Monitoring the Construction of Offices by the State Oil Fund of Azerbaijan

Monitoring the Construction of Offices by the State Oil Fund of Azerbaijan

IMPLEMENTING PARTNER: Center for Economic and Social Development
YEAR: 2012
THEME: Procurement

The influx of petrodollars into Azerbaijan in recent years has paved the way for considerable expenditures in the state budget and the State Oil Fund of the Azerbaijan Republic (SOFAZ). Azerbaijan’s oil revenues are mainly allocated to finance projects for road construction, transport, water supply, building of houses for refugees and Internally Displaces Persons. The major challenge now is to spend these revenues efficiently and transparently. In fact, the problems stem from gaps in public procurements and lack of a competitive environment whilst conducting tender procedures. The process of tracking expenditures from the Oil Fund is extremely complicated, thus necessitating monitoring of the projects and programs funded by SOFAZ. Recent years have witnessed no changes in quality, while spending has steadily increased.

The Center for Economic and Social Development has reported to the media several times that, although the construction of the new administrative building has been completed, there were many problems in transparency: “At the same time, the price for the project is too expensive. The construction of administrative building of the State Oil Fund has started last year, and the prime contractor for the execution of the project is the Belgian company NV Besix SA. According to the initial assessment the total area that 23-story building will cover is going to be 13 thousand square meters, and the expected cost is 88 million manat  (84.916 million euros). This mean that for each square meters 6538 euros will be spent, while the construction at the most expensive district of Baku cost 1500 manat.”

According to the Center’s research the transparency problems in this project, as well as other petroleum projects, begin from tenders: “The tender for the execution of the project drag a lot of attention. The announcement of the tender doesn’t comply with the public procurement law. Interestingly enough, Oil Fund has admitted that the plan wasn’t approved point by point in accordance to the law; instead total amount was approved. Although it is very important to exhibit costs for each clause point by point in order to maintain transparency in the spending process. Another point relates to the number of tenderers. According to the information given by State Oil Fund, three companies Arabtec Construction LLC (UAE),  NV Besix SA (Belgium) and Adolf Lupp GmbH + Co KG (Germany) participated in tender. According to the law on public procurement, the number of tender doesn’t have to be less than three, meaning that either the companies weren’t interested in the construction of the building or in order to minimize competition very few tenders were allowed to participate in tender.”

State Oil Fund paid İnter Art Etudes 26 million euro only for preparing construction financial documents which is several times higher than international standard costs. No explanations have been done by SOFAZ related to such huge amount payment. There is also discrepancy at SOFAZ reports. SOFAZ has early reported only 14.0 million manat ($ 18.0 million or 14.3 million Euro) paid for preparing financial assessment then later the fund announced that 26 million euro spent for this job.

The monitoring also revealed a number of breaches of tender regulations. Moreover, it was found that in 2010, when the contractor still had not been selected, 20 million manat ($ 26 million) was allocated, of which 7 million manat ($ 9 million) was spent on a purpose not clarified.  In addition, CESD found that the remaining 13 million manat ($ 17 million) was simply “missed”.

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