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THILAWA, Myanmar, Jan 24 (Reuters) - If Japan's plans to develop a massive industrial complex in Myanmar push ahead, Win Aung's village will be cut in half, his cottage and ricefields razed.
The 39-year-old is one of hundreds of farmers who make their living off rice paddies earmarked for the Thilawa economic zone, a project that has become the centrepiece of Japanese investment in Myanmar.
Win Aung, who supports a family of 12 by farming 30 acres, says he was forced to sell his land at $20 per acre to Myanmar's military junta in the 1990s. The government did not take over the land, but is now demanding the villagers vacate to make way for the Japanese.
That puts the matter in a grey area - the villagers are asking for extra compensation but the government has refused, although prices around Thilawa are between $10,000 and $20,000 per acre.
"There's no way we can afford a single acre here now," Win Aung told Reuters. He and other villagers said they were hoping the quasi-civilian government, which took over almost two years ago, would negotiate.
After decades of military dictatorship, issues like land rights are a minefield for foreign companies looking to take advantage of the opening-up of the Southeast Asian nation. Japan, seeking to fend off Asian rival China from getting entrenched in Myanmar, is one of the biggest investors.
But there are signs that Japan may tread cautiously now, although it is not clear what action it can take in cases like that of Win Aung and the Thilawa villagers.
Land rights matters have become an inflammatory issue in Myanmar after riot police raided residents protesting against expansion of a copper mine onto farm land last year, unleashing nationwide outrage.
"I have never seen anything like Thilawa before," said Takeharu Kojima, a Myanmar expert at the Japan International Cooperation Agency. "It will be very difficult to resolve, as land issues are always hotly debated when we help build infrastructure abroad."
Behind the scenes, local officials have pushed Japan to help settle the land rights issue by putting up money for compensation for farmers like Win Aung, but the Japanese have been reluctant to get involved.
"As a private Japanese company, we have nothing to do with it. It's up to the government of Myanmar to clear the land," said Takayoshi Nakao, who runs Marubeni Corp's operations in Yangon.
Less than three years before the planned opening of the Thilawa zone, a fifth of the 2,400 hectares earmarked for Japanese factories is still occupied by farmers like Win Aung, a source familiar with the plans said.
Japanese trading houses Marubeni, Mitsubishi Corp and Sumitomo Corp are completing preparations for the first 440 hectares of development of the Thilawa zone. The Japanese government has pledged to provide cheap loans to pay for the infrastructure around the zone, an investment estimated at more than $11 billion.
Japanese manufacturers who could set up shop in Thilawa include Suzuki Motor and Honda Motor, which have shown an interest in opening factories in Myanmar.
Thilawa is a 30-minute drive from Myanmar's largest city, Yangon. The military junta tried to build a business park there in the mid-1990s and forced farmers to sell the land at a discounted price, a Myanmar government source and local villagers said.
But after the investment fell through, it left them undisturbed, they said.
"We didn't hear from anyone for nearly two decades," said Win Aung, as he rested in his field.
"People didn't really know what they were signing and even if they had known, they wouldn't dare to protest because they were talking to the government with guns," he said, his teeth rust-red from chewing betel nut.
Win Aung and other villagers from Phalan, a settlement of 350 households, sent a letter to the government demanding fair compensation. They say they have not been consulted about the timing of Japan's investment or informed about when to move out.
"I don't think they would be this bold under the previous government. It's because we have democracy now why they were brave enough to write the petition," said Myint Thu, the Phalan village chief.
Meanwhile, rich Burmese speculators have bought up land around Thilawa, a development that could delay the opening, initially planned for 2015, people involved in the project and local residents say.
Land around Thilawa has been quoted between $10,000 and $20,000 per acre, said a Myanmar government source involved in the development of Thilawa. Japanese officials and business executives worry that will make it more difficult to build roads and bridges and other infrastructure.
The Thilawa project is being coordinated by one of the wealthiest men in the country - also called Win Aung and nicknamed Dagon after the name of his company - who is also on the U.S. sanctions list because of his close ties to the repressive military junta that ruled Myanmar for nearly 50 years.
"Dagon" Win Aung, no relation to the Thilawa farmer, made his fortune exporting timber and running construction projects including the development of Myanmar's capital, Naypyitaw. He said he is confident the Thilawa project will press ahead as planned.
"Thilawa will be a great success. I'll organise the consortium and make sure that the project is beneficial for the people," he told Reuters earlier this month in Yangon.
The villagers are hoping they can replicate their life elsewhere, but not too far away from where they live now.
"I understand I have to leave my land here - I only want to be able to buy a similar plot somewhere close." said Win Aung, the farmer. "Farming is the only thing I know in life." (Editing by Raju Gopalakrishnan)