State Oil Fund of Azerbaijan

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The State Oil Fund of the Republic of Azerbaijan
FoundedDecember 29, 1999
HeadquartersBaku, Azerbaijan
Websitewww.oilfund.az

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is Azerbaijan's sovereign wealth fund. It was established in 1999 and began operating in 2001.[1]

SOFAZ lacks transparency in its finances and in its contracting, which has raised questions about corruption.[2][1] Critics have described projects funded by SOFAZ as useless, and noted that contracts have been awarded to companies owned by the ruling Aliyev family in Azerbaijan.[2]

History[]

SOFAZ was established in accordance with the Decree of National Leader Heydar Aliyev No. 240 on December 29, 1999. Statute of SOFAZ was approved by the Decree of the President of the Republic of Azerbaijan No. 434 dated December 29, 2000. SOFAZ began operating after the 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. The establishment of SOFAZ plays a key role in the oil strategy founded by Azerbaijan's National Leader Heydar Aliyev.

Goals and objectives[]

The main goal of SOFAZ is to accumulate and prudently manage oil and gas revenues for present and future generations of Azerbaijan.

SOFAZ's activity is directed to the achievement of the following objectives:

1.Supporting macroeconomic stability, participating in ensuring fiscal-tax discipline and decreasing dependence on oil revenues while stimulating development of the non-oil sector;

2.Funding major national scale projects to support socio-economic progress;

3.Ensuring intergenerational equality with regard to the country's oil wealth, accumulating and preserving oil revenues for future generations.

Management[]

The Supervisory Board, consisting of representatives of the state authorities and public organizations, carries out general oversight of SOFAZ's operations. The Board reviews and evaluates SOFAZ's draft annual budget, annual report and financial statements, along with audit report. Members of the Supervisory Board are approved by the President of the Republic of Azerbaijan. The board members act entirely on a voluntary basis.

SOFAZ's day-to-day activities are managed by the Executive Director appointed by the President of the Republic of Azerbaijan.

The Executive Director represents the Fund, appoints and dismisses employees of SOFAZ in a manner determined by the legislation, carries out operational management of SOFAZ's activities, ensures the management and investment of SOFAZ'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 the "Rules on management of foreign currency assets of the State Oil Fund of the Republic of Azerbaijan" and Investment Policy.

SOFAZ’s revenues[]

The sources of income for SOFAZ are:

  1. Proceeds generated under production sharing agreements from sales of the Republic of Azerbaijan's share of hydrocarbons;
  2. Bonuses paid under the terms of production sharing agreements;
  3. Acreage fees paid by foreign investors for use of the contract areas in connection with the development of hydrocarbon resources;
  4. Dividends paid under the terms of production sharing agreements;
  5. Revenues generated from the transit of oil and gas over the territory of the Republic of Azerbaijan;
  6. Revenues generated from the transfer of assets from investors;
  7. Revenues from management of SOFAZ assets;
  8. Grants;
  9. Other incomes according to the legislation.

SOFAZ’s expenditures[]

In compliance with regulations relating to 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.

Assets[]

The assets of SOFAZ as of April 1, 2021 constituted US$42 761.3 mln.

SOFAZ's budget revenues for the period of January–March, 2021 reached AZN 3 182.1 million, while budget expenditures constituted AZN 2 519.9 million.

SOFAZ - Sovereign Wealth Fund[]

SOFAZ cooperates with other SWF's 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 on October 8–9, 2009 and it was hosted by SOFAZ and the Government of the Republic of Azerbaijan.

References[]

  1. ^ Jump up to: a b "Fiscal sustainability and the State Oil Fund in Azerbaijan". Journal of Eurasian Studies. 6 (2): 114–121. 2015. doi:10.1016/j.euras.2015.03.004. ISSN 1879-3665.
  2. ^ Jump up to: a b Altstadt, Audrey L. (2017). Frustrated Democracy in Post-Soviet Azerbaijan. Columbia University Press. ISBN 978-0-231-80141-6.

https://www.oilfund.az/en https://www.ifswf.org/

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