"We [ Fine Gael] argued for over a decade that there was a role for private operators in the market. But this is not a single-party government. Coalition means compromise. I won't speak out of line but it won't surprise anyone that there were divergent views on the matter when it was discussed at cabinet," he told a transport industry seminar last week.
Mr Varadkar said that despite his own personal preferences he is bound by the Programme for Government, which promises to "rebalance the transport policy in favour of public transport".
He said that CIE ran a deficit of €275m before the State bailout of €36m – and still had a €6m deficit after it was handed over, and its pension fund is €175m in deficit.
He said that the subvention given to CIE will, from 2014, be shared with private operators, a position that puts him on a collision course with Labour and the public sector unions.
Mr Varadkar said he has instructed his officials to allow private operators into routes vacated by the indebted State company Bus Eireann.
"Savings in State subsidies for bus services following the introduction of competitive tendering have been between 20 per cent and 30 per cent of the cost previously provided by the monopoly public company," he said.
The minister has indicated that once Bus Eireann ceases operation of particular routes, and they are then taken over by a private operator following a tender process, then that private operator would be protected and Bus Eireann would not be allowed to return to operating it.
He cited a route in the midlands between Portlaoise and Urlingford, which has been abandoned by Bus Eireann and has been taken up by a private operator.
"While the service will not be subsidised, it will be protected and will be exclusive to the private operator."
Speaking to the Sunday Independent, Mr Varadkar said there was a strong argument in favour of competition, saying " Aer Lingus is stronger as a result of competition and the Irish energy companies are stronger because of competition.
"This may have to be done slowly. I am not talking about threatening the viability of CIE, but as a reform which can broaden and strengthen public transport. But it is my view private operators have a role in the Public Service Obligation market," Mr Varadkar said.