SUDAN SUGAR INDUSTRY GROWING

UNCLAS KHARTOUM 002001

SIPDIS

SIPDIS

DEPARTMENT FOR AF/SPG, AF/EPS AND EB/CBA
PLEASE PASS TO AID/W FOR AFR

E.O. 12958: N/A
TAGS: EAGR EAID PREL EPET SU
SUBJECT: SUDAN SUGAR INDUSTRY GROWING



1. Summary: Sugar consumption is growing rapidly in Sudan. The
privately owned Kenana Sugar Company sees potential for further
investment in Sudan's sugar industry, including a major new
plantation employing 5,000 in the south. However, U.S. sanctions
hamper development of the industry. The company is interested in
pursuing a license through OFAC to bring in U.S. consultants and
equipment. End Summary.

Sugar Industry Growing
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2. In a meeting on August 20, Dr. Osman Al-Nazir, Director General
of Kenana Sugar Company provided an overview of sugar production in
Sudan. He noted that consumption is rising rapidly, with household
use up by 40 percent in the past two years and industrial use rising
from 50,000 tons to 183,000 tons in two years. A large part of the
industrial use is for soft drinks. Al-Nazir noted that Kenana's
mill, originally built to produce 300,000 metric tons per year, now
churns out 400,000 tons of sugar annually. He described the plant as
a 'twin' to a plant in Texas, and said that Kenana misses its former
ties to U.S. technical expertise. The company is working in
coordination with the Minister of Industry to start the process to
obtain a license through OFAC to bring in U.S. consultants. Al-Nazir
added that the company would like to be able to import U.S.
equipment, specifically Caterpillar and John Deere equipment.
Al-Nazir mentioned that Kenana would especially like to purchase
John Deere two-row harvesters, as there is no equivalent available
elsewhere. Al-Nazir stated that use of U.S. technology would allow
for greater energy efficiency. The company is already one of the
most highly productive sugar growers in the world, with yields of
117 tons per hectare.

Consumption, Imports and Exports
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3. Sugar consumption is running at about 1.2 million tons per year.
Kenana produces 400,000 tons and imports and refines another
200,000. Four government owned sugar mill produce about 400,000
tons. This leaves a shortfall of about 200,000 tons. The new White
Nile project, built with Chinese assistance, will come into
production in about 3 years and supply 350,000 tons per year. Kenana
annually exports 100,000 tons of sugar at high prices to the EU
under the Everything but Arms arrangement. Earlier this year, Kenana
imported raw sugar from Brazil for refining.


4. Al-Nazir expressed disappointment in the government's decision to
increase the tax on sugar, lamenting that the price of sugar now is
51 percent tax and 49 percent 'ex-mill' price. He said that the
sugar industry had hoped that increase in oil revenues would lead to
a reduction in taxes on sugar. However, that had not occurred.

Potential of Project in Southern Sudan
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5. The Melut sugar project in Southern Sudan could employ 5,000
permanent workers and an additional 5,000 during the construction
phase, according to Al-Nazir. As proposed, the Melut project would
be owned by the Government of Southern Sudan, but Kenana is
interested in providing services under contract to the get the
project up and running. The projection is for the Melut project to
provide 110,000 tons per year, which would be about 50 to 60 percent
of the South's consumption.



Green Energy
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6. Looking ahead further, Al-Nazir said that Kenana is looking at
the production of ethanol from molasses. Currently, nearly all
molasses produced is trucked from the mill to Port Sudan and
exported. Kenana would like to transform the 130,000 tons of
molasses produced each year into 70 million liters of ethanol.
Al-Nazir said that ethanol production would have the advantage of
allowing more of Sudan's oil to be exported while improving the
profitability of the sugar sector. Barring new discoveries, it is
anticipated that Sudan's oil production will begin to decline by

2009. Ethanol would provide a green source of energy to replace
declines in petroleum production.

HUME