Back in the 19th century Baku was leading the world’s oil and gas industry. Oil revenues generated in the Azerbaijani town were pivotal in the country’s post-Soviet economic development. But the money has not always gone where it should have. A 2008 analysis and public campaign spurred the government to conduct an audit, which resulted in the recovery of US $50 million.
Azerbaijan relies on oil and gas for 47.3% of GDP and around 90% of total exports (2012). Much of this is channelled through the State Oil Fund of Azerbaijan (SOFAZ). With estimated assets of $37 billion in 2014, the fund supports local government agencies, road construction, transport, water and housing for refugees.
In 2008, local NGO the Center for Economic and Social Development (CESD) examined oil revenue management, in particular funding to help refugees and people displaced by the Armenian-Azeri conflict. CESD’s field visits, interviews with community members, and reviews of financial data revealed that housing construction costs for the project were being inflated by more than 50%, resulting in the misappropriation of the equivalent of $50 million.
CESD, working with other organisations, shared this information with local journalists, presented the report at international conferences and met with government officials in Baku. In response, the government launched an audit of the project and, following an investigation, $50 million was returned to the state budget. CESD noticed an improved government attitude toward the transparency of oil revenues and increased public pressure for such transparency.
Despite this improvement in 2008, recent concerns about the ability of civil society to engage critically in the Extractives Industries Transparency Initiative (EITI) process led to Azerbaijan being downgraded from ‘compliant’ to ‘candidate’ in 2015 by the EITI Board.
- Data on a single project’s financing can be effectively used by civil society to identify and recover misappropriated funds.
- Public awareness of misappropriation puts pressure on the government to take corrective action.
Photo credit: Indigoprime