Kilombero Announces Significant Sugar Expansion Project

The Kilombero Sugar Company, in which Illovo Sugar Africa holds 75% of the shareholding and the Government of the United Republic of Tanzania 25%, announces today the approval of a Tsh 571.6 billion ($238.5 million) expansion project. In alignment with the country’s policy to achieve self-sufficiency by 2025, this new development will increase Kilombero’s sugar production by 144 000 tons from current levels of around 127 000 tons of sugar per annum, to 271 000 tons.

A driving force behind the manufacturing expansion will be the almost three-fold increase in cane supply from Kilombero’s small-scale growers, from 600 000 tons currently to 1 700 000 tons. Importantly, the proposed new sugar factory has been sized so that all of the available cane will be crushed by end of December each year, in order to minimise disruptions and losses often caused by the onset of the rainy season.

The expansion project has been under discussion and planning by the Board of the company for a number of years and in addition to more than doubling current sugar production in order to meet increasing customer demand of Kilombero’s leading Bwana Sukari product range, it will also involve:

• The construction of additional sugar storage and packaging facilities in order to reduce costs and increase the company’s branded pre-packaged capability;
• The cogeneration of electricity for the Kilombero manufacturing complex and for export to the national Tanzanian grid;
• A 4 000 kilolitre increase in the production of ethanol at the adjacent ethanol distillery, bringing total annual production up to 16 000 kilolitres in order to meet growing local and East African export demand for potable alcohol.

The project was supported and endorsed by both shareholders, represented by Gavin Dalgleish on behalf of Illovo Sugar Africa and Athumani S. Mbuttuka as Treasury Registrar representing the Government of the United Republic of Tanzania, at a Special Shareholders Meeting held in Dar es Salaam, Tanzania on 14th May 2021.

Today’s announcement demonstrates the continued support of Associated British Foods, Illovo Sugar Africa’s owner, and their confidence in the continued growth of Illovo in the African sugar market.

Chairman of the Kilombero Sugar Company, Ambassador Ami Mpungwe says: “President Samia Suluhu Hassan’s profound commitment to creating a conducive environment for accelerated private-sector growth, underpinned by firm protective measures for the local sugar industry, have been decisive in securing approval of shareholders for this transformational project in the country.”

Further local benefits of the project – five-years on from commissioning the new factory - are that:

• The significant increase in cane volumes supplied by Kilombero growers will triple the revenues paid to them to around Tsh 270 billion by 2028.
• The total number of small-scale farmers supplying cane to the expanded company sugar factories will increase from 7 500 to between 14 000 and 16 000 growers, thus positively impacting directly an additional 50 000 people in the Kilombero valley surrounding the sugar operations;
• There will be an increase in direct employment by over 2 000 jobs both at the company and through the expanded grower cane supply;
• Total taxes of Tsh 66.8 billion currently paid by the company are estimated to increase three-fold as a result of the expansion and improved business performance by 2028;
• Kilombero Sugar Company’s total contribution to the economy will more than double from the current Tsh 340 billion per year to an estimated Tsh 750 billion.

Speaking on behalf of Kilombero’s shareholder, Illovo Sugar Africa, Gavin Dalgleish says that the investment in the expansion project is their biggest to date across the continent. “We are tremendously proud to be partnering with the Tanzanian people in what is a landmark investment aimed at reducing the amount of sugar which has to be imported into the country every year, to meet consumption demand. By effectively reducing sugar imports by 144 000 tons, our estimates are that Tanzania will be saving $71 million in foreign exchange annually,” said Mr Dalgleish.

The project construction phase is expected to take 25 months and completion is expected in July 2023.

The Kilombero Sugar Company Board and management would like to take this opportunity to thank the Government of the United Republic of Tanzania (a co-investor in the project through its 25% shareholding), Illovo Sugar Africa and the Kilombero growers for their unwavering support of the project since conception, its own employees and the many other stakeholders, partners, customers and suppliers who have encouraged and helped develop the company’s far-reaching expansion plans.

