Disputes on expedient use of funds of the State Oil Fund of Azerbaijan (SOFAR) dont slow since the very day of establishment of this body. The International Monetary Fund (IMF) is particularly active in this respect, as this financial institute put every effort to establish this body in 1999. Since the very beginning the IMF demanded to preserve the oil revenues for future generations, to take out the resources of the Fund from the Presidents control and give to the parliament, to make the use of the funds transparent, not to spend them on refuges, or commercial projects, in particular, the construction of the Baku-Tbilisi-Ceyhan main export oil pipeline.
However, beyond the IMF recommendations the SOFAR is accountable to the President and the oil revenues are directed on covering the need of refugees, participation of the country in the BTC construction, transfer to the pubic budget and payment of services by foreign managers of the Funds resources. The government regards these directions as the priority ones, assuming great significance for future development. Thus, at the presidential decree dated 2001, the SOFAR remitted approximately $100m for needs of refugees and IDPs.
In 2005, the incomes of the SOFAR budget made up 660m AZN, while expenditure 233m AZN. The expenditure of the SOFAR remained unchanged and the finances directed at the improvement of the social living conditions of refugees and IDPs comprised 40.4m AZN, financing of Azerbaijans stake in the project of BTC construction 41.0m AZN, transfers to the public budget 150.0m AZN, expenses linked with the management of the SOFARs funds - 1.6m AZN.
The first two directions of the SOFAR expenses have exact definitions, the transfers to public budget remain unclear for the majority. It is necessary to define exact mechanism on calculation of accounts between the SOFAR and public budget, as the transfers by the SOFAR might promote inflation, if they are directly used not on the implementation of projects, but increase of salaries and different social payments.
As to expenses of the SOFAR in 2006, this year the expenses of the SOFAR for the first time will exceed its incomes, while the deficit of the budget is forecasted at $200m. The rise in expenses is linked with the implementation of the priority infrastructure projects.
Three-fold rise in expenses for improvement of socio-living conditions of refugees and IDPs (110.2m AZN) also caused rise in SOFARs budget expenses. This year the SOFAR transfers to the public budget are forecasted at 585m AZN, of which 48m AZN were remitted to treasury in January in compliance with the schedule. This year the transfer will more probably play a role of covering a deficit, if to take into consideration that the country refused from IMF and WB loans, rather a source of formation of public budget revenues.
Meanwhile, Samir Sharifov, the executive director of the SOFAR, expects the year to end without deficit as the oil prices can be higher than public budget forecasts ($40 per 1 barrel). In accordance with the mechanism defined by the law on 2006 Public Budget, 50% of additional revenues (in case the oil prices range from $40 to $50) and 75% (in case the oil prices exceed $50 will be given to SOFAR. In this connection the execution of the budget of the Fund without deficit is not excluded. Revenues amounting to $780 million are expected in 2006 in the State Oil Fund of Azerbaijan (SOFAR) from the profit oil sale, while funds from marketing of 19 million barrels of the profit oil are also projected.
The State Oil Fund of Azerbaijan (SOFAR) submitted proposals on the Funds investment policy in the future perspective to the Supervisory Board in connection with the growing oil revenues during the coming 2-3 years. The Fund intends in its proposals to divide the assets into three parts: as the expenditures portfolio, which will be defined according to the Funds budget, the portfolio for stabilization and emergency situations and the deposit portfolio designed for future generations. Funds from the third portfolio are to be intended for long-term investments in the period of 10 years and placed in shares for receiving big revenues. According to Sharifov, in the portfolio planned for the short-term period changes may take place, they may be also invested in the shares.
After adopting a new strategy the Oil Fund will intensify its operation aimed at increasing the number of managers, as it will identify the basic lines for their involvement. According to Sharifov, the number of managers has not changed since the last year. After the contract cancellation with the French bank Societe General Asset Management, which has been assigned $50 million for management by SOFAR, two managers remained. They are the Clarident bank (subdivision of Credit Suisse), $42,4 million from the Funds assets are at its disposal and Deutschebank Asset Management ($72,6 million).Under the acting investment policy SOFAR may assign not more than 40% of assets for management to foreign managers.
The Cabinet of Ministers also stressed the necessity for a new strategy of use oil revenues, as the existing middle-term strategy on use of oil revenues is conceptual character.
The third sitting of the consulting group was held on 16 February in Nigeria, where Samir Sharifov will participate from Azerbaijan. Consultations were held at this meeting, as none of the countries rich in minerals had made reports on transparency and Azerbaijan, as the pilot country in the EITI initiative is the only one, taking into account that Azerbaijan publicized not only reports of the government, but the auditors report as well, according to which the data is verified. According to Sharifov, preparations of the fourth report by the second half of 2005 started and it will be publicized by 15 April.
It is notable that Azerbaijan carried out EITI through designing three reports: companies, government and a report by auditors, which compare the data.
Meanwhile, today, as the head of the state commission noted, not all oil and gas companies publicize their reports individually, although the state commission takes all measures for that. Although in the trilateral memorandum, signed in 2004 between the state commission and the coalition of the non-governmental organizations (NGOs) on transparency it was not mentioned that the companies could not reveal their data to the public privately. Some of them set to do it, BP in particular. The other guess, it is a commercial secret, which disclosure breaks the contractual provisions. В"We do not think the refusal is related exactly to their operations in Azerbaijan. It is rather connected with their global activities, as by disclosure of the report the data on their activities in other countries throughout the world will be opened. The Azerbaijan government does not intend to make obstacles, therefore the companies are suggested to publicize their reports, but not made do it, Sharifov noted.
The first meeting of group was held in August 2005 in London, while the second - in Washington in October. The fourth sitting of the International Consulting Group of the Extracting Industry Transparency Initiative (EITI) will take place in Baku on 5 April, as a pilot country in EITI and it should be noted that it was a plus for Azerbaijan in maintenance of oil wealth for future generations of Azerbaijan.