CountryLink will be carved off from the rest of RailCorp and run by a separate operator under plans being drawn up by the state government.

This will not necessarily mean the privatisation of CountryLink, which runs long distance train services and regional bus routes, but will leave it under a separate management and operational structure that will make it easier to be run by a private company in future.

Sources told the Herald the CountryLink proposals were likely to be among the first to emerge from an internal review of RailCorp that is almost complete.

The idea of separating CountryLink from RailCorp is to give it a new management structure, whose focus will be to encourage rural and regional transport.  The Transport Minister, Gladys Berejiklian, said: ''It is not the government's policy to privatise CountryLink.''

Despite enjoying a brief revival in patronage recently, CountryLink faces big challenges. The train fleet is about 30 years old, it repeatedly fails its on-time running target, and it faces pressure from freight companies for track access.

For most of the past decade, CountryLink patronage has been in steady decline. From 2.2 million passengers on its train and bus services in 2001-02, patronage slumped to 1.55 million in 2007-08.  It climbed to 1.89 million in 2010-11, with one of the main reasons for the revival being the removal of an online booking fee imposed on pensioners between 2006 and 2009.

One of the first hurdles for any new operator of CountryLink will be the replacement strategy for its XPT and Xplorer trains, which were introduced into service from 1982.

The government is also under pressure to find ways of increasing the proportion of freight that enters Sydney via train lines used by CountryLink.  Roger Fletcher, a Dubbo meat exporter and one of the board members of Infrastructure NSW, which is drawing up a 20-year plan for the state, said: ''There should be some efficiency gains where the train lines can be handled better.''

The Legislative Assembly's state and regional development committee is conducting a review of inter-regional public transport.  The committee chairman and Nationals MP Andrew Gee said the review would look at all options for improving services, including whether CountryLink should carry light freight, how to make the timetable more responsive and flexible to business passengers, and how the services could be used to promote regional tourism.

''I don't think people in metropolitan areas really appreciate how important CountryLink is in regional NSW,'' Mr Gee said.

CountryLink has not met its performance target of 78 per cent of trains arriving within 10 minutes of schedule since 2002-03.  Last year, less than 73 per cent of CountryLink trains were on time.

The RailCorp reform program has been run by consultants from Booz and Co.  The size of their contract, which was recently increased from $6.3 million to $6.5 million for 3½ months' work, has raised eyebrows in the industry.