Bangladesh may pull out of an $8bn (£5bn) deal with China for the country's first deepwater port after receiving a better offer for a similar project financed by Japan.
Negotiation fot the Sonadia port project was expected to be concluded during the visit of Bangladesh Prime Minister Sheikh Hasina to Beijing last year, but officials in Dhaka said financing was an issue, as Beijing was willing to offer only partial support for what would be Bangladesh's biggest foreign investment.
Now Dhaka has cleared Japan's proposal to finance and build a seaport in Matarbari, located some 25km from Sonadia, according to Planning Minister Mustafa Kama, which has prompted a review of the Sonadia project.
The Japanese proposal includes the construction of four 600MW coal-fired power plants in addition to a port complex in Matarbari, and the minister told Reuters that the Japan International Cooperation Agency (JICA) had offered 80 per cent financing on easy terms.
"Matarbari is designed in such a way that it will be comprehensive, with power plants, an LNG terminal and a port," he said in a telephone interview. "Matarbari is sufficient, we may have to give up the other port project," he said, adding that the government was still reviewing the proposals.
Japanese firms Sumitomo Corp and Marubeni Corporation have bid to participate in the power plant construction project, though a Sumitomo spokesman said the project was in the early stages, and "nothing has been decided", while Marubeni declined to comment.
JICA said a loan agreement had been signed with Bangladesh for the power plant and that the project was in the procurement stage. Shipping Minister Shahjahan Khan told Reuters: "We are going ahead with the Matarbari seaport and power plants as JICA is financing the project."
On top of offering Dhaka financing for the construction of the port, Asia-Pacific chief economist at IHS Rajiv Biswas said Japan had also offered to finance 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 added.
The move comes just a week after Indonesia abruptly cancelled a multi-billion contract to build the country's first high-speed railway, which China and Japan had been battling over.
Henry Tillman, editor of China Investment Research which tracks China outbound investments, said: "It wasn't just Bangladesh this week. It's the second occurrence of this happening, where Japan has substantially bested China on interest rate terms on a major infrastructure project, in the last fortnight."