Prepared for:
The EITI International Secretariat
Prepared by:
RCS Global
207 Regent Street, W1H 3HH
London, UK
contact@rcsglobal.com
www.rcsglobal.com
10 April 2015
EITI International Secretariat
Dear Colleagues,
The RCS Global team is pleased to submit the report of the EITI Validation of Azerbaijan.
This report provides a summary of our research and 10 day validation mission in Baku in February 2015. The
Validation team would like to thank the Azerbaijan EITI Secretariat, particularly Abbas Abbasov and Farid
Farzaliyev, as well as the members of the Azerbaijan Multi-Stakeholder Group and others whose cooperation
ensured the mission was a success. We would also like to thank Sam Bartlett and the other members of the
International Secretariat for providing guidance on the Validation process.
Where possible we have provided evidence to back all assertions. Constraints in this regard included a lack of
detail in the minutes and documents only available in Azeri (key documents were translated). Where
controversial issues have arisen, we have endeavoured to strike a balance between contrasting opinions and
provide options for a way forward.
We thank you for the opportunity to provide the very first Validation report under the 2013 EITI standard.
Yours sincerely,
Harrison Mitchell
Dr Jeremy Weate
Dr Meruert Makhmutova
Acronyms/Abbreviations
ASAN
AzEITI
CSO
EED
EITI
GoAZ
HGA
IA
MOU
MSG
NGO
OSF
PSA
SGC
SOCAR
SOFAZ
TOR
1. Executive Summary
Overall Conclusions
Following an EITI fact-finding mission to Baku, the 28th EITI Board meeting in Myanmar (October 2014) agreed
during a closed session that the situation for civil society organisations (CSOs) in Azerbaijan is unacceptable
and that EITI implementation was not able to take place given the current circumstances for CSOs. The EITI
Board called on the government of Azerbaijan to reaffirm its commitment to work with CSOs and ensure an
enabling participative environment. Specifically, the Board called on the government to ensure that NGO
Coalition Members could resume their role within EITI and are able to:
Access their bank accounts and register new grants for EITI implementation activities;
Speak freely about the EITI process and express views without fear of reprisal or harassment;
Organise training, meetings and events related to the EITI process.
There were two remedial actions agreed: that the EITI Board consider a high-level mission to Baku to convey
the Boards decision and secondly, that Azerbaijan undertake early Validation in accordance with the EITI
Standard to commence on 1 January 2015. The fact-finding mission report submitted to the EITI Board via the
Rapid Response Committee was made available to the Validator in preparation for this assignment. As the
EITI Board has agreed that the report remain confidential, it is not commented on or assessed in this
Validation Report.
As a result of the findings from the early Validation mission in February 2015, the Validators overall
recommendation is that EITI in Azerbaijan (AzEITI) has made meaningful progress in implementing EITI in the
context of the seven requirements of the 2013 EITI Standard. The Azerbaijan EITI (AzEITI) draft 2013 report
(hereafter the draft 2013 report) is a significant step up from previous reports and provides a great deal of
additional information on the extractives sector in Azerbaijan. The NGO Coalition review of the draft report
provide an excellent summary of both the quality of the report and the increased participation of civil society
in the reports preparation:
This report can be regarded as a first paper that exposes integral components of sale of the
state's share of production, export, employment and material payments in extractive
industries, as well as main aspects of legal framework and fiscal regulations managing this field.
Unlike previous practices, MSG made a decision to establish Working Group to prepare the
Report. Thus, the contribution made by the parties to the development of the report,
particularly on contextual information part is very exceptional.1
In this report, we identify areas where the draft 2013 report may be strengthened to be fully in line with the
2013 Standard. In this respect, the potential methodological issue of assessing Azerbaijans EITI
implementation on the basis of only one draft report under the new standard can be turned into an
advantage: it is an opportunity to strengthen the implementation process. We therefore recommend that
this report be used as an independent source of feedback on the draft 2013 report. At the same time, we are
careful to bear in mind that our assessment of the EITI progress is based on a draft report which is currently
being updated and is on schedule to be finalised before the end of 2015.
We are also mindful that any assessment of progress implementing EITI in Azerbaijan cannot ignore the
current highly sensitive geo-political context and the ramifications this has to shape thinking within
government at this time. Most pressing of issues for many in the Azerbaijani government is the conflict in
Ukraine, which is perceived as a signal for a possible existential threat to Azerbaijan itself and has led to an
increasing securitisation agenda in government. From the governments perspective, an unfortunate side
effect of this agenda has been what is sometimes perceived to be a clamp down on CSOs. This has directly
affected the ability of the NGO Coalition for EITI to conduct implementation activities and fully participate in
1
See A Review of the NGO Coalition for "Improving Transparency in Extractive Industries" on 2013 EITI report disclosed within the
framework of Extractive Industries Transparency Initiative Implementation in the Republic of Azerbaijan October 31st, 2014
Recommendations
Part I: MSG oversight
1. The draft 2013 report should be updated to include all missing information identified in this
validation report required by the 2013 Standard;
2. The NGO Coalition should formally apply to register with the Ministry of Justice;
3. The Government of Azerbaijan (GoAZ) should facilitate the registration of the NGO Coalition if
and how required and provide capacity building support on financial management;
4. A funding mechanism for the NGO Coalition should be agreed with the Council on Support to
NGOs, to enable fulfilment of CSO components of annual work plans;
5. The review of frozen NGO bank accounts should be fast tracked, and the results made publicly
available;
6. The MSG should consider developing a transparency and accountability strategic framework that
shapes medium to long term thinking, going beyond the minimum requirements of the EITI 2013
Standard;
7. Financial support should be provided to implement (and develop) the 2015-18 NGO Coalition
Strategic Plan (Secretariat, capacity-building, project support), building on existing World Bank
support;
8. The MSG consider setting up an online automated continuous reporting system and web-based
reporting templates to reduce the cost of reporting;
9. The work plan should be updated to reflect best practice;
2. Introduction
Overview and background of EITI implementation
Azerbaijan was an early adopter of EITI (2003), becoming a candidate country in 2007 and the first country to
become compliant in 2009 during the Doha EITI Conference. The Coalition for Improving Transparency in
Extractive Industries was formed in 2004 and Azerbaijan played a key role in the adoption of the UN General
Assembly resolution on EITI in 2008.
Following reports of interference with the ability for CSOs to function2, the 27th EITI Board meeting in Mexico
(in July 2014) appointed a Rapid Response Committee to discuss Azerbaijan. A decision on Azerbaijan was
made at the 28th EITI Board meeting in Myanmar (October 2014), requesting CSOs be fully empowered (in
terms of access to funding, freedom of expression and association) and that the next validation was brought
forward to take place by February 2015.
The first AzEITI report was produced in 2005 (within 18 months of being declared a candidate
country). Reconciliation reports have been produced for each subsequent year. AzEITI in fact
produces semi-annual and annual reports, with a total of 17 published so far (all are available on the
AzEITI website)
The latest report (currently in draft) is for the 2013 financial year. It is due to be published before the
end of 2015, in line with Requirement 2.2 that reports must cover data no older than the second to
last complete accounting period
The MSG MOU (provision 2) requires that the annual EITI report be prepared and published by
December 31st of the following financial year
The current Independent Administrator, Moore Stephens, was contracted to produce three annual
reconciliation reports for the reporting periods 2012, 2013 and 2014
The Zoroaster
Human
Rights
Watch,
Tightening
the
Screws
,
http://www.hrw.org/sites/default/files/reports/azerbaijan0913_ForUpload_1.pdf
published
September
2,
2013.
See http://en.president.az/azerbaijan/contract
http://www.tap-ag.com/the-pipeline/the-big-picture/southern-gas-corridor
5 http://www.eiti.az/index.php/en/senedler-2/agreements/266-azeri-chirag-deep-water-gunashli
6 http://www.bp.com/content/dam/bp-country/en_az/pdf/legalagreements/PSAs/SD-PSA.pdf
4
Expression: Civil society representatives are able to engage in public debate related to the EITI
process and express opinions about the EITI process without restraint, coercion or reprisal.
Operation: Civil society representatives are able to operate freely in relation to the EITI process.
Association: Civil society representatives are able to communicate and cooperate with each other
regarding the EITI process.
Engagement: Civil society representatives are able to be fully, actively and effectively engaged in the
design, implementation, monitoring and evaluation of the EITI process.
Access to public decision-making: Civil society representatives are able to speak freely on
transparency and natural resource governance issues, and ensure that the EITI contributes to public
debate.
