Weekly economic review

Analysis Materials 29 January 2008 12:02 (UTC +04:00)

Last week the State Oil Fund of Azerbaijan Republic (SOFAR) held a pres-conference dedicated to the results of the Fund's activities in 2007 and plans for 2008. Thus, as of 1 January 2008, the assets of the Fund increased by 70% compared to the beginning of 2007 and totaled $2.475bln. Most part of SOFAR's incomes (over 90%) in 2007 was received from sale of profit oil. The Executive Director of SOFAR, Shahmar Movsumov, assessed 2007 as successful for SOFAR. "2007 was successful for SOFAR, and that is proved by receiving $1mln of not expected incomes. For the first time, the assets of the Fund exceeded $2bln," Movsumov said.

In 2008 SOFAR expects to receive more profits. These wishes come firstly from the forecasts of favorable oil prices in the world market. Thus, in 2008, about $140mln was transferred to the State Oil Fund of Azerbaijan (SOFAZ) as a dividend on the Baku-Tbilisi-Ceyhan pipeline project, $240mln - sale of gas from Shah Deniz field. The transition to the new stage of division of incomes from oil among the foreign oil companies and State Oil Company of Azerbaijan (SOCAR) within the Azeri-Chirag-Gunashli project will also bring huge profits to SOFAR. Under the changes, 80% of incomes from the project will remain Azerbaijan, and 20% will be transferred to foreign partners.

According to Movsumov, the Azerbaijan's share in the division of the incomes made up 25% in 2007, but the sum has increased by 50% since 1 January 2008. "The transition to the third stage depends on oil price, but Azerbaijan's share in oil incomes is forecasted to increase in the near future," Movsumov said.

The most interesting fact is that the negative situation in the world markets which took place due to the crisis in the finance markets positively affected the activities of SOFAR. "As during dropping of the prices for stocks the prices of liability securities were rising, SOFAR's dollar portfolio increased by $15mln," Movsumov said. "We are not going to make changes to our funds placement policy. Only the currency structure of the portfolio will be a bit corrected."

With regards to the currency composition of the SOFAR, in 2008 the Fund will make changes to the structure of its currency portfolio, decreasing the specific weight of the USD assets by 5%. The changes include decreasing the share of the USD equivalent in reserves from the current 55% to 50% and increasing the EUR currency portfolio up to 40%. Other 5% will be placed in pound sterling and 5% - between these or other currencies.

Currently in accordance with the regulations of management of SOFAR's funds, the currency diversification seems to be as: 55% has been placed in USD, 35% in EUR, 5% in pound sterling and 5% in other currencies.