Oil-producing Azerbaijan plans to begin investing in publicly traded shares and real estate abroad in 2011 with cash from its $26 billion rainy-day oil fund, the fund's executive director said on Thursday. The state oil fund holds revenues from oil contracts, oil and gas sales, transit fees and other revenues.
It has been used to finance social spending and infrastructure projects, including construction of irrigation systems, support for refugees, and construction of the Baku-Tbilisi-Kars railway. Most of the fund is currently invested in sovereign debt, although it has not said which countries' bonds it holds.
"We would like to direct part of our funds into new, more risky instruments, leaving minimum 80 percent of assets in sovereign paper," Shakhmar Movsumov, the fund's executive director, told Reuters in an interview. Assets of the fund were $25.8 billion at April 1, having risen from $22.8 billion at the end of 2010. Its assets are a major part of Azerbaijan's strategic reserves of about $35 billion.
"The fund's assets are comparable to budgets of some countries and we are now in the position to take risks of investing in risky instruments in order to increase our revenues," Movsumov said. He did not specify which markets the fund was considering investing in, but said shares of companies included in the Dow Jones industrial average or S&P 500 indexes could be attractive.
Movsumov said investment in real estate abroad was another option. "Investment in real estate was always a good protection from inflation ... We are also considering an idea of renting out this real estate to Azerbaijan's trading houses," he said.
The International Monetary Fund has forecast 10 percent inflation in 2011, up from 7.9 percent last year, and last month urged the former Soviet republic to tighten monetary policy and cut spending to stop the economy overheating. Movsumov said the fund would appoint a foreign manager for equity investments but aimed to act independently in future.
Movsumov did not rule out that the fund would finance Azeri state energy firm SOCAR's deal with British oil major BP. SOCAR said in March it wanted to buy 1.6-1.8 percent of a major Caspian oil deposit, Azeri-Chirag-Guneshli (ACG), from its partner in the project, BP. The deal is expected to be brokered in 2011.
The ACG deposit, with estimated reserves of 925 million tonnes of oil, is the main source of oil for the BP-operated Baku-Tbilisi-Ceyhan pipeline, which ships oil from the Caspian Sea to the Mediterranean. SOCAR currently has a 10 percent share in the project, while BP holds 37.43 percent.
Movsumov said the fund's budget would be revised to reflect a rising oil price, in line with Azerbaijan's state budget. The government will present a new version of the 2011 budget next month based on an oil price estimate for the year of $80 per barrel, up from an earlier estimate of $60.
The current budget forecasts 3.8 percent economic growth in 2011, well below average growth of 21 percent seen annually during the oil-fuelled boom of 2003-2007. Azerbaijan plans to produce 51.5 million tonnes of oil in 2011, up from 50.83 million tonnes in 2010.