Ministry of Agriculture 2

Ministry of Agriculture: Investment Development Agency (IDeA)

SUDAN AGRO-INDUSTRY INVESTMENT OPPORTUNITY

FEASIBILITY STUDY REPORT

for

10 000 TCD CAPACITY SUGAR FACTORY PROJECTS

prepared by

THE FEDERAL MINISTERY OF AGRICULTURE

INVESTMENT DEVELOPMENT AGENCY (IDeA)


SUGAR IN THE SUDAN FOREWARD The Sugar Industry in Sudan is well established with proven track records on production efficiencies and technological advancements. Since establishment of the first sugar factory in 1962; the domestic sugar industry has sustained steady growth and expansion. In addition to progressing on the knowledge and expertise accumulated over its 50 years history, the Sudan sugar industry is also advancing amid global technological developments in the fields of bio-energy: cogeneration and ethanol. Building on this the Government of Sudan has created The Sudan Grand Sugar Plan, a strategic vision to enforce and expand Sudans production capacities in accordance with the global diversified sugar industry model that has already been established within the country. The plan is being spearheaded by the Ministry of Agriculture in keen collaboration with related ministries and authorities, by proactively seeking and encouraging investment in the sector, from both local and foreign investors and through strategic partnerships. The Ministry of Agriculture has already earmarked potential areas within irrigated schemes for this strategic sugar expansion vision and plan. Moreover, it is compiling a series of feasibility studies for each of the identified project locations, to clearly demonstrate and further promote the lucrative potential of these opportunities to prospective investors.


CONTENTS:

THE SUDAN SUGAR SECTOR HISTORY OF SUGAR IN SUDAN SUGAR PRODUCTION SUGAR CONSUMPTION PATTERNS FACTORS AFFECTING SUGAR CONSUMPTION GROWTH PATTERNS SUPPLY VS DEMAND BALANCES SUDANS SUGAR IMPORTS SUDAN'S SUGAR EXPORTS DOMESTIC SUGAR POLICY PROTECTIONS FOR THE DOMESTIC SUGAR MARKET GOVERNMENT SUGAR EXPANSION PLANS FIRST PHASE EXPANSION PROGRAMME DEVELOPMENTS CONTRACT SIGNED PROJECTS IN PIPELINE PROJECT DESCRIPTION THE PROJECT LOCATION THE PROPOSED SITE FOR THE NEW SUGAR PROJECT THE GEZIRA SCHEME BACKGROUND GEZIRA SCHEME ADMINISTRATION THE SCHEME CONFIGURATION THE IRRIGATION SYSTEM IRRIGATION WATER RESOURCES IRRIGATION SYSTEM INFRATRUCTURE AND WATER DELIVERY MANAGEMENT IRRGATION INFRASTRUCTURE REHABILITION INSTALLATION OF ADDITIONAL CAPACITY CURRENT CROP CULTIVATION THE POTENTIAL FOR SUGAR CANE CULTIVATION AT THE PROPOSED SITE 35 YEARS TRACK RECORD OF SUGAR CANE PRODUCTION AGRONOMIC SUITABILITY IMPROVEMENTS IN PRODUCTIVITY COOPERATION OF SGB AND FARMERS TYPES OF SUGAR PRODUCED IN SUDAN SUGAR INDUSTRY BY-PRODUCTS ETHANOL PRODUCTION IN SUDAN PROJECTED YIELD SUDAN INVESTMENT ENVIRONMENT THE INVESTMENT ENCOURAGEMENT ACT 1999 (AMENDED 2007) PRIVILEGES, FACILITIES, GUARANTEES, PROCEDURE FOR APPLICATION FINANCIAL APPRAISAL ASSUMPTIONS FINANCIAL PROJECTIONS AND ANALYSIS FINANCIAL RESULTS FINANCIAL PARAMETERS NET PRESENT VALUE INTERNAL RATE OF RETURN PAY BACK PERIOD RISK ANALYSIS APPENDICES


TABLES Table 1: Start Of Production, Designed And Highest Achieved Production Levels of the Five Sugar Factories Table 2: Production by Existing Sugar Factories Table 3: Sudan Sugar Consumption And Production Table 4: Sudans Production of Selected Processed Food And Drinks Table 5: Sudan Sugar Consumption Total and Per Capita Consumption (Kg/Person) Table 6: Sugar Production Surplus / Deficit Table 7: Phase 1 Sugar Expansion Plan Table 8: By-Products off the Sugar Industry Table 9: Sudan Molasses Exports Table 10: Expected Yield of By-Products of Project Table 11: Depreciation Rates per annum (Straight Line) and Amortization Table 12: Total Project Fixed Assets Table 13: Project Fixed Assets in US$ Table 14: Working Capital in US$ Table 15: Project Capital Cost and Source of Finance in US$ Table 16: Summary of Capital Cost Table 17: Project Productivity Table 18: Project Revenue in US$ Table 19: Annual Operation Costs in US$ Table 20: Depreciation and Amortisation Table 21: Short-term Loan in US$ Table 22: Summary of Total Operating Cost in US$ Table 23: Project Income Statement in US$ Table 24: Project Cash Flow in US$ Table 25: Sensitivity Analysis FIGURES Figure 1: Share of Sugar Factories in Overall Production Figure 2: Sudan Sugar Consumption Figure 3: Population Growth & Average Growth Rate Figure 4: Sudan's Percentage Age Distribution Figure 5: Supply vs. Consumption Balances up to 2005/06 Figure 6: Illustrates the Quantity of Sugar Imported by Sudan Until 2006 Figure 7: Illustrates the Quantity of Sugar Exported by Sudan up to 2006/7 Figure 8: The Locations Of Each Project Are Indicated In The Map Below Figure 9: Location of Sennar State Figure 10: Map Transport Links Figure 11: Geographic Perspective Figure 12: Gezira Scheme Figure 13: Growth in Productivity


THE SUDAN SUGAR SECTOR HISTORY OF SUGAR IN SUDAN The Sudanese sugar industry started in the early 1960s. Currently, the production capacity, i.e. design capacity of the existing five sugar factories, is 755,000 tons. The soaring world sugar prices in the late 1950s motivated the Government of Sudan to plan establishment of a sugar industry to ease pressure on its foreign exchange reserves and create jobs and employment within a new industrial environment. The El Guneid Sugar Factory was commissioned in 1962 and the New Halfa Sugar Factory in 1964, each with a sugar production capacity of 60,000 tons per annum. The two projects were established to meet the then domestic demand levels estimated at 120,000 tons per annum. In the early seventies the Sudanese Government designed a new plan to meet the growing demand for sugar. Three major sugar plantations were successfully constructed, namely Hajar Assalaya, North West Sennar and Kenana. Kenana Sugar Company (KSC) was established as a private (integrated) company while Sudans remaining four sugar plantations were administered by the Sudanese Sugar Company (SSC), a publicly owned enterprise. Table 1: Start of production, designed and highest achieved production levels of the five sugar factories

Factory Start of

Production Total Area (Feddans)

Current Plant Design Capacity (Tons Sugar p.a.)

Highest Actual Production

(Tons Sugar p.a.)

El Guneid 1962 40 000 60 000 94 171

New Halfa 1964 40 000 75 000* 87 759

North West Sennar

1976 38 000 110 000 92 038

Hajar Assalaya 1979 44 000 110 000 97 500

Kenana 1980 87 000 400 000** 427 895

Total 755 000 799 363

Source: SSC and Kenana Sugar Company

*Original plant design capacity of New Halfa: 60,000 tons ** Original plant design capacity of Kenana: 300,000 tons Sugar production in the Sudan was insufficient to meet domestic consumption levels until the mid-1980s when a serious rehabilitation program was launched in all sugar projects. The industry was further developed utilizing the best of its accumulated knowledge and experience as well as introducing new practices and mechanisms. Sugar production in Sudan witnessed a steady growth due to the improved efficiency in all sugar factories. Cane and sugar yields picked up to satisfy local consumption, estimated at 500,000 metric tons in the early 1990s. And, before the end of that decade, with its sugar surplus, Sudan became an exporter to its regional neighbours as well as to Europe. From the late 1990s, both the SSC and KSC implemented further expansion strategies bringing about further significant increases in yields.


