By Humeyra Pamuk and Asli Kandemir
ISTANBUL (Reuters) - Total (PA:TOTF) aims to sell its fuel distribution business in Turkey and has asked Societe Generale to lead the process, sources said on Friday, as the French oil producer looks to retreat from a highly competitive and regulated market.
Turkey has some of the steepest fuel prices in Europe but heavy taxes and other regulations leave little margin for profit for the 70 different retailers.
As a result, Total is looking to get out of the business, three people familiar with the matter said.
Two of them said French bank Societe Generale (PA:SOGN) has been chosen to lead the potential sale.
"Profitability in fuel distribution is under serious pressure in Turkey. Other foreign companies may follow suit," one of the sources said.
A spokeswoman for Total would not confirm or deny the planned sale but said, "The group regularly analyses its portfolio of assets to position itself best strategically ... In Turkey we have clearly expressed for the past two years our plans for growth and we have continued to invest in the country."
SocGen had no immediate comment.
Total has just 5 percent of the 80 billion lira (19.37 billion pound) fuel distribution market, according to figures from market watchdog EPDK. That leaves it in sixth place behind bigger players like market leader Petrol Ofisi, owned by Austria's OMV (VI:OMVV), and fourth-ranked BP (L:BP).
Founded in 1992, Total Turkey indirectly employs around 10,000 people and operates around 440 petrol stations. That is a small number compared with the 2,200 run by Petrol Ofisi.
A sale would not mark a wholesale withdrawal from Turkey, as Total also sells chemical products there.
Demand for refined products saw years of robust growth in Turkey, thanks to rising economic output and cheap credit facilitating car sales. While demand has stalled over the past few years, the long-term outlook is buoyant, analysts say.
But despite promising growth prospects, market competition and price cap absorb the profits.
"When the market share is small and the network of stations is not wide, the margins are seriously squeezed and leaves little point for the business to continue," another source said.
"Bigger players may find a way to survive but Total's market share has been relatively small."
Market watchdog EPDK sets a cap for the price of refined products at the pump, leaving little room for retailers to raise the price. The latest cap has been removed earlier this week, but the retailers remain closely monitored by the authority to prevent unfair pricing.
Currently the price for eurodiesel, the most commonly used fuel in Turkey, is at around 3.94 liras