VALIDATION REPORT: Azerbaijan FINAL REPORT: 10 April 2015 Prepared for: The EITI International Secretariat Prepared by: RCS Global 207 Regent Street, W1H 3HH London, UK [email protected] www.rcsglobal.com Validation of Azerbaijan 2015 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 2 Validation of Azerbaijan 2015 ACRONYMS/ABBREVIATIONS ......................................................................................................................................... 4 1. EXECUTIVE SUMMARY ................................................................................................................................................... 5 OVERALL CONCLUSIONS ........................................................................................................................................................................... 5 RECOMMENDATIONS ................................................................................................................................................................................. 6 2. INTRODUCTION ............................................................................................................................................................... 8 3. PART I: MSG OVERSIGHT ........................................................................................................................................... 14 1.1-1.2: GOVERNMENT OVERSIGHT OF THE EITI PROCESS............................................................................................................ 14 1.3: STAKEHOLDER ENGAGEMENT AND MSG GOVERNANCE AND FUNCTIONING ...................................................................... 16 1.4: WORK PLAN .................................................................................................................................................................................... 22 4. PART II: EITI DISCLOSURES ...................................................................................................................................... 25 1. AWARD OF CONTRACTS AND LICENSES........................................................................................................................................... 25 2. MONITORING AND PRODUCTION...................................................................................................................................................... 34 3. REVENUE COLLECTION ...................................................................................................................................................................... 36 4. REVENUE MANAGEMENT AND DISTRIBUTION ............................................................................................................................... 46 5. SOCIAL AND ECONOMIC SPENDING .................................................................................................................................................. 51 5. PART III: OUTCOMES AND IMPACT ........................................................................................................................ 53 6.1 COMPREHENSIBLE, ACTIVELY PROMOTED REPORTS.................................................................................................................. 53 6.2 REPORT QUALITY............................................................................................................................................................................. 54 7.1 MSG ACTING ON LESSONS LEARNT ............................................................................................................................................. 54 7.2 MSG REVIEW OF OUTCOMES & IMPACT ..................................................................................................................................... 55 8. IMPACT ANALYSIS ........................................................................................................................................................ 57 ANNEX 1 ............................................................................................................................................................................... 59 LIST OF STAKEHOLDERS CONSULTED (IN FIRST TO LAST ORDER OF MEETINGS).......................................................................... 59 ANNEX 2 ............................................................................................................................................................................... 61 LIST OF MSG MEMBERS AND CONTACT DETAILS............................................................................................................................... 61 ANNEX 3 ............................................................................................................................................................................... 62 LIST OF REFERENCE DOCUMENTS........................................................................................................................................................ 62 ANNEX 4: .............................................................................................................................................................................. 63 EITI MSG MEMBERS............................................................................................................................................................................. 63 3 Acronyms/Abbreviations ASAN AzEITI CSO EED EITI GoAZ HGA IA MOU MSG NGO OSF PSA SGC SOCAR SOFAZ TOR Azerbaijan Service and Assessment Network Azerbaijan EITI Civil Society Organisation(s) European Endowment for Democracy Extractive Industries Transparency Initiative Government of Azerbaijan Host government agreements Independent Administrator, MOORE STEPHENS Memorandum of Understanding Multi-Stakeholder Group Non-Governmental Organisation Open Society Foundations Production Sharing Agreement Southern Gas Corridor project State Oil Company Azerbaijan Republic State Oil Fund of the Republic of Azerbaijan Terms of Reference 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 Board’s 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 Validator’s 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 report’s 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 Azerbaijan’s 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 government’s 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 Validation of Azerbaijan 2015 current and future EITI activities due to the restrictions on funding and apparent difficulties with NGO registration. The restrictions on CSOs and the NGO EITI coalition are fully discussed in section 1, using the EITI Civil Society Protocol (January 2015) provided to the Validator as part of our TOR. In summary, it is the Validator’s opinion that the restrictions on CSOs activities in Azerbaijan together constitute an impediment to the ability of CSOs to meaningfully contribute to EITI implementation going forward and do not meet the recommendations set out in the EITI Civil Society Protocol. However, it is the view of the Validator that even in this difficult situation, there is a meaningful way forward for EITI in Azerbaijan. During our mission to Baku, our team met with unanimous support for EITI and a strong desire for the initiative to continue and strengthen, including from members of the NGO Coalition. The level of discussion, engagement and commitment of all sides within the MSG is remarkable and in this context, the Chatham House-type confidentiality rules adopted make sense. This report, in addition to the formality of completing the validation exercise, is designed to make a set of recommendations to strengthen EITI in Azerbaijan and to endeavour to steer a course between competing perceptions, to the mutual benefit of all parties. This will require action on the following recommendations within the next twelve months, following on from approval by the EITI Board of this report. The Validators believe that all of them are feasible and achievable within a year and should see Azerbaijan once again playing a leading role within the EITI community. 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; Part II: EITI disclosures 10. The IA should provide further details and explanations around licenses, reforms and laws as outlined in the summary table and detailed in the report; 6 Validation of Azerbaijan 2015 11. More information should be disclosed about PSAs, including the location of all active PSAs on a publically available website; 12. Going forward, disclosures of beneficial ownership should be considered and discussed by the MSG; 13. The 2013 EITI final report should include information on exploration activities; 14. The MSG should ensure the 2013 EITI final report includes information and data related to unmet provisions outlined in this document; 15. 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; 16. The MSG should consider including the encouraged provisions in the next EITI report; 17. The MSG should include details on quasi fiscal revenue and expenditure in the final 2013 report; 18. The MSG should include details on relevant social expenditure in the final 2013 report; Part III: Outcomes and Impact 19. The IA should place emphasis on ensuring the language in the final report is comprehensible and accessible; 20. 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. 7 Validation of Azerbaijan 2015 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. Objectives for Implementation and Progress in Implementing the Work plan AzEITI has defined its objectives each year in an annual work plan. The core focus each year has been the preparation and disclosure of an annual EITI report. For the draft 2015 work plan, the other key focus was a successful validation, as well as outreach to increase awareness of EITI and exchange experiences with other countries. The 2014 work plan additionally included planning to transition to the EITI 2013 Standard. The core objective here was to devise and agree on a new MoU for the MSG in line with the new standard. AzEITI has made good progress in implementing the work plan, apart from outreach activities carried out by the NGO Coalition and its members. History of EITI Reporting 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 Key features of the extractive industry Of all the countries in the world, Azerbaijan has the oldest tradition of petroleum as a feature of everyday life. Burning gas has leaked from the ground in the Absheron Peninsula since the last ice age (Azerbaijan means the “land of fire”). . In modern times, the world’s first mechanically drilled oil well was in Azerbaijan (in 1848). Azerbaijan’s early oil barons were the Swede Ludwig Nobel and local oligarch Haji Zeynalabin The Zoroaster 2 Human Rights Watch, “Tightening the Screws” , http://www.hrw.org/sites/default/files/reports/azerbaijan0913_ForUpload_1.pdf 8 published September 2, 2013. Validation of Azerbaijan 2015 Taghiyev. The first oil tanker in the world (named the Zoroaster) was owned by Ludwig Nobel. While from a Western perspective the history of oil begins with the Rockefellers and the rise of Standard Oil in the US, the reality is that modern age of petroleum began in Azerbaijan. The past twenty years has seen a dramatic increase in development in the petroleum sector in Azerbaijan, beginning with the so-called “Contract of the Century”, a landmark production sharing agreement for the Azeri – Chirag – Guneshli deepwater oil fields signed by thirteen companies ((Amoco, BP, McDermott, Unocal, SOCAR, LukOil, Statoil, Exxon, TPAO, Pennzoil, Itochu, Ramco, Delta) from eight countries (Azerbaijan, USA, Great-Britain, Russia, Turkey, Norway, Japan, Saudi Arabia).3 Meanwhile, Azerbaijan has a growing network of pipelines (the Baku-Tblisi–Ceyhan to Turkey, as well as the Baku- Supsa, Baku – Novorossiysk and the South Caucasus pipelines) which will shortly be augmented by the Southern Gas Corridor Project (SGC), a $45bn 3,500km pipeline from Azerbaijan to Italy that will secure and diversify Europe’s energy supplies). The first gas to Italy is projected to occur in 2019.4 The era of a decade of high oil prices (for now, coming to a close) and the transition from President Heydar Aliyev to his son Ilham Aliyev in 2003 coincided with a dramatic transition of the economy. The building blocks for growth were put in place during President Heydar Aliyev’s tenure, with innovations such as the founding of the State Oil Fund of Azerbaijan (SOFAZ) in 1999 to protect against oil price shocks. Nonetheless, the economy has been unable to transition away from a dependency on oil. Summary Economic data on extractives in Azerbaijan 7 billion barrels estimated reserves 18 PSAs: 12 onshore, 5 offshore 870,000 bpd estimated production (3% drop) Largest oil field: Azeri-Chirag-Guneshli (650,000 bpd) – PSA published on the AzEITI website5 Largest gas field: Shah Deniz – PSA published on the BP web site6 43.4% GDP (2013) 92% of export revenue (2013) 65.8% of the budget (2013) SOFAZ now worth $37bn Summary of engagement by GoAZ, Civil Society and Industry The MSG has evolved since the formation of EITI in three formal stages – an MOU signed in 2004, an Agreement signed in 2009 (after the first validation of AzEITI) and then an MOU signed in 2014. The government Commission on EITI was established by the Ordinance of Cabinet Ministers in November 2003; companies were formed into a “Company Group” (with details in the first Annex of the MOU) and NGOs formed an NGO Coalition. Annex 2 of this report lists the current MSG members (including the alternates), while Annex 4 lists the previous MSG members since 2010. 