Financial Statements

Public Disclosure Authorized Public Disclosure Authorized

Public Disclosure Authorized ForFor thethe YYearear endedended 3131stst DecemberDecember,, 20172017 Public Disclosure Authorized Zambezi River Authority Annual Report and Financial Statements For the year ended 31 December 2017

Table of contents Page No

Directors’ report 2-6

Statement of directors’ responsibilities 7

Report of the independent auditor 8-11

Financial statements:

- Statement of income and expenditure and other comprehensive income 12

- Statement of ﬁnancial position 13

- Statement of changes in reserves 14

- Statement of cash ﬂows 15

Notes to the ﬁnancial statements 16-44

Appendices

Appendix 1 - Statement of Capital Expenditure Compared to Budget 45

Appendix II - Grant Funding Application Analysis - Batoka Gorge Hydro Electric Scheme 46

Zambezi River Authority Director’s report For the year ended 31 December 2017

The Directors submit their report together with the audited ﬁnancial statements for the year ended 31 December 2017, which disclose the state of aﬀairs of Zambezi River Authority (the ‘Authority’.

Establishment and Functions

The Zambezi River Authority (ZRA) was established as a corporate body on 1 October 1987 by parallel legislation in the Parliaments of Zambia and Zimbabwe under the Zambezi River Authority Acts No.17 and 19 respectively. It was tasked with the management of the Zambezi River, which ﬂows between the two countries’ common border. ZRA is also mandated to maintain the Kariba Dam Complex (Kariba Complex) and to construct and maintain other dams or infrastructure on the river forming the border between the two countries.

Princi pal Functions

The functions of the Authority are set out in the schedule to the Zambezi River Authority Acts of 1987 as fo llows:

(a) Operate monitor and maintain the Kariba Complex. Kariba complex means:

i. the Kariba Dam and reservoir

ii. All telemetering stations relating to the Kariba Dam iii. Any other installations owned by the Authority

(b ) In consultation with the National Electricity Undertakings, investigate the desirability of constructing new dams on the Zambezi River and make recommendations thereon to the Council of Ministers (“the Council”);

other dams on the Zambezi River;

(d) Collect, accumulate and process hydrological and environmental data of the Zambezi River for the better performance of its functions and for any other purpose beneﬁcial to the Contracting States;

(e) In consultation with the National Electricity undertakings, regulate the water level in the Kariba reservoir and in any other reservoir owned by the Authority;

(f) Make such recommendations to the Council as will ensure the eﬀective and eﬃcient use of the waters and other resources of the Zambezi;

(g) Liaise with the National Electricity Undertakings in the performance of its functions that may aﬀect the generation and transmission of electricity to the Contracting States;

(h) Subject to provisions of Article 13, recruit employ and provide for the trainin g of staﬀ as may be necessary for the performance of its functions under the Agreement;

(h) From time to time and subject to the approval of the Council, make such revision of salaries, wages and other remuneration to its employees as it considers appropriate

(i) Submit development plans and programmes to the Council approval;

Zambezi River Authority Director’s report For the year ended 31 December 2017

(j) Give eﬀect to such directions, as may from time to time, be given by the Council; and

(k) Carry out such other functions as are provided for in the Agreement or are incidental or conducive to the better performance of its functions.

Place of Busin ess

(a)Head Offi ce:Kariba House, 32 Chacha Road, P.O. Box 30233, Lusaka, Zambia (b)Harare Office: Club Chambers, Nelson Mandela Avenue, P.O. Box 630, Harare, Zimbabwe (c)Kariba Office: Administration Block, 21 Lake Drive, Pvt. Bag 2001, Kariba, Zimbabwe

Results Year en ded 31 December 2017 2016 ZMW’0 00 US$’000 ZMW’000 US$’000

Revenue 186,647 19,37 8 260,601 25,147

Surplus for the year 15,939 1,606 72,083 7,263

The surplus for the year has been added to the revenue reserve.

Property, plant and equipment

The Authority purchased property, plant and equipment amounting to ZMW273.7 million (US$27.7 million) ((2016: ZMW93.3 million (US$9.4 million)) during the year. In the opinion of the directors, the carrying value of property, plant and equipment is not more than their recoverable value.

Average number of employees

The total remuneration of employees during the year amounted to ZMW 99.2 million (US$ 10.3 millio n (2016: ZMW107.7 million (US$ 10.3 million). The average number of employees was as follows:

Mont h Numbe r Mont h Number January 151 July 148 Feb ruary 150 August 148 Marc h 149 Septem ber 149 April 149 October 150 May 149 November 149

June 148 December 150

The Authority has policies and procedures to safeguard the occupational health, safety and welfare of its employees .

Related Party Transactions The Authority has a common enterprise relationship with Governments of the Republic of Zambia and Zimbabwe. Other related party relationships and material balances that the Authority has with its related parties are listed in Note 24 to the ﬁnancial statements .

Zambezi River Authority Director’s report For the year ended 31 December 2017

Gifts and donations 2017 2016 ZMW'000 US$'000 ZMW'000 US$'000 Donations and sponsorships 191 18 362 35

Post balance sheet events

There have been no signiﬁcant events between the year-end and the date of approval of these ﬁnancial statements.

Risk management and control In its normal operations, the Authority is exposed to a number of risks, the most signiﬁcant

of which are operational, legal, ﬁnancial reporting and liquidity risks. The Board is

responsible for establishing and ensuring maintenance of adequate internal controls over financial reporting. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

(a) Operational risk

Operational risk is the risk of losses from inadequate or failed internal processes and systems, caused by human error or external events. It has a broad scope and includes transaction authorisation and processing; completeness of income recording; payments processing and the management of information, data quality and records. The following are the main risks noted under this classification:

(i). Financial crime risk - Financial crime risk is the risk that the Authority suﬀers losses as a result of internal and external fraud or intentional damage, loss or harm to people, premises or its moveable assets. The risk in the Authority is directly attributable to its people risk.

(ii). People risk - People risk arises from failures of the Authority to manage its key risks as an employer, including lack of appropriate people resource, failure to manage performance and reward, unauthorised or inappropriate employee activity and failure to comply with employment related requirements.

(b) Legal risk

The Authority is subject to a comprehensive range of legal obligations, mostly covered by the Zambezi River Authority Acts of 1987. As a result, it is exposed to many forms of legal risk, which may arise in a number of ways: its business may not be conducted in accordance with requirements of the Act; contractual obligations may either not be enforceable as intended or may be enforced against the Authority in an adverse way; the Authority may face risk where legal proceedings are brought against it, in the course of carrying out its mandate, etc. Regardless of whether such claims have merit, the outcome of legal proceedings is inherently uncertain and could result in ﬁnancial loss. Defending legal proceedings can be expensive and time-consuming and there is no guarantee that all costs incurred will be recovered, even if the Authority is successful.

Zambezi River Authority Director’s report For the year ended 31 December 2017

Risk management and control (continued)

(i). Financial reporting risk - Financ ial reporting risk arises from a failure or inability to comply fully with regulations or codes in relation to the preparation, presentation, or disclosure of ﬁnancial information. Non-compliance could lead to damage to reputation or, in extreme cases, withdrawal of external funding.

(ii). Accounting risks - The Authority’s future performance and results could be

materially diﬀerent from expected results depending on the outcome of certain potential risks and uncertainties, details of which are discussed above. The reported results of the Authority are also sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its ﬁnancial statements. Details of its critical accounting policies and key sources of accounting judgments are included on pages 16 to 24.

(iii). Financial risks - The Authority through its normal operations is exposed to a number of risks on its financial instruments, the most significant of which are credit and liquidity. Market (currency and interest) risks are generally low. The two main risks on its financial instruments are generally deemed to be within manageable limits. The Authority’s financial risk exposures are discussed on pages 40 to 43 in Note 21 to the financial statements.

Governance Structure

The Council of Ministers an d directors who held oﬃce during the year and to the date of this report were:

(a) Council of Ministers

Name Title Resigned/Appointed Hon. Dav id Mabumba MP Chairperson Hon. Simon Khaya Moyo MP Co - C hairperson Appointed (Nov 2017) Hon. Dr. Samuel Undeng e M P Co - Chairperso n Reti red (Nov 2017) Hon. Felix Mutati Memb er Hon. Patrick A Chinamasa MP Member

(b) Board of Directors

Name Title Resigned/Appointed Bri gadier General Emelda Chola Chairperson (Retir ed) Mr. Patso n I Mbiriri Co - C hairperson Mr. Wilard L Manungo Member

Mr. Pascal Mubanga Member Mr. Mukuli Chikuba Memb er App ointed (Jan 2017) Dr. Ronald Simwinga Member Retired Retired (Jan 2017)

Engineer Israel Rwodzi Member

Zambezi River Authority Director’s report For the year ended 31 December 2017

Governance structure ( continued)

Position Name

Engineer. Munyaradzi C. Munodawafa Chief Executive Mr. Peter Kapinga Board Secretary/Corporate Services Director Mr Edward M. Kabwe Director – Fina nce Engineer. David Mazvidza Director – Project s & Dam Safety Engineer. Christopher Chisense Director – Water Resources & Environmental Management

Auditor PricewaterhouseCoopers w ere appointed to ﬁll a vacancy in accordance with the req uirements of the Zambezi River Authority Act. They have indicated their willingness to continue in oﬃce and a resolution for their reappointment will be proposed at the next Council of Ministers Meeti ng.

