State Oil Fund of Azerbaijan
||This article appears to be written like an advertisement. (October 2012)|
|Founded||December 29, 1999|
|Key people||Shahmar Movsumov (Executive Director)|
The State Oil Fund is a special purpose state organization in which Azerbaijan's revenues from implementation of oil and gas agreements are accumulated, efficiently managed and preserved for future generations.
- 1 History
- 2 Goals and objectives
- 3 Management
- 4 The sources of the formation of the revenues
- 5 Directions of the expenditures of SOFAZ
- 6 Major projects financed by the Oil Fund
- 7 SOFAZ and transparency
- 8 SOFAZ - Sovereign Wealth Fund
- 9 Logo
- 10 Corruption Allegations
- 11 Transparency Issues
- 12 References
- 13 Further reading
The State Oil Fund of the Republic of Azerbaijan (SOFAZ) was established by Decree № 240 of the President of the Republic of Azerbaijan dated 29 December 1999 "On Establishment of the State Oil Fund of the Republic of Azerbaijan". Statute of SOFAZ was approved by the Decree of the President of the Republic of Azerbaijan № 434 dated December 29, 2000. SOFAZ began operating after approval of the Decree on "Rules on management of foreign currency assets of the State Oil Fund of the Republic of Azerbaijan" by the President of the Republic of Azerbaijan dated June 19, 2001. Establishment of the Oil Fund is a main part of the oil strategy of Azerbaijani National Leader Heydar Aliyev.
The cornerstone of the philosophy behind the Oil Fund is to ensure intergenerational equality with regard to the country's oil wealth.
Goals and objectives
The Oil Fund is a special purpose state organization in which Azerbaijan’s revenues from implementation of oil and gas agreements are accumulated, efficiently managed and preserved for present and future generations. It was founded in order to efficiently manage the Azeri oil and gas income, as well as to invest them in development of social-economically important projects. The main objectives of the Oil Fund are the following:
- Preservation of macroeconomic stability, ensuring fiscal-tax discipline, decreasing the dependence on future oil revenues and stimulating the development of the non-oil sector
- Providing inter-generational equality, retaining oil revenues for future generations
- The funding of important socio-economic projects on a national scale
SOFAZ's activities are overseen by a Supervisory Board. The Board reviews the Fund’s reports on the draft annual budget prepared by the SOFAZ’s Executive Director, annual reports and financial statements along with independent auditor's opinion and provides its comments. Members of the Supervisory Board are appointed by the President of Azerbaijan and shall represent both state bodies and civil society.
In accordance with the Presidential Decree No. 73 dated November 27, 2008 7 members of the Supervisory Board were appointed.
SOFAZ is headed by the Executive Director, who is appointed and dismissed by the President of the Republic of Azerbaijan. The Fund's Executive Director represents the Fund, carries out operational management of the Fund's activities, appoints and dismisses employees of the Fund in a manner as determined by the legislation, ensures the management and investment of the Fund’s assets in accordance with the Guidelines approved by the President of the Republic of Azerbaijan.
Execution of SOFAZ’s budget is implemented on the basis of comments provided by the Supervisory Board in accordance with the SOFAZ budget approved by the proper Ordinances of the President of the Republic of Azerbaijan. SOFAZ assets are managed in accordance with Investment Guidelines approved by the Presidential Decree on "Rules on management of foreign currency assets of the State Oil Fund of the Republic of Azerbaijan" No.511 dated June 19, 2001.
The sources of the formation of the revenues
- Proceeds generated under production sharing agreements from sales of the Republic of Azerbaijan's share of hydrocarbons;
- Bonuses paid under the terms of production sharing agreements;
- Acreage fees paid by foreign investors for use of the contract areas in connection with the development of hydrocarbon resources;
- Dividends paid under the terms of production sharing agreements;
- Revenues generated from the transit of oil and gas over the territory of the Republic of Azerbaijan;
- Revenues generated from the transfer of assets from investors;
- Revenues from management of SOFAZ assets;
- Other incomes according to the legislation.
Directions of the expenditures of SOFAZ
In compliance with the Statute of SOFAZ, the Fund's assets may be used for solving major problems affecting the nation, and for construction and reconstruction of strategically important infrastructure to support socio-economic progress.
Transfers to the state budget also constitute a significant component of the Fund's outflow. A very small portion of the Fund's assets is utilized to cover operational costs. As per the Law "About Budget System" of the Republic of Azerbaijan, all SOFAZ expenditures, except operating expenditures, are incorporated as part of an annual consolidated government budget presented to the Parliament for approval. In compliance with this Law, SOFAZ can only execute expenditures envisaged by its budget. Execution of all expenditures except operating and management expenditures is being realized by the Central Treasury of the Ministry of Finance of the Republic of Azerbaijan.
To improve the effectiveness and efficiency of utilization of oil and gas revenues, “The Long-Term Strategy on the Management of Oil and Gas Revenues” was approved by the Decree of the President of the Republic of Azerbaijan Ilham Aliyev No.128 dated September 27, 2004.
