"The refinery will initially produce 20,000 barrels per day and production will reach 40,000 barrels per day" at the end of the year, said Baz Karim, the head of Kar.

The company wants eventually to increase daily output to 75,000 barrels of oil, Karim added.

The plant, south of Arbil, will process oil from the Khurmala field, where a new well has begun production, Karim said. According to him, the well will initially provide 50,000 barrels of oil per day before rising to 100,000 barrels after six months.

Oil reserves at Khurmala form part of the giant Kirkuk oil field, along with two other major reservations, Baba and Avana. Kirkuk is at the centre of a territorial dispute between the Iraqi government and Kurdish authorities over the exploitation of its energy reserves.