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The State Oil Fund of [[Azerbaijan|the Republic of Azerbaijan]] (SOFAZ), founded in December 1999 through a Presidential Decree, serves as a sovereign wealth fund that gathers and safeguards the country's oil and gas earnings to benefit future generations.<ref>https://www.researchgate.net/profile/Suleymanov-Elchin/publication/332179277_Economy_of_Azerbaijan_25_years_of_independence/links/5ca4ae0fa6fdcc12ee8fc61d/Economy-of-Azerbaijan-25-years-of-independence.pdf</ref> Operated independently as an extra-budgetary entity, SOFAZ is distinct from the government of [[Azerbaijan]] and Central Bank.<ref>https://www.ifswf.org/members/azerbaijan</ref>
The '''State Oil Fund of the Republic of Azerbaijan''' ({{lang-az|Azərbaycan Respublikasının Dövlət Neft Fondu}}), also known by its abbreviation '''SOFAZ''', is a [[sovereign wealth fund]] of Azerbaijan founded in December 1999.<ref>{{cite web |url=https://pressroom.ifc.org/all/pages/PressDetail.aspx?ID=21372 |title=IFC and Azerbaijan Support Private Sector Development in Emerging Markets |last= |first= |date= |website=pressroom.ifc.org |publisher= |access-date=October 28, 2021 |quote=}}</ref><ref>{{Cite web |last=Columbia Center on sustainable investment |title=Natural Resource Funds Azerbaijan State Oil Fund of the Republic of Azerbaijan |url=https://ccsi.columbia.edu/sites/default/files/content/docs/our%20work/NRF_Azerbaijan_September2013.pdf |website=}}</ref>


⚫
== History ==
Nearly all the fund's revenues come from Azerbaijan's [[oil]] and [[gas]] exports.<ref>{{Cite news |last=Curran |first=Enda |date=2013-02-13 |title=Azerbaijan to Buy Australian Real Estate |language=en-US |work=Wall Street Journal |url=http://online.wsj.com/article/SB10001424127887324162304578301463713013322.html |issn=0099-9660}}</ref><ref>{{Cite journal |last=Di Bonaventura Altuve |first=Leonardo |date=2023 |title=The demise of sovereign wealth funds |url=https://www.tandfonline.com/doi/full/10.1080/09692290.2023.2190601 |journal=Review of International Political Economy |volume=31 |pages=277–303 |language=en |doi=10.1080/09692290.2023.2190601 |s2cid=257817535 |issn=0969-2290}}</ref> The fund has been criticized for its lack of transparency and for enriching Azerbaijan's political elites.<ref name=":1">{{Cite book |last=Altstadt |first=Audrey L. |url=https://books.google.com/books?id=RgbRDgAAQBAJ |title=Frustrated Democracy in Post-Soviet Azerbaijan |date=2017 |publisher=Columbia University Press |isbn=978-0-231-80141-6 |pages=24, 114–120 |language=en}}</ref><ref name=":2">{{Cite book |last=Waal |first=Thomas de |url=https://books.google.com/books?id=8dp1DwAAQBAJ |title=The Caucasus: An Introduction |date=2018-11-02 |publisher=Oxford University Press |isbn=978-0-19-068311-5 |pages=185 |language=en}}</ref>
⚫
The State Oil Fund of the Republic of Azerbaijan (SOFAZ) was established by the decree of the late President [[Heydar Aliyev]] on December 29, 1999.<ref>{{cite web |url=https://www.investopedia.com/terms/s/state-oil-fund.asp |title=State Oil Fund (Azerbaijan) |last= |first= |date= |website=www.investopedia.com |publisher= |access-date=October 28, 2021 |quote=}}</ref><ref>{{cite web |url=http://www.e-qanun.az/framework/5261 |title=Azərbaycan Respublikasının Dövlət Neft Fondunun yaradılması haqqında AZƏRBAYCAN RESPUBLİKASI PREZİDENTİNİN FƏRMANI |last= |first= |date=December 29, 1999 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 |quote=}}</ref> The management guidelines of the fund were developed in cooperation with IMF. The SOFAZ is a fund set up to collect the revenues Azerbaijan will get from the fulfilment of the contracts signed between [[SOCAR]] and foreign oil companies on oil and natural gas search, their extraction and production sharing, as well as from the realisation of the agreements on searching oil and natural gas reserves in Azerbaijan, particularly in the Azerbaijani sector of the [[Caspian Sea]]. <ref>3. https://www.researchgate.net/profile/Elchin-Suleymanov/publication/332179277_Economy_of_Azerbaijan_25_years_of_independence/links/5ca4ae0fa6fdcc12ee8fc61d/Economy-of-Azerbaijan-25-years-of-independence.pdf</ref>
=== Mission ===
The main mission of SOFAZ is to transform hydrocarbon reserves into enduring financial assets that yield continuous revenue for both present and forthcoming generations.<ref>https://e-qanun.az/framework/148</ref>
=== Objectives ===
SOFAZ's endeavors are aimed at attaining the subsequent goals: <ref>https://www.ifswf.org/members/azerbaijan</ref>


