Genesis Energy will spend more than $125 million on repairs to the Tekapo Canal.
Genesis spokesperson Richard Gordon says the 26.5km canal has had problems with leaks since it was opened in the 1970s but has been deteriorating more recently.
During the work on the earth-lined canal, temporary dams will stop water flowing through sections at a time, water will be emptied out and a special lining installed.
Mr Gordon says erosion damage to some bridges will also be repaired.
He says the company knew work would need to be done when they bought the dam and two power stations from Meridian in June last year, and it was prepared for a costly project.
Work will begin in the New Year and is expected to be done in two 14-week periods, the second of which in the summer of 2014.