Government authority WaterNSW has joined environmentalists in blasting the Planning Department's recommendation of approval for the Dendrobium coal mine expansion.
South32 still needs to gain the approval of the Independent Planning Commission on January 22 before it can begin mining in expanded areas of the Dendrobium mine.
South32 is looking to extend mining into two new areas, located adjacent to Avon and Cordeaux dams, which it said would allow for the extraction of an additional 78 million tonnes and extend the mine's life until 2048.
Last November environmentalists told Australian Community Media the loss of 280 million litres from the drinking water catchment, and surface subsidence of 2m in catchment Special Areas, was too high a price to pay.
South32 said it would pay $103 million to the State Government to offset the loss, but Protect Our Water Alliance spokeswoman Dr Rada Germanos said this was unacceptable.
In its submission to the Independent Planning Commission, WaterNSW noted the owners had "continually underestimated" the fracturing of stream over the mine's history.
"The project would cause significant environmental impacts in various significant watercourses, including nine major streams," WaterNSW said, adding the proposed mine design 'would fundamentally change the hydrological and ecological functions' of the upland swamps.
"WaterNSW considers that it is possible that surface water losses could be up to double those that have been assessed [by South32, and are] in the order of 6-7 gigalitres a year," it said.
A spokesman for South32 said the company took its "environmental responsibilities seriously and we understand the sensitivities of working within the Metropolitan Special Area".
"The Dendrobium Mine Extension Project will provide major economic and social benefits for Wollongong, the Illawarra region and New South Wales," the spokesperson said.
"South32 has committed to offset any surface water losses from the Dendrobium Mine Extension Project to ensure the project would be a positive contributor to the metropolitan water supply.
"This will include $108 million in payments to the NSW Government to be spent on strategic water conservation and/or supply capital works to enhance Sydney's overall water supply. This offset mechanism has been endorsed by the NSW Government and will ensure there is no loss of water for the metropolitan water supply."