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					any sale of these securities or delivery of this Preliminary Offering Circular in any jurisdiction in which such offer, solicitation, sale or delivery would be unlawful prior to the registration or quali®cation of
This Preliminary Offering Circular and information contained herein are subject to completion or amendment without notice. These securities may not be sold nor an offer to buy be accepted prior to the
time that the Offering Circular is delivered in ®nal form. Under no circumstances shall this Preliminary Offering Circular constitute an offer to sell or the solicitation of an offer to buy nor shall there be




                                                                                                                                                                                                                        AEM S.p.A.
                                                                                                                                                                                                                        (incorporated with limited liability in the Republic of Italy)



                                                                                                                                                                                                                        e500,000,000 4.875% Notes due 2013

                                                                                                                                                                                                                        Issue price: 99.767%
                                                                                                                                                                                                                        The e500,000,000 4.875% Notes due 2013 (the ``Notes'') of AEM S.p.A. (the ``Issuer'' or
                                                                                                                                                                                                                        ``AEM'') will be redeemed at their principal amount on 30 October 2013 (the Maturity Date)
                                                                                                                                                                                                                        unless previously redeemed or purchased and cancelled. The Issuer may at its option, redeem
                                                                                                                                                                                                                        all, but not some only, of the Notes at any time at their principal amount in the event of
                                                                                                                                                                                                                        certain tax changes, as described under ``Conditions of the Notes - Redemption and
                                                                                                                                                                                                                        Purchase''.
                                                                                                                                                                                                                        Each Note will bear interest from, and including, 30 October 2003 (the ``Closing Date'') at the
                                                                                                                                                                                                                        rate of 4.875% per annum to, but excluding, the Maturity Date or such earlier date on which
                                                                                                                                                                                                                        the Note is redeemed or purchased and cancelled. Interest will be payable annually in arrear
                                                                                                                                                                                                                        on 30 October commencing on 30 October 2004, as described under ``Conditions of the Notes
                                                                                                                                                                                                                        - Interest''.
                                                                                                                                                                                                                        Payments in respect of the Notes will be made without deduction for or on account of taxes
                                                                                                                                                                                                                        of the Republic of Italy (``Italy''), subject to certain customary exceptions, as described under
                                                                                                                                                                                                                        ``Conditions of the Notes - Taxation''. Legislative Decree No. 239 of 1st April 1996, as
                                                                                                                                                                                                                        amended, will apply to the Notes with respect to the tax treatment of interest and other
                                                                                                                                                                                                                        income from the Notes, as described under ``Taxation - Italy''.
                                                                                                                                                                                                                        Application has been made for the listing of the Notes on the Luxembourg Stock Exchange.
                                                                                                                                                                                                                        The Notes will initially be represented by a temporary global Note (the ``Temporary Global
                                                                                                                                                                                                                        Note''), without interest coupons (``Coupons''), which will be deposited on or about
                                                                                                                                                                                                                        30 October 2003 with a common depositary for Euroclear Bank S.A./N.V. as operator of the
                                                                                                                                                                                                                                                                                       Â Â
                                                                                                                                                                                                                        Euroclear System (``Euroclear'') and Clearstream Banking, societe anonyme (``Clearstream,
                                                                                                                                                                                                                        Luxembourg''). Interests in the Temporary Global Note will be exchangeable for interests in a
                                                                                                                                                                                                                        permanent global Note (the ``Permanent Global Note'' and, together with the Temporary
                                                                                                                                                                                                                        Global Note, the ``Global Notes'' and each a ``Global Note''), without Coupons, on or after
these securities under the securities laws of any such jurisdiction.




                                                                                                                                                                                                                        10 December 2003 upon certi®cation as to non-U.S. bene®cial ownership. Interests in the
                                                                                                                                                                                                                        Permanent Global Note will be exchangeable for de®nitive Notes only in certain limited
                                                                                                                                                                                                                        circumstances, as described under ``Summary of Provisions relating to the Notes while
                                                                                                                                                                                                                        represented by the Global Notes''.
                                                                                                                                                                                                                                                               Joint-Lead Managers
                                                                                                                                                                                                                                                                   JPMorgan
                                                                                                                                                                                                                        Mediobanca S.p.A.                                           UBM-UniCredit Banca Mobiliare

                                                                                                                                                                                                                                                                    Managers
                                                                                                                                                                                                                        Banca Akros S.p.A.                                               Banca Nazionale del Lavoro
                                                                                                                                                                                                                          (Gruppo Banca Popolare di Milano)                                              Bancaperta
                                                                                                                                                                                                                        Banca Popolare di Sondrio                                             Â
                                                                                                                                                                                                                                                                                            Credit Agricole Indosuez
                                                                                                                                                                                                                        ING Financial Markets                                                       Ras®n SIM S.p.A.
                                                                                                                                                                                                                                                          SG CIB

                                                                                                                                                                                                                        29 October 2003
The Issuer, having made all reasonable enquiries, con®rms that this Offering Circular contains
or incorporates all information which is material in the context of the issue of the Notes, that
the information contained or incorporated in this Offering Circular is true and accurate in all
material respects and is not misleading, that the opinions and intentions expressed in this
Offering Circular are honestly held and that there are no other facts the omission of which
would make this Offering Circular or any of such information or the expression of any such
opinions or intentions misleading. The Issuer accepts responsibility accordingly.
No person has been authorised to give any information or to make any representation other
than those contained in this Offering Circular in connection with the offering of the Notes
and, if given or made, such information or representations must not be relied upon as having
been authorised by the Issuer or the Managers (as de®ned in ``Subscription and Sale'').
Neither the delivery of this Offering Circular nor any sale made hereunder shall, under any
circumstances, constitute a representation or create any implication that there has been no
change in the affairs of the Issuer since the date hereof. This Offering Circular does not
constitute an offer of, or an invitation by, or on behalf of, the Issuer or the Managers to
subscribe for, or purchase, any of the Notes. This Offering Circular does not constitute an
offer, and may not be used for the purpose of an offer to, or a solicitation by, anyone in any
jurisdiction or in any circumstances in which such an offer or solicitation is not authorised or
is unlawful.
The Managers and J.P. Morgan Corporate Trustee Services Limited (the ``Trustee'') have not
separately veri®ed the information contained herein. Accordingly, no representation, warranty
or undertaking, express or implied, is made and no responsibility or liability is accepted by
the Managers, the Trustee or any of them as to the accuracy or completeness of the
information contained in this Offering Circular or any other information provided by the
Issuer in connection with the Notes or their distribution.
This Offering Circular is not intended to provide the basis of any credit or other evaluation
and should not be considered as a recommendation by the Issuer, the Managers or the
Trustee that any recipient of this Offering Circular should purchase any of the Notes. Each
investor contemplating purchasing Notes should make its own independent investigation of
the ®nancial condition and affairs, and its own appraisal of the creditworthiness, of the
Issuer.
The Notes have not been and will not be registered under the United States Securities Act of
1933, as amended (the ``Securities Act'') and are subject to U.S. tax law requirements. Subject
to certain exceptions, the Notes may not be offered, sold or delivered within the United
States or to U.S. persons. For a further description of certain restrictions on the offering and
sale of the Notes and on the distribution of this Offering Circular, see ``Subscription and
Sale'' below.
All references in this Offering Circular to ``euro'' and ``e'' refer to the currency introduced at
the start of the third stage of European economic and monetary union pursuant to the
Treaty establishing the European Communities, as amended by the Treaty on European
Union, each as further amended from time to time.
In connection with the issue of the Notes, J.P. Morgan Securities Ltd. or any person acting
for J.P. Morgan Securities Ltd. may overallot or effect transactions with a view to supporting
the market price of the Notes at a level higher than that which might otherwise prevail for
a limited period after the Closing Date. However, there may be no obligation on J.P. Morgan
Securities Ltd. or any agent of J.P. Morgan Securities Ltd. to do this. Such stabilising, if
commenced, may be discontinued at any time and must be brought to an end after a
limited period.




                                                2
                                  Table of Contents

                                                                                         Page
Documents Incorporated by Reference PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP         4
Conditions of the Notes PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP       5
Summary of Provisions relating to the Notes while represented by the Global Notes PPPP     16
Use of Proceeds PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP       18
Capitalisation PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP      19
Description of AEM PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP       20
Regulation PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP       35
Financial Information PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP      42
Taxation PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP       71
Subscription and Sale PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP      76
General Information PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP       78




                                              3
                    Documents Incorporated by Reference
The audited consolidated and non-consolidated ®nancial statements of the Issuer as at, and
for the ®nancial years ended, 31st December 2001 and 31st December 2002 and the
unaudited interim consolidated and non-consolidated ®nancial statements of the Issuer as at,
and for the six month period ended, 30th June 2003 are incorporated by reference and form
part of this Offering Circular.
Any statement contained herein or in a document which is deemed to be incorporated by
reference herein shall be deemed to be modi®ed or superseded for the purpose of this
Offering Circular to the extent that a statement contained in any such subsequent document
which is deemed to be incorporated by reference herein modi®es or supersedes such earlier
statement (whether expressly, by implication or otherwise). Any statement so modi®ed or
superseded shall not be deemed, except as so modi®ed or superseded, to constitute a part of
this Offering Circular.
Copies of the documents referred to above will be available free of charge at the speci®ed
of®ce of each Paying Agent and at the speci®ed of®ce in Luxembourg of J.P. Morgan Bank
Luxembourg S.A. (the ``Luxembourg Listing Agent'') for as long as any of the Notes remain
outstanding.




                                             4
                                Conditions of The Notes
The following is the text of the Conditions of the Notes which (subject to modi®cation) will
be endorsed on each Note in de®nitive form (if issued):
The e500,000,000 4.875% Notes due 2013 (the ``Notes'', which expression shall in these
Conditions, unless the context otherwise requires, include any further notes issued pursuant
to Condition 15 and forming a single series with the Notes) of AEM S.p.A. (the ``Issuer'') are
constituted by a Trust Deed dated 30 October 2003 (the ``Trust Deed'') made between the
Issuer and J.P. Morgan Corporate Trustee Services Limited (the ``Trustee'', which expression
shall include its successor(s)) as trustee for the holders of the Notes (the ``Noteholders'') and
the holders of the interest coupons appertaining to the Notes (the ``Couponholders'' and the
``Coupons'' respectively).
The statements in these Conditions include summaries of, and are subject to, the detailed
provisions of, and de®nitions in, the Trust Deed. Copies of the Trust Deed and the Paying
Agency Agreement dated 30 October 2003 (the ``Agency Agreement'') made between the
Issuer, JPMorgan Chase Bank as principal paying agent (the ``Principal Paying Agent'', which
expression shall include its successor(s)), J. P. Morgan Bank Luxembourg S.A. (together with
the Principal Paying Agent, unless the context otherwise requires, the ``Paying Agents'', which
expression shall include any additional or successor paying agent appointed under the Agency
Agreement) and the Trustee are available for inspection during normal business hours at the
principal of®ce for the time being of the Trustee, being at the date of issue of the Notes at
Trinity Tower, 9 Thomas More Street, London E1W 1YT, and at the speci®ed of®ce of each of
the Paying Agents. The Noteholders and the Couponholders are entitled to the bene®t of,
are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and
the Agency Agreement applicable to them.

1.   Form, Denomination and Title
(1) Form and Denomination
The Notes are in bearer form, serially numbered, in the denominations of e1,000, e10,000
and e100,000 each with Coupons attached on issue. Notes of one denomination cannot be
exchanged for Notes of another denomination.

(2) Title
Title to the Notes and to the Coupons will pass by delivery.

(3) Holder Absolute Owner
The Issuer, the Trustee and any Paying Agent may (to the fullest extent permitted by
applicable laws) deem and treat the holder of any Note or Coupon as the absolute owner for
all purposes (whether or not the Note or Coupon shall be overdue and notwithstanding any
notice of ownership or writing on the Note or Coupon or any notice of previous loss or theft
of the Note or Coupon).

2.   Status of the Notes
The Notes and the Coupons are direct, general, unconditional and (subject to the provisions
of Condition 3) unsecured obligations of the Issuer and (subject as provided above) rank and
will rank pari passu, without any preference among themselves, with all other outstanding
unsecured and unsubordinated obligations of the Issuer, present and future, but, in the event
of insolvency, only to the extent permitted by applicable laws that are both mandatory and
of general application relating to creditors' rights.

3.   Negative Pledge
So long as any of the Notes remain outstanding (as de®ned in the Trust Deed), the Issuer will
not create or have outstanding any mortgage, charge, lien, pledge, garanzia reale under
Italian law or other security interest having a similar effect (each a ``Security Interest'') upon,
or with respect to, the whole or any part of its present or future undertaking, assets or
revenues (including uncalled capital) to secure any Relevant Indebtedness (as de®ned below)
without, in the case of the creation of a Security Interest, before or at the same time and, in
any other case, promptly, taking any and all necessary action to ensure that:

                                                 5
(a) all amounts payable by the Issuer under the Notes, the Coupons and the Trust Deed are
secured by the Security Interest equally and rateably with such Relevant Indebtedness to the
satisfaction of the Trustee; or
(b) such other Security Interest or other arrangement (whether or not it includes the giving
of a Security Interest) is provided either (i) as the Trustee in its absolute discretion deems not
materially less bene®cial to the interests of the Noteholders or (ii) as is approved by an
Extraordinary Resolution of the Noteholders.
For the purposes of these Conditions:
``Extraordinary Resolution'' means a resolution passed at a meeting of Noteholders duly
convened on First Call or Second Call or Third Call (as such terms are de®ned in the Trust
Deed), to the extent that the Issuer has shares listed on an Italian or other EU member
country regulated market, and held in accordance with the provisions of the Trust Deed by
the favourable vote of one or more persons present holding Notes or voting certi®cates or
being proxies or representatives and holding or representing in aggregate more than half of
the nominal amount of the Notes for the time being outstanding; and
``Relevant Indebtedness'' means (A) any present or future indebtedness (whether being
principal, premium, interest or other amounts) for or in respect of any notes, bonds,
debentures, debenture stock, loan stock or other instruments which are, or are capable of
being, quoted, listed or ordinarily dealt in on any stock exchange, over-the-counter or other
securities market, and (B) any guarantee or indemnity of any such indebtedness.

4.   Interest
(1) Interest Payment Dates
The Notes bear interest from, and including, 30 October 2003 at the rate of 4.875% per
annum, payable annually in arrear on 30 October (each an ``Interest Payment Date''). The ®rst
payment (representing a full year's interest) and amounting to e48.75 per e1,000 principal
amount of Notes shall be made on 30 October 2004.

(2) Interest Accrual
Each Note will cease to bear interest from, and including, its due date for redemption unless,
upon due presentation, payment of the principal in respect of the Note is improperly
withheld or refused or unless default is otherwise made in respect of payment. In such event,
interest will continue to accrue as provided in the Trust Deed.

(3) Calculation of Broken Interest
When interest is required to be calculated in respect of a period of less than a full year, it
shall be calculated on the basis of (a) the actual number of days in the period from, and
including, the date from which interest begins to accrue (the ``Accrual Date'') to, but
excluding, the date on which it falls due divided by (b) the actual number of days from, and
including, the Accrual Date to, but excluding, the next following Interest Payment Date.

5.   Payments
(1) Payments in respect of Notes
Payments of principal in respect of each Note will be made against presentation and
surrender (or, in the case of part payment only, endorsement) of the Note and payments of
interest due on an Interest Payment Date in respect of each Note will be made against
presentation and surrender (or, in the case of part payment only, endorsement) of the
relevant Coupon, in each case at the speci®ed of®ce outside the United States of any of the
Paying Agents.

(2) Method of Payment
Payments will be made by credit or transfer to a euro account (or any other account to
which euro may be credited or transferred) speci®ed by the payee and maintained with a
bank in a city in which banks have access to the TARGET System.
For the purposes of these Conditions, ``TARGET System'' means the Trans-European
Automated Real-Time Gross Settlement Express Transfer (TARGET) System.

                                                6
(3) Missing Unmatured Coupons
Each Note should be presented for payment together with all relative unmatured Coupons,
failing which the full amount of any relative missing unmatured Coupon (or, in the case of
payment not being made in full, that proportion of the full amount of the missing
unmatured Coupon which the amount so paid bears to the total amount due) will be
deducted from the amount due for payment. Each amount so deducted will be paid in the
manner mentioned above against presentation and surrender (or, in the case of part payment
only, endorsement) of the relative missing Coupon at any time before the expiry of 10 years
after the Relevant Date (as de®ned in Condition 7) in respect of the relevant Note (whether
or not the Coupon would otherwise have become void pursuant to Condition 8) or, if later,
®ve years after the date on which the Coupon would have become due, but not thereafter.
(4) Payments subject to Applicable Laws
Payments in respect of principal and interest on the Notes are subject in all cases to any ®scal
or other laws and regulations applicable thereto in the place of payment, but without
prejudice to the provisions of Condition 7.
(5) Payment only on a Presentation Date
A holder shall be entitled to present a Note or Coupon for payment only on a Presentation
Date (as de®ned below) and shall not, except as provided in Condition 4(3), be entitled to
any further interest or other payment if a Presentation Date is after the due date.
For the purposes of these Conditions:
``Business Day'' means, in relation to any place, a day on which both commercial banks and
foreign exchange markets settle payments and are open for general business (including
dealing in foreign exchange and foreign currency deposits and, in the case of commercial
banks, open for presentation and payment of bearer debt securities) in that place;
``Presentation Date'' means a day which (subject to Condition 8):
(a) is or falls after the relevant due date;
(b) is a Business Day in the place of the speci®ed of®ce of the Paying Agent at which the
Note or Coupon is presented for payment; and
(c) is a TARGET Settlement Day; and
``TARGET Settlement Day'' means any day on which the TARGET System is open.
(6) Initial Paying Agents
The names of the initial Paying Agents and their initial speci®ed of®ces are set out at the
end of these Conditions. The Issuer reserves the right, subject to obtaining the prior written
approval of the Trustee, at any time to vary or terminate the appointment of any Paying
Agent and to appoint additional or other Paying Agents provided that it will at all times
maintain:
(a) a Principal Paying Agent;
(b) at least one Paying Agent (which may be the Principal Paying Agent) having a speci®ed
of®ce in a major European city (which, so long as the Notes are listed on the Luxembourg
Stock Exchange, shall be Luxembourg); and
(c) if any European Union Directive on the taxation of savings implementing the conclusions
of the ECOFIN Council Meeting of 26th-27th November 2000 or any law implementing or
complying with, or introduced in order to conform to, such Directive is introduced, a Paying
Agent in a Member State of the European Union that will not be obliged to withhold or
deduct tax pursuant to any such Directive or law.
Notice of any termination or appointment and of any changes in the speci®ed of®ce of any
Paying Agent shall be given to the Noteholders promptly by the Issuer in accordance with
Condition 12.

