The Government is aiming to introduce legislation liberalising the bus market in the autumn following legal advice that private operators can no longer be prevented from bidding for CIÉ routes.
During high-level talks this week with three CIÉ unions, officials from the Department of Transport said the Road Transport Act 1932 needed to be replaced and a Public Transport Commission should be set up to allocate routes instead.
Government sources last night described the 1932 Act as "hopelessly outdated" and said European law made it necessary to establish a new system open to the private and public sectors.
They highlighted a judgment from the European Court of Justice in 2003, called the Altmark judgement, which stipulated that public service obligation payments to transport companies like CIÉ were only permitted following some kind of tendering procedure.
The officials have informed the unions the current narrow system of licensing by the Department of Transport could be successfully challenged.
At present the department has discretion over the awarding of licences, but under the latest proposals "public service contracts" could be awarded to various companies, not just CIÉ, for operating certain routes.
The Public Transport Commission, with a staff of between 50 and 60, would take over the licensing function from the department and would offer the public service contracts to interested parties.
The private bus industry has been campaigning for some time for greater access to bus routes and a regulator to supervise the whole sector.
Last year private bus operator Citylink was turned down for a licence to operate a Galway-Limerick-Cork service. The Department of Transport told the company there was no indication of demand for such a service.
A letter said that having studied the existing bus and rail options the service was "not required in the public interest". The Minister for Transport, Martin Cullen, told The Irish Times recently he was not happy with the department having the lead role in licensing.
However unions remain opposed to any erosion of the Dublin Bus or Bus Éireann networks.
This week three unions - Siptu, the National Bus and Rail Workers Union and the Transport Salaried Staffs' Association - held detailed discussions on the proposals with senior Department of Transport officials.
One union source familiar with the talks said the exact mechanism for allocating routes was the key consideration.
While unions are concerned about private operators cherry-picking certain lucrative routes, unions have also gained concessions during the talks including a promise that the CIÉ holding company will not be broken up.
The number of CIÉ routes that could be put out to tender is also likely to prove controversial. The last Minister for Transport, Seamus Brennan, supported putting 25 per cent out to tender, but Mr Cullen may push initially for a lower figure.
