Swiss newspaper: SOCAR Trading is a model of private investment culture

​An interview with the executive director of SOCAR Trading Arzu Azimov was published in the L'AGEFI daily newspaper

Baku. 12 January. REPORT.AZ/ An interview with the executive director of SOCAR Trading Arzu Azimov was published in the "L'Agefi" Swiss daily newspaper. In his interview he answered the questions about the history of the company, the stages of development, as well as the overall energy situation in the world today. Report presents the original version of the interview:

SOCAR Trading company. The trading company, which belongs to Azerbaijan state, is strengthening its activity in world arena

SOCAR Trading, which was established in 2008 in Geneva and realizes 75% of sale of Azerbaijan oil (20 million barrels per month), as well as gas and LNG (liquid natural gas), continues expanding the trade of these products.

Big countries are closely pursuing the geopolitical role of this country, located in the Caucasus. Due to the fact that Azerbaijan has no direct access to open sea, the country put out to the world's energy markets through the Baku-Tbilisi-Ceyhan pipeline. Azerbaijani crude oil under the brand of Azeri Light with low content of sulfur is one of the most expensive brands of crude oil in Europe and the demand for this oil is high. SOCAR Trading has offices in Singapore, Dubai, London, Monaco and Istanbul. Headquarter of the company in Geneva has 120 employees from160 employees in10 subsidiaries worldwide and is the most important branch of the company. CEO of SOCAR Trading Arzu Azimov joined the SOCAR(State Oil Company of Azerbaijan Republic) in 1994 (the company established after the collapse of the USSR in 1992) at a time when the company was still developing its importing and exporting structure. A.Azimov shares with the newspaper “L'Agefi” his opinion on the company, which is due to its structure is the state-owned, but its activity is not differ from a private enterprise at all. Thanks to the wide diplomatic activity of the parent company, SOCAR Trading has entered into new agreements with international companies and also is preparing various infrastructure projects in South Asia, Africa and the Far East. Authority of the SOCAR Trading office headquartered in Geneva is based on a broad and strong international activity of the parent company – SOCAR.

Azerbaijani state is the sole shareholder of the company SOCAR Trading only since 2012. Why did you choose mixed public-private ownership?

In 2006,SOCAR already had begun negotiations with several trading companies to establish its trading subsidiary. Due to the fact that the project was still at an early stage, SOCAR was trying to cooperate with experienced companies with wide financial opportunities. However, the negotiations ended with no results, because traders refused to give the management of the joint company, as well as a half of the profit to SOCAR. During the same period, Valery Golovushkin from the Lukoil approached Azerbaijani entrepreneur Anar Alizade with a view to submitting a proposal to SOCAR. Two famous enterpreneurs agreed to SOCAR’s shareholder structure and SOCAR Trading SA was established in 2007 in Switzerland. The joint company agreement specified that after five years SOCAR would hold the pre-emption rights to buy back all the shares in SOCAR Trading.

Why did you select Switzerland in 2008?

We selected Switzerland due to being one of the global marketplaces for oil trading. Moreover, the referred structure was discussed and agreed with Switzerland authorities upon obtaining the relevant tax rulings for SOCAR Trading.

Do the discussion of the tax system of the canton of Geneva and its rules, as well especially the status of the mediator between the trading companies impact on the SOCAR Trading?

Eventually, after considering various options for setting up the holding structure, each of the outside counsels submitted reports proposing incorporation of the holding company with its subsidiary company established in Geneva. Of course, if it the otherwise occurred, Geneva would have been unable to attract foreign companies to it and we would have not selected this city for establishment. In Singapore, tax rates is less than 5%. In Dubai companies are free from taxes. London also offers favorable tax conditions. Geneva authorities must take into account sufficient activity of such international trading company as SOCAR Trading.

SOCAR Trading was established in the year of crisis – in 2008. How could you find financial resources?

The financing for the company was to be provided by the three shareholders. However, in reality SOCAR found it difficult to raise money. In 2008 during the global financial crisis, banks were hesitant to supply credit lines – especially to an early post-Soviet state-run company. As a result, much of the financing came from A.Alizade and V.Golovushkin who were able to use their reputation and experience to obtain credit lines that SOCAR Trading would not have been able to secure otherwise. Moreover, V.Golovushkin was a highly qualified executive professional well-known in the industry. Mr. Golovushkin founded Litasco, a trading house of Lukoil based in Geneva, which was a successful project and very similar to what SOCAR was aiming to create at that time. Both private shareholders assisted in building confidence amongst the market participants and bankers that the Azerbaijani origin trading company had a good future. Additional to his share capital contribution, A.Alizade lent additional funding later in difficult periods for SOCAR Trading.

Three years later SOCAR Trading already was able to strengthen its position in SOCAR...

