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 80%
75%
50% 50%
25%
1998-‐2008
20%
I quarter 2008 -‐ II quarter 2008 Government
II quarter 2008 -‐ 2024
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 and Governance structure §
Legal framework §
Statute of SOFAZ
President of the Republic of Azerbaijan
§
Investment Guidelines
Supervisory Board
§
Investment Policy
Executive Director
7
Content §
SOFAZ’s mission and governance structure
§
Funding and withdrawals
§
Investment Strategy
§
Accountability and Transparency
8
National economy and oil fund SOFAZ’s assets as a percentage of GDP 48,9% 42,8%
48,4%
SOFAZ reserve level, 2001-‐2014 49,4%
45,0% USD 80,1 billion, 68%
33,6%
USD 37,1 billion, 32%
USD 117.2 billion
22,4%
2008
2009
2010
2011
2012
2013
2014
Saving
Spending
9
Funding and withdrawals Oil Receipts
Revenues Government oil Receipts
SOFAZ investment returns
Some of directly financed strategic projects
Expenditures Operational Expenditures
Directly financed strategic projects
Includes: • Revenues from sales of oil and gas • Bonus payments • Royalties (acreage fees) • Transit fees
Transfers to the State Budget
Surplus
• State scholarship program • Improvement of social condition of refugees and IDPs • Heydar Aliyev Baku-‐Tbilisi-‐Ceyhan Main Export Pipeline • Baku-‐Tbilisi-‐Kars railway
SOFAZ Assets USD 35.4bn (as of 31.08.2015)
• Oguz-‐Qabala-‐Baku water pipeline • Construction of Trans Anatolian Natural Gas Pipeline 10
Content §
SOFAZ’s mission and governance structure
§
Funding and withdrawals
§
Investment Strategy
§
Accountability and Transparency
11
SOFAZ Investment Policy Currency Allocation
Asset Allocation
50%
USD
80%
Fixed Income
35%
EUR
Up to 10%
Equity, Private Equity
5%
GBP
Up to 5%
Real Estate
Up to 10%
Currencies of countries with minimum credit rating “A”
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) Real Estate 4.20%
EquiBe s 9.20%
Gold 3.10%
$35.4bn [CATEG ORY NAME] [VALUE ]
2015
(Up to August) I.
New Real Estate purchased in Japan II. Further currency diversification III. Further investments into Equities
13
Where we invest (as of 30.08.2015)
14
Real Estate Portfolio
16 Tverskaya, Moscow 134 MLN USD December 24, 2012 78 St James’s Street, London 186 MLN GBP December 12, 2012
2012
S8 Place Vendome, Paris 144 MLN EUR March 18, 2013
2013
Pine Avenue Tower A, Seoul, 469,007 MLN KRW March 31, 2014
2014
Kirarito Ginza, Tokyo, 52.3 BLN JPY September 2, 2015
2015
SOFAZ’s return on total assets 2.58%
1.84% 1.52%
2014
1.46%
Last 3 years (2012-‐2014)
Last 5 years (2010-‐2014)
Last 10 years (2005-‐2014)
16
Content §
SOFAZ’s mission and governance structure
§
Funding and withdrawals
§
Investment Strategy
§
Accountability and Transparency
17
Accountability and Transparency Ø According to legislation Ø
Ø
Fund is to disclose all information about its activity through: Ø
Quarterly and annual reports
Ø
Regular press conferences
Ø
Regularly updated website
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”
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