On behalf of the Board:

______

Board Secretary/Corporate Services Director Date

Zambezi River Authority Statement of Directors’ Responsibilities For the year ended 31 December 2017

The Zambezi River Authority Act requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Authority as at the end of the financial year and of its surplus or deficit. It also requires the Directors’ to ensure that the Authority keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Authority. The Directors are also responsible for safeguarding the assets of the Authority.

The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and with the requirements of the Zambezi River Authority Act. The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Authority and of its financial performance in accordance with International Financial Reporting Standards. The Directors also responsible for such internal control, as the Directors determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Nothing has come to the attention of the Directors to indicate that the Authority will not remain a going concern for at least twelve months from the date of these ﬁnancials statements.

______Chairperson Co-Chairperson

______Date Date

Independent auditor’s report To the Members of Zambezi River Authority Report on the audit of the ﬁnancial statements Our opinion

In our opinion, the financial statements give a true and fair view of the financial position of Zambezi River Authority (the “Authority”) as at 31 December 2017, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Zambezi River Authority Act.

The financial statements of Zambezi River Authority are set out on pages 12 to 44 comprise:  the statement of financial position as at 31 December 2017;  the statement of profit or loss and other comprehensive income for the year then ended;  the statement of changes in reserves for the year then ended;  the statement of cash flows for the year then ended; and  the notes to the financial statements, which include a summary of significant accounting policies.

Basis for opin ion We conducted our audit in accordance with International Standards on Auditing (ISAs). 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 believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our opinion. Independence

We are independent of the Authority in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulﬁlled our other ethical responsibilities in accordance with the IESBA Code.

Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Authority’s financial statements of the current period. These matters were addressed in the context of our audit of the Authority’s financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate Authority opinion on these matters.

PricewaterhouseCoopers, PwC Place, Stand No 2374, Thabo Mbeki Road, P.O. Box 30942, Lusaka, Zambia T: +260 (211) 334000, F: +260(211) 256474, www.pwc.com/zm A list of Partners is available from the address above

How our audit addressed the key audit Key audit matter matter

We performed the following procedures: Construction work in progress

As disclosed in note 10, the Authority has ● We held meetings with management to significant construction work in progress on gain an understanding of the nature of the Kariba Dam wall reha bilitation the cost being capitalised with and the Bato ka Gorge Hydro – Electric construction work in progress. Scheme projects. ● We evaluated and tested operating We have determined this as an area of foc us effectiveness of controls relating to the for the audit on account of the significance of approval process of construction work the amounts involved and the judgement and in progress. assumptions management make in

capitalising some of the cost incurred. ● We tested classiﬁcation of items in construction work in progress account for compliance with the accounting policy.

● We agreed amounts capitalised to projects completion certiﬁcates and support documentation.

● We assessed whether the construction work in progress meets the requirements of recognition as per the accounting standards and further tested borrowing costs capitalised for compliance with accounting standards.

● We tested mathematical accuracy of the detailed construction work in progress and reconciled to the financial statements. Other information The Directors’ are responsible for the other information. The other information comprises the Annual report but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the financial statements The Directors are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of the Zambezi River Authority Act and for such internal control as the Directors determine is necessary to enable the pre paration of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors eithe r intend to liquidate the Authority or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for overseeing the ﬁnancial reporting process

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 judgement 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 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 the Directors. ● Conclude on the appropriateness of the Directors’ 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 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 financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Authority 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 Directors regarding, among other matters, the planned scope and timing of the audit and signifi cant audit findings, including any significant deficiencies in internal control that we identify during our audit. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal re quirements

The Zambezi River Authority Act requires that in carrying out our audit we consider whether the Authority has kept proper accounting records and other records and other registers required by this Act.

In our opinion, based on our examination of those records the Authority has maintained proper accounting records and other records and registers as required by the Zambezi River Authority Act.

PricewaterhouseCoo pers 20 June 2018 Ch artered Accountants Lusaka

Charit y Mulenga Practicing Certiﬁcate Number: AUD/F000945

Partner signing on behalf of the ﬁrm

Zambezi River Authority Financial Stateme nts

For the year ended 31 December

Statement of income and expenditure and other compreh ensive incom e

Year ended 31 December 2017 2016

Notes ZMW'000 US$'000 ZMW'000 US$'000

Revenue 5 186,647 19,378 260,601 25,147

Other income 7 4,007 430 3,152 305

Fair value gain on financial assets through profi t or loss 533 54 181 18 Depreciation 10 (35,740) (3,793) (37,837) (3,651) Employee benefit exp ense 9 (99,221) (10,321) (106,722) (10,259) Governance costs (16,329) (1,672) (8,586) (791)

Administrat ion and travel costs (31,349) (3,274) (37,265) (3,433) Other operating expenses (10,705) (1,078) (14,708) (1,355)

Results from operating activities (2,157) (276) 58,016 5,981 Finance income 8 18,810 1,954 13,898 1,340 Finance costs 8 (714) (72) (631) (58) Surplus for the year 15,939 1,606 72,083 7,263

Other comprehensive income for the year Items that will be subsequently reclassified to profit or loss: - Exchange differences on translation (8,546) - (159,977) -

Total other comprehensive income for the year (8,546) - (159,977) -

Total comprehensive income for the year 7,393 1,606 (87,895) 7,263

The notes on pages 16 to 44 are an integral part of these ﬁnancial statements.

Zamb ezi River Authority Financial Statements

For th e year ended 31 December 2017

State ment of ﬁnancial position Assets As at 31 D ecem ber Non - current assets 2017 2016 Notes ZMW'000 US$'000 US$'000 ZMW'000

Property, plant and equipment 10 1,390,908 140,965 1,156,658 116,540 Investment prop erty 11 14,475 1,467 19,888 2,004 Long term investments 12 8,507 862 6,253 630 Other receivables 15 7,630 773 11,892 1,198

1,421,520 144,067 1,194,691 120,372

Current assets Inv entory 13 1,682 170 1,797 181 Financial assets at fair value through proﬁt or loss 14 8,585 870 6,604 665 Trade and other receiva bles 15 239,487 24,272 205,140 20,669 Cash and cash equiv alents 16 155,268 15,736 155,189 15,636 405,022 41,048 368,730 37,152 Total assets 1,826,542 185,115 1,563,421 157,524

Funds and Liabilities Revaluation reser ve 848,384 85,982 877,988 88,462 Translation reserve 181,320 - 184,735 - Rev enue res erve 424,470 61,396 384,058 57,309 1,454,174 147,378 1,446,781 145,771

Non -current liabilities and

grants Borrowings 17 21,165 2,145 12,744 1,284 Capital grants 19 287,494 29,137 40,055 4,036 Deferr ed capital grants 19 4,934 500 4,963 500 313,593 31,782 57,762 5,820

Current liabilities

Trade and other payables 18 58,775 5,956 58,878 5,932

58,775 5,956 58,878 5,932 Total funds and liabilities 1,826,542 185,115 1,563,421 157,524

The ﬁnancial statements on pages 12 to 44 were approved for issue by the board of directors on 2018 and signed on its b ehalf by:

______Chairperson Co - Chairperson

The notes on pages 16 to 44 are an integral part of these ﬁnancial statements.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Statement of changes in reserves (ZMW)

Revaluation Tra nslation Revenue Total reserves re s erv e r ese rv e reserv es ZMW’000 Z MW’000 ZM W’000 ZMW ’000

Balance at 1 January 2016 1,007,644 239,674 287,358 1,534,676

Surplus for the year - 72,083 72,083 Other comprehensive income for the year Amortisation of revaluation reserve (24 617) 24 617 - Exchan ge diﬀerences on translation (105 039) (54,939) - (159,977) Total comprehensive income for the year (129,656) (54,939) 96,600 (8 7,895)

Balance at 1 January 2017 877,988 184,735 384,058 1,446,7 81 Surplus for the year - - 15,939 15,939 Other comprehensive income for the year Amortisation of revaluation reserve (24,473) - 24,473 -

(3,415) Exchan ge diﬀerences on translation (5,131) - (8 ,546) Total comprehensive income for the year (29,604) (3,415) 40,412 7,393

Bala nce at 31 December 2017 848,384 181,320 424,470 1,454,174

Statement of changes in reserves (US$)

Revaluation Revenue Total reserves reserve Reserves US$’000 US$’000 US$’000

Balance at 1 January 2016 90,943 47,566 138,509 Surplus for the year - 7,263 7,263 Other comprehensive income for the year 2,480 - Amortisation of revaluation reserve (2,480) 9,743 7,263 T otal comprehensive income for the year (2,480)

Balance at 1 January 2017 88,462 57,309 145,772

Surplus for the year - 1,606 1606

Other comprehensive income for the year

Amortisation of revaluation reserve (2,480) 2,480 -

Total comprehensive income for the year (2,480) 4,086 1,606

Balance at 31 December 2017 85,982 61,396 147,378

The notes on pages 16 to 44 are an integral part of these ﬁnancial statements.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Statement of cash flow s

