THE KENANA SUGAR PROJECT IN THE REPUBLIC OF THE SUDAN:
AN EXPERIENCE IN JOINT VENTURE FINANCING.
BY: A. MONEIM KHALIFA
1. INTRODUCTION
Since the seventies, the Sudan Government has encouraged various types of public enterprise joint ventures involving the participation of foreign capital. These ventures have included: a) bilateral joint ventures between governments, with the Sudan Government involved as a partner along with Arab public capital sources; b) multinational joint ventures, with various Arab governments acting as partners of the Sudan Government; c) joint ventures between private Arab companies and the Sudanese private and public sectors; d) joint, ventures between Western private companies and the Sudan's public and private sectors; and e) trilateral or multilateral joint ventures, involving three or more partners.
Two important features of such joint ventures have been that the Sudan Government and the Sudan Development Corporation have been involved in most of them and that Western participation in terms of risk capital, as, well as the involvement of private Arab Capital, has been rather limited. In fact, very few joint ventures would have been established in the Sudan at all, without the risk and loan commitment accepted by the Government, and without the privileges and concessions offered to attract the investment of foreign capital.
The growth in the number of enterprises organized as joint, ventures has highlighted the special importance of creating and training managerial cadre in the public enterprise sector. Moreover, it has directed attention to the need for clarity concerning the enterprises' objectives, particularly when they are required to shoulder responsibilities related more to the public interest than to commercial profitability. Finally, the performance of the various joint ventures in the Sudan has generally led to a number of questions about the role undertaken by each of the participating partners in such matters as the transfer of technology, skills and knowledge, and the realization and distribution of profits.
With its billion Dollars multilateral financing, the Kenana Sugar Project represents a unique experience in public enterprise joint ventures. The Kenana concept, which took shape in the early seventies, was seen as a suitable vehicle for the advancement of Sudan's aspirations to acquire capital and technology for the achievement of its developmental objectives through tripartite cooperation i.e., Sudan's natural resources, Arab capital and Western technology. The ready availability of Western technology, the receptive attitude of the nearby Arab states and the various Arab development organizations, as well as the importance attached to the ideals of pan-Arab economic cooperation and the Arab food security objective were all significant factors contributing to the Project's realization.
The present case study* reviews the objectives of the Kenana Sugar Project, the saga of its successful financing through to the project's completion (despite a hostile financial press during the latter half of the 1970s), its record of technical achievements since it first started production in March 1980, its financial structure and the concessions extended to it. Moreover, it provides an assessment of the project's costs, socio-economic benefits, problems and commercial viability.
________________________________________________
* An earlier version of this case study was presented at the Expert Group Meeting on "Financing of Public Enterprise Joint Ventures among Developing Countries," held in Lima, Peru, 17-21 February 1986, which was organized, by ICPE the Latin American Association of Developing Finance Institutions (ALIDE) and the Development Financing Corporation (COFIDE). The views expressed herein do not necessarily reflect those of the Kenana Sugar Company, where the author was formerly employed.
AN EXPERIENCE IN JOINT VENTURE FINANCING.
BY: A. MONEIM KHALIFA
1. INTRODUCTION
Since the seventies, the Sudan Government has encouraged various types of public enterprise joint ventures involving the participation of foreign capital. These ventures have included: a) bilateral joint ventures between governments, with the Sudan Government involved as a partner along with Arab public capital sources; b) multinational joint ventures, with various Arab governments acting as partners of the Sudan Government; c) joint ventures between private Arab companies and the Sudanese private and public sectors; d) joint, ventures between Western private companies and the Sudan's public and private sectors; and e) trilateral or multilateral joint ventures, involving three or more partners.
Two important features of such joint ventures have been that the Sudan Government and the Sudan Development Corporation have been involved in most of them and that Western participation in terms of risk capital, as, well as the involvement of private Arab Capital, has been rather limited. In fact, very few joint ventures would have been established in the Sudan at all, without the risk and loan commitment accepted by the Government, and without the privileges and concessions offered to attract the investment of foreign capital.
The growth in the number of enterprises organized as joint, ventures has highlighted the special importance of creating and training managerial cadre in the public enterprise sector. Moreover, it has directed attention to the need for clarity concerning the enterprises' objectives, particularly when they are required to shoulder responsibilities related more to the public interest than to commercial profitability. Finally, the performance of the various joint ventures in the Sudan has generally led to a number of questions about the role undertaken by each of the participating partners in such matters as the transfer of technology, skills and knowledge, and the realization and distribution of profits.
With its billion Dollars multilateral financing, the Kenana Sugar Project represents a unique experience in public enterprise joint ventures. The Kenana concept, which took shape in the early seventies, was seen as a suitable vehicle for the advancement of Sudan's aspirations to acquire capital and technology for the achievement of its developmental objectives through tripartite cooperation i.e., Sudan's natural resources, Arab capital and Western technology. The ready availability of Western technology, the receptive attitude of the nearby Arab states and the various Arab development organizations, as well as the importance attached to the ideals of pan-Arab economic cooperation and the Arab food security objective were all significant factors contributing to the Project's realization.
The present case study* reviews the objectives of the Kenana Sugar Project, the saga of its successful financing through to the project's completion (despite a hostile financial press during the latter half of the 1970s), its record of technical achievements since it first started production in March 1980, its financial structure and the concessions extended to it. Moreover, it provides an assessment of the project's costs, socio-economic benefits, problems and commercial viability.
________________________________________________
* An earlier version of this case study was presented at the Expert Group Meeting on "Financing of Public Enterprise Joint Ventures among Developing Countries," held in Lima, Peru, 17-21 February 1986, which was organized, by ICPE the Latin American Association of Developing Finance Institutions (ALIDE) and the Development Financing Corporation (COFIDE). The views expressed herein do not necessarily reflect those of the Kenana Sugar Company, where the author was formerly employed.
2. THE KENANA SUGAR PROJECT: OBJECTIVES
The Kenana Sugar Project is an agro-industrial complex located on the eastern bank of the White Nile, 240 kilometers south of Khartoum, the capital of the Republic of the Sudan. Conceived out of the optimism of the early 1970s, Kenana was born with the aim to create one of the largest integrated projects of its kind in the world. Kenana was designed to transform the Sudan from a net sugar importer into a significant exporter of the product with an eye on the nearby Arab markets at a time when there were large oil revenue surpluses seeking productive investment and the Sudan's potential as the "Bread-Basket of the Arab World" was being enthusiastically. expounded. The natural physical advantages that the Sudan enjoys make it particularly suitable for large-scale agriculture in general and the production of sugar cane in particular. The efficient utilization and development of the country's vast agricultural potential is a priority in the Sudan's long-term development plans. Despite the extended payback period inherent in such projects, the sugar industry has assumed increasing importance in recent years.
The scheme was to take 35,000 hectares of fertile but almost virtually unused land between the Blue and White Niles, prepare and irrigate it by pumping the water of the White Nile and building a sugar plant and refinery complex with a crushing capacity of 17,000 metric tons of cane per day and a production capacity of more than 300,000 metric tons of sugar annually over a period of some six months (i.e. from October to late April). The scale was ambitious by any standard, the average sugar plant in the world having only about half the capacity of Kenana. The size led to immediate controversy. Would the potential economies of scale accruing from such a large complex be outweighed by the problems of management control, the complexities and extended length of the construction phase and the difficulty of raising the exorbitant amount of financing required to bring a project of such dimensions to fruition?
Kenana was a particularly bold concept for the Sudan, which at the time had only two sugar plants producing a total of approximately 100,000 metric tons for local consumption. Furthermore, not only was there a lack of local infrastructure at the project location but in those days there was no paved road between Port Sudan and the proposed Kenana site, a distance of some 1,150 kilometers away; and the scale of the factory was such that many plant items were too large to be transported on the single-track, narrow-gauge railway on which the Sudan was at that time largely dependent.
Nonetheless, towards the end of 1979, the Sudan Government determined that the Kenana Project satisfied the criteria set for projects worthy of its encouragement and support. These criteria included:
a) Economic feasibility;
b) The efficient utilization of natural resources;
c) The creation of new job opportunities and introduction of new skills;
d) Infrastructure development;
e) self-sufficiency cum import substitution and the creation of an exportable surplus.
