Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 4980-SU

STAFF APPRAISAL REPORT

SUDAN

SITAR REHABILITATION PROJECT

April 30, 1984

Eastern Africa Projects DepartmentNorthern Agriculture Division

This document has a restricted distribution and may be usti' by :cipients only in the performance oftheir official duties. Its contents may not otherwise be disch6sed without World Bank authorization.

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CURRENCY AND EQUIVALENT UNITS

Sudanese Pound (LSd) = 100 piastreLSd 1.00 = US$ 0.77 (official)LSd 1.00 = US$ 0.56 (open market)

WEIGHTS AND MEASURES

Feddan (fd) = 0.42 hectare (ha)Kantar (seed cotton) = 143 kilogram (kg)Kilowatt (kw) = 1.36 horsepower (hp)Megawatt (mw) = 1000 kilowatt (kw)Gigawatt Hour (gwh) = 1 million kilowatt hours

ABBREVIATIONS

ARC Agriculture Research CorporationARP Agricultural Rehabilitation ProgramAWP Annual Work ProgramFRG Federal Republic of Germa "'

FOP Field Outlet PipeGOS Government of SudanICB International Competitive BiddingKfW Kreditanstalt fur WiederaufbauLCB Local Competitive BiddingMAT Management Assistance and TrainingME Monitoring and EvaluationMOI Ministry of IndustryMOAI Ministry of Agriculture and IrrigationMOAI(I) MOAI Irrigation DepartmentMOFEP Ministry of Finance and Economic PlanningMCCS Ministry of Cooperation, Commerce and SupplyNEC National Electricity CorporationO&M Operation and MaintenancePCSI Public Corporation for Sugar TradingPPC Project Procurement CommitteePPF Project Preparation FacilitySAR Staff Appraisal ReportSCG Sugar Consultative GroupSDC Sugar and Distilleries CorporationSOE Statement of ExpenditureSPIC Sugar Project Implementation CellTCD Tons of Cane per DayTSY Tons of Sugar per YearUNCDF United Nations Capital Development FundUNIDO United Nations Industrial Development

OrganizationUSAID United States Agency for International

Development

GOVERNMENT FISCAL YEAR

July 1 - June 30

FOR OMCIAL USE ONLYSUDAN

SUGAR REHABILIiATION PROJECT

CREDIT & PROJECT SUMMARY

Borrower: Democratic Republic of Sudan

Beneficiaries: Ministry of Industry (HOI), and four sugar companies viz:Guneid Sugar Co. Ltd., New Halfa Sugar Co. Ltd., SennarSugar Co. Ltd., Assalaya Sugar Co. Ltd.

Amount: IDA Credit SDR 56.4 million(US$60 million equivalent)

Terms: Standard

Onlending Terms: US$22.8 million to be onlent to the four sugar companiesat 16 percent interest, 12 year repayment including 5years grace, with the Government bearing the foreignexchange risk; the balance being made available to MOI asbudgetary transfers to finance research, training andtechnical assistance (US$10.7 million) and for equityparticipation in the sugar companie-s(US$26.5 million).

Co-financing: Federal Republic of Germany (KfW) - $17.3 millionequivalent on grant basis; Arab Fund for Economic andSocial Development - $47.2 million equivalent at 4percent interest, 20 years repayment including 5 yeargrace period; Saudi Fund - $23.5 million equivalent withterms not yet settled.

Project Description:

Objective: The project would, over a five year period, raise cropyields and sugar production of the four sugar companiesthrough rehabilitation of estates and their associatedfactories and strengthen the Borrower's management of thesugar sector.

Components: The project will include: (i) physical rehabilitation ofirrigation systems, machinery, equipment, andinfrastructure (ii) a set of measures to ensure that anadequate and timely provision of production inputs takesplace, (iii) a phased program of institutional andfinancial re-adjustments which will establish properproduction arrangements and incentives, (iv) researchfacilities to find more suitable cane varieties, and (v)training in technical. management and accounting skills.

Benefits: The principal benefit would be net annual foreignexchange savings of approximately US$67 million by theend of the project in 1989. The project would alsocreate 1,150 permanent and 5,320 seasonal jobs, and wouldincrease the incomes and improve living conditions oftenant farmers and laborers.

Risks: Project risks include possible failure to make thenecessary pricing and policy adjustments, and possiblemanagerial and technical failures in implementation.Provision has been made in the project design to minimizethese risks to the extent possible.

This document has a restictd distribution and may be used by reipients only in the perfornace oftheir ofici dutie Its contents may not otherwise be disdosed vnthout World Bank authorization.

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US$ MillionsESTIMATED PROJECT COSTS Local Foreign Total

AgricultureAgricultural Machinery 6.7 38.8 45.5Vehicles 0.3 1.4 1.7Workshops 1.6 5.1 6.7

IrrigationField Works 3.7 8.1 11.8Power Generation 2.5 8.7 11.2

FactoryProcess Equipment 7.1 34.8 41.9Civil Works 1.8 6.7 8.5

Infrastructure

Communic., Elec. & Equip. 0.6 2.9 3.5Buildings, Housing & Water 6.0 6.4 12.4

Support ServicesOffice Equipment 1.0 2.8 3.8Tech. & Mgt. Services - 22.4 22.4

Project Implementation Team a! 0.4 4.4 4.8

Training 0.5 5.4 5.9

Research 0.3 0.9 1.2

Total Project Costs 32.5 148.8 181.3

Of which:Contingencies 4.2 30.7 34.9

FINANCING PLAN

IDA Credit - 60.0 60.0Other Cofinanciers

(a) Saudi Fund - 23.5 23.5(b) Arab Fund - 47.2 47.2(c) Germany (KfW) - 17.3 17.3(d) Government of Sudan 32.5 0.8 33.3

Total 32.5 148.8 181.3

ESTIMATED DISBURSEMENT

IDA/FY 1985 1986 1987 1988 1989 1990

Annual 11.5 21.2 14.1 7.7 4.7 0.8Cumulative 11.5 32.7 46.8 54.5 59.2 60.0

RATE OF RETURN: 40%

MAP: IBRD No. 17953

a/ Includes $1,000,000 PPF advance.

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SUDAN

SUGAR REHABILITATION PROJECT

Staff Appraisal Report

Table of Contents

Page

I. INTRODUCTION

A. General ............................................. 1B. Bank Group Role ....... ............................... 1C. The Sugar Sector ...... ............................... 2D. Rehabilitation Strategy and Project Rationale ........ 4

II. THE PROJECT BACKGROUND

A. Project Area and Entities *........................... 5B. Agriculture .. *...*.... ... **....... 7C. Irrigation .................................... 10D. Factories ................................... 12E. Infrastructure ..... ........................*......... 14F. Sugarcane Research .. *..........* ........... ..... 15G. Manpower Development and Training .................... 16H. Management, Accounts and Audit ....................... 17

III. THE PROJECT

A. Project Description ......... ....................... 17B. Project Components ................................... 18C. Status of Engineering ............................... 23D. Cost Estimates ............... ................ 23E. Financing Plan ............................... 25F* Procurement ................................ 27G. Disbursement ............... *...*.....*..... 29H. Environmental Impact ................................ 29

IV. PROJECT IMPLEMENTATION

A. Role of Central Ministries ........................... 30B. Funding of Project Entities and Audit ..... ........... 32C. The Sugar Companies * ................................. 34D. Monitoring, Evaluation and Reporting .... .............. 35E. Annual Work Program ............. .. *............ ...... 35Fe Mid-Term Review ...................................... 36

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Page

V. SUGAR PRODUCTION, MARKETING AND PRICING

A. Sugar Production .................................... 36B. Marketing ............. * ............................. 37C. Pricing ................................. 38

VI. FINANCIAL ANALYSIS

A. Financial Results for the Four Sugar Companieso...... 40B. Other Project Entities' Financial Results ........... 42C. Government Cash Flows................................ 42D. Guneid: Financial Relations with Tenants............ 43

VII. PROJECT BENEFITS AND ECONOMIC ANALYSIS

A. Production Benefits .. ............ ................... 43B. Other Benefits *..................................... 44C. Economic Analysis .................................. 44D. Project Risks ............................................... 45

VIII. SUMMARY OF AGREEMENTS .................................. 46

LIST OF TEXT TABLES

Table 1: Sudan: Sugar Production and Consumption

Table 2: Historical Sugar Cane Area and Yields

Table 3: Characteristics of Irrigation Systems

Table 4: Project Cost Summary

Table 5: Project Financing Plan

Table 6: Project Financing Package by Expenditure Category

Table 7: Project Procurement Arrangements by Expenditure Category

Table 8: Output of the Four Sugar Companies - With and WithoutProject

Table 9: Sugar Producer and Consumer Price Levels

Table 10: Financial Performance of Companies

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ANNEXES TO STAFF APPRAISAL REPORT

AnnexI Summary Cost Tables2 Current Financial Prices3 Financial Analysis - Supplementary Tables3.1 Estimated Price Contingency and Foreign Exchange Rates3.2 Income and Expenditure Accounts - by Company3.3 Projected Cash Flows Under Project - by Company3.4 Balance Sheets by Company3.5 Structure of Debt - by Company3.6 Government Incremental Cash Flows under Project3.7 Government Incremental Forcign Exchange Earnings/Savings under

Project4 Estimated Schedule of Disbursements5 Agricultural Data - Supplementary Tables5.1 Sugar Production, Area and Yields (Historical)5.2 Sugar Production, Area and Yields (Projections, with and without

Project)5.3 Sudan - Sugar Balance

6 Sugar Cane Research Program7 Annual Work Program8 Water Demand and Availability9 Details of Technical Services provided under the Project10 Training11 Management Assistance and Training Component12 Arrangements for Project Procurement13 Documents Available on Project Files

CHARTS

I. Sudan Sugar Industry - OrganizationII. The Sugar Companies - Organization and Management Assistance

and Training ComponentIII. Implementation Schedule

MAPS

Map of Sudan showing Project Locations (IBRD No. 17953)

CHAPTER 1

INTRODUCTION

A. General

1.01 Sudan has a population of 19 million people, and a land area of2.4 million square kilometers. It is primarily an agricultural country,with agriculture providing a livelihood for 80% of the population, andagricultural produce accounting for 40% of GDP and 95% of exports. Themost notable feature of past agricultural development has been itsdualism. Irvestment has been heavily concentrated in modern sectorirrigation and rainfed mechanized farming in the east-central region withcotton, groundnut, wheat, sorghum and sugarcane being important crops. Thetraditional sector, with significantly less government assistance, hascontributed to exports of livestock, groundnuts, gum arabic and sesame.There is little industrial activity with manufacturing contributing only 5%of GDP.

1.02 Sudan is currently facing a difficult economic situation. Theprincipal causes are an ambitious investment program during the early 1970swhich, largely financed by foreign borrowing, led to rising debt serviceobligations; inadequate domestic resource mobilization; a large fall inexports caused by deterioration of productive capacity in the irrigationsub-sector during the seventies; and sharp increases in the cost of fuel.The net result of these changes is that annual imports now equal threetimes the value of exports. Economic recovery must thus be predicated on areduction in imports, coupled with a concerted effort to increase exports.The economic recovery program concentrates government resources on therehabilitation of existing capital investments, particularly those whichcan contribute to expanded export earnings or import savings, whilerestraining investments in new projects. A fuller description of theeconomic recovery program is given in the economic memorandum entitled'Sudan Pricing Policies and Structural Balances" (Report No. 4528a-SU)issued on November 10, 1983.

B. Bank Group Role

1.03 The Bank Group strategy in Sudan has been to encourage theGovernment to undertake a broad program of economic reform aimed ataddressing the structural imbalances in the economy. The economic recoveryprogram (para. 1.02) was drawn up by the Government with assistance fromthe Bank and the IMF and formed the basis for a Consultative Group meetingin January 1983 and a Standby Agreement with the IMF in February 1983. Atthe project level, IDA has continued to emphasize the rehabilitation ofirrigated agriculture, Sudan's major export earner, plus improvements ininfrastructure needed to service the agricultural sector. Irrigationrehabilitation projects have been effective in providing badly needed spareparts and replacement equipment and improving management. These projectshave also encouraged the Government to take some important steps towardimproving incentives for production through better crop prices and costrecovery arrangements for the irrigated schemes.

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1.04 Gross commitments to Sudan to date total US$953.4 millionincluding $33 million from IFC. There have been eight loans (two on ThirdWindow terms) and 35 credits for a total of 43 projects. Twenty projectsare uwder implementation. Agricultural Credits form a large proportion oftotal Bank lending to Sudan, averaging half the lending through the 1970's,including seven irrigation projects, three rainfed mechanized farmingprojects, four smallholder development projects, a livestock marketingproject, an agricultural research project, two Agricultural RehabilitationProjects and an agricultural credit project. Projects in other sectorsinclude three power projects, nine transport projects, three educationprojects, two technical assistance projects and two industrial creditprojects.

1.05 Project implementation in Sudan has faced bottlenecks in a numberof areas. There has been difficulty getting key materials such as cement,fuel and imported farm inputs on time and in sufficient quantities becauseof foreign exchange shortages and transport difficulties. The continuingdrain of skilled manpower to the Middle East oil rich countries, where jobopportunities are better, takes its toll on effective preparation andimplementation of projects. Disbursements have been slower than scheduled,closing dates have frequently been extended, and gestation periods havebeen longer than expected, leading to a lag in benefits. The Bank isaddressing these problems as part of its on-going policy dialogue with theGovernment, and Bank projects incorporate specific mechanisms to overcome anumber of these bottlenecks.

C. The Sugar Sector

1.06 Table 1 summarizes sugar production and consumption in the Sudan.

Table 1SUDAN: Sugar Production and Consumption

Domestic Production (T ns) , Consu-Joint mption

Public Sector Sectorl ('000Year Guneid New Halfa Sennar Assalaya Kenana l/ Total tons)

Commissioned 1962 1966 1977 1979 1979

Capacity 60,000 60,000 110,000 110,000 330,000 670,000 -

Production1976/77 55,100 57,170 26,460 - - 138,730 4491979/80 29,890 43,050 30,000 7,560 20,000 130,500 4251980/81 29,600 36,040 26,110 8,570 150,000 250,320 4381981/82 15,740 35,860 22,330 - 175,000 248,930 4501982/83 20,310 38,080 40,600 31,630 230,000 360,620 460

a/ Only a portion of Kenana's production is available for domesticconsumption, since the terms of Kenana's agreement with Arab donors specifythe export of 150,000 tons of sugar per annum to these countries.

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During the last crop year, Sudan produced about 360,000 tons of sugar atone joint sector and four public sector factories. This is an l.mprovementover the very poor production figures of the last few yezars, but is stillfar below both the level of domestic demand and the poteiitial level ofproduction.

1.07 The sugar sector in Sudan is characterized by extreuaely highconsumption levels -- in the neighborhood of 24 kg. per capitii per annum,as opposed to an Africa-wide average rate of about 15 kg. per capita.Demand appears to have been growing at about 5% per anntum, arid isconcentrated heavily in the Khartoum region. The high dieman d has led tolarge sugar imports in recent years, reaching 12% of total imports by valuein 1981/82. Unlike in other countries, sugar in the Sudan -LS consumedmainly by household units, with only about 15% going to industrial users.Although no reliable estimates of price elasticity are avai lable, itappears that the propensity to consume is severely rest ricl:ed by income,and the rate of growth in demand is thus expected to sJ.ow somewhat in thecoming years.

1.08 The Government started domestic production iri t'ne early 1960'swith the development of two sugar estates at Guneid anel New Halfa, followedby the establishment of two further estates at Sennar anel Assalaya in thelate 1970's. In addition, a large joint sector sugar scneme et Kenana wascompleted in 1979. Between them these five estates have the capacity toproduce 670,000 tons of sugar annually. Although the tlio establishedestates showed early promise in the 1960's, production 'aas fallen offsignificantly over the last five years; the two newer public plants havenever really been completed, and produce only a fra :ticrn of their ratedoutput; and the joint-venture project at Kenana has been slow in gettingstarted. The net result is that total output in 1982/83, while amost 45%higher than in 1981/82, was only just over 50% of procluction capacity.Detailed production data for the individual schemes is presented in ChapterII and in Annex 5.1.

1.09 The principal reasons for poor performance of the public sectorunits have been: (i) the low prices paid to producin.g units, leading toinability to purchase essential inputs and maintain assets; (ii)insufficient supplies of irrigation water, and inadequate provision offertilizers, pesticides, and other cultivation inpr.ts, coupled with theutilization of inappropriate cane varietiesz (iii) shortages of manpowerand servicable equipment for cultivation andi harvesting; (iv) lack offoreign exchange, contributing to shortages of spe.re parts, and poormaintenance of agricultural machinery and factory equipment; (v) loss ofskilled and experienced staff due to poor working, conditions; (vi)inadequate management, financial and accounting usystems, and; (vii)impediments to factory operations at Sennar and Assalaya caused by poordesign and construction of factory foundations. Some of these bottlenecks,such as the lack of foreign exchange, fuel short:ages, and the scarcity ofskilled manpower, are nationwide in scope and $pply to all undertakings inthe Sudan; however many of them can be overc:ome by a combination of capitalinjections and revised institutional arrangements.

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D. Rehabilitation Strategy and Project Rationale

1.10 A Bank study entitled 'Sudan Export Development Study" ReportNo. 4263-SU (ilecembar 1983) has found that sugar is the only existingindustry in whtich Susan enjoys a comp.arative advantage for export. Yetbecause of a hostile! policy environment and decapitalization, the domesticsugar industry is psrforming far below capacity, resulting in the need forsignificant sugar iziports. Rehabilitation of the sugar industry thereforeplays an important vole in the overall economic recovery protram. Thereare three main t:hrusts to the sugar rehabilitation program: (i) a physicalrehabilitation of ma:hinery, equipment, and infrastructure, (ii) a set ofmeasures to ensu:re tlhat adequate and timely provision of production inputstakes place, and (ii::.) a phased program of institutional and financialre-adjustments which will establish proper production arrangements andincentives. In acidition, research efforts will be intensified in a driveto find more suitable cane varieties, and further work will be undertakento improve technic.al training and management and accounting capabilities.

1.11 The physical rehabilitation program is aimed at compensating forinsufficient maintenance and lack of spares in the past, and at replacingobsolete equipment. Cultivation and harvesting equipment will be repairedor replaced, and flfe.ts augmented with more suitable equipment wherenecessary. A package of irrigation works will be undertaken to improve theefficiency of water dtistribution. Obsolete and worn-out factory equipmentwill be replaced at the two older plants, while at Sennar and Assalayaunfinished factory works will be completed to enable the plants to operateat capacity.

1.12 The most imp. rtant element in improving the provision of inputsis the revision of sug&tr pricing; by increasing the price paid to producersthe Government will ensure that the schemes have sufficient cash topurchase necessary supp.'Lies of fuels, fertilizers, spare parts andreplacements. In addit2 on a number of specific steps will be taken underthe auspices of the project in order to improve the physical supply ofinputs; these include the provision of auxillary power supplies to ensurethe regular supply of el#tctricity to pump irrigation water, and theimprovement of maintenance workshop facilities.

1.13 Some progress hits already been made in the revision of policy andinstitutional arrangements. In a move designed to alleviate cash-flowproblems facing the public sugar units, the gross producer price of sugarwas raised from LSd 135 to LSd 250 per ton in 1982, and again to LSd 400per ton in 1983. In addition the Government has established (April 1984)the four units as independent companies under the Companies Ordinance(1925) with scope for eventual privatization. During the course of theproject, prices will be furthler revised annually and maintained at importparity levels, and the individua21 companies will be given progressivelygreater autonomy to make production and marketing decisions. Theestablishment of the industry on a commercial basis will lead to financialself-sufficiency and to the evolution of proper production incentives.With the creation of four autono'nous companies, the units will be free toreorganize in order to streamline management and operations; alreadysubstantial progress has been made towards designing a salary and incentive

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package to attract qualified staff. The GOS has agreed to considerdecontrol of the marketing of sugar once domestic production reachessatisfactory levels. The Government will also set up a Sugar Board underMOI to advise on sugar policy, to monitor the health of the industry andplan for its further development, and to coordinate the activities of thevarious agencies involved with the industry. A Consultative Groupcomprising of governmental and industry representatives would also beestablished, which would be serviced by the Sugar Board.

1.14 Already with limited injections of bilateral aid, there are somesigns of improvement, as yields at Sennar and Assalaya have risensubstantially over the last year and total output of the four plants hasincreased by 75% from the low of the 1981/82 season. During their earlyyears, the two schemes at Guneid and New Halfa have demonstrated that highyields are possible using the existing land and factory layouts, and it isexpected that, with the rehabilitation project, the Industry will operateproductively and profitably. By the end of the project period, productionshould be up to 316,000 tons of sugar per year from the four companies.

1.15 IDA Involvement In sugar rehabilitation is warranted because theproject objectives support and form an integral part of overall Bankstrategy in contributing to forelgn exchange savlngs by revitalizingexisting industries in the Sudan. The participation of IDA allows theGovernment access to the large amounts of capital required forrehabilitation, and facilitates the arrangement of cofinancing. Thecomplexity of the project also mitigates in favor of Bank Involvement, asthe project requires technical and policy support as well as a number ofinstitutional and policy adjustments.

1.16 The present project was prepared by Tate and Lyle TechnicalServices Ltd. (U.K.) and preparation was financed by IDA under TechnicalAssistance Credits I and II (Cr. 614-SU and Cr. 1153-SU). Furtherpreparation and pre-implementation work is being carried out by a SugarProject Implementation Cell (SPIC), assisted by Bank AgriculturalDevelopment Service staff and technical assistance from John H. Payne Inc.(USA) financed under an IDA Project Preparation Facility. This report Isbased on the findings of an IDA appraisal mission to Sudan InSeptember/October 1983. The mission consisted of J. Shivakumar, C. Smith,A. Raza, and J. Smith. The Arab Fund for Social and Economic Development,Kuwait, KfW of the Federal Republic of Germany, and the Saudi Fund, Riyadh,are also participating in the project.

CHAPTER II

The Project Background

A. Project Area and Entities

Climate, Topography and Soils

2.01 The four sugar estates, Assalaya, Guneid, New Halfa and Sennar,are located in central Sudan where conditions are favorable for sugarcane

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production provided irrigation water is available (see Map IBRD No.17953). There is almost no variation in micro-climates between the foursugar estates. The climate is semi-arid with a short rainy season fromJuly to September in which 85Z of the annual rain falls. There is a cooldry winter from November to February and a hot summer from April to June.Mean maximum temperatures are 33°C in January and 41°C in May, while meanminima are 14°C in January and 25°C in June. The average annual rainfallvaries from about 450 -m in the south to about 300 mm in the north of thearea and varies widely from year to year.

2.02 The soils are fairly uniform, cracking, self-mulching clays whichhave a loose granular surface structure. Although the organic content islow, the physical properties and behavior of these fertile impermeableclays under irrigation make them well suited to good yields. Despite 60years of irrigation, salinity is not a major problem.

The Production Units

2.03 Each of the four sugar production units covered by the projectconsist of a sugarcane estate served by an extensive irrigation system, asugar factory, and a fleet of agricultural machinery for cultivation,harvesting and transport of cane. Each unit is physically self-contained,with central administration, offices, maintenance and support services,housing and sociai services. The schemes typically employ between 1,300and 2,000 permanent employees, although the size of the workforce doubleswith the employment of seasonal labor during the harvest months.

2.04 The Guneid sugar production unit consists of 37,000 feddanslocated 150 km south of Khartoum on the east bank of the Blue Nile. Unlikethe other schemes, Guneid operates on a tenant basis, with 2,364 tenantfarmers cultivating individual tenancies. The New Halfa scheme is locatedabout 400 km east of Khartoum - 21,500 feddan are currently planted withcane, although 40,000 feddan are available. The two newer estates arelocated close together at Sennar and Assalaya, about 260 km south ofKhartoum, and consist of 29,000 and 27,300 feddan respectively. Sennar islocated on the Blue Nile and Assalaya on the White Nile. The four unitstogether should be capable of producing 340,000 tons of sugar per year(tsy); the design capacity of the older factories at Guneid and New Halfais 60,000 tsy each, while Sennar and Assalaya are both rated at 110,000tsy.

Institutional Arrangements

2.05 Responsibility for sugar policy and for sugar sector operationsin the Sudan is divided among a number of Ministries. Operation of thefour government-owned production units is the responsibility of theHinistry of Industry (MOI). The Ministry of Commerce, Cooperation andSupply (MCCS) determines regional sugar consumption quotas, and theMinistry of Finance and Economic Planning (MOFEP) sets producer andconsumer prices, distribution margins, import quantities, and providesfinance for the four sugar estates. M4OFEP also controls sugar marketingthrough the Public Corporation for Sugar Trading (PCST). PCST handles thepurchase of sugar from the factories, storage and distribution of sugar,and international procurement.

2.06 Other Ministries involved in the sugar industry include: theMinistry of Agriculture and Irrigation (MOAI), which is responsible foroperation and maintenance of irrigation supply systems at the four estatesand for sugarcane research activities conducted by the AgriculturalResearch Corporation; and the Ministry of Public Service and AdministrativeReform, which sets the terms and conditions of sugar industry employees.

2.07 Until 1981 the four public sector sugar units were run by theSugar and Distilleries Corporation (SDC), a public body responsible to OIwhich provided such centralized services as procurement, training,accounting, and budgetting. In an effort to decentralize the industry theCorporation was dissolved and authority was given for the formation of fourautonomous companies. These companies have been formally established underthe Companies Ordinance and will operate as wholly self-containedentities, with only sector policy issues such as pricing, taxation, andlevels of imports and export being determined centrally. Some experiencedstaff of SDC now function as a unit in OI dealing with the sugarindustry. This unit services a Sugar Project Implementation Cell (SPIC),which has responsibility for policy advice and strategic planning inrelation to the rehabilitation program, and for supervision of projectpreparation and implementation.

B. Agriculture

Production and Yields

2.08 The quantities of total cane grown by the public sector havedeclined over the last five years, despite the fact that a new estate atAssalaya became operational during that period. Table 2 below shows thetrends of agricultural production at the four estates since 1976/77.

