Significant events in 2008

Merger & Acquisition

Formation of Terna Serviços Ltda

On January 25, 2008, Terna Serviços Ltda was established with share capital of R$ 1,000.00. The company is based in Rio de Janeiro and is 99.9% controlled by Terna Participações. The company's corporate purpose includes the following: project design for the construction and maintenance in the electricity transmission segment; engineering, construction and maintenance services for systems in the electricity transmission segment; leasing, lending or selling equipment and infrastructures related to transmission systems; and providing technical support in the transmission segment. The company has been operational since April 2008.

Completion of the acquisition of Empresa de Transmissão de Energia do Oeste Ltda ("ETEO") and the merger of Lovina Participações S.A.

On May 30, 2008, following approval by the local regulatory body Agência Nacional de Energia Elétrica (ANEEL), the entire share capital of Empresa de Transmissão de Energia do Oeste Ltda ("ETEO") was acquired through the subsidiary Lovina Participações. The total value of the acquisition of ETEO came to R$ 568.4 million (about € 223.9 million). The transaction was entirely financed by Terna Participações with the issue of 1-year commercial paper. ETEO holds a thirty-year concession on 502 km of 440 kV transmission lines in the state of São Paulo, posting revenues of R$ 91.2 million in 2008 (about € 34.2 million) and EBITDA of R$ 80.1 million (about € 30.7 million). The value of net non-current assets on the acquisition date totalled R$ 572.6 million (about € 225.4 million), and the company had no debt at the time of the closing. On June 2, 2008, Lovina Participações S.A. was merged into the newly acquired ETEO.

Acquisition of bays at the Moncalieri electrical station

On July 30, 2008, through the subsidiary RTL S.p.A., Terna, together with Iride Energia S.p.A., signed an agreement for the purchase of three new bays at the Moncalieri electrical station at a price of € 2.5 million. The transaction completes the purchase of the 220 kV Moncalieri substation of June 28, 2007, between RTL S.p.A. and Iride Energia S.p.A. as part of the acquisition of the entire share capital of AEM Trasporto Energia S.r.l.

Completion of the acquisition of 380 kV Ravenna and 150 kV Brindisi power lines

On September 15, 2008, once all of the necessary conditions had been met, the agreement signed on June 27, 2008, by Terna S.p.A. and EniPower Trasmissione S.p.A. for the purchase of the 150 kV (9.2 km) Brindisi power line and the 380 kV (8.6 km) Ravenna power line was completed, for a total of 17.8 km of lines purchased representing 0.07% of the NTG. The total amount paid came to € 8.7 million.

Merger of RTL S.p.A. into Terna S.p.A.

On September 17, 2008, the Terna Board of Directors approved the merger of the wholly owned subsidiary Rete Trasmissione Locale S.p.A. (RTL S.p.A.) into Terna S.p.A. based on the financial statements as at June 30, 2008, with the cancellation of all shares in the absorbed company in accordance with the approved merger plan. The merger was approved by the Terna S.p.A. Board of Directors on October 1, 2008 and by the shareholders of RTL S.p.A. on the same date. The effective date of the merger for legal purposes is December 12, 2008, the date on which the merger instrument was filed for both companies with the Company Register (art. 2504-bis of the Italian Civil Code). In accordance with the merger instrument, the transactions carried out by RTL are recognised in the accounts of the surviving company, and the effective date of the merger for accounting and tax purposes is January 1, 2008. As a result, Terna has recognised all transactions carried out by RTL during the year, and in particular:

• the acquisition from Edison S.p.A. on April 24, 2008, of land pertaining to the 220 kV Taio station and to the 132 kV Mezzocorona station in the Province of Trento for a total of about € 5.1 million;
  
• the sale to EniPower Ferrara S.r.l. on June 27, 2008, of the SS-1 electrical station located on the Ferrara petrochemical site subject to removal of the station from the NTG. The price for transfer of the station, effective as of September 1, 2008, was € 6.1 million.

Completion of the acquisition of the 220 kV Castelbello and Glorenza electrical stations (Trentino Alto Adige)

On October 1, 2008, following approval by the Italian antitrust authorities, the agreement signed on July 29, 2008, by Terna S.p.A. and Seledison S.p.A. for the purchase of the 220 kV Castelbello and Glorenza (Bolzano) electrical stations, representing 0.10% of the NTG, was completed. The price paid was € 8.2 million for the stations and € 1.9 million for the land.

Sale of the Enel Distribuzione S.p.A. high-voltage power grid to Terna S.p.A.

On December 19, 2008, Terna S.p.A., Enel S.p.A. and Enel Distribuzione S.p.A. reached agreement on the sale to Terna of the entire capital of Enel Linee Alta Tensione S.r.l. ("ELAT"), a wholly owned subsidiary of Enel Distribuzione to which the latter transferred its business unit, comprising high-voltage lines and related legal relationships on December 31, 2008, with effect from January 1, 2009. The business unit, transferred to ELAT includes 18,583 km of high-voltage power lines operating primarily at 132 and 150 kV. The value of the transaction has been set at € 1,152 million, which is to be paid in full at the time of the closing (which is expected to take place in the first half of 2009) and is subject to adjustment based on any changes in ELAT equity between the date of the agreement and the date of the sale.

