Azerbaijani oil fund's long-term assets up in 2012
By Gulgiz Dadashova
The state oil fund SOFAZ -- an entity that accumulates and manages Azerbaijan's oil and gas revenues -- has said that the Fund's assets amounted to about 26.9 billion manats in 2012 compared to more than 23.5 billion manats in 2011. 26.01 billion manats of the total amount fell to current assets and about 876.63 million manats - long-term assets.
In its annual report published on July 17, SOFAZ said that in 2012 the Fund's assets increased by 14.5% by the end of the year, reaching $34.1 billion. The part of the Fund's inflows set aside for reserves equaled 22.7%.
The Fund's revenues totalled over 13.674 billion manats (around $17.405 billion) in 2012. The revenues consisted of the proceeds from sales of hydrocarbons, as well as transit fees, bonus payments, acreage fees, revenues from management of the Fund's assets and other revenues.
Expenses last year totaled 10.75 billion manats compared to 10.57 billion manats in 2011.
SOFAZ asset management revenues amounted to 544 million manats or $693.5 million, yielding 2.2% rate of return in 2012. Revenue from transportation of oil and gas through the territory of Azerbaijan (transit fees), which amounted to 7.9 million manats or $10 million, was another source of SOFAZ's revenues in 2012.
The report also says that the new investment policy enabled SOFAZ to include new assets, such as gold bullions meeting the requirements of the London Bullion Market Association (LBMA) and real estate, to the State Oil Fund's invesment portfolio in 2012.
As a result, by the end of the year under review, the part of the fixed income securities decreased to 94.36%, with new asset classes including Equities, Gold and Real Estate gaining 2.00%, 2.35% and 1.29% of the investment portfolio respectively. New currencies added into the currency composition were Turkish Lira, Russian Ruble and Australian Dollar.
In 2012, SOFAZ made its foray into the real estate market through direct property acquisitions in several key European cities. The Fund's strategy is aimed at investing in key business cities with high market transparency, depth, liquidity, landlord friendly laws and practice of very long leases. The investments were primarily directed into mixed-use office space. SOFAZ made its first investment in London, followed by Moscow and Paris.
On February 1, 2012, SOFAZ started the purchase of 25 gold bars conforming to the LBMA requirements per week (10,000 troy ounces) from the market-maker member banks of LBMA. As of December 31, 2012, 14,934 kg of gold (480,146 troy ounces) had been acquired. The gold is kept in JP Morgan's London vault.
In the next stage, it is planned to ship strategically important gold reserves to Azerbaijan and store them inside the country. Currently, in order to get extra return on the gold investments, some of the gold is invested in short-term deposits at reputable banks operating in international financial markets.
SOFAZ was established in December 1999 by a presidential decree. Its primary objectives are to help maintain macroeconomic stability in the country and to generate wealth for present and future generations.
Projected total cost (average amount) of the SOFAZ investment portfolio for 2013 was set at 25.2 billion manats, while the figure was projected at the level of 23 billion manats in late 2012.
As of April 1, 2013, SOFAZ assets stood at $34.325 million, increasing 0.6 percent compared to early 2013.