The Maldon-Dombarton rail line would cost up to $667 million to complete, according to the NSW Freight and Ports Strategy.
The strategy, released by Ports Minister Duncan Gay on Saturday, cites a recent study that estimated the cost at $624 million to $667 million to complete the line.
It also estimated that the line - a 35-kilometre link between Maldon in the Southern Highlands and Dombarton near Port Kembla, which would allow freight to and from Port Kembla on rail - is 15 per cent complete.
The strategy also targeted key issues that would need to be addressed if the line was built.
These include "the environmental and contamination issues associated with building and operating a diesel-hauled railway through part of the Sydney water catchment."
Also, there was a need to redesign the four-kilometre long Avon tunnel - one of the longest in Australia - to deal with the emissions from freight trains.
The strategy stated the need for an alternate rail route to separate freight and passenger lines.
"The movement of cargo to and from the international maritime gateways at Port Botany, Newcastle and Port Kembla is a significant issue for the NSW transport network," it said.
"The movement of bulk and break bulk cargoes to Port Kembla by rail has a direct impact on the metropolitan rail network due to the volumes of grain and coal that transit through Sydney from western NSW.
"Similarly, steel products originate at Port Kembla and are transported nationwide by train using the Illawarra line for the first part of the journey."
The report identified the Maldon-Dombarton line "would support the rapidly expanding resources sector in NSW by giving the mining sector alternate access to Port Kembla".
"Additionally, it may enable Port Kembla to provide overflow capacity for Port Botany's container business and provide a more reliable link between the south-west and western coal mines and the rest of the eastern seaboard."
There are two rail routes linking the Port Kembla Coal Terminal to the western coalfields. One is via Tempe and the Illawarra line, the other is through Moss Vale.
The Maldon-Dombarton route would be two minutes faster than the Illawarra.
However, coal from Tahmoor - using the Moss Vale line - would arrive 90 minutes faster if the Maldon-Dombarton rail link was in place.