The storage area will be located adjacent to the Bowen River Weir near Gattonvale, 40km south of Collinsville and will service Goonyella Riverside, Newlands, Collinsville, Moranbah North and Hail Creek operations, plus the Collinsville Power Station.
It will also significantly increase the reliability of town water supply to communities such as Collinsville, Moranbah and Glenden.
The storage will be filled by pumping water from the Bowen River weir during high flows in the river system during the wet system.
The project is schedule for completion in May next year.