China BlueChemical, the fertiliser unit of offshore oil and gas producer China National Offshore Oil Corp (CNOOC), aims to complete the acquisition of its parent's stake in the nation's largest joint-venture fertiliser producer by the end of this year. CNOOC holds a 40 per cent stake in the joint venture - Sino-Arab Chemical Fertilisers - and the balance is held by stated-owned Tunisian firm Societe Industrielle d'Acide Phosphorique et d'Engrais. The transaction has been under preparation for over a year, but it has been delayed by complicated procedures due to the foreign shareholding, BlueChemical chief executive Yang Yexin said in an interview with the South China Morning Post. 'This joint venture is now managed by us [on behalf of our parent company],' Yang (pictured) said. 'The asset valuation has been completed but the procedures have been more complicated than we thought.' The joint venture was formed in 1985 with an initial investment of US$58 million. Chief financial officer Quan Changsheng said CNOOC was negotiating with the Tunisian partner on restructuring the venture's shareholding, as the original investor, China National Chemical Construction, had contributed additional funds to build the plant and should be entitled to a higher stake. Sino-Arab has an annual capacity of 1.2 million tonnes of composite fertiliser from a plant in Qinhuangdao in Hebei province. The fertiliser comprises potassium, phosphate and nitrogen, key nutrients necessary for strong plant growth. According to Sino-Arab's website, it produced 441,600 tonnes of compound fertiliser in 2008 despite two-thirds of the industry's capacity being shut down due to losses, and recorded a profit of 30.79 million yuan (HK$35.03 million) on sales of 1.29 billion yuan. The acquisition is part of BlueChemical's long-term expansion strategy to enlarge its product offering. Yang said it aims to eventually source 70 to 80 per cent of its fertiliser revenues from nitrogenous, phosphorous and compound fertilisers, 15 per cent to 20 per cent from potassium fertiliser, and the rest from fertiliser distribution. Last year, some 57 per cent of sales came from nitrogenous fertiliser, 17 per cent from phosphorous fertiliser, and 21 per cent from methanol, a chemical used in industries that can also be used as a motor fuel. Net profit for last year fell 39.8 per cent to 984.7 million yuan as sales rose 5 per cent to 5.79 billion yuan, due to lower product prices. The company plans to raise nitrogenous fertiliser urea's output by 2.6 per cent this year to 1.95 million tonnes. Yang said the urea price has fallen to around 1,600 yuan a tonne from about 1,850 yuan in January and February as the severe drought in southwest China crimped demand. He expected this year's prices to be volatile but the annual average would exceed last year's 1,705 yuan. BlueChemical makes urea from natural gas, the price of which is widely expected to be raised by Beijing this year. But Yang said the company's gas purchase price increase is capped under long-term agreements with its supplier - sister firm CNOOC - which means it does not rise more than 5 per cent in any year. BlueChemical plans to raise urea output capacity by about half by building a 1.04 million tonne-a-year plant which will use coal from a nearby mine in Shanxi province as feedstock. Half the capacity is slated to come on stream in early 2012 and the remainder in 2015. Yang said Beijing plans to phase out small and inefficient plants, while large and cost-competitive projects - especially those close to feedstock and markets and with advanced technology - will still be allowed to be built. However, no official timetable and capacity threshold have been announced on the industry overhaul plan, he said.