Table 2Historical Sugarcane Area and Yields

1976/77 1978/79 1980/81 1982/83GuneidArea (fd) 20,300 18,960 18,760 12,630Avg. Yield (t/fd) 26.1 21.9 18.5 17.6Cane Prod.(tons) 529,580 415,975 346,240 221,700

New HalfaArea (fd) 21,165 20,070 15,360 19,650Avg. Yield (t/fd) 34.4 34.5 28.6 27.0Cane Prod.(tons) 652,360 691,295 439,390 476,540

SennarArea (fd) 12,510 10,475 14,825 18,065Avg. Yield (t/fd) 30.1 22.2 22.8 25.6Cane Prod.(tons) 376,900 232,878 338,516 463,760

AssalayaArea (fd) - - 3,490 9,300

Avg. Yield (t/fd) - - 26.7 32.0Cane Prod.(tons) - - 93,000 297,720

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At the two established estates the area producing cane fell by 18 percentbetween the 1976/77 and the 1980/81 seasons, while the tonnage of caneproduced declined even more substantially - by almost 33% - as a result ofreduced yields of cane per unit area, from an average of 30.7 tons/feddanin 1976/77 to 24.2 tons/feddan in 1980/81. The total quantity of sugarproduced by the established units has been even further reduced by declinesin the efficiency of extraction in the factory processing of cane.Detailed production and yield figures for each of the estates are presentedin Annex 5.1.

2.09 The deterioration in yields is a result of unsuitable canevarieties, inadequate power for pumping irrigation water, inefficientin-field distribution of water, shortages of fertilizer, and shortages ofmanpower and equipment for both cultivation and harvesting. The improvedperformance during the 1982/83 season is a result of new equipmentinjections from the United Nations Capital Development Fund (UNCDF) andUSAID, and of more consistent power supply from the national grid.

Cane Varieties

2.10 The only cane varieties grown commercially are NCo31O and Co527.Both are susceptable to smut disease and both flower (or tassle)profusely. Tasseling constrains yields since it limits planting time andrestricts the duration of the effective growing season. Growth stops oncecane flowers -- since this occurs at the same time each year cane must beplanted at a particular time, generally in October-December, in order tomaximize yields. Smut also contributes to low yields and high productioncosts. The incidence of smut, which primarily effects ratoons, limits theproduction cycle to one or two ratoon crops, thus reducing output per unitarea planted. Both smut and tasseling necessitate an ambitious plantingprogram with consequent requirements for more cultivation equipment thanwould otherwise be required.

2.11 There is a need to replace the present commercial varieties withmore suitable varieties if high production levels are to be achieved. Fourvarieties which are shy-flowering and which exhibit resistance to smut arecurrently being bulked up. Commercial planting of these varieties iscommencing in 1983/84 for use as seed cane and for milling tests next year.

2.12 Once the shy-flowering varieties have become successfullyestablished, consideration can be given to extending the planting period,thereby reducing equipment and labor requirements. It must however bepointed out that none of the new varieties have been cultivated extensivelyunder Sudanese conditions.

Land Preparation and Planting

2.13 The planting cycle consists of a year of plant cane, followed bytwo years of ratoon. The area not planted to cane is fallowed. Covercrops are not grown at present, and land typically lies fallow for one tothree years before replanting to cane. For the future, a 3-year cane cycleis proposed followed by a legume cover in year 4 and a fallow period inyear 5. In recent years lack of adequate serviceable equipment has

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restricted the area of land prepared and planted, and this in turn hasincreased the proportion of ratoon cane and reduced average yields. Theheavy clay soils may not favor the prolongation of high yielding ratoon:;,due to the need for ploughing.

2.14 Overall, cultivation work has been untimely and of poor quality.For example, hilling-up operations have frequently been delayed until c:aneis taller than desirable, and have been carried out in a way which detractsfrom irrigation efficiency and the even distribution of water.

2.15 All steps in the cultivation process have been adversely effectedby shortages of machinery spare parts and maintenance, of productioninputs, of labor and of adequate management and supervisory staff.

Provision of Inputs

2.16 Deficiencies in the supply of water, fertilization, and weedinghave all contributed to significantly reduced yields. In the very dryclimate of central Sudan cane growth is critically dependent on irrigationwater. Irrigation at all the schemes has been inadequate due to shortagesof power for pumping water and due to sub-optimal irrigation practices.Fertilizer has not always been available at the right time or in thequantities required. Only nitrogen is applied at the present, and there isa need for field trials and soils and tissue analysis to determine theoptimum levels of nitrogen, phosphorus and potassium fertilizers to beapplied on a routine basis. Pre-emergence weed control in plant cane bythe application of atrazine/aneytrene herbicides provides good control forseveral weeks;subsequent plant field and all ratoon field weed control work.is carried out by hand labor. Labor requirements are not met and weedgrowth in many fields is largely uncontrolled, resulting in competition forfertilizer and water and reduced cane yields. Consideration should begiven to the mechanized application of herbicides and pesticides throughou-tthe plant cycle.

Cane Harvesting and Transport

2.17 Cane is currently cut mainly by hand, loaded onto trailers bymechanized grab-loaders, and hauled to the factories by a fleet oftractors. This system has suffered from shortages of labor and fromunavailability of equipment. The overriding problem has been the inabilityof the sugar estates to attract cane cutters, especially during the earlypart of the season when sugar yields are highest. During these monthsthere is strong competition for casual agricultural labor for theharvesting of dry land crops. Low pay and poor conditions have generallydiscouraged laborers from coming to the estates. In addition, the qualityof cane cutting has generally been poor, due to poor equipment and poortraining, and efforts to mobilize seasonal labor have been inadequate.

2.18 The alternative to manual cutting is mechanized harvesting,although there are severe drawbacks to mechanization: yields are red:uceddue to cane and sugar losses; accurate field layouts are required,necessitating expensive realignment of furrows; and extensive support andmaintenance services are required. The overriding consideration is cast --

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'nitia I estimates indicate that mechanized harvesting costs 30% morethanttLe manual cutting, a differential which will be exacerbated in theSudan by the scarcity of fuel and of foreign exchange for spare parts. Thesolut ion is to provide a package of incentives to attract and retainlabo-;ers for cane cutting while accepting that it may be necessary toprov ide n minimum capability for mechanized harvesting during periods ofacut :e lator shortage.

2.1 9 There are some shortages of suitable equipment to transport canefrc3m the fields to the factories, although the primary problem is thateq uipment is in poor repair, or temporarily out of service due to lack ofm; intenance and spare parts.

C. Irrigation

Gene: -al Description

2.20 All of the sugar estates rely on irrigation systems to supplywate r for their crops; at Sennar and Guneid water is pumped from the BlueNile , and at Assalaya from the White Nile, while the New Halfa estate isfed by gravity from the Atbara river. In all cases the water is of goodqua:Lity, and is available in sufficient quantities throughout the year fromSud. in's share of Nile waters under the 1958 agreement with Egypt. Waterdem and and availability are described more fully in Annex 8. Theirr igation systems at the four schemes were designed and established by theMin.istry of Irrigation. The principal characteristics of each of theirr-igation systems are summarized in Table 3 below:

Table 3Characteristics of Irrigation Systems

Guneid New Halfa Sennar Assalaya

To tal C3ommand Area (f d) 37,000 45,000 29,000 27,000Net Mill Cane Area (fd) a/ 23,000 19,000 25,000 24,000

Arinual Irrigation Demand (MCM) a/ 332 249 344 330M:ax Mont:hly Demand (MCM) a/ 32 25 34 32G-ross Irrigation Efficiency (M) 70 75 75 75

Peak Pumping Requirement (m3/sec)a/ 14.4 - 16.5 16.0Installed1 Pump Capacity (m3lsec) 32.0 - 35.4 30.0Elumping lower Demand (Gwh) a/ 20.0 - 24 45}'eak Power Demand (mw) a/ 3.0 - 3.6 7.0a/ After Eull rehabilitation.

Pumping S-rstems

2.21 L'he installed pumping capacities in the project area consist ofeight units totalling 32.0 m3 /sec at Guneid, four units totalling 35.4m3/sec at Sennar and five units totalling 30.0 m3 /sec at Assalaya. About

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60% of the pumping capacity at Guneid and Sennar is earmarked for the sugarestates. All the pumps, except for two at Guneid, are electrically drivenand power for these is obtained from the National Electricity Corporation(NEC) Grid. There have been serious shortages of electric power in thepast, and this has been a principle cause of poor cane production. As caneproduction is highly dependent upon a regular and adequate supply ofirrigation water, the installation of auxillary power generating capacity1/ by the sugar companies to secure irrigation supplies is clearlyneeded. In addition, the two diesel pumping units at Guneid and thepumping plant at Sennar need replacement.

Irrigation Systems

2.22 Water, conveyed by the main canal from the head works, isdistributed through a system of major and minor canals and water coursesknown as Abu Ishreen (Abu XX) and Abu Sita (Abu VI).2 / The sugar estatesoperate the minor canals and also carry out the operation and maintenance(O&M) of Abu XX and Abu VI. Maintenance of the major canals and operationas well as maintenance of the rest of the system is the responsibility ofNOAI(I) which recovers the costs of the services from the sugar estates.

2.23 The irrigation systems at Guneid, Sennar and Assalaya aredesigned and operated on the basis of night storage in minor canals and dayfield applications, while the New Halfa scheme has no provision for nightstorage in minor canals and is irrigated on a 24 hour continuous basis.However, night irrigation has been used also on the other three schemes dueto shortages of irrigation water because of power failures. The systemcan deliver the present water budget and is adequate to meet peakirrigation demands. Backlogs of silt have accumulated in some minor canalsbut these can be cleared under the normal maintenance systems by MOAI(I).The distribution system allows precise control and measured supply to minorcanals, but the field outlet pipes (FOP) serving Abu XX are un-metered andthis results in erratic distribution of water to fields. The drainagesystem maintained by MOAI(I) serves only to remove the surface run-off.There are no field drains. This design reduces irrigation wastage and iswidely prevalent in Sudan.

On-Farm Water Management

2.24 The topography and soils are well suited to efficient irrigationand there is no need for sub-surface drainage. The existing field layout,except at Assalaya, is very similar to that at Gezira. The area istypically divided into 90 fd fields. Row lengths are usually 75 to 100 mand are laid out along the contour, providing short-furrow irrigationwithin a basin system. The field layout at Assalaya is slightly different,with furrows running downhill but with similar irrigation procedures. Asalready mentioned, distribution of water amongst the fields is erratic due

11 Power requirements at each station are given in Annex 8.

2/ Arabic: literally "father of 20" and "father of six' respectively forcourses governing 20 or 6 field channels.

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to lack of measuring and control devices at offtakes. Inadequate furrowshaping is observed in many fields. Introduction of longer furrowsirrigating in the direction of prevailing slopes would (i) facilitatemechanization and (ii) reduce irrigation labor requirements. This is beingdone on a limited scale at New Halfa. However, a change to long-furrowirrigation would require remodelling of in-field irrigation systems,significant changes in irrigation practices and a substantial trainingprogram, and should therefore be introduced gradually and only afterdemonstrating and evaluating the new practices on a pilot basis.

D. Factories

General Considerations

2.25 The factories at the four sugar units are generally well designedand are of sufficient capacity to produce the quantities of sugarrequired. While each factory has its own particular problems there are twoconstraints which effect all four of the plants, specifically: (i) lackof foreign exchange for the purchase of spare parts, and the slow deliveryof spares, resulting in poor maintenance of operating systems; and (ii)insufficient and inconsistent supply of cane during the crushing season,due to the shortage of care cutters and inadequate transport equipment,resulting in expensive stop-start operations. Specific problems relatingto factory efficiency, process equipment and factory superstructure aredetailed in the following sections.

Guneid

2.26 The Guneid factory is 20 years old, it has a design capacity of4,000 tons per day cane (tcd) throughput, and a rated annual output of60,000 tons of sugar (tsy). The factory has always suffered from poor canesupply and this has limited production over the years. The peakperformance was achieved in 1976/77 when 55,076 tons of sugar wereproduced. Since then production has fallen, and although this has beenmainly due to cane shortage, deterioration of factory equipment has alsocontributed to reduced efficiency and increased sugar losses. Althoughwell laid out, parts of the factory are in a bad state of repair due to thelack of spare parts and of funds to replace obsolete and worn-outequipment. Factory efficiency has now fallen to the stage where 10% ormore of the recoverable sugar is lost because of: (i) poor millingefficiency due to worn rollers and poor operation of hydraulic equipment,(ii) sugar losses in press mud due to the poor condition of vacuum filters,(iii) high undetermined losses due to stop/start operation caused by thelack of cane and poor cane storage systems, and (iv) poor molassesexhaustion due to non-operation of the crystallizer cooling elements. Inaddition, bagasse storage is inadequate, laboratory and workshop equipmentis inadequate, and the factory roof leaks, resulting in some damage tomachinery.

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New Halfa

2.27 The New Halfa factory was built in 1966. It was originallydesigned to mill 4,000 tcd and to produce 60,000 tsy. In the mid-seventiesit was expanded to a rated 5,000 tcd (90,000 tsy) but the equipment wasnever completely installed; in particular, the additional boiler has notbeen completed due to lack of funds. At present, therefore, although mostof the factory stations are capable of a throughput of 5,000 tcd, there isinsufficient steam to operate in excess of 4,000 tcd.

2.28 The factory consistently produced about 60,000 tsy until themid-seventies, but annual production has fallen steadily since then, withonly 38,080 tons of sugar produced in 1982/83. As at the other estates,this decline has largely been due to poor cane supply, but factoryefficiency has also dropped for essentially the same reasons as it has atGuneid: worn mill rollers, incorrect grooving, corroded vacuum filters,and inoperational crystalizer cooling elements. In addition, the fifthboiler needs completing, a new cane-knife motor is required, the roofleaks, bagasse storage is poor, and assorted minor upgrading works arerequired.

Sennar

2.29 The Sennar factory is only six years old and has a crushingcapacity of 6,500 tcd. Although it was designed to produce 110,000 tsy,production has not yet exceeded 41,000 tons. From the start production hasbeen effected by equipment short-comings and process difficulties, andthere has also been a problem of unstable foundations, resulting in heavingof floors, cracking of walls and shifting of certain equipment. The mostnotable problems have been: (i) Inadequate mill roller bearings, (ii)unsuitable disc-type colling elements in C massecuite crystalizers, (iii)distorted turbo-alternator rotors, (iv) problems with boiler operations,(v) sugar contamination in the condensate, (vi) difficulties in therefining process and (vii) problems with massecuite distribution gutters.

2.30 Many of these difficulties have not yet been resolved, and Sennargives the impression that commissioning has never really been completed.Concurrent with factory problems has been the shortage of cane. Because ofthis there has been little incentive to complete the factory quickly.

2.31 The overall recovery of pol in cane has barely exceeded 60X atSennar. Abnormally high losses of potentially recoverable sugar haveoccurred at all process stages, and there have been significant furtherlosses because of frequent interruptions caused by lack of cane, processhold-ups and boiler problems.

2.32 The equipment itself is in good repair, although spare parts havebeen in short supply. The factory has been generously designed and onceteething problems have been ironed out, the foundations repaired andcertain equipment and process short-comings corrected, there is no reasonwhy it should not achieve the rated 6,500 tcd.

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Assalaya

2.33 The Assalaya factory was first commissioned for the 1979/80 crop,and is designed to process 6,500 tcd for a total annual output of 110,000tsy. From its inception, problems have beset Assalaya, culminating in thefactory remaining non-operational in 1981/82. These problems can besummarized as follows: (i) commissioning was delayed for a year due toinadequate boiler refractory design, the furnaces having to be rebuilt;(ii) a general shortage of cane due to various field problems and lack ofirrigation water; (iii) problems with the ground floor shifting and heavingand the inadequate design of foundations for these conditions; (iv)shortage of spare parts for the factory; (v) unsuitable or inadequateequipment for certain stations, notably the mill roller bearings, "C"crystalizers and turbo-alternator rotors; (vi) trouble with boileroperations, and; (vii) a shortage of trained staff.

2.34 The shortage of cane has meant that the incentive to complete thefactory quickly has been lacking. However, it appears that most of themajor equipment shortcomings have been corrected, and the full crop wascrushed in the 1982/83 season when 31,630 tons of sugar were produced.There remains the problem of ground shifting and a number of otherdifficulties of a less serious nature. In addition, the longer operatingexperience with a practically identical plant at Sennar has shown up anumber of process problems likely to occur at Assalaya, which should becorrected at the outset.

E. Infrastructure

Equipment Workshops

2.35 The general state of repair of agricultural machinery isextremely poor due to ineffectual workshop management, a low standard ofmechanic skills, and a serious lack of spare parts. There is a need torehabilitate existing equipment and to improve workshop and maintenanceservices.

2.36 The workshops at Guneid and Sennar require slight improvements.At New Halfa the workshop is located in a sugar store building which isquite inadequate, while the workshop at Assalaya suffers from ground heaveand requires a new floor. At both New Halfa and Assalaya there is aserious lack of service equipment and a shortage of tools.

2.37 At all of the workshops there is a lack of management skills atthe senior levels, and a shortage of well trained mechanics. Recordkeepingis also generally poor relative to the magnitude of the operations carriedout.

Estate Infrastructure

2.38 Access roads to the factories at Gunied and Sennar are not pavedand become flooded sometimes. Haul roads within the estates are generallyof poor quality, many are low-lying and subject to flooding during therainy season, making parts of the estates inaccessible at times.

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2.39 Except for the problem noted earlier with respect to thereliability of power supply for pumping water, the provision of electricityis generally adequate within the estates. Telecommunication links to therest of the country are erratic at all the factories except Sennar. A moreimportant problem is the poor radio/telephone network wZithin the estates,which hinders communications with pumping stations, irrigation, andagricultural field offices.

2.40 There is only limited office space at Sennar and New Halfa, andagricultural workshop space is insufficient at Sennar and Assalaya.

Workforce Accommodation and Social Welfare

2.41 Housing is supposedly provided for all permanent staff. Fourdifferent standard house-types are provided depending upon the grade ofstaff, while single staff and laborers are housed in barracks. No formalhousing is provided for seasonal workers, who live in huts in makeshiftvillages on the estates.

2.42 There is insufficient housing to cater for all permanent staff atall of the estates, and existing housing at Guneid and Sennar isdilapidated due tc lack of maintenance. Health and education services areprovided by the Government, although there are too few classrooms at all ofthe estates, and the health clinic/hospitals at Guneid and Assalaya are toosmall. Water supplies are generally adequate, although often neitherelectricity nor water are available in the seasonal worker's villages.

2.43 The shortage of housing and the lack of social amenitiesadversely effect the ability of the estates to retain qualified staff, andthe poor living conditions are one of the reasons why it is so difficult toattract cane cutters during the harvest season.

F. Sugarcane Research

2.44 Given the problems mentioned above in relation to cane varieties(para 2.10), research is an extremely important part of the overallrecovery strategy. Research is currently carried out at the Government'sSugarcane Research Station at Guneid, and at the joint venture estate atKenana, which undertakes its own research independently. The Guneidresearch station is run by the Agricultural Research Corporation (ARC), aGovernment Corporation under the MOAI, and is responsible for theintroduction of new varieties and for advice on cultivation oractices.However, due to the division of responsibility, research efforts have notalways been related to the operational needs of the sugar estates.

2.45 Established in 1976, the station did useful work in its earlyyears on the development of cane cultivation, smut control methods, and onthe effect of clay soil characteristics on sugarcane production. Recently,however, there has been very little activity at the research station due tothe lack of adequate finance and support, and a serious shortage ofequipment and materials. Without a significant infusion of funds, thestation is in no position to render active assistance to the industry. A

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revitalized research station is needed not just for the introduction of newvarieties, but also to test and monitor proposed new irrigation methods,cultivation practices, and herbicide and fertilizer types and applicationtechniques.

G. Manpower Development and Training

2.46 There is a need to rationalize staffing, manpower developmentpractices, and training programs throughout the industry. Manpower levelsand organization are currently disorganized, and morale is generally low.Existing staffing arrangements are not directly related to the productionneeds of the companies, and while there have been significant efforts atstaff development and training, these have tended to benefit individualsrather than the organization. The personal marketability of the recipienthas been enhanced by this selective approach, enabling him to seek moreremunerative employment elsewhere, so that despite the investment intraining there is still a serious lack of skilled personnel.

2.47 With the current incentive package, the sugar estates have beenunable to attract and retain sufficiently well-qualified staff, and havesuffered from high turn-over rates, thus exacerbating the shortage ofskilled staff. At the lower levels, however, the estates tend to beover-manned, with an excess of unskilled laborers which inflate the wagebill and hence production costs. The companies, having been established(April 1984) as independent companies are no longer bound by public serviceemployment conditions, which limited their discretion in offering suitablecompensation packages, and made it difficult in the past to releaseredundant staff.

2.48 There is a need to systematically estimate manpower requirements,both in terms of numbers and skill levels; to formalize job classificationsand identify clear career-development paths, and to revise salary levelsand service conditions in order to attract skilled staff. The Companieshas just completed a review of salaries and conditions, and are expected toannounce revised levels shortly.

2.49 The industry has experienced problems both in attracting itsshare of entry-level skilled workers from the Vocational Training Centers,and in providing upgrading and specialized training to its existingemployees. Senior technical staff are competent and do an admirable jobwith the limited resources at their command, but middle-level techniciansand tradesmen often lack specialized skills appropriate to the sugarindustry. At the more senior levels there is a general lack of managerialskills. On-the-job training has often been undirected and ad hoc, andformal training courses have never been properly established. Formaltraining is supposed to be provided by the Sennar Training Center, which isdesigned to train 160 persons a year - however the Center has never beencompleted, and suffers from a lack of policy direction. To date it hasconcentrated solely on the training of vocational staff, with higher leveltraining left to the Sugar Technology course at Khartoum University. Thereis a need to complete works at Sennar, and to rehabilitate existingbuildings and accomrodation. There is also a requirement for some

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in-factory technical assistance to provide on-the-job training, and toprovide instruction by example in work organization and record-keeping.The over-riding need, however, is for a long-term training program tied tomanpower requirements.

H. Management, Accounts and Audit

2.50 The four sugar estates have been established as autonomouscompanies. The common services previously provided by SDC (para. 2.07)will now be devolved to the management of the individual companies. Eachof the estates is currently run by a General Manager, supported byAssistant Managers responsible for Agriculture, Factory, BusinessAdministration, Personnel, Welfare, and Security. Existing managers have,in general, done remarkably well givcn the limited resources available,although they tend not to be professional managers, and given pastdifficulties, morale is low. Some restructuring and revision of managementarrangements will be necessary before the companies are capable ofcommercial operations.

2.51 The financial accounting regulations presently existing in thefour sugar companies provide an adequate basis for their futureoperations. The financial accounting system as it works in practicefollows the established regulations closely. However, accountinginformation is not issued in a timely fashion because of a shortage oftrained and qualified staff, inadequate supervision and out-of-datemanuals.

2.52 Budgetary control exists within the four companies but consistsonly of monitoring actual major departmental expenses with budget at thepoint of posting into the ledger. Timely performance reports are notprepared. A detailed and comprehensive management information systemcomparing physical and financial results to goals does not exist.

Chapter III

The Project

A. Project Description

3.01 Over a five year period the project would rehabilitate the fourestates and thereby raise sugarcane yields and the total quantity of sugarproduced, thus saving the country significant amounts of foreign exchange.The Project would also support policy reform and strengthen institutionalarrangements for the sector as a whole and improve the performance of thefour companies. It would strengthen manpower, training, management andaccounting systems in the four sugar companies, as well as encourage anintensified research effort. The expected phasing of implementation isshown in Annex 1 and Chart III. The project components are described inthe following sections.

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B. Project Components3

Agriculture

3.02 Cultivation Equipment (US$11.5 million). The project wouldprovide sufficient cultivation equipment to allow for proper fieldpreparation, sub-soiling and ridging operations, as well as for limitedmechanized application of herbicides and fertilizers as necessary. A totalof 107 tractors will be provided at a cost of US$7.8 million, as well asassorted specialized agricultural machinery such as subsoilers, harrows,ridgers, and cultivators at a cost of US$3.8 million. US$2.0 million willbe spent on tractors and equipment for cultivation at Guneid; US$2.5million at New Halfa; US$3.1 million at Sennar; and, US$4.0 million atAssalaya.

3.03 Transport and Harvesting Equipment (US$23.4 million). In orderto improve the reliability of delivery of cane to the factories the fleetof cane haulage tractors and trailers will be expanded at a cost of US$16.9million. This covers the cost of rehabilitation of 157 tractors and 480trailers, as well as the purchase of 126 new tractors and 290 trailers.Fifteen cane-harvesters will also be purchased to provide for limitedmechanized harvesting capability at New Halfa, Sennar, and Assalaya (US$3.3million). Additional grab-loaders will also be purchased to improve theefficiency of manual harvesting operations (US$3.2 million). Thedistribution of new equipment and expenditures between the four estates isas follows (principal equipment items only are shown):

Guneid New Halfa Sennar Assalaya

75-95 hp Tractors 15 2 4 10120-140 hp Tractors 27 25 18 25Trailers 80 30 100 80Harvesters - 5 5 5

Total Cost 4.4 4.7 6.8 7.4(US$ million)

The 120 hp tractors to be purchased under this component would be used forcane-harvesting operations.

3.04 Miscellaneous Agricultural Equipment and Vehicles (US$12.2million). A variety of mobile machinery would be provided to facilitategeneral farm operations and maintenance, including twenty seven 75 hpwheeled tractors, 22 general purpose trailers, 18 water and fuel tankers,and forty one 7 ton trucks (US$7.1 million). A 140 hp dozer, vibratingroller, TDL tractor, a motor grader and assorted other machinery will beprovided for at each estate to carry out civil works and road maintenance(US$3.4 million).

3/ All costs are in current dollars, inclusive of all contingencies.

