The NSW government will remove restrictions on Port of Newcastle building a freight terminal if the private operator tops up its $1.75 billion lease payment to the state.
The Perrottet government reached an agreement with Lake Macquarie MP Greg Piper on Monday to back his legislation to scrap controversial financial penalties on the Newcastle port operator developing a rival container terminal to Port Botany.
The deal represents a breakthrough after years of political and legal wrangles over the port's plans to diversify away from coal.
The government will table amendments to Mr Piper's bill in Parliament on Tuesday which give the port the option of paying one-off compensation to the government for removing the penalties.
The amendments require the port to apply for a review and the treasurer to appoint an independent expert to determine within six months what the fair market price for the lease on Newcastle port would have been if the restrictions on container trade were not in the original deed of agreement.
The penalty provisions would disappear when Port of Newcastle, which holds the 98-year lease, paid the state the difference between the new valuation and the $1.75 billion it paid in 2014.
The Newcastle Herald understands the top-up could amount to several hundred million dollars, but the figure will not be known until the independent umpire has finished the review.
A government spokesperson said the amendments would "ensure a fair outcome for the taxpayers of NSW as well as for the people of Newcastle and primary producers across NSW".
Mr Piper said he was "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".
The government introduced secret container penalties when it privatised the Botany, Kembla and Newcastle ports in 2013 and 2014.
The provisions require the government to compensate Botany and Kembla operator NSW Ports for container movements in Newcastle above a set cap, initially 30,000 a year, until 2065.
The lease deal with Port of Newcastle requires the Newcastle operator to reimburse the government for any compensation payments the state must make to NSW Ports.
The payment provisions were kept secret from Parliament and the public until they were revealed by the Newcastle Herald in 2016.
Mr Piper hopes the amended bill will pass through the lower house on Tuesday and the upper house by the end of the week.
He said Port of Newcastle supported the amendments and had indicated it would move quickly to apply for a review of the lease price.
"This has never been about one corporation over another but about what's best for Newcastle and the Hunter, for regional NSW, our farmers and exporters, and the future of international trade in NSW," he said.
Port of Newcastle chief executive Craig Carmody said the port was "pleased the government has reached an agreement with Greg Piper".
"Collectively, we wait today in anticipation for the bill to pass through the lower house," he said.
The opposition proposed its own amendments to the bill last month which left discretion for removing the penalties in the hands of the treasurer.
It remains to be seen whether Labor will support the Coalition amendments, but the minority government has the numbers with crossbench support to pass the bill regardless.
The port consortium, which includes The Infrastructure Fund and China Merchants as equal shareholders, plans to seek investors to help develop a $2.4 billion container terminal on former BHP steelworks land at Mayfield once the penalties are scrapped.
It says the container penalties have prevented it from seeking outside investors.
The Newcastle Herald understands the government will use Port of Newcastle's top-up payment to compensate NSW Ports if Newcastle exceeds the container cap in the future.
Mr Piper thanked Treasurer Matt Kean, Nationals MPs Adam Marshall and Dave Layzell and Newcastle MP Tim Crakanthorp for their "cross-party" support.
"I could not sit back knowing that for the next 43 years this region would be denied the opportunity to create thousands of new jobs and attract billions of dollars worth of private investment by a deal which even the ACCC and Productivity Commission have said was unfair and unproductive.
"I'm also grateful to Port of Newcastle, not just for the support they have provided me but for the investment they are making in our region, the jobs they are creating for local people, and for their commitment to ensuring our region is ready to tackle the challenges of the decades to come."
Newcastle-based Nationals senator Ross Cadell, who left his job as Port of Newcastle special projects director when he won office in May, said the legislation "removes Sydney-based barriers for the Hunter".
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