A plan to distribute water directly to irrigators in the Rutherglen area has received federal and state funding to commence construction next year.
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As it stands, water is taken from Lake Moodemere and pumped into Sunday Creek where it is used for irrigation.
The pump infrastructure is past its lifespan, with the Goulburn-Murray Water project to include a pipeline to bring water directly to Sunday Creek without having to draw from Lake Moodemere.
Executive manager of operations John Davison said Lake Moodemere will be managed independent of irrigation water supply.
"Under the current arrangement of delivering water via Lake Moodemere, approximately 40 per cent of diverted water is lost to seepage and evaporation before it is extracted," he said.
"We're going to directly supply the irrigators irrigation water, but there still will be water going into Lake Moodemere under a water management regime."
Mr Davison said water will be maintained in Lake Moodemere to ensure the annual Rutherglen Regatta can be run in January.
"The water in the lake will be managed from late in the year into January," he said.
"After that point it will be allowed to return to a more natural regime which gives a more balanced sharing of that facility with environmental and recreational use.
"The environmental benefits that come from the more natural regime will be able to be realised.
"If you have an environment that is unnaturally saturated all the time, certain species dominate, while others rely on the wetting and drying regime that can't get a foothold."
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Indigo Shire mayor Bernard Gaffney believes Murray-Goulburn Water hasn't consulted enough with the community.
"We went to Goulburn Murray Water in 2019 when we heard this and we were concerned, but we were told it wasn't funded and it wouldn't go ahead," he said.
"It's now supposedly a done deal and they want to talk to the community after it's been funded.
"It could be to the detriment of the environment. If it gets too low there will be a fish kill and no-one cares.
"They're talking about taking the fish out of the lake, but I've never heard of that."
Mr Davison said there had been regular contact with Indigo Shire and Murray-Goulburn Water had ramped up its community involvement with a call for nominations to form a project committee to meet regularly next year.
"It doesn't make sense to reinstate the arrangement as it is because it's an issue to get water to the irrigators and it's detrimental to the environment to build a new one," he said.
"We're trying to put in that infrastructure to support irrigation and the environmental and recreational values of the overall precinct."
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