3 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 9 Validation of Azerbaijan 2015 At the time of signing the MOU, 37 local and international companies were part of the company group and 109 NGOs were members of the NGO Coalition (although numbers of participating NGOs has fluctuated significantly, with 158 NGOs listed in the 2012 Activity Report). The Company Group has a separate agreement on participation on the MSG (which relate to the 2004 MOU). This agreement lays out how companies will select representatives for the MSG, via a process of nomination and voting. The NGO Coalition elected new Council and MSG members at its General Meeting on 13th December 2013. The Validation Process As laid out in the EITI 2013 Standard Validation Guide and based on the Validator Terms of Reference, this report reviews the seven EITI Requirements. Where provisions are expected, we have provided an assessment of either “met” or “unmet”, with the latter divided into two sub-assessments: “meaningful progress” – meaning that there has been some progress in EITI implementation, but further action required for the requirement to be considered met and “limited progress”, meaning that there is little evidence of progress toward compliance and considerable additional actions are needed for the requirement to be considered met. Where provisions are recommended or encouraged but not required items, the Validator has provided commentary, but not considered them as part of the overall compliance status. As well as an assessment of each of the seven requirements, this report provides a judgment on whether the country is compliant with the EITI Standard overall, with three possible recommendations: full compliance with the EITI Standard, Meaningful Progress and No meaningful progress. The validation process takes into account all aspects of the EITI Standard, including the Civil Society Protocol, which was updated in January 2015. 7 The protocol notes that in assessing the civil society provisions, both the Board and appointed validators will apply the following tests: 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 Standard”8 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 Validation of Azerbaijan 2015 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 Board’s 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). Part I: MSG oversight Government oversight (1.1, 1.2) Stakeholder engagement (1.3) MSG governance and functioning (1.3) EITI workplan (1.4) Part II: EITI disclosures Award of contracts and licenses Legal framework (3.2) License allocations (3.10) License registers (3.9) Contracts (3.12) Beneficial ownership (3.11) State-ownership (3.6.a & 3.6.c) Timely, comprehensive and reliable disclosures (2, 5) 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 Taxes and other EI payments (4.1.b) In-kind revenues (4.1.c) Transport revenues (4.1.f) Barter arrangements (4.1.e) Subnational payments (4.2.d) SOE transactions (4.2.c) Timely, comprehensive and reliable disclosures (2, 5) 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 SOE quasi fiscal expenditures (3.6.b) Earmarked EI revenues (3.8.a) Budget and audit processes (3.8.b) Economic contribution (3.4) Timely, comprehensive and reliable disclosures (2, 5) Part III: Outcomes and Impact Public debate (6.1, 6.2) Lessons learned and follow up on recommendations (7.1) EITI outcomes and impact (7.2) Following on from the EITI Board’s decision on the implementing country, the following pathways apply: 11 Validation of Azerbaijan 2015 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 Validation of Azerbaijan 2015 work. Prior to our country visit, we agreed a draft meeting schedule with the National Coordinator for feedback and additions. Phase 2: Country visit and Stakeholder Consultation (04.02.15 – 15.02.15) This ten-day phase involved two team members visiting Baku to meet MSG members and other EITI stakeholders. We met the MSG Validation Sub-Committee at the start of our mission, and presented our initial findings to the full MSG on the last day. Annex 1 below lists all the consulted stakeholders. The draft report was submitted to the International Secretariat and to the AzEITI MSG on the 15th February. Phase 3: Report Writing, Respond to Comments (27.02.15 – 06.03.15) All comments on the draft report from the AzEITI MSG and the international Validation Committee were addressed in this period (including those given verbally during the initial findings presentation). The Validator requested clarifications from the EITI International Secretariat and the AzEITI Secretariat during this period, with final requests for clarification from the AzEITI secretariat on 28th of February 2015. Where responses have been provided in English in a timely fashion, we have included them in the report. The final report was be submitted to the International Secretariat on the 6th March, 2015. The Validator experienced a number of restrictions which affected the output: Time constraints: The first draft of the report was due 3 days following the end of mission. Generally, we recommend ensuring more time for Validations going forward to ensure that fact checking and follow up can take place; The first Validation under the 2013 standard: As this is the first validation under the new EITI standard, the Validator experienced some teething issues, particularly with understanding the requirements under the Validation guide. We provided these comments to the EITI Validation Committee in advance of presenting the validation findings to the committee in March 2015 Late receipt of Information: Information from the AzEITI secretariat was received a day before final submission in Azeri, i.e. with no time to translate, and as a result has not been fully incorporated into the report 13 Validation of Azerbaijan 2015 3. Part I: MSG oversight Overview This section relates to government oversight of the EITI process, stakeholder engagement and the environment for implementation of EITI in country, the governance and functioning of the Multi-Stakeholder Group (MSG), and the EITI work plan. Stakeholder engagement covers all aspects of the EITI standard, with further emphasis on the requirements set out in the Civil Society Protocol (updated in January 2015): CSO Expression, Operation, Association, Engagement and Access to Public Decision Making. In taking into account the Protocol, the Validator has focused on relating the views of Azerbaijani CSO participants either interviewed during the in-country validation or remotely. 1.1-1.2: Government oversight of the EITI process Facts and Progress Azerbaijan was an early adopter of EITI, participating in a conference in London in June 2003 to agree a statement of principles and agreed actions to increase transparency over payments and revenues in the extractives sector.9 At this conference, a delegation led by Ilham Aliyev, then First Vice President of the state oil company SOCAR, indicated the willingness of Azerbaijan to join EITI. The closing paragraph of his speech noted: “As I mentioned before, Azerbaijan, from the very beginning expressed its support to the initiative of transparency in extractive industries. It corresponds to what we have done in the past and in the future, I am sure this policy will continue. We will promote this initiative inside our country and if it is necessary, we are ready to play an active part in promotion it outside our borders. We had full experience in creating transparency in the past and we have good will to continue this policy in the future.” This speech constitutes an unequivocal statement of Azerbaijan’s intention to implement EITI. In addition to the initial statement, there have been multiple references to EITI by the President of Azerbaijan Ilham Aliyev. These references were provided by the AzEITI Secretariat to the Validator: “As a very active member of the Extractive Industries Transparency Initiative, Azerbaijan in an open and transparent manner uses its energy revenues for the development of the country, particularly building-up of human capital and eradication of poverty. Thus, we were able to achieve a dramatic poverty reduction from 49 percent in 2003 to 11 percent in 2009. And I strongly believe that through sustainable development Azerbaijan in upcoming years will attain even more in this field” (Speech by President Ilham Aliyev at the 65th session of the United Nations General Assembly, 23 September 2010; http://en.president.az/articles/764). “We knew that Azerbaijan’s oil revenues would be managed at the highest level. With this purpose Azerbaijan joined the Extractive Industries Transparency Initiative (EITI). Today, the Executive Director of the Oil Fund has said that Azerbaijan has become the first country to secure fully-fledged membership in the program. We are doing this not only to receive good feedback from foreign centres. We are doing this because it strengthens our country” 9 http://collections.europarchive.org/tna/20070701080507/http:/www.dfid.gov.uk/news/files/eitireportconference17june03.asp 14 Validation of Azerbaijan 2015 (Expanded meeting of the Cabinet of Minister chaired by President Ilham Aliyev, 20 October 2010; http://en.president.az/articles/919). “In general, one of our biggest achievements playing a role in the economy is transparency. Azerbaijan joined the Extractive Industry Transparency Initiative eight years ago and is now a full member of it. We have achieved complete transparency in our energy sector” (President Ilham Aliyev Interactive session dedicated to Azerbaijan was held in Davos, 28 January 2012; http://en.president.az/articles/4183). “The Republic of Azerbaijan has joined the Extractive Industry Transparency Initiative (EITI) in 2003 and established State Commission charged with the implementation of this initiative. The Implementation Mechanism for the initiative was defined by the State Commission, local and foreign companies engaged in extractive industry, NGOs acting in the field of Increasing Transparency in the Extractive Industry, subsequently leading to the signing of the Memorandum of Understanding on the Implementation of the Initiative. Azerbaijan was granted a status of the candidate and in 2009 was designated as EITI compliant. The State Oil Fund was rewarded with the UN Public Service Award for its achievements in the area of Raising Transparency, Accountability and Responsibility in 2007. In 2009, the EITI award was conferred on Azerbaijan” (Open Government Initiative National Action Plan 2012-2015, Endorsed by the Presidential Decree of the 5th September 2012; http://www.commissionanticorruption.gov.az/upload/file/OGP%20AP%20Azerbaijan%202012-2015%20Eng.pdf). “Azerbaijan was one of the first countries to join the Extractive Industries Transparency Initiative of the then Prime Minister of the United Kingdom, Mr. Blair. Azerbaijan became the first full member of this initiative and there is now 100% transparency in the extractive industries in Azerbaijan. We need to have the same percentage of transparency in our financial and public services sectors, and we are working on that” (President Ilham Aliyev addressed the PACE Summer Session, 24 June 2014; http://en.president.az/articles/12149). 