* Sinochem to decide soon on plan to stop BHP bid - sources
* Sinochem held talks with Uralkali on Potash bid - FT
* "Not the time yet" to comment - Sinochem spokesman
* BHP bid could reduce tax revenues, royalties in Canada
(Adds Uralkali 'no comment', updates shares)
By Sonali Paul and Euan Rocha
MELBOURNE/SASKATOON, Saskatchewan, Sept 30 (Reuters) - Sinochem, China's top chemicals firm, is working hard to come up with a challenge to BHP Billiton's $39 billion bid for Potash Corp, sources said, but efforts to secure a Russian partner have failed, according to a report.
State-owned Sinochem has a team of around 20 working overtime to come up with options to stall BHP's bid, and was looking to make a decision soon, sources close to the Chinese firm said.
The Financial Times reported Sinochem held failed talks with Russian fertiliser maker Uralkali over a possible joint bid for Canadian group Potash , the world's top fertiliser maker.
Sinochem spokesman Li Qiang declined to comment on the report or on efforts to thwart BHP, the world's biggest mining group. "As the matter progresses, we will make our comment in due time, when we see appropriate. Now is not the time."
Uralkali also declined to comment. Analysts expect Uralkali to merge with rival Silvinit to create the world's second biggest potash producer after Potash.
While some bankers speculated Sinochem did not need to rush into making a move after BHP extended its bid deadline to Nov. 18, sources close to the firm said a decision could come soon.
"There is no doubt Sinochem is very actively pushing ahead the Potash matter, and the company is getting very strong support from all the related government departments ... the reason being, the government is dearly concerned with the grain problem," a person with knowledge of Sinochem's thinking said.
The sources declined to be identified due to the sensitivity of the matter.
China's main worry is that a BHP takeover of Potash could push up the price of potash, a nutrient essential for boosting grain production to meet booming food needs. Government officials, potash producers and industry experts agreed that Chinese firms should "cautiously get involved" in response to BHP's bid for Potash, Chinese business magazine Caijing reported on its website on Thursday.
It said officials at the conference, which included Sinochem representatives, decided to adopt a three-pronged strategy of domestic production, overseas production, and imports to meet potash needs.
TAX CONCERNS
BHP is sitting tight while it tries to win regulatory approval in Canada.
The Canadian province of Saskatchewan, Potash's home base, has raised fears its tax revenues will take a hit if BHP buys the company.
The premier of Saskatchewan, Brad Wall, said the deal could cut into corporate tax revenues and mining royalties, adding the Canadian government would consider how the offer could affect federal and provincial revenues.
His comment came as Canada reviewed whether BHP's hostile takeover bid for Potash would provide a net benefit to the country. The deadline for the ruling was Monday, Oct. 4, but the review was widely expected to be extended by 30 days to Nov. 3, and could be extended by up to 60 days.
Saskatchewan is specifically concerned that BHP could use interest it is charged for borrowing money to complete the takeover to write off corporate income taxes owed to Ottawa and Saskatchewan.
"We do not have the final estimates yet, but there is a real risk in terms of a substantial, potential decrease in corporate income taxes," Wall told reporters. "We will balance the desire that we have for a positive investment climate with also the need to think long term."
Potash shares last traded at $144.86, 11.4 percent above BHP's offer of $130, indicating investors were expecting a higher offer.
BHP shares in London rose 1.2 percent to 2,047 pence by 1255 GMT, largely in line with the British mining index.
CAREFUL LOOK
Saskatchewan's Wall said Saskatchewan, which produces a quarter of the world's potash, would take a careful look at any rival bid for Potash involving a Chinese sovereign fund or state-owned company.
Wall has said in the past he was also concerned a BHP takeover of Potash, the No. 1 producer of the fertiliser, could reduce royalties if the Anglo-Australian mining company markets the crop nutrient independently, instead of through the Canpotex marketing consortium.
Such a change could weaken potash prices and lower provincial royalties, which amounted to nearly C$1.4 billion ($1.35 billion) in 2008-09 after potash prices jumped. (Additional reporting by Rod Nickel in Winnipeg, Eric Johnson in Chicago, Joseph Chaney in Hong Kong, Lucy Hornby in Beijing, Michael Erman in New York, Natalia Shurmina in Yekaterinburg and Eric Onstad in London; Editing by Ed Davies and Lincoln Feast) ($1 = C$1.03)