OECD Review of the Corporate Governance of Azerbaijan Investment Holding and its State‑Owned Enterprises

2. Azerbaijan Investment Holding Portfolio Company Profiles

Abstract

Chapter 2 describes AIH’s 12 portfolio companies in close detail, which includes an overview of each company, their financial performance, and corporate governance arrangements. Each company is presented with information on its establishment, functions and how it evolved since becoming part of the AIH portfolio, including the introduction of boards, charters and corporate governance standards.

2.1. Description of Azerbaijan Investment Holding Portfolio Companies

As noted earlier, in 2020, Presidential decree No. 1174 established “the list of state companies and enterprises to be managed by AIH, as well as economic entities with a state share” (Azerbaijan Investment Holding, 2020[1]). According to this list, 22 SOEs were initially planned to be put under the management of AIH. Later, the names of five partially privatised listed companies (Azerkosmos JSC, Aztelekom LLC, AzInTelecom LLC, Azerpost LLC, Baku Telephone Communications LLC) were removed from the list and their number was reduced to 17. At present, 12 out of 17 SOEs fall under the oversight of AIH. Azerzigorta was liquidated during the period of this review but remains included within the comparative tables of the report.

The remaining five SOEs noted in Presidential decree No. 1174 have not been transferred to AIH (Azerenerji OJSC, Azersu OJSC, Azerishiq OJSC, Azerbaijan Reclamation and Water Management OJSC and Azeristiliktechizat OJSC). Subsequent to Presidential decree No. 2074, two of the water utility companies, Azersu OJSC and Azerbaijan Reclamation and Water Management OJSC, were subordinated to the newly created State Water Resources Agency under the Ministry of Emergency Situations and, as of July 2024, under current planning will not be transferred to AIH. As for the remaining three SOEs, the government has informed the assessment team that no final decision has been taken on the timing nor sequencing of their transfer to AIH. Table 2.1 notes AIH’s current and former PCs, which range across four sectors identified by AIH. A more detailed company profile is provided below for each of the PCs and by sector.

Table 2.1. Value and employment overview (2022)

Portfolio company	Legal Form	Book Value of equity 2022 (USD mln)*	Employment	Shareholders (with details of % ownership)
SOCAR	None of those listed in the Civil Code (registered as “state company”)	19 608.8	48 042	100% state-owned
AzerGold	CJSC	263.5	818	100% state-owned
Azerbaijan Airlines	CJSC	-454.2	6 890 7 808 (consolidated group)	100% state-owned
Azerbaijan Railways (ADY)	CJSC	1074.7	15 575	100% state-owned
Azerbaijan Caspian Shipping (ASCO)	CJSC	690.4	7 946	100% state-owned
Baku International Sea Trade Port	CJSC	80.4	585	100% state-owned
Baku Metro	CJSC	1 438.9	4 947	100% state-owned
Baku Bus	LLC	134.9	1 542	100% state-owned
Tamiz Shahar	OJSC	37.8	570	100% state-owned
International Bank of Azerbaijan (ABB)	OJSC	1 070.8	3 096	92.56% - Ministry of Finance, 3.81% - State Committee on Prosperity Issues 0.23% - CJSC Aqrarkredit 3.05% – individuals; 0.35% – Legal entities
Azersigorta1	Previously open JSC	-5.1	286	100% state-owned
Azer-Turk Bank	OJSC	38.1	513	75% shares owned by the state, 12.4% - Ziraat Bank, 6.5% - AzRe Reinsurance 5% - Qala Hayat 1.1% - Ziraat Bank International

Note: *See also Table 1.7

Source: Information provided by AIH to the assessment team. Some data submissions may differ.

2.2. Extractives

2.2.1. SOCAR

Overview

SOCAR (in its current legal form) is as a state entity established in 1992. It is a vertically integrated national oil and gas company and wholly owned by the state. SOCAR owns significant shares in the Baku-Tbilisi-Ceyhan Pipeline, the main export route for oil extracted from the Azeri-Chirag-Deepwater Gunashli fields. Additionally, SOCAR owns a controlling share in Petkim (51%), the only petrochemical manufacturer in the Republic of Türkiye, and STAR (60%), the largest refinery project in Europe, the Middle East and Africa. SOCAR operates retail and/or other activities in Austria, Georgia, Romania, Türkiye, Russia, Switzerland, Ukraine and the United Arab Emirates. The Ministry of Energy approves the energy balance of the country, which represents the required amount of oil and gas products from SOCAR. Additionally, the Tariff Council approves the prices of certain oil and gas products (as well as transportation and other tariffs) for certain local operations.

SOCAR is primarily involved in oil and gas exploration, producing, processing and transporting oil, gas and gas condensate, marketing petroleum and petrochemical products in domestic and international markets, and supplying natural gas to the industry and for the public needs of Azerbaijan. There are three production unions,2 8 plants,3 two trusts, 16 joint ventures4 and one alliance with local and multinational companies (SOCAR, 2023[2]).

In August 2023, the President designated three of SOCAR’s business entities (each of them 100% state-owned) as privatisation candidates (see 1.2.5). A nine-month diagnostic assessed their market value aiming to identify the optimal means, scope and timing of privatisation. Simultaneously, the entity is undergoing a comprehensive review of its debt and cash management strategy, with the intention of seeking further financing from private banks and via debt markets.

SOCAR is one of the few PCs that has issued corporate bonds on the BSE. The first SOCAR bonds were issued in 2016 for USD 100 mln. The second (and most recent) SOCAR bonds were issued in 2021 for a total value of USD 100 mln in the ‘premium market segment’ and are currently trading.5 SOCAR may issue further bonds, a step that requires approval from the President and AIH (Government of Azerbaijan, 2021[3]). The approval of issuing bonds would need to be approved by AIH’s supervisory board. Additionally, the request needs to be approved by the Ministry of Finance, Ministry of Economy and Cabinet of Ministers before being presented to the President. For other types of borrowing (specifically loans), the approval of only SOCAR’s supervisory board is required.

The company’s strategy is to transition into an energy company – with the support of AIH – focusing on both renewables and oil and gas. The supervisory board of SOCAR establishes the principal objectives, targets, and frameworks for its subsidiary companies, maintaining transparent channels of communication.

SOCAR’s credit rating at the end of 2023 has been BB+ by Fitch (Fitch, 2023[4]) and Ba1 by Moody’s (Moody's, 2023[5]), which reflects the sovereign credit rating of Azerbaijan.

Financial performance

SOCAR is the largest company and taxpayer in Azerbaijan, accounting for approximately 6-8% of budget revenues and 15-17% of tax revenues (Aliyev, 2020[6]). Oil fields under SOCAR are taxed under the tax code and SOCAR pays royalty tax to the state budget, further outlined in the country’s production sharing agreement. The mechanism works as follows: after the profit is calculated it is distributed to the PSA holder, after transferring the government shares. Contractors keep their share, declare them and pay a profit tax. The tax regime is under the PSA, it includes profit tax, withholding tax, employee taxes and social payments.

In 2018-2022, SOCAR's revenue scheme was on a downward trend, plummeting by 54% to USD 29.2 bln in 2020. This was mostly due to the COVID-19 pandemic which reduced economic activity and caused the price of oil in commodity markets to sharply fall. During that period, the financial situation of SOCAR, whose revenue was mainly generated from the sale of crude oil, deteriorated. The following significant increase in the price of energy resources, especially natural gas, amid the global energy crisis, caused for revenues to go up from USD 29.2 bln in 2020 to USD 70.1 bln in 2022 (SOCAR, 2022[7]).

