The deal between the government, Reliance Rail and its main contractor and investor, Downer EDI, stipulates that the government will release the funds in 2018 in return for 100% of the company's equity and for Downer to refinance its debts.

The commitment meant that Reliance Rail avoided a potential crisis last month when it was due to start repayments on a $A 357m bank loan which officials admitted the company might be unable to honour without state financial support. If the $A 175m is insufficient for Reliance Rail to refinance its debts in 2018, Downer will be required to pay Reliance Rail $A 12.5m.

Under the original contract Reliance Rail and Downer were obliged to deliver, and maintain the trains once they entered operation but retain ownership of the fleet. However, delivery is already 18 months behind schedule with only six vehicles in operation. A seventh was approved to enter service as IRJ went to press with the final train scheduled to be delivered in 2014.

NSW treasurer Mr Mike Baird says that the cost to the taxpayer would have been much greater if Reliance Rail was allowed to fail, adding that it would take between five and seven years to organise replacement trains.

"The reality is that without this agreement, the NSW Treasury estimates that the project could be facing up to $A 250m in penalties and up to $A 1bn in replacement funding," Baird says.