Oil revenues spending and
management : how to secure
risks
Vugar Bayramov, phd.,
CESD, EITI Coalition,
www.cesd.az
Introduction
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Allocation direction of State Oil Fund
How partner banks are determined ?
Risks and effective use of oil money
State Oil Fund of Azerbaijan- SOFAZ
According to SOFAZ the actives of this
institution achieved 3,335 billion USD (April,
2008), which was 2,017 billion in August,
2007.
Investment portfolio division of SOFAZ
actives
Directions
Million USD
Share in %
securities
2,495
75,49
detailed
Debt issues
463,46
14,02
Loans of agencies and IFIs
908,18
27,47
Loans of banks and financial
institutions
909,62
27,52
Cooperative loans
207,60
6,28
Hypothec loans
3,65
0,11
Shares
2,81
0,09
Deposits and debt market tools
386,55
11,69
Bank accounts
423,94
12,82
Total investment portfolio
3,305.81
100
Source: SOFAZ, 2008
Geographic division of SOFAZ
investment portfolio
Regions
Million USD
Share in %
Europe
1,473.49
44,57
America
1,631
49,37
Asia
138,09
4,18
other
62,25
1,88
Source: SOFAZ, 2008
Actives of SOFAZ managed by foreign
managers
Adı
Milyon Dollar
Clariden Leu
49,96
20,45
DeAM
84.17
34.45
World Bank
110.18
45,10
Total
244,31
100
Source: SOFAZ, 2008
Investment portfolio division by
periods
Period
Million USD
Share, in %
0-1 years
1,177.25
35,61
1-3 years
1,387.11
41,96
3-5 years
659,84
19,96
5-7 years
56,10
1,70
More than 7 years
22,70
0,69
shares
2,81
0,08
Source: SOFAZ, 2008
Division of actives by foreign
currencies, August, 2007
Dollar
Avro
Funt Sterlinq
Başqa
Source: SOFAZ, 2008
Division of actives by foreign
currencies, April, 2008
Dollar
Avro
Funt Sterlinq
Manat
Source: SOFAZ, 2008
Note: though US dollar has been losing its position in world market, SOFAZ
increased its share up to 63% from 55% in August, 2007
Financed projects
1. Azerbaijani part of BTC - 297,9 mln. AZN (1USD = 0,82AZN)
2. Improving living conditions of refuges– 378,0 mln. AZN
3. Oguz-Qabala-Baku water pipeline – 215,7 mln. AZN
4. Reconstruction of Samur-Absheron water channel –
113,9 mln. AZN
5. Tranfers to state budget – 1550 mln. AZN
6. Invetsments to State Investment Company foundation capital
- 90 mln. AZN
7. “Bakı – Tbilisi – Qars railway project – 20,7 mln. AZN
8. adjusting share of SOFAZ in ACG project -87,6 mln AZN
Partner financial institutions
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Barclays Bank Plc (UK)
BNP Paribas (France)
Deutsche Bank (Germany)
Dresdner Bank (Germany)
JP Morgan Bank (US)
HSBC (UK)
Royal Bank of Skotland (UK)
UBS AG (UK)
Hypovereinsbank AG (Germany)
Income sources of SOFAZ, 2008
N
Income sources
Income amounts
(thousands
AZN)
1.
Net incomes from selling of carbohydrates of Azerbaijan
3 473 109,6
2.
Azerbaijan part of dividends from oil-gas projects (BTC)
13 423,2
3.
Incomes from managing actives of SOFAZ
4.
Other incomes
121 928,2
900,0
Total
3 609 361,0
Source: SOFAZ, 2008
Expense direction of SOFAZ, 2008
№
Expense direction
1.
2.
Improving living conditions of refuges
Tranfers to state budget
Expense amount
(thousands
AZN)
145 000,0
1 100 000,0
3.
Oğuz-Qəbələ zonasından Bakı şəhərinə su kəmərinin çəkilməsi layihəsinin
maliyyələşdirilməsi
211 820,0
4.
Oguz-Qabala-Baku water pipeline
120 600,0
5.
“Bakı – Tbilisi – Qars railway project
88 682,0
6.
State program on youth educating in foreign countries, 2007-2015
5 000,0
7.
Management expensesDövlət Neft Fondunun idarə edilməsi ilə bağlı xərclər
9 751,6
Total
1 680 853,6
Source: SOFAZ, 2008
SOFAZ strategy
Azerbaijan president Ilham Aliyev adopted strategy for
“long-term and effective use of oil-gas revenues” in
September 27, 2004. This strategy covered very
general issues, such as development of non oil-gas
sector, SME business, infrastructure projects,
poverty reduction, development of human capital,
improving defense potential, etc. It’s very difficult to
define concrete directions as of this strategy. Thus
it’s very much important to define concrete indicators
for spendings of the Fund.
SOFAZ Society Generale Operation
SOFAZ invested deposit in 25 million euros to
Society Generale (France) and withdrew the
amount after 2 weeks
???
Net income of Society Generale
Financial report of Society Generale, Paris 2008
Lessons to be learned from Society
Generale case
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Fund has increased doubts in transparent
usage of oil money by large depositing for 2
weeks
The fact that our SOFAZ has been working
with suspicious bank with not good
background increases concerns regarding
effective usage of oil revenues
Great uncertainty that Fund was choosing its
partner banks after serious evaluations.
Risks
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Though SOFAZ declares working by Norway
model, its working principles is quite different.
Estimation mechanism of SOFAZ for bank
selection is not proper.
Stabilization is Fund’s main policy, rather than
sterilization
Transparency of spending of oil money is still a
great problem in Azerbaijan.
Risks
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The mission and goals of SOFAZ should be clearly defined.
According to decree on establishment of the Fund its actives
can be used for “solving main national problems and socioeconomic development”. The Fund’s mission and goals
should be more specific and areas for Fund’s investment
should be shown clearly.
Fund should have medium and long term expense strategy.
It’s very important to hold public discussions during
implementation of this strategy, but no real steps were made
for realization of this. There also should be guidelines for
legal use of Fund’s actives, as recommended by IMF.