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Environment Minister David Parker said the Jobs for Nature-supported project beginning next year in the catchment north of Waikouaiti was expected to create about 40 jobs.
The funding announced yesterday would support the Otago Regional Council and its partners to reduce pollution entering waterways through the construction of 60km of riparian fencing and planting 100,000 plants.
The project would also restore up to 25ha of wetlands and gather much-needed water-quality data, Mr Parker said.
ORC environmental implementation manager Andrea Howard said the catchment was showing signs of excess sedimentation and nutrients, which not only harmed ecosystem habitat and health but also reduced cultural, recreational and amenity values.
There were areas of dense algal mats, anoxic water conditions and muddy sediment around the estuary, Ms Howard said.
Throughout the course of the project, the council would work with the forestry sector to ensure that best practice forestry harvesting was undertaken to reduce sediment loss.
It would also work with landowners to create and implement sediment mitigation plans, she said.