A transition programme at the ESB aimed at reducing its staff by a quarter to 6,000 from 8,000 is likely to cost more than £300 million (€380 million), The Irish Times has learned.

The State-owned company is negotiating with its group of unions as it faces competition for the first time following the partial liberalisation of the electricity market last February.

While aiming to retain 60 per cent of the power market after full deregulation in 2005, the ESB wants to use a new voluntary severance and early retirement scheme to streamline its internal structures and introduce new technology.

ESB managers are reported to believe a deal could be agreed by the autumn. Implementation could begin immediately and is expected to continue until 2004, although a person familiar with the issues said it would be "extremely difficult" to secure the agreement of workers given the magnitude of change sought. The £300 million would be incurred over 15 years.

A crucial issue in the current talks is the implementation of an employee share option plan (ESOP) which granted 5 per cent of the company to its workers in return for changes agreed in 1996 as part of a previous transformation programme. This agreement reduced the ESB's workforce to 8,000 from 10,000 in 1997-1999 although the ESOP has yet to be implemented.

In normal circumstances, this cannot happen until such time as the company becomes a plc - with the Government as sole shareholder initially. This is not expected until next year at the earliest and some observers believe the Government may fall before the legislation is passed.

However, a "mechanism" to give effect to the ESOP is being considered by the Department of Public Enterprise. An ESB spokeswoman and a spokesman for the Minister for Public Enterprise, Ms O'Rourke, declined this week to comment on how the ESOP might be expedited.

But it is thought that the mechanism - described as "creative" by one well-placed person - would grant the 5 per cent bloc to about 9,000 workers and former workers in the short term. Yet the shares would be exercisable only when the company's status changed.

The valuation of the bloc is still under discussion, although another person familiar with the situation said it would be worth about £70 million on the basis that the company's net asset value was put at £1.4 billion in its latest annual report. Workers would gain more than £7,700 worth of shares on average in this scenario. The shares would be granted in the form of a profit-sharing arrangement.

In a further development yesterday, the Commissioner for Electricity Regulation, Mr Tom Reeves, published his first annual report. Mr Reeves is thought to be close to agreement with the ESB on the reserve price for an auction of virtual capacity on its network, although his report stated only that the reserve price would be set at a discount to the State company's average generation cost.