6.   Redemption and Purchase
(1) Redemption at Maturity
Unless previously redeemed or purchased and cancelled as provided below, the Issuer will
redeem the Notes at their principal amount on 30 October 2013.

                                               7
(2) Redemption for Taxation Reasons
If the Issuer satis®es the Trustee immediately before the giving of the notice referred to
below that:
(a) as a result of any change in, or amendment to, the laws or regulations of a Relevant
Jurisdiction (as de®ned below), or any change in the of®cial interpretation of the laws or
regulations of a Relevant Jurisdiction, which change or amendment becomes effective after
29 October 2003, on the next Interest Payment Date the Issuer would be required to pay
additional amounts as provided or referred to in Condition 7; and
(b) the requirement cannot be avoided by the Issuer taking reasonable measures available to
it,
the Issuer may at its option, having given not less than 30 nor more than 60 days' notice to
the Noteholders in accordance with Condition 12 (which notice shall be irrevocable), redeem
all the Notes, but not some only, at any time at their principal amount together with interest
accrued to, but excluding, the date of redemption, provided that no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer
would be obliged to pay such additional amounts were a payment in respect of the Notes
then due.
Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer
shall deliver to the Trustee a certi®cate signed by two Directors of the Issuer stating that the
requirement referred to in (a) above will apply on the next Interest Payment Date and
cannot be avoided by the Issuer taking reasonable measures available to it and an opinion of
independent legal advisers of recognised standing to the effect that the Issuer has or will
become obliged to pay such additional amounts as a result of such change or amendment
and the Trustee shall be entitled to accept the certi®cate as suf®cient evidence of the
satisfaction of the conditions precedent set out above, in which event it shall be conclusive
and binding on the Noteholders and the Couponholders.
For the purposes of these Conditions, ``Relevant Jurisdiction'' means the Republic of Italy
(``Italy'') or any political subdivision or any authority thereof or therein having power to tax
or any other jurisdiction or any political subdivision or any authority thereof or therein
having power to tax to which the Issuer becomes subject in respect of payments made by it
of principal and interest in respect of the Notes.

(3) Purchases
The Issuer or any of its Subsidiaries may at any time purchase, or procure the purchase of,
Notes (provided that all unmatured Coupons appertaining to the Notes are purchased with
the Notes) in any manner and at any price. If purchases are made by tender, tenders must be
available to all Noteholders alike. Any Notes so purchased must forthwith be surrendered to
a Paying Agent for cancellation and cannot be held, reissued or resold.

(4) Cancellations
All Notes which are (a) redeemed or (b) purchased by or on behalf of the Issuer and
surrendered for cancellation will forthwith be cancelled, together with all relative unmatured
Coupons attached to the Notes or surrendered with the Notes, and accordingly may not be
reissued or resold.

7.   Taxation
(1) Gross up
All payments of principal and interest in respect of the Notes by or on behalf of the Issuer
shall be made clear of and without withholding or deduction for, or on account of, any
present or future taxes, duties, assessments or governmental charges of whatever nature
(``Taxes'') imposed or levied by or on behalf of the Relevant Jurisdiction, unless the
withholding or deduction of the Taxes is required by law. In that event, the Issuer will pay
such additional amounts as may be necessary in order that the net amounts received by the
Noteholders and Couponholders after such withholding or deduction shall equal the
respective amounts which would have been receivable in respect of the Notes or, as the case
may be, Coupons in the absence of the withholding or deduction; except that no additional
amounts shall be payable in relation to any payment in respect of any Note or Coupon:

                                                8
(a) presented for payment by or on behalf of a holder who is liable to the Taxes in respect
of the Note or Coupon by reason of his having some connection with the Relevant
Jurisdiction other than the mere holding of the Note or Coupon; or
(b) where such withholding or deduction is imposed on a payment to an individual and is
required to be made pursuant to any European Union Directive on the taxation of savings
implementing the conclusions of the ECOFIN Council meeting of 26th-27th November 2000 or
any law implementing or complying with, or introduced in order to conform to, such
Directive; or
(c) presented for payment by or on behalf of a holder who would be able to avoid such
withholding or deduction by presenting the relevant Note or Coupon to another Paying
Agent in a Member State of the European Union; or
(d) presented for payment more than 30 days after the Relevant Date (as de®ned below)
except to the extent that a holder would have been entitled to additional amounts on
presenting the same for payment on the last day of the period of 30 days assuming that day
to have been a Presentation Date; or
(e) on account of imposta sostitutiva pursuant to Italian Legislative Decree No. 239 of 1st
April 1996 as amended and supplemented at the date of issue of the Notes.
For the purposes of these Conditions, ``Relevant Date'' means the date on which the payment
®rst becomes due but, if the full amount of the money payable has not been received by the
Principal Paying Agent or the Trustee on or before the due date, it means the date on
which, the full amount of the money having been so received, notice to that effect has been
duly given to the Noteholders by the Issuer in accordance with Condition 12.
(2) Additional Amounts
Any reference in these Conditions to any amounts in respect of the Notes shall be deemed
also to refer to any additional amounts which may be payable under this Condition or under
any undertakings given in addition to, or in substitution for, this Condition pursuant to the
Trust Deed.

8.   Prescription
Notes and Coupons will become void unless presented for payment within periods of 10 years
(in the case of principal) and ®ve years (in the case of interest) from the Relevant Date in
respect of the Notes or, as the case may be, the Coupons, subject to the provisions of
Condition 5.

9.   Events of Default
The Trustee at its discretion may and if so requested in writing by the holders of at least
one-®fth in principal amount of the Notes then outstanding or if so directed by an
Extraordinary Resolution of the Noteholders shall (subject in each case to being indemni®ed
to its satisfaction), give notice to the Issuer that the Notes are, and they shall accordingly
forthwith become, immediately due and repayable at their principal amount, together with
accrued interest as provided in the Trust Deed, in any of the following events (``Events of
Default''):
(a) if default is made in the payment of any interest due in respect of the Notes or any of
them and the default continues for a period of 14 days; or
(b) if the Issuer fails to perform or observe any of its other obligations under these
Conditions or the Trust Deed and (except in any case where the Trustee considers the failure
to be incapable of remedy, when no continuation or notice as is hereinafter mentioned will
be required) the failure continues for the period of 30 days (or such longer period as the
Trustee may permit) following the service by the Trustee on the Issuer of notice requiring the
same to be remedied; or
(c) if (i) any Indebtedness for Borrowed Money (as de®ned below) of the Issuer or any
Material Subsidiary becomes, or becomes capable of being declared, due and repayable prior
to its stated maturity by reason of an event of default (however described) and otherwise
than at the option of the Issuer; or (ii) the Issuer or any Material Subsidiary fails to make any
payment in respect of any Indebtedness for Borrowed Money on the due date for payment
and any such failure is not cured within any originally applicable grace period; or (iii) any

                                                9
security given by the Issuer or any Material Subsidiary for any Indebtedness for Borrowed
Money becomes enforceable; or (iv) default is made by the Issuer or any Material Subsidiary
in making any payment due under any guarantee and/or indemnity given by it in relation to
any Indebtedness for Borrowed Money of any person, provided that no such events under (i)
to (iv) above shall constitute an Event of Default if the aggregate Indebtedness for Borrowed
Money relating to all such events which shall have occurred and be continuing and, in the
case of (iii) only, the amount recovered or sought to be recovered shall amount to less than
e15,000,000 (or its equivalent in any other currency or currencies); or

(d) if any order is made by any competent court or resolution passed for the winding up or
dissolution of the Issuer or any Material Subsidiary, save for the purposes of reorganisation
on terms previously approved in writing by the Trustee or by an Extraordinary Resolution of
the Noteholders; or

(e) if the Issuer, acting directly or through its subsidiaries, ceases or threatens to cease to
carry on the whole or a substantial part of the group's business as it is at any given time,
save for the purposes of reorganisation on terms previously approved in writing by the
Trustee or by an Extraordinary Resolution of the Noteholders, or if the Issuer or any Material
Subsidiary stops or announces that it shall stop payment of, or is unable to, or admits
inability to, pay, its debts (or any class of its debts) as they fall due or is deemed unable to
pay its debts pursuant to or for the purposes of any applicable law, or is adjudicated or
found bankrupt or insolvent; or

(f) if (i) proceedings are initiated against the Issuer or any Material Subsidiary under any
applicable liquidation (liquidazione coatta), insolvency (fallimento), composition (concordato
preventivo), reorganisation (amministrazione controllata e straordinaria) or other similar laws
or an application is made for the appointment of an administrative or other receiver
(curatore), manager, administrator (commissario straordinario o liquidatore) or other similar
of®cial, or an administrative or other receiver, manager, administrator or other similar of®cial
is appointed, in relation to the Issuer or any Material Subsidiary or, as the case may be, in
relation to the whole or any part of the undertaking or assets of any of them or an
encumbrancer takes possession of the whole or any part of the undertaking or assets of any
of them, or a distress, execution, attachment, sequestration or other process is levied,
enforced upon, sued out or put in force against the whole or any part of the undertaking or
assets of any of them, and (ii) in any such case (other than the appointment of an
administrator or an administrative receiver appointed following presentation of a petition for
an administration order) unless initiated by the relevant company, is not discharged within 30
days; or

(g) if the Issuer or any Material Subsidiary (or their respective directors or shareholders)
initiates or consents to judicial proceedings relating to itself under any applicable liquidation,
insolvency, composition, reorganisation or other similar laws (including the obtaining of a
moratorium) or makes a conveyance or assignment for the bene®t of, or enters into any
composition or other arrangement with, its creditors generally (or any class of its creditors) or
any meeting is convened to consider a proposal for an arrangement or composition with its
creditors generally (or any class of its creditors) or any meeting is convened to consider a
proposal for an arrangement or composition with its creditors generally (or any class of its
creditors); or

(h) if the City of Milan or any company owned directly or indirectly by the City of Milan or
any other public entity or body or any relevant regulator of the principal business of the
Issuer suspends, revokes or cancels any Relevant Licence, and such suspension, revocation or
cancellation continues for a period of 30 days; or

(i) if any event occurs which under the laws of Italy has an analogous effect to any of the
events referred to in paragraphs (d) to (h) above,

PROVIDED THAT, in the case of any Event of Default other than those described in sub-
paragraphs (a) and (d) above, the Trustee has certi®ed to the Issuer that the Event of Default
is, in its opinion, materially prejudicial to the interests of the Noteholders.

                                               10
For the purposes of this Condition

``Indebtedness for Borrowed Money'' means any indebtedness (whether being principal,
premium, interest or other amounts) for or in respect of (a) money borrowed, (b) liabilities
under or in respect of any loan, acceptance or acceptance credit, (c) any note, bond,
debenture, debenture stock, loan stock or other security issued, offered or distributed
whether by way of public offer, private placing, acquisition consideration or otherwise and
whether issued for cash or in whole or part for a consideration other than cash;

``Material Subsidiary'' means at any time any fully consolidated Subsidiary of the Issuer:

(i) whose gross revenues (consolidated in the case of a Subsidiary which itself has Subsidiaries
and without taking into account intra-group revenues) or whose total assets (consolidated in
the case of a Subsidiary which itself has Subsidiaries) represent not less than 10% of the
consolidated gross revenues or, as the case may be, consolidated total assets, of the Issuer
and its Subsidiaries taken as a whole, all as calculated respectively by reference to the then
latest audited accounts (consolidated or, as the case may be, unconsolidated) of the
Subsidiary and the then latest audited consolidated accounts of the Issuer and its Subsidiaries;
or

(ii) to which is transferred the whole or substantially the whole of the undertaking and
assets of a Subsidiary of the Issuer which immediately before the transfer is a Material
Subsidiary,

all as more particularly de®ned in the Trust Deed.

A certi®cate signed by two Directors of the Issuer that, in their opinion, a Subsidiary of the
Issuer is or is not or was or was not at any particular time or throughout any speci®ed period
a Material Subsidiary may be relied upon by the Trustee without further enquiry or evidence
and, if relied upon by the Trustee, shall, in the absence of manifest or proven error, be
conclusive and binding on all parties;

``Person'' means any individual, company, corporation, ®rm, partnership, joint venture,
association, organisation, state or agency of a state or other entity, whether or not having
separate legal personality;

``Relevant Licence'' means any of:

Licence              Licensing Authority                                                     Expiry

Hydroelectric Power Stations
(a) Premadio 1       Ministry for Public Works under Inter-ministerial            28th July 2013
                     Licence Decree (Decreto Interministeriale di
                     concessione) No. 352 dated 22nd January 1957
(b) Premadio 2       Ministry for Public Works under Inter-ministerial      31st December 2043
                     Licence Decree (Decreto Interministeriale di
                     concessione) No. 1971 dated 6th June 1959
                     (operational with effect from the beginning of
                     2004)
(c) Braulio          Ministry for Public Works under Provisional                  28th July 2013
                     Certi®cate of Authorisation No. 1404 dated 5th
                     August 1986
(d) Grosio           Ministry for Public Works under Inter-ministerial      15th November 2016
                     Licence Decree (Decreto Interministeriale di
                     concessione) No. 1332 dated 17th July 1964
(e) Lovero           Ministry for Public Works under Licence Decree         31st December 2010
                     (Decreto di concessione) No. 2758 dated 21st
                     October 1948 extended pursuant to Legislative
                     Decree No. 79 dated 16th March 1999

                                               11
Licence               Licensing Authority                                                    Expiry

(f) Stazzona          Royal Licence Decree (Regio Decreto di                  31st December 2010
                      concessione) No. 4023 dated 24th September 1940
                      extended pursuant to Legislative Decree No. 79
                      dated 16th March 1999
(g) Fraele            Ministry for Public Works under Inter-ministerial       31st December 2010
                      Licence Decree (Decreto Interministeriale di
                      concessione) No. 3255 dated 23rd June 1958
                      extended pursuant to Legislative Decree No. 79
                      dated 16th March 1999
(h) Boscaccia         Resolution of the Regional Board No. 25068 dated           31st January 2007
                      18th January 1997
Electricity
(i) Distribution      Decree of the Ministry for Industry dated 3rd May       31st December 2030
    Licence (Milan    2001
    and Rozzano)
Gas
(j) Distribution      Agreement with the City of Milan for the                     December 2009
    Licence (Milan)   management of public services relating to gas
                      network and district heating dated 3rd December
                      1996
``Subsidiary'' means in relation to any Person (the ``First Person'') at any particular time, any
other Person (the ``Second Person''):
(i) whose majority of votes in ordinary shareholders' meetings of the Second Person is held
by the First Person; or
(ii) in which the First Person holds a suf®cient number of votes giving the First Person a
dominant in¯uence in ordinary shareholders' meetings of the Second Person; or
(iii) which is under the dominant in¯uence of the First Person by virtue of certain contractual
relationships between the First Person and the Second Person,
and (where the First Person is the Issuer or another Italian entity) as provided by Article 2359
of the Italian Civil Code.

10. Enforcement
(1) Enforcement by the Trustee
The Trustee may at any time, at its discretion and without notice, take such proceedings
against the Issuer as it may think ®t to enforce the provisions of the Trust Deed, the Notes
and the Coupons, but it shall not be bound to take any such proceedings or any other action
in relation to the Trust Deed, the Notes or the Coupons unless (a) it has been so directed by
an Extraordinary Resolution of the Noteholders or so requested in writing by the holders of
at least one-®fth in principal amount of the Notes then outstanding and (b) it has been
indemni®ed to its satisfaction.

(2) Enforcement by the Noteholders
No Noteholder or Couponholder shall be entitled to proceed directly against the Issuer unless
the Trustee, having become bound so to proceed, fails so to do within a reasonable period
and the failure shall be continuing.

11. Replacement of Notes and Coupons
Should any Note or Coupon be lost, stolen, mutilated, defaced or destroyed it may be
replaced at the speci®ed of®ce of the Principal Paying Agent or the Paying Agent in
Luxembourg upon payment by the claimant of the expenses incurred in connection with the

                                                12
replacement and on such terms as to evidence and indemnity as the Issuer may reasonably
require. Mutilated or defaced Notes or Coupons must be surrendered before replacements
will be issued.

12. Notices
All notices to the Noteholders will be valid if published in a leading English language daily
newspaper published in London or such other English language daily newspaper with general
circulation in Europe as the Trustee may approve and, so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of that exchange so require, in one daily
newspaper with general circulation in Luxembourg approved by the Trustee. It is expected
that publication will normally be made in the Financial Times in London and the
Luxemburger Wort in Luxembourg. The Issuer shall also ensure that notices are duly
published in a manner which complies with the rules and regulations of any stock exchange
or other relevant authority on or by which the Notes are for the time being listed. Any such
notice will be deemed to have been given on the date of the ®rst publication or, where
required to be published in more than one newspaper, on the date of the ®rst publication in
all required newspapers. If publication as provided above is not practicable, notice will be
given in such other manner, and shall be deemed to have been given on such date, as the
Trustee may approve. Couponholders will be deemed for all purposes to have notice of the
contents of any notice given to the Noteholders in accordance with this Condition.

