DHAKA • Bangladesh could shelve a deepwater port project valued at US$8 billion (S$11 billion) that it has been negotiating with China - it might pursue a nearby facility instead because the Japanese are offering better financing terms.
Such a move would be a setback for Chinese President Xi Jinping's "One Belt, One Road" initiative to build a network of ports and expressways to expand trade, investment and influence in the region.
Dhaka has cleared Japan's proposal to finance and build a seaport in Matarbari, some 25km from Sonadia, where Beijing had offered to construct the country's first deepwater port, said Planning Minister Mustafa Kamal.
He told Reuters that the Japan International Cooperation Agency (JICA) had offered 80 per cent financing with easy terms to build four coal-fired power plants of 600MW each and a port complex in Matarbari. The offer prompted a review of whether the Sonadia project was needed at all.
"Matarbari is designed in such a way that it will be comprehensive, with power plants, a liquefied natural gas terminal and a port," Mr Kamal said. "Matarbari is sufficient - we might have to give up the other port project."
He said the government was still reviewing the proposals.
Two Japanese companies, Sumitomo Corp and Marubeni Corp, have put in bids for the power plant construction project. A Sumitomo spokesman said the project was in the early stages, and "nothing has been decided". Marubeni declined to comment.
JICA said a loan agreement had been signed with Bangladesh for the power plant, and the project was in the procurement stage.
Mr Shamsul Alam, a senior secretary of the country's Planning Commission, said JICA - the main conduit for Japan's overseas development aid - had offered US$3.7 billion, at an interest rate of 0.1 per cent over 30 years, with an initial 10-year grace period, to build the US$4.6 billion port and power complex in Matarbari.
However, Shipping Minister Shahjahan Khan told Reuters there was no plan to sideline China, and Beijing remained a key player in the country's efforts to build new roads and bridges.
State-owned China Harbour Engineering was the front runner for the contract to build the Sonadia port. Last year, the two sides were expected to seal an agreement during Bangladeshi Prime Minister Sheikh Hasina's visit to China. But officials in Dhaka said Beijing was willing to offer only partial support for what would be Bangladesh's largest foreign investment.
IHS Asia-Pacific chief economist Rajiv Biswas said Japan had edged out China by offering financing for construction of the port as well as an industrial corridor with rail, road and electricity infrastructure.
"This has made the Japanese bid very attractive for Bangladesh from a long-term economic development perspective," he said.
Beijing's bid to build the port in Bangladesh worried India because it would extend a network of Chinese port projects in countries that include arch-foe Pakistan. New Delhi sees Chinese development of commercial ports in the Indian Ocean as a first step towards greater Chinese naval forays. Last year, it was alarmed when Chinese attack submarines docked at a port facility built by China in Colombo.
Mr Biswas said significant geopolitical issues were at stake, since China's port project would be strategically located in the Bay of Bengal - a source of concern for other international powers.