Public Disclosure Authorized Report on the Federation part of the PROJECT FINANCIAL STATEMENTS of the SECOND SOLID WASTE MANAGEMENT PROJECT Public Disclosure Authorized of the Ministry of Finance and Treasury of Bosnia and Herzegovina financed by: - IDA Credit No. 4540 BA - IBRD Loan No. 7629 BA - EC IPA Grant TF011456 - SIDA Contribution No. 71001980 Public Disclosure Authorized FOR THE YEAR ENDED DECEMBER 31, 2015 Public Disclosure Authorized SECOND SOLID WASTE MANAGEMENT PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina CONTENTS 1 Introduction 1 2 Independent Auditor's Report 6 3 Project financial statements for the year 2015 8 4 Notes to the project financial statements 17 APPENDICES A.1 Designated account statement - IDA Credit No. 4540 BA 19 A.2 Local bank account statement - IDA Credit No. 4540 BA (PIT Mostar) 20 A.3 Local bank account statement - IDA Credit No- 4540 BA (PIT 2ivinice) 21 A.4 Local bank account statement - IDA Credit No- 4540 BA (Gornji Vakuf-Uskoplje) 22 A.5 Petty cash statement - IDA Credit No, 4540 BA (PIT 2vinice) 23 A.6 Petty cash statement - IDA Credit No.4540 (PIT Gornji Vakuf-Uskoplje 24 A.7 Designated account statement - IBRD Loan No. 7629 BA 25 A.8 Local bank account statement - IBRD Loan No. 7629 BA (PIT Zenica) 26 A.9 Local bank account statement - IBRD Loan No. 7629 BA (PIT Livno) 27 A. 10 Local bank account statement - IBRD Loan No. 7629 BA (PIT Biha6) 28 A 11 Petty cash statement - IBRD Loan No. 7629 BA (PIT Zenica) 29 A.12 Petty cash statement - IBRD Loan No. 7629 BA (PIT Biha6) 30 A. 13 Designated account statement - EC IPA Grant TF01 1456 31 A.14 Designated account statement - SIDA Contribution No. 71001980 32 A. 15 Local bank account statement - Government contribution 33 A.16 Local bank account statement - Government contribution (PIT Mostar) 34 A.17 Local bank account statement - Government contribution (PIT Zenica) 35 A1 8 Local bank account statement - Government contribution (PIT Livno) 36 A.19 Local bank account statement - Government contribution (PIT 2ivinice) 37 A.20 Local bank account statement - Government contribution (PIT Biha6) 38 A.21 Local bank account statement - Government contribution (PIT Gornji Vakuf-Uskoplje) 39 A.22 Petty cash statement - Government contribution (PMU) 40 A.23 Petty cash statement - Government contribution (PIT Mostar) 41 A.24 Petty cash statement - Government contribution (PIT Livno) 42 A 25 Petty cash statement - Government contribution (PIT Gornji Vakuf-Uskop[je) 43 B 1 SoE Withdrawal Schedule of IDA Credit No. 4540 BA for the year ended December 31, 2015 44 B.2 SoE Withdrawal Schedule of IBRD Loan No. 7629 BA for the year ended December 31, 2015 45 B.3 SoE Withdrawal Schedule of EC IPA Grant TF011456 for the year ended December 31, 2015 46 C.1 Reconciliation between World Bank's disbursement statements in XDR and IDA Credit account in EUR according to the balance sheet as of December 31, 2015; SoE Withdrawal Schedule of IDA Credit No. 4540 BA 47 C.2 Reconciliation between World Bank's disbursement statements in EUR and IBRD Loan account in EUR according to the balance sheet as of December 31, 2015: SoE Withdrawal Schedule of IBRD Loan No. 7629 BA 48 C.3 Reconciliation between World Bank's disbursement statements in EUR and IPA Grant account in EUR according to the balance sheet as of December 31, 2015; SoE Withdrawal Schedule of EC IPA Grant TF0 11456 49 SECOND SOLID WASTE MANAGEMENT PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina 1. Introduction 1.1 Objectives and activities of the Project The project development objective of the Second Solid Waste Management Project (the "Project) is to improve the availability, quality, environmental soundness. and financial viability of solid waste management services in participating regions. Key impacts include improved disposal management system and enhanced coverage of formal waste management services, improved groundwater quality at disposal sites, higher citizen satisfaction with waste management services and an increased cost- recovery rate of participating utilities. 