13. Meetings of Noteholders and Modi®cation
(1) Meetings of Noteholders
In accordance with the rules of the Italian Civil Code, the Trust Deed contains provisions for
convening meetings of the Noteholders to consider any matter affecting their interests,
including the sanctioning by Extraordinary Resolution (a resolution adopted by the favourable
vote of one or more persons present holding or representing Notes representing in aggregate
more than 50% of the principal amount of the Notes outstanding at the time such resolution
is adopted) of a modi®cation of the Notes, the Coupons or any of the provisions of the Trust
Deed. The quorum at any such meeting for passing an Extraordinary Resolution is established
by Article 2415 of the Italian Civil Code. An Extraordinary Resolution passed at any meeting
of the Noteholders shall be binding on all the Noteholders, whether or not they are present
at the meeting, and on all Couponholders.
(2) Modi®cation, Waiver, Authorisation and Determination
The Trustee may agree, without the consent of the Noteholders or Couponholders to the
extent permitted under Italian law, to any modi®cation of, or to the waiver or authorisation
of any breach or proposed breach of, any of these Conditions or any of the provisions of the
Trust Deed, or determine, without any such consent as aforesaid, that any Event of Default
or Potential Event of Default shall not be treated as such (provided that, in any such case, it
is not, in the opinion of the Trustee, materially prejudicial to the interests of the
Noteholders) or may agree, without any such consent as aforesaid, to any modi®cation which,
in its opinion, is of a formal, minor or technical nature or to correct a manifest or proven
error.
For the purposes of these Conditions, ``Potential Event of Default'' shall mean any condition,
event or act which, with the lapse of time and/or the issue, making or giving of any notice,
certi®cation, declaration, demand, determination and/or request, would constitute an Event
of Default.
(3) Trustee to have Regard to Interests of Noteholders as a Class
In connection with the exercise by it of any of its trusts, powers, authorities and discretions
(including, without limitation, any modi®cation, waiver, authorisation or determination), the
Trustee shall have regard to the general interests of the Noteholders as a class but shall not
have regard to any interests arising from circumstances particular to individual Noteholders or
Couponholders (whatever their number) and, in particular but without limitation, shall not
have regard to the consequences of any such exercise for individual Noteholders or
Couponholders (whatever their number) resulting from their being for any purpose domiciled
or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular
territory or any political sub-division thereof and the Trustee shall not be entitled to require,

                                               13
nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer, the Trustee
or any other person any indemni®cation or payment in respect of any tax consequence of
any such exercise upon individual Noteholders or Couponholders except to the extent already
provided for in Condition 7 and/or any undertaking given in addition to, or in substitution
for, Condition 7 pursuant to the Trust Deed.

(4) Noti®cation to the Noteholders
Any modi®cation, abrogation, waiver, authorisation or determination shall be binding on the
Noteholders and the Couponholders and, unless the Trustee agrees otherwise, any
modi®cation shall be noti®ed by the Issuer to the Noteholders as soon as practicable
thereafter in accordance with Condition 12.

14. Indemni®cation of the Trustee and its Contracting with the Issuer
(1) Indemni®cation of the Trustee
The Trust Deed contains provisions for the indemni®cation of the Trustee and for its relief
from responsibility, including provisions relieving it from taking action unless indemni®ed to
its satisfaction.

(2) Trustee Contracting with the Issuer
The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia,
(a) to enter into business transactions with the Issuer and/or any of the Issuer's Subsidiaries
and to act as trustee for the holders of any other securities issued or guaranteed by, or
relating to, the Issuer and/or any of the Issuer's Subsidiaries, (b) to exercise and enforce its
rights, comply with its obligations and perform its duties under or in relation to any such
transactions or, as the case may be, any such trusteeship without regard to the interests of,
or consequences for, the Noteholders or Couponholders, and (c) to retain and not be liable
to account for any pro®t made or any other amount or bene®t received thereby or in
connection therewith.

15. Further Issues
The Issuer is at liberty from time to time without the consent of the Noteholders or
Couponholders to create and issue further notes or bonds either (a) ranking pari passu in all
respects (or in all respects save for the ®rst payment of interest thereon) and so that the
same shall be consolidated and form a single series with the outstanding notes or bonds of
any series (including the Notes) constituted by the Trust Deed or any supplemental deed or
(b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the
Issuer may determine at the time of the issue. Any further notes or bonds which are to form
a single series with the outstanding notes or bonds of any series (including the Notes)
constituted by the Trust Deed or any supplemental deed shall, and any other further notes or
bonds may (with the consent of the Trustee), be constituted by a deed supplemental to the
Trust Deed. The Trust Deed contains provisions for convening a single meeting of the
Noteholders and the holders of notes or bonds of other series in certain circumstances where
the Trustee so decides.

16. Governing Law and Submission to Jurisdiction
(1) Governing Law
The Trust Deed, the Notes and the Coupons are governed by, and will be construed in
accordance with, English law.

(2) Jurisdiction of English Courts
The Issuer has irrevocably agreed in the Trust Deed for the bene®t of the Trustee, the
Noteholders and the Couponholders that the courts of England are to have exclusive
jurisdiction to settle any disputes which may arise out of or in connection with the Trust
Deed, the Notes or the Coupons and accordingly has in the Trust Deed submitted to the
exclusive jurisdiction of the English Courts. The Issuer has in the Trust Deed waived any
objection to the courts of England on the grounds that they are an inconvenient or
inappropriate forum. The Trustee, the Noteholders and the Couponholders may take any suit,

                                                14
action or proceeding arising out of or in connection with the Trust Deed, the Notes or the
Coupons respectively (together referred to as ``Proceedings'') against the Issuer in any other
court of competent jurisdiction and concurrent Proceedings in any number of jurisdictions.
(3) Appointment of Process Agent
The Issuer has in the Trust Deed irrevocably and unconditionally appointed The Italian
Chamber of Commerce and Industry for the UK at 1 Princes Street, London W1B 2AY, United
Kingdom or, if different, its registered of®ce for the time being as its agent for service of
process in England in respect of any Proceedings and has undertaken that, in the event of
such agent ceasing so to act, it will appoint another person, also having its registered of®ce
in England, as its agent for that purpose.

17. Rights of Third Parties
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999
to enforce any term or condition of this Note, but this does not affect any right or remedy
of any person which exists or is available apart from that Act.




                                               15
   Summary of Provisions relating to the Notes while represented
                       by the Global Notes
The following is a summary of the provisions to be contained in the Trust Deed constituting
the Notes and in the Global Notes which will apply to, and in some cases modify, the
Conditions of the Notes while the Notes are represented by the Global Notes.


Exchange
The Permanent Global Note will be exchangeable in whole but not in part (free of charge to
the holder) for de®nitive Notes only:

(a) upon the occurrence of any of the events de®ned in the Trust Deed as Events of Default;

(b) if either Euroclear or Clearstream, Luxembourg is closed for business for a continuous period
of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention
permanently to cease business or does in fact do so and no alternative clearing system satisfactory
to the Trustee is available; or

(c) if the Issuer would suffer a disadvantage as a result of a change in laws or regulations (taxation
or otherwise) or as a result of a change in the practice of Euroclear and/or Clearstream,
Luxembourg which would not be suffered were the Notes in de®nitive form and a certi®cate to
such effect signed by two Directors of the Issuer is given to the Trustee.

Thereupon (in the case of (a) and (b) above) the holder of the Permanent Global Note
(acting on the instructions of one or more of the Accountholders (as de®ned below)) or the
Trustee may give notice to the Issuer and (in the case of (c) above) the Issuer may give notice
to the Trustee and the Noteholders, of its intention to exchange the Permanent Global Note
for de®nitive Notes on or after the Exchange Date (as de®ned below).

On or after the Exchange Date the holder of the Permanent Global Note may or, in the case
of (c) above, shall surrender the Permanent Global Note to or to the order of the Principal
Paying Agent. In exchange for the Permanent Global Note the Issuer will deliver, or procure
the delivery of, an equal aggregate principal amount of de®nitive Notes (having attached to
them all Coupons in respect of interest which has not already been paid on the Permanent
Global Note), security printed in accordance with any applicable legal and stock exchange
requirements and in or substantially in the form set out in the Trust Deed. On exchange of
the Permanent Global Note, the Principal Paying Agent will procure that it is cancelled.

For these purposes, Exchange Date means a day speci®ed in the notice requiring exchange
falling not less than 60 days after that on which such notice is given and on which banks are
open for general business in the place in which the speci®ed of®ce of the Principal Paying
Agent is located and, except in the case of exchange pursuant to (b) above, in the place in
which the relevant clearing system is located.


Payments
On and after 10 December 2003, no payment will be made on the Temporary Global Note
unless exchange for an interest in the Permanent Global Note is improperly withheld or
refused. Payments of principal and interest in respect of Notes represented by a Global Note
will, subject as set out below, be made against presentation for endorsement and, if no
further payment falls to be made in respect of the Notes, surrender of such Global Note to
the order of the Principal Paying Agent or such other Paying Agent as shall have been
noti®ed to the Noteholders for such purposes. A record of each payment made will be
endorsed on the appropriate part of the schedule to the relevant Global Note by or on
behalf of the Principal Paying Agent, which endorsement shall be prima facie evidence that
such payment has been made in respect of the Notes. Payments of interest on the Temporary
Global Note (if permitted by the ®rst sentence of this paragraph) will be made only upon
certi®cation as to non-U.S. bene®cial ownership unless such certi®cation has already been
made.

                                                 16
Notices
For so long as all of the Notes are represented by one or both of the Global Notes and such
Global Note(s) is/are held on behalf of Euroclear and/Clearstream, Luxembourg, notices to
Noteholders may be given by delivery of the relevant notice to Euroclear and/or Clearstream,
Luxembourg (as the case may be) for communication to the relative Accountholders rather
than by publication as required by Condition 12, provided that, so long as the Notes are
listed on the Luxembourg Stock Exchange, notice will also be given by publication in a daily
newspaper with general circulation in Luxembourg if, and to the extent that, the rules of the
Luxembourg Stock Exchange so require. Any such notice shall be deemed to have been given
to the Noteholders on the third day following that on which such notice is delivered to
Euroclear and/or Clearstream, Luxembourg (as the case may be) as aforesaid.

Accountholders
For so long as all of the Notes are represented by one or both of the Global Notes and such
Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, each
person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown
in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal
amount of Notes (each an ``Accountholder'') (in which regard any certi®cate or other
document issued by Euroclear or Clearstream, Luxembourg as to the principal amount of such
Notes standing to the account of any person shall be conclusive and binding for all purposes)
shall be treated as the holder of that principal amount for all purposes (including for the
purposes of any quorum requirements of, or the right to demand a poll at, meetings of the
Noteholders) other than with respect to the payment of principal and interest on the
principal amount of such Notes, the right to which shall be vested, as against the Issuer,
solely in the bearer of the relevant Global Note in accordance with and subject to its terms
and the terms of the Trust Deed. Each Accountholder must look solely to Euroclear or
Clearstream, Luxembourg, as the case may be, for its share of each payment made to the
bearer of the relevant Global Note.

Prescription
Claims against the Issuer in respect of principal and interest on the Notes represented by a
Permanent Global Note will be prescribed after 10 years (in the case of principal) and ®ve
years (in the case of interest) from the Relevant Date (as de®ned in Condition 7).

Cancellation
Cancellation of any Note represented by a Global Note and required by the Conditions of the
Notes to be cancelled following its redemption or purchase will be effected by endorsement
by or on behalf of the Principal Paying Agent of the reduction in the principal amount of
the relevant Global Note on the relevant part of the schedule thereto.

Euroclear and Clearstream, Luxembourg
Notes represented by the Permanent Global Note are transferable only in accordance with
the rules and procedures for the time being of Euroclear and Clearstream, Luxembourg, as
appropriate. References in the Permanent Global Note and this summary to Euroclear and/or
Clearstream, Luxembourg shall be deemed to include any other clearing system approved by
the Trustee.




                                              17
                                   Use of Proceeds
The net proceeds of the issue of the Notes, amounting to approximately e497,335,000, after
deduction of the combined management and underwriting commission, will be applied by
the Issuer for its general corporate purposes and for re®nancing existing debt.




                                            18
                                                Capitalisation
The following table sets out the consolidated capitalisation of the Issuer as at 30th June
2003, adjusted to give effect to the issue of the Notes. There has been no material change in
the capitalisation of the Issuer since 30th June 2003.

                                                                                                                 As at
                                                                                                             30th June
                                                                                                                  2003

                                                                                                               (millions
                                                                                                               of euro)
Share Capital and Reserves(1)
Share Capital PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                     936
Legal ReservePPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                     67.5
Other Reserves(2) PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                   96.7
Retained Earnings PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                    (33.8)
Gross Income for the period PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                   362.8
Minority Interest in shareholders' equityPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                   2.8

Total Shareholders' Equity PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                 1,432.0

Borrowings
Short-Term debts PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                    461.7
Long-Term debtsPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                     691.2
Notes being issued hereunder PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                      500

Total Indebtedness PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                  1,652.9

ÐÐÐÐÐÐÐÐÐ
(1) As at 30th June 2003, the share capital of the Issuer was e936,024,648 comprising 1,800,047,400 authorised, issued and
    fully paid-up ordinary shares of e0.52 each.
(2) Includes Accelerated Depreciation Reserve for e10.7 million, Extraordinary Reserve for e85.8 million, Consolidation
    Reserve for e0.2 million and other reserves for e3,000.

As at 30th June 2003, the total amount of contingent liabilities of the Issuer was equal to e346,892,732.




                                                           19
                                  Description of AEM
Overview and Business Model
AEM S.p.A. (``AEM'') and its consolidated subsidiaries (together, the ``AEM Group'') is one of
the largest municipal public utility groups in Italy, operating in Milan, Italy's second largest
city and principal business and ®nancial centre, and in a number of other municipalities. The
AEM Group's operations consist primarily of the generation, transmission, distribution and
sale of electricity, the distribution and sale of natural gas, the management and leasing of
®bre optic networks and the provision of district heating and heat management services. The
AEM Group also manages and supplies electric power to the public lighting and traf®c light
systems of the city of Milan. Regulated activities (mainly the distribution and sale of
electricity to the Non-Eligible Customers market (as described below under ``Regulation'') and
gas distribution) are the primary sources of cash ¯ow and accounted for about 60% of the
total operating income in 2002.
AEM was incorporated under the laws of the Republic of Italy as a joint stock company
       Á
(societa per azioni) on 2nd December 1996. It is registered with the Companies' Register of
Milan under number 11957540153 and its registered of®ce is at Corso di Porta Vittoria 4,
20122 Milan.
In July 1998, AEM completed an initial public offering of 800,000,000 shares. The shares in
AEM are listed on the Milan Stock Exchange and the City of Milan is AEM's controlling
shareholder with a 51% stake. Notwithstanding that ®ve out of eight directors on the AEM
board are appointed by the City of Milan, the municipality does not in¯uence AEM's
management and its business relationship with AEM is handled at arm's length. Other
shareholders include Edison S.p.A. with 5%, and ATEL S.A. with 5.3%. The City of Milan is
presently considering reducing its stake in AEM to approximately 33% although no formal
decision has yet been taken. On 7th October 2003 the City of Milan appointed a ®nancial
institution which will act as advisor in relation to the proposed transaction.
Pursuant to Article 4 of AEM's by-laws, the principal objects of AEM are to carry out, both
directly and through companies and holding entities, activities in the ®eld of research,
production, supply, transport, transformation, distribution, sale, use and recovery of energy
resources and of the entire water cycle. AEM may also carry out activities in the ®eld of
other network-based services including installation, maintenance, connection and testing of
telecommunication systems, as well as undertaking public services in general.




                                               20
The following diagram illustrates the AEM Group by sector and the holdings of AEM in each
subsidiary as at 30th September 2003.




                                            21
Signi®cant Subsidiaries
The following table shows the signi®cant consolidated subsidiaries of the AEM Group.
                                                                % of                                    2002                    Valuation Criteria for
Name                      Head-quarters       Sector    participation   Share Capital   Reserves   Pro®t/Loss       Dividends          Consolidation


              Á
AEM Elettricita S.p.A.*         Milan     Electricity       99.99%          520,000     51,927         2,833    No dividends    Global Integration
                                                                                                                 distributed              Method
AEM Gas S.p.A.*                 Milan           Gas         99.99%          572,000     74,530         2,566    No dividends    Global Integration
                                                                                                                 distributed              Method

*companies within the AEM Group where the book value of the participating interest represents at least 10% of the capital
and reserves or accounts for at least 10% of the net pro®t or loss of the AEM Group as at 31st December 2002. All amounts
are in thousands of euro.
Over the last four years, signi®cant changes in the regulatory framework of the gas and
power sectors in Italy and the European Union have altered the way in which businesses
operate in such sectors. As a result, the AEM Group has modi®ed its business model and
internal structure. The organisational structure of the AEM Group now has four principal
business units which are no longer sector speci®c (i.e. electricity or gas). Strategic staff take
key operational decisions at a centralised level, leaving day-to-day management at the
business level.
The new business model is based on the following four principal business areas:
Generation Area, which manages the production of energy through the planning, operation and
maintenance of the hydro and thermoelectric plants. The AEM Group companies operating in this
area include AEM through its electricity generation division;
Local Networks Area, which is involved in the management of regulated businesses, taking
advantage of the cost investment synergies that come with integrated management. The AEM
                                                                 Á                       Á
Group companies operating in this area include AEM Elettricita S.p.A. (``AEM Elettricita''), which
distributes electricity to Eligible Customers (as described below under ``Regulation'') and Non-
Eligible Customers, sells electricity to Non-Eligible Customers and installs and manages public
lighting systems and traf®c lights, AEM Gas S.p.A. (``AEM Gas'') and Serenissima Gas S.p.A.
(``Serenissima Gas''), which distribute gas, AEM Trasmissione S.p.A. (``AEM Trasmissione''), which
manages the high voltage electric grid, and Metroweb S.p.A. (``Metroweb''), which leases its ®bre
optic network;
Market Area, which is involved in the management of deregulated businesses (procurement and
trading of both gas and electricity and sales of energy to all Eligible Customers). The AEM Group
companies operating in this area include AEM Trading S.r.l. (``AEM Trading''), whose responsibility
is to manage the electricity and gas portfolio and the related risk, AEM Energia S.p.A. (``AEM
Energia''), which sells gas and electricity to Eligible Customers, and AEM Calore e Servizi S.p.A.
(``AEM Calore e Servizi''), which provides district heating and thermal energy services; and
Other Services, including the provision of call centre, billing and consumption metering services
and information technology solutions and technology support to AEM Group companies and the
market. The AEM Group companies operating in this area include AEM Service S.r.l. (``AEM
Service'') and e-Utile S.p.A. (``e-Utile'').
Of the AEM Group's e1,040 million in total sales in 2002, approximately 46% was derived
from electricity, 39% was derived from gas and 15% was derived from other businesses.