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 government’s 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 Validation of Azerbaijan 2015 1.3: Stakeholder Engagement and MSG Governance and Functioning Facts and Progress The MSG has evolved since the formation of EITI in three formal stages – an MOU signed in 2004, an Agreement signed in 2009 (after the first validation of AzEITI) and then an MOU signed in 201411 - this is therefore a clear and public Term of Reference for the MSG that was extensively and participatively discussed (at the 28th, 29th, 30th and 31st MSG meetings). As the 2014 MOU sets out, the government “Commission” on EITI was established by the Ordinance of Cabinet Ministers in November 200312; companies were formed into a “Company Group” (with details in the first Annex of the MOU) and NGOs formed an NGO Coalition (with details provided in the second Annex). The 2014 MOU ensures that the invitation to participate in the group is open and transparent – section 1.2.1 states that “Each Party shall appoint with equal rights 3 (three) principal members and up to 3 (three) alternate members to the MSG.” This ensures that there is adequate representation and each stakeholder group has the right to appoint its own representatives. Annex 2 of this report lists the current MSG members (including the alternates), while Annex 4 lists the previous MSG members since 2010. Meanwhile, the Commission on EITI ensures that senior government officials are represented on the MSG. At the time of signing the MOU, 37 local and international companies were part of the company group and 109 NGOs were members of the NGO Coalition (although numbers of participating NGOs has fluctuated significantly, with 158 NGOs listed in the 2012 Activity Report). Through the NGO Coalition minutes (known as protocols) there is evidence that CSO is free to select its own MSG members and to represent itself at different EITI events in the coalition’s protocols (minutes) and has operational and policy independence from government.13 The Company Group has a separate agreement on participation on the MSG (which relates to the 2004 MOU). This agreement lays out how companies will select representatives for the MSG, via a process of nomination and voting. MSG members representing companies are given 12 months tenure. Meanwhile, the NGO Coalition has regulations for ordinary coalition members, as well as regulations for its Board. The NGO Coalition is comprised of a general assembly, a coalition board (or “council”), a monitoring group and regional representatives. Members of the Coalition Council have a two year tenure, voted by majority through a secret ballot procedure. The board/council vote who will represent the coalition on the MSG. The NGO Coalition elected new Council and MSG members at its General Meeting on 13th December 2013. The coalition is currently finalising a 2015-2018 Strategic Plan with support from the World Bank. The Validator observed or received no evidence of coercion during the process of change of membership of any MSG member. In June 2014 at the 31st MSG meeting, a draft EITI law was presented by the NGO Coalition members, showing that the MSG has considered the legal basis of the group. However, the government and company representatives rejected the proposal. The Validator was informed by the AzEITI Secretariat that while there was no detailed discussion of law itself, however, there was discussion of the necessity of implementing the existing legal framework. Also, the Chair of the MSG mentioned that an EITI law could negatively influence the flexibility of implementation EITI in Azerbaijan. By the time of the July 2014 (32nd) MSG meeting – emerging difficulties for CSOs were raised (however, the detailed discussion is not represented in the minutes). This was against a background of amendments to the NGO law (which had previously been 11 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 Validation of Azerbaijan 2015 amended in 2009, and followed by a decree in 2011). In March 2013, a new amendment (number 24-1) was made on donations and grants which had the consequence (at least for some NGOs) of making access to foreign funds very challenging. MSG members are substantially engaged in the design, implementation, monitoring and evaluation of the EITI process, as is evident from the discussion on the 2015 work plan in the MSG meeting (number 34) on 10th December, 2015. Clause 1.1.1a of the 2014 MOU empowers the MSG to develop work plans, define the Terms of Reference for and appoint the Independent Administrator (1.1.1.d). Meanwhile, 1.1.1g gives the MSG the power to prepare, approve, publish and distribute EITI reports as well as annual activity reports. The 2014 MOU also gives details on the MSG’s internal governance rules, including meetings and decision making (which is made by consensus voting as stated in Clause 1.4.2.). Clause 1.4.3 of the MOU states that “Any position expressed by a member of the MSG is considered to be the position of the relevant Party. Therefore, prior to the meeting, the members of MSG should seek to reach an agreement on the issue with the Party that they represent.” Venice Commission Opinion recommendations The Venice Commission of the Council of Europe published an Opinion on 15th December 2014 on recent amendments to the Non-Governmental Organisations (Public Associations and Funds) law (hereinafter the “Law on NGOs”).14 The Opinion first of all lays out the legal framework for NGOs in Azerbaijan, by assessing salient constitutional provisions (such as Article 26 on the protection of rights and liberties of citizens and Article 58 on the right to establish a union, political party or public organisation) as well as the law on NGOs itself. The opinion notes that the NGO law was adopted in 2000, replacing an older 1992 law, and was generally welcomed as more progressive legislation. The Opinion also notes that in 2003 a Law on State Registration and the State Registry of Legal Entities was enacted which includes details on registering NGOs. However, the document notes that subsequent amendments to the NGO law (and in parallel, the law on registration) have led to criticism, in terms of registration of NGOs and specifically registering local branches of international NGOs. This view tallies with the reality: that international NGOs such as OSF, Oxfam, the European Endowment for Democracy and some foreign embassies have all faced challenges and some organisations have had to close. The Opinion goes on to analyse the various international legal frameworks Azerbaijan has adopted, such as the 1966 International Covenant on Civil and Political Rights and the 1950 European Convention on Human Rights (ratified in 2002). Following on from this national and international legal framework analysis, the Opinion comments (both generally and specifically) on the amendments to the NGO law, noting that they raise barriers to the establishment of NGOs through additional administrative requirements and checks as well as more problematic registration procedures. The amendments also introduce more severe penalties for noncompliance and therefore fail to address significant recommendations made by the Venice Commission in its earlier 2011 Opinion. Among the specific observations, the Opinion notes that the third set of amendments, adopted by Parliament in October 2014 and signed by the President on 14th November, potential NGO donors are limited to citizens or legal persons of Azerbaijan, thus preventing donations from foreign organisations funding NGOs directly. The Opinion comments that, “The Venice Commission reiterates that, while foreign funding might give rise to some legitimate concerns, it shall not be prohibited unless there are specific reasons to do so. Even then, foreign funding should never be object of an outright ban.” The Opinion concludes the detailed analysis with the following remarks (direct quotation): “The NGO registration process should be simplified and decentralised in order to decrease its excessive length; specific measures should be taken to ensure full respect for the legislative requirements and to prevent contra legem practices as the breach of deadlines for registrations, 14 http://www.venice.coe.int/webforms/documents/?pdf=CDL-AD(2014)043-e 17 Validation of Azerbaijan 2015 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 government’s 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 government’s 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 Validation of Azerbaijan 2015 company administrative processes through training on financial management and book-keeping).15 More central to this requirement, the Council on State Support to NGOs contests any view that there is political pressure being applied on the NGO sector, and points to its record supporting organisations associated with opposition parties. Officials from the Council on State Support to NGOs also note that of the eleven members of the council, eight are from civil society and are elected democratically. They further explain that they provide resource and training centres (via the NGO Forum coalition) and are planning (with USAID support) to roll out more. Their view is that the requirement that foreign donors must apply via the Ministry of Finance to provide support is simply practising administrative efficiency (to avoid duplication of resourcing). They also remarked that the same registration processes for foreign donors also apply to Azerbaijan state agencies – all 26 agencies providing support to NGOs also have to comply with the Council on State Support to NGOs. Meanwhile, the government view is that the NGO sector has operated with little or no internal accountability, and with issues of tax evasion and corruption prevalent. Officials finally stated that they would also be willing to support the NGO Coalition should it have any issues with registration. Civil Society While there is a diversity of opinion within civil society (with members with different agendas and political perspectives), a commonly held view from the Validator’s 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 coalition’s affairs – the Economic Research Centre. CSO representatives also reported the following issues: o o o 15 NGO Coalition members suggested that it is impossible to register the coalition, as there aren’t 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 AzEITI’s 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 Validation of Azerbaijan 2015 o o o o 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 centre’s 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 initiative’s 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 society’s 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-azerbaijan’s-civil-society 17 20 Validation of Azerbaijan 2015 Other Stakeholders 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 stakeholder’s 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 Validation of Azerbaijan 2015 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. 