Western Australia and BHP Billiton (ASX: BHP) agreed on Thursday to increase the royalty rate for iron ore after it amended the State Agreements Acts. The deal, however, is subject to approval by the state's parliament.

Under the amended agreement, BHP would increase its royalty rate for iron ore fines to 6.5 per cent from the current 5.625 per cent by July 1, 2012. The rate would go up further to 7.5 percent after one year to align the royalty rate for fines with current rate for lump ore.

BHP Billiton Iron Ore President Ian Ashby said the amendments will give BHP more certainty in planning and executing its growth projects, especially the proposed Outer Harbour Development.

The amendment will increase iron ore royalties by $1.9 billion for Western Australia.

After the Iron Ore Agreements Legislation Bill was introduced in the state parliament on Thursday, unions said the call by the state government for BHP Billiton and Rio Tinto to draw up local participation plans is superficial.

Besides the unions, Peter Kenyon, professor of Economic Policy at Curtin University, said the proposed legislation would not ensure the private industry would use local content.

"The state government can sort of guide the private sector without forcing the private sector to do things," The Sydney Morning Herald quoted Mr Kenyon.

"There's a lot to be said for going locally but these companies are big multinational corporations and they've already done a lot of research into getting their supply chains into place and to reopen all that is just a bit too hard," he explained.

The bill included a local participation plan due to lobbying by unions for more transparency in miners' tendering processes.

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