Data on the initial capital cost together with estimated fixed and variable costs of production are present in Tables 7 and 8.
In addition to these figures, the land has been rented for about 12 US cents per acre per annum over a period of 30 years, liable to extension. Irrigation water is given free of charge throughout the project lifetime. Furthermore the company is exempted from income
tax for a period of ten years from the start-up date, i.e. 1979; thereafter, an income tax of about 50% of net profit (see Appendix 1) will be in operation.
Additional costs are transport to the port and debt servicing. As shown in Table 4, despite the 1980 capital raising operation which converted a large amount of shareholders' loans into equity, about S£ 150 million of capital costs was still accounted for by supplier's credits and relatively cheap loans from Kuwait and Saudi Arabia. Terms are shown in Table 9. Assuming that equal annual instalments are to be paid over the full terms of amortisation of each loan, repayments of these loans are given in Table 6. The table also shows the transport costs from Kenana to Port Sudan estiamted after the completion of the 30 km railway spur by Kuwait Arab Fund.
Table 6: Debt Servicing and Transport Costs
(in million S£)
Year |
Debt Servicing |
Year |
Transport Costs |
1978 |
6.24 |
1980 |
1.92 |
1979 |
2.24 |
1981 |
4.64 |
80-81 |
11.39 |
1982 |
6.32 |
1982 |
17.56 |
1983 |
7.6 |
1983-91 |
18.11 |
1984-2004 |
8.16 |
1992 |
8.87 |
|
|
1993-2000 |
7.72 |
|
|
On the revenue side, the agreement between the government and the company (mentioned earlier) stated that 150,000 metric tons of white sugar was to be sold to the government (for consumption or export) at a guaranteed basic price of US$137.5 per metric ton (S£110 per metric ton). The rest of the production (180,000 metric tons) will be exported by the company to the world sugar market. After addition of cost estimates to the basic price the company estimated the guaranteed price as follows: 378.2, 399.4, 445, 489 and 532.4 Sudanese pounds per metric ton for 1979, 1980, 1981, 1982 and 1983-2004 respectively.
In dollar terms, the guaranteed price is equivalent to the 1974 world record price of sugar which was around 654 US dollars per metric ton.
Table 7: Total Project Capital Costs (in thousand S£)*
Item |
Domestic Currency Component |
Foreign Exchange Component |
Total |
A. The Factory 1.a Factory Equipment (from France and Japan) 2.a Civil Engineering Works 3.a Erection Works 4.a Electrical Equipment 5.a Additional Works in the Factory (Including Grease, Oil & Lubricants) 6.a Transport Costs from Port Sudan to the Site 7.a Various Tools & Light Equipment 8.a Consultants' Fees 9.a Contingencies (Inventory Accumulation) |
0,800 1,600 8,000 -- 4,000 6,400 0,800 1,600 1,360 |
118,150 16,000 25,000 11,200 2,400 3,840 2,320 9,120 0,800 |
118,960 17,600 33,600 11,200 6,400 10,480 3,120 10,880 2,160 |
Total |
24,960 |
189,440 |
214,400 |
B. Infrastructure 1.b Civil Engineering Works for Irrigation 2.b Pump Stations Equipment 3.b HQ Buildings 4.b Welfare and Housing 5.b Water Purification Plants 6.b Electrical Engineering Works 7.b Construction of 30km Railway Spur 8.b Civil Works for Transport of Cane 9.b Miscellaneous Works 10.b Consultants' Fees 11.b Contingencies (Inventory Accumulation) |
25,840 - 0,960 27,680 - 0,320 2,000 11,520 1,200 0,640 6,000 |
49,040 11,200 0,160 6,240 0,240 1,600 - 2,400 0,400 5,360 1,200 |
74,880 11,200 1,120 33,920 0,240 1,920 2,000 13,920 1,600 6,000 7,200 |
Total |
76,160 |
77,840 |
154,000 |
C. Agriculture 1.c Harvesting & Cane Transport Vehicle & Equipment 2.c Maintenance Works 3.c Trucks, Tractors and Workers Transport Vehicle 4.c Survey & Land Preparation Works 5.c Pilot Scheme & Nurseries |
0,400 - - 5,840 4,960 |
1,640 2,320 5,400 - - |
16,800 2,320 5,440 5,840 4,960 |
Total |
11,200 |
24,160 |
35,360 |
D. Administration 1.d Cars, Office Furniture and DC 3 Aircraft 2.d Sugar Storage at Port Sudan 3.d Preliminary Expenses 4.d Contingencies |
0,880 0,080 9,360 0,400 |
1,120 0,720 7,280 0,560 |
2,000 0,800 16,640 0,960 |
Total |
10,720 |
301,120 |
424,160 |
Total of A,B,C and D |
123,040 |
339,840 |
479,360 |
E. Renewal & Replacement Cost F. Working Capital G. Interests During Execution |
1,360 6,880 8,240 |
3,280 16,000 19,440 |
4,640 22,880 27,680 |
Grand Total |
139,520 |
378,560 |
534,560 |
* All data in the table given in Sudanese pounds (£) were derived from US dollar equivalents.