In 2022, 56.7% of revenues were generated from the sale of crude oil, 20.4% from oil products, 5.7% from petrochemical products, and 14.9% from natural gas. The comparison of the revenue structure shows that, compared to 2018, the share of natural gas in the total revenue increased from 3.1% to 14.9%. The reason for this is the 23.7% increase in natural gas production and the significant increase in the price of natural gas in world commodity markets (SOCAR, 2022[7]). The bulk of the revenues (65.1%) came from its activities in Switzerland. 20.4% of the total revenues were generated in Türkiye, 9.3% in Azerbaijan, 1.6% in the UAE, and 1.4% in Georgia (SOCAR, 2022[7]).

Compared to previous years, SOCAR's financial indicators significantly improved in 2022, with its net profit, volume of assets and capital being the highest yet recorded. In 2020, due to the volatility of the oil and gas market, the company posted losses of USD 1 020 mln.

While SOCAR is profitable, it continues to have large investment needs (e.g. invest in new oil fields, refinery, etc.), and, as noted, is seeking financing from other sources. SOCAR sells oil at below-market regulated prices for certain customer segments, but this, according to company officials, is cross subsidised by its non-regulated profit-making activities. SOFAZ, the sovereign wealth fund established to manage the revenue generated from Azerbaijan's oil and gas reserves, collects revenues from oil and gas exports, including taxes, royalties, and dividends from SOCAR and other related activities. In 2022, SOFAZ generated USD 9.92 bln in revenue, of which USD 4.66 bln was transferred to the budget.

Table 2.2. Key financial indicators of SOCAR (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	63 389.4	49 265.9	29 180.6	45 606.5	70 134.1
Earnings before interest, taxes, depreciation, and amortization (EBITDA)	3 142.4	2 753.5	2 377.6	4 641.2	8 690.6
Net profit	720	382.9	-1 020	1 244.1	5 543.5
Dividends and distribution to shareholder	402.9	402.9	265.3	391.2	427.6
Taxes (income tax)	347.1	351.8	382.4	348.2	624.7
Total assets	36 550.6	38 455.9	37 738.2	40 798.2	47 550
Book value of Equity	14 084.7	14 310.6	12 895.9	13 382.4	19 608.8
Total payables	10 215.9	10 166.5	12 137.1	11 945.9	17 041.2
Long-term liabilities	12 250	13 978.8	12 705.3	15 470	10 900
ROA, %	2	1	-2.7	3	11.7
ROE, %	5.1	2.7	-7.9	9.3	28.3
Debt to equity ratio	1.6	1.7	1.9	2	1.4

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOE to the state budget (dividends, taxes) was taken from AIH, although Chamber of Accounts data differs.

Source: Financial Reports of SOCAR for 2018-2022, Reports of the Chamber of Accounts, AIH contributions

Corporate governance

In 2021, the President signed decree No. 1258 on measures to improve the management of SOCAR by applying modern corporate governance standards. Pursuant to the decree, a supervisory board was established within SOCAR to carry out general management and control. By Presidential decree No. 2446 in 2021, the composition of SOCAR’s supervisory board was to consist of seven members, chaired by the Minister of Economy (see Annex B).

The charter of SOCAR was amended in 2021, making the supreme governing body of the company its General Meeting. Decisions on issues that do not belong to the exclusive powers of the General Meeting are taken by AIH.

Despite it being a statutory corporation with its own legal personality, as a legal entity it operates within the legal framework of Azerbaijan, which authorities report ensures that is legal form does not pose potential risks for investors or affect the rights of creditors.

2.2.2. AzerGold CJSC

Overview

AzerGold,6 established in 2015, is actively involved in various mining projects. It was reportedly established by the government as a SOE due to the substantial initial investments required for launching gold mining operations. It is noteworthy that the government's rationale for state ownership, as noted in an interview with officials, is twofold: firstly, to ensure the company's contribution to the development of social sectors, and secondly, to consider environmental and employment factors in its management. The rationale for state ownership, as explained by authorities to the assessment team, is associated with the fact that gold as a commodity is a strategic asset and plays an important role in the non-oil exports of the country.

The company currently maintains two subsidiaries and has been included in the President's privatisation agenda as of August 2023. The President has articulated a long-term vision for privatising the company, based on a financially sound company that is geared towards, among others, the objective of making shares available to the market. In this transition towards privatisation, AIH is actively involved in guiding and preparing the company for this significant transformation. AIH also establishes specific performance targets for the company.

AzerGold is one of the few PCs that has issued corporate bonds on the BSE, which are currently traded. On 10 January 2024, bonds worth a total of USD 20 mln were listed in the ‘standard market segment’ of the BSE7 and completed on 29 January 2024.

Financial performance

The years 2018-2022 saw a significant improvement in the main financial indicators of AzerGold. During this period, its turnover doubled due to an increase in the sale of precious metals (gold and silver) linked to a surge in their prices (Aliyev, 2020[6]). The enterprise managed to increase the amount of tax payments from USD 7.4 mln in 2018 to USD 23.1 mln in 2022 (see Table 2.3 below). There is no official information on dividends, although according to news sources the company noted plans to pay dividends to shareholders in 2022.8 However such figures are not reported in the AIH submission on key financial indicators nor were they verifiable in the Chamber of Accounts reports.

Table 2.3. Key financial indicators of AzerGold (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	58.4	86.2	110.2	112.1	123.6
EBITDA	32.1	49.4	73.5	58.6	56.6
Net profit	8	12.5	48.2	29.4	30.2
Dividends and distribution to shareholder	-	-	-	-	-
Taxes (income tax)	0.5	-	1.2	10.4	0.5
Total assets	110.8	110.2	139.9	200.9	357.9
Book value of Equity	9.2	27.6	98.1	159.8	263.6
Total payables	24.6	39	13.6	11.1	55.4
Long-term liabilities	76.9	43.7	28.1	30	38.9
ROA, %	7.3	11.3	34.5	14.6	8.4
ROE, %	87	45.3	49.1	18.4	11.5
Debt to equity ratio	11	3.0	0.4	0.3	0.4

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOEs to the state budget (dividends, taxes) was taken from AIH, although Chamber of Accounts data differs due to the reporting methodology variances between the two. Turnover in 2022 is reported at USD 121.9 mln according to https://azergold.az/en/media/press-relizler/azergold-qsc-nin-2022-ci-ilde-satis-gelirleri-artib

Source: Financial Reports of AzerGold for 2018-2022, Reports of the Chamber of Accounts, AIH contributions.

Total assets of the company increased to USD 357.9 mln. The main driver of growth is a significant increase in total capital. Since 2018, it saw an a 28-fold increase in its capital, which ensures its stable operation, hitting USD 263.6 mln. The increase in the total capital was due to net profit and the increase of the authorised capital by the state. To increase the charter capital, USD 5.9 mln in 2019, USD 22.4 mln in 2020, and USD 45.8 mln in 2021 were allocated from the state budget (Government of Azerbaijan, 2021[8]).

The capital increase made the company's debt policy passive. For this reason, the share of total capital in total liabilities and capital increased from 8.3% to 73.7% in 2018-2022. During this period, the share of debt obligations fell from 91.8% to 26.4%. A decrease in the debt-to-equity ratio from 10.8 to 0.3 shows that its debt level is low. The decrease in liabilities occurred due to a 49% decrease in long-term liabilities. Short-term liabilities have more than doubled.

Corporate governance

Presidential order No. 2293/ 2020 brought AzerGold under AIH management. The supervisory board was established in 2021, for which the charter allows a total of five members. The term of office of the members of the supervisory board is three years (renewable). The supreme governing body of the company is its general meeting of shareholders, and the management bodies of the company are the supervisory board and the collegial executive body - the management board. The new charter of AzerGold was approved by AIH in 2022.

