DURING the past year a small ship bristling with computers and seismic equipment has been crisscrossing the Gulf of Sidra, in the Mediterranean off the Libyan coast. Its mission: to help to find BP’s next offshore oilfields.

Click to view image: 'b18d792502e8-article00d7830f8000005dc990_638x449.jpg'
The company’s search for oil off Libya and in a 20,000-mile area in the west of the country potentially offers as much as £15 billion in new revenue. But less than two years ago it was feared that the deal could founder — and the reason was wrangling over Abdelbaset Ali Mohmed al-Megrahi, the jailed Lockerbie bomber.

BP was finally given the go-ahead six weeks after a volte-face by the British government to include Megrahi in a prisoner transfer agreement with Libya under which prisoners could serve out sentences in their home countries. Jack Straw, the justice secretary, revealed this decision in a letter to his Scottish counterpart. He cited “wider negotiations” and the “overwhelming interests of the United Kingdom”.

Sources in the UK and Tripoli said last week that those wider interests included BP’s hoped-for share of Libya’s untapped oil and gas reserves. The decision to include Megrahi in the prisoner transfer arrangement was seen by Libyan officials as paving the way for his release — and BP’s much-coveted deal was finally ratified.

BP last week denied the agreement was influenced by talks over prisoner transfers and specifically Megrahi. But other sources insist the two were clearly linked. Saad Djebbar, an international lawyer who advises the Libyan government and who visited Megrahi in jail in Scotland, said: “No one was in any doubt that if alMegrahi died in a Scottish prison it would have serious repercussions for many years which would be to the disadvantage of British industry.”

Lord Mandelson, the business secretary, said last weekend: “The idea that the British government and the Libyan government would sit down and somehow barter over the freedom or the life of this Libyan prisoner and make it form part of some business deal ... it’s not only wrong, it’s completely implausible and actually quite offensive.”

The detailed correspondence seen by The Sunday Times confirms that the Lockerbie bomber’s fate was regarded by the UK government as pivotal to relations with Libya. It also shows how anxious the government was to curry favour with Colonel Muammar Gadaffi by being seen to open the way for Megrahi’s release.

The government now faces new questions over its exact role in trade talks and whether or not it favoured Megrahi. William Hague, the shadow foreign secretary, is calling for full disclosure of whether commercial contracts for oil were discussed as part of the negotiations for the Libya-UK prisoner transfer treaty.

In the 1980s — after the shooting of a British policewoman outside the Libyan embassy in London and the Lockerbie bombing which claimed 270 lives — Libya was an international outcast. But the past decade has seen a remarkable transformation, with the country dismantling its weapons of mass destruction.

Tony Blair helped with Gadaffi’s diplomatic rehabilitation, taking high-profile trips to Libya in 2004 and 2007. At the second meeting, when an unkempt and unshaven Gadaffi met Blair in a tent in the desert, it was announced that the two countries had agreed a memorandum of understanding covering civil and criminal legal co-operation, extradition and prison transfer.

Questions were immediately asked whether the arrangement would cover Megrahi, who was convicted in 2001 for taking part in the bombing and sentenced to life imprisonment. Downing Street insisted the agreement would not lead to his release. “The memorandum of understanding agreed with the Libyan government does not cover this case,” said a spokesman at the time.

During Blair’s 2007 visit, BP signed its exploration deal with Libya’s National Oil Corporation. “This is a welcome return to the country and represents a significant opportunity for both BP and Libya to deliver our long-term growth aspirations,” said Tony Hayward, BP group chief executive, who signed the contract with Blair looking on.

The prisoner transfer agreement — and specifically the fate of Megrahi — were inextricably linked with the BP deal. Six months after Blair’s trip, and with Gordon Brown in No 10, the Libyans were frustrated that the prisoner transfer agreement had not even been drafted. The BP contract was also waiting to be ratified.

The key reason for the delay in the prisoner transfer agreement was Megrahi. Lord Falconer, who was Blair’s justice secretary, had told the Scottish government in a letter on June 22, 2007 that “any prisoner transfer agreement with Libya could not cover al-Megrahi”.

Straw, appointed justice secretary by Brown, set out his favoured option for excluding Megrahi in another letter the following month.

The Libyans were furious and the BP deal — in which £545m would be spent on exploration alone — was an ace in their hand.

“Nobody doubted that Libya wanted BP and BP was confident its commitment would go through,” said Sir Richard Dalton, a former British ambassador to Libya and a director of the Libyan British Business Council. “But the timing of the final authority to spend real money on the ground was dependent on politics.”

The Libyans insisted that Megrahi must be covered by the prisoner transfer agreement. The government relented and Straw was forced into a U-turn. “I have not been able to secure an explicit exclusion,” he wrote in a letter to Kenny MacAskill, his Scottish counterpart.

“The wider negotiations with the Libyans are reaching a critical stage and in view of the overwhelming interests for the United Kingdom, I have agreed in this instance the [prisoner transfer agreement] should be in the standard form and not mention any individual.”

Six weeks later BP announced its deal had been ratified.

Negotiations over the release of Megrahi had been spearheaded by Gadaffi’s son, Saif. He was also courting influential figures and financiers in Russia, America and the UK to improve his country’s image and forge new business links.

Brown Lloyd James, a public relations firm with offices in London and New York, has opened an office in Tripoli. It is reported to have placed articles by Colonel Gadaffi in American newspapers. The firm would not comment last week.

One of the firm’s founders is Peter Brown, an old friend of Mandelson. The business secretary, who has stayed with Brown on the Caribbean island of St Barts, said this weekend that he could not recollect discussing Libya with anyone from Brown Lloyd James.

It is perhaps inevitable that the high-powered and wealthy figures who mix with Saif Gadaffi also pass through Mandelson’s orbit. Mutual associates include Lord Rothschild, his son Nat, and the Russian billionaire Oleg Deripaska, whose company Rusal has interests in Libya.

To Deripaska and Nat Rothschild, Saif Gadaffi is an invaluable business contact. They were invited to his 37th birthday party in Montenegro, where they are both investors in a new marina development.

There is some bafflement in Tripoli that British ministers are not talking up the possible business opportunities of an even more cordial relationship.

Djebbar said: “Britain can continue with this political absurdity [of recriminations] or get their businesses to take advantage of the goodwill towards them.”

Megrahi said public focus should be on identifying the perpetrators of the Lockerbie bombing. In an interview published yesterday, Megrahi, who insists he is innocent, said: “We all want to know the truth. I support the issue of a public inquiry. ”