Following an EITI fact-finding mission to Baku, the 28th EITI Board meeting in Myanmar (October 2014) agreed
during a closed session that the situation facing civil society in Azerbaijan is clearly problematic. The Board
discussed the findings of the fact finding mission and expressed deep concern. The Board hopes that
Azerbaijan will open up more space for civil society to make its essential contribution to the EITI as laid down
in our Standard8 The EITI Board called on the government of Azerbaijan to reaffirm its commitment to work
with CSO and ensure an enabling participative environment. Specifically, the Board called on the government
to ensure that CSO Coalition Members could resume its role and are able to:
7
8
Access their bank accounts and register new grants for EITI implementation activities;
Speak freely about the EITI process and express views without fear of reprisal or harassment;
The Civil Society Protocol is part of the EITI Standard and is available here https://eiti.org/document/standard
https://eiti.org/news/statement-eiti-chair-clare-short-azerbaijan
10
There were two remedial actions agreed: that the EITI Board consider a high-level mission to Baku to convey
the Boards decision and secondly, that Azerbaijan undertake early Validation in accordance with the EITI
Standard to commence on 1 January 2015.
The fact-finding mission report submitted to the EITI Board via the Rapid Response Committee was made
available to the Validator in preparation for this assignment. As the EITI Board has agreed that the report
remain confidential, it is not commented on or assessed in this Validation Report.
The assessment of the EITI provisions is structured into three parts as per the illustration below. Part I is the
assessment of the MSG oversight of the EITI process (provisions 1.1. 1.4); Part II is the assessment of the
EITI disclosure provisions including the timeliness, comprehensiveness and reliability of the information
(provisions 2 5); and Part III is the assessment of the outcomes and impact of EITI implementation
(provisions 6-7).
Award of contracts
and licenses
Monitoring and
production
Exploration (3.3)
Production data (3.5.a)
Export data (3.5.b)
Timely, comprehensive
and reliable disclosures
(2, 5)
Revenue collection
Revenue
management and
distribution
Sub-national transfers
(4.2.e)
Distribution of revenues
(3.7)
Social expenditures
(4.1.e)
Timely, comprehensive
and reliable disclosures
(2, 5)
Social and
economic spending
Following on from the EITI Boards decision on the implementing country, the following pathways apply:
11
In the case of Azerbaijan, the EITI Board decided in October 2014 on the following possible pathways in line
with the above flow chart:
Should Validation conclude that Azerbaijan has met all EITI Requirements, Azerbaijan will maintain
its status as compliant with the EITI Requirements in accordance with Requirement 1.6.b.
Should Validation conclude that Azerbaijan has made meaningful progress towards achieving EITI
Compliant status but has not met all of the requirements, Azerbaijan will have its status downgraded
from compliant to candidate in accordance with Requirement 1.6.b.
Should Validation conclude that Azerbaijan has made no meaningful progress with EITI
implementation, Azerbaijan will be delisted in accordance with Requirement 1.6.b.
Should Validation conclude that it is manifestly clear that a significant aspect of the EITI Principles
and Requirements is not being adhered to, the EITI Board will suspend or delist Azerbaijan in
accordance with Requirement 1.7.a
Project Methodology
The second validation of Azerbaijan involved three phases of work:
Phase 1: Preliminary Desk Work (01.01.15 03.02.15)
The core focus of the desk work was an in-depth assessment of current draft 2015 work plan (which is
expected to be agreed by the MSG in March 2015) and the draft 2013 EITI Report to note progress against
the work plan in the previous two years in line with the Requirement 1.4. We also assessed all annual EITI
reports since Azerbaijan became a compliant country in April 2009: 2008, 2009, 2010, 2011 and 2012, with
an emphasis on the two most recent years (2011 and 2012). We also reviewed the previous validation report
(from 2009) to assess how effectively the recommendations from that report have been implemented in
subsequent work plans. As part of our assessment, we conducted initial teleconference interviews with the
EITI National Coordinator, Farid Farzaliyev and his team. We also engaged with relevant stakeholders not
based in Azerbaijan, as well as a review of external documents, as part of our initial fact-and-analysis finding
12
13
http://collections.europarchive.org/tna/20070701080507/http:/www.dfid.gov.uk/news/files/eitireportconference17june03.asp
14
Ordinance of the Cabinet of Ministers of the Republic of Azerbaijan number 224 from 2003 (now available in
English but at the time of the final version of this report not yet online) notes that the Chair of the Government
Committee on EITI will be the Executive Director of SOFAZ.10 Meanwhile, the latest MSG MOU states (in
clause 1.3.6) that The chairman of the Commission shall be the Chair of the MSG on behalf of the
Government and shall chair its meetings. In the event of non-attendance of the chairman of the Commission
at a MSG meeting, the chairmanship is exercised by members of MSG representing Parties in turn. The
current Executive Director of SOFAZ and the Chair of the MSG is Shahmar Movsumov.
Stakeholder Views
Government stakeholders are proud of the governments record of revenue transparency, with the
early adoption of EITI as testament;
Other stakeholders agree that EITI has been an important opportunity to engage government in the
most significant sector of the economy. Shahmar Movsumov is widely respected in his role as
Executive Director of SOFAZ and Chair of the MSG.
Conclusion
Both sub-provisions are met.
10
http://www.eiti.az/index.php/en/senedler-2/ordinance2/270-ordinance-of-the-cabinet-of-ministers-of-the-republic-ofazerbaijan-224
15
http://www.eiti.az/index.php/en/senedler-2/memorandum
12 http://www.eiti.az/index.php/en/senedler-2/ordinance2/270-ordinance-of-the-cabinet-of-ministers-of-the-republic-of-azerbaijan-
224
13 For example http://eiti-ngo-azerbaijan.org/wp-content/uploads/2014/07/Protocol-N83-EN.pdf. All NGO Council minutes can be
accessed here: http://eiti-ngo-azerbaijan.org/?page_id=172
16
14
http://www.venice.coe.int/webforms/documents/?pdf=CDL-AD(2014)043-e
17
repeated unnecessary demands for correction of registration documents etc. The relevant provisions
should be amended to limit the grounds for refusal of registration to serious deficiencies.
The requirement for international NGOs to create local branches and representations and have them
registered should be reconsidered. Blanket restrictions on the registration and operation of branches
and representations of foreign NGOs, such as the absolute limitation of the number of branches and
representations of foreign NGOs in Azerbaijan, should be eliminated.
The amendment preventing foreign funding of NGOs should be revised as to authorize foreign
funding unless there are clear and specific reasons not to do so. The procedure for obtaining the right
to give a grant, if maintained, should be associated with clear criteria and procedural indications
clearly laid down in the legislation.
Provisions allowing unwarranted interferences into the internal autonomy of NGOs, i.e. reporting
obligations and state supervision on NGOs internal organisation and functioning, should be
removed.
Stakeholder Views
Government
18
The governments view is that there has been full and active engagement of all parties in the MSG
and that it has worked hard to create an enabling environment for both company and civil society
participation. Via the three-stage evolution of the MSG MOU in the past decade, the three
stakeholder groups are free to select their representatives to the MSG (the government via the EITI
Committee, the NGO Coalition via the CSO council, companies via the Company Group). Meanwhile,
the governments view is that NGO registration law is in fact in line with international best practice
and the recent activity in ensuring compliance is to be expected in a complex region. One government
official involved in EITI stated that if there are any aspects of the NGO law that are not reflected in
international good practice, the GoAZ would amend the law.
In response to the draft version of this Validation report, the government EITI Commission noted,
Civil Society actively participates in the EITI process in Azerbaijan, there are no restraint, coercion
and nothing restricts the right to speak freely. The government ensured the existence of enabling
environment for participation of companies and Civil Society in EITI process of Azerbaijan with regard
to relevant laws, regulations and administrative rules. During last 5 years 34 Multi-Stakeholder Group
(MSG) meetings with participation of Civil Society representatives (protocols available) were held
(some of meetings were initiated by the Coalition of NGOs), several Working Groups consisting from
all 3 constituencies including Civil Society were established, numerous other events and activities
with active involvement of Civil Society representatives took place. During that period of time MSG
in common and its constituencies separately conducted and participated in a number of outreach
activities through: radio, press-releases, local conferences, seminars, trainings, round tables, face to
face meetings, EITI Reports and etc.
In consultation during the mission to Baku, Ministry of Justice officials stated that they will query the
recent Venice Commission recommendations formally in due course. They also noted that they
challenged specific aspects of an earlier (2011) Venice Commission report (while incorporating other
acceptable recommendations in the later amendments) and that the report writers acknowledged
their mistakes during a visit to Baku. However, the Validator was unable to gather evidence to back
up this claim. Finally, officials in this agency note that the NGO Coalition is not a registered body, and
that there has not even been an attempt to register the coalition (core members of the coalition
agree that they have not tried to register).
