Cityrail's eastern suburbs and Illawarra line would immediately be offered to a private sector train company and the rest of the network put up for review, according to an industry proposal to the state government.

The proposal, by Infrastructure Partnerships Australia, would also spin off CountryLink services to the private sector. The series of measures would aim to save hundreds of millions of dollars a year from the rail operation.

Privatising the eastern suburbs and Illawarra line, which largely runs separately to the rest of the system, has long been a goal of parts of the bureaucracy and the private transport industry.

But the latest proposal comes amid heightened government interest in the future of the system. The government's infrastructure adviser, Infrastructure NSW, has made it clear it has little faith in RailCorp.
And Transport for NSW has hired Booz and Co consultants to perform a $6.3 million, four-month review of RailCorp.

The Transport Minister, Gladys Berejiklian, has said nothing is off the table in that review. But when asked about the proposal, she said: "It is not government policy to franchise RailCorp."

The IPA's proposal, prepared with Aegis Consulting, says the taxpayer subsidy for every trip on CityRail was $6.77 in 2005-06 and $8.33 in 2009-10.

The chief executive of IPA, Brendan Lyon, said: ''The government has said nothing is off the table in its review of RailCorp, meaning serious consideration of franchising is not only likely, it is imperative.''

But the supposed benefits of privatisation are contested. An RMIT University academic, Paul Mees, says the privatisation of the Melbourne system cost the government about $2 billion more in contract payments to the new operators in a decade.