LAND BANK OF THE PHILIPPINES 30 June 2017 MR. CHRISTOPHER C. ANCHETA Task Team Leader The World Bank East Asia and Urban Development Unit Sustainable Development Department 25th Floor, One Global Place 5th Ave. corner 25th Street Bonifacio Global City Taguig City Subject COA Annual Audit Report Metro Manila Wastewater Management Project (MWMP) Loan Number 8162-PH Dear Mr. Ancheta: We are transmitting herewith a copy of the COA Annual Audit Report for the years ended December 31, 2016 and 2015 on the World Bank funded Metro Manila Wastewater Management Project (MWMP). Thank you. Very truly yours, GEN OSO S. DAVID D artment Manager Program Management Department II cc: The VP, LPMG The VP, CBD 1 LANDBANK Plaza, 1598 M.H.del Pilar corner Dr.J. Quintos Sts. Malate, Manila 1004 * Tel. Nos. 522-0000 - 551-2200 * 450-7001 www.Iandbank.com Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
LAND BANK OF THE PHILIPPINES
30 June 2017
MR. CHRISTOPHER C. ANCHETATask Team LeaderThe World BankEast Asia and Urban Development UnitSustainable Development Department25th Floor, One Global Place5th Ave. corner 25th StreetBonifacio Global CityTaguig City
Subject COA Annual Audit ReportMetro Manila Wastewater Management Project (MWMP)Loan Number 8162-PH
Dear Mr. Ancheta:
We are transmitting herewith a copy of the COA Annual Audit Report for the yearsended December 31, 2016 and 2015 on the World Bank funded Metro ManilaWastewater Management Project (MWMP).
Thank you.
Very truly yours,
GEN OSO S. DAVIDD artment ManagerProgram Management Department II
The Metro Manila Wastewater Management Project (MWMP) was established on May31, 2012 through a loan agreement between the International Bank for Reconstructionand Development (IBRD) of World Bank and Land Bank of the Philippines (LBP). ThisProject aims to improve wastewater services in selected sub-catchments of MetroManila and surrounding areas. To finance the Project, IBRD granted LBP a loan in theprincipal amount of US$275 million (or around PHP1 1.968 billion) for a term of 25 yearsinclusive of seven years grace period, with a guarantee from the Government of theRepublic of the Philippines. The loan would be re-lent to Manila Water Company, Inc.(MWCI) and Maynilad Water Services, Inc. (MWSI) as the implementing entities of the
Project. The commitment period of the loan is five (5) years from date of loan signing.
SCOPE AND OBJECTIVE OF AUDIT
The audit covered the examination, on a test basis, of the accounts and financialtransactions of the MWMP for the period from January 1 to December 31, 2016 inaccordance with Philippine Public Sector Standards on Auditing to enable us to expressan opinion on the fairness of presentation of the financial statements for the years endedDecember 31, 2016 and 2015.
Interest income 2,271,608 112,944,342 829,840 39,052,267Interest expense 1,223,015 60,808,300 354,718 16,693,016Net income 1,048,593 52,136,042 475,122 22,359,251
INDEPENDENT AUDITOR'S OPINION
The Auditor rendered an unmodified opinion on the fairness of presentation of thefinancial statements of the MWMP for the years ended December 31, 2016 and 2015.
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TABLE OF CONTENTS
PageNo.
AUDITED FINANCIAL STATEMENTS
Independent Auditor's Report 1
Statement of Management's Responsibility 3for the Financial Statements
Statements of Financial Position 5
Statements of Financial Performance 6
Statements of Cash Flows 7
Notes to Financial Statements 8
AUDITED FINANCIAL STATEMENTS
Republic of the PhilippinesCOMMISSION ON AUDIT
Commonwealth Ave., Quezon CityCORPORATE GOVERNMENT SECTOR
CLUSTER I- BANKING AND CREDIT
INDEPENDENT AUDITOR'S REPORT
The Board of DirectorsLand Bank of the PhilippinesMalate, Manila
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of Metro Manila WastewaterManagement Project, a Project implemented by Land Bank of the Philippines andfunded by International Bank for Reconstruction and Development of World Bank underLoan No. 8162-Ph, which comprise the statements of financial position as at December31, 2016 and 2015, statements of financial performance, and statements of cash flowsfor the years then ended, and a summary of significant accounting policies and otherexplanatory Information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financialstatements in accordance with Philippine Financial Reporting Standards, and for suchinternal control as management determines is necessary to enable the preparation offinancial statements that are free from material misstatement, whether due to fraud orerror.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with Philippine Public Sector Standards onAuditing. Those standards require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether the financialstatements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on theauditor's judgment, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In making those risk assessments,the auditor considers internal control relevant to the entity's preparation and fairpresentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of thefinancial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, thefinancial position of Metro Manila Wastewater Management Project as at December
31, 2016 and 2015, and its financial performance and its cash flows for the years thenended in accordance with Philippine Financial Reporting Standards.
