Maori leaders have mounted a bid for effective ownership of a share of the country's freshwater.

This would allow them, and other with water rights, to onsell it to those who need water for irrigation, hydropower and other commercial uses.

Talks between the powerful Iwi Leaders Group and the Government, fronted by Deputy Prime Minister Bill English and Environment Minister Nick Smith, are at a critical stage after ministers rejected a nationwide 'Waterlords' settlement along the lines of the Sealords deal over Maori commercial fishing claims.

The Government is adamant it will not hand over rights in perpetuity to Maori - but it may compromise by allowing regional councils to do local deals with Maori.

Farmers are worried that there will not be enough water to go around if significant quantities of freshwater are set aside for Maori.

In a Cabinet paper, Smith points to possible "catchment by catchment" deals at a regional government level. The Crown has acknowledged Maori interests and rights in freshwater but their extent and nature is at issue. The Government may set criteria by which local iwi can get preferential access to water, catchment by catchment, Smith says.

Ministers and iwi leaders held a summit at Waitangi during the February 6 commemorations, in a swift response to an iwi- commissioned report proposing radical ways to deal with freshwater and Maori claims. The report, by research group Sapere, proposed a nationwide settlement, an end to 35-year renewals of water consents. and a move to permanent rights and a market in tradable water rights.

It argued the regime would not only be a boon for Maori but would add $2 billion to the value of power-generating assets, $5.5b to the primary sector and boost the overall economy, while helping reduce the effects of drought through more efficient use of water. It would also open the way for the Government to levy resource taxes on income from using the water.

But demoted minister Judith Collins has come out swinging against the plan, describing it as a cash grab that would hit consumers in the wallet.

Officials put the value of freshwater to the economy at $34.85 billion a year.

Kevin Ferris, who has dairy farms in the Waikato and Southland, has consent to use water in his dairy sheds. "We need water and if there's a risk that the water's going to go elsewhere, it's going to shift the ability to finance our business, " he said. "People don't want a knee-jerk. We want to get it right. To me it affects every New Zealander, not just me."

Ian Mackenzie, a Canterbury farmer and Federated Farmers' spokesman, said the Government needed to be careful not to solve one grievance by creating another. "New Zealand's water is already allocated so the only way the Government could allocate further water to iwi is if they build more water storage infrastructure."

Waikato Federated Farmers president Chris Lewis said many catchments around the region were already over-allocated. "There's no more to give out . . . You can't allocate something when there's not enough there." Waikato iwi were already well-organised with water and had what they needed for their enterprises, he said. "They have got the water they need and they have applied for it like everyone has: industry, farmers, city councils, district councils."

Smith and English this week told the Sunday Star-Times they rejected key elements of the Sapere report, including the removal of the 35-year limit on water consents. "Both industry and iwi want that shifted to rights in perpetuity and the Government will not, " Smith said.

The Government's view was that nobody owned water, neither the Crown nor iwi, and it was a public good. "There is not going to be any national settlement or allocation, or any sort of iwi by iwi exclusive rights. We have been making that very plain to them, " he said.

English insisted freshwater claims would not spark a foreshore and seabed-style controversy like the one that engulfed the Clark Government.

Some councils have preference in their plans already. For instance, in Nelson there is an agreement between iwi and the council about how it will allocate surplus water from Motueka River.

Smith said the Government was reluctant to switch from a consents-based regime to the rights-based trading advocated by Sapere, but did not rule it out at a local level, pointing to existing trading schemes in North Otago and Taupo that are allowed under the Resource Management Act. Asked if some existing rights could be removed from farmers and given to iwi, English said: "I simply don't know the answer to that."

A spokesman for the Freshwater Iwi Leaders Group would say only that the group "continues to engage with the Crown on Iwi freshwater rights and interests."

Lawyer James Dunne, a partner in Chen Palmer, warned of a possible uninformed public backlash in light of the controversy over the Foreshore and seabed issue.