Good Practices and Innovations in Public Governance 2003-2011
Good Practices and Innovations in Public Governance 2003-2011 Good Practices and Innovations in Public Governance 2003-2011
Good Practices and InnovATIONS in Public Governance Western Asia Azerbaijan 2007 Category 1 Winner Extractive Industries Transparency Initiative The State Oil Fund of Azerbaijan Description Making the extractive industries more transparent and efficient by bringing all stakeholders together in evaluating their revenues and expenditures. Summary The government of Azerbaijan has endorsed and implemented the Extractive Industries Transparency Initiative, an international effort modeled on the the Lancaster House Conference in London in 2003, which has resulted in high standards of transparency and accountability in oil and gas revenues. The Problem In September 2002, the former UK Prime Minister Tony Blair launched the Extractive Industries Transparency Initiative (EITI) at the World Summit for Sustainable Development in Johannesburg. The First EITI Lancaster House Conference held on 17 June 2003 in London set out the EITI Principles, which acknowledged that the natural resources wealth of a country should benefit all its citizens. The delegation headed by the President of the Republic of Azerbaijan, Mr. Ilham Aliyev, declared at the EITI Lancaster House Conference that the Government of Azerbaijan would join EITI and support the international efforts for higher transparency in the extractive industries. Moreover, Azerbaijan volunteered to become a pilot country. A number of governments, the extractive industry companies and non-governmental organisations adopted a Declaration on the principles of EITI: “Publish What You Pay” for the foreign and national companies of extractive industries and “Publish What You Receive” for host governments of extractive industries. The EITI supports improved governance in resource-rich countries through the full publication and verification of company payments and government revenues from oil, gas and mining industries. Many countries are rich in oil, gas, and minerals and studies have shown that when governance is good, these can generate large revenues to foster economic growth and reduce poverty. However, when governance is weak, they may instead cause poverty, corruption, and conflict – the so called “resource curse”. The EITI aims to defeat this “curse” by improving transparency and accountability. 302
2007 Category 1: Azerbaijan Since the Oil Fund of Azerbaijan is expected to take more than 150 billion dollars in revenue over the next 15 years, a significant portion of government revenue, ensuring financial transparency in the oil industry was regarded as crucial to promoting investor confidence in the country as a whole. The Solution Following the declaration made by President Ilham Aliyev at the EITI Lancaster House Conference that the Government of Azerbaijan would join EITI and support the international efforts for higher transparency in the extractive industries as well as volunteering Azerbaijan as a pilot country, the President himself promoted the establishment of an interagency committee on EITI to implement obligations taken at the EITI Conference. Cabinet Ministers of Azerbaijan established the National Committee on EITI on 13 November 2003. The Committee was chaired by the Executive Director of the State Oil Fund (SOFAZ). The Executive Director of the SOFAZ is also overseeing the work of the EITI Secretariat of Azerbaijan, which is hosted by the Oil Fund. The SOFAZ is responsible for the day-to-day running of EITI in Azerbaijan, and the appropriate coordination with the foreign extractive industry companies. The EITI Secretariat is closely cooperating with the foreign and local extractive industry (oil and gas) companies and NGOs to implement EITI in Azerbaijan. The main task of the SOFAZ included: building understanding with EITI process stakeholders (the National Committee on EITI, extractive industry companies and civil society), increasing awareness of government institutions involved in EITI process and developing credible implementation mechanisms. It took almost one year to come to a mutual agreement and as the result of productive cooperation a Memorandum of Understanding (MOU) was signed on 24 November 2004 between all stakeholders. 