                                                                        22
The following diagram shows a breakdown of the AEM Group's revenues from its principal
business units by industrial sector and by regulation for 2002:
         Breakdown by industrial sectors                                 Breakdown by regulation



               15%                                                             9%



                                       39%
                                                                   23%




                                                                                                   68%
            46%

                                                                   Regulated market        Energy free market
               Gas       Electricity   Others                      Others


The following graphs show the development of AEM's revenues and earnings before interest,
taxes, depreciation and amortisation (EBITDA) from 1997 to 2002:

                   Revenues (Eur m)                                          EBITDA (Eur m)



                    +12.7% CAGR
                                       1112
                                                    1040
                                                -
                                             -6.5%                            +15% CAGR
                                767
                       656
  571        599
                                                                                                                302,5
                                                                                                   273,9
                                                                   190,4     204,1     200,9
                                                           150,4                                           +10.4%




  1997       1998      1999     2000   2001         2002    1997   1998       1999      2000       2001             2002


In the ®rst half of 2003, revenues increased to e703m from e521m for the same period of
2002 (35% increase) and EBITDA increased to e221m from e128m (73% increase).

Electricity
Generation: AEM S.p.A. and Edipower S.p.A.
Electricity generation is one of the historical businesses of the company. AEM owns and is in
charge of the technical management of the generation assets described below, while
dispatching and sale is delegated to AEM Trading.
In 2002, the AEM Group's total installed capacity was 1,020 MW, consisting of:
(i) seven hydroelectric power stations: Boscaccia (installed capacity 3 MW), Lovero (installed
capacity 46.4 MW), Stazzona (installed capacity 30.0 MW), Premadio (installed capacity 153 MW),
Braulio (installed capacity 19.4 MW), Grosio (installed capacity 428 MW) and Fraele (installed
capacity 30.1 MW) and four basins in Valtellina. These power stations provide low operating-cost
power with high reliability since they are exposed to low weather risk. The annual hydroelectric
productivity of the AEM Group is approximately 1.8 billion KWh; and
(ii) a thermoelectric plant located in Cassano d'Adda, 30 kilometres from Milan, with an installed
capacity of 640 MW and an annual production capacity of approximately 4.5 billion KWh; ASM
Brescia S.p.A., the municipal services company for the Italian city of Brescia, is a 25% owner of the
Cassano plant and is entitled to 25% of the capacity and production of the plant.

                                                           23
AEM operates its seven hydroelectric power stations under licences (concessioni) of the
                                                          Á
Ministry of Productive Activities (Ministero delle Attivita Produttive). The licences expire in
2007 (Boscaccia), 2010 (Lovero, Stazzona and Fraele), 2013 (Premadio and Braulio) and 2016
(Grosio). At the expiry of each licence, a tender for contract shall be held to select the new
licensee; the bidders must submit a plan to increase the energy generated or the installed
capacity of the relevant plant, as well as a programme for environmental improvement or
restoration of the basin serving the plant. The existing licensee shall have the right to offer
to implement any plan judged suitable by the public administration submitted by any bidder
and, should it offer the same conditions, to be preferred to any other bidder. A bill of law is
currently pending before the Italian Parliament providing for the above expiry terms to be
extended to 2029.
The following table sets out the total amounts of electricity produced by the AEM Group
during each of the past two years:
                                                                          1st Half   1st Half
                                                    2001          2002       2002       2003

                                                                                     (GWh)
Hydroelectric PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                     2,311           1,590             788           1,093
Thermoelectric-AEM(1) PPPPPPPPPPPPPPPPPPPPPP                     2,333           1,971           1,305             711

Total PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                     4,644           3,561           2,093           1,804

ÐÐÐÐÐÐÐÐÐ
(1) In 2001, Group 1 produced at a reduced capacity (``mid merit''). Group 2 was under re-powering in the second half of
    2002 and the ®rst half of 2003. See below for a description of the Group 1 and Group 2 production units.

The capacity mix is almost evenly spread between hydro and thermal generation. The
minimum level of electricity demand throughout a day is known as ``base load'' and is
generally satis®ed by thermoelectric power generation while daily peaks in demand are
principally met through increased reliance on the AEM Group's hydroelectric plants which are
designed to permit greater operational ¯exibility and faster response to variations in demand.
During periods of extended high levels of consumption, such as daytime hours, the AEM
Group relies on both thermoelectric and hydroelectric power to meet increased base load
needs.
Investments are carried out on hydroelectric plants in order to maximise the value of
hydroelectric generation and increase peak load production which will translate into higher
units prices. Plant availability is high, reaching 99% and 96-97%, respectively, for hydro and
thermal stations. AEM complies with environmental laws and enjoys a good relationship with
the municipalities surrounding its power stations. It has insurance for technical breakdowns
and environmental damages, and is considering extra insurance to cover production outages.
The AEM Group monitors its dams continuously through a programme of scheduled and
random inspections. The competent government overseeing authority for dams in Italy is the
Servizio Nazionale Dighe, which evaluates the status of each dam every six months and
certi®es each dam for operation annually.
AEM's capital expenditure is aimed at increasing ef®ciency at the Cassano plant and ¯exibility
of the hydro plants. In 2000, the implementation of a plan for the re-powering of the two
production units (Group 1 and Group 2) of the Cassano plant was commenced. The re-
powering of Group 1 was completed in 2001, increasing the ef®ciency of the plant from 37%
to 51% and its capacity from 100 MW to 240 MW. A second re-powering of Group 2 was
completed in September of this year, raising ef®ciency to 56% and increasing Group 2
capacity from 320 MW to 400 MW. A further re-powering of Group 2 to 800 MW is under
review and is expected to be completed by July 2005. As a result of the entire re-powering
programme, Cassano's total yearly production is expected to grow to 5.5 TWh. A plan for the
construction in the Milan area of a 240 MW co-generation brown ®eld plant has been
submitted to the Ministry of Productive Activities for approval.
In 2002, AEM purchased a 13.4% stake in Edipower S.p.A. (``Edipower''), formerly Eurogen
S.p.A., the biggest electricity generation company in terms of installed capacity that ENEL
S.p.A. (``ENEL''), a company whose majority of shares are owned by the Ministry of Economy
and Finance, was obliged to sell under the Bersani Decree (as de®ned below under

                                                          24
``Regulation''). After the re-capitalisation of Edipower in September 2003, AEM's investment
in Edipower was increased to 16% The investment entitles AEM to 20% of Edipower's
generation capacity (7,000 MW) corresponding to approximately 1,500 MW.
As a whole, taking into consideration all such investments in generation, power volumes
available to AEM are expected to increase to over 18 TWh over the 2002-2006 period.

Figure 1: Location of AEM's power facilities

                                                     Milan




                                  AEM Edipower (*)

          Hydroelectric plants

          Thermoelectric plants




          (*) 20% of the Total capacity 7000MW


ÐÐÐÐÐÐÐÐÐ
Source: AEM

Sale and Trading: AEM Trading S.r.l.
AEM Trading has been in operation since May 2001 and is currently 100% owned by AEM.
Following the deregulation of the market and the forthcoming establishment of the Borsa
dell'Energia Elettrica (the ``Electricity Stock Exchange''), AEM Trading is developing the energy
sale and trading activity.
AEM Trading ensures that the energy needs of the customers of the AEM Group are satis®ed
through (i) the management of the power plants owned by AEM and Edipower, (ii) the
trading on wholesale energy markets, (iii) the agreements with third party energy producers
outside the AEM Group and (iv) purchasing energy from abroad.
As regards the availability of the AEM power plants, AEM Trading has entered into two
agreements with AEM (the owner of the AEM Group's power generation assets), which have
been in effect since October 2001, relating to the off-taking of the hydroelectric plants in
Valtellina (700 MW of installed capacity) and of the thermoelectric plant in Cassano (640 MW
of installed capacity). The agreement concerning the thermoelectric plant is a typical tolling
agreement: AEM transforms fuel delivered by AEM Trading into electricity and AEM Trading
pays AEM a fee correlated to the effective availability of the power plant and to the energy
ef®ciency levels. A similar agreement was signed with Edipower in September 2003, granting
AEM Trading the right to manage 20% of the installed capacity of Edipower, currently
corresponding to 1,500 MW.
By virtue of these agreements, the front of®ce at AEM Trading schedules production activities
on a daily basis for AEM's generating plants. AEM Trading takes on the responsibility of
covering potential risks deriving from the continuous balancing/coverage between the energy
to be supplied to the ®nal customer and the energy demands and assuming the risks relating
to the variation in energy prices on the wholesale energy markets.
As regards the sale of electricity, AEM Trading has concluded two important supply
                                     Á
agreements: (i) with AEM Elettricita which distributes energy and sells it to Non-Eligible
Customers and (ii) with AEM Energia (AEM Trading's main customer), a large electricity/gas
wholesale customer itself which carries out marketing and sales activities to ®nal Eligible
                                                     Á
Customers. See below under ``Supply: AEM Elettricita S.p.A. and AEM Energia S.p.A.'' for a
discussion of the categories of Eligible and Non-Eligible Consumers.

                                                      25
In order to make the most of its own available energy resources AEM Trading trades on the
wholesale energy market, using spot sales, usually on a monthly basis, to other Eligible
Customers and wholesale customers.
From 2004, AEM Trading will (on behalf of the AEM Group) trade on the Electricity Stock
Exchange Market and will draw up bilateral agreements, acting as a wholesale customer.
In 2002, AEM Trading achieved a turnover of e545 million, with a total of more than 5.2
TWh of electricity managed.

        Strategic model for the activities in the competitive energy sector


                                                            Edipower thermal                   AEM Thermal               AEM Hydro
          Technical and                                        generation                       generation                generation
          operating skills


                                                                               Tolling                          Electricity

                                                                                          Gas
                                                                                                                              Electricity
                                                                    Electricity
        Portfolio and                                                   Portfolio & Risk
             risk                Gas procurement/                                                                       Power Exchange
                             shipping (Plurigas S.p.A.)   Gas            Management
        management                                                                                                         Traders
                                                                      (AEM Trading S.r.l.)
            skills




                                                                    Electricity          Gas

        Marketing skills                                                   RetailCo
                                                                        (AEM Energia)




                                            Innovative approach in the domestic environment



                        Á
Supply: AEM Elettricita S.p.A. and AEM Energia S.p.A.
Under the Bersani Decree, electricity users are divided into two categories: Eligible Customers
(high volume consumers who may negotiate supply agreements directly with any domestic or
foreign producer) and Non-Eligible Customers (low volume consumers who must purchase
electricity from the distributor that serves the area in which they are located). The AEM
                                                                            Á
Group sells electricity to Non-Eligible Customers through AEM Elettricita, and to Eligible
Customers through AEM Energia, the sole retail company for the AEM Group. Sales to Non-
Eligible Customers are governed by tariff regulations established by the Regulatory Authority
                                 Á
for Electricity and Gas (Autorita per l'Energia Elettrica e il Gas), providing for a maximum
allowed revenue and a price cap(1) (at 4% for the 2002-2003 period). The tariff regulation
also covers distribution costs incurred when transporting electricity from generation plants to
end-users. Prices and terms of electricity supply to Eligible Customers are subject to the
contracts agreed between the parties. The following table shows the AEM Group's revenues
from sales of electricity to Non-Eligible and Eligible Customers for the periods indicated:

                                                                                                                         1st Half           1st Half
Sales of Electricity                                                                 2001                    2002           2002               2003

                                                                                                         (euro millions)
Non-Eligible CustomersPPPPPPPPPPPPPPPPPPPPP                                               287              283           118                    268
Eligible Customers PPPPPPPPPPPPPPPPPPPPPPPPP                                              115                97           73                     30

Total PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                              402                 380                  193          298

ÐÐÐÐÐÐÐÐÐ
The variation in sales in 2002 and the ®rst half of 2003 was due to a portfolio management decision, linked to the re-
powering of the Group 2 in Cassano and the acquisition of the ENEL network.

(1) ef®ciency gains

                                                                         26
In 2002, about 60% of electricity sales were to Non-Eligible Customers, the bulk of which is
represented by households. The balance is made up of about 240 Eligible Customers,
represented by manufacturing, commercial and service companies given the high
industrialisation and wealth of the Milan area. Concentration is quite high within the Eligible
Customer base, with the top 10 accounting for about 49% of total volumes.
The following table sets forth the amount of electricity that the AEM Group sold and
distributed by class of customer for the periods indicated.

                                                                                              1st Half        1st Half
                                                                   2001           2002           2002            2003

                                                                                      (GWh)
Sales to Non-Eligible Customers PPPPPPPPPPPPP                     2,888           3,052           1,343          2,730
Sales to Eligible Customers and All sales PPPPP                   2,687           2,036           1,208            574

Total PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                      5,575           5,088           2,551          3,304

ÐÐÐÐÐÐÐÐÐ
The variation in sales in 2002 and the ®rst half of 2003 was due to a portfolio management decision, linked to the re-
powering of the Group 2 in Cassano and the acquisition of the ENEL network.

The Bersani Decree envisaged that electricity consumed by Eligible Customers, including
electricity produced by them, would account for at least 37% of total Italian electricity
consumption in 2001 and 40% of total Italian electricity consumption in 2002. However, in
2001, due primarily to limitations on the volume of electricity available on the free market,
only a portion of those customers who qualify as Eligible Customers actually chose to
participate in the open market. According to the Network Operator (Gestore della Rete di
Transmissione Nazionale) (as described under ``Regulation - Electricity'' below), the actual
percentage of total Italian electricity consumption in 2002 represented by the free market,
including electricity produced by customers for their own consumption, was approximately
40%
                            Á
Distribution: AEM Elettricita S.p.A.
                Á
AEM Elettricita is the sole company distributing energy in the areas of Milan and Rozzano
under a licence granted by the Ministry of Productive Activities which expires in 2030.
Electricity carried by the AEM Group's high-voltage transmission lines is transformed into
medium-voltage and low-voltage electricity and distributed to customers in Milan and certain
neighbouring municipalities through the AEM Group's low and medium-voltage lines
                                                                               Á
distribution network (currently 9,754 kilometres). The reach of AEM Elettricita's distribution
network has doubled since November 2002 through the acquisition of ENEL's Milan network.
Following such acquisition, total distributed energy has increased on an annual basis from 3.5
TWh to 6.5 TWh, and the customers from approximately 440,000 to approximately 829,000.
               Á
AEM Elettricita is responsible for network operations, maintenance and development and for
ensuring continuity of service and ordinary maintenance, relying on remote-controlled
                                                     Á
monitoring for most of its activities. AEM Elettricita is in charge of scheduled inspections and
maintenance services, the design and execution of new plants and network sections and
major unscheduled maintenance operations. The remote-controlled monitoring system
manages 29 plants (9 high voltage stations, 20 medium voltage stations) constituting the
primary distribution network from a single control point, and allows automated plant
management, as it is possible to receive signals, alarms and data and to issue orders.
Electricity distribution is a regulated activity in Italy. Charges are set by means of criteria
determined by the Regulatory Authority for Electricity and Gas through a price-cap formula
based on speci®c parameters for return on capital and ef®ciency gains (currently set at 7.4%
and 4%, respectively). Revenue caps also exist, depending on the customer type. Distribution
is carried out under 30 year concessions, so there is no competition in this speci®c business
sector.
               Á
AEM Elettricita is contracted by the AEM Group to manage the distribution network and
distribute electricity to Non-Eligible Customers and to Eligible Customers connected to its
distribution network.


                                                          27
The following table shows a comparison of the average number and minutes of interruptions
per customers from 2000 to 2003 of AEM and its main competitors.
                                                    Average Number and Minutes of Interruptions per Customer

                                     2000                                    2001                                      2002

                                                   Average                                 Average                                   Average
                                                      other                                   other                                     other
                                                  Municipal                               Municipal                                 Municipal
                              Enel      AEM         utilities        Enel        AEM        utilities          Enel         AEM       utilities
Number of Interruptions PP    3.9           1.5         1.75         3.6            1.9            2           3.08         1.32           1.8
Minutes of Interruptions PP   162           37            45         181            35            40            137           63            67




Transmission: AEM Trasmissione S.p.A.
AEM Trasmissione owns 1,092 kilometres of high voltage lines, linking up the various plants
of the company with the medium and low voltage distribution system. The high voltage lines
are connected into the national grid. To comply with the provisions of the Bersani Decree,
AEM Trasmissione had to delegate management of its lines to the Network Operator. The
company retains the ownership of the assets and receives an annual payment from the
Network Operator for maintenance of its lines.