Year ended 31 December Note 2017 2016 ZMW'000 US$'000 ZMW'000 US$'000

Cash inﬂow from operating activi ties Surplus for the y ear 15,939 1,606 72,083 7,263 Depreciation 10 35,740 3,793 37,837 3,651

(Loss) / proﬁt on disposal of property,

plant and equipment 389 41 (390) (38)

Interest received (18,810) (1,954) (13,898) (1,340) Increase in trade and other receivable (30,085) (3,178) (119,089) (13,089) Fair value gain on ﬁnancial assets through proﬁt or loss (533) (54) (181) (18) Decrease in invento ries 115 11 219 1 Increase in trade and other payables (103) 24 9,593 1,484

Cash generated from operations 2,652 289 (13,826) (2,086)

Interest received 18,810 1,954 13,898 1,340

Net cash inﬂow from operating activities 21,46 2 2,244 72 (746)

Investing activities Purchase of pro perty, plant and equipment (273,709 ) (27,740 ) (93,267) (9,397) Proceeds from disposal of property plant and equipment 162 17 390 38 Proceeds fro m financial assets at fair value through profit or loss 289 29 (337) 44 Purchase of fair value th rough profit or loss investments (1,735) (180) - - Purchase of long term investments (1,973) (200) (1,012) (100) Net cash outflow on in vesting activities (276,966) (28,074) (94,226) (9,416)

Financing activities

Capital grants receiv ed 247,439 25,101 23,947 2,582 Proceeds from borrow ings 8,421 861 10,465 1,044 Net cash outﬂow on ﬁnancing 255,861 25,96 2 34,412 3,626

Changes in cash and cash equivalents (840) 132 (59.742) (6,536)

Eﬀects of changes in exchange rates on cash and cash equivalents 919 (32) (30,373) 33 Cash and cash equivalents at start of year 155,189 15,636 245,304 22,139

Cash and cash equivalents at end of year 155,26 8 15,736 155,189 15,636

The notes on pages 16 to 44 are an integral part of these ﬁnancial statements.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Not es to the ﬁnancial statements

1 General information

The Zambezi River Authority (“the Authority”) is mandated to manage the Zambezi River, which ﬂows between the two contracting states’ common borders. The Authority is also charged with the responsibility to maintain the Kariba Dam Complex (Kariba Complex) and construct and maintain other dams or infrastructure on the river forming the border between the two states. Its registered Head Oﬃce is:

Kariba House 32 Cha C ha Cha Road P O Box 30233 Lusaka, Zambia.

2 Summary of signiﬁcant accounting policies

The principal accounting policies applied in the preparation of these ﬁnancial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

(a) Basis of preparation

The ﬁnancial statements of Zambezi River Authority have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS and the Zambezi River Authority Act. The ﬁnancial statements comply with IFRS as issued by the International Accounting Standards Board (IASB).

The measurement basis applied is the historical cost basis, as modified by the revaluation of buildings and financial assets at fair value through profit or loss. The financial statements are presented in United States Dollars (US$) and Zambia Kwacha (“ZMW” or “K”) rounded to the nearest dollar or kwacha.

In accordance with the Zambezi River Authority Act, the ﬁnancial statements for the perio d ended 31 December 2017 have been approved for issue by the Directors. The preparation of ﬁnancial statements in conformity with IFRS requires the use of certain critical

accounting estimates. It also requires the directors to exercise judgement in the process of applying the Authority’s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are signiﬁcant to the ﬁnancial statements, are disclosed in Note 3.

(b) Changes in accounting policy and disclosures

(i) Amendments to new standards

The following standards and amendments have been applied by the Authority for the ﬁrst time for the ﬁnancial year beginning 1 January 2017:

Amendment to IAS 7 - In January 2016, the International Accounting Standards Board (IASB) issued an amendment to IAS 7 introducing an additional disclosure that will enable users of ﬁnancial

statements to evaluate changes in liabilities arising from ﬁnancing activities.

The amendment responds to requests from investors for information that helps them better understand changes in an entity’s debt. The amendment will affect every entity preparing IFRS financial statements. However, the information required should be readily available. Preparers shoul d consider how best to present the additional information to explain the changes in liabilities arising from financing activities.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

2 Summary of signiﬁcant accounting poli cies (Continue d)

(b) Changes in accounting policy and disclosu res (Continue d)

(i) New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017 and, have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Authority, except the following set out below:

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Authority is yet to assess the impact of the standard on the financial statements.

IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The Authority is yet to assess the impact of the standard on the financial statements.

IFRS 16,’Leases’. After ten years of joint drafting by the IASB and FASB they decided that lessees should be required to recognise assets and liabilities arising from all leases (with limited exceptions) on the balance sheet. Lessor accounting has not substantially changed in the new standard. The model reflects that, at the start of a lease, the lessee obtains the right to use an asset for a period of time and has an obligation to pay for that right. In response to concerns expressed about the cost and complexity to apply the requirements to large volumes of small assets, the IASB decided not to require a lessee to recognise assets and liabilities for short-term leases (less than 12 months), and leases for which the underlying asset is of low value (such as laptops and office furniture). A lessee measures lease liabilities at the present value of future lease payments. A lessee measures lease assets, initially at the same amount as lease liabilities, and also includes costs directly related to entering into the lease. Lease assets are amortised in a similar way to other assets such as property, plant and equipment. This approach will result in a more faithful representation of a lessee’s assets and liabilities and, together with enhanced disclosures, will provide greater transparency of a lessee’s financial leverage and capital employed. One of the implications of the new standard is that there will be a change to key financial ratios derived from a lessee’s assets and liabilities (for example, leverage and performance ratios).

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

2 Summary of signiﬁcant accounting policies (continued)

(b) Changes in accounting policy and disclosures (continued)

(i) New standards and interpretations not yet adopted (continued)

IFRS 16,’Leases’ (continued) IFRS 16 supersedes IAS 17, ‘Leases’, IFRIC 4, ‘Determining whether an Arrangement contains a Lease’, SIC 15, ‘Operating Leases – Incentives’ and SIC 27, ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’. The standard is eﬀective for annual periods beginning 1 January 2019. Early adoption is permitted only if IFRS 15 is adopted at the same time. The Authority expects IFRS 16 to have an immaterial impact on its current accounting practices.

Amendment to IAS 40, ‘Investment property’ -Transfers of investment property. These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the deﬁnition. This change must be supported by evidence. The amendment is eﬀective for annual periods beginning on or after 1 January 201 8

There are no other IFRSs or IFRIC interpretations that are not yet eﬀective that would be expected to have a material impact on the Authority.

(a ) Functional and presentation currency

The Authority’s reporting currency is the United States Dollar and the Zambian Kwacha. The Authority as a bi national institution has operatio ns in both Zimb abwe and Zambia and the presentation currency is in the respective currencies of the two countries whic h is United States Dollars (US$) and Zambia Kwacha (ZMW) respectively. The functional currency of the Authority is United States Dollars.

Income statement items have been translated into presentation currency (Kwacha) using the average exchange rate for the year as an approximat ion to the actual exchange rate. Assets a nd liabilities have been translated using the closing exchange rate. Any diﬀerences arising from this process have been recognised in other comprehensive income and accumulated in the foreign exchange reserve in equity.

Equity items have been translated at the closing exchange rate. Exchange diﬀerences arising on

retranslating equity items and opening net assets have been transferred to the foreign exchange reserve within equity.

(b) Transac tions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuations where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within ‘finance income or cost’. All other foreign exchange gains and losses are presented in profit or loss within ‘other income or expenses’.

Zambezi River Authority

Financial Statements For the year ended 31 December 2017

Not es to the ﬁnancial statements

2 Summary of signiﬁcant accounting policies (continued)

(d) Revenue reco gnition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for Water utilised by the Utilities in generating power at the Kariba Dam. No value-added tax (VAT) is chargeable for this service.

The Authority recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for ascertaining the Water used. The Authority bases its estimates on Water available for generation on water levels at the end of each year, anticipated inflows in the ensuing year and the dictates operating rule curve. Water Sales Revenue is a product of the following:

 Water used as measured using ﬂow meter equipment

 The agreed annual ﬁxed charge  The Variable c harge

(e) Other i ncome

Other income is recognised on an accruals basis in accordance with the substance of the relevant agree ments.

(f) Interest income

Interest income is recognised using the eﬀective interest method.

(g) Rental income

Rental income from properties is recognised in the proﬁt or loss on a straight-line basis over the term of the relevant lease agreement.

(h) Property, plant and equipment

Land and buildings are recognised at fai r value based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. A revaluation surplus is credited to revaluation reserve. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, a s appropriate, only when it is probable that future economic benefits associated with the item will flow to the Authority and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and mainten ance are charged to profit or loss during the reporting period in which they are incurred.

