National Oil Fund

The State Oil Fund of Azerbaijan (SOFAZ) was established in 1999 to ensure that the country’s oil wealth would be shared with future generations. The fund receives the government’s share of profits from current oil and gas productionsharing agreements together with flows from transit and acreage fees paid by the Azerbaijan International Operating Company.

SOFAZ is managed by a supervisory board headed by the prime minister. Asset management at SOFAZ is very conservative, with four-fifths of assets invested in fixed-income securities. In 2006, guidelines were relaxed to allow a small part of the fund’s assets to be invested in equities.

The rules about what the fund can invest in domestically are designed to prevent SOFAZ from acting as a bank for the government. In an effort to ensure transparency in the oil sector, Azerbaijan has signed up for the Extractive Industries Transparency Initiative (EITI), which supports governance in resourcerich countries through the publication and verification of company payments and government revenue from oil, gas and mining.

SOFAZ’s total assets have risen steadily since its creation, except in 2006 when it recorded a deficit. As of January 2010, the fund reported assets of more than $14.9 billion. Conservative estimates predict this will rise to more than $200 billion in the next 20 years, although these figures are subject to revision depending on future energy prices.