SUGAR PRODUCTION Today, Sudans Sugar Industry is well established with proven track records on production efficiencies and technological advancements: reaching production levels of 756,849 tons, in the 2006/7 cropping year. Record peak production of each factory, combined, totals to 799,363 tons. Table 2: Production by existing Sugar Factories Crop Year SUDAN SUGAR COMPANY KENANA

SUGAR CO. SUDAN TOTAL El Guneid New Halfa North West

Sennar Hajar

Assalaya 1997/98 58 600 61 615 43 000 38 000 356 000 557 215

1998/99 69 550 75 547 55 064 45 234 365 000 610 395

1999/2000 71 697 86 368 64 523 54 194 387 044 663 836

2000/01 82 065 85 111 62 207 59 709 403 486 692 578

2001/02 94 171 85 037 78 187 64 310 376 039 697 744

2002/03 81 595 86 741 83 530 76 381 398 268 726 515

2003/04 87 082 87 759 78 692 73 488 427 895 754 916

2004/05 86 615 72 002 72 400 87 515 393 002 711 534

2005/06 84 771 81 136 80 630 81 372 400 209 728 118

2006/07 87 211 83 050 92 038 89 510 405 040 756 849

2007/08 84 800 81 100 85 500 90 900 402 300 744 600

2008/09 87 600 84 200 87 100 97 500 382 100 738 500

2009/10 88 200 57 300 76 600 75 400 344 400 641 900

Source: Central Bank of Sudan Annual Report 2009 and 2010, and KSC and SSC Figure 1: Share of Sugar Factories in Overall Production

11%

11%

12%

12%

54%

El Geneid

New Halfa

North West Sennar

Hajar Assalaya

Kenana


RECENT SUGAR PRODUCTION TRENDS The total production of the five sugar factories decreased by 1.6%: from 0.756 million tons in the 2006/7 season to 0.7446 million tons in the 2007/8 season. This was due to decrease in the production of all sugar factories except Hajar Assalaya sugar factory, which increased its production by 1.6%. The total sugar production (The Sudanese Sugar Company and Kenana Co.) decreased further in 2008/9 to 738.5 thousand tons, due to a decrease in production of Kenana Sugar Factory by 5.02%. However, during the same period, the Sudan Sugar company had in fact posted an increase in production, in all its factories, by a total of 4.12%. A steep drop to 641,900 tons was registered in total production in 2009/10 season a decrease from the previous year by 13.1%. Both the sugar companies expect to return to normal production levels during 2010/11 season.


SUGAR CONSUMPTION PATTERNS Domestic sugar consumption has burgeoned in Sudan, almost doubling from 1998 to 2006, and again within the 4 years to 2010. (From 2006 to 2010, sugar consumption increased by 87.39%. within 1 year alone, from 2009 to 2010, sugar consumption swelled by 82.88%). Total domestic demand in 2010 was 1,666,406 tons1. Figure 2: Sudan Sugar Consumption

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1997/98 1998/99 1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

CONSUMPTION (MT)

CONSUMPTION (MT)

Source: Calculations based on data from the Central Bureau of Statistics, and SSC and KSC Table 3: Sudan Sugar Consumption vs. Production

YEARS 1997/8 1998/9 1999/ 2000

2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2010

TOTAL CONSUMPTION

451,474 528,052 617,469 708,377 751,121 722,641 747,814 848,560 889,291 911,212

2 1,666,4

06

TOTAL PRODUCTION

557,224 610,395 663,836 692,688 696,825 728,335 754,915 711,533 728,117 756,849 744,600 738,500 641,900

Source: SSC and KSC

1 Central Bank of Sudan Annual Report 2010: in 2010 domestic sugar production was 641,900 tons; 1,024,506 tons imported; zero exported. 2 Central Bank of Sudan Annual Report 2010: in 2009 domestic sugar production 738,500 tons; 203,112 tons imported; 30,400 tons exported.


FACTORS AFFECTING SUGAR CONSUMPTION GROWTH PATTERNS The strong growth in sugar consumption can be attributed to four major factors:

i. partial liberalisation of the market ii. developments in the sugar-consuming processed foods and drinks industries iii. strong economic growth iv. population increase

POLICY MODIFICATION MEASURES Until 2001, sugar prices and distribution were controlled by the Government, to curtail demand. During the 1980s consumption grew by a meagre 1.5% per annum, a rate lower than that for population growth, indicating a decline in per capita consumption. During the 1990s growth in consumption increased to 4.3% per annum. After the introduction of a new distribution policy in 2001, as a first step towards the full liberalization of the domestic sugar market, sugar consumption witnessed a staggering growth of 12.3% between 2001/2002. By 2005, Sudans total consumption of white sugar exceeded domestic production3. INDUSTRIAL DEMAND FOR SUGAR Between 1999 and 2006, the production of soft drinks increased from 108 to 535 million litres, while the production of other sugar-consuming foods, such as biscuits, sweets, jams and juices increased by over 33%. The 2009 figures are similar to those of the 2006 (ref. Central Bank of Sudan Annual report 2009) Table 4: Sudans Production of Selected Processed Food and Drinks Units 1999 2000 2001 2002 2003 2004 2005 2006

Soft drinks 000 litres 108,000 120,000 121,200 192,000 312,000 336,000 529,200 535,080

Biscuits 000 tons 35 39.4 39 54 52 40 65 48

Sweets 000 tons 63 65 50 49 31.5 32 35 54.5

Jams 000 tons 5 8 5.5 15 6 5 6.5 8

Juices 000 tons 9.17 18.4 30 28 - 24 32 39 Source: Central Bank of Sudan Annual reports

3 Total consumption of white sugar exceeded domestic production in 2005 by over 137,000 tons; in 2006, by over 161,000 tons. In, 2010, the sugar deficit was over 1 million tons.


ECONOMIC GROWTH In least developed countries, the demand for sugar is elastic with respect to income, i.e. demand increases more than proportionately with income. Income elasticity declines as the level of income drops. Income elasticity is very high at very low per capita incomes, it then declines to about +1 in the order of $400 to $500 US per capita income, and continues to decrease to about zero when per capita income reaches a range of about $2000 - $3000. Beyond this level, the income elasticity may even be slightly negative. Per Capita consumption in the Sudan grew by 165% from 1998 to 2006. Per Capita income, a summary measure of the living standard of average citizens, increased from $348 to $1,393 over ten years since the advent of oil exports in 1999. GDP Per Capita grew rapidly: US$ 892.3 in 1999 to 1,083.10 in 2001; in 2004, it stood at US$ 1,991.20; in 2008, it was US$ 3,262.60. Real GDP growth rates were 7.8% in 2008, 6.1% in 2009 and 5.1% (estimate) in 2010. The African Development Bank (ADB) forecasts real GDP growth to average at approximately 5% during the years 2011 to 2013. Table 5: Sudan Sugar Consumption Total and per Capita Consumption (kg/person)

CROP YEAR SUGAR CONSUMPTION (MT) POPULATION (thousands) SUGAR CONSUMTION PER

CAPITA (Kg)

1997/98 451,474 29,397 15.4

1998/99 528,052 30,062 17.6

1999/2000 617,560 30,741 20.1

2000/01 708,377 31,437 22.5

2001/02 751,121 32,151 23.4

2002/03 722,641 32,878 22.0

2003/04 747,814 33,610 22.2

2004/05 848,560 34,282 24.8

2005/06 889,291 34,968 25.4

2010 1,666,406 40,134,000* 41.5

Source: Central Bureau of Statistics, KSC and SSC, Press reports (various including Reuters) *Source: IMF 2010 World Economic Outlook September 2010 estimate


POPULATION STATISTICS IMPACTING GROWTH IN SUGAR DEMAND In accordance with the data Sudan in Figures 2004-2008 published by Sudan Ministry of the Cabinet - Central Bureau of Statistics, Sudans population stood at 39.15 million, compared to a population of 25.6 million recorded in 1993 census, representing a compound annual growth rate (CAGR) of 2.827%. On the basis of this growth rate, the population of Sudan reached approximately 41 million in 2010. Figure 3: Population Growth & Average Growth Rate

The Central Bureau of Statistics has projected Sudans population to grow at 2.46% p.a. for the period from 2009 to 2013 and to further grow at 2.21% p.a. for the period to 2018. Youth Population: Sudans population is predominantly young. Further impacting on demand growth rates, as younger individuals consume more sugar and sugar processed foods and drinks. 54.01% of the population is in the age bracket of 15-64 years while 42.61% are under 15 years of age, only about 3.38% are older than 64.

42.61%54.01%

3.38%

under 15 15 - 64 older than 64

Figure 4: Sudan's Percentage Age Distribution


Rapid Urbanization: further enhances demand growth. The life styles of urban societies (even the poor) tend to boost the consumption of processed foods and soft drinks hence urbanization leads to direct and in direct increases in the per capita consumption of sugar. In Sudan, the urban community increased from 860,000 people in 1995/6 to 12,488,000 in 2004. With a population of 5.27 million, Khartoum State is home to over 13% of Sudans population. Khartoums population had grown at a CAGR of approximately 3.28% between the 1993 census and the most recent 2008 census. 88.2% of Khartoum State residents are classified as urban. Due to increased rate of migration to the Capital, Khartoum States population is estimated to grow at a faster pace of 3.34% p.a. for the five years to 2013 and at 2.97% p.a. for the following 5 years to 2018.


