What is the State Oil Fund (Azerbaijan)

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is a sovereign wealth fund established by the Republic of Azerbaijan.

BREAKING DOWN State Oil Fund (Azerbaijan)

The State Oil Fund of the Republic of Azerbiajan was founded in 1999, although it is the ultimate result of a national oil strategy put into place by national leader Heydar Aliyev in 1994. The fund is based in Baku, Azerbaijan. The State Oil Funds sees its source of deposits as primarily surplus revenues from the development of oil reserves in Azerbaijan. The oil fund primarily operates in investment-grade securities such as government agency bonds, corporate bonds, and mortgage-backed securities. The fund also manages excess revenues from oil profits. The official website of the State Oil Fund is http://www.oilfund.az/.

According to the World Economic Forum, the mission of The State Oil Fund of the Republic of is to transform depletable hydrocarbon (oil and gas) reserves into financial assets generating perpetual income for current and future generations and the financing of strategically important infrastructure and social projects of national scale to ensure the representation of the country in international agreements on joint exploration of natural resources. In other words, the Oil Fund not only directly manages the oil and gas agreements within the republic and those who purchase the resources, but it also works to manage the oil funds and preserve the resources for future generations.

According to the State Oil Fund's 2008 Annual Report, oil production accounted for 54 percent of Azerbaijan's GDP. This highlights the reliance that the Republic of Azerbaijan has on oil production as a source of prosperity. In order to help diversify the Azerbaijani economy, the primary purpose of the State Oil Fund is to preserve the wealth derived from this oil production and to invest in public infrastructure and the local non-oil economy. The fund is invested very conservatively, and its performance benchmark is the three-month LIBOR interest rate.

Management of the State Oil Fund of the Republic of Azerbaijan

The State Oil Fund of the Republic of Azerbaijan is ultimately accountable to the President of the Republic of Azerbaijan, but is directly overseen by a Supervisory Board made up of government bodies and public organizations, including the Prime Minister and the First Deputy Speaker of the Parliament. An Executive Director appointed by the President of the Republic of Azerbaijan manages the direct day-to-day management, funding, and decision-making of the State Oil Fund.