COMMISSION ON AUDIT
CORAD ZSupervising Auditor
June 28, 2017
LAND BANK OF THE PHILIPPINES
March 01, 2017
MS. CORA D. MARQUEZSupervising AuditorLand Bank of the Philippines
Dear Ms. Marquez:
In connection with your examination of the Financial Statement for the Metro ManilaWastewater Management Project as of December 31, 2016 and for the year then ended, forthe purpose of expressing an opinion as to whether the financial position, results ofoperations and changes in financial position, we confirm to the best of our knowledge andbelief, the following representations made to you during your examinations:
1. We are responsible for the fair presentation in the financial statements of financialposition, results of operations and changes in financial position in conformity withgenerally accepted accounting principles;
2. We have made available to you all financial records and related data;
3. There have been no:
Irregularities involving management or employees who have significant roles inthe system of internal accounting records;
> Irregularities involving other employees that could have a material effect on thefinancial statements;
> Communications from regulatory agencies concerning non-compliance with ordeficiencies in financial reporting practices that could have material effect on thefinancial statements.
4. We have no plans or intentions that may materially affect the carrying value classificationof assets and liabilities;
5. There are no material transaction that have not been properly recorded in the accountingrecords underlying the financial statements;
6. The bank has satisfactory title to all itemi of property and equipment shown in thefinancial statements;
7. Provision have been made for any material loss for the non-performing loans classifiedas substandard as of the period audited;
8. We have completed with all aspects of contractual agreements that would have amaterial effect on the financial statements in the event of non-compliance;
9. No events have occurred subsequent to the balance sheet date up to signing of thisletter that would require adjustment to disclosure in the financial statements.
Very truly yours,
LAND BANK OF THE PHILIPPINES
By:
LANI U. PORNUEVO ANN4 . BAUTISTADepartment Manager First VieidentLoans lmplementati Department Banking Operations Group
METRO MANILA WASTEWATER MANAGEMENT PROJECT(A project of Land Bank of the Philippines Funded by IBRD Loan 8162-Ph)
STATEMENTS OF FINANCIAL POSITIONDecember 31, 2016 and 2015
(Comparative in US Dollars translated In Philippine Peso based on PDS closing rate at year end)
Net cash used by operating activities (41,147,495) (2,045,853,476) (50,240,100) (2,364,327,119)
CASH FLOW FROM FINANCING ACTIVITIES:Increase in Bills Payable - FCDU 42,139,685 2,095,185,172 50,629.329 2,382,616,195
Not cash provided by financing activities 42,139,685 2,095,185,172 50,629,329 2,382,616,195
Net increase In Cash and cash equivalents 992,190 49,331,696 388,633 18,289,076
Cash and cash equivalents, beginning of year 467,121 23,225,239 78,488 3,693,623CASH AND CASH EQUIVALENTS, END 1,459,311 72,556,935 467,121 21,982,898
The Notes on pages 8 to 10 form part of these financial statements.
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METRO MANILA WASTEWATER MANAGEMENT PROJECT(A Project implemented by LBP Funded by IBRD Loan No. 8f62-Ph)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Project
The term loan was established on May 31, 2012 to partially finance the Metro Manila
Wastewater Management Project (MWMP). This Project aims to improve wastewater
services in selected sub-catchments of Metro Manila and surrounding areas. The
investment cost includes price and physical contingencies and taxes. The US$275 million
or around PHP1 1.968 billion loan borrowed by Land Bank of the Philippines (LBP) fromthe World Bank would be re-lent to Manila Water Company, Inc. (MWCI) and Maynilad
Water Services, Inc. (MWSI) at US$137.5 million for each concessionaire as the
implementing entities of the project. It is a 25-year term loan inclusive of seven years
grace period, with a guarantee from the Government of the Philippines. The commitment
period for the disbursement of the term loan shall be within a period of about five yearsfrom date of loan signing.
