State Oil Company of Azerbaijan (SOCAR)

=Overview=

SOCAR was founded on the 13 September 1993 following the merger of the former 'Azerneft' state oil trust and the 'Azerneftkimiya' production unit, by Decree 200 of the President of Azerbaijan. The company is involved in oil and gas exploration, production, processing and transportation, marketing of petroleum and petrochemical products in domestic and international markets, and supplying natural gas to industry and the public in Azerbaijan. As part of its role, SOCAR should sign off all Production Sharing Contracts (PSCs).

Financial flows into SOCAR come from the sale of oil products; sale of natural gas; the company's share of PSCs; lease of SOCAR property; services rendered to foreign oil and gas companies; and international activities. In 2011 total revenues were 8.13 billion AZN (roughly US $10.4 billion), representing a 47 percent increase on 2010 revenues. Profit for the year was 809.59 million AZN (roughly US $1.03 billion). However in 2008 total revenues from activities stood much higher at 16.34 billion AZN (roughly US $20.8 billion).

Referred to in a report by Vugar Gojayev as "Azerbaijan's emerging Gazprom", it is the country's largest employer and taxpayer, with over 70,000 employees in 2010. In 2009 the average wage for a SOCAR employee was 563.7 AZN (roughly US $718).

=Structure=

As of 2013, SOCAR was organised into the following 23 divisions, managed by 10 vice presidents:


 * AzeriGas Production Union
 * Azerikimya Production Union
 * Azerneftyagh Oil Refinery
 * Azneft Production Union
 * Baku High Oil Academy
 * Caspian Oil Fleet
 * Education Training and Certification Department
 * Environmental Department
 * Gas Export Department
 * Gas Processing Plant
 * Geophysics and Geology
 * Heydar Aliyev Baku Deep Water Jacket Factory
 * Heydar Aliyev Baku Oil Refinery
 * Integrated Drilling Trust
 * Investments Division
 * IT and Communications Department
 * Marketing and Operations
 * Nanotechnologies Scientific Production Center
 * Oil and Gas Construction Trust
 * Oil and Gas Research and Design Institute
 * Oil Pipelines Department
 * Security Department
 * Social Development Department

Three of these departments (Gas Operations, IT and Communications and the Environment department) were newly created by a Presidential decree in September 2006. http://archive-2011.resources.revenuewatch.org/sites/default/files/SOCARfinancialflow_0.pdf

In 2008 SOCAR Trading SA was founded, a marketing company in which SOCAR originally held 50 percent of the shares. However in July 2012 this percentage ownership was increased to 80%, and one of the company's vice presidents state that the remaining shares would be bought "in the near future".

=Roles and Responsibilities=

In July 2009, President Aliyev issued a decree, one of several affecting the oil and gas industry, expanding the role and power of SOCAR. The decree placed the state gas company Azerigaz under SOCAR's control, with the stated goal to 'improve the mechanisms of management in the oil and gas industry'. The decree also defined SOCAR as the country's 'economic symbol' abroad.

SOCAR is also a member of the Azerbaijan International Operating Company (AIOC) consortium. In the words of former head Sabit Bagirov, this causes a certain conflict of interest due to the "dual role play" of the agency, as it is not only a contractor but also represents the government when dealing with the PSC contracts.

=Governance=

As of March 2013, Rovnag Ibrahim Abdullayev was President of SOCAR, having previously been in charge at the Heydar Aliyev Refinery. He was appointed to the SOCAR post in December 2005.

A leaked diplomatic cable from 2006 comments that Abdullayev is close to President Aliyev and a key player in the energy policy making circle. He brought many of his deputies from the oil refinery he headed up with him to SOCAR, many of them also politically connected to the government. The cable relates that several industry figures in Baku have expressed concerns that SOCAR was appearing adrift under his leadership at this point, having focused mainly on the internal reorganisation of SOCAR.

Transparency
SOCAR adopted international financial reporting standards (IFRS) in 2008, which were applied for the company's 2009 financial report, including official auditor comments from firm Ernst & Young.

However in a report produced by Revenue Watch Institute (RWI) and Transparency International (TI), 'Promoting Revenue Transparency: 2011 Report on Oil and Gas Companies', SOCAR was one of the worst performing companies on the citerion of 'Reporting on anti-corruption', scoring 0%, along with Gazprom, the Nigerian NNPC, Sonangol and others. On organisational disclosure SOCAR scored 50% (placing 33rd).

A 2012 report by civil society organisation Crude Accountability noted that SOCAR is more transparent about its operations in neighboring countries, such as Georgia, Ukraine and Turkey, than within Azerbaijan.http://www.osce.org/odihr/94979

=Overseas Investments=

SOCAR has been branching out of Azerbaijan, with involvement in giant projects overseas. According the a US diplomatic cable, the 2009 reforms to the scope of SOCAR's responsibilities were seen as a politically motivated move to increase SOCAR's brand image so that it could compete in the international arena with the likes of Russian Gazprom and Kazakhstan's KazMunaiGas. As of 2012 SOCAR had representative offices in Tbilisi, Istanbul, Vienna, Frankfurt, London, Tehran, Astana, Bucharest, Geneva and Kiev.

SOCAR is co-owner of the largest Turkish petrochemical complex Petkim http://cesd.az/new/2012/10/socar%E2%80%99s-ranking-is-still-%E2%80%9Cbbb-%E2%80%9C/ and in January 2012 the company reached a deal with the Kyrgyzstan government to build an oil refinery in the country. During a meeting between Abdullayev and the new Kyrgyz president, the prospect of oil exploration and production in the country was discussed.

In 2011, SOCAR also turned its sights to Israel when one of its subsidiaries, the Caspian Drilling Company (CDC) gained a 5 percent stake in Israeli field Med Ashod, located 16km off the Mediterranean coast. This was the company's first move into E&P activiies beyond the Caspian basin, giving SOCAR the opportunity to gain critical experience in international production operations. It was suggested that the deal with Israel could anger Iran and may imply some political risk.

Over recent years SOCAR has also been expanding its energy distribution network into foreign markets, and as of 2012 held extensive assets in Georgia, Turkey, Romania, Switzerland, and the United Arab Emirates, among others.

=Criticism=

In addition, in April 2012 SOCAR security personnel were implicated in an incident in which five independent journalists were assaulted as they filmed a confrontation that broke out when SOCAR employees were demolishing houses in the village of Sulutepe on the outskirts of Baku. In response, SOCAR commented on its official website that it was carrying out legal actions to remove illegally built houses belonging to SOCAR in several parts of Baku, arguing that many of these areas are unsuitable for inhabitance due to oil contamination and the presence of oil and gas reservoirs in any case. The company asserts that illegal occupation of its lands makes SOCAR unable to fulfil its obligations under the Production Sharing Agreements (PSAs) it has signed, which could result in court cases being brought against them.

=References=