* Supporting macroeconomic stability, participating in ensuring fiscal-tax discipline and decreasing dependence on oil revenues while stimulating development of the non-oil sector;
== History and organization ==
*
⚫
The State Oil Fund of the Republic of Azerbaijan (SOFAZ) was established by [[Heydar Aliyev]]'s Decree No. 240 dated December 29, 1999.<ref>{{cite web |url=https://www.investopedia.com/terms/s/state-oil-fund.asp |title=State Oil Fund (Azerbaijan) |last= |first= |date= |website=www.investopedia.com |publisher= |access-date=October 28, 2021 |quote=}}</ref><ref>{{cite web |url=http://www.e-qanun.az/framework/5261 |title=Azərbaycan Respublikasının Dövlət Neft Fondunun yaradılması haqqında AZƏRBAYCAN RESPUBLİKASI PREZİDENTİNİN FƏRMANI |last= |first= |date=December 29, 1999 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 |quote=}}</ref> Statue of the State Oil Fund was approved by the Decree of the President of the Republic of Azerbaijan No. 434 dated December 29, 2000.<ref>{{cite web |url=http://www.e-qanun.az/framework/148 |title=Azərbaycan Respublikasının Dövlət Neft Fondu haqqında Əsasnamənin təsdiq edilməsi barədə AZƏRBAYCAN RESPUBLİKASI PREZİDENTİNİN FƏRMANI |last= |first= |date=December 29, 2000 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 |quote=}}</ref>
* Funding major national scale projects to support socio-economic progress;
*
* Ensuring intergenerational equality with regard to the country's oil wealth, accumulating and preserving oil revenues for future generations.
*
== Management ==
SOFAZ's operations are overseen by the Supervisory Board, which comprises representatives from state authorities and public organizations. This board assumes comprehensive supervision, reviewing and assessing the draft annual budget, annual report, financial statements, and audit reports of SOFAZ. Approval for Supervisory Board members is granted by the President of Azerbaijan, and their involvement is voluntary.


SOFAZ's day-to-day activities are managed by the Executive Director appointed by the President of the Republic of Azerbaijan.
SOFAZ has been criticized for lacking transparency in its finances and in its contracting, which has raised questions about corruption.<ref name=":1" /> Critics have described projects funded by SOFAZ as useless,<ref name=":2" /> and noted that contracts have been awarded to companies owned by the ruling Aliyev family in Azerbaijan.<ref name=":1" /> Funds from SOFAZ are frequently transferred to make up for state deficits.<ref name=":1" />


The Executive Director represents the Fund, administers personnel appointments and terminations, oversees operational activities, and ensures the appropriate management and investment of SOFAZ's assets according to the Guidelines ratified by the President of Azerbaijan.
In the first quarter of 2024 SOFAZ announced US$ 1,796 billion in income just from the [[Azeri–Chirag–Gunashli|Azeri-Chirag-Gunashl]] oil field complex alone.<ref name=":4">{{Cite web |date=2024-05-07 |title=State Oil Fund's income soars to almost $1.8 billion from ACG this year |url=https://www.azernews.az/oil_and_gas/225671.html |access-date=2024-07-03 |website=Azernews.Az |language=en}}</ref> SOFAZ owns 25% of the shares amongst [[BP]], [[ExxonMobil]], [[Amoco]], [[Unocal]], [[Statoil]], [[McDermott International|McDermott]] and others.<ref name=":4" />