In accordance with article 6.2.5 of the charter, the supervisory board has the power to establish an audit committee, an appointment and remuneration committee and a strategy and investments committee. Additionally, according to article 7 of the charter, the current management of its activities is carried out by the management board. The five members of the management board (chair and four vice chairs) can be appointed for a term of three years and they can be reappointed for a further term. Currently, the management board has three members - one chair and two vice chairs, as it was considered sufficient for the company’s needs. The composition of the governing bodies can be found in Annex B.

The supervisory board has the power to organise the company's activities and has the right to apply to the management board for making proposals to the general meeting on changes to the charter and capital, as well as take measures to resolve disputes between its subsidiaries. The strategic leadership is divided between the general meeting and supervisory board, with an AIH member being represented at the supervisory board.

2.3. Transport

2.3.1. Azerbaijan Airlines CJSC

Overview

Azerbaijan Airlines, also known as AZAL, was founded in 1992 and is the country's first flag carrier and largest airline of Azerbaijan. As of 2022, AZAL and its subsidiaries employed 7,808 people. Although it operated as a state concern, in 2008 it became a JSC. The company oversees two subsidiaries and manages five airports within Azerbaijan.

Their airline business constitutes a substantial portion, accounting for approximately 65% of the company's overall activities. Regulatory oversight is provided by the Ministry of Digital Development and Transport, involving quarterly board meetings. The corporate strategy, formulated under the guidance of AIH, has been mapped out until 2030. The primary objectives, as indicated to the assessment team, include fleet renewal and achieving self-sustainability across their operations. The organisation's future approach, according to company executives, involves utilising its own resources to procure airplanes, since until 2022, all aircraft fleets were purchased mostly with government funding.

Financial performance

AZAL is the only airline providing air transport services within Azerbaijan. Despite its dominant position and while AZAL has achieved a turnover of approximately USD 740.4 mln in 2022, the airline continues to grapple with legacy debts totalling AZN 2.3 bn (~USD 1.3 bln). The enterprise also has PSOs (e.g. subsidised flights to Nakhchivan), which are communicated through the supervisory board, and covered by the state budget. According to company officials and the Ministry of Finance, the government is working on a new mechanism of subsidising flights to Nakhchivan AR to decrease AZAL’s dependency on the state budget.

In 2018-2022, AZAL’s turnover showed a growth trend, except for the pandemic period in 2020-2021, in which turnover plummeted by 43.8%. In response, the amount of subsidy allocated to AZAL from the 2020 state budget was USD 136.5 mln.9 State financial support continued in the following years with USD 58.2 mln in 2021 and USD 64 mln in 2022.

While air traffic was restored after the pandemic, the continued closure of land (road, rail) and sea border routes significantly improved the financial performance of AZAL. In 2022, its turnover was up 113% from 2021, EBITDA increased by 179%, with the loss of USD 39.7 mln being replaced by a net profit of USD 65.1 mln.

Table 2.4. Key indicators of AZAL (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	561.9	593.2	333.7	347.4	740.4
EBITDA	65.9	116.5	98.2	81.2	226.5
Net profit	-89.0	-46.4	-45.0	-39.7	65.1
Dividends and distribution to shareholder	-	-	-	-	-
Taxes (income tax)	0.6	2	-	-	-
Total assets	1 201.8	1 225.7	1 163.6	1 157.8	1 318.4
Book value of Equity	-367.1	-420.6	-458.2	-523.5	-454.2
Total payables	303.8	466.5	659.7	843.2	995.9
Long-term liabilities	1 265	1 179.9	962.6	838.2	776.8
ROA, %	-7.4	-3.8	-3.9	-3.4	4.9
ROE, %	-24.3	11.0	9.8	76.5	-14.6
Debt to equity ratio	(4.3)	(3.9)	(3.5)	(3.2)	(3.9)

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOE to the state budget (dividends, taxes) was taken from AIH, although Chamber of Accounts data differs, for instance on total assets and value of equity.

Source: Financial Reports of AZAL for 2018-2022, Reports of the Chamber of Accounts, AIH contributions.

Corporate governance

AZAL was transferred to AIH since 2021 (Presidential order No. 2500). The composition of the supervisory board was approved in 2021, consisting of seven members serving a term of three years (see Annex B). AZAL currently operates on the basis of the charter adopted in 2008 and amended in 2021. A new charter is currently under consideration by AIH.

2.3.2. Azerbaijan Railways CJSC

Overview

Azerbaijan Railways (ADY) is a 100% SOE which was corporatised in 2010,10 having formerly been operating as a state company with no distinct legal form, under the oversight of the Ministry of Digital Development and Transport. The stated rationale in its establishing legislation was to “create infrastructure that meets modern requirements, provide high-quality transport services and increase the competitiveness of cargo transportation on the Baku-Tbilisi-Kars, North-South railway routes”.11 ADY is a state-owned company that provides transportation of cargo, passengers, mail and other baggage by rail.

In 2022, ADY transported 18.7 mln tons of cargo, of which 7.8 mln tons were international, 7.5 mln tons transit and 3.5 mln tons domestic. As per AIH, ADY employed 15 575 people in December 2023.

Company executives informed the assessment team that the enterprise’s public policy objectives are effectively conveyed through regular management board meetings held on a weekly basis. Pricing strategies for their services undergo a comprehensive approval process managed by the Transit Commission. Notably, specific routes are mandated to operate at reduced fares. Passenger transportation presents inherent challenges as it often operates at a deficit rather than generating profits. According to AIH, the government does not compensate these losses. Instead, losses from passenger transportation are offset by revenues generated from freight transportation.

This arrangement will be formalised through a public service agreement, which is reportedly still in the process of being finalised with the Ministry of Finance. As a remnant of its historical past, the SOE operates a number of non-core businesses including overseeing a network of 22 medical centres. The costs associated with these healthcare facilities are supported by state subsidies and there is an ongoing effort to transfer oversight of these hospitals to the Ministry of Health, with formal correspondence having been submitted to the Prime Minister for consideration. In addition, the company manages 5 000 water service operators and operates a high-speed internet service provider.

Financial performance

ADY turnover increased by 52.6%, to USD 353.8 mln in 2018-2022. COVID-19 had no serious impact on its turnover, as indicated in Table 2.5 below, and the post-pandemic period has also had a positive impact on the company’s net profit. The company managed to turn from a loss of USD 284.8 in 2020 to a profit of USD 15.3 mln in 2021 and 50.7 USD mln in 2022.

In 2019, the company saw a capital shortfall of USD 248.8 mln. Overcoming the lack of capital in the following years, the company managed to increase the total amount of capital to USD 1.1 bln. In 2020, USD 23.8 mln were allocated from the Reserve Fund of the state budget to increase the charter capital of ADY (Government of Azerbaijan, 2021[3]).

Table 2.5. Key financial indicators of Azerbaijan Railways CJSC (2018-2022), USD mln

	2018	2019	2020	2021	2022
Turnover	238.8	238.8	248.4	287.6	353.8
EBITDA	47.1	42.4	-92.4	24.1	104.7
Net profit	-218.5	-134.4	-284.8	15.3	50.7
Dividends and distribution to shareholder	-	-	-	-	-
Taxes (income tax)	0.5	0.2	1.5	0.9	0.7
Total assets	2 502.3	1 503.5	1 786.4	2 148.5	2 512.7
Book value of Equity	715.5	-248.8	109.2	541.2	1 074.7
Total payables	302.5	250.2	470.3	544.7	580.6
Long-term liabilities	1 484.4	1 502.1	1 207.0	1 062.6	857.4
ROA, %	-8.7	-8.9	-15.9	0.7	2.0
ROE, %	-30.6	54.0	-260.8	2.8	4.7
Debt to equity ratio	2.5	(7.0)	15.4	3.0	1.3

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOEs to the state budget (dividends, taxes) was taken from AIH and confirmed by the Reports of the Chamber of Accounts. EBITDA for 2022 may be non-audited. According to the Financial Report for 2022 (p. 7) the value of equity was 1074.7 (https://corp.ady.az/storage/pages/1884/maliyye-hesabatlari-2022-1.pdf).