The Kenana Sugar Project is not only one of the Sudan's largest public enterprise ventures, but one of the largest equity investments ever made in a developing country by the Arab states. As a member of the Arab League, the Sudan is an active participant in various pan-Arab economic organs, including the Arab Economic Council and the Council of Arab Economic Unity - the two forums where Arab Economic strategy is debated and regional economic policies are set and followed up. Ranking high among the Arab economic strategies is security in food products. Moreover, the Arab nation is well aware that economic strength is a prerequisite for Arab unity and political strength; accordingly, quite a number of economic organizations have been created, which have adopted certain agreements and legislation to organize, guide and direct the flow of Arab investments to other Arab countries.
The story of the financing of the Kenana Sugar Company (KSC) can thus be followed and understood within the context of the objectives and aspirations of the Sudan, on the one hand, and the pan-Arab goals for regional cooperation to achieve economic and political strength, on the other.
The Kenana Sugar Project is an agro-industrial complex located on the eastern bank of the White Nile, 240 kilometers south of Khartoum, the capital of the Republic of the Sudan. Conceived out of the optimism of the early 1970s, Kenana was born with the aim to create one of the largest integrated projects of its kind in the world. Kenana was designed to transform the Sudan from a net sugar importer into a significant exporter of the product with an eye on the nearby Arab markets at a time when there were large oil revenue surpluses seeking productive investment and the Sudan's potential as the "Bread-Basket of the Arab World" was being enthusiastically. expounded. The natural physical advantages that the Sudan enjoys make it particularly suitable for large-scale agriculture in general and the production of sugar cane in particular. The efficient utilization and development of the country's vast agricultural potential is a priority in the Sudan's long-term development plans. Despite the extended payback period inherent in such projects, the sugar industry has assumed increasing importance in recent years.
The scheme was to take 35,000 hectares of fertile but almost virtually unused land between the Blue and White Niles, prepare and irrigate it by pumping the water of the White Nile and building a sugar plant and refinery complex with a crushing capacity of 17,000 metric tons of cane per day and a production capacity of more than 300,000 metric tons of sugar annually over a period of some six months (i.e. from October to late April). The scale was ambitious by any standard, the average sugar plant in the world having only about half the capacity of Kenana. The size led to immediate controversy. Would the potential economies of scale accruing from such a large complex be outweighed by the problems of management control, the complexities and extended length of the construction phase and the difficulty of raising the exorbitant amount of financing required to bring a project of such dimensions to fruition?
Kenana was a particularly bold concept for the Sudan, which at the time had only two sugar plants producing a total of approximately 100,000 metric tons for local consumption. Furthermore, not only was there a lack of local infrastructure at the project location but in those days there was no paved road between Port Sudan and the proposed Kenana site, a distance of some 1,150 kilometers away; and the scale of the factory was such that many plant items were too large to be transported on the single-track, narrow-gauge railway on which the Sudan was at that time largely dependent.
Nonetheless, towards the end of 1979, the Sudan Government determined that the Kenana Project satisfied the criteria set for projects worthy of its encouragement and support. These criteria included:
a) Economic feasibility;
b) The efficient utilization of natural resources;
c) The creation of new job opportunities and introduction of new skills;
d) Infrastructure development;
e) self-sufficiency cum import substitution and the creation of an exportable surplus.
The Kenana Sugar Project is not only one of the Sudan's largest public enterprise ventures, but one of the largest equity investments ever made in a developing country by the Arab states. As a member of the Arab League, the Sudan is an active participant in various pan-Arab economic organs, including the Arab Economic Council and the Council of Arab Economic Unity - the two forums where Arab Economic strategy is debated and regional economic policies are set and followed up. Ranking high among the Arab economic strategies is security in food products. Moreover, the Arab nation is well aware that economic strength is a prerequisite for Arab unity and political strength; accordingly, quite a number of economic organizations have been created, which have adopted certain agreements and legislation to organize, guide and direct the flow of Arab investments to other Arab countries.
The story of the financing of the Kenana Sugar Company (KSC) can thus be followed and understood within the context of the objectives and aspirations of the Sudan, on the one hand, and the pan-Arab goals for regional cooperation to achieve economic and political strength, on the other.
3. THE EVOLUTION OF KENANA'S FINANCING
The feasibility study presented by the British company Lonrho Limited in 1973 in effect drafted the Kenana Scheme now in existence, calculating the cost at US$113 million. At that time, it was suggested that Lonrho would take 49% of the equity, and the Sudan Government 51%, with Lonrho implementing the scheme and managing it after completion.
It was in late 1974 that the Government, gave the final approval for implementation of the Project, by which time the cost estimate had risen to US$171.6 million as a result of the inflation effect of soaring oil prices. When the Founders Agreement was signed in February 1975, the Sudan Government and the state-owned Sudan Development Corporation (SDC), between them took to subscribe for 61 % of the equity;the Arab Investment Company, a multi-Arab-state company based in Riyadh, Saudi Arabia, subscribed17 %; Lonrho for 12 %; Gulf Fisheries, a private Kuwait company and the Japanese concern Nissho Iwai, which was to supply the boilers and generators, the remaining 5 % of the equity, the Company being initially capitalized at £S10 million.1 By this time, the cost was estimated at US$250 million, as inflation rates continued to escalate, having an effect on the projected debt/equity ratio.
Official export credit backing for the factory procurement/ construction was sought from the U.S. Exim Bank, which declined involvement, for largely political reasons at the time in question. Britain's Export Credit Guarantee Department (ECGD), which had initially expressed enthusiasm, withdrew at a later stage, leaving Kenana in a quandary. Eventually, the main export credit financing was arranged through COFACE of France to supplement the financing to be arranged through Nissho Iwai, to finance the Japanese component of the factory supply contract. The consequent restriction to France and Japan for the source of factory equipment had its inevitable effect on the capital cost of the factory, which was initially to be equipped on a fully competitive "world wide " basis. In fact, the CIF Port Sudan price of the factory and its equipment totaled a staggering US$170 million, nearly three times the revised feasibility figure, this being the major escalation in capital costs.
1. It is worthy of note that parity between, the Sudanese, Pound and the U.S. dollar remained steady at LS1.00 = US$2.50 from the Project's inception right up to June 1978, when it was realigned at £S1.00 = US$2.00. We shall be returning to the exchange rates aspect later as it is a factor of considerable importance.
By the time Kuwait became a shareholder in 1976, the Company's share capital had risen progressively to £S40 million to keep pace with Project development; and when the factory cornerstone was laid in November 1976, cost estimates had risen to US$465 million. In July 1978, the Company's share capital was further increased to £S64 million, supplemented by shareholders' loans to the Company to keep pace with funding requirements. In addition, it was decided to seek soft loans from the Arab Development Fund to help cover the significant infrastructure costs, which had similarly been affected by the soaring inflation rates throughout the latter part of the decade. And in 1978 the Government of Saudi Arabia agreed to participate, as a shareholder in, the Kenana Sugar Company.
A major capital restructuring operation was undertaken in September 1980 through February 1981, which involved the issue of preferred shares, the broadening of the shareholder base and the conversion of existing shareholders' loans into share capital. As a consequence, KSC's share capital went up from, £S80 million to £S356 million by the addition of £S132 million worth of 10% preferred "A" shares (representing new capital) and £S123 million in preferred "B" shares (shareholders' loans conversion).
Following this restructuring, with an investment of 34.2 %, the Sudan Government was the largest single shareholder; followed by the Kuwait Government, which had 33.2 %. With the addition of the shares held by the state-owned Sudan Development Corporation (SDC) and the new shareholdings taken by the state-owned commercial banks, the Sudan's stake in the share capital of Kenana was 41.8 %. At this time, yet another Arab Development organization, the Arab Authority for Agricultural Development and Investment, took a stake in the Project share capital.
An exercise aimed at identifying the Project's foreign currency funding requirement up to the projected "Point of Maximum Funding" was undertaken in mid-1982, by which time two further devaluations had seen parity between the Sudanese pound and the U.S. dollar plummet from £$1.00 = US$2.00 to £S1 = US$0.90. As a consequence, the Company's authorized share capital was increased in September 1982 from £S356 million to £S518million,by the creation of £S162 million worth of a new class of special preferred "A" shares, to be subscribed for in U.S. dollars, which, aimed at raising US$180 million in three tranches, during the period January 1983 through January 1985.
