Details added (first version posted at 16:45 on Nov.29).
BAKU, Azerbaijan, Nov. 29
Trend:
President of the Republic of Azerbaijan Ilham Aliyev has received Israfil Mammadov in connection with his appointment to a new post - the Executive Director of the State Oil Fund.
Speaking at the meeting, President Ilham Aliyev said: The Executive Director of the State Oil Fund of Azerbaijan has been appointed Aide to the President. You have been working as Deputy Director for more than 10 years and have gained experience. I decided to appoint you to the position of Executive Director. This is a great deal of trust. I am sure that you will justify this trust.
The State Oil Fund is our strategic asset. This year we will celebrate the 20th anniversary of its establishment. It is significant that the State Oil Fund of Azerbaijan was set up two years after first oil was produced from the Chirag platform in 1999. The establishment of the Fund is a historic decision of great leader Heydar Aliyev. Today, this decision shows how accurate and timely that step was. I must also say that the proposal to establish the Oil Fund was submitted to the great leader by me.
At that time, there were different opinions in the government, and some members of the government opposed the idea. Their suggestion was that all oil revenues should go into the state budget and be spent annually. If that approach had been chosen, there would be no money in our State Oil Fund today. I opposed the idea, tried to prove that in order to store the funds in a transparent manner, channel them into strategic areas of our country and save them for future generations, there must be a State Oil Fund, and this was achieved. On my initiative, a delegation of representatives of state agencies of Azerbaijan was sent to various countries to become acquainted with the operation of similar funds. After that, we settled for the most transparent and operational model in the world and adopted it. The experience of the past 20 years suggests that this was the only right decision. I can say that this was a historic decision because the funds of the State Oil Fund, the oil and then gas revenues that accumulated there have to a large extent determined the overall development of our country.
We managed to implement important social projects facing our country. It is through the State Oil Fund that the living conditions of internally displaced persons have been improved. Billions of dollars have been spent on this. Every year using the transfers from the State Oil Fund into the state budget, we can implement social projects, which creates opportunities for increasing salaries, pensions and benefits. At the same time, the Oil Fund finances sectors that are considered strategic for our country. The initiative related to the education of Azerbaijani youth in leading universities of the world is also supported by the Fund. The Baku-Tbilisi-Kars railway, the Southern Gas Corridor, other important strategic projects, the construction of drilling rigs – all this was funded by the State Oil Fund.
In a nutshell, I can say that the State Oil Fund of Azerbaijan today is a body of exceptional importance for the development of our country. At the same time, the international authority of our Fund is very positive. It is no coincidence that the Fund was awarded the UN prize a few years ago. I should also note that on my initiative, Azerbaijan has joined the initiative put forward by the British prime minister at that time. It is called the Extractive Industries Transparency Initiative. Azerbaijan was one of the first countries to join this initiative and meet all its criteria.
For many years, we carried out activities within the framework of this organization. But when we saw that it was losing its significance, that there was a process of politicization there, and that there was a prejudiced and biased approach against Azerbaijan, we raised the issue that if this did not end, Azerbaijan would withdraw from this organization. When I said this at the time, the organization’s leadership didn’t believe it, to be honest. I remember having a meeting with senior executives of the organization at that time and openly saying that my words go in line with my deeds. If I say that we will leave after some time, then we will. We made this decision. It wasn’t an easy decision because as one of the first countries to join this initiative, we played an important role in the emergence of this organization. But life showed that it was the right step.
Some time later, the US dropped out of this initiative too. Thus, the organization called the Extractive Industries Transparency Initiative has completely lost its credibility and is not mentioned anywhere today. Our membership in the organization did not have a particularly major impact on our intentions because transparency is our conscious choice, and the State Oil Fund is one of the most transparent and most efficient sovereign funds in the world today. I am well aware that some of such funds have recently suffered heavy losses, as they had been pursuing risky policies and seeking to earn even more.
Our approach, and I always said this, should be conservative. Our main task is to save funds and invest them in risk-free instruments. Now we already have a diversified currency basket, and the volatility of exchange rates does not affect our funds. We have made large investments in gold, made large investments in real estate. The Fund’s resources are also diverse in terms of geography. So we have protected ourselves from all possible risks. The main thing is that over the 20 years we have not lost funds and have been increasing the Fund’s resources every year. Even in the crisis years, when we were faced with devaluation, the Fund’s savings did not decrease. I did not allow that to happen. We reduced costs, resorted to major saving measures, maintained our strategic foreign exchange reserves and increased them. I can say that this happens very rarely, because at a time when oil prices fell sharply, fourfold, all sovereign funds lost a lot of money. They lost billions, tens of billions of dollars, but we did not lose anything because we are pursuing a very thoughtful policy.
