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.