fa)
, HESCO, Hyderabad
Hyderabad Electric Supply Company (HESCO)
Power Distribution Enhancement Investment Program
ADB Loan No. 3096-PAK (Tranche-IV)
Statement of Budget and Actual Expenditure
For the year ended June 30, 2015

Rupees in million

Note 2014-15 2013-14

Original Revised Original Revised
Actual Actual
Budget Budget Budget Budget
Amount Amount Amount Amount Amount Amount
Receipts

External Assistance 5 4.456 4.456 4.456

Counterpart Funds 6 0.433 0.433 0.433
Total Receipts 4.889 4.889 4.889
Payments

Consultancy Services 7
Operating Expenses 8 0.433 0.433 0.433

Supplies and Consumables 9

Purchase of Plant and Equipment 4.456 4.456 4.456

Cvil Works
Training 10
Total Payments 4.889 4.889 4.889

The accompanying notes form an integral part of these financial statements and are to be read therewith.

m NV:4 g ineer (Dev:)

PMU, HESCO, Hyderabad
(7"41)" Af e.f)
Hyderabad Electric Supply Company Ltd
Notes to Financial statements
For the Year ended 30 June 2015.
1 Reporting Entity
The Financial Statements are for Hyderabad Electric Supply Company
Limited (HESCO) in respect of Asian Development Bank Loan
Agreement Tranche-IV PAK 3096 between Islamic Republic of Pakistan
& Asian Development Bank as well as Project Agreement signed between
Hyderabad Electric Supply Company Limited (HESCO) & Asian
Development Bank. These Agreements were signed on April 30, 2014 for
US$ 11.000 million. The project became effective from July 18, 2014 with
the closing date of 30.06.2017.
The objective of Hyderabad Electric Supply Company Limited Project is
to increase the efficiency, reliability and quality of electric supply by
strengthening of electricity distribution network to reduce losses and
improvement in supply. The financing will cover improve power
distribution infrastructure through augmentation and extension of the
existing 132 KV Grid Station and relieve the power system form
distribution bottlenecks and constraints.
The financing is made in the form of Credit based on Asian Development
Bank, which would be repaid in 34 half yearly equal installment.
2 Certification by Project Management on Application of Funds.
The Hyderabad Electric Supply Company Limited project management
certified that the funds have been applied/expenditure have been incurred
for the purposes intended in the loan/project.
3 Accounting Convention and Statement of compliance.
The financial statements have been prepared in accordance with Cash
Basis IPSAS Financial Reporting under the Cash Basis of Accounting.
4 Signification accounting Policies
4.1 Foreign Currency Transaction
Cash receipts and payments arising from transactions in foreign currencies
are recorded in Pak Rupee by applying to the foreign currency amount, the
exchange rate between the Pak Rupee and the Foreign Currency at the date
of the receipts and payments. Exchange differences arising on settlement
of these transactions are recognized in the Statement of Receipts and
Payments.
4.2 Reporting Currency
All amounts in the financial statements are in Pak Rupees.
4.3 Revenue Recognition
Revenue is recognized on the date of receipt of money by bank or
clearance of cheque. Revenue is recognized on gross basis and any related
costs are recorded separately.
4.4 Recognitions of Expenditure.
Expenditure is recognized on the date when payment is made or cheque is
issued. Financial year to which the payments pertain is determined by the
date on which a cheque or payment advice is issued.
4.5 Employee Terminal Benefits
Service benefits of government deputations employees are accounted for
in their respective departments while no service terminal benefits are paid
to the contractual employees.
Hyderabad Electric Supply Company (HESCO)
Power Distribution Enhancement Investment Program Tranche-IV
Satetment of Receipts and Payments
For the year ended June 30, 2015
All amounts in million
5 External Assistant
External Assistant was received in the form of Credit from the Asian Development Bank under financing agreement dated 30-04-2014 between
the Government of Pakistan and ADB for the purpose of Power Distribution Enhancement Investment Program Tranche-IV, Hyderabad Electric
Supply Company (HESCO). The following amounts were received by the Project during the year.

