ESB is seeking voluntary redundancies which will reduce its workforce by almost a quarter as it prepares to face competition in the newly deregulated electricity market, The Irish Times has learned.

The State-owned electricity company has informed its group of unions that it wants to reduce its workforce by 2,000. The company, which now employs about 8,500 people, has already shed 2,000 jobs in the past four years as part of a cost and competitiveness review.

The ESB unions have challenged the company, arguing that 2,000 redundancies is excessive.

"The group of unions does not accept the financial wedge that has been identified by the ESB. Nor do they accept that there is a need for 2,000 redundancies," said the secretary of the group of unions, Mr Paddy Reilly.

"However, the group of unions is prepared to sit with the ESB and negotiate a change process," he added.

About 1,200 of the job cuts being sought by ESB managers are in its power generation division, it is understood.

A further 600 reductions are being sought in its customer service division and managers at the highest level in ESB are also seeking 200 job cuts at its head office in Dublin.

An ESB spokeswoman declined to comment on the company's plans last night. "A process of engagement between management and the group of unions is getting under way. This is at a very early stage," she said.

It is understood, however, that ESB managers believe the talks could be completed this autumn and that a voluntary redundancy programme could begin this year.

As with the previous cost and competitiveness review, it is believed that workers will be offered voluntary severance and early retirement packages.

ESB managers are also understood to favour a partial stock market flotation of the company, although this is seen as separate to the current plan to introduce greater efficiencies. It is understood, however, that no decision has been made by the company's board. This is not likely to happen until after the summer, when the board is due to inform the Minister for Public Enterprise, Ms O'Rourke, of its plans.

Even so, unions may argue that workers who leave ESB in the latest plan may lose out on any lucrative employee share options plan (ESOP) likely to be introduced in the case of flotation.

A similar question arose during tripartite negotiations last February to separate the transmission system operator (TSO) function of ESB, which controls the national grid, from the core company.

Companies seeking to enter the electricity generation market argued that ESB would have an unfair advantage if it retained control of the TSO.

The TSO has power to switch on generation stations according to demand on the national grid. The most efficient stations are used first and other less efficient plants are used as demand rises.

While only 28 per cent of the electricity market was opened to competition on February 19th, Ms O'Rourke has said that 100 per cent of the market will be opened in about five years.

This puts ESB in a vulnerable position as many of its older peat- and oil-fired generation stations are much less efficient than modern gas-fired stations planned by more than 10 Irish and international consortiums.

While few in the industry believe that 10 new generation stations will be built, three could be operational by 2003. Such groups - which include consortiums owned by Northern Ireland firm Viridian and by businessman Denis O'Brien - would be in a position to undercut ESB tariffs.

The company already plans to close six ageing peat-fired stations in the midlands and Co Kerry in the next five years and replace them with two modern plants. This will cost some 450 jobs.

A further 450 job cuts are likely in Tarbert, Co Kerry, and Great Island, Co Wexford, because the generation plants there are oil-fired. This is the most costly form of generation.

Dutch energy company Petroplus International is in negotiations with a liquid oil supplier in the Republic on the feasibility of building a small - 1.5-2MW - environmentally friendly electricity generator later this year. The plant, which could generate about 50,000MW hours in its lifetime, would be remote-controlled from the company's headquarters in Rotterdam and wouldn't employ any permanent staff here.

A company spokesman said he could not reveal the size of the proposed investment. He said the biodiesel-fuelled generator, the equivalent of a small wind turbine, used highly renewable liquid oils such as palm oil and rape seed oil which produced fewer carbon dioxide emissions than standard plants.

The company is planning a similar venture in Wales and plans to extend its operations across Europe.