21 foreign and local extractive (oil and gas) industry companies, including State Oil Company of the Republic of Azerbaijan, Exxon, Statoil, Total, Lukoil, Chevron, Shell, Devon Energy have signed the MOU. Currently the number of companies increased to 24. The reports are being submitted twice a year: annual on 15 March and semi-annual on 15 August. A new audit firm is selected for each reporting cycle. Deloitte was announced on 20 December 2004 as winner of the tender for the first reporting cycle covering 2003 (annual) and 2004 (6 months). Since the Government of Azerbaijan joined the EITI, Azerbaijan has disclosed Four Transparency Initiative Reports (2003, 2004, first 6-months assertion of 2005 and annual 2005). The First report was disclosed on 15 March 2005. It was the first published report of this kind in the world. The full report and the press-release have been uploaded to the SOFAZ website: www.oilfund.az and the EITI Secretariat of the UK DFID website: www.eitransparency.org as well as the NGOs Coalition website: www.eiti-az.org 303
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<strong>Good</strong> <strong>Practices</strong> <strong>and</strong> InnovATIONS <strong>in</strong> <strong>Public</strong> <strong>Governance</strong><br />
Western Asia<br />
Azerbaijan<br />
2007 Category 1 W<strong>in</strong>ner<br />
Extractive Industries Transparency Initiative<br />
The State Oil Fund of Azerbaijan<br />
Description<br />
Mak<strong>in</strong>g the extractive <strong>in</strong>dustries more transparent <strong>and</strong> efficient by br<strong>in</strong>g<strong>in</strong>g<br />
all stakeholders together <strong>in</strong> evaluat<strong>in</strong>g their revenues <strong>and</strong> expenditures.<br />
Summary<br />
The government of Azerbaijan has endorsed <strong>and</strong> implemented the Extractive Industries<br />
Transparency Initiative, an <strong>in</strong>ternational effort modeled on the the Lancaster<br />
House Conference <strong>in</strong> London <strong>in</strong> <strong>2003</strong>, which has resulted <strong>in</strong> high st<strong>and</strong>ards of transparency<br />
<strong>and</strong> accountability <strong>in</strong> oil <strong>and</strong> gas revenues.<br />
The Problem<br />
In September 2002, the former UK Prime M<strong>in</strong>ister Tony Blair launched the Extractive<br />
Industries Transparency Initiative (EITI) at the World Summit for Susta<strong>in</strong>able<br />
Development <strong>in</strong> Johannesburg. The First EITI Lancaster House Conference held on<br />
17 June <strong>2003</strong> <strong>in</strong> London set out the EITI Pr<strong>in</strong>ciples, which acknowledged that the<br />
natural resources wealth of a country should benefit all its citizens. The delegation<br />
headed by the President of the Republic of Azerbaijan, Mr. Ilham Aliyev, declared at<br />
the EITI Lancaster House Conference that the Government of Azerbaijan would jo<strong>in</strong><br />
EITI <strong>and</strong> support the <strong>in</strong>ternational efforts for higher transparency <strong>in</strong> the extractive<br />
<strong>in</strong>dustries. Moreover, Azerbaijan volunteered to become a pilot country.<br />
A number of governments, the extractive <strong>in</strong>dustry companies <strong>and</strong> non-governmental<br />
organisations adopted a Declaration on the pr<strong>in</strong>ciples of EITI: “Publish<br />
What You Pay” for the foreign <strong>and</strong> national companies of extractive <strong>in</strong>dustries <strong>and</strong><br />
“Publish What You Receive” for host governments of extractive <strong>in</strong>dustries. The<br />
EITI supports improved governance <strong>in</strong> resource-rich countries through the full<br />
publication <strong>and</strong> verification of company payments <strong>and</strong> government revenues from<br />
oil, gas <strong>and</strong> m<strong>in</strong><strong>in</strong>g <strong>in</strong>dustries. Many countries are rich <strong>in</strong> oil, gas, <strong>and</strong> m<strong>in</strong>erals<br />
<strong>and</strong> studies have shown that when governance is good, these can generate large<br />
revenues to foster economic growth <strong>and</strong> reduce poverty. However, when governance<br />
is weak, they may <strong>in</strong>stead cause poverty, corruption, <strong>and</strong> conflict – the so<br />
called “resource curse”. The EITI aims to defeat this “curse” by improv<strong>in</strong>g transparency<br />
<strong>and</strong> accountability.<br />
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