After spending six months considering a knotty ownership issue surrounding the project, a state government working party recommended the council maintain control of the Dungowan pipeline.

The state government would control the dam itself through a corporation.

According to a business paper published by Tamworth Regional Council, the ownership structure would mean "no additional impact to customers" in terms of water costs.

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"The working group has recommended an option that would, amongst other things, minimise the financial impact on Council and its water customers," according to a report to council, published on Friday.

Council Director of Water and Waste Bruce Logan will submit a recommendation to council at its Tuesday meeting that the council endorse the proposed arrangement for ownership and operation of the dam and pipeline, on condition that the infrastructure is provided for free.

He will also recommend that council write to Minister for Lands and Water Kevin Anderson to insist that the council not be made to pay increased prices for access to bulk raw water from the dam "should the new Dungowan Dam project proceed".

"Projections undertaking by the working group indicate the impact on council's water customers would be so great, customers would not have the capacity to pay the required charges if the new dam is owned by WaterNSW and not considered a contributed asset [so costs were not passed on," he said, in the report.

According to the report to council, there will be financial implications for council regardless of the ownership model ultimately decided by the NSW Government.

"Council will have to write off the value of the existing Dungowan Dam and Pipeline, and the land owned by council that will be inundated by the new dam in its present asset base - approximately $42 Million," the report stated.

"If council ultimately becomes the owner of the new Dungowan pipeline, then an asset estimated to cost $150 Million will be added to Council's financial asset base."

Ownership issues are crucial for water pricing due to the potential for the Independent Pricing and Regulatory Tribunal to pass on the cost.

If the dam or pipeline, or both, were to be owned by WaterNSW, under water pricing rules, capital costs could be potentially be partially recovered from customers, through the tribunal.

The dam is forecast to cost about $1.3 billion to build.

A spokesman for Mr Anderson said that no decision had yet been made on the ownership of the new dam and pipeline, but Tamworth residents hanging out for one wouldn't be waiting long.

"The NSW Government is working closely with WaterNSW and Tamworth Regional Council to determine who will own and operate the new dam and pipeline, which is expected to be resolved by the end of next month," he said.

"If the assets are owned by Tamworth Regional Council, it will be a matter for them to determine the water rates and any cost recovery."

President of the Peel Valley Water Users' Association, John Richards, said being made to pay back the cost of the dam would have been a major financial burden for the residents and businesses of Tamworth.

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Because irrigators won't see any additional water, or improved water security from the new dam, the association had consistently argued they shouldn't be charged a cent, he said.

But he argued that even asking residents - a group that would benefit - to pay extra for the privilege would be unfair and unreasonable.

"There's always going to be cross subsidisation," he said.

"I think it's one of those reasons that you have governments, is to allow the greater good of the community to be covered by government expenditure on capital assets.

"I actually support the fact that the government should be able to underwrite any investment in infrastructure in the regions that allows people to live out here in the regions with reasonable costs."

Not everyone is happy with the plan.

Professor of water management at the Fenner School of Environment and Society at the Australian National University, Jamie Pittock, described the effort to avoid water price rises as "kind of disgraceful", and would slug other residents of the state and Commonwealth.

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The National Water Initiative requires the either that the capital cost of water infrastructure to be recovered from the people it benefits, or that a decision to subsidise those water users by waiving the cost recovery be made fully transparent, he said.

"NSW Water and the council are playing games and reclassifying ownership of infrastructure to avoid paying for a project that clearly isn't economically viable..." he said.

"What that means is there'll be higher taxes for all of the residents of NSW and there'll be less money for things like aged care and mental health and schools and hospitals and so on."

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