Indian-owned coal company GVK Hancock and Australian rail freight company Aurizon have agreed to jointly develop a rail line to transport thermal coal from Queensland's Galilee Basin to export terminals.

The two companies "have made further progress over the last few months and have reached alignment on a rail solution and on the commercial terms for the proposed transaction such as governance, timing of milestones, funding and conditions for completion," GVK, an Indian conglomerate, said in a statement Monday.

The project is estimated to cost $5.5 billion.

In March, GVK Hancock and Aurizon signed an agreement which paved the way for Aurizon to acquire a 51 percent stake in Hancock Coal Infrastructure, which is the owner of GVK Hancock's Galilee-based rail and port projects.

"The proposed arrangement is intended to provide sufficient equity and debt funding (including through third party debt finance) for the projects to reach financial close," GVK Hancock said.

GVK's Alpha coal project in the Galilee Basin, already approved by both the federal and Queensland state governments, is expected to produce about 32 million tons of coal a year from an open-cut operation over 30 years.

GVK paid Australia's Hancock Group $1.26 billion for the Alpha deposit in September 2011.

This month, GVK's Kevin's Corner project, also in the Galilee Basin, received environmental approval from the Queensland government. The Kevin's Corner and Alpha projects together hold total resources of 8 billion tons of coal.

"There has been considerable work by both parties over recent months to better define the rail transport solution for the project, both from an engineering and a commercial perspective," Lance Hockridge, Aurizon's managing director and chief executive, said in a statement Monday.

"We can see from our assessment that GVK Hancock's coal assets are very well advanced."

However, initial plans to develop a dedicated rail line have been scaled back to establishing an open-access link that will also use an existing rail line along a large part of its route. That means other coal projects in the region could use the link.

As part of Monday's agreement, GVK Hancock and Aurizon said they would initially build 186 miles of rail instead of 310 miles as had been planned, but retain the option to build the remaining 124 miles.

The trains running on the narrow-gauge rail line will be able to carry 25,000 tons of coal and connect into Aurizon's existing network of rail lines in Queensland that are used to transport coal to export terminals.