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FAQ

What is the State Oil Fund?
What are the in-flow sources of SOFAZ?
What are the directions of expenditure made by SOFAZ?
What kind of projects are funded by SOFAZ?
Can SOFAZ execute extra-budgetary expenditures?
Does SOFAZ subordinate to the President of the Republic of Azerbaijan ? 
How is SOFAZ managed?
Is SOFAZ activity beyond the authority and control of the Parliament? 
Where does SOFAZ invest money?
What is the national strategy on using the oil revenues?
SOFAZ and Transparency
What kind of information can be accessed at the SOFAZ website?
 
What is the State Oil Fund?

 

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is a legal entity and an extra-budgetary institution. The Fund is a mechanism whereby energy-related earnings are accumulated and efficiently managed. The cornerstone of the philosophy behind the Fund is to ensure intergenerational equality with regard to benefit from the country's oil wealth, whilst improving the economic well being of the population today and safeguarding the economic security of future generations.

 

What are the in-flow sources of SOFAZ?

 

The major sources of income for SOFAZ are:

 

1. Proceeds generated under production sharing agreements from sales of the Republic of Azerbaijan's share of hydrocarbons;

 

2. Bonuses paid under the terms of production sharing agreements;

 

3. Acreage fees paid by foreign investors for use of the contract areas in connection with the development of hydrocarbon resources;

 

4. Dividends paid under the terms of production sharing agreements;

 

5. Revenues generated from the transit of oil and gas over the territory of the Republic of Azerbaijan;

 

6. Revenues generated from the transfer of assets from investors;

 

7. Revenues from management of SOFAZ assets;

 

8. Grants and other disinterested aid.

 

9. Other income.

 

What are the directions of expenditure made by SOFAZ?

 

In compliance with regulations relating to SOFAZ, the Fund's assets may be used for solving major problems affecting the nation, and for construction and reconstruction of strategically important infrastructure to support socio-economic progress.

 

Transfers to the state budget also constitute a significant component of the Fund's outflow. A very small portion of the Fund's assets is utilized to cover operating costs. As per the Law "About Budget System" of the Republic of Azerbaijan, all SOFAZ expenditures, except for operating expenditures, are incorporated as part of an annual consolidated government budget presented to the Parliament for approval. In compliance with this Law, SOFAZ can only execute expenditures envisaged by its budget. Execution of expenditures is through the state treasury.

 

What kind of projects is funded by SOFAZ?

 

SOFAZ is funding major projects of national scale. They are:  

1) Azerbaijan's equity share in the Baku-Tbilisi-Ceyhan (BTC) oil pipeline project (completed);

2) Building of housing and improvement of socio-economic conditions of refugees and internally displaced persons who were forced to flee their native lands as a result of Armenian-Azerbaijan conflict;  

3) Oguz-Qabala-Baku water supply system (completed);  

4) Reconstruction of the Samur-Absheron irrigation system;  

5) Formation of the statutory capital of the State Investment Company (completed);

6) Financing Baku-Tibilisi-Kars railway;

7) Financing “The state program on the education of Azerbaijan youth abroad in the years 2007-2015.

 

Starting from 2013 SOFAZ began to finance of this projects:

-  Construction project of the Oil-Gas and Petrochemical Consortium (OGPC);

-  Financing of the share of Azerbaijan Republic in the construction of the STAR oil refinery project in Turkey (completed);

-  Financing the share of the Republic of Azerbaijan in "Southern Gas Corridor" CJSC statutory capital;

-  Financing of the share of Azerbaijan Republic in the construction of new drilling rig in the Caspian Sea.

 

Can SOFAZ execute extra-budgetary expenditures?

 

No. According to rules on the preparation and execution of the annual budget for the State Oil Fund of the Republic of Azerbaijan, approved by Presidential decree on September 12, 2001, no expenditures from the Oil Fund shall be allowed unless the expenditures are in accordance with the Oil Fund's budget and all SOFAZ expenditures shall be executed in accordance with the purpose for which they were approved.

 

As per the Law "About Budget System" of the Republic of Azerbaijan, all SOFAZ expenditures, except for operating expenditures, are incorporated as part of an annual consolidated government budget presented to the Parliament for approval. In compliance with this Law, SOFAZ can only execute the expenditures envisaged by its budget. Execution of expenditures is through the state treasury.

 

Does SOFAZ subordinate to the President of the Republic of Azerbaijan?

 

SOFAZ is a state extra-budgetary fund functioning as a separate legal entity, with its own specialist management team and government supervisory hierarchy. The Fund's operation is guided by the Constitution and laws of the Republic of Azerbaijan, Presidential Decrees and Resolutions, and the Fund's Regulations. The Fund is responsible to the President of the Republic of Azerbaijan. The Fund is also responsible to its Supervisory Board and Chamber of Accounts established by Milli Majlis (Parliament). Reestablishment and liquidation of the Fund is carried out by means of decree by the President of the Republic of Azerbaijan.

