Asset Re-Assessment E-mails

Sent: Thursday, July 15, 2004 03:46 PM

From: "CGHA Commission" cghacommission@xter.net

To: Naira Melkumyan nmelkumyan@worldbank.org

Portfolio Manager World Bank Armenia Country Unit

Tel.: (374-1) 52-39-92; Fax: (374-1) 521-787

Subject: Municipal Development Project - Financial Statement 2003

Hello Naira:

I have been working with Richard Walkling and Hovik Marutyan, of the YWSC, who have both been very cooperative and helpful. Mr Marutyan tells me that the YWSC financial statement for 2003, audited by the KPMG, is now going through the approval process at the MDPMU, after which it has to be approved by the WB. I would like to complete the work with the YWSC, but it is dependent upon information which will be available in the 2003 financial statement. Mr Hovhanissian, Head of Commission, has written to Mr Avoyan at the MDPMU, following a number of letters to the YWSC and the KPMG, and Mr Avoyan confirms that the document will be submitted to the CGHA Commission as soon as it is finally approved. Can you let me have an idea of when the statement is likely to be approved and available at the MDPMU, so that a copy of the document (English and Armenian) may be provided to our Commission.

I hope that you will be able to respond to this E-mail application, but please let me know if you need written application in letter form for you be able to provide any of the information hereby requested.

Thank you again for your assistance.

Regards,

Bruce

Sent: Friday, July 16, 2004 11:19 AM

From: Rrobinson@worldbank.org

To: cghacommission@xter.net

Cc: Nmelkumyan@worldbank.org

Subject: CGHA Commission

Dear Mr. Tasker,

Naira is currently away from the office hence I am responding in her absence. With regard to the audited accounts for Yerevan Water currently under preparation, we expect this audit very soon. Our own review should not take very long and you shall have a copy of these audited accounts as soon as possible.

Kind regards,

Roger Robinson.

Sent: Tuesday October 5, 2004 08:52 AM

From: "CGHA Commission"

To: rrobinson@worldbank.org

cc:

Subject: Re: YWSC 2003 statement

Dear Mr Robinson / Naira,

I have written to you both recently, requesting information on when the YWSC 2003 financial statement, plus associated auditing reports, will be available. I have not had a reply to my messages, and so I repeat the request.

Is there any news on the status of this work?

Regards,

Bruce Tasker

Sent: Thursday, October 07, 2004 9:57 AM

From: Nmelkumyan@worldbank.org

To: CGHA Commission

Cc: Rrobinson@worldbank.org

Subject: Re: YWSC 2003 statement

Mr. Tasker,

Please be informed that the YWSC 2003 audit report has been completed and signed. You may have a copy of the YWSC audit report from Mr. Avoyan at the MDPIU.

Regards,

Naira

Naira Melkumyan

Portfolio Manager

World Bank

Armenia Country Unit

----- Original Message -----

From: "CGHA Commission"

To:

Cc:

Sent: Monday, October 18, 2004 7:08 PM

Subject: Re: YWSC 2003 statement

Dear Naira,

I have recently received a copy of the YWSC 2003 financial statement, audited by the KPMG. It is surprising that, despite the numerous points of concern, detailed in my letter to the YWSC on the 8th August(cc World Bank), and the continued interest of the CGHA Commission to study the 2003 statement, there are several obvious and serious irregularities in the document. I refer you to Item 11 of the statement, 'Property, Plant and Equipment', which was revalued in 2002, increasing the overall value from about 4 billion to more than 83 billion Drams, which, after revaluation and a depreciation charge of more than 6 billion Drams for 2002/3, resulted in a book value of more than 24 billion Drams for 2003. The actual valuation is not of concern, but the fact that the YWSC statement, audited by the KPMG, increases the value of machinery, equipment and motor vehicles from about half a billion Drams to more than 56 billion Drams (about $100 million), has attracted our attention. In fact, the 'Aucon' audit report provides very much different information, with the machinery, equipment and motor vehicles revalued at less than 2 billion Drams. The reason for this misrepresentation should be obvious to the KPMG. The timing of the recording of revaluation also varies in different documents, which is important. The increase in the YWSC charter capital is also incorrectly stated in the financial statement, plus there are other obvious misrepresentations.

The Commission members, including a senior representative of the Republican Party, have been studying my full report for the past month, and although there are still unanswered questions, the majority of the causes for concern have been acknowledged and accepted.

Corruption in Armenia has obviously escalated to a very serious level, and it seems that the lack of good intention, together with the lack of capability, will limit what can be done to regulate the problem in a worthwhile way. The Commission will now presumably decide how best to proceed, and I trust the information that has come out of this study may be of some use.

Regards,

Bruce