Libya scents success over Lockerbie prisoner

* Libyans say possible transfer a vindication for Gaddafi

* Commentators see link to Western business interests

* Libyan prisoner "made sacrifice" for his country

By Ali Shuaib and Saleh Sarrar

TRIPOLI, April 29 (Reuters) - The prospect of Britain repatriating the Libyan it jailed for blowing up a U.S. airliner is seen in Tripoli as a success for leader Muammar Gaddafi's drive to end his country's international isolation.

Britain and Libya signed a prisoner transfer agreement on Wednesday, removing a legal obstacle for Abdel Basset al-Megrahi, convicted of murder for the 1988 bombing over the Scottish town of Lockerbie, to be sent back to his homeland.

His transfer to Libya has not been agreed, but if he is sent back it would be the latest milestone in Gaddafi's transition from international pariah once accused by the United States of building banned weapons to normalising relations with the West.

Some commentators in Libya believe though there could be a price to pay for al-Megrahi's return: awarding lucrative contracts to Western companies which want to develop the North African country's oil and gas reserves.

"It is only natural that Great Britain has begun talking about releasing ... al-Megrahi because of Gaddafi's wisdom and influence on the world stage," said Faiza Essaouie, an employee at the government-run National Youth Council.

Pan Am flight 103 from London to New York blew up over Lockerbie on Dec. 21, 1988, killing all 259 people on board and 11 Lockerbie residents. London and Washington accused Libya of involvement and the United Nations imposed sanctions on Tripoli.

After more than a decade of wrangling, al-Megrahi and a second suspect went on trial under Scottish law. Four years later Libya accepted responsibility and agreed to pay about $2.7 billion in compensation to the victims' families.

That helped clear the way for the lifting of sanctions and the restoration of Libya's ties with Western states.

"HUGE SACRIFICE"

The Libyan tried alongside al-Megrahi for the Lockerbie bombing was acquitted. Now suffering from prostate cancer, al-Megrahi launched a second appeal against his conviction this week in a Scottish court.

To many Libyans, he is an innocent man who gave up his freedom to help Gaddafi bring the country out of its isolation.

"He made a huge sacrifice to lift the embargo and sanctions which were imposed on all of us as Libyans," said Nouara Glissa, a sociology professor at Tripoli's al Fateh University.

Since sanctions ended, energy companies including ExxonMobil (XOM.N), Chevron (CVX.N) and BP (BP.L) have been active in Libya while Britain signed a 2007 deal with Tripoli to sell missiles and air defence systems.

Some in Libya believe those interests are now tied up with al-Megrahi's case.

"The main reason Britain appears to be in a hurry to release al-Megrahi is Britain's investment opportunities in Libya, especially in a time of deep (economic) crisis," said Abderrahmane Shatter, a writer and journalist.

"If Abdel Basset is released, it is the cash that worked, not the judicial system," said Mansour Omar Chetioui, also a writer and journalist. "Cash is the undeniable God of the British and the West."

But he voiced doubts about the speed with which the country has opened up again to the West -- a sentiment some analysts say is reflected in certain sections of Gaddafi's entourage.

"I am scared to death that Libya is becoming weaker, especially now that the two dens of sin, the British and American embassies, are back," he said. (Writing by Christian Lowe and Lamine Ghanmi; Editing by Charles Dick)