Chinese oil engineers have begun work on developing a major Iraqi oilfield following the signing of a $3 billon contract, a senior Iraqi official said yesterday.

The project, the first major oil development deal secured by a foreign firm in Iraq since the fall of Saddam Hussein in 2003, revives a contract signed in 1997 that granted China exploration rights to the Al Ahdab oilfield.

'The company is there at the site and has already taken the first steps,' said Wasit governor Latiff Hamed Al Tarfa, referring to the engineers from the China National Petroleum Corporation (CNPC).

Al Ahdab's oil production is expected to reach 25,000 barrels per day in the first three years and expand to 115,000 barrels per day in six years, according to CNPC.

The contract, signed in November in Baghdad, allows CNPC and another Chinese company, Zhenhua Oil, to develop the Al Ahdab oilfield in the province of Wasit in central Iraq for 23 years.

Smaller energy deals have been signed in Iraq's northern Kurd region, which has an autonomous government.

'In the last two days, Iraq's minister of oil received the delegation from the Chinese company and discussed the start of the work,' Tarfa said.

After China won the rights in the 1997 deal, then valued at $700 million over 23 years, activities were suspended due to United Nations sanctions and then by security issues following the US-led invasion in 2003.

Output from the field will mostly be exported but some will be used to fuel power generation stations nearby to ease electricity shortages in Iraq.

Baghdad said earlier it had managed to change the previous joint venture contract into a service agreement, under which CNPC would charge a service fee of six dollars a barrel, decreasing eventually to three dollars.

The Al Ahdab oil contract, while now strictly a service deal, will be worth an estimated $3bn to the Chinese and offers them an entry into Iraq's oil reserves ahead of Western majors.

China's demand for oil has increased markedly in recent years, as its economy has grown at double-digit pace and its population of more than 1.3bn people has grown richer.