Meanwhile, GoAZ officials point to their record in improving registration and administrative processes
and interfaces between citizens and government. They point to the Azerbaijan Service and
Assessment Network (ASAN) service centres, which provides one-stop shop services to citizens (and,
officials have suggested, could possibly be extended to provide support to EITI, such as facilitating
While there is a diversity of opinion within civil society (with members with different agendas and
political perspectives), a commonly held view from the Validators consultations with civil society
representatives contrasts sharply with the prevailing government view, to the extent of irreconcilable
differences in perception. It is impossible to describe a middle ground in perceptions between the
government view and the civil society, because one does not exist in either camp. A commonly held
civil society view is that the clampdown on EITI outreach activities began around the second quarter
of 2013. In terms of specific issues, civil society representatives point first to the facts: 20
organisations involved in the coalition have had their accounts frozen, including the organisation
whose account runs the coalitions affairs the Economic Research Centre. CSO representatives also
reported the following issues:
o
15
NGO Coalition members suggested that it is impossible to register the coalition, as there
arent stated regulations for coalitions in the law. They point out that in Azerbaijani law, if a
matter is not prescribed in law, it is illegal.
In 2014 the Coalition made a film about EITI for the AzEITIs 10th anniversary, however hotels
and conference halls in Baku refused to hire out to the Coalition for the event because they
had received instructions not to host. For the same reason, all sub-national level events and
roundtables could not take place.
Due to restrictions in funding (lack of access to international donor funds and frozen
accounts) in 2014 the Coalition was not able to implement its components within the EITI
Work plan. The situation was the same in 2013. The issue was included in the 2013 Activity
report: the work plan component of Increasing the awareness of the Azerbaijani population
on EITI could not be completed. Roundtable discussions in universities, regions and regional
and central TV stations could therefore not be carried out. The Coalition provided three
reasons in the Activity report (direct quotation from the report follows):
1. Coalition did not provide for funds in its projects for roundtable meetings in
universities. Therefore no initiatives were taken for execution of this liability.
2. Roundtable organizational activities in the regions were not possible due to the
unofficial prohibitions of actions in the regions.
http://www.asan.gov.az/
19
o
o
3. The reason why the roundtables were not organized in central and regional TV
channels was that no broadcast time was allocated in central TV channels despite
numerous requests by the Coalition.16
As the coalition is not formally registered, funds for its activities are channelled through the
Economic Research Centre, which acts as the financial agent for the coalition. The centres
accounts were frozen in the last quarter of 2014. 17
The European Endowment for Democracy (EED) funded a research project through the Oil
Workers' Rights Protection Organisation on best practices in extractive sector transparency.
The project account was frozen and the EED was labelled a suspect donor.
Civil society representatives stated that with increasingly more civil society actors and
activists imprisoned, self-censorship has become a critical issue. CSO representatives report
being very concerned about intimidation and reprisals.
CSO stakeholders note that the last time the Coalition spoke publicly about transparency and
revenue management issues was in the first quarter of 2013, when the NGO Coalition was
able to be represented on Radio Liberty thanks to a grant from the Revenue Watch Institute.
Meanwhile, the station has now been closed down.18
The Coalition was forced to vacate an office located in the Life Center in February 2014,
where it had been operating for three years.19
In an appeal to the EITI International Board, the NGO Coalition noted that it does not
recommend delisting AzEITI, stating that However, the EITI NGO Coalition believes delisting
of Azerbaijan from EITI will bring existing platform for CSO and government collaboration to
an end. This will bring to deterioration of current situation, worsening condition of member
organizations and increase of pressure on them. The EITI NGO Coalition believes once
enabling environment for CSO is improved, collaboration with government and companies
could continue.20
Nonetheless, NGO representatives fear that the Coalition will no longer able to function without
funding and will soon exist in name alone; they add that there is no legal provision to enable the
Coalition to be registered (the reason why it has not even applied) and that under Azerbaijani law, if
there is no prescription for an administrative process, that process cannot take place. The civil society
view is that the GoAZ prefers compliant government-backed NGOs, GONGOS. The view is that in
the context of a securitisation agenda, this stance is counterproductive, as the role of civil societies is
to provide balance and stability to society and to provide support (albeit sometimes critical) to the
government in furtherance of a better Azerbaijan.
In a statement in support of the NGO Coalition in Azerbaijan, Publish What You Pay (PWYP) noted
that Publish What You Pay was disappointed that the International Board did not suspend
Azerbaijan, as it should have done according to the initiatives rules.21 The International Board could
have done so through provision 1.7 on suspension, which states that Where it is manifestly clear
that a significant aspect of the EITI Principles and requirements are not adhered to by an
implementing country, the EITI Board will suspend or delist that country.
A more general view from several civil society members during the Validation mission was that in
spite of the current security issues that plague the country, civil society organisations should not be
victimised and that the role of civil society is not to become unpaid government advocates. They
pointed out that civil societys role is to uncover problems to help strengthen society.
16
See http://www.eiti.az/index.php/en/reports/2013
http://eiti-ngo-azerbaijan.org/?p=780
18 http://www.azadliq.org/contentlive/liveblog/26763625.html
19 http://eiti-ngo-azerbaijan.org/?p=627
20 http://eiti-ngo-azerbaijan.org/?p=780
21 http://www.publishwhatyoupay.org/resources/pwyp-statement-support-azerbaijans-civil-society
17
20
Despite the strident protests of CSO representatives, another view of the situation was captured
during the mission which lies some way between the two diametrically opposed positions. This view
was expressed by independent observers with a close familiarity both with government and with civil
society. From this perspective, the NGO coalition is bloated, with some member organisations whose
activities bear little or no relationship to advocating for transparency in the extractive sector. In
addition, these stakeholders argue that the civil society sector did require rationalisation and
stronger regulation, given tax irregularities and the misappropriation of funds a view which echoes
to an extent the government position.
A company representative challenged the prevailing civil society view on a government clampdown
on activities It was noted that coalition members were in fact able to organize public events during
2014. Two examples were given: the 25th April 2014 roundtable EITI event organised by the Oil
Workers Rights Protection Public Union and the 22nd January 2015 roundtable on the possible effects
of decreasing oil prizes and the economic crisis in Russia on Azerbaijan. It was also pointed out that
the statements in the 2013 Activity Report about limitations on being able to implement the work
plan were not accepted by all MSG parties. It was also pointed out that the EITI Secretariat supported
the NGO Coalition in requesting for media slots (and that the coalition was therefore not
unsupported).
Conclusion
In terms of the Civil Society Protocol of the EITI Standard (which is not a compliance requirement) and
the three remedial actions requested by the EITI Board at its 28th meeting:
Expression: Civil society representatives are able to engage in public debate related to the EITI
process and express opinions about the EITI process without restraint, coercion or reprisal. The
remedial action given by the EITI Board here (at the 28th EITI Board meeting) is that coalition
members may speak freely about the EITI process and express views without fear of reprisal or
harassment
In feedback on the draft version of this validation report at a NGO Coalition Council meeting on
February 25th, the NGO Coalition noted that With more and more civil society actors and activists
being put in jail, self-censorship is an issue. People are very concerned about intimidation and
reprisals. Freedom of expression among civil society on extractive sector issues (and EITI
implementation specifically) is clearly not guaranteed at present in Azerbaijan.
Operation: Civil society representatives are able to operate freely in relation to the EITI process.
The remedial action given by the EITI Board here is that Coalition members are able to access
their bank accounts and register new grants for EITI implementation activities
This issue is complicated. The civil society view is that project funding for standard EITI activities has
been stalled and accounts frozen and that an absence of law means that registration of the NGO
coalition is not possible. Meanwhile, the GoAZ perspective is that civil society organisations are simply
going through the growing pains of internationally standard levels of regulations and that frozen
accounts are due to investigations of fraud and corruption, rather than related to specific types of
activity. The GoAZ also is keen to point out that there are no barriers to registering the coalition, and
that organisations known to be associated with political opponents are nonetheless funded through
the Council on State Support to NGOs.
21
Association: Civil society representatives are able to communicate and cooperate with each other
regarding the EITI process. The remedial action given by the EITI Board here is that Coalition
members are able to organise training, meetings and events related to the EITI process
While the 2014 Activity Report has yet to be completed, it is anticipated that it will report the same
issues as in the 2013 Activity Report, namely that the outreach and media engagement aspects of the
2014 work plan could not be completed, due to different types of restrictions on civil society activity
(frozen accounts, unofficial prohibitions on activities and lack of media broadcast slots being made
available).
Engagement: Civil society representatives are able to be fully, actively and effectively engaged in
the design, implementation, monitoring and evaluation of the EITI process.
Prima facie, this protocol requirement appears to be met as CSO members do not report being
restricted in their engagement with the EITI process itself. However, CSO members report that
limitations to participation, outreach and awareness raising activities due to restrictions on CSO funding
will likely become an issue this year.
Access to public decision-making: Civil society representatives are able to speak freely on
transparency and natural resource governance issues, and ensure that the EITI contributes to
public debate
This protocol requirement has been addressed already in the above: civil society representatives do
not currently feel able to speak freely on transparency and natural governance issues.
In conclusion, while some sub-provisions are met, others are unmet with limited progress. Reviewed
together, the issues of lack of access to funding to fully participate, frozen bank accounts, as well as selfcensorship, would suggest to the Validators that CSOs do not currently have access to the level of freedoms
recommended under the EITI CSO protocol.
