UPDATE 2-Iraq's Kurds sign oil deals with S.Korea firms

(Recasts, adds details)

By Miyoung Kim

SEOUL, June 25 (Reuters) - Iraq's Kurdish region has signed two production sharing deals with a South Korean consortium, the second such announcement in as many days despite complaints from the central government that deems the contracts illegal.

Oil deals have caused tensions between the largely autonomous Kurdish region of northern Iraq and central government. The Kurdish regional government (KRG) has shrugged off Baghdad's objections and says the constitution permits it to sign deals with international oil companies.

Disputes between the Kurds and Baghdad have held up a national oil law that aims to bring much-needed investment to Iraq's energy sector. Iraq holds the world's third-largest oil reserves, mostly found in the north near the Kurdish region and the south around Basra.

The contracts with the South Korean consortium, headed by state-owned Korea National Oil Corp, sealed a memorandum of understanding agreed in February, the KRG said on its website on Wednesday.

Aside from the two new production sharing agreements (PSAs), the consortium will take smaller stakes in six other blocks that will give it access to an estimated 1.9 billion barrels of oil, KNOC said on Wednesday. The eight blocks hold oil reserves of 7.2 billion barrels.

In return for the oil, KNOC has agreed to invest in a massive five-year infrastructure programme worth as much as $10.8 billion to be undertaken by South Korean companies in the Kurdish region, South Korea's Ssangyong Engineering & Construction (012650.KQ) said in a statement. The first phase of the programme is worth around $2.1 billion.

Ssangyong is one of the group of companies that will build the power plants and distribution networks, water purification, highways and schools. Others in the consortium include Hyundai Engineering Engineering & Construction (000720.KS), Kolon Construction (003070.KS) and Doosan Construction (011160.KS).

Iraq needs billions of dollars to modernise its oil industry and raise output after decades of sanctions and war. South Korea, the world's 10th largest energy consumer, wants to secure stable energy supplies as it imports 96 percent of its oil.

Baghdad halted oil exports to Korea's SK Energy (096770.KS) in January in response to SK signing a deal with the Kurdish region.

"Kurdish prime minister Nechirvan Barzani plans to explain to the central government the contributions that Korean firms are making... and he does not expect any negative response to the deal, given their improving relations," KNOC said in a statement on Wednesday.

Barzani was in Baghdad this week to discuss the oil law with the central government.

On Tuesday, the KRG announced it had signed oil contracts with Canada's Talisman Energy (TLM.TO).

The Kurdish region aims to raise output to 1 million bpd in around five years but little exploration has been carried out in the region.

ASIA'S ENERGY HUNT

Resource-hungry South Korea aims to boost the state reserve that is to be used in the event of oil shocks and produce 18 percent of its own oil needs by 2013.

Currently Asia's fourth-largest oil user only pumps about 4 percent of its 2.2 million barrels per day of demand.

Its latest efforts to raise its reserves, however, hit a snag, as a gas consortium working on a Myanmar project agreed last week to sell natural gas to China National Petroleum Corp.

The gas consortium, which includes state-run Korea Gas Corp (036460.KS), had to give up exporting natural gas to South Korea due to Myanmar's preference for transportation through pipelines.

South Korea is a relative latecomer to the Asian rush for overseas energy purchases, with the state flagships of China, India and even Japan making significant inroads this decade with major deals from central Asia to Africa to South America.

It has 16.8 billion barrels of oil equivalent reserves and participates in 123 oil and gas projects.

DETAILS OF DEALS

-KNOC consortium takes 60 percent interest in PSA in Sangaw South block, KRG holds remainder.

-Consortium takes 80 percent interest in PSA in Qush Tappa block, KRG remainder.

-Consortium takes 15 percent interest in PSA comprising four blocks containing two discoveries (including Hawler block).

-Consortium takes 20 percent interest in PSA at Sangaw North block.

-Consortium takes a further 20 percent increase in PSA at Bazian block, in which it already had a stake.

(Additional reporting by Simon Webb in Dubai; editing by Jonathan Hopfner)