This initiative was temporarily thwarted by yet another, devaluation in November 1982, which reduced the value of the Sudanese pound to US$0.769, and had to be modified by the creation of a further £S72 million worth of special preferred "A" shares, in order to raise the requisite US$180 million at the new exchange rate.
Following the offer of the third tranche, of special preferred "A" shares in January 1985, the most up-to-date picture of the percentage shareholding of KSC is as shown in Tables 1 and 1.1.
The feasibility study presented by the British company Lonrho Limited in 1973 in effect drafted the Kenana Scheme now in existence, calculating the cost at US$113 million. At that time, it was suggested that Lonrho would take 49% of the equity, and the Sudan Government 51%, with Lonrho implementing the scheme and managing it after completion.
It was in late 1974 that the Government, gave the final approval for implementation of the Project, by which time the cost estimate had risen to US$171.6 million as a result of the inflation effect of soaring oil prices. When the Founders Agreement was signed in February 1975, the Sudan Government and the state-owned Sudan Development Corporation (SDC), between them took to subscribe for 61 % of the equity;the Arab Investment Company, a multi-Arab-state company based in Riyadh, Saudi Arabia, subscribed17 %; Lonrho for 12 %; Gulf Fisheries, a private Kuwait company and the Japanese concern Nissho Iwai, which was to supply the boilers and generators, the remaining 5 % of the equity, the Company being initially capitalized at £S10 million.1 By this time, the cost was estimated at US$250 million, as inflation rates continued to escalate, having an effect on the projected debt/equity ratio.
Official export credit backing for the factory procurement/ construction was sought from the U.S. Exim Bank, which declined involvement, for largely political reasons at the time in question. Britain's Export Credit Guarantee Department (ECGD), which had initially expressed enthusiasm, withdrew at a later stage, leaving Kenana in a quandary. Eventually, the main export credit financing was arranged through COFACE of France to supplement the financing to be arranged through Nissho Iwai, to finance the Japanese component of the factory supply contract. The consequent restriction to France and Japan for the source of factory equipment had its inevitable effect on the capital cost of the factory, which was initially to be equipped on a fully competitive "world wide " basis. In fact, the CIF Port Sudan price of the factory and its equipment totaled a staggering US$170 million, nearly three times the revised feasibility figure, this being the major escalation in capital costs.
1. It is worthy of note that parity between, the Sudanese, Pound and the U.S. dollar remained steady at LS1.00 = US$2.50 from the Project's inception right up to June 1978, when it was realigned at £S1.00 = US$2.00. We shall be returning to the exchange rates aspect later as it is a factor of considerable importance.
By the time Kuwait became a shareholder in 1976, the Company's share capital had risen progressively to £S40 million to keep pace with Project development; and when the factory cornerstone was laid in November 1976, cost estimates had risen to US$465 million. In July 1978, the Company's share capital was further increased to £S64 million, supplemented by shareholders' loans to the Company to keep pace with funding requirements. In addition, it was decided to seek soft loans from the Arab Development Fund to help cover the significant infrastructure costs, which had similarly been affected by the soaring inflation rates throughout the latter part of the decade. And in 1978 the Government of Saudi Arabia agreed to participate, as a shareholder in, the Kenana Sugar Company.
A major capital restructuring operation was undertaken in September 1980 through February 1981, which involved the issue of preferred shares, the broadening of the shareholder base and the conversion of existing shareholders' loans into share capital. As a consequence, KSC's share capital went up from, £S80 million to £S356 million by the addition of £S132 million worth of 10% preferred "A" shares (representing new capital) and £S123 million in preferred "B" shares (shareholders' loans conversion).
Following this restructuring, with an investment of 34.2 %, the Sudan Government was the largest single shareholder; followed by the Kuwait Government, which had 33.2 %. With the addition of the shares held by the state-owned Sudan Development Corporation (SDC) and the new shareholdings taken by the state-owned commercial banks, the Sudan's stake in the share capital of Kenana was 41.8 %. At this time, yet another Arab Development organization, the Arab Authority for Agricultural Development and Investment, took a stake in the Project share capital.
An exercise aimed at identifying the Project's foreign currency funding requirement up to the projected "Point of Maximum Funding" was undertaken in mid-1982, by which time two further devaluations had seen parity between the Sudanese pound and the U.S. dollar plummet from £$1.00 = US$2.00 to £S1 = US$0.90. As a consequence, the Company's authorized share capital was increased in September 1982 from £S356 million to £S518million,by the creation of £S162 million worth of a new class of special preferred "A" shares, to be subscribed for in U.S. dollars, which, aimed at raising US$180 million in three tranches, during the period January 1983 through January 1985.
This initiative was temporarily thwarted by yet another, devaluation in November 1982, which reduced the value of the Sudanese pound to US$0.769, and had to be modified by the creation of a further £S72 million worth of special preferred "A" shares, in order to raise the requisite US$180 million at the new exchange rate.
Following the offer of the third tranche, of special preferred "A" shares in January 1985, the most up-to-date picture of the percentage shareholding of KSC is as shown in Tables 1 and 1.1.
TABLE 1 ____________________________________________________________
SHAREHOLDING OF THE KENANA SUGAR COMPANY: SHARES
Shares--- Authorized--- Issued
( LS 000 ) ___________________________________________________________
Ordinary Shares --- 76,475 --- 76,475
Preferred Shares - "A" 156,000 --- 155,288
Preferred Shares - "B" 123,525 --- 122,696
Special Preferred Shares - "A" 234,000 --- 206,086
-----------------------------------------------------------------------------------------_
Total --- 590,000 --- 560,545
-------------------------------------------------------------------------------------
TABLE 1.1
________________________________________________________________
SHAREHOLDING OF THE KENANA SUGAR COMPANY: SHAREHOLDERS
Total
Shareholders Shareholding ____________________________________________________________
Government of the Democratic Republic
of the Sudan 197,116 (35.17%)
Government of the State of Kuwait 170,938 (30.50%)
Government of the Kingdom of Saudi
Arabia 61,235 (10.92%)
Arab Investment Co. S.A.A. 39,013 (6.96%)
Sudan Development Corporation 31,726 (5.66%)
Arab Authority for Agricultural Investment
And Development 31,190 (5.56%)
Local Banks 24,952 (4.45%)
Lonrho Limited 2,575 (0.46%)
Nissho Iwai Corporation 900 (0.16%)
Gulf Fisheries Co. W.L.L. 900 (0.16%)
__________________________________________________________
560,545 (100.00%)
*It should be noted that in February 1985 the official rate of exchange for the Sudanese Pound became LS1=US$0.4, effectively devalued by a factor of 6.25 times since June 1978.
The chronology of main events related to the financing of KSC outlined in Table 2 may serve to elucidate the follow-up story of the Company's financing saga.
TABLE 2
CHRONOLOGY OF. MAIN EVENTS IN THE FINANCING OF THE KENANA SUGAR COMPANY
________
March 1975 Incorporation of the Kenana Sugar Company Limited with an Authorized share capital of £S1O million (ordinary shares). Incorporation of the Kenana Sugar Company Limited with an Authorized share capital of £S1O n (ordinary shares)
June 1975 Agreement for US$50 million shareholder loan by the Government of the Democratic Republic of the Sudan
July 1975 Agreement with Maschinenfabrik Andritz AG for the supply and installation of main irrigation pumps, with related finance facility (utilization: Austrian Schillings 210.3 million).
August 1975 Authorized share capital increased to £S20 million by creation of further Ordinary shares.
November 1975 Agreement for US$15.7 million shareholder loan by the Arab Investment Company S.A.A.
March 1976 Authorized share capital increased to £S40 million by creation of further ordinary shares .
May 1976 Agreement for factory-related export credit financing
with:
- Banque Francaise du Commerce Exteieur
- Credit Lyonnais
- Banque de Paris ET Des Pays-Bas
(Utilization: French Francs 383.0 million)
May 1976 Equity participation by the Government of the State of
Kuwait.
