NRGI considers EITI Coalition's amendments on "2021 Resource Governance Index" on Azerbaijan justified

Baku/27.04.22/Turan: The leadership of the Natural Resources Governance Institute (NRGI), an international NGO specialized in studying global issues related to natural resources management around the world, has recognized the validity of the recommendations made by the Azerbaijani NGO Coalition on Extractive Industries Transparency Initiative (EITI) on the publication of the Azerbaijan Resource Governance Index (RGI) 2021 report in late 2021.

Notably, the amendments addressed to RGI by the EITI Coalition make changes to four important points (indicators) presented in the Report.

In particular, NRGI has taken into account the EITI Coalition's expert opinion on the "untrue assertion in the RGI 2021 report that the majority of the SOCAR Board and Supervisory Board members are independent from the government".

In addition, the fact that the SOCAR Supervisory Board (SOCAR) was established by presidential decree in January 2021 was also taken into account, and therefore the correct score for the period 2019-2020 assessed in RGI 2021 is C, i.e. 0. Overall, an overall score of 50 will be derived in the Report on Corporate Governance for SOCAR.

Having examined the EITI Coalition's amendment that "SOCAR has not defined its obligation to disclose its annual reports to the public and this nuance undermines the requirement to improve the legal framework to ensure transparency in resource management", NRGI found confirmation in Article 12.3 of the Law on Accounting of the Republic of Azerbaijan, which requires all entities to disclose annual reports when there is a public interest.

Regarding the operation of the Sovereign Wealth Fund (SWF), the Azeri NGO's indication that the fiscal rules in Azerbaijan had been suspended during the pandemic and for the SWF only for 2019 was found to be correct, meaning that when preparing the 2021 Report a score of F (not applicable) should be applied instead of A (100 points, awarded if "use of sovereign funds was respected without any exceptions") under "Compliance with withdrawal of funds from SWF".

The Natural Resources Governance Institute acknowledged the NGO's indication that there is no authoritative, independent audit of the financial statements of the State Oil Fund of Azerbaijan (SOFAZ) after 2017 (when Azerbaijan withdrew from EITI) and thus the following score would be removed from the RGI country profile for Azerbaijan for 2021: "SOFAZ has also improved its reporting rules, with the Accounting Law requiring the annual report as well as an annual external financial audit of SOFAZ financial statements".

Regarding the Coalition's comment that "the composition of the Supervisory Board of SOFAZ should not consist only of government officials, as the SOFAZ Charter also requires representatives of civil society organizations", NRGI clarified that the RGI questionnaire includes a question on the independence of the board of directors of SOFAZ, but not of sovereign wealth funds (which is what SOFAZ is).

"We plan to include this nuance in future RGI Reports as it deserves attention", NRGI managers noted.

This Institute was sympathetic to the Coalition's logical claim regarding the question "how the performance scores of SOFAZ can be higher after 2017, when Azerbaijan, represented by SOFAZ withdrew from EITI".

"We understand that it seems contradictory to say this. During our research, we found that one of the two questions within indicator 1.2.8 of the Report requires an adjustment of scores and we reflected this in the Taxation sub-component. The point is that RGI treats disclosure in the same way, whether it (disclosure) occurs through EITI reporting or otherwise. In the published 2021 Report, our research was based on the annual financial statements of SOFAZ," said the international institute.

NRGI thought it was right that the Azerbaijani NGO Coalition's wish that parliamentary scrutiny of SOFAZ's financial statements should become a legal norm, as should the scrutiny of its financial situation.

With regard to the sub-component "Compliance with budgetary rules", thanks to clarifications from the Coalition, the RGI Report changed Azerbaijan's score from A (100 points) to D (no points are assigned).

For the Taxation sub-component, the Report was inaccurate, and therefore the score is reduced from 70 (1.2.8 b) to 40 points (1.2.8 d - "The country did not publish an EITI report").

As for the Coalition's disagreement with the paragraph in the Report that refers to Azerbaijan's enabling environment (in natural resource management), NRGI "justifies" itself by taking data from the World Governance Indicators (WGI) and the Open Data Inventory (ODIN) as a basis.

"We appreciate your in-depth engagement with the Index and your commitment to understanding the detail behind the headline scores...We have carefully considered each of the issues you raised...We see the RGI as a vehicle for dialogue, which then allows a deeper exploration of natural resource management issues...Again, let me personally express our gratitude for your engagement. The Resource Governance Index is a robust data-driven tool and your feedback and comments are invaluable to us in achieving high standards," notes Erika Westenberg, NRGI's Director of Governance Programs, in a letter to the EITI Coalition in Azerbaijan.