The execution of SOFAZ's budget adheres to the comments provided by the Supervisory Board, following the approval of the SOFAZ budget by presidential decrees. SOFAZ's asset management adheres to the "Rules on the Management of Foreign Currency Assets of the State Oil Fund of the Republic of Azerbaijan" and the Investment Policy.<ref>https://e-qanun.az/framework/5261</ref>
=== Executive Director ===
The operational management of the Fund's activities is carried out by the Executive Director, who is appointed and dismissed by the President.<ref name=":3">{{Cite book |last1=Gawrich |first1=Andrea |url=https://books.google.com/books?id=biZpDwAAQBAJ |title=Are Resources a Curse?: Rentierism and Energy Policy in Post-Soviet States |last2=Franke |first2=Anja |last3=Windwehr |first3=Jana |date=2010 |publisher=Verlag Barbara Budrich |isbn=978-3-86649-677-4 |pages=78 |language=en}}</ref> As of 2018, the executive director reports to the President.<ref name=":0">{{Citation |last=Altstadt |first=Audrey |title=Frustrated Democracy in Post-Soviet Azerbaijan |date=2018 |url=https://www.degruyter.com/document/doi/10.7312/alts70456/html |pages=114– |publisher=Columbia University Press |language=en |doi=10.7312/alts70456 |isbn=978-0-231-80141-6}}</ref> There have been three executive directors since 2001:
* [[Samir Sharifov]] (January 3, 2001<ref>{{cite web |url=http://www.e-qanun.az/framework/4537 |title=S. R. Şərifovun Azərbaycan Respublikası Dövlət Neft Fondunun İcraçı Direktoru təyin edilməsi haqqında Azərbaycan Respublikası Prezidentinin Sərəncamı |date=January 3, 2001 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 }}</ref> – April 18, 2006<ref>{{cite web |url=http://www.e-qanun.az/framework/11631 |title=S. R. Şərifovun Azərbaycan Respublikasının Dövlət Neft Fondunun İcraçı direktoru vəzifəsindən azad edilməsi haqqında Azərbaycan Respublikası Prezidentinin Sərəncamı |date=April 18, 2006 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 }}</ref>)
* Shahmar Movsumov (May 15, 2006<ref>{{cite web |url=http://www.e-qanun.az/framework/11718 |title=Ş.A.Mövsümovun Azərbaycan Respublikası Dövlət Neft Fondunun İcraçı Direktoru təyin edilməsi haqqında Azərbaycan Respublikası Prezidentinin Sərəncamı |date=May 15, 2006 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 }}</ref> – November 29, 2019<ref>{{cite web |url=http://www.e-qanun.az/framework/43723 |title=Ş.A.Mövsümovun Azərbaycan Respublikası Dövlət Neft Fondunun İcraçı direktoru vəzifəsindən azad edilməsi haqqında Azərbaycan Respublikası Prezidentinin Sərəncamı |date=November 29, 2019 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 }}</ref>)
* Israfil Mammadov (November 29, 2019<ref>{{cite web |url=http://www.e-qanun.az/framework/43722 |title=İ.A.Məmmədovun Azərbaycan Respublikası Dövlət Neft Fondunun İcraçı direktoru təyin edilməsi haqqında Azərbaycan Respublikası Prezidentinin Sərəncamı |date=November 29, 2019 |website=www.e-qanun.az |publisher= |access-date=October 28, 2021 }}</ref> – present)


