TRIPOLI - Russia used the visit of President Vladimir Putin to Tripoli on Thursday to announce the scrapping of billions of dollars in Libyan Soviet-era debt in exchange for business contracts.

"Russia has cancelled the debt in exchange for several billions of dollars in contracts for Russian companies," Russian Finance Minister Alexei Kudrin was quoted by Russian news agencies as saying in Tripoli.

"We are satisfied about the way in which we resolved this problem. I am absolutely convinced that the solution we have found will help the Russian and Libyan economies," the agencies quoted Putin as saying.

The announcement came as Putin's trip was hailed by Libyan leader Moamer Kadhafi as "historic and strategic" during a state dinner at the Bab Azizia palace, state television reported.

"This is the first visit by a Russian president to Libya. It is a historic, strategic and very important visit," Kadhafi said in a speech late on Wednesday.

"The trip will enable increased cooperation, given that we are both producers of gas and oil," Kadhafi said. "We will work together to defend our interests."

During Putin's visit, Russian gas giant Gazprom signed a cooperation deal with Libya's national energy company.

The agreement talks about joint exploration and production projects in Libyan oil and gas reserves, as well as the construction of new power stations and liquefied natural gas (LNG) facilities, Gazprom's press service said in Moscow.

Libya is a non-permanent member of the UN Security Council for 2007-2008, and Khadafi said the world body needed to be reformed in order to face what he called an "imbalance of forces" internationally.

Putin, who spoke in Russian, said at the dinner: "We must reflect on the project to reform the United Nations" and referred to "a friendly country on the Security Council with which we can work together to resolve problems."

The Russian president said "a large number of agreements" would be signed between the two countries during his 24-hour visit to Libya.

Putin arrived in Tripoli on Wednesday at the head of a large delegation, including Kudrin, for a visit expected to be dominated by talks over energy contracts and arms sales.

Later on Thursday he is set to fly to Sardinia for talks with prime minister-elect Silvio Berlusconi, whose People of Freedom party and allies scored a convincing general election victory in Italy on Monday.

bur/ceh/db/srm

04/17/2008 14:02 GMT