Iraq and China Sign $3 Billion Oil Contract

By Amit R. Paley
Washington Post Foreign Service
Friday, August 29, 2008

BAGHDAD, Aug. 28 -- Iraq and China signed a $3 billion deal this week to develop a large Iraqi oil field, the first major commercial oil contract here with a foreign company since the 2003 U.S.-led invasion.

The 20-year agreement calls for the state-owned China National Petroleum Corp. to begin producing 25,000 barrels of oil a day and gradually increase the output to 125,000 a day, said Asim Jihad, a spokesman for the Iraqi Oil Ministry.

The contract revamps a deal the Chinese company had reached with Saddam Hussein in 1997 to develop the Ahdab oil field in Wasit province, south of Baghdad near the border with Iran. Unlike that deal, which called for China to share in the revenue, the current contract is based on a fixed-fee structure.

Western oil companies came close this summer to reaching agreements with the ministry to return to Iraq. Those smaller technical service contracts involved giving advice on how to boost production. The China deal is a service contract, which is more lucrative and involves large-scale development of the field.

Jihad said the technical service contracts, which were to be finalized June 30, have been delayed as negotiations continue with the Western concerns, including Shell, BP and Exxon Mobil. Most of the major oil contracts are to be awarded in the next 1 1/2 years through a process involving 35 companies identified by the Oil Ministry, he said.

Jihad said Iraqi officials hope the deal with China "will refute all the rumors that say the American companies are the only ones benefiting from the American occupation."

The contract also requires China to build a major electrical station in the area to help boost Iraq's overworked power grid.

The deal requires the approval of the Iraqi cabinet, which the Oil Ministry expects as early as next week.

Also Thursday, Ahmed Chalabi, the former Iraqi exile who sought to convince U.S. officials that Hussein's government had weapons of mass destruction, said a close associate of his had been detained by the U.S.-led coalition.

Chalabi, head of Iraq's de-Baathification commission, which is responsible for purging members of Hussein's Baath Party from the government, said the agency's executive director, Ali Faisal al-Lami, was detained at Baghdad International Airport after returning with his family from Lebanon.

"This action shows that every Iraqi faces arrest and detention without any reason," Chalabi said in a statement. "We demand that Mr. Ali be freed immediately."

Sgt. Susan James, a U.S. military spokeswoman, said a man was detained at the airport Wednesday for "working within the highest echelons of the special groups," a term the military uses to refer to Iranian-backed militia cells.

James said the detainee, whom the military declined to name, was involved in multiple bombings, including a June attack in Sadr City that killed four Americans and six Iraqis.

Meanwhile, anti-American cleric Moqtada al-Sadr indefinitely extended a cease-fire order for his Mahdi Army militia. The suspension of the group's fighting, first announced almost exactly a year ago, has been credited as a major reason for the sharp decline in violence in Iraq.

"The freeze of the Mahdi Army will continue for an open-ended time," Sadr said in a statement. "And anyone who breaks this freeze should not consider himself part of the ideological movement."

Special correspondent Saad Sarhan in Najaf contributed to this report.

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