== Revenues and expenditures ==
=== Supervisory Board ===
SOFAZ's revenue sources:
The President of Azerbaijan appoints the members of a Supervisory Board, who are de facto powerless.<ref name=":3" /> The board comprises 7 key officials including the [[Prime Minister of Azerbaijan|Prime Minister]], Deputy [[Speaker of the National Assembly of Azerbaijan|Speaker of the National Assembly]], Assistants to the [[President of Azerbaijan]] – Head of Economic Affairs and Innovative Development Policy, and Head of Economic Policy and Industrial Affairs departments of the [[Presidential Administration of Azerbaijan|Presidential Administration]], [[Ministry of Economy (Azerbaijan)|Minister of Finance]], [[Ministry of Economy (Azerbaijan)|Minister of Economy]], and the Chairman of the [[Central Bank of Azerbaijan]].<ref>{{cite web |date=December 9, 2019 |title=Azərbaycan Respublikası Dövlət Neft Fondu Müşahidə Şurasının yeni tərkibinin təsdiq edilməsi haqqında Azərbaycan Respublikası Prezidentinin Sərəncamı |url=https://e-qanun.az/framework/39260 |access-date=August 23, 2023 |website=www.e-qanun.az |publisher=}}</ref>


* Proceeds generated from the sale of the Republic of Azerbaijan's share of hydrocarbons under production sharing agreements (PSAs).
⚫
== Others ==
* Bonuses paid according to PSA terms.
In June 2024, SOFAZ announced a plan to invest US$100 million in Dubai-based [[GEMS Education]].<ref>{{Cite web |date=2024-06-18 |title=Azerbaijan’s State Oil Fund to invest $100M in one of world’s largest private education providers |url=https://report.az/en/finance/azerbaijan-s-state-oil-fund-investing-in-one-of-world-s-largest-private-education-providers/ |access-date=2024-07-03 |website=Report News Agency |language=en}}</ref><ref>{{Cite web |date=2024-06-18 |title=SOFAZ invests in one of largest private companies providing educational services in world |url=https://www.azernews.az/business/227549.html |access-date=2024-07-03 |website=Azernews.Az |language=en}}</ref>
*
* Acreage fees paid by foreign investors for utilizing contract areas in hydrocarbon resource development.
* Dividends paid under the terms of PSAs.
* Revenues accrued from oil and gas transit across the territory of the Republic of Azerbaijan.
* Revenues stemming from asset transfers by investors.
* Revenues from the management of SOFAZ's assets.
* Grants.
* Other revenues permitted by the legislation.


In line with SOFAZ regulations, the Fund's assets are channeled towards resolving major national issues and constructing or reconstructing vital infrastructure to support socio-economic progress.

Transfers to the state budget constitute a significant component of the Fund's outflows, while a minimal portion of the assets is utilized towards covering operational expenses.<ref>https://e-qanun.az/framework/148</ref>

As mandated by the Law "About Budget System" of the Republic of Azerbaijan, all SOFAZ expenditures, except operational costs, are included within the annual consolidated government budget, which is presented to the Parliament for approval. SOFAZ is authorized to carry out expenditures outlined in its budget, complying with this legal framework.
== Assets ==
As of March 2023, the total value of SOFAZ's assets surpassed $53.4 billion, positioning it among the most substantial sovereign wealth funds globally. The fund retains its crucial significance in furthering Azerbaijan's economic and societal progress, and its influence is projected to persist as a principal catalyst for the nation's enduring advancement and prosperity in the foreseeable future.<ref>8. https://www.oilfund.az/report-and-statistics/get-download-file/6_2023_1_en.pdf</ref>
== Transparency and accountability ==
The State Oil Fund of Azerbaijan (SOFAZ) adheres to fundamental principles of transparency and accountability in its operational framework. Operating as a sovereign wealth fund, SOFAZ is deeply committed to conducting its undertakings in a manner characterized by openness, transparency, and a sense of responsibility.

In order to realize this commitment, SOFAZ regularly releases comprehensive reports detailing its operational activities and financial performance. These reports are made readily accessible to the general public via its official website. These reports encompass detailed information on the Fund's investment portfolio, asset allocation, and investment performance, as well as information on its spending activities and social projects.

In addition, SOFAZ is subject to rigorous external audits conducted by globally recognized auditing entities. SOFAZ’s financial performance in 2022 was audited by PricewaterhouseCoopers.

