$1bn extra over four years: concession rate runs out for BHP and Rio in Pilbara

The West Australian government has also extracted a one-off $350 million payment from the pair, which will be directed to a special-purpose account to help fund Perth's new children's hospital.

While the removal of the concessional royalty rate has been on the cards since 1995, it is the proposed $US116 billion ($A132.8 billion) iron ore production joint venture between Rio and BHP that has given WA Premier Colin Barnett the leverage to secure the new deal.

That was because the iron ore production joint venture depended on the government agreeing to amend state agreements to allow the sharing of infrastructure and the blending of iron ore products across the now separate infrastructure networks in the Pilbara.

With those amendments secured, approvals from competition regulators in Australia and overseas remain the only hurdles for the proposed joint venture.

"This is a win-win deal which gives the companies greater flexibility to integrate their operations and ensures a better return to the community," Mr Barnett said. He said the old royalty arrangement had recognised the pioneering role Rio and BHP played in developing the Pilbara's iron ore riches.

Their royalty rate on iron ore "fines" (as distinct from lump ore) rises to 5.625 per cent, bringing the companies into line with other WA producers.

Under the Rudd government's proposed resource tax, miners would receive a refundable credit for state royalties.