SUPPLY VS DEMAND BALANCES Production was outstripped by domestic demand as of 2005, when consumption of white sugar exceeded domestic production by over 137,000 tons. The following year, this gap climbed to more than 161,000 tons. In 2010, the sugar deficit grew to over 1,000,000 tons. (According to the 2010 Annual Report of the Central Bank of Sudan, 1,024,506 tons of sugar were imported). In 2010, total domestic demand was (likely in excess of) 1,666,406 tons, while total domestic production was 641,900 tons. Despite this setback in production levels*, there is a real and widening gap4, which continues to be bridged by imports. Figure 5: Supply vs. Consumption Balances up to 2005/06

557,224 610,395

663,836 692,688 696,825 728,335 754,915 711,533 728,117

-451,474 -528,052

-617,469 -708,377

-751,121 -722,641 -747,814

-848,560 -889,291

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Table 6: Sugar Production Surplus / Deficit

YEARS 1997/

98 1998/

99 1999/ 2000

2000/ 01

2001/ 02

2002/ 03

2003/ 04

2004/ 05

2005/ 06

2009/ 10

TOTAL CONSUMPTION 451,474 528,052 617,469 708,377 751,121 722,641 747,814 848,560 889,291 1,666,406

TOTAL PRODUCTION 557,224 610,395 663,836 692,688 696,825 728,335 754,915 711,533 728,117 641,900

SURPLUS / DEFICIT 105,750 82,343 46,367 -15,689 -54,296 5,694 7,101 -137,027 -161,174 -1,024,506

Source: SSC and KSC

4 *even at optimal production levels of 755,000 tons, there gap would have been 911,406 tons


Real Demand Outstrips Projections The UNDP econometric model, developed to project patterns of sugar consumption in several Sub-Saharan African countries, was utilized for projections of Sudans consumption growth patterns. The model was tested against real historic data to gauge its effectiveness and consistency with Sudan growth patterns. The model predicted that consumption would reach 850,000 tons of white sugar by 2005. Thus, it proved a reliable tool for projections for future consumption growth patterns. Using this model, sugar consumption was projected to grow to 1,020,664 tons by 2010/2011 and 1,202,087 in 2013/2014. In actual fact, sugar consumption levels hit 1,666,406 tons in 2009/2010. The figures clearly indicate not only a widening sugar deficit, but exceedingly higher and accelerated rates of consumption growth patterns than anticipated. It may be deemed a reasonable observation, that the domestic market could absorb additional supplies if made available, thereby rendering much higher demand statistics and, consequentially consumption growth rates. It is clearly evident that unless additional capacities are established, Sudan will continue to import increasing amounts of sugar to satisfy its domestic market. Consequently, it will lose its lucrative export markets: a negative impact on the countrys foreign exchange earnings. (Sudan did not export any sugar in 2010. Conversely, sugar imports of over 1 million tons in 2010, cost the country over US$ 500 million).


SUDANS SUGAR IMPORTS Historically, Sudan used to cover most of its sugar requirements by regularly importing sugar from the international market. Following steady expansions in its local production facilities, Sudan became self sufficient in 1985/1986. Since then, hardly any sugar was imported until the year 2000, when Sudan had to import some 100,000 tons of sugar to cover a temporary sugar deficit. Again in 2005, an explosion in the demand for sugar, forced the government to import considerable quantities of sugar. Figure 6: illustrates the quantity of sugar imported by Sudan until 2006

Source: Statistical year Book for the Year 2007, Ministry of the Cabinet

In 2008 the Government of Sudan imported US$ 0.2 million worth of sugar. In the following year, sugar imports burgeoned to a value of US$ 108.9 million, for 203,112 tons. The year 2010 witnessed a staggering growth in sugar imports of 1,024,506 tons, valued at US$ 502.4 million. (Source: Central Bank of Sudan Annual Report 2010). This trend is expected to continue until the countrys major expansion plans are implemented.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000 Total Import

Total Import


SUDAN'S SUGAR EXPORTS With successful expansions in production levels, Sudanese sugar producers were able to export sugar for the first time in 1992. Although the volume of sugar exported was small at the beginning, exported quantities increased steadily to reach 105,000 metric tons during the crop season 1997/98. Figure 7: illustrates the quantity of sugar exported by Sudan up to 2006/7

Sugar exports have steadily declined from 30,045 tons in 2007, to 30,587 tons in 2008, to 30,400 tons in 2009. In 2010, sugar exports from the Sudan were zero. Export earnings from sugar increased from USD 15.1 million in 2008 to USD 18.5 million in 2009, because of the increase in the international prices. Sudan has exported sugar to Saudi Arabia, Yemen, Somalia, Kenya, Egypt, Chad, the Central African Republic, India, Bangladesh, Bulgaria and the European Union, in the past.

0

20,000

40,000

60,000

80,000

100,000

120,000

White Sugar Raw Sugar


POTENTIAL FOR SUGAR EXPORTS The EUs Everything But Arms Initiative (EBA) trade agreement grants LDCs (Least Developed Countries, such as Sudan) unlimited / quota-free and duty-free access to its sugar market. However, provisional constraints remain on year-to-year increases in export volumes of zero-duty raw sugar imports for refining. The EU preferential price for raw sugar5 declined from the highly lucrative 524/ton (US$681/ton at the time) to 335 (currently at exchange rate of 1.429, approx. $479/ton) by 2009 due to recent reforms to the EU sugar regime. The EU price was scheduled to remain at 335/ton until at least 2014 when the policy is scheduled for review. During July 2011, the average European sugar import price was US cents 26.81 per pound of sugar, CIF Europe, equivalent to approximately US$ 589.82/ton. At its peak this year, in April 2011, it stood at an average of US cents 27.18 per pound, US$ 597.96/ton. Another potential destination of exportable surplus of raw sugar is the Middle East refineries. COMESA is another important market. Even without access to the EU, Sudan can export profitably to the region. Under the COMESA Agreement, Sudan can export sugar to FTA countries duty-free and quota-free. In addition to the opportunities provided by the COMESA, the rest of the regional market is growing rapidly. The EU has also been a large exporter of white sugar to the region, but the recent WTO ruling against EU subsidized sugar exports will reduce EU sugar exports to the region by 45million tons per year. While competition from other major sugar exporters, such as Brazil, will remain, the use of sugar cane for ethanol production and expected high energy prices will limit Brazils exports and will likely keep world sugar prices from falling to the extreme lows of 2000. Finally, growing world demand for bio-fuels, such as ethanol made from sugar cane, is pushing up the world price for sugar. This has increased by 69 percent between 2004 and April 2008 (World Bank, 2009). The potential destinations for exportable surplus of white sugar:

African land locked countries e.g. Chad and Central African Republic COMESA members like Egypt, Kenya, Uganda, Djibouti, Ethiopia, Eritrea, etc. Other African countries Arab Countries like Yemen and markets with no sugar refineries in the Middle East

Sudan has a number of attractive sugar export opportunities and can use them to develop an efficient and profitable export-oriented sugar industry, which can provide strong export earnings, foreign currency, employment and other benefits to the country without heavily burdening domestic consumers. However, even with preferential access to the EU and COMESA markets, sugar exporters are not likely to obtain prices which are as high as those currently available in the protected domestic market. After additional capacities are installed Sudan's sugar exports are expected to be a major feature in the countrys balance of trade. 5 The volume of white sugar is multiplied by a factor of 1.087 to be converted into the equivalent level of raw sugar.


DOMESTIC SUGAR POLICY The Sudanese Government is gradually liberalizing its domestic sugar policies. Prior to the establishment of KSC, the entire Sudanese sugar industry was run by a public enterprise. All the sugar produced in Sudan was sold domestically at a set administered price to the Sudanese Government and distributed by a parastatal sugar marketing and sales board, who had a de jure monopoly over domestic sales and exports. The domestic factory gate price of sugar was fixed by the Government and the domestic quota was then allocated amongst the various markets and regions under the supervision and instruction of the Sudanese Government. The SSC, wholly owned by the Government, is responsible for operating the governments existing four sugar mills. SSC devotes 100% of its production to satisfy the domestic market. On the other hand KSC was established to bridge the domestic sugar deficit and whenever the sugar balance allows, exporting sugar for the generation of foreign capital. According to the Sugar Sales Agreement concluded with the Government of Sudan in 1975, KSC was obligated to sell only 50% of its produce to the Government, (under a domestic quota clause), at a fixed guaranteed price. The company had unrestricted rights to export the remaining 50% (under an export quota clause). The domestic factory gate price of sugar was guaranteed to remain constant with a constant US dollar, at the price level set in 1975, which was then slightly above the prevailing world price for sugar. Retrospectively, this turned out to be an extremely favourable historical price reference, as the world price for sugar subsequently declined. In 2002, the Sudanese Government dismantled the sugar marketing board and the two sugar companies shouldered the responsibility of marketing their produce. The 50% export quota requirement for KSC was lifted, and KSC is now free to allocate its sales between domestic and export markets as deemed profitable. In response to the relaxation of market constraints, domestic consumption increased drastically as explained above. Currently, the domestic / ex-factory price at which both companies are allowed to sell their sugar produce (to wholesalers) is determined each year by a sugar planning committee. This committee is comprised of representatives from the Ministry of Finance, the Ministry of Industry, the Ministry of Trade, the two sugar producing companies and major industrial users of sugar. PROTECTIONS FOR THE DOMESTIC SUGAR MARKET Like many sugar-producing countries, Sudan has always considered sugar a strategic commodity and has been able to effectively shield its domestic sugar market from sugar importers. For many years, the Sudanese Government has used certain measures to restrict sugar imports. However, recently the Sudanese Governments domestic sugar policies have evolved towards gradually easing the constraint on imports. The Government of Sudan will continue to protect its local producers by shielding its market. The mechanism used to determine the price of sugar will remain intact.


GOVERNMENT SUGAR EXPANSION PLANS The Government of the Sudan has developed an ambitious plan to expand domestic sugar production by 2 million tons, over a two-phased programme, by establishing new sugar projects in different parts of the country. The projects sites earmarked for the First Phase Expansion Programme, of about 1 million tons, are all located within irrigated schemes. Table 7: Phase 1 Sugar Expansion Plan

Figure 8: The locations of each project are indicated in the map below:

PROJECT LOCATION AREA (FEDDANS)

FACTORY CAPACITY (TCD)

SUGAR PRODUCTION (TONS P.A.)

