The ESB and Bord Gais should be privatised only "when it is clear" a competitive energy market is developing, NCB Stockbrokers said yesterday.

Stating that a significant new competitor should be encouraged into the Irish market, NCB said it was "by no means certain" that infrastructure would be in place to prevent energy shortages in the immediate future.

The main challenge facing the sector was the provision of infrastructure. Investment of more than £3 billion (€3.8 billion) was required, NCB said.

The company said bottlenecks - such as delays in the construction of gas pipelines and power stations - may hinder competition.

"Should the ESB and Bord Gais remain as semi-state organisations, they will not be in a position to compete on a level playing field with new entrants which will have easier access to capital and a more streamlined decision-making process, both of which will be crucial to a dynamic marketplace."

Doubts over the security of supply have enabled both companies to strengthen their strategic positions at a time of increased competition.

"In the case of ESB, this has been achieved by its continued ownership of network assets and receipt of capacity on the gas interconnector," wrote Mr Andrew Ennis and Mr Fergus McLoughlin in a report on the sector. "In the case of Bord Gais, its strategic position has been strengthened by the decision to allow it to build a second gas interconnector with the UK."

On competition, the authors said the two State-owned utilities and Northern Ireland group Viridian were likely to dominate the market.

"Steps should be taken to encourage the entry of a significant new competitor. While certain new entrants to the Irish energy sector have made an impact, they have not yet been successful on a significant scale."

The report added: "The size of the Irish market may only justify the long-term existence of two electricity companies. It is questionable, however, as to whether Viridian will seek to compete with ESB to the extent that a new entrant to the all-Ireland market would do, due to the potential competition from ESB in Viridian's domestic market.

"The introduction of a new significant entrant to the electricity market may provide a stimulus to competition akin to that provided on the Dublin-London air route following the introduction of Ryanair to a route which was previously dominated by Aer Lingus and British Airways."

The authors also questioned whether competition between the ESB and Bord Gais was efficient in deregulating markets.

They added: "The Irish energy market should be viewed in an all-Ireland context in terms of size, infrastructure, market dynamics and regulation."