Megrahi release puts Anglo-Libya ties back on track

RABAT (Reuters) - The release of convicted Lockerbie bomber Abdel Basset al-Megrahi from a Scottish jail removes the sharpest thorn in Britain's relations with Libya and boosts the prospects for British companies there.

Yet a rush of deals is unlikely as the north African country's murky business environment and creaking bureaucracy make it an uphill struggle for all foreign firms, analysts say.

Libya is emerging from isolation after it scrapped a banned weapons program and paid compensation for the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland, which killed 270 people dead.

Deals struck last year with the United States and Italy heralded an end to decades of acrimony between Libya and its one-time arch foe and its former colonial power.

Foreign energy firms have won the right to explore for rich seams of oil and gas and others are busy lobbying for lucrative contracts to build roads, schools, hospitals and ports.

Political patronage can make the difference between success and failure and Western leaders have been beating a path to Tripoli to lobby for business.

Former British Prime Minister Tony Blair was among the first, helping BP and Shell win exploration acreage in a country home to Africa's biggest proven oil reserves, and his successor Gordon Brown has continued the charm offensive.

Analysts said the continued imprisonment of Megrahi, who has terminal cancer, was stopping British firms benefiting fully from those efforts.

"Contracts were signed but were either not implemented or implemented very slowly," said Saad Djebbar, deputy director of Cambridge University's Center for North African Studies. "This release will have serious repercussions on Libyan-British relations."

HUGE PRIZE

Libya's energy industries earned more than $40 billion in 2007 and the government aims to nearly double oil output capacity to 3 million barrels per day by 2012.

The potential profits are huge, but foreign Libya experts say it can be hard to know if contracts are going to plan because foreign companies are loath to complain of problems if doing so would put them at a disadvantage.

"After the initial euphoria because sanctions were removed... activity has been much slower than people thought," said Manouchehr Takin of the Center for Global Energy Studies.

BP, which is investing at least $900 million in Libya, played down weekend newspaper reports that Megrahi's release would unblock stalled projects, saying there were no delays to its work in Libya.

Yet analysts within Libya say British firms already present there could have an easier time.

British defense contractors may see dividends. The UK is already supplying missiles and air defense systems to Tripoli under a 2007 deal.

"A lot of progress has already been made and British companies are operating here now, even outside oil and gas," said Tripoli-based political analyst and professor Mustafa Fetouri. "I'm not sure (Megrahi's release) will give UK firms a certain priority but I'm sure there would be a positive effect."

Any improved access to Libyan resources would be good news for Britain as it seeks to diversify sources of energy as its own North sea oil and gas supplies dry up.

Europe's heavy dependence on Russian oil and gas was exposed early this year when a diplomatic spat between Moscow and Ukraine cut of supplies to parts of eastern Europe.

"This has increased Libya's bargaining power with Britain et al as an alternative to Russia," said Meir Javedanfar, a Tel Aviv-based consultant.

OUTRAGE

Megrahi was the only person to be convicted for the Lockerbie bombing. He lost a 2002 appeal against his conviction.

Some relatives of the victims, especially in the United States, have voiced outrage at the prospect of a man they view as a mass murderer being freed to return home. They see it as an example of cold business interests prevailing over justice.

Analysts said the decision to release Megrahi is about more than money, or compassion.

Before allowing him to go free, Scottish justice officials agreed to his request to scrap a second appeal.

With the appeal dropped, doubts surrounding his conviction are less likely to be examined.

"Were Megrahi to appeal and the conviction be overturned, this could be very problematic," said Geoff Porter of Eurasia Group. "It raises the question of who in fact carried out the bombing and it also raises the question of what to do with the indemnities Libya paid."

Last October Libya paid $1.5 billion into a fund to settle long-standing cases of American victims of terrorism blamed on Tripoli.

(Additional reporting by Barbara Lewis and Tom Bergin in London; Editing by Matthew Jones)