A mining wastewater dam collapse that sent an "avalanche" of coal reject and slurry into Blue Mountains National Park was "a disaster waiting to happen", the Land and Environment Court has heard.

Key points: Clarence Colliery has pleaded guilty to polluting the heritage-listed Blue Mountains National Park

Clarence Colliery has pleaded guilty to polluting the heritage-listed Blue Mountains National Park Environment Protection Authority is asking for the maximum $2 million penalty

Environment Protection Authority is asking for the maximum $2 million penalty It took approximately 14,000 hours to clean up the Wollangambe River

The dam at Clarence Colliery sits on the top of a sloping hill 400 metres from the border with the world-heritage-listed national park.

In July 2015, it collapsed, sending a slurry of water and fine coal particles called "coal fines" into a nearby watercourse.

From there, the slurry found its way into the Wollangambe River near Lithgow.

Fine coal particles affected a 10-kilometre stretch of the river, turning the water black in places.

Clarence Colliery has pleaded guilty to two charges under the Environment Operations Act and the National Parks and Wildlife Act.

The NSW Environment Protection Authority (EPA) is also seeking a $2 million fine against the company.

'Incompetence' led to collapse

The wastewater dam at Clarence Colliery collapsed in July 2015. ( Supplied: Colong Wilderness Foundation )

Opening the case today, Stephen Rushton for the EPA said the management of the holding cell was "carried out with such a significant amount of incompetence it was a disaster waiting to happen".

Mr Rushton said the management of the holding cell was based on "verbal instructions and intuition".

He told the court no records were kept on dam levels, nor on how much water and coal fines were being pumped into the dam.

Contractors and employees used head lamps with a 5-metre range to undertake night inspections.

The court also heard that the company had been advised that work was needed to stabilise the dam, which is also known as a Reject Emplacement Area or REA.

The REA's 50-by-100-metre hole is surrounded by an "inner wall" and an "external wall" made of coarse reject from the mining process.

"Clarence had been put on notice by a geotechnical engineer, that the inner wall [of the dam] was inadequate," Mr Rushton said.

Sizeable clean-up done by hand

Clarence Colliery is about 400 metres from the border of the Blue Mountains National Park. ( Supplied: Colong Wilderness Foundation )

Mr Rushton told the court the size of the clean-up illustrated the extent of the contamination:

A year after the collapse on July 4, 2016, about 214 tonnes of coal fines had been removed from the river

A year after the collapse on July 4, 2016, about 214 tonnes of coal fines had been removed from the river More than 14,000 hours were spent on the clean-up effort, and because the area is environmentally sensitive, the clean-up was carried out by hand

More than 14,000 hours were spent on the clean-up effort, and because the area is environmentally sensitive, the clean-up was carried out by hand It took 800 helicopter flights to remove the slurry from the park, 300 to 400 kilograms at a time

To date Clarence Colliery, a subsidiary of Centennial Coal, has spent $2 million cleaning up the river.

Clarence Colliery apologises

The barrister representing Clarence Colliery, Tom Howard, expressed the company's "deep regret" for the incident and "apologised unreservedly".

He told the court the "contrition is not just a case of smooth words from the bar table ... it is consistent with the conduct of the offending company at all times from when it first became aware of the incident".

"It's been a harrowing day today for us. We've pleaded guilty as charged," Clarence managing director and chief executive Mick Cairney told the ABC.

"We've got our whole executive team here to show our genuine remorse about that incident and do everything in our power to ensure it doesn't happen again."

Maximum fine is 'disappointing'

Environmental Protection Authority officers inspected the polluted Wollangambe River. ( Supplied: Environmental Protection Authority )

Keith Muir of the Colong Wilderness Foundation said measures should be taken to ensure it never happens again.

"We want to see engineered structures used to contain waste heaps, rather than mountains of rubble," he said.

"The Wollongambee is an outstanding place and it needs to be permanently protected, that it was damaged by this mine is just totally unacceptable."

Mr Muir said his group was also disappointed the Government had not chosen to prosecute under the Environment Protection and Biodiversity Conservation Act.

"It would have led to a potential fine of several million dollars, as the maximum fine the EPA can obtain is $2 million.

"But that could be discounted due to [Clarence's] guilty pleas and the remediation work they've undertaken."