Increases in the carrying amounts arising on revaluation of buildings are recognised in other comprehensive income and accumulated in the revaluation reserve. To the extent that the i ncrease reverses a decrease previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to the asset; all other decreases are charged to profit or loss. Each year, the difference between depreciation based on the revalued carrying amo unt of the asset charged to profit or loss and depreciation based on the asset’s original cost is reclassified from the property, plant and equipment revaluation surplus to revenue reserve.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

2 Summary of signiﬁcant accounting policies (continued)

(h) Property, plant and equipment (continu ed)

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows: Land and Buildings 2.5% Kariba Dam C o mp le x 2.5% Motor Vehicles 25% Equipme n t a n d M a ch i n e ry 10 - 20% Furniture and Fittings 20% Computer 25%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if

the asset’s carrying amount is greater than its estimated recoverable amount. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Gains and lo sses on disposals are determined by comparing the proceeds with the carrying amount and are included in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

(i) Investment Property

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Author ity is classiﬁed as investment property. Investment property also includes property that is being constructed or developed for future use as investment property.

All investment property is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic beneﬁts associated with the expenditure will ﬂow to the Authority and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.

Depreciation on investment property is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives over 40 years.

Investment properties are derecognised when they have been disposed. If an investment property becomes owner-occupied, it is reclassiﬁed as property, plant and equipment. Its fair value at the date of reclassiﬁcation becomes its cost for subsequent accounti ng p urposes.

If an item of owner-occupied property becomes an investment property because its use has changed, any diﬀerence resulting between the carrying amount and the fair value of this item at the date of transfer is treated in the same way as a revaluation under IAS 16. Any resulting increase in the carrying amount of the property is recognised in income statement to the extent that it reverses a previous impairment loss, with any remaining increase recognised in other comprehensive income and increase directly to equity in revaluation surplus within equity. Any resulting decrease in the carrying amount of the property is initially charged in other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to proﬁt or loss. 20

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

2 Summary of signiﬁcant accounting policies (continued)

(j) I nventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

(k) Financial assets

(i) Classiﬁcation

A ll financial assets of the Authority are classified as financial assets at fair value through profit or loss and loans and receivables, based on the purpose for which the financial assets were acquired. The Directors determine t he classification of the financial assets at initial recognition.

a ) Financial assets at fair value through proﬁt or loss

T his category comprises ﬁnancial assets designated by the Authority as at fair value through proﬁt or loss upon initial recognition.

T he Authority designates certain financial assets upon initial recognition as at fair value through profit or loss (fair value option). This designation cannot subsequently be changed and can only be applied when the following conditions are met: - the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise or - t he financial assets are part of a portfolio of financial instruments which is risk managed and reported to senior management on a fair value basis or - t he financi al assets consist of debt host and an embedded deri vative that must be separated.

F inancial instruments included in this category are recognised initially at fair value: transaction costs are taken directly to proﬁt or loss. Gains and losses arising from changes in fair value are included directly in proﬁt or loss.

b) Loans and receivables

Loans and receiv ables are no n-derivative financial assets with fixed or determinable payments that are n ot quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.

(ii) Recognition and measurement

Regular purchases and sales of ﬁnanc ial assets are recognised on the trade-date – the date on which the A uthority commits to purchase or sell the asset. Loans and receivables are initially recognised at fair value plus transaction costs and subsequently carried at amortised cost using the eﬀective interes t method.

(iii) Oﬀsetting ﬁnancial instruments

Finan cial assets and liabilities are offset, and the net amount reported in the statement of financial position w hen there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle th e liability simultaneously

21 Zambezi River Authority

Financial Statements For the year ended 31 December 2017

Not e s to the ﬁnancial statements (continued) 2 Summary of signiﬁcant accounting policies (continued)

(k) Financial assets (conti nued) iv) Impairment

The Authority assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial re cognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

(l) Trade receivables

Trade receivables are amounts due from customers for services rendered in the ordinary course of business. If coll ection is expected in one year or less (or in the normal operating cycle of the business if longer), they are a classiﬁed as current asset. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the eﬀective interest method less provision for impairment. (m) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposit s held at call with banks, other short term highly liquid investments with original maturities of three months or less.

(n) Borrowings

Borrowings are initially recognised at fair value, net of transact ion costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redem ption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the Authority has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

2 Summary of signiﬁcant accounting policies (continued)

(o) Borrowing costs

General and speciﬁc borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.

Other borrowing costs are expensed in the period in which they are incurred.

(p) Trade payables

These amounts represent liabilities for goods and services provided to the Authority prior to the end of ﬁnancial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the eﬀective interest method.

(q) Employee beneﬁts

(i) Retirement beneﬁ t obligations

The Authority subscribes to defined contribution schemes for the benefit of its permanent and pensionable staff. The funds are managed by Prudential Insurance for the Zambian employees and Zimnat life Assurance for the Zimbabwean employees. Both funds are overseen by a Board of Trustees composed of management and employee representative trustees.

A defined contribution plan is a pension plan under which the Authority pays fixed contributions into a separate entity. The Authority has no legal or cons tructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The Authority’s contributions to the deﬁned contribution schemes are charged to proﬁt or loss in the period to which they relate . The Authority has no further obligation once contributions have been paid.

The Authority and all its employees also contribute to the appropriate National Social Security Funds in the two contracting states, which are deﬁned contribution schemes.

(ii) Termination beneﬁts

Termination benefits are payable when employment is terminated by the Authority before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Authority recog nises termination benefits at the earlier of the following dates: (a) when the Authority can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of t ermination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

2 Sum mary of signiﬁcant accounting policies (continued)

(r) Grants

Grants are not recognised until there is reasonable assurance that the Authority will comply with the conditions attaching to them and that the grants will be received. Grants whose primary condition is that the Authority should purchase, or otherwise acquire non-current assets are recognised as capital grants in the statement of ﬁnancial position and transferred to proﬁt or loss on a systematic and rational basis over the useful lives of the related assets. Other grants are recognised as deferred revenue over the periods necessary to match them wit h the costs for which they are intended to compensate, on a systematic basis.

compensations for expenses or losses already incurred or for the purpose of giving immediate ﬁnancial support to the Authority with no future related costs are recognised in proﬁt or loss in the period in which they become receivable.

( s) Income tax

T he Authority is exempted from paying taxes on capital, income, or proﬁt under Articles 17 and 19 of the Zambezi River Authority Acts, 1987 of Zambia and Zimbabwe respectively. As such no allowance is made for income or deferred taxes

(t ) Comparatives

Wher e necessary, prior year comparatives have been reclassiﬁed in line with current year presentation.

3. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other fac tors, including expectations of future events that are believed to be reasonable under the circumstances. Critical estimates made include the following:

Buildings

The Authori ty owns land and buildings classiﬁed either as residential or commercial properties. The said p roperties are carried at valuation with the valuation exercise performed triannual. The valuation is conducted by professional external valuers, who are apply various techniques that consider among other things:  Location  Va lue of surrounding properties  Impact of planned investments in the area

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

4 Segmental Reporting

The Authority operates in two geographical segments i.e. Zambia and Zimbabwe. An operating segment is a component of the Authority for which discrete ﬁnancial information is available; that engages in business activities (earns revenue, incurs expenses); and for which operating results are regularly reviewed to assess performance and to make resource allocation decisions (to the segment). The Authority currently derives its revenues from water sales to ZESCO Limited and Kariba Hydro Power Company (Pvt) Limited (“KHPC”). The Chief Executive is presented with the results of each segment for the purposes of resource allocation an d assessment of the results of each segment.

Water Sales Segment: The Operating income is based on water tariffs charged based on the water consumed in the generation of electricity as invoiced to the two utility companies, ZSECO Limited and Kariba Hydro Power Company (Pvt) Ltd. The formula used is intended to provide the Authority with sufficient revenues to carry out its mandate and not to generate profits.

Segment information is presented in respect of the Authority’s business. The primary format is based on the Au thority’s geographical segments and then on the management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred duri ng the period to acquire segment assets that are expected to be used for more than one period

Year ended 31 December 2017 Amounts are Stated in ZMW'000 Zambia Zimbabwe Consolidated

Revenue 89,693 96,954 186,647 Ot her income 14,438 8,911 23,349 Segment income 104,131 105,8 65 209,9 96

Segment c osts Board expenses 7,726 3,416 11,142 Repairs and maintenanc e 1,253 3,923 5,176 St aﬀ costs 62,740 36,481 99,221 Other administratio n expenses 38,674 39,844 78,518

110,393 83,664 194,057 Net surplus (6,262) 22,201 15,939

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements 4 Segmental Reporting (continued)

Year ended 31 December 2017 Amounts are Stated in US$'000 Zambia Zimbabwe Consolidated

Revenue 9,282 10,096 19,378

Other income 1,510 939 2,449

Segment income 10,792 11,035 21,827

Segment costs Board expenses 1,306 353 1,659 Repairs and maintenance 124 406 530 Staﬀ costs 6,527 3,794 10,321 Other administration expenses 3,528 4,184 7,712

11,485 8,737 20,221

Net surplus (693) 2,299 1,606

Year ended 31 December 2016

Amounts are Stated in ZMW'000 Zambia Zimbabwe Consolidated

Revenue 153,699 106,902 260,601

Other income 5,104 12,126 17,230

Segment income 158,803 119,028 277,831

Segment costs

Board expenses 5,370 2,431 7,803

Repairs and maintenance 963 10,065 11,028

Staﬀ costs 68,937 34,346 103,282

Other administration expenses 60,181 23,453 83,635

135,451 70,295 205,748

Net Surplus 23,351 48,733 72,083

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

4 Segmental Reporting (continued)

Year ended 31 December 2016 Amounts are Stated in US$'000 Zambia Zimbabwe Consolidated

Revenue 14,831 10,316 25,147

Other income 691 971 1,662

Segment income 15,522 11,287 26,809

Segment costs

Board expenses 518 273 791

Repairs and maintenance 93 177 270

Staﬀ costs 6,617 3,642 10,259

Other administration expenses 3,636 4,591 8,227

10,864 8,683 19,547

Net Surplus 4,658 2,604 7,262

5 Revenue 2017 2016 ZMW'000 US$'000 ZMW'000 US$'000

Water Sales variable charge 123,607 12,829 192,727 18,598 Water Sales ﬁxed charge 63,040 6,550 67,873 6,550

186,647 19,378 260,601 25,147 (a) Water sales

The Authority uses a formula for the sale of water to ZESCO Limited ('ZESCO") and Kariba Hydro Power Company (Pvt) Limited ("KHPC") which was adopted in 1998. The formula was derived to ensure the costs associated with the operations of the Authority were covered by the fees charged to ZESCO Limited and KHPC (Pvt) Limited.