22
22
23
http://www.eiti.az/index.php/en/senedler-2/eiti- standards/517-mhsht-qanuni-huquqi-rey-2
23
Validators
recommendation
on compliance
with the EITI
provisions
Met
Unmet with
meaningful
progress
Met
Met
Overall assessment:
AzEITI has made meaningful progress in meeting the provisions set out in
section 1.
Validators conclusions and recommendations:
1. The NGO Coalition should formally apply to register with the Ministry of Justice;
2. The Government of Azerbaijan (GoAZ) should facilitate the registration of the NGO
Coalition if and how required and provide capacity building support on financial
management;
3. A funding mechanism for the NGO Coalition should be agreed with the Council on Support
to NGOs, to enable fulfilment of CSO components of annual work plans;
4. The review of frozen NGO bank accounts should be fast tracked, and the results made
publicly available;
5. The MSG should consider developing a transparency and accountability strategic
framework that shapes medium to long term thinking, going beyond the minimum
requirements of the EITI 2013 Standard;
6. Financial support should be provided to implement (and develop) the 2015-18 NGO
Coalition Strategic Plan (Secretariat, capacity-building, project support), building on
existing World Bank support;
7. The MSG consider setting up an online automated continuous reporting system and webbased reporting templates to reduce the cost of reporting.
8. The work plan should be updated to reflect best practice
24
25
Stakeholder Views
The IA stated that only laws relating to extractive industry were included in the review. Their view is
that the PSA regime is sufficient to describe the current fiscal regime;
An MSG member from the Tax ministry agreed that Azerbaijans state budget withdrew almost 97
percent of incomes of Baku city to the state budget.
The NGO Coalition recommended adding other laws for the comprehensiveness of the legal
framework analysis.
There is no clear opinion from stakeholder on planned/ongoing reforms in extractives.
Conclusion
This provision is unmet with meaningful progress. The Validator recommends to update the information in
the 2013 EITI report to meet the requirements of Standard. The draft 2013 EITI report requires further
attention to fiscal devolution as defined in clause 3.2.a. As a further recommendation (not a requirement) the
MSG should consider paying attention to planned/ongoing reforms in extractives as it is defined by the clause
3.2.b.
Stakeholder Views
Minutes from 34th MSG meeting (10.12.2014) states that the following information shall not be included in
the EITI Report on the grounds to be expounded in the 2013 EITI Report information on license registrations
and allocations.
Conclusion
28
26
Stakeholder Views
29
Minutes from the 34th MSG meeting (10.12.2014) state that information on license registrations and
allocations shall not be included in the EITI Report on the grounds to be expounded in the 2013 EITI
27
Report. Also these minutes state that Azerbaijan had no license registration system and no single
license registry for extractive activities.
The NGO Coalition suggest that Azerbaijan uses the PSA system rather than a licensing system.
The Secretariat explained that The PSA is a permission for all activities in extractive industry, thus
licenses are not applicable.
Conclusion
The Subsoil Law is not specific to the oil and gas sector alone. Its general principles, and other provisions
relating to the issue of licenses and permits, are also equally applicable to other sectors.30 In addition, the
AzEITI definition of materiality would suggest that any payment to government is considered material. Within
the context of the reconciliation report, all reporting companies would appear to be governed by PSAs or
similar licenses.
Following a request for further information on PSAs and licenses to the AzEITI from the Validator on February
27th, the AzEITI secretariat provided the above information to the Validator on March 5th at 5pm CET. As a
result the Validator did not have sufficient time to confirm this information. However, what has been
communicated to the Validator suggests that:
Not all active PSAs are available on a public register;
That PSAs do contain the details set out in requirement 3.9.b. of the EITI standard (unconfirmed)
There exists a register for mining licenses (unconfirmed)
Based on the evidence provided, this provision is unmet with limited progress.
3.12 Contracts
Facts and Progress
The EITI Standard states that implementing countries are encouraged to publicly disclose any contracts and
licenses that provide the terms attached to the exploitation of oil, gas and minerals.
The 2013 EITI draft report, chapter 3.9 refers to section 3.3 which provides summary details of 17 oil and gas
PSAs and one mining PSA. The Mining Law Review 31 confirms that more than 20 PSAs have now been
concluded between the State Oil Company of Azerbaijan Republic (SOCAR) and foreign oil companies.
According to the AzEITI Secretariat, there are not more than 18 Active PSAs today as several of them were
suspended/desisted due to continuous unprofitable activity.
Only 5 PSAs are available on the EITI website, including ACG PSA. The Shah Deniz PSA is available on BP web
site.
It is a Standards requirement that the EITI report documents the government policy on disclosure of contracts
that govern the exploration and exploitation of oil, gas and minerals. However, the 2013 EITI draft report does
not include relevant legal provisions, actual disclosure practices, nor does it include details of any reform that
are planned or underway.
Stakeholder Views
The SOFAZ oil contract department head stated that PSAs are open and transparent;
MSG members stressed that PSAs in Azerbaijan are a statute of law so they are open and transparent;
30
31
The Mining Law Review (2014), Third Edition. Editor Erik Richer la Fleche. Chapter 3, Azerbaijan.
The Mining Law Review (2014), Third Edition. Editor Erik Richer la Fleche. Chapter 3, Azerbaijan.
28
NGO Coalition notes that PSAs having law status are almost not open; only 5 PSAs are open and they
are disclosed not by government institutions, but BP.
MSG Minutes #28 from 19 February 2014 state that Mr. Movsumov, MSG Chairman, noted that he
had familiarized with the list of contextual information drawn up by EITI NGO Coalition and the
proposal on disclosure of PSA text had only a recommendation character in the new EITI Standard.
The request had been sent repeatedly to companies in regard to disclosure of PSA texts, but no
positive opinion was received from all companies. Therefore up to now on the official web page of
Azerbaijani EITI only five PSA texts approved by all parties were placed.
Mehty, author review of Azerbaijan in Mining Law Review states that by its nature, a PSA is a
commercial contract, although admittedly it has a hybrid status since, following its execution, a PSA
would typically be enacted into law (approved by the parliament).
Conclusion
If the PSAs are truly public documents, the EITI report should be able to provide links directly to the full
documents. Likewise, this information should be linked on the AzEITI website.
The mandatory sub-provision 3.12b is unmet with meaningful progress, as the 2013 EITI draft report provides
only a cursory explanation of contracts under section 3.9.
32
33
http://www.eiti.az/doc/legal_opinion%20_%28SOFAZ%29_eng.pdf. Page 3
Ibid
29
In addition, according to law dated June 12, 2012 about changes to the law "On state registration and state
registry of legal entities", information relating to the founder of legal entities has been considered a
commercial secret. Such information may be obtained by third persons only with the consent of shareholders
of these enterprises.
Stakeholder Views
Minutes from the 34th MSG meeting (10.12.2014) state that the following information shall not be
included in the EITI Report on the grounds to be expounded in the 2013 EITI Report:
Conclusion
As above, we refer to the MGB legal opinion which states:
For the purpose of compliance with the EITI Standard and provision of transparency in respect of
this particular issue, the government may consider introducing the basic concept of beneficial
ownership into the Azerbaijani legislation and establish obligations of companies to disclose
information about beneficial ownership to relevant state registries, likewise to introduce the
amendments to the legislation permitting the special commission to obtain such information for the
purposes of making reports under the EITI Standard. 34
As identified above, the MSG has discussed the constraints around disclosure of beneficial ownership
(meeting 34) and stated that a number of key pieces of information, including beneficial ownership will not
be disclosed in the 2013 report. However, this would appear to run contrary to the 2013 MBG legal opinion
on the AzEITI website which recommends that the government establish beneficial ownership in Azerbaijani
legislation and provide these details to the special commission for the purposes of making reports under the
EITI Standard.
Going forward, beneficial ownership disclosure is expected to become a requirement of the EITI standard and
AzEITI is encouraged to address this issue again beginning with a definition of the term as per provision
3.11.d.ii. However, it is not considered as part of this Validation.
34
http://www.eiti.az/doc/legal_opinion%20_%28SOFAZ%29_eng.pdf. Page 3
30
Stakeholder Views
The IA received information from SOCAR.
The Coalition of NGOs stressed that the 2013 EITI draft report does not release any information
about transfer of funds between the State Oil Fund of the Republic of Azerbaijan (SOFAZ) and some
state agencies, including the Ministry of Finance, State Social Protection Foundation, State
Employment Fund and others. Components on retained earnings, reinvestment and third-party
financing are not fully and comprehensively covered under this section as well.
Conclusion
3.6.a: We do not find that the description of the prevailing rules and practices is sufficient as it does
not include details of third party financing, or full (exhaustive) details on the rules and practices
governing transfers of funds between the SOEs and the state.
