"It is unrealistic for anyone to think that the Snowy scheme could somehow have been immune from the effects of the current severe drought," Snowy Hydro Ltd Managing Director Terry Charlton said in a statement.

Prime Minister John Howard last week asked Australians to pray for rain in the food bowl Murray-Darling River basin, an area the size of France and Spain that accounts for 41 percent of the nation's agriculture.

Howard warned that without heavy winter rains in coming months, irrigation in the food bowl would be turned off as the worst drought for 100 years grips Australia.

In a move that local authorities feared could reduce supply of power to the capital Canberra, and major cities Sydney and Melbourne, some of Snowy Hydro's operations could be stopped by May-July without heavy winter rains, the Snowy Hydro said.

The company said that if current drought conditions continue, water levels would drop by May to minimum operating levels in the two major artificial lakes at the heart of the project, an internal assessment for Snowy Hydro said.

"It is possible, but not yet probable, Lake Jindabyne will drop up to a further 1.5 metres (5 feet) below minimum... by late June/early July," it said in a statement.

Water levels in Lake Eucumbene and Lake Jindabyne were at just 10 percent of maximum.

CLOUD SEEDING

The Snowy Mountains Scheme is a combined water diversion, storage and hydro project built over 25 years, which links seven power stations and 16 major dams through 145 km (90 miles) of tunnels cut through Australia's rugged southeastern alps.

Australia's government last year blocked a planned A$1.7 billion privatisation of the scheme, built with a largely migrant workforce topping 100,000.

The project provides 74 percent of the renewable energy in the mainland power market, shifting snow-fed rivers west to irrigators in the Murrumbidgee and Murray River valleys.

Snowy Hydro contributes around 3.5 percent of the power in Australia's national electricity grid. If the shortage persists, it may be filled by electricity from coal-powered stations in the national grid, or by green sources from other areas.

The company said it was confident it would meet electricity and water commitments until the end of the year with the wettest winter months approaching, and following a cloud seeding programme and recycling at its biggest power station.

"Cloud seeding is a solid programme, well accepted overseas for over 40 years. But it's just one of our strategies," a Snowy Hydro spokesman said.

Snowy River Mayor Richard Wallace said storages should have been protected and have been allowed to fall so low that a $10 billion national water reform plan under consideration by state and national governments may come too late.