In another blow to the development of Queensland's Galilee Basin, Australia's largest rail freight company says it will withdraw its application for a Federal Government loan to build a massive rail corridor.

Aurizon's announcement to withdraw for a loan application from the Northern Australia Infrastructure Facility (NAIF) is another sign that Adani's Carmichael coal mine remains stuck on the drawing board.

Under the arrangement, a number of resources companies like GVK Hancock could have used the rail line to get raw material from the Galilee Basin to the east coast and ultimately the Abbot Point coal terminal.

In a statement issued this morning, Aurizon CEO Andrew Harding said the company was unlikely to secure enough customer contracts to go ahead.

"Our NAIF application is, in part, predicated on having customer contracts secured," he said.

"Given this is unlikely to occur in the near future we believe it is prudent to withdraw the NAIF application."

Mr Harding did not rule out changing that position in the future.

"If market circumstances change and our discussions with potential customers progress to commercial arrangements we will look at all possible financing arrangements to develop the rail solution."

The decision throws more cold water on Adani's prospects of developing the controversial Carmichael mine.

Adani's own application for a NAIF loan was dashed after Premier Annastacia Palaszczuk last year said the Queensland Government would use its right to veto any application from Adani to NAIF.

During a Senate hearing in Cairns a week ago, NAIF CEO Laurie Walker declined to elaborate on the status of the Aurizon application.

"It is fluid, very fluid as to whether things are moving in or out from active to inactive," she said.

Aurizon's withdrawal from the NAIF process frees the Labor State Government from the need to make an awkward decision about whether to allow or veto the loan, following pressure from anti-coal activists.