VZCZCXRO0288
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #1295 2431205
ZNR UUUUU ZZH
R 311205Z AUG 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 1183
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1718
RUEHIT/AMCONSUL ISTANBUL 0463
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BAKU 001295 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O.12958: N/A 
TAGS: ECON EFIN ETRD ENRG EPET PREL AJ IR RU
SUBJECT:  AID COUNTRY COORDINATOR'S INTRODUCTORY CALL AT 
THE STATE OIL FUND OF AZERBAIJAN REPUBLIC 
 
REF: BAKU 1274 
 
SENSITIVE BUT UNLCASSIFIED - PLEASE HANDLE ACCORDINGLY. 
 
¶1. (SBU)  USAID COUNTRY COORDINATOR PAID AN INTRODUCTORY 
CALL ON THE EXECUTIVE DIRECTOR OF THE STATE OIL FUND 
(SOFAZ), SHAHMAR MOVSUMOV, AUGUST 7.  MOVSUMOV OUTLINED 
THE PLANNED INTERNAL REORGANIZATION OF SOFAZ BASED ON A 
STRATEGIC PLAN THAT WOULD BE COMPLETED BY MID-FALL.  HE 
ALSO DISCUSSED THE REVENUES THAT WOULD FLOW INTO SOFAZ 
AND HOW THESE FUNDS WOULD BE USED THIS YEAR. 
 
¶2. (SBU) MOVSUMOV STATED THAT SOFAZ WAS DEVELOPING A 
STRATEGIC PLAN FOR THE NEXT TWO YEARS.  THE STRATEGIC 
PLAN WOULD BE FINISHED BY MID-FALL AND WOULD REVEAL THOSE 
AREAS IN WHICH SOFAZ NEEDED TECHNICAL ASSISTANCE.  USAID 
PLANS TO PROVIDE TECHNICAL ASSISTANCE TO HELP SOFAZ 
DEVELOP A STAFFING AND COMPENSATION PLAN THAT SOFAZ WOULD 
HAVE THE GOAJ APPROVE1(IT WOULD BRING TO THE GOAJ FOR 
FUNDING - THIS IS UNCLEAR TO ME; SOFAZ WOULD SEEK GOAJ 
FUNDING FOR A NEW STAFFING AND COMPENSATION PLAN?). 
MOVSUMOV COMPLAINED THAT ALTHOUGH SOFAZ WAS TIED TO THE 
CIVIL SERVICE WAGE SCALE, THE SKILLS OF HIS STAFF WERE IN 
DEMAND NATIONALLY AND INTERNATIONALLY AND HE WAS HAVING 
GREAT DIFFICULTY ATTRACTING AND RETAINING QUALIFIED 
STAFF. THROUGH AN ONGOING USTDA ASSISTANCE PROJECT, SOFAZ 
WILL RECEIVE TECHNICAL ASSISTANCE TO IDENTIFY ITS IT 
REQUIREMENTS. 
 
¶3. (SBU) MOVSUMOV TOLD TAYLOR THAT THE ECONOMETRIC FIRM, 
OXFORD ECONOMIC FORECASTING, FUNDED BY BP WAS DEVELOPING 
A MACROECONOMIC FORECASTING MODEL THAT WOULD MODEL THE 
EFFECT OF OIL REVENUES ON THE ECONOMY.  THE MODEL SHOULD 
BE READY IN SEPTEMBER.  (FULL REPORT ON SOFAZ'S NEW 
ECONOMOIC MODELING UNIT IN REFTEL.) 
 
¶4. (SBU) MOVSUMOV EXPLAINED THAT SOFAZ RECEIVES MONEY 
FROM THE STATE OIL COMPANY OF AZERBAIJAN BASED ON A 
PERCENTAGE OF THE REVENUES ON OIL IT EXTRACTS OVER AN 
AMOUNT SET YEARLY BY PRESIDENTIAL DECREE.  THIS YEAR THE 
AMOUNT IS USD 40 A BARREL.  IT ALSO RECEIVES ALL THE 
GOAJ'S SHARE OF EARNINGS UNDER ITS PRODUCTION SHARING 
AGREEMENTS. IN TOTAL, HE EXPECTED REVENUES OF USD 150 TO 
200 BILLION WITH USD 1 BILLION THIS YEAR, USD 2 BILLION 
NEXT YEAR, USD 8.5 BILLION IN 2008, AND USD 17.5 BILLION 
IN 2009.  MOVSUMOV EXPECTED REVENUE TO LEVEL OUT IN 2012- 
2013 AND TO BE FLAT FOR A COUPLE OF YEARS BEFORE 
BEGINNING TO DECLINE.  HE ADDED THAT THE AMOUNT THAT 
SOFAZ WOULD RECEIVE THIS YEAR WAS USD 1 BILLION AND THAT 
ITS DISBURSEMENT WOULD ALSO BE USD 1 BILLION, LEAVING 
SOFAZ WITH USD 1.6 BILLION IN ASSETS. 
 
¶5. (SBU) MOVSUMOV STATED THAT THE AMOUNT THAT SOFAZ WAS 
TO TRANSFER TO THE BUDGET ON AN ANNUAL BASIS WAS SET 
ANNUALLY BY PRESIDENTIAL DECREE.  IN 2006, THE AMOUNT WAS 
800 MILLION MANATS (APPROXIMATELY USD 880 MILLION) AND 
SOFAZ HAD ANTICIPATED DRAWING DOWN ON THE STABILIZATION 
FUND FOR THE DIFFERENCE, BUT THAT HIGHER THAN ANTICIPATED 
EARNINGS (THE RESULT OF A USD 70 A BARREL PRICE) MEANT 
THAT THERE WAS NO NEED. 
 
¶6. (SBU) MOVSUMOV SAID THAT THE ANNUAL PRESIDENTIAL 
DECREE ALSO ORDERED SPECIFIC CAPITAL EXPENDITURES.  IN 
2006, THESE PROJECTS TOTALED 400 MILLION MANATS, WITH THE 
BALANCE OF 600 MILLION MANATS BEING TRANSFERRED FOR 
BUDGET SUPPORT.  THE EXPENDITURES AUTHORIZED THROUGH 
SOFAZ WERE FOR TWO PROJECTS TO BRING WATER TO BAKU FROM 
THE CAUCASUS MOUNTAINS, IDP HOUSING, BTC FEES, AND 
FUNDING FOR THE STATE'S EQUITY INVESTMENT FUND.  THE 
MONEY IS TRANSFERRED TO COMMITTEES WITHIN VARIOUS 
MINISTRIES THAT ARE CHARGED WITH ADMINISTERING THE 
PROJECTS. 
 
DERSE 
 
 
_______________________________ 
1The funds would come from SOFAZ which pays the 
operational expenses of SOFAZ but permission to be 
released from the constraints of the Civil Service wage 
scale would have to come form the GOAJ