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3.05 Motor vehicles will be provided to ensure the mobility of fieldstaff, irrigators, and laborers. The requirements consist of 37 two-wheeldrive vehicles, 16 four-wheel drive vehicles, 41 mopeds, 8 light buses andtrucks at a total cost of US$1.7 million. Of the total expenditure onmiscellaneous equipment and vehicles, USS2.9 million is allocated toGuneid, US$2.5 million to New Halfa, US$2.6 million to Sennar and US$4.0million to Assalaya.

3.06 Field Workshop and Estate Buildings (US$6.7 million). In orderto reduce equipment down-times and improve equlpment performance a programof preventive maintenance will be introduced, maintenance facilities wouldbe upgraded, and on-the-job training provided. US$0.4 million would beprovided at each estate to purchase specialized workshop tools andequipment. A new workshop building and stores would be constructed at NewHalfa (US$2.5 million) and the existing workshops at the other threeestates would be renovated and expanded at a total cost of $2.6 million.Under the Management Assistance and Training component (para. 3.18) aninternationally recruited workshop manager would be financed for eachestate, along with a section engineer and three skilled mechanics toprovide temporary assistance in rehabilitating existing machinery and onthe job training within the workshops. In addition a minor buildingprogram would be undertaken to improve stores and office space.

Irrigation (US$23.0 million)

3.07 Rehabilitation. A number of steps would be taken to improveirrigation methods and the efficiency of in-field water distribution,including the installation of measuring flumes, improvements to nightstorage structures, and the purchase of syphons and canvas checks. Intotal, such in-field works would cost US$5.4 million, spread fairly evenlyamong the four estates. To improve the delivery of irrigation water newpumps and motors will be installed at Guneid (US$2.5 million), the existingpump station at Sennar will be completely rehabilitated at a cost of US$1.8million, and a supply of spares for pumps will be provided at Sennar andAssalaya (US$0.8 million). To test the effectiveness of the proposedlong-furrow irrigation techniques 300 feddan pilot schemes using revisedfield layouts with appropriate drainage systems to remove excess waterwould be established at New Halfa, Sennar and Assalaya. Funds will beprovided under the project for the development and operations of thesepilot schemes over a period of three years (US$0.8 million). Funds willalso be provided later in the project for engineering and design work onthe possible expansion of cane area at Sennar and Assalaya, in the eventthat expansion proves necessary (US$0.8 million).

3.08 Power Supply (US$11.2 million). Generators would be installed inorder to provide back-up power generation capacity to pump irrigation waterduring periods when power is not available from the national grid, thusremoving a major constraint on cane yields. The proposed project wouldprovide for a two 1 mw diesel generator at Guneid (US$2.6 million), for two1.25 mw diesel generators at Sennar (US$3.7 million), and for a 6.5 mwturbo-alternator at the factory at Assalaya, (US$4.9 million).

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Factory (US$50.5 million)

3.09 Process Rehabilitation (US$32.6 million). The Buckau-Wolfeprogram (US$15.3 million) is a package of essential replacements for wornmachinery at Guneid and Np- Halfa, which is being financed by KfW andprovided by Buckau-Wolfe of the Federal Republic of Germany. The packageconsists primarily of boiler parts and materials, mill spares, and filtersand crystallizers. To supplement the Buckau-Wolfe program the proposedproject would provide for additional factory equipment and instrumentsrequired at Guneid (US$3.3 million) and New Halfa (US$3.8 million), as wellas for a stock of spare parts in order to avoid costly delays during thecrushing season (US$3.4 million at Guneid, US$2.1 million at New Halfa).

3.10 A program of factory process rehabilitation will be undertaken atSennar (US$3.8 million) and at Assalaya (US$3.8 million), to completeunfinished works and to correct teething problems encountered during thefirst few years of operations. The program will concentrate onimprovements to cane feed, steam systems, crystallizers, and instrumentsand controls. In addition, stocks of spares will be provided at Sennar andAssalaya (US$1.6 million each). To assist with project implementation andto help identify system improvement the proposed project would finance adeputy factory manager for 5 years, a maintenance engineer, a chmaicaltechnologist, an electrical technician, and a sugar instrumentationengineer, each for a period of three years.

3.11 Bagasse Stores (US$3.2 million). The project would provide forthe installation of a partially mechanized bagasse reclaim system at eachof the four factories, in order to improve efficiency of bagasse handlingas factory operating speeds increase. An enclosed bagasse storage shedwill also be constructed at each factory to cater for the greaterquantities of bagasse that will be generated with higher yields and outputlevels.

3.12 Factory Structure (US$8.5 million). Major remedial works wouldbe undertaken to correct structural faults at the Sennar and Assalaya sugarfactories. The factory roofs would be re-sheeted at Guneid and New Halfa(US$1.2 million) and steps would be taken to rectify the ground-heaveproblem which has resulted in shifting foundations at Sennar and Assalaya(US$5.1 million). Design work for this component is currently beingfinanced under the Project Preparation Facility (paras 3.25 and 3.29). Inaddition the project would include a program of minor works to upgradecane-yards, flooring, factory ventilation, etc. (US$2.2 million).

Infrastructure (US$15.9 million).

3.13 Electricity and Communications (US$3.1 million). Internalcommunications would be improved by the provision of telephone systems andmobile radios at a cost of US$0.3 million at each estate. This willfacilitate area agricultural operations, irrigation control, and theprovision of in-field maintenance of machinery. Microwave systems would beinstalled at Guneid, New Halfa, and Assalaya (US$1.2 million) in order toprovide a link to Khartoum and the national telephone system, thusimproving management coordination and the ordering of supplies and inputs.

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Funds would also be provided under the proposed project to improveelectrical distribution within the estates.

3.14 Housing and Services (US$9.3 million). Housing facilities wouldbe upgraded at all four estates, since the lack of adequate housing hasmade it difficult to retain higher level staff, and the complete absence ofaccommodation for seasonal laborers has been one of the reasons thecompanies cannot attract cane-cutters. US$0.3 million will be spent on therehabilitation of existing housing, and 96 new houses will be constructedat a cost of US$4.5 million based on existing standard designs. Additionalbarracks and messes will be constructed (US$2.6 million), and a programundertaken to provide permanent round huts for seasonal workers, along withimproved sanitation in laborers' villages (US$1.9 million).

3.15 Social Infrastructure (US$3.1 million). Under the proposedproject health and education facilities would also be improved at the sugarestates as a means of attracting and retaining skilled staff. Healthcenters would be renovated and provided with new equipment, and a newhealth center constructed at Assalaya (US$0.8 million). Additionalclassrooms would be built and equipped to cater for the school-agedpopulation of the estates through 1990 (US$2.0 million), and a market areawould be constructed at each estate to improve accessability to foodstuffsfor laborers. Staff for the health centers and schools would be providedby GOS.

3.16 Maintenance Equipment (US$0.4 million). US$0.1 million would beallocated to each estate for the purchase of specialized tools andequipment to improve building maintenance capabilities.

Support Services (US$26.1 million)

3.17 Office and Accounting Equipment (US$3.7 million). US$0.9 millionwould be allocated to each company for the acquisition of new accountingsystems and office equipment, including the provision of sufficient fundsto allow for the possible introduction of computer:zed accounting later inthe project.

3.18 Technical and Management Services (US$22.4 million). Technicalpersonnel to be provided for factory and workshop operations are describedseparately above (para. 3.06, 3.10). These personnel would form part of aninternationally-recruited management team to be appointed at each estateduring the project period. The objective of these teams would be toprovide management support and training during the transition to commercialoperations. In addition to technical personnel, the management teams wouldconsist of a Deputy Managing Director (under the supervision of a SudaneseManaging Director), a Deputy Factory Manager, Workshop Manager, andBusiness Administration Manager. These have been identified as thecritical areas in which assistance is required in the development ofmanagement systems and personnel.

3.19 The size of the management assistance and training (MAT) teamswill be progressively reduced over the life of the project as more of thenew functions are assumed by existing Sudanese managers. The management

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teams will be selected competitively from a short-list of pre-qualifiedfirms, and their terms of reference and conditions of renumeration will besuch that:

(i) they will perform as a team along with Sudanese managers;

(ii) renumeration will be based on performance against agreedproduction and cost-reduction targets,

(iii) they will be responsible for management training and thepreparation of Sudanese counterparts.

To ensure that training takes place, the terms of management assistancecontracts will be such that the number of expatriates is reduced, subjectto annual review, according to the following schedule:

Project Year

1 2 3 4 5

Number of Personnel 16 16 13 5 4

Furthermore, the project will finance the employment of an independentmanagement consultant to evaluate the performance of the management of eachcompany every year and advise on areas for improvement. Details oftechnical services under the project are set out in Annexes 9 and 10, andan organization chart for the proposed Management Assistance and Trainingcomponent is attached as Chart II.

Project Implementation Team (US$4.8 million)

3.20 The existing Sugar Project Implementation Cell within theMinistry of Industry will be responsible for project implementation (seepara. 4.03 to 4.04). Under the Project funding would be provided for ateam of technical advisors to the Cell, along with limited supportingservices and facilities. (A team of five advisors has already beenestablished to aid in project preparation during 1983/84 under a PPF).

Training (US$5.9 million)

3.21 The project would substantially strengthen the trainingcapabilities within the sugar industry. A combination of technicalassistance training personnel and external courses would be used to providespecialized upgrading courses for existing skilled and semi-skilledpersonnel, and to provide training for trainers (US$4.8 million). Inaddition, buildings and housing at the Sennar training center would berehabilitated, and additional training equipment purchased to compensatefor lack of funding in recent years (US$1.1 million). The trainingcomponent has been prepared by UNIDO, and UNIDO or a consulting firm wouldmanage implementation of the training program by providing five trainingspecialists for a period of five years to design and conduct detailedtraining courses. The training component of the project is described inmore detail in Annex 10.

- 23 -

Sugarcane Research (US$1.2 million)

3.22 Under the project sugarcane research would be stepped up at theGuneid Research Center in a drive to find more productive cane varietiessuitable to conditions in the Sudan. In addition, a program of researchactivities would be instituted at the estate level to undertake fieldtrials on varieties, smut control, herbicides, and fertilizer application.It will be necessary to replace almost all of the field agriculturalmachinery at the Research Station (US$0.9 million), as well as to purchasenew laboratory equipment (US$0.3 million). A research program (Annex 6)will be instituted in conjunction with an established sugarcane researchbody, in order to take advantage of the availability of specializedpersonnel at such institutions. Funds will be provided under the projectfor such specialized technical assistance for the design, monitoring andimplementation of the research program.

C. Status of Engineering

3.23 The detailed requirements for rehabilitation of factory andagricultural equipment were determined after surveys at each site duringproject preparation. These were reviewed during appraisal to arrive atfinal project cost estimates. Preparation of detailed specifications andtender documents is underway with the technical assistance provided underthe PPF and should be completed, for most components, before projecteffectiveness.

3.24 The outline specifications for power generation are sufficientfor feasibility purposes, and include an analysis of power potential andpower generation requirements at each estate. Funds would be providedunder the project for preparation of the power plant component by the endof 1984. The drafting of derailed specifications for replacement ofpumping equipment at Guneid and Sennar will be carried out by NOAI(I) whoare adequately experienced in such works.

3.25 The proposals for buildings and infrastructure are based on thestandard design practices in Sudan and their cost estimates based onprevailing prices for similar works. The engineering and supervision ofthese would be handled by the civil engineering departments of the sugarcompanies. Ground heave and foundation distress at Sennar and Assalaya,being special problems, were reviewed by a specialist consultant. Thesewere determined to be rectifiable and criteria for the design of therectification works would be drawn up by the same consultant under PPFfunds. During negotiations it was agreed that detailed design andspecifications for the rectification work by a consultant acceptable to IDAwould be completed by December 31, 1984.

D. Cost Estimates

3.26 Total project cost is US$181 million (LSd 339 million) with aforeign exchange component of US$149 million (LSd 278 million), or 82x. Notaxes or duties are included in the project costs, as new companies areexcluded from all taxes during the first five years of operations. All

- 24 -Table 4

S WM RIIITATIN PETPRO cDSr SiNuinl

(LU 'O00) (Ms5 '00)

Foriin 2 Total Z Foreian TowtaLocal Farnii* Total Exr_ha Ba Csts Local Foregn Toal Exdhnds lB Casts

A. A8OICLTll

CIWATIINIEWDIPET 1,997. ? 1Og2.2 12iM.1 83.5 6.3 1PS13.4 79670.0 ,183.4 83.5 6.3SUWWE £ TUINVOT EumurT 4,107.6 20,141.1 l2048.7 83.6 13.0 312t.8 15,115.1 1036; 83.6 13.0KIMSC EW (UICI ivMa. 9i490.5 1,3UM.4 83.5 5.9 1428.0 7,212.7 8440.7 83.5 5.9WKLE5 2l5.4 1.44t.6 1,727.0 83.5 0.9 216.9 101.6 1,312.5 83.5 0.9FIED 1111 446.7 1u386.4 1833.1 75.6 1.0 339.5 1,053.7 1,393.1 75.6 1.0ESTATE IOIUR S 1,2Y4.0 46115.3 5,409.2 76.1 2.8 983.4 3,127.6 4.111.0 76.1 2.8

SUb-Total AUICIE 1Ol.S 479467.1 57h477.! 82.6 29.8 7,607.? 36,074.7 43,62.6 82.6 29.8D. IIU6ATIU

IA3ILIrTATM I NEII 4,93.3 11,448.9 16v387.3 6?.? 8.5 3,753.1 83701.1 12P454.2 69.1 8.SFM lIERBIUNl 1,995.4 5909.8 7?,05.1 74.8 4.1 1,516.5 4,491.4 6,007.8 74.8 4.1

tb-Total IWNATIUI 6.933.7 17,35B.7 24,9M.4 71.5 12.6 s,269.6 13,192.5 18,462.0 71.5 12.6C. FACTUR

-C5 ULF P_RSUE 940.7 16i917.3 17,858.0 94.7 9.3 714.9 12.57.0 13,571.9 94.7 1.3AMMIT UKENTS 2,128.4 4p975.? 7.104.2 70.0 3.7 1,617.6 3,781.6 5399.2 70.0 3.7sT05 SVBS 19736.0 7.496.6 9P232.6 81.2 4.8 1,311.3 5697.4 7,016.7 81.2 4.30WIlTATIU I 1M106.9 2926.3 30352.1 67.0 1.7 841.2 19706.4 29547.6 67.0 1.7

EIITATI OII lj,03.3 3.031.7 4,534.9 66.? 2.4 1,142.5 2W304.1 3446.5 66.y 2.4IUIIITATI III 55.1 237.8 m.8 81.2 0.2 41.8 180.7 222.6 91.2 0.2

-UE Sl0RE 775.9 2672.1 3s448.0 77.5 1.8 559.7 2.030.8 2f620.5 77.5 1.8SWrEETEII 961.0 2.745.0 3.706.1 74.1 1.9 730.4 2,036.2 2,816.6 74.1 1.9

f11 IfUE SETFICIATUN 1.200.4 4.363.7 5.64.l 79.4 2.? n12.3 3,316.4 4,228.7 78. 2.9

Sb-Total FTI3T 10,407.6 44685.3 355092.9 81.1 28.6 7,909.7 33,160.6 419870.3 81.1 2B.63. 11USUET

RaSsONHUICTU I EIEC. 46.3 2721.1 3t38.4 80.3 1.8 507.2 2,068.0 2575.2 80.3 1.8AIEe SMEVCS 49880.6 5'l72.0 10,052.6 51.4 5.2 3,701.3 3,930.7 7,639.9 51.4 5.2SMIAL IWR*STRCTNE ,9M.2 1.337.? 3,331.1 40.2 1.7 1,514.8 1,016.3 2W53.6 40.2 1.7NISC EHIVEMNT 66.9 311.2 378.1 82.3 0.2 50.8 236.5 237.4 82.3 0.2

St-Totl IIMUC 7,60S.0 9542.2 17.13.2 S5.6 8.9 5782.1 7252.0 139034.1 55.6 8.9E. 9IPlT SERVICES

IIFF EUIPIN 36.9 2989.7 3.926.6 75.5 2.0 712.0 2196.2 2e908.2 75.5 2.0TECIMCSL SERVICS - 221475.9 221475.? 100.0 1U.7 - 17,081.6 17,081.6 100.0 11.7

St-Total SWIIIRT S15ES s36.9 25w365.7 26P302.3 96.4 13.7 72.0 19,277.8 1999m.8 6.4 13.7F. SUE CUE UESCAl

LW EUFEI - 287.2 287.2 100.0 0.1 - 218.3 218.3 100.0 0.1E nUIPIE t ILeDDS 264.3 650.9 *1I.2 71.1 0.5 200.9 494.7 695.6 71.1 0.5

St-TOW UJE CE SOiESI 214.3 93.1 1,282.5 78.0 0.6 200.9 713.0 913.9 78.0 0.6S. lUET JILEIATIN TEAN 510.0 46643.4 5,153.4 90.1 2.7 397.6 3.52.0 3,116.6 90.1 2.7N. TURWlI

SiR 1lU111 C 571.1 sn9.4 1Yu62.5 50.? 0.6 434.0 449.4 983.5 50.? 0.6TA PERSUL - 3,615.1 3,615.1 100.0 1.9 - 2,747.5 29747.! 100.0 1.9EDEUt T*18 - 1.134.3 ll34.3 100.0 0.6 - 900.1 9O.1 100.0 0.6

Sit-TOtl TIWUII 571.1 590.8 s916.Y 90.4 3.1 434.0 4,097.0 4,531.0 90.4 3.1

TOtalW E COSTS 379242.0 12,391.4 1929633.4 80.7 140.0 2,303.7 118P096.5 1469400.2 80.7 100.0PhMsIcal Ceuilmcts 39827.3 14,1.0 18,742.3 79.6 9.7 2,908.7 11,335.3 14w244.0 79.6 9.7Pries Contcoeles 11,396.5 107.673.1 127i5&9.5 84.4 66.2 1,257.3 1?i437. 20695.1 93.9 14.1

TOW PKI T CLIS 60,16.8 2779979.5 338,945.2 82.0 176.0 32,469.8 148,369.6 181,339.4 82.1 123.?

Hedh 17, 1934 13.21

- 25 -

costs are project investment costs, with incremental operating costs beingborne by the sugar companies and GOS. Baseline project costs (excludingphysical and price contingencies) are US$146.4 million (LSd 192.6million). Estimated costs are summarized in Table 4 and Annex I.

3.27 The cost estimates are based on June 1982 figures updated toJanuary 1984 baseline price levels and are derived from recent quotationsand appraisal estimates. Physical contingency rates on project componentsare 10%, except for some local civil works which are estimated using a 20%physical contingency rate.

3.28 Price contingencies total 14.1% of base costs in US dollars, andhave been estimated as summarized in Annex 3.1. Costs have been convertedat the purchasing power parity exchange rates given in Annex 3.1.

3.29 A PPF of US$1.0 million has been provided to cover the costs of ateam of five technical advisors to the Sugar Project ImplementationCell. Funds are also provided under the PPF for the recruitment oftechnical personnel for short term assignments on particular specializedproject preparation issues.

E. Financing Plan

3.30 Project costs would be financed in the following amounts andproportions:

Table 5

Project Financing Plan(US$ millions including all contingencies)

Loocal ForeignCurrency Exchange Total % of

Costs Costs Costs Total Project

1. IDA Credit - 60.0 60.0 33.12. Other Cofinanciers

(a) Saudi Fund - 23.5 23.5 13.0(b) Arab Fund - 47.2 47.2 26.0(c) Germany (KfW) - 17.3 17.3 9.5

3. Government of Sudan 32.5 0.8 33.3 18.4and Sugar Companies

Total Project Cost 32.5 148.8 181.3 100

a/ Amounts include all contingencies.

3.31 The IDA credit would finance, jointly with the sugar companiesand GOS, the following components: general agricultural and constructionequipment at all four estates; vehicles at Guneid and New Halfa; harvestingand transport equipment at Sennar; irrigation field works at Sennar andAssalaya; infrastructure and housing; training, technical and management

- 26 -

services, and research. The other components would be financed byco-financiers, jointly with the sugar companies and GOS, as follows: theSaudi Fund would finance harvesting and transport equipment at Guneid andNew Halfa; all irrigation works at Guneid and New Halfa; and the programsof additional equipment requirements and stock spares for the factories atGuneid and New Halfa. The Arab Fund4/ would finance all remainingagricultural machinery; irrigation power supply, pumps and spares at Sennarand Assalaya; agricultural workshops at Sennar and Assalaya and all factoryworks except the bagasse stores at Sennar and Assalaya. KfW would financethe programs of factory replacement parts supplied by Buckau-Wolf, alongwith workshop improvements at Guneid and New Halfa.

3.32 Project financing by the financing agencies for the differentcategories of goods or services is set out in the following table:

Table 6

Project Financing Package by Expenditure Category(US$ million, including all contingencies)

Arab Saudi- FRGGOS IDA Fund a/ Fund (KfW) Total

Agricultural Mach. 6.0 9.5 16.4 5.9 - 37.8Mechanical Equip. 14.4 9.3 17.7 14.4 15.1 70.9Vehicles 0.5 2.8 0.8 - - 4.1Spares & Rehab. 0.9 1.1 2.8 0.4 - 5.2Civil Works 10.6 3.3 9.5 2.8 2.2 28.4Technical Services 0.2 32.7 - - - 32.9Research 0.7 1.3 - - - 2.0

Total 33.3 60.0 47.2 23.5 17.3 181.3a! Allocation of Arab Fund finance to categories is tentative.

3.33 The proposed IDA Credit would be on standard terms to GOS.US$32.8 million of the IDA Credit would be passed on as government equityin the sugar companies, to the MOI for operation of the Sennar TrainingCenter, and as a grant to ARC (through MOI) for research operations. Afurther US$4.4 million would be retained by Government (NOI) for theoperations of SPIC and for funding studies and specialized technicalassistance. GOS, which would bear the foreign exchange risk, would onlendthe balance of US$22.8 million of the IDA Credit to the sugar companies.It is GOS policy to move gradually towards positive real interest rates.The present lending rate in Sudan is 9% for non-commercial enterprises and12% for commercial entities. Onlending would be for 12 years at 16%interest. The proposed rate reflects some movement towards the goal ofpositive real interest rates and has to be viewed against the currentinflation rate of 25%, which is however likely to come down to about 15% by

4/ Allocation of Arab Fund Financing to detailed sub-components is stilltentative.

- 27 -

1987/88. GOS share of expenditures on components financed by IDA (para.3.31) would be passed on to Project entities on the same basis as IDA'scontribution. The execution of Subsidiary Loan Agreements with the sugarcompanies acceptable to IDA would be a condition of Credit effectiveness...Financial projections indicate that the sugar companies could generatesignificant cash surpluses during the project, provided producer prices areadjusted sufficiently. Under the Annual Work Program mechanism, the sizeof such cash surpluses would be assessed and the Subsidiary Loan Agreementwould provide for possible earlier repayment of GOS loans and for thepossibility of the sugar companies financing some of the local currencyproportion of project costs each year, based on a determination made underthe AWP mechanism.

3.34 Funds provided by cofinanciers for various project componentswould be passed on to the project entities on terms and conditionssatisfactory to such cofinanciers, as would the GOS share of expenditure onsuch components. Evidence satisfactory to IDA that all conditionsprecedent to the disbursement of at least US$64.5 million from suchcofinanciers, save for effectiveness thereof, have been fulfilled, would bea condition of Credit effectiveness. It was agreed at negotiations thatGOS would provide evidence satisfactory to IDA of the availability of theadditional US$23.5 million by December 31, 1984. In fact, arrangements forco-financing are well advanced. Agreements have been signed with the ArabFund and KfW,and KfW funds are already being disbursed. The Saudi Fundappraised the project in conjunction with IDA and expects to completeproject processing by July 1984.

F. Procurement

3.35 Procurement arrangements are summarized in Table 7 below:

Table 7

Project Procurement Arrangements by Expenditure Category(US$ million including all contingencies)

Procurement Methoda/ b/Total

Project Element ICB LCB Other N.A. Cost

Agricultural Machinery & Equip. 11.4 - 26.4 - 37.8(9.6) (-) (9.6)

Mechanical Equipment 12.3 - 58.6 - 70.9(9.3) - (-) (9.3)

Vehicles 3.2 - 0.9 - 4.1(2.8) (-) (2.8)

Spares & Rehabilitation - 1.4 3.8 - 5.2(1.1) C-) (1.1)

- 28 -

Civil Works & Construction Materials 3.7 - 24.7 - 28.4(2.1) - (1.2) (3.3)

Technical Services 22.4 - 9.5 1.0 32.9(22.4) (9.2) (1.0) (32.6)

Research - - 2.0 - 2.0(1-3) (1.3)

Total 53.0 1.4 125.9 1.0 181.3(46.2) (1.1) (11.7) (1.0) (60-0)c/

a/ 'Other" category includes all co-financed items and reserved procurementof IDA financed items.

b/ Refinancing of PPFc/ Figures in parenthesis are amounts financed by IDA.

Items to be financed by other agencies are set out in para. 3.31;procurement procedures of the concerned agency would apply to these items.Items to be financed under the IDA Credit would be procured as follows, andassurances to this effect were obtained from GOS during negotiations.

3.36 Goods. Vehicles, machinery, equipment and spares totallingapproximately US$26.9 million would be grouped into appropriate biddingpackages of US$200,000 or more and procured by ICB in accordance with Bankguidelines (issued July 1980) for works and goods. Qualifying domesticmanufacturers would receive a preference in bid evaluation of 15% or theimport duty, whichever is lower. Miscellaneous items in packages of lessthan US$200,000 but totalling no more than US$4 million would be procuredunder local competitive procedures which are acceptable to IDA. Forcontracts un.- r US$20,000, but totalling no more than US$500,000, localshopping or - -hasing off-the-shelf after obtaining at least threequotations would be used. In total, ICB would account for about 90X byvalue of the purchases of goods.

3.37 Works. Civil works construction of housing at three of theestates totalling approximately US$3.7 million would be procured by ICBprocedures. The civil works for village accommodation and water supply,for the rehabilitation of existing houses, and the construction ofclassrooms and bridges over canals, amounting to approximately US$2.0million, because of the small unit cost and the existence of company unitsalready engaged in this work, would be by force account. In total, ICBwould account for about 65% by value of the procurement of civil works.

