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Iraq and China have agreed the terms of a $3 billion oil service contract, Iraq's oil minister says, announcing the first major oil contract with a foreign firm since the fall of Saddam Hussein.

The deal means China has taken the first opening since the US-led invasion for work on the world's third-largest reserves.

Hussain al-Shahristani, Iraq's oil minister, warned that time was running out for big Western oil firms, which have jostled for years for Iraqi contracts, to seal even the short-term deals that were expected to mark their return to the country.

Iraq and China's state-oil firm CNPC agreed the renegotiated terms of an old deal signed in 1997 to pump oil from the Adhab oilfield, Shahristani said.

CNPC is Asia's biggest oil and gas company.

"Finally we have reached an agreement," Shahristani said after clinching the deal.

Iraq has toughened the terms, changing the contract to a set-fee service deal from the oil production sharing agreement signed under Saddam.

Iraq needs billions of dollars of investment in its energy sector after years of war and sanctions.

But with high oil prices and strong competition for access to some of the world's
cheapest oil to produce, Iraq has been negotiating from a position of strength.

Under the revised contract, Adhab will produce 110,000 barrels per day (bpd), up from the previous target of 90,000 bpd, Shahristani said.

First output would come in three years, and the field should pump for 20 years, he said.

CNPC would own 75 per cent of a joint venture to be set up for the contract, while Iraq's Northern Oil Company would own 25 per cent, he added. The value of the contract would be reviewed every quarter, he said.

The deal was pending the final seal from both countries' governments.

China's state hydroelectricity firm also signed a deal to build a new hydroelectric power station in Tajikistan on Wednesday worth up to $300 million officials said.

"The Chinese company undertakes to carry out the design and construction of the Nurobod" power station in eastern Tajikistan, read a memorandum of understanding signed by Sinohydro and the Tajik government.

The deal was signed on the sidelines of a visit by Hu Jintao, the Chinese president, aimed at bolstering economic ties between the two neighbours.

The trade turnover between China and Tajikistan amounted to $283 million last year.

China is already a major player in Tajikistan's road infrastructure, telecoms and electricity sectors.

Iraq wanted six contracts to boost oil output by 100,000 bpd each to be signed in June and implemented within a year.

Baghdad does not want to extend the end-date for the contracts as it plans to sign long-term deals for the same fields by mid-2009.

"We only have about 10 months left," he said. "It seems more and more unlikely that these technical service contracts can be implemented now in such a short remaining time."

The firms that have been negotiating deals are Royal Dutch Shell; Shell in partnership with BHP Billiton; Exxon Mobil; Chevron with Total.

A smaller consortium of Anadarko, Vitol and Dome had negotiated for another deal but Anadarko walked away this month.

Iraq still aimed to boost output by 500,000 bpd by the mid-2009, Shahristani said.

Iraq pumped around 2.4 million bpd in July, according to a Reuters survey.

A long-delayed draft oil law to set the framework for foreign investment was unlikely to be approved in parliament in the near-future, Shahristani said.

"Different parliamentary blocs still have serious differences about the law," he said. "I have not heard anything new from the parliament to make me expect that the law will be passed any time soon."

But Iraq was going ahead with new deals anyway under existing legislation, he said.

Disputes with the regional government in Kurdistan have hobbled the progress of the law.

There had been no progress in resolving differences between Baghdad and the Kurdish regional government, Shahristani said.

Source: Al Jazeera