1.4: Work plan Facts and Progress The MSG maintains a current work plan. The Validator studied both the completed 2014 work plan22 and the draft 2015 work plan for this report. While both work plans are to some degree linked to EITI Principles (for instance, fostering outreach activities to increase awareness of EITI can be linked to the fourth EITI principle, “We recognise that a public understanding of government revenues and expenditure over time could help public debate and inform choice of appropriate and realistic options for sustainable development”) they do so in quite a weak and unremarkable way; for instance, it is not possible to map many of the 12 principles onto the work plans. However, neither work plan has objectives that clearly reflect national priorities or ongoing reform efforts, nor is there substantive evidence of innovative approaches to extending EITI implementation to increase the comprehensiveness of reporting and encourage high standards of transparency and accountability in public life, government operations and in business. While the 2015 work plan does include discussion on scope of reports, it’s not clear from the MSG minutes (which are summary in nature) whether the MSG has considered extending the detail and scope of EITI reporting to address issues such as revenue management and expenditure, transportation payments, discretionary social expenditures, ad-hoc subnational transfers, beneficial ownership and contracts when reviewing the work plan. 22 Available here http://www.eiti.az/index.php/en/senedler-2/work-plan-for-implementation-of-eiti 22 Validation of Azerbaijan 2015 Nonetheless, the work plans do reflect consultations with key stakeholders and are reviewed and approved annually. For instance, during the 34th MSG meeting (10th December 2014), discussions took place on implementation of the 2014 work plan and revising the 2015 draft work plan. Unfortunately, the summarised nature of the minutes do not permit detailed analysis of the discussion. While, the two assessed work plans do include measurable and time bound activities (and their funding sources, whether domestic or foreign), they do not address and outline plans to address any potential capacity constraints across all three stakeholder groups. Likewise, while the work plans do address the scope of EITI reporting, they do not address any potential legal or regulatory obstacles to implementation, although the 2014 work plan did, in section 2.4, include discussions on the creation of a legal basis for EITI. Both the 2014 and draft 2015 work plan are not fully costed – they include items which have a funding source but are not costed (such as the cost of the reconciliation exercise). As noted in 1.2 above, 2013 and 2014 work plans have not been fully implemented in respect of CSO outreach activities, but all other activities were completed. The 2014 work plan is available on the AzEITI website (as are previous work plans from 2010). The 2015 draft work plan’s timetable is in line with validation deadlines. In order to ensure a smooth transition to the new 2013 Standard after its adoption at the Sydney Conference, the MSG decided to verify whether the Standard complies with the national legislation. An independent law firm (MGB Law Offices Limited) was appointed to identify any potential obstacles for EITI implementation in Azerbaijan. 23 Stakeholder Views In terms of assessing, outlining and addressing any potential capacity constraints, the MSG did not see any potential capacity constraints for the provisions in the work plan during preparation, therefore they were not reflected in the work plan. In commenting on the draft version of this validation report at a NGO Coalition Council meeting on February 25th, the NGO Coalition noted that “the report mentioned review of 2015 EITI Work Plan of Azerbaijan for several times, mentioning the work plan for 2015 was discussed at December 10th meeting of MSG. However this plan was neither presented, nor discussed at MSG and meeting protocol proves that.” Nonetheless, the minute for the 34th meeting notes that in discussing the second agenda item, “MSG Members conducted a broad discussion of the implementation of the 2014 Work Plan and the draft 2015 Work Plan. In consideration of changes made by the EITI International Secretariat into the validation schedule, MSG Members stressed the importance of reviewing and revising the 2015 Work Plan by the national Secretariat.” It is therefore not clear whether a) the minute to the 34th meeting is accurate or b) the NGO Coalition is mistaken in its view that 2014 work plan implementation and the draft 2015 work plan were discussed. Conclusion Some sub-provisions are met, while others are unmet with meaningful and limited progress. 23 http://www.eiti.az/index.php/en/senedler-2/eiti- standards/517-mhsht-qanuni-huquqi-rey-2 23 Validation of Azerbaijan 2015 Summary Assessment Table Summary assessment table: MSG oversight EITI provisions Summary of main findings Government oversight of the EITI process (#1.1-1.2) Evidence of high level government references < to EITI and involvement Stakeholder engagement and the environment for their participation in the EITI process (#1.3) Although the environment within EITI is inclusive and participatory a weakening enabling environment and increasing obstacles to participation mean CSOs not able to speak and participate freely. There is good communication between constituency groups, inclusive decision making and functioning working groups. Although it is not clear what the national priorities are, the work plan is endorsed by the MSG, activities are measurable & time bound and address all other issues in 1.4. We recommend the work plan is updated to follow best practice. MSG governance and functioning (#1.3) Work plan (#1.4) Validator’s 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. Validator’s 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 Validation of Azerbaijan 2015 4. Part II: EITI disclosures 1. Award of contracts and licenses Overview This section provides details of the legal regime, contracts and licenses, based on information in the 2013 EITI draft report and provided to the Validator during the in-country mission. 3.2 Legal and Fiscal Regime Facts and Progress The EITI 2013 draft report covers the EITI legal framework and lists international agreements, codes and laws relating to the extractive industry (section 3.2 of draft report). The report also includes the roles and responsibilities of main government agencies. However, some key laws relating to the “Protection of FDI”, Law “On Energy”, the State Programme on Development of Fuel-Energy Complex 2005-2015, and strategy for management of oil resources weren’t included in the review. The Subsoil Law expressly states that the regulation of energy issues will be subject to a specific energy law (Article 3); the Law on Energy was thus passed on 24 November 1998 (the Energy Law). The Energy Law further elaborates the main principles of government regulation as set out in the Subsoil Law. While the Subsoil Law regulates different aspects of mineral resources, which by definition covers not just oil and gas but also other sectors such as iron ore, sand and gravel extraction, etc., the Energy Law – as the name suggests – is more specific to energy resources. However, the draft 2013 EITI report doesn’t explain the existing fiscal regime comprehensively, rather focusing only on Production Sharing Agreements (PSAs), while Azerbaijan’s fiscal regime in the extractive industry consists of a combination of PSAs and host government agreements (HGAs).24 “In addition, the Law on Application of Special Economic Regime for Export-Oriented Oil and Gas Operations (the Law) came into force on 17 April 2009. The Law applies to export-oriented oil and gas operations carried out by contractors, as well as by subcontractors, as defined in the Law. The Law will be effective for 15 years but maybe further extended once this period is over.”25 Currently, HGAs apply to oil and gas pipeline projects. The Main Export Pipeline (Baku-Tbilisi-Ceyhan) (MEP) and the South Caucasus Pipeline (SCP) activities are governed by respective HGAs.26 There are substantial differences between the general tax legislation and the tax regimes of the existing PSAs, HGAs and the Law. Generally speaking, PSAs, HGAs and the Law have negotiated taxes that provide for substantial relief to investors, while those operating outside the above-mentioned agreements must pay the whole range of standard Azerbaijani taxes under the statutory tax regime.27 The draft 2013 EITI report also does not include information on fiscal devolution as clause 3.2a of the Standard requires. The Law of the RoA “On the State Budget of the RoA for 2013” in article 6 defines that “The centralized incomes of the state budget of the Republic of Azerbaijan for 2013 are formed on the basis of allocations on the norms provided from the following sources: incomes on Baku city (except the ones included to the Roads Purpose budget Fund – 96.37 percent." 24 Ernst&Young Global Oil and Tax Guide 2012, Azerbaijan, p.37 Ibid. 26 Ernst&Young Global Oil and Tax Guide 2013, Azerbaijan, p.41 27 Ibid. 25 25 Validation of Azerbaijan 2015 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 Azerbaijan’s 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. 3.10. Allocation of Licenses Facts and Progress The 2013 EITI draft report states: “A single license registry in Azerbaijan is carried out by the Ministry of Economy and Industry (MEI). Pursuant to the Regulations (the "Regulations") on carrying on a single license registry in Azerbaijan Republic approved by Order No.68, dated September 30, 2002 of MEI, registry of all licenses issued in Azerbaijan is publicly available. On the other hand, the Regulations have been adopted according to Decree No.782 by the President and thus, it can be concluded that the registry of licences made in accordance with the Regulations comprises the information only about the licenses (for example, licenses for sale of oil and gas products, licences for production, processing, use and circulation of valuable metals and etc.) falling within the scope of the mentioned decree.”28 The EITI report does not provide details of the allocation of licenses required under the 2013 EITI standard 3.10 a-d, and only refers to President’s decree and a link to the AzEITI website http://eiti.az/index.php/az/senedler/sazishler which provides some summaries of certain energy sector agreements. 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 2013 EITI draft report 26 Validation of Azerbaijan 2015 The process for awarding or transferring the licenses pertaining to companies covered by the EITI report has not disclosed in the report. Bid criteria or a list of applications (3.10.b) were not disclosed to the Validator. Finally, the EITI 2013 Draft Report does not comment on the efficiency and effectiveness of the systems. Sub-provisions are unmet with limited progress. 