State-owned companies need a new mechanism to obtain private sector funds if they want to expand in future years, the ESB's chief executive has said.

Pádraig McManus was speaking at the opening of the group's largest international investment project to date in Bilbao, Spain.

The electricity company, along with its partners, is investing €500 million in the new power station located at Amorebieta.

While there were a small number of protestors outside the station yesterday objecting to the location of the plant, the investment has been broadly welcomed by politicians in the Basque region. It will take about 15 years for the project to pay its own way.

At present ESB International contributes about 7 per cent of group profits, but Mr McManus said he was anxious for this to rise to about 20 per cent in coming years.

"What we want to do now is get another project like this," he said. He said the company was looking at similar projects in Southampton in the UK and in the Netherlands, where the company has an option on a site. The company is also considering investing in wind projects in Spain.

Mr McManus said if an all-Ireland market came into existence in the electricity sector, the ESB would only hold about 40 per cent forcing the company to increase its international activities.

"The European market is so big, what we want to do is take chunks of it every now and again," said Mr McManus.

However, he said the company could not just rely on bank borrowings for future growth and an alternative was needed.

"[ State] companies cannot continue to borrow at the level they borrow. When I became chief executive, the borrowings of ESB were at €700 million and they are now about €2.3 billion. There is a limit to how far you can go in that regard," he said.

Asked whether private investors would be interested in State companies, he said he believed there would be "an appetite out there for people to invest in State companies again, depending on the particular State companies".

"I believe some mechanism in the future has got to be developed whereby it is possible for the private sector to invest, as opposed to the companies continuing to borrow," he said.

The Irish Congress of Trade Unions (ICTU) suggested recently that the private sector - particularly pensions funds - should be allowed invest in State companies via a state holding company.

Mr McManus said he personally was not necessarily a supporter of the ICTU plan "but I don't have the model either".

However, the Minister for Communications Noel Dempsey, also speaking at the opening of the plant, said he was happy that ESB could meet all its capital requirements via bank debt.

"They can borrow, they are very highly rated, so it's something they can carry," he stated.