November 1976 Agreement with Nissho Iwai Co. Ltd. for the supply of part of the factory plant and equipment, together with related financing facility (Utilization: Japanese Yen 10.3 billion).
July 1977 Authorized share capital increased to £S64 million by creation of further ordinary shares.
July 1977 Agreement for US$23 million shareholder loan from the Government of the State of Kuwait via the Kuwait Foreign Trading, Contracting & Investment Co. S.A.
March 1978 Agreement for increase to US$17 million of shareholder loan by the Arab Investment Company S.A.A.
April 1978 Agreement for US$54 million syndicated shareholder loan:
-Government of the Democratic,
Republic of the Sudan: US$ 24 million
(equivalent )
- Government of the State of
Kuwait (through Kuwait
Foreign Trading Contracting
and Investment Company S.A.): US$ 13.8 million.
- Arab Investment Company: S.A. US$10.2 million.
Sudan Development Corporation: US$ 6.0 million
July 1978 Authorized share capital increased to £S80 million by creation of further ordinary shares.
November 1978 Equity participation by the Kingdom of Saudi Arabia .
March 1979 Agreement for Saudi Rials 120 million infrastructure loan by the Saudi Fund for Development.
May 1979 Agreement for Kuwaiti Dinars 6 million loan by Kuwait Fund for Arab Economic Development.
May 1979 Agreement with National Automotive Manufacturing and Trading Company S.A.A. for supply of cane harvesting and transport equipment, together with related financing facility ( Utilization : Kuwaiti Dinars 4.4 million).
September 1980 Capital restructuring involving increase of authorized share Capital to LS 350 million by the creation of:
Preferred shares " A ": offered pro rata to existing
shareholders, with
accommodation for participation
by Elnilein Bank Limited.
Preferred shares " B ": issued in capitalization
outstanding shareholders loans .
February 1980 Authorized share capital increased to £S356 million by
creation of further preferred "A". Shares to accommodate participation by:
- Unity Bank Limited
- Sudan Commercial Bank Limited
- The Arab Authority for Development & Agricultural
Investment.
October 1982 Adoption of finance plan to cover projected foreign currency requirement of US$180 million; involving an increase in the authorized share capital to £S 518 million by the creation of special preferred "A " shares.
February 1983 Authorized share capital increased to £S590 million by creation of further special preferred "A" shares.
3.1. LOAN FUNDING
Loan funding falls into two categories: export credit, financing and soft-term Development Fund infrastructure loans.
Long-term export credit financing, whose facilities were fully utilized in the development of the project, was arranged as shown in Table 3.
TABLE 3
LONG-TERM EXPORT CREDIT FINANCING OF THE KENANA SUGAR COMPANY
Loan funding falls into two categories: export credit, financing and soft-term Development Fund infrastructure loans.
Long-term export credit financing, whose facilities were fully utilized in the development of the project, was arranged as shown in Table 3.
TABLE 3
LONG-TERM EXPORT CREDIT FINANCING OF THE KENANA SUGAR COMPANY
Name of Lender Equipment Amount in Millions _______________________________________________________________________
Banque Francaise du Commerce Sugar Factory FF 383.00
Exteneur; Credit Lyonnais; Plant and
and Banque de Paris et Des Machinery
Pays Bas, France
Nissho Iwai Corporation, Sugar Factory J.Yen 10,268.50
Japan Plant and
Machinery
Maschinenfabrik Andritz A. G., Irrigation A. Sch. 210.36
Austria Pumps
National Automotive Harvesting and KD4.44
Manufacturing and Trading Transport
Co., Kuwait Equipment
_____________________________________________________________
Repayments, which commenced in 1980/81, are based upon original loan covenants, modified in certain cases by agreements subsequently reached with the lenders. Full details of the long-term export credit financing are outlined in Appendix I.
Additional financing in the form of infrastructure loans was acquired from two sources:
a) The Kuwait Fund Infrastructure Loan Sub-Agreement between the Government of the Sudan and the Kenana Sugar Company Limited:
- For financing (in part) the costs of the Factory Construction Contract (Capper Neill International).
- Currency of the Loan: Kuwaiti Dinars (KD)
- Amount of Loan: KD 6 million (approximately US$21.7 million at historical rate of exchange).
- Rate of' interest: 40/0 p. a., paid semi-annually t6 the fund; and additional 3% to the Government of Sudan.
- Service charge: 0.5 % of any utilized and unpaid portion of the loan.
- Commitment fee of 0.50/0 on any unutilized portion of the loan.
- Principal repayment in 32 semi-annual installments, starting on the 15th of April 1983, over 16 years.
b) The Saudi Fund Infrastructure Loan Sub-Agreement between the Government of the Sudan and the Kenana Sugar Company Limited:
- For meeting the costs of specific projects.
- Amount of the Loan: SR120.160 million (approximately US$34.331 million at historical rate of exchange).
-
- Rate' of interest: 5% p.a., paid semi-annually (2% payable to the 'Fund' and 3% to the Government of the Sudan).
- Principal repayments in 30 semi-annual installments, commencing on the 30th of
June 1984.
While the Kuwait Fund facility has been fully drawn, the utilization period for the Saudi Fund Loan extends through to December 1986. It is anticipated that the balance of this facility will be utilized before that date, in connection with the construction of an export sugar warehouse at Port Sudan.
3.2. CONCESSIONS GRANTED TO KENANA PROJECT
Considering the importance of the Kenana Project in the Agro-Industrial Development of the Sudan, the Government of the Sudan has granted KSC various concessions; for example:
- exemption from import duties and taxes;
- a relaxation in foreign exchange regulations permitting the operation of foreign currency accounts abroad;
- the leasing of about 70,000 hectares of land at a nominal rental of 25 cents per hectare per year;
- free irrigation water;
- priorities in Port Sudan for goods clearance and rail transport, together with favored treatment in such areas as fuel allocation, import licensing, expatriate labor permits.
- secondment to KSC of experienced staff in such areas as administration, education, public health, fire-fighting, estate security, etc.;
- favorable sugar price for domestic market quota;
- exemption from Income and Business Profits Taxes for ten years from the commencement of production of refined sugar (this concession also applies to expatriate contracting firms employed on the Project and to the expatriate employees and contractors of KSC.
An analysis of the concessions granted to the Project invites discussion on whether commercial or economic criteria constitute the correct approach in assessing project viability. The availability of land at near zero cost, free water rights, the wide-ranging exemption from import duties and the exemption from both Income Tax and Business Profits Tax for periods in excess of the maximum specified in the Investment Acts, all raise the question of whether the input costs of the Project have been distorted as a result.
Arguments that the generosity of the concessions was deliberately intended to attract such a major investment are met with the counter-arguments that, although "development" can be positively served through the granting of concessions, these should not be such as to lead to an artificial comparative advantage nor to the hindrance of an objective assessment of the project. Of course, such controversy is inherent in all public enterprise projects and has not yet been resolved; accordingly, it is natural to find such questions raised in the case of Kenana. These aspects would perhaps be best researched by academicians and national planners, although case studies such as this one may be of assistance in establishing guidelines and producing reference material for such research.
4. COSTS, BENEFITS AND PROBLEMS
4.1. Capital Cost
As shown in Table 4, as of 30th. September 1985, the total value (at historical cost) of the Kenana Project's capital works completed and in progress was US$597.6 million (i.e. the equivalent, at historical exchange rates, of US$454.9 million in various foreign currencies and of a further US$142.7 million in the currency of the Sudan).
TABLE 4
CAPITAL COST OF KENANA SUGAR PROJECT (AS OF 30 SEPTEMBER 1985)
Item --- Cost ( in US$ million )
Capital Works Completed
Factory Building, Plant & Machinery 327.10
Irrigation Pumps, Structures, Equipment and Canals 110.40
Land Development 2.70
Agricultural 'Harvesting & Transport Equipment 45.50
Infrastructure 72.90
Other Equipment, Vehicles, Fixtures, etc. 17.20
575.80
Capital Works in Progress 21.80
Total 597.60
4.2. Social and Infrastructure Costs
In stark contrast to the world's sugar industry at large, which enjoys the benefits of a State-provided infrastructure and social' services, the Kenana Sugar, Company funds the entire £S9.95 million annual operating budget of such services as public health, medical care, fire-fighting, security and public law and order (equivalent to £S34.3 per metric ton of sugar at the 1984/85 production level), and was required to absorb the full US$134.0 million cost of developing the site infrastructure - 29.2 % of the estimated total capital cost of the Project (see Table 5).
