Premier Morris Iemma has been forced to delay his push to privatise the state's electricity assets in order to meet opposition demands on the sale and avoid an embarrassing defeat in NSW parliament.
Mr Iemma and his Treasurer Michael Costa made the concession after it appeared certain that government MPs would cross the floor and vote against the sell-off.
The NSW opposition also had threatened to vote against the proposal unless a list of five conditions were met.
While agreeing to meet most of the conditions, Mr Iemma had been reluctant to agree to the opposition's demand to have the Auditor-General Peter Achterstraat carry out a report on the sale before parliament voted.
But in an eleventh hour backdown, and facing an evitable defeat in parliament, Mr Costa announced an agreement had been reached with Mr O'Farrell.
"I've agreed to provide what they've required," he told Macquarie Radio.
"I've got a commitment from Barry O'Farrell that he will conduct a process that enables the legislation that empowers the auditor-general to go forward.
"And on that basis he will consider the auditor-general's report and his support is conditional on the auditor-general."
Legislation enabling the $10 billion privatisation push was expected to go before NSW parliament this fortnight, before the three-month winter recess.
Up until late on Monday afternoon, Mr Iemma's office had insisted the government would stick to this timeframe.
But now, the only privatisation-related legislation expected to go before parliament in the next two weeks is that which will empower the auditor-general to carry out his report.
The vote on the actual privatisation plan, to sell off the electricity retailers and lease out the generators, is now not expected until September.
Mr Costa said he did not expect this would delay the government's desire to have the first part of the electricity industry sold off by the end of the year.
"Our intention was to have the first transaction undertaken by the end of the year," he said.
"From the advice I've got, we can still do that."
Mr O'Farrell welcomed the government's decision, saying it had finally put the public's interest first.
But, he said this community safeguard should have been in the government's planning from the start.
"If Morris Iemma had been focused on the public interest, these community safeguards should of been there last December," Mr O'Farrell told AAP.
"This decision confirms Mr Iemma's weakness in his leadership.
Despite the fact he leads a government with a majority he can't get the support of his colleagues for a key proposal."
"This decision confirms Mr Iemma's weakness within his own party," the statement said.
"It's typical of Morris Iemma's dithering that he waited until the eleventh hour when he could have resolved this matter by engaging the opposition months ago."
Mr O'Farrell said subject to the wording, the opposition would support the legislation giving the auditor-general the power to report before parliament votes on power privatisation.