3.6.c: The report discloses SOCAR joint ventures and associates, and the level of interest SOCAR has
in both. However,
o No details regarding terms attached to their equity stake, including their level of
responsibility to cover expenses at various phases of the project cycle, e.g. full-paid equity,
free equity, carried interest were disclosed.
o No change of ownership in the level of ownership was disclosed. This may be due to no
change occurring, however, if so, that should be stated.
o No details about loans or loan guarantees were disclosed.
31
Timeliness: The 2013 EITI draft report does provide information on companies included within the
scope for 2013.
Comprehensiveness: Key elements, including laws, reforms, allocation of licenses and PSAs are not
disclosed.
Reliability: As a significant part of the required information is not disclosed, it is difficult to make this
assessment. In general, references provided in the report provide the correct information in the
source document.
Validators
recommendation
on compliance
with the EITI
provisions (to be
completed for
required
provisions)
Unmet with
meaningful
progress
Unmet with
limited
progress
32
Unmet with
limited
progress.
Beneficial ownership
disclosure (#3.11)
Unmet with
limited
progress
Unmet with
meaningful
progress.
Overall assessment:
1. The IA should provide further details and explanations around licenses, reforms and laws as
outlined in the summary table and detailed in the report
2. More information should be disclosed about PSAs, including the location of all active PSAs on
a publically available website
3. Going forward, disclosures of beneficial ownership should be considered closely by the MSG
33
Conclusion
The 2013 EITI Draft Report discloses production volumes of oil, gas, gold, silver for 2011-2013 (p.31-32, 3.5a),
as well as by regions but does not disclose the value of production by commodity. It also discloses total export
volumes and the value of exports by commodity (crude oil, oil products, natural gas), but does not provide
disclosures by region of origin (p.29, 3.5b). Sub-provisions are met or meet with meaningful progress.
35
http://www.socar.az/socar/en/economics-and-statistics/economics-and-statistics/socar-reports
34
Validators
recommendation on
compliance with the
EITI provisions (to be
completed
for
required provisions)
Unmet
with
meaningful progress
Met
Met
Overall assessment:
1. The 2013 EITI final report should include information on exploration activities
35
3. Revenue collection
Overview
This section is intended to review the following aspects of the 2013 EITI Standard:
The report further defines the materiality threshold as follows: Transfers to the GoAZ from the
mentioned revenues are considered as material if their sum/volume exceeds zero (0).
Minutes of the MSG do not provide details of discussions on materiality; and minutes of the WG
werent provided to the Validator. The AzEITI Secretariat points to Minutes 19, January 2013, 5th issue
as evidence of discussion, although the Validator was unable to confirm this independently.
36
The EITI draft report does not contain information on infrastructure provisions and barter
arrangements as well as social expenditures
Prov. 4.1.f Revenue Streams of foreign companies (p.50) contains information on transportation
tariffs to SOFAZ. The 2013 EITI Draft Report explains the nature of transportation tariffs as
follows:
Each month SOFAZ and contractors pay transportation fees to the Azerbaijan International
Operating Company (AIOC), the operating company of the ACG oilfield), the levels of which are
determined by the Republic of Azerbaijan and Georgia for the transportation of oil (Governments
entitlement to oil profits) through Western Route Pipeline and operating costs (operational and
capital expenditure). AIOC pays Georgias share from the total fees collected. SOFAZ receives only
the transportation tariffs share determined by the Republic of Azerbaijan.
The report does not cover the dividends resulting from the Ministry of the Economic
Developments share in AzBTC Co and other projects.
The 2013 EITI Draft report as part of SOFAZ revenues contains transit fees (page 28). In addition
some of the Reconciliation Sheets of companies in Annex 4 contain transportation tariff to
SOFAZ (please see reports of STATOIL APSHERON A. S., ITOCHU OIL EXPLORATION, SHEVRON
KHAZAR LTD, and others).
Stakeholder Views
The NGO Coalition notes in their review that 2013 EITI Draft report does not contain payments of
dividends.
The TOR of Auditor provided to the Validation did not specifically refer to dividend payments
(although does refer to payments) so it is not clear if the IA was specifically asked to review such
payments.
The minutes from the 34th MSG meeting (10.12.2014) state that the following information shall not
be included in the EITI Report on the grounds to be expounded in the 2013 EITI Report:
o Infrastructure provisions and barter arrangements;
o Social expenditures;
Conclusion
The Validator concludes the following:
Comprehensiveness (#4.1.a, #4.2.a-b ):
4.1.a: Has the MSG agreed on a materiality definition, including any reporting thresholds, as well as
the options considered and the rationale for the materiality definition?
o Yes The MSG has agreed on a definition of materiality including reporting thresholds.
However, no details could be ascertained as to the options considered and the rationale
for the materiality definition due to a lack of detail in the Minutes
4.1.a: Does the EITI report include a description of each revenue stream considered material, related
materiality definitions and thresholds.
o Yes, a list of material sources are provided and a threshold established (zero).
37
38
The 213 Draft EITI Report states During the EITI Reporting period the quasi-fiscal
expenditures such as payments for social services, public infrastructure, fuel subsidies and
national debt servicing were not carried out by SOCAR (pg 36)
The MSG the 34th MSG meeting (10.12.2014) state that the following information shall not
be included in the EITI Report on the grounds to be expounded in the 2013 EITI Report:
Infrastructure provisions and barter arrangements;
Social expenditures;
Sub-provisions 4.1 a.c.) are met, 4.1 (b. f. ) are unmet with meaningful progress, 4.1. (d. e.) are unmet with
limited progress.
Conclusion
39
4.2.a Does the EITI report provide a comprehensive reconciliation of government revenues and
company payments, including payments to and from SOEs, in accordance with the agreed scope in
4.1?.
o Yes
4.2.a Has the MSG identified all government entities receiving material revenues and have those
government entities fully reported all receipts in accordance with the materiality definition of 4.1?
o The IA report states We have prepared a draft EITI Report that comprehensively reconciles
the information disclosed by the reporting entities, identifying any discrepancies.
o The 2013 EITI draft report identifies the following relevant government agencies:
State Oil Fund of the Republic of Azerbaijan;
State Oil Company of the Azerbaijan Republic;
Ministry of Taxes of the Republic of Azerbaijan; and
4.2.b. Has the government fully reported all revenues, including any revenues below the materiality
thresholds?
o According to the IA All companies and government agencies included in the reconciliation
process had submitted their reporting templates.
4.2.e. Are there any constitutional, statutory or other mandatory revenue sharing requirements
for transfers between national and sub-national government entities related to revenues
generated by the extractive industries
o Not disclosed
4.2 (a. b. c) sub-provisions are met, while others (4.2 (d. e.) are unmet with limited progress.
40
to the financial offers being due to be opened, and the Secretariat has forwarded these documents
to all members of the MSG. The selection appointed the auditing company to reconcile the EITI
reports for the subsequent three years. Moreover, the MSG was informed that the new criteria had
been added to the Selection Criteria and the changes had been made to the points of the criteria.
Sealed bids were received from Moore Stephens, Baker Tilly, Grant Thornton, BDO and Nexia in
response to the individual invitations sent to internationally recognized companies, including the big
four, operating in Azerbaijan and the announcement in the media. Ernst & Young had sent a letter
declining to bid. Moreover, it was stated that the representative of Moore Stephens, F. Ahmadov,
had come to the meeting to participate in the opening of the bid from his company. Thus the bid from
Moore Stephens was opened in his presence. Mr Ahmadov gave detailed information about the
company, and supported the information provided in the offer submitted. He then left the meeting.
The other bids were opened, and the financial offers of Baker Tilly, Grant Thornton, BDO and Nexia
were declared. The offers received were discussed in detail, and the MSG evaluated the offers
submitted by the companies. As a result of the evaluation, Moore Stephens was appointed to analyse
and reconcile the 17th, 18th and 19th EITI reports (for 2012-2014).
MSG meeting #27 Minutes from 24 January 2014 discussed updating the IA Terms of Reference in
accordance with the new EITI Standard. The MSG decided as follows: 1. Azerbaijan EITI Secretariat is
to obtain from International Secretariat the information about necessity of repeated selection of IA
for reconciliation of 2013 report. 2. IA is to make necessary changes and amendments in ToR package
to be used in Azerbaijan and to present draft version and methodology of collection of contextual
information in the next MSG meeting the IA agreed to continue work with some adjustment of budget
(to allow for contextual analysis).
Conclusion
This provision is met.
41
A confirmation letter from the companies external auditor that confirms that the
information they have submitted is comprehensive and consistent with their audited financial
statements. The multi-stakeholder group may wish to phase in any such procedure so that
the confirmation letter may be integrated into the usual work programme of the companys
auditor. Where some companies are not required by law to have an external auditor and
therefore cannot provide such assurance, this should be clearly identified, and any reforms
that are planned or underway should be noted.
Where relevant and practicable, government reporting entities may be requested to obtain a
certification of the accuracy of the governments disclosures from their external auditor or
equivalent.
Several MSG minutes discussed of ToR of the IA, scope of work and templates for reports.
