VZCZCXRO9207
OO RUEHROV
DE RUEHKH #0115/01 0301206
ZNR UUUUU ZZH
O 301206Z JAN 09
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2801
INFO RUCNIAD/IGAD COLLECTIVE
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 03 KHARTOUM 000115 
 
DEPT FOR AF A A/S CARTER, AF/SPG, AF/E, AF/C 
ADDIS ABABA FOR USAU 
DEPT PLS PASS USAID FOR AFR/SUDAN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ASEC PGOV PREL KPKO SOCI AU UNSC SU
SUBJECT: KENANA, WHITE NILE PROJECT LEAD PLANS TO DEVELOP SUGAR AS 
STRATEGIC INDUSTRY 
 
REF: A) 07 KHARTOUM 1926 
B) 07 KHARTOUM 1934 
 
¶1. (SBU) Summary: On January 25-26, econoff visited Kenana Sugar 
Company (KSC) and the nascent White Nile Sugar Project, the center 
of government plans to turn sugar into a strategic industry and 
propel economic growth in White Nile State. Built in the 1970s, 
Kenana stumbled upon opening but hit its stride in the mid-eighties 
and has remained a productive enterprise ever since, producing over 
400,000 metric tons of sugar per year. The White Nile Project has 
scale and ambitions that rival Kenana's and a price tag of over US 
$1 billion. In addition to sugar production, executives at both 
companies told econoff they are looking to replicate Brazilian 
sugarcane-based bioethanol innovations and plan to produce ethanol 
for domestic fuel and industrial use, as well as for export. Foreign 
investors from Morocco, UAE and Kuwait have expressed strong 
interest in developing additional sugar projects in the region, 
according the Investment Commissioner of White Nile State, but KSC 
and White Nile executives were skeptical that such investment would 
materialize. They noted that for all the rhetoric about Sudan's 
potential, few (if any) foreign investors have successfully invested 
in Sudanese agriculture, preferring high-growth services industries 
instead. With regard to U.S. sanctions, executives from both 
companies noted that sugar production technology is not particularly 
sophisticated, and there are ample alternatives to U.S. equipment 
and technology on the world market. U.S. sanctions do, however, pose 
significant obstacles in the areas of banking and finance, they 
said. End Summary. 
 
¶2. (SBU) On January 25-26, econoff visited the Kenana Sugar Company 
(KSC), one of the world's largest sugar mills. Once derided as a 
white elephant, Kenana has been touted as a great success over the 
past two decades. In recent years, it has produced over 400,000 
metric tons of sugar annually, surpassing its expected output. 
Econoff toured the sprawling complex, which includes over 110,000 
feddans (1 feddan equals 1.03 acres) of irrigable farmland, serviced 
by massive canals and pumping stations. Econoff also visited the 
harvesting control tower, where technicians from Kenya were 
implementing a digital tracking system to replace the large board 
with magnets tracking the location of trucks collecting cane from 
the farms. Additionally, Econoff toured Kenana's once 
state-of-the-art factory, whose U.S. design and French and Japanese 
equipment render it capable of processing 26,000 tons of raw sugar 
cane per day. A drive amongst the sprawling facilities also revealed 
a half dozen anti-aircraft guns and a Central Reserve Police 
presence to protect this vital (and expensive) investment. 
 
KENANA GOING GREEN, LOOKING TO BRAZIL 
------------------------------------- 
 
¶3. (SBU) In discussions with econoff, KSC executives touted not only 
the company's longstanding productivity and operating efficiency, 
but its growing commitment to environmentally friendly practices. 
According to KSC Operations Director Dr. Yahia Mohamed Yousif, 
Kenana is now "green harvesting" a portion of its fields, in 
contrast to the traditional practice of burning cane fields to rid 
the crop of debris prior to harvesting. By-products of the sugar 
refining process also are reused for a variety of endeavors, he 
said. Bagasse, the residue of cane after sugar extraction, is burned 
to generate electricity to run the factory, and other by-products 
are used to produce animal feed for sale. KSC is also experimenting 
with crop diversification, conducting trials with crops such as 
soybeans, sesame and guar (a legume used as an emulsifier) to test 
their commercial viability, according to officials in Kenana's 
research department. 
 
