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Lac-Mégantic, Quebec after an oil train derailed in the centre of the town, causing extensive damage.Moe Doiron/The Globe and Mail

A federal agency says that the rail company whose train crashed in Lac-Mégantic in July has adequate insurance to keep operating for the next month and a half, however the company's long-term future in Canada remains unclear.

The Canadian Transportation Agency said late Friday afternoon that Montreal, Maine & Atlantic Railway provided evidence that it had adequate third-party liability insurance coverage to operate from Aug. 20 to Oct. 1, 2013. For MM&A to continue operations, it must file with the agency by August 23.

MM&A was granted creditor protection on Aug. 8 after the company said it couldn't afford the cleanup and reconstruction of the small Quebec town, devastated by the derailment of an oil train on July 6. Last week, the agency said in a statement that the railway failed to demonstrate that it had "restored [its] insurance level to what existed prior to the Lac-Mégantic derailment," and suspended its operations in Canada.

On Friday, the agency reiterated that the new decision allows the company to operate only in the short term.

MM&A chairman Edward Burkhardt told The Globe and Mail on Friday evening that his company asked for an extension of operations until Oct. 1 to allow the company to gauge whether other train carriers have interest in operating on MM&A rail lines.

"We're working out some longer-term plans of continuation of service [in Canada]," he said, adding that that the Quebec Ministry of Transportation would have to approve other rail carriers using his company's lines.

In that case, the Canadian Transportation Agency would have to approve operations past Oct. 1.

The agency could not be reached to comment on the company's future in Canada.

Some residents of Lac-Mégantic on Friday expressed frustration with the news that the company could continue operating temporarily.

"That's not the best news, I was happy when they lost their permits because it allowed us to start working with new companies to get the tracks working again," said Béland Audet, the head of local transportation company Logi-Bel. "This yo-yo game is absolutely stupid."

At the heart of Lac-Mégantic's industrial park, Mr. Audet's office has been central in the town's efforts to resume rail service to nearby factories.

Town spokesman Nicolas Carette would not comment in detail on the agency's decision, simply saying "There's a judicial process at work."