Belco Holdings Ltd Releases 2008 Annual Report

Hamilton, Bermuda - 12 May, 2009 - Belco Holdings Ltd (Ticker: BELCO.BH) has released the Financial Report for fiscal year ended 31 December 2008.

2008 Chairman's Report to Shareholders

In 2008, we actively worked to initiate renewable energy projects. Our new subsidiary, PureNERGY Renewables, Ltd. (PureNERGY), which specialises in customised, small-scale renewable energy design and installations, was officially launched in May. In September, we issued a Solicitation of Interest, inviting local and international proposals for large-scale renewable energy projects. We continue to pursue distributed generation options, and we are leveraging our resources to provide expertise for infrastructure development.

One of our most significant challenges in 2008 was managing the effect of the high price of fuel on our business and our customers. As fuel prices climbed during the summer months, electricity rates and operating costs followed. In September, the fuel adjustment portion of the monthly electricity bill represented over 40 percent of the total bill. The fuel surcharge collected from customers, based on kilowatt consumption, is used to recover the cost of fuel. Recognising the effect that the high cost of fuel was having on our customers, we voluntarily deferred recovery of the additional cost in an effort to avoid even further peaks in the fuel adjustment rate. Unfortunately, due to Bermuda's small size and geographic isolation, there is little or no flexibility in the timing of fuel purchases and the cost, but we are continually reviewing purchase strategies in an effort to offset price volatility.

The high price of fuel throughout the year, coupled with an economic slowdown in the second half of the year, resulted in decreased electricity and propane consumption during 2008. In response, accelerated efforts were made to defer or eliminate non-essential expenses and reduce overall expenditures. We are pleased to report that, as a result, BELCO Holdings Limited achieved consolidated net earnings in 2008 of $21,425,427, a 5.03 percent increase over the $20,399,518 earned in 2007. Earnings per share ended the year at $2.07, up 4.55 percent. However, the market price per share was down from $21.00 in 2007 to end the year at $18.00.

The weakening economy and a yet-to-be-defined regulatory environment are major factors influencing how we move forward with our capital investment programme. BELCO's planning application for the 20-year expansion and rebuilding of the Pembroke Central Plant site, submitted in November 2007, remains under consideration at the Planning Department. The application is for an extensive eight-phased redevelopment project that would require a $500 million investment. The first phase was to have been a major reconfiguration of the site to accommodate two new diesel engines by 2010.

Given the existing uncertainties and Government's and the community's interest in pursuing alternative energy options, we postponed Phase One of the development. Instead, in September 2008, we applied to Government for approval of Phase Two of the plan, the installation of 13.5 megawatts (MW) of gas turbine plant for emergency back-up and peak load operations. At a cost of $18.7 million, the new units will replace 10 MW of existing, less efficient gas turbine plant that has reached the end of its service life. The new units are due to be in service by the summer of 2010, and will be installed at the same location as the replaced units.

Postponing Phase One and moving directly to Phase Two buys approximately 18 months of time for Bermuda to identify, agree and plan alternatives to further development at the Central Plant site. The window for moving ahead with other alternatives is critically time sensitive. Completion of the gas turbine plant in 2010 will be sufficient to meet peak demand through 2013. By 2014, Bermuda will require additional installed and commissioned generation capacity to ensure continuous reliable supply.

Achieving the New Energy Equation

We are diversifying our energy portfolio to position our group of companies to meet renewable energy targets, reduce our dependency on fossil fuel and find ways to integrate all aspects of future infrastructure. Expanding our focus within the strata of our core strengths allows us to provide added expertise to our community, greater opportunities for our people and added value for our shareholders.

In February 2008, Bermuda had approximately 15 major, multi-million-dollar development projects under consideration. A year later, due to the global economic meltdown and the subsequent impact it is having on our economy, it is questionable whether all of these will proceed. However, Government seems confident that some of the proposed developments will move ahead, which will represent growth opportunities for our group of companies. As we expand our system to meet the electricity requirements of new major developments, we will also pursue pooling our internal and external resources to identify areas where we can integrate infrastructure to bring economies of scale and expanded service options. Possibilities include combined heat and power facilities with by-products of water or steam and alternative forms of energy.

BELCO's 2008 Solicitation of Interest for large-scale renewable energy proposals has opened the possibility of five potential renewable energy providers, including waste-to-energy, photovoltaic, wind and, in the longer term, tidal. Moving ahead with any or all of these would require the identification of suitable sites, sale or leasing agreements, technical

studies and permitting before building can commence. At the time of writing this report, there had been no progress on identifying suitable sites. This is troubling, given that most proposals require 18 to 36 months of work before they are completed. Meanwhile, we still do not know what level of redevelopment will be permitted at BELCO's Central Plant site.

In January 2008, Government established the new Ministry of Energy. A series of public meetings were held through October in preparation for the development of a Green Paper on Energy. As a part of the process, BELCO provided a public presentation and participated in the other meetings. We also made recommendations to the Ministry of Energy and other Government departments, which included providing incentives for improving energy efficiency and renewable energy, and streamlining the approvals process.

At the time of writing this report, the Green Paper on Energy had just been released. It focuses on reducing Bermuda's reliance on fossil fuel and on building a competitive energy market, incorporating renewable energy and other alternatives. It also proposes promotion of

greater energy efficiency through private, institutional and industry reform, and encouraging conservation.

We will be sharing our views on the Green Paper with Government and the public. The timeline for this process is unclear, but we expect that it will be lengthy. The Green Paper will be followed by a White Paper, policy and, finally, legislation. We also expect there will be an

additional time lag between implementation of policy and the required investments in financing and behaviour change that are needed to effect significant gains in energy efficiency and to establish a stable, competitive energy market. We are hopeful that prior to the completion of the new regulatory structure, Government will provide timely decisions and approvals to facilitate large-scale renewable proposals and the potential requirement for further development of the existing power station site.

As we look to the likelihood of competition on the generation front and its associated uncertainties, we are considering changes to our business model to maximise non-regulated aspects of our businesses and to seize new opportunities. New regulation will likely favour renewable energy and carbon reduction technologies. However, should we need to invest in traditional plant to ensure reliability of electricity supply for Bermuda, we will seek financial and environmental regulatory assurances before proceeding.

We will continue to invest in our transmission and distribution assets, expanding opportunities for large-scale and small-scale renewable energy. We will also focus on providing expanded services to our customers through the progressive integration of smart metering. This will move us toward the development of a smart network, which will open further opportunities for the future. Our investment strategy will remain considered and prudent, taking into account potential economic and regulatory risks, with the expectation of acceptable industry returns on our investments.

On many fronts, 2009 will be a challenging year. In anticipation of the potential issues ahead,

we will position our subsidiaries to optimise success with an enhanced focus on fiscal

discipline, and we will continue to invest only when the expected associated returns are

commensurate with the level of risk.

Our Corporate Mission serves as the standard by which we make decisions: Our Mission

is to maximise shareholder value through investment in energy and utility-related service,

thereby consolidating our leadership position in the energy business and expanding the overall services we provide to our valued customers. As you read through this report, you will see that much has been accomplished and our companies are prepared and poised to meet both the opportunities and challenges that 2009 will bring. Our people are focused on the big picture and will continue to dedicate knowledge, talent and commitment to realising the best solutions for our community and our Company.

In closing, on behalf of the Board of Directors, I would like to take this opportunity to thank

management and staff across the group for the solid performance we have been able to

achieve in 2008.

J. Michael Collier

Chairman