AZERBAIJAN: STATE OIL FUND ANNOUNCES YEAR-TO-DATE

C O N F I D E N T I A L BAKU 001621

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E.O. 12958: DECL: 11/07/2016
TAGS: ECON ENRG EPET PREL AJ
SUBJECT: AZERBAIJAN: STATE OIL FUND ANNOUNCES YEAR-TO-DATE
REVENUES AND EXPENDITURES

Classified By: ACTING DCM JOAN A. POLASCHIK, PER REASONS 1.4 (B,D)


1. (C) SUMMARY: On November 1, the State Oil Fund announced
that year-to-date budget revenues totaled USD 839.6 million
while budget expenditures totaled USD 697.82 million. During
the first nine months of 2006, the Oil Fund received revenue
of USD 786.9 million from implementing oil and gas
agreements, including USD 770.5 million from the sale of
profit oil and USD 12.5 million from transit fees. Nearly 75
percent of the Oil Fund's expenditures are direct transfers
to the Ministry of Finance for budgetary support. The Oil
Fund also paid for several major water and irrigation
infrastructure projects, and will provide USD 100 million in
start-up capital to the new State Investment Company. Oil
Fund Executive Director Shahmar Movsumov told a visiting
German Marshall Fund delegation that the Fund does not have
the staff or capacity to manage large-scale projects and
fears that an influx of such projects could hinder the Fund's
ability to manage Azerbaijan's energy resources effectively.
The assets of the Oil Fund as of September 30, 2006 increased
by 7.4 percent compared to the beginning of the year and
totaled USD 1.569 billion. END SUMMARY.


2. (SBU) According to the Oil Fund, it received revenue of
USD 786.9 million from implementing oil and gas agreements,
including USD 770.5 million from the sale of profit oil and
USD 12.5 million from transit fees. In addition, the Oil
Fund received another USD 3.91 million from bonus payments,
acreage payments and the sale of assets received from foreign
companies operating under Production Sharing Agreements
(PSAs). The State Oil Company (SOCAR) contributed USD 5.865
million to the Oil Fund from its sale of exported oil. The
Oil Fund also received USD 47.5 million in revenue from its
own assets.


3. (SBU) To date, the Oil Fund has transferred to the
Ministry of Finance USD 523.25 million as budgetary support.
In total, the Oil Fund will provide more than USD 600 million
to the GOAJ in budgetary support. In addition, per the 2006
State Budget, the Oil Fund also directed to the Ministry of
Finance USD 53.82 million for the construction of internally
displaced persons housing and other efforts to improve the
socio-economic conditions of IDPs.


4. (SBU) The Oil Fund paid USD 86 million for Azerbaijan's
shares in financing the Baku-Tbilisi-Ceyhan pipeline project.
The Oil Fund has also spent money on several public
infrastructure projects, including USD 1.95 million for the
construction of the Oghuz-Gabala-Baku water supply system and
USD 8.625 million for financing the reconstruction of the
Samur-Absheron irrigation system. The Oil Fund also
transferred USD 23 million to the Stae Investment Company as
part of this new organizaion's statutory capital. The State
Oil Fund hasbeen designated to fund a total of USD 100
millin for the new State Investment Company. The Oil Fnd's
internal administrative and operation expenes in nine months
totaled USD 8 million. The Oil Fund's extra-budgetary
expenditures and payments including asset revaluation
expenses, totaled USD 34 million in the first three quarters
of 2006.


5. (C) The Oil Fund remains one of the Government of
Azerbaijan's most transparent and well run organizations. To
date, nearly 75 percent of the Oil Fund's expenditures are
direct transfers to the Ministry of Finance for budgetary
support. The Oil Fund's support for IDPs, directed through
the Ministry of Finance, and infrastructure projects
represent only nine percent of its expenditures. The
Executive Director of the Oil Fund told a visiting German
Marshall Fund Staffdel that the Oil Fund does not have the
personnel or capacity to manage large infrastructure projects
and would not take on additional projects. The Executive
Director told the Staffdel that he feared that the Oil Fund
would develop into a de facto second state budget, financing
more and more projects and ruining the Fund's ability to
manage the country's oil and gas revenues effectively.
DERSE