SOFAZ's public communication strategies are intricately aligned with its Information Policy. This policy framework has been meticulously developed in accordance with the "On Access to Information" Law of the Republic of Azerbaijan. The objective is to facilitate efficient management of information exchange between SOFAZ and its stakeholders and the broader public. It also serves to safeguard and cultivate the organization's reputation as a transparent state entity. The Information Policy delineates the guiding principles, objectives, and goals pertaining to the dissemination of operational and activity-related information by SOFAZ to its stakeholders and the public, in alignment with the overarching objectives of the Fund.

A testament to its unwavering dedication, SOFAZ achieved an impressive overall score of 92, securing the 5th position among 64 sovereign wealth funds (SWFs) in the 2019 Sovereign Wealth Fund Transparency and Accountability Scoreboard published by the Peterson Institute for International Economics. This scorecard evaluates a comprehensive spectrum of facets, encompassing Asset Management, Governance, Resilience, Transparency and Accountability, as well as the implementation of Santiago Principles. In each category and subcategory of this assessment for 2019, SOFAZ consistently garnered nearly the highest marks.

The Peterson Institute for International Economics has also developed an assessment tool known as the Generally Accepted Principles and Practices (GAPP), to assess the implementation of Santiago Principles and in this evaluation, SOFAZ achieved the 5th rank as well. This assessment is grounded on 16 out of the 24 Santiago Principles, closely aligning with the constituents of the SWF scoreboard.<ref>9. https://www.piie.com/sites/default/files/documents/pb21-3.pdf</ref>
== Awards ==
== Awards ==
* [[United Nations Public Service Awards]] (2007)<ref>{{cite web |last= |first= |date= |title=List of Winners and Finalists for the 2007 UN Public Service Awards |url=http://unpan1.un.org/intradoc/groups/public/documents/un/unpan026198.pdf |archive-url=https://web.archive.org/web/20160305130820/http://unpan1.un.org/intradoc/groups/public/documents/un/unpan026198.pdf |archive-date=March 5, 2016 |access-date= |website=unpan1.un.org |publisher= |quote=}}</ref>
* [[United Nations Public Service Awards]] (2007)<ref>{{cite web |last= |first= |date= |title=List of Winners and Finalists for the 2007 UN Public Service Awards |url=http://unpan1.un.org/intradoc/groups/public/documents/un/unpan026198.pdf |archive-url=https://web.archive.org/web/20160305130820/http://unpan1.un.org/intradoc/groups/public/documents/un/unpan026198.pdf |archive-date=March 5, 2016 |access-date= |website=unpan1.un.org |publisher= |quote=}}</ref>
In the year 2007, SOFAZ was honored with the United Nations Public Service Award (UNPSA) for “Improving Transparency, Accountability, and Responsiveness in the Public Service”. This esteemed accolade was bestowed upon SOFAZ during the United Nations Public Service Awards Ceremony, which transpired within the framework of the 7th Global Forum on Reinventing Government, held on 26-29th of June in 2007. It is noteworthy that SOFAZ stands as the pioneering governmental entity among its counterparts in Eastern Europe and the CIS region to be bestowed with the prestigious UNPSA.
The UNPSA is the most prestigious international recognition of excellence in public service. This distinction, instituted by the United Nations in 2003, serves as an emblem of recognition for the innovative accomplishments and contributions of public service institutions that foster a more efficacious and responsive public administration across diverse nations.

