Mayor Col Murray revealed the delays on Wednesday, telling media he was "increasingly frustrated", after the project was first announced in 2019.

"When the Prime Minister and the Premier of NSW stood on that dam wall, and I was right beside them, when they made a very firm commitment to approve the funding and announce the funding to build Dungowan Dam, there was no discussion on that day about 'potentially if the business case stacks up' that they will consider the funding," he said.

"I and my fellow councillors and future councillors, I'm sure, will hold the government to account on that."

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The dam's business case was originally scheduled to be released in June 2021, before Water Minister Melinda Pavey delayed its release to "by the end of the year".

Before the latest delay, planning documents had been due to be released in "late 2021", according to the NSW Water website. Construction was also due to start in "late 2021".

The bad news comes after Tamworth Regional councillors voted unanimously on Tuesday night to conduct a study of the economic costs of the 2006-7 and 2017-19 droughts, in order to strengthen the case for spending on water security for the city.

It will be the council's first-ever study of the economic impacts of drought. The research will be conducted by the Regional Australia Institute in partnership with the CSIRO.

Council Director of Water and Waste, Bruce Logan said the council currently lack anything stronger than anecdotal evidence of the full cost of water shortages.

"There's two reasons why we're looking at this," he said.

"First is to go to the government, state and federal government, and say this is why we think that you need to continue on the path of providing more reliable water for Tamworth, because it does have an economic impact and we can actually tell you what that economic impact is.

"The second reason is because we will be able to better inform our community about what the impacts of drought are and use that to educate businesses and the community in general about how we'll handle drought in the future."

The cost of the study will be commercial in confidence, and will be funded from the council's water reserve.

It is expected the study will be completed by early 2022.

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Minister Pavey will travel to Tamworth to update council on the related Dungowan pipeline project on Thursday.

But Cr Murray said he also wanted answers about the $484 million dam project.

"How much and how long do we continue to activate these pre-construction activities before we actually start getting the bulldozers in and starting to build the structure that can store water?" he said.

A spokesperson for the Department of Planning, Industry and Environment said the dam is such a "critical piece of infrastructure" that "it's important we invest the time now in planning for its success".

"Despite the impact of COVID lockdowns across the state, the government is committed to completing the final business case and environmental impact statement as quickly as possible," the spokesperson said.

"Meanwhile, consultation with the community is continuing."

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