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Re: Energy in Azerbaijan
Oil Fund of Azerbaijan will become empty treasury (Our analysis)
AZERI DAILY ANALYSIS GROUP
Many of our officials and deputies unanimously asserted that the decline in oil price was not terrible for Azerbaijan. They said, we had large supply of funds, which would last not only for this year but for the next as well. We have warned that in these words if there is truth, then only partial. That is, all their allegations concern only the budget and current issues, including social. But there is a more long-term plan of the country, there is the Oil Fund, which not only sponsors half of the state budget, but also a lot of other projects, including social ones.
Yes, we have repeatedly warned that the collapse of oil prices will cause a severe blow to the Oil Fund and it cannot be so recklessly squandered. And no matter how hard the authorities hide from the public these prospects, they did not succeed. The government has not yet approved the budget of the State Oil Fund (SOFAZ) for this year. Although, as Turan Agency reminds, this annual procedure usually falls on the last month of the previous year. But if the oil fund, roughly speaking, plays the role of the second half of our budget, it turns out that one half of the budget have been approved, and the other not. That cannot go for long, the fund will soon have to carry the current payments, but there is no budget.
Indeed, the State Oil Fund is too important for the economy of Azerbaijan. It should provide 53.5% of the revenue of the state budget for 2015, or about 11 billion manats. From SOFAZ the Azerbaijani government plans to fund its share of the Southern Gas Corridor and other major oil and gas projects. A lot of them, and the total cost is more than one billion manats. It is financing the construction of floating drilling rig of SOCAR, SOCAR refinery in Turkey, the chemical complex in Garadagh and other projects.
Naturally, all of these projects should be activated, and the Fund budget will be approved. But today the government is not ready for approval of this important document. This is understandable, because not only Azerbaijan, but also all the oil-producing countries today are experiencing difficulties with the budget. Oil price in the budgets of different countries is set at current prices it at the time of adoption of the relevant budgets. The leaders of these countries have openly declared that they are ready to calculate the new budget, which may be revised according to different scenarios. After all, oil prices continue to fall, forecasts contradict each other. And in Azerbaijan it is all happening against the backdrop of the continuing decline in export of oil.
And it is not difficult to understand that in such a situation, the government must clarify all the details before you approve the budget of SOFAZ. After all, if the current low prices last for a long time SOFAZ revenues can be zeroed out. Expenses, although not approved yet, are already known. And one of the important problems of the government today, we think, is precisely to find ways to reduce them as much as possible.
In the case of the Oil Fund, it is not easy to carry out such calculations. If, say, the State Oil Company of Azerbaijan (SOCAR) has calculated its losses and found that if the oil price in 2015 is at $ 60 per barrel the company's losses could reach approx. 400 million AZN. In such case it will complicate things for SOFAZ. At that price of oil and the budgeted price of $ 90 per barrel SOFAZ may loose all oil revenues, which formed the basis of its income.
And how can that be? Oil Fund is indeed faced with a stalemate. We recall that at the end of the year the executive director of SOFAZ Shahmar Movsumov said that to ensure the sustainability of their own development in the following years mechanisms to reduce costs had to be developed. In this regard, the fund is developing various scenarios of income and the dynamics of the fund's assets. But this statement only provides certain reduction of the budget expenditures of SOFAZ. The basic expenses, including the multi-billion transfer to the state budget, is not within the competence of the fund, the decision thereon shall be taken at the highest level.
Note that, according to the State Oil Fund in 2013, revenues of the fund amounted to 13.6 billion manats and expenditures 12.3 billion manats, in 2014 its revenue was projected at $ 11.6 billion manats and expenditures - 10.6 billion manats. That is, every year, the Fund's income exceeded its expenses. This year, there is still much spending with almost no income. How to make billions out of nothing, or vice versa, how to bring billions to a minimum – that is the problem to be addressed to the Government.
Oil Fund of Azerbaijan will become empty treasury (Our analysis)
AZERI DAILY ANALYSIS GROUP
Many of our officials and deputies unanimously asserted that the decline in oil price was not terrible for Azerbaijan. They said, we had large supply of funds, which would last not only for this year but for the next as well. We have warned that in these words if there is truth, then only partial. That is, all their allegations concern only the budget and current issues, including social. But there is a more long-term plan of the country, there is the Oil Fund, which not only sponsors half of the state budget, but also a lot of other projects, including social ones.
Yes, we have repeatedly warned that the collapse of oil prices will cause a severe blow to the Oil Fund and it cannot be so recklessly squandered. And no matter how hard the authorities hide from the public these prospects, they did not succeed. The government has not yet approved the budget of the State Oil Fund (SOFAZ) for this year. Although, as Turan Agency reminds, this annual procedure usually falls on the last month of the previous year. But if the oil fund, roughly speaking, plays the role of the second half of our budget, it turns out that one half of the budget have been approved, and the other not. That cannot go for long, the fund will soon have to carry the current payments, but there is no budget.
Indeed, the State Oil Fund is too important for the economy of Azerbaijan. It should provide 53.5% of the revenue of the state budget for 2015, or about 11 billion manats. From SOFAZ the Azerbaijani government plans to fund its share of the Southern Gas Corridor and other major oil and gas projects. A lot of them, and the total cost is more than one billion manats. It is financing the construction of floating drilling rig of SOCAR, SOCAR refinery in Turkey, the chemical complex in Garadagh and other projects.
Naturally, all of these projects should be activated, and the Fund budget will be approved. But today the government is not ready for approval of this important document. This is understandable, because not only Azerbaijan, but also all the oil-producing countries today are experiencing difficulties with the budget. Oil price in the budgets of different countries is set at current prices it at the time of adoption of the relevant budgets. The leaders of these countries have openly declared that they are ready to calculate the new budget, which may be revised according to different scenarios. After all, oil prices continue to fall, forecasts contradict each other. And in Azerbaijan it is all happening against the backdrop of the continuing decline in export of oil.
And it is not difficult to understand that in such a situation, the government must clarify all the details before you approve the budget of SOFAZ. After all, if the current low prices last for a long time SOFAZ revenues can be zeroed out. Expenses, although not approved yet, are already known. And one of the important problems of the government today, we think, is precisely to find ways to reduce them as much as possible.
In the case of the Oil Fund, it is not easy to carry out such calculations. If, say, the State Oil Company of Azerbaijan (SOCAR) has calculated its losses and found that if the oil price in 2015 is at $ 60 per barrel the company's losses could reach approx. 400 million AZN. In such case it will complicate things for SOFAZ. At that price of oil and the budgeted price of $ 90 per barrel SOFAZ may loose all oil revenues, which formed the basis of its income.
And how can that be? Oil Fund is indeed faced with a stalemate. We recall that at the end of the year the executive director of SOFAZ Shahmar Movsumov said that to ensure the sustainability of their own development in the following years mechanisms to reduce costs had to be developed. In this regard, the fund is developing various scenarios of income and the dynamics of the fund's assets. But this statement only provides certain reduction of the budget expenditures of SOFAZ. The basic expenses, including the multi-billion transfer to the state budget, is not within the competence of the fund, the decision thereon shall be taken at the highest level.
Note that, according to the State Oil Fund in 2013, revenues of the fund amounted to 13.6 billion manats and expenditures 12.3 billion manats, in 2014 its revenue was projected at $ 11.6 billion manats and expenditures - 10.6 billion manats. That is, every year, the Fund's income exceeded its expenses. This year, there is still much spending with almost no income. How to make billions out of nothing, or vice versa, how to bring billions to a minimum – that is the problem to be addressed to the Government.
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