Ongoing drought has brought the regulatory framework designed to balance the needs of industrial water users with the those of the wider community to breaking point.
The region's big industrial users of water - mining, power generation and agriculture - are demanding access to water guaranteed to them under the state's water licencing system at the same time as towns across the Upper Hunter are living with severe water restrictions.
While water for power generation and town water receive priority for drawing on the water from the Hunter River, the mining sector holds almost 60 per cent of the region's high security water licences.
Between them electricity and mining hold almost 83 per cent of high security licences.
At greatest risk from drought is the agriculture sector, which in addition to cattle, includes one of Australia's most productive wine producing areas and the largest equine industry in Australia.
The state government's Greater Hunter Regional Water Strategy, released in late 2018 as a guide to achieving long-term water security in the Hunter, plainly states the Hunter's water market is broken.
"The Greater Hunter's Region's water market is not effective as only 10 per cent of water is potentially available for trading during drought with the remainder being held for special purposes," it says.
"Exemptions have allowed for growth to bypass the market with has further reduced drought security."
In addition to rapid population growth across the Lower Hunter, the Upper Hunter has quadrupled its output of coal and experienced the deregulation of the power and dairy industries over the past 20 years.
Bayswater and Liddell power stations provide about 35 per cent of the state's electricity needs.
Water for the power stations is drawn from the Hunter River system and stored in Plashett Dam and Lake Liddell.
AGL, which operates the power stations, holds water licences totalling 72 gigalitres per annum.
Adding to the pressure on the Hunter River, is the fact that AGL has not been using the Barnard Water System in recent years. The network allows AGL to draw water from the Barnard River on the mid-North Coast and store it in Lake Glenbawn.
"The NSW Government retained the right to operate the Barnard Water Scheme when it sold Macquarie Generation to AGL in 2014," an AGL spokeswoman said.
"AGL has invited the NSW Government to recommission the asset. This pumping infrastructure was acquired in an unserviceable condition from the government, which had not used it for a number of years prior to AGL's acquisition."
"Additionally, this scheme cannot currently be used because water flows are too low due to drought."
A spokesman for NSW Deputy Premier John Barilaro said: "AGL has invited the NSW Government to recommission the asset. This pumping infrastructure was acquired in an unserviceable condition from the Government, which had not used it for a number of years prior to AGL's acquisition"
The Greater Hunter Region Water Strategy notes that the scheduled closure of Liddell Power Station in 2022 would do little to improve water security in the region.
"Reductions in the base flows and climate change greatly increase the risk of drought. The closure of Liddell Power Station in 2022 will not significantly change the drought risks to other water users," the document says.
Despite holding a large proportion of high security water licences only about three per cent of water used by mining is dawn from the Hunter River. The industry mainly relies on a combination of groundwater and surface water run-off.
"Mining operates under the same regulatory framework as other water users, including purchasing licences for use within the rules of water sharing plans. Some mines pay a premium for high security water licences to help ensure continued operations and jobs. This is within rules of the water sharing plan that all users need to comply with," Minerals Council chief executive Stephen Galilee said.
"The industry works hard to minimise water use, including using lower quality water that isn't suitable for agriculture, installing pipelines to share water between mines, and reusing around half of water on site."
But Lock the Gate spokeswoman Georgina Woods said the effects of the industry's water capture, aquifer interference and water ownership combined with increased heat and rainfall decline were putting the water security of agricultural industries in the region at risk.
"Concentrated open cut mining near rivers and their alluvial aquifers is creating significant hydrological changes, which in turn is negatively impact on farming communities, town water supplies, and the environment," she said.
"We are also concerned about the unlicenced take of surface water captured on mine sites which we believe to be well in excess of the harvestable right available to mines as landholders."
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