 

How is SOFAZ managed?

 

The State Oil Fund of the Republic of Azerbaijan, sometimes called SOFAZ, is a legal entity and an extra-budgetary institution.

 

SOFAZ's activities are overseen by a Supervisory Board. The Supervisory Board, chaired by the Prime-Minister, consists of both representatives of executive and legislative powers, including government ministers and members of the Parliament. 6 members of the Supervisory Board were appointed in accordance with Presidential Decree No. 73 dated November 27, 2008.  The Board is to review the Fund's draft annual budget, annual report and financial statements along with independent auditor's opinion and provide its comments.

 

SOFAZ is lead by the Executive Director, who is appointed and dismissed by the President of the Republic of Azerbaijan. The Fund's Executive Director carries out operational management of the Fund's activities. The Executive Director may appoint and dismisses employees of the Fund in a manner as determined by the legislation. The Investment Board, comprising senior officials of the Fund, manages all investment related activity in SOFAZ.


Execution of the SOFAZ budget, which has to be duly approved by the appropriate Presidential Decrees, is undertaken in line with a set of asset management guidelines (AMG) and specified expenditures. SOFAZ assets are managed in accordance with AMG approved by the Presidential Decree on "Asset Management Rules (Guidelines) for the State Oil Fund of the Republic of Azerbaijan" # 511 dated June 19, 2001

 

Is SOFAZ activity beyond the authority and control of the Parliament?

 

No. Any suggestion that SOFAZ works beyond the reach of the Parliament is false. In accordance with the Law "About Budget System" of the Republic of Azerbaijan, all SOFAZ revenues and expenditures are incorporated as part of an annual consolidated government budget and approved by the Parliament. The Fund is audited by the Accounting Chamber, which is under the control of the Parliament and reports directly to the Parliament. Moreover, the Fund's activity is controlled by the Supervisory Board comprising governmental representatives and members of Parliament.

 

Where does SOFAZ invest money?

 

Current asset management guidelines of the Fund call for conservative asset allocation. SOFAZ is allowed to invest only in the investment grade instruments. Portion of the investment portfolio is managed by reputable external asset managers. The Fund's assets are invested in the following categories of debt instruments: Foreign government securities, debt issued by foreign governmental agencies, debt issued by financial institutions and banks, real estate and gold.

 

What is the national strategy on using the oil revenues?

 

In 2004, President Ilham Aliyev signed The Long-term Strategy of Oil and Gas Revenue Management of Azerbaijan, a crucial document for the effective future development of the country. The Strategy covers the period to 2025 and lays down key principles of efficient national wealth management. The Oil Fund is one of the central components of the Strategy as Azerbaijan proceeds through the first decade, seen as the most critical period in the implementation process.

 

SOFAZ and Transparency

 

A key measure to promote transparency within the Oil Fund's reporting system and operation is a regular audit of the Fund's financial activities by a reputable firm of international auditors.

 

Information and press releases, and both quarterly and annual statements, in Azerbaijani and English, about the Fund's revenues and expenditures are regularly published in the local press and posted on the Oil Fund's web-site ( www.oilfund.az ) to reflect developments in varying areas of the Fund's activities, and also to promote transparency in the utilization of revenues from oil.

 

In development of its media relations, press-conferences are held regularly to provide direct, accurate and professional briefings on Oil Fund activities and to offer an opportunity for the media to ask questions regarding management of the Oil Fund and its assets.

 

SOFAZ is closely involved in the Extractive Industries Transparency Initiative (EITI). Azerbaijan joined EITI in 2003.

 

The Executive Director of the State Oil Fund is the Chairman of the National Committee on EITI. The EITI Implementation mechanism was established by EITI Committee and according to this mechanism Azerbaijan regularly discloses EITI reports.

 

Being a first country in implementation of EITI Azerbaijan was selected as EITI Board member at the 3rd EITI conference held in October 2006 in Oslo, Norway. The multi-stakeholder Board was established to manage EITI at the international level and to oversee the future operation of EITI.

 

State Oil Fund won the 2007 UN Public Service Award for Improving Transparency, Accountability and Responsiveness in Public Service for EITI.

 

What kind of information can be accessed at the SOFAZ website?

 

The SOFAZ website gives information and press-releases announcing the latest developments across various areas of the Fund's activities, including asset inflows and outflows. The history of SOFAZ, its management structure, legal framework, annual reports, audit reports and budget related information are all posted on the web. The latest information about implementaion of the Extractive Industries Transparency Initiative in Azerbaijan and both local and foreign press roundups on SOFAZ are also available on the website.

 

Should you have any questions or comments on our web-site please, contact to: pr@oilfund.az