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Notes to the financial statements

8. Net finance costs

Finance costs and exchange gains/(losses) are presented net of effective cash flow hedges for respective interest bearing and foreign currency borrowings.

The weighted average capitalisation rate applied to qualifying capital expenditure was 6.5% (2008: 12.0%). Financing remeasurements are set out in note 7.

  2009   2008
US$ million Before remeasurements After remeasurements   Before remeasurements After remeasurements
Investment income          
Interest and other financial income 334 334   324 324
Expected return on defined benefit arrangements 157 157   215 215
Dividend income from financial asset investments 23 23   50 50
Total investment income 514 514   589 589
Interest expense          
Interest and other finance expense (724) (724)   (815) (815)
Interest paid on convertible bond (44) (44)   - -
Unwinding of discount on convertible bond (39) (39)   - -
Interest on defined benefit arrangements (174) (174)   (201) (201)
Amortisation of discount relating to provisions (45) (45)   (33) (33)
Dividend on redeemable preference shares - -   (16) (16)
  (1,026) (1,026)   (1,065) (1,065)
Less: interest capitalised 246 246   215 215
Total interest expense (780) (780)   (850) (850)
Other financing (losses)/gains          
Net foreign exchange losses (24) (45)   (173) (145)
Fair value gains/(losses) on derivatives 29 (71)   (2) 21
Net fair value gains on fair value hedges 29 29   2 2
Other net fair value losses (41) (54)   (18) (18)
Total other financing losses (7) (141)   (191) (140)
Net finance costs (273) (407)   (452) (401)

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Annual Report 2009