The permits were mostly first issued for gold mining purposes in the 19th century and are part of a regional backlog of permits that, by law, must be updated by 2021 or some water rights could be lost.
The catchment under discussion covers a sprawling 379sqkm area of northeast Maniototo.
A council staff recommending report initially sent to the Kyeburn catchment firm in late May recommended a residual flow of 200 litres a second at the most upstream of four take sites on the Kye Burn main stem, at Scott's Lane.
The residual flow is the flow after a water take.
But a later addendum, dated June 12, said the initial report did not ''adequately discuss'' the residual flows required, and 200l/s should also apply at three other downstream take points.
The hearing was told the initial staff report was in keeping with what the catchment firm had been expecting.
But Mr Mackenzie said the later addendum had ''added to a real sense of unease within our group that we have compromised ourselves by combining together.''
''It has taken a huge effort to get to where we are now, and nobody would win if we went back to fighting for the same body of water we had planned to share.''
The origins of Kyeburn Catchment Ltd went back at least 10 years, when the council had first mentioned the idea to some water users.
Establishing the group had been ''very challenging'' but also ''very satisfying''.
''A goal was to create a community-based water group that recognises all stakeholders within our catchment.''
The catchment was subsequently split into three groups: the tributaries, the Swin Burn and the main stem of the Kye Burn itself, and the ''real turning point'' had come when farmers holding ''priorities'' for water use agreed to relinquish them.
This had been a ''significant'' decision because their access to water was ''going to erode'' and they would give up more than others in the group.
The ORC addendum changes of 200l/s residual flows for all ''completely negates any of the environmental gains'' the group offered for the middle stretches of the rivers, and ''the benefits to the group of any flow-sharing arrangement''.
''All consent holders would have been better placed lodging their permits individually,'' Mr Mackenzie warned.
Freshwater consultant Matt Hickey, of Dunedin, said there was no ''significant difference'' between habitat protection levels under residual flows proposed by the council and the catchment firm.
The protection levels afforded by the firm's residual flow proposal were generally over 70%, but the recommendation to apply 200l/s at all take points reduced the flexibility of group water management, and could undermine the value of some farmers participating in the water group, Mr Hickey said.
The hearing continues today; it is set down for three days.
