Russia, Libya seal debt accord, plan arms deals

By Oleg Shchedrov

TRIPOLI, April 17 (Reuters) - Russia agreed on Thursday to write off $4.5 billion worth of Libya's Cold War-era debt in return for military and civilian contracts between the north African country and Russian companies, officials said.

The deal was one of 10 trade, investment and political agreements reached during a visit by Russian President Vladimir Putin, the first by a Kremlin leader to the OPEC member since 1985.

"I am satisfied by the way we have solved the debt problem," Putin told reporters. "I am convinced we found a scheme which will benefit both the Russian and Libyan economies and the Russian and Libyan people."

"The deal will not only employ Russian defence enterprises but will also help strengthen Libya's defences."

Libya, whose oil and gas industries earned it more than $40 billion in 2007, is being wooed by Western companies seeking contracts for involvement in big state infrastructure projects.

Russian Finance Minister Alexei Kudrin said the debt would be cancelled once payments for the new contracts arrived in the bank accounts of Russian companies.

Analysts say the debt was built up during the Cold War, much of it as a result of Soviet arms supplies to Libya.

The largest single commercial deal signed during Putin's trip was a 2.2 billion euro ($3.48 billion) contract for state-controlled Russian Railways to build a stretch of line from the cities of Sirte to Benghazi.

Putin said the railways deal would help Libya solve its infrastructure problems.

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A defence source said that in the next few days the two countries would also sign a contract worth several hundred million dollars under which Russia would modernise some weaponry sold previously to Libya.

Russia's Interfax news agency said on Monday Moscow hoped to sell Tripoli anti-aircraft systems, jet fighters, helicopters and warships worth 2.5 billion euros.

The two countries also signed agreements on investor protection and the handling of confidential information.

Russia, Libya's traditional weapons supplier, is seeking to revive its role as a global power, which diminished after the Soviet Union collapsed.

It is also keen to deepen energy ties with Libya, conscious that western and Asian companies have snapped up the bulk of oil and gas ventures in the country in recent years.

Libya's ties to the West have warmed since it abandoned its weapons of mass destruction programmes in 2003, prompting the removal of most international sanctions.

Russia's trade with Libya is worth about $200 million a year now, a fraction of the $1 billion in the Soviet era, but energy firms are already laying the basis for further expansion.

In the past two years, Tatneft (TATN3.MM) and Gazprom (GAZP.MM) have won permits to explore in Libya, which has Africa's biggest oil reserves. (Writing by William Maclean; editing by Andrew Roche)