* [[Extractive Industries Transparency Initiative|EITI Award]] (2009)<ref>{{cite web |last= |first= |date=February 24, 2009 |title=EITI Chairman's Awards presented in Doha |url=https://eiti.org/es/node/3912 |url-status=dead |archive-url=https://web.archive.org/web/20211030030114/https://eiti.org/es/node/3912 |archive-date=October 30, 2021 |access-date=October 28, 2021 |website=eiti.org |publisher=[[EITI]]}}</ref>
* [[Extractive Industries Transparency Initiative|EITI Award]] (2009)<ref>{{cite web |last= |first= |date=February 24, 2009 |title=EITI Chairman's Awards presented in Doha |url=https://eiti.org/es/node/3912 |url-status=dead |archive-url=https://web.archive.org/web/20211030030114/https://eiti.org/es/node/3912 |archive-date=October 30, 2021 |access-date=October 28, 2021 |website=eiti.org |publisher=[[EITI]]}}</ref>
Azerbaijan joined the Extractive Industries Transparency Initiative (EITI) in 2003 and stands out as a pioneer in this domain, having accomplished several notable milestones. Azerbaijan has established a systematic procedure for disclosing, reconciling, and publishing both corporate payments and governmental revenues. Remarkably, Azerbaijan secured the distinction of being the inaugural country to successfully conclude the Validation process. This recognition was conferred upon Azerbaijan by the EITI Board during the 4th EITI International Conference held from February 16 to 18, 2009, in Doha, Qatar. Consequently, Azerbaijan emerged as the foremost EITI Compliant Country amongst its peer candidate nations. Acknowledging its steadfast adherence to EITI principles and criteria, as well as its commendable progress in EITI Implementation, Azerbaijan was honored with the prestigious "EITI Award 2009."
=== Social Projects ===
On November 16, 2019, the president signed an order approving the State Program on Improving International Competitiveness of the Higher Education System in the Republic of Azerbaijan for 2019 – 2023. The aim of the program is to educate a new generation of highly qualified specialists in the field of education management, development and leadership and to modernize quality indicators in the education system with international double diploma programs. The program is funded by the State Oil Fund (SOFAZ) and assistance from international as well as local organizations and individuals, with an allocation of AZN 10 million from the SOFAZ’s 2020 budget. <ref>https://bti-project.org/en/reports/country-report/AZE</ref>


== References ==
== References ==
Line 102: Line 142:


[[Category:Government agencies of Azerbaijan]]
[[Category:Government agencies of Azerbaijan]]
[[Category:Government agencies established in 1999]]
[[Category:Economy of Azerbaijan]]
[[Category:Economy of Azerbaijan]]
[[Category:Sovereign wealth funds]]
[[Category:Sovereign wealth funds]]

Revision as of 11:44, 2 October 2024

The State Oil Fund of the Republic of Azerbaijan
Azərbaycan Respublikasının Dövlət Neft Fondu
AbbreviationSOFAZ
EstablishedDecember 29, 1999; 24 years ago (1999-12-29)
Founded atBaku, Azerbaijan
TypeSWF
Executive Director
Israfil Mammadov
Award(s)United Nations Public Service Awards
EITI Award
Websitewww.oilfund.az

The State Oil Fund of the Republic of Azerbaijan (SOFAZ), founded in December 1999 through a Presidential Decree, serves as a sovereign wealth fund that gathers and safeguards the country's oil and gas earnings to benefit future generations.[1] Operated independently as an extra-budgetary entity, SOFAZ is distinct from the government of Azerbaijan and Central Bank.[2]

History

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) was established by the decree of the late President Heydar Aliyev on December 29, 1999.[3][4] The management guidelines of the fund were developed in cooperation with IMF. The SOFAZ is a fund set up to collect the revenues Azerbaijan will get from the fulfilment of the contracts signed between SOCAR and foreign oil companies on oil and natural gas search, their extraction and production sharing, as well as from the realisation of the agreements on searching oil and natural gas reserves in Azerbaijan, particularly in the Azerbaijani sector of the Caspian Sea. [5]

Mission

The main mission of SOFAZ is to transform hydrocarbon reserves into enduring financial assets that yield continuous revenue for both present and forthcoming generations.[6]

Objectives

SOFAZ's endeavors are aimed at attaining the subsequent goals: [7]

  • Supporting macroeconomic stability, participating in ensuring fiscal-tax discipline and decreasing dependence on oil revenues while stimulating development of the non-oil sector;
  • Funding major national scale projects to support socio-economic progress;
  • Ensuring intergenerational equality with regard to the country's oil wealth, accumulating and preserving oil revenues for future generations.

Management

SOFAZ's operations are overseen by the Supervisory Board, which comprises representatives from state authorities and public organizations. This board assumes comprehensive supervision, reviewing and assessing the draft annual budget, annual report, financial statements, and audit reports of SOFAZ. Approval for Supervisory Board members is granted by the President of Azerbaijan, and their involvement is voluntary.