Prov. 5.2.a the scope of IA ToR and reporting templates were discussed several MSG meetings, #
27, #28, #29, #30, #31. Additionally a WG was established and the MSG minutes #32 from 21 July
2014 noted that meeting of WG should be organized after the collection of contextual data by
the IA. The next MSG meeting #33 from 3 October 2014 state that the initial draft of contextual
report was submitted to WG by the IA however it was difficult to gather the members of WG. There
are no minutes from the WG meetings.
Prov. 5.2.b The EITI report and MSG minutes do not provide a summary of the findings of a review
of audit and assurance practices in companies and government entities participating in the EITI
reporting process, including the relevant laws and regulations, any reforms that are planned or
underway, and whether these procedures are in line with international standards.
Prov. 5.2.c EITI report states that in order to comply with EITI Requirements 5 and to ensure the
credibility of data submitted:
o Companies were requested to have their reporting templates signed by a Senior Official;
o All government template declarations must be signed by a senior official;
o The government and SOEs publish or make the annual audit report from the Auditor
General available to the reconciler; and
o Reporting entities could provide evidence of the payments/receipts that have been
processed on a payment by payment basis.
For any changes made to the original data reported on the templates, the agencies and companies
were asked to provide supporting documents and/or confirmation before any adjustments were
accepted.
42
Prov. 5.2.d MSG minutes do not provide information that agree appropriate provisions relating to
the safeguarding of confidential information.
Prov. 5.2.e ToR of the IA was approved by the MSG and the data in EITI report is presented by
companies, government entities and by revenue streams. MSG minutes do not provide information
that reporting at project level that is consistent with the United States Securities and Exchange
Commission rules and forthcoming European Union requirements was discussed.
Stakeholder Views
The MSG meeting #31 from 10 June 2014 decided to approve ToR for IA and to establish a Working
Group to support the preparation of tables and contextual data that would be specified in IA report.
MSG member from a company stated: It is clear from MSG decisions and last year reports that the
decision was made to go for the enforced option 5.2.i That a senior company or government official
from each reporting entity signs off on the completed reporting form as a complete and accurate
record. The rationale behind this decision must have been documented in our meeting minutes.
Furthermore, as a good practice, additional assurance is provided by the Independent Auditor by
doing a spot-check of supporting documents. The draft 2013 report features a table at least for the
companies with the names of senior officials, who signed their respective reporting forms.
Conclusion
5.2. (a. c) sub-provisions are met, while others (5.2 b. d. e.) are unmet with either meaningful or limited
progress.
Companies were requested to have their reporting templates signed by a Senior Official;
All government template declarations must be signed by a senior official;
The government and SOEs publish or make the annual audit report from the Auditor General available
to the reconciler; and
Reporting entities could provide evidence of the payments/receipts that have been processed on a
payment by payment basis.
For any changes made to the original data reported on the templates, the agencies and companies were asked
to provide supporting documents and/or confirmation before any adjustments were accepted.
The Validator was not able to verify that the MSG and the Independent Administrator have agreed on
appropriate provisions for safeguarding confidential information.
Stakeholder Views
A follow up of the recommendations of the 2012 EITI report shows that training was conducted in
2013.
The 2013 EITI Report was not approved by the MSG yet.
Conclusion
The Validator is not able to verify that relevant electronic data files have been published together with the
EITI Report and that summary data from the EITI Report has been submitted electronically to the International
43
Conclusion
The draft 2013 report cannot be endorsed by the MSG as it is a draft report. Therefore this provision is unmet
with meaningful progress.
44
EITI provisions
Validators
recommendation
on compliance
with the EITI
provisions (to be
completed
for
required
provisions)
Met
Unmet with
meaningful
progress
Unmet with
meaningful
progress
Met
Unmet with
limited
progress
Unmet with
limited
progress
Unmet with
limited
progress
Overall assessment:
There is a significant amount of data provided in the 2013 EITI draft report.
Provisions are both met and unmet with meaningful and limited progress.
Validators conclusions and recommendations:
1. The MSG should ensure the IA includes information and data related to unmet provisions
outlined in this report;
2. The MSG should review the definition on materiality and specifically ensure that material
revenue streams are comprehensively covered by the final EITI report and an appropriate level of
disaggregation is provided by government departments and companies;
45
Stakeholder Views
Reporting scope was agreed with MSG members.
The Secretariat explains that the MSG agreed to adhere to mandatory requirements only.
Minutes from 34th MSG meeting (10.12.2014) state, that the subnational payments and subnational
transfers shall not be included in the EITI Report on the grounds to be expounded in the 2013 EITI
Report.
Conclusion
4.2 (a. b. c) sub-provisions are met, while others (4.2 (d. e.) are unmet with limited progress.
The receipts from the extractive industry for the year 2013
Types of revenues
Amount (million manat)
State Oil Fund of Azerbaijan Republic37
Receipts from the sale of profit oil and gas
13,108.0
Bonuses
1.9
Acreage fees
1.8
Transit fees
8.1
State Treasury Agency of the Ministry of Finance of Azerbaijan Republic38
37
Percentage
67.24%
0.01%
0.01%
0.04%
State Oil Fund of Azerbaijan Republic, Annual report 2013, 14 October 2014,
http://www.oilfund.az/uploads/annual_2013az.pdf.
38 State Oil Fund of Azerbaijan Republic, Government reports on EITI, November 2014, http://www.oilfund.az
46
page
36,
1,504.7
119.3
108.6
10.0
38.1
369.9
2,6
15,273.0
7.72%
0.61%
0.56%
0.05%
0.20%
1.90%
0.01%
78.35%
The 2013 draft report also provides SOFAZ revenue and expenditure data as an allocation of revenue
from extractive industry (p. 36 EITI Report 02.02.2015). Most of SOFAZ revenues are proceeds from
oil and gas sales at Azery-Chirag-Gunashli - 97.3%.39
In 2013, most of the revenue from SOFAZ was forwarded to the state budget. Revenues were also
spent on construction of the Star Oil Refinery project in Turkey, improvement of social conditions
of refugees, Samur-Absheron irrigation system, administrative expenses of SOFAZ staff, education of
youth abroad, and the new Baku-Tbilisi-Kars railway construction (p. 36 EITI Report 02.02.2015).
The 2013 EITI draft report does not provide revenues of SSPF which also is funded by social taxes paid
by employers (22%) and workers (3%) of extractive industry.
A review of the MSG minutes shows that they do not refer to the national revenue classification
system, or international standard such as IMF Government Statistics Manual;
A recent report by the World Bank40 provides a comprehensive assessment of public expenditure and financial
accountability performance report. It contains an assessment of the national classification system, and other
useful information, including tables of budget data that provide a good guide to understanding the role of
extractive industry revenues in the consolidated budget (below).
39
40
http://www.oilfund.az/uploads/annual_2013en.pdf
World bank (2014), Azerbaijan: Public Expenditure and Financial Accountability (PEFA) Performance Report. Repeat Assessment.
47
According to the World Bank report41 the current functional classification was developed in collaboration with
the IMF and WB in 2014, but it is not fully consistent with GFSM Classification.
Stakeholder Views
MSG members suggest that the draft report provides sufficient information on revenue distribution.
Minutes of MSG meeting #19 from 30 January 2013 discussed important payments in the extractive
industry of Azerbaijan. Chairman S. Movsumov brought to the attention of the MSG the importance
of determining significant payments for the EITI in 2012. The inclusion of payments made to the State
Social Protection Fund, which is on the agenda but unresolved, in the EITI reports was again discussed.
A proposal was put forward to receive updated information from the State Social Protection Fund
before adopting a final decision on this matter. Mr Movsumov suggested that important payments
be approved once and for all, but on the condition that this matter can be raised at any time, not on
an annual basis, by any party. Also, he added that since dividends are not specified in the EITI reports,
it would be appropriate to remove the dividend paragraph from the important payments section.
Then several subsequent meetings also noted this issue. MSG Minutes #21 from 15 April 2013 states
that Information regarding the contributions to the SSPF for 2011-2012 by local and foreign
companies operating in Azerbaijan and engaged in oil, gas and other extractive companies, operating
was reviewed at MSG. MSG decided that:
1. The payments made by local and foreign companies operating in Azerbaijan and engaged
in the oil, gas and other extractive industries to the SSPF shall not be included in the 2012 EITI
Report.
2. As of the next year, the payments made by local and foreign companies operating in
Azerbaijan and engaged in the oil, gas and other extractive industries to the SSPF shall be
analysed on annual bases.
MSG Minutes #28 from 19 February 2014 again discussed this point. MSG member A. Yusubov stated
noncompliance regarding individual income tax in reporting forms drawn up by the NGO Coalition, as
well as non-completion of decision on inclusion into EITI reports of sanctions and allocations to SSPF.
MSG Minutes #30 from 15 April 2014 states that MSG decided the receipts from extractive
industries companies to SSPF for mandatory state social insurance contributions should be included
in the contextual information
Conclusion
Sub-provision 3.7a is met. The draft 2013 EITI report provides information on receipts from the sale of profit
oil and gas as well as mining tax receipts.
