The ESB is believed to be seeking around £250£300 million from British Telecom as compensation for its share of Ocean, a joint telecoms company which the two companies operate.
If a deal is not reached, the ESB has threatened to try to block BT from proceeding with a £1.9 billion takeover of Esat, the Republic's second-biggest telecoms operator.
The ESB was yesterday given permission in the High Court to seek an interlocutory injunction on Monday restraining BT from proceeding with the takeover. Talks between ESB and BT advisers continued last night and will resume today. BT is believed to want to merge Ocean's business with Esat's to create one large player in the market.
An ESB spokesman said the company had "no desire to engage in court action of this nature, but it is vitally important for the State-owned company to get the appropriate value of its investment".
On Tuesday BT launched the Esat takeover, which was recommended to shareholders by the Esat board. BT is currently involved in the Irish telecoms business through Ocean. It owns 50 per cent of that company and is using some of the ESB's infrastructure to develop a network.
The other 50 per cent of Ocean is owned by a joint-venture company owned by ESB and AIG, a giant US insurance company, which hold 30 per cent and 20 per cent respectively. They believe they have a joint-venture agreement with BT which says BT can only operate in the telecoms market in the Republic through Ocean.
BT emerged as a "white knight" this week, brought in by Esat to successfully ward off a hostile bid by the Norwegian telecoms group Telenor.
After the takeover was announced BT met ESB representatives. It is understood the ESB asked BT for a list of options.
On Thursday BT put an offer to ESB and AIG to buy them out of Ocean, but this was rejected. Investment bankers Dresdner Kleinwort Benson are acting for the ESB.
It is understood the ESB is claiming compensation for loss of future earnings as well as its investment. It was said last night that the ESB and AIG put the future value of Ocean at £500£600 million, which means they are seeking up to £300 million.
Valuing a company such as Ocean, which is still in its early phase, is extremely difficult. One well-placed source said last night that the company is currently worth in excess of £200 million.
Ocean initially aimed at the more lucrative corporate market, but is turning its attention to the residential market. It also claims to have 90,000 Internet users and was the first to introduce a free Internet service last year. It has also been building its brand aggressively over the last year.