2014-15 2013-14
US$ Pak Rs. US$ Pak Rs.
Statement of Expenditure 5.1
Direct Payment 5.2 0.044 4.456
0.044 4.456 0.000 0.000

DETAIL OF LOAN EXPENDITURE DURING FY 2014-15

DATE OF
S.N WITHDRAWAL APPLICATION PAYMENT EQUILVALANT EQUILVALANT
NAME OF FIRMS
0 No, & DATED RELEASED BY LISS PAK RS.
ADB
1 1-1-0001 DT: 15-06-2015 M/S Newage Cables (Pvt. ) Ltd., Lahore 25-06-15 0.029 2.931
2 H-0002 DT: 15-06-2015 M/S Newage Cables (Pvt. ) Ltd., Lahore 26-06-15 0.015 1.525
TOTAL 0.044 4.456

5.1 This represents funds trnasferred to the Power Distribution Enhancement Investment Program Tranche-IV, Hyderabad Electric Supply. Company
(HESCO)'s designated US Dollar Bank Account by the ADB on the basis of withdrawal application submitted by the project.

5.2 Direct payment represent amount paid directly by the ADB on behalf of the project in respect of goods and services procured imported by the
project. The payment made on the basis of withdrawal application by the project.

5.3 There has been no instance of non complaince with the terms and condition of the financing agreement between ADB and Government of
Pakistan which have resulted in cancellation of credit.

5.4 Undrawn External Assistance

Undrawn creit reporting date represent amounts specified in the financing agreement between ADB and Government of Pakistan that the ADB
disburse for Power Distribution Enhancement Investment Program Tranche-IV,HESCO purposes.

US $
Amount of Loan 11.000
Amount surrended
Committed Loan Amount 11.000
Disbursements upto June 30,2014
Disbursements during the year. 0.044
Balance loan amount as at June 30, 2015 10.956

6 Counterpart Funds
2014-15 2013-14
Pak Rs. Pak Rs.
Government of Pakistan 6.1 0.433
0.433

6.1 This represents funding to the Power Distribution Enhancement Investment Program Tranche-IV, HESCO at 20% the total project cost by the
Government of Pakistan (GoP) as agreed between ADB and GoP.

Ch' f Engineer (Dev:)

m PM HESCO, Hyderabad

4 fr

1,1
• Hyderabad Electric Supply Company (HESCO)
Power Distribution Enhancement Investment Program
ADB Loan No. 3096-PAK (Tranche-IV)
Satetment of Receipts and Payments
For the year ended June 30, 2015
All amount in million

8 Operating Expenses 2014-15 2013-14

Pak Rs. Pak Rs.
Salaries, miscellanneous 0.433
0.433

9 Plant & Equipment 2014-15 2013-14

Pak Rs. Pak Rs.
Plant and equipment 4.456
4.456

10 Authorizaton Expenses
These financial statement have been authorized for issue by the Chief Engineer(Dev:) on 11-12-2015
11 General
Figures have been rounded off to the nearest rupee.

tiler C ief Engineer (Dev)

P , HESCO, Hyderabad
91
( e(j)
 PART-II

EXECUTIVE SUMMARY

MANAGEMENT LETTER

1. INTRODUCTION

2. AUDIT OBJECTIVES

3. AUDIT SCOPE AND METHODOLOGY

4. AUDIT FINDINGS AND RECOMMENDATIONS

4.1 Construction & Works

4.2 Overall Assessment

4.3 Recommendations

5. CONCLUSION

ACKNOWLEDGEMENT

12
 EXECUTIVE SUMMARY

The Directorate General Audit WAPDA conducted audit of the Power Distribution
Enhancement Investment Program Tranche-IV HESCO portion (ADB loan 3096) during
October 2015 for the financial year ended June 30, 2015. The main objectives of the audit
were to express an opinion on the Statement of Receipts and Payments of the project, to
review project performance against intended objectives, to review compliance with
applicable rules, regulations and procedures. The audit was conducted in accordance with
the International Standards of Supreme Audit Institutions (ISSAI).

Key Audit Finding:

• Advance payment to contractor— Rs. 4.456 million

13