Gunnedah mayor Jamie Chaffey confirmed the selection of Walcha for a pilot study late Friday afternoon.

The program is thanks to a state government grant received by Namoi Unlimited to allow drought-affected councils in the Namoi region to begin investigations into how wastewater can be better used.

The NSW government is providing the local joint organisation of councils with $285,000 under round 1 of the Increasing Resilience to Climate Change program.

The money will be used to investigate and test the use of wastewater on gravel roads across the five member local government areas: Gunnedah Shire Council, Gwydir Shire Council, Liverpool Plains Shire Council, Tamworth Regional Council and Walcha Council.

Walcha mayor Eric Noakes said Walcha Council was pleased that the JO members had chosen it to complete the pilot study.

"With a critical shortage of groundwater available in many of our council areas, the recycling of our waste water reserves to fulfil this role should make roads safer and cut maintenance costs," he said.

"Wastewater is always a valuable resource, and to be able to find ways to use it safely and economically will be an asset to all councils."

The announcement comes ahead of the release of Namoi Unlimited's Water for the Future report, which is expected early July.

The report will include a number of recommendations on local utilities and their functions, regulation and policy, as well as functions to plan and prioritise water infrastructure.

Walcha Council general manager Jack O'Hara said the pilot selection was great news for Walcha.

"Obviously with the severe drought, the sourcing of water for roadworks has become increasingly difficult and the standard of our gravel roads is suffering greatly as a result," he said.

"This pilot has the potential to provide much-needed relief and, going forward, any potential change of practices that conserve water will be welcomed."

In July 2018, Walcha Council completed a $1.8 million sewerage augmentation project that included building a second effluent storage pond to provide a potential revenue stream for the council if a third party wanted to buy the treated water.

"Once it has gone through all the treatment processes, that water would then be fine for agricultural purposes and we are going out with an expression of interest," council director of engineering Dylan Reeves said late last year.