Establishment of a Grant Program for Georgia Agreed Upon Procedures Report for the Quarters Ended 31 March and 30 June
TABLE OF CONTENTS Page REPORT OF FACTUAL FINDINGS 1-2 Appendix Additional information in relation to the quarters ended 31 March and 30 June 3-5
Deloitte & Touche LLC 4th Floor The Landmark 96 Nizami Street Baku, AZ1010 Azerbaijan Tel: + 994 (0) 12 498 2970 Fax: + 994 (0) 12 498 9805 www.deloitte.az REPORT OF FACTUAL FINDINGS To Baku-Tbilisi-Ceyhan Pipeline Company: We have performed the procedures agreed with you and enumerated below with respect to the grant replenishments and expenditures as of and for the three month periods ended 31 March and 30 June made within the framework of Agreement on Establishment of a Grant Program for Georgia entered into on 10 October 2004 between Baku-Tbilisi-Ceyhan Pipeline Company ( BTC Co ) and the Government of Georgia ( GoG ). Our engagement was undertaken in accordance with the International Standard on Related Services applicable to agreed upon procedures engagements. The procedures were performed solely to assist you in ensuring the compliance of the Grant program with requirements and terms of the Agreement on Establishment of a Grant Program for Georgia and are summarized as follows: 1. We obtained the aggregate amount of Grant funds used as of and for the three month periods ended 31 March and 30 June and the aggregate amount of Grant funds used since inception from quarterly reports on Grant utilization issued by the Ministry of Finance. 2. We traced the Grant amount movements between the accounts to bank payment orders. 3. We traced the program expenditures funded from Grant to supporting documentation. 4. With respect to each project or program funded from Grant we determined: (a) the purpose, objectives and location of the project or target beneficiaries of the program; (b) whether the appropriate governmental entity administered the use of Grant funds at that time and whether the appropriate governmental entity or non-governmental organization carried out the project or program, and the background and capabilities of the relevant entity to implement the project or program; (c) the amount of Grant funding used for the project or program; (d) the total budgeted cost of the project or program; and if the project or program is not to be funded entirely from Grant, the sources of additional funding for the project or program; (e) the status of implementation of the project or program and, for ongoing projects or programs, an assessment of (i) the actual and expected costs against budget and (ii) the benefits delivered against expected benefits; and (f) expectations or plans with respect to future use of Grant funds, including any committed use of Grant funds in the future. Audit. Tax. Consulting.Financial Advisory. Member of Deloitte Touche Tohmatsu
We report our findings below: 1. We found that the program funded by the Grant appears to be in compliance with the terms and requirements set forth in the Agreement on Establishment of a Grant Program for Georgia. 2. We found that program expenditures funded by the Grant appeared to be supported by relevant documentation as required by the Grant agreement. Because the above procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on Review Engagements, we do not express any assurance on the Grant replenishments and expenditures as of 31 March and 30 June. Had we performed additional procedures or had we performed an audit or review of the financial statements in accordance with International Standards on Auditing or International Standard on Review Engagements, other matters might have come to our attention that would have been reported to you. This report relates only to the accounts and items specified above and does not extend to any financial statements of Social Welfare Joint State Fund, taken as a whole. Our report is intended solely for the purpose set forth in the first paragraph of this report and for your information only and should not be used by other parties or for other uses than as prescribed by the Agreement on Establishment of a Grant Program for Georgia entered into on 10 October 2004 between BTC Co and the Government of Georgia. 20 July Audit. Tax. Consulting.Financial Advisory. Member of Deloitte Touche Tohmatsu 2
APPENDIX ADDITIONAL INFORMATION IN RELATION TO THE QUARTERS ENDED 31 MARCH AND 30 JUNE 1. GRANT PROGRAM BACKGROUND On 10 October 2004 Baku-Tbilisi-Ceyhan Pipeline Company ( BTC Co ) signed the Agreement on Establishment of a Grant Program for Georgia (the Agreement ) with the Government of Georgia ( GoG ). Under the Agreement, BTC Co provides a series of grants to the GoG, which are to be used for the funding of the social and economic projects for the benefit of the people of Georgia. The total funding for the program amounts to USD 40,000,000 (forty million United States Dollars) through to 2010, together with a further USD 1,000,000 (one million United States Dollars) per year for the remaining life of the pipeline. The first grant payment of USD 9,000,000 (nine million United States Dollars) was paid to the State Treasury account at the National Bank of Georgia managed by the Ministry of Finance of Georgia. The amount was converted