UPDATE: The Federal Parliament will consider pumping up to 450 billion litres of extra water back into the Murray Darling river system.
Environment Minister Tony Burke today introduced legislation to the lower house which would set up a special account to release the cash over a decade from 2014.
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The extra 450 gigalitres and the funds earmarked for its delivery were announced by Prime Minister Julia Gillard in South Australia last week.
The commitment lifts the total amount of water designated for the environment under the Murray-Darling Basin Authority's draft water plan from 2750GL to a potential 3200GL.
Mr Burke told parliament he was seeking a commitment from MPs to restore the ailing basin catchment area to health.
"After a century of getting it wrong, this bill combined with the soon to be finalised Murray-Darling Basin Plan says that this parliament will not fail the basin," he said.
"The system will return to health and the communities and the environment which are nourished by these mighty rivers will have a strong, resilient future."
The bill allows for the 2750GL sustainable diversion limit to be adjusted up and down to meet environmental targets for the basin.
The government will fund projects to acquire up to 450GL in additional water but those efforts must not have negative social and economic impacts.
The bill states the water will be primarily acquired through improving water efficiency on farms, and therefore directs most of the $1.77 billion towards these projects.
But it will also pay to remove constraints in the system that restrict river flows to the environment, and fix other infrastructure to maximise the benefits from the extra water.
The government has promised to release a finalised version of the Murray Darling Basin plan before the end of the year.
Weekly Times Now reported earlier today, Water Minister Tony Burke and Prime Minister Julia Gillard in Goolwa, South Australia, last week promised to return 3200GL to the Murray, sidestepping a possible High Court challenge from South Australian Premier Jay Weatherill.
However, federal Water Minister Tony Burke told The Weekly Times, the sustainable diversion limit of 2750GL would be in the plan he takes to Parliament later in November.
Mr Burke said under the plan 2750GL would be recovered for the environment by 2019, as agreed by Basin ministers in July.
It is a win for Victoria, NSW and Queensland, who agreed to 2750GL in July, with 650GL coming from environmental works and measures.
Mr Burke said last week's 3200GL announcement was about "engaging the sustainable diversion limit adjustment mechanism", where the amount for the environment could be raised or reduced by 5 per cent of 2750GL.
"The proposed plan says 2750GL is the number," Mr Burke said.
"That's the amount of held water that can go down through environmental works and measures or it can go up, provided there are no adverse socio-economic effects."
Mr Burke said 3200GL would be recovered for the environment by 2024, with the extra 450GL to be recovered through $1.5 billion of on-farm infrastructure upgrades.
He said that, if the 450GL target was not reached there would be no irrigator entitlement buy-back . "There will instead be a political obligation to drive further infrastructure investment," he said.
However, irrigators will not see a cent of the $1.5 billion until 2016 and Mr Burke said the works would not "ramp up" until the final months of the Basin Plan in 2018-19.
Mr Weatherill had said he would launch a High Court challenge if 3200GL was not in the Basin Plan, but backed down after the Goolwa announcement.
National Irrigators Council chief executive officer Tom Chesson said the 3200GL announcement caused alarm among Basin communities and irrigators, who thought the goal posts had suddenly moved after years of negotiating.
"The only thing raining in the Basin ... is confusion," he said.
Riverina and Murray Regional Organisation of Councils Cr Terry Hogan said the announcement was a political move to please South Australia.
Irrigators have concerns on whether they will see any of the promised $1.5 billion.
Murrumbidgee Valley Stakeholders Group spokesman and rice farmer John Dalbroi said anyone who believed farmers would see a cent "still believed in the tooth fairy".
Victorian Water Minister Peter Walsh said the announcement was ahead of a South Australian Labor conference and people could "draw their own conclusions".
Victorian Farmers Federation water council chairman Richard Anderson said it did not matter whether it was 3200GL or 2750GL in the Plan, as long as only 2100GL was from irrigators' entitlement.