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, administers personnel appointments and terminations, oversees operational activities, and ensures the appropriate management and investment of SOFAZ's assets according to the Guidelines ratified by the President of Azerbaijan.

The execution of SOFAZ's budget adheres to the comments provided by the Supervisory Board, following the approval of the SOFAZ budget by presidential decrees. SOFAZ's asset management adheres to the "Rules on the Management of Foreign Currency Assets of the State Oil Fund of the Republic of Azerbaijan" and the Investment Policy.[8]

Revenues and expenditures

SOFAZ's revenue sources:

  • Proceeds generated from the sale of the Republic of Azerbaijan's share of hydrocarbons under production sharing agreements (PSAs).
  • Bonuses paid according to PSA terms.
  • Acreage fees paid by foreign investors for utilizing contract areas in hydrocarbon resource development.
  • Dividends paid under the terms of PSAs.
  • Revenues accrued from oil and gas transit across the territory of the Republic of Azerbaijan.
  • Revenues stemming from asset transfers by investors.
  • Revenues from the management of SOFAZ's assets.
  • Grants.
  • Other revenues permitted by the legislation.

In line with SOFAZ regulations, the Fund's assets are channeled towards resolving major national issues and constructing or reconstructing vital infrastructure to support socio-economic progress.

Transfers to the state budget constitute a significant component of the Fund's outflows, while a minimal portion of the assets is utilized towards covering operational expenses.[9]

As mandated by the Law "About Budget System" of the Republic of Azerbaijan, all SOFAZ expenditures, except operational costs, are included within the annual consolidated government budget, which is presented to the Parliament for approval. SOFAZ is authorized to carry out expenditures outlined in its budget, complying with this legal framework.

Assets

As of March 2023, the total value of SOFAZ's assets surpassed $53.4 billion, positioning it among the most substantial sovereign wealth funds globally. The fund retains its crucial significance in furthering Azerbaijan's economic and societal progress, and its influence is projected to persist as a principal catalyst for the nation's enduring advancement and prosperity in the foreseeable future.[10]

Transparency and accountability

The State Oil Fund of Azerbaijan (SOFAZ) adheres to fundamental principles of transparency and accountability in its operational framework. Operating as a sovereign wealth fund, SOFAZ is deeply committed to conducting its undertakings in a manner characterized by openness, transparency, and a sense of responsibility.

In order to realize this commitment, SOFAZ regularly releases comprehensive reports detailing its operational activities and financial performance. These reports are made readily accessible to the general public via its official website. These reports encompass detailed information on the Fund's investment portfolio, asset allocation, and investment performance, as well as information on its spending activities and social projects.

In addition, SOFAZ is subject to rigorous external audits conducted by globally recognized auditing entities. SOFAZ’s financial performance in 2022 was audited by PricewaterhouseCoopers.

SOFAZ's public communication strategies are intricately aligned with its Information Policy. This policy framework has been meticulously developed in accordance with the "On Access to Information" Law of the Republic of Azerbaijan. The objective is to facilitate efficient management of information exchange between SOFAZ and its stakeholders and the broader public. It also serves to safeguard and cultivate the organization's reputation as a transparent state entity. The Information Policy delineates the guiding principles, objectives, and goals pertaining to the dissemination of operational and activity-related information by SOFAZ to its stakeholders and the public, in alignment with the overarching objectives of the Fund.

A testament to its unwavering dedication, SOFAZ achieved an impressive overall score of 92, securing the 5th position among 64 sovereign wealth funds (SWFs) in the 2019 Sovereign Wealth Fund Transparency and Accountability Scoreboard published by the Peterson Institute for International Economics. This scorecard evaluates a comprehensive spectrum of facets, encompassing Asset Management, Governance, Resilience, Transparency and Accountability, as well as the implementation of Santiago Principles. In each category and subcategory of this assessment for 2019, SOFAZ consistently garnered nearly the highest marks.

