The energy industry:Battle lines are being drawn in the ESB over the splitting of the company, writes Barry O'Halloran

Just as the year draws to a close, battle lines are being drawn in the ESB. The State electricity supplier's group of unions has voted overwhelmingly in favour of striking in a bid to stop the Government splitting up the company.

The actual battleground is the national grid, the network that carries electricity from generating plants to the distribution network and ultimately the customers. Both the ESB and its commercial rivals use the grid, and the State company's competitors argue that this creates a conflict of interest.

The ESB owns the grid, but another State agency, Eirgrid, manages it, and it is to this body that the Government wants to transfer ownership of the system. Independent generators such as Energia and Airtricity favour the move.

The ESB's unions say that it breaches two deals struck with them during restructuring initiatives at the company in 1996 and 2000. They want guarantees from the management and the board that this is not going to happen or else they will strike.

For its part, management has already said that various aspects of the plan create concerns about the long-term impact on the ESB's viability, but otherwise it is keeping its head down.

The new Minister for Energy, Green Party TD Eamon Ryan, favours the proposal, first aired by his predecessor Noel Dempsey, and says that if everybody goes along with it it will mean a "bright future" for the ESB.

This may be more of a poker game than a battle. The Government effectively owns 95 per cent of the ESB, and if the shareholder wants to spin off the asset it is within its rights to do so.

However, the workers own 5 per cent and, if they are losing an asset with an estimated value of more than €1 billion, it's possible that they should get something too.

But that may not necessarily be their motivation. The employee share option plan (Esop), which holds that 5 per cent, recently argued that splitting the generating and transmission arms of the company runs contrary to mainstream thinking within the EU energy industry.

Esop chairman David Beattie argues that this could become policy in Brussels next year as Europe's energy producers prepare to defend themselves from takeover by increasingly powerful Russian players in the industry such as Gazprom.

Nobody has really shown their hand yet, but the stakes are set to be increased as the unions want assurances from the board following its January meeting.

This meeting will also see current chairman Tadg O'Donoghue step down following a seven-year term, and his successor, businessman Lochlann Quinn, taking over.

The Government may well see Quinn as one of its aces in this game. Along with Martin Naughton, he was one of the driving forces behind Glen Dimplex, the multinational electrical goods manufacturer that can claim to be one of Ireland's few homegrown global manufacturing success stories. He also chaired AIB through a stormy period that included the Ruznak affair, the embarrassing foreign currency trading fiasco at a US subsidiary.

Chairing the ESB could well challenge his commercial know-how, along with any diplomatic skills he possesses. It's one of the longest-standing State companies, its employees are highly skilled and educated, and whatever its internal rivalries, its workers and much of its management have a reputation for standing together when they think it's facing a threat from outside.

And many of them may well feel that, at this stage, the ESB has already made too many concessions, all to its own detriment.

The company's interests have had to take a back seat to Government policy aimed at bringing more competition to the market. The approach means that it has surrendered its once-dominant position to the point where its main business is now supplying the Republic's 1.7 million households. Its rivals are not interested in this as it is complex and demands big investment. Instead, they are content to supply the more lucrative commercial and industrial users.

However, competition has not materialised quite as quickly as the State would like. Earlier this year, the Commission for Energy Regulation (CER) indicated that this was the case when it gave the ESB permission to build a new €400 million power plant at Aghada in Cork.

The company had not been allowed to build any more power stations in order to facilitate competitors, but concerns over future security of power supplies meant the CER had to give the ESB the go-ahead in this instance.

As a condition, it has to close four plants with a total capacity of 1,300 mega watts - around one quarter of peak demand - and dispose of the sites, ideally to commercial rivals.

State energy policy did reach a landmark this year - with the launch of the all-Ireland electricity market. Under this system, power producers North and South have to sell their electricity into a common "pool", with the cheapest and most-efficient generators favoured.

Suppliers to homes and businesses then purchase the electricity to sell on to their customers. Both generators and suppliers can then engage in a form of futures trading that allows them to hedge against predicted price changes in the single market.

The move will make little difference to the source from which you buy your power, but one thing it has done is turn electricity into a commodity that is traded in a marketplace.

The single market is the first known exercise of its kind to involve two jurisdictions, and all those involved deserve all the plaudits they received at its launch in November. But it remains to be seen how quickly it can deliver on all its goals.

While the ESB and the State have been dealing with legacy issues, Airtricity, the Irish wind energy company that would be the first to tell you that what it's doing is part of the future, sold its nascent US operation to German giant Eon for €1 billion, a deal that included an €800 million payout to its shareholders.

Airtricity promptly followed this move by announcing it was going to sell the rest of its operations, based largely in Europe. Based on the Eon deal, these also have an estimated price-tag of around €1 billion, with some analysts suggesting that, in cash terms, its owners will end up with another €800 million.

The prospects of a sale were bolstered recently when a number of EU countries, including our nearest neighbour, announced a number of initiatives aimed at boosting the development of offshore wind electricity generation, on which Airtricity has been concentrating a lot of effort recently.