The threat of a major confrontation between ESB management and unions over privatisation has been averted.

As expected, the company's board decided yesterday that recommending a change of ownership "would be inappropriate" at this stage.

That decision, however, is seen as a significant setback for the company's chief executive, Mr Ken O'Hara, who has argued for a partial flotation since last March.

His proposal was not put to the meeting. The board came down firmly on the side of ESB unions, which have argued against flotation at this time.

The board made its decision despite Mr O'Hara's strong argument in favour of a part flotation in a lengthy paper presented last year.

The paper is understood to argue that a public offering would protect the company's customer ethos, provide access to equity capital and commercial freedom, enhance ESB's international strategy and foster regulatory equality.

Senior management sources made it clear the immediate priority now was to make the company more competitive. Management would do so in "a spirit of partnership" with the unions.

The Minister for Public Enterprise, Ms O'Rourke, will brief her Cabinet colleagues on Monday on the options. However, she made it clear last night she regarded the board as "the best judges" of what should happen next.

Even so, a senior source accepted that the board would have pushed privatisation if it felt Ms O'Rourke wanted that option pursued. The unions have four board members and there are eight non-union directors.

Ms O'Rourke "noted" the unions did not rule out a possible privatisation in the future.

The prospect of a partial flotation being tabled at board meetings is unlikely before 2003, well after negotiations on major restructuring conclude with the unions. The board statement issued after the meeting emphasised the first priority was to agree a "strategy for . . . future development and growth" in "a spirit of partnership and real urgency" with unions. The ESB union group welcomed the outcome. Its secretary, Mr Paddy Reilly, described the decision of the board as "both positive and correct". "It clears the way to allow total concentration on dealing with the difficult and varied issues immediately facing the company and its staff. "The group of unions is committed to finding solutions in a positive and progressive manner using the partnership approach."

The first real test of the partnership approach will be on Friday when votes are counted on the network technician resources agreement. The 2,500 technicians comprise nearly half of the workforce and are responsible for connecting customers to the system.

If the terms are rejected, it will be a major blow to the company's Programme to Achieve Competitiveness and Transformation.