There are calls for the auditor-general to investigate a multi-million-dollar pipeline project on Tasmania's east coast that will supply fresh water to salmon giant Tassal for its Okehampton Bay operations.

Key points: The Glamorgan Spring Bay Council has begun construction on $4.1 million pipeline at Orford on Tasmania's east coast

The Glamorgan Spring Bay Council has begun construction on $4.1 million pipeline at Orford on Tasmania's east coast But the proposed Twamley Dam at centre of project, also to be built by council, has NOT been approved

But the proposed Twamley Dam at centre of project, also to be built by council, has NOT been approved Despite this, the pipeline will begin supplying water to Tassal's Okehampton Bay facility in September 2019

Construction work has begun on the Glamorgan Spring Bay Council's $4.1-million pipeline, which will run from the Prosser River Dam to Orford, across to the proposed Solis golf course development and then on to Spring Bay to provide Tassal with water for fish bathing.

The pipeline, which is part of the Prosser Plains Raw Water Scheme, is centred around a new dam being built on private property at the Tea Tree Rivulet near Buckland, called the Twamley Dam.

In 2016, the Glamorgan Spring Bay Council secured a $6 million loan from Tasmania's Treasury Department to build the dam, as well as a federal grant of $2.34 million.

The pipeline will go down the Prosser River to Orford, via the proposed Solis golf course, and across Spring bay to Tassal factory. ( Supplied: Google Maps )

The dam was to deliver up to 3,000 megalitres (ML) of water a year, including 500ML to Tassal, 300ML to the Solis golf course development and 200ML to TasWater, leaving about 1,000ML for farmers.

Its approval was controversial, with TasWater initially having significant concerns about taking water from a drought-prone catchment, water wastage and that the dam was in the wrong place.

TasWater later changed its position after it received more information.

Three years on, the controversial Twamley Dam is yet to receive the necessary approvals, including the green light from the Federal Environment Department.

Philip Cocker from Environment Tasmania said the dam appeared to be dead in the water.

"I'd be very surprised if it did get federal approval because it's such a damaging project," he said.

The proposed dam site is habitat of the endangered swift parrots which nest in tree hollows. ( Supplied: D. Stojanovic )

The dam includes the flooding of 50 hectares of farmland and forest on the Twamley Farm, which is breeding and foraging habitat of the critically endangered swift parrot.

In a statement, the Federal Environment Department said it had stopped the "clock" on the final decision timeframe to request that Glamorgan Spring Bay Council provide additional information to offset impacts to the swift parrot.

Water must be flowing to Tassal by September

Despite the dam still being up in the air, the council has pushed ahead with stage one of the project, the pipeline to Tassal, with construction well underway.

Under the terms of a water supply agreement between Tassal and the council, water supply must commence from September 1, 2019, with Tassal underwriting the project.

The water will supply Tassal's Okehampton Bay operations on Tasmania's east coast. ( ABC News: Mitchell Woolnough )

The minutes from a recent audit panel meeting held by the Glamorgan Spring Bay Council revealed it would instead use water from the Hobbs Lagoon, north of Orford.

The minutes said the water would be delivered via a natural water course from Hobbs Lagoon to the Prosser River Dam.

But they said the "Hobbs Lagoon supply is limited and is only viable for a period of three to eight years (depending on rainfall)".

The minutes also revealed there were still "a number of unknowns in relation to stage two (water supply from Twamley)".

"There is a potential alternative but the volume of water supply is not great and detailed design work has not been undertaken," the minutes read.

"Whilst stage one is very much an interim measure, under the terms of the water supply agreement, GSBC only has to use its 'best endeavours' to deliver on Stage Two."

Mr Cocker said he was deeply concerned about the lack of modelling and called for the auditor-general to investigate the project.

"What Environment Tasmania would like to see is the auditor-general step in here and examine the governance and the agreements and the processes that are going on in relation to the provision of water to these commercial projects," he said.

Philip Cocker from Environment Tasmania is calling for the Auditor General to investigate the water project. ( ABC News: Katri Uibu )

Mr Cocker said it was not good enough for the council to bank on good rainfall, and called the water supply agreement with Tassal to be made public.

"My concerns are around the allocation of water, and it seems to be prefaced on there being good rainfall in the next three to eight years," he said.

"[It] seems extraordinary to us to spend millions of dollars of ratepayers' and taxpayers' money on good rainfall when the rainfall is absolutely unknown, but based on previous data would suggest that it's more likely to be less not more."

The Prosser River dam, looking down the river to Orford. ( ABC News: Mitchell Woolnough )

Mayor insists project still viable without Twamley Dam

Glamorgan Spring Bay Mayor Debbie Wisby said although Hobbs Lagoon would expire as a water source in three to eight years, there were other alternatives.

Mayor Debbie Wisby says ratepayers will not be penalised if the council cannot honour its agreement. ( ABC News: Leon Compton )

"We would need a stage two and therefore it would either come from Twamley or other dams in the area, there's been preliminary modelling done on other dams in the area, the other smaller dams, so we will need to see what happens with Twamley," she said.

She could not say if the council would be in a position to release the modelling on the other dams.

"I'm not sure as to what level the preliminary modelling is at, I haven't seen it and I'm certainly not an expert in that area, I would expect a much higher level of modelling will be required to be done and I'm not sure as to what information is normally released in respect of that," she said.

Hobbs Lagoon may be an alternative to the proposed Twamley dam at Tea Tree Rivulet. ( Supplied: Google Maps )

The Mayor dismissed concerns that the council may be left with insufficient water to uphold it's water supply agreement with Tassal.

"The contract says that council needs to use our 'best endeavours' to provide water in stage two, so if our 'best endeavours' show up there isn't sufficient water or we can't get the approval to capture that water then council is fine, there would need to be other options looked at by the individual businesses."

She said there would be no penalty or cost to ratepayers if council could not honour its water supply agreement.

The pipeline project has caused consternation in the region. ( ABC News: Mitchell Woolnough )

Cr Wisby said she was confident the council's costs from the project would be recovered from Tassal, even in the worst case scenario — if Hobbs Lagoon runs out of water in three years and no other sources were deemed viable.

"My understanding is Tassal is underwriting that very issue, so the risk to council is nil, that's been checked by council's acting general manager and he's satisfied that the risk to council is fine," she said.

Cr Wisby said most of the detail around the water supply deal had already been released to the public and she was satisfied there was no need for a review of the project.

Project 'flawed from start' says former councillor

Former councillor and east coast resident Jenifer Crawford backed calls for the auditor-general to investigate the project.

Former Glamorgan Spring Bay councillor Jenifer Crawford refused to stand for council again because of concerns over the project. ( Supplied: Jenifer Crawford )

It was proposed and approved when she was a councillor and she raised significant concerns at the time.

She said the lack of transparency over the project and the difficulty she had accessing information that should have been readily available to her as a councillor, is part of the reason she didn't run again.

Ms Crawford said she worried the new council, elected late last year, had pushed ahead with building the pipeline, and called for the project to be suspended while the auditor-general investigated.

"I think there's an opportunity for things to go dreadfully wrong when there's a lack of information and a lack of due process and this project has been flawed from the start," she said.

TasWater was contacted as part of this story.

Tassal declined to comment.