into Georgian Laris ( GEL ) on December 6, 2004 at the official exchange rate of National Bank of Georgia for that date, which was 1 USD=1.835 GEL and the amount of GEL 16,515,000 was transferred to the account. According to International Monetary Fund requirements, the Ministry of Finance cannot have special bank accounts, and due to this fact it is not practical to track the movement of the grant funds after the initial transfer was made. The GoG agrees that Grant funds (including any interest paid on amounts in the BTC Co Grant Account) will be used solely for the following purposes: 1) Funding of educational programs or activities for primary or secondary age school children and construction, renovation or refurbishment of educational facilities for such school children; 2) Funding of preventative or primary care health programs and construction, renovation or refurbishment of health facilities such as hospitals or clinics; 3) Social welfare, housing and job training programs or initiatives made generally available to citizens of Georgia without regard to race, color, religion, national origin or gender; 4) Funding of projects aimed at the fostering of ties between Georgian and EU businesses, governments and civil societies, with a view to promoting compliance by Georgian businesses with European Union environmental and social standards, including technical standards, and removal of barriers to trade between Georgia and the European Union; and 5) Supporting job creation initiatives relating to tourism in the Borjomi region. The Grant funds shall be used for discrete and separately identifiable projects or programs with separate budgets and not to become, or to be used as, general revenues of the Government. 3
APPENDIX ADDITIONAL INFORMATION IN RELATION TO THE QUARTERS ENDED 31 MARCH AND 30 JUNE 2. CURRENT USE OF THE GRANT On the basis of a proposal from the Government of Georgia, the law on Georgian State Budget for incorporated a pension increase in Samtskhe-Javakheti and Kvemo Kartli regions as a utilization of the first tranche of the Grant. According to the information provided by the Social Welfare Joint State Fund, GEL 4,344,424 were used to double pensions in Samtskhe-Javakheti and Kvemo Kartli regions during January March of, representing an increase of GEL 14 per month for each pensioner and bringing the minimal pension rate to GEL 28 per month. The total grant amount contributed to doubling pensions in Samtskhe-Javakheti amounted to GEL 1,595,958, and in Kvemo Kartli GEL 2,748,466. The schedule given below represents the breakdown of GEL amounts disbursed in the form of pension increases by the cities of Samtskhe-Javakheti and Kvemo Kartli. Number of pensioners covered by the Program January February March Total amount for the period amount per month Number of pensioners covered by the Program amount per month Number of pensioners covered by the Program amount per month amount Akhaltsikhe 9,416 131,824 9,350 130,900 9,231 129,234 391,958 Adigeni 4,301 60,214 4,280 59,920 4,318 60,452 180,586 Aspindza 2,709 37,926 2,706 37,884 2,726 38,164 113,974 Akhalkalaki 9,517 133,238 9,491 132,874 9,537 133,518 399,630 Borjomi 7,199 100,786 6,949 97,286 7,130 99,820 297,892 Ninotsminda 5,115 71,610 4,994 69,916 5,028 70,392 211,918 Total Samtskhe- Javakheti 38,257 535,598 37,770 528,780 37,970 531,580 1,595,958 Rustavi 17,112 239,568 17,216 241,024 17,263 241,682 722,274 Bolnisi 8,260 115,640 8,368 117,152 8,516 119,224 352,016 Gardabani 14,053 196,742 14,028 196,392 14,247 199,458 592,592 Dmanisi 4,666 65,324 4,689 65,646 4,734 66,276 197,246 Tetri Tskaro 4,262 59,668 4,277 59,878 4,284 59,976 179,522 Marneuli 13,396 187,544 13,340 186,760 13,409 187,726 562,030 Tsalka 3,396 47,544 3,402 47,628 3,401 47,614 142,786 Total Shida Kartli 65,145 912,030 65,320 914,480 65,854 921,956 2,748,466 Grand Total 103,402 1,447,628 103,090 1,443,260 103,824 1,453,536 4,344,424 The three-month program for doubling pensions in the above regions was entirely funded by the Grant; however, no additional grant contributions were made in the following periods. 4
APPENDIX ADDITIONAL INFORMATION IN RELATION TO THE QUARTERS ENDED 31 MARCH AND 30 JUNE 3. EXPECTATIONS WITH RESPECT TO THE FUTURE USE OF THE GRANT The Ministry of Finance does not have precise budget for the utilization of the Grant. The following programs specified in the Law of Georgia About Georgian State Budget of the Year are in compliance with the Agreement between BTC Co and the Government of Georgia and can be funded by the Grant. The amounts below are presented in GEL. Code Name Annual Budget 2913 02 Student Voucherization Programme in Higher Education Institutions 1 st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter 1,693,100 - - 1,693,100-32 28 02 Programme of Social Assistance 14,800,000 - - - 14,800,000 32 28 04 State Programme for Identification of the Families beyond the Poverty Level, Assessment of their Socioeconomic Condition and Formation of the Database 1,200,000-200,000 500,000 500,000 By 14 June, none of the above programs were funded by the Grant. It is expected that the Grant will be directed towards a continuing program of increasing pensions in the Samtskhe-Javakheti and Kvemo Kartli regions. 5