Source: Kuwait Arab Fund for Economic Development, A Report on Sugar Project, Khartoum, Jan. 1978.
Table 8: Total Costs of Production
(in Sudanese pounds)
Cost Item |
Cost/metric ton |
Variable Costs A. Agriculture 1.a Land Preparation 2.a Nurseries: Crop Husbandry 3.a Plantation: Crop Husbandry 4.a Irrigation 5.a Electricity 6.a Materials (Transport included) |
5,904 0,816 34,080 8,055 3,750 1,072 |
Total |
53,688 |
B. Harvesting & Cane Transport 1.b Harvesting Cost 2.b Transport Cost 3.b Materials |
10,944 11,168 0,304 |
Total |
22,335 |
C. The Factory 1.c Materials & Transport Cost 2.c Salaries & Wages |
15,448 4,880 |
Total |
20,328 |
Total Variable Costs |
90,352 |
Fixed Costs 1. General Expenses (Agriculture) 2. General Expenses (Factory) 3. Administration i. Salaries & Wages ii. Civil Works iii. Materials & Transport iv. Other Expenses |
7,472 6,520 3,895 3,680 8,448 5,632 |
Total Fixed Costs |
35,648 |
Total Costs of Production (Excluding Depreciation) |
132,000 |
Source: Kuwait Arab Fund for Economic Development, A Report on Kenana Sugar Project, Jan. 1978.
Note: The base of data is Kenana Sugar Company - Project files (1978). For the rest of the paper, all statistical infirmations are taken from this source unless stated otherwise.
Table 9: Kenana Sugar Project: Terms of Credits and Loans
(in millions S£)
|
Date of Agreement |
Loan (million S£) |
Rate of Interest |
Grace Period (Years) |
Recovery Period (Years) |
Supplier's Credits France Japan Austria U.K. Infrastructure Loans (Kuwait & Saudi Arabia) |
14/5/76 8/11/76 10/7/75 1/4/78 1/10/78 |
47.52 22.80 9.12 4.40 80.00 |
7.5 8.5 8.0 8.0 6.0 |
4 4 5 5 4 |
12 12 13 13 19 |
Source: Ibid and personal communication.
Taking the average world sugar price over the period (1970-1987 394.4 Sudanese pounds per metric ton) for our projections, the guaranteed price seems to be considerably higher than the expected world market prices. The difference between the guaranteed price and the expected market price, which we shall refer to as the "potential subsidy" from the government to the company, appears to be substantial.
The technical feasibility study and the subsequent reports on Kenana estimated that with proper maintenance the major factory equipment would last for 30 years. Assuming a linear depreciation allotment of 4% per annum² on the major factory and agricultural equipment, the terminal value of this fixed capital could be about S£83.5 million, whereas buildings and structures are assumed to collapse, at the end of the period, with no residual value. Terminal value of working capital estimated at around S£22.88 million has been included in Table 5. This gives a terminal value of around S£106 million.
Table 10 gives the cash flow account for each year of the project. In the first five years, there is a net cash outflow from the project. The excessive delays in the construction stage which led to the loss of two cane-crushing seasons clearly compounded the problem of cash outflow. The net outflow was particularly high in 1977 and 1978. From 1980 onwards a net cash inflow is forecast. During the period 1981-1987, a reasonable net cash inflow is forecast partly because of the exemption from income tax. In the year 1989, when the income tax begins, the net cash inflow is expected to decrease from an average of S£85 million to around S£60 million and stay around this level till the end of the period.