There is no evidence that a national revenue classification system was discussed by the MSG (sub-provision
3.7b) but it is encouraged by the EITI standard, not a compliance requirement. The Validator recommends
that the MSG discuss the current classification system with the World Bank team of auditors.
41
Ibid.
48
Conclusion
This provision is encouraged only.
49
Validators
recommendation on
compliance with the
EITI provisions (to be
completed
for
required provisions)
NA, or unmet
There are no constitutional, statutory or
other mandatory revenue sharing
requirements for transfers between
national and sub-national government
entities related to revenues generated by
the extractive industries detailed in the
EITI report.
Information on revenue
management and
expenditures (#3.8)
Met
Overall assessment:
50
Conclusion
All sub-provisions are met.
51
Validators
recommendation
on compliance
with the EITI
provisions (to be
completed
for
required
provisions)
Unmet
with
limited progress
Unmet with
limited
progress
Met
Overall assessment:
Based on the definition of materiality provided in the 2013 Draft report, both
quasi-fiscal expenditures and social expenditures are considered as material
payments and this should be included in the final report.
Validators conclusions and recommendations:
1. The MSG should include details on quasi fiscal revenue and expenditure in the final 2013 report
2. The MSG should include details on relevant social expenditure in the final 2013 report
52
Meanwhile, the 2012 Activity Report notes that a training event on EITI was held at SOFAZ for media
representatives in July that year. In the 2011 Activity Report, a conference on the 20 th anniversary of
independence hosted by SOFAZ on the State Oil Fund in the National Oil Strategy included presentations
on EITI.
There are no activity reports on the NGO Coalition website (content is empty on both the projects and reports
pages underneath the Activity navigation label), however, the coalition does produce a bulletin (of which
36 have been published so far). 42 The most recent bulletin notes that three broadcasts on the Open
Government programme of the Azadlig radio included participation by coalition members (from December
2013 to February 2014).
Stakeholder Views
All stakeholders agree that the reports are increasingly comprehensible and have been actively promoted.
In a review of the draft 2013 report, the NGO Coalition writes The requirements on disclosures made by the
state-owned enterprises on financial relationship with state budget, oil fund and other agencies, as well as
information on quasi-fiscal expenditures, social expenditures are of great importance this report can be
regarded as a first paper that exposes integral components of sale of the state's share of production, export,
employment and material payments in extractive industries
In response to the draft Validation report, the EITI Commission noted that the MSG considers the draft
Report as comprehensible enough, however that question was raised and will be brought to agenda for
consideration. All outreach activities, including the preparation and dissemination of easy-understandable
Summary of the EITI Report 2013 (work plan 2015, 1.9) will take place as soon as the report is approved by
the MSG.
Conclusion
In general, there is little substantial evidence that EITI has contributed significantly to public debate on the
extractives sector in Azerbaijan.
42
The
latest
bulletin
(at
the
time
content/uploads/2014/07/Bulleten_36_corrected.pdf
of
this
report)
is
here
http://eiti-ngo-azerbaijan.org/wp-
55
Validators
recommendation on
compliance with the
EITI provisions (to be
completed
for
required provisions)
Met with meaningful
progress
Met
Met
Overall assessment:
1. The IA should place emphasis on ensuring the language in the final report is comprehensible
and accessible;
2. The MSG should organize further outreach events, and ensure the NGO Coalition members
have access to funding to ensure they can report to the general public.
56
8. Impact analysis
Impact
First and foremost, the impact of AzEITI over the past twelve years is that it has provided credible data, which
helps further the understanding of the most significant sector to the Azerbaijan economy and is a vital tool
for macro-economic analysis and policy debate. The desire to place transparency as a national priority firmly
at the centre of extractive revenue processes in Azerbaijan has been achieved, fulfilling President Ilham
Aliyevs words back in 2003:
Transparency is one of the key elements of the oil strategy our country is conducting for the
last almost ten years. Ten years of successful cooperation with the major oil companies of the
world resulted in a multi trillion investments in our country. And today, Azerbaijan is a leader
among all the former republics of the Soviet Union, as far as amount of the direct foreign
investments per capita is concerned. And we, I am sure, will continue to keep this leading
position.
This is reflected in the trust international oil companies have in Azerbaijan contractual arrangements.
Meanwhile, the latest EITI report under the 2013 Standard introduces considerable additional information on
the sector, especially in terms of contextual analysis. Again, AzEITI has been a considerable success in terms
of a genuinely multi-stakeholder dialogue process, and one of the few opportunities for civil society,
companies and government to come together for frank and constructive discussion. From the MSG
perspective, the Chatham House levels of confidentiality as captured in the third section of the most recent
MOU are important they allow for an open exchange of views which can touch on matters of commercial
confidentiality.
The one obvious area of weakness of implementation in the past two years has been in terms of outreach
and civil society participation, and is part of a broader set of concerns about the ability of CSOs to continue
to meaningfully contribute to the EITI going forward. This is something the MSG must now address in order
for Azerbaijan to regain a leadership position within the EITI community, beginning with ensuring the NGO
Coalition is formally registered and a funding mechanism devised which is to the satisfaction of all parties and
enables the outreach and discussion activities overseen by the NGO Coalition and its members to be
implemented.
However, registration and funding is but the first step in ensuring EITI leads to more informed public debate
in Azerbaijan; outreach work must be sustained and deepened. Even before the current set of restrictions
were placed on CSOs (starting in the second quarter of 2013), there is not much evidence in the 2011 and
2012 AzEITI Activity reports of substantial civil society outreach activity. Of course, this may simply be a failure
to capture this information adequately in the activity reports, but the obstacles placed in front of CSOs would
suggest that Azerbaijan must be careful to safeguard against further reductions in outreach activity, which is
at the heart of ensuring meaningful information on the extractive sector is communicated to the broader
public. Future work plans must include more substantial and detailed outreach activities, informed by a fully
elaborated NGO Coalition strategic plan. The potential outcome here is significantly strengthened EITI
understanding throughout the country, with a higher-level potential outcome of increasing the pressure to
go beyond satisfying minimum mandatory requirements and develop a strategic perspective on transparency
and accountability.
Challenges and Sustainability
Despite all the gains stated above, AzEITI is in a somewhat precarious position at present. Government
officials caution for instance that should AzEITI not be judged by the International Board as compliant through
this validation process, the Government may pull out of the initiative. This is compounded by the difficulties
faced by some NGOs in registration and funding. This second validation review is the opportunity the MSG
has to put this right. While a temporary downgrade to being a Candidate country may be unpalatable for
57
58
Annex 1
List of stakeholders consulted (in first to last order of meetings)
Name
Fuad Muradov
Dereck J. Hogan
Dexter C. Payne
Araz Yusubov
Kamran Maharramov
Zaur Fatizadeh
Shahmar Movsumov
Iftikhar Huseynov
Gubad Ibadoglu
Shamil Movsumov
Azer Mehtiev
Position
Member of Parliament
Deputy Chief of Mission
Deputy Economic Chief/Energy Officer
Team Leader Communications and External
Affairs (& MSG Member)
Lead Economist at the Risk Management
Department (& MSG Member)
Head of Division of Special Tax Regime
Enterprises (& MSG Member)
Executive Director & Chair of MSG
Chairman of the Administration (& MSG
Member)
Senior Economist (& MSG Member)
NGO Coalition member
NGO Coalition member (& MSG Member)
Mammadhasan Murad
Hasanov
Malahat Murshudlu
Segadet Pashayeva
Nasrulla Nurullayev
M. Kahramanly
Saban Nasirov
Huseynli Jegar
