Revenue ManagementDistribution of revenues §3.7Revenue management and expenditures §3.8
Policy decisions regarding revenue management determine whether natural resource wealth translates into sustainable development and poverty reduction. Key governance challenges associated with revenue management include misappropriation of revenues before they reach the national budget; lack of fiscal rules leading to expenditure volatility and poor investment decisions; nepotism and patronage resulting in direct allocations of resource revenues to special interests; and weak public financial management systems; which leads to poor investment strategies and wasteful spending.
Transparency around revenue distributions is crucial to understanding how natural resource wealth is being managed. The disclosures related to revenue management that are required and/or encouraged under the EITI Standard should be implemented in ways that address national governance challenges and lead to meaningful policy reform.
Potential areas for policy reform in this area include reforming fiscal policies to promote prudent, long-term spending decisions;improving revenue saving mechanisms; aligning expenditures with national development priorities; and enhancing budget and spending oversight.
3.7. The EITI Report must describe the distribution of revenues from the extractive industries.
a) 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 companies, and other extra-budgetary entities.
b) Multi-stakeholder groups are encouraged to reference national revenue classification systems, and international standards such as the IMF Government Finance Statistics Manual.
EITI Report Data
Allocation of revenues from production industry to state budget and SOFAZ
The detailed information about the transfers of extractive companies to the state budget is given in 1.4. “Results of the reconciliation process” of this report. İn 2014 the PSA contractors and subcontractors transferred to the state budget the proceeds of the income tax in the amount of AZN 252.8 milllion.
In 2014, Oil Fund received revenue in the amount of AZN 12.7 billion (USD 16.2 billion). During the same year revenue sources of SOFAZ included the proceeds from export sales of Azerbaijan Republic, taking into account relevant share of hydrocarbons, transit fees, bonus payments, acreage fees, revenues from management of the Fund assets and etc.
Structure of SOFAZ revenues sources in 2014 (AZN million)
Structure of expenditures of the Fund in 2014 (AZN million)
Review of the NGO Coalition
Section 3.6 of 2014 EITI Report on “Income of the Oil Fund and state budget from the extractive industry” includes information on payments to the state budget by the extractive companies throughout 2014 (this information has been included into this year’s Report by Coalition’s initiative) and sources of formation of SOFAZ revenues and distribution of expenses. Introducing the dynamics of the past 3 years at least in the form of graphs in the Report would increase the importance and clearness of this information.
We consider it advisable to include certain information on the directions of utilization of SOFAZ transfers and payments by the extractive industry to the state budget and also the references to the state budget and legal norms on its implementation, as well as the state budget project and state certificates on the implementation of the state budget into this section of future EITI reports. All the information mentioned corresponds to the requirements of the Standard and is taken from the open sources (web sites of the Ministry of Finance and Chamber of Accounts).
3.8. 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.
EITI Report Data
Review of the NGO Coalition
Article 3.8 of the Standard encourages the inclusion of information on revenue management and expenses ino the reports. As in 2013 EITI Report the one for 2014 too lack this information. NGO Coalition Council thinks it is important to include either this information (is is available in open sources) or references to the open sources for this information into future reports in order to improve the transparency image of the country.