Source: Financial Reports of Azerbaijan Railways CJSC for 2018-2022, Reports of the Chamber of Accounts.

Corporate governance

ADY was transferred to the oversight of AIH since 2021 (Presidential order No. 2500). The same year (Presidential decree No. 2552/ 2021) a supervisory board was established consisting of five members, with a term of office of three years (renewable) (see Annex B). As ADY’s new charter has not yet been approved by AIH, the 2010 charter is still in force.

2.3.3. Azerbaijan Caspian Shipping CJSC

Overview

Azerbaijan Caspian Shipping (ASCO) CJSC was established in 2013 by merging the country’s two largest fleets – the Azerbaijan State Caspian Sea Shipping Company and the Caspian Sea Oil Fleet. ASCO comprises the offshore support and merchant fleets and two shipyards. The enterprise was identified as a privatisation candidate in the President’s August 2023 decree, for which the board and AIH are making preparations.

Financial performance

Table 2.6. Key financial indicators of Azerbaijan Caspian Sea Shipping CJSC (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	266	281.9	247.7	270.1	335.3
EBITDA	81.8	100.6	81.8	88.2	111.8
Net profit	30.9	37.6	26.5	30.5	38.5
Dividends and distribution to shareholder	-	71.8	-	2.9	5.9
Taxes (income tax)	5.9	8.2	10.6	3.5	7.6
Total assets	703.6	713.1	743.1	759.5	785.5
Book value of Equity	582.9	574.9	607.3	640.1	690.4
Total payables	79.7	112.2	109.6	89.9	64.7
Long-term liabilities	40.9	26.0	26.3	29.4	30
ROA, %	4.4	5.3	3.6	4.0	4.9
ROE, %	5.3	6.5	4.4	4.8	5.6
Debt to equity ratio	0.2	0.2	0.2	0.2	0.1

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOE to the state budget (dividends, taxes) was taken from AIH and confirmed by the Reports of the Chamber of Accounts. EBITDA for 2022 may be non-audited.

Source: Financial Reports of Azerbaijan Caspian Sea Shipping CJSC for 2018-2022, Reports of the Chamber of Accounts.

The enterprise’s balance sheet shows that there was no financial deterioration in 2018-2022. With its assets increasing by 11.6%, the company phased out its total liabilities (21.1%) due to an increase in total capital (18.4%), with the share of liabilities falling from 17.2% to 12.1%. As a result of this, the debt-to-equity ratio remained at a low level and decreased slightly in 2022. Another noteworthy point is that, unlike other PCs, ASCO saw an increase in long-term liabilities in 2019-2022, and its share in total liabilities increased from 18.8% to 31.5%.

ROA grew from 4.4% to 4.9% and ROE grew from 5.3% to 5.6% over the reporting period. As one of only a few PCs, ASCO has issued corporate bonds in the ‘premium market segment’ of the BSE. Its first issuance was in December 2022 for a total nominal value of USD 100 mln.12 This was followed by a second issuance of bonds in December 2023 for a total nominal value of USD 50 mln.13

Corporate governance

The company was transferred to the oversight of AIH in 2020 (Presidential order No. 2293). The supervisory board was established in 2021 with five members, with a term of three years (renewable) (Annex B). The new charter of ASCO was approved by AIH in 2022. According to article 7 thereof, management is carried out by the management board, with its members appointed and dismissed by the President. It has seven members and consists of the chair, first deputy chair and five vice chairs. The term of office of board members is three years and they can be reappointed for a further term.

Sector-specific regulations are established by the Ministry of Digital Development and Transport, while the corporate governance standards and the company charter are approved by AIH. According to the charter, decisions on issues not within the remit of the general meeting are taken by AIH. Collaboratively with AIH, the general meeting of shareholders was actively engaged in the development of internal procurement guidelines. The guidelines were prepared by AIH and approved by ASCO's supervisory board in November 2023. Since 2014, the company has been producing reports in accordance with IFRS.

2.3.4. Baku International Sea Trade Port CJSC

Overview

Baku International Sea Trade Port (also known as Port of Baku) has a decisive role in the reception and transportation of goods along the North-South and East-West transport corridors of Azerbaijan. As the largest port of the Caspian Sea, the Baku port has 13 berths and its capacity is 15 mln tons per year, including 100 000 TEU14 containers. Upon completion of the second stage of construction, the port's capacity will be increased to 25 mln tons, including 500 000 TEU containers (Port of Baku, 2023[9]). There are five additional private ports in Azerbaijan, utilised either commercially or for maintenance, with one belonging to ASCO.

Port of Baku, according to company executives, has extensive transformation plans with the intention to create a transport and logistics hub in Azerbaijan. The management further plans to establish the first green port next to Baku, underlined by a net zero climate strategy.

Financial performance

In 2018-2022, the port’s annual turnover more than tripled to USD 29.5 mln. In 2020, it posted a loss of USD 1.6 mln but a net profit of USD 1.7 mln in 2021, and in 2022, it increased more than three times to USD 5.9 mln. The analysis of the port's liabilities shows that in 2018-22, the share of its total liabilities increased, but was generally at a minimal level. So, while the share of debt in total liabilities was 3.6% in 2018, it increased to 18.3% in 2022. The increase in liabilities was mainly due to long-term liabilities.

Table 2.7. Key financial indicators of Port of Baku (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	9.4	10.9	18.5	24.8	29.5
EBITDA	0.6	1.2	0	5.3	12.3
Net profit	0.5	0.2	-1.6	1.7	5.9
Dividends and distribution to shareholder	-	-	-	-	-
Taxes (income tax)	-	-	0.2	0.1	1.1
Total assets	52.6	48	49.2	63.2	98.4
Book value of Equity	50.4	44.9	43.3	53.8	80.4
Total payables	1.6	3.1	5.9	5.8	4.5
Long-term liabilities	0.3	-	-	3.6	13.5
ROA, %	0.9	0.4	-3.3	2.7	6.
ROE, %	0.9	0.4	-3.8	3.2	7.3
Debt to equity ratio	0	0.1	0.1	0.2	0.2

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOE to the state budget (dividends, taxes) was taken from AIH and confirmed by the Reports of the Chamber of Accounts.

Source: Financial Reports of Port of Baku for 2018-2022, Reports of the Chamber of Accounts

Corporate governance

Port of Baku was transferred to the oversight of AIH in 2021 (Presidential order No. 2293/2020). The company had begun implementing some corporate governance standards before joining AIH, such as putting in place a board. AIH has now set specific individual corporate governance standards for Port of Baku, which are also streamlined with other companies in the AIH enterprise portfolio.15

The President has the right to reorganise and dissolve Port of Baku and appoint and dismiss members of the supervisory board and the management board. The supervisory board consists of three members. Port of Baku was transformed into a closed JSC in 2015, and, according to information available to the assessment team, it is operating on the basis of the 2022 approved charter. Port of Baku has established all required committees and has independent board membership on its audit committee.

2.4. Public services

2.4.1. Baku Metro CJSC

Overview

In 2014, the construction and operations arms of the capital city’s metro system (Baku Metro and Azertunelmetrotikinti JSC) were merged into one single company (Baku Metro CJSC) which is 100% owned by the state. In the years before the COVID-19 pandemic, the volume of annual passenger transportation in Baku Metro was around 230-236 mln people. This decreased sharply in 2020 and 2021 but then began returning to pre-pandemic levels.16 Baku Metro employs approximately 5,000 persons. It is one of the loss-making companies of AIH, alongside Baku Bus and Tamiz Shahar.

