SPECIAL PURPOSE FINANCIAL STATEMENTS

Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized

The State Road Agency of Ukraine Second Roads and Safety Improvement Project

SPECIAL PURPOSE FINANCIAL STATEMENTS For the period from 01 January 2014

to 31 December 2014 Together with Independent Auditors' Report

JBDO

Public Disclosure Authorized

The State Road Agency of Ukraine Second Roads and Safety Improvement Project

SPECIAL PURPOSE FINANCIAL STATEMENTS

For the period from 01 January 2014 to 31 December 2014

Contents:

INDEPENDENT AUDITORS' REPORT

3

SPECIAL PURPOSE STATEMENT OF SOURCES AND USES OF FUNDS

5

USE OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT FUNDS BY THE PROJECT

COMPONENTS

6

SCHEDULE OF WITHDRAWALS FROM THE LOAN ACCOUNT

7

STATEMENT OF WITHDRAWALS THROUGH THE SUMMARY OF STATEMENTS OF EXPENDITURES

8

STATEMENT OF CASH WITHDRAWAL FROM SPECIAL ACCOUNTS

10

SPECIAL ACCOUNT STATEMENT

11

STATEMENT OF CASH WITHDRAWAL FROM TRANSIT ACCOUNTS

12

STATEMENT OF FACTUAL EXPENDITURES IN NATIONAL CURRENCY

13

RECONCILIATION BETWEEN RECORDS OF PIU AND THE BANK

14

NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS

15

WORLD BANK AUDIT DOCUMENTATION CHECKLIST

21

2

BD OBwTwelw.:..+3u8 04a4 393 26 87 Fax: +38 044 393 26 91 e-mail: bdo@bdo.kiev.ua

Tel.: +38 056 370 30 43 Fax: +38 056 370 30 45 e-mail: office@.ua

Tel.: +38 062 206 52 89 Fax: +38 062 206 52 91 e-mail: office@.ua

BDO LLC

201-203, Kharkivske Road, 10th floor Kyiv Ukraine, 02121

4, Serova Str. Dnipropetrovsk Ukraine, 49000

51A, Artyoma Str., office 703 Donetsk Ukraine, 83001

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying special purpose project financial statements of the Second Roads and Safety Improvement Project (the "Project"), financed under the International Bank for Reconstruction and Development ("IBRD") Loan agreement No. 8195-UA dated 11 October 2012 between the IBRD and Ukraine, whose beneficiary is The State Road Agency of Ukraine (further - the "Ukravtodor"), which comprise the special purpose statement of sources and uses of funds for the year ended 31 December 2014 and the special purpose statement on expenditure detail for the year ended 31 December 2014 (collectively referred to as the "special purpose project financial statements"), and a summary of significant accounting policies and other explanatory information.

Management's Responsibilityfor the Special Purpose project Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements, which are prepared in accordance with the World Bank's regulations. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility

Our responsibility is to express an opinion on these special purpose financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation of the financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

BDOLLC, a Ukrainian LLC, isa member of BDOInternational Limited, a UKcompany limited by guarantee, and forms part of the international BDOnetwork of independent member firms.

BDOis the brand name for the BDOnetwork andfor each of the BDOMember Firms.

iBDO

Opinion regarding the special purpose financial statements

In our opinion, the accompanying special purpose financial statements give true and fair view of the sources and uses of funds of the Second Roads and Safety Improvement Project for the period from 01 January 2014 to 31 December 2014, in accordance the Bank's regulations.

External funds have been used in compliance with the requirements of the corresponding general conditions, financial agreements, and the Disbursement Letter, paying due attention to efficiency and cost-effectiveness; and have been used only for the corresponding purposes.

Conditions of the Loan Agreement N2 8195-UA do not provide for the use of partners' funds.

The services have been purchased in compliance with the corresponding general conditions, financial agreements, and the Disbursement Letter.

Accounting and storing of the necessary interim documents, accounting data and accounts regarding all Project transactions, including those concerning the expenditures disclosed in the Statement of actual expenditures, are performed in a due manner. There is a clear interconnection between accounting data and the financial statements provided to the World Bank.

The prepared financial statements comply with the requirements of generally accepted accounting principles and practices, and the instructions from the World Bank; and truly and objectively reflect the financial position of the Project as at 31 December 2014 as well as the resources and expenditures for the period from 1 January 2014 to 31 December 2014.

Opinion regarding Statements of Expenditures

in addition, with regard to the expenditures for the period from 1 January 2014 to 31 December 2014 adequate supporting documentation was maintained to confirm applications submitted to the Bank for reimbursement of the expenditures incurred, and that the expenditures stated in the withdrawal applications are to be financed in accordance with the terms and conditions of the Loan N2 8195-UA.

Opinion regarding Special Account Statements

In our opinion, the financial statements on the Special account give true and fair view of financial position of the Special Accounts of the Project, as at 31 December 2014 and for the period from 1 January 2014 to the date fixed in consistence with the World Bank regulations.

These accounts were conducted according to the provisions of the corresponding general conditions, financial agreements, and the Disbursement Letter.

Explanatory paragraph

We draw attention to Note 1 to the Special Financial Statements, where the fact is disclosed that the end date of the loan funds use in 30 April 2017.

30 June 2015

BDO LLC

Balchenko S. Managing Part.,

20197074

The State Road Agency of Ukraine Second Roads and Safety Improvement Project

SPECIAL PURPOSE FINANCIAL STATEMENTS

For the period from 01 January 2014 to 31 December 2014

SPECIAL PURPOSE STATEMENT OF SOURCES AND USES OF FUNDS FOR THE YEAR ENDED 31 DECEMBER 2014, AND CUMULATIVE AS AT 31 DECEMBER 2014 (in US dollars)

OPENING BALANCE

Special account with NTSU Transit account with Ukreximbank (USD) Transit account with OPERU STSU (UAH) TOTAL

SOURCES OF FUNDS: Loan of the World Bank Financing of Ukravtodor (*) TOTAL FINANCING

For the

year ended 31

December 2014

For the whole period of the Project implement ation

Budget

Unused Loan

balance

710,528 16,487

727,015

85,208,769 12,070,889 97,279,658

167,350,132 19,155,837 186,505,969

450,000,000 19,155,837 469,155,837

282,649,868 282,649,868

PROJECT EXPENDITURES: Cssetaertveigceoosry,rvci1co:enGsouoolotdadsns,,tsw'worsokeksr,svincnoensnco-ancsnoudnltastnurtaslt'isinniiingngg

Category 2: Front-end fee

97,590,413

184,964,709 1,125,000

468,030,837 1,125,000

283,066,128

TOTAL PROJECT EXPENDITURES

97,590,413 186,089,709 469,155,837

283,066,128

Use of funds for financing expenses under the Loan No7677-UA (Note 4)

CLOSING BALANCE Special account with NTSU Transit account with Ukreximbank (USD) Transit account with OPERU STSU (UAH) TOTAL

(380)

392,067 18,623 5,190 415,880

Note (*) - financing of Ukravtodor for the entire period of the Project realization comprises 213,098,733 UAH. The methodology of the translation from the national currency into the Loan currency is disclosed in Note 4 on page 15.

Notes on pages 15 - 20 are an integral part of these special purpose project financial statements. 5

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