Terna will finance the entire transaction through the use of debt, drawing on existing lines of credit. Completion of the transaction is subject to the following conditions:

• verification of the conformity of the transfer of the business unit (which took place on January 19, 2009);
• approval by the antitrust authorities (obtained on February 16, 2009);
• inclusion by the competent authorities of the high-voltage lines being sold in the National Transmission Grid (obtained by Decree of the Minister for Economic Development on February 27, 2009);
• issuance of a measure by the Authority for Electricity and Gas granting the related rate revenues to Elat. The transaction will enable Terna to increase the total kilometres operated in Italy by more than 40%.

Markets and finance

Terna rating and outlook

On February 13, 2008, Standard & Poor's confirmed Terna S.p.A.'s long-term rating at "AA-" and the short-term rating at "A1+". The outlook has been changed from "stable" to "negative". On May 15, 2008, Moody's revised its long-term rating for the Company from "Aa3" to "A1", with a stable outlook. The agency also confirmed its short-term rating at "Prime -1". On May 30, 2008, Fitch revised its long-term rating for the Company from "AA-" to "A+", with a stable outlook, with its rating for senior unsecured debt changing from "AA" to "AA-". The agency also revised its short-term rating from "F1+" to "F1". On December 22, 2008, following the agreement to acquire the high-voltage network from Enel Distribuzione S.p.A., Standard & Poor's, Fitch and Moody's all put the Company's rating on the watch list, as discussed in the "Subsequent events" section of this Report.

€ 650 million syndicated loan and € 500 million revolving credit line

On June 26, 2008, Terna S.p.A. obtained a loan in the amount of € 650 million from a syndicate composed of BBVA, Société Générale, BNP Paribas, Bank of Tokyo-Mitsubishi, and Dexia Crediop (as Joint Mandated Lead Arrangers) and a revolving credit line in the amount of € 500 million from the Royal Bank of Scotland and Banco Santander (as Joint Mandated Lead Arrangers). The syndicated loan was disbursed on October 28, 2008, and has a term of 7 years. It bears interest at Euribor plus 50 basis points and can change on the basis of the credit rating assigned to the Company. The revolving credit line will be available for 5 years and bears interest at Euribor plus 70 basis points, which can vary depending on the percentage use of the credit and the credit rating assigned to the Company. The amount available can be drawn subject to notice for the entire term of the loan. Since October, the rotating credit line had been drawn in the amount of € 200 million at December 31, 2008.

Disbursement of a new EIB loan in the amount of € 300 million

On September 15, 2008, the € 300 million loan for Terna S.p.A. from the European Investment Bank (EIB) for the construction of the SAPEI connection was disbursed. The loan has a term of 20 years and will be repaid in semi-annual instalments beginning in the fifth year. The conditions of the loan include an annual interest rate equal to 6-month Euribor plus 5 basis points.

Intercompany loan

On December 30, 2008, the shareholders of Terna Participações, meeting in extraordinary session, approved a revolving intercompany line of credit with a term of 12 months and renewable for up to 36 months, with a total maximum amount of R$ 500.0 million, with the Parent Terna S.p.A., in order to obtain alternative financing to face short-term funding needs. The loan agreement was signed on February 16, 2009. For greater details on the transaction, see the section "Subsequent events" of this Report.

Quality indexes and certifications

ISO 14001 and OHSAS 18001 certifications

In January, Terna obtained ISO 14001 certification for environmental management and the OHSAS 18001 certification for workplace safety and healthcare management. These two certifications join the ISO 9001 quality certification that Terna obtained in 2001, thereby achieving an integrated system of quality, environment and safety management able to enhance the efficiency of business processes and support a high level of social and environmental responsibility. The significance of this achievement is even greater when considering that, of the 40 companies on the S&P/MIB index, only 14 have obtained the ISO 14001 environmental certification and just 5 have an integrated system.

FTSE confirms Terna on the FTSE4Good sustainability index

On September 17, 2008, the FTSE Group confirmed Terna's place in the FTSE4Good stock market index, which is made up of the best European firms on London's Financial Times Stock Exchange (FTSE) index in terms of sustainable economic development.

Other items

Update of Brazilian fees

On June 24, 2008, ANEEL issued Resolution no. 670 establishing the new annual concession fee (RAP) in effect from July 1, 2008, to June 30, 2009. The annual concession fee reflects the cumulative inflation adjustment (the IGPM rate) for the period from June 2007 to May 2008, equal to +11.53%. The total amount of the fee for the 2008-2009 cycle, including newly acquired ETEO, is, therefore, equal to R$ 741.8 million, up 10.15% without considering ETEO's contribution compared with the previous cycle.

ANEEL has also applied a one-off negative fee (PA, for Parcela de Ajuste) to be paid in 12 monthly instalments beginning in July 2008 and totalling R$ 16,532,290.19. The PA reflects adjustments to the revenues of the holders of the transmission concessions to reflect advances or withholdings in the previous cycle caused by differences in the value of the services provided and the amount actually charged.

Other ANEEL resolutions

On January 5, 2009, all companies holding transmission service concessions were notified of ANEEL's Oficio Circular no. 2775/2008, issued on December 24, 2008, which contains instructions for new accounting policies to be followed for year end closures beginning with the 2008 financial year.

With its subsequent Oficio Circular no. 127/2009, ANEEL suspended application of the new accounting policies contained in Oficio Circular no. 2775/2008 solely for the 2008 financial year. With its Technical Note no. 374 of December 10, 2008, ANEEL expressed its intent to subject the concessions to a fiveyear rate updating mechanism, based on which such concessions should transfer efficiency gains achieved through technological innovation to consumers by the end of the update period. On June 26, 2006, ANEEL approved Resolution no. 270/2007 amending the method of calculating and applying the penalties called for in the concession agreements of the Terna Group companies.