The ESB posted record profits after tax of £160 million last year, up 21 per cent on 1996, but has stressed it still needs to make significant cost savings as it prepares for competition in the electricity market.

The company also said it was confident it would be given the go ahead to increase electricity prices to consumers by an average of 3 per cent this year.

The price increase has not yet been sanctioned by the Department of Enterprise, Trade & Employment but discussions are ongoing. The rise is due as part of the ESB's cost & competitiveness review (CCR). The company's chief executive, Mr Ken O'Hara, said yesterday that there were no plans to increase electricity prices beyond this; increases in the future would be in line with inflation.

It is understood that the Minister for Public Enterprise, Ms O'Rourke, is reluctant to sanction the increase, which could see prices to domestic users rise by 5 per cent - some rebalancing of charges is planned - because the company's profits are so healthy.

However, the ESB argued yesterday that it needed money for investment in new plant and upgrading of existing plant. It plans to spend £1.7 billion over the next five years in this area. Figures released yesterday showed the ESB, which will face competition by the year 2000, achieved record turnover of £1.191 billion, up £87 million on 1996. The rise was achieved mainly through increased sales of electricity.

The company also connected 41,000 new customers, which helped lead to a 6.5 per cent in electricity demand. The company also benefitted from a 1.5 per cent price rise last year as part of the CCR. The company made operating profits of £234 million in 1997, up from £209 million the previous year.

ESB chairman, Mr Billy McCann said the CCR achieved savings of £24 million last year. He said that the £160 million surplus represented a 10 per cent return on capital employed which was still short of the 12 per cent target set out in the company's corporate strategy. This was the figure the ESB felt was necessary for it to meet the challenges ahead. He added that he was confident it would reach this target within a few years.

The ESB's accumulated deficit was reduced to £79 million and should be cleared this year. Borrowings fell by £37 million to £788 million. The company's debt to equity ratio is now 44 per cent - down from 50 per cent.

Turnover at ESB International, the company's international consultancy arm was largely unchanged, but the company's financial director, Mr Tony Donnelly, said it was expected to improve this year.

The ESB said it was negotiating to increase its 15 per cent stake in the Coolkeeragh Power Plant, an oil burning generator company that currently supplies Northern Ireland Electricity. The ESB would not reveal how much it was paying, but its 15 per cent stake is said to have cost £500,000. This would bring its investment to close on £1.5 million.

Mr O'Hara said the ESB would be spending £120 million in an overseas investment programme which it would carry out over the next few years.