The company is also responsible for the operation and construction of the metro system. The pricing of fares are decided by the state committee on tariffs under the Ministry of Economy. The company noted that the subsidy they receive does not cover the actual cost of the service.

2.4.2. Financial performance

Due to the pandemic, the turnover of the company fell to USD 54.6 mln in 2020 and 51.5 mln in 2021. Subsidies from the state budget comprised of a significant share in the turnover of the company, at USD 34.3 mln in 2020, 34.3 mln in 2021, and 33.6 mln in 202217. In addition, in 2020, USD 82.5 mln were allocated to the company for the continuation of construction and reconstruction works. The Ministry of Finance noted the need for Baku Metro to receive explicit subsidies, since the cost of transporting passengers exceeds the fare (JAM, 2023[10]). However, as far as the assessment team is aware and as confirmed by the Chamber of Accounts, the company does not implement a separate accounting system for these particular PSOs.

In 2018, the EBITDA margin was 28.5%, while in 2022, this indicator decreased to 19.6%. This indicates an increase in the operating costs of the company, and a decrease in profitability and efficiency. Despite the increase in turnover, the company has been operating at a loss from 2018 to 2022 reaching USD 48.7 mln in 2022.

The analysis of the structure of the company’s liabilities shows that its debt is at a minimum level and its main source of financing is capital. Between 2018 and 2022, the share of the company's total capital in liabilities changed to around 97-98%. Regarding liabilities, the share of short-term liabilities in total liabilities is more than 70%.

Table 2.8. Key financial indicators of Baku Metro (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	63.9	72.9	54.6	51.6	71.9
EBITDA	18.2	24.4	12.2	7.8	14.1
Net profit	-32.3	-32.4	-23	-40.7	-48.7
Dividends and distribution to shareholder	-	-	-	-	-
Taxes (income tax)	-	-	-	-	-
Total assets	1 417.4	1 668.2	1 731.1	1 748.2	1 469.5
Book value of Equity	1 383.8	1 649.3	1 708.7	1 726.4	1 438.9
Total payables	24.2	13.5	18.5	17.1	21.2
Long-term liabilities	9.4	5.4	4.9	4.3	9.2
ROA, %	-2.3	-1.9	-1.3	-2.3	-3.3
ROE, %	-2.3	-2.0	-1.3	-2.4	-3.4
Debt to equity ratio	0	0	0	0	0

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOE to the state budget (dividends, taxes) was taken from AIH and confirmed by the Reports of the Chamber of Accounts. Source: Financial Reports of Baku Metro for 2018-2022, Reports of the Chamber of Accounts.

Corporate governance

Baku Metro was moved to the oversight of AIH in 2021 (Presidential order No. 2500). The President of Azerbaijan can reorganise and dissolve the enterprise and appoint and dismiss members of the supervisory board and the executive body. In 2021 (Presidential decree No. 2553) the composition of the supervisory board was approved, with five members and a three-year (renewable) term. Under current planning (Presidential decree No. 2549) AIH has been mandated to undertake a diagnostic study of Baku Metro's activities in legal, financial, tax and commercial spheres in order to prepare a new charter for the company. It was approved in 2022.

The company has established all board committees. The company is subject to its own internal procurement policy. The nomination process has not yet been specified but is expected to be that members are proposed by AIH and confirmed by the President.

2.4.3. Tamiz Shahar OJSC

Overview

Tamiz Shahar, an open JSC, was established in 2008 to collect, transport, dispose of and neutralise solid household waste18 primarily in Baku.19 The company operates a solid household waste sorting plant with an annual capacity of 200 000 tons, a solid household waste incineration plant with an annual capacity of 500 000 tons of household waste, including 10 000 tons of medical waste. Tamiz Shahar currently employs 611 people.

Financial performance

From 2018 to 2022, the company’s turnover increased by 44.4%. Although Tamiz Shahar was still loss-making at the end of 2022, the increase in revenue reduced the losses from USD 19.9 mln to USD 10.2 mln over this period.

The prices of a number of services provided by Tamiz Shahar are regulated by the state. According to a 2011 “Decision of the Tariff Council of Azerbaijan”, the tariff for solid household waste disposal is AZN 1.2 (~USD 0.7) per 1 cubic meter and AZN 5.5 (~USD 3.25) per ton. However, company executives have reportedly encountered challenges in receiving timely payments from the local authorities that contract their services. Thus, a new payment schedule has been established to repay the debts owed to Tamiz Shahar, aimed at covering the bad debts. After maintaining service fees at the same level for a decade, they are now contemplating an adjustment in their pricing structure and overall payment system. For instance, one reform in consideration is for consumers to pay for Tamiz Shahar services directly through their utility bill. This decision is still being considered by the supervisory board, with the support and guidance of AIH. For now, an annual subsidy from the state budget is allocated to cover the loss caused by the services provide.

Table 2.9. Key financial indicators of Tamiz Shahar (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	2.7	2.6	2.9	3.3	3.9
EBITDA	-11.8	-5.3	-6.5	-5.9	-5.9
Net profit	-19.9	-16.1	-11.3	-13.7	-10.2
Dividends and distribution to shareholder	-	-	-	-	-
Taxes (income tax)	-	-	-	-	-
Total assets	47.7	40.4	40.9	35.3	39.6
Book value of Equity	47.6	39.3	39.5	33.7	37.8
Total payables	0.1	1.1	1.4	1.6	1.8
Long-term liabilities	-	-	-	-	-
ROA, %	-41.7	-39.9	-27.6	-38.8	-25.8
ROE, %	-41.8	-41	-28.6	-40.7	-27
Debt to equity ratio	0	0	0	0	0

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. In this case, AIH data was taken as a preference. 2020, 2021, and 2022 figures are taken from an initial draft audit report prepared by Baker Tilly.

Source: Financial Reports of Tamiz Shahar for 2018-2022, Reports of the Chamber of Accounts, AIH contributions, Baker Tilly Audit Report.

Corporate governance

Tamiz Shahar was transferred to the oversight of AIH in 2021, following Presidential order No.  2908. The President can reorganise and dissolve Tamiz Shahar and appoint and dismiss members of the supervisory board and management board. According to the charter, the management board is appointed by AIH in coordination with the President of Azerbaijan. This decree also approved the composition of three supervisory board members, serving for three years (renewable) (Annex B). According to a recent decision (Presidential decree No. 2908), AIH has approved the new charter for the company and a new corporate governance standard – in line with the standard proposed by AIH.

2.4.4. Baku Bus LLC

Overview

Baku Bus LLC was established in 2014 under the Baku City executive authorities and transferred to the management of Baku Transport Agency in 2018. As of 25 January 2021, it is overseen by AIH. From 2015 to 2023, Baku Bus LLC transported more than 750 mln passengers within Baku. Its daily passenger turnover is more than 350 000. Baku Bus LLC currently has 1 542 employees. The shareholder of the company is the State Service on Property Issues Under the Ministry of Economy. The share capital stood at ~AZN 18 mln (~USD 10.6 mln) at the end of 2022.

Baku Bus has five further competitors in the market, although they have specific PSOs to maintain routes that are less profitable, for which they receive subsidies. Alongside Baku Metro and Tamiz Shahar, it is currently one of the loss making companies under the AIH portfolio.

Financial performance

The annual turnover of Baku Bus fluctuated around USD 14.2-20.1 mln in 2018-22, with some drops associated with the COVID-19 pandemic. In the following years, the company has managed to increase its service revenues. The state provided financial support to the company to cover the impact of the quarantine measures. Baku Transport Agency transferred USD 4.4 mln to Baku Bus LLC in 2020.20

The company's negative EBITDA indicates that its operating income cannot cover operating expenses. This is because passenger transport is subject to a regulated tariff. According to a decision of the Tariff Council, the tariffs for passenger transportation services on intra-city bus routes across the country are AZN 0.40 per passenger. According to a decision by the Tariff Council fares have now increased by 33.3%.