3.38 Contract Review. All bidding packages for works and goodsestimated to cost over US$0.5 million equivalent would be made subject toprior IDA review of procurement documentation. This would result in acoverage of about 75% of the total estimated value of the contracts. Thebalance of contracts would be subject to random post review by IDA aftercontract award.

3.39 Technical Services. The Technical Services listed in Annex 9would be hired in accordance with the Bank guidelines (issued August 1981)

- 29 -

on the use of consultants. In particular, selection of firms for supply ofManagement Assistance and Training Services (para. 3.18) would be based onboth technical and price evaluation of responses from a short list of firmsacceptable to IDA, drawn up on the basis of a prequalification exercise,during which firms which show interest in response to advertisement wouldbe screened. This process will take place between April and August 1984,for mobilization of the teams no later than October 31, 1984. Consultantswould have terms of reference, qualifications and terms and conditions ofemployment satisfactory to IDA. Assurances to this effect were obtainedfrom COS during negotiations.

G. Disbursement

3.40 The proceeds of the Credit would be disbursed over six years(Annex 4) against the following categories of expenditures: (a) Formachinery equipment, and vehicles; (i) 100% of the CIF cost of directlyimported goods; (ii) 100% of the ex-factory price of locally manufacturedgoods; and (iii) 60% of the costs of items procured through local shoppingor local bidding; (b) For civil works; (i) 100% of the foreign exchangeexpenditures, and (ii) 50% of the costs of other civil works, and; (c) Fortechnical services and studies; 100% of total cost. Disbursement againstall items would be based on full documentation, except for force accountapplications below $20,000 and contracts of less than $10,000 value, whichwould require only a Statement of Expenditure. The disbursement profilesfor Bank-wide irrigation and drainage subsector projects and for EasternAfrica crop processing and grain storage subsector projects are eight andnine years respectively, while for all Sudanese projects, the profile showsthat full disbursement has taken an average of nine years with about 82%being disbursed over the first six years. The shorter disbursement periodof six years assumed for the Project is justified by the relatively strongProject management team and by the fact that the vast majority of projectfunds will be spent on the procurement of machinery and equipment forexisting operations. In addition, a shorter than average disbursementperiod may be expected since significant amounts of pre-implementationpreparation have already been undertaken by SPIC under the PPF, and becauseco-financing arrangements are well advanced, with some disbursementsscheduled to take place this year. Disbursements are expected to becompleted by December 31, 1989.

H. Environmental Impact

3.41 The principal environmental consideration is the disposal ofexcess quantities of molasses produced under the project -- to a level of148,000 tons a year by 1990. Current plans envisage the export of allmolasses through the project period, and the terminal facilities at PortSudan are being expanded under a separate IDA ports project and will handlethe projected flow. In the longer run consideration should be given to the

- 30 -

construction of an ethanol plant5/, or of the development of feed-stockprocessing to consume excess molasses domestically. Potential in thesedirections wou- be assessed during the mid-term review (para. 4.22).

CHAPTER IV

Project Implementation

A. Role of Central Ministries

Ministry of Industry

4.01 The Ministry of Industry is responsible for formulating nationalsugar policy and for monitoring the health of the industry. An existingunit within MOI deals with the industry and also coordinates research andtraining at the industry level, while a separate Sugar ProjectImplementation Cell (SPIC), supported by a team of internationallyrecruited advisors funded under a PPF, handles project implementation(para. 2.07). GOS proposes to strengthen the unit dealing with the sugarindustry by upgrading it as a Sudan Sugar Board (SSB) along the lines ofthe Sudan Cotton Board recently established and found acceptable to IDA. Adiagram showing the proposed organizational arrangements is presented asChart I in the Annexes.

Sudan Sugar Board

4.02 The Sudan Sugar Board (SSB) will be headed by an ExecutiveDirector, with at least ten years experience in the sugar industry, whowould report directly to the Minister of Industry. The members would berepresentatives of MOFEP, MCCS and MOAI, and a Secretary. The Boardwould be located in the Ministry of Industry, absorbing both the existingsugar sector unit and the Sugar Project Implementation Cell (SPIC). TheExecutive Director and the Secretary, both Sudanese, would have experienceand qualifications, and would be appointed on terms and conditions,satisfactory to IDA. Funding for recurrent operations of the Board wouldbe provided under MOI's budget. The Board's terms of reference wouldinclude: (i) to review the role of the public and private sectors in sugarand to advise on production and development plans; (ii) monitor andevaluate the performance of the industry as a whole; (iii) undertake marketresearch and analysis of supply and demand for sugar, and advise onappropriate marketing, production, and import/export programs; (iv) collectand analyze data on costs and prices in the industry; (v) review manpoweravailability and demand and training requirements and manage the SennarTraining Center; (vi) monitor technical developments in the sugar industryand advise Government on research programming; (vii) liaise with concerneddepartments and agencies on industry requirements; and (viii) implement therehabilitation project for the industry through its project implementation

5/ A Bank Energy Assessment Study has identified Kenana as a favorable sitefor location of such a plant.

- 31 -

cell (SPIC). Assurances were obtained during negotiations that GOS willestablish the Sudan Sugar Board with Terms of Reference acceptable to IDA,including the appointment of its Executive Director and Secretary prior toBoard presentation.

Sugar Project Implementation Cell

4.03 SPIC has been strengthened with the provision of fiveinternationally recruited technical advisors funded under a PPF from IDA.The initial role of these advisors is to assist in project preparation, butthey would be retained to assist with project implementation. The advisorsconsist of experts in the field of sugar technology, agriculturalengineering, agronomy, financial management, and organization and policy.

4.04 SPIC, supported by its team of advisors, would inter alia: (i)conduct strategic planning and render policy advice in relation to therehabilitation program for the industry and supervise the project; (ii)monitor the physical and financial progress of the sugar companies inattaining project targets, identify potential problems and their solutions;(iii) render technical support to the sugar companies for projectactivities, supervise the work of consultants on the project; and identifyareas in which additional technical assistance is required by theindividual companies; (iv) prepare for the companies the accounting,management, and maintenance systems which are necessary to operatesuccessfully as commercial entities; (v) advise on the annual values whichwould be used for costing and pricing, consistent with the principlesgoverning pricing; (vi) help establish an appropriate personnel structurefor each autonomous company, along with an incentive package sufficient toattract skilled staff. SPIC would be wound up six months after the projectcompletion date.

Sugar Consultative Group

4.05 GOS would establish a Sugar Consultative Group (SCG), comprisingrepresentatives of the sugar companies (including Kenana), MOI, MOFEP, MOAIand ARC which would be the forum through which the Government consults withthe industry on national sugar policy issues. The SCG would normally meettwice a year and would be serviced by the SSB.

Ministry of Finance and Economic Planning

4.06 The Ministry of Finance and Economic Planning would beresponsible for the provision of adequate foreign exchange and localcurrency for project operations. MOFEP would be represented on SSB, SCGand the boards of the four sugar companies, while an official from theProcurement Division of the Ministry would head the Project ProcurementCommittee (para 4.09).

Ministry of Agriculture and Irrigation

4.07 MOAI would continue to operate the pumping stations and majorcanals at the sugar companies, but the ownership of these assets would beformally transferred to the sugar companies no later than July 1, 1985.

- 32 -

The maintenance and operating expenses of MOAI would be reimbursedannually, based on a volumetric charge for water actually delivered. Suchcharges would be negotiated no later than March 31 each year and embodiedin the Annual Work Program. Arrangements for the transfer of maintenanceand operating responsibility from the MOAI to the concerned sugar companieswith effect from July 1, 1987, would be finalized during the mid-termreview and monitored through the AWP mechanism (para. 4.22). The abovearrangements were agreed with Government during negotiations.

4.08 MOAI would continue to supervise ARC which would be responsiblefor sugarcane research in the country. The annual research program wouldbe drawn up by ARC after consultation with MOI and SCG; project funds forresearch would be incorporated in the AWP and released to ARC by MOI. Theacceptability of the above arrangements was confirmed during negotiations.

Project Procurement

4.09 Procurement for the Project would be coordinated by a ProjectProcurement Committee (PPC), comprising technical specialists drawn fromthe implementing entities and representatives of SPIC. This committeewould be modelled after a similar committee established under the ARPCredit (Cr. 1000-SU) which proved highly successful. The committee wouldbe the final authority in Government on project procurement decisions andwould be headed by an official of the Ministry of Finance and EconomicPlanning. Collaborative arrangements between PPC, SPIC and the projectentities were agreed to at negotiations and are set out in Annex 12.

B. Funding of Project Entities and Audit

4.10 Project Funds. The annual requirement of funds would beestimated through the Annual Work Program (para 4.19) mechanism. Thetransfer of project funds to the project entities would be monitored bySPIC.

4.11 Non-project Funds, mainly for recurrent expenditures, would alsobe estimated through the AWP mechanism. Currently both foreign exchangeand local currency needs are provided on an ad hoc basis by MOFEP and theBank of Sudan. However, once sugar prices are raised to reflect importparity prices (paras. 5.12 to 5.17), the four companies are expected togain access to adequate local currency to enable them to purchase neededforeign exchange. The total foreign exchange requirements of the companiesfor recurrent costs is estimated to be around US$17 million in 1983/84 andwould rise to around US$30 million in 1988/89. During negotiationsGovernment clarified that since the four companies were now independententities under the Companies Ordinance (1925) there were no restrictions onpurchase of foreign exchange from legal foreign exchange sources other thanthe Government or Bank of Sudan. Assurances were also obtained thatsufficient supplies of fuel would be made available to the company foroperation of the factories, field equipment, and electrical generators forthe irrigation pumps.

- 33 -

4.12 With the establishment of the four companies an initial BalanceSheet for each would have to be prepared and audited as at their legalcommencement date. The Balance Sheets would reflect the useful assets attheir going concern value, and the related liabilities incurred to obtainsuch assets, while the residual amounts would reflect each company'sinitial equity. During negotiations agreement was reached that this wouldbe completed no later than March 31, 1985, based on principles acceptableto IDA. Thereafter, GOS would cause the companies to provide IDA withunaudited financial statements within six months of the close of eachcompany's fiscal year and an independent auditor's opinion and reportsatisfactory to IDA on such statements would be provided within nine monthsof the close of each fiscal year. Assurances have been obtained from GOSthat the four sugar companies would be required to maintain theiraccounting systems in accordance with sound and generally recognizedaccounting principles and practices acceptable to IDA, including provisionof depreciation on the basis of replacement cost.

4.13 According to the Articles of Association of each sugar companythe company at each Annual General Meeting shall in consultation with GOS'SAuditor General annually appoint an auiitor. Assurances were obtained atnegotiations that independent auditors acceptable to IDA would beappointed.

4.14 ARC at Guneid and the MOI at Khartoum would maintain separateProject accounts covering the research, training and project implementationcomponents respectively. Experience with other projects in the case ofARC, as well as review during appraisal and thereafter of the MOI show themable to maintain separate records of their organization's share ofproject costs. Assurances were obtained at negotiations that these Projectentities wruld establish and maintain separate accounts to be operationalfrom the beginning of implementation, and that such accounts would bemaintained in accordance with sound and generally recognized accountingprinciples and practices satisfactory to IDA to enable these organizationsto reflect the financial performance and position of the projectcomponents. Unaudited financial statements for each would be provlded toIDA within six months of the close of each fiscal year, and an independentauditor's opinion and reports satisfactory to IDA on such statements wouldbe presented within nine months of the close of each organii-tions' fiscalyear.

4.15 The Auditor General is by law the auditor of the other projectentities and generally his staff is adequate to carry out the requiredaudits under the project. However, due to an increasing wor'.load, it isunlikely that audits could be carried out on a timely basis in the future.Assurances were obtained at negotiations that If the Auditor 'leneralreports that an audit for which his office is responsible cannot becompleted within three months of receiving the accounts, then otherindependent auditors acceptable to IDA would be engaged forthwith to carryout the required a's-=t work.

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C. The Sugar Companies

4.16 The four schemes will be established as companies, each with itsown Board of Directors, including a Chairman and Managing Director to beappointed by the Minister of Industries. Operational authority will bedelegated to the Managing Director, who will be supported by fourdepartmental managers, responsible for Agriculture, Factory, PersonnelAdministration, and Business Administration. The progressively greaterautonomy proposed for the companies is shown in the schedule below:

Activity Power of company Board Effective From

Staff recruitment and-termination Full InceptionCompensation for staff FullManagement of company operations FullProcurement of non-Project inputs Full InceptionPrice Setting Participatory July 1, 1984

Full July 1, 19 8 7 a/Marketing Partial July 1, 1984

Full July 1, l 9 8 7a/Irrigation Water Supply Participatory July 1, 1984

Full July 1, 1987a/Tenants New production relations July 1, 1985Research J Company MD participates July 1, 1984Training I in SPIC, PPC and SCGProject Implementation ] but centralized control remainsBorrowing from financialInstitutions Full subject to GOS ceilings July 1, 1984

a! Subject to outcome of mid-term review (para. 4.22).

However, expectations of autonomy would need to be tempered by the factthat GOS has full powers to appoint and remove the Board of Directors andtop management of the companies.

4.17 The specific responsibilities of the companies with respect toproject implementation, would be: (i) installation and operation of allmachinery and equipment purchased under the project; (ii) organization ofcapital works under the project; (iii) implementation of revisedcompensation packages and personnel organization; (iv) implementation ofrevised management and cost-accounting systems; (v) introduction of newcultivation and irrigation practices, and of new harvesting, transport, andbagasse handling systems; (vi) improved maintenance operations, and theintroduction of preventive maintenance systems for plant and machinery;(vii) operation and monitoring of the pilot long-furrow irrigation schemesand of in-field research activities; (viii) improvement of data collectionand record-keeping in all spheres of operation; and (ix) on-the-jobtraining for various categories of staff. The companies would bestrengthened by technical and management services by internationallyrecruited firms (paras. 3.18 and 3.19). The performance of the companieswould also be strengthened by a comprehensive training program (para.3.21).

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D. Monitoring, Evaluation, and Reporting

4.18 SPIC, assisted by the team of technical advisors, would haveoverall responsibility for monitoring, evaluation, and reporting.Monitoring and evaluation would be carried out principally through the AWPmechanism and the proposed mid-term review described below. Particularattention will be paid to the progress made towards achieving the yield,recovery, and output targets detailed in Chapter V, as well as to theachievement of cost-effective production techniques, and to the performanceof management at the four companies. The strengthening of management,accounting, and record-keeping systems, and the placement of the managementassistance teams (para. 3.18) would enhance SPIC's ability to monitoroperations on a regular basis and to evaluate results. Each company wouldestablish a small monitoring and evaluation (ME) unit, using existingstaff, which would pull together data required for ME purposes, andcoordinate ME activities throughout the company. Each MAT manager (and hiscounterpart in the company) would be paired with the appropriate advisor inSPIC - with the manager responsible for monitoring within the company, andthe SPIC advisor responsible for evaluation of results across all projectentities. Specifically, the Deputy Factory Manager would liaise with thesugar technologist on factory operations and recovery rates; theagricultural manager with the SPIC Agronomist on yields, cultivationpractices and research; the Principal Training officer with each companytraining officer on setting and monitoring training targets by number andskill-level of staff; and the Cost Controllers and Business Managers wouldliaise with the SPIC financial advisor on ME of cost-reductions andachievement of financial targets. In addition, under the project therewill be a review of the performance of each company every year by anindependent management consultant acceptable to IDA and an exchange ofviews with IDA no later than September 30 each year on remedial measuresproposed by such consultant. SPIC will furnish IDA with quarterly progressreports by telex in a format satisfactory to IDA. It would also preparethe Project Completion Report no later than six months after completion ofthe project. GOS acceptance of these arrangements was obtained duringnegotiations.

E. Annual Work Program

4.19 The Annual Work Program (AWP), which would cover all projectcomponents, would be a key project implementation mechanism and isdescribed in Annex 7. It would include (i) a detailed review of projectprogress in the current year, (ii) a detailed description of projectactivities in the forthcoming year, including objectives, deployment ofequipment and staff, (iii) detailed requirements of equipment, supplies andmanpower, (iv) a budget covering both project and non-project operations,and (v) a financing plan includ'ng foreign and local currency requirementsand budgetary support required from GOS. The AWPs would enable GOS toreview progress, scrutinize forthcoming programs and provide the necessarybudgetary and other support needed for the project. The AWP mechanism hasbeen successfully applied in ongoing IDA irrigation projects.

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4.20 Among the principal issues to be addressed in the AWP reviewswould be the level of sugar prices, access to foreign exchange, theperformance of the marketing system, the physical, financial and managementperformance of the four companies, compensation packages for company staffand harvesting labor, and institutional and manpower development.

4.21 For the first year of implementation, an AWP would be prepared bythe companies no later than August 31, 1984 and submitted by GOS to IDA byOctober 31, 1984. While the work program for the first year has beenlargely worked out already, the AWP document will not be required untilOctober 31, 1984 to give time to Government to obtain full agreement fromall concerned entities. AWPs for 1985/86 onwards would be submitted to GOSby March 1 and to IDA by May 1 each year for acceptance, to cover theensuing financial year beginning July 1. Assurances were obtained from GOSduring negotiations of acceptance of these arrangements.

F. Mid-Term Review

4.22 It was agreed with GOS during negotiations that a projectmid-term review will be conducted jointly by GOS and the sugar companies,and IDA no later than December 31, 1986. The purpose of this review willbe to assess performance under the project and progress towards developingthe autonomy of the companies, and to resolve any technical andinstitutional issues which may arise during the implementation period.Particular issues to be covered include: (i) progress in achievingproduction targets set under the project; (ii) adequacy of sugar prices andmarketing arrangements and progress towards total decontrol; (iii) accessto foreign exchange for the project entities; (iv) management and financialperformance of the four sugar companies; (v) performance of new canevarieties; (vi) resolution of the ground-heave problem at Sennar andAssalaya; (vii) progress achieved in attracting labor for cane-cutting;(viii) case for area expansion at Sennar and Assalaya; (ix) introductionof revised irrigation layouts, based on performance of the 300 feddan pilotplots; (x) adequacy of incentives for tenants at Guneid; (xi) institutionalarrangements for irrigation management; (xii) progress in re-structuringstaffing of the four companies; (xiii) scope for privatizing equity holdingin the sugar companies; and (xiv) progress in plans for the utilization ofsurplus molasses for ethanol production and feed-stock processing. Projectcomponents would be modified where required, and funds re-allocated ifnecessary. Preparation of an investment plan for the sector for the periodthrough 1995 would also be undertaken.

CHAPTER V

Sugar Production, Marketing, and Pricing

A. Sugar Production

5.01 Table 8 summarizes the expected crop areas, average yields, caneproduction, average extraction rates, and total sugar output of all four

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companies with and without the project. Detailed projections by companyare presented in Annex 5.2.

Table 8

Output of the four Sugar Companies - With and Without Project

Year 5 Year 51982/83 With Project Without Project

Mill Cane Area 59,645 88,000 76,600(feddans)

Average Yield 24.5 36.4 29.3(tons/fd)

Total Cane Production 1,459,720 3,202,500 2,248,200(tons)

Recovery Factor 9.0 9.9 8.2Total Sugar Output (tons) 131,900 316,730 184,860

5.02 Total area under command at the four schemes would not beexpanded under the project, although the area planted to cane is increasedby 48%, as a result of reduced fallow areas. The availability of morecultivation machinery and of more reliable water supply would allow this28,350 feddans of additional land to be planted and harvested.

5.03 Yields would increase substantially under the project, from acurrent average of 24.5 tons/feddan to 36.4 tons/feddan by 1988/89,principally because of the improved supply of inputs, especially ofirrigation water, and to a lesser extent because of improved cultivationpractices, the more efficient application of fertilizers and herbicides,and improved irrigation practices. In the longer run, improvements mayalso be expected with the introduction of new cane varieties, although thiswill not have a significant effect during the project period.

5.04 As a result of increased cane area and improved yields, totalsugarcane production is projected to more than double by 1988/89. Finaloutput of sugar increases even more as average recovery rates in processclimb from 9% to 10%, as a result of the rehabilitation of factoryequipment, and improved reliability of cane supply due to expansion of thecane harvesting and transport fleets.

5.05 Total sugar output of the four schemes is forecast to increase by140% under the project, from 131,900 tons in 1982/83 to 316,730 tons in1988/89. Forty-five percent of this increase is attributable to anincrease in cane area, thirty-nine percent to improved yields, and sixteenpercent to more efficient recovery of sugar from cane.

B. Marketing

5.06 The purchase and marketing of sugar in the Sudan is a Governmentmonopoly under the Public Corporation for Sugar Trading (PCST), which is

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responsible for purchasing local production and imports of sugar,distributing sugar through the country, and selling at specified wholesaleprices. The PCST purchases the entire output of the four public-sectorestates on an 'in-factory store' basis. The Corporation operates a networkof regional storage depots located at each of the major population centers,in addition to large stores operated by the sugar estates at each of thefactories. The PCST is only responsible for distribution as far as theregional stores. Wholesale and retail distribution was and continues to bethe responsibility of local governments and of the Ministry forCooperation, Commerce and Supply (MCCS).

5.07 Levels of permitted consumption are determined annually in theform of regional quotas - which currently total about 500,000 tons -although quotas have not been filled in recent years due to the shortage offoreign exchange for imports. The system of regional quotas and PCST'sresponsibility for distribution was intended to ensure that sugar isavailable at regulated prices throughout the country. In practice anunofficial market has developed because supplies to remote areas areinadequate. Much of the sugar appears to enter this market after leavingPCST's control, i.e. at the wholesale and retail level, although withcurrent accounting and information systems, it is difficult to trace sugarlosses.

5.08 During negotiations GOS clarified that effective July 1, 1984,the companies would be free to sell their output directly, subject toGovernment allocation and pric. ng procedures; and that if they sell to PCSTthey will receive the full producer price, as they would from any otherwholesaler. This should place only a limited additional burden on thecompanies in terms of billing and accounting requirements, which can bereadily handled as part of the technical assistance being provided for thedevelopment of accounting systems. In the longer run the market should befreed entirely, with the factories allowed to sell their production on theopen market. In the interim, however, there must remain a degree ofregulation so as to ensure that supplies of sugar are available in remoteareas. Progress towards decontrol would be monitored through the AWPmechanism and at the project mid-term review.

C. Pricing

5.09 At present, both producer and consumer prices for sugar are setadministratively without reference to either costs or economic efficiencycriteria.-- Consumer prices are roughly at import parity levels (at theofficial exchange rate), while producer prices are well below such levels.

5.10 The present pricing mechanism is fraught with distortions. Thecomposition of prices for 1982/83 was as follows:

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LSd/ton Z

Consumer price 573.20 100(-) Distribution margins 73.20 12(-} Government Share 250.00 44= Producer price (gross) 250.00 44(-) Excise Duty at 15% 37.50 7(-) Irrigation and other

Governmental charges 75.00 13- Payment to factories (net) 137.50 24

The nominal producer price was raised from LSd 250/ton to LSd 400/ton for1983/84 season, but the pattern of deductions outlined above continue andthe net payment to the factory will be about LSd 265/ton.

5.11 The average cost of production during 1983/84 is estimated at LSd467/ton. The present price mechanism would prevent the companies fromgenerating sufficient revenues to purchase inputs and thereforecontinuation of this mechanism would be at the expense of the industry'sfinancial and operational viability. Clearly this situation cannot persistif the companies are to operate on a commercial basis.

5.12 Recognizing these concerns, Government have recently accepted theprinciple of import parity pricing for producer prices. The price adoptedwill be based on the six year historical moving average (adjusted forinternational inflation) of the daily international6/ price using anexchange rate which reflects the rates applicable to the principal importedinputs for the industry in the previous year. Adjustments of this pricewill be considered in light of the cost of production of an efficientproducer and the financial viability of the companies, bearing in mind theexcise duties on sugar.

5.13 The implications of import parity prices on the relationshipbetween prices and production costs are depicted in the table below:

Table 9Sugar Producer and Consumer Price Levels (LSd/ton)

Cost of Production Import Parity PricesGuneid N.Halfa Sennar Assalaya Average Producer Consumer

1983/84 618 469 428 393 467 526 5891988/89 a/ 442 371 327 336 343 643 7161988/89 b/ 944 793 697 717 733 1,460 1,616

a/ 1983 Constant Prices.b/ Current prices.

6/ The international price used will be the London daily price for raws,corrected by the addition of a white sugar premium.

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5.14 The table shows that adoption of import parity prices would coverfully the production costs of the sugar companies, and would in fact leaveadequate margin for the imposition of excise duties. The level of pricesand excise duties would take account of the cost of production of anefficient producer, and would need to be regulated in order to safeguardthe financial viability of each of the sugar companies. Any excess profitsaccruing to lower-costs producers would be partly captured by taxes onprofits and dividends on Government equity. During negotiations theGovernment confirmed that it is continuing to actively pursue, wheneverfeasible, its declared policy of eliminating consumer subsidies.

5.15 The adjustment to parity prices would take place when producerprices for 1984/85 are announced. The acceptability to IDA of the level ofsuch prices would be a condition of project effectiveness. Thereafter,producer prices would be announced after consultation with SCG no laterthan October 1 each year. Such prices would be based on the principles setout in paras. 5.12 and 5.14 above and would be announced after consultationwith IDA.

5.16 The projected producer prices, based on import parity priceswould incr--ase each year during the project as the result of a number offactors: true move to import parity pricing, inflation effectinginternatioaal and domestic transport costs, and adjustments in the forecastexchange rate. The producer price series forecast for the purposes offinancial projections is given in Annex 3.

5.17 The forecast adjustment of producer prices (para. 5.16) resultsin an annual average nominal increase in consumer prices of 17% per annum;this corresponds to a real increase of only 12% over the project period.

