CIE's problems have not gone away. Its companies will be primary beneficiaries of the £2.2 billion (€2.79 billion) investment in public transport under the National Development Plan.

However, a lingering dispute over bus-drivers' pay and concerns about the implementation of a rail safety programme - worth £100 million this year - suggest that long-standing industrial relations and management difficulties at the State-owned group remain to be resolved.

Also, Dublin Bus faces the prospect of competition on bus routes in the capital. Despite confident assertions by CIE chief executive Mr Michael McDonnell that the group will embrace competition, objections by the group's chairman, Mr Brian Joyce, to the Luas project - which will operate independently of CIE - indicate that the challenge may not be relished.

For all that, the group is no longer constrained by a demanding viability and efficiency programme designed to trim £44 million from its cost base. Introduced by the Rainbow Coalition in 1994, this plan took four years to conclude in Dublin Bus - though incomplete, it is still being implemented by Irish Rail. But at Bus Eireann, the company perceived to be the most progressive in the group, the plan stalled in 1997 after a strike threat from workers.

The group now operates in a changed environment. Whereas the central thrust of public policy since the 1970s was to cut back on public transport, it is now almost universally accepted that investment in it is the only way to ease the traffic crisis on the roads and cater for the move from Dublin to satellite towns caused by spiralling property prices.

The Government's commitment of £2.2 billion for public transport in the National Development Plan underlines this. The Plan includes a £1.6 billion investment programme in the greater Dublin area and £650 million for the regions.

In what is seen as the most poorly performing of the semi-State companies - with the most intractable management and industrial relations difficulties - the key issue is now quality of service, not cost cutting.

"The basic problem is relieving gridlock in Dublin," says Mr McDonnell. "The question is how to do that. The perception was always that the bus was the poor man's mode of transport and the reason for that is that the quality of the fleet has been appalling."

Given the current investment, however, CIE's traditional argument that the poor quality of some its services was due to lack of investment will be increasingly difficult to sustain.

At the same time, observers point out that where investment has been made, as with the Enterprise train service to Belfast, the group has performed well. Another positive example is the development of hourly bus services to provincial cities by Bus Eireann, using a comfortable fleet.

Frequency and time certainty are equally important, says Mr McDonnell, arguing that this point proved by a 150 per cent rise in passenger numbers on the south Dublin Quality Bus Corridor (QBC) since last summer and the continued high use of the DART. Addressing Trinity College, Dublin students last month, Mr McDonnell said: "The focus of public transport policy should be to replicate the Stillorgan QBC conditions along all routes into Dublin city and to follow a similar policy in provincial cities."

Meanwhile, CIE is being closely monitored by the Minister for Public Enterprise, Ms O'Rourke, who has stressed that "real benefits" must accrue from the investment.

The Minister told the Dail last month of her concern that "unreasonable risks" on the rail network remain to be fully resolved. This is despite an investment last year of £80 million in a safety programme, for which a further £100 million has been committed this year. An audit report by the Minister's advisers, International Risk Management Systems (IRMS), is understood to raise "serious concerns" that fundamental priorities have yet to be addressed in the implementation of the programme.

"IRMS experts were at all times accompanied by on site visits by Iarnrod Eireann staff who would have been aware of the deficiencies as they were discovered," said Ms O'Rourke in the Dail.

Those familiar with the company argue that this is symptomatic of CIE's dated management and work structures, which allow for little creativity and flexibility. Sources also suggest that the group's board, which includes four worker directors, has often concerned itself with day-to-day operational matters instead of concentrating on wider, strategic issues.

Renewed media allegations about the management of the group in the mid-1990s have also been damaging. CIE's former chairman, Mr Dermot O'Leary, is suing the State over the circumstances of his departure in April 1995, about nine months into what was planned to be a five-year term of office.

Industrial relations difficulties continue. The overall climate may have improved from the crisis-ridden days of the 1980s when one GAA fan was moved to write "Barney Rock strikes faster than CIE" on a banner, but a recent one-day stoppage over pay at Dublin Bus indicates an underlying dissatisfaction with conditions.

The current dispute with the National Bus & Railworkers' Union is the subject of arbitration at the Labour Relations Commission. The core issue is low basic pay rates in the context of the economic boom and high property prices.

While the traditional solution to this has been to offer attractive overtime deals, the NBRU argues that workers have to work long hours to earn a basic living. Mr McDonnell appears to accept this: "Young people don't want to work six and seven days a week. I think the guys should be paid a decent day's wage for a decent day's work."

But company sources argue that the solution to the current problem lies in the unwinding of inflexible and inefficient "restrictive practices" which are still a feature of work at the group. In the classic - if extreme - anecdote, a worker clocks in at one railway station, before travelling by bus to another depot, on the company's time, to commence the day's duties.

Competition is another matter. Since last November, the Government has been reviewing the 1932 Road Transport Act, which underlines CIE's monopoly, with a view to introducing competition in Dublin. This process is also likely to result in legal recognition of de facto competition which has existed in the long distance bus market for many years.

The review is in keeping with EU policy, the thrust of which, since the mid-1980s, has been to liberalise the transport, telecommunications and energy sectors formerly dominated by state firms.

"We will work within whatever regulatory environment the Government decides on," says Mr McDonnell. "I'm not afraid of competition. All I want is a level playing field."

The review is unlikely to favour full competition, as experienced in rural areas of Britain, where premier routes were "cherry picked" at peak times, while non-profit making routes were under-serviced.

Officials from the Department of Public Enterprise are understood to be examining models used in Helsinki, Stockholm and, to a lesser extent, London, in the review.

In these cities, certain bus routes are gradually tendered out by a public transport authority, which has the power to revoke licences if firms do not provide an appropriate level of service. Common ticketing is a feature of this model, which allows for state-owned and private firms to secure a state subsidy to operate non-profitable routes. Only a fraction of routes yield a profit for Dublin Bus, but the thinking is that competition fosters both efficiency and profitability.

The NBRU's general secretary, Mr Peter Bunting, is not convinced by this argument. "The whole basis of competition is to improve price. But public transport is supposed to be financed by the State. Gross underfunding is responsible for the quality aspect of this."

Whether the Government opts for the Finnish or Swedish systems remains to be seen. But such a move would necessarily involve creating a public transport authority, similar to the regulatory regimes established in the liberalised electricity, telecoms and airport industries.

As outlined in his speech to students last month, Mr McDonnell's views on this are firm. "Any new legislation on public transport should specifically designate CIE as a public transport authority as this is the only body with expertise in network design, which all commentators agree must be at the core of any effective public transport system." Mr McDonnell argued that the creation of internal "Chinese walls" would mean there was no contradiction in this. Similar systems, he said, existed in other European cities.

It is unclear whether the Government would accept this argument.