The government makes transfers from the state budget to finance the investment programmes of Baku Bus. The enterprise currently does not yet generate enough revenues to finance its operational costs, thus continues to remain dependent on state budget transfers. According to decree No. 92/ 2014 from the Cabinet of Ministers, the government - represented by the Ministry of Finance - takes responsibility to “finance the construction of infrastructure and the maintenance of operations of the enterprise”. Decree No. 183/ 2010 further states that these funds should be included in the share capital of these entities.

Table 2.10. Key financial indicators of Baku Bus LLC (2018-22), USD mln

	2018	2019	2020	2021	2022
Turnover	14.2	19.5	14.3	16.2	20.1
EBITDA	-0.8	0.4	-7.1	-9.8	-9.2
Net profit	-19.5	-15.0	-21.9	-18.6	-15.8
Dividends and distribution to shareholder	-	-	-	-	-
Taxes (income tax)	-	-	-	-	-
Total assets	82.6	67.8	55.7	45.5	144.5
Book value of Equity	19.4	28.5	32.1	29.4	134.9
Total payables	24.7	24.7	23.6	16.1	9.6
Long-term liabilities	38.5	14.6	-	-	-
ROA, %	-23.6	-22.1	-39.3	-40.9	-10.9
ROE, %	-100.5	-52.6	-68.2	-63.3	-11.7
Debt to equity ratio	3.3	1.4	0.7	0.5	0.1

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. In case of discrepancies, data provided by AIH took precedence.

Source: Financial Reports of Baku Bus for 2018-2022, Reports of the Chamber of Accounts

Baku Bus LLC's assets were significantly up in contrast to its revenues. Although the volume of assets decreased in 2020-2021 (an average annual decrease of 18%), it regained the loss in the following year and achieved significant growth. In 2022, its assets increased 218%. The main source of asset growth in 2022 was the company's capital, up 359% to USD 134.9 mln in 2022 because of government transfers.

The company has minimised its liabilities by reducing debt over the past five years. In 2018-22, the share of total liabilities decreased from 76.5% to 6.6%. In 2018, the share of long-term liabilities in total liabilities was 60.9%, while in 2022, this indicator was 0, which means that the company did not seek long-term debt in recent years. The low level of borrowing has improved the company's debt to equity ratio.

Corporate governance

Baku Bus was brought under the oversight of AIH in 2021 (Presidential order No. 2550). Since then, the President has powers to reorganise and dissolve Baku Bus and appoint and dismiss members of the supervisory board and the executive body. AIH appoints and dismisses the members of the management board of the company, including its head.

The supervisory board consists of three members, serving for three years (renewable).21 A new charter and corporate governance standards were approved by AIH in 2022. The new charter and corporate governance standards were recently approved by the general meeting, and the internal procurement procedures were approved last year.

2.5. Financial institutions

2.5.1. International Bank of Azerbaijan OJSC

Overview

International Bank of Azerbaijan (ABB) was founded in 1992, as an open JSC. The bank’s primary business consists of commercial lending activities, trading securities, foreign currency and derivative instruments, originating loans and guarantees. With 70 branches and 11 sub-branches in different regions of Azerbaijan, the bank provides banking services to private and corporate clients. The number of legal entities served by the bank is about 18 000, and the bank employs around 3 100 people (International Bank of Azerbaijan, 2023[11]).22

ABB is partially privatised, with the state owning 96.37% of ABB shares (these shares are owned by the Ministry of Finance (92.56%) and the State Committee on Property Issues (3.81%)). Its free-floating shares are listed on the BSE. The bank’s subsidiaries are ABB-Moscow LLC (Russian Federation) and ABB-Geo CJSC (Georgia), which is currently not operating. In 2018, ABB acquired 25% non-controlling interest in ABB-Georgia OJSC and started the liquidation process after which the banking licence of the entity was cancelled by the local Georgian regulator. ABB-Georgia started operating as a non-banking business organisation.23 In Azerbaijan, it is the parent company of Azericard LLC, International Leasing Company LLC and ABB-Invest Investment Company. In terms of asset size, ABB is the largest bank in Azerbaijan. As of 1 October 2023, its share in the banking sector in terms of assets was 25.1%. It accounts for 20.2% of the total loan portfolio of local banks and 25.7% of the total deposit portfolio (International Bank of Azerbaijan, 2023[11]).

ABB was transferred to the oversight of AIH in 2020, following Presidential decree No. 1174, but the CBA remained responsible for supervising ABB, as outlined in 1.3. According to interviews conducted with the leadership of ABB and the CBA, ABB underwent a restructuring process between 2015 and 2017, primarily as a response to the banking crisis that occurred in 2015.24 Since then, the bank’s strategic decisions are subject to approval by its supervisory board, while corporate governance standards are prescribed by the CBA. The supervisory board includes an audit and strategy and risk committee, which the assessment team understands does not yet include independent directors.

ABB is the only (partially) listed PC of AIH and is one of only a few PCs that have issued corporate bonds on the BSE. The most recent issuance of bonds took place in May 2022 for a total nominal value of AZN 20 mln in the premium market segment of the exchange.25

Financial performance

ABB is the largest bank in Azerbaijan. As of 1 October 2023, its share in the banking sector in terms of assets was 25%. It accounts for 20.2% of the total loan portfolio of local banks and 25.7% of the total deposit portfolio. ABB is considered one of the most profitable banks in Azerbaijan's banking sector. In 2022, it became the second largest bank in terms of net profit, accounting for 27.8% of the net profit generated in the banking sector. The high net profit also improved the bank's ROA and ROE.

As a result of the devaluation that occurred in the country in 2015, ABB was under the threat of bankruptcy. Shortcomings in the bank's management and investment and credit policy, including the financing of risky investment projects with low efficiency, led to the deterioration of the bank's financial condition, growth of its problematic assets and reduced liquidity (Banker, 2023[12]). To this end, in 2015, a Presidential decree was signed to transfer problematic assets to a specialised institution – Agrarkredit. For this purpose, the recovery of toxic assets began through the issuance of long-term low-interest debt bonds by Agrarkredit on the basis of state guarantees and their placement on the securities market. The amount of state-guaranteed bonds issued by Agrarkredit in 2015-2016 was USD 5.9 bln. The transfer of toxic assets to Agrarkredit CJSC for recovery purposes resulted in a sharp decline in its assets, which fell from USD 7.8 bln to USD 4.9 bln between 2015 and 201826. In the following years, the bank managed to increase its assets by 71.3% to USD 8.3 bln in 2018-22.

Funds in the amount of USD 29.1 mln were allocated in 2015 and USD 54.4 mln in 2016 to increase the authorised capital of ABB. As a result of the financial support provided by the state, the state's share in the bank's shares began to grow. The government's share increased from 54.9% in 2015 to 83.14% in 2016 and 92.65% in 2017. The growth of the state's share was also observed in the following years, reaching 96.6% in 2022.

Table 2.11. Key financial indicators of International Bank of Azerbaijan OJSC (2018-22), USD mln

	2018	2019	2020	2021	2022
Interest and non-interest income	355.9	365.9	354.7	350	482.9
Net profit	175.7	126.9	105.3	82.1	169.9
Dividends and distribution to shareholder	-	88.2	88.2	74.7	73.5
Taxes (income tax)	-	42.6	31.4	30.1	46.8
Total assets	4 867.2	5 495.1	5 414.6	6 913.7	8 339.8
Book value of Equity	966.6	990.4	998.2	1 001.6	1 070.8
Total liabilities	3 900.6	4 504.7	4 416.4	5 912.1	7 269
ROA, %	3.6	2.3	1.9	1.2	2.0
ROE, %	18.2	12.8	10.5	8.2	15.9

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. Data on the contribution of SOEs to the state budget (dividends, taxes) was taken from the Reports of the Chamber of Accounts.

