BP is a front-runner to win a controlling stake of Pakistan State Oil (PSO) in a deal worth around $600 million (£300 million), The Times has learnt.

It is bidding for the stake with MerchantBridge, a new London-based investment bank, and is competing with, among others, Petronas, the Malaysian oil and gas giant, and Vitol, the oil marketing company.

The Pakistani Government owns 54 per cent of PSO and has hired JPMorgan, the American investment bank, to sell a 51 per cent stake in the group, leaving 3 per cent in government hands.

The auction, which set a bid deadline at the end of January, is expected to be completed imminently. PSO owns two refineries and 3,700 petrol stations across Pakistan.

In the year to June 2006, PSO reported sales of 353 billion Pakistan rupees (£2.9 billion), compared with PKR254 billion in 2005. It made a pretax profit of PKR11.7 billion, up from PKR9.2 billion the year before.

Shares representing 46 per cent of the company are traded on the Karachi stock market.

While BP declined to comment, Basil al-Rahim, the managing partner of MerchantBridge, said: “Pakistan’s economy is growing at between 6 and 7 per cent a year. We take the view that that will continue for the foreseeable future and wish to participate in that growth.” He added: “BP can bring additional operating improvements to the business.”

BP and MerchantBridge are competing with Petronas and its financial partner MCB Bank, the second-largest bank in Pakistan. PSO is the largest oil marketing company in Pakistan, involved in storage, distribution and marketing of petroleum products. It has a 78 per cent share of the black oil market and 57 per cent of the white oil market in Pakistan.

BP is already a partner with PSO: together they market BP’s Castrol lubricants brand.

In Pakistan, BP’s exploration and production business is based in southern Sindh province, east of Karachi. BP boasts that it produces 22 per cent of Pakistan’s oil and 6 per cent of its gas. BP claims to have drilled 24 per cent of the total exploratory wells in Pakistan and made 45 per cent of all oil discoveries in the country.

Tony Hayward takes over as chief executive at BP from July. In the event that BP is successful in its bid for PSO, formalising the deal would be one of Mr Hayward’s first investments as head of the oil group.

MerchantBridge is a five-year-old investment bank authorised in London, which also has businesses across the Middle East. The group recently launched a $50 million construction investment fund.

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