Azerbaijan


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Azerbaijan's proven crude oil reserves are estimated at 7 billion barrels, mainly located offshore in the Caspian Sea. It produces 1 million barrels of oil a day and exported 240 billion cubic feet of natural gas in 2010. The state is heavily dependent on the extractive industries; in 2011 oil and gas income made up 74 percent of government revenue, 95 percent of exports, and 47 percent of gross domestic product.


Azerbaijan’s Performance on the Revenue Governance Index

Azerbaijan received a “weak” score of 48, ranking 28th out of 58 countries. A “failing” Enabling Environment score undermined the country’s “partial” performance on other components.

Rank
(out of 58)
Score
(out of 100)
28 Composite Score 48
36 Institutional & Legal Setting 57
Freedom of information law 67
Comprehensive sector legislation 67
EITI participation 100
Independent licensing process 0
Environmental and social impact assessments required 50
Clarity in revenue collection 67
Comprehensive public sector balance 11
SOC financial reports required 100
Fund rules defined in law 50
Subnational transfer rules defined in law N/A
22 Reporting Practices 54
Licensing process 17
Contracts 33
Environmental and social impact assessments 67
Exploration data 0
Production volumes 50
Production value 0
Primary sources of revenue 100
Secondary sources of revenue 100
Subsidies 100
Operating company names 67
Comprehensive SOC reports 83
SOC production data 71
SOC revenue data 14
SOC quasi fiscal activities 100
SOC board of directors 50
Fund rules 0
Comprehensive fund reports 67
Subnational transfer rules N/A
Comprehensive subnational transfer reports N/A
Subnational reporting of transfers N/A
34 Safeguards & Quality Controls 51
Checks on licensing process 33
Checks on budgetary process 22
Quality of government reports 28
Government disclosure of conflicts of interest 100
Quality of SOC reports 50
SOC reports audited 100
SOC use of international accounting standards 100
SOC disclosure of conflicts of interest 0
Quality of fund reports 50
Fund reports audited 100
Government follows fund rules 83
Checks on fund spending 0
Fund disclosure of conflicts of interest 0
Quality of subnational transfer reports N/A
Government follows subnational transfer rules N/A
40 Enabling Environment 24
Corruption (TI Corruption Perceptions Index & WGI control of corruption) 16
Open Budget (IBP Index) 46
Accountability & democracy (EIU Democracy Index & WGI voice and accountability) 16
Government effectiveness (WGI) 22
Rule of law (WGI) 22
Satisfactory Weak
Partial Failing
To explore all data and compare
scores, use the RGI Data Tool.

Institutional & Legal Setting Rank: 36th/58, Score: 57/100 learn more

Azerbaijan earned a “partial” score of 57, its highest on any component, the product of an uneven legal framework and the government’s efforts to improve transparency.

Azerbaijan has no laws specifically governing the management of hydrocarbons or the licensing process; the president approves rules for negotiations and contracts with foreign companies. The state oil company, SOCAR, grants hydrocarbon rights and participates in all production sharing contracts with foreign companies. The contracts require environmental impact assessments, which are subject to a process of public consultation.

Oil and gas revenues flow to the State Oil Fund of Azerbaijan (SOFAZ) and the federal budget. Tax revenues from SOCAR and foreign oil companies are collected by the Taxes Ministry and go directly into the budget, while the revenues from production sharing contracts, bonus payments, and royalties go to SOFAZ.

In 2009, Azerbaijan became the first country to achieve compliant status with the Extractive Industries Transparency Initiative. Azerbaijan adopted a freedom of information law in 2005, but state agencies have been slow to comply with its provisions.

Reporting Practices Rank: 22nd/58, Score: 54/100 learn more

While the Azeri government provides detailed data on most revenues and subsidies, its “partial” score of 54 reflects a lack of comprehensive information on the licensing process, contracts, exploration, and the rules governing transfers from SOFAZ.

Environmental impact assessments are made public, but the government does not publish contracts. Provisions regarding taxes can be found on the Taxes Ministry website, and two BP contracts have been published by the company itself.

SOFAZ publishes annual reports on its website describing revenue sources, production volumes, the names of companies operating in the country, the cost of social investments, production stream values, the government’s portion of production sharing contracts, royalties, special taxes, dividends, bonuses, and acreage fees, but this information is not disaggregated by company. No other agency publishes information on hydrocarbon revenues.

Safeguards & Quality Controls Rank: 34th/58, Score: 51/100 learn more

Incomplete government oversight of the extractive sector countered a positive performance on audit requirements and conflict-of-interest disclosure policies, leading to a “partial” score of 51.

National law requires the parliament to ratify contracts, but in practice this oversight role is very weak. SOFAZ reports are audited by an external auditor but not scrutinized by legislators. The parliament adopted legislation in June 2012 that will bar government officials from distributing information about companies, and the Azeri government has pursued lawsuits against reporters and editors critical of official policies, making it increasingly difficult for civil society groups to hold public officials accountable.

Enabling Environment Rank: 40th/58, Score: 24/100 learn more

Poor performance on corruption control, accountability, and democracy rankings led to a “failing” score of 24.

State-Owned Companies Rank: 16th/45, Score: 67/100

SOCAR is wholly owned by the government of Azerbaijan and takes part in all oil and gas activities. It publishes regular reports on production volumes, the value of exports, estimates of investments in exploration and development, production costs, the names of companies operating in the country, production data by company, quasi-fiscal activities, and the government’s portion of production-sharing contracts. SOCAR’s annual financial reports are audited by an independent external auditor and include the consolidated accounts of all SOCAR’s subsidiaries, but revenue data is incomplete.

Natural Resource Fund Rank: 14th/23, Score: 44/100 learn more

A 1999 decree established SOFAZ as an “extra-budgetary institution,” giving the president unrestricted power to determine its expenditures. No legislation is adopted to set governance rules of the fund. The parliament has no oversight role, but the fund’s financial reports are audited annually and include information on its assets, transactions, and investments.

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