That water tank was the site of a (small) landslide, which was used by the government railways as an excuse for closing the line beyond Belgrave. The part of the line that remained open, from Ferntree Gully to Belgrave, was closed a few years later, regauged and electrified as an addition to the Melbourne suburban railway network.
A preservation society was formed and by 1962 the landslide had been cleared, the track repaired and the line reopened from Belgrave as far as Menzies Creek (4 miles). Reopening all the way to Gembrook (15 miles from Belgrave) occurred in 1998.
Post-war coal strikes in NSW caused the railways, here in Victoria, to burn wood for some time as we have no good locomotive coal. Judging by the smoke, I suspect that a mixture of wood and coal might have been in use. Burning wood is very hard work.