The ESB and British Telecom last night appeared close to agreement on the future of Ocean, their joint venture project in the Republic. Negotiators for the State-owned firm repeatedly postponed an ESB High Court challenge to BT's $2.5 billion takeover of Esat, in anticipation of a deal.

The ESB has argued that Ocean shareholders' agreement prevents either side from doing business in the Republic in competition with the joint venture, but it is now understood to be seeking compensation for waiving this clause.

This is likely to come as part of a package that sees BT buy all of Ocean. Industry analysts say Ocean may be worth between £250 million (€317 million) and £400 million (€508 million). While the ESB and BT are represented equally at board level, two-fifths of the ESB's 50 per cent of the company is owned by AIG, the US insurance giant.

The ESB's court action was postponed at 11 a.m., 2 p.m. and 3 p.m. yesterday, and was eventually rescheduled for 10.45 this morning. But the two sides continued to negotiate late into the night and were said to have reached "an advanced stage".

Neither company would comment on what remained to be agreed, but sources said some important technical and legal issues had yet to be resolved.

Part of the difficulty may lie in Ocean's network, which uses the ESB's own land infrastructure. The ESB continues to use this network for supplying and managing electricity and for internal communications, and would not wish, or be allowed, to sell it to BT.

While the use of this network was always subject to a leasing arrangement between ESB and the joint venture, BT, as part of Ocean, is likely to have spent significant sums improving and increasing the capacity of this infrastructure, to ensure it could offer Ocean customers the latest in telecommunications services. If the British firm relinquished the rights to this network, it would leave the door open for the ESB to form an alliance with a competitor.

Also, while BT would not wish to carry out a "Portuguese withdrawal" - removing any actual equipment it might own to prevent future use - the company may not be content to see the ESB or a competitor benefit from its labour.

Equally, if BT wished to retain the right to use the network, it would have to sign another leasing agreement with the ESB. This might not be as favourable as the one currently in use, and would then have to be renegotiated in the future.

Furthermore, any such arrangement could have implications for AIG, which owns 40 per cent of the ESB's half of Ocean.

Ocean, with 300 employees, has been in operation for only 18 months. In that time, the ESB has invested a reported £13.5 million in the company.