An effective monopoly over almost all products entering NSW by sea is set to be broken up by a bill to "unshackle" the Port of Newcastle.
The port in NSW's second biggest city handles few containers because of compensation provisions established when the state government sold ports at Botany and Kembla in 2013.
The monopoly lasts for 50 years and affected the later $1.7 billion sale of the Port of Newcastle.
But under a plan that passed the lower house of parliament on Tuesday, the current restrictions on the Port of Newcastle would be extinguished once the owners pay a new sale price, set as if the monopoly was not in effect.
Greg Piper's bill to "unshackle the Port of Newcastle from controversial restrictions" now has the support of the government, the independent Lake Macquarie MP said on Tuesday.
"I've agreed to a government amendment to provide a clear path for the port to diversify into containers without the unfair penalties placed on it," he said.
"It will create thousands of future jobs, attract billions in private investment, and this deal won't leave taxpayers on the hook for compensating the Sydney monopoly."
Mr Piper says the bill also has crossbench support.
The restrictions on the port undermine Newcastle's capacity for growth and are a significant public policy failure, Greens MP Jamie Parker said during debate.
An "independent and appropriately qualified" person will determine a fair price for the lease.
The Port of Newcastle will have to pay that, less the $1.7 billion it paid in 2014.
"I'm very pleased that a level playing field will be returned to the state's ports and that Newcastle will no longer be shackled to an unfair deal," Mr Piper said.
The competition watchdog took the issue to the federal court in 2018 on the belief that the purpose and likely effect of the provisions was to stop competition.
It lost, but appealed the decision. An appeals court will deliver judgment at a later date.
Labor said the government's changed stance on Mr Piper's bill was "a stunning backflip".
"This proves what Labor has been saying all along - privatisation doesn't work," Opposition Leader Chris Minns said.
"They sold off the ports in a dud deal and now are backflipping, costing taxpayers millions. It was the worst privatisation deal signed by any Australian government."
Several Labor MPs spoke on privatisation as the bill was debated in the lower house.
Mr Minns has vowed to end the practice the government calls "asset recycling" if Labor wins the next election.
During question time, Premier Dominic Perrottet defended the government's actions.
"We know the decisions that we made as a government - opposed by those opposite since 2011 - have unlocked capital that we have been able to use to build," he said.
The premier was asked repeatedly what the government amendments to Mr Piper's bill could end up costing the state, but did not provide a figure.
Speaker Jonathan O'Dea suggested Mr Perrottet might not know the answer and should say so if that was the case.
Mr Perrottet did not provide a number, but attacked Labor's recent commitment to use money from the $5 billion WestInvest fund to redevelop Canterbury Hospital, announced on Monday.
The money came from asset recycling through the sale of the incomplete WestConnex motorway, and the fund is to pay for public infrastructure in western Sydney.