The Peterson Institute for International Economics has also developed an assessment tool known as the Generally Accepted Principles and Practices (GAPP), to assess the implementation of Santiago Principles and in this evaluation, SOFAZ achieved the 5th rank as well. This assessment is grounded on 16 out of the 24 Santiago Principles, closely aligning with the constituents of the SWF scoreboard.[11]

Awards

In the year 2007, SOFAZ was honored with the United Nations Public Service Award (UNPSA) for “Improving Transparency, Accountability, and Responsiveness in the Public Service”. This esteemed accolade was bestowed upon SOFAZ during the United Nations Public Service Awards Ceremony, which transpired within the framework of the 7th Global Forum on Reinventing Government, held on 26-29th of June in 2007. It is noteworthy that SOFAZ stands as the pioneering governmental entity among its counterparts in Eastern Europe and the CIS region to be bestowed with the prestigious UNPSA. The UNPSA is the most prestigious international recognition of excellence in public service. This distinction, instituted by the United Nations in 2003, serves as an emblem of recognition for the innovative accomplishments and contributions of public service institutions that foster a more efficacious and responsive public administration across diverse nations.

Azerbaijan joined the Extractive Industries Transparency Initiative (EITI) in 2003 and stands out as a pioneer in this domain, having accomplished several notable milestones. Azerbaijan has established a systematic procedure for disclosing, reconciling, and publishing both corporate payments and governmental revenues. Remarkably, Azerbaijan secured the distinction of being the inaugural country to successfully conclude the Validation process. This recognition was conferred upon Azerbaijan by the EITI Board during the 4th EITI International Conference held from February 16 to 18, 2009, in Doha, Qatar. Consequently, Azerbaijan emerged as the foremost EITI Compliant Country amongst its peer candidate nations. Acknowledging its steadfast adherence to EITI principles and criteria, as well as its commendable progress in EITI Implementation, Azerbaijan was honored with the prestigious "EITI Award 2009."

Social Projects

On November 16, 2019, the president signed an order approving the State Program on Improving International Competitiveness of the Higher Education System in the Republic of Azerbaijan for 2019 – 2023. The aim of the program is to educate a new generation of highly qualified specialists in the field of education management, development and leadership and to modernize quality indicators in the education system with international double diploma programs. The program is funded by the State Oil Fund (SOFAZ) and assistance from international as well as local organizations and individuals, with an allocation of AZN 10 million from the SOFAZ’s 2020 budget. [14]

References

  1. ^ https://www.researchgate.net/profile/Suleymanov-Elchin/publication/332179277_Economy_of_Azerbaijan_25_years_of_independence/links/5ca4ae0fa6fdcc12ee8fc61d/Economy-of-Azerbaijan-25-years-of-independence.pdf
  2. ^ https://www.ifswf.org/members/azerbaijan
  3. ^ "State Oil Fund (Azerbaijan)". www.investopedia.com. Retrieved October 28, 2021.
  4. ^ "Azərbaycan Respublikasının Dövlət Neft Fondunun yaradılması haqqında AZƏRBAYCAN RESPUBLİKASI PREZİDENTİNİN FƏRMANI". www.e-qanun.az. December 29, 1999. Retrieved October 28, 2021.
  5. ^ 3. https://www.researchgate.net/profile/Elchin-Suleymanov/publication/332179277_Economy_of_Azerbaijan_25_years_of_independence/links/5ca4ae0fa6fdcc12ee8fc61d/Economy-of-Azerbaijan-25-years-of-independence.pdf
  6. ^ https://e-qanun.az/framework/148
  7. ^ https://www.ifswf.org/members/azerbaijan
  8. ^ https://e-qanun.az/framework/5261
  9. ^ https://e-qanun.az/framework/148
  10. ^ 8. https://www.oilfund.az/report-and-statistics/get-download-file/6_2023_1_en.pdf
  11. ^ 9. https://www.piie.com/sites/default/files/documents/pb21-3.pdf
  12. ^ "List of Winners and Finalists for the 2007 UN Public Service Awards" (PDF). unpan1.un.org. Archived from the original (PDF) on March 5, 2016.
  13. ^ "EITI Chairman's Awards presented in Doha". eiti.org. EITI. February 24, 2009. Archived from the original on October 30, 2021. Retrieved October 28, 2021.
  14. ^ https://bti-project.org/en/reports/country-report/AZE

Source

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