ABGAR (White Nile State)

30 000 5 000 94 500

ES SUKI (Sennar State)

30 000 5 000 94 500

ALHADDAF & WADALFDIL (Gezira State)

30 000 5 000 94 500

HURGA A NOURALDIN (Gezira State)

30 000 5 000 94 500

NEW HALFA (Kassala State)

55 000 10 000 189 000

RAHAD (Gezira / Gadarif State)

55 000 10 000 189 000

SENNAR (Sennar State)

55 000 10 000 189 000

TOTAL 285 000 50 000 945 000

Kassala State: New Halfa

Gezira State: Rahad Elhaddaf & Wad El Fadil Hurga a Nooraldin

White Nile State: Abgar

Sennar State: Es Suki Sennar


FIRST PHASE EXPANSION PROGRAMME DEVELOPMENTS Iranian entrepreneurs have just signed contracts, formally securing their investment opportunity in establishing the new sugar factory project in the New Halfa Irrigation Scheme. OTHER PROJECTS IN PIPELINE The Sudan Sugar Company is renovating its four exiting factories to increase output from 350,000 to 500,000 tonnes of sugar by November 2013 and upgrade quality. The renovation is self-financing. The SSC has further plans, to build three new factories with a total of 375,000 tonnes capacity, and has already secured funding from China of US$260 million for one 125,000 tonne capacity plant with a refinery in Sennar State. It is also working to source funds for the other two factories, to be located in Gezira State. Kenana Sugar Company has plans to expand its capacity to 650,000 tons by 2015. The White Nile Sugar Project (WNSP), a private joint venture between KSC and Egyptian investors (Beltone Private Equity), aims to produce about 450,000 tons of sugar annually, by 2015. Other sugar projects have been proposed in different parts of the country. Among these are a beet sugar factory in northern and central Sudan and a cane factory in the south. However, definitive plans for these sugar factories are yet to be completed. A sugar refinery is to be established in Port Sudan. The private joint venture between Kenana Sugar Company and Eridania Sadam -- of the Maccafferri Group (Italian) --, a leader in the Italian sugar market, will start with an initial capacity of processing 500,000 tons of raw sugar. The 90 million euro (US$ 129.6 million) plant is expected to be commissioned in the first quarter of 2014. Its capacity is planned to be double to 1 million tons in the future. The Red Sea Sugar Refinery will process cane sugar produced in Sudan. 50% of the sugar will be sold in Italy and Europe, the rest is earmarked for the African markets.


PROJECT DESCRIPTION THE PROJECT LOCATION The proposed new Sennar Sugar Factory project will be located within the southern section of the Gezira Irrigation Scheme, which runs into the south east Sudan State of Sennar. Sennar State lies in the rich savannah region between latitude 12.5-14.7N and longitude 32.8-35.4S. It borders with Gezira State in the north, White Nile and Upper Nile States in the west, Gadarif State in the east, Blue Nile State in the South. The southern-most tip of Gezira Irrigation Scheme is approximately 35-50kms north of the town of Sennar, which is situated 245kms south east of Khartoum, at GPS Coordinates: 13 34 15 N and 33 33 26 E. Figure 9: Location of SENNAR STATE


TRANSPORT CONNECTIONS: The smooth asphalt Sinar-Wad Medani Highway connects Sennar to Khartoum. Port Sudan is easily accessible, by road via the Khartoum-Port Sudan Highway, and air. Figure 10: Transport Links

THE PROPOSED SITE FOR THE NEW SUGAR PROJECT The 55,000 feddans (23,000 hectares) site, identified for the new sugar project, is adjacent -- above and to the right -- to the existing North West Sennar Sugar Factory sugar cane estate. The sugar mill GPS Coordinates are: 13 44 24 N and 33 28 40 E; at elevation of 432 m. The location is earmarked for its various suitability factors, from agronomic to logistic, including land availability, existence of irrigation infrastructures, proximity to a well-established sugar cane estate and mill, as well as those pertaining to socio-economic development benefits.


Figure 11: Geographic Perspective

Border of Gezira Irrigation Scheme Main Canals in the Gezira Scheme Sennar Dam El Guneid Sugar Factory and North West Sennar Sugar Factory


THE GEZIRA SCHEME BACKGROUND The Gezira Scheme, at about 882,000 hectares6 (2.1 million feddans), constitutes one of largest irrigated agriculture complexes of the world, producing the bulk of the countrys cash crops. It lies between the Blue and White Nile Rivers: begins just shortly southeast of their confluence at the city of Khartoum, spans through El Gezira State and the north of the State of Sennar, and ends just north of the Sennar Dam. The Scheme has played an important role in the economic development of Sudan, serving as a major source of foreign exchange earnings and of Government revenue. It also contributes to national food security and in generating a livelihood for the 2.7 million people who now live in the command area of the scheme. This, Sudans first agriculture, was established by the British in 1925 for the cultivation of cotton7, especially the long staple. It was initially financed by the Sudan Plantations Syndicate in London and later the British government guaranteed capital to develop it. The Gezira Board took over from private enterprise in 1950. In July 1962, the original Gezira Scheme was doubled through its Managil South Western Extension. Waters of the Blue Nile are distributed by gravity irrigation to the tenant farms, through a network of canals and field channels.

Operation of the scheme is centrally controlled: the management is divided between the Ministry of Irrigation and Water Resources (MIWR), which is responsible for the irrigation network, and the Sudan Gezira Board (SGB), which is responsible for agricultural operation and for determining the irrigation water requirements. The water orders (or indents) are passed to the MIWR engineers, summed out throughout the system up to the head works at the Sennar Dam.

6 The irrigated area now covers 3,400 miles (8,800 km). 7 The first plan was to grow wheat but this was abandoned when it was discovered that Egyptian-type long staple cotton could be grown. Cotton was first grown in the area in 1904 and, after many experiments with irrigation, 9 miles (24 km) was put under cultivation in 1914.


Figure 12: The Gezira Scheme:


GEZIRA SCHEME ADMINISTRATION

The Government of Sudan owns the Gezira scheme.

The Gezira Scheme is managed on a vertically integrated basis by the semi-autonomous Sudan Gezira Board (SGB), which provides administration, credit8 and marketing services. The tenant farmers operate the scheme in partnership / cooperation with the government and the SGB. The Ministry of Agriculture (MoA) supervises the SGB, while the Ministry of Irrigation and Water Resources (MIWR) is responsible for delivering irrigation water.

Within the scheme, the SGB serves as landlord, operates and maintains the lower reaches of the irrigation system and administers most of the inputs and services9 required by farmers to produce cotton, (financed by the Sudan Cotton Company10). The SGB recovers the cost of advances made for inputs and services from the cotton sales before payment is made to the farmer. Tenants are wholly responsible for growing other crops in prescribed rotations with cotton (e.g. sorghum, groundnuts, forage, wheat and vegetables), making their own arrangements for input supplies and marketing.

THE SCHEME CONFIGURATION The Gezira Scheme is divided into 18 groups and some 114 000 tenancies on an average holding of 20 feddans (about 8 ha). The scheme is designed on small-farm ownership (Hawashat) with an area ranging between 15 and 40 feddans. The 18 groups, range in size from 60,000 to 190,000 feddans. Each group consists of smaller units called blocks. These blocks consist of numbers, each of 90 feddans. Initially, the tenants practised a six-course rotation. Each tenant had to plant according to the approved rotation so that, for example, all the cotton grows at the same time. This was changed in the early 1980s to an eight-course rotation (cotton, fallow, fallow, cotton, fallow, sorghum, cowpea and fallow), with a nominal cropping intensity of 50 percent. This kept the demand for water within the capacity of the irrigation system. Since then, there has been further diversification and intensification11.

8 Finance is provided by the Agriculture Bank of Sudan and Sudan Cotton Company. Agriculture Bank of Sudan provides short-term (12 18 months) loans for agriculture inputs e.g. land preparation, seeds, fertilisers, etc. It takes some of the produce at a predetermined price as part loan repayment the Bank applies varying modes of financing terms and packages, as appropriate. The Bank also provides long term financing, 3 5 years for purchase of agriculture machinery. 9 SGB transports the cotton to the Schemes ginneries 10 Sudan Cotton Company buys all the seed cotton less the upfront loan for production costs, on a cash-on-delivery basis.

11 In 1991/92 cropping intensity was 80 percent. However, productivity of the scheme decreased due to the various irrigation issues. The corresponding drop in farm incomes in the late 1990s resulted in a drop of cropping intensity to 40 percent. An initiative aimed at "Broadening farmers choices on farm systems and water management" by FAO in part of the scheme, meant that productivity of sorghum, cotton and wheat was to be increased to 112 percent for 2000/01, compared to the Gezira average of 42 percent.


