The ratings on ESKOM Holdings Ltd., the South African electricity utility, reflect its critical role in the development of the Republic of South Africa's (foreign currency BBB/Stable/A-3; local currency A/Stable/A-1) economy through its successful electrification program. They also factor in the government's intention to remain supportive of ESKOM's credit quality, strong electricity demand growth, and a supportive regulatory regime. These strengths are offset by a relatively weak financial structure, an annual tariff-setting cycle, exposure to cyclical industries, and longer-term exposure to the restructuring of the electricity industry in general. ESKOM's revenues remain exposed to changes in tariff policy. Despite improvements in regulatory transparency and support, a low nominal tariff increase of 2.5% in January 2004 is expected to result in
