In a report released on Wednesday, the independent Commonwealth body Infrastructure Australia raised the dire possibility that an evacuation of Tamworth "would likely be required" in case of a future severe water shortage, judging that "practical limitations" would make carting water "not feasible".

But the agency found that there was "insufficient evidence" that the dam project was the best approach for guaranteeing the city's water security.

Instead, the state should complete a "revised business case" for a more cost-effective solution, after considering other options, including water buybacks from irrigators.

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"The project has a capital cost of more than $1 billion and a benefit cost-ratio of just 0.09 [9 cents to every dollar spent]," the agency declared.

"Although it offers sustainability and resilience benefits, our assessment found that similar community benefits could be achieved through a combination of lower cost build and non-build options."

The "fast tracked" project was originally announced at the depths of the 2019 drought, when most of the city's water storages ran virtually dry.

Both federal and state governments committed at the time to evenly split the bill for the scheme.

The Commonwealth budgeted to spend $675 million on the project in its March budget.

NSW water minister and Tamworth MP Kevin Anderson reiterated the state government still backed the project.

"NSW is getting on with the job of building the new Dungowan Dam and I look forward to continuing positive discussions with the federal government and having them reconfirm the existing 50 per cent co-funding reservation that was included in the 2022/23 Commonwealth budget," he said.

"The federal government has asked the NSW Government to gather more information about the alternative options, which I will do and I am confident that that fact will remain that the new Dungowan Dam is the best option for Tamworth.

"A vibrant, liveable Tamworth needs Dungowan Dam."

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Infrastructure Australia completed their assessment of the project's business case in July.

The state government's long-secret business case was released to the public just last week, after pressure by NSW parliament.

Commonwealth minister for environment and water Tanya Plibersek, who has yet to commit the new government to fund the scheme, told the media earlier last week that the federal government is awaiting the results of an independent review, before making a decision on the future of the project.

She said on Wednesday that the government was aware that the region faced water security issues, but pointed out that the assessment finds that "the costs far outweigh the benefits" of the proposed dam.

"The Infrastructure Australia assessment makes clear that Dungowan Dam and pipeline is not the only potential solution," she said.

"I want to make sure we examine all the options and choose one that delivers water security for the region and is also cost-effective and environmentally appropriate.

"Infrastructure Australia has said they would welcome a revised business case for a solution that better addresses the region's water security.

"The report identifies a number of alternative options that could be further examined.

"I look forward to getting NSW's views on the report."

Infrastructure Australia recommended that the state government should consider a range of alternatives to the giant dam project, including increasing the amount of water from Chaffey Dam available for urban use, policy changes such as demand management and water use efficiency measures, recycled water for industrial uses, or "more conservative infrastructure solutions".

It criticised the state government's process for selecting the dam project, labelling its approach "poorly substantiated" and "inappropriate". The dam was not recommended for the agency's priority list.

The report also reveals that the dam is scheduled to be completed in 2029, to be operational by 2030.

"It appears that options were progressed primarily on their ability to increase the storage capacity of the region, whereas the service need is primarily to reduce water security risk," the report said.

"This is an important distinction as non-infrastructure solutions may reduce water security risk without increasing storage capacity."

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Greens water spokesperson Cate Faehrmann said the project "looks dead in the water".

The upper house parliamentarian sponsored a motion in the Legislative Council of NSW Parliament demanding the release of the project's business case.

"It's disgraceful that the National Party has squandered the opportunity to drought proof Tamworth. Instead, they wasted millions of taxpayers' dollars and years of work chasing this white elephant of a project," she said.

"It's been clear from the start that the dam was a dud. This evaluation clearly shows that National Party ministers rigged the process in favour of building a dam because it was the only option that would benefit their irrigator mates.

"This must be the final nail in the coffin for building a new Dungowan Dam, with next to zero chance of receiving federal funding after this scathing report. I'm sure the NSW Treasurer can think of better ways to spend $1.3 billion.

"For years the Greens have urged the government to consider more cost effective and sustainable alternatives to this dam.

"There's no time to waste before the next drought. This report highlights the need to consider alternatives like recycled waste water, buybacks and efficiency measures. Now the minister needs to put these on the table."

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Infrastructure Australia assumed a 7 per cent real discount rate for money invested in the project, leading to a very low cost-benefit ratio. The state business case includes both a .27 cost benefit ratio and a .09 ratio estimate.

State water minister Kevin Anderson said construction of the new Dungowan Pipeline, which is underway, is expected to be completed in early 2023.

"Stage two of the Pipeline between the Dungowan showgrounds and the dam is dependent on the Dungowan Dam project going ahead," Mr Anderson said.

"The NSW Government is continuing geo-technical investigations at the dam site and extensive work is being carried out on the final design of the dam and the environmental impact statement, which is due to go on public display before the end of the year.

Former Tamworth Mayor, now chair of Infrastructure Australia Col Murray, declared a conflict of interest in relation to the project and was not present during any discussion or decision-making relating to the business case assessment.

Editor's note: this story was updated to remove a reference to the state government agreeing to resubmit the business case to Infrastructure Australia, with amendments.

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