Source: Financial Reports of International Bank of Azerbaijan for 2018-2022, Reports of the Chamber of Accounts

Corporate Governance

ABB was moved to the oversight of AIH in 2021 and a new supervisory board was formed. Three of the five members of the supervisory board, including the Chair, are representatives of the Presidential Administration. Eight committees, including the strategy and risk management committee, audit committee and reward committee are operational, and a corporate governance committee will be established after August 2024, fulfilling the corporate governance, remuneration and nomination functions of the bank.

The bank plans to update its charter in 2024 due to changes reflected in the corporate governance standards applicable to banks issued by the CBA. A Strategic Development Plan for 2023-2025 based on the strategic vision and mission statement of the bank has been adopted by the supervisory board.

2.5.2. Azer-Turk Bank OJSC

Overview

Established in May 1995 as a closed JSC, Azer-Turk Bank (ATB) operates under a license issued by the CBA. In April 2005, the bank was re-registered as an open JSC. The principal activities of the bank are deposit taking, customer accounts maintenance, issuing loans and guarantees, cash and settlement operations, securities and foreign currency exchange operations.

When the bank was established, the controlling interest was not held by the state. In 2008, 46% of the bank's shares were owned by Ziraat Bank of the Republic of Türkiye, 46% by Agrarkredit CJSC, a non-bank credit organisation, 4% by Ziraat Bank International A.G. and 4% by Turan Bank OJSC. This shareholder structure continued until the end of 2013 and the bank's operations were controlled jointly by Ziraat Bank and NBC Agrarkredit. In 2014, there was a change in the composition of shareholders and the controlling stake was transferred to the state with 75% of ATB's share now owned by the state (specifically the State Service for Property Issues under the Ministry of Economy). The bank noted that the government acquired a controlling interest with the goal to create a functioning banking sector. The remaining 25% stake is distributed among mostly foreign private sector players: 12.37% is owned by Ziraat Bank, 6.55% by AzRe Reinsurance, 5% by Qala Hayat Insurance Company, 1.08% by Ziraat Bank International (ATB, 2022[13]). ATB belongs to the top ten banks in terms of assets in Azerbaijan, with assets amounting to AZN 1.4 bn.

Financial performance

ATB more than doubled its total income, including interest and non-interest income, to USD 32.8 mln in 2018-2022. During this period, the bank's interest income grew by 109%, and non-interest income by 191%. The growth in gross revenue also impacted its net profit growth. The bank's net profit declined in 2019-2021 but increased significantly in 2022. The bank's 2022 net profit reached USD 7.1 mln.

Table 2.12. Key financial indicators of Azer Türk Bank (2018-22), USD mln

	2018	2019	2020	2021	2022
Interest and non-interest income	16.5	20	18.2	21.2	39.4
Net profit	1.2	0.3	-	0.3	7.1
Dividends and distributions to shareholders	0.5	0.2	-	-	-
Profit taxes	0.1	0.3	0.2	0.2	2.0
Total assets	215.8	203.3	205.8	241.3	568.2
Book value of Equity	30.5	30.6	30.6	31.1	38.1
Total liabilities	185.3	172.8	175.2	210.3	530.2
ROA, %	0.6	0.1	0	0.1	1.8
ROE, %	4.1	0.8	0.1	1.1	20.6

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities, particularly on Interest and non-interest income. In these cases, AIH data was given preference.

Source: Financial Reports of Azer-Turk Bank for 2018-2022, Reports of the Chamber of Accounts.

Overall, the growth of assets of ATB stood at 163% in 2018-2022. During this time, assets grew from USD 215.8 mln to USD 568.2 mln. As of the end of 2022, the bank ranked eighth among 26 banks in terms of assets. The reason for the increase in assets is the increase in total liabilities of the bank. Over the last five years the bank's liabilities have grown three times. The share of total liabilities in the bank's liabilities during this period increased from 85.9% to 93.3%.

Corporate governance

ATB was moved under the oversight of AIH in 2021. In 2022, a supervisory board was established, consisting of AIH and the Ministry of Finance. Currently, there are three members of the supervisory board, one of which is female. Seven committees, including the strategy and investments committee and audit committee are operational. The corporate governance committee – previously the appointment and remuneration committee - aims to fulfil the corporate governance, remuneration and nomination functions of the bank. The bank plans to update its charter in 2024 due to changes reflected in the corporate governance standards applicable to Banks issued by the CBA.

2.5.3. Azersigorta OJSC

Overview

Azersigorta27 State Insurance Commercial Company started its activities in 1921 as a local State Insurance Administration, managed by the Ministry of Finance of the Soviet Union. In 1991, the State Insurance Commercial Company was established as a successor, remaining under the Ministry of Finance (Azersigorta, 2023[14]). Azersigorta offered all types of non-life insurance products provided by the insurance legislation. As of August 2023, the company employed 286 people.

A decree issued by the President on 31 January 2024 has set the wheels in motion for the liquidation of the company, making the Cabinet of Ministers and AIH responsible for the undertaking. Reportedly, the management of Azersigorta spearheaded the liquidation process, backed by the company's board. In order to ensure a smooth transition, a liquidation commission is to be formed comprised of members from the Ministry of Finance and AIH. The Ministry of Finance noted that “in the domestic insurance market, characterised by a highly competitive environment, Azersigorta’s particular weight has decreased due to not having special advantages in relation to private insurance companies, making it impossible to ensure profitable operations, consequently, the risks of financial losses faced by the state, the founder of the company, have increased.” 28

As a part of the liquidation process, creditors of Azersigorta will be given a window of a minimum of 60 days to present their claims against the company. This period gives the creditors an opportunity to stake their claims, thus ensuring that their interests are safeguarded during the process of liquidation.

Financial performance

From 2018 onwards, the company's position in the insurance market has weakened. The level of insurance premiums collection decreased by 62.1% from USD 25.5 mln to USD 9.7 mln. Azersigorta dropped from 4^th to 11^th place (from 2018 to 2022). During this time, its insurance premium market share decreased from 6% to 1.7%.

A decrease in the collection of insurance premiums and an increase in insurance claim settlements had a negative impact on the company's gross revenue and net profit. While in 2018, the company settled a claim totalling USD 8.7 mln compared to a premium collection of USD 25.5 mln. As a result, the company went from a net profit of USD 1.7 mln in 2018 to a loss of USD 17.3 mln in 2021, but bounced back to a profit of USD 1.4 mln in 2022. The company's revenue declined from USD 34.8 mln in 2021 to USD 10.3 mln in 2022. The company's insurance premium collection improved relatively in 2022. According to the CBA, in January to August 2023, the company's insurance premiums collection (USD 12.9 mln) exceeded claim payments (USD 5.9 mln).

Table 2.13. Key financial indicators of Azersigorta (2018-22), USD mln

	2018	2019	2020	2021	2022
Revenues	30.3	33.5	48.3	34.8	10.3
Net profit	1.7	0.9	1.1	-17.3	1.4
Gross written premiums	25.5	29.2	32.8	31.8	9.7
Dividends and distributions to shareholders	-	-	-	-	-
Profit taxes	0.6	0.2	-	-	-
Total assets	16.0	21	32.1	21.2	10.3
Book value of Equity	8.9	10.4	11	-6.6	-5.2
Total liabilities	7.1	10.6	21	27.9	15.5
Long-term liabilities	6.8	10.6	20.9	26.4	14.2
ROA, %	10.6	4.3	3.4	-81.6	8.9
ROE, %	19.1	8.7	10	-262.1	-32.7

Note: There may be discrepancies between figures reported by the companies and Azerbaijan authorities. The Chamber of Accounts has not published the payment of dividends by the company.

