ADB: Azerbaijan has plan for privatization of blue chips

The Azerbaijani government has a clear plan for privatization of blue chips, including the State Oil Company of Azerbaijan and CJSC Azerbaijan Airlines (AZAL), reads a final report by the Asian Development Bank (ADB) on “Improving Governance and Public Sector Efficiency Program (Subprogram 2),” Report informs.

“While the government has a clear plan for privatization of blue chips, including the State Oil Company of the Azerbaijan Republic and Azerbaijan Airlines, it has yet to add utility companies and its overall approach to the development of SOEs seems to be directed toward restructuring efforts to reduce its fiscal costs,” the bank noted.

“Under the Strategic Roadmaps for National Economy, the main targets in relation to SOE reform is the need to strengthen fiscal sustainability and improve the efficiency of the public sector’s role within the economy, specifically within the non-oil sector. Since mid-2020, the government has taken serious steps to restructure SOEs and prepare them for future privatization, an action likely stemming from the program. In an attempt to attract much-needed investment, the Ministry of Economy of Azerbaijan announced the launch of “large-scale” privatization of state enterprises in December 2020,” reads the report.

Within the framework of reforms, the government established the Azerbaijan Investment Holding (AIH) with a $5.8 million authorized fund. A presidential decree was issued on the establishment of the AIH31 with the purpose of managing state companies and enterprises, and public shares in private companies. Twenty SOEs were transferred under the management of the AIH. Moreover, under the decree, the AIH has the power to approve the companies’ charters and structure, annual reports, financial statements, the distribution of profit and losses, and dividend policies; determine the amount of authorized capital; and decide on the issue of the companies’ securities.

“The government has begun establishing the supervisory boards for SOEs. So far, at least eight enterprises have implemented their supervisory boards, representing mainly public officials.

The respective supervisory boards are authorized to approve the companies’ long-term development strategies, and estimates of expenses and income, and monitor their implementation, as well as approve their policies, internal rules on certain spheres of activity and the provisions of the branches and representative offices. With the regulatory framework adopted by the government since 2016, the supervisory board is charged to improve SOE effectiveness and efficiency,” the authors of the report note.

Improving Governance and Public Sector Efficiency Program consists of two subprograms aimed at improving public sector governance and diversifying the economy through increased private sector participation at the expense of greater access to finance and a better business environment. The Azerbaijani government, by reforming the legal and institutional spheres, also contributes to the improvement of the business environment, access to finance for small and medium-sized enterprises (SMEs).

The cost of the program was estimated at $500 million with a period of implementation in 2018–2019.