¶4. (SBU) In the course of the tour of Kenana, econoff also saw the 
shiny new bioethanol plant currently being constructed to produce 
ethanol from molasses. The plant, which cost approximately US$35 
million, was purchased from Brazilian manufacturer Dedeni and is 
expected to produce 60 million metric tons of ethanol per year. 
According to KSC's Yousif, it will begin production by March 2009 
and produce ethanol for domestic fuel and industrial uses, as well 
as for export to Europe. (Note: In a January 26 interview with Al 
Intibaha Newspaper, the Director of KSC's ethanol plant, Dr. Ahmed 
Musa Raph, stated that KSC is also working with Sudanese automobile 
assembler GIAD to produce a special engine to run on ethanol. 
Ethanol ban also be mixed with gasoline in limited quantities in 
normal automobiles. End Note.) 
 
¶4. (SBU) Kenana is increasingly looking to Brazil as a model for 
sugarcane farming and processing, as well as sugarcane-based 
bioethanol innovations. Dr. Yahia noted that "Sudan is the only 
country in Africa that could come close" to matching Brazil's vast 
scope of production of energy, agriculture and livestock. (Note: 
Brazil opened an Embassy in Khartoum in December 2006. Econoff spoke 
 
KHARTOUM 00000115  002 OF 003 
 
 
to TDY Brazilian Charge d'Affaires Ssstenes ArRuda de Macedo, who 
had arrived in Khartoum several days prior.  While noting 
significant Brazilian interest in the Sudanese agricultural sector, 
he had not yet acquainted himself with the portfolio. End Note.) 
 
WHITE NILE SUGAR PROJECT: A KENANA FOR THE 21st CENTURY 
--------------------------------------------- --------- 
 
¶5. (SBU) Econoff also toured White Nile Sugar Project, a new sugar 
growing and refining operation that will rival Kenana itself. 
Located 120 km north of Kenana on the White Nile, the project aims 
to produce 450,000 metric tons of sugar, 60 million metric tons of 
ethanol and 128 megawatts of power annually, according to Project 
Manager Hassan A. Satti. KSC owns 26% of the project and is 
intimately involved with its implementation: KSC's consulting arm, 
KETS, is responsible for its design, and much of the implementation 
team (including Satti) have been seconded from Kenana.  (Note: Other 
shareholders include the Arab Authority for Agricultural 
Development, the Government of Sudan, the Bank of Sudan, and a 
consortium of Sudanese banks. End Note.) Satti estimated the total 
cost for the project to be US $1.1 billion. 
 
¶6. (SBU) Work on the project's irrigation infrastructure began in 
2004 and is nearly complete, according to Satti. Econoff toured the 
first pumping station linking the 20 km main canal to the White 
Nile, which features ten gigantic European-made water pumps capable 
of pumping 6.5 cubic meters of water per second. The pump station is 
powered by a brand new diesel power plant, which will be relegated 
to backup status once the factory is built and begins to generate 
electricity from burning bagasse. Development of the farming area 
has progressed and the initial seeding of sugarcane has been 
completed, according to project staff. The building of roads, 
bridges and other civil works continues and a massive operation is 
currently underway to replace the soil underneath the planned site 
of the factory, which had been deemed unsuitable to build on. 
Contracts for the factory have been completed, according to Satti, 
and most have been financed. Some of the early equipment has arrived 
and in March 2010 the factory is expected to be operational, he 
said. 
 
¶7. (SBU) Satti stated that with advances in the technology, White 
Nile is miles ahead of Kenana when it started. "Kenana has gone 
through a lot to reach the levels of productivity it has today," he 
said. "We could surpass that easily even now." He credited 
technological and operational advances, but also the experience of 
White Nile staff, virtually all of whom have been seconded from KSC 
to work on the project. White Nile has also sought to reverse the 
traditional closed-community model of large integrated sugar 
companies, said Satti, and integrate itself into the local 
community. "We want to eat what they eat, and drink what they drink 
- that has been the motto," he said. 
 
¶8. (SBU) Satti stated that White Nile officials have worked closely 
with local inhabitants to relocate 27 villages into seven complexes 
with services including water, schools, healthcare and mosques. In 
addition, local inhabitants have each been granted 600 square meter 
plots to farm. Satti stated that "95% of people have been happy with 
the resettlement," and that the area has remained peaceful, noting 
that for first four years of the project there was not a single 
policeman or security official in the area. (Now, completed 
facilities such as the diesel power generation plant are guarded by 
Central Reserve Police.) There are a small percentage of holdouts, 
he said, but White Nile officials are engaging with them to resolve 
the situation amicably. "We don't want another Merowe," he said 
(referring to the forceful displacement and agitation of villagers 
for the construction of Merowe dam in Sudanese Nubia). 
 
