Peel potatoes and cut into cubes.
Bring water to a boil in large pan, add potatoes and cook until tender. Set aside when ready.
Peel and mince onion. Melt butter in sauce pan over medium heat, add ionion, cook, stirring frequently until onions are transparent.
Add flour, season (to taste) with crushed red pepper and black pepper.
Slowly add potatoes, 1 cup of cooked potato water, milk and sugar. Stir well.
Add cheese and ham, simmer over low heat for 30 to 40 minutes, stirring frequently.