Market has been deserted by a number of large investors since deregulation in 2000

A Canadian multinational is walking away from an Aughinish Alumina electricity generation project which has already been abandoned by Bord Gáis.

The withdrawal of ATCO Power and the State gas company from the initiative at Aughinish island in the Shannon Estuary is yet another setback to the liberalisation process.

The market has been deserted by a number of large investors since deregulation in February 2000.

Such groups include BP, which had an interest in the US-backed Ireland Power initiative at Blanchardstown, west Dublin. BP's predecessor, Scottish Power, and ePower, controlled by Esat founder Mr Denis O'Brien, also left that project.

In addition, the building materials group CRH sold out its 50 per cent interest in a north Dublin plant to its partner Viridian, the Northern Ireland group.

The departure of Bord Gáis and ATCO renews concern voiced by the European Commission and others about the structure and pace of deregulation in the Irish market.

It comes despite a price increase granted last October by the electricity regulator, Mr Tom Reeves, a move deemed to be an attraction to prospective market entrants.

Last year the EU competition commissioner, Mr Mario Monti, described the structure of the industry as "not favourable to compeition".

At that time Mr Reeves ordered an ESB subsidiary operating in the liberalised section of the market to desist from certain activities.

Aughinish's spokesman confirmed ATCO and Bord Gáis were leaving the project but said the company was in discussions with other potential investors.

Still, the loss of the original partners casts doubt over plans to construct a 300 megawatt (MW) gas-fired power station at a cost of up to €254 million (£200 million). The failure of Viridian and Ireland Power to secure alternative partners despite extensive trawls of the industry indicates that investors may prove difficult to track down.

Aughinish is unwilling to go it alone and while the equity stakes to be taken by Bord Gáis and ATCO were never disclosed, they were thought to be significant. The company wanted to complete the project this year and the spokesman accepted that deadline would not be met.

He said: "We are still very determined that the project will go ahead though not as quickly as we would have liked. We're confident that it will go ahead. It's a disappointment that they have left but we can understand their position."

Bord Gáis always denied that its interest in the business was against the spirit of liberalisation, which, at least in theory, is designed to stimulate competition against State domination of utilities.

Sources close to the company have indicated that it had decided to leave the electricity project for strategic reasons.

With plans to invest €1 billion in pipelines in the medium term, Bord Gáis is understood to be concentrating on its core business.

It is understood senior figures in the company believed the ESB's dominance of the industry and the regulatory framework and pricing structure meant Bord Gáis would encounter difficulty delivering sufficient returns on its proposed investment.

Suggestions that the company might invest in the Viridian plant at Huntstown, north Dublin, were denied late last year by its chief executive, Mr Gerry Walsh.

Yet Bord Gáis is still trading in the electricity business.

It sells ESB power bought in a wholesale auction to industrial customers.

Company sources said there were no plans to abandon this business but they described its involvement as an exercise akin to "tipping the toe in the water".

Attempts to contact an ATCO spokesman were unsuccessful.