Chapter VI

Financial Analysis

A. Financial Results for the four Sugar Companies

Current Financial Situation

6.01 At present the sugar production units have no control over theirown finances, they are unable to retain their own revenues, to borrowcommercially, or to purchase foreign exchange. Operating costs are metpartially by budgetary transfers from the Ministry of Finance, partially byaccummulating overdrafts at the Bank of Sudan, and to a limited extent byreceipts from sugar sales. Since the ex-factory producer price is set wellbelow the costs of production this has led to severe cash shortages,substantial annual losses, and accummulated debts with the Bank of Sudan.The four factories incurred estimated losses of LSd 26 million in 1980/81and LSd 22 million in 1981/82, and were liable for a LSd 85.4 millionoverdraft by the end of September 1982. Under existing arrangements thecompanies could not conceivably operate on a commercial basis.

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Financial Structure

6.02 The Project would support financial restructuring of theCompanies. The outstanding debt to GOS would be capitalized to theextent that it relates to past purchase of assets and written off to theextent that such debt has been incurred as a result of operating losses.GOS's equity in the four companies would then be taken to consist of thenet going concern value of assets at the time of formation of thecompanies. The initial balance sheets of the companies (para. 4.12) wouldreflect the above measures. The provision of finance to the companiesunder the project would then be based on a judicious blend of on-lendingterms (para. 3.33) to achieve the desired mix of debt and equity in thelong run. The composition of new debt and equity injections under theproject, which is shown in Annex 3.5, results in a debt-equity ratio foreach of the companies of 1:1. Agreement was reached during negotiations tolimit the amount of any debt incurred by each company, in addition toproject finances, to an amount that would result in a debt-equity ratio ofat least 1:1, and to ensure that net income would be at least 1.5 timesdebt-service payments in any year.

6.03 With the revision of pricing arrangements (paras. 5.12 to 5.17),the adoption of depreciation based on replacement value (para. 4.12), andthe revised structure of the capital base of the companies, the firms wouldbe able to fully cover costs, generate surficient cash to retire debts onschedule and to maintain assets.

Projected Financial Results

6.04 The projected financial flows for the four companies are shown inAnnexes 3.2 and 3.3. Table 10 below depicts the commercial and financialviability of projected operations:

Table 10

Financial Performance of Companies

Guneid New Halfa Sennar Assalaya

Net Income (current LSd Million)(after taxes)

1984/85 -8.0 -3.6 0.1 1.71989/90 3.8 8.3 14.0 13.2

Net Cash Flow a/ (current LSd Million)

1984/85 -5.9 -1.6 3.6 6.01989/90 4.9 7.2 11.3 11.3

Rate of Return on Net FixedAssets (X) 11.6 21.4 27.1 21.1

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Operating Expenses!Revenues

1984/85 1.29 1.02 0.83 0.701989/90 0.66 0.55 0.46 0.45

Debt Service Coverage

1989/90 2.12 2.65 3.03 2.97

Debt to Equity Ratio

1988/89 0.99 0.92 1.02 1.00

a/ See Annex 3.3.

B. Other Project Entities' Financial Results

6.05 Various other Government agencies involved in project execution(ARC, the Ministry of Industry, the Sennar Training Center) will obtaincash inflows from GOS in the form of budgetary transfers to cover capitalcosts of rehabilitation along with incremental operating costs during theproject period.

C. Government Cash Flows

6.06 The proposed project will effect GovernmenL income andexpenditures in a number of ways: it will result in savings due to reducedimports of sugar; the Government will no longer have to absorb the annualoperating losses of the sugar companies; at the same time Government willlose the revenue it has been generating through the differential pricing cfsugar. Under the proposed financial arrangements, Government inflows wouldconsist of excise duty, corporate taxes, and dividends paid by thecompanies, as well as interest and principal repayments on on-lent funds,and the concessional capital finances provided by international andbilateral agencies. Government outflows would consist of repayment anddebt-service on the concessional loans, equity injections and funds on-lentto the companies, budgetary capital transfers to MOI, MOAI, and ARC, therecurrent operating costs of the Sennar Training Institute and the GuneidResearch Station, and any consumer subsidy required if the consumer pricefalls below the producer price of sugar. The net effect of these changesis presented in Annex 3.5 and 3.6. These show that over the first tenyears of the project Government cash inflows exceed outflows by LSd 6887/million, or an average of LSd 69 7/ million per year. In addition, theGovernment avoids the accumulation of an estimated LSd 116.5 million infurther overdrafts at the Bank of Sudan by placing the companies on a soundfinancial footing. Under the proposed arrangements there would be nofurther need for operating subsidies to the companies.

7/ In current LSd.

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D. Guneid - Financial Relations with Tenants

6.07 There are 2,364 tenant farmers registered with 37,219 feddans intotal, an average of 15 feddans per tenant. Each tenant is responsible forplanting, irrigation, fertilizing, weeding and pest control, although infact, some if not all of these operations are performed by the Corporationon behalf of those tenants who are absentees. Each tenant has a personalaccount into which all direct costs relating to the production of caneafter applying a subsidy factor (presently 50%) are deleted as well asloans and sundry items. Revenue for harvested cane is credited to thetenant at the end of the season and the net balance settled.

6.08 Specific direct cost components are calculated and applied in anumber of ways: chemicals and fertilizers are issued in bulk against amaterials requisition. Details of the individual issues are supplied forcosting and charging to each tenant's personal account. All other directcosts such as ploughing, planting, weeding, and canal maintenance arecharged to tenants on an average cost per feddan basis, calculated bydividing the total costs by the total feddans cultivated. The effect ofthe subsidy factor and the low price for cane is tantamount to apartnership arrangement similar to the Joint Account in cotton with all thesame inherent disadvantages of a lack of incentive pricing and cross-subsidization. The project would remedy these defects by introducing anIndividual Account system. Full costs would be charged, and revenues wouldreflect import parity prices at the farmgate, and provided the farmerproduces above a break-even yield, then incentive pricing comes into play.Agreement was reached during negotiations that an Individual Account Systemacceptable to IDA would be introduced by June 30, 1985.

CHAPTER VII

Project Benefits and Economic Analysis

A. Production Benefits

7.01 The area expansion, yield improvement, and additional productionanticipated under the Project is shown in Table 8 and in Annex 5.2. Theproject would generate net foreign exchange savings of US$67 million peryear after completion (1989 constant prices). Annex 3.6 gives details ofthe GOS's incremental foreign exchange savings under the Project. TheProject could thus be expected to improve the balance of payments situationsubstantially, and this is its prime justification. The Project will alsoresult in a net resource saving to the country as it lowers the averagecost of production of domestically produced sugar by increasing factoryoutput to near capacity levels. Furthermore, the project contributes tothe mobilization of domestic resources, as the Government retains some ofthe potential surplus generated by the sugar sector.

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B. Other Benefits

7.02 Expansion of production at the four public sector sugar estateswould result in the creation of an estimated 1,150 additional jobs in thecentral Sudan, yielding a total increase in employment income of about LSd2.2 million per annum by 1989/90. In addition there will be a need forapproximately 5,320 cane-cutters on a seasonal basis, thus providing anan important income-earning opportunity for unskilled migrants from thepoorer southern and western areas of the country.

7.03 Rehabilitation and expansion of production under the project atGuneid would directly benefit the 2,365 tenant farmers on the sugar estatethere. Tentative estimates show that average tenancy incomes would risefrom about LSd 400 in 1983/84 to about LSd 950 (1983 prices) in 1989/90.

7.04 Improved social welfare and living conditions for 11,000 migrantcane cutters and other seasonal labor would result from the provision ofproper housing, water supply, and sanitation services to laborer's villagesunder the project. The social welfare of ov.,z 100,000 residents of thesugar estates would be improved by the expansion of health and educationservices, and the construction of community market places.

C. Economic Analysis

7.05 The economic rate of return is 40%. This is significantly abovethe opportunity cost of capital in Sudan which is currently estimated to bearound 12 or 13%. The high economic rate of return reflects the very largemarginal benefits to be gained from rehabilitation which are a naturalfunction of the large amount of sunk capital at the four sugar schemes.The economic rate of return for individual companies range from 36% forGuneid to 65% for Sennar.

7.06 The principal assumptions employed in the economic analysis areas follows:

(i) Without Project Situation:

It is assumed that without rehabilitation, the sugar estates willcontinue to produce using the same area of land and the sameproduction methods currently employed. However the companieswould accumulate even greater debts, and would not be in aposition to replace obsolete machinery, and would face continuingshortages of critical inputs. As a consequence, they could notbe expected to perform significantly better than they have donein the 1982/83 season; crushing rates would likely fall over thenext five years, although some marginal improvements in yieldswould be expected as a result of improved practices and powersupply. Details of without project projections are presented inAnnex 5.2.

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(ii) Prices:

The import parity price is assumed for sugar outputs (para5.12). The price used is based on a six year moving average ofthe international sugar price, as detailed in Annex 2a. Foreigncosts and benefits are valued at an exchange rate of LSd 1.9/US$,and the local currency component of capital costs and benefitshas been converted to border prices using a conversion factor of0.75. Incremental operating costs of the sugar companies wereshadow priced using a conversion factor of 0.88, reflecting aweighted average of estimated accounting ratios applicable to theprinciple categories of inputs consumed.

(iii) Project Life:

The economic life of the project is assumed to be 20 years.Replacement of Project assets with economic lives shorter thanthat period is included.

D. Project Risks

7.07 While the project is subject to a limited number of specificphysical risks, it is particularly susceptible to financial andorganizational risks. Since successful project implementation dependscritically on institutional and policy reforms, the project is extremelysensitive to failures in this area. Any of the following couldsignificantly erode potential project benefits:

- failure to adjust sugar prices sufficiently;

- failure to allow the companies sufficient autonomy;

- uncertainty over distribution arrangements;

- insufficient estate-level management capability to handle thedemands of operating on a commercial basis.

- failure to implement effective preventive maintenance programsfor machinery and equipment;

- failure to retain skilled irrigation engineers in the event thatirrigation operations are transferred to the companies.

7.08 Physical risks are less of a threat to the project, especiallysince seasonal fluctuations are almost non-existant in the Sudan, so thatthe principal remaining problems are crop suitability and the provision ofwater. If all of the institutional and policy reforms are undertaken thensubject to the general remarks below (para 7.09), there should be noproblem with the provision of inputs. However, the new smut-resistantvarieties may not prove viable under Sudanese conditions, and productivityof existing varieties could decline, and this would reduce yields in thelonger run. Despite offering improved conditions, the estates may still

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face a sporadic supply of labor for cane-cutting, and this could also haveadverse effects on output. If the forecast yields are not achieved atSennar and Asalaya, then the cane area will have to be expanded at thesetwo estates in order that the factories may operate near capacity. Thiswould entail further capital costs and a reduced rate of return. A finalphysical risk relates to the ground-heave problem at Sennar and Assalaya(paras. 2.29 and 2.33), however, technical studies indicate that this is anegligible risk, if detailed designs for rectification are drawn up by acompetent technical firm.

7.09 In addition to the specific risks outlined above, there are anumber of general constraints which are national in character, and whichmay also effect the project. In particular, these are: shortages offoreign exchange; shortages of fuel; a lack of skilled manpower; andtransport and delivery bottlenecks effecting the procurement of goods.These risks effect all undertakings in the Sudan; however the Governmenthas given assurances that it will give the project entities high priorityin all of these areas. Sensitivity analysis shows that the project wouldstill be economically viable if costs rose by 93% or benefits dropped by48%.

7.10 The project has been designed in such a way as to address theidentified risks. Firm commitments have been received from the Governmenton the revision of prices, access to foreign exchange and the grant ofautonomy for the companies. Ample technical personnel are provided toassist with the development of accounting, managerial and maintenancesystems, and to train local managers and technicians in their use.Conditions are being improved for cane-cutters, and funds provided toImprove labor mobilization. The enhanced research program will reduce therisk of unsuitable cane varieties being introduced, and rectification ofthe ground-heave problem at Sennar and A-salaya is included in theproject. Particular conditions of the proposed project are outlined in thefollowing chapter.

CHAPTER VIII

Summary of Agreements

8.01 During appraisal, agreement was reached that GOS wouldcomplete formal establishment of the four estates as independent companiesand this has now been accomplished (para. 2.07).

8.02 During negotiations agreement was reached that:

(i) GOS and the Companies will prepare detailed design forground-heave rectification at Sennar and Assalaya byDecember 31, 1984 with the assistance of consultants acceptableto IDA (para. 3.25).

(ii) GOS will obtain, by December 31, 1984, appropriate notificationshowing that all conditions precedent to the disbursement ofUS$23.5 million (in addition to the US$64.5 million referred to

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in 8.03 (ii)) from external donors have been fulfilled, thus,securing access to the full US$88.0 million in requiredco-financing (para. 3.34);

(iii) GOS and the sugar companies will follow procurement proceduresfor goods and services prescribed for the project, and hiretechnical services in accordance with IDA guidelines (paras.3.35-3-39).

(iv) GOS and the sugar companies would recruit firms to provideManagement Assistance and Training Services by October 31, 1984(para. 3.18) on terms and conditions acceptable to IDA. Suchrecruitment will be on the basis of competitive selection from alist of pre-qualified firms having qualifications and experienceacceptable to IDA (para. 3.39).

(v) The Sudan Sugar Board will be established and an ExecutiveDirector and Secretary with experience and qualificationssatisfactory to IDA will be appointed prior to Board presentation(para. 4.02);

(vi) GOS will transfer ownership of assets used to operate pumpstations and major canals from MOAI to the sugar companies nolater than July 1, 1985 (para. 4.07).

(vii) GOS will implement collaborative arrangements between PPC, SPICand the project entities, as set out in Annex 12 (para. 4.09).

(viii) GOS will ensure that the sugar companies have access to essentialimported recurrent inputs, including sufficient supplies of fuelto operate the factories, field equipment and the electricalgenerators (para. 4.11). (GOS clarified that while these Inputsare normally procured with foreign exchange made available by theBank of Sudan and/or foreign assistance, there is no prohibitionon companies incorporated under the 1924 Companies Ordinancewhich would restrict them from obtaining foreign exchange fromother legal foreign exchange sources.)

(ix) Each of the companies will furnish initial balance sheets basedon principles acceptable to IDA no later than March 31, 1985(para. 4.12).

(x) The four public sector sugar companies will provide unauditedfinancial statements within six months of the close of eachproject year, and audited financial statements and an independentauditors' opinion and report to IDA within nine months of theclose of each fiscal year (para. 4.12), such independent auditorto be acceptable to IDA (para. 4.13). Such accounts for the fourcompanies will reflect depreciation on a replacement value basis(para. 4.12).

(xi) For other project entities, GOS will provide IDA with unauditedfinancial statements within 6 months, and audited financial

- 48 -

statements with an independent auditors comments and reportwithin nine months, of the end of each fiscal year. GOS willarrange for audit to be completed by independent auditorsacceptable to IDA, in the event that the Auditor General reportsthat an audit for which his office is responsible cannot becompleted within three months of receipt of accounts (paras. 4.14and 4.15).

(xii) GOS will furnish, during the project implementation period,quarterly progress reports, by telex, in a format satisfactory toIDA, and a project completion report within six months of thecompletion of the project (para. 4.18).

(xiii) GOS will arrange for a review of the performance of each companyevery year by an independent management consultant acceptable toIDA and hold an exchange of views with IDA no later thanSeptember 30 each year on remedial measures proposed by suchconsultant (para. 4.18).

(xiv) The companies and GOS will prepare Annual Work Programs forproject entities in 1984/85 no later than August 31, 1984, andGOS will submit to IDA for acceptance, an AWP covering allproject components for 1984/85 by October 31, 1984. ThereafterAWP's will be submitted to GOS by March 1 and to IDA foracceptance by May 1 each year, to cover the ensuing project year(para. 4.21).

(xv) GOS, in cooperation with the sugar companies, will conduct,jointly with IDA, a mid-term review of the project no later thanDecember 31, 1986 (para. 4.22).

(xvi) The companies will be permitted to market their productiondirectly, subject to Government allocation and pricingprocedures, and will receive the full producer price for theirproduction (para. 5.08);

(xvii) GOS will:

(a) use the principle of import parity pricing for determining theproducer price for sugar on the basis of a six-year historicalmoving average (adjusted for international inflation) of thedaily international sugar price (London daily price for raw sugaradjusted by the White Sugar Premium). The import parity pricewould be calculated using an exchange rate which reflects therates applicable to the recurrent imported inputs to the sugarindustry in the previous year.

(b) adjust this price taking into account the cost of production ofan efficient producer, and the financial viability of the sugarcompanies, bearing in mind the excise duties on sugar.

- 49 -

(c) announce such producer prices not later than October 1 each year,starting in 1985, after consultation with IDA (paras. 5.12, 5.14and 5.15).

(xviii) the sugar companies will not incur any debt if such debt shallresult in:

(a) the debt-equity ratio for that company rising above 1:1, or

(b) in the companies net revenues becoming less than 1.5 times themaximum debt-service requirement in any succeeding year (para.6.02).

(xix) GOS and Guneid Sugar Companv will ensure that an individualaccount system at Guneid, on a basis acceptable to IDA, isintroduced by June 30, 1985 (para. 6.08).

8.03 The following would be conditions of effectiveness:

{i) Execution of Subsidiary Loan Agreements, acceptable to IDA,governing the onlending of project funds to the sugar companies(para. 3.33).

(ii) Evidence satisfactory to IDA, that all conditions precedent tothe disbursement of US$64.5 million from external donors for theproject, save effectiveness thereof, have been fulfilled (para.3.34).

(iii) Announcement of a producer price for 1984/85 satisfactory to IDAin accordance with the principles described in para. 5.12 (para.5.15).

8.04 With these conditions and assurances, the project would besuitable for a Credit of US$60 million to GOS on standard IDA terms.

Annex la

SUDANSUGAR REHABILITATION PROJECT

Project CaoPenwt by Time(LS '000)

Totals I cludins Cantingencies Total

84/85 95/96 86/87 87/n 88989 LSD CUSS '000)

A. AGRICLtTURE

CULTIVATION EGUIPMENT 79617.0 4,784.0 49517.7 3.615.5 1,324.3 21,959.5 119544.0HAMVESING I TRMNSPORT EGUIPHENT 21S945.5 7,702.0 6,900.8 4i955.9 19326.4 424760.6 23,360.5mISC EGUIP (AGRIC) 11i020.6 3.293.1 39300.5 401.6 676.5 19,892.3 10,487.6VEHICLES 490.9 862.1 712.3 935.2 416.4 3.416.7 1,712.9FIELD VORKSHOP 906.2 1067.1 1,227.8 - - 3.201.O 19720.7ESTATE BUILDINGS 3.320.5 5,523.1 203.6 - - 99047.1 5,035.4

Sub-Total AGRICULTURE 45,300.6 23,231.4 16,962.6 9,838.2 3,943.6 99,176.4 53,961.3D. IRRIGATION

REHABILITATItN I NEIU WORK 7i016.0 11,Y191.1 7,061.4 19879.4 2.434.5 29,582.4 15,570.7PEER 6EERATIDN 1,395.4 10,291.1 2.152.2 - - 134929.I 7,423.4

SitTotal IRRIGATION 9,401.4 21,482.2 9t213.6 1,r79.4 2,434.5 43,411.2 22,994.1C. FACTORY

DUCKAU VOIF PROAHE 25sB56.1 - - - - 25,956.1 15,299.5ADDITIONAL REDUIREtENTS 14.1 5,685.8 - 9.779.6 - 14,479.S 7.092.6STOCK SPARES 4,425.4 5,209.5 6,666.1 - - 16,300.9 9.735.8REHABILITATION I 2P399.9 2,974.6 - - - S,374.5 3.019.3REHAILITATION II 1,499.9 3,772.1 - 3,072.9 - 8.333.9 4,318.6REHABILITATION III 139.3 351.5 - - - 489.9 270.8BAASSE STORE 1,707.9 - 2,011.0 2,313.5 - - 69032.4 3,242.9SUPERSTRUCTURE 2,570.1 2.603.7 224.2 271.0 692.4 6s352.3 3,444.9GR3N HEAVE RECTIFICATION 4I138.3 4.872.4 - - - 9,010.7 5,069.3

Sub-Total FACTORY 429739.9 27,480.6 9,203.7 12m123.5 682.4 92,230.1 509492.5D. INFRASTRUCTURE

RADS,COIUJNICATIOMS I ELEC. 3P016.7 2,188.5 238.3 - - 5,443.5 3-090.2HOUSING I SERVICES 30761.7 6,605.2 4,724.9 2,629.6 - 17,721.4 9,334.0SOCIAL IWFRASTRUCTURE Ir191.B 2,106.2 1,394.7 1,297.9 - 5,970.6 3,117.3;aSC EWUIPIINT 270.1 277.9 20.9 - 77.5 646.4 352.3

Sit-Total INFRASTRUCTURE UP240.3 11,177.8 6,368.7 3,917.5 77.5 29,7B1.9 15,883.8E. SUPPORT SERVICES

OFFICE EDUIPNENT 785.1 3,139.1 1,157.3 293.4 2,130.2 79495.1 3,756.8TECHNICAL SERVICES 9.934.4 10,505.5 10,447.9 7,002.8 7,321.7 449212.2 22,434.3

Sit-otal SUPPORT SERVICES 9i719.5 139644.7 11,605.1 7v286.2 9,451.9 51.707.3 26,191.1F. SUGA CANE RESEARCH

LAD EOUIPIIENT - 514.1 - - - 514.1 276.4EOUIPIIEJT I BUILDINGS 446.6 577.2 9.7 - 729.4 1.763.0 B97.2

Su-Total SUGAR CANE RESEARCH 446.6 1,091.4 9.7 - 729.4 2,77.1 1,163.6S. PROMECT IIYLETATION TEN 3U624.2 2,501.9 2,517.7 232.9 - 89876.6 4,949.0M. TRAINIG

mm1W TRAINING CENTRE 838.4 989.1 129.4 - - 1.956.9 1,092.3TA PERSIOIEL 1,369.5 1,610.4 19B49.9 1,777.7 445.4 7,051.9 3,599.4EXTERNML TRAINING 360.6 424.0 496.8 559.6 644.9 2,475.8 1,212.3

Sui-Total TRAINING 2w568.5 3,023.4 2,465.1 29337.3 1,090.2 11,484.6 5,903.9

Total PROJECT COSTS 121,041.0 103,633.4 59,249.2 37.615.1 189409.5 338,945.2 181.339.4

Harch 1t 1984 17:02

- 51 - Annex lb

Project Costs(US$ millions, including all contingencies)

NewGuneid Haifa Sennar Assalaya Total

AGRICULTURE: 10.0 (8.4) 12.6 (10.6) 14.2 (11.9) 17.0 (14.3) 53.9 (45.2)Cultivation Equip. 2.0 (1.7) 2.5 (2.1) 3.1 (2.5) 3.9 (3.4) 11.5 (9.8)Harvesting & Transp.Equip. 4.4 (3.8) 4.7 (4.0) 6.8 (5.8) 7.4 (6.3) 23.4 (19.9)

Misc. Agric.& Const.Equip. 2.5 (2.1) 2.1 (1.8) 2.3 (2.0) 3.5 (3.0) 10.5 (8.9)

Vehicles 0.4 (0.3) 0.4 (0.3) 0.3 (0.3) 10.6 (0.5) 1.7 (1.4)Workshop Equip. 0.4 (0.3) 0.4 (0.3) 0.4 (0.3) 0.4 (0.3) 1.7 (1.2)Estate Buildings &Workshops 0.2 (0.2) 2.5 (2.0) 1.3 (0.9) 1.1 (0.8) 5.0 (3.9)

IRRIGATION: 6.0 (4.8) 2.0 (1.1) 7.1 (5.4) 7.8 (5.5) 23.0 (16.8)Rehab. & New Works 3.5 {2.7) 2.0 (1.1) 3.4 (2.4) 2.9 (1.9) 11.8 (8.1)Power Generation 2.5 (2.1) - - 3.7 (3.0) 4.9 (3.6) 11.2 (8.7)

FACTORY: 15.6 (13.3) 16.3 (14.0) 8.6 (6.6) 10.0 (7.6) 50.5 (41.5)Buckau Wolf Program 7,0 (6.7) 8.3 (7.9) - - 15.3 (14.6)Additional Require. 3.3 (2.3) 3.8 (2.8) - - - - 7.1 (5.1)Stock Spares 3.4 (2.8) 2.1 (1.8) 1.6 1.3 1.6 1.3 8.7 (7.2)Rehab. Program - - 3.8 (2.7) 3.8 (2.6) 7.6 (5.3)Bagasse Stores 0.7 (0.6) 0.7 (0.6) 1.0 (0.8) 0.7 (0.6) 3.2 (2.6)Superstructure 1.2 (0.9) 1.2 (0.9) 0.5 (0.4) 0.5 (0.4) 3.4 (2.6)Ground-Heave Rectif. - - - - 1.7 (1.4) 3.4 (2.7) 5.1 (4.1)

INFRASTRUCTURE: 3.6 (2.1) 3.0 (1.8) 2.6 (1.4) 6.9 (3.9) 15.9 (9.2)Commun. & Elec. 0-.9 (0.7) 0.9 (0.7) 0.5 (0.4) 0.9 (0.7) 3.1 (2.5)Housing & Services 1.9 (1.0) 1.5 (0.8) 1.2 (0.7) 4.7 (2.6) 9.3 (5.1)Social Infrast. 0.7 (0.3) 0.5 (0.2) 0.7 (0.3) 1.1 (0.5) 3.1 (1.3)Maintenance Equip. 0.1 (0.1) 0.1 (0.1) 0.1 (0.1) 0.1 (0.1) 0.4 (0.4)

SUPPORT SERVICES: 6.5 (6.3) 6.5 (6.3) 6.5 (6.3) 6.5 (6.3) 26.2 (25.2)Office Equip. 0.9 (0.7) 0.9 (0.7) 0.9 (0.7) 0.9 (0.7) 3.8 (2.8)Tech. & Mgt. Services 5.6 (5.6) 5.6 (5.6) 5.6 (5.6) 5.6 (5.6) 22.4 (22.4)

PROJECT IHPLEMENTATION: - - - - - - - - 4.8 (4.4)Advisory Team (SPIC)

TRAINING: - - - - - - - - 5.9 (5.4)

RESEARCH: - - - - - - - - 1.2 (0.9)

TOTAL 41.7 (34.9) 40.4 (33.8) 39.0 (31.6) 48.2 (37.6) 181.3(148.8)

Note: Figures in parentheses (-) are foreign exchange portion of costs.

