RIO TINTO and BHP Billiton have expressed fears the federal government will scrap a rebate on diesel fuel in next week’s budget.

During meetings with big investors yesterday, Rio Tinto’s chief executive, Tom Albanese, and BHP’s group executive, Alberto Calderon, both delivered messages that – apart from the iron ore sector – were generally bearish.

They warned that capital costs on new projects were uncomfortably high, and any additional burdens would not help the investment case for greenfield projects.

Mr Albanese’s comments came just hours after he met the Prime Minister, Julia Gillard, in Sydney yesterday, leaving big investors to speculate the meeting did little to calm his concerns.

Mining companies use diesel for trucks and power generation in remote locations, and have been offered a rebate to diesel taxes because they drive on private roads.

Speculation has mounted that the government will axe the subsidy in a bid to keep the budget in surplus.

The Mount Pleasant coal project near Muswellbrook was highlighted during Mr Albanese’s conversation with investors as an example of sharply rising costs.

He also expressed concerns about environmental opposition to a bauxite expansion at the South of Embley project near Weipa, which will now likely be delayed by a year.

The diesel rebate could also affect BHP’s approach to the Olympic Dam expansion, which is scheduled for a final board decision soon.

Despite the cautious mood on those matters, Mr Calderon and Mr Albanese both left investors confident that their iron ore expansions in the Pilbara continued to have strong prospects of winning approval later this year.