The State would not realise the ESB's "true value" if the company was floated now, its chairman says. Senior ESB managers have championed flotation, but Mr Tadhg O'Donoghue says the company needs up to five years' work to prepare for a possible offering on the stock exchange. "At three years you should be seeing the shine coming on the coat," he says .
Appointed chairman in January after joining the ESB board last September, Mr O'Donoghue is perceived to be close to the Minister for Public Enterprise, Ms O'Rourke.
He identifies two immediate priorities for the State-owned company, whose current net value is £1.4 billion (€1.8 billion). Before the end of the month, management wants to agree a rationalisation plan with unions, which is likely to reduce staff by almost a quarter, to 6,500 from 8,500, in a voluntary severance programme. It also wants to secure access for outside contractors to the national transmission and distribution network.
Yet the ESB has been here before. It is thought the company first set a deadline of last October to finalise a rationalisation plan in a process known as PACT. A previous deal on contractors was voted down by ESB technicians last January. That rejection was seen as a major blow to the company's chief executive, Mr Ken O'Hara.
Agreement this month on the use of contractors and rationalisation would mean that unions would put proposals to a vote of their members in June, Mr O'Donoghue says. The company needs the job cuts because pressure from competitors in the liberalising market means it needs a nimbler, more supple structure.
Described as a "hands-on man" by senior company sources, Mr O'Donoghue says there has to be "serious give and take" on both sides on both questions.
Most of the departures will be from the company's clerical, administrative and power generation staff. In last year's accounts, which have not yet been published, a provision of £236 million was made for this programme. Mr O'Donoghue says the final cost to the ESB will be about £300 million.
"We would certainly have a payback in three or four years. It's self-financing, which we need to do to keep it within the Programme for Prosperity and Fairness."
The company needed to engage contractors because the national network required significant investment that could not be completed by the ESB alone. Insiders have separately described the network as "Third World standard" in large areas of the State.
Mr O'Donoghue says a major upgrade of the national power network will cost £2 million every working day for the next five years. "That's not including generation. This is pylons, poles and wires."
On complaints by IDA Ireland and others about the incapacity of the network to withstand significant industrial investment in parts of the north-west particularly, Mr O'Donoghue claims these have been over-stated.
"If they're building a factory tomorrow in, say, Ballina, we can get the power there as soon as that factory is built. What we're aiming to do is to get the power there on call, which is a slightly different thing.
"We've been entrusted with this as part of the National Development Plan. I've been very clear with my board that we've been entrusted with that and we'd better get on with it."
Mr O'Donoghue also faces concern that rising demand may prompt a possible electricity shortage next winter, before new generation plants are complete.
In addition, the price of coal, oil and gas used to generate power is rising fast. According to Mr O'Donoghue, the company spent £303 million on fuel in 1999. The projection for this year is £438 million. Allowing for rising demand for power, the cost increase since 1999 is over £100 million.
In the longer term, Mr O'Donoghue wants to prepare the company for greater competition when the market is fully liberalised in 2005.
Fundamental questions surrounding the company's ownership will also be addressed in that time-frame. So did Mr O'Donoghue agree with the ESB board when it rejected flotation at a meeting last January? "It's just a question of the company being ready to get its true value for the State and tax-payer. I would have been one of those who say that certainly where we were and where we are, the State would not get true value."
That board meeting followed a letter from the company's group of unions that criticised management. Asked about reported dissatisfaction at senior levels in the company with Mr O'Hara's performance, Mr O'Donoghue said this was a diversion from its core business. He has moved to "quench the fires".
On deregulation in the power market, Mr O'Donoghue claims the ESB is "utterly committed" to competition, "and will not do things in the sense of putting barriers in the way of competitors".
He accepts , however, that many believe the company has been slow to accept the concept. "It's true to say that certainly we had be to dragged to competition in the sense that we didn't gallop into it. There's no point in saying otherwise."
He adds: "We're coming from an environment, remember, where everything to do with electricity was planned by the ESB."
The gap in generation capacity is another matter.
In a paper this month, the operator of the national grid argued that the capacity of the State's power generation network was "sub-standard" and said a new plant was required immediately. The grid operator, EirGrid, is technically part of the ESB, but it will be separated from the core company later this year.
While downplaying EirGrid's arguments, Mr O'Donoghue says the ESB's ability to add further to its generation capacity is constrained because the company is perceived by the commissioner for electricity regulation, Mr Tom Reeves, as "too big a monopoly" already.
The ESB system has capacity to produce 4,600 megawatts (MW) of electricity, Mr O'Donoghue says. Only once before - last January - has demand exceeded 4,000 MW. "Already there's 15 per cent capacity above what's needed. What's safe? We have taken the view that 15 per cent is tight. We would certainly have preferred more, but it's not disastrous."
While "emergency" capacity is available, industrial customers also have "interruptible" supply, which would be cut first in a demand crisis. "I see interruptible supply as a natural and permanent part of good resource management."
On generation, Mr O'Donoghue says a new station planned in a joint venture with Statoil at Ringsend, Dublin, is crucial to the ESB's plans.
The competition directorate general of the European Commission has yet to sanction that joint venture and it has privately described its grid connection contract as a "violation" of European law. In addition, the ESB's expenditure on the project was sanctioned by Ms O'Rourke only after it said it would sell its interest if she felt competition law made such a move appropriate.
Any move to force the ESB to divest itself of the Ringsend plant would be resisted, he says. So what of suggestions that the company might stand down older generation stations as competition progressed? "I see us possibly standing down some old plant. There's no barrier right now to people coming in to build a new plant. "There's been quite a lot of talk by some people. I will take them seriously when I see the JCBs working."
Mr O'Donoghue believes the ESB could retain 60 per cent of its Irish market when the market is fully opened to competition in 2005. "If you look at the growth in the market, I reckon that 60 per cent in 2005 will be 3,500 MW." He says when you consider that the maximum electricity demand last year was 4,000 MW, this was not a significant drop, "given the kind of growth we're having".
Mr O'Donoghue says the company's "real challenge" will focus on replacing the old generation plant rather than reducing its generation capacity. "When we are at 60 per cent, I want our plant to be state-of-the-art. I don't want our plant to be a lame horse or a lame dog." Keen on perspective, he says privately-owned companies can "do things" by resolving to do them. "In public sector companies - including this one - it's very much a question of leadership and persuasion. In deciding to do something you've got to bring people with you much more."