Table 10: Kenana Sugar Project: Cash Flow Account (Part 1)
(in million S£)
|
Capital Costs* |
Total Costs |
Transport Cost to Port Sudan |
Renewal & Replacement Cost |
Debt Servicing |
Income Tax |
Total |
1975 1 |
6.4 |
|
|
|
|
|
6.4 |
1976 2 |
70.4 |
|
|
|
6.24 |
|
70.4 |
1977 3 |
139.6 |
|
|
|
2.24 |
|
139.6 |
1978 4 |
119.4 |
11.76 |
1.92 |
4.64 |
11.39 |
|
137.4 |
1979 5 |
72.88 |
14.8 |
4.64 |
5.12 |
11.39 |
|
91.84 |
1980 6 |
36.8 |
21.8 |
5.12 |
5.6 |
17.55 |
|
79.3 |
1981 7 |
|
44.4 |
5.6 |
6.09 |
18.11 |
|
67.23 |
1982 8 |
|
47.2 |
6.09 |
6.08 |
18.11 |
|
77.96 |
1983 9 |
|
50.8 |
6.08 |
6.08 |
18.11 |
|
83.19 |
1984 10 |
|
50.8 |
6.08 |
6.08 |
18.11 |
|
83.15 |
1985 11 |
|
50.8 |
6.08 |
6.08 |
18.11 |
|
83.15 |
1986 12 |
|
50.8 |
9.08 |
6.08 |
18.11 |
|
83.15 |
1987 13 |
|
50.8 |
6.08 |
6.08 |
18.11 |
|
83.15 |
1988 14 |
|
50.8 |
6.08 |
6.08 |
18.11 |
|
83.15 |
1989 15 |
|
50.8 |
6.08 |
6.08 |
18.11 |
26.6 |
109.7 |
1990 16 |
|
50.8 |
6.08 |
6.08 |
18.11 |
109.7 |
|
1991 17 |
|
50.8 |
6.08 |
6.08 |
18.11 |
26.6 |
109.7 |
1992 18 |
|
50.8 |
6.08 |
6.08 |
8.87 |
32.1 |
106.0 |
1993 19 |
|
50.8 |
6.08 |
6.08 |
7.72 |
32.8 |
105.6 |
1994 20 |
|
50.8 |
6.08 |
6.08 |
7.72 |
32.8 |
105.6 |
1995 21 |
|
50.8 |
6.08 |
6.08 |
7.72 |
32.8 |
105.6 |
1996 22 |
|
50.8 |
6.08 |
6.08 |
7.72 |
32.8 |
105.6 |
1997 23 |
|
|
|
|
|
|
|
2000-26 |
|
50.8 |
6.08 |
6.08 |
7.72 |
32.8 |
105.6 |
2004 27 |
|
|
|
|
|
|
|
-30 |
|
50.8 |
6.08 |
6.08 |
|
32.8 |
97.8 |
2005 31 |
|
|
|
|
|
|
|
* including working capital
Table 10: Kenana Sugar Project: Cash Flow Account Receipts(Part 2)
(in million S£)
|
Equity Capital and Loan Allocation |
Domestic Sales |
Foreign Sales* |
Terminal Value + Reclaimed Working Cap. |
Potential Subsidy |
Total (incl. subsidy) |
Net cash Flow with Subsidy |
1975 1 |
2.35 |
|
|
|
|
|
-4.05 |
1976 2 |
25.9 |
|
|
|
|
|
-44.5 |
1977 3 |
51.3 |
|
|
|
|
|
-87.7 |
1978 4 |
43.9 |
|
|
|
|
|
93.5 |
1979 5 |
26.8 |
18.9 |
|
|
11.84 |
18.9 |
-46.1 |
1980 6 |
13.5 |
59.9 |
31.36 |
|
7.04 |
91.3 |
31.46 |
1981 7 |
|
66.7 |
52.8 |
|
13.84 |
119.5 |
52.46 |
1982 8 |
|
73.4 |
63.2 |
|
21.8 |
136.6 |
58.5 |
1983 9 |
|
79.8 |
61.8 |
|
29.2 |
141.6 |
57.6 |
1984 10 |
|
79.8 |
60.1 |
|
29.8 |
139.9 |
57.06 |
1985 11 |
|
79.8 |
61.2 |
|
28.8 |
141.0 |
58.2 |
1986 12 |
|
79.8 |
62.6 |
|
27.8 |
142.0 |
60.5 |
1987 13 |
|
79.8 |
58.7 |
|
27.0 |
138.5 |
55.4 |
1988 14 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
30.4 |
1989 15 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
30.4 |
1990 16 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
30.4 |
1991 17 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
30.4 |
1992 18 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
34.2 |
1993 19 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
34.6 |
1994 20 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
34.6 |
1995 21 |
|
79.8 |
60.3 |
|
27.0 |
140.0 |
35.6 |
1996 22 |
|
79.8 |
60.3 |
|
21.0 |
140.0 |
41.6 |
1997-23 |
|
|
|
|
|
|
|
2000-26 |
|
79.8 |
60.3 |
|
21.0 |
140.0 |
40.6 |
2004 27 |
|
|
|
|
|
|
|
-30 |
|
79.8 |
60.3 |
|
21.0 |
140.0 |
42.4 |
2005 |
|
|
|
106.4 |
|
|
106.4 |
* sugar sales to the Government
Further detail on the exact status of the subsidy to be provided by the Sudan government is unfortunately not available and two calculations have been conducted in relation to the data in Table 10. These are the internal rate of return on the project with and without the subsidy and are approximately 12% and 8% respectively. It should be emphasised that these figures refer to the expected market return on the project as a whole.
The calculation for the private cash flow of the project in Table 10 suggests that the subsidy is rather crucial in order to generate a reasonable rate of return.
To explore further the merits of this project from the standpoint of the economy of the Sudan, the remainder of the paper concentrates on a social cost-benefit appraisal.