FURTHER INVESTMENT IN SUGAR IN WHITE NILE STATE 
--------------------------------------------- -- 
 
¶9. (SBU) In March 2008, the Sudanese Council of Ministers held a 
special session at Kenana headed by President Bashir in which 
Sudanese Minister of Industry Jalal Yousif Al-Degair announced a 
plan to develop sugar as a "strategic industry" through investments 
in new sugar projects. White Nile Sugar Project is at the center of 
these ambitious plans, but foreign investors--from Morocco, the UAE 
and Kuwait--have also expressed strong interest in four proposed 
additional sugar projects in White Nile State, according the state's 
Investment Commissioner Ali Mohamed Zain. Zain told econoff that 
feasibility studies and soil analysis were being conducted and the 
early results were quite positive. "Both banks of the White Nile are 
very suitable for the sugar growing," he said. 
 
¶10. (SBU) Officials at Kenana and White Nile agreed that the area 
around Kosti was highly suitable to sugar growing and pointed to the 
high value of the sugar industry. "Production-wise, it's very 
 
KHARTOUM 00000115  003 OF 003 
 
 
efficient and highly mechanized compared to other crops," said KSC's 
Yousif. Nor is there a danger of excess supply. Satti of White Nile 
stated that Sudan's sugar production does not currently meet its own 
demand, and estimated the deficit to be 300,000 tons per year. "We 
expect [the deficit] to reach half a million tons" per year, so 
there is still plenty of room for additional sugar factories, he 
said. Neighboring countries are also running sugar deficits, with 
Egypt as high as one million tons per year, he said. Satti was less 
optimistic about the prospect of foreign direct investment in the 
industry, noting that the most successful foreign investment in 
Sudan has occurred in high growth services industries such as 
banking and telecom. He was hard pressed to think of a single 
example of successful foreign investment in agriculture or even 
industry, with the exception of a cement project in Northern Sudan. 
"Agricultural development is still conducted by local investors," he 
said, noting that Kenana has plans to help rehabilitate crumbling 
local agricultural schemes nearby. The global financial downturn has 
also tampered the enthusiasm of foreign investors, he said. 
 
IMPACT OF U.S. SANCTIONS 
------------------------ 
 
¶11. (SBU) Kenana has a long history of involvement with U.S. 
commercial interests as the factory was designed by, and at one 
point operated by, an American, and English remains the official 
language of the company. Though much of the factory equipment was 
produced in France, the cane harvesting equipment originally was 
American but this equipment has been phased out. "We only have five 
[Case IH] sugar harvesters left, and we even have to get rid of 
those due to lack of spare parts, lamented Yousif. At the White Nile 
Sugar Project, Dr. Hassan stated that when the idea for the project 
was conceived, "the first question we asked was how we could do this 
without running into sanctions problems." He stated that while 
obtaining machinery and equipment had not proved difficult ("sugar 
technology is not particularly sophisticated and easy to find on the 
world market") the sanctions have made financing the project more 
difficult. "It's difficult not to deal at all with U.S. financial 
institutions" in the global financial markets, he said. 
 
¶12. (SBU) Comment: The scale and scope of production at Kenana 
remains impressive, as are those envisioned by the White Nile 
project. Their impact on local employment is questionable, however, 
as Kenana has shed thousands of jobs over the years to 
mechanization. But based on Kenana's track record and the progress 
at the White Nile site, prospects for the sugar industry as a whole 
appear promising, according to officials at Kenana.  These two 
projects also appear to be exceptions to an agricultural sector that 
many observers say is plagued by waste, poor planning and 
mismanagement.  The potential for Sudanese farms is certainly vast, 
but those problems, as well as the lack of investment, must be 
overcome if agriculture is to supplant oil as the country's primary 
export earner when oil production and revenues decline in the years 
to come.  Khartoum is especially eager to develop other industries 
given the decline in oil prices and the possibility of southern 
(where most of Sudan's oil is located) secession in 2011. End 
comment. 
 
FERNANDEZ