TABLE 5
INFRASTRUCTURE COSTS OF KENANA SUGAR PROJECT
and Banque de Paris et Des Machinery
Pays Bas, France
Nissho Iwai Corporation, Sugar Factory J.Yen 10,268.50
Japan Plant and
Machinery
Maschinenfabrik Andritz A. G., Irrigation A. Sch. 210.36
Austria Pumps
National Automotive Harvesting and KD4.44
Manufacturing and Trading Transport
Co., Kuwait Equipment
_____________________________________________________________
Repayments, which commenced in 1980/81, are based upon original loan covenants, modified in certain cases by agreements subsequently reached with the lenders. Full details of the long-term export credit financing are outlined in Appendix I.
Additional financing in the form of infrastructure loans was acquired from two sources:
a) The Kuwait Fund Infrastructure Loan Sub-Agreement between the Government of the Sudan and the Kenana Sugar Company Limited:
- For financing (in part) the costs of the Factory Construction Contract (Capper Neill International).
- Currency of the Loan: Kuwaiti Dinars (KD)
- Amount of Loan: KD 6 million (approximately US$21.7 million at historical rate of exchange).
- Rate of' interest: 40/0 p. a., paid semi-annually t6 the fund; and additional 3% to the Government of Sudan.
- Service charge: 0.5 % of any utilized and unpaid portion of the loan.
- Commitment fee of 0.50/0 on any unutilized portion of the loan.
- Principal repayment in 32 semi-annual installments, starting on the 15th of April 1983, over 16 years.
b) The Saudi Fund Infrastructure Loan Sub-Agreement between the Government of the Sudan and the Kenana Sugar Company Limited:
- For meeting the costs of specific projects.
- Amount of the Loan: SR120.160 million (approximately US$34.331 million at historical rate of exchange).
-
- Rate' of interest: 5% p.a., paid semi-annually (2% payable to the 'Fund' and 3% to the Government of the Sudan).
- Principal repayments in 30 semi-annual installments, commencing on the 30th of
June 1984.
While the Kuwait Fund facility has been fully drawn, the utilization period for the Saudi Fund Loan extends through to December 1986. It is anticipated that the balance of this facility will be utilized before that date, in connection with the construction of an export sugar warehouse at Port Sudan.
3.2. CONCESSIONS GRANTED TO KENANA PROJECT
Considering the importance of the Kenana Project in the Agro-Industrial Development of the Sudan, the Government of the Sudan has granted KSC various concessions; for example:
- exemption from import duties and taxes;
- a relaxation in foreign exchange regulations permitting the operation of foreign currency accounts abroad;
- the leasing of about 70,000 hectares of land at a nominal rental of 25 cents per hectare per year;
- free irrigation water;
- priorities in Port Sudan for goods clearance and rail transport, together with favored treatment in such areas as fuel allocation, import licensing, expatriate labor permits.
- secondment to KSC of experienced staff in such areas as administration, education, public health, fire-fighting, estate security, etc.;
- favorable sugar price for domestic market quota;
- exemption from Income and Business Profits Taxes for ten years from the commencement of production of refined sugar (this concession also applies to expatriate contracting firms employed on the Project and to the expatriate employees and contractors of KSC.
An analysis of the concessions granted to the Project invites discussion on whether commercial or economic criteria constitute the correct approach in assessing project viability. The availability of land at near zero cost, free water rights, the wide-ranging exemption from import duties and the exemption from both Income Tax and Business Profits Tax for periods in excess of the maximum specified in the Investment Acts, all raise the question of whether the input costs of the Project have been distorted as a result.
Arguments that the generosity of the concessions was deliberately intended to attract such a major investment are met with the counter-arguments that, although "development" can be positively served through the granting of concessions, these should not be such as to lead to an artificial comparative advantage nor to the hindrance of an objective assessment of the project. Of course, such controversy is inherent in all public enterprise projects and has not yet been resolved; accordingly, it is natural to find such questions raised in the case of Kenana. These aspects would perhaps be best researched by academicians and national planners, although case studies such as this one may be of assistance in establishing guidelines and producing reference material for such research.
4. COSTS, BENEFITS AND PROBLEMS
4.1. Capital Cost
As shown in Table 4, as of 30th. September 1985, the total value (at historical cost) of the Kenana Project's capital works completed and in progress was US$597.6 million (i.e. the equivalent, at historical exchange rates, of US$454.9 million in various foreign currencies and of a further US$142.7 million in the currency of the Sudan).
TABLE 4
CAPITAL COST OF KENANA SUGAR PROJECT (AS OF 30 SEPTEMBER 1985)
Item --- Cost ( in US$ million )
Capital Works Completed
Factory Building, Plant & Machinery 327.10
Irrigation Pumps, Structures, Equipment and Canals 110.40
Land Development 2.70
Agricultural 'Harvesting & Transport Equipment 45.50
Infrastructure 72.90
Other Equipment, Vehicles, Fixtures, etc. 17.20
575.80
Capital Works in Progress 21.80
Total 597.60
4.2. Social and Infrastructure Costs
In stark contrast to the world's sugar industry at large, which enjoys the benefits of a State-provided infrastructure and social' services, the Kenana Sugar, Company funds the entire £S9.95 million annual operating budget of such services as public health, medical care, fire-fighting, security and public law and order (equivalent to £S34.3 per metric ton of sugar at the 1984/85 production level), and was required to absorb the full US$134.0 million cost of developing the site infrastructure - 29.2 % of the estimated total capital cost of the Project (see Table 5).
TABLE 5
INFRASTRUCTURE COSTS OF KENANA SUGAR PROJECT
Item --- Cost ( in US$ million )
Irrigation Canals, Field Water Supply,
Structures and Equipment --- 110.4
Domestic Water Supply --- 1.6
Power Transmission Line --- 2.9
Railway Spur and Bridge --- 2.5
Connecting Road to Rabak and Other Main Roads --- 4.0
Schools, Mosque, Hospitals, Bank and Post
Office, Police Station, Court, Fire Station, etc. 12.6
Total 134.0
4.3. Socio-Economic Development
From the feasibility stage onwards, the social and economic aspects of the Project have been developed parallely. It is estimated that, when Kenana is operating at full capacity, there will be a population of approximately one hundred thousand people on the site, enjoying social services, and benefits equal to those offered to any worker in the Sudan. In less than a decade, a large modern society will thus have been created from what was previously rain-fed scrubland capable of supporting only a sparse and largely nomadic population.
The Kenana Project is expected to be of lasting benefit to the Sudan:
- By providing a major source of employment for Sudanese labor;
- By providing training facilities and thus increasing the level of skills of the local employees;
- By providing a basic food commodity and helping the Sudan achieve self-sufficiency in sugar production with, ultimately, a consequential saving in foreign currency which would otherwise be expended on sugar imports;
- By generating in due course foreign currency from the export of sugar;
- By supporting Sudanese manufacturers and supply industries; and
- By contributing substantially to the local infrastructure.
4.4. Problems Facing the Project and Possible Measures to Redress the Situation
Irrigation Canals, Field Water Supply,
Structures and Equipment --- 110.4
Domestic Water Supply --- 1.6
Power Transmission Line --- 2.9
Railway Spur and Bridge --- 2.5
Connecting Road to Rabak and Other Main Roads --- 4.0
Schools, Mosque, Hospitals, Bank and Post
Office, Police Station, Court, Fire Station, etc. 12.6
Total 134.0
4.3. Socio-Economic Development
From the feasibility stage onwards, the social and economic aspects of the Project have been developed parallely. It is estimated that, when Kenana is operating at full capacity, there will be a population of approximately one hundred thousand people on the site, enjoying social services, and benefits equal to those offered to any worker in the Sudan. In less than a decade, a large modern society will thus have been created from what was previously rain-fed scrubland capable of supporting only a sparse and largely nomadic population.
