The case of Azerbaijan in natural resource wealth management: SOFAZ The European Azerbaijan Society Business Forum, Brussels, 14 October 2015
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The case of Azerbaijan in natural resource wealth management: SOFAZ
The European Azerbaijan Society Business Forum, Brussels, 14 October 2015
Content § SOFAZ’s mission and governance structure
§ Funding and withdrawals
§ SOFAZ Investment Strategy
§ Accountability and Transparency
2
Content § SOFAZ’s mission and governance structure
§ Funding and withdrawals
§ Investment Strategy
§ Accountability and Transparency
3
National Oil Strategy § Development of oil and gas resources with foreign capital and
technologies
§ Development of multiple export routes
§ Establishment of prudent oil revenue management framework in anticipation of substantial oil revenues
4
Government share in profit oil
25%
50%
80% 75%
50%
20%
1998-‐2008 I quarter 2008 -‐ II quarter 2008
II quarter 2008 -‐ 2024
Government Companies
5
Objectives and main features § Objectives:
§ Preservation of macroeconomic stability
§ Transformation of depletable hydrocarbon reserves into financial assets ensuring perpetual income for current and future generations
§ Main features:
§ Sovereign Wealth Fund
§ Extra budgetary government institution
§ Separate legal entity
6
§ Legal framework § Statute of SOFAZ
§ Investment Guidelines
§ Investment Policy
Legal framework and Governance structure
President of the Republic of Azerbaijan
Supervisory Board
Executive Director
7
Content § SOFAZ’s mission and governance structure
§ Funding and withdrawals
§ Investment Strategy
§ Accountability and Transparency
8
USD 37,1 billion, 32% USD 80,1 billion,
68%
SOFAZ reserve level, 2001-‐2014
Saving Spending
National economy and oil fund
9
USD 117.2 billion
22,4%
33,6%
42,8% 45,0%
48,9% 48,4% 49,4%
2008 2009 2010 2011 2012 2013 2014
SOFAZ’s assets as a percentage of GDP
SOFAZ Assets USD 35.4bn (as of 31.08.2015)
Expenditures
Operational Expenditures
Directly financed strategic projects
Transfers to the State Budget
Revenues
Government oil Receipts SOFAZ investment returns
Funding and withdrawals
Oil Receipts
Includes: • Revenues from sales of oil and gas • Bonus payments • Royalties (acreage fees) • Transit fees
Some of directly financed strategic projects
• State scholarship program
• Improvement of social condition of refugees and IDPs
• Heydar Aliyev Baku-‐Tbilisi-‐Ceyhan Main Export Pipeline
• Baku-‐Tbilisi-‐Kars railway
• Oguz-‐Qabala-‐Baku water pipeline
• Construction of Trans Anatolian Natural Gas Pipeline
Surplus
10
Content § SOFAZ’s mission and governance structure
§ Funding and withdrawals
§ Investment Strategy
§ Accountability and Transparency
11
SOFAZ Investment Policy Currency Allocation
50% USD
35% EUR
5% GBP
Up to 10% Currencies of countries with minimum credit rating “A”
Asset Allocation
80% Fixed Income
Up to 10% Equity, Private Equity
Up to 5% Real Estate
Up to 5% Gold
• Managing credit risk exposure: credit rating limits (at least 95% investment grade securities)
• Derivatives can only be used for hedging purposes
12
Major milestones (2001 – 2015, 8 months)
13
2015 (Up to August)
I. New Real Estate purchased in Japan
II. Further currency diversification
III. Further investments into Equities
Real Estate 4.20%
Gold 3.10%
[CATEGORY
NAME] [VALUE
]
EquiBes
9.20%
$35.4bn
14
Where we invest (as of 30.08.2015)
78 St James’s Street, London
186 MLN GBP December 12, 2012
16 Tverskaya, Moscow
134 MLN USD December 24, 2012
S8 Place Vendome, Paris 144 MLN EUR March 18, 2013
2012 2013 2014
Pine Avenue Tower A, Seoul, 469,007 MLN
KRW March 31, 2014
Real Estate Portfolio
15
2015
Kirarito Ginza, Tokyo,
52.3 BLN JPY September 2, 2015
SOFAZ’s return on total assets
16
1.52%
1.84%
1.46%
2.58%
2014 Last 3 years (2012-‐2014)
Last 5 years (2010-‐2014)
Last 10 years (2005-‐2014)
Content § SOFAZ’s mission and governance structure
§ Funding and withdrawals
§ Investment Strategy
§ Accountability and Transparency
17
Accountability and Transparency
Ø According to legislation Ø Fund is to disclose all information about its activity through:
Ø Quarterly and annual reports
Ø Regular press conferences
Ø Regularly updated website
Ø Fund has to be audited by an external independent auditor
18
Progress on SWF Linaburg-‐Maduell Transparency Index
19
EITI in Azerbaijan
§ EITI is: For foreign and national extractive industries companies
“Publish what you pay”
For host governments of the extractive industries
“Publish what you receive”
§ EITI Secretariat of Azerbaijan is hosted by SOFAZ
§ First ever EITI Report published (March, 2005)
§ Azerbaijan regularly discloses EITI reports (14 reports published)
§ All extractive industries companies are engaged in EITI implementation
§ Civil Societies are actively involved in EITI
§ Azerbaijan is EITI International Board member
20
Azerbaijan in the international arena Ø 2007 UN Public Service Award in the category of "Improving transparency, accountability and responsiveness in the Public Service“
Ø GA UN Resolution on EITI adopted by consensus, 11 September, 2008
Ø First EITI Compliant Country, 2009 Doha, Qatar
Ø “EITI Award 2009”
21
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