Until recently, the main Gezira scheme had a nominal cropping intensity of 75 percent in a five-course rotation of cotton, wheat, groundnuts and sorghum with one fallow, while the Managil scheme had a 100-percent cropping intensity with no fallow. However, fallow has now also been introduced in the Managil scheme in order to give a target cropping intensity of 75 percent throughout. (The actual intensity has been below that figure in recent years). Gezira Scheme Act of 2005 In 2005 a new Act for Gezira Scheme was issued as part of the privatization policy. Taking into account the unique situation of the scheme regarding its ownership, (government, administration and farmers), and in coping with the declared privatization policy in addition to the need for institutional reformation, the Gezira Scheme Act was issued in 2005. The Act asserts that the infrastructures of the scheme are considered to be part of the national resources; that the integrity of the scheme land and its agricultural aims are to be emphasized, and that the scheme administrative unity - which includes agricultural, irrigation, research and agricultural and industrial elements - should constitute the essential factors and basic components. Moreover, it ensures the necessity of the comprehensive sponsorship of the state. The Act states the right of farmers' participation in decision making with regard to agricultural activities, options of crops, financing, marketing, commerce and investment. The farmers own the land through a lease contract with the government renewed every 40 years to settle duplication of ownership of the scheme and to unify the ownership system. THE IRRIGATION SYSTEM

The Gezira (meaning "island") is particularly suited to irrigation because the soil slopes away from the Blue Nile and water therefore naturally runs through the irrigation canals by gravity. The soil has a high clay content which keeps down losses from seepage.

The Scheme was designed12 to use about 9.226 MCM (million cubic meters) of water annually.

The irrigation system was laid out to suit the size of tenancy and crop rotation. The flat and featureless topography was favourable to the adoption of a regular gridiron layout. The basic unit is a group of four adjacent fields of 90 feddans. One crop is grown on each strip following the four-crop rotation system. Each block is divided into 18 tenant fields of 2.2 hectares each. The scheme is divided between 114,000 tenants with an average of about 8 hectares.

The two parallel main canals13 running from head works have a combined capacity of 354 cubic metres per second. One of the main canals diverges westwards to serve Managil Extension. The other, together with a newer one, continues northwards. Each of these main canals subdivides into branches and major and minor canals of varying sizes.

12 However, according to official reports from the Ministry of Irrigation and Water Resources of Sudan, the long-term average of water use is 7,000 MCM annually. 13 The main canal particulars: Design Bed Width 12m; Water Depth 2.3m; Side slope 2:1; Surface Width 22m.


In total there are some 11,000 kilometres of irrigation canals: a network of 2,300kms of branch and main canals, and about 1,500 minor canals with a total length of over 8,000kms. All canals are divided into reaches by cross regulators which are the control points for the off-taking canals. The 29,000 field channels are 1.5kms each.

The minor, branch and main canals are designed as regime conveyance channels. The minor canals are also designed for storing water flowing continuously from the main canals at night.

Water flows from the main to the minor canals are controlled by movable weirs, which provide accurate and easy water measurements, but is sensitive to upstream variations of water level. The two dams that regulate the flow of the Blue Nile River are undergoing further rehabilitation works to ensure these variations are minimised (Please refer to relevant section below for further details).

The irrigation system is not a sophisticated one by present-day standards, as it was designed before the development of modern technologies of canal water control. However, the design took the best advantage of some favourable and unique features of Gezira: the flat topography and the adopted tenancy system, i.e. the absence of constraints imposed by small, fragmented, field plots found in many developing countries. The adoption of the night storage system resolved the issue of night irrigation found in many schemes. It provides a remarkable solution to the complex problem of adjusting water releases at the head works and at critical points of the system to the demand without excessive losses.

The unique design of the system enables the minor canals to play the role of terminal reservoirs. The Gezira scheme can be based on either rigid or highly flexible scheduling (operation), as long as the indenting ensures adequate refilling of the minor canals.

For about forty years, the Gezira Scheme was operated satisfactorily on the basis of the original design and operational concept.

The management of the Gezira scheme ran into problems in the early 1970s shortly after the scheme reached its present extension. The steady deterioration of trade in Sudan led to shortages of financial resources. Funds became insufficient to finance the high recurrent operation and maintenance costs and to replace machinery and equipment. For lack of financial resources, MIWR was not able to cope with the removal of silt and clearance of weed. The situation was worsened by the breakdown of the telephone system, which was a vital tool for communication between SGB and MIWR for the water indent process. All these factors resulted in inadequate use of the system. The degree of siltation in some minor canals was such that precious little water reached the tail blocks and some areas went out of production.

Since, the Gezira Scheme has undergone a series of Rehabilitation Programmes: in 1980/81, in 1982/83 until 1990/1, both financed by the World Bank and other donor agencies; various during the course of the last decade (2000-2010); and some currently in progress.


IRRIGATION WATER RESOURCES

After the lowest Nile flood for 200 years, the countrys inaugural Sennar Dam was constructed on the Blue Nile14, near the town of Sennar. It was purpose built to provide a reservoir of water for irrigating the Gezira Scheme. Commissioned in 1925 with a design capacity of 0.93 BCM (billion cubic metres), the Dam is about 2 miles (3.025 km / 9,925 feet) long, with a maximum height of 40 meters (130 feet). The installed hydroelectric capacity is 15 MW.

It is estimated that the Sennar Dam reservoir storage capacity is reduced to 0.36 BCM due to sediment deposition. Since the commissioning of the Roseires Dam upstream in 1966, the sedimentation problem in the Sennar Dam is signicantly decreased.

The multipurpose Roseires Dam reservoir design capacity of 3.35 BCM, serves to augment irrigation water, in a bid to expand and intensify agriculture on the Gezira Scheme. Its installed hydropower capacity is 280 MW, though generation varies greatly through the year with changing river flows. The Nile rises dramatically in the flood season between July and September when the dams five massive sluice gates are opened to permit silt to flow down the Nile and to avoid siltation of the reservoir. Heavy siltation has affected an estimated capacity loss of 34%, down to 2.2 BCM. IRRIGATION SYSTEM INFRASTRUCTURE AND WATER DELIVERY MANAGEMENT

The MIWR is responsible for the O&M of the main irrigation system, i.e. the Dams on the Blue Nile and the upper reaches of the irrigation system (irrigation canals up to the minor off-takes) responding to requests for water delivery from SGB field staff. The SGB is responsible for the operation and maintenance of the minor irrigation system.

The Ministry of Finance and National Economy provides the MIWR with the annual budgets for operation and maintenance.

IRRIGATION INFRASTRUCTURE REHABILITATION A German company was commissioned to repair the corroded steel lining of the gates of the Roseires Dam the process was carried out during several months of each year from December onwards, (over the last half of the previous decade), when downstream access to the gates was possible. Finance15 for the work was provided by the Islamic Development Bank.

Sennar Dam was also recently rehabilitated, as part of a programme to rehabilitate the Gezira irrigation scheme. Work included refurbishment of the sluiceways and installation of additional isolating gates. The two irrigation channels are soon to be refurbished.

14 Blue Nile River originates from the Ethiopian-Eritrean Highlands 15 loan of 8 million (US$) for the purchase of equipment to reinforce the capacity


INSTALLATION OF ADDITIONAL CAPACITY The height of Roseires Dam was recently increased by 10 metres. Construction is on-going to increase the length of the earth embankments on the eastern bank of the river with about 4.50 km and on the western bank with about 7 km, in order to increase the storage capacity16 to about 7.40 BCM. The spill water is to be used to intensify agriculture in an area of 1.70 million hectares of irrigated lands. Two 194 km-long irrigation canals, to irrigate 36,000 km2, are included in this project. Hydropower generation will increase by up to 50% -- (an additional of about 800 GW/hour per year). Funding17 for this project was extended by Saudi Arabia. CURRENT CROP CULTIVATION

The Sudan Comprehensive National Strategy for the Agricultural Sector (1992-2002) put food security, sustained agricultural development, efficient resource utilization and yield enhancement on the top of the agenda.

The main agricultural produce of the Scheme is cotton, sorghum (dura), wheat, groundnuts and vegetables. Livestock forms an integral part of the peoples lives and culture. The scheme contributes by 65% of the country's cotton production, and about 70% of wheat production, 15% of groundnuts, 12% of sorghum, in addition to 70 thousand feddans cultivated by horticultural products, forest and fodders. Moreover, there are around 2 million of heads cattle and goats in the area of the scheme.