3.9 License Register Facts and Progress The 2013 EITI Standard requires that a country must maintain a publicly available register system with information regarding each license of companies covered in the EITI Report i. License holder(s). ii. Coordinates iii. Date of application, date of award and duration of the license. iv. For production licenses, the commodity produced. Where this information is available, it is sufficient to include a reference or link in the EITI Report. The 2013 draft report explains that a single license registry is administered by the Ministry of Economy and Industry, and is on a publicly available website http://icazeler.gov.az/az/lisenses in Azeri. This license registry provides information on licenses for all kinds of business not only of the extractive industry. The 2013 EITI draft report confirms that it is possible to get information on type of permit, amount of payment for permit issuance, number of days required for permit issuance, effective period of permit, list of documents required for permit issuance, legal ground of permit (permit issuance procedure), name of executive body issuing permit and other information. In addition, the following information was provided by the AzEITI Secretariat: “Licenses regarding exploration or exploitation of oil, gas and minerals resources do not fall within the scope of the Decree No. 782 and under Azerbaijan legislation there exists no procedure for obtaining such licenses. However, according to Presidential Decree No. 310, dated March 28, 2000 exploration and exploitation of oil and gas belongs to exclusive competence of the state and may be conducted only by state entities or state controlled joint stock companies. Hereby Azerbaijan government retains all rights to execute such activities and engage internationally recognized and experienced contractors. On the other hand these rights and licenses to engage in activities regarding the exploration and exploitation of oil and gas may be granted to third parties by way of signing Production Share Agreements between the state (represented by state company) and third parties and these PSAs enter into effect after the official confirmation by the Parliament of Azerbaijan Republic. The law acts confirming the PSAs explicitly stipulate that the participating parties to PSA are granted all permits and licenses to operate within the scope of PSAs (including explore or exploit oil, gas and minerals resources) and these law acts are publicly available, there exists no other licensing instrument for this purpose."29 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 http://www.president.az/articles/3410 and http://www.e-qanun.az/StatementDetails.aspx?statementId=8178 27 Validation of Azerbaijan 2015 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 PSA’s 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 Standard’s 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 Validation of Azerbaijan 2015 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. 3.11 Beneficial Ownership Facts and Progress The 2013 Standard states: “It is required that the government and/or state-owned enterprises disclose their level of beneficial ownership in oil, gas and mining companies operating within the country, and any changes in the level of ownership during the accounting period covered by the EITI Report”. The following information is provided in the 2013 EITI draft report. “’Beneficiary owner’ conception is not recognized with the law of Azerbaijan and there is no publicly available registry of beneficiary owners of cooperative enterprises in Azerbaijan.” The report also refers to a 2013 MGB Law Offices legal opinion on the AzEITI website that states: “Taking into consideration that there is no legal obligation on beneficial ownership conception and providing information in connection with such ownership in Azerbaijan, disclosure of information on beneficial ownership shall not be binding obligation for companies participating in Extractive Industries Transparency Initiative.” (p. 34) 32 However, that same MGB legal opinion concludes: “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. 33 32 33 http://www.eiti.az/doc/legal_opinion%20_%28SOFAZ%29_eng.pdf. Page 3 Ibid 29 Validation of Azerbaijan 2015 Minutes from 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 o o o o o infrastructure provisions and barter arrangements; subnational payments and subnational transfers; SOCAR’s quasi-fiscal expenditures; social expenditures; license registrations and allocations; and Beneficial ownership. 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. 3.6. State Participation in the Extractive Sector Facts and Progress The 2013 Standard requires an explanation of the prevailing rules and practices regarding the financial relationship between the government and Azerbaijan state-owned companies (SOCAR), regarding retained earnings, reinvestment and third party financing. 34 http://www.eiti.az/doc/legal_opinion%20_%28SOFAZ%29_eng.pdf. Page 3 30 Validation of Azerbaijan 2015 While the draft 2013 report provides a range of data regarding SOCAR activities, there remain a number of key pieces of information missing. Data is provided on SOCAR production of oil, gas, and oil processing in 2011-2013, revenue, total profit, profit before taxation and total income tax (pp. 32-33). In addition, the report contains SOCAR payments and transfers of assets to the government, as well as SOCAR joint ventures and ‘associates’, percentage of SOCAR (government) ownership of the joint ventures and their earnings, assets and debts in 2013. Finally, the report also includes social expenditure of SOCAR and capital investment programme. Draft 2013 report notes “there were no changes in the level of beneficial ownership between the government and SOCAR during the reporting period, including those held by SOCAR subsidiaries and joint ventures. Minutes from 34th MSG meeting (10.12.2014) states that the SOCAR’s quasi-fiscal expenditures shall not be included in the EITI Report. The 2013 draft report states that during the reporting period the quasi-fiscal expenditures such as payments for social services, public infrastructure, fuel subsidies and national debt services were not carried out by SOCAR. Draft 2013 report provides details of SOCAR loans and loan guarantees. SOCAR has been awarded with the AZN 750 million loan for 7 years with annual interest rate 3.15% by the International Bank of Azerbaijan Republic in 16 July 2009 under the guarantee of the State of behalf of the Central Bank of the Republic of Azerbaijan. As of 31 December 2013 500 million AZN remains unpaid. 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. All sub-provisions are unmet with meaningful progress. Assessment of timeliness, comprehensiveness and reliability of the information disclosed 31 Timeliness: The 2013 EITI draft report does provide information on companies included within the scope for 2013. Validation of Azerbaijan 2015 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. Summary Assessment Table Summary assessment table: Award of contracts and licenses EITI provisions Summary of main findings Validator’s recommendation on compliance with the EITI provisions (to be completed for ‘required’ provisions) Legal framework (#3.2) While there is information on relevant laws, it is not in depth, with substantive information only on the roles and responsibilities of relevant government agencies. There is no information on fiscal devolution and the assessment of the fiscal regime doesn’t fully cover the current tax regime. The 2013 draft report provides an overview of extractive industry, however there is no information on ongoing reforms. Unmet with meaningful progress License allocations (#3.10) EITI report doesn’t provide details of allocation of licenses and only refers to the Presidential decree. The Presidential decree provides requirements for applicants, the bid criteria, contain details of license information (following EITI requirements except coordinates of license area) and prohibits transfer of licenses. EITI report must clearly state all of these points. The IA must also disclose in the report where licenses were awarded during the accounting period covered by the EITI Report the list of applicants. There is no evidence that MSG discussed allocation of licenses. http://icazeler.gov.az/az/lisenses refers only to licensing processes and templates. No evidence of discussion of license system appears in MSG minutes The draft EITI report doesn’t disclose any gaps in the publicly available information and doesn’t document errors to strengthen this system Unmet with limited progress License registers (#3.9) 32 Unmet with limited progress. Validation of Azerbaijan 2015 Contract disclosures (#3.12.b) Beneficial ownership disclosure (#3.11) State-participation (#3.6.a and #3.6.c) Report does not include relevant legal provisions, actual disclosure practices and any reform that are planned or underway. No disclosures on Beneficial Ownership. EITI Report doesn’t provide Beneficial Ownership data, referring to legal gap in recognising “beneficial owner” concept. IA states that submission of such information by governmental or state enterprises is not possible. Unmet with limited progress There is data on the prevailing rules of SOCAR but no explanation Unmet with meaningful progress. Overall assessment: Unmet with limited to meaningful progress. The provisions in this section require effort work to bring it up to compliance with the 2013 EITI standard. Validator’s conclusions and recommendations: 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 Validation of Azerbaijan 2015 2. Monitoring and production Overview This section provides information on the information and data provided in the 2013 EITI Draft Report. 3.3 Extractive Industries Overview Facts and Progress Section 3.3 of the draft 2013 EITI report contains an overview of the industry which provides data on companies of several PSAs in the hydrocarbon and mining sectors. Information on the geographical location of oil reserves is provided in another chapter (3.4.4). The sector review does note where companies are undertaking exploration activities, but there are few details. We note that the 2013 SOCAR report does contain information on exploration activities.35 Stakeholder Views MSG members and the IA were satisfied with the level of information in the sector overview; The NGO Coalition recommended to add exploration information; Conclusion This provision is unmet with meaningful progress. If the IA updates this section with details on significant exploration activities it will meet EITI Standard’s requirements. Looking forward, the MSG may want to consider including information on oil trading activities, as per the guidance provided by the EITI secretariat. (https://eiti.org/files/EITI_Briefing_note_commodities_trading.pdf) 3.5 Production Data Facts and Progress The Report discloses production volumes relating to oil and gas, gold and silver, with geographical information on oil production. Total export volumes and the value of exports by commodity were provided in the report. Data clearly shows that most of oil export were provided through Baku. Stakeholder Views Most of the MSG members did not have specific comments to this data. The NGO Coalition recommended “to present distinctly the value of exports by pipelines under a separate paragraph”. 