- 52 -Annex 2a

SUDANSugar Rehabilitation Project

Current Financial Prices

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89

International Price 341 372 406 445 488 533(USS/ton)

Ex-Factory Import 525 737 883 1,041 1,232 1,450Parity Price (LSd/Ton)

- 53 - Annex 2b

SUDANSugar Rehabilitation Project

Composition of Import Parity Price

1983/84

6 Year Average Price 301FOB Europe (US$)W. Sugar Premium ($) 40W. Sugar Price 341Transp. & Misc. Charges ($) 37C&F Port Sudan $ 378

C&F Port Sudan LSd 491Insurance etc. at 2.5Z (LSd) 12Transport and StoragePort Sudan - Khartoum (LSd) 49

LSd 552

LessTransport Factory - Khartoum 27Ex-Factory Import Parity Price LSd 525

- 54 - Annex 2c

SUDANSugar Rehabilitation Project

Composition of Consumer Price - 1982/83(LSd/ton)

Retail Price 573.20

Retailers Margin 22.05Wholesaler's Margin 16.15

PCST's Selling Price 535.00

PCST's Costs 35.00Govt. Share ofPCST Profit 250.00

Stated Producer Price 250.00

Excise Duty 37.50

Actual Producer Price 212.50

Average Cost of Production 469.65(at four estates)

- 55 -Annex 3.1

SUDANSugar Rehabilitation Project

Estimated Price Contingency and Foreign Exchange Rates

Price Contingencies 1984/85 1985/86 1986/87 1987/88 1988/89

(a) Foreign Exchange Costs (X) 7.2 6.5 6.0 6.0 6.0

(b) Local Currency Costs (Z) 20.0 17.0 15.0 15.0 15.0

Exchange Rate (LSd/US$) 1.69 1.86 2.01 2.18 2.37

Price Adjustments Prior to Project Start-Up

Inflation (%) Exchange RateDomestic Foreign (LSd/US$)

Initial Price Estimates: June 1982 - - 0.9Project Base Costs: January 1984 50.0 12.0 1.3Project Start-Up: July 1984 15.0 4.0 1.5

- 56 - Annex 3.2a

SUB.'

SUA NERENAILITATION PROJECT

WIIEID

INCOME STATEMENT (PROFIT I LOSS ACCOUNT) a/

(LSD 000s)

Year commencing July 1 1984 1985 1986 1997 88 1989

INCOME

SALE OF SUGAR 19251.8 28658.0 41802.6 60756.3 76310.1 90221.1LESS EXCISE DUTY 2887.8 4298.7 6270.4 9113.4 11446.5 13533.2

NET REVERiE 16364.1 24359.3 35532.2 51642.9 64863.6 76688.0

EXPENSES

OPERATING EXPENSES

AGRICULTURE 8413.7 10959.7 13883.4 17434.8 20424.3 20424.3FACTORY 4469.5 6373.2 8770.0 11912.1 146t2.2 14612.2UORKSHOP 839.3 1084.3 1364.2 1703.3 2024.1 2024.1

MOTAL DIRECT COSTS 13722.5 18417.2 24017.6 31050.2 3t060.6 37060.6

INDIRECT COSTS 7410.2 8669.9 9970.4 11465.9 13185.8 13185.8

TOTAL OPERATING EXPENSES 21132.7 27087.1 3M7.9 42516.1 50246.4 50246.4

DEPRECIATION 2101.1 4652.0 6315.7 8119.3 10100.4 10264.9

DANK INTEREST 1132.0 1319.5 1560.3 1805.8 1868.0 1685.7

OPERATING INCOME (PROFIT) -8001.7 -8699.3 -6331.7 -798.4 2648.7 14490.9

CAPITAL INTEREST - 972.2 2612.2 3775.3 4645.8 4955.0

NET PROFIT (LOSS) -8001.7 -9671.5 -8943.9 -4573.7 -1997.0 9953.2

CORPORATE TAXES - - - - - 5721.1

NET PROFIT(LOSS) AFTER TAX -8001.7 -9671.5 -8943.9 -4573.7 -1997.0 3914.1

DIVIDEND - - - - - 1YD7.0

BALANCE CARRIED FORVARD TO RESERUES -8001.7 -9671.5 -8943.9 -4573.7 -1997.0 1907.0

NOTE: ALL FIGURES IN THMOSANS OF CURRENT LSD UNTIL 1988189

AND CONSTANT THEREAFTER

a/ See explanatory notes following Annex 3.2d.

_ 57 - Annex 3.2b

sus

SUGAR REHAIILlTATIT01 PROJECT

KEU HALFA

INCOME STATEMENT (PROFIT I LOSS ACIXNT)

(LSD *000)

Year commencing July 1 1984 I985 1966 1987 1988 19

INCONE

SALE OF SUGAR 27135.2 37356.7 53665.5 69041.2 81296.2 96116.2LESS EXCISE DUTY 4070.3 5603.5 8049.8 10356.2 12194.4 14417.4

NET REVENIE 23064.9 31753.2 45615.7 59685.1 69101.8 81698.8

EXPENSES

OPERATING EXPENSES

AGRICILTURE 6997.9 8356.6 9796.5 11523.4 13252.0 13.252.0FACTORY 3081.2 3859.0 4752.6 5855.9 6734.3 6734.3WORKSHOP 4150.3 5012.5 5939.0 7073.9 8134.8 8134.8

TOTAL DIRECT COSTS 14229.4 17227.0 20488.1 24453.1 28121.1 28121.1

INDIRECT COSTS 9314.8 10998.4 12533.1 14413.1 16575.1 16575.1

TOTAL OPERIATING EXPENSES 23544.3 28125.4 33021.2 388e6.2 44696.1 44696.1

DEPRECIATION 1992.4 4571.3 6350.3 8086.1 9731.6 9835.8

DANK INTEREST 1098.4 1188.1 1280,5 1267.5 1358.1 1261.3

OPERATING INCOME (PROFIT) -3570.2 -2131.7 4963.7 10465.3 13315.9 25905.6

CAPITAL IlNTEREST - 1430.3 2892.0 3823.? 4735.8 5261.9

NET PROFIT (LOSS) -3570.2 -3562.0 2071.7 6641.4 8580.1 20643.7

COWRPRATE TAXES - - 1243.0 3984.9 5148.1 12386.2

NET PROFIT(LOSS) AFTER TAX -3570.2 -352.0 828.7 2636.6 3432.1 8257.5

DIVIDEND - - 414.3 1328.3 1716.0 4128.7

BALANCE CARRIED FORVARD TO RESERVES -3570.2 -3562.0 414.3 1328.3 1716.0 4128.7

NOTE: ALL FIGURES IN THOUSANDS OF CURENMT LSD UNTIL 1988/89

AND CONSTANT THEREAFTER

- 58 -Annex 3.2c

SUDAN

SUGAR REA3UILITATIN PROJECT

SEMNAR

INCOME STATEMENT (PROFIT I LOSS ACCOUNT)

(LSD POOOs)

Year coumencing July 1 1994 I985 1996 1987 1989 19

INCOME

SALE OF SUGAR 32637.9 45658.1 64398.6 86047.2 104059.2 123023.8LESS EXCISE DUTY 4895.7 6948.7 9659.8 12907.1 15608.9 18454.3

NET REVENUE 27742.2 39809.4 54738.8 73140.1 U8450.3 104574.5

EXPENSES

OPERATING EXPENSES

AGRICULTURE 7052.7 8690,7 10902.9 12657.6 14686.1 14686.1FACTORY 5348.0 6995.1 9307.5 11368.8 13427.5 13427.5WORKSHOP 3426.4 4233.7 5237.6 6195.3 7220.9 7220.9

TOTAL DIRECT COSTS 15B27.2 19919.4 25347.9 30221.7 35334.4 3S334.4

INDIRECT COSTS 7245.0 8476.6 9748.1 11210.4 12891.9 12991.9

TOTAL OPERATING EXPENSES 23072.2 28396.0 35096.1 41432.1 4B226.3 48226.3

DEPRECIATION 3551.8 6299.4 8866.9 11026.5 12864.8 13129.9

BANK INTEREST 961.3 991.3 1138.9 1220.0 1267.0 1098.1

OPERATING INCOME (PROFIT) 157.0 3122.9 9636.9 19461.5 26092.2 42120.2

CAPITAL INTEREST - 2310.9 4475.7 5647.0 6319.1 7076.4

NET PROFIT (LOSS) 157.0 811.9 5161.2 13814.5 19773.1 35043.8

CORPDRATE TAXES 94.2 487.1 3096.7 9298.7 11863.9 21026.3

NET PROFIT(LOSS) AFTER TAX 62.8 324.7 2064.5 5525.8 7YC9.3 14017.5

DIVIDEND 31.4 162.4 1032.2 2762.9 3954.6 7006.8

BALANCE CARRIED FORUARD TO RESERVES 31.4 162.4 1032.2 2762.9 3954.6 7006.8

NOTE: ALL FIGURES IN THOtJSANDS OF CURRENT LSD UNTIL 1988/89

AND CONSTANT THEREAFTER

- 59 -Annex 3.2d

SUItM RENAlILITTIONI PROJECT

ASSALAYA

INCOIC STATEIENT (PROFIT I LOSS ACCOUNlT

(LSD *OOOs)

Year commencing July 1 1994 198s 1996 1t87 198 1Wm

INCOME

SALE OF SUGAR 36856.0 50974.0 66619.6 82461.9 99723.4 117902.6LESS EXCISE DUTY 5528.4 7646.1 10022.9 12369.3 1493.5 17665.4

NET REVENUE 31327.6 43327.9 56796.7 70092.6 84764.9 100217.2

EXPENSES

OPERATING EXPENSES

AGRICULTURE 8414.6 10614.1 12697.2 14727.5 17078.5 17079.5FACTORY 6539,6 8663.9 10714.0 12663.4 14956.5 14956.5WORKSNOP 1610.2 2005.8 2392.0 27M9.0 3250.7 3250.7

TOTAL DIRECT COSTS 16564.3 21283.8 25303.2 30179.9 35215.7 352S8.7

INDIRECT COSTS 5361.3 6272.7 7213.6 8295.7 540.0 9540.0

TOTAL OPERATING EXPENSES 21925.6 27556.6 33016.9 33475.6 44825.8 449ZS.8

DEPRECIATION 4271.1 6759.7 9766.7 12370.7 15245.0 15603.0

DANM INTEREST 810.9 862.3 942.0 M.6 1071.5 392.3

OPERATING INCOME IPRoFIT) 4320.0 0149.3 13071.1 19253.8 23622.6 31596.1

CAPITAL INTEREST - 1382.6 3333.6 4087.1 5441.3 5997.7

NET PROFIT (LOSS) 4320.0 6766.7 9737.5 14166.6 18181.3 32M99.4

CORPORATE TAXES 2592.0 4060.0 5942.5 8500.0 10906.8 19799.0

NET PROFIT(LOSS) AFTER TAX 1728.0 2706.7 3895.0 5666.7 7272.5 13199.3

DIVIDEND 864.0 1353.3 1947.5 2W33.3 3636.3 6599.7

DALANCE CARRIED FORUARD TO RESERUES 864.0 1353.3 1947.5 2833.3 3636.3 6599.7

NOTE: ALL FIGURES IN THNOUSAND OF C11RENT LSD UNTIL I1"83

MD COSANT TIEREAI

- 60 -

Notes on Annex 3.2 - Financial Analysis

Financial analysis was performed using the assumed exchange rateand inflation rates given in Annex 3.1, all costs are inflated until1988/89, and held constant thereafter. The following further assumptionsare employed:

o Assets are divided into those having lives of 6 1/2, 17, and 40years, and are depreciated on the basis of replacement value.

O Bank interest (short-term debt service) is calculated assumingthat in any year each company must finance its cash requirementsfor one quarter at an interest rate of 16%.

O Long-term debt service charges are calculated assuming the mix ofequity and debt outlined in Annex 3.5, the specified on-lendingterms for IDA funds, and 8% interest for Arab and Saudi Fundfinance, over the same repayment period (12 years, 5 yearsgrace).

O Excise Duty is assumed to remain at 15Z of value, and corporatetaxes at 60% of profits. It is further assumed that 50% of anyafter-tax profit is transferred to Government as dividends.

O In forecasting producer prices, the effect of the exchange rateadjustment is assumed to be lagged by one year since imports ofinputs precede production by a year. Based on this assumption,the following producer price series is forecast.

September 1 1984 1985 1986 1987 1988 1989 1990

Price (currentLSd/ton) 542 662 807 969 1,141 1,349 1,460

- 61 - Annex 3.3a

StDIIA

SUGAR RHILITATIN M JECT

GSKEID

CASH FLOUN

(LSD .000s)

Year commencing July 1 1984 185 1986 1987 1989 1989

SOURCE OF FUNDS

NET PROFIT(LOSS) AFTER TAX -8001.7 -9671.5 -8943.9 -4573.7 -1997.0 381.1DEPRECIATION 2201.1 4652.0 6315.7 8119.3 10100.4 10264.PROJECT FINANCING 30520.0 19610.0 13985.0 10420.0 3400.0 -

TOTAL SOURCES 24619.4 14590.4 11356.8 13965.6 11503.4 14079.0

USES OF FUNDS

PROJECT INVESTIENTS 30520.0 M9610.0 13985.0 10420.0 3400.0 -

OTHER NON-PROJECT INUESTHENTS - - - 1770.0 405S00 4900.OREPAYMENT OF LONG TERM LOANS - - - - - 4272.l

TOTAL USES 30520.0 19610.0 13985.0 12190.0 7450.0 9172.1

NET CASH RWO -5900.6 -5019.6 -2628.2 1775.6 4053.4 4906.9

NOTE: ALL FIGURES IN THUSANDS F CURRENT LSD UNTIL 198/89

AND CONSTANT THEREFER__________________ _ --- - -

- 62 - Annex 3.3b

SUMN

SUGAR R ITATION PREIECT

NIE HALFA

CASH FLOV

(LSD ,OOOs)

Year commencing July 1 1984 1985 1986 18 1988 199

SOURCE OF FUDS

NET PROFITLOSS) AFTER TAX -3570.2 -3562.0 82B.7 2656.6 3432.1 925.5DPRECIATION 1M.4 4571.3 6350.3 8086.1 9731.6 9835.8PROJECT FINWACING 32180.0 20290.0 11000.0 8080.0 3030.0 -

TOTAL SOURCES 30602.3 21299.3 18178.9 1822.7 16193.7 180M3.3

USES OF FUNDS

POJECT INVESTNEM 32180.0 20290.0 11000.0 806O.0 3030.0 -fER NON-PROJECT INUESTENTS - - 3590.0 5370.0 658D.0 7150.0REPAYIET OF LN6 TER LOANS - - - - - 3786.8

TOTAL USES 3218040 20290.0 14590.0 13450.0 9610.0 10936.8

NET CASH FLOW -1577.7 1009.3 3589.9 5372.7 6583.7 7156.4

NOTE: ALL FIGURES IN THOUSANDS OF CURRENT LSD UNTIL 1988/89

AD CONSTANT THERE

- 63 - Annex 3.3c

SU6AR REHAIILITATION PROECT

SENNAR

CASM FLOL

(LSD jOOOs)

Year commencing July 1 1984 1985 186 187 1988 m198

SOURCE OF FUNDS

NET PROFIT(LOSS) AFTER TAX 62.8 324.7 2064.5 5525.8 7909.3 14017.5DEPRECIATION 3551.8 6299.4 8866.9 110264 12864.8 13129.9PROJECT FINANCING 26390.0 25120.0 11350.0 4608.0 5310.0 -

TOTAL SOMRCES 30004.6 31744.1 22281.4 21160.3 26064.1 27147.4

USES OF FUNDS

PROJECT INUESTIENTS 263YD.0 25120.0 11350.0 4608.0 5310.0 -OTHER NON-PRLOECT INUESTHENTS - 3310.0 5740.0 8280.0 10390.0 11270.0REPATIENT OF LONG TERM LOANS - - - - - 4604.4

TOTAL USES 26390.0 28430.0 17090.0 12888.0 15700.0 15874.4

NET CASH FLOV 3614.6 3314.1 5191.4 8272.3 10384.1 11273.0

NOTE: ALL FIGURES IN THOUSANDS OF CURRENT LSD tNTIL 1988/99

AND CONSTAT THEREAFTER

_ 64 - Annex 3.3d

StON

SUGAR REHABILITATION PROET

ASSALATA

CASH FLUV

(LSD OOOs)

Year commencing July 1 1984 1985 1516 1987 1988 I"?

SOURCE OF FUNDS

NET PROFIT(LOSS) AFTER TAX 1728.0 2706.7 3895.0 5666.7 7272.5 13199.3DEPRECIATION 4271.1 6759.7 9766.7 12370.7 15245.0 15603.0PROJECT FINANCING 25310.0 3190.0 16920.0 11940.0 4950.0 -

TOTAL SOURCES 31309.1 41456.4 30581.7 29977.4 27367.5 29802.4

USES OF FUNDS

PROJECT INWESTENTS 25310.0 31990.0 16920.0 11940.0 4850.0 -OHER NON-PROJECT INVESTMENTS - 4730.0 6830.0 9020.0 11260.0 11280.0REPAYMENT OF LONG TERN LOANS - - - - - 6244.1

TOTAL USES 25310.0 36720.0 23750.0 20960.0 16110.0 17524.1

MET CASH FLOV 5999.1 4736.4 6831.7 9017.4 11257.5 11278.3

NOTE: ALL FIGURES IN THOUSANDS OF CURRENT LSD UNTIL 1988/89

AND CONSTANT THEREAFTER

- 65 - Annex 3 . 4 a

SUDAN

SUGAR REHABILITATION PROJECT

Balance Sheet

Guneid(LSd Million)

1984/85 1985/86 1986/87 1987/88 1988/89 1989/90

Net Working Capital -5.9 -10.9 -13.5 -11.8 -7.7 -2.8

Fixed Assets 50.3 78.5 104.2 128.4 149.1 149.1

Less AccumulatedDepreciation (2.6) (6.8) (13.1) (21.1) (31.3) (41.6)

Other Assets 4.2 7.1 9.7 11.6 13.5 13.5

Sub-Total 46.0 67.9 87.3 107.1 123.6 118.2

Less Long-TermLiabilities 10.8 26.2 37.5 46.6 48.6 44.4

Shareholder'sEquity 35.2 41.7 49.8 60.5 75.0 73.8

Of Which

Capital Contri-butions: 39.7 44.9 46.6 47.9 49.2 49.2

Profits and Reserves: -4.5 -3.2 3.2 12.6 25.8 24.6

Note: All figures in current LSd until 1988/89, and constant thereafter.

- 66 - Annex 3.4b

SUDAN

SUGAR REHABILITATION PROJECT

Balance Sheet

New Halfa(LSd Million)

1984/85 1985/86 1986/87 1987/88 1988/89 1989/90

Net Working Capital -1.6 -0.6 3.0 8.4 15.0 22.1

Fixed Assets 52.2 78.3 98.3 119.4 138.5 138.5

Less AccumulatedDepreciation (2.0) (6.6) (12.9) (21.0) (30.7) (40.6)

Other Assets 4.0 7.1 9.8 11.6 12.4 12.4

Sub-Total 52.6 78.2 98.2 118.4 135.2 132.4

Less Long-TermLiabilities 13.3 26.7 34.2 42.2 45.2 41.4

Shareholder'sEquity 39.3 51.5 64.0 76.2 90.0 91.0

Of Which

Capital Contri-butions: 38.9 45.8 49.3 49.3 49.3 49.3

Profits and Reserves: 0.4 5.7 14.7 26.9 40.7 41.7

- 67 - Annex 3.4c

SUDAN

SUGAR REHABILITATION PROJECT

Balance Sheet

Sennar(LSd Million)

1984/85 1985/86 1986/87 1987/88 1988/89 1989/90

Net Working Capital 3.7 6.9 12.1 20.4 30.8 42.0

Fixed Assets 70.1 103.9 127.4 149.4 175.2 175.2

Less AccumulatedDepreciation (3.6) (9.9) (18.7) (29.7) (42.6) (55.7)

Other Assets 4.3 7.5 11.0 12.7 14.6 14.6

Sub-Total 74.4 108.4 131.8 152.8 178.0 176.1

Less Long-TermLiabilities 19.4 38.8 46.8 51.4 56.6 52.0

Shareholder 'sEquity 55.0 69.6 85.0 101.4 121.4 124.1

Of Which

Capital Contri-butions: 46.9 52.5 55.5 55.5 55.5 55.5

Profits and Reserves: 8.1 17.1 29.5 45.9 65.9 68.6

- 68 - Annex 3.4d

SUDAN

SUGAR REHABILITATION PROJECT

Balance Sheet

Assalaya(LSd Million)

1984/85 1985/86 1986/87 1987/88 1988/89 1989/90

Net Working Capital 6.0 10.7 17.6 26.6 37.8 49.1

Fixed Assets 74.6 116.2 146.8 178.9 208.8 208.8

Less AccumulatedDepreciation (4.3) (11.0) (20.8) (33.2) (48.4) (64.0)

Other Assets 4.7 7.8 11.5 13.3 15.2 15.2

Sub-Total 81.0 123.7 155.1 185.6 213.4 209.1

Less Long-TermLiabilities 17.3 41.7 51.1 63.0 67.8 61.6

Shareholder'sEquity 63.7 82.0 104.0 122.6 145.6 147.5

Of Which

Capital Contri-butions: 52.9 60.4 67.9 67.9 67.9 67.9

Profits and Reserves: 10.8 21.6 36.1 54.7 77.7 79.6

- 69 -Annex 3.5a

sUDnAN

SULBAR RFHARTI TATION PRUJECT

MIINFTrI

BJRRUINSR: I JFRT SFRUICE

M98l 1984 19RS 1964 1 9R7 199 9 19993 27 2001

(IN CURRENT LSDOOO l!P Tn 198M/89)

NFU FVQITY INJECTIONS

IDA i BM - 7545.0 3948.0 78R4.0 79.0 132?R.0 - - - -

KFI 2 60S - 121,8.0 474.0 314.0 - - - - - _

UAIUE OF FEOTTY 20000.0 39713.0 43M89.0 4AW.0 47MAR.O 4919&.0 49196.O 4919A.0 4919A.0 4919A.O

N-:: 1T.R

ARAft FIWNP 2 .S - 2097,0 245.0 ?A4.0 A?3,0 900.0 - - -

SWADI FRIND A RS - 7W.40 I IR50,0 P.A13. 7220.0 141.0IDA 1 6I - 3000.0 364.0 24.0 1279.0 3R.-0KFU I MS - _ _ _ _ _

TOTAI PkRT - 1077R.0 24212.0 37473.0 4A595.0 48644,0 447t1S.9 277.4 0.0 0.0

PERT iEFRUICE

INTEREST PAYMENTS RON PET Tn!