16 Especially to counter the cut in cropping intensities on the Gezira, due to low flows on the Blue Nile. Cropping intensity in the Gezira Scheme, dropped from 75% to 57%, as 126,000 ha were taken out of production due to siltation and mismanagement of the canals, leading to reduced availability of water. Because of bad water management, water supply is about 12% below crop requirements at crucial points in the growth cycle, while at the same time as much as 30% of the water delivered is not used by crops. The new government in Sudan reports that since 1990 there has been considerable improvement in agricultural crop production and returns. 17 USD 40,003,350


THE POTENTIAL FOR SUGAR CANE CULTIVATION AT THE PROPOSED SITE 35 YEARS TRACK RECORD OF SUGAR CANE PRODUCTION The site of the proposed new sugar factory is located adjacent to the 38,000 feddans North West Sennar Sugar estate. The factory was commissioned in 1976, with a design capacity of 5,820TCD. Sugar cane has been cultivated in the area for over 35 years. The mill has produced over 92,000 tons of sugar in a year. It accounts for 12% of Sudans domestic sugar production. Though, the estate is not part of the Gezira Scheme itself, it utilizes the same Blue Nile waters for cane irrigation. Its North West Pumping Station diverts irrigation water from one of the twin canals running from head works at the Sennar Dam. AGRONOMIC SUITABILITY The heart of the countrys agriculture productivity is centred in this region, through which the rich Blue Nile River flows. It is the food basket of the country as well as its key cash crop generator. This semi-arid dry savannah zone has an annual rainfall of 300-600 mm. The rainfall season starts in May and extends to October: the wettest period is July to August. Temperatures range between a mean minimum of 20C in January to a mean maximum of 42C in April and May. Humidity is relatively high from June to October; highest in August (about 45%) and lowest in April (about 10%). From November until April there are strong northerly winds; during the rest of the year southerly winds prevail. Wind speed is at 2 metres height, ranging from 144 to 288 km/day. The soils are fertile clays, which give good yields if managed properly, and are suitable for sustained crop production. Climate and soil conditions are suitable for year-round crop production provided water is available. Conducive agronomic conditions in Sudan for cane growing are partly attributable for the progress of the industry. Moreover, the incidence of pests and diseases is not considered a serious constraint to high cane yields due to a combination of ecological factors, possibly non-conducive to large scale spread of pests and diseases in sugarcane producing areas besides the cultivation of resistant varieties. However, the need for prophylactic and preventive measures remains high to safeguard and sustain the improved levels of productivity. The existing North West Sennar Sugar factory and Sudans other four sugar factories produce sugarcane under more or less similar climatic conditions to those prevailing in the proposed project area.


SUGAR CANE AND SUGAR PRODUCTION PARAMETERS As it will operate under the same or similar conditions as those of the other sugarcane producing areas in the country, the proposed new Sennar Sugar Project is anticipated to achieve the same levels of productivity. Under the current yields scenarioI, the proposed new project is expected to produce 45 tons of sugarcane per feddan, from which sugar will be extracted at a recovery rate of 10.5%. Technological and agricultural advances are expected to increase yields at both the farm and factory levels A point to note: the Sudan sugar industry has achieved around 49 tons of sugarcane per feddan with recovery rates of about 11%. SUGARCANE CROP ROTATIONS Sugarcane is an exhaustive crop requiring high nitrogenous/ phosphate fertilizers and affecting soil texture. In order to stabilize soil nutrients balance, proper crop rotations are needed in addition to supplementing deficiencies with application of chemical fertilizers. The new plantation of sugarcane can successfully be kept for four years as a ratoon crop with high sucrose content. In order to maintain soil fertility and considering the possibility of insect hibernation under prolonged ratoon period, sugarcane fields are suggested to be left fallow for one year. The proposed six-year cropping rotations for the project:

Plant cane (new) ratoon ratoon ratoon ratoon fallow IMPROVEMENTS IN PRODUCTIVITY SINCE INCEPTION Since establishment of the first sugar factory in 1962; the domestic sugar industry has sustained steady growth and expansion. During the first 25 years, Sudan cane yields were as low as 20-21 tons per feddan. Hajar Assalaya and Kenana started production in 1976 and 1979, respectively. They both benefitted greatly from the experiences of El Guneid and New Halfa, and developed to produce around 45 and 49 tons cane per feddan, respectively, in their first 25 years. The accumulation of considerable experience and technical know-how and the adoption of new technologies, have all ultimately served in securing the current levels of sustainable production. The Sugar Industry in Sudan is now well established with proven track records on production efficiencies and technological advancements.


Figure 13: Growth in Productivity

CONTINUOUS R&D AND TECHNOLOGICAL ADVANCEMENTS CANE VARIETIES From the early 1980s to date, over 1,000 different sugarcane varieties have been tested. The commercial sugarcane varieties now grown in Sudan, Co6806 and Co997, originate from Coimbatore, India. Currently, cane varieties are introduced. However, R&D efforts are ongoing at the national sugarcane breeding stations to achieve the necessary advancement in the field of cane hybridization, to breed new elite cane varieties more adaptable to local environmental conditions, which will result in further boosts to the industry. PLANTING & HARVESTING Mechanically chopping cane for planting18 was tested / introduced relatively recently by KSC. It was found to be more cost-effective, reducing labour costs, and more time-efficient. Results in a better cane stand were also noted. Cane harvesting19 was traditionally only done manually, in Sudan. Shortages in labour coupled with its increasing costs, led to the introduction of mechanical harvesting in 2000/200120. In 2005/6, KSC harvesting was 62% mechanical, whiles SSC was around 30%. Currently, KSC is almost at 100% mechanical harvesting, and SSC is more than 50%. The use of Chopper harvesters is now widely spread in Sudans sugar estates.

18 Planting period extends from October to the end of February. 19 The harvest season in all the sugar factories in Sudan extends from the first of November to the end of April; possibly May in some factories 20 The average cost of harvesting one metric ton of cane manual y in seasons 2000/01, 2001/02 and 02/03 was US$1.83 compared to US$0.51 for harvesting the same amount mechanically.

0

100

200

300

400

500

600

700

800

900


COOPERATION OF SGB AND FARMERS The SGB and the farmers have expressed keen interest in growing sugar cane for the project if it were to be managed along the lines practiced at the El Guneid sugar mills project. The SGB welcomes the opportunity presented by the new sugar project whereby the farmers can earn higher and more secure incomes. Sugar Contribution to Socio-Economic Development The sugar companies provide social services to local communities such as schools, medical facilities, roads, and water for crops and household use. Such services are valuable and the quality of these services often exceeds those provided by the government.


TYPES OF SUGAR PRODUCED IN SUDAN Kenana sells both raw and various qualities of white sugar. There are two different quality levels for plantation white sugar, with different polarizations and ICUMSA colour indices and crystal sizes:

Green Cane is plantation white sugar (polarization 99.9%, Grain size 0.8% to 1.0, ICUMSA Index 100 to150) sold domestically and in the sub-region for direct human consumption and industrial uses

Silver Cane (Polarization 99.9%, grain size 0.4 to 0.8, ICUMSA Index 25 to 45

maximum). It has a sparkling white appearance. It is sold domestically for the higher segments of the domestic market and for exports

Equally, SSC has two main types of sugar grades or qualities, white sugar and plantation white sugar. White sugar was also introduced some few years ago, from the (existing) New Halfa Sugar Factory. PACKAGING Over the years, Sudanese Sugar Industry has progressively broadened its product line to accommodate the specific requirements of the different segments of the market. Companies are involved in the production of:

Raw Sugar, exported in bulk to the European Union and other refineries. Raw sugar must be shipped in bulk, in order to minimize handling costs upon arrival

50 kg sugar bags - polypropylene bags with clear plastic lining for both domestic and sub-regional African markets. Both raw sugar and white plantation sugar are packed the same way

Smaller plastic bags (25kg, 10kg, 2kg, and 1 kg bags) - there is a demand for 25kg and

10kg bags, easily distributed by wholesalers to retailers and local markets, as well as to the final customer. These have the added advantage of being easily handled and transported to remote areas

Icing sugar for baking pastries - sold in paper bags of different sizes

Previously - sugar cubes (1 kg), processed in small quantities to meet certain niche

demand. The production of this quality ceased a number of years ago Several Cane Sugar Syrups (Treacle), are also being offered in various flavours (brown or white) and in various types of containers


SUGAR INDUSTRY BY-PRODUCTS The sugar industry by-products bear important economic significance. These are namely, sugarcane bagasse, molasses and filter cake. Sugarcane bagasse significance stems primarily from its energy generation possibilities and more recently its use in the production of industrial wood known as Micken Board. Molasses is the heavy syrup used in the food drinks, and animal feed industries. Other products and their by-products, of less commercial value, are green leaves and tops, trash, boiler ash and effluent generated by sugar industry and distillery. Though many products can be made, production of few is financially viable. Table 8: By-Products of the Sugar Industry The By-Product Commercial Uses Biogases

Pulp & paper, particle board, fibre board, cardboard, furfural, microcrystalline cellulose, hydrolysed biogases, pre-digested , pith, molasses - urea - pith, furfural cement, compost

Molasses

Alcohol, fodder yeast, yeast for human consumption, baker's yeast, yeast autolysate, highprotein molasses, alphaamylase, azotobacter, rhizobium, C02

Crop residues Animal feed, edible mushrooms compost Filter cake Compost Animal feed, waxes Wastes & effluents Ferti-irrigation, biogas, animal feed Ashes Fertilizers Source: Food and Agricultural Research Council, Rduit, Mauritius

SUGARCANE BAGASSE The fibrous residue of cane generated after cane is grinded in the milling process, it can be utilized as a fuel, and therefore as such, by the mill itself. Alternatively, bagasse is sold out for various applications, such as livestock feed and filling for Micken Boards, an industrial wood primarily used to make furniture. Excess bagasse is becoming more and more used for the cogeneration of electricity, due to its increasingly important role as a source of renewable energy. Under the Kyoto Protocol Clean Development Mechanism (CDM), renewable energy projects have the potential to earn additional revenues, in the form of Certified Emission Reductions (CERs). Emission reductions relate to the ton of CO2 that is reduced from being emitted into the earths atmosphere. CERs equate to a ton of CO2 reduced. Each CER or ton of CO2 reduced has a monetary value, which is determined by international market mechanisms. The proposed new project will use bagasse, as per current normal industry practices, as a renewable source of fuel to generate power for internal use, which will reduce operation costs. The excess bagasse will be used for the cogeneration of electricity, which will be sold to the national grid for additional revenues. The financials reflect the additional earnings. The CERs earning potential applicable for renewable energy has not been included within the financial calculations herein this study. However, this opportunity should be considered for further investigation, as it may prove to bring another revenue stream to the project.