The fees chargeable are contained in a tripartite Water Purchase Agreement signed between the Authority and the Utilities and, are split between a ﬁxed charge and a variable charge which is dependent on the cubic meters of water dispensed through the generators.

In the year 2017 the Authority applied a 2% increment on the variable charge as per the agreement. The current agreement comes up for review at the end of 2018.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements 6 Revenue (continued)

b) Water allocation During the year ended 31 December 2017, the Authority allocated a total of 30 bm³ of water to be shared equally between the Utilities for purposes of power generation. The Utilities’ combined usage in the year was 29.33 bm³ resulting in underutilisation of 0.67 bm³. Accordingly, no over utilisation penalties have been levied on either Utility since none breached the 5% threshold.

c) Over utilisation When there is over utilisation of water above annual base allocation, the following penalties apply; i. Over utilisation by up to 5% of annual allocation, no penalty shall be chargeable; ii. Over utilisation of up to 20% of annual allocation, extra volume shall be charged at a (water tariﬀ in US$/m³) x 1.5 iii. Over utilization by over 20% of annual allocation, extra volume shall be charged at a (water tariﬀ in US$/m³) x 2

7 Other income 2017 2016 ZMW'000 US$'000 ZM W'000 US$'000 Rent 2,209 243 2,350 227 (Loss)/proﬁt on disposal of property, plant and equipment (389) (41) 390 38 Miscellaneous income 1,926 201 61 6 Sale of data - - 3 - Toll fees 250 26 328 32 Plant hire charges 10 1 20 2

4,007 430 3,152 305

8 Finance income Finance income - Interest on overdue accounts 10,379 1,082 3,741 361 - Interest on term deposits 4,945 516 8,915 860 - Interest on staff housing loans 2,445 251 1,019 98 - Interest on staff car loans 1,042 106 222 21 18,810 1,954 13,898 1,340 Finance cost - Exchange losses on cash and cash equivalents (714) (72) (631) (58) Net finance cost 18,096 1,882 13,267 1,282

9 Employee beneﬁt expense

Salaries and wages 80,020 8,322 89,344 8,593 Pension 6,988 725 7,649 736 Gratuity 3,572 381 4,134 391 Other employment costs 8,641 894 5,595 539 99,221 10,321 106,722 10,259

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Not es to the ﬁnancial statements

10 Property, plant and equipment

Kariba Land and Motor Construction Total Dam buildings vehicles, work in Complex Furniture progress & fittings ZMW'000 ZMW'000 ZMW'000 ZMW'000 ZM W'000 As at 1 January 2016 Cost or valuation 647,271 74,543 65,510 82,161 869,485 Accumulated depreciatio n (99,337) (1,020) (34,206) - (134,563) Effects of foreign exchange differences 410,936 18,951 11,481 50,884 492,252 Net book amount 958,870 92,474 42,785 133,045 1,227,174

Year ended 31 December 2016 Opening net book amount 958,870 92,474 42,785 133,045 1,227,174 Additions - 141 4,874 88,251 93,266 Disposa ls - - 108 - 108 Eﬀects of foreign exchange (99,955) (9,639) (4,568) (13,868) (128,030) diﬀerenc e Depreciation charge (25,098) (2,097) (8,665) - (35,860) Closing net book amount 833,817 80,879 34,535 207,428 1,156,658

At 31 December 2016 Cost or valuation 1,120,763 97,967 100,134 221,296 1,540,161 Accumulated depreciatio n (186,992) (7,449) (61,033) - (255,474) Eﬀects of foreign exchange (99,954) (9,639) (4,567) (13,868) (128,0 29) diﬀerence Net book amount 833,817 80,879 34,534 207,428 1,156,65 8

Year e nded 31 December 2017 Opening net boo k amount 833,817 80,879 34,534 207,428 1,156,658 Additions - - 2,863 270,846 273,709 Eﬀects of foreign exchange (5,995) (599) (627) (1,212) (8,433) diﬀerence

Disposals - - (189) - (189) Transf ers from investment - 4,915 (12) - 4,903 properties Depreciat ion charge (23,855) (2,639) (9,246) - (35,740) Closing net book amount 803,967 82,556 27,323 477,062 1,390,90 8

At 31 De cember 2017 Cost or valuation 1,120,763 104,775 100,349 492,143 1,8 18,030 Accumulated depreciatio n (211,969) (12,107) (68,263) - (2 92,339) Eﬀects of foreign exchange (104,827) (10,112) (4,763) (15,081) (134,782) diﬀerence Net book amount 803,967 82,556 27,323 477,062 1,390,90 8

The Authorities’ head oﬃce building and residential properties were valued as at 31 Decem ber 2015 by re spect ive Government Valuation Department independent professionally qualiﬁed valuers, who hold a recognised relevant

professional qualiﬁcation and have recent experience in the locations and segments of the properties valued. Valuations were based on Open Market Value approach based on current prices of similar properties. The key inputs under thi s approach are the price per square metre from current year sales of compara ble lots of pro perty in the area (location and size). It is the Authority’s accounting policy to revalue properties after every three years.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

10 Property, plant, a nd equipment (continued)

Kariba Dam Land and Motor Capital Total Complex buildings vehicles & work in Furniture progress

& ﬁttings

US$’000 US$’000 US$’000 US$’000 US$’000

At 1 January 2016 Cost or valuation 101,152 8,829 8,682 12,008 130,671 Accumulated depreciatio n (14,611) (483) (4,820) (19,914) Net book amount 86,541 8,346 3,862 12,008 110,757

Year ended 31 December 2016 Opening net book amount 86,541 8,346 3,862 12,008 110,757 Additions - 14 491 8,892 9,397 Disposal – cost - - (94) - (94) Disposal – ac cumulat ed deprecation - - 94 - 94 Depreciation charge (2,529) (211) -874 - (3,614) Closing net book amou nt 84,012 8,149 3,479 20,900 116,540

At 31 December 2016

Cost or valuation 101,152 8,843 9,079 20,900 139,974 Ac cumulated depreciatio n (17,140) (694) (5,600) - (23,434) Net book amount 84,012 8,149 3,479 20,900 116,540

Year ended 31 December 2017

Opening net book amount 84,012 8,149 3,479 20,900 116,540

Additions - 290 27,450 27,740

Transfers from investment properties - cost - 697 (1) - 696 Transfer from investment properties– ac cumulat ed (199) - - (199) Disposal – cost - - (267) - (267 Disposal – ac cumulated Depreciation - - 248 - 248 Depreciation charge (2,531) (280) (982) - (3,793) Closing net bo ok amount 81,481 8,367 2,767 48,350) 140,965

At 31 December 2017 Cost or valuation 101,152 9,533 9,101 48,350 168,136 Accumulated depreciatio n (19,671) (1,166) (6,334) - (27,171) Net book amount 81,481 8,367 2,767 48,350 140,965

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

10 Property, plant and equipment (continued)

If land and buildings were stated on the historical cost basis, the amounts would be as follows:

2017 2 016 ZMW'000 US$'000 Z MW'000 US$'000

Cost 52,157 5,286 52,464 5,286 Accumulated Depreciation (1,302) (132) (1,310) (132)

50,855 5,154 51,154 5,154

11 Inv estment property.

As at 1 January 2016 ZMW'000 US$'000

Cost 15,787 2,278 Accumul ated depreciation (2,599) (235) Eﬀects of foreign exchange d iﬀerences 9,449 Net book amount 22,637 2,043

Year ended 31 December 2016 Opening net book amount 22,637 2,043 Eﬀects of foreign exchange d iﬀerence (2,360) - Depreciation charge (389) (39) Closing net book amount 19,888 2,004

At 31 December 2016 Cost 15,787 2,278

Accumulated depreciation (2,717) (274)

Eﬀects of foreign exchange diﬀerence 6,818 -

Net book amount 19,888 2,004

Year ended 31 December 2017

Opening net book amount 19,888 2,004

Effects of foreign exchange difference (115) - Transfers to property, plant and equipment – cost (6,877) (697) Transfers to property, plant and equipment – accumulated depreciation 1,967 199 Depreciation charge (388) (39) Closing net book amount 14,475 1,467 At 31 December 2017 Cost 15,727 1,581 Ac cumulated depreciation (1,138) (114) Effects of foreign exchange difference (114) - Net book amount 14,475 1,467

The investment property is carried at cost because their fair values cannot be reliably determined on a co ntinuing basis. Comparable market transactions are infrequent and alternative reliable estimates of fair value are unreliable. This is due to the location of the investment properties.