Natural Gas
Introduction
The AEM Group revenues with respect to natural gas are generated through its distribution
and sale. AEM Gas owns the gas distribution networks of Milan, Cinisello Balsamo, Corsico,
Novate Mialnese, Bollate, Segrate and Sesto San Giovanni while it has the management
through a concession of the gas distribution network owned by the municipality of
Buccinasco, Cassano d'Adda and Rosate. Serenissima Gas owns and manages the gas
distribution network of 14 municipalities located in the Italian regions of Veneto and Friuli-
Venezia Giulia.
AEM (through AEM Gas and Serenissima Gas) distributes natural gas in the city of Milan and
in 13 surrounding municipalities as well as in 14 municipalities located in the Italian regions
of Veneto and Friuli-Venezia Giulia, and sells gas to all end customers through AEM Energia
and Serenissima Energia S.r.l. (``Serenissima Energia''). The AEM Group is the only distributor
of natural gas in the Milan area. For the year ended 31st December 2002, the AEM Group
distributed approximately 1.1 billion cubic metres of natural gas to approximately 870,000
customers (each customer represents a point of delivery for gas service rather than an
individual). Customers served include houses, apartment blocks, of®ces, hospitals and
industrial companies. The AEM Group's natural gas distribution and sales business generated
approximately 39% of the AEM Group's total revenues in 2002. The reduction in revenues in
2002 was mainly due to the decrease of the prices of raw materials on the international
market and to the effects of the highest average winter temperature statistically registered.
The following table shows a breakdown of the AEM Group's revenues from sales and
distribution of natural gas and heat for the periods indicated:

                                                                                                               1st Half            1st Half
Sales and distribution of Natural Gas                                       2001              2002                2002                2003

                                                                                            (euro millions)
Gas Sales PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                427                 372                   215               269
Heat Sales PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                 20                  21                    13                34

Total PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                447                 388                   228               303


The AEM Group is authorised to distribute natural gas under natural gas municipal licences
(concessioni) issued by the relevant municipal authorities. The licence granted by the City of
Milan is substantial since, at the end of 2002, it relates to approximately 596,000 customers
out of a total of approximately 865,000 customers. The AEM Group's natural gas distribution
in Milan is governed by the Convenzione per L'af®damento della Gestione dei Servizi Pubblici

                                                                28
a Rete Gas e Teleriscaldamento (the ``Gas Agreement''), an agreement with the City of Milan
that took effect in December 1996 and will expire in 2009. Pursuant to the Gas Agreement,
the City of Milan has entrusted the AEM Group with the distribution of natural gas in the
city of Milan in return for payment to the City of Milan of an annual fee to be adjusted by
reference to increases in natural gas prices throughout Italy. The Gas Agreement transferred
to the AEM Group the management of the gas business formerly owned and managed by an
agency of the municipal government of the City of Milan, including the natural gas pipeline
network of Milan, subject to the right of the City of Milan to require that such assets be
reconveyed to it at the expiration of the Gas Agreement against payment of a price equal to
their industrial value. The AEM Group also distributes natural gas to 13 municipalities near
Milan as well as 14 municipalities in the Italian regions of Veneto and Friuli-Venezia Giulia
pursuant to service agreements with the local authorities.
The Italian natural gas market has recently undergone signi®cant reform with the
implementation of the Letta Decree (as de®ned under ``Regulation'' below). The reform
requires operators to separate their distribution and sales activities and gradually liberalise
the sale of gas to end-customers. Since 1st January 2003, the distinction between eligible and
non-eligible customers has been abolished, and all customers have become eligible customers.
These changes to the regulatory framework allow gas providers which do not own a
secondary distribution network to sell gas to customers by paying a fee to the authorised
distributor (which is ®xed by the Regulatory Authority for Electricity and Gas) and will result
in increased competition among operators.

Purchases: Plurigas S.p.A.
AEM, in order to enhance the opportunities offered by the deregulation of the gas market,
has established Plurigas S.p.A. (``Plurigas''), a strategic partnership between AEM (40%),
AMGA Genova S.p.A. (30%) and ASM Brescia S.p.A. (30%), which will be able to compete
successfully on the open market by increasing its contractual power in purchasing raw
materials and optimising supply contracts on the market. Plurigas is a wholesale trader on the
national and international gas markets, entering into purchase contracts primarily to meet
the needs of its holding companies which are already distributing and selling to end-users
and which generate electricity by gas ®red plants. The company also sells gas directly to
major customers. AEM, through Plurigas, pursuant to the terms of the partnership has access
to 1.8 billion cubic metres natural gas out of a maximum capacity of Plurigas of 3.0 billion
cubic metres.

Distribution: AEM Gas S.p.A. and Serenissima Gas S.p.A.
The AEM Group's natural gas distribution network consists of approximately 10,000 kilometres
of pipe (approximately 2,800 kilometres of underground pipes and 6,700 kilometres of indoor
pipes and risers), 23 primary and secondary pressure reduction stations, 238 network stations
and 1270 customer stations to regulate gas pressure for commercial and industrial uses. The
AEM Group owns and operates its gas distribution network subject to the Gas Agreement
with the City of Milan and other service agreements with municipalities in the Milan area
and in the regions of Veneto and Friuli-Venezia Giulia.
Planning, maintenance and management of the AEM Group's gas distribution network is
carried out by AEM Gas and Serenissima Gas in accordance with all applicable legislative and
regulatory standards and with procedures designed to ensure the AEM Group's continued
certi®cation as a public utility in compliance with EU quality control standards.
The AEM Group estimates its gas leakage rate to be between 3 and 4% of the amount of
gas distributed each year. The AEM Group's estimated leakage rate includes both
``administrative'' leakage (i.e., self-consumption and sales losses due to meter error) and real
leakages (principally caused by joint leakages and fractures).
Since 1989, a remote control system that allows remote operation of the AEM Group's 20
primary and secondary pressure reduction stations has been implemented. The remote control
system permits ``real time'' monitoring of data concerning operational variables such as
pressure and capacity and includes security systems that warn of intruders, ®re, gas leakage
and ¯ooding. Of the network stations, 168 (70%) are remote-controlled, ensuring reliability
and security of service.

                                               29
Trading: AEM Trading S.r.l.
Since 13th November 2001, AEM Trading has been classed by the Ministry of Productive
Activities as ``a wholesale gas customer'', and since 28th June 2002, it has of®cially been
authorised by the Ministry of Productive Activities to buy and sell natural gas throughout
Italy.
AEM Trading signed a ten year contract with Plurigas to purchase natural gas as well as
supply agreements with third parties. Plurigas is operative in the wholesale natural gas
market and carries out shipping activities in relation to gas pipes in Italy and abroad. Overall,
the natural gas supply contracts for the thermal year 2003-2004 are valued at 2.6 billion cubic
metres and will be used both for thermoelectric power plants subject to tolling regimes and
for the ®nal Eligible Customers of AEM Energia.

Sales and Customers: AEM Energia S.p.A.
Of the AEM Group's natural gas customers (approximately 865,000 at the end of 2002),
approximately 686,000 are located within the city of Milan, 149,000 in the Milan area and
30,300 in the regions of Veneto and Friuli-Venezia Giulia.
During 2002, the AEM Group, through AEM Energia, the company solely responsible for
marketing natural gas, sold approximately 1,072 million cubic metres of natural gas as
compared to approximately 1,100 million cubic metres distributed.
The AEM Group's gas customers are classi®ed in ®ve categories according to usage:
Domestic Use. This category includes gas required by customers for cooking and domestic
water heating and is the category with the highest number of customers (approximately
625,000 or 72.4% of the total customers of the AEM Group) at 31st December 2002, with the
lowest consumption per customer.
Single Dwelling Unit Heating. This category includes natural gas sold for heating purposes in
single dwellings, and is often associated, if measured at the same meter, with consumption
for domestic use. Single dwelling unit heating accounted for 23.6% (approximately 204,000
customers at 31st December 2002) of gas customers in 2002.
Central Heating. This category includes sales of gas to thermal energy plants that service
entire buildings or groups of buildings without differentiating among the end uses of such
energy. Central heating accounted for 2.0% (approximately 17,000 customers at 31st
December 2002) of gas customers in 2002.
Commercial Use. Sales in this category consist of sales to bars, restaurants, shops and small
businesses (hairdressers, bakeries etc.). Growth in commercial use has been static in the last
®ve years (serving approximately 16,000 customers at 31st December 2002). Commercial use
accounted for 1.8% of gas customers in 2002.
Industrial Use. This category (approximately 2,000 customers at 31st December 2002) includes
both small industrial plants (with a consumption of less than 200,000 cubic metres per year)
and industrial facilities that are designated high-volume consumers (with a consumption of
more than 200,000 cubic metres per year). Industrial use accounted for 0.2% of gas customers
in 2002.

District Heating and Heating Management Services
AEM (through AEM Calore e Servizi) produces and supplies heat to ®nal customers (district
heating) and provides heat management services. AEM has also been developing district
heating services in the Milan area as well as surrounding municipalities (600 buildings
currently connected) through ®ve co-generation plants, three thermal plants and a 63
kilometre distribution network owned and operated by AEM Gas and managed by AEM
Trading.
The AEM Group is currently among the leading providers of district heating and thermal
energy management services in the Italian region of Lombardy. The AEM Group's district
heating service, which is governed by the Gas Agreement, provides heating and cooling
systems to customers through management of utility plants located in customers' buildings.
The AEM Group's heating management service provides thermal energy management for over
627 buildings owned by the City of Milan.

                                               30
Prices for district heating and heating management services do not fall within the regulatory
pricing framework but are set by AEM on the basis of competitiveness with other means of
delivering energy, among other factors. Customers are billed for district heating services on a
monthly basis. In September 2002, the AEM Group acquired from Siemens Group a company
called Siemens Facility Management S.p.A. Its principal activities include heat management,
technical management, facility management and retro®t revamping.

Telecommunications
In 1999, AEM subscribed a 67% shareholding in Metroweb and a 37% shareholding in
Fastweb S.p.A. (``Fastweb''), the balance of share capital in such companies being held by
E.Biscom S.p.A., an Italian-listed video communication service provider. In March 2003, as a
consequence of its revised strategy toward the telecommunications sector, AEM increased its
stake in Metroweb to 100% and conversely sold its stake in Fastweb. Metroweb was set up in
1999 as a provider of dark ®bre in the Milan area to be leased to telecommunications
companies (such as Fastweb, Wind and Albacom) under long term contracts. Metroweb owns
a network of approximately 4,300 kilometres of optic cable in the Milan and surrounding
areas. Metroweb reaches about 600,000 households, corresponding to approximately 100%
market coverage at 30th June 2003. Cabling of the metropolitan area is almost complete and
Metroweb has ®nalised arrangements with some neighbouring municipalities in order to
provide them access to cable network. Metroweb's competitive advantage depends on its
optic ®bre network being superior to the incumbent Telecom Italia S.p.A.'s copper network
and in the latter's lack of economic incentive to build an alternative ®bre optic network,
given the competitive rents offered by Metroweb.

Traf®c Light and Public Lighting Services
                                         Á
The AEM Group, through AEM Elettricita, is responsible for the management as well as the
routine and emergency maintenance of the urban lighting system in Milan and surrounding
areas for a total of some 121,700 public lights and 699 traf®c lights. AEM is also contracted
by the City of Milan to undertake the system planning, construction and renovation of the
urban lighting system. This business allows considerable synergies: almost all ®bre optic cables
for telecommunications networks were laid down simultaneously with digging done for
public lighting work.

Principal Licences
The AEM Group operates its electricity and gas businesses under various licences and
concessions granted by public entities and bodies in the Republic of Italy. The following
table shows the principal licences and concessions for the AEM Group:

Licence              Licensing Authority                                                  Expiry

Hydroelectric Power Stations
(a) Premadio 1    Ministry for Public Works under Inter-ministerial              28th July 2013
                  Licence Decree (Decreto Interministeriale di
                  concessione) No. 352 dated 22nd January 1957
(b) Premadio 2    Ministry for Public Works under Inter-ministerial         31st December 2043
                  Licence Decree (Decreto Interministeriale di
                  concessione) No. 1971 dated 6th June 1959
                  (operational with effect from the beginning of 2004)
(c) Braulio          Ministry for Public Works under Provisional                 28th July 2013
                     Certi®cate of Authorisation No. 1404 dated 5th
                     August 1986
(d) Grosio           Ministry for Public Works under Inter-ministerial      15th November 2016
                     Licence Decree (Decreto Interministeriale di
                     concessione) No. 1332 dated 17th July 1964
(e) Lovero           Ministry for Public Works under Licence Decree         31st December 2010
                     (Decreto di concessione) No. 2758 dated 21st October
                     1948 extended pursuant to Legislative Decree No. 79
                     dated 16th March 1999

                                                31
Licence            Licensing Authority                                                    Expiry

(f) Stazzona       Royal Licence Decree (Regio Decreto di concessione)      31st December 2010
                   No. 4023 dated 24th September 1940 extended
                   pursuant to Legislative Decree No. 79 dated 16th
                   March 1999
(g) Fraele         Ministry for Public Works under Inter-ministerial        31st December 2010
                   Licence Decree (Decreto Interministeriale di
                   concessione) No. 3255 dated 23rd June 1958
                   extended pursuant to Legislative Decree No. 79 dated
                   16th March 1999
(h) Boscaccia      Resolution of the Regional Board No. 25068 dated           31st January 2007
                   18th January 1997
Electricity
(i) Distribution   Decree of the Ministry for Industry dated 3rd May        31st December 2030
    Licence        2001
    (Milan and
    Rozzano)
Gas
(j) Distribution   Agreement with the City of Milan for the                      December 2009
    Licence        management of public services relating to gas
    (Milan)        network and district heating dated 3rd December
                   1996

Principal Establishments
The following table shows the principal establishments owned by the Issuer whose production
accounts for more than 10% of the total production in the relevant business sector and the
other principal establishments of the AEM Group.
Principal Establishments    % of total production      Location            Ownership

Thermoelectric power        100% of thermoelectric     Cassano d'Adda      AEM S.p.A.
plant (Cassano d'Adda)      production
Hydroelectric power plant   42% of total               Grosio Valtellina   AEM S.p.A.
(Grosio)                    hydroelectric production
Hydroelectric power plant   15% of total               Premadio            AEM S.p.A.
(Premadio)                  hydroelectric production   Valtellina
Valtellina basins           Ð                          Valtellina          AEM S.p.A.
Electricity grid            Ð                          Milan/Rozzano                     Á
                                                                           AEM Elettricita S.p.A.
Gas grid                    Ð                          Milan               AEM Gas S.p.A.

Other Activities
The AEM Group (through AEM Service) provides call centre services, billing services and
consumption metering to small utility businesses (as well as to companies within the AEM
Group).
In May 2002, the AEM Group formed a joint venture with Siemens Informatica S.p.A. called e-
Utile S.p.A. to provide information technology solutions, technology support and information
technology outsourcing principally for other utilities and local government entities (as well as
to companies within the AEM Group).

Employees
At 31st December 2002, the AEM Group had 2,876 employees, of whom 40 were in executive
positions. The AEM Group is pursuing a policy of staff reduction through non-replacement of
retiring employees. The policy of staff reduction is also due to the increase of approximately
390 employees which occurred in 2002, following the acquisition of a portion of the ENEL
distribution network.

                                              32
Substantially all of the AEM Group's employees are members of unions and are employed
pursuant to national collective labour agreements periodically renegotiated by representatives
of the various professional categories represented within the AEM Group. The transformation
of AEM into a joint stock company in 1996 has not materially altered the employment terms
of its employees who were previously employed by the municipality enterprise of the City of
Milan.

Directors
The Board of Directors of AEM is responsible for the administration of its affairs.
The current Board of Directors of AEM and their respective functions, together with their
principal outside of®ces are as follows:

Name                              Title                 Principal Of®ces Outside AEM

Giuliano Zuccoli*                 President and         President of Edipower S.p.A., President of
                                  Director              Federelettrica (Federazione Nazionale delle
                                                        Imprese Locali dei Servizi Elettrici), Director of
                                                                                     Á
                                                        Aar & Ticino Sa di Elettricita, Director of
                                                        Credito Valtellinese S.p.A.

Francesco Randazzo*               Vice President        Ð

Gianni Castelli*                  Director              General Manager of Settore Commerciale of
                                                        SIBELCO Italia S.p.A.

Mario Mauri*                      Director              President of Cambria Group

Paolo Oberti*                     Director              Vice President of Federgasacqua (Federazione
                                                        Italiana delle Imprese dei Servizi Idrici,
                                                        Energetici e Varie), Director of Federelettrica
                                                        (Federazione Nazionale delle Imprese Locali
                                                        dei Servizi Elettrici), Sole Director of Valdisotto
                                                        Energia S.r.l.

Giulio del Ninno                  Director              Sole Director of Edison S.p.A., Director of
                                                        Edipower S.p.A.

Antonio Matteo Taormina           Director              Member of the Executive Board and Head of
                                                        Energy Business Southern/Western Europe of
                                                                                     Á
                                                        Aar & Ticino Sa di Elettricita, Director of
                                                        Edipower S.p.A., Director Aem Torino S.p.A.

Aldo Scarselli                    Director              Co-ordinator of communication of Comune di
                                                        Milano, Vice President of Fondazione Cariplo,
                                                        Director of Edipower S.p.A.
*Appointed by the City of Milan

The business address of the Directors is c/o Segreteria Presidenza, AEM S.p.A., Corso di Porta
Vittoria 4, 20122 Milan.

Legal Proceedings
On 5th June 2002, the European Commission announced the results of its inquiry into State
aid allegedly granted by the Italian State to private joint stock companies supplying public
services controlled by local authorities and incorporated pursuant to the provisions of Law
142/90 which required all municipality enterprises supplying public services to be privatised by
the end of 1999. The State aid was allegedly granted by way of income tax exemptions and
subsidised loans. The Commission has ruled that the provisions of Law 549/95, which
extended the general tax exemption regime previously granted to the municipality enterprises
for a three year period in favour of such companies (including AEM, who bene®ted from the
exemption from corporate tax (imposta sul reddito delle persone giuridiche ± IRPEG and
imposta locale sui redditi - ILOR) for the three year period from the date of its incorporation

                                                   33
on 2nd December 1996) are not consistent with European law on free competition. As a
result of the ruling, the Italian State has been condemned by the Commission to recover the
aid formerly granted.
However, the decision of the Commission which condemns the Italian regime has a general
scope: it can be applied to several market sectors and does not quantify the amount of the
alleged State aid with reference to any speci®c market sector. Moreover, the decision of the
Commission permits the Italian State to examine each individual case in order to asses which
companies effectively bene®ted, and to what extent, from the alleged State aid. The decision
(which is binding on the Italian State who has been charged with implementing it against
the companies who bene®ted from the alleged aid) has been challenged by the Italian State
before the Court of Justice and by AEM, together with other concerned companies, before
the European Court of First Instance. The decision, however, has not been suspended and is
therefore currently enforceable. In its appeal AEM has argued inter alia that, with respect to
its own individual case, the tax exemption regime did not cause any distortion of free
competition in view of the fact that, during the relevant period, AEM operated exclusively in
the electricity and gas markets which were not at that time open to free competition and did
not take part in any bidding procedure for service contracts. In view of the uncertainty with
respect to the outcome of the proceedings pending before the Court of Justice and the
European Court of First Instance, and with respect to the criteria which would be applied by
the Italian State to determine the amount of the State aid to be recovered, AEM has decided
not to make any provisions in connection therewith in the half yearly report as of 30th June
2003.




