TRANSPARENT MONEY

Ten years ago Azerbaijan was the first among the extractive countries to declare its adherence to the principles of transparency in the spending of its oil income, having chosen this path as the main thrust of its economic progress. With President Ilham Aliyev's direct participation the country announced it was signing up to the Extractive Industries Transparency Initiative (EITI), taking an essentially historic step to bring about a considerable improvement in the country's image in the eyes of the world public, and its own citizens.

Having become a pioneer in the implementation of EITI, Azerbaijan has over the ten years of its implementation stood out on more than one occasion among the other participants in this initiative by its prompt response to new demands and challenges. The country also officially expressed its readiness to be the first in implementing the EITI's new standards and to sign a memorandum on their application before the end of this year.

Always the first

It is no secret that the extractive sector makes a significant contribution to the shaping of Azerbaijan's GDP. Oil revenues exceed 70% of budget income, up to 94% of exports are made up of oil and gas products and about 84% of direct foreign investments are directed towards the extractive industries.

At the same time, the solution to many of today's problems, such as keeping inflation to a single-digit level, reducing unemployment and poverty, implementing major infrastructure projects and improving the social and housing situation of refugees and forced migrants depends on the effectiveness of managing the income from the extractive industry.

That is why the idea of the EITI as a kind of model ensuring the accountability of a state to its own citizens for the disposal of its income from the extractive industries was virtually straightaway supported by Azerbaijan. "Generally speaking, transparency is one of the achievements that now plays a role in our economy. We have achieved full transparency in our energy sector," the country's president, Ilham Aliyev, said, among other things, at an inter-active session devoted to Azerbaijan at the Davos forum in January 2012.

Furthermore, it was important for Azerbaijan at that time to prove it had the will in the fight against corruption which, unfortunately, often goes hand-in-hand with large revenues. It has to be said that before EITI was adopted by no means all oil companies in Azerbaijan published accounts of their activities separately, believing them to be a commercial secret, the divulgence of which would infringe contract conditions. However, the government's determination forced companies to seriously consider the question of participation in the initiative. And so, EITI has opened up a unique opportunity for representatives of state-run bodies, extractive companies and non-governmental organizations to sit together at the same table and discuss questions of the control of revenue from the extractive industry.

"In 2004 a government commission was created which set up constructive cooperation with NGOs and a group of extractive companies, as a result of which the world's first report on EITI was published in 2005," the executive director of the State Oil Fund of Azerbaijan (SOFAZ) and chairman of the government's commission on EITI, Sahmar Movsumov, recalled at a conference to mark the 10th anniversary of the implementation of the initiative in Azerbaijan. He added that in 2007 SOFAZ was given a prestigious award of the UN "For state service" in the field of introducing EITI. In 2009 the country, after a process of checks, was confirmed in the status of the first full member of the Extractive Industries Transparency Initiative.

Azerbaijan has now published its 17th report on the EITI in which it reveals information about the payments made by companies and the income received by the state from the extractive sector. "In ten years the republic has travelled a fairly complex route within the context of the Transparency Initiative and has achieved notable success," the head of EITI's international secretariat, Jonas Moberg, said.

A new stage of history

Meanwhile, EITI has started to be perceived as a dynamically developing initiative. It means that countries must be prepared to move beyond what are demanded by today's criteria. That is why the member-countries of the initiative, at the global conference in Sydney in May this year, adopted a new standard for EITI, in accordance with which in the annual review of the implementation of the initiative not only cumulative allocations to the government would be indicated, but separately for each company engaged in the extraction of mineral resources. At the same time, companies will not be able to refuse to provide their data on allocations to the government because this is binding for all participants in the Transparency Initiative. Thus, the new standards in the context of the initiative will provide even more transparency and offer more detailed and vital information on projects in the extractive industry.

"All major companies will adopt the new standard on EITI, especially as they are participating in the Transparency Initiative not only in Azerbaijan, but also at a global level. In sum, the introduction of the new standard on EITI will embrace all 40 countries that are participants in the Transparency Initiative," Movsumov said.

In short, Azerbaijan is again preparing to become a pioneer, this time in the adoption of the new standards of EITI. According to Movsumov, a government commission is already preparing a memorandum to this effect. "A working group has been set up to prepare a draft document which will include all the conditions linked with the introduction of the new standard. We are hoping to coordinate the conditions of the memorandum with the extractive companies and non-governmental organizations and sign it before the end of this year," he said.

The signing of the memorandum, Movsumov believes, will enable the new standard to be introduced from 2014 and a report to be prepared in accordance with it. "We expect the draft version of the memorandum to be ready in October," he added.

The head of the EITI's International Secretariat, Jonas Moburg, for his part, said that the introduction of the new standard on EITI has been envisaged from next year. "Each annual review on the implementation of the Transparency Initiative in Azerbaijan, of which the State Oil Fund is the author, has been more extensive and detailed than the previous one. From next year, with the introduction of the new standard on EITI, these reviews are due to be even more detailed. For example, you will be able to see how much BP, Statoil or Shell has paid within the context of PSA-type contracts," he stressed. In his opinion, the introduction of the new standard will also make it easy to see payments made to SOCAR and the payments made by the state-owned oil company itself.

Thus, Azerbaijan, in continuing to maintain its role as a leader in the implementation of the Transparency Initiative, will strengthen its positions as a country supporting the principles of the transparent management of the economy, which will undoubtedly be a positive element in strengthening the country's image and rating on a world scale.