Privatisation of public transport assets such as commuter rail networks is a highly emotive issue. Credit:Fiona Morris It is that independence that has long made the line an attractive target for those keen on injecting more of the private sector into the state's historically public-run railways. "By and large, the reason people always get excited about the Illawarra Line – and I can assure you that they were getting excited about the Illawarra Line in the early 1990s – is that it's basically self-contained," former CityRail general manager Dick Day says. The prospect of privatisation is never far away in the occasionally paranoid world of NSW politics. But there is a drumbeat of speculation that Premier Mike Baird's government may have major changes on the agenda. Suspicions were fuelled this week when Treasury bureaucrats refused to release nearly 100 documents relating to the privatisation of transport assets. They declared the documents cabinet in confidence.

In Newcastle, the government has already announced significant changes. Having failed to mention the policy before last year's election, the government said in November it would put the operation of Newcastle's buses, ferry and light rail line (once it is built) in the hands of a single private company. Unions, blindsided by the wholesale privatisation in Newcastle, have argued that further "privatisation by stealth" could occur further south in Sydney. Indeed, in some respects it already is occurring. The government's modus operandi seems to be that, when it spends significant new money on infrastructure, it also hands the operational keys to the private sector. The community gets a new train line, tram or service. But it is not operated under the old government-run model.

That is the case with plans for a new $20 billion-plus metro line to cut through Sydney. The first stage of the metro line will be run by Hong Kong's MTR Corporation. If MTR wins further contracts, that means it will take over the running of two lines operated at present by the state-funded Sydney Trains: the Epping to Chatswood Line and the Bankstown Line. There are also plans for rapid-bus systems along key corridors such as Victoria and Parramatta roads, and to the northern beaches. Here, too, the Baird government is likely to put their operation in private hands. "B-Line [to the northern beaches] will be run by an accredited bus operator, which will be determined closer to the scheduled start of operation in late 2017," a Transport for NSW spokeswoman says. A tougher nut to crack, however, will be Sydney's existing bus and rail operators. "The low-hanging fruit has been picked over the years by the governments," Geoffrey Clifton, a lecturer in transport management at Sydney University's Business School, says.

Privatisation has often led to better value out of the private operators and better service standards, Clifton says. "But what has never been tried are the trains or STA [State Transit Authority] bus services, and that is because they are big and politically they would have difficulty privatising," he says. Large companies such as Transdev already operate the vast majority of regular bus services in western Sydney. And Sydney's ferries, for the past four years, have also been run by a for-profit company. According to the state's acting Auditor-General, Tony Whitfield, the decision to hand the running of the ferries to an operator has resulted in good services and about $100 million in savings. Clifton believes privatising State Transit would lead to considerable savings. That would most likely be achieved through cuts to the size of its highly unionised workforce, conditions and work practices.

It is a proposition the Rail, Tram and Bus Union has made clear it would fight aggressively. Privatising state assets is highly emotive. The very word conjures thoughts in the public mind of outright sales of public assets, similar to what Australia undertook in the 1990s with the sharemarket floats of national institutions such as the Commonwealth Bank and Qantas. And privatising transport services has a chequered reputation. In the mid-1990s, the British government under John Major privatised British Rail, and about 25 companies operated overland passenger services. The government privatised almost everything it could: from ticketing contracts, to ownership of tracks and ownership of trains and carriage. The thicket of corporate confusion that resulted from this policy is widely regarded as an example of what not to do. "What we know from that is that you have to carefully manage the different responsibilities in the rail network. It requires careful government planning, and the lesson was that governments shouldn't relinquish too much control of setting the fares, service standards and routes," Sydney University's Clifton says.

Indeed, more recently, many transport services have been brought back under government management in Britain. The Tube is now more closely under the control of Transport for London, the local government charged with oversight of the mass transit system. Following the British experience, the Baird government is likely to pursue a simpler model. That model would be founded on outsourcing the running of public transport to the private sector. But the state would keep ownership of the assets and set the ground rules for fares, routes and customer-standard levels. That's not to say that large investors don't have an equally large appetite for public transport – they do. Many investors prefer the owner-operator model sharpened by Hong Kong's MTR. In the Chinese territory, MTR owns the network and – most importantly – has valuable developer rights to build apartment towers and shopping centres around and over the metro line.

"If you were to sell the entire [Sydney rail] network and operational business in a city with population growth and expansion opportunities, it would be very attractive," Andrew Chambers, senior research analyst at investment house Martin Currie, says. Even the sale of the franchise rights to operate services could "still be a decent business", he says. However, he says any sale would be highly sensitive politically. Public transport plays a role every day in the lives of the vast majority of people, unlike infrastructure assets such as ports. "There is no doubt that it seems easier to sell infrastructure which voters don't use directly every day ... whereas they do with public transport," he says. While NSW's Treasury might see the benefits, for transport bureaucrats the idea of splitting off parts of Sydney's rail system – even the Illawarra Line – would be easier said than done.

"The history of it is that trying to hive off a bit of a network can be pretty flawed. It is not a simple task and you wonder why you would bother. Where it has been tried, it has not been a happy experience," former CityRail general manager Day says. "Everywhere you look, even though initially people see that bit is separate, you realise that there are multiple interfaces. Very quickly, a split becomes very painful."