Zambezi River Authority Financial Statements

For the year ended 31 December 2017

Note s to the ﬁnancial statements

12 Long term investments 2017 2016

ZMW’000 U S$’000 Z MW ’000 US$’ 000

At start of year 6,255 630 4,963 500 Additions 1,973 200 1,012 100 Interest earned 315 32 300 30 Eﬀects of exchange rates (31) - (22) - At end of year 8,512 862 6,253 630

The long term investments are with Commercial Bank of Zimbabwe (CBZ) with an averag e tenor of 10 years and yielding a return of 5% per annum.

13 Inventory 2017 2016

ZMW’000 US$’000 ZMW’000 US$’000

Consumable Stores 1,682 170 1,797 181

Inventory comprises stock of consumables and other items held for use in the business. There were no signiﬁcant diﬀerences between net realisable values and cost of inventories.

14 Financial assets at fair value through proﬁt or loss 2017 2016 ZMW’000 US$’000 Z MW’000 US$’000

Madiso n Asset Management Company Limited 8,585 870 6,604 665

The investment in Madison Asset Management Company (MAMCO) Limited is a short-term investment for gratuity for employees. The Authority has invested in 783,048 (2016: 625,912) units in unit trusts. The unit price of the unit trust s was US$1.11 (2016: US$1.063). The return on the fund was US$ 53,982 (2016: US$17, 501) for the year representing approximately 6%.

1 5 Trade and other receivables 2017 2016 ZMW'000 US$'000 ZMW$'000 US$'000

ZESCO Limited 171,637 17,395 141,971 14,304

Kariba Hydro Power Company (KHPC) 32,590 3303 54,527 5,494

Trade receivables 204,227 20,698 196,498 19,798 Less: Provision for impairment losses (2,140) (217) (2,152) (217) 202,087 20,481 194,346 19,581 Prepayments 22,993 2,330 208 21 Rental debto rs 3,018 306 2,630 265 Sundry receiva bles 3,913 397 2,590 261 Staﬀ debtors 15,106 1,531 17,258 1,739

45,030 4,564 22,686 2,286

247,117 25,045 217,032 21,867 Less: Long-term receivables

Staﬀ housing loans 6,249 633 9,844 992

Staﬀ car loans 1,381 140 2,048 206 7,630 773 11,892 1,198 239,487 24,272 205,140 20,669

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

15 Tra de and other receivables (continued)

(i) Classiﬁcation as trade and other receivables

Trade receivables are amounts due from Utilities for water sales arising in the ordinary course of business. Loans and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. If collection of the amounts is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are generally due for sett lement within 45 days and therefore are all classified as current. The Authority’s impairment and other accounting policies for trade and other receivables are outlined below:

(ii) Other receivables

T hese amounts generally arise from transactions outside the usual operating activities of the Authority. Interest is not charged on th ese amounts and neither is collateral normally obtained.

(iii) Staﬀ debtors

T hese relates to staﬀ and housing loans which carry interest rates of 6% and 10% per annum respectively. As at year end, these have been fair valued using the mar ket related interest rates for similar loans.

(iv) Fair values of trade and other receivables

Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as thei r fair value.

( v) Impaired trade receivables

Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly. The other receivables are assessed collectively to determine whether there is objective evidence that an impairment has been incurred but not yet been identified. For these receivables the estimated impairment losses are recognised in a separate provision for impairment. Th e Authority considers that there is evidence of impairm ent if any of the following indicators are present: - significant financial difficulties of the debtor - p robability that the debtor will enter bankruptcy or financial reorganisat ion, and - defau lt or delinquency in payments (more than 30 days overdue).

Receivables for which an impairment provision was recognised are written off against the provision when there is no expectation of recovering additional cash. Impairment losses are recognised in profit or loss within othe r exp enses. Subsequent recoveries of amounts previously written off are credited against other expenses.

The ageing of these receivables is as follows:

2017 2016 ZMW’000 US$’000 Z M W’000 U S$’000 -1 -3 month - - - - -3 -6 months - - - - -abov e 6 months 2,152 217 2,15 2 217 2,152 217 2,152 217

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements 15 Tra de and other receivables (continued)

Movem ents on the provision for impairment of trade receivables is as follows: 2017 2016 ZMW’000 US$’000 Z MW’000 U S$’000 As at 1 January 2,152 217 - -

Provision for the year - - 1,071 97 Reversals - - 1,081 120 As at 31 December 2,152 217 2,152 217

The creation and the release of provision for impaired receivables have been included in ‘other operating

expenses’. Amounts charged to the allowance account are generally written oﬀ when there is no expectation of recovering additional cash.

(v) Past due but not impai red

As at 31 December 2017, some trade receivables were past due but not impaired. These relate to a ZESCO and KHPC for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

2017 2016 ZMW’000 US$’000 Z M W’000 U S$’000 Past due but not i mpaired: -By up to 30 days 50,963 5,165 91,102 9,179 -By 31 to 60 days - - - - -By greater than 60 days 153,264 15,533 105,396 10,619 204,227 20,698 196,498 19,798

The other classes within trade and oth er receivables do not contain impaired assets and are not past due. Based on the cr edit history of these other classes, it is expected that these amo unts will be received when due. The Authority does not hold any collateral in relation to these receivables

The maximum exposure to credit risk at the reporting date is the carryin g value of each class of receivables mentioned above. The Authority does not hold any collateral as security.

16 Cash and cash equivalents 2017 2016

ZMW'000 US$'000 ZMW'000 U S$'000

Cash at bank and in hand 49,839 5,051 29,717 2,994

Short term investments 105,429 10,685 125,472 12,642

Net cash and cash equivalents 155,268 15,736 155,189 15,636

In the statement of cash ﬂows, cash and cash equivalents include cas h in hand, deposits held at call with banks, other short-term highly liquid investments with orig inal maturities of three months or less.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Note s to the ﬁnancial statements 16 Cash and cash equivalents (continued)

Cash ﬂow information

Amendments to IAS 7; Effective 1 January 2017, now requires entities to explain changes in their liabilities arising from financing activities. This includes changes arising from cash flows (e.g. drawdowns and repayments of

borrowings) and on cash changes such as acquisitions, disposals, accretion of interest and unrealized exchange

diﬀerences. Below is the tabular presentation of the movements in the Authority's net debt movement reco nciliation. All funds accessed in the ﬁnancial year were drawn fro m the US$ 75 million loan facility fro m the International Development Association ("IDA") World Bank.

2017 2016 ZMW'000 US$'000 ZMW'000 US$'000

Cash and cash equivalents 11 155,268 15,736 155,189 15,636

Liquid investments (i) 9 8,585 870 6,604 665

Borrowi ngs –repayable within one year (424) (43) (258) (26) Borrowings repayable after one year 12 (21,165) (2,145) (1,294) (1,284)

Net debt 142,264 14,418 160,241 14,991

Cash and liquid investments 163853 16,606 161,793 16,301

Gross debt – ﬁxed interest rates (21,589) (2,188) 12,999 1,310 Gross debt – variable interest rates - - - - Net debt 142,264 14,418 174,792 17,611

ZMW’000 Cash and Liquid Borrow ings Borrowings cash in vestments within 1 a fter 1 year equivalent year Net debt as at 1 January 2016 245,304 7,405 - (2,659) Cash ﬂows (72,040) 685 258 (10,362) Redemptions - (893) 258 - Foreign exchange adjustments (18,075) (770) - 276 Other noncash movements - 179 - -

Net debt as at 31 December 2016 155,189 6605 - (12,744)

Cash ﬂows 987 1776 (8,496)

Redemptions - (286) (424) -

Foreign exchange adjustments (908) (43) 424 75 Other noncash movements - 533 - - Net debt as at 31 December 2017 155,268 8585 - (21,165)

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Not es to the ﬁnancial statements

16 Cash and cash equivalents (co ntinued)

Cash ﬂow information (continued)

US$’000 Cash and Liquid Borrowings Borrowings

cash investments within 1 a fter 1 year equivalent year Net deb t as at 1 January 2016 22,139 668 (240) Cash ﬂows (6,503) 69 (26) (1,044) Redemptions - (90) 26 -

Other noncash movements - 18 - -

Net debt as at 31 December 2016 15,636 665 - (1,284)

Cash ﬂows 100 180 (43) (861)

Redemptions - (29) 43 - Other non cash movements - 54 - -

Net debt as at 31 December 2017 15,736 870 - (2,145)

Liquid investments comprise current investments that are held at fair value through proﬁt or loss.

