The industrial production corporation was established by the Sudan government to co-ordinate efforts for industrial development. It controls six subsidiary corporations. One of them is responsible for sugar and under its auspices sugar factories owned by the government are managed: Gunned (1963), Girba (1965), Sennar (1977), Assalaya (1978), Melut and Mongella (construction stopped in 1982).
The seventh, Kenana, is an exception in both respects and is the subject of the appraisal which follows.
In addition to the new sugar development projects (including Kenana), the already existing factory at Girba is having its capacity extended by 50% and two additional sites (Setit and Rank) are under consideration for development.
Comparison of experience between Girba based on plantation organisation and Gunned where tenant farming was relied upon for supplies has suggested the superiority of the plantation method in terms of productivity. Accordingly, the above mentioned mills are based on plantation.
Nonetheless the recent expansion, in comparison with the two earlier mills, has been a major leap in capacity, leading to complaints of staff about maintenance inadequacy.
Kenana, on the other hand, possibly the world's largest sugar project, is aimed essentially at export markets and both ownership and management have been organised along different lines. The estate consists of 84,078 acres and the factory is designed to crush 17,000 tons of sugar-cane daily throughout the 218-day season. This would suggest a capacity for producing 330,000 tons of white sugar per annum. The scale of this operation is indicated with reference to the other Sudanese projects in Table 1. (It should be noted that this large land area was previously land covered with scrub used at most for camel, cattle and sheep grazing by nomadic tribes.)
Table 1: Working Sugar Factories Designed Capacity
(metric tons per annum)
Factory |
Capacity |
Gunned |
60,000 |
Girba |
75,000 |
Sennar |
110,000 |
Assalaya |
110,000 |
Kenana |
330,000 |
Source: Sudan Sugar Corporation
The history of the project from preparatory work in 1972 by Lonrho, the British trading firm which was to manage Kenana to its actual operation, was characterised by two developments: firstly, the widening of participation in the ownership and financing of the project, and secondly, partly necessitating the former, a rapid cost escalation. As to the shareholdings, the registration of the company (completed on 6th March 1975) indicated that the Sudan Government held 61% of the equity. Of this 61%, 10% was provided by the Sudan Development Corporation, whereas 51% was to be financed by a loan from Lonrho to be repaid at commercial rates. Lonrho itself would hold a further 12%. Gulf Arab interests were to hold the bulk of the remainder.
A few days after the initial registration of the company with these shareholdings, an agreement was signed by the Sudan government and the Kenana Company stipulating that 150,000 metric tons of white sugar was to be purchased annually by the government at a guaranteed price of $665.3 per ton, compared with the then market price of $664 per ton.
By 1977 it was clear that the factory costs were rising rapidly above those suggested by Lonrho's initial feasibility study as Table 2 indicates.
Table 2: The Cost of the Factory
(in million dollars)
Item |
Feasibility Study 1972 |
Actual Cost 1977 |
% increase |
Contractor |
Manufacture and Ocean Freight to Port Sudan |
43.5 |
170 |
290 |
Technic ($130m) Nissho-Iwai ($40m) |
Preparation of the Factory Site |
11.9 |
19.5 |
64 |
McAlpines |
Erection and Commissioning |
8.2 |
42.5 |
418 |
Capper-Neill |
Transport from Port Sudan to the Site |
2.2 |
2.0 |
Nil |
Robert Wynn |
Escalation allowance |
5.0 |
|
|
|
Total |
70.8 |
234.0 |
230 |
|
Source: Sudanow, August 1977
Similar cost increases were experienced in the land irrigation work. Fortunately, it proved possible to interest the Kuwait government in the project and an agreement of participation was signed on 19th February 1976.
As a result of the Kuwait participation, the share of the Sudan government fell to 50%. Kuwait interests took 25%. The share of Lonrho fell to 5.5% and criticism regarding the firm's role in the cost escalation was made clear in a report commissioned by the Kuwait government.
In money terms, the Kuwait government was to provide $46 million, half as equity and half as loans, and this represented the enthusiasm at the time for "triangular" co-operation in the post-OPEC environment. Western technology was to be combined with OPEC money to expand productive potential in the Arab world. This view of a joint Arab interest in the food potential of Sudan was fortunate since, as costs continued to rise, Saudi Arabia was induced to provide (in autumn 1978) a further $29 million of equity and a similar loan. Final shareholdings at the time of inauguration of the plant (March 3, 1981) are as displayed in Table 3.
