Russia cancels Libyan debt, eyes arms deals

Russia scrapped billions of dollars in Libyan debt dating back to the Soviet era in exchange for business contracts during Russian President Vladimir Putin's visit to Tripoli on Thursday.


Russia agreed to cancel $4.5 billion of Libyan debt on Thursday, unlocking big military and civilian export orders in the face of fierce Western competition for the former outcast state's booming market.

The deal was one of 10 accords reached on a visit by Russian President Vladimir Putin that saw Libyan leader Muammar Gaddafi give equal emphasis to political ties, hailing his visitor as "our great guest" in an unusually effusive speech of welcome.

Gaddafi, keen to balance growing ties with the West with alternative sources of support such as Moscow, said the world needed a Russian "superpower" to counter a dominant force -- a thinly veiled reference to Washington -- that was fuelling a new arms race.

"It's said the Cold War is over, but I say that unfortunately the Cold War continues," the official Jana news agency quoted Gaddafi as saying on Wednesday evening.

"The arms race has begun once again due to the international imbalance," he said at a dinner for Putin, who was making the first visit by a Kremlin leader to the OPEC member since 1985.

The Russian agreements on debt, energy, railways and investment mark a renewed effort by Moscow to grab a slice of a growing market aggressively courted by Western companies seeking contracts for big state infrastructure projects.

Libya, owner of Africa's largest oil reserves, earned more than $40 billion from oil and gas in 2007 and is seeking to rebuild an economy run down by decades of sanctions.

The largest commercial deal was a 2.2 billion euro ($3.48 billion) contract for Russian state railways, with payment tied to the debt deal. Russian Finance Minister Alexei Kudrin said the debt would be cancelled once payments for the railway deal and other contracts arrived in Russian companies' bank accounts.

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

"I am satisfied by the way we have solved the debt problem," Putin told reporters. "The deal will not only employ Russian
defence enterprises but will also help strengthen Libya's defences."


A defence source said in the next few days the countries would sign a contract worth several hundred million dollars for Russia to 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. Russia, Libya's traditional weapons supplier, is seeking to revive its role as a global power, which diminished after the Soviet Union collapsed.

In another deal, Russian gas monopoly Gazprom and Libya's state energy conglomerate National Oil Corporation (NOC) signed a memorandum of cooperation on Thursday, officials said. Details were not announced.

Libya's ties to the West have warmed since it abandoned its weapons of mass destruction programmes in 2003. But Gaddafi has long complained that Libya has been inadequately rewarded.

Gaddafi, a fierce critic of what he depicts as U.S. unilateralism, suggested a parallel between Libya's effort to gain international acceptance since 2003 and Moscow's abandonment of some of the policies of the former Soviet Union.

"As much as Moscow offered to serve world peace, renouncing past Soviet policies, it was rewarded negatively. It was provoked, harassed and the world is dominated by one party...and so we end up the victim."

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