INTRODUCTION

Hydrocarbon revenues dominate the economy of Azerbaijan

since the past few years, and keep still growing, while the non-oil

sector of the economy remains undeveloped and fragile. For example,

Azerbaijan has experienced two-digit real GDP growth during

the past few years, mainly due to the oil sector development, while

its share in total employment is only 2% of the total employment,

but the growth in the agriculture sector, which accounts 40% of

total employment remains around 1%. Moreover, the oil revenues

affect the fiscal structure and relations within the state and make

the government more prone to rent-seeking behavior. For example,

the investment expenditures of the government have increased by

almost 1000% during the 2003-2007 years. But this increase has

not been accompanied by an improvement in efficiency and transparency

of investment planning and implementing processes.

The economy of Azerbaijan now faces serious challenges. The

rapid influx of petrodollars far surpasses the institutional capacity

of the implementing agencies and absorptive capacity of the economy.

There are many problems resulting from past policy errors,

soviet legacy in public resource management and little transparency

and participation. There are many legacy processes in the current

system that result in inefficient use of resources and allow corrupt

practices to develop. There is an overt manifestation of inflation

and of the challenges for the non-hydrocarbon export capacity

at the same time. The fleeting nature of the hydrocarbon wealth

is another reason to raise an alarm to expedite getting engaged in

reform processes.

Many officials recognize the need for reforms, yet the changes

are slow and ineffective. It is essential that the government and the

public in general receive the information from different perspectives

on how the economy functions and what are the tendencies

to get timely involved to save the economy and ensure the sustainable

social development. This book is developed therefore to raise

the awareness and introduce policy perspectives on effective use

of oil management. The book presents four studies….

The first study encompasses the survey was conducted within

the framework of "Monitoring of State Oil Fund of Azerbaijan

Republic" Project with funding of The Partnership for

Transparency (PTF). The aim of the survey at determining on level

of public awareness on usage of oil revenues and becoming familiar

with attitude of both government bodies and companies.

The second case study serves as a vivid example to demonstrate

the problems with trasparency issues in the management of State

Oil Fund of Azerbaijan Republic (SOFAR) and of overall oil revenues.

SOFAR is the fund where Azerbaijan accumulates oil revenues.

The monitoring revealed some problems within the Fund's

management, mainly the transparency issues.

The third study revealed that by doing so, as much as $50mln

had been misappropriated in a year alone. Once the price of houses

constructed within the project was compared with the market

price, it was evident that the houses had been artificially overpriced.

And another problem is substandard work during the construction

process thus aiming to consume few funds, but overprice

the project.

The aim of the last study was to construct an analytical space

for analyzing the way in which civil society, understood here in

terms of the NGO sector, can play a positive role in assuring transparency

in usage of oil revenues in Azerbaijan. Azerbaijan is getting

daily $ 40 million from oil sale now and the amount is expected

to reach $ 60 million by the end of 2009. It means the country

with 8 million populations will get about $ 30 billion money each

year only from oil sale. The figures confirm that very important

job now is to create political will to work toward enhancing of

transparency in oil usage.