The federal government says it has "formally demanded" that Omnitrax fix the washed-out rail line to the northern Manitoba town of Churchill.

In a release Friday afternoon, Natural Resources Minister Jim Carr said that the government is looking at all its options to ensure the contract is "respected and fulfilled," including seeking the repayment of $18.8 million it contributed to the Hudson Bay Railway line in 2008.

"Omnitrax Inc. has legal obligations to repair the rail line and its tracks," the release stated, noting the agreement requires the Denver-based company to "operate, maintain and repair the entire Hudson Bay Railway Line in a diligent and timely manner until March 31, 2029."

Severe flooding washed out the line to Gillam, Man. in May, disconnecting residents of the northern Manitoba community from the rail service that locals have described as a lifeline to the south.

Since then, food prices have soared and businesses have been forced to lay off staff as goods and materials usually shipped by freight are flown into the community at a much higher cost.

In July, Prime Minister Justin Trudeau said Omnitrax has a legal obligation to fix the line, but stopped short of threatening legal action.

Omnitrax has said it won't pay up to $60 million to repair the tracks. It has asked the federal and provincial governments for help.

"The government shares the concerns of the citizens of Churchill and northern Manitoba," Carr was quoted as saying in the release.

"We remain committed to the people of northern Manitoba and are currently exploring ways in which we can speed up the repairs of the rail line, while keeping in mind the immediate needs of the communities."

The government would consider working with a new owner, the release stated.

Mayor 'cautiously optimistic'

Churchill Mayor Mike Spence said Saturday that the important part is getting all the parties on the same track.

"I'm in contact with the federal government, I have been right from day one up to days ago. We are cautiously optimistic that the line will be up and running by the end of fall," Spence told CBC News.

"Time is ticking here, you know, we've got about 60 days. And I think they know, they've indicated, that they are prepared to have that line up and running. And we expect that."

He said he's also heard from Omnitrax, who wanted to share its report on the condition of the tracks and be a part of discussions.

"Putting together the model that works, that's important," Spence said. "But the first part of it naturally is, let's get the rail up and running so we can get our community back and get focused on doing what we do best."

Spence added that Churchill's tourism and shipping industries can play a big role in developing a truly northern focus for Canada.

"It boggles my mind when we've got a northern port here that's underutilized. You've got Quebec — they're planning a Plan North for northern development of their province. And here we are, we seem to be stuck into a mode here that's totally unacceptable as a province that has so much to offer in terms of a gateway to the communities north of us. That's where we need to go.

"And I believe that, in speaking with Minister Carr and the prime Minister, that there will be an opportunity for Churchill to play a role as we develop the next phase of developing a Northern Canada."

Earlier Friday, Manitoba Premier Brian Pallister promised provincial money to help Churchill. He said the province won't fund repairs of the rail line.

Spence said he was surprised by the announcement, which he says includes existing and future funding.

"But at the same time, we'll take it," Spence said.

CBC News asked Omnitrax for a comment Friday afternoon but has not heard back.