The paper studies the process of PPP formation on the suburban passenger transport in Russia. Empirical evidence on the nature of relationship between local authorities and regional railway undertakings has been provided to rationalise basic assumptions made in the theoretical model. The theoretical findings show that PPP arrangement provides better incentives to invest in quality of services though direct welfare comparison with Compensatory Agreements is not possible due to different objectives of the parties.Institute of Transport and Logistics Studies. Faculty of Economics and Business. The University of Sydne