Table 3: Total Shareholdings
(in million S£)
Equity-holder |
M.S£ |
% of Total |
Sudan Government |
112.5 |
34.2 |
State of Kuwait |
109.3 |
33.2 |
Kingdom of Saudi Arabia |
39.1 |
11.9 |
Arab Investment Co. |
39.1 |
11.9 |
Sudan Development Corporation (State-owned) |
18.1 |
5.5 |
El-Nile in Bank (State-owned,Sudan) |
6.8 |
2.1 |
Lonrho Ltd. (U.K.) |
2.6 |
0.8 |
Nissho-Iwai (Japan) |
0.9 |
0.3 |
Gulf Fisheries (A Subsidiary of Gulf International Based in Khartoum) |
0.9 |
0.3 |
Total |
300 |
100 |
Source: KSC (1981) Green Gold at Kenana
These shareholdings are connected with the remaining sources of finance in Table 4 while Table 5 displays the assets to which they relate. The latter table breaks down the local and foreign currency component of the expenditure for later references.
Table 4: Kenana Sugar Project: Sources of Finance
(in million S£)
Authorised share capital |
S£ 330.00 |
Supplier credits: (i) France (iii) Japan (iv) Austria |
S£ 47.52 S£ 22.80 S£ 9.12 |
Infrastructure Loans (Kuwait and Saudi Arabia) |
S£ 80.00 |
Total |
S£479.44 |
Source: Kuwait Arab Fund for Economic Development, A Report on Kenana Sugar Project, Jan. 1978, Khartoum, and Kenana Sugar Company, Green Gold at Kenana, Feb. 1981.
It may be further noted at this stage, that part of the reason for the severe costs escalation for the project was attributed to the boom in the Arab oil states which had drawn away skilled Sudanese labour in considerable numbers. In addition, bottlenecks caused by acute shortage of foreign exchange within the Sudan were significant factors (cf. Financial Times, February 27, 1981). An example for the latter type of difficulty is illustrated by the supplies of cement for the project. The local factory (at Rabak) had been an added inducement for selection of the Kenana site.
Unfortunately, capacity was inadequate and whereas a costing of $38 per ton had been employed in the feasibility study, most of the Kenana requirements had to be imported at $175 per ton. The critical nature of the foreign exchange implications of the project will clearly need to be taken into account in the social cost-benefit analysis to follow.
On the more positive side, the net result has been that Sudan has acquired a "state of the art" sugar complex, including "long furrow" irrigation and a single factory with a 17,000 ton per day crushing capacity. This is intended to obtain maximum economy of steam use and optimum power generation from the available bagasse. These advantages are said to be considerable in comparison with the alternative of two or more smaller mills serving the same plantation. Whether optimum results will be achieved and maintained by this unique production strategy or not, it is too soon to say. But "Experience has shown that optimum results are achieved with a combined plantation and factory having a production and processing capacity of about 2,000 tons of cane per day for a production run for about 150 days" (OECD, 1968 Vol. 1, p. 93; see also Hagelberger, 1979 p. 894 and 897; Robson, 1977, p. 13 as quoted by Oesterdiekhoff, 1982).
Certainly, initial operating experience appears to have been favourable for this concept. At full capacity the plant could supply 40% of the 1980 consumption requirements of the Arabian peninsula or 25% for the Arab countries as a whole.
Table 5: The Structure of Capital Cost Estimates in Jan. 1978
(in million S£)
Item |
Domestic Currency Component |
Foreign Currency Component |
Total |
Factory |
24.96 |
189.44 |
214.40 |
Infrastructure |
76.16 |
77.84 |
154.00 |
Agricultural Works |
11.2 |
24.16 |
35.35 |
Administration |
10.72 |
9.68 |
20.40 |
Total |
123.04 |
301.12 |
424.16 |
Renewal & Replacement Cost |
1.36 |
3.28 |
4.64 |
Working Capital |
6.88 |
16.00 |
22.88 |
Interests During Execution |
8.24 |
19.44 |
27.68 |
Total |
139.52 |
339.84 |
479.36 |
Total in US Dollars Terms |
174.4 |
424.8 |
599.2 |
Source: Kuwait Arab Fund for Economic Development, A Report on Kenana Sugar Project, Khartoum, Jan. 1978.
Appraisal of this major project commences below from the commercial viewpoint where existing market prices and forecasts are utilised. The social appraisal will make significant adjustments to the prices used in the initial examination.
