By Jessica Donati and Ghaith Shennib
TRIPOLI (Reuters) - Libya will soon start shipping oil to neighboring Egypt on soft credit terms, two senior Libyan officials said, as Cairo struggles to pay for energy imports and avoid fuel shortages.
The officials told Reuters that Tripoli would supply Cairo with $1.2 billion worth of crude at world prices but on interest free credit for a year, with the first cargo expected to arrive next month.
Egypt has slid into economic crisis since president Hosni Mubarak was overthrown two years ago. Most international companies have reduced oil product supplies to the country fearing non-payments, as the government tries to curb soaring energy subsidy costs which swallow up a fifth of its budget.
Libya plans to ship one to two cargoes a month for refining in Egypt under a deal that involves 12 million barrels of crude over 12 months, the oil industry officials said.
With foreign currency reserves running low, Egypt has not bought any crude on the open market since January. In rough terms the Libyan deal would be worth slightly more than half its 2012 imports, which the central bank put at $2 billion.
"Their situation is very bad, and if necessary they can take up to a year to pay (for each delivery)," said one of the Libyan officials.
Libyan authorities themselves face a daily struggle to keep services running and take control of a country awash with weapons looted from the arsenal of Muammar Gaddafi, who was toppled in 2011.
But the official said Libya could not shy away from helping an important trading partner. "If you are a good neighbor and something is wrong with your neighbor, you will not feel comfortable with yourself. It's human nature," he said.
Cairo has so far failed to agree a $4.8 billion loan deal with the International Monetary Fund and has sought help from energy producing countries in the region and beyond.
Tripoli has already deposited $2 billion at the Egyptian central bank and Qatar has announced $8 billion in loans, grants and other deposits since Islamist President Mohamed Mursi was elected last June.
Libya's National Oil Corporation (NOC) declined immediate comments on the details of the deal, although one of the oil industry officials said it would supply Sirteca, the cheapest of all the country's grades. "Shipments will be sold at world prices," said the second Libyan official.
An official at the Egyptian oil ministry confirmed some of the deal's terms. "(It will be) one million barrels a month and deferred payment for 12 months without interest starting from the first half of May, God willing," the official told Reuters.
However, the official maintained that the two sides were still discussing the kind of crude oil to be supplied and how long the shipments would last. The Libyan officials said that if the first cargo was sent next month as planned, they would last until April 2014.
The Libyan deal should ease the problems of Egypt, which owes at least $5 billion to oil companies, half of it overdue.
Cairo aims to raise prices of subsidized energy gradually, bringing them close to world levels in four years, to reduce the burden on its huge budget deficit. In the short term, it wants to avoid arousing more social unrest by ensuring energy supplies during the approaching summer when energy consumption peaks.
Libya has already shown willingness to step back into its old role as North Africa's version of a Gulf petro-state by using cash to open doors.
Libya's new rulers authorized a payment of almost $200 million to Mauritania after it extradited Gaddafi's former spy chief Abdullah al-Senussi last year, although they later denied there was a quid pro quo.
Diplomats and analysts have also suggested Libya's growing support may help persuade Egypt to hand over Gaddafi's cousin Ahmed Gaddaf Alddam, who was arrested in Cairo in March.
Egypt sent two other ex-Gaddafi officials to Libya last month but barred the extradition of Gaddaf Alddam, who is claiming Egyptian citizenship. Libya is appealing the Egyptian court ruling.
(Additional reporting by Asma Alsharif in Cairo; editing by David Stamp)
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