The Kenana Project is expected to be of lasting benefit to the Sudan:
- By providing a major source of employment for Sudanese labor;
- By providing training facilities and thus increasing the level of skills of the local employees;
- By providing a basic food commodity and helping the Sudan achieve self-sufficiency in sugar production with, ultimately, a consequential saving in foreign currency which would otherwise be expended on sugar imports;
- By generating in due course foreign currency from the export of sugar;
- By supporting Sudanese manufacturers and supply industries; and
- By contributing substantially to the local infrastructure.
4.4. Problems Facing the Project and Possible Measures to Redress the Situation
Despite the many problems encountered in developing a major agro-industry facility in a remote area with minimal infrastructure, the Kenana Project has proved an outstanding technical success, with its full production potential of 315,000 tons of white sugar per annum within reach, in the 1984/85 season 306,000 tons of white sugar were produced). KSC does, however, have to face up to two inherent problems which threaten to overshadow the technical achievements referred to and, indeed, the very fabric' of the Project, viz:
- Commercial viability has still to be demonstrated, with, KSC yet to produce a profit; and
- the critical shortage of foreign currency funding is an ever present con-strain.
5. COMMERCIAL VIABILITY
Commercial viability is a long-term problem and must be tackled as such. Since KSC first became an operational entity, the benefits in terms 'of fixed cost absorption derived from a steadily increasing production have been thwarted by a combination of adverse circumstances wholly beyond KSC's control, viz:
- The continued erosion in value of the Sudanese pound, a process that began in June 1978. (Sugar production commenced in the crop year 19791,80, and from September 1979 to date the parity of the Sudanese Pound against the US dollar has gone from to £S1.00 = US$2.00 to a current low of £S1.00 = US$0.33, a process that has had a profound effect on KSC's cost structure).
- The current fuel shortages and successive fluctuations in' price increases of petroleum products generally;
- A domestic' annual inflation rate which is well into double-digit figures;
- The inability of the central electricity authority to provide a reliable power supply to KSC during the off-crop months;
- The near-drought conditions throughout 1984, which necessitated compensations;
- The lack of foreign currency to rationalize the overseas material, procurement program with a resultant high incidence of air-freight costs for procurement on an emergency basis;
- The high turnover of trained Sudanese staff, attracted by the relatively generous, tax-free salaries paid in the Gulf area and elsewhere;
- A depressed world sugar price throughout, which decreased further in 1985 'with the failure to renew the International Sugar Agreement. (This. is a major factor that could influence KSC's prospects of profitability.
Furthermore, the future trend of the free market world sugar price, which has been depressed for a considerable length of time, has traditionally been extremely volatile. While it is pointless to speculate here on the prospects for a commodity that consistently confounds the experts, it is perhaps pertinent to point out that the scope for recovery considerably outweighs its possible downturn).
As already stated, the above-mentioned factors are beyond KSC's control, and management is concentrating its efforts on increasing productivity and cutting costs (particularly foreign currency costs) wherever possible pending the hoped-for economic upturn, a return to relative stability in the domestic and international exchange rates, and the long-awaited improvement in the world sugar price. The measures taken to achieve these aims include the following:
a) A progressive policy of Sudanization, which will be 'given further impetus' once the Vocational Training Center is completed and fully operational. (This will be accompanied by a constant monitoring of loca'1 staff salaries and conditions to ensure that the turnover of trained staff is maintained at an acceptable level).
b) An annual re-assessment of employment practices as part of the crop post mortem with a view to trimming operational employment levels without sacrificing output/efficiency.
c) The maximization of the incidence of "Crop Contracts" for necessary expatriate technical staff.
d) Import substitution where acceptable alternatives are available in, the local market.
e) Self-sufficiency where this is economically attractive, e.g., mill roll reshelling at Sufeiya Iron Works (Kenana's own) and in-house production of a range of spare parts and other' equipment.
f) 'Seeking alternative, potentially profitable methods of molasses utilization.
As already stated, the above-mentioned factors are beyond KSC's control, and management is concentrating its efforts on increasing productivity and cutting costs (particularly foreign currency costs) wherever possible pending the hoped-for economic upturn, a return to relative stability in the domestic and international exchange rates, and the long-awaited improvement in the world sugar price. The measures taken to achieve these aims include the following:
a) A progressive policy of Sudanization, which will be 'given further impetus' once the Vocational Training Center is completed and fully operational. (This will be accompanied by a constant monitoring of loca'1 staff salaries and conditions to ensure that the turnover of trained staff is maintained at an acceptable level).
b) An annual re-assessment of employment practices as part of the crop post mortem with a view to trimming operational employment levels without sacrificing output/efficiency.
c) The maximization of the incidence of "Crop Contracts" for necessary expatriate technical staff.
d) Import substitution where acceptable alternatives are available in, the local market.
e) Self-sufficiency where this is economically attractive, e.g., mill roll reshelling at Sufeiya Iron Works (Kenana's own) and in-house production of a range of spare parts and other' equipment.
f) 'Seeking alternative, potentially profitable methods of molasses utilization.
5.1. THE SUGAR SALES AGREEMENT
In 1975 the Sugar Sales Agreement was signed between the Government of the Sudan and the Kenana Sugar Company. This Agreement was crucial to the Project, as its clauses enshrined the very essence of both Kenana's economic and commercial viability, providing as it did for the sale of 150,000 metric tons of KSC sugar production per annum to the government on the basis of a certain "cost plus" formula which, however, is not strictly adhered to at present. Production above the first 150,000 metric tons per annum is earmarked for export, with the aim of earning foreign currency needed for debt servicing (the basic rationale behind the agreement), for the payment of imported inputs, and for the' employment of skilled expatriate labor until trained Sudanese are ready to take over. However, the whole of KSC's' production is currently required by the Government of the Sudan for domestic consumption, pending completion of the rehabilitation program of the government sector sugar factories. Accordingly, Kenana is selling the balance of its production to the government for hard currency, at a price based on the London Daily Market Price (white) plus notional loading, freight and insurance costs. This arrangement is beneficial to KSC, as it provides a ready market in the present climate of global over-capacity and chronically depressed world sugar market prices, and also to the Sudan Government which, at a time of acknowledged economic difficulties, compounded by drought-related food shortages over large tracts of the Sudan, is thus not required to find lump-sum financing for sugar imports.
5.2. Controversy about Kenana as an International Joint
Venture
The KSC management (and the Sudan generally) has welcomed both a constructive debate on and an objective assessment of the Kenana Project, in the hope that the KSC experience may help provide constructive guidelines to others.
Some of the controversial issues which have arisen are related to the national planners, i.e. those who are responsible for setting and guiding the macro-economic policies of the country, while others have been directed .at the, major participating shareholders and the management of KSC.
On the basis of the various opinions expressed regarding the KSC Project -whose pertinence KSC acknowledges in the context of the task of formulating new developmental plans with the fullest understanding of past experience -the following questions remain for consideration:
- Was the development of the sugar sector the top priority justifying the use of nationally scarce resources for such a purpose? (This, leads. to the quest ion of the adequacy of the development plan at the time Kenana was created and how specific its objectives and priorities were.)
- How efficient was the planning machinery in terms of control and guidance during the implementation of the major projects?
- What was the degree of awareness regarding the roles of the various partners in the joint venture, and was there a 'potential conflict in their respective objectives? How could the objectives of "the private" foreign investor (profitability and commercial returns) is reconciled with those of the host public sector partner (growth economic arid social development)?
- Is KSC likely to contribute efficiently to the development of the sugar industry in the Sudan in terms of productivity?
Was the project envisaged on too grand a scale? The technical controversy centers on the size of the factory and the complexity and integrated nature of the project in the context of the technical, financial and managerial capabilities of the Sudan.
- Could the causes of continuous escalation in the project's costs have been foreseen and to some extent mitigated by better financial planning?
No attempt will be made here to draw any conclusions; indeed, developmental issues of this magnitude are never conclusive. The intention 'of this paper has been to make available adequate data regarding the magnitude and the evolution of the financing of this unique project within the context of cooperation amongst developing countries.
**************
APPENDIX I
SUMMARY OF LOAN COVENANTS FOR EACH EXPORT CREDIT
1. French Suppliers' Credit
- Original agreement signed on 14 May 1976 - Supplementary Agreement No.1 signed on 19 January 1979 and No.2 signed on 1 March 1982
- Lenders: Credit Lyonnais, Banque Francaise du Commerce Exteneur and Banque de Paris et des Pays Bas, France, backed by insurance, from (COFACE) Compagnie Francaise d'Assurance pour le Commerce Exte rieur.
