Tamworth has six extra months of water before the taps run dry after 'urgent' environmental approval for use of the emergency Chaffey Dam pipeline.
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Friday's environment approval will allow water to be diverted from the Peel River down the pipeline, saving up to 50 per cent of water transferred for town use.
Commonwealth Environment Minister Sussan Ley said she had made the decision a week early, reflecting the "urgency of this decision".
"Tamworth is still experiencing the effects of drought, with levels in Chaffey Dam falling to 14 per cent as a result of three of the driest years on record in the region," she said.
"This decision was critical in securing the water supply needed to continue the city's ongoing function."
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At the moment Tamworth's town water flows from Chaffey down the Peel river where as much as half is lost, particularly to evaporation.
Pumping water down the 18.2 kilometre pipeline would reduce that water loss - but might have a negative effect on wildlife in the Peel River.
The Environment Minister said she had assessed the environmental impact and imposed a number of conditions to provide protection for those species and their habitat.
Without the pipeline, assuming no new inflows from rain, the Peel River was expected to cease to flow in early 2021, she said.
Despite what Federal politicians call the urgency of the situation, weekly environmental water releases ordered by the state government continue.
Earlier in June Member for Tamworth Kevin Anderson said he had brokered an end to the releases.
About 12 Olympic swimming pools worth of water was released down the Peel River last week.
Member for New England Barnaby Joyce said he was glad the approval had been finalised.
"It recognises the importance of working with regional communities to ensure we are managing water in the interests of the people who depend on it, particularly given the false conjecture about commonwealth environmental water, which is not being held in the Chaffey Dam or Peel Valley," he said.
In April Tamworth Regional Council formally asked for ownership and management rights of the pipeline, but the state government looks keen to maintain control.
Residents can expect a modest increase to water rates to cover the cost of the multi-million dollar pipeline and its ongoing maintenance.