Notes to editors:

• The existing expansion feasibility study to more than double Kilombero’s current sugar production commenced in late 2017, and is aligned to the Government’s National Development Agenda which calls for sugar self-sufficiency in the country by 2025. More recently, the critical need to promote further foreign direct investment has been reinforced by Tanzania’s new leader, President Samia Suluhu Hassan.
• Kilombero Sugar Company has made significant investments in the business over the past 20 years, totalling more than $166 million. This has involved various cane and sugar production expansions and the commissioning of a state-of-the-art distillery currently supplying 12 million litres of high-quality alcohol to the local beverage industry.
• Illovo Sugar Africa, which itself is wholly-owned by Associated British Foods in the United Kingdom, holds 75% of the issued share capital in the Kilombero Sugar Company, with the balance of shares (25%) held by the Government of the United Republic of Tanzania. Kilombero is situated in the Morogoro region in the centre/south of the country. It comprises two adjacent agricultural estates and sugar factories, Msolwa and Ruembe, situated on either side of the Great Ruaha River and linked by a low-level bridge. It produces direct consumption brown sugar under the ‘Bwana Sukari’ brand name, which is marketed and distributed by the company.

Kilombero Sugar Company is one of four sugar producers in Tanzania which, at current production levels of 368 000 tonnes of sugar, is a net importer of sugar.

PROJECT STATS & FACTS

Background

Kilombero Sugar Company Limited (KSC) is 75% owned by Illovo Sugar Africa (Pty) Ltd and 25% by the Government of Tanzania. Illovo Sugar Africa is the largest sugar company in Africa with sugar and related operations in 6 countries in south and east Africa. Since privatisation in 1998, KSC has seen significant transformation with sugar production increasing from 29 000 tons to 127 000 tons currently, and sold under the “Bwana Sukari” brand. KSC sources half its cane supply for sugar production from 7 500 small-scale farmers in the surrounding community. Cane purchased from local farmers has grown from 140 000 tons in 1999 to over 620 000 tons today – the largest in the sugar industry. The price paid to farmers for their cane is the highest in Tanzania and is three times more profitable than growing rice as a cash crop. The price paid for sugar cane is determined by a revenue sharing arrangement based on total revenue earned by KSC from selling its sugar and molasses. Therefore a strong and stable sugar market is essential for the viability of KSC and its sugarcane farmers.

In 2013, Illovo Sugar Africa invested $49 million in a 12 000 kilolitre ethanol distillery, further beneficiating molasses, which is a by-product of sugar production. 75% of the ethanol produced is sold to local Tanzanian businesses and the balance is exported.

The proposed KSC sugar expansion project is as result of the Government’s policy to be self-sufficient in sugar production by 2025 and the clear actions it has taken to support the sugar industry since 2017, particularly:

• Limiting GAP sugar imports to the right amount and the right time, and allowing for established sugar producers to import the GAP sugar upon licenses issued by Government;
• Being proactive in controlling illegal sugar imports and its strong anti-corruption stance;
• Converting grower co-operatives to be geographically-based in order to improve efficiency of operations and more effective administration.

Converting grower co-operatives to be geographically-based in order to improve efficiency of operations and more effective administration.

Over 4 440 jobs are created as a result of the sugarcane growing and sugar production business at KSC, of which 2 100 are directly employed and the balance employed by the surrounding sugarcane farmers.

Sugarcane farmers currently earn circa Tsh 65 billion ($28 million) from the sale of sugarcane to KSC annually. As a result it is estimated that 20 000 lives in the surrounding community are supported by sugar and sugarcane operations along with over 1 800 businesses/SME’s that have developed around the KSC business.

KSC’s current direct contribution to Government revenues is circa Tsh 66.8 billion ($29 million) in total taxes ( VAT, Corporate Tax, duties, PAYE, SDL, etc)KSC also contributes significantly to local schools, hospitals and has facilitated, through its charitable Trust and donor funding, the construction of 150km of roads for sugarcane farmers to transport their cane to the KSC factories.

Expansion project: Salient points

• An investment of $238.5 million (Tsh 571.6 billion) in a new, modern factory (4 times larger than the existing sugar factory at KSC), which will more than double the production of sugar from 127 000 tons to 271 000 tons.
• Cane supply from small-scale growers to increase almost three-fold, from 600 000 tons to 1.7 million tons
• The number of growers supplying sugarcane to increase from 7 500 to between an estimated 14 000 and 16 000 people – representing a true community-inclusive project whereby 75% of the additional cane required will come from small-scale growers.
• Construction of the new modern sugar factory will begin by end of May 2021 and will be commissioned in July 2023.
• Ethanol production will increase by 4 000 kilolitres, primarily for export.
• Investment in electricity generation equipment to generate KSC’s own electricity requirements for its entire operations, plus have between 10 and 16 Megawatts of surplus renewable electricity available for sale to the national grid (subject to concluding a Power Purchase agreement with TANESCO).

The outcome of this significant development will be a truly transformational and community inclusive project on a large scale which will contribute considerably to the socio-economic transformation of the Kilombero Valley and long term sustainability of the Tanzanian Sugar Industry.