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Iraq Signs Oil Deal With China Worth Up to $3 Billion

Iraq Signs Oil Deal With China Worth Up to $3 Billion
August 29, 2008

BAGHDAD — In the first major oil deal Iraq has made with a foreign
country since 2003, the Iraqi government and the China National
Petroleum Corporation have signed a contract in Beijing that could be
worth up to $3 billion, Iraqi officials said Thursday.

Under the new contract, which must still be approved by Iraq's
cabinet, the Chinese company will provide technical advisers, oil
workers and equipment to help develop the Ahdab oil field southeast of
Baghdad, according to Assim Jihad, a spokesman for Iraq's Oil
Ministry. If the deal is approved, work could begin on the oil field
within a few months, Mr. Jihad said.

He said that Iraq had agreed to provide security for Chinese workers
and that the Chinese company would also bring its own security team.

The 22-year contract is a renegotiated version of a 1997 agreement
between China and Iraq under Saddam Hussein. The original contract
included production-sharing rights, but under the new contract China
will be paid for its services but will not share in profits.

The oil produced from the Ahdab field will help Iraq, a nation where
electricity is in short supply, fuel a planned power plant that would
be one of the largest in the country.

For China, the deal offers a lucrative foothold in one of the most
oil-rich countries in the world.

"There are some political profits for China," said Ibrahim Bahr
al-Ulum, a former Iraqi oil minister. "They need access to Iraq, and
when they need oil, at least the Iraqi people will feel that China has
done something for them."

Mr. Jihad said that the contract was the first major agreement to be
completed because the Chinese company had "wide experience in this
field" and because many foreign oil companies were not willing to come
to Iraq.

He said that China would be paid in money, not oil, as is the case in
some contracts.

Before 2003, Iraq had oil agreements with China, Russia, Indonesia,
India and Vietnam, three of them production sharing. Iraqi officials
have said that they are reconsidering the terms of these agreements
because of the increased price of oil, a new government and other
changes since the fall of Mr. Hussein's government. Iraq says that the
contract with the Russian oil giant Lukoil for one of Iraq's largest
oil fields was canceled by Mr. Hussein.

The government is also negotiating service contracts with ExxonMobil,
Shell, Total, BP, Chevron and some smaller oil companies. The length
of the agreements was reduced to one year from two after Iraq drew
wide criticism for not putting the contracts out for competitive

The Ahdab oil field represents only a modest fraction of Iraq's oil
wealth — the field is expected to produce 90,000 barrels of oil a day.
Iraq's overall oil production is 2.5 million barrels a day, but the
government wants to increase that to 4.5 million a day over the next
five years. Mr. Ulum said that the size of the renegotiated deal with
China — the previous contract was worth just under $700,000 — could
influence the financial terms of future contracts.

Ali al-Dabbagh, the spokesman for the Iraqi government, confirmed that
the value of the contract could reach $3 billion. The United States
Embassy in Baghdad had no immediate comment on the oil deal.

In Baghdad on Thursday, Iraqi officials identified a man arrested at
the airport by American forces. They said the man, who was arrested as
he stepped off a plane from Lebanon on Wednesday, was Ali Faisal
al-Lami, a senior Shiite Iraqi government official who works for the
de-Baathification council headed by Ahmad Chalabi, the former Bush
administration ally. The council is charged with keeping high-ranking
members of the Baath party who were loyal to Saddam Hussein's regime
out of government positions.

American military officials released a statement on Wednesday that did
not identify the man, but it said that they believed he was tied to
so-called special groups, a term used by the military to describe
militias backed and trained by Iran. The statement also said he was
thought to be responsible for a June 24 bombing of a district council
meeting in Sadr City, which killed six Iraqis, two Americans employed
by the State Department and two American soldiers.

On Thursday, Mr. Chalabi said in a statement, "We condemn firmly this
action against one of the high officials of the council."

Suadad al-Salhy contributed reporting.

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