The admission came after South Australian treasurer Kevin Foley told parliament that the $160 million set aside for the desalination plant was cut from the budget.

The State Government was planning to be partners with BHP in the construction of the plant so as to provide drinking water to the Eyre Peninsula and the Upper Spencer Gulf and take pressure off the Murray River, ailing under the weight of severe drought and the region’s water consumption.

“My advice is that BHP is now looking at non-potable water - non drinking water,” treasurer Foley said in parliament on Wednesday.

“That makes it a more expensive and complicated option for us.”

The plant was expected to supply a third of the fresh water supply to the Eyre Peninsula.

“That is an extra 22 gigalitres of water that must be found from the drought-stricken River Murray,” leader of the opposition Martin Hamilton-Smith said.

Whyalla Mayor Jim Pollock said that he is very disappointed with the revelations and if they turn out to be true he believes the plant should not be situated on the Point Lowly Peninsula.

“It is very disappointing to hear we may not be getting drinking water,” he said.

“If we’re not going to receive any benefit from it, I don’t think there’s any need for it to go on the Point Lowly Peninsula.

“The major benefit was going to be drinking water for the Eyre Peninsula and Upper Spencer Gulf region and if we’re not going to be getting that then why put it there?”

Mayor Pollock said that pressure needs to be taken off the River Murray and he hopes the decision will be reversed.

Member for Giles Lyn Breuer is also concerned that drinking water might not be supplied to her electorate, however she said that nothing is certain yet.

“BHP might find they won’t get a welcoming reception from the Whyalla community about the plant going on the Point Lowly Peninsula,” Ms Breuer said.

“If they aren’t prepared to provide drinking water we’ll be in serious trouble as we’re highly reliant on the Murray.

“I’ll be pushing the State Government to do as much as they can.”

Treasurer Foley said, “Until BHP decides exactly what it needs, it is very hard to be certain ... but we are hardly going to enter into a contract with BHP to take non-potable water”.

Greens MP Mark Parnell said the desalination plant should be moved to South Australia’s west coast where it will be more environmentally friendly, given the treasurer’s revelations.

“The government and BHP need to go back to the drawing board,” Mr Parnell told ABC Radio.

“What we have to remember is that a wealthy company like BHP can afford to pay for a solution that doesn’t involve damaging the marine environment.”

There are fears the desalination plant will threaten the breeding of the giant cuttlefish.

Marine ecologist Tony Bolton told a Port Hughes community meeting last month that he couldn’t think of a more inappropriate place to put the proposed desalination plant.

However, Dr Bolton said he did not oppose desalination plants that were in the open ocean where tidal currents are stronger and able to quickly diffuse brine discharge.

BHP was unavailable for comment but they are expected to release their Environmental Impact Statement by the end of the year.