InA I El - - 190.0 F90,0 1X7.9 159., 193.2 1226.6 0.0 0.0KEN 1 609~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~.4. SR. .?j?.KF I 2 MS - - - - - -- - - -ARAR FRND 2 ESM - - 167.4 1R7.0 20R.1 257.9 304.3 175.4 0.0 0.0SAUDlI FUND 2 fiQS - - 614.9 M5.-3 Y224.3 I9.9 2913.2 1621.4 0.0 0.0

CAPITAL WNTFRFRT - - 97?.2 2612.2 3775.3 4A45.R 49q5.8 3023.4 0.0 0.0

PR1NITPI.E REPAYMENT TO:

IDA S BP - - - - - - 608.4 1220.1 -0.0 -0.0KFN 2I IR _ _ _ _ _ _ _ARAB FUND I GUS - - - - - - 357.6 486.6 -0.0 -0.0SAUDI FUNDI M IR - - - - - - 306.0 4497.R -0.0 -0.0

REPAYMENT EF 1N TERM MOANS - - - - - - 4272.1 604.4 -0.0 -0.0TOTAI BERT SERUTF

DFBT SERVICE - - 977.? 7412.7 3775.3 4645.8 9R7.8 7.-

- 70 - Annex 3.5b

Sm

SUGAR REHABILITATION PROJECT

NEJ RALFA

BORROVINGS I DflT SFRVICE

183 1984 19M 1 ¶9 1988 1989 1993 1997 2001

IIN CURRENT LS0.000 liP TO ¶988/89)

NEV EGIJTY INJECTIONS_________ _____ ____

IDA I MS - 3368.0 3527.0 3076.0 - - - - - -KFN I GM5 - 15540.0 .1319.0 489.0 - - - - - -

VALUE OF EQUITY 20000.0 38908.0 45754.0 49?69.0 49269.0 49269.0 49269.0 49269.0 49269.0 49269.0

WU KIUT

ARAB FUNDZt OS - 1484.0 1804.0 34.0 771.0 251.0 - - -SAUI FUND I GMS - 8396.0 80.1.0 41J3.0 4859.0 167.0 - - - -

IDA I 605 - 3348.0 3527.0 3024.0 2.429.0 2593.0 - - - -

KRmlGGS - - - - - - - - -

TOTAL DEBT - ¶3248.0 26670.0 34157.0 42216.0 45227.0 41440.2 21647.4 0.0 0.0

DEBT SERVICE

INTEREST PAYMENTS ON IfBT TO:

IDA I 605 - - 639.9 1310.0 1885.0 fl46.5 2839.2 1894.5 -0.0 -0.0KF I OS - - - - - - - - - -

ARAB FUND 1 6085 - - J18.7 263.0 290.9 352.6 372.6 214.8 0.0 0.0SAtUI FUND t rElS - - 671.7 1319.0 1648.0 2036.7 205O.t tl81.6 0.0 0.0

CAPITAL INTEREST - - 1430.3 2892.0 3823.9 4735.8 5261.9 P90.8 0.0 0.0

PRINCIPLE REPAYMENT TO:

IDA I 60s - - - - - - 939.7 1884.4 0.0 0.0KFV I riS - - - - - - - - - -ARAB FUND 1 60S - - - - - - 437.9 59.8 -0.0 -0.0SAUDI FUND I 6 - - - - - - 2409.2 3277.7 -0.0 -0.0

REPAYMENT OF LONG TFRI URANS - - - - - - 71146.8 5757.9 -0.0 -0.0TOTAL DEBT SERVICE

DPET SERVICE - - 1430.3 2892.0 3R23.9 4735.8 9048.7 9048.7 - -

- 71 - Annex 3.5c

SUDAN

SUGAR REHABILITATION PROJECT

SENNAR,

BORROUINPS I DFr SERVICE

19M3 9U4 19M5 ¶6 197 19R8 I9"? t9I t97 2001

(IN UIRRENT 1.D4000 iP TO 1999/89)-- -- - -- -- - -- - -- -- - -- -

ENW FOITTY TN.IECTIONS

IA I GOS - 6902.0 503.0 3000.oKFI I WSO - - - - - - - -

VALUE OF FUITY 40000.0 46907.0 52505.0 50.'^O .0 55505.0 55505.0.0 55585.0 55505.0 55"50.0 55505.0

NEU DEBT

ARAB FUND I GOS - 12494.0 13753.0 3191.0 1815.0 2244.0 - - - -

SAUDI FUND 1605 - - - - - --TPA I r5S - 6902.0 5603.0 482t.0 2773.0 3041.0 - - - -(Fi I 60S - - - - - - - - - -

TOTAL DEBT - 193W6.0 3R172..0 46764.0 5t157.0 56637.0 5203.6 27544.1 0.0 0.0

lflT SERVICE

INTEREST PAYMENTS ON DEBT TO:

IDA S6WS - - 1311.4 2379.9 3291.9 3R18.8 4396.6 2931.7 0.0 0.0KFUI 2rWS - - - -0ARAB FU N 2 605 - - 99.5 20.8 7355.0 2500.2 7679.8 1544.5 0.0 0.0SAUDI FUND 2 r05 - - - - - - - - - -

CAPITAL INTEREST - - 2310.9 4475.7 5647.0 6319.1 7076.4 4479.2 0.0 0.0

PRINCIPLE REPAYMENT TO:

IDA IS W - - - - 1455.2 2911.1 -0.0 -0.0KFUS -NsARAB FUND I 0S - - - - - - 3149,, 4?84.5 -0.0 -0.0SAtDI FUND I GS - - - - - - - - - -

REPAYMENT OF IONr TFER l.fAWS 4604.4 7202.6 -0.0 -0.0TOTAL DEBT SERYJE

DERT SEPRVICE - 210.9 4475.7 5647.0 6319.1 11690.7 116R0.7 - -

- 72 - Annex 3.5d

SUDNN

SUGAR REHBILITATION PROJECT

ASSALATA

BORRUIINGS I DFRT SERVICF

19&3 1984 1985 1986 197 19 19 1993 t997 2001

(IN CURRENT LSD.000 UP TO 1988/89)

NEU EQUITY INJECTIONS

IDA t GUS 7930.0 7493.0 7475.0 - - - - - -KFG t S - - - - - - - - -

VALIE F EQUITY 4500.0 52930.0 60423.0 678.0 67998.0 678.0 67898.0 67898.0 67898.0 67898.0

NEW DEBT

ARAB FUND 2 GUS - 17282.0 24388.0 9419.0 8275.0 4188.0 - - - -SAtUI FUND I 6 - - - - - - -OIDA I GO - - - - 3643.0 639.0 - - - -KF t SGOS - - - - - - - - - -

TOTAI. DEBT - 17282.0 41670.0 51089.0 6U007.0 47834.0 61599.9 30817.3 0.0 0.0

DEBT SERVICE

INTEREST PAYNENTS ON DEBT To:

IDA s GUS - - - - - 692.2 813.6 542.9 -0.0 -0.0KFUZOOS - - - - - - - - - -ARAB FUND I BOB - - 1382.6 3T33.6 4087.3 474H.1 5094.2 2930.3 0.0 0.0SAUDI FIMN t 'so - - - - - - - - - -

CAPITAL INTEREST - - 1382.6 1.3;3.6 4087.1 5441.3 5897.7 3473.2 0.0 0.0

PRINCIPLE REPAYMFNT TO:

IDA GO S - - - - 269.3 540.0 0.0 .O0KFU - - - - - - - - -

ARAB FUND I GQ5 - - - - - - 5974.9 81?8.7 -0.0 -0.0SAUDI FUND ISOB - - - -

REPAYMENT OF LONG TERN LOANS - - - - - - 624.1 8668.7 -0.0 -0.0TOTA. DEBT SERVICE

DEBT SERVICE - - 32.6 333.6 4087.1 5441.3 12141.8 12141.8 - -

SUMN

Sugar Rehabilitation Project

CGoemnent of SudanProjected Cashflow Utder the Project

(LSd milllor.)

1 2 3 4 5 6 7 8 9 101984/95 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94

Exdse Duty 17.4 24.3 34.2 34.2 44.8 54.2 64.1 69.3 69.3 69.3

PepayrIent cf Loanby Cowpnies - 6.1 13.0 17.3 21.0 42.0 42.0 42.0 42.0 42.0

MIk aRedit and OtherCofinanciem Loam 104.0 62.2 42.3 45.5 17.4 - - - - _

Corporate Taxes 2,7 4.6 10.1 20.8 27.8 56.5 75.3 77.0 78.4 80.0

Dividends 1.6 2.8 6.9 15.7 21.5 18.8 25.1 25.6 26.0 26.5

TotAL DBFLOM 124.2 119.5 112.0 117.4 131.2 171.5 2D6.5 213.9 215.7 217.8

Project Experditures(Investrents in PrqjectEntities & TransfersbY COS 121.0 103.6 58.2 37.6 18.4 - - -

Increauntal OperatirgCosts for GoverentARencies (est.) 4.0 4.8 5.6 6.5 7.4 8.5 8.5 8.5 8.5 8.5

Pepayrent of IOA Credit & cther CofinanciersLoaI a/ 2.5 2.9 3.2 3.5 3.9 10.3 10.3 10.3 10.3 10.3 w

ANNAJL I1W M rA(DEICIT) SLRFLLS (3.3) 8.2 45.0 70.1 101.5 152.7 187.7 195.1 196.9 199.0

CMUL UN3UMSURPtLS (DEFICrr) (3.3) 4.9 49.9 120.0 221.5 374.2 561.9 757.0 953.9 1,152.9

NDte: All figures in current LSd until 1988/89, and constant thereafter.

a/ Assumes KfW finance as grant, Arab Fund and Saudi Fund finance to be repaid over 20 years with a5 year grace period and 4% interest.

SUDAN

Sugar Rehabilitation ProJect

Governmnt of SudanEstimated Government Cashflow% Without Project

(TSd rdll..tQ)

1 2 3 4 5 6 7 8 9 101984/95 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94

PCST profits 22.1 26.5 30.0 33.8 38.8 44.5 44.5 44.5 44.5 44.5

ExcAse Duty 10.8 13.2 15.9 18.1 20,1 23.2 26.7 26.7 26.7 26.7

Total 32.9 39.7 45.9 51.9 58.9 67.7 71.2 71.2 71.2 71.2

OLTVLmWS I

Cperating Subsidy to 'JConpanies 6.0 7.4 9.0 10.1 11.3 13.0 14.9 14.9 14.9 14,9

NET CASHFIL 26.9 32.3 36.9 41.8 47.6 54.7 56.3 56.3 56.3 56.3

(less overdraft withBun of Sudan) (6.0) (7.3) (9.0) (10.1) (11.3) (13.0) (14.9) (14.9) (14.9) (14.9)

Notes: Excise Duty and FT profits are estimted on the basis of rates prevailing in 1983/84, assumLing inflation of both costs and proa&cerprices in accordance with inflation rates given in Anx 3.1, ard assidng levels of pro&iction projected In 'witkut project" case (Anex 5.2)losses by cowpanies are calaLlated on the basis of the difference betwen net producer prices and estimated costs of production prjected on thesame basis. It is further assumed that 50% of these losses are covered by budgettary transfers from Goverrnnut, ad 50% by acouilatirg furtheroverdrafts at the Bank of Sudan. The overdrafts are shom as supplenentary to the Net Cashflow since they do not in fact result in cashpayvents by the Goverient.

All figures in current LSd millions until 1988/89, and constant thereafter.

mr

SLIw

Supr Rehabilitation Project

GoCnamt of SudanEstimated Irirenantal Gweiinent Cashflaw

(LSd dllions)

1 2 3 4 5 6 7 8 9 101984/95 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94

(a) Cuhfl1w underProject (3.3) 8.2 45.0 70.1 101.5 152.7 187.7 195.1 196.9 199.0

(b) less Projected Cashf1ciWithout Project (26.9) (32.3) (36.9) (41.8) (47.6) (54.7) (56.3) (56.3) (56.3) (56.3)

(c) Estinuted IncretntalCashflcw (30.2) (24.1) 8.1 28.3 53.9 98.0 131.4 138.8 140.6 142.7

(d) Oumllative IncrenentalSurplus (Deficit) (30.2) (54.3) (46.2) (17.9) 36.0 134.0 265.4 404.2 544.8 687.5

Notes: Govensitu cahflCr uder the project (a) is taken directly fran Table 3.5a, fron this is deducted the estirrated cinhflow without theProject (b) taken fram Table 3.5h - in order to reflect the rnveme forgone by COS in abardonirg the practice of taKirg the sector tfraig PCSTprofits, ard in order to reflect the cczts avoided by ID lorqWr havirg to directly sulsidize the foLr sugar estates.

As noted in Table 3.5b, the Governaet also avoids the acomulation of further overdrafts with the Bark of Sudan (asstmel to equal lSd 116.3ntllion over the 10 year period) ati this saut is an aditional savirgs to the Governs,nt, althDugh it is not strictly an eleum,t of thecashf low.

AU figures in current LSd mdllior until 1988/89, and constant thereafter.

wA

SUDANSup.rRehabilitation Project

Government of SudanIncremental Foreign Exchange Earnings Under the Project

Project Year1 I 3 4 5 6 7 8 9 10

Inflows 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94

Loans and Grantsfrom ProjectFinanciers 52.8 45.2 25.5 16.4 8.1 0 0 0 0 0

Savings on ReducedSugar Imports 14.7 27.4 49.0 63.4 71.3 71.3 71.3 71.3 71.3 71.3

TOTAL INFLOWS 67.5 72.6 74.5 79.8 79.4 71.3 71.3 71.3 71.3 71.3

Outflows

Repayment ofProject Loans 1.5 1.5 1.6 1.6 1.6 4.4 4.4 4.4 4.8 4.8

Incremental ForeignExchange Earnings 66.0 71.1 72.9 78.2 77.8 66.9 66.9 66.9 66.9 66.9

Note: All values in current US$ millions until 1988/89, and constant thereafter.

-77 Annex 4

SUDAN

Sugar Rehabilitation Project

Estimated Schedule of Disbursements

IDA Disbursement 1/~~-US$'000-

IDA Quarter By End ofFiscal Year Ended Quarter Cumulative

1985 December 1984 2.0 2.0March 1985 4.2 6.2June 1985 5.3 11.5

1986 September 1985 7.2 18.7December 1985 5.6 24.3Harch 1987 4.3 28.6June 1986 4.1 32.7

1987 September 1986 3.1 35.8December 1986 4.0 39.8March 1987 3.6 43.3June 1987 3.4 46.8

1988 September 1987 2.5 49.3December 1987 2.0 51.3March 1988 1.8 53.1June 1988 1.4 54.5

1989 September 1988 0.8 55.3December 1988 1.4 56.7March 1989 1.6 58.3June 1989 0.9 59.2

1990 September 1989 0.4 59.6December 1989 0.4 60.0

1/ Expected date of signing: June 30, 1984.Expected date of effeci.iveness: September 30, 1984Expected completion date: June 30, 1989.Expected closing date: June 30, 1990.

SUDAN

Sugar Rehabilitation Project

Historical Areas, Yields and Production

Guneid

Net Hill Average Total Sugarcane Average Recovery Total SugarYear Cane Area Yield Production Factor Output

(fd) (tons/fd) (tons) M (tons)

1962/63 8,774 16.67 146,252 9.07 12,2601963/64 16,643 14.0Q 233,000 8.38 19,5201964/65 15,082 12.9011 194,561 8.53 16,5911965/66 16,691 10.17 169,755 9.44 16,028 11966/67 15,960 14.57 232,560 9.83 22,856 X1967/68 19,260 18.28 352,075 9.43 33,1831968/69 16,395 14.49 237,559 8.64 29,1491969/70 10,068 20.20 203,375 9.08 18,4601970/71 13,005 25.95 337,512 10.99 37,0801971/72 12,953 17.81 236,739 12,28 28,3451972/73 17,770 22.50 399,919 10.54 42,1331973/74 16,631 24.64 409,842 11,04 45,2681974/75 19,328 26.59 513,923 10.26 52,7271975/76 19,313 27.19 525,030 10.31 54,1551976/77 20,504 25.83 529,580 10.40 55,0701977/78 18,915 26.50 501,271 9.68 48,5001978/79 18,963 21.94 415,974 8.78 36,5391979/80 15,698 20.30 ;18,618 9.52 29,6851980/81 18,761 18.46 346,240 8.55 29,6011981/82 n/a n/a 185,786 8.50 15,7441982/83 12,630 17.55 221,656 9.16 20,310

SUDAN

Sugar Rehabilitation Prolect

Historical Areas, Yields and Production

New Halfa

Net Mill Average Total Sugarcane Average Recovery Total SugarYear Cane Area Yield Production Factor Output

(fd) (tons/fd) (tons) (tons)

1965/66 3,346 31.64 105,883 8.03 8,4991966/67 12,455 37.11 462,200 10.39 48,0221967/6F 15,075 41.04 618,603 9.72 60,1011968/69 15,152 39.68 601,166 8.81 52,9441969/70 17,210 36.22 623,353 9.12 56,8571970/71 16,067 23.21 372,921 9.52 35,5031971/72 17,169 37.64 645,269 9.73 62,8741972/73 17,052 40.90 697,357 10.11 70,5081973/74 17,910 41.19 737,627 10.26 75,7051974/75 20,336 38.12 775,306 9.79 75,9241975/76 21,164 30.82 652,368 9.17 59,7941976/77 18,668 34.17 637,972 8,96 57,1681977/78 16,897 38.07 643,316 9.05 58,2141978/79 20,067 34.45. 691,294 9.38 64,8501979/80 15,673 30.83 483,131 8.91 43,0531980/81 15,362 28.60 439,393 8.20 36,0431981/82 n/a n/a 432,817 8.25 35,8631982/83 19,649 27.0 476,538 8.0 38,080- . 1t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

SUDAN

Sugar Rehabilitation Prolect

Historical Areas, Yields and Production

Sennar

Net Kill Average Total Sugarcane Average Recovery Total SugarYear Cane Area Yield Production Factor Output(fd) (tons/fd) (tons) (2) (tons)

1976/77 17,047 22.11 376,958 7.02 26,4651977/78 17,945 22.74 408,236 7.75 31,6751978/79 10,485 22.21 232,879 7.80 18,1351979/80 17,101 22.57 386,175 7.77 39,0011980/81 14,824 22.84 338,516 7.71 26,115 o1981/82 15,806 20.10 313,727 7.11 22,3261982/u3 18,065 25.60 463,763 8.75 40,600

Assalaya

1979/80 3.400 27.90 94,881 8.00 7,5601980/81 3,487 26.70 9g,003 9.20 8,5681981/82 5,806 16.60 96,634 (milled at Kenana)1982/83 9,300 32.00 297,719 10,60 31,625

- 81 -Annex 5.2a

WA RAILITATION POJECT

GUNEID

PROJECTED PMROUCTION VITH AND INOUT ROJECT

Year commencing July 1 1983 1984 1985 1986 1987 1988-2001

NET KILL CE NET KILL CANE AREA (Fd,)

NITHOUT PROJECT 15000.0 16000.0 17000.0 17000.0 17000.0 17000.0IIITH PROJECT 15000.0 16000.0 18000.0 20000.0 22000.0 22000.0

A GER YIELD (Tans/Fd.)

WITHOUT PROJECT 20.0 20.0 20.0 20.0 20.0 20.0VITH PROJECT 20.0 24.0 26.0 28.0 30.0 32.0

SUGARCANE PRODUCTION (Ton5)

VITHOUT PROJECT 3O0000.0 320000.0 340000.0 340000.0 3400.0 340.0V1ITH PROJECT 300000.0 384000.0 468000.0 560000.0 660000.0 704000.0

RECOVERY RATE (Z)

WITHOUT PROJET 9.2 8.8 8.5 B.5 8.5 8.5WITH PROJECT 9.2 9.3 9.3 9.3 9.5 9.5

TOTAL SUMAR OUMPT (Tons)

WITHOUT PRJET 27600.0 280.0 28900.0 28900.0 28900.0 28900.0VITH PROJECT 27600.0 35520.0 43290.0 51800.0 62700.0 66890.0

INCREENTAL OUTPUT - 7520.0 14390.0 2200.0 33800.0 3mo.0

- 82 -Annex 5.2b

SDA

SUGAR REHABILITATION PROIECT

NEW HALFA

PROJECTED MDUCTION VITH AN VITHOUT MJECT

Year commencing July 1 1983 1984 165 198197-2001

NET NILL CA NET NILL CAE AREA (Fd.)

VITHOUT PROJECT 19000.0 190.0 19000.0 19000.0 1000.0VITH PROJE 19000.0 19000.0 19000.0 19000.0 19000,0

AVUAE YIELD (Tons/Fd.)

WITHOUT PROJECT 29.0 30.0 31.0 31.0 31.03ITH PROJET 29.0 30 33.0 35.0 37.5

SWARCNE PRODUCTION (Tons)

VITNOUT PROJECT 551000.0 570000.0 589000.0 59000.0 589000.0WITH PROJECT 551000.0 580.0 627000.0 6650000 712500.0

RECONERT RATE (Z)

WITHOUT PROJECT 8.5 8.3 B.3 8.0 6.OIN PROJECT 8.5 8.5 9.0 10.0 10.0

TOTAL SUMA OUTPUT (Tans)

VITNOUT PROJECT 46835.0 47025.0 48592.5 47120.0 47120.0IT PROJECT 46835.0 50065.0 56430.0 66500.0 71250.0

INREITAL OUTP - 3040.0 7837.5 19380.0 24130.0

- 83 -Annex 5.2c

SUDAN

SUGAR REHAILITATION PROJECT

SENNAR

MJECTED tRODUCTION ITH MAD WITHOUT ROJCT

1983 1 1985IM 198 1?7 198-2001

NET HILL CANE NET HILL CAE AREA (Fd.)

VITHOUT PROJECT 20328.0 20600.0 20600.0 20600.0 2000.0 20600.011ITh PROJECT 20328.0 21000.0 000.0 24000.0 24000.0 24000.0

AVERAGE YIELD (Tans/Fd.)

VITIOUT PROJECT 29,0 30.0 31.0 32.0 32.0 32.0WITH PROJECT 29.0 31.0 33.0 35.0 37.0 38.0

SUGARCANEPRODUCTION (Tons)

VITHOUT PROJECT 59512.0 618000.0 638600.0 659200.0 6520. 65901ITh PROECT 599512.0 651000.0 726000.0 840000.0 8880.0 912000.0

RECOE MTE (Z)

ITHOUT PROECT 9.0 8.5 8.3 8.3 8.0 8.0VITH PROJECT 9.0 9.3 9.5 9.5 10.0 10.0

TOAL SUGAR OUTPUT (Tons)

ITIT PROJECT 53056.1 52530.0 52684.5 54384.0 527.0 5 .0WITH PROJECT 53056.1 60217.5 68970.0 79800.0 89800.0 91200.0

INCEMNAL - 7687.5 1625.5 25416.0 36064.0 38464.0

- 84 -Annex 5.2d

sum

SUGAR RENAILITATION PROJECT

ASSALAYA

PROJECTED PROUCTION ITH AD ITHOT PROJEC

Year commencing July 1 1983 19B4 1965 196 1M 198s-2001

NET HILL CANE NET HILL CANE RtEA FdJ)

VITHOUT PROJECT 16000.0 18000.0 20000.0 20000,0 2000.0 200.0VITH PROJECT 16000.0 200.0 22000.0 23000.0 23000,0 23000.0

MAERAGE YIELD (Tons/Fd.)

VITHOMIT PROJECT 3M.0 33.0 33.0 33.0 33.0 33.0V11TH PROJECT 33.0 34.0 35.0 36.0 37.0 38.0

SUGARCANE PROCION (Tons)

VITHOUT PROJECT 528000.0 594000.0 6600o0.o 660000.0 660000.0 660000.V1IH PROJECT 528000.0 600.0 770000.0 828000.0 851000.0 974000.0

RECOUEY RATE (Zl

VITHOUT PROJECT 10.0 9.5 9.0 8.5 8.0 8.0V1TH PROJECT 10.0 10.0 10.0 10.0 10.0 10.0

TOTAL SUGAR OUTPUT (Tans)

lTHOUT PROJECT 5280.0 56430.0 59400.0 56265.0 52B0.0 52800.0V17H PREOJECT 5900.0 60oo.o 77000.0 82800.0 85100.0 874000o

INCREENTAL OTPMT - 11570.0 17600.0 26535.0 32300.0 3460.0

- 85 -Annex 5.3

SUDAN

Sugar Rehabilitation Project

Sugar Balance - 1976/77-1988/89('000 of metric tons)

Domestic ProductionProject a/Companies Kenana Total Consumption Balance

1976/77 139 - 139 449 -3101979/80 III 20 131 425 -2941980/81 100 150 250 438 -1881981/82 74 175 249 450 -2011982/83 130 230 360 460 -1001983/84 180 260 440 478 -381984/85 214 300 514 498 161985/86 246 320 566 517 491986/87 281 320 601 538 631987/88 303 320 623 560 631988/89 317 320 637 582 55

Note: Estimated production with project, 1983/84-1988/89.

a/ Actual requirements exceed apparent balance by 150,000 tons p.a., sinceKenana is obliged to export this quantity each year.

- 86 -Annex 6Page 1 of 4

SUDAN

Sugar Rehabilitation Project

Sugar Cane Research Program

1. The research program nust follow two directions simultaneously:

- In the existing circumstances the primary objective must be toensure that the industry benefits, in the shortest possibletime, by applying the results of accumulated knowledge of caneproduction, both from work done in the Sudan and elsewhere;

- In the longer term, work must be initiated to deal with thespecific requirements of cane production in the Sudan, relatedprimarily to the provision of varieties well suited to theclimatic enviornment and possessing adequate resistance tosmut. Techniques must also be developed to utilize fully theproductive potential of the soils in the particular climaticconditions.

lt must also be recognized that research, per se, can do little to improvecane and sugar yields, in conditions where cane production and itsprocessing into sugar are subject to major constraints such as a chronicshortage of irrigation water, and a general lack of finance for propermaintenance and replacement of equipment. Even in existing circumstances,however, some assistance can be provided, for instance, in ensuring thatthe level of fertilizer applied in the most efficient manner and at thecorrect time. The introduction and rapid build-up of high yieldingvarieties, resistant to smut, is another aspect where sugar output can beenhanced without major additional expenditure, beyond that involved invarLety introduction and selection. It is also a well established factthat having varieties available which are well suited to conditions is themost cost effective way of maintaining cane yields.

2. With major changes now taking place in the industry, there willhave to be a careful assessment of the work program of the SugarcaneResearch Station, and maximum benefit will only be achieved by the closestpossible association between the staff of the Research Station and inmaking full use of the specialist services available. It is important thatcentral research should not operate in isolation from the rest of theindustry and, in spite of the travel distances involved, much ef theresearch effort should be of a cooperative nature. This is of particularimportance in relation to work involving variety selection and smutincidence, testing of herbicides, borer investigations and specialistinvestigations into irrigation water usage. The proposed research programwould involve the central research station at Guneid working in concertwith the agricultural departments at each of the estates. Most of theessential applied research would be carried out at the estate level, whilethe Guneid research station would undertake longer term investigations,specialized testing and analysis, and intensive small-scale trials.

- 87 - Annex 6Page 2 of 4

The Guneid Research Station

3. It is proposed that the Guneid research station would enter intoa reciprocal arrangement with an overseas sugar research unit, which couldprovide access to specialized staff, technical information, and resources.Details of the program would be drawn up by research station personnel inconsultation with the sugar companies, SPIC, and researchers from theselected international research institute. In general, the Guneid stationwould concentrate on the following:

(i) A concentrated program of importation of selected varieties ofknown resistance to smut, and the rapid multiplication ofselected varieties are essential to ensure that varietiessuited to climatic and soil environment will continue to be onhand, should any of those now selected for expansion have tobe replaced at short notice.

(ii) Continued tests on the response to strictly controlledirrigation patterns, and to the application of nitrogen andphosphorus.

(iii) Controlled trials using different soil preparation techniquesand different times of planting.

4. The work program of the station should be reviewed and revised bythe governing body and sugar companies at regular intervals, to ensure thatthe most urgent and cost effective activities rate for top priority, whilstmaintaining the continuity of all the main lines of research at both theResearch Station and on the estates. The station should not aim, at thisstage, at producing prestigious publications; the prime objective should beto evaluate and pass on experimental data as they emerge.

Estate Level Research

5. It is proposed that the majority of research work be carried outat the estate level. Although the actual program at each estate would haveto be drawn up in detail after a careful assessment of priorities and staffavailability, the following general program wotuld be followed:

(i) Propogation of selected introduced varieties:

- Testing for smut resistance.- Recording growth performance, vegetative characteristics

and suitability for mechanical harvesting.- Record of flowering.- Variety sampling for juice analysis, cane quality and fiber

determination.

(ii) Smut control in commercial seed nurseries.

(iii) Replicated trials with varieties selected for possiblecommercial expansion.

(iv) Herbicide trials with new materials.

