While the return of rail service to the Mountain Division line may still be a ways down the track, Gov. John Baldacci may seek federal funding for the project later this year, state officials said.

Dan Cashman, a spokesman for the Governor’s Office, said last month that it is “highly likely” that a request for $20 million in improvements to the Mountain Division line, a 50-mile stretch from Portland to North Conway, N.H., will be part of the state’s application for transportation funds from the so-called stimulus bill. The deadline for applications for the $1.5 billion in competitive grants is Nov. 17, and long-term improvements to the transportation system and job creation are the top two criteria, Cashman said.

The state purchased the 5.2-mile portion of the line from Westbrook to South Windham last year for $805,000 from PanAm Railways using a voter-approved bond. The Windham-to-Fryeburg section was bought for $1 million in 1997.

“Improvements to the Mountain Division line would greatly enhance freight rail opportunities in western Maine, as well as open that region up for excursion passenger service,” Cashman said.

According to the Maine Department of Transportation, around $20 million is needed to make the Mountain Division line, with all but the Portland-to-Westbrook section out of service since 1984, suitable for freight and excursion service. Another $22 million would be needed before the rail could handle the speed and comfort necessary for commuter service.

Sen. Bill Diamond, D-Windham, said he has been assured by Transportation Commissioner David Cole that the project will be included in the Governor’s request.

“It’s good to see the Governor has this on his radar,” said Diamond. If the application for the grant is successful, work could start next year, he said. “It’s going to take a while, but we like what we are seeing so far.”

New rail service would likely start with the shipping of freight, then expand later to excursions, Diamond said.

The reintroduction of rail service between Fryeburg and Portland, via Windham and the Lakes Region, could be a boon to business, said Standish Town Manager Gordon Billington.

“That would be a magnificent thing to happen to the economics of the area, right up to Fryeburg,” he said. “What it could open up there is spectacular.”

Businesses along the line are excited to see how rail service may lower the cost of shipping and receiving goods, Billington said. There are opportunities for local companies to ship material like aggregate soil to larger markets, like Boston, he said. Cruise ship companies have also shown interest in an excursion rail to bring passengers from Portland to western Maine, Billington said.

Rail service along the Mountain Division line does face some challenges.

According to a Department of Transportation study released last year, one or two large-scale users of the line would have to sign on in order for the service to be viable, and most of the businesses identified along the route do not ship in sufficient amounts.

But supporters of the rail service, including Stephen Estes, a quarry owner in Baldwin and a local economic development leader, said entrepreneurs will come forward and take advantage of the new infrastructure once it is in place.

“We can go and try to find markets and see if we can make them work,” he said last year.