Azerbaijanis study state's permanent fund

Pipeline for Caspian crude oil will bring riches that need to be looked after

Posted: Tuesday, July 12, 2005

A decade ago, post-Soviet Azerbaijan languished as it struggled with its new market economy and looked for ways to bypass Moscow and ship its oil directly to the West.

Today, foreign investment has picked up and Caspian Sea crude crosses the small country of 8 million through a pipeline to the Black Sea. By the end of the year, 1 million barrels a day are expected to flow through a new 1,100-mile pipeline from Azerbaijan, through Georgia and Turkey to the Mediterranean Sea.

That's left Azerbaijani leaders with a much different problem - how to handle the oil riches they expect to reap in the not-too-distant future.

A delegation from Azerbaijan's State Oil Fund was in Juneau Monday to see how the Alaska Permanent Fund works and to glean ideas for investing and managing their own growing oil account.

The Alaska fund was estimated to be worth $30.8 billion at the end of June, while Azerbaijan's four-year-old fund stands at about $2 billion.

Samir Sharifov, executive director of the State Oil Fund, figures that will change quickly with the completion of the 1,100-mile pipeline that stretches from the Azerbaijan capital of Baku and goes through Georgia to the Turkish port of Ceyhan. He estimates the United States-backed pipeline will generate a flood of oil revenue and the fund will be worth between $130 billion and $200 billion in 20 years.

"It unlocks the energy potential of the Caspian Sea," he said.

The United States figures to benefit by having a direct link to the Caspian crude oil and less dependence on Russian oil. The delegation's trip to Juneau was part of a U.S. Trade and Development Agency grant.

Sharifov and his team met all day with Alaska Permanent Fund Corp. chief executive Mike Burns and his team to find out about the permanent fund's structure, its relationship with state government and how its investments are managed.

Sharifov said while his country's fund is also set up as a separate legal entity, not everything is clear in the relationship between the state and the fund, and debate continues on how the money will be used.

The fund so far has been used to pay for a refugee resettlement program and pipeline construction, Sharifov said.

Burns told Sharifov he saw many similarities between the two funds in their transparency and management and encouraged him to stay the course.

Burns touted two recent changes to the Alaska Permanent Fund: stronger autonomy for its trustees and greater flexibility to choose how to invest the fund's assets. He also pitched the percent of market value plan, a plan that failed to pass the state Legislature two sessions ago.

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