February 11, 2008 / 12:22 PM / 12 years ago

UPDATE 2-Russia sees Iraq oil deal revived by debt write-off

(Adds LUKOIL comments, updates share price)

By Darya Korsunskaya

MOSCOW, Feb 11 (Reuters) - Russia agreed on Monday to write off most of Iraq’s $12.9 billion debt and signed a separate deal that it said opens up Iraq for $4 billion in investment from Russian companies, including oil major LUKOIL (LKOH.MM).

Finance Minister Alexei Kudrin said Russian firms would invest under a new inter-governmental memorandum that crowns years of attempts by Moscow to revive Saddam Hussein-era deals since the U.S.-led invasion toppled the dictator in 2003.

“We have an agreement from the Iraqi side to pay special attention to the previously signed deals,” Kudrin told reporters after meeting Iraqi Foreign Minister Hoshiyar Zebari.

He named LUKOIL among the top investors. LUKOIL’s stock close 3.6 percent up, outperforming the broader market .MCX, on hopes it would be able to regain its $3.7 billion Saddam-era West Qurna deal to tap one of Iraqi biggest oil deposits.

“There is a government pledge to treat us with maximum care. As to the legal subtleties, they will depend on (Iraqi) legislative changes,” Kudrin said.

Moscow had already forgiven Iraq the bulk of its debt.

In the 1990s, Russia was itself a regular user of funds from global financial institutions but record high global energy prices have helped turn it into the holder of the world’s third largest gold and foreign exchange reserves.

It now says it is keen to help poorer nations and regain its position in the Middle East and other regions, lost after the collapse of the Soviet Union.

The remaining $12.9 billion of Iraqi debt dated back to Soviet-era supplies of military equipment. The final deal on the write off had been delayed after Iraqi officials said last year Moscow’s wanted preferential access to Iraqi oil.

An Iraqi official said those demands included the revival of the West Qurna deal and access to another large deposit, Rumaila, but called these requests unacceptable.

Iraq has said LUKOIL would have to renegotiate the West Qurna contract as it had been signed in 1997 by the previous regime and was also scrapped by the government of Saddam Hussein just before he was toppled.

LUKOIL has insisted the deal remained valid.

“We will now be waiting for permission from the government of Iraq to start working on the field. This memorandum states that the Iraqi government will support our intentions,” LUKOIL’s vice-president Leonid Fedun told Reuters.

“We would now be keen to review some parameters, refresh the contract and as soon as it is done, we will be ready to invest. The memorandum says it could happen within three to five years,” he said.

Analysts had long been sceptical about LUKOIL’s chances of returning to West Qurna, given the heavy U.S. influence over the country’s government.

But in 2004, U.S. oil major ConocoPhillips (COP.N) became a strategic partner in LUKOIL as it took a 20 percent stake and agreed to work together with LUKOIL in Iraq in a move boosting expectations of the deal’s revival.

LUKOIL said the field can produce 600,000 barrels per day within a few years from its launch.

The world’s top oil companies have been manoeuvring to win a stake in oilfields in Iraq despite huge damage to the country’s infrastructure from decades of wars and sanctions.

Kudrin said his ministry agreed to write off $11.1 billion of Iraqi debt immediately, another $900 million in the next few years and restructure another $900 million for 17 years. (Reporting by Darya Korsunskaya, writing by Dmitry Zhdannikov; editing by Anthony Barker)

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