- Currency of the loan: French Francs (FF).
- For purchase of factory plant, machinery, equipment, services and spares, from Technip, France.
- Amount of the loan: 72 % of FF 465.5 million or FF 335.16 million and FF 79.3 million to cover interest capitalized and insurance premiums (Total FF 414.46 million).
- Due to delays in utilization of loan amount provided for capitalized interest' and insurance, premium was not fully drawn. Loan withdrawals, including interest capitalized and insurance premium, finally amounted to FF 382.997 million on 30th September 1982, the date of closure of the loan. (Equivalent to US~78.779 million at historical rate of exchange.)
- Interest at 7.5 % p. a. on reducing balance of the loan.
- Interest capitalized until 1 August 1979 and paid in cash for the period from 1 August 1979, to 30 September 1980.
- Repayment of FF 382.997 million in 16 equal and successive semi-annual installments commencing from 1 October 1980 .
- Loan Guarantees (76.10 %) provided by:
a) Government of the Democratic Republic of the Sudan - 41.56 %
b) Sudan Development Corporation - 10.39 %
c) The Arab Investment Company - 17.66 %
d) Lonrho Limited - 3.57 %
e) Gulf Fisheries Co. W. L. L. - 1.46 %
f) Nissho Iwai Corporation - 1.46 %
with provision of a Letter of Credit by the Government of Kuwait.
2. Japanese Suppliers' Credit
- Agreement signed on 8 November 1976 and Amendment 1 signed on 26 December 1979.
- Lenders: Nissho Iwai Corporation, Tokyo, Japan, guaranteed by Japanese Government (Ministry of Trade and Industry).
- Currency of the loan: Japanese Yen
- For purchase of factory plant, machinery equipment and spare parts from Nissho Iwai Corporation.
- Amount of loan: 85 % of Japanese Yen 12.0 billion or Japanese Yen 10.2 billion (equivalent to about US$; 41.2 million at historical rate of exchange).
- Interest at 8.5 % p. a. on balance of principal outstanding, payable semiannually.
- The Agreement of 8 November 1976 provided for the commencement of repayment of loan from 1 August 1979. Under a sub3equent Agreement on 26 December 1979, these terms were altered so that repayment of the loan commenced on 1 October 1980.
- Principal repayments in 16 equal and successive semiannual installments to commence on 1 October 1980.
- Guarantees (74.75 %) provided by:
a) Government of the Democratic Republic of the Sudan - 40.00%
b) Sudan Development Corporation - 10.00%
c) The Arab Investment Co. - 17.00 %
d) Lonrho Limited - 5.50 %
e) Gulf Fisheries - 2.25 %
With provision of a Letter of Credit by the Government of Kuwait.
3. Austrian Suppliers Credit
- Agreement signed on 10 July 1975.
- Lenders: Mascrimenfabrik Andritz, Austria, Guaranteed by Austrian authorities
(Osterreichische Kontroll-Bank A.G., Vienna).
- Currency of the loan: Austrian Schillings.
- For supply and erection of irrigation pumps.
- Advance of A. Sch. 43.228 million paid in cash. Loan covered the balance' of costs of supply and erection of irrigation pumps (plus escalation according to an agreed formula). It finally amounted to A. Sch. 210.362 million (equivalents to US$13.166 million at historic rate of exchange).
- Interest at 8.0 % p. a. accumulated till 1 May 1980 and paid.
- Principal repayments in 16 equal and successive semi-annual installments to commence on 1 May 1980.
- Guarantees provided by:
a) Government of the Democratic Republic of the Sudan - 51.00 %
b) Sudan Development Corporation - 10.00 %
c) The Arab Investment Company - 17.00 %
d) Lonrho Limited - 12.00%
e) Gulf Fisheries Co. W.L.L. - 5.00 %
f) Nissho Iwai - 5.00 %
4. Namatco Suppliers' Credit
- Agreement signed on 28 May 1979.
- Lender: National Automotive Manufacturing & Trading Co., Kuwait
- Currency of the loan: Kuwaiti Dinars.
- For purchase of cane harvest/transport equipment.
- Amount of loan : Kuwaiti Dinars 4,483,'300 (equivalent to US$16.1 million at historical rate of exchange).
- Interest at 9.5 % p. a. is rolled up till 30 September 1981 and payable semi-annual thereafter on the balance of principal outstanding .
- Principal repayments in 16 equal semi-annual installments, to commence on 31 March 1982.
- Interest rolled up till 30 September 1981 and also payable in 16 equal and successive semi-annual installments, commencing, 31 March 1982.
APPENDIX II
STATISTICAL INFORMATION
1. Share Capital as on 30 September 1985 --- Shares % (In US$ millions)
Government of the Democratic Republic
of the Sudan --- 197.12 (35.17%)
Government of the State of Kuwait --- 170.94 (30.50%)
Government of Kingdom of Saudi Arabia 61.23 (10.92%)
The Arab Investment Co. S. A. A. --- 39.01 (6.96%)
Sudan Development Corporation --- 31.73 (5.66%)
Sudanese Banks --- 24.95 (4.45%)
Arab Authority for Development
& Agricultural Investment --- 31.19 (5.56%)
Lonrho Limited --- 2.57 (0.46%)
Gulf Fisheries Co. 'W. L. L. --- 0.90 (0.16%)
Nissho Iwai Corporation 0.90 0.16
Total --- 560.54 (100.00%)
2. Total Share Capital Paid
In U.S. currency: --- US $ 531.6 million
In local currency: --- £5 102.6 million
Total equivalent in U. S. currency: --- US $ 560.54 million
3. Capital Costs as of 30 September 1985
US$ 597.66 million, out of which US$ 142.7 million equivalent was incurred in local currency.
APPENDIX I
SUMMARY OF LOAN COVENANTS FOR EACH EXPORT CREDIT
1. French Suppliers' Credit
- Original agreement signed on 14 May 1976 - Supplementary Agreement No.1 signed on 19 January 1979 and No.2 signed on 1 March 1982
- Lenders: Credit Lyonnais, Banque Francaise du Commerce Exteneur and Banque de Paris et des Pays Bas, France, backed by insurance, from (COFACE) Compagnie Francaise d'Assurance pour le Commerce Exte rieur.
- Currency of the loan: French Francs (FF).
- For purchase of factory plant, machinery, equipment, services and spares, from Technip, France.
- Amount of the loan: 72 % of FF 465.5 million or FF 335.16 million and FF 79.3 million to cover interest capitalized and insurance premiums (Total FF 414.46 million).
- Due to delays in utilization of loan amount provided for capitalized interest' and insurance, premium was not fully drawn. Loan withdrawals, including interest capitalized and insurance premium, finally amounted to FF 382.997 million on 30th September 1982, the date of closure of the loan. (Equivalent to US~78.779 million at historical rate of exchange.)
- Interest at 7.5 % p. a. on reducing balance of the loan.
- Interest capitalized until 1 August 1979 and paid in cash for the period from 1 August 1979, to 30 September 1980.
- Repayment of FF 382.997 million in 16 equal and successive semi-annual installments commencing from 1 October 1980 .
- Loan Guarantees (76.10 %) provided by:
a) Government of the Democratic Republic of the Sudan - 41.56 %
b) Sudan Development Corporation - 10.39 %
c) The Arab Investment Company - 17.66 %
d) Lonrho Limited - 3.57 %
e) Gulf Fisheries Co. W. L. L. - 1.46 %
f) Nissho Iwai Corporation - 1.46 %
with provision of a Letter of Credit by the Government of Kuwait.
2. Japanese Suppliers' Credit
- Agreement signed on 8 November 1976 and Amendment 1 signed on 26 December 1979.
- Lenders: Nissho Iwai Corporation, Tokyo, Japan, guaranteed by Japanese Government (Ministry of Trade and Industry).
- Currency of the loan: Japanese Yen
- For purchase of factory plant, machinery equipment and spare parts from Nissho Iwai Corporation.