I am very glad that the Fund’s management revenues are growing. This is a very good indicator. This year – the year has not ended yet – revenues of the State Oil Fund have increased by more than $4 billion.Some $1.8 billion of this came from proper management. Such opportunities are created by correct policies of the Fund and correct allocation of funds. I am sure that our foreign exchange reserves will grow every year. At present, our strategic foreign exchange reserves exceed $50 billion. This is a record, a historic indicator. This indicator is important precisely because it exceeds our gross domestic product. This is observed only in a handful of countries now.
At the same time, our external debt accounts for only 17 percent of the gross domestic product, and by this indicator we are 9th in the world. We have envisaged an oil price of $55 in the next year’s budget. This is also a very conservative approach. Currently, the price of Azeri Light is approaching $70, but we take $55 so that more money can be accumulated. For example, if we take $65, this money will enter the budget in the form of transfers and be spent. There is no need for that. Thanks to transparency, accuracy and reforms, we are providing our budget with other sectors. Tax and customs authorities collected an additional 850 million manats in 10 months. There is still some time left for the end of the year, so these funds will increase. Therefore, we must save Oil Fund revenues. Overall, Azerbaijan has adopted the right approach to this area. As is the case in many areas, thoughtful policies and steps being taken in line with the interests of the people have allowed us the opportunity to achieve this excellent result.
I appreciate the activities of the Fund. That is why I have appointed the Executive Director of the Fund, Shahmar Movsumov, as an assistant to the President. I am sure that he will play an important role in deepening the reforms in his role as presidential assistant.
I recommend that you carry on the successes achieved. We must not be content with our success. The State Oil Fund must both increase its assets and place them securely. Our strategic asset, the Oil Fund must always work for the country and in the interests of the people.
The year is already ending. Please update me on this year’s achievements and the steps planned for next year.
Israfil Mammadov: Dear Mr. president! First of all, let me express my deep gratitude to you for your great confidence. As you said, this year the State Oil Fund of the Republic of Azerbaijan celebrates the 20th anniversary of its establishment by the great leader. As you noted, over the past 20 years, the State Oil Fund has become an internationally recognized financial institution with assets growing every year and capable of sharing its experience with other countries in the field of transparency.
The high assessment you have always given is a great honor for us. We, the team of the State Oil Fund, have always done our best to fulfill the Fund’s commitments to you. Of course, none of these achievements would have been possible without your support. The entire team of the Fund constantly feels your attention. You have supported us in all our affairs. Let me assure you that I will make every effort to justify your confidence. I am very grateful.
As you noted, the Fund’s resources have increased by 10 percent this year and are expected to reach $42.5 billion by the end of the year. As you noted, for the first time in the history of the Fund, investment revenues have exceeded $1.8 billion. Once again, I want to assure you that I will make every effort to further diversify the Fund's investment portfolio and reduce risks.
President Ilham Aliyev: Very good! I appreciate the progress made. In particular, I want to note that I have held meetings with leaders of the world's leading funds within the framework of the Davos World Economic Forum and I can say with great satisfaction that their opinion about our Fund is also very positive. The State Oil Fund not only implements important projects on the territory of the country, but also cooperates with leading funds with resources amounting to hundreds of billions and participates in various investment projects together with them. This, in turn, shows how effective the Fund is. On the other hand, the world's leading funds with resources amounting to hundreds of billions are very scrupulous in terms of their reputation, money is not the main thing for them. The main thing for them is reputation and transparency.
Our advantage is that our Fund has a very positive impact on the country's image not only as a repository, but also as a truly important international organization. I believe that our cooperation with leading financial institutions of the world should expand in the future. The Fund’s ongoing diversification of its investment portfolio is reassuring. But life does not stand still, new instruments are emerging, there are new interesting places for investment. Therefore, you should pursue a flexible policy in this area too. Economic development of the world is uneven now. The economy of some countries develop faster. Therefore, by pursuing a flexible policy and in order to obtain even greater revenues, we should pay attention only to low-risk assets.
The Fund’s team is also very experienced now – it has been operating for many years. You have been a deputy for more than 10 years. I am sure that the positive dynamics will be continued. I congratulate you and wish you success!
Israfil Mammadov: Thank you very much! I appreciate that.