Source: Financial Reports of Azersigorta for 2018-2022, Reports of the Chamber of Accounts.

Corporate governance

Azersigorta was moved under the oversight of AIH in 2021 (Presidential order No. 2907). The President was then authorised to reorganise and liquidate Azersigorta and appoint and dismiss members of the supervisory board and the executive body, in accordance with AIH. In 2022, a supervisory board was established, consisting of three members with a (renewable) term of three years (Presidential decree 3370).29

References

[6] Aliyev, S. (2020), SOCAR: Big Problems at the Largest Company in Azerbaijan, https://bakuresearchinstitute.org/en/socar-big-problems-at-the-largest-company-in-azerbaijan-2/.

[13] ATB (2022), Audit report, https://atb.az/wp-content/uploads/2023/08/audit-report-2022.pdf.

[1] Azerbaijan Investment Holding (2020), The list of state-owned companies to be managed by AIH was approved, https://aih.gov.az/media/news/the-list-of-state-owned-companies-to-be-managed-by-aih-was-approved.

[14] Azersigorta (2023), About us, https://www.azersigorta.az/en/about/about-company/.

[12] Banker (2023), Daşıyıcı şirkətlər avtobuslarda gediş haqlarının dəyişdirilməsi qərarına münasibət bildirib, https://banker.az/dasiyici-sirk%C9%99tl%C9%99r-avtobuslarda-gedis-haqlarinin-d%C9%99yisdirilm%C9%99si-q%C9%99rarina-munasib%C9%99t-bildirib/.

[4] Fitch (2023), Fitch Affirms SOCAR at ’BB+’; Outlook Positive, https://www.fitchratings.com/research/corporate-finance/fitch-affirms-socar-at-bb-outlook-positive-24-10-2023#:~:text=Fitch%20Ratings%20%2D%20Warsaw%20%2D%2024%20Oct,Recovery%20Rating%20is%20%27RR4%27.

[15] Government of Azerbaijan (2022), Hesablama Palatasının Azərbaycan Respublikasının 2022-ci il dövlət büdcəsinin icrası haqqında rəyi, https://sai.gov.az/files/R%C9%99y-2022_final-834655659.pdf.

[8] Government of Azerbaijan (2021), “Azərbaycan Respublikasının 2020-ci il dövlət büdcəsinin icrası haqqında” Azərbaycan Respublikasının Qanun layihəsinə və Azərbaycan Respublikasının 2020-ci il dövlət büdcəsinin icrasına dair illik hesabata, https://sai.gov.az/files/2020-%C4%B0cra-R%C9%99y%20(3)-188749903.pdf.

[3] Government of Azerbaijan (2021), AZƏRBAYCAN RESPUBLİKASI PREZİDENTİNİN FƏRMANI, https://e-qanun.az/framework/46718.

[11] International Bank of Azerbaijan (2023), About us, https://abb-bank.az/en/haqqimizda/missiya-ve-strateji-baxis.

[10] JAM (2023), Government preparing to raise Baku metro fares?, https://jam-news.net/baku-metro-fares/.

[5] Moody’s (2023), Moody’s affirms SOCARs Ba1 CFR upgrades its BCA to ba2, maintains stable outlook, https://www.moodys.com/research/Moodys-affirms-SOCARs-Ba1-CFR-upgrades-its-BCA-to-ba2--PR_480013?cy=tur&lang=tr.

[9] Port of Baku (2023), Limanın inkişafı, https://portofbaku.com/Ourport/PortDevelopment.

[2] SOCAR (2023), Business Units, https://www.socar.az/en/page/business-units.

[7] SOCAR (2022), Financial Reports 2018-2022, https://socar.az/en/page/financial-reports.

Notes

← 1.  Designated for liquidation.

← 2.  Azerikimya PU is a production union, as well as a plant (petchem).

← 3.  1. HAOR; 2. Azerkimya; 3. Polymer 4. STAR; 5. Petkim; 6. Carbamide; 7. Methanol; 8. Gas Processing Plant.

← 4.  SOCAR has 107 total entities. Some joint ventures are not counted in this total because some groups are considered as one entity. For example, SOCAR Türkiye, as a subsidiary of SOCAR, is counted as one entity and its joint venture STAR is not counted separately. There are 16 joint ventures within the total 107 entities.

← 5. https://www.bfb.az/en/news/an-auction-on-placement-of-socar-bonds-was-held-at-baku-stock-exchange.

← 6.  The main objective of the company is the study, research, exploration and management of ferrous and non-ferrous metal ore deposits, as well as extraction, processing and sale of these metals, implementation of new technologies in this field, modernisation and efficient use of material and technical base and execution of other activities related to the development of this industry sector.

← 7.  https://www.bfb.az/en/news/bonds-of-azergold-have-been-listed

← 8.  According to a local news source, AzerGold executives had reported their intention to pay AZN 20.5 mln 2022 to the state budget.

← 9.  Chamber of Accounts on the execution of the state budget for 2020 https://sai.gov.az/files/2020-İcra-Rəy%20(3)-188749903.pdf notes USD 126.58 mln.

← 10.  Pursuant to the Presidential decree No. 383/ 2009 “On the Foundation of Azerbaijan Railways Closed Joint-stock Company”.

← 11.  https://e-qanun.az/framework/30739

← 12. https://www.bfb.az/en/news/the-bonds-of-the-azerbaijan-caspian-shipping-company-were-listed-on-the-baku-stock-exchange-in-the-premium-segment

← 13. https://www.bfb.az/en/news/the-bonds-of-the-azerbaijan-caspian-shipping-company-were-listed-on-the-baku-stock-exchange-in-the-premium-segment-1

← 14.  Twenty-foot equivalent unit.

← 15.  Reference is made to section 1.3.2.

← 16.  Annual passenger numbers: 2018 - 231 mln; 2019 - 236.6 mln; 2020 - 74.7 mln; 2021- 90.2 mln; 2022 - 208.7 mln (reported by the company).

← 17.  Chamber of Accounts and Ministry of Finance note the subsidies for 2021 and 2022 at USD 23.1 mln and USD 30.5 mln.

← 18.  Pursuant to the charter of Tamiz Shahar, its main activities are: (1) disposal, recycling, use, utilisation, neutralisation and burial of household wastes; (2) design and construction of waste storage, utilisation and neutralisation facilities; (3) management, operation and maintenance of assets for waste disposal and neutralisation; and (4) development and reconstruction of waste disposal and neutralisation sites, application of new types of equipment and technologies (article 3.2).

← 19.  Article 2 of the Decree of the President of Republic of Azerbaijan No. 2983 “On improving waste management” (https://e-qanun.az/framework/15230) regulates the type of services "Tamiz Shehar" OJSC is providing to the designated territories of the country.

← 20.  2021 Chamber of Accounts report for state budget execution.

← 21.  See Annex B.

← 22.  Questionnaire completed by AIH, August 2023.

← 23. Consolidated Financial Statements of the ABB for 2018. https://abb-bank.az/storage/uploads/files/1600257880_ifrs-2018-2-eng.pdf

← 24.  See chapter 1.

← 25.  https://www.bfb.az/en/issuer/international-bank-of-azerbaijan?page=2

← 26.  Financial Reports of ABB for 2018-2022.

← 27.  The official spelling is: Azersığorta.

← 28. https://apa.az/finance/maliyye-nazirliyi-ve-aih-azersigortanin-legvi-ile-bagli-birge-melumat-yayib-817467

← 29.  See Annex B.