New Dungowan Dam build: pipeline to begin in October but water allocations still to be worked out in business case

But, there is still some uncertainty about exactly how much of its water will be set aside for Tamworth town water security.

Early figures show 7GL of the 22.5GL available will be reserved for the city but nothing is set in stone until the detailed business case is released in June next year.

The project is about improving reliability and security of the supply for existing entitlement holders, not about creating additional water entitlements, a spokeswoman for NSW Water Minister Melinda Pavey said.

"The improvement in allocation reliability and security will be informed by the detailed business case, which is currently under development," she said.

"The 7GL is an indicative figure based on preliminary studies."

There is no guarantee at this stage that the new dam allocations will not affect Tamworth Regional Council's high-security license at Chaffey Dam.

WaterNSW is in the process of geotechnical investigations between Dungowan village and Calala, as well as biodiversity and heritage surveys between the dam site and Dungowan.

Work will progress on the project before the detailed business case and Environmental Impact Statement is released, because the dam has been declared a Critical State Significant Infrastructure Project.

It means it will be fast-tracked by running procurement and design progression at the same time as the EIS and final business case so the project can move forward as soon as it has planning approvals.

Tamworth Regional Council mayor Col Murray said he understands the state government faces challenges on a tight deadline but he wanted to see the dam made as big as possible the first time around.

"I'd like to see a dam bigger than Chaffey," he said.

"We need to get the best value and optimise the water in the Dungowan Creek catchment, if we get that upfront and still have to look at the next level of water security we know we fully capitalised on this.

"If it costs a big more to optimise the value of the catchment, that's good management, we need to have a discussion on how to find the money to optimise it and now accept lower capacity storage as good enough."

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The traditional pathway would see the steps taken in turn which could add years to the project's timeline, the spokeswoman for Ms Pavey said.

"The business case is investigating the most cost-effective and efficient way to deliver the project that maximises community benefits and minimises potential impacts," she said.

"Decisions pertaining to the project proceeding are to be determined by government."

Construction on the dam itself is not expected to start until October 2021 and could take up to four years to complete.