State Oil Fund to continue financing four strategic programs
The State Oil Fund of Azerbaijan SOFAZ is projected to continue financing four strategic programs in the 2018 budget-year, SOFAZ told Azernews.
“Out of them two are infrastructural, the Samur-Absheron irrigation system reconstruction project and the Baku-Tbilisi-Kars (BTK) new railway project; the other two projects reflect social responsibility: measures related to social and settlement issues of refugees and internally displaced people; and the “State Program on Education of the Azerbaijani youth abroad in 2007-2015,” the company reported.
SOFAZ stressed that overall, expenditures on all four projects are to equal 482.3 million manats ($283.69 million) below 5 percent of the Fund’s overall expenditures, adding that in order to preserve the SOFAZ’s incomes, the use of alternative funding sources has been increasing. For example, since 2017 SOFAZ has not been contributing to the “Southern Gas Corridor”, which is now financed via debt instruments.
Speaking of future investments plans, SOFAZ noted that the company constantly reviews its investment strategy in line with risk/return profile of its stakeholders to further optimize investment portfolio and increase the Fund’s long term return.
“Going forward, SOFAZ will continue deployment of its funds within major asset classes in the quest of maximizing risk-adjusted returns. We regularly track the financial markets, analyze the investment circumstances and opportunities through the research based methodologies and evaluate them appropriately,” they noted.
Further, the Oil Fund stressed that currency allocation limits are set within its Investment Policy and whenever the Fund makes investment decisions it also takes into account those limits.
“Given that SOFAZ, as an institutional investor, is facing a variety of market risks, including volatility, diversification is key in mitigating those risks. Saying that, the core objective of the Fund’s investment strategy, that reflects a long term focus, is to build a diversified investment portfolio to maximize the risk-adjusted returns,” the organization stressed.
Further, it was mentioned that in line with this strategy SOFAZ has managed to significantly diversify its investment portfolio by asset class and this process will continue going forward. “Through this approach we get exposure to new currencies as a result of further diversification of the investment portfolio by asset class. Therefore, our new currency selection generally depends on the attractiveness of returns of different investment opportunities located in different countries.”
Touching upon the investments to improve the social conditions of refugees and IDPs, the company noted that it is the Fund’s flagship project, which has been running since 2001, and during all these years a total of 2.102 billion manats ($1.24 billion) has been spent on it, with 105.0 million manats ($61.76 million) having been paid by SOFAZ in 2017 only.
Aforementioned funds were allocated for the construction of 71 residential districts of private houses, 16 residential blocks with 202 houses multi-storeyed buildings that in total allow for the settlement of 32,480 families, as well as a large number of socio-infrastructural objects. In addition, 76 schools, 7 music colleges, 55 community centres, 63 administrative buildings, 60 kindergartens, 17 medical centres, 5 hospitals, as well as 49 communication junctions, 773 km of highways, 870 km of water pipelines, 1640 km of transmission lines, 436 km of gas pipelines, 84 km of sewerage lines were built within the framework of the program; 745 high voltage electric transformers, 30 electric substations, 241 artesian wells, 212 water reservoirs and 86 pumping stations were completed and made ready for use, and an irrigation system covering 11,310 hectares was created. Thanks for the program, endemic poverty became a thing of the past in the refugee and IDP community, dropping from 75 percent in 2003 to below 12 percent.
Speaking of the Fund’s outlook for 2018, given the situation at the global oil market, SOFAZ noted that the budget for 2018 was projected with the oil price taken $45 per barrel, as against $40 for the last year.
“Still, this figure represents a very prudent downside risk estimation, since given the latest oil market trends it is highly probable that the actual annual price will in fact be higher. In January 2018, SOFAZ also received a payment of $450 million bonus for the extension of the production-sharing agreement on the Azeri-Chirag-Guneshli (ACG) oilfield; also, revenues from the management of SOFAZ assets are expected to be slightly higher than in 2017,” Azerbaijan’s Oil Fund emphasized.
They went on to say that in view of these facts, it is realistic to expect that SOFAZ’s budget revenues projected at 11.56 billion manats ($6.8 billion), will be fully executed.
“Actual results of the year far exceeded expectations in 2017, and the Fund’s assets, instead of decrease, registered an increase from $33.1 billion to $35.8 billion. This year, the SOFAZ budget surplus is estimated to constitute 1.8 billion manats ($1.06 billion),” SOFAZ underlined.