2. Summary of Significant Accounting Policies
The financial statements have been prepared on a historical cost basis, in compliance with
the Philippine Financial Reporting Standards (PFRS).
In compliance with BSP requirement, recording of MWMP loan transactions is under LBP-
Foreign Currency Deposit Unit (FCDU) books.
For financial reporting purposes, the monetary assets and liabilities of the foreign currency
denominated monetary assets and liabilities are translated In Philippine peso based on the
Philippine Dealing System closing rate prevailing at the Statement of Financial Position
date.
Income is recorded on accrual basis except for interest on past due loans as provided
under BSP Circular No. 342 dated April 14, 1983. Expenses are recognized on accrual
basis. The effect of transactions and other financial events on the assets and liabilities are
recognized at the time they have their primary impact, not necessarily when cash is
disbursed. Cost is charged as an expense in the period in which it provides expected
services in an effort to generate revenue.
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3. Cash and Cash Equivalents - FCDU
This account consists of:
2016 2015USD PHP USD PHP
Collections of interest 2,854,538 141,927,627 800,232 37,658,908Less: Payment to World Bank 1,395,227 69,370,692 333,111 15,676,210
1,459,311 72,556,935 467,121 21,982,698
4. Loans and receivables - FCDU
The obligations of MWCI and MWSI to LBP are recognized on the same day that WorldBank releases the loan to LBP through non-interest bearing US$ Designated Accounts(DAs) of MWCI and MWSI maintained at LBP. MWCI and MWSI acknowledge theirobligations to LBP by executing Promissory Notes commencing on the date when WorldBank releases the funds to the US$ DAs which will be converted into peso and transferredto MWCI's and MWSI's peso Project Accounts to fund eligible expenditures payable inpeso. The term of the loan is twenty five (25) years inclusive of the maximum seven yearsgrace period on payment of the principal. The interest rate is the same rate of interest ratepayable by LBP under the World Bank Loan Agreement plus the LBP's fixed spread of1.25 per cent per annum.
This pertains to the US$ balance of the loan drawdowns by LBP from World Bank that isbooked at LBP's FCDU books on the date the loan proceeds was credited to the US$ DAsmaintained at LBP which, as of December 31, 2016 amounted to US$ 107,592,401.87.
This pertains to the balances of the accruals for interest on Bills payable others-FCDUbased on the Loan Agreement between LBP and World Bank. The US$ balances arebooked at the LBP's FCDU.
7. Interest income - performing loans to private - FCDU
The interest income is computed based on the outstanding loans starting from loanavailment using the same rate of interest payable by LBP under the World Bank LoanAgreement plus LBP's fixed spread of 1.25 per cent per annum.
8. Interest expense BP others - FCDU
The interest expense is based on the outstanding loan drawdown computed at WorldBank's interest rate (US$ LIBOR plus World Bank spread).
9. Final tax
The ten per cent final tax on the interest for the MWMP term loan shall be for the accountsof MWCI and MWSI.
10. Foreign exchange (FX) profitl(loss)
Since the MWMP term loan was passed on to MWCI and MWSI, being the implementingentities of the Project with LBP's assistance as stated In the Loan Agreement, any foreignexchange revaluation profit/loss shall be for the account of MWCI and MWSI.
11. Guarantee fee
The guarantee fee due to the Bureau of the Treasury shall be paid by MWCI and MWSI. Itis computed at one per cent per annum based on the amount of each availment to be paidimmediately upon receipt and booking. of the loan release and thereafter on theanniversary date of each availment until the loan is fully paid. The guarantee fee shall bepaid directly by MWCI and MWSI and shall not be accounted for in this Project.
12. Front end fee
The front end fee is computed at 0.25 per cent of the amount of the term loan subject toany waiver of a portion of such fee as maybe determined by World Bank from time to time,to be paid by MWCI and MWSI not later than 60 days after the loan effective date.
