The empty bucket of the State oil fund of Azerbaijan
Over its 28 years of independence, Azerbaijan has become known in the world market for its oil and gas. 2019 marked two important milestones in the modern history of Azerbaijan: 25 years since the country signed a ground-breaking Production Sharing Agreement (PSA) with the company BP to develop oil fields in the Azerbaijani sector of the Caspian Sea, and 20 years since the State Oil Fund of Azerbaijan (SOFAZ) was established. Although Azerbaijan has generated enormous wealth from the development of its oil and gas reserves, the benefits have eluded the ordinary people of the country.
Without effective, transparent, and accountable management of oil revenues, Azerbaijan has suffered from crippling corruption, stratification of society, stifled economic growth, and an increase in poverty. Money has been spent on buying civil servants’ loyalty, glamourous sports and entertainment events, high end but not profitable real estate abroad, and western support. The objectives of SOFAZ are to support socio-economic development, and to collect and save oil revenues for future generations to ensure cross-generational equality. Unfortunately, savings are slim, and the lack of transparency and accountability throughout the entire hydrocarbon revenue management system in Azerbaijan is an issue of major concern. The most concerning issue is how public investments from the state budget, which draw on SOFAZ funds, are managed. Transparency is an issue both in the accumulation of oil revenues, and spending of oil revenues.