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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 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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