-88 - Annex 6Page 3 of 4

(v) Supervision of herbicide use, control of materials and methodsemployed and the timing of application.

(vi) Formal fertilizer trials in plant and ratoon cane.

(vii) Specification of fertilizer treatments to be used incommercial production, leaf sampling for analysis andcorrelation with cane yield performance.

(viii) Collection and recording of climatic and evaporation data andtheir use in relation to irrigation scheduling and control.

(ix) Operation and monitoring of the three long-furrow irrigationpilot plots at New Halfa, Sennar and Assalaya.

(x) Cultivation and irrigation trials investigating factors suchas:

- The influence of cane row lengths and grades versusirrigation lead streams used and methods of water control.

- Measurements of water use versus irrigation intervals, canegrowth and pan evaporation.

- Comparison of methods of cane establishment related toirrigation techniques and cane bank formation.

- The study and recording of cane root development anddistribution under the various treatments employed.

(xi) The maintenance of growth measuring-stations throughout thecane area; these will allow productivity comparisons to bemade between years, and an estimate to be made of overall caneyields.

(xii) Preparation of schedules for cane -dry-off", monitoring thedevelopment of cane juice quality, and making comparisonsbetween differing "dry-off" treatments.

(xiii) Cane sampling for maturity tecting for the control ofharvesting sequence.

(xiv) Sampling of mechanically harvested cane for trash andextraneous matter content.

(xv) Trials with the cultivation of ratoon cane; to reform canebanks damaged during harvesting and to determine whetheradditional cultivation treatments would influence ratoon caneyield and test methods of cultivation.

(xvi) Develop a program of 'Crop-Logging suited to the localcircumstances and the requirements for "Crop Control- toassist planning decisions made by the Agricultural Management.

- 89 -Annex 6Page 4 of 4

(xvii) Maintain detailed records of the treatments applied toindividual fields, relating to factors such as varieties,cultivation and fertilizer treatments, used nutrient status,and the cane and sugar yields obtained.

(xviii) Assist in carrying out cooperative trials initiated by theCentral Research Station.

6. In this program there is a significant work content of a routineand repetitive nature, i.e. growth measurements, ssut assessments, cane andleaf sampling, which can be carried out by relatively unqualifiedpersonnel, provided they are well trained and reliable.

- 9o -Annex 7Page 1 of 3

SUDAN

Sugar Rehabilitation Project

ANNUAL WORK PROGRAM

1. Annual Work Programs (AWPs) would be submitted by the sugarcompanies, MOAI(I), MOI and ARC, and would cover all Project components.Each AWP shall provide documentation, satisfactory to the Association, withrespect to the following:

(i) a detailed description of the work to be performed, includingthe objectives of the work plan for the ensuing fiscal yearcommencing each July 1, the schedules of activities, equipmentrequirements, staffing arrangements and training plans, andthe distribution of responsibilities for each item included inthe AWP;

(ii) a budget for the period covered setting forth:

(a) the proposed capital expenditures;

(b) all proposed recurrent expenditures such as salaries,materials, fuel, repairs and maintenance directlyattributed to activities under the Project, together witha breakdown of predevelopment and incrementalexpenditures;

(c) a comparison of the proposed investment and recurrentbudgets with the proposed budget and actual expendituresfor the previous year;

(d) the number of persons to be employed by position and skilllevel;

(e) a list of proposed expenditures for technical services,studies and training; and,

(f) projected cashflow and income statements for the sugarcompanies.

(iii) a financing plan, and detailed quarterly cashflow projectionsincluding the GOS contributions to the Project account and thetaxes, excise duty and dividend payable to GOS on its capitalin the companies, as well as the distribution of localcurrency project financing between the sugar companies andGOS, and the possibility of accelerated debt repayment by theconpanies.

- 91 -

Annex 7Page 2 of 3

(iv) details of proposed producer and consumer prices for sugar forthe coming year.

(v) targets for sugar cane areas, yields, and production,extraction rates and sugar production for each company,including a detailed production plan for the cultivation,harvesting and crushing period.

(vi) planned levels of domestic sugar production, imports, andexports, and a marketing plan for the coming year.

(vii) proposed water charges to be levied by MOAI(I) in the comingyear.

2. Each AWP will be supported by the following information, as maybe relevant:

Ci) a detailed staffing analysis, including a report on previousstaffing and proposed increments or reductions; and plans forlabor mobilization for harvesting;

(ii) the proposed training program;

(iii) GOS budgetary provision for recurrent inputs to MOI andMOAI(I), and ARC; and

(iv) assessment of the previous years' performance, as describedbelow.

3. A detailed review of the following items:

(a) Performance in the areas of pricing, the introduction of theindividual account system for tenants at Guneid, theintroduction of cost and maragement-accounting systems; and adetailed assessment of the financial performance of each ofthe companies in the previous year.

(b) Performance of the companies in achieving production targetsand technical parameters set out under the project, and in theprevious years' AWP.

(c) Manpower and staffing arrangements at each of the companies;including:

Ci) progress in reducing levels of unskilled labor in thosearea which are over-staffed.

(ii) progress in mobilizing cane-cutting labor.

(iii) progress in attracting and retaining senior levelstaff.

- 92 - Annex 7Page 3 of 3

(iv) quantitative measures of progress under the trainingcomponent of the project, including numbers and skilled levelsof trainees whose skill have been upgraded.

(v) a statement of the number and levels of positionslocalized under the Management Assistance and Trainingcomponent.

(d) Performance of the management of each of the companies, asreviewed by an independent management firm acceptable to IDAand follow-up measures taken.

(e) Factory performance -- including down-time analysis,performance against extraction targets set for the project,and progress in the completion of rehabilitation works.

(f) Results of trials undertaken under the research component,progress in the introduction of new varieties, and a review ofthe results of the long-furrow irrigation pilot schemes.

(g) Performance in the areas of workshop and equipment maintenanceoperations, including an analysis of down-times, averageequipment availability, and an assessment of thesuccess of preventive maintenance programs.

(h) The performance of pumping facilities for irrigation, withparticular reference to the adequacy of power supplies and theconsumption of energy.

(i) The status of ground-heave rectification works at Sennar andAssalaya.

(j) The Sugar Companies' capacity to absorb MOAI(I)'sresponsibilities for irrigation operations.

4. The criteria upon which the Association's approval of a proposedAWP would be based on:

(i) the adequacy of such programs for implementing basic Projectobjectives consistent with requirements of the DevelopmentCredit Agreement; the Project Agreement and the SubsidiaryLoan Agreement; and

(ii) the adequacy of such programs in providing physical, financialand manpower resources tc implement and sustain the physicaltargets set for the ensuing Project year.

- 93 - Annex 8

Page 1 of 2

SUDAN

Sugar Rehabilitation Project

Water Demand and Availability

Water Requirements

1. The rehabilitation program assumes that no expansion of areaswould take place and that the project design requirement would be met fromthe areas already developed within the estates. The crop-waterrequirements have been worked out on the basis of potentialevapotranspiration and cane age/month relationships and irrigationefficiencies of 70 to 75%. The monthly estate irrigation requirements foreach estate are given in the following Table. These also include provisionfor factory and other usage up to 5% of total demand. The overallprovisions are about 15% higher and when compared with actual usage ofwater in the past and the existing practices recommended by theAgricultural Research Station in Sennar. Under good management, theseshould lead to higher yields than projected. The annual estaterequirements are estimated at 332 mcm at Guneid, 249 mcm at New Halfa, 344mcm at Sennar and 330 mcm at Assalaya.

Water Availability

2. Water availability, annual and seasonal, are no constraints onthe three schemes pumping from Blue and White Nile and water rights for theproject needs are already secured. The water rights for the sugar estateat New Halfa is limited to annual diversion of 233 mcm. These are priorrights over oth.r users on the scheme fed from gravity by Khasm El Girbadam which is uniergoing rehabilitation under Credit 1022-SU. There is alsoa margin of 20 mcm/yr in crop season at New Halfa to augment the watersupplies from the factory waste water. The quality of irrigation waters,CISI (USDA classification) for most of the year is excellent forirrigation. The canal and diversion capacities on each estate are morethan adequate to supply annual and peak demands.

SUDANSugar Rehabilitation Project

Estate Water Requirements

Estate Factors Unit MONTHS TotalJ F M A M- J J A S 0 N D Annual

Guneid Penman Eto mm 215 219 281 279 295 295 229 194 202 211 217 209 2,846Crop Water reqt. mcm 17.3 17.4 17.7 17.9 21.1 21.4 19.0 15.4 20.1 18.7 18.6 17.1 221.7Estate reqt. mcm 26.0 26.2 26.6 26.8 31.6 32.1 28.5 23.1 30.1 28.1 27.8 25.6 332.5

New lialfa Penman Eto mm 172 184 231 249 260 250 215 196 195 210 182 170 2,344Crop Water reqt. mcm 10.5 10.9 13.3 15.4 17.4 17.8 16.4 16.0 17.0 16.3 14.5 12.3 177.8 1Estate reqt. mcm 14.7 15.3 18.6 21.6 24.4 24.9 23.0 22.4 23.8 22.8 20.3 172 249.0 %o

Sennar Penman Eto mm 210 218 269 279 265 230 195 182 202 233 224 206 2,713Crop Water reqt. mcm 19.5 20.1 20.6 20.5 22.1 24.0 17.8 16.3 22.2 22.3 21.6 19.2 246.2Estate reqt. mcm 27.3 28.2 28.9 28.8 30.9 33.6 25,0 21.6 31.0 31.2 30.3 27.1 343.5

Assalaya Penman Eto mm SAME AS AT SENNAR 2,713Crop Water reqt. mcm 18.7 19.3 19.8 19.7 21.2 23.0 17.1 15.6 21.3 21.4 20.7 18.4 236.2EState reqt. mcm 26.2 27.1 27.7 27.6 29.7 32.3 24.0 20.7 29.8 30.0 29.1 26.0 330.2

Note: 1. Crop water requirements are net of effective rainfall.2. Estate requirements also provide for factory and other uses (5% additional allowance are irrigation requirements.

I'd00%N

- 95 -

Annex 9

SUDAN

Sugar Rehabilitation Proiect

Details of Technical Services Provided Under the Project

Expected RateExpertise of Length of (US$/ 2/ Total Costs 3/

Component Consultant Assignment mu-year) ESd'000 US$'000

Agricultural Workshop Manager (4) 5 71.5 2,600.0 1,430.0Workshops Section Engineer (4) 3 61.2 1,335.3 734.4

Workshop Technicians (12) 3 61.2 4,005.9 2,203.2Harvesting manager (4) 2 71.5 1,040.0 572.0

Factory Deputy Factory Manager (4) 5 91.8 3,338.2 1,836.0Maintenance Engineer (4) 3 71.5 1,560.0 858.0Chemical Technologist (4) 3 71.5 1,560.0 858.0Engineering Technician (4) 3 71.5 1,560.0 858.0Elect./Instruuent Engineer (4) 3 71.5 1,560.0 858.0

Business Deputy Managing Director (4) 5 122.0 4,436.4 2,440.0Administration Training Manager (4)) 5 91.8 3,338.2 1,836.06 Management Business Manager (4)4) 5 91.8 3,338.2 1,836.0

Cosr/Management Controller (4) 4 71.5 2,080.0 1,144.0Cost Accountants (8) 2 61.2 1,780.4 979.2

Project Team Leader 3 142.9 780.2 428.8lmplementation Agriculturalist 3 127.1 693.9 381.4Team CivillIrrigation Engr. 3 127.1 693.9 381.4

Factory Engineer 3 127.1 693.9 381.4Accounts/Finance Spec. 3 127.1 693.9 381.4Assorted Specialized 10 (man-Technical Asst. 1/ years) 126.5 2,352.9 1,265.0

Training Chief Technical Adv. 5 167.4 837.2Training Experts (4) 4 146.1 2,337.4Specialized Technical 3 (man-Asst. years 146.1 424.8

Design Area Expansion atAssalaya and Sennar(if needed) - 1,675.2 833.4

1/ Includes funds for specialized studies and inputs of technical personnel for componentssuch as research, design of accounting and maintenance systems, etc.

2/ Man-year rates for consultants provided under the Management Assistance and Trainingcomponent appear relatively low because these are base rates only, to be supplemented by abase fee to the management company (financed under the project) and by incentive paymentsbased on performance (to be financed by the sugar companies).

3/ Includes all contingencies.

- 96- Annex 10Page 1 of 3

SUDAN

Sugar Rehabilitation Project

TRAINING

1. The four sugar estates in the public sector covered by theRehabilitation Project employ over 7,000 professional, technical andadministrative staff, and over 11,000 unskilled personnel on a seasonalbasis. These positions, established over a number of years, cover a widerange of technical and professional skill requirements. However, due tothe increasing unattractiveness of the package of salary and incentives,the turnover has been high, and financial constraints have 'mpeded manpowerdevelopment.

2. The estates depend on the education system of the country fortheir supply of personnel at different levels -- the VTCS for basic-trainedartisans, the Polytechnics for technician level, and the Agricultural andEngineering Colleges, for professionals. The institutions primarilyinvolved are: the four VTCS (Vocational Training Centers); the TechnicalInstitutes of Agriculture at Wad Medani and Damazien; the MechanicalEngineering College at Atbara; the Polytechnics at Khartoum and Gezira; andthe University of Khartoum which provides a specialized two-yearpost-graduate diploma course in Sugar Technology. In addition, theacademic secondary schools, the technical secondary schools, and theUniversity of Khartoum provide the output at the general academic levels.The output from these at technical and skilled levels is not howeveradequate to cover the full needs of the industry.

3. In addition to the above, the Sennar Training Center (locatedwithin the Sennar Sugar Estate) was established to provide a measure oftraining within the industry itself for the required number of artisanlevel entrants. However, the center has been practically dormant for avariety of reasons, the main one being deficiencies in infrastructureconstruction, leading to a protracted dispute with the contractors; lack offinance; lack of proper organization of and manning by skilled trainers;and inadequate provision of hostel rooms, teaching facilities andequipment. The Center is now in need of rehabilitation and reorganization.

4. As a result, training, both external and in-house, has ceased tokeep pace with the evolving needs of the industry. There is a direshortage of trained staff at technician, vocational and operational levelsin all the estates. At higher technical levels, the employees have beenleft with only the entry-level professional education they had received,with practically no systematic attempt at upgrading skills as required formiddle and senior management positions. The lack of qualified and trainedstaff is most intense in the fields of financial and material management.

5. Training Objectives. In parallel to the appraisal andpreparation of the Project, the Government of Sudan, with the approval of

- 97 - Annex 10Page 2 of 3

IDA, involved UNIDO in the preparation of a training scheme for theindustry. The objectives of the components in the draft scheme (some ofthe details of which are in the process of finalization) are: (i) toestablish mechanisms for effective internal training within the industry;(ii) to develop appropriate skills training in the artisan fields,supplementary to the national education system and in tune with the specialneeds of the industry; (iii) to provide upgrading/adaptation training forthe technicians, and (iv) to provide the inputs needed to make trainingsystems viable on a continuing basis, by establishing the necessarytraining infrastructure and a pool of trained trainers. The emphasis wouldbe on making full use of the national education system, and to supplementit through the Sennar Training Center (to be properly rehabilitated) andon-the-job training in the Estates, to adapt skills to the specialrequirements of the industry at various levels of manning.

6. Components. (i) The extent of formal training required atvarious levels over the 5 years of the project has been assessed asfollows:

(a) Management Fellowships for about 60 to besupplemented outside projectbudget by UNIDO to the extentpossible.

(b) Trainers(i) Full-time 175(ii) Part-time 1,000

Cc) Technician/Supervisory 510

'd) Skilled/semi-skilled ](including areas of ] 1,330accounts & stores) ]

TOTAL 3,015of (b) to (d)

The annual coverage proposed is as follows:

84/85 85/86 86/87 87/88 88/89 Total

(a) Trainers(i) Full-time 57 58 20 20 20 175(ii) Part-time 100 150 250 250 250 1,000

(b) Technicians/Supervisors 30 90 130 130 130 510

(c) Vocational/skilled/semi-skilled 120 160 350 350 350 1,330

Total 307 458 750 750 750 3,015

- 98 - Annex 10

Page 3 of 3

The estimates may be revised after detailed training programs are devised,and will also be subject to annual review. The emphasis would be on: (a)in engineering upgrading existing and training new mechnical staff inagricultural workshops; (b) in finance and administration, on costaccounting and management information, and storekeeping, (c) inagriculture, on-the-job training for field-staff, particularly in the areasof cultivation, ratoon-management, cane-cutting, and on-farm watermanagement, and (d) part-time instructors will be trained at the estates,not with the objective of improving technical knowledge, but given basiccowmunication skills so as to become better group leaders.

(ii) The Sennar Training Center's teaching block and hostels will berehabilitated and an additional building provided, for libraries,laboratory, and additional teaching rooms. Twenty-two existingstaff-houses will be repaired/rehabilitated (the cost is estimated at aboutLSd 800,000).

(iii) The center will be provided training and demonstration equipmentfor various disciplines under it (US$350,000) and with project vans andcars and an auxiliary power generator.

(iv) A total of 336 man-months of technical assistance would beprovided to help with detailed planning, introduction of new trainingschemes, and provide training at the center and on-the-job in the estates.This will include one Chief Technical Adviser and four experts to berecruited through UNIDO, on the approval of IDA (US$3,420,000).

{v) About 60 fellowships for training abroad of middle and seniormanagers will be provided (US$900,000). It is assumed that this will besupplemented to the extent possible by UNIDO from its resources.

(vi) The organization of the estates will provide for a sub-departmentfor training under the Personnel Department. The Sennar Training Center isproposed to be formed as an independent unit under the Sudan Sugar Board.It is expected that UNIDO or a consulting firm will be made the executingagency for the component within the overall discipline of the Project, formonitoring, evaluation and coordination. There is a provision ofUS$300,000 for the visits and operations of review missions.

The total cost of the component will be US$5.9 million.

- 99 - Annex 11Page 1 of 3

SUDAN

Sugar Rehabilitation Project

Management Assistance and Training Component

I. Objectives

1. In order to ensure effective implementation of the rehabilitationproject and a smooth transition to commercial operations, a ManagementAssistance and Training (MAT) component is to be financed under theproposed project. Under this component an international sugar firm wouldbe engaged to provide selected management services and personnel to each ofthe four sugar companies during the project period. These firms would:

(a) provide a core group of senior managers at each company tomanage operations in concert with the existing Sudanesemanagement;

(b) provide technical personnel in the field, equipment workshopsand factories to assist in the running of day-to-dayoperations;

(c) implement new management, accounring, financial, andoperations and maintenance systems designed under the project;and

(d) train existing technical and managerial staff to take overthese functions in the shortest practicable time.

II. Description of Services

2. A separate MAT team will be engaged for each of the four sugarcompanies, on the general terms described in section III below. Each teamwill be headed by a Deputy Managing Director under the Managing Director (aSudanese). The Government is fully aware of the need to reserve ultimatedecision-making powers for Sudanese management. This is to be ensured byentrusting these powers, in the case of the four sugar factories, to theBoard of Directors, who will in turn delegate them to the Managing Director(a Sudanese) who will be the senior manager at each company. Subject tothis, the Management Assistance Team will necessarily have to be givendecision-making powers to the extent needed to produce the results forwhich they are to be held accountable (see Section III), and in particularthey must have responsibility for day-to-day operations.

3. It is proposed to give adequate and effective, but not total,control to the expatriate team by having the Deputy Nanaging Directorresponsible for day-to-day operations in which his decision will generally

- 100 - Annex 11Page 2 of 3

be final. The Managing Director will coordinate and monitor major issues,and be the judge of last resort when disputes arise, but will leaveday-to-day management to the Deputy. In order to ensure the fullinvolvement of the Sudanese management, the Deputy Managing Director willhead a technical committee consisting of both expatriate and Sudanesedepartment heads which will decide on all day-to-day operational and policymatters.

4. Under the Deputy Managing Director, the MAT team will consist of17 expatriates in the first two years, reducing to 5 in year 5, aspermanent staff are trained and management functions progressively handedover to Sudanese staff. Each team shall have the following composition:

Personnel No. of YearsDeputy Managing Director 5Training Officer 5

Agricultural StaffWorkshop Manager 5Section Engineer 3Workshop Technicians (3) 3Harvesting & Transport Manager 2

Factory StaffDeputy Factory Manager 5Maintenance Engineer 3Chemical Technologist 3Engineering Technician 3Electrical/Instrumentation Eng. 3

Business & Finance StaffBusiness Manager 5Cost/Management Controller 4Cost Accountants (2) 2

The proposed phasing of staff, which is subject to re-assessment at themid-term review (para. 4.22), is thus:

Year 1 2 3 4 5

Number of Staff 17 17 14 6 5

III. Terms of Management Assistance and Training Contracts

5. Firms to provide the MAT teams will be selected on the basis ofinternational competition among a short-list of prequalified companiesfollowing standard IDA guidelines. It is tentatively assumed that nosingle international firm would provide services for more than two of thesugar companies. The terms of the contracts to be awarded would be agreed

- 101 - Annex 11Page 3 of 3

between IDA, GOS and the other co-financiers, and would be guided by thefollowing two principles:

(a) management firms would be contractually committed to thetraining of counterparts and the phasing out of expatriatestaff; and

(b) the contracts would provide a limited set of incentives andpenalties to ensure performance.

6. In order to ensure compliance with the training and localizationobjective each contract will be for a period of three years, renewableannually for a maximum of two further years; and the management firms wouldbe contractually obligated to train counterparts and replace expatriatesaccording to agreed annual programs. Progress in this regard would bemonitored through the Annual Work Program and Hid-Term Review mechanisms.

7. Accountability will be secured by contracting for:

(a) payment on the basis of achieving targets and cost reductions.(b) penalities for non-performance;(c) introduction of cost and management-accounting systems; and,(d) an annual review of performance by an independent management

consultant acceptable to IDA.

8. The terms of premiums and penalties to apply will be determinedin detail during negotiations, but will include the payment of a bonusdependent upon achieving production above given agreed targets, forachieving improvements in agreed technical parameters above specifiedtarget levels, and for reductions in unit costs below agreed target levels.

9. A chart describing the proposed MAT teams in attached as ChartII.

- 102 - Annex 12

SUDAN

Sugar Rehabilitation Project

Arrangements for Project Procurement

Procurement of Goods and Civil Works

1. The Project Procurement Committee (PPC) would be headed by anofficial of MOFEP and membership would include inter alia all ImplementingAgencies and SPIC (IA's and SPIC). The Chairman of PPC would be delegatedthe powers of MOFEP in regard to procurement.

2. PPC would, in consultation with SPIC, prepare and finalizeprocurement packages for the project.

3. Technical and commercial specifications for all procurementpackages would be prepared by lA's and cleared by SPIC in accordance with atime schedule, format and other relevant guidelines prepared by SPIC.

4. For all procurement other than LIT's and ICB's, the IA's wouldprocess all stages of processing of tenders, from invitation to award.

5. For LIT's and ICB's PPC will be responsible for (a) approval andissue of instructions to tenderers and conditions of contract, (b)preparation and printing of all tender documents and processing to openingof bids, (c) bid technical and commercial evaluation through its committeesand subcommittees comprising representatives of SPIC, all IA's and suchexperts as may be co-opted, (d) communications with IDA in this regard, and(e) signing of contracts.

6. SPIC would nominate the IA's for all post-contractresponsibilities, including payment to suppliers/contractors.

Procurement of Technical Services

7. The procurement of all consultancy and support services under theproject would be coordinated by SPIC. SPIC, in conjunction with theconcerned agency or sugar company, would draft the terms of reference forsuch consultants, would screen and select prospective firms or individualsto provide consultancy services, and would approve the terms and conditionsof employment of such consultants.

a, Consultancy contracts would be executed by the concerned agencyor sugar company. SPIC would continue to be involved in monitoringconsultant's performance and supervising their activities once appointed.

- 103 - Ansnex 13Page 1 of 2

SUDAN

Susar Rehabilitation Project

Documents Available on Project Files

1. The preparation report prepared by consultants is available in 22volumes. These are:

Main ReportAnnex 1, Parts 1-3, GuneidAnnex 2, Parts 1-3, New HalfaAnnex 3, Parts 1-3, SennarAnnex 4, Parts 1-3, AssalayaAnnex 5, Organization, Manpower Development and Training (3

parts)Annex 6, Financial ManagementAnnex 7, MarketingAnnex 8, Agricultural Research (2 parts)Annex 9, Project Analysis (2 parts)Annex 10, Drawlngs

In addition, the same consultants had previously prepared a Phase I reportin 5 volumes, which reviews sector background and the production historiesof the four sugar estates.

2. The following reports were prepared by consultants during projectpre-appraisal:

(i) Draft Working Papers on the Sugar Industry In Sudan(C.N. Raghavan, February 1983), comprising:

(a) Stafflng and Salary Structures(b) Marketing Policy(c) Price Policles(d) Sugar Industry Organization

(ii) Draft Working Papers on the Factory Components(H. Idehara, February 1983), comprising:

(a) Factory Components (General)(b) Guneid Factory(c) New Halfa Factory(d) Sennar and Assalaya Factories

(iII) Draft Working Papers on Agrlcultural Aspects(G. Bacs, February 1983), comprising:

- 104 - Annex 13Page 2 of 2

(a) Agriculture(b) Agricultural Research(c) Training(d) Cane Transport(e) Comments on the Project Preparation Report (1, above)

(iv) Draft Geotechnical Report on Condition of Civil Works atSennar and Assalaya (Woodward & Clyde Consultants, 1983)

3. The following additional reports are relevant to the project andto the sugar sub-sector:

(i) Sudan: Investing for Economic IDA ReportStabilitation and Structural Change No. 3551a,

February 1982

(ii) The Sugar Industry of the Sudan Economist(2 volumes) Intelligence Unit

1981

Ciii) Sudan Export Development Strategy IDA ReportNo. 4263-SUDecember 1983

(iv) Sudan: Pricing Policies and IDA ReportStructural Balances (3 volumes) No. 4528a-SU

November 1983

SUDANSUGAR REHABILITATION PROJECT

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