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Azerbaijan Extractive Industries Transparency Initiative

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Azerbaijan Extractive Industries Transparency Initiative AZERBAIJAN EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE EITI REPORT FOR THE YEAR ENDED 31 DECEMBER 2014 January 2016 This report has been prepared at the request of the Azerbaijan Multi Stakeholder Group (MSG) charged with the implementation of the Extractive Industries Transparency Initiative in Azerbaijan. Azerbaijan EITI Report for the year ended 31 December 2014 Table of Contents 1. INTRODUCTION ............................................................................................................................ 8 1.1. Background ........................................................................................................................ 8 1.2. Scope of work ..................................................................................................................... 8 1.3. Confidentiality, completeness and accuracy of data .......................................................... 9 1.4. Results of the reconciliation process.................................................................................. 9 2. APPROACH AND METHODOLOGY ....................................................................................... 12 2.1. Scoping study ................................................................................................................... 12 2.2. Definition of materiality ..................................................................................................... 12 2.3. Reconciliation process ..................................................................................................... 13 2.4. Reliability of EITI data ...................................................................................................... 14 2.5. Accounting policy ............................................................................................................. 15 3. CONTEXTUAL INFORMATION ON THE EXTRACTIVE INDUSTRY ..................................... 16 3.1. Background ...................................................................................................................... 16 3.2. Overview of the Mining Industry ....................................................................................... 24 3.3. Contribution of the extractive industry to the economy of Azerbaijan .............................. 30 3.4. Production volume............................................................................................................ 35 3.5. State participation in extractive industry .......................................................................... 37 3.6. Allocation of revenues from production industry to state budget and SOFAZ ................. 45 3.7. Register of licenses .......................................................................................................... 45 3.8. Allocation of licenses ........................................................................................................ 46 3.9. Beneficial ownership ........................................................................................................ 47 3.10. Contracts .......................................................................................................................... 47 3.11. Other information.............................................................................................................. 48 4. RECONCILIATION SCOPE ..................................................................................................... 49 4.1. Extractive companies ....................................................................................................... 49 4.2. Government agencies ...................................................................................................... 49 4.3. Infrastructure provisions and barter arrangements .......................................................... 49 4.4. Social expenditures .......................................................................................................... 49 4.5. Sub-national payments and transfers .............................................................................. 49 4.6. Sale f the state’s share of production or other revenues collected in-kind ...................... 50 5. RECONCILIATION RESULTS ................................................................................................. 51 5.1. Reconciliation by revenue stream (foreign companies) ................................................... 51 5.2. Reconciliation by extractive Company (foreign companies) ............................................ 52 5.3. Reconciliation by extractive Company (local companies) ................................................ 54 5.4. Reconciliation by revenue stream (local companies) ....................................................... 55 5.5. Payments made to Government according to PSA ......................................................... 56 5.6. Adjustments ...................................................................................................................... 57 6. SPECIAL AUDIT PROCEDURES ............................................................................................ 61 7. ANALYSIS OF GOVERNMENT REVENUES .......................................................................... 62 8. RECOMMENDATIONS ............................................................................................................ 64 8.1. Lessons learned from the 2014 reconciliation ................................................................. 64 8.2. Follow up of the recommendations of the 2013 EITI Report ........................................... 65 Moore Stephens Azerbaijan Page 2 Azerbaijan EITI Report for the year ended 31 December 2014 ANNEXES......................................................................................................................................... 68 Annex 1. Statement of the EITI Committee of the Republic of Azerbaijan ....................................... 69 Annex 2. Extractive companies profile .............................................................................................. 70 Annex 3. Reporting templates .......................................................................................................... 72 Annex 4. Reconciliation sheets by extractive companies ................................................................. 74 Annex 5. List of Non-Governmental Organisations (“NGO”s) and individuals party to the Memorandum of Understanding (MOU) ......................................................................................... 113 Annex 6. Bibliography used in compiling of the report ................................................................... 115 Moore Stephens Azerbaijan Page 3 Azerbaijan EITI Report for the year ended 31 December 2014 LIST OF ABBREVIATIONS ACG Azeri–Chirag–Gunashli AHGA Amendments to the Host Government Agreement AIOC Azerbaijan International Operating Company AJ Adjustment AS Aksjeselskap - Norwegian term for a stock-based company AZN Azerbaijani manats BP British Petroleum BTC Baku–Tbilisi–Ceyhan CBAR Central Bank of the Republic of Azerbaijan CNG Compressed Natural Gas CNPC China National Petroleum Corporation Committee EITI Committee of the Republic of Azerbaijan Commission Government agencies DESFA National Natural Gas System Operator S.A. EITI Extractive Industries Transparency Initiative EITI Secretariat Azerbaijan EITI National Secretariat FZE Free Zone Enterprise GDF Gas de France GDP Gross Domestic Product Government Government of Azerbaijan Group State Oil Company of the Azerbaijan Republic and its subsidiaries HGA Host Government Agreement IMF International Monetary Fund JV Joint Venture k Thousand Kcm Thousand cubic metres Kg Kilograms LLC Limited Liability Company LTD Limited Company m Metre m³ Cubic metres Mboe millions of barrels of oil equivalent MEP Main Export Pipeline Mln Million Moore Stephens Azerbaijan Page 4 Azerbaijan EITI Report for the year ended 31 December 2014 LIST OF ABBREVIATIONS MMBTU 1 million British Thermal Unit MOI Memorandum of Intentions MOU Memorandum of Understanding MSG Multi Stakeholder Group NGO Non-Governmental Organisation NICO Naftiran Intertrade Company Nm³ Normal cubic metres ONGC Oil and Natural Gas Corporation PSA Production sharing agreement PU Production units Rules Single license registry rules of the Republic of Azerbaijan Sm³ Standard cubic metres SCP Southern Caucasus Pipeline SGC The Southern Gas Corridor SOCAR State Oil Company of the Azerbaijan Republic SOE State Owned Enterprises SOFAZ State Oil Fund of the Republic of Azerbaijan SSPF State Social Protection Fund STYAS SOCAR Turkey Yatirim A.S TAP Trans Adriatic Pipeline TANAP Trans Anatolian Natural Gas Pipeline THSD. Thousand TIN Taxpayer Identification Number TPAO Turkish Petroleum Anonim Ortakligi TOR Terms of Reference USD United States Dollars VAT Value Added Tax WREP The Western Route Export Pipeline Moore Stephens Azerbaijan Page 5 INDEPENDENT RECONCILERS’ REPORT To the Extractive Industries Transparency Initiative (“EITI”) Committee of the Republic of Azerbaijan: We have examined the accompanying Statement of the EITI Committee of the Republic of Azerbaijan (henceforth the “Committee”) shown in Annex 1, that the schedule of payments/allocations received during the year ended 31 December 2014 by the Government of the Republic of Azerbaijan (the “Government”) from the extractive industry companies (the “Companies”) is prepared in accordance with the Memorandum of Understanding (the “MOU”), the local and
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