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 Validation of Azerbaijan 2015 The Validator recommends the IA update the information to meet the requirements of the EITI Standard. Assessment of timeliness, comprehensiveness and reliability of the information disclosed Timeliness: Information is provided for 2013 Comprehensiveness: Information on exploration activities is missing Reliability: The information provided is based on data provided by Azerbaijani Ministries Summary assessment table Summary assessment table: Monitoring and production EITI provisions Summary of main findings Validator’s recommendation on compliance with the EITI provisions (to be completed for ‘required’ provisions) Overview of the extractive sector, including exploration activities (#3.3) The 2013 EITI Draft report provides an overview of extractive industry however no information on exploration activities Unmet with meaningful progress Production data (#3.5.a) Total production volumes and the value of production by commodity, and, when relevant, by state/region. Total export volumes and the value of exports by commodity, and, when relevant, by state/region of origin. Met Export data (#3.5.b) Met Overall assessment: Unmet with meaningful progress Validator’s conclusions and recommendations: 1. The 2013 EITI final report should include information on exploration activities 35 Validation of Azerbaijan 2015 3. Revenue collection Overview This section is intended to review the following aspects of the 2013 EITI Standard: comprehensiveness (#4.1.a, #4.2.a-b ) taxes and other payments (#4.1.b) in-kind revenues (#4.1.c) transport revenues (#4.1.f) barter and infrastructure transactions (#4.1.e) subnational direct payments (#4.2.d) transactions between SOEs and government (#4.2.c) assessment of timeliness of the information disclosed (#2) data quality (#5) 4.1 and 4.2 Facts and Progress The MOU defines that MSG determine material revenue sources and the level of material amounts/volumes. MSG minutes #19 from 30 January 2013 determine the important revenue sources included in the report. The revenue sources that are considered as important by the MSG are: in kind and cash for oil production, natural gas and associated gas in kind and cash, the main and precious metals in kind and cash, income tax, signing and other bonuses, acreage payments and transit fees, Royalties, value added tax, land tax, property tax, price differences and other taxes (individuals’ income tax, allocations to the State Social Protection Fund and taxes withheld at source are excluded). These revenue sources cover more than 99 per cent (99.99%) of the revenues received from the extractive industry of the country. According to the 2013 EITI Report (p.9), the MSG defined materiality as follows: Natural and associated gas production revenues in kind and in cash o Oil production revenues in kind and in cash o Base and precious metals production revenues in kind and in cash o Profit tax o Signing bonuses and other bonuses o Acreage and transit fees o Royalty, VAT, Land tax, Property tax, price change and other taxes (excluding employee profit tax, contributions to the State Social Protection Fund and withholding tax) 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 weren’t 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 Validation of Azerbaijan 2015 The reporting templates found in Annex 3 of the EITI draft report, require details of company transfers to the government (in kind and in cash) and section 5.1 confirms that the reconciliation of in-kind payments to the GoAZ reported by foreign companies and government don’t have discrepancies (p. 42). 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 (Government’s entitlement to oil profits) through Western Route Pipeline and operating costs (operational and capital expenditure). AIOC pays Georgia’s share from the total fees collected. SOFAZ receives only the transportation tariff’s share determined by the Republic of Azerbaijan.” The report does not cover the dividends resulting from the Ministry of the Economic Development’s 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 Validation of Azerbaijan 2015 Taxes and other payments (#4.1.b) Have the following revenue streams been considered in the EITI Report?: o The host government’s production entitlement. Not clear o National SOE production entitlement Not clear o Profits taxes Profit taxes from companies is provided (pg 57) o Royalties Disclosed (pg 56) o Dividends Not clear o Bonuses, such as signature, discovery and production bonuses. Bonuses are disclosed in company disclosures, but it is not clear if they are included in government revenues (pg 55) o Licence fees, rental fees, entry fees, and other considerations for licences and/or concessions It is not clear if they are disclosed (pg 55) o Any other significant payments and material benefit to government. VAT, property taxes, land taxes and ‘other taxes’ are disclosed. It is not clear if they represent the only material taxes In-kind revenues (#4.1.c) What is the MSG’s definition of materiality with regards to in-kind revenues? o In kind revenues are considered material vis-à-vis oil production revenues, natural and associated gas production revenues, and base and precious metals production. Where in-kind revenues exist and are considered material as per the MSG’s definition, does the EITI Report include disclosures of in-kind revenues disaggregated to levels commensurate with the criteria for reporting of other payments and revenue streams? o In kind revenues are provided in summary table form broken down by type of production and in aggregate form. Additionally, in kind payments made by companies are provided for some companies. Where provided, the disclosures are commensurate with other disclosures. Transport revenues (#4.1.f) What is the MSG’s definition of materiality with regards to transportation revenues? o The transportation tariff is considered a payable amount in relation to transit of crude oil and gas entitlement (pg 16) Where transportation revenues exist and are considered material as per the MSG’s definition, have these revenues been disclosed in accordance with the criteria for reporting of other payments and revenue streams? o Yes. Inflows from gas transportation to Government are provided on page 58 and further details provided in individual company disclosures. However, it is unclear whether transportation tariffs for crude oil are included in these figures Barter and infrastructure transactions (#4.1.e) What is the MSG’s definition of materiality with regards to mandatory social expenditures? o The 2013 EITI Draft report excludes employee profit tax, contributions to the State Social Protection Fund and withholding tax. 38 Validation of Azerbaijan 2015 o o 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. 4.2 Defining Reporting Scope Facts and Progress Annex 2 of the 2013 EITI draft report lists 35 foreign and 3 local extractive companies, including SOCAR. All these companies disclose payments to government based on the approved materiality definition Only one company, R.V. INVESTMENT GROUP SEVICES PSA operates in gold, silver and copper, with all other PSAs in oil and gas The report does not provide information on subnational payments and subnational transfers Minutes of the 31st MSG meeting from 10 June 2014 indicate that the MSG agreed that the ToR of the IA shall be deemed as approved by MSG and a Working Group shall be established to support the preparation of the synthetic tables and contextual data that would be specified in the IA’s report. Stakeholder Views Reporting scope was agreed with MSG members. The Secretariat explains that the MSG agreed to adhere to mandatory requirements only. The 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 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 Validation of Azerbaijan 2015 o Ministry of Ecology and Natural Resources of the Azerbaijan Republic. The IA makes no statement on whether the disclosing entities comprehensively address all relevant material revenues 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.” Subnational direct payments (4.2.d) What is the MSG’s definition of materiality with regards to direct subnational payments? o 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. Transactions between SOEs and government (4.2.c) Does the EITI Report describe the role of SOEs operating in the country? o Yes Where SOEs make payments to the government, collect material revenues on behalf of the state, or both, and where financial transfer between government entities and SOEs exist and are material, have they been fully disclosed? Does the EITI Report comprehensively address the role of SOEs, including material payments to SOEs from oil, gas, and mining companies, and transfers between SOEs and other government agencies? o SOCAR and SOFAZ are comprehensively discussed in the 2013 EITI draft report. 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. 5.1 Independent Reconciler Appointment Facts and Progress The last procurement process of an IA was in 13 February 2013 and the IA was selected for the subsequent three years.36 Stakeholder Views The Secretariat and the IA explained that according the procurement of services of IA was fixed for three years term. The MSG meeting #20 Minutes from 13 February 2013 discussed the selection of an auditing company to analyse and reconcile the EITI reports covering 2012, 2013 and 2014, respectively. The auditing companies that wished to participate in the competition sent the required documents one week prior 36 MSG meeting #20 Minutes from 13 February 2013. Baku 40 Validation of Azerbaijan 2015 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. 5.2 Agreement of TOR Facts and Progress The EITI Standard states that in agreeing the ToR, the MSG and the IA are required to: a) Agree the reporting templates for the EITI Report in accordance with the scope of the EITI Report (see Requirement 4). b) Review audit and assurance practices. The multi-stakeholder group, in consultation with the Independent Administrator, is required to examine the audit and assurance procedures 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. It is recommended that the EITI Report includes a summary of the findings. c) Agree on the assurances to be provided by reporting entities to the Independent Administrator. The Terms of Reference must outline what information should be provided to the Independent Administrator by the participating companies and government entities to assure the credibility of the data. The multi-stakeholder group and the Independent Administrator should document the options considered and the rationale for the assurances to be provided. Where deemed necessary by the Independent Administrator and the multi-stakeholder group, assurances may include: i. Sign-off from a senior company or government official from each reporting entity attesting that the completed reporting form is a complete and accurate record. 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 Validation of Azerbaijan 2015 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 company’s 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 government’s disclosures from their external auditor or equivalent. d) Agree appropriate provisions relating to safeguarding confidential information. e) The multi-stakeholder group is required to agree the level of disaggregation for the publication of data. It is required that EITI data is presented by individual company, government entity and revenue stream. Reporting at project level is required, provided that it is consistent with the United States Securities and Exchange Commission rules and the forthcoming European Union requirements. 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. Validation of Azerbaijan 2015 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. 5.3 Assessment and Recommendations from Independent Administrator Facts and Progress The IA noted that during the reconciliation process the extractive companies made common mistakes while filling out the reporting template. The nature of errors were routine – omission of figures, including the amount and volume which should not be included in the report The IA recommended to include additional comments on previous experience of staff of companies and to organise seminars and training for the participants on the reconciliation process to increase the productivity and decrease the number of recurrent administrative issues each year. In order to comply with EITI Requirements 5 and to ensure the credibility of data submitted: 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 Validation of Azerbaijan 2015 Secretariat according to the standardised reporting format provided by the International Secretariat (5.3.b) due to the fact that our review was of a draft report. Have the MSG and the Independent Administrator agreed on appropriate provisions for safeguarding confidential information? 5.3.a. c. e. f. are met , while 5.3.c is not applicable and 5.3.d is unmet with limited progress. 