In 2012, at the end of the five-year period, SOCAR signed the share purchase agreements to buy back all the shares of SOCAR Trading. As A.Alizade stepped down from his position on the board of directors, while V.Golovushkin remained as CEO and Chairman of the Board until end of 2013. After retiring from his position as CEO at the end of 2013, Mr. Golovushkin remained as a Chairman of the Board of Directors before stepping down recently. He is still a member of the Board. SOCAR, observing the rules and culture of private investment, was able to buy all the shares of private shareholders. Now we can enjoy the benefits of both state-owned and private entrepreneurs. When we conduct our business, we act very delicate to exclude all the points that could adversely affect the diplomatic relations of our government and its authority. Political risk for us is a very significant risk.

How much is currently evaluating SOCAR Trading?

According to the results of an independent estimation conducted by the international audit firms (Big 4), on June 30, 2012 capital SOCAR Trading made 350 million USD, and on December 31, 2013 the capital increased to 425 million USD. Calculations of such organizations as the Boston Consulting Group and Wood Mackenzie show that, the establishment of SOCAR Trading has given additional profit of 1.7- 1.8 billion USD to Azerbaijan from sale of crude oil in period during 2008- 2013.

Year of 2015 has been declared as the peak of oil production in Azerbaijan. Is it a priority for SOCAR Trading, to establish business contacts with other partners afterwards?

At the first stage, our main objective was to provide sale of oil and oil products of SOCAR, we were the subsidiary for sale of the parent company, and we now also continue this activity. One more objective added to our essential target in trading after this: to emanate trade operations in the market from our angle of vision. Today turnover with third party contractors is 50% of our sales and projects. In fact, this is a crucial stage of our independence as a company. At the same time, due to the fact over the past 10years, the market has become more open, and only sales are no longer attractive now. Producers are finding the consumer directly. Afterwards our additional return will base on exploration and production projects as well as projects related to infrastructure of the production. We develop our activity targeted to the consumer directly. In order to compete in the trademarket, it is necessary to prepare and develop a new program of globalization and extension of trade operations. SOCAR Trading is able today to prevent such problems, that many other companies have failed in. Our traders mainly develop market of the LNG (liquid natural gas), as well as gas and electricity.

About nearly 10 years, neighboring Iran has suffered from international sanctions prohibiting the country to export oil products. Do you expect a cancellation of the sanctions in the near future?

The sanctions were applied to Iran due to certain reasons. If the sanctions were cancelled, we could restore our business relationship with our friendly neighboring country. Personally, I would be very happy for this. Isolation of one country does not lead to anything good at all. Currently, Russia is in the same position. Azerbaijan is the nearest neighbor of Iran and has an attractive geopolitical location and when sanctions to be cancelled we desire to be at the forefront of the partnership with this country. I don’t think we will stay neutral.

What do you think about the current drop in oil prices?
If the oil traders decided to decrease the prices, then it's too difficult to reverse this trend. I hope that the price of crude oil is not too low, as it shown by some experts in their analysis. The market is always able to respond to political events in the world and to give any accurate forecast on this subject is difficult.

According to estimations of OPEC, beginning from this year up to 2040 production of energy in the world will increase by 60%. To compensate the increase in gas prices and although in the recovered resources, it will be necessary to decrease oil prices. Do you agree with these forecasts?

Due to the oil prices were very high, development of recovered resources has been supported. If we may glance on the current prices, I don’t believe that this sector will need direct government subsidies in future. Gas pollutes the environment relatively less than other resources. Now SOCAR Trading is preparing various projects concerning to exploration of new gas fields, as well as participating in several infrastructure projects on development of gas and electricity.

Note:SOCAR in figures:

In 1992, following the restoration of independence of Republic of Azerbaijan, the State Oil Company of the Azerbaijan Republic (SOCAR) was established. Upon the audit conducted by the "Ernst &Young Holding" in 2013, SOCAR is in the list of 50 foreign companies, annual turnover of which is equal to 1.2 billion USD. The company, which based in the Republic of Azerbaijan, was established on September 13, 1992 in accordance with the Decree of the President of Azerbaijan, corresponding to the legislation of the Republic of Azerbaijan.

(SOCAR) is involved in exploration of oil and gas fields, producing, processing, and transporting oil, gas, and gas condensate, marketing petroleum and petrochemical products in domestic and international markets.

SOCAR is 100% state-owned by the Republic of Azerbaijan. SOCAR has representative offices in Georgia, Turkey, Romania, Austria, Switzerland, Kazakhstan, Great Britain, Iran, Germany and Ukraine and trading companies in Switzerland, Singapore, Vietnam, Nigeria, and other countries. Currently, SOCAR cooperates with many foreign companies that conduct their activities in a various industries. Companies such as BP, Exxon, Statoil, Total, Chevron, Itochu and Lukoil are involved in the development of the resources of the Caspian Sea. SOCAR plays a crucial role in all national and international projects related to pipeline TANAP (Trans-Anatolian Natural Gas Pipeline). Main objective of the company is to ensure energy security of the Republic of Azerbaijan, the reserves of gas fields which were estimated equal to 3-5 trillion cubic meters. (L'Agefi)

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