Major projects financed by the Oil Fund
SOFAZ is funding major projects of national scale. They are:
- Azerbaijan's equity share in the Baku-Tbilisi-Ceyhan Baku-Tbilisi-Ceyhan (BTC) oil pipeline project; (completed)
- Building of housing and improvement of socio-economic conditions of refugees and internally displaced persons who were forced to flee their native lands as a result of Armenian-Azerbaijan conflict;
- Oguz-Qabala-Baku water supply system; (completed)
- Reconstruction of the Samur-Absheron irrigation system;
- Formation of the statutory capital of the State Investment Company (completed)
- Financing Baku-Tibilisi-Kars railway
- Financing “The state program on the education of Azerbaijan youth abroad in the years 2007-2015”
SOFAZ and transparency
The Oil Fund always pays attention to transparency in its activities. A key measure to promote transparency within the Oil Fund's reporting system and operation is a regular audit of the Fund's financial activities by a reputable firm of international auditors.
Information and press releases, and both quarterly and annual statements, in Azerbaijani and English, about the Fund's revenues and expenditures are regularly published in the local press and posted on the Oil Fund's official web-site (www.oilfund.az) to reflect developments in varying areas of the Fund's activities, and also to promote transparency in the utilization of revenues from oil.
In development of its media relations, press-conferences are held regularly to provide direct, accurate and professional briefings on Oil Fund activities.
SOFAZ is closely involved in the Extractive Industries Transparency Initiative (EITI). Azerbaijan joined EITI in 2003.
The Executive Director of the State Oil Fund is the Chairman of the National Committee on EITI. The EITI Implementation mechanism was established by the Government Commission on EITI and according to this mechanism Azerbaijan regularly discloses EITI reports. Azerbaijan is the first country disclosing EITI report (March, 2005).
Being one of the first countries to implement EITI, Azerbaijan was selected as an EITI Board member at the 3rd EITI conference held in October 2006 in Oslo, Norway. The multi-stakeholder Board was established to manage EITI at the international level and to oversee the future operation of EITI.
State Oil Fund won the 2007 UN Public Service Award for Improving Transparency, Accountability and Responsiveness in Public Service for EITI. The United Nations Public Service Award is the most prestigious international recognition of excellence in public service. Established in 2003 it rewards the creative achievements and contributions of public service institutions to more effective and responsive public administration in countries worldwide. The State Oil Fund is the first governmental agency that is awarded the UN Public Service Award among the governmental institutions of the Eastern Europe and CIS countries. 200 countries of the world joined the competition for 2007 award, but only 14 were the 2007 award winners.
The General Assembly of United Nations unanimously adopted the EITI Resolutions submitted by Azerbaijan to the UNGA on 11 September 2008.
Taking into account that Azerbaijan has instituted a regular process of disclosing, reconciling and publishing company payments and government receipts; Azerbaijan is the first country to complete validation, the EITI's quality assurance process which verifies compliance with EITI principles and criteria the EITI Board designated Azerbaijan as EITI Compliant country at the 4th EITI International Conference held on February 16–18, 2009 in Doha, Qatar. Thereby Azerbaijan became the first EITI Compliant country among other candidate countries. "EITI award 2009" for Azerbaijan’s commitment to EITI principles and criteria and its achievements in EITI Implementation was awarded to Azerbaijan.
SOFAZ - Sovereign Wealth Fund
Sovereign Wealth Fund(SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments that is formed from revenues from natural resources. The term sovereign wealth fund was first used in 2005.
The International Working Group of Sovereign Wealth Funds(IWG) announced the establishment of the International Forum of Sovereign Wealth Funds(IFSWF) at the meeting which was held on 5–6 April 2009 in Al-Kuwait city-capital of Kuwait.
The State Oil Fund cooperates with other Sovereign Wealth Funds (SWF) within the framework of International Forum of Sovereign Wealth Funds(IFSWF). IFSWF is a voluntary group of SWFs, which meets, exchanges views on issues of common interest, and facilitates an understanding of the Santiago Principles and SWF activities. The inaugural meeting of IFSWF was held in Baku, Azerbaijan on October 8–9, 2009 and it was hosted by the State Oil Fund and the Government of the Republic of Azerbaijan. According to the Principle 24 of SP, SOFAZ has prepared its first self-assessment report on the implementation of SP and intends to review it on an annual basis.
General appearance of logo describes a man holding something dear and valuable in his hands symbolizing Funds main activity to preserve Azerbaijan's wealth for future generations.
Hands of the figure are described as two buta giving to the logo inimitable national flavour.
Area between hands is described as the eye of the Omniscience directed to the future of the country and the nation in which SOFAZ plays important role.
Also, this eye is directed to the inside of the depicted figure. Sphere between the hands is described as the heart symbolizing Oil Fund's transparency.
In 2005, Nefte Compass reported: "Fresh from elections that have been judged as less than perfect, Azerbaijan is getting on with the business of raking in the oil money, bracing itself for a flood of "petrodollars" that at current prices could exceed $150 billion over the next 20 years. Concerns abound that the windfall will be squandered through corruption rather than pumped into alleviating poverty. . . the fund's chairman [is] Samir Sharifov . . ." 
In July 2004, APS Review Downstream Trends reported: "The transparency of the State Oil Fund of Azerbaijan (SOFA), which is headed by Samir Sharifov who is among key figures surrounding the new leader in Baku . . . Corruption remains widespread." 
- "Last Word: Oil Fund Chief Sets Out Strategy For Azerbaijan", Nefte Compass, 17 Nov 2005
- "AZERBAIJAN - Decision Making System Under Ilham Aliyev", APS Review Downstream Trends, 19 Jul 2004
- Küpeli, Ismail (2013). Aserbaidschan - ein autoritärer Rentierstaat? Politik und Ökonomie unter dem Aliyev-Regime. Göttingen: Optimus Verlag. ISBN 978-3-86376-042-7.