FILTER CAKE The residual product of clarification operations, it can be used as a fertilizer to regenerate the soil. It has been assumed that the proposed new project will utilize the filter cake within the sugar cane plantations. SUGARCANE MOLASSES The liquid syrup remaining after the sugar crystals have been extracted from the mother liquid, when the massecuite is spun in a centrifuge. Interest in molasses stems from its sugar residues and hence the energy generation possibilities it holds. There is a well-established, and growing international market for molasses; particularly in the European food, and non-alcoholic and alcoholic beverages industries. Molasses is also used in the pharmaceutical industry as a substrate for the production of yeasts, amino acids and proteins. Molasses can also be used to make ethanol and/or ethanol mixed fuels, used in the automobile industry. Ethanol is extensively used in the Brazilian automobile industry. USA uses substantial quantities of ethanol, (which it produces from corn, as well as imports from Brazil). Ethanol is now in significant demand in the developed world, as part of the strategic endeavours to reduce Greenhouse Gases (GHG) Emissions and meet Kyoto obligations. The EU and Japan demand is fast increasing. The conversion of molasses to fuel grade alcohol can offer a far more attractive and stable market to the Sudanese sugar producer. The revenue generation from ethanol has been included with the proposed sugar project financial appraisal. MARKET FOR MOLASSES The value of the world molasses market was estimated at US$ 3 billion in 2006 early 2007. Molasses being a by-product of the sugar industry is related to it in production rate and price. As a rule of thumb, molasses recovery rate from sugar cane is 4%. Around 55% of the molasses produced21 is used in the animal feed market, making it a major consumer of this by-product. Thus, the largest consumers of molasses worldwide are found in regions with a highly developed livestock industry, like the EU and the USA. However, changing global consumer habits are impacting the cattle feed sectors. The animal feed industry in emerging economies is growing strongly, which means that this sector is likely to continue to be a dominant consumer of molasses. Domestic demand for molasses increased in the years leading up to 2005/6 due to the rapid development of the Sudanese soft drinks and food industries, which utilize molasses. Despite steady production of molasses, exports, especially the prices, were irregular.

21 2006-2007 data


Table 9: Sudan Molasses Exports YEAR QUANTITY VALUE 1997 138 973 6.671 1998 170 030 5.951 1999 174 958 4.724 2000 224 000 7.840 2001 190 000 7.410 2002 104 399 5.324 2003 184 863 8.689 2004 167 674 7.042 2005 156 242 12.031 Source: KSC

In 2008, 270,572 MT of Molasses was exported, valued at (FOB) US$21.2m. In 2009, none was exported. That same year, Sudan started utilising its molasses for ethanol production. ETHANOL PRODUCTION IN SUDAN KSC, the only company currently producing ethanol from molasses in Sudan, commissioned its plant in 2009, and exports all its production of 65 million litres to the European Union. The plant capacity is to expand to 200 million litres by 2013. Reportedly, Sudans first 5 million litres of ethanol was sold to the EU at Euros 450 per cubic metre (FOB). MARKETS FOR ETHANOL The current general trend in the world is the expansion of ethanol production. Globally, developed nations are looking at substituting, at least in part, by blending fossil fuels with more environmentally friendly renewable sources. There is a huge export market for ethanol which could be targeted by Sudan. About 70% of ethanol imports are traded under preferential arrangements within the EU markets arrangements of generalized system of preferences (GSP). Under this preferential treatment, ethanol enjoys duty exemptions and free access to markets. Sudan, as an LDC, enjoys preferential access to this market under Everything but Arms (EBA). Other potential markets include Japan, Canada and USA through the GSP and the American quota system, and also the COMESA region within which Sudan benefits from the zero tariff Agreement. The Sudanese domestic market in itself has considerable potential. In lieu of the implications to Sudans oil reserves due to the recent cessation of South Sudan, the GoS is keen to explore alternative sources for energy security. Moreover, it would greatly serve the countrys vision and imperative aims to develop and strengthen its agriculture sector, in a bid to diversify and augment non-oil export earnings, to produce fuel / energy at a competitive price to drive the sector and boost economic growth. Sudan has also been considering legislative directives towards effecting 5% minimum ethanol blend with fossil fuels for the transport sector, which continues to witness strong growth and demand.


PROJECTED YIELD Projected yield from sugarcane to export quality white sugar is assumed at follows: P Table 10: Expected Yield of By-Products of Project

BY-PRODUCT YIELD

WHITE SUGAR 10.5%

BAGASSE 35.0%

FINAL MOLASSES 4.0%

MUD CAKES 3.0%

Ro


SUDAN INVESTMENT ENVIRONMENT THE INVESTMENT ENCOURAGEMENT ACT 1999 (AMENDED 2007) The government has set up a dedicated Ministry of Investment to attract, encourage and facilitate foreign investment in Sudan. The Investment Encouragement Act 1999 amended 2007, aims at encouraging investment, from foreign or local, in the following areas: Agricultural, Animal and Industrial activities, Energy and Mining, Transport, Communication, Tourism and Environment, Storage, Housing, Contracting, Infrastructure, Economic, Administrative and Consultative Services, Information Technology, Education, Health, Water, Culture and Information Services, crossing more than one state and any other field, as the Council of Ministers may agree. The Investment Act grants investors several privileges and facilities if their projects are among those that realize the objectives of the development plans of Sudan. Furthermore, the Investment Act does not differentiate between Sudanese and non-Sudanese investors and gives all investors the same incentives and privileges. PRIVILEGES The projects may be granted the following privileges:

Exemption from business profit tax wholly or partially and any such other taxes or fees as may subsequently be levied on the projects for a maximum period of five years, which could be extended for a similar period after approval by the State Council of Ministers

Exemption from consumption duty, and customs duty and any other taxes, as may be

levied upon imports of capital goods and annual production inputs

Allotment of the necessary lands for the project free of charge for strategic projects, and at a discounted price for nonstrategic projects

Reduction of the cost of public electricity used for the purposes of the project

Reduction of public transport fares imposed on the traffic of the imports and products of

the project

Protection to project products by raising the custom duties on imported commodities which compete with or act as substitutes to the products of the project during exemption period

The depreciation of assets, in accordance with renewal values

Preferential treatments for achievement of justice in the allocation of development

programs to the regions and especially to the less developed regions


FACILITIES The project may be granted the following facilities if it directs investment towards rural and general development:

Transmission of profits and financing costs, resulting from foreign capital or loans

Allotment of necessary proposition of the returns of exports thereof, to satisfy the provisions of inputs and repayment of its obligations

Allowing the export of part of the production thereof, to satisfy its foreign obligations

Importing such raw materials, as it may need

Transmission of savings of expatriates working therein

Guarantee of the freedom of movement, transport and residence of the persons working

therein

Facilitate the procedure of use of alien expertise, non available in the country

Allowing payment of the value of the land by instalments

GUARANTEES The project shall enjoy the following guarantees:

Non-nationalization or forfeiture of the project thereof

Non-seizure, expropriation, blocking, forfeiture, custody of the project

Non-acquisition of the real property of the project, totally or partially

Transmission of the invested capital, in the case of non-extension of the project

Settlement of investment disputes according to regional agreements to which Sudan is a signatory (such as the 1980 Unified Agreement on Investment of Arab capitals)

After registration of the project as a company with the registrar of companies, signing of the founder's agreement and formation of the Board of Directors of the company, application for the said privileges, facilities and guarantees can be made


PROCEDURE FOR APPLICATION The investor shall submit a technical and economic feasibility study of the project.

The investor shall fill in a special form of application pertaining to the claims for licensing, privileges of facilities for an investment project

The Investment Authority in the Ministry shall review the application form and consult the competent technical organs if necessary

Upon receipt of approval, the investor shall then register a business name or company

whose activities shall be limited to its specific field of licensing only

Upon approval of the business name or company, the investor shall submit all the relevant documents to the Ministry of Industry and Investment to be issued the license, which covers the facilities granted and location of the plot where the premises of the project in question shall be sited

The Ministry of Industry and Investment shall then contact the customs authority for the

purpose of customs exemption

The Ministry of Industry and Investment shall also contact the taxation authorities to exempt the project from tax duties in accordance with the granted privileges

The Federal or state competent authority shall deliver the land for the project within a

maximum period of one month of the dale of granting the license. The investor shall commence the project, not more than twelve months after receipt of the land, unless the Minister or State Minister has extended such a period

The investor will submit to the Minister, bi-annual reports on the progress of the

operation, present the annual accounts of the project, and maintain records of customs exempted imported materials and assets during the period of validity of the privileges


Companies Law The companies, limited by liability, in Sudan are governed by The Companies Act 1925. The Sudanese Companies Act is fairly consistent with English principles of company law. Thus, public as well as private companies may be established. The liability of these companies may be limited either by share contribution or guarantee. Private companies These are private in ownership and which by their Memorandum of Articles of Association:

1. Restrict the right of their members or transfer shares

2. Limits the total number of its membership

3. Prohibits any invitation to the public to acquire any shares or debentures of the company Public companies These have more freedom to involve the public in its membership through subscription of shares. In addition:

1. Public companies do not restrict the right of their members to transfer shares

2. They do not have a limitation as to the maximum number of members


FINANCIAL APPRAISAL ASSUMPTIONS FINANCIAL PROJECTIONS AND ANALYSIS Assumptions applied in the development of financial projections are in line with sugar industry practices in Sudan. The key assumptions applied are outlined below. PROJECT TOTAL AREA A total of 55,000 feddans (approximately 23,000 hectares) are available for the project. Total gross cultivated area is about 40,000 feddans, to produce 45 tons of sugar cane per feddan. LAND COSTS The land is to be provided by the Government of Sudan for the project through agreement with local farmers, who will be stakeholders of the project out-growers type model. Therefore, land costs have been assumed as zero. PROJECT CAPACITIES The factory is designed at 10,000 TCD and will be operational for 180 days p.a. Boilers will have a minimum design pressure of 65 bar (abs) and will be rated for operation at 65 Bar (abs) at a total temperature of 500C. The project is assumed to operate at 100% efficiency. Thus, cane production will be designed to produce 1,800,000 tons of sugar cane p.a. At a recovery rate of 10.5%, the factory will produce 189,000 tons of sugar p.a. CAPACITY UTILIZATION It has been assumed that the project capacity utilization will be 50% for the first year, and100% from the second year onwards. (100% capacity utilization is deemed conservative). TABLE OF COMPLETION Construction period of the project is expected to be two years. PROJECT LIFE TIME In accordance with the standard practice the estimated lifetime of the Project is to be 25 years commencing from the year of commercial production (Year 1). INITIAL INVESTMENT COST The initial investment cost of the project is estimated to be US Dollars 170,577,482. This includes cost of all capital items, such as the industrial plant and equipment, buildings, construction and civil works, agriculture (including harvesting) machineries, pre-operating costs, working capital and other.


CONCESSIONS The project is considered as exempt from import taxes and other duties during its lifetime in accordance with the Investment Act of 1999 (amended 2000) of the Republic of the Sudan. However, the project investors have to obtain such exemptions through application to the government authorities. INCOME TAX The Investment Encouragement Act 1999 (amended 2007) provides exemptions from tax for a period of five years subject to certain conditions and approval of the relevant Minister. This exemption is extendable to a further period of five years. It has been assumed that the project sponsors will be able to secure the afore-mentioned exemption. For the development of the financials for this project no corporation tax has been applied for the entire project period. SOCIAL DEVELOPMENT TAX Projected at the rate of 3% of annual net profits FINANCIAL STRUCTURE The project capital cost structure is assumed to be financed by 30% equity and 70% loan. The cost of finance has been assumed as 4.5% for a 10 years long-term loan with 4 years grace period. Short-term loans interest rate has been projected at 5%. DEPRECIATION AND AMORTIZATION Rates for capital assets depreciation are in accordance with the regulations of the Chamber of Taxation of the Republic of the Sudan. As land, irrigation infrastructure and corporation taxation costs are not applicable for this project, the corresponding depreciation and amortization costs are considered as NIL for the purpose the development of the financials of this Project. The other rates are outlined in table below: Table 11: Depreciation Rates per annum (straight line) and Amortization

Assets Depreciation rate

Factory / Industrial Plant and Equipments 4%

Buildings and civil works 2.5%

Agricultural machinery and equipment (including those for harvesting) 12.5%

Workshop Equipments 8.5%

Waste treatment unit 4%

Vehicles 20%

Communications, IT Equipment and Furniture 15%

Rehabilitation of Existing Irrigation Systems and Network / Canals, Equipments, Irrigation Pumps, Pumping Stations and Civil Works

2.5%

Pre-Operating Expenses Amortized over 10 years


ACCOUNTING CURRENCY All values local and foreign are expressed in USD. Exchange rate applied: USD1 = SDG 2.7. OPERATING ASSUMPTIONS For the purpose of this study:

1. The costs of production of sugarcane have been projected using El Guneid parameters (data supplied by El Guneid farmers). These costs are inclusive of irrigation, irrigation infrastructure and systems maintenance, all agriculture inputs, labour, machinery running and maintenance and spare parts, including 100% mechanical harvesting, and transportation of cane to the factory.

2. The costs of sugar processing and ethanol production are projected in-line with Sudan Sugar industry norms. They include manpower costs22. The costs for sugar processing are based on assumptions that these cover all maintenance and spare parts for each of the relevant assets.

COSTS OF PRODUCTION:

i. Sugarcane - US$ 34.8 (SDG 94) per ton ii. Sugar - US$ 100 per ton of sugar iii. Total cost of producing 1 ton of sugar - US$ 431.43 (US$ 331.43 cane + US$ 100) iv. Ethanol US$ 0.23 per litre

REVENUES: 100% of production will be sold in the local market at the prevailing prices:

i. Sugar - US$ 600 per ton ii. Electricity - US$ 70 per MWhr iii. Ethanol - $ 700 per cubic meter

22 Total manpower costs are based on the local labour market and considered to be inclusive of salaries, wages, and all other related benefits for all classes of the workforce.


FINANCIAL RESULTS Herein below is a summary of all projected financial results of the project. THE PROJECT CAPITAL COST IS US$ 191,609,152. CAPITAL ASSETS The capital cost of the project was estimated according to the following factors: The international prices of the factory plant and equipment, and agricultural machineries The project various requirements The Capital Fixed Assets of the Project is US$ 170,900,000 Table 12: Total Project Fixed Assets

DESCRIPTION USD 1 Sugar Factory and Ethanol Plant23 114,600,000 2 Buildings, Construction and Civil Works24 11,500,000 3 Agriculture Machineries 4,500,000 4 Harvesting Machineries 8,400,000 5 Workshop Equipment 7,200,000 6 Waste Water Treatment Unit 2,000,000 7 Vehicles 700,000 8 Communications, IT Equipment & Furniture 500,000

9 Irrigation Systems and Network / Canals, Equipments, Irrigation Pumps, Pumping Stations and Civil Works 20,000,000

10 Pre-Operating Costs 1,500,000

Total Project Fixed Assets 170,900,000 SALES REVENUE Based on the projected production of sugar, ethanol and the cogeneration illustrated in Table 19, at the prices illustrated above, the total annual revenue of the Project, shown in Table 21 was estimated at US$ 136,281,600 when the project is operating at the full capacity. ANNUAL OPERATING COST The annual operating cost has been ranked into the following categories: Cane production cost, Table 19 Sugar processing and cogeneration25, and ethanol production costs, Table 19 Depreciation and amortization cost, Table 20 A summary of total annual operating cost is shown in Table 22. 23 Inclusive of transportation and insurance costs 24 Inclusive of factory foundation, offices and other buildings 25 Cost of cogeneration is included within the sugar processing costs


ANNUAL OPERATING COSTS are based on data and assumptions derived as follows: Operations Assumptions

Factory TCD of 10,000 tons

Sugarcane crushing is assumed to be done for a period of 180 days in a year

The factory will operate at 100% capacity (a conservative projection)

Total cane required is 1,800,000 tons per annum

Cane cultivation period is assumed at 12 months

Yield per feddan is 45 tons

Total area under cane / total annual area of commercial production is 40,000 feddans

Annual planting programme is 20% (8,000 feddans) -- once crop cycle is established

Proposed Crop Cycle: Plant Cane, Four Ratoons and Fallow

50% of the cane plantation will be established in Year -1 and the remaining in Year 1

Plough-out will commence from the first plantations third ratoon. Thereafter, it is assumed the proper crop cycle is established

Factory will be commissioned in Year 1 to start operating at 50% capacity; in the

following year the factory will operate at 100% capacity

Sugar recovery rate is 10.5%

Molasses is 4% and Ethanol from Molasses at rate of 270


SUGAR CANE PRODUCTION COSTS: are based on the El Guneid Sugar Factory out-grower farmers model. Cost of 1 ton of sugar cane at factory gate is SDG 94 = approx. US$ 34.80

Farmers are paid SDG 94 per ton of sugar cane at the factory gate less all costs incurred for production: o Farmers own the land tenure rights; each farmer has 15 feddans of land o Farmers are deployed as out-growers for cane production o Farmers are financed in advance for all inputs for optimal cultivation practices for

cane production, including planting material, herbicides, fertilizers, other inputs and applications including irrigation, planting and weeding, including associated casual labour costs. Technology and technical support services provided include land preparation, 100% mechanical harvesting, transportation from farm to factory, weighing, etc.

Costs of sugar cane production per feddan are: o Establishment costs of plant cane are SDG 1,000 per feddan:

includes land preparation, planting material and planting costs

o Production costs of plant cane and ratoon are SDG 2,000 per feddan: includes all related costs related to: crop cultivat

Ministry of Agriculture 2

Documents

domestic sugar industry

sudan grand sugar plan

new sugar project

sugar cane cultivation

farmers types of sugar

government of sudan

sudan foreward

encouraging investment