BP poised to expand in China through stake in jet fuel importer

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BP is close to increasing its presence in China by securing a stake in the country's main importer of jet fuel.

The UK oil major, the second biggest in the world by market capitalisation, is poised to buy a 23 per cent holding in China Aviation Oil (CAO) for about $45m (£26m). An announcement could be made next week.

The Beijing-controlled company has been seeking a rescue since it nearly collapsed a year ago under half a billion dollars of trading losses. BP is one of several joint venture partners CAO has talked to.

Vitol, a European oil trader, was also interested in buying into CAO, as is Singapore's state-owned holding company Temasek, which is reportedly negotiating to acquire a stake of under 10 per cent for about $10m.

CAO's state-owned Chinese parent company has put a limit on foreign ownership of 30 per cent. It is quite likely that BP and Temasek will emerge jointly as outside investors. A CAO spokesman said: "The parent is in the final appraisal period for the three potential investors. A formal announcement will be made soon regarding the new investors."

BP is already one of the biggest Western oil companies in China with investments so far totalling $3bn. It has a joint venture to build and run 1,000 petrol stations in China and it also owns a 24.5 per cent stake in the domestic jet fuel company South China Bluesky Aviation, which supplies 15 commercial airports. In addition, it has interests in a petrochemical complex outside Shanghai and a 30 per cent stake in a liquefied natural gas terminal near Guangdong.

Last month, it emerged that BP is in very early and exploratory talks to take a major stake in Sinopec, one of China's biggest suppliers of petrol and other refined oil products.

However, the proposal is said to be at a very "embryonic and conceptual" stage and could take a long time to reach fruition if an agreement is reached at all.

If a deal is reached, BP, whose group chief executive is Lord Browne of Madingley, would gain access to the vast Chinese domestic market through Sinopec's refining and marketing activities. In return, it could provide the Chinese with the crude oil resources that the country is desperately short of.

But there are doubts as to whether the Chinese government would allow a Western company to take a major stake in such a strategic industry.