5.4 MSG Endorsement of Report Facts and Progress MSG Minutes #31 confirm that the ToR for Auditor was approved on 10 June 2014 MSG minutes #33 from 3 October 2014 noted the presentation of an Auditor’s report and a final Government's report. There are no details of discussion of report in the minutes provided to the Validator. The EITI 2012 report contains a Statement of the EITI Committee (Annex 1) that payments/revenues received by Government from foreign companies (Annex 2) was prepared in accordance with MoU signed between Government, foreign and local companies and the NGOs detailed in Annex 3. Stakeholder Views The EITI report for 2013 will be published towards the end of 2015. The Statement of the EITI Coalition of NGOs on the EITI 2012 report was approved at the Council of the EITI NGO Coalition meeting on 02 August 2013. The Report of the Committee on EITI for 2012 was disclosed at the MSG meeting on 10 June 2013. 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. Assessment of timeliness of the information disclosed Timeliness: Information is provided for 2013 Comprehensiveness: While significant information has been provided, a number of provisions lack required data Reliability: The government information provided is based on data provided by Azerbaijani Ministries and information provided by companies is based on data from annual reports or signed off by a senior company official. Summary assessment table Summary assessment table: Revenue collection 44 EITI provisions Summary of main findings Comprehensiveness (#4.1.a, #4.2.a-b ) Report contains definition of materiality as defined by MSG, provides government Validator’s recommendation on compliance with the EITI provisions (to be completed for ‘required’ provisions) Met Validation of Azerbaijan 2015 revenues and payment of companies and provides data on total revenues from each benefit stream Data quality (#5) Taxes and other payments (#4.1.b) In-kind revenues (#4.1.c) Transport revenues (#4.1.f) Barter and infrastructure transactions (#4.1.e) Subnational direct payments (#4.2.d) Transactions between SOEs and government (#4.2.c) MSG appointed the IA and template approved by MSG. However, several gaps in the data quality assessment outlined above suggest there is further work required before the final draft. Report includes required revenue streams, but its unclear if it is comprehensive Report includes in-kind payments Report contains transportation fees, but no explanation and not disaggregated MSG decided that this information (infrastructure, barter provisions & social expenditures) shall not be included in report No data on payments from companies to sub-national government Report does not include material payments to SOCAR from other companies and transfers between SOCAR and other government agencies 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. Validator’s 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 Validation of Azerbaijan 2015 4. Revenue management and distribution Overview This section covers the publication and distribution of revenue from the extractive sector. 4.2.e Sub-national transfers There is no information on 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 provided in the report. Minutes of the 31st MSG meeting from 10 June 2014 indicate that the MSG agreed that the ToR of the IA shall be deemed as approved by MSG and a Working Group shall be established to support the preparation of the synthetic tables and contextual data that would be specified in the IA’s report. 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. 3.7 Distribution of Revenues Facts and Progress The 2013 Standard requires the EITI Report should indicate which extractive industry revenues, whether cash or in-kind, are recorded in the national budget. Where revenues are not recorded in the national budget, the allocation of these revenues must be explained, with links provided to relevant financial reports as applicable, e.g. sovereign wealth and development funds, sub-national governments, state-owned enterprises, and other extra-budgetary entities. The 2013 draft report provides information on government revenues from the extractive sector in section 3.4. (p. 28 EITI report 02.02.2014) and explains that extractive revenues made up 65.8% of the total budget revenues. 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, Validation of Azerbaijan 2015 Profit tax Mining tax Value Added Tax Land tax Property tax Exchange difference Other taxes Total 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 Validation of Azerbaijan 2015 Source: World Bank (2014), Azerbaijan: Public Expenditure and Financial Accountability (PEFA) Performance Report. Repeat Assessment 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 Validation of Azerbaijan 2015 3.8. Further Information on Revenue & Expenditure Facts and Progress The multi-stakeholder group is encouraged to include further information on revenue management and expenditures in the EITI Report, including: a) A description of any extractive revenues earmarked for specific programmes or geographic regions. This should include a description of the methods for ensuring accountability and efficiency in their use. b) A description of the country’s budget and audit processes and links to the publicly available information on budgeting, expenditures and audit reports. c) Timely information from the government that will further public understanding and debate around issues of revenue sustainability and resource dependence. This may include the assumptions underpinning forthcoming years in the budget cycle and relating to projected production, commodity prices and revenue forecasts arising from the extractive industries and the proportion of future fiscal revenues expected to come from the extractive sector. The MSG minutes do not suggest that the MSG discussed further information on revenue management and expenditures in the EITI report. Likewise, the 2013 draft EITI report does not provide further information on revenue management and expenditures. However, all members agreed that they would consider only required provisions for the 2013 EITI report. Stakeholder Views The MSG believed that this section of the standard is a recommendation only and as they only focused on requirements, the issue was not discussed at all. MSG members supported verbally that they agreed to consider only required fields, and this is not in the protocol. Conclusion This provision is encouraged only. Assessment of timeliness, comprehensiveness and reliability of the information disclosed Timeliness: The information provided is based on data in 2013 Comprehensiveness: The information provided is brief and could be further detailed. Reliability: The information provided appears contradictory between the information in the text and the information in tables. In addition, the text refers to the ‘mining sector’ rather than the extractive sector and it is unclear what this term encompasses. The IA should confirm that the information and data provided is correct. Summary assessment table Summary assessment table: Revenue management and distribution EITI provisions 49 Summary of main findings Validator’s recommendation on compliance with the EITI provisions (to be completed for ‘required’ provisions) Validation of Azerbaijan 2015 Sub-national transfers (#4.2.e) 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. Distribution of revenues (#3.7) Report provides basic data on which revenues are recorded in the national budget. The MSG has not referenced a revenue classification system a. No description of any revenues earmarked for specific programmes in the regions. Description of the methods for ensuring accountability and efficiency. b. No description of the country’s budget and audit processes and links to publicly available info on budgeting, expenditures and audit reports. c. MSG didn’t discuss (minutes) and Report does not refer to medium-term budgeting or info that will further public understanding Information on revenue management and expenditures (#3.8) Met Overall assessment: Mandatory provisions are met. Validator’s conclusions and recommendations: 1. The MSG should consider including the encouraged provisions in the next EITI report. 50 Validation of Azerbaijan 2015 5. Social and economic spending Overview This section reviews social and economic disclosures on revenue and spending. 3.6.b SOE quasi fiscal expenditures 3.6.b: Section 3.6 of the draft EITI report provides details of revenues and expenditures of the State Oil Fund - SOCAR. However, details from other SOEs are absent from the report. In the minutes of the MSG (Minutes 34) the MSG decided that SOCAR’s quasi-fiscal expenditures would not be included in the 2013 EITI Draft Report. 4.1.e Social expenditures The MSG decided that information on infrastructure, barter provisions & social expenditures should not be included in the 2013 EITI Draft report (Minutes 34). Conclusion The MSG’s definition of materiality provided in the 2013 EITI draft report would suggest that elements in both 3.6.b and 4.1.e are considered material for the purposes of EITI reporting. Both provisions are therefore unmet. 3.4 Contribution to the Economy Facts and Progress The 2013 EITI Draft report includes: Information on the size of extractive (report uses term “mining)” industry contribution to GDP in absolute terms and as a percentage of GDP; Government revenues from the extractive industry; The share of oil and gas export in total export of country, both in absolute terms and as a percentage; Employment in extractive industry in absolute terms and as a percentage of the total employment; Key regions where production is concentrated. Stakeholder Views MSG members and Independent Administrator were satisfied with the information for this requirement; In the review of the 2013 draft report, the NGO Coalition recommended the disclosure of information on the share of local and foreign employees working in extractive industries. Conclusion All sub-provisions are met. Assessment of timeliness, comprehensiveness and reliability of the information disclosed 51 Timeliness: The information provided is based on data in 2013 Comprehensiveness: The information provided is brief and could be further detailed. Reliability: The information provided appears contradictory between the information in the text and the information in tables. In addition, the text refers to the ‘mining sector’ rather than the extractive sector and it is unclear what this term encompasses. The IA should confirm that the information and data provided is correct. Validation of Azerbaijan 2015 Summary assessment table Summary assessment table: Social and economic spending EITI provisions Summary of main findings Validator’s recommendation on compliance with the EITI provisions (to be completed for ‘required’ provisions) SOE quasi fiscal expenditures (#3.6.b) MSG decided that information on quasi fiscal revenue and expenditure should not be included in the report Unmet with limited progress Social expenditures (#4.1.e) MSG decided that information on infrastructure, barter provisions & social expenditures should not be included in the report a. Size of extractive industry in absolute terms and as share of GDP. No information on informal sector. b. Govt revenues from extractive industry in absolute terms and as percentage of total govt revenues c. Exports from extractive industry in absolute terms and as a % of total export Employment in EI in absolute terms and as percentage of total employment d. Key regions where production is concentrated Unmet with limited progress Contribution of the extractive sector to the economy (#3.4) 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. Validator’s 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 5. Part III: Outcomes and impact Overview This section provides details of reports, activities and the impact of EITI reports. 6.1 Comprehensible, actively promoted reports Facts and Progress EITI Reports for AzEITI have continuously improved: there is a huge difference in information provided in the first reports compared to the draft 2013 report. All reports are easily available online from the AzEITI website (www.eiti.az). 