                                             34
                                          Regulation
Electricity
The Ministry of Productive Activities and the Regulatory Authority for Electricity and Gas
share responsibility for overall supervision and regulation of the Italian electricity sector.
The Ministry of Productive Activities establishes the strategic guidelines of the electricity
sector. The Regulatory Authority for Electricity and Gas:
(i) sets electricity and gas tariffs;
(ii) formulates observations and recommendations to the Government and Parliament regarding
the market structure and the adoption and implementation of European Directives;
(iii) makes observations and recommendations to the Government and Parliament with regard to
licenses or authorisations;
(iv) establishes guidelines for the production and distribution of services, as well as speci®c and
overall service standards and automatic refund mechanisms for users and consumers in cases
standards are not met;
(v) issues guidelines for the accounting and administrative unbundling of the various activities
under which the electricity and gas sectors are organised;
(vi) protects the interests of electricity customers, monitoring the conditions under which the
services are provided, with powers to demand documentation and data, to carry out inspections,
to obtain access to plants and to apply sanctions, and determines those cases in which operators
should be required to provide refunds to users and consumers;
(vii) handles out-of-court settlements and arbitrations of disputes between users or consumers
and service providers; and
                                                  Á
(viii) reports to the Antitrust Authority (Autorita garante della concorrenza e del mercato) any
suspected infringements of Law No. 287 of 10th October 1990 by companies operating in the
electricity and gas sectors.
On 1st April 1999, the Legislative Decree No. 79 dated 16th March 1999 (the ``Bersani
Decree'') implementing Directive 96/92/EC became effective in Italy. It began the
transformation of the electricity sector from a highly monopolistic industry to one in which
energy prices charged by generators will eventually be determined by competitive bidding
and provided for a gradual liberalisation of the electricity market so that customers whose
annual consumption of electricity exceeds speci®ed amounts (Eligible Customers) will be able
to contract with power generation companies, wholesalers or distributors to buy electricity.
The Bersani Decree established a general regulatory framework for the Italian electricity
market that gradually introduces competition in power generation and sales to Eligible
Customers while maintaining a regulated monopoly structure for transmission, distribution
and sales to Non-Eligible Customers. In particular, the Bersani Decree and the subsequent
implementing regulations:
(i) liberalised, as of 1st April 1999, the activities of generation, import, export, purchase and sale
of electricity;
(ii) provided that, as of 1st January 2003, no party shall be allowed to generate or import, directly
or indirectly, more than 50% of the total electricity generated in and imported into Italy in order
to increase competition in power generation;
(iii) distinguished between Eligible Customers, who may negotiate supply agreements directly
with any domestic or foreign producer, wholesaler or distributor of electricity, and Non-Eligible
Customers, who must purchase electricity from the distributor that serves the area in which they
are located and pay the tariffs determined by the Regulatory Authority for Electricity and Gas;
(iv) provided for the establishment of the Single Buyer (Acquirente Unico), the company who shall
stipulate and operate supply contracts in order to guarantee franchise clients availability of the
necessary generating capacity and the supply of electricity in conditions of continuity, security and
ef®ciency of service, as well as parity of treatment, including tariff treatment;

                                                 35
(v) provided for the creation of the Electricity Stock Exchange, in which producers, importers,
wholesalers, distributors, the operator of the national transmission grid, other Eligible Customers
and the Single Buyer will participate, with prices being determined through a competitive bidding
process;
(vi) provided for the creation of the Market Operator (Gestore del Mercato), responsible for
managing the Electricity Stock Exchange;
(vii) required distribution companies supplying the same municipality to consolidate their
networks; and
(viii) provided that the activities of transmission and dispatching are reserved exclusively to the
State and attributed under concession to the operator of the national transmission grid while the
activity of distribution of electricity is performed under a concession regime issued by the Ministry
of Productive Activities.
The process of market liberalisation enacted by the Bersani Decree is highly complex. Certain
of the actions required by the Bersani Decree have not occurred within the contemplated
time periods and it is likely that a number of the deadlines set forth by the Bersani Decree
may not be met.

Generation
The Bersani Decree liberalised the regime for the electricity generation. In order to increase
the level of competition in the market, the Bersani Decree provided that, as of 1st January
2003, no electricity generation companies shall be allowed to generate or import, directly or
indirectly, more than 50% of the total electricity generated in and imported into Italy. To this
end, by the same date, ENEL has ceded not less than 15,000 MW of its own generating
capacity in order to reduce its market share. To comply with this requirement, ENEL has sold
the capacity contributed to the three generation companies (Eurogen S.p.A., Elettrogen S.p.A.
and Interpower S.p.A.) created in October 1999. In 2002, the Italian Parliament approved Law
No. 55 of 9th April 2002 aimed at streamlining the authorisation procedures relating to the
construction of new power generation plants and the renovation and expansion of existing
plants.

Promotion of Renewable Resources
In order to promote the generation of electricity from renewable resources, the Bersani
Decree required that, as of 2001, all companies that introduce in excess of 100 GWh of
electricity generated from conventional sources (net of co-generation, self-consumption and
exports) into the national transmission network in any given year are required, in the
following year, to introduce into the national transmission network an amount of electricity
produced from newly quali®ed renewable resources that is at least equal to 2% of the
amount of such excess over 100 GWh, net of co-generation, self-consumption and exports.
This electricity may be produced directly, purchased from other producers or purchased from
the operator of the national transmission grid.

Imports
The volume of electricity that can be imported into Italy is limited by the capacity of
transmission lines that connect the Italian network with those of other countries, currently a
maximum of approximately 40 TWh per year. The construction of new interconnections in the
near future will permit the import of more energy at a competitive price.
ENEL controls approximately 2,400 MW of this total import capacity pursuant to long-term
contracts with foreign producers and wholesalers. This energy is assigned to Non-Eligible
Customers. In order to address the allocation of the remaining capacity, the Bersani Decree
authorises the Regulatory Authority for Electricity and Gas to set terms and conditions on
import capacity taking into account a fair allocation between Eligible and Non-Eligible
Customers, if import demand exceeds total interconnection capacity. The criteria for the
allocation of import for the year 2003 has been the ``pro quota'' mechanism. This allocation
mechanism considers the total interconnection capacity available at the borders with France
and Switzerland (the north-west pool) and Austria and Slovenia (the north-east pool)
separately. Interconnection capacity is allocated on a pro-rata basis; in no case can a single
importer hold more than 10% of the interconnection capacity available in any given pool.

                                                 36
The Regulatory Authority for Electricity and Gas and the French Regulatory Authority for
Electricity and Gas have agreed that they will jointly decide how to allocate the
interconnection capacity in the north-west pool.

The New Tariff Structure
The Regulatory Authority for Electricity and Gas has established a new tariff regime that
came into effect on 1st January 2000. This new regime replaced the ``cost-plus'' system for
tariffs with a new ``price-cap'' tariff methodology. The price-cap mechanism sets a limit on
annual tariff increases corresponding to the difference between the target in¯ation rate and
the increased productivity attainable by the service provider, along with any other factors
allowed for in the tariff, such as quality improvements. Under the price-cap methodology,
tariffs will be reduced by a ®xed percentage each year encouraging regulated operators to
improve ef®ciency and gradually passing savings onto ®nal customers.
The new tariff structure regulates the price paid by Non-Eligible Customers for electricity,
while Eligible Customers pay electricity at market price. Both Eligible and Non-Eligible
Customers pay transmission, distribution and system charges as set by the Regulatory
Authority for Electricity and Gas. The ®rst regulatory period ®nishes at the end of 2003. In
August 2003, the Regulatory Authority for Electricity and Gas issued a new consulting paper
showing the criteria of the new regulatory period from January 2004 to December 2007.
The EU Commission and Council recently approved Directive 2003/54/EC, with the aim of
further liberalising the electricity market at the EU level. In accordance with the provisions of
such Directive, among other things, all non-household consumers will be able to choose their
supplier by 2004, irrespectively of consumption levels. The Directive introduces a new
de®nition of public service obligations and security of supply and will facilitate cross-border
transactions in electricity.
The new regulatory framework, when fully implemented, will replace most laws and
regulations applicable to the Italian electricity sector.

Natural Gas
A series of regulatory reforms recently changed the regulatory framework applicable to the
Italian gas industry. The Letta Decree, implementing Directive 98/30/EC (the ``Gas Directive''),
will gradually liberalise the gas market in Italy and increase competition.
The Letta Decree provides, among other things, that after 1st January 2003, all ®nal
customers are free to purchase gas directly from suppliers.

The Gas Directive
On 22nd June 1998, the European Council and the European Parliament approved the Gas
Directive, containing ``common rules for the transmission, distribution, supply and storage of
methane gas''.
The Gas Directive imposed some fundamental principles such as:
(i) the elimination of legal inequality among various operators in the gas market, guaranteeing
equal conditions and non-discriminatory treatment;
(ii) the creation of separate companies (and, in particular, separation for accounting purposes) for
the import, transportation, distribution and storage of gas, where relevant to the development of
the market;
(iii) a declaration of the ``public utility'' status of infrastructural works for the development of the
gas network; and
(iv) a guarantee of transparent non-discriminatory conditions governing access to the gas
network.
The aim of the Gas Directive is to create a single European gas market for primary
distribution by network owners and to permit access to the network by other service
providers.

                                                  37
The Letta Decree
Legislative Decree No. 164 dated 23rd May 2000 (the ``Letta Decree'') implemented the Gas
Directive in Italy and produced major changes in the regulation of the gas market which led
to its gradual liberalisation. The Letta Decree aims:
(i) to increase competition in the gas sector and to regulate activities where it is not possible to
increase competition, and
(ii) to require parties operating in the sector to operate as separate accounting and management
units.
The Letta Decree de®nes the gas production process, dividing it into import/export,
transportation and dispatch, distribution and sale, exploitation and storage. All of these
activities, except for exploitation and storage, are deregulated.

Imports
The Ministry of Productive Activities must authorise the importation of methane gas
produced outside the EU. Unless authorisation is refused on the basis of objective and non-
discriminatory criteria, it is considered granted three months from the date of the
application. Import agreements which have already been or are in the process of being
concluded must be noti®ed to the Ministry of Productive Activities within one year of the
Letta Decree taking effect and are considered authorised from the date when that decree
came into effect.
The importation of methane gas produced in countries belonging to the EU must be noti®ed
to the Ministry of Productive Activities and to the Regulatory Authority for Electricity and Gas
within 60 days from the date of execution of the import agreement. Agreements executed
after the Letta Decree took effect must contain a provision for seasonal adjustment for peak
periods, allowing an increase in the daily imports of at least 10% of the annualised average
daily amount.

Exploitation
The regulation of gas exploitation aims to increase national reserves. In addition to
regulations for the research, exploitation and management of gas ®elds and the associated
infrastructure, tax relief is granted for exploiting low-yield gas ®elds. The Letta Decree
provides that owners of gas ®elds must grant other licensees access to their gas pipelines to
import, export or transport methane gas. Access to infrastructure is subject to ministerial
authorisation.

Transportation and Dispatch
Under the Letta Decree, transporting and dispatching gas is considered an activity of public
interest. According to Article 8 of the Letta Decree, companies involved in these activities
must guarantee access on a non-discriminatory basis to users who so request, provided that
the connection works required are technically and economically feasible. The Letta Decree
also requires the Ministry of Productive Activities to issue regulations establishing safety limits
and regulating supplies in emergency situations. The regions are responsible for regulating
the supply of gas through direct pipelines, that is, those not included in the national network
of gas pipelines. The Regulatory Authority for Electricity and Gas makes sure that this activity
is carried out in such a way as not to hinder equal conditions of access to the system (see
below ``Rules Safeguarding and Encouraging Competition'').
Companies that carry out transport and dispatch activities govern the ¯ow of gas and the
auxiliary services needed for the system to function, including modulation. These companies
are also responsible for the strategic storage of gas under the Ministry of Productive
Activities directives, and they must ensure compliance with any other obligations aimed at
guaranteeing the safety, reliability, ef®ciency and lowest cost of the service and of supplies.
The Letta Decree also assigns responsibility for issuing rules establishing safety limits and
regulating activity in emergency situations to the Ministry of Productive Activities.
From 1st January 2002, only operators that have no other activities in the gas production
process, except for storage activities, may transport and dispatch gas. Even so, all such
activities must be accounted for separately.

                                                38
Storage
Operators storing gas in depleted ®elds or other geological formations must obtain a licence
from the Ministry of Productive Activities. These licences are granted for a maximum of 20
years. Licensees are obliged to supply strategic, mining and storage services to users who so
require. The Regulatory Authority for Electricity and Gas ensures that this principle is
respected. Under the Letta Decree, on 9th May 2001, the Ministry of Productive Activities
established the technical and ®nancial characteristics of storage activity.
Licensees are required to provide strategic storage, mining and modulation services to users
who so request, if the services requested by the user are technically and economically feasible
according to the criteria established under the decree of the Ministry of Productive Activities
dated 26th September 2001. If the storage request is refused, the user will normally inform
the Regulatory Authority for Electricity and Gas. After consulting the refusing company, the
Regulatory Authority for Electricity and Gas may order the company to proceed to supply the
services if it acknowledges that there has been a breach of the storage code referred to
below. Storage availability priorities must ®rst consider the relevant requirements for
exploiting gas ®elds within Italy.
By resolution dated 27th February 2002, the Regulatory Authority for Electricity and Gas
established criteria for determining storage tariffs and access criteria so as to ensure users
freedom of access to services on equal conditions. Within three months of publishing the
resolution, storage licensees had to adopt their own storage code. If there is no
communication from the Regulatory Authority for Electricity and Gas within these three
months, the storage code is considered approved.

Distribution
Distribution is de®ned as the transportation of methane gas through a network of local
pipelines for delivery to end-customers. Gas distribution companies dispatch the gas on their
own networks and must connect any customers who so request. Licensees of distribution
networks are obliged to grant access to any third party that so requests on the basis of
tariffs set by the Regulatory Authority for Electricity and Gas and in compliance with the
network code adopted by the Regulatory Authority for Electricity and Gas.
The Letta Decree considers the distribution of gas a public utility service and reserves
distribution licences to companies elected through a public tender. Licences have a duration
of no more than 12 years.
Local authorities may establish the terms and conditions for the provision of the service itself
and the quality objectives to be achieved through service agreements. Companies who
manage local public utility services in Italy or in other member states of the EU under direct
licensing or other procedures that are not publicly disclosed, cannot participate in such public
tenders, nor can their af®liates. The tender will be awarded taking into account the
following criteria:
(i) the best ®nancial terms;
(ii) quality and safety standards;
(iii) investment plans; and
(iv) technological and management skills offered.
To avoid interruptions to services, the procedures must be determined at least one year
before the expiration of the service agreement in force. Service agreements regulate the
relationships between the local authorities and the companies. These service agreements must
follow a standard form prepared by the Regulatory Authority for Electricity and Gas and
approved by the Ministry of Productive Activities. In any case, at the date of expiration of
each agreement, the ownership of the network and the plants must be returned to the local
authority.
The Letta Decree provides that the gas distribution services under existing agreements or
licences at the date on which the Letta Decree came into force should continue until 31st
December 2005. This period can be increased by no more than:
(i) one year, where a corporate merger occurs at least one year prior to 31st December 2005,
which permits at least double the number of users previously served to be served by the larger of
the companies subject to the merger;

                                                39
(ii) two years, where at least one year prior to 31st December 2005, the users served exceed
100,000, or the methane gas distributed exceeds 100,000,000 cubic meters per year, or the
enterprise concerned operates in at least one entire province; and
(iii) two years, where at least one year prior to 31st December 2005, at least 40% of the
distributor's share capital is privately held.
When more than one of the above circumstances occurs, the permitted increases are
cumulative. In any event, assignments or concessions in existence when the Letta Decree came
into force are maintained for the term as established in the cases assigned by tender, but not
to extend beyond 31st December 2012. The direct licensing of services to companies
controlled by local authorities remains effective even where such local authorities have lost
control of these companies through privatisation.

Sale
From 1st January 2003, companies that intend to sell gas to ®nal customers must obtain a
licence from the Ministry of Productive Activities. The authorisation is granted if the
applicant:
(i) is capable of providing a modulation service geared to meet supply requirements and
equipped with appropriate storage facilities within the national territory;
(ii) delivers proof of the origin of the methane gas and of the reliability of the transport facilities;
and
(iii) has appropriate technical and ®nancial capabilities.
Gas companies must have submitted their applications for authorisation before 30th June
2002. Applicants are considered authorised unless a fully justi®ed refusal was issued by 30th
October 2002. From 2003, the application for authorisation must be submitted within six
months of commencing the sales activity and it is held as having been accepted unless the
refusal is noti®ed within three months of submitting the application. Authorisation can only
be refused on objective and non-discriminatory grounds.
Under a Ministry of Productive Activities decree, distribution companies may exceptionally be
authorised temporarily to carry out sales activities to ®nal customers in the area in which
they operate.
From 1st January 2002, only companies that are not engaged in any other activity in the
methane gas sector, other than as importers, drillers or wholesalers, may sell gas.

Rules Safeguarding and Encouraging Competition
The Letta Decree requires enterprises carrying out activities such as transportation,
dispatching, distribution and storage of methane gas to provide information on their
activities. The minimum content of this information was to be established in a Regulatory
Authority for Electricity and Gas resolution within six months of the Letta Decree coming into
effect.
According to the Letta Decree, as from 1st January 2002, transportation and dispatch
activities must be separated from all other gas sector activities except for storage, which in
any event is subject to accounting and operational separation for administrative and auditing
purposes.
The Letta Decree also establishes that within the same deadline, gas distribution activity must
be separated from all other gas sector activities. Sales of gas can only be made by companies
that are not engaged in any other activity in the gas sector apart from import, export,
exploitation and activity as a wholesale customer. However, gas enterprises that only carry
out distribution and sales activities in the gas sector and that supply less than 100,000 ®nal
customers are obliged to implement corporate separation from 1st January 2003.
In a resolution dated 21st December 2001, the Regulatory Authority for Electricity and Gas
established the separation terms for accounting and administrative purposes of companies
that carry out several activities in the gas sector.
Under the Letta Decree, gas companies can only refuse access to the gas system if they do
not have the necessary capacity or where access to the system prevents them from meeting
the public service obligations by which they are bound (that is, where access gives rise to

                                                  40
serious economic and ®nancial dif®culties for methane gas companies operating in the system
associated with ``take or pay'' contracts entered into before directive 98/30/EC came into
effect).
Access may not be refused in cases where the customer bears the cost of the works required
to remove the lack of capacity or for connection. The refusal must be immediately noti®ed to
the Regulatory Authority for Electricity and Gas, the Italian Antitrust Authority and the Italian
Ministry of Productive Activities. Access may never be refused to companies related to gas
produced in Italy, Italian territorial seas and the Italian continental shelf.
By Resolution 137 of 26th July 2002, the Regulatory Authority for Electricity and Gas
established a series of guarantees for free access to the gas transportation network giving
priority access to certain types of contracts. It also established rules for preparing network
codes. Within three months of the resolution being published, gas companies must adopt
their own network code, which is de®ned as a ``code containing rules and procedures for the
operation and functioning of the network''. The code is sent to the Regulatory Authority for
Electricity and Gas which checks that it conforms to the above criteria. If no communication
has been received from the Regulatory Authority for Electricity and Gas three months after
the code has been sent, the network code is considered to be conforming.

