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Western Australian government to ask BHP, Rio Tinto to 'buy out' iron ore levy

The Western Australian government will propose to BHP Billiton Group and Rio Tinto to "buy out" the lease rental fee the companies pay on iron ore, as the state government is seeking ways to infuse cash into its coffers, The Australian Financial Review reported May 28.

Western Australian Premier Mark McGowan said that the state government would request both companies to pay a lump sum in lieu of the current lease rental fee under the state's Regulation 28A. The regulation stipulates that the state will charge a rental of 25 Australian cents per tonne of iron ore produced from a mining lease in operation for 15 years.

At current production rates, BHP and Rio Tinto will collectively pay the Western Australian government around A$150 million in lease rental fees this year. The number of years that the government will seek for the two companies to pay upfront is not yet clear, but if 30 years' worth of fees would be paid in a lump sum, the bill will be A$4.5 billion.

The proposal will require approval from the state government, the Commonwealth government and the mining majors.

Previously, the National Party proposed to raise the lease rental fee levied on BHP and Rio Tinto from the current 25 Australian cents per tonne to A$5 per tonne in December 2016, which the McGowan-led Labor party opposed months prior to the state elections.

The Western Australian government is in the midst of a budget crisis, with the state treasury forecasting that it will completely run out of money by July should a proposed A$11 billion loan legislation not pass before Parliament.