CIE will seek a fare rise in line with inflation or an increase in its £142.1 million (€180 million) State subvention, its chairman indicated yesterday.

Dr John Lynch said the group's board believed public transport prices should be increased annually in line with inflation though he added that it was for the Government to decide on fares and the subvention payment.

Yet observers believe a fare increase is unlikely, especially because the Government is keen to arrest the Republic's inflation rate of 6.2 per cent - the highest in the EU.

A spokesman for the Minister for Public Enterprise, Ms O'Rourke, said there was "no question" of the group being granted a further increase. Fares rose by about 5 per cent last January, he said.

When asked whether Ms O'Rourke would be willing to increase the subvention, the spokesman said the Minister had been "very supportive" in terms of the group's capital spending programme.

The group's latest annual report revealed it received £35.1 million (€44.57 million) more from the Government last year than in 1998.

The £142.1 million subvention included payments of £5.8 million to Bus Eireann, £13.2 million to Dublin Bus and £123.1 million to Iarnrod Eireann. Some £29.1 million paid to the rail company was spent on its safety programme. Additional elements of this will cost £47 million, which was credited to deferred income. Despite the expenditure, a highly critical report last March by a British consulting firm, International Risk Management Services (IRMS), said "very few" previously reported unreasonable risks were fully resolved.

While Iarnrod Eireann had done a great deal to reduce risk on the rail network, the consultant's audit said there was a danger of "not consolidating upon safety improvements in a methodical and robust manner".

CIE's annual report said the programme would ensure its rail system was comparable to the best in Europe.

Revenues last year rose to £375.2 million from £358.3 million and the group's surplus increased to £17.1 million from £11.7 million. Losses before the subvention rose to £110.8 from £82.9 million.

The group, whose train services were significantly curtailed during a 10-week strike by train drivers this summer, acknowledged a "huge quality deficit" in its rail and bus fleets and facilities. Substantial expenditure was needed to clear an investment backlog, improve services and attract motorists to use public transport. The group invested £170 million last year, it said.

CIE welcomed the proposed £2.2 billion investment in transport in the National Development Plan but said considerable extra expenditure would have to be generated internally.

Dr Lynch's first statement since his appointment last March said the norm in other states was to adjust public transport fares in line with annual inflation. "The board advocates that this policy be followed in Ireland."

Dr Lynch's appointment followed the resignation of Mr Brian Joyce due to his "fundamentally differing views" from Ms O'Rourke on the question of CIE's autonomy.

Ms O'Rourke is considering the dissolution of the CIE group and divesting the State's ownership of either Dublin Bus or Bus Eireann, which would compete with each other. In the Minister's latest proposal, published earlier this week, Iarnrod Eireann would be divided in two - one company would maintain the rail infrastructure and the other would operate its services.