Tariff Structure
By Resolution No. 237/00, the Regulatory Authority for Electricity and Gas has launched the
reform of the tariff system, which should have come fully in force starting from 2001. Such
resolution has been partly amended with the 87/03. The resolution de®ned distribution tariff
equal to all customers and the sales tariff for non eligible.
From 1st January 2003, all ®nal customers are Eligible Customers.
At the end of 2002 the Regulatory Authority for Electricity and Gas issued Resolution 207/02,
which compelled companies selling gas to offer, together with their ®nancial terms, also a
price de®ned on the basis of criteria established by the Regulatory Authority for Electricity
and Gas.




                                               41
                                          Financial Information
                                               AEM S.p.A.
                          Audited Consolidated Balance Sheet
                         As at 31st December 2001 and 31st December 2002

Balance Sheet Assets
                                                                Consolidated balance sheet
                                                                   as of 31st December

                                                        2002                                 2001

(A) SHAREHOLDER RECEIVABLES FOR
    CONTRIBUTIONS DUE
(B) FIXED ASSETS
I   Intangible assets
    (1) Start-up and other capitalised
        expenses PPPPPPPPPPPPPPPPPPP                             12,354,142                            2,658,027
    (2) Research, development and
        advertising costs PPPPPPPPPPPP
    (3) Industrial patent and
        intellectual property rights PP                           2,467,711                            3,511,914
    (4) Concessions, licences,
        trademarks and similar rights                             7,001,702                            2,820,884
    (5) Goodwill PPPPPPPPPPPPPPPPPPP                            121,917,445
    (6) Consolidation difference PPPP                            10,855,764                           13,225,000
    (7) Work in progress and advance
        paymentsPPPPPPPPPPPPPPPPPPP                                 985,895                               58,323
    (8) Other intangible assets PPPPPP                           13,402,989                           21,778,872

   Total intangible assets PPPPPPPPPPPP                         168,985,648                           44,053,020

II Tangible assets
    (1) Land and buildings PPPPPPPPP                            181,369,000                          179,621,123
    (2) Plant and machinery:
        ±    Non-transferable assetsPP      1,462,710,000                       1,057,221,346
        ±    Transferable assets PPPPPP       183,342,631                         187,342,033
                                                               1,646,052,631                        1,244,563,379
    (3) Industrial and commercial
        equipment PPPPPPPPPPPPPPPPP                               7,916,000                            8,760,352
    (4) Other assets PPPPPPPPPPPPPPPP                            14,239,001                           15,974,548
    (5) Work in progress and advance
        paymentsPPPPPPPPPPPPPPPPPPP                             215,703,166                          101,158,854

   Total tangible assetsPPPPPPPPPPPPPP                         2,065,279,798                        1,550,078,256




                                                       42
                                                            Consolidated balance sheet
                                                               as of 31st December

                                                    2002                                 2001

III Financial assets
      (1) Investments in:
          (a) subsidiariesPPPPPPPPPPPPP     9,538,627
          (b) af®liates PPPPPPPPPPPPPPP    94,421,475                          95,630,292
          (c) other companiesPPPPPPPP     265,559,337                          21,390,317
          Total equity investments PPPP                     369,519,439                          117,020,609
      (2) Financial receivables:
          (a) subsidiary receivables
          (b) af®liate receivables
               Ð due after one year P       5,175,683                           1,165,770
               Ð due within one year

                                            5,175,683                           1,165,770
         (c) receivable from the
             Municipality of Milan PPP
         (d) other receivables
             Ð due after one year P         6,194,437                           6,381,487
             Ð due within one year            233,371                             402,095

                                            6,427,808                           6,783,582

         Total ®nancial receivables PPP                      11,603,491                            7,949,352

     (3) Other securities PPPPPPPPPPPPP                          79,673                               78,326
     (4) Own shares

     Total ®nancial assets PPPPPPPPPPPP                     381,202,603                          125,048,287

     Total ®xed assets (B) PPPPPPPPPPPP                    2,615,468,049                        1,719,179,563


(C) CURRENT ASSETS
I   Inventories
    (1) Materials and fuels:
        (a) materials PPPPPPPPPPPPPPP       6,952,320                           7,032,818
        (b) fuels PPPPPPPPPPPPPPPPPPP      29,939,630                           2,945,447
        (c) other PPPPPPPPPPPPPPPPPP                         36,891,950                            9,978,265
    (2) Work in progress PPPPPPPPPPP
    (3) Work in progress contracts PP                        11,131,315                           12,489,862
    (4) Finished goods and
        merchandise PPPPPPPPPPPPPPPP
    (5) Advance payments PPPPPPPPPP
    (6) Other PPPPPPPPPPPPPPPPPPPPPP

     Total inventories PPPPPPPPPPPPPPPP                      48,023,265                           22,468,127


II   Receivables
     (1) Receivables for the sale of
         power and servicesPPPPPPPPPP                       368,796,862                          327,811,588
     (2) Subsidiary receivables PPPPPPP                       8,762,727
     (3) Af®liate receivables PPPPPPPPP                       2,471,068                            1,296,518
     (4) Parent company receivables P                        71,039,111                           56,807,093
     (5) Other receivables:
         ±   Electricity Equalisation
             FundPPPPPPPPPPPPPPPPPPP        1,985,776                           6,586,173
         ±   receivables from ®nancial
             transactions PPPPPPPPPPPP
         ±   advances to suppliers PPP      1,882,846                             205,204
         ±   personnel receivables PPP         46,821                              75,558
         ±   receivables from
             associated companies PPP         150,649
         ±   other receivables PPPPPPP     44,097,204                          41,522,340
                                                             48,163,296                           48,389,275

     Total receivables PPPPPPPPPPPPPPP                      499,233,064                          434,304,474



                                                   43
                                                            Consolidated balance sheet
                                                               as of 31st December

                                                    2002                                 2001

III   Financial assets not classi®ed as
      ®xed assets
      (1) Investment in subsidiaries PPP
      (2) Investment in af®liates PPPPP
      (3) Other equity investments PPP
      (5) Other securities PPPPPPPPPPPP         2,706                               2,706

      Total ®nancial assets PPPPPPPPPPP                           2,706                                2,706


IV Cash and cash equivalent
    (1) Bank and post of®ce deposits
         Banks ± Post Of®ce PPPPPPPPP      60,204,365                          84,657,310
                                                             60,204,365                           84,657,310
      (2) Outstanding cheques PPPPPPP
      (3) Cash and cash equivalents on
          hand PPPPPPPPPPPPPPPPPPPPPP                           157,952                              151,705

Total cash and cash equivalent PPPPPP                        60,362,317                           84,809,015


Total current assets (C) PPPPPPPPPPPPPP                     607,621,352                          541,584,322


(D) ACCRUED INCOME AND PREPAID
    EXPENSE PPPPPPPPPPPPPPPPPPPPPPP                           1,760,778                            1,417,485

TOTAL ASSETS PPPPPPPPPPPPPPPPPPPPPP                        3,224,850,179                        2,262,181,370




                                                   44
Balance Sheet Liabilities
                                                           Consolidated balance sheet
                                                              as of 31st December

                                                   2002                                 2001

(A) SHAREHOLDERS' EQUITY
    I   Share capital PPPPPPPPPPPPPPP                      936,024,648                          936,024,648
    II  Additional paid-in capital PPP
    III Revaluation reserves PPPPPPPP
    IV Legal reserve PPPPPPPPPPPPPPP                        65,812,261                           64,038,868
    V Reserve for own share in
        portfolio PPPPPPPPPPPPPPPPPPP
    VI Reserves required by Bylaws
        or regulations PPPPPPPPPPPPPP
    VII Other reserves
        (a) Reserve for accelerated
             depreciationPPPPPPPPPPPP      7,876,636                           3,490,936
        (b) Extraordinary reserve PPP     72,451,129                          57,542,755
        (c) Consolidation reserve PPP     28,762,252                          28,762,252
        (d) Other reserves PPPPPPPPPP          2,733                               2,025
                                                           109,092,750                            89,797,968
    VIII Retained earnings (losses) PPP                    (53,221,215)                          (61,640,564)
    IX Net income (loss) for the
         period PPPPPPPPPPPPPPPPPPPPP                      112,711,478                          105,088,988

    Total consolidated shareholders'
    equity PPPPPPPPPPPPPPPPPPPPPPPPPP                     1,170,419,922                        1,133,309,908
    Minority interests
    Minority interest in capital and
    reserves PPPPPPPPPPPPPPPPPPPPPPPP     10,565,092                           8,130,858
    Minority interest in income/loss PP    1,039,188                           2,434,234

    Total minority interestsPPPPPPPPPP                      11,604,280                           10,565,092

    Total shareholders' equity (A)PPPP                    1,182,024,202                        1,143,875,000


(B) PROVISION FOR RISKS AND OTHER
    CHARGES
    (1) Retirement bene®ts and
        similar provisions PPPPPPPPPPP                          72,651
    (2) Tax fund PPPPPPPPPPPPPPPPPPP
    (3) Other provisions
        ±    future expenses PPPPPPPP
        ±    speci®c risks PPPPPPPPPPPP   74,241,165                          75,922,966
        ±    deferred taxes PPPPPPPPPP    35,831,151                          24,718,783

    Total other provisions PPPPPPPPPPP                     110,072,316                          100,641,749

    Total provision for risks and other
    charges (B) PPPPPPPPPPPPPPPPPPPPP                      110,144,967                          100,641,749


(C) EMPLOYEE LEAVING
    ENTITLEMENT PPPPPPPPPPPPPPPPPPP                         67,988,152                           61,786,638




                                                  45
                                                              Consolidated balance sheet
                                                                 as of 31st December

                                                      2002                                 2001

(D) PAYABLES
    (1) Bonds PPPPPPPPPPPPPPPPPPPPP
    (2) Convertible bonds PPPPPPPPPP
    (3) Bank PPPPPPPPPPPPPPPPPPPPPP
        ±    due within one year PPPP       347,299,439                         247,506,210
        ±    due after one year PPPPPP      419,480,681                          94,363,276
    (4) Payables to other ®nancial
        institutions PPPPPPPPPPPPPPPPP                        766,780,120                          341,869,486
        ±    due within one year PPPP        29,519,605
        ±    due after one year PPPPPP      402,319,924                           5,331,305
                                                              431,830,529                            5,331,305
    (5)    Advance payments (received)                         61,725,095                           41,691,309
    (6)    Accounts payable - suppliers P                     336,619,432                          339,177,040
    (7)    Notes payable PPPPPPPPPPPPPP
    (8)    Subsidiary payables PPPPPPPPP
    (9)    Af®liate payables PPPPPPPPPPP                        8,135,571                            5,039,770
    (10)   Parent company payablesPPPP                         39,638,149                           66,630,312
    (11)   Taxes payable PPPPPPPPPPPPPP                        52,261,620                           33,131,892
    (12)   Social security payables PPPPP                      12,400,732                           11,845,017
    (13)   Other payables
           (a) personnel payables PPPPP      10,079,870                           7,884,602
           (b) Electricity Equalisation
               FundPPPPPPPPPPPPPPPPPPP       14,819,770                           4,743,133
           (c) other PPPPPPPPPPPPPPPPPP      98,362,457                          90,384,294
           (d) payables to associated
               companies PPPPPPPPPPPPP                        123,262,097                          103,012,028

Total payables (D) PPPPPPPPPPPPPPPPPP                        1,832,653,345                         947,728,159


(E) ACCRUED EXPENSES AND
    DEFERRED INCOME PPPPPPPPPPPPP                              32,039,513                            8,149,824

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY PPPPPPPPPPPP                            3,224,850,179                        2,262,181,370

Commitments
Security deposits received PPPPPPPPPPPP                       157,759,911                          129,774,630
Security deposits provided PPPPPPPPPPP                        321,591,696                          120,818,918
Total cancelled bankruptcies PPPPPPPPP                          2,554,594                            2,245,930

                                                              481,906,201                          252,839,478




                                                     46
                                             AEM S.p.A.

                         Audited Consolidated Income Statement
                  For the years ended 31st December 2001 and 31st December 2002

Income Statement
                                                             Consolidated income statement

                                                      2002                                   2001

(A) REVENUES
(1) Revenues from sales and services
    Sales of electricity to other electric
    power companies PPPPPPPPPPPPPPP                             41,887,895                            60,382,645
    Sales of electricity to customers PP                       381,443,148                           403,130,578
    Sale of heat PPPPPPPPPPPPPPPPPPPP                           21,700,195                            20,145,138
    Sale of gas to usersPPPPPPPPPPPPPP                         367,789,851                           427,702,782
    Sale of gas to other companiesPPP                            4,730,075
    Services on behalf of users and
    third parties PPPPPPPPPPPPPPPPPPPP                         164,232,367                           149,235,417
    Connection feesPPPPPPPPPPPPPPPPP                            19,041,021                            12,961,872

      Total revenues from sales and
      services PPPPPPPPPPPPPPPPPPPPPPPP                      1,000,824,552                          1,073,558,432
(2)   Changes in inventories
(3)   Changes in work in progress
      contracts PPPPPPPPPPPPPPPPPPPPPPP                         (1,358,547)                             (103,332)
(4)   Capitalised expenses PPPPPPPPPPPP                         25,427,158                            24,385,464
(5)   Other revenues and income
      Miscellaneous PPPPPPPPPPPPPPPPPPP      40,046,431                          28,247,837
      Other revenues:
      1. contribution received PPPPPPP         732,950                            9,341,213
      2. othersPPPPPPPPPPPPPPPPPPPPPP          295,466                              793,866
                                                                 1,028,416                            10,135,079

      Total other revenues and income                           41,074,847                            38,382,916

      Total revenues (A) PPPPPPPPPPPPPP                      1,065,968,010                          1,136,223,480


(B) OPERATING EXPENSES
(6) Materials and fuels
    Purchases of power PPPPPPPPPPPPP                           114,528,307                            60,518,973
    Purchases of fuel for production P                         279,587,601                           410,065,296
    Purchases of other fuel PPPPPPPPPP                             551,003                               556,465
    Purchases of materials PPPPPPPPPPP                          20,184,970                            21,952,174

      Total materials and fuels PPPPPPPP                       414,851,881                           493,092,908

(7) Services
    Electric power delivering chargesP                          49,467,458                            49,253,917
    Contract and other work PPPPPPPP                            74,170,126                            55,012,444
    Other expenses PPPPPPPPPPPPPPPPP                            70,721,419                            52,329,294

      Total services PPPPPPPPPPPPPPPPPPP                       194,359,003                           156,595,655




                                                     47
                                                            Consolidated income statement

                                                     2002                                   2001

(8) Lease and rental expenses PPPPPPP                          10,398,860                           12,074,391
(9) Personnel expenses
    (a) salaries and wages PPPPPPPPPP                          85,624,519                           86,788,490
    (b) social security payments PPPPP                         25,273,667                           25,693,136
    (c) employee leaving entitlement                            7,106,847                            7,791,975
    (d) retirement bene®ts and
        similar payments
    (e) other expenses PPPPPPPPPPPPP                            3,008,169                            3,428,203

       Total personnel expensesPPPPPPPP                       121,013,202                          123,701,804

(10) Amortisation, depreciation and
     write-downs
     (a) amortisation of intangible
         assets PPPPPPPPPPPPPPPPPPPPPP                         26,415,431                           20,934,792
     (b) depreciation of tangible
         assets:
         1. ordinary depreciation PPP       60,847,331                          55,503,263
         2. depreciation of
              transferable assets PPPPPP     5,636,529                           5,655,294
                                                               66,483,860                           61,158,557
       (c) other write-downs of ®xed
           assets PPPPPPPPPPPPPPPPPPPPPP                          135,949
       (d) write-downs of receivables
           included in current assets and
           of liquid assetsPPPPPPPPPPPPPP                       3,761,510                            3,318,755

       Total amortisation, depreciation
       and write-downsPPPPPPPPPPPPPPPP                         96,796,750                           85,412,103

(11)   Changes in inventories PPPPPPPPPP                       (6,434,894)                          (1,268,278)
(12)   Risk provisionsPPPPPPPPPPPPPPPPPP                       21,169,775                           23,032,669
(13)   Other provisions
(14)   Other operating expenses
       Taxes, duties and water diversion
       fees PPPPPPPPPPPPPPPPPPPPPPPPPPPP                       14,940,053                           59,647,563
       Other expenses PPPPPPPPPPPPPPPPP                        14,380,461                           18,440,884

       Total other operating expenses PP                       29,320,414                           78,088,447

       Total operating expenses (B)PPPPP                      881,474,991                          970,729,700

       Operating income (A ± B) PPPPPPPP                      184,493,019                          165,493,780




                                                    48
Income Statement
                                                      Consolidated income statement

                                               2002                                   2001

(C) FINANCIAL INCOME AND EXPENSE
(15) Income from investments in
     (a) SubsidiariesPPPPPPPPPPPPPPPPP
     (b) Af®liates PPPPPPPPPPPPPPPPPPP                       34,351                               9,330
     (c) Other companiesPPPPPPPPPPPP                        552,477                           3,852,048