400 print copies of the 2012 report were printed and a similar volume is anticipated for the 2013 report. At present, the draft report is a little confusing to read and should be better structured. The language veers off into “accountant-speak” at times. Because of difficulties with funding, the NGO Coalition has not been able to support the dissemination of the 2012 EITI report, and, unless there are changes, may not be able to do so for the 2013 report once it is published. In terms of outreach events to publicise the 2012 report, the 2013 Activity report lists (and provides some details) on the following: September: RWI workshop on the 2013 Standard September: 10th SOFAZ anniversary conference September: debate on Open Govt on Azadlig Radio October SOFAZ/OSCE workshop on the 2013 Standard December General meeting of EITI Coalition 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- Validation of Azerbaijan 2015 Two sub-provisions are met, while two are unmet with meaningful progress. 6.2 Report quality Facts and Progress There are currently plans for the results of the 2013 report to be machine readable (a downloadable dataset by spreadsheet) Summary reports: A summary report will be produced for the 2013 report, after publication of the latter. Compare revenue streams to total amount accruing to each level of govt Automated online disclosure: This has not currently been planned by the MSG. Capacity building efforts to increase awareness/understanding are planned in the 2015 work plan. Stakeholder Views Stakeholders are happy with the 2013 reporting scope, however, the NGO Coalition in its review noted several key drawbacks of the current draft version. Conclusion The sub-provisions of 6.2 are all encouraged, so do not require an assessment from the Validator. 7.1 MSG Acting on Lessons Learnt Facts and Progress In the 2012 reconciliation report (the most recent completed and MSG-approved report), the Independent Administrator recommended that reporting templates be amended to include revenues disaggregated by mineral type, payments disaggregated into revenue types (tax, royalty etc.) the deletion of irrelevant items from the forms and in-kind and in-cash payments separated from each other. It was also recommended that (in line EITI Rules 12 and 13), completed government and company templates should be certified by an external auditor. It was not possible for the Validator to check if these recommendations have been fully and explicitly implemented in the draft 2013 reconciliation report, as the TOR for the Independent Administrator is not available in English. In the draft 2013 report, it is nonetheless noted that all recommendations from the previous report have been implemented in the current report and that the report is in line with the 2013 Standard (including the requirement that revenue types are disaggregated, irrelevant items are deleted, that cash and in-kind payments are separated and that completed templates are certified by an external auditor). The 2013 report makes two general recommendations: firstly notifying companies that repeat errors in their completed forms on a regular basis and informing them of correct procedures and requirements and secondly, organising seminars for those tasked with completing forms on behalf of government agencies and companies. The MSG has not formally reviewed the impact of EITI implementation on natural resource governance in Azerbaijan. There is no evidence to suggest that civil society is unable to provide feedback on the ability of EITI reports to contribute to wider public debate, however, this input appears not to have been made to the MSG. However, the 2013 Activity Report does include a section on “Improvements of EITI as recommended by the Validator and Auditor” which focused on a review of improvements of the technical quality of reporting (including the decision to use “100% inspection” of selected government and private sector organisations. In terms of other forms of progress outside of the reporting framework, following on from 2009 Validation, MSG developed an Agreement, which was then updated in 2013 to a new MOU. Meanwhile, the AzEITI 54 Validation of Azerbaijan 2015 Secretariat has held training sessions after each report to reduce errors due to administrative misunderstandings Stakeholder Views Stakeholders agree that AzEITI has undergone continuous improvement since inception. Conclusion All sub-provisions are met. 7.2 MSG Review of Outcomes & Impact Facts and Progress Full annual activity reports have been published since 2011, with full participation in their preparation. The reports contain a summary of activities; an assessment of progress in terms of meeting and maintaining compliance, an overview of responses to recommendations from the Independent Administrator; an assessment of progress measured against achieving the objectives of the work plan and a narrative account of efforts to strengthen EITI implementation. However, the activity reports do not include an assessment of the impact and outcomes of the work plan objectives. Stakeholder Views Stakeholders agree that the activity reports contain all the EITI Standard requirements and are drawn up in a participative fashion. The Activity Reports include feedback on from stakeholders which is not agreed on by all parties. An example of this is the 2013 Activity Report, where the NGO Coalition explanation for the failure to implement outreach events was not agreed to by company and government MSG representatives, but was nonetheless included in the report. Conclusion The sub-provisions are all met. Summary Assessment Table Summary assessment table: Outcomes and impact EITI provisions Summary of main findings Public debate (#6.1) Print and online copies published. The comprehensibility of report requires attention. Outreach events have been limited and will be further constrained due to limitations to CSO funding Data accessibility (#6.2) Lessons learned and follow up on recommendations (7.1) 55 Validator’s recommendation on compliance with the EITI provisions (to be completed for ‘required’ provisions) Met with meaningful progress Contextual Information is provided 2013 Activity Report & new Agreement is evidence of lessons learned Met Validation of Azerbaijan 2015 Outcomes and impact of implementation (#7.2) Full annual activity reports since 2011 (2014 Activity report being prepared) and participation is noted Met Overall assessment: Unmet with meaningful progress. Validator’s conclusions and recommendations: 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 Validation of Azerbaijan 2015 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 Aliyev’s 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 Validation of Azerbaijan 2015 some, it should be viewed as necessary medicine to strengthen the process and position EITI in Azerbaijan as sustainable in the long-term. There is therefore an opportunity to build on the initial legal footing of the three cabinet ordinances to develop, through the appropriate legal instrument, an institutional grounding for EITI which formally recognises governance bodies of the three stakeholder groups: the Commission, the NGO Coalition and the Group of Companies and provides a further basis to facilitate registration of the NGO Coalition. The MSG should discuss the optimum mechanism, but it would have the result of giving the MOU itself legal status. However, beyond NGO and government perspectives, there are fundamental issues within Azeri legislation that may remain at odds with EITI principles. In particular, the absence of a law on beneficial ownership and secrecy around contracts, are likely to cause issues for EITI disclosures in forthcoming years. Innovations The main innovation for AzEITI in recent months has been the adoption of the EITI 2013 Standard, which is embedded within the new (second) MOU for the MSG. In parallel, planning and implementation of the 2013 EITI Report has been guided by the new standard, and includes innovations such as project-based reporting. It is the first step towards ever-richer data on the extractives sector in Azerbaijan. Including machine-readable data as part of the final 2013 report will allow researchers access to a powerful dataset for further analysis. Lessons Learnt The second Validation for Azerbaijan is an opportunity to build on the gradual evolution of EITI in the country, ahead of milestone events in 2015 such as the signing of the EU Strategic Modernisation Agreement (May), the EU Games (June) and the November G20 meeting which President Aliyev will attend. This could include (as suggested above) providing a strengthened legal basis for EITI that formalises the institution of the MSG and its three constituent groups. A move towards web-based reporting for the 2014 report (if possible) would greatly facilitate the administrative (and cost) burden of EITI reporting going forwards and could be accompanied by continuous automated (pre-audited) disclosure of data. The Validator believes there is a need to ensure that a diversity of voices within civil society voices are allowed to be expressed, within and beyond the MSG. In addition, the MSG should begin to review and address fundamental disclosure issues, such as beneficial ownership, in forthcoming years. 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 NGO Coalition member Segadet Pashayeva Nasrulla Nurullayev NGO Coalition member NGO Coalition member M. Kahramanly NGO Coalition member Saban Nasirov NGO Coalition member Huseynli Jegar NGO Coalition member Zaur Akbar Taleh Aliev NGO Coalition member NGO Coalition member 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 İsmayil Manafov Ali Sultanli NGO Coalition member 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 Validation of Azerbaijan 2015 Marko Soldic Deputy Head of Mission Azay Guliyev Chairman & Member of Parliament 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 Chief Adviser of the Information Provision Department Elnur Sultanov Chair Akhmed Gumbatov Project Manager Larisa Leshchenko Sadig Aliev Country Manager for Azerbaijan Infrastructure Specialist The Royal Norwegian Embassy in Baku The Council on State Support to NGOs The Council on State Support to NGOs EU Delegation in Baku EU Delegation in Baku EU Delegation in Baku Asian Development Bank Asian Development Bank State Agency for Public Service and Social Innovations under the President of the Republic of Azerbaijan State Agency for Public Service and Social Innovations under the President of the Republic of Azerbaijan Caspian Centre for Energy and Environment Caspian Centre for Energy and Environment World Bank World Bank 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 [email protected] Ministry of Taxes/Primary [email protected] Member Ministry of Energy /Primary [email protected] Member Ministry of Ecology and [email protected] Natural Resources /Alternate Member NGO COALITION Azer Mehtiyev Chairman of Public Union Support for Economic Initiatives/Primary Member [email protected] 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 [email protected] 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 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] 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 Law on 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 Validation of Azerbaijan 2015 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 Validation of Azerbaijan 2015 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 Validation of Azerbaijan 2015 Ayaz Huseinov, representative of SOCAR Araz Yusubov, representative of BP Jamila Hadiyeva representative of Statoil Bahtiyar Axundov, representative of Chevron (alternative member) NGO Coalition: Sabit Bagirov, representative of the NGO Coalition Mohammad Talibli , representative of the NGO Coalition Mubariz Tagiyev, representative of the NGO Coalition İlham Hüseynli, representative of the NGO Coalition (alternative member) 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
© Copyright 2024