Date:06/09/2008 URL: http://www.thehindu.com/2008/09/06/stories/2008090659711800.htm

International

Iraqi Cabinet clears oil deal with China

Atul Aneja

First foreign country to develop an oil field post-invasion

To be paid fee for services
China will not have share in sale of oil

DUBAI: China will become the first country to develop an Iraqi oil field after the American invasion of Iraq.

The Iraqi Cabinet has cleared the $3-billion deal with the state run China National Petroleum Corporation (CNPC).

Iraq’s Oil Minister Hussain Al-Shahristani said the Chinese company would develop the Al-Adab oil field, located 160 km south east of Baghdad.

“The Chinese company will charge six dollars per barrel of production as service fees which would decrease gradually to three dollars,” said Mr. Shahristani. Under the agreement, the Chinese company has been awarded a “service contract” a time-bound arrangement where it would be paid a fee for its services, but would not have any share in the sale of oil that would be extracted.

Mr. Shahristani said the project envisaged a daily oil production of 25,000 barrels. The oil field is likely to take three years to develop and was likely to then yield oil for 20 years. He said the oil produced would be used to run the nearby Zubeidiyah power station, which China is also setting up. The power plant would have an estimated capacity of 1,320 MW.

Analysts point out that the Iraqi government under Prime Minister Nouri Al Maliki has recently adopted a strongly nationalistic position regarding the development of its oil resources.

“Our view is that Iraqi oil should not be shared with anyone. We will pay service fees,” said Mr. Shahristani. He said the contract with the CNPC would help generate greater employment for Iraqis. “We have put in a condition that Iraqi workers should be employed and trained.”

The agreement with CNPC revives an earlier contract signed in 1997, but could not be implemented following the U.S. invasion of Iraq. At the end of June, Iraq’s Oil Ministry opened for bidding by 41 companies, six oilfields and two gas fields. Unlike Production Sharing Agreements (PSA) of previous years, which would have allowed the foreign company a stake in the ownership of oil, the Iraqi government is only offering service contracts.