It also raises other problems with the way the council processes consents, some of which are "dangerously close" to being unlawful.
The review of its consents function, commissioned by the council, was concluded by environmental resource management specialist Stephen Daysh and resource management and environmental lawyer Philip Maw last month.
Councillors discussed it behind closed doors, citing confidential information, legal advice and the need to protect natural persons.
Cr Michael Laws protested its secret discussion, denouncing it as "illegal".
The report, which was obtained by the Otago Daily Times, cast doubt on the council’s capacity to deal with 100-year-old mining water rights which need to be replaced with Resource Management Act consents by 2021.
"In our view the council is ill prepared to process the impending volume of complex deemed permit replacement applications that will be lodged over the next two years."
Despite the change being on the radar for many years, "steps have not been taken" to ensure there was sufficient knowledge and capacity in its team to handle the applications, it said.
The deemed permit replacement work has been one of the council’s most high profile and contentious projects.
The report said there was no clarity as to what minimum flows were likely to be in respect to these applications.
Council staff also seemed unsure how many applications it would receive. Individuals indicated the volume could be anywhere from 100 to 1000 consents.
Report authors were "troubled" that the council predetermined the Department of Conservation, Fish & Game, and iwi were always, and the only, impacted parties in a given consent.
The process of negotiation with these parties over the drafting of conditions came "dangerously close to being an unlawful delegation" of the council’s statutory powers, the report said.
Report authors had feedback from consent holders saying conditions were "template based" and were sometimes of little relevance to the activity for which consent had been granted.
From reviewing a "limited number" of consent documents, it found there were some issues with the legality and enforceability of some of the conditions imposed.
Staff were accepting poor consents rather than rejecting them, resulting in further work for the consents team and possibly contributing to the backlog.
The review made many recommendations such as suggesting new positions and staff.
The review recommended exploring sharing work with other regional councils.
Council acting regulatory general manager Peter Winder said the council took "several key lessons" from the review and already actioned some recommendations.
"We are in the process of addressing the longer-term issues that it identified. We are confident we can deliver robust processing of all consent applications to council, including water permit replacements."
Council chairman Stephen Woodhead said chief executive Sarah Gardner was implementing recommendations from the review.
He reiterated that it was she who asked for the review.
"We understand the workload that's in front of us and this review is part of being sure the organisation is in a situation to undertake that workload."
He was "very disappointed" the review was leaked and did not want to comment further.
A council staff report attached to the review outlined changes the council was investigating.
It was developing a strategy for how deemed permit replacement applications should be dealt with.
It would also explore options with other regional council for overflow processing.