    Total income from investments PP                        586,828                           3,861,378

(16) Other ®nancial income
     (a) From receivables included in
         ®xed assets:
         1. Subsidiaries PPPPPPPPPPPP
         2. Af®liates PPPPPPPPPPPPPPP
         3. Parent company PPPPPPPP
         4. Other PPPPPPPPPPPPPPPPPP     267,501                             310,554
                                                            267,501                            310,554
    (b) From securities included in
        ®xed assets PPPPPPPPPPPPPPPPP                          561                                3,559
    (c) From securities included in
        current assets PPPPPPPPPPPPPPP                        2,103                            962,659
    (d) Income, not included above:
        1. From subsidiaries PPPPPPP                         35,968
        2. From af®liates PPPPPPPPPP
        3. From the parent
             company PPPPPPPPPPPPPPP
        4. From other sources PPPPP                       6,395,175                           8,879,259

    Total other ®nancial income PPPPP                     6,701,308                          10,156,031

(17) Interest and other ®nancial
     expense
     (a) SubsidiariesPPPPPPPPPPPPPPPPP
     (b) Af®liates PPPPPPPPPPPPPPPPPPP
     (c) Parent company PPPPPPPPPPPP                        706,518                           2,935,795
     (d) Other PPPPPPPPPPPPPPPPPPPPPP                    31,178,843                          19,891,346

    Total interest and other ®nancial
    expense PPPPPPPPPPPPPPPPPPPPPPPP                     31,885,361                          22,827,141

    Total ®nancial income and
    expense PPPPPPPPPPPPPPPPPPPPPPPP                    (24,597,225)                         (8,809,732)




                                              49
                                                               Consolidated income statement

                                                        2002                                   2001

(D) ADJUSTMENTS TO THE VALUE OF
     FINANCIAL ASSETS
(18) Revaluations
     (a) Of equity investments PPPPPPPPP                             743,384                            1,934,652
     (b) Of ®nancial assets which are not
         classi®ed as equity investments
     (c) Of securities included in current
         assets which are not classi®ed as
         equity investments PPPPPPPPPPPP
     (d) Other PPPPPPPPPPPPPPPPPPPPPPPP

      Total revaluations PPPPPPPPPPPPPPPPP                           743,384                            1,934,652

(19) Write-downs
     (a) Of equity investments PPPPPPPPP                           4,577,276                           17,905,943
     (b) Of ®nancial assets which are not
         classi®ed as equity investments
     (c) Of securities included among
         current assets that are not
         classi®ed as equity investments
     (d) Other PPPPPPPPPPPPPPPPPPPPPPPP

      Total write-downs PPPPPPPPPPPPPPPP                           4,577,276                           17,905,943


      Total adjustments to the value of
      ®nancial assetsPPPPPPPPPPPPPPPPPPPP                         (3,833,892)                         (15,971,291)


(E)  EXTRAORDINARY INCOME AND
     EXPENSE
(20) Extraordinary income
     (a) Capital gains on disposal of
          assets PPPPPPPPPPPPPPPPPPPPPPPP
     (b) Non-operating income/reversal
          of asset itemsPPPPPPPPPPPPPPPPP                          1,634,353                            2,253,999
     (d) Other PPPPPPPPPPPPPPPPPPPPPPPP

      Total extraordinary income PPPPPPPP                          1,634,353                            2,253,999

(21) Extraordinary expense
     (a) Capital losses on disposal of
          assets PPPPPPPPPPPPPPPPPPPPPPPP
     (b) Non-operating expenses/
          reversal of liability items PPPPPP                       5,764,810                             291,364
     (c) Other:
          ±    Taxes and duties for prior
               periods PPPPPPPPPPPPPPPPPP          61,407                                                   7,488
          ±    Other PPPPPPPPPPPPPPPPPPP                              61,407                            3,766,241

      Total extraordinary expense PPPPPPP                          5,826,217                            4,065,093

      Total extraordinary income and
      expense PPPPPPPPPPPPPPPPPPPPPPPPPP                          (4,191,864)                          (1,811,094)


INCOME BEFORE TAXES                                              151,870,038                          138,901,663
(22) Income taxes
     Current taxes PPPPPPPPPPPPPPPPPPPPP       33,027,429                           34,102,446
     Advance tax payments PPPPPPPPPPPPP        (6,060,817)                         (11,071,257)
     Deferred taxes PPPPPPPPPPPPPPPPPPPP       11,152,760                            8,347,252

                                                                  38,119,372                           31,378,441

(23) NET INCOME FOR THE PERIOD PPPPP                             113,750,666                          107,523,222
     Minority interest PPPPPPPPPPPPPPPPPP                         (1,039,188)                          (2,434,234)

CONSOLIDATED NET INCOME FOR THE
PERIOD PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                           112,711,478                          105,088,988




                                                       50
                                                  AEM S.p.A.

                        Audited Non-Consolidated Balance Sheet
                           As at 31st December 2001 and 31st December 2002
Balance Sheet Assets
                                                                  Non-Consolidated Balance Sheet
                                                                       as of 31st December

                                                              2002                             2001

(A) SHAREHOLDER RECEIVABLES FOR
    CONTRIBUTIONS DUE
(B) FIXED ASSETS
I   Intangible assets
    (1) Start-up and other capitalised
        expenses PPPPPPPPPPPPPPPPPPPPPPPPP                              543,927                         1,036,624
    (2) Research, development and
        advertising costs PPPPPPPPPPPPPPPPPP
    (3) Industrial patent and intellectual
        property rights PPPPPPPPPPPPPPPPPPP                             500,935                         1,654,643
    (4) Concessions, licences, trademarks
        and similar rights PPPPPPPPPPPPPPPPP                            470,514                          770,226
    (5) Goodwill PPPPPPPPPPPPPPPPPPPPPPPPP
    (6) Work in progress and advance
        payments PPPPPPPPPPPPPPPPPPPPPPPP                               816,895                           58,323
    (7) Other intangible assetsPPPPPPPPPPPP                             564,430                          533,296

      Total intangible assets PPPPPPPPPPPPPPPP                         2,896,701                        4,053,112
II    Tangible assets
      (1) Land and buildings PPPPPPPPPPPPPPP                          83,848,936                       82,795,736
      (2) Plant and machinery:
          ±    non-transferable assets PPPPPPP     194,469,650                      189,266,856
          ±    transferable assets PPPPPPPPPPPP    183,342,631                      187,342,033
                                                                     377,812,281                      376,608,889
      (3) Industrial and commercial
          equipment PPPPPPPPPPPPPPPPPPPPPPP                            4,344,627                        4,981,272
      (4) Other assets PPPPPPPPPPPPPPPPPPPPPP                          9,829,225                       11,133,264
      (5) Work in progress and advance
          payments PPPPPPPPPPPPPPPPPPPPPPPP                          190,843,507                       93,698,677

      Total tangible assets PPPPPPPPPPPPPPPPPP                       666,678,576                      569,217,838

III   Financial assets
      (1) Investment in:
          (a) subsidiaries PPPPPPPPPPPPPPPPPP     1,401,196,622                    1,391,890,973
          (b) af®liates PPPPPPPPPPPPPPPPPPPPP        86,797,667                       85,117,608
          (c) other companies PPPPPPPPPPPPP         265,521,533                       21,376,953
          Total equity investments PPPPPPPPPP                      1,753,515,822                   1,498,385,534
      (2) Financial receivables:
          (a) subsidiary receivables PPPPPPPPPP
          (b) af®liate receivables PPPPPPPPPPPP
               ±    due after one year PPPPPPP       5,175,684                        1,165,770
               ±    due within one yearPPPPPP
                                                     5,175,684                        1,165,770
          (c) parent company receivables PPPP
          (d) other receivables PPPPPPPPPPPPPP
               ±   due after one year PPPPPPP        2,978,205                        3,489,645
               ±   due within one yearPPPPPP            75,036                          127,263
                                                     3,053,241                        3,616,908
          Total ®nancial receivables PPPPPPPPP                         8,228,925                        4,782,678
      (3) Other securitiesPPPPPPPPPPPPPPPPPPP                             79,673                           78,326
      (4) Own shares PPPPPPPPPPPPPPPPPPPPPP

Total ®nancial assets PPPPPPPPPPPPPPPPPPPPPP                       1,761,824,420                   1,503,246,538

Total ®xed assets (B) PPPPPPPPPPPPPPPPPPPPPP                       2,431,399,697                   2,076,517,488


                                                        51
                                                               Non-Consolidated Balance Sheet
                                                                    as of 31st December

                                                           2002                            2001

(C) CURRENT ASSETS
I   Inventories
(1) Materials and fuels:
    (a) materialsPPPPPPPPPPPPPPPPPPPPPPPPP         6,330,995                       6,867,699
    (b) fuels PPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                        2,945,447
    (c) other PPPPPPPPPPPPPPPPPPPPPPPPPPPP                          6,330,995                       9,813,146
    (2) Work in progress PPPPPPPPPPPPPPPPP
    (3) Work in progress contracts PPPPPPPP                         5,777,571                       6,833,493
    (4) Finished goods and merchandise PP
    (5) Advance paymentsPPPPPPPPPPPPPPPP
    (6) Other PPPPPPPPPPPPPPPPPPPPPPPPPPPP

Total inventoriesPPPPPPPPPPPPPPPPPPPPPPPPPP                        12,108,566                      16,646,639

II    Receivables
      (1) Receivables for sales and services PP                    29,724,011                      12,220,956
      (2) Subsidiary receivables PPPPPPPPPPPPP                    173,695,271                     157,914,747
      (3) Af®liate receivablesPPPPPPPPPPPPPPP                       6,471,069                       1,296,518
      (4) Parent company receivables PPPPPPP                       51,109,048                      41,338,080
      (5) Other receivables:
          ±   Electricity Equalisation Fund PP     1,010,709                       5,784,906
          ±   receivables from ®nancial
              transactions PPPPPPPPPPPPPPPPPP
          ±   advances to suppliers PPPPPPPPP      1,791,865                         181,963
          ±   personnel receivables PPPPPPPPP         39,005                          56,124
          ±   other receivables PPPPPPPPPPPPP     23,893,189                      25,403,379
                                                                   26,734,768                      31,426,372

      Total receivablesPPPPPPPPPPPPPPPPPPPPPP                     287,734,167                     244,196,673

III   Financial assets not classi®ed as ®xed
      assets
      (1) Investment in subsidiaries PPPPPPPPP
      (2) Investment in af®liatesPPPPPPPPPPPP
      (3) Other equity investments PPPPPPPPP
      (5) Other securitiesPPPPPPPPPPPPPPPPPPP         2,706                            2,706

      Total ®nancial assetsPPPPPPPPPPPPPPPPPP                           2,706                           2,706

IV    Cash and cash equivalent
      (1) Bank and post of®ce deposits PPPPP                       53,197,816                      16,762,379
      (2) Outstanding cheques PPPPPPPPPPPPP
      (3) Cash and cash equivalents on hand                          152,919                         145,153

      Total cash and cash equivalent PPPPPPPP                      53,350,735                      16,907,532

      Total current assets (C)PPPPPPPPPPPPPPPP                    353,196,174                     277,753,550


(D) ACCRUED INCOME AND PREPAID
    EXPENSES PPPPPPPPPPPPPPPPPPPPPPPPPPPP                          52,078,511                      61,499,141

TOTAL ASSETS PPPPPPPPPPPPPPPPPPPPPPPPPPPP                       2,836,674,382                   2,415,770,179




                                                     52
Balance Sheet Liabilities
                                                                 Non-Consolidated Balance Sheet
                                                                      as of 31st December

                                                             2002                            2001

(A) SHAREHOLDERS' EQUITY PPPPPPPPPPPPPP
    I    Share capital PPPPPPPPPPPPPPPPPPPPP                        936,024,648                     936,024,648
    II   Share-premium reservePPPPPPPPPPPP
    III Revaluation reserve PPPPPPPPPPPPPPP
    IV Legal reserve PPPPPPPPPPPPPPPPPPPPP                           65,812,260                      64,038,868
    V Reserve for treasury stock in
         portfolio PPPPPPPPPPPPPPPPPPPPPPPPP
    VI Statutory and prescribed reserves PP
    VII Other reserves PPPPPPPPPPPPPPPPPPPP                         827,154,769                     869,062,306
    VIII Retained pro®t (loss)PPPPPPPPPPPPPP
    IX Pro®t (loss) for the year PPPPPPPPPPP                         34,022,174                      35,467,846

    Total shareholders' equity (A) PPPPPPPPP                      1,863,013,851                   1,904,593,668


(B) PROVISIONS FOR RISKS AND OTHER
    CHARGES
    (1) Retirement bene®ts and similar
        provisions PPPPPPPPPPPPPPPPPPPPPPPP
    (2) Deferred tax fund PPPPPPPPPPPPPPPP                            7,865,532                       6,097,141
    (3) Other provisions for risksPPPPPPPPPP                         49,120,278                      51,358,556

    Total provisions for risks and other
    charges (B) PPPPPPPPPPPPPPPPPPPPPPPPPPP                          56,985,810                      57,455,697


(C) EMPLOYEE LEAVING ENTITLEMENTPPPPP                                31,107,023                      32,163,927

(D) PAYABLES
    (1) BondsPPPPPPPPPPPPPPPPPPPPPPPPPPPP
    (2) Convertible bonds PPPPPPPPPPPPPPPP
    (3) Banks PPPPPPPPPPPPPPPPPPPPPPPPPPPP
        ±   due within one year PPPPPPPPPP         167,500,000                      25,822,845
        ±   due after one year PPPPPPPPPPP         295,164,569                       5,164,569
                                                                    462,664,569                      30,987,414
    (4) Payables to other ®nancial
        institutions
        ±    due within one year PPPPPPPPPP          4,496,893
        ±    due after one year PPPPPPPPPPP                                          5,331,305
                                                                      4,496,893                       5,331,305
    (5)    Advance paymentsPPPPPPPPPPPPPPPP                          20,226,679                      13,403,430
    (6)    Accounts payable ± suppliers PPPPPP                      176,458,377                     170,257,619
    (7)    Notes payable PPPPPPPPPPPPPPPPPPPP
    (8)    Subsidiary payables PPPPPPPPPPPPPPP                      152,993,363                     109,614,571
    (9)    Af®liate payables PPPPPPPPPPPPPPPPP                        8,135,571                       5,039,770
    (10)   Parent company payables PPPPPPPPP                         29,832,388                      60,562,128
    (11)   Taxes payable PPPPPPPPPPPPPPPPPPPP                        11,524,752                       9,411,731
    (12)   Social security payables PPPPPPPPPPP                       9,179,191                       9,316,009
    (13)   Other payables:
           (a) personnel payables                    3,543,368                       3,599,088
           (b) Electricity Equalisation Fund PPP         4,311                          88,503
           (c) other PPPPPPPPPPPPPPPPPPPPPPPPP       5,424,327                       3,577,797
                                                                      8,972,006                       7,265,388

    Total payables (D) PPPPPPPPPPPPPPPPPPPP                         884,483,789                     421,189,365

(E) ACCRUED EXPENSES AND DEFERRED
    INCOMEPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                              1,083,909                        367,522

TOTAL LIABILITIESPPPPPPPPPPPPPPPPPPPPPPPPP                        2,836,674,382                   2,415,770,179

Commitments
Security deposits receivedPPPPPPPPPPPPPPPPPP                         98,604,052                      84,624,820
Security deposits provided PPPPPPPPPPPPPPPPP                        256,190,345                      32,663,432

                                                                    354,794,397                     117,288,252


                                                       53
                                             AEM S.p.A.

                    Audited Non-Consolidated Income Statement
                  For the years ended 31st December 2001 and 31st December 2002

Income Statement

                                                        Non-Consolidated Income Statement

                                                    2002                               2001

(A) REVENUES
(1) Revenues from sales and services
    Sale of electricity to other electric
    power companies PPPPPPPPPPPPPPP                             707,399                        19,800,930
    Sale of electricity to users PPPPPPPP                        30,508                            49,894
    Sale of electricity to subsidiaries PP                      839,027                       180,128,525
    Sale of materials to subsidiaries PP                     11,020,006                        10,903,256
    Sale of materials to af®liates PPPPP                         10,900                            45,433
    Sale of fuel to subsidiaries PPPPPPP                      8,795,328                         3,691,357
    Services on behalf of users and
    third parties PPPPPPPPPPPPPPPPPPPP                       62,394,088                        63,735,055
    Services provided to subsidiariesPP                      53,163,022                        57,319,500
    Services provided to af®liates PPPP                       2,219,622                         1,091,713
    Connection feesPPPPPPPPPPPPPPPPP                                                                  253

    Total revenues from sales and
    services PPPPPPPPPPPPPPPPPPPPPPPP                       139,179,900                       336,765,916

(2) Changes in inventories PPPPPPPPPP
(3) Changes in work in progress
    contracts PPPPPPPPPPPPPPPPPPPPPPP                         (1,055,922)                      (2,301,168)
(4) Capitalised expenses PPPPPPPPPPPP                         2,740,763                         2,954,427
(5) Other revenues and income PPPPP
    Miscellaneous PPPPPPPPPPPPPPPPPPP                       138,718,152                        52,847,998
    Other revenues:
    1. contribution received from
        Electricity Equalisation Fund P                                        9,148,622
    2. othersPPPPPPPPPPPPPPPPPPPPPP           284,309                            793,866
                                                                284,309                         9,942,488
    Total other revenues and income                         139,002,461                        62,790,486

    Total revenues (A) PPPPPPPPPPPPPP                       279,867,202                       400,209,661

(B) OPERATING EXPENSES
(6) Materials and fuels
    Purchases of power PPPPPPPPPPPPP                             91,705                           508,360
    Purchases of fuel for production P                        5,915,187                        95,294,663
    Purchases of other fuels PPPPPPPPP                          524,297                           527,288
    Purchases of materials PPPPPPPPPPP                       18,649,801                        20,367,165

    Total materials and fuels PPPPPPPP                       25,180,990                       116,697,476

(7) Services PPPPPPPPPPPPPPPPPPPPPPPP
    Electric power delivering chargesP                              240
    Contract and other work PPPPPPPP                         52,929,135                        36