17 Borrowings

2017 2016 Government of the Republic of Zambia ZMW'000 US$'000 ZMW'000 US$'000

At start of year 12,744 1,284 2,658 240

Draw dow ns 7,224 861 10,465 1,044 Interest charged 22,497 2,280 22,809 2,280 Repaymen t (22,497) (2,280) (22,809) (2,280) Eﬀects of Exchange diﬀerences 1,197 - (379) -

At end of year 21,165 2,145 12,744 1,284

In February 2015, the International Development Association ("IDA") made available to the Government of the Republic of Zambia ("GRZ") a credit facility worth US$75,000,000 for the rehabilitation of the Kariba Dam. In August 2015, the GRZ agreed to on-lend the proceeds of the credit to the Authority. The interest rates applicable are at 2% per annum on withdrawn amounts with a repayment period of 30 years, including a grace period of 2 years on repayment of the principal. In the year under review, the Authority drew US$ 897,608.

US$ 609,433 was paid directly to Stucky; the consultant engaged to provide Technical and Supervisory services to the KDRP and, US$ 288,175 was paid directly through client connection to the panel of experts engaged on the same Project.

The Authority has also paid US$ 2,280,000 in settlement of interest obligations on the US$ 114,000,000 on lending agreement. (IDA US$ 75 million and AFDB US$ 39 million).

African Development Bank Group AFDF

The Authority also has a credit facility from the ADF through t he GRZ amountin g to U S$ 39,000,000 for the rehabilitation of the Kariba Dam. The interest rates applicable are at 2% per annum, on withdrawn amounts. The repayment period is 30 years, including a grace period of 2 years on repayment of the principal.

No direct payments requests or drawdowns have been made on this facility as at 31 December 2017.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Not es to the ﬁnancial statements

18 Trade and Other Payables 2017 2016

ZMW'000 US$'000 ZM W'000 US$' 000

Trade creditors 791 80 796 80

Accruals 18,332 1,857 27,919 2,813 ZVDF Zambia 3,765 382 2,027 204

Sundry creditors 5 - 878 89

St atutory liabilities 2,454 249 2,090 210 Employee beneﬁts 33,437 3,389 25,168 2,536 58,784 5,957 58,878 5,932

The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature. 19 Ca pital Grants

The Authority has a total of four (4) grant ﬁnance facilities and they are brieﬂy described below: a) Batoka Gorge Hydro - Electric Scheme (BGHES)

The International Development Association (IDA) of the World Bank acting as administrator of the Co-operation in International Waters in Africa Trust Fund (CIWA) provided a grant of US$6,000,000 to be drawn down on direct payment requests as well as reimbursements. The objective of the Project is to advance the preparation of the Batoka Gorge Hydro –electric Scheme and strengthen cooperation development within the Zambezi River Basin.

Funds from this grant have been applied towards the updating of Engineering feasibility studies, Environment Impact Assessment studies and the Finance, Legal and Transaction Advisory contracts on the Batoka Hydro Electric Scheme. In the year 2017 US$ 1,085,600 was d isbursed towards these ac tivities as below:

i. Finance Legal & Transaction Advisory Service – US$ 6 90,325.00 ii. Environmental & Soci al Impact Assessment - US$ 311 ,916.64 iii. Geotechnical Services - U S $ 83,408.10

b) Kariba Dam Rehabilitation Project (KDRP)

The Authority has three grant facilities for the KDRP as below:

i. Swedish International Development Agency Trust Fund (SIDA) - The International Development Association acting as administrator of the Swedish International Developmen t Agency (SIDA) Trust Fund provided a grant of a maximum of US$25,000,000 to ﬁnance the rehabilitation of the Kariba Dam. The grant is to be accessed through direct payment requests as well as requests for reimbursements. In the ﬁnancial year 2017 US$ 1,638,845 was accessed from this facility and applied towards Dam Break Analysis and Lidar Survey works on the Kariba Dam.

ii. African Development Bank (AFDB) – On 20 February 2015, the AFDB availed a grant facility through the two contracting states i.e. Zambia and Zimbabwe for the ﬁna ncing of speciﬁc foreign payments on the Kariba Dam Rehabilitation project under the Transitional Support Facility (TSF). During the year ended 31 December 2017, US$ 927,981 was accessed and applied towards the technical services and supervisory consultancy on the KDRP.

iii. European Union (EU) – The EU through the Euro pean Development Fund Bridging Facility has given the Authority through the Government Republic of Zambia (GRZ) a grant of up to EUR 74,000,000 towards the rehabilitation of th e Plunge Pool at the Kariba Dam. During the year ended 31 December 2017, US$ 21,448,723 was disbursed through direct payments under this facility.

Zambezi River Authority

Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

19 Capital grants (continued)

(i) Movements in deferr ed grant At start of year 4,963 500 5,540 500 Recei ved during the year: - International Development Association (CIWA) 10,712 1,086 18,038 1,817 - Swedish International Fund (KDRP) - - 1,625 164

- The Africa Development Fund (KDRP) - - 5,963 601

Transferred to capital grants (10,712) (1,086) (25,626) (2,582)

Eﬀects of foreign currency exchange diﬀerences (29) - (578) -

At end of year 4,934 500 4,963 500

(ii) Movements in capital grants At start of year 40,055 4,036 16,108 1,454 Recei ved during the year - African Development Bank 9,156 928 - - - European Union 211,635 21,449 - - - Swedish International Development Agency 16,170 1,639 - - (Sida) - CIWA - World Bank 10,712 1,086 - - - Transferred from deferred grants - - 25,626 2,582

Eﬀects of Foreign Currency Exchange Diﬀerences (234) - (1,679) -

At end of year 287,494 29,137 40,055 4,036

(d) Amortisation of Grants

All the projects currently being funded by grants are yet to be completed and are still being carried in work in progress and as such not being amortised to income yet.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Not e s to the ﬁnancial statements

20 Financial instruments by category

2017 2016 ZMW’000 US$’000 ZMW ’000 US$’ 000 Financial assets at amortised cost Loans and receivables 16,142 1,635 18,145 1,828 Trade and other receivables (excluding pre-payments) 216,414 21,941 2 04,932 20,64 8 Cash and cash equiv alents 155,268 15,736 155 ,189 15,636 Long term investment 8,507 862 6,253 630 396,311 40,174 384, 519 38, 74 2

Financial assets at fair value through proﬁt or loss 8,585 870 6,604 665

Other Financial liabilities at amortised cost

Financial liabiliti es Borrowi ngs 21,165 2,145 12,744 1,284 Trade and other payables (excluding statutory liabilities) 56,320 5,707 56,788 5,722 77,485 7,852 69,532 7,006

21 Fi nancial risk management objectives and policies

The Authority’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Authority’s overall risk management programme focuses on the assessment of the liquidity positions of key customers and the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance and position.

Financial risk management is carried out by the ﬁnance department under policies approved by the Board of Directors. The policies are imbedded in the overall enterprise risk management policy of the Authority.

Market risk

(i) Foreign exchange risk

The Authority primarily generates its revenue in United States Dollar but does from time to time meet some of its obligations in Zambian Kwacha and other major convertible currencies through payments for goods and services needed for the day to day operations. Foreign exchange risk arises when future recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. Management’s policy to manage foreign exchange risk is to hold foreign currency bank accounts which act as a natural hedge for meeting foreign currency denominated expenses.

At 31 December 2017, if the Zambian Kwacha had weakened/strengthened by 4% (2016: 4%) against the United States Dollar with all other variables held constant, operating surplus and accumulated reserves for the Authority would have been ZMW 0.637 million (US$0.064 million (2016: ZMW 3 million US$0.290 million) lower/higher, mainly as a result of ZMW dollar trade and other receivables, trade and other payables and bank balances.

ii) Interest rate risk

The Authority’s interest rate risk arises from long-term borrowings contracted for the Kariba dam rehabilitation project. Borrowings issued at concessional fixed interest rates, but with a clause for default penalties expose the Authority’s to cash flow interest rate risk. Management manages this risk by ensuring sufficient liquidity to meet loan obligations when they fall due.

As at 31 December 2017, an increase/decrease of 200 (2016: 200) basis points on USD dollar did not have a material impact on the operating surplus and accumulated reserves.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁ nancial statements

21 Financial risk management objectives and policies (continued)

Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and ﬁnancial institutions, as well as credit

exposure to customers, including outstanding receivables.

Risk management

The Authority assesses the credit quality of each customer, taking into account its ﬁnancial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored. The compliance with credit limits by customers is regularly monitored by line management.

For cash and cash equivalent balances, the Authority’s exposure and credit ratings of counterparties are regularly monitored, and the aggregate value of transactions spread amongst approved financial institutions. The Authority actively se eks to limit the amount of credit exposure to any one financial institution and credit exposure is controlled by counterparty limits that are reviewed and approved by the Treasury. For banks and financial institutions, only

independently rated parties with a minimum rating of ‘A’ for International and regional banks with a local presence are accepted.

The Authority has signiﬁcant concentrations of credit risk as it has two main customers which are ZESCO Limited and KHPC.

