KiwiRail could face competition to run Wellington's commuter rail services if it does not improve its operation.
The Government has agreed to let the Wellington Regional Council take control of the stations and trains from state-owned KiwiRail.
It effectively separates KiwiRail's ownership of the tracks from its role operating suburban trains.
The council says this would allow a competitive tender for the commuter services.
KiwiRail's chief executive Jim Quinn says his company must improve the delay-plagued service if it is to win a contestable contract.
Passengers at Wellington Railway Station say they do not care about the structure, just hope more trains will arrive on time.
$168m more on improving rail network
The Government and the regional council will spend a further $168 million on improving the region's beleaguered rail network.
About $550 million has already been spent on upgrading the network, including the purchase of 48 two-car trains from Korea.
The Government will pay $88 million to renew the rest of the signalling and traction assets, and the council will pay $80 to refurbish the 30-year-old Ganz Mavag Trains, rather than buy extra of the more expensive new trains being built in South Korea.
Transport Minister Steven Joyce says the train system has been an ongoing source of frustration for many commuters, and this package will transform it into a modern, reliable public-transport option.