1.2 Components of the Project The Project will build upon the project design of the first Solid Waste Management Project and will ensure continued successful implementation. However, lessons learned during implementation of the first Solid Waste Management Project influenced project design changes. The main adjustments include the following: (i) introduce a more flexible and performance-based mechanism for allocating project funds: (ii) establish a PMU at the Ministry of Physical Planning, Construction and Ecology of Republika Srpska in addition to the existing PMU at the Ministry for Environment and Tourism in Federation of Bosnia and Herzegovina; (iii) amend funding mechanism for Technical Assistance and the PMUs and (iv) consolidate components by reducing overall number from five to three. It is expected that the Project will finance rehabilitation of six to eight regional sanitary landfills in addition to those participating in the first Solid Waste Management Project. To participate in the Project, utilities/regions must meet eligibility criteria for (a) Technical Assistance (Long list) and (b) Investment Funding (Short list). Criteria for sub-project eligibility have been agreed and aim to ensure effective implementation and economic efficiency of regional sanitary landfills. The Entity Governments provided a list of regions eligible under these criteria. Eight regions do currently meet the criteria to be included in the long list and initial fund allocation takes place accordingly. Eligibility for Technical Assistance (Component B): Regions that meet the following four criteria are eligible to apply for Technical Assistance under the project: (i) demonstrated consistence with the Entity Solid Waste Management Strategies; (ii) minimum of three municipalities with declared interest in cooperating in solid waste management; (iii) participating municipalities have a minimum aggregated population of 100,000; (iv) inter-municipal board established. Eligibility for Investment Funding (Component A): All regions that meet at least four of the following six criteria may be eligible for project investment funds. (i) regional solid waste management company established; (ii) site selected for regional sanitary landfill; (iii) local community consulted for site selection; (iv) feasibility study prepared; (v) detailed project design and bidding documents prepared; (vi) Environmental Assessment and Environmental Risk Mitigation Plan prepared. SECOND SOLID WASTE MANAGEMENT PROJECT of the Ministry of Finance and Treasury of Bosnia and Herzegovina . .... 1. Introduction (continued) 1.2 Components of the Project (continued) Component A: Waste Management (USD 39,5 million). This component invests in rehabilitating existing disposal sites, closing wild dumps, improving collection infrastructure, supporting equipment purchases, and to a limited extent, converting existing small dump sites to transfer stations. At more advanced regional landfills the component will also support upgrading processes such as sorting, recycling, and gas capturing: and prior treatment of waste. It will also cover operational cost of regional PITs. The component includes 10 percent co- financing from the Entity Governments. Component B: Capacity Building (USD 2,0 million). This component provides technical assistance and engineering services to participating regions and will finance institutional strengthening and capacity-building activities benefiting the entity-level institutions involved in solid waste management. It supports the preparation of feasibility studies financial, environmental and social assessments of landfill sites, and provides support for bidding procedures for the investments and services provided under Component A. The Component will also finance a Public Communication Program and Environmental Monitoring. In addition it may support strategic studies for Hazardous Waste Management and Inter-state cooperation in Solid Waste Management. Component C: Project Management and Operating Cost (USD 2,0 million). This component supports PMU operation in both entities and assists project implementation. The performance-based approach introduced to the project will allow fund reallocation within the entities. Sub-loan agreements between the Ministry of Finance and participating project regions would stipulate that after 18 months of signing of the sub-loan agreement, the PMUs and PITs would review implementation progress in the participating regions. The joint review will evaluate implementation progress as stated in the action plan presented at signing of the sub-loan agreement. If implementation at individual sites does not advance as anticipated at the beginning of the project, funds would be returned to the Ministry of Finance and become available for reallocation based on the eligibility criteria at project entry. Regions that meet the criteria for investments outlined above may apply for funds that become available. In addition, the Project will introduce improvements in financing the components Initial allocation of funds for Component A will take place on the provisional key of 55% (Federation of Bosnia and Herzegovina) to 45% (Republika Srpska). Funds provided for Component B (Capacity Building) will be borrowed by both Entities at equal share. During the Mid-Term Review fund allocation will be evaluated and funds may be reallocated to Component A. The project will cover funds under Component B (Capacity