Liquidity risk

Liquidity risk is the risk that the Authority will not be able to meet its financial obligations as they fall due. Prudent liquidity risk management includes maintaining sufficient cash balances, and the availability of funding from an adequate amount of committed credit facilities. The table below analyses the Authority’s financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the reporting date to the contrac tual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows.

Less than 1 Between 1 Between 2 Over 5 Total year and 2 years and 5 years years

ZMW'000 ZMW'000 ZMW'000 ZMW'000 ZMW'000 At 31 Decem ber 2017: - Borrowings 59,429 58,679 57,929 388,622 564,659

- trade and other payables 22,884 33,437 - - 56,321

82,313 92,116 57,929 388,622 620,980 At 31 December 2016: - Borrowing s 22,629 59,778 59,024 391,660 533,092 - trade and other payables 31,620 25,168 - - 56,788 54,249 84,946 59,024 391,660 589,880

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to t he ﬁnancial statements 21 Fin ancial risk management objectives and policies (continued)

Liquidity risk (continued)

Less than Between 1 Between 2 Over 5 Total 1 year and 2 years and 5 years years US$'000 US$'000 US$'000 US$'000 US$'000 At 31 December 2017: - Borrowings 6,023 5,947 5,871 39,386 57,227 - trade and other payables 3,319 3,000 - - 5,319 9,342 8,947 5,871 39,386 62,546 At 31 December 2016: - Borrowings 2,280 6,023 5,947 39,462 53,712 - trade and other payables 3,186 2,536 - - 5,722 5,466 8,559 5,947 39,462 59,434

(d) Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of ﬁnancial assets and liabilities traded in active markets (such as publicly traded equity) are based on quoted market prices at the close of trading on the reporting date.

T he carrying amounts of all ﬁnancial assets and liabilities at the reporting date approximate their fair values. The following table presents the Authority s’ assets that are measured at fair value:

Level 1 Level 2 Level 3 Total Year ended 31 December 2017 ZMW’000 ZMW’000 ZMW’000 ZMW’000 Assets Financial assets Financial assets at fair value through proﬁt or loss 8,585 - - 8,585 Non-ﬁnancial assets Buildings - 82,556 - 82,556 8,585 82,556 - 91,141

Year ended 31 December 2016 Assets Financial assets Financial assets at fair value through proﬁt or loss 6,604 - - 6,604 Non-ﬁnancial assets Buildings - 80,879 - 80,879 6,604 80,879 - 87,483

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements (continued)

21 Financial risk management objectives and policies (continued)

(d) Fair value estimation (continued)

Level 1 Level 2 Level 3 Total Year ended 31 December 2017 US’000 US’000 US’000 US’000 Assets Financial assets Financial assets at fair value through proﬁt or loss 870 - - 870 Non-ﬁnancial assets Buildings - 8,367 - 8,367 870 8,367 - 9,237

Year ended 31 December 2016 Assets Financial assets Financial assets at fair value through proﬁt or loss 665 - - 665 Non-ﬁnancial assets Buildings - 8,149 - 8,149 665 8,149 - 8,814

The diﬀerent level of fair value measurement hierarchy is described as follows:

•Quoted prices(unadjusted) in active markets for identical assets (level 1) •Inputs other than quoted shares included in level 1 that are observable for the asset, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2) •Inputs for the assets that are not based on observable market data (that is, u nobservable data) (level 3)

All fair value measurements disclosed are recurring fair value measurements, required for the purposes of

measuring the Authority’s assets at fair value. During the year no transfers were made amongst the diﬀerent levels.

22 Capital management

The Authority’s objectives when managing capital are to safeguard the Authority’s ability to continue as a going concern. Adequacy of the capital of the Authority is maintained by the Authority on a regular basis. As and when required the Authority will through the respective Ministries responsible for Finance, source for funding in the form

of loans and grants.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

23 Contingent liabilities

The Authority has some cases in the courts of law, most of which have already been decided in the Authority’s favour

and are only back in the courts on appeal by the plaintiﬀs. No contingent liabilities have been provided for.

24 Related party transactions

The Authority constituted by the Zambezi River Authority Act 1987 of Zambia and Zimbabwe, is a common enterprise between the Governments of the Repub lics of Zambia and Zimbabwe. Control of the entity is on a 50/50 basis with decisions being made by consensus.

Oversight of the Authority is vested in the Council of Ministers (CoM). Internal supervision of its manage ment and control of the aﬀairs of the Authority, however, is vested in the Board and the key executive oﬃcers.

The following transactions were carried out with related parties:

2017 2016 ZMW’000 US$’000 ZMW’000 US$’000

Directors compensation

Director’s fees and allowances 1,580 165 1,611 156 Other expenses 7,695 787 4,560 440 9,275 952 6,171 596

Key management compensation

Salaries and other beneﬁts 9,083 1,241 9,141 1,241 Pension contribution 3,163 321 3,183 321 12,246 1,562 12,324 1,562

Loans to key managements

At start of year 3,891 324 4,256 429 Additions 690 70 - - Repayments (1,522) (154) (1,036) (104)

At end of year 2,369 240 3,219 324

Amounts advanced and amounts owed to ZVDF ZVDF Receivable 1,865 194 2,024 195 ZVDF Payable (3,765) (382) (2,027) (204)

Net position at year end (1,900) (188) (3) (9)

Zambezi Valley Development Fund (ZVDF) is a trust established to as a corporate social arm to mitigate the legacy eﬀects on the communities that were displaced during the construction of the Kariba Dam. Zambezi River Authority operates as a secretariat to the ZVDF and together with the power Utilities pays 1% of its water sales revenue in support of the operations of ZVDF.

Zambezi River Authority Financial Statements For the year ended 31 December 2017

Notes to the ﬁnancial statements

24 Related party transactions

2017 2016

Water sales revenue ZMW'000 US$'000 Z MW'000 US$'000

ZESCO 89,693 9,282 151,736 14,831 KHPC 96,954 10,096 106,459 10,316

186,647 19,378 258,195 25,147

Outstanding receivable balances from Water sales

ZESCO 171,636 17,395 141,971 14,304 KHPC 32,591 3,303 54,527 5,494 204,227 20,698 196,498 19,798

ZESCO li mited and Kariba hydro power company are the only customers to whom the Authority supplies water for power generation. An impairment provision of ZMW2.1 million (US$0.22 million) (2016: ZMW2.2 million (US$0.22 million) was made on the ZESCO de bt and no impairment provision was made on ZHPC.

Zambezi River Authority

Appendix 1 - Sta tement of Capital Expe nditure Compared to Budget

Year ended 31 December 2017 Spent Budget Bala nce ZMW’000 ZM W’000 Z MW ’000 Kariba Dam Structure - 3,207 3,207 CWIP- Kariba Reha bilitation 261,247 498,057 2 36,810 CWIP- Batoka HES 6,698 75,971 69,272 Land & Buildings 113 9,841 9,728 Furniture, Fittings, P lant & Equip. 783 6,917 6,134 Mot or Vehicles - 3,996 3,996 ICT Infrastructure 4,871 16,480 11,609

273,712 614,469 340,756

Spent Budget Balance

US$’000 US$’000 US$’000

Kariba Dam Structure - 325 325

CWIP- Kariba Rehabilitation 26,477 50,477 24,000

CWIP- Batoka HES 679 7,699 7,021 Land & Buildings 12 997 986 Furniture, Fittings , Plant & Equip. 79 701 622 Motor Vehicles - 405 405 I CT Infrastructure 494 1,670 1,177 27,740 62,275 34,535

T he budget was approved by the Council of Ministers on 22 December 2016

Chairperson PricewaterhouseCoopers, Chart ered Accountants

Co-Chairperson Charity Mulenga Partner signing on behalf of ﬁrm

Auditors Certiﬁcate

In accordance with Article 15(6)6 of the Zambezi River Authority Act 1987, we certify that the comparative statement shown above is correct.

Zambezi River Authority

Appendix II - Grant Funding Applicati on Analysis - Batoka Gorge Hydro Electric Scheme

As at 31 December 2017 Engineering Environmental Financial Total Feasibility and Social Legal and Studies Impact Tra nsaction Consultancy Advisory Consult ancy US$'000 US$'000 US$'000 US$'000

Cash Receipts:

International Development Association Trust Fund- 167 312 607 1,086 Cooperation in International Waters in Africa ( CIWA) grant Total Financing 167 312 607 1,086

As at 31 December 2016

Cash Receipts: International Development Association Trust Fund- CIWA Grant 1,969 520 744 3,233

Cumulative total 2,136 832 1,351 4,319

As at 31 December 2017 Engineering Environmental Financial Legal Total Feasibility and Social and Studies Impact Transaction Consultancy Advisory Consultancy

ZMW'000 ZMW'000 ZMW'000 ZMW'000

Direct payments & Reimbursements

International Development Association Trust Fund- CIWA grant 1,646 3,078 5,988 10,71 2 Total Financing 1,646 3,078 5,988 10,71 2

As at 31 December 2016

Cash Receipts: International Develop ment Association Trust Fund- CIWA Grant 19,542 5,161 7,384 32,088 Cumulative total 21,188 8,239 13,372 42,799

The summary above does not form part of the audited ﬁnancial statements