The capital expenditure plan of R343 billion (nominal) over the next five years requires significant access to all funding sources ie, equity, debt and appropriate revenue. Eskom has determined that it can realistically raise directly from the capital markets up to R150 billion during this timeframe, which addresses both market appetite and maintenance of credit rating metrics. The remainder will thus need to be sourced from equity and electricity price increases. Eskom has undertaken much financial modelling to determine the optimum mix of equity and electricity tariffs within the context of maintaining its credit rating to ensure sustainable access to and cost-effective pricing of debt. The Nersa decision in June 2008 has informed us of the residual funding gap, which will require shareholder assistance beyond the R60 billion already committed. The terms and conditions of this assistance are currently under negotiation but it is certain to provide a funding foundation from which rating agencies and other lenders can take comfort.

Eskom’s funding philosophy remains to responsibly maximise our access within the local market and diversify our international borrowing opportunities.

Late in the financial year 2006/7 Eskom launched a new bond, the ES26, and proceeded to tap the market predominantly via this instrument throughout the year. Eskom was rewarded by the Bond Exchange of South Africa (BESA) via its members by receiving a Spire Award for the best new issuance for 2007.

This was achieved purely via local financing. During the year new international facilities were negotiated and are linked to spending on particular projects and hence will be drawn as projects progress.

Eskom found it necessary to increase the authorised volume of the ES26 and ES33 within the R65 billion domestic multiterm note programme listed with BESA from R10 billion to R15 billion each in order to meet ongoing investor demand.

Investor concerns regarding the vastness of the funding requirement and sources thereof, resulted in Eskom spreads versus government bonds widening significantly during the year. During the year under review our funding strategy unfolded well, however, the final quarter brought rating agency actions that provided an additional challenge. Eskom postponed an intended international loan pending the outcome of rating agency deliberations. This is expected to be resolved in July 2008.

In January, in a bid to broaden liquidity of Eskom bonds, Eskom formalised five banks to act as supplementary market makers alongside Eskom. As this is a new endeavour Eskom will evaluate it on an ongoing basis and encourage its success in the interests of our investors.