Zaur Akbar
Taleh Aliev
Razi Nurullayev
Chairman
Sevinc Isgonderova
representative
Mehman Aliev
Fariz Ahmadov
Hikmet Allahverdiyev
Elshan Gurbanov
Adrian Lee
Andrew Harvey
Turgay Teymurov
Ingilab Ahmadov
Executive Director
Deputy Director
Audit partner
Senior Advisor Economics & Energy
Deputy Head of Mission
Second Secretary Political and HM Consult
Partner, Assurance Services
Dean (and former International EITI Board
member)
Director of the Oil Contracts Department
Economist of the Oil Contracts Department
smayil Manafov
Ali Sultanli
Organisation
National Assembly
US Embassy
US Embassy
BP Azerbaijan - Georgia Turkey Region
SOCAR
Ministry of Taxes
SOFAZ
Ministry of Energy
Economic Research Centre
Individual member
Support for Economic
Initiatives Public Union
Support for Mine Victims
Independent Teachers
Union
Individual member
Care for Elderly
Intellectuals
Oil Workers Right
Protection Organisation
Human Rights Public
Union
Social Strategic Studies
and Analytical
Investigation Public Union
Youth Club Public Union
Civil Society Institute
Public Union
Region International
Analitical Center
Civil Initiative for
Democracy Public Union
Turan News Agency
Moore Stephens
Moore Stephens
British Embassy Baku
British Embassy Baku
British Embassy Baku
Ernst and Young
Khazar University
SOFAZ
SOFAZ
Azay Guliyev
Ilgar Dadashov
Project Coordinator
Jeroen Willems
Alexandra Nerisanu
Toralf Pilz
Head of Cooperation
Project Manager Operations Section
Head of Section, Political, Economic,
Press&Information
Country Director of Azerbaijan Resident
Mission
Economics Officer
Senior Adviser of the Intenational Relation
Department
Olly Norojono
Elvin Imanov
Mahammadali
Khudaverdiyev
60
Turana Gasimova
Elnur Sultanov
Chair
Akhmed Gumbatov
Project Manager
Larisa Leshchenko
Sadig Aliev
Annex 2
List of MSG members and contact details
Name
Shahmar Movsumov
Zaur Fatizadeh
Iftikhar Huseynov
Shahmirza Safarov
Position
Email
GOVERNMENT COMMITTEE ON EITI
MSG Chair/SOF
shmovsumov@oilfund.az
Ministry of Taxes/Primary
z.fati-zadeh@taxes.gov.az
Member
Ministry of Energy /Primary
iftixar.huseynov@minenergy.gov.az
Member
Ministry of Ecology and
alunit@box.az
Natural Resources /Alternate
Member
NGO COALITION
Azer Mehtiyev
amehtiyev@gmail.com
Elchin Abdullayev
Chairman
of
Democratic Institutions and
Human Rights Social Union
/Primary Member
Senior Analyst, Economic
Research Centre/Primary
Member
Chairman of Democratic
Development and Economic
Cooperation Public
Union/Alternate Member
Chairwoman of Center of
Political
Culture
for
Azerbaijani women
/Alternate Member
Journalist/Alternate Member
logmanoglu@gmail.com
Gubad Ibadoglu
Ilham Huseynli
Mehriban Vazir
Dunya Sakit
Araz Yusubov
Jamila Hadiyeva
Kamran Maharramov
Bakhtiyar Akhundov
Rasim Akhundov
Vaqif Abdullayev
GROUP OF COMPANIES
BP/Primary Member
Statoil/Primary Member
SOCAR/Primary Member
Chevron/Alternate Member
Total/Alternate Member
Neftechala/Alternate
Member
gubad.ibadoglu@gmail.com
ihuseinli@yahoo.com
mehribanvezir@gmail.com
dunya_sakit@yahoo.com
yusua0@bp.com
konjaga@statoil.com
kamran.maharramov@socar.az
bafj@chevron.com
Rassim.akhundov@total.com
Vagif.Abdullayev@noc.az
Annex 3
List of reference documents
1. Minutes of MSG meetings in 2012-2014.
2. Memorandum of Understanding on Implementation of the EITI in the Republic of Azerbaijan
signed by parties in 2014. Approved by MSG in
3. EITI 2012 Annual Report.
4. Draft EITI 2013 Report.
5. EITI 2012 Activity Report.
6. Review of the NGO Coalition for "Improving Transparency in Extractive Industries" on the draft
of 2013 EITI report (This review has been discussed and endorsed at the 127th Council meeting
of the NGO Coalition for "Improving Transparency in Extractive Industries" held on October 31,
2014)
7. Ernst&Young Global Oil and Tax Guide 2012, Azerbaijan, p.37
8. Ernst&Young Global Oil and Tax Guide 2013, Azerbaijan, p.41
9. World bank (2014), Azerbaijan: Public Expenditure and Financial Accountability (PEFA)
Performance Report. Repeat Assessment
10. The Mining Law Review (2014), Third Edition. Editor Erik Richer la Fleche. Chapter 3 on
Azerbaijan
11. MGB Law office Legal Opinion available at:
http://www.eiti.az/doc/legal_opinion%20_%28SOFAZ%29_eng.pdf
12. SOCAR 2013 Annual Report available at: http://www.socar.az/socar/en/economics-andstatistics/economics-and-statistics/socar-reports
13. SOFAZ 2013 Annual Report available at http://www.oilfund.az/uploads/annual_2013en.pdf
14. Law of the Republic of Azerbaijan on the State Budget of the Republic of Azerbaijan for 2013
http://www.maliyye.gov.az/en/node/965
15. State Statistical Committee of the Republic of Azerbaijan (2014), Statistical Yearbook of
Azerbaijan 2014.
16. State Statistical Committee of the Republic of Azerbaijan (2014), Energy of Azerbaijan.
Statistical Yearbook of Azerbaijan 2014.
17. European Commission for Democracy through Law (VENICE COMMISSION) Opinion on the
Lawon Non-Governmental Organizations (Public Associations and Funds) as amended of the
Republic of Azerbaijan. Adopted by the Venice Commission at its 101st Plenary Session.
Venice, 12-13 December 2014
18. Confidential fact finding report of the fact-finding mission report submitted to the EITI Board
via the Rapid Response Committee
Annex 4:
EITI MSG Members
2010-2011
The EITI Committee:
Shahmar Movsumov, Executive Director of SOFAZ, Chairman of the EITI Committee,
Chairman of MSG (January 2010 - December 2011)
Feyzulla Muradov, representative of the Ministry of Industry and Energy
(January 2010 - December 2011)
Zaur Fati-zadeh, representative of the Ministry of Taxes
(January 2010 - December 2011)
Gazi Hajikarimov, representative of the Ministry of Environment and Natural Resources
(alternative member) (January 2010 - December 2011)
Group of Companies:
Bahtiyar Ahundov, representative of Chevron (January 2010 - December 2011)
Anwar Gasimov, representative of SOCAR (January 2010 - December 2011)
Timothy Martin, representative of Exxon (January 2010 - June 2010)
Ayla Azizova, representative of BP (June 2010 - June 2011)
Araz Yusubov, representative of BP (June 2011 - December 2011)
Bayba Anda Rubesa, representative of Statoil (alternative member) (January 2010 - June 2011)
Willy Egset, representative of Statoil (alternative member) (June 2011 - December 2011)
NGO Coalition:
Sabit Bagirov, representative of the NGO Coalition (January 2010 - December 2011)
Gubad Ibadoglu representative of the NGO Coalition (January 2010 - December 2011)
Fuat Rasulov representative of NGO Coalition (January 2010 - February 2011)
Sahib Mammadov, representative of NGO Coalition (February 2011 - December 2011)
Alimammad Nuriev, representative of the NGO Coalition (alternative member) (January 2010 December 2011)
63
2012
The EITI Committee:
Shahmar Movsumov, Executive Director of SOFAZ,, Chairman of the EITI Committee, Chairman of
MSG
Feyzulla Muradov, representative of the Ministry of Industry and Energy
Zaur Fati-zadeh, representative of the Ministry of Taxes
Gazi Hajikarimov, representative of the Ministry of Environment and Natural Resources (alternative
member)
Group of Companies:
Bahtiyar Axundov, representative of Chevron
Anwar Gasimov, representative of SOCAR (January-October)
Ayaz Huseinov, representative of SOCAR (October-December)
Araz Yusubov, representative of BP
Willy Egset, representative of Statoil (alternative member) (January-February)
Jamila Hadiyeva , representative of Statoil (alternative member ) (February-December)
NGO Coalition:
Sabit Bagirov, representative of the NGO Coalition
Gubad Ibadoglu, representative of the NGO Coalition
Ilham Guseynli, representative of the NGO Coalition
Azer Mehtiyev NGO Coalition representative of the (alternative member)
2013
The EITI Committee:
Shahmar Movsumov, Executive Director of SOFAZ, Chairman of the EITI Committee,
Chairman of MSG
Feyzulla Muradov, representative of the Ministry of Industry and Energy
Zaur Fati-zadeh, representative of the Ministry of Taxes
Gazi Hajikarimov, representative of the Ministry of Environment and Natural Resources
(alternative member)
Group of Companies:
64
2014
The EITI Committee:
Shahmar Movsumov, Executive Director of SOFAZ, Chairman of the EITI Committee,
Chairman of MSG
Zaur Fati-zadeh, representative of the Ministry of Taxes
Iftikhar Huseynov, representative of the Ministry of Energy
Shakhmirza Safarov - Ministry of the Environment
Group of Companies:
Bahtiyar Axundov, representative of Chevron
Jamila Hadiyeva, representative of Statoil
Araz Yusubov, representative of BP
Kamran Maharrammov, representative of SOCAR
Rasim Axundov, representative of Total
Vagif Abdullayev, representative of Nefthechala
NGO Coalition:
Gubad Ibadoglu, representative of the NGO Coalition
Azer Mehtiyev, representative of the NGO Coalition
Elchin Abdullayev, representative of the NGO Coalition
Ilham Guseynli, representative of the NGO Coalition (alternate member)
Mehriban Vazir, representative of the NGO Coalition (alternate member)
Duniya Sakit, representative of the NGO Coalition (alternate member)
65