Significant changes to the Governing Structure of the State Oil Company of the Azerbaijan Republic (SOCAR)



On 8 May 2021 the President of Azerbaijan issued a decree introducing significant amendments to the Charter of SOCAR, the main constituent document of the company. This decree follows a previous Presidential Decree dated 23 January 2021, which, inter alia, established the Supervisory Board of SOCAR. The principal changes are summarized below.

Corporate Governance

The newly-adopted Charter amendments have made dramatic changes to the governance structure of SOCAR.  For the first time in its modern history, SOCAR has established several distinct governing bodies, with clearly distinguished roles and authorities. They are the General Assembly, the supreme governing body; the Supervisory Board, the supervisory governing body, and the Management Board, the executive governance body.

The introduction of the General Assembly, the Supervisory Board, and a collegial Management Board appears to be an attempt to bring SOCAR into compliance with best corporate governance practices and to create an effective system of checks and balances in the management of the company.

General Assembly

The authorities of the General Assembly are divided between the President of the Republic of Azerbaijan and Azerbaijan Investment Holding (AIH). (The latter is the state-owned holding entity to which SOCAR (among other state- owned entities) has been subordinate since November 2020.)

Such powers as approval of the reorganization or liquidation of the company and the appointment and/or dismissal of the members of the Supervisory Board and the Management Board have been assigned to the President, while the remaining authorities lie with AIH, to be exercised in consultation with the President.

Supervisory Board

The Supervisory Board is to carry out general management and supervision over the company's activity.  It will consist of seven (7) non-executive directors (i.e., members of the Management Board may not be appointed as members of the Supervisory Board), who will be appointed and/or dismissed by the President of the country.

The SOCAR Charter now includes a long list of the duties and authorities of the Supervisory Board, including (among other matters) approval of the long-term strategy of the company, consenting to the transfer into management and/or privatization of SOCAR’s assets, approval of the procurement strategy and internal normative documents of the Company, the conduct of procurement using state funds (state budget, loans and grants obtained by the state or state guarantees), the creation of centralized reserves, the approval of related party transactions with a value of less than five (5) percent of the company’s assets and making recommendations to the General Assembly on various matters.

Management Board

The Management Board of SOCAR, which will be charged with managing the day-to-day activities of the company, consists of fourteen (14) members appointed and dismissed by the President of Azerbaijan, including the President of the company, the First Vice President, vice-presidents in charge of various areas of SOCAR’s activities, as well as other vice-presidents.

The Law is stated as of 8 May 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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