- Amount of loan: 85 % of Japanese Yen 12.0 billion or Japanese Yen 10.2 billion (equivalent to about US$; 41.2 million at historical rate of exchange).
- Interest at 8.5 % p. a. on balance of principal outstanding, payable semiannually.
- The Agreement of 8 November 1976 provided for the commencement of repayment of loan from 1 August 1979. Under a sub3equent Agreement on 26 December 1979, these terms were altered so that repayment of the loan commenced on 1 October 1980.
- Principal repayments in 16 equal and successive semiannual installments to commence on 1 October 1980.
- Guarantees (74.75 %) provided by:
a) Government of the Democratic Republic of the Sudan - 40.00%
b) Sudan Development Corporation - 10.00%
c) The Arab Investment Co. - 17.00 %
d) Lonrho Limited - 5.50 %
e) Gulf Fisheries - 2.25 %
With provision of a Letter of Credit by the Government of Kuwait.
3. Austrian Suppliers Credit
- Agreement signed on 10 July 1975.
- Lenders: Mascrimenfabrik Andritz, Austria, Guaranteed by Austrian authorities
(Osterreichische Kontroll-Bank A.G., Vienna).
- Currency of the loan: Austrian Schillings.
- For supply and erection of irrigation pumps.
- Advance of A. Sch. 43.228 million paid in cash. Loan covered the balance' of costs of supply and erection of irrigation pumps (plus escalation according to an agreed formula). It finally amounted to A. Sch. 210.362 million (equivalents to US$13.166 million at historic rate of exchange).
- Interest at 8.0 % p. a. accumulated till 1 May 1980 and paid.
- Principal repayments in 16 equal and successive semi-annual installments to commence on 1 May 1980.
- Guarantees provided by:
a) Government of the Democratic Republic of the Sudan - 51.00 %
b) Sudan Development Corporation - 10.00 %
c) The Arab Investment Company - 17.00 %
d) Lonrho Limited - 12.00%
e) Gulf Fisheries Co. W.L.L. - 5.00 %
f) Nissho Iwai - 5.00 %
4. Namatco Suppliers' Credit
- Agreement signed on 28 May 1979.
- Lender: National Automotive Manufacturing & Trading Co., Kuwait
- Currency of the loan: Kuwaiti Dinars.
- For purchase of cane harvest/transport equipment.
- Amount of loan : Kuwaiti Dinars 4,483,'300 (equivalent to US$16.1 million at historical rate of exchange).
- Interest at 9.5 % p. a. is rolled up till 30 September 1981 and payable semi-annual thereafter on the balance of principal outstanding .
- Principal repayments in 16 equal semi-annual installments, to commence on 31 March 1982.
- Interest rolled up till 30 September 1981 and also payable in 16 equal and successive semi-annual installments, commencing, 31 March 1982.
APPENDIX II
STATISTICAL INFORMATION
1. Share Capital as on 30 September 1985 --- Shares % (In US$ millions)
Government of the Democratic Republic
of the Sudan --- 197.12 (35.17%)
Government of the State of Kuwait --- 170.94 (30.50%)
Government of Kingdom of Saudi Arabia 61.23 (10.92%)
The Arab Investment Co. S. A. A. --- 39.01 (6.96%)
Sudan Development Corporation --- 31.73 (5.66%)
Sudanese Banks --- 24.95 (4.45%)
Arab Authority for Development
& Agricultural Investment --- 31.19 (5.56%)
Lonrho Limited --- 2.57 (0.46%)
Gulf Fisheries Co. 'W. L. L. --- 0.90 (0.16%)
Nissho Iwai Corporation 0.90 0.16
Total --- 560.54 (100.00%)
2. Total Share Capital Paid
In U.S. currency: --- US $ 531.6 million
In local currency: --- £5 102.6 million
Total equivalent in U. S. currency: --- US $ 560.54 million
3. Capital Costs as of 30 September 1985
US$ 597.66 million, out of which US$ 142.7 million equivalent was incurred in local currency.
4.Pre-production Costs (Not included in Capital Costs)
U.S. currency = $ 42.6 million
U.S. $ equivalent in local currency = $ 29.0 million
Total = $ 71.6 million
5. Cost of production per Metric Ton
1984/85 (Approaching full Production) --- US$ Million
a) Operating Expenditure --- 205.72
b) Depreciation --- 39.91
c) Debt-servicing (net receipts) --- (23.88)
Total --- 221.75
6. Total Manpower in the Season 1985/86 Expatriates
- Full year --- 373
- Crop contract --- 49
5. Cost of production per Metric Ton
1984/85 (Approaching full Production) --- US$ Million
a) Operating Expenditure --- 205.72
b) Depreciation --- 39.91
c) Debt-servicing (net receipts) --- (23.88)
Total --- 221.75
6. Total Manpower in the Season 1985/86 Expatriates
- Full year --- 373
- Crop contract --- 49
Expatriate Total: --- 422 ( 2.6 % of total manpower )
Sudanese Staff --- 1,989
Sudanese Workers --- 13,766
Grand Total: --- 16,177
7. Sugar Sales Prices
Domestic Sales:- £S 670 per ton (= US$268.00 per ton at £S2.5 = US$1)
Export Sales: - US $ 275 per ton F.O.B. Port Sudan.
8. Break Even Point (BEP)
BEP depends mainly on export sugar sales price. If the price goes up, the BEP come down and vice versa (at US$275 per ton for export price - F.O.B. Port Sudan, and £S 670 - for domestic price).
1984/85 Production:
Operating Surplus: US$20.13 million
Less Depreciation: US$12.20 million
Less Debt Service: US$ 7.30 million
US$ 4.90 million
Net Surplus: --- US$ 15.23 million
Therefore, BEP at current prices is the production of some 300,000 MT of sugar.
9. Other Statistics
a) Crop and Sugar Production: 1984/85 - 1985/86 (Estimated)
Total Sugar Production 305,700 MT - 290,000 MT
Cane Harvested 2,743,000 MT - 2,900,000 MT
Area Harvested 32,100 Hect.- 33,150 Hect.
Yield Per Hectare 85.23 MT- 87.50 MT
Average Yield Sugar Cane 11.2% - 10 %
Days of Crushing Campaign 164 - 180
Cane Crushing Rate Per Day 16,800 MT - 16,100 MT
b) Maximum Distance of Transport
of Harvested Cane to Factory: 35 km
Length of Roads in the Estate:
Major roads 250 km
Infield roads 1,500 km
Total: 1,750 km
c) Canals for Irrigation:
- Main canals: 29 km
- Secondary canals: 300 km
d) Lift of Irrigation Water from White Nile Level: 40 meters in 4 stages.
e) Main Varieties of Cane Planted: C0527, 42301, C01001, C0334, C0961, C0997, NC0319, NC0376
f) Water Pumping Rate:
- Main pumps at 44 cubic meters per second
- Water requirement - 700 million gallons per day.
g) Electricity Generated - 40 megawatts in the operating season and 20 megawatts in the off-crop period.
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Therefore, BEP at current prices is the production of some 300,000 MT of sugar.
9. Other Statistics
a) Crop and Sugar Production: 1984/85 - 1985/86 (Estimated)
Total Sugar Production 305,700 MT - 290,000 MT
Cane Harvested 2,743,000 MT - 2,900,000 MT
Area Harvested 32,100 Hect.- 33,150 Hect.
Yield Per Hectare 85.23 MT- 87.50 MT
Average Yield Sugar Cane 11.2% - 10 %
Days of Crushing Campaign 164 - 180
Cane Crushing Rate Per Day 16,800 MT - 16,100 MT
b) Maximum Distance of Transport
of Harvested Cane to Factory: 35 km
Length of Roads in the Estate:
Major roads 250 km
Infield roads 1,500 km
Total: 1,750 km
c) Canals for Irrigation:
- Main canals: 29 km
- Secondary canals: 300 km
d) Lift of Irrigation Water from White Nile Level: 40 meters in 4 stages.
e) Main Varieties of Cane Planted: C0527, 42301, C01001, C0334, C0961, C0997, NC0319, NC0376
f) Water Pumping Rate:
- Main pumps at 44 cubic meters per second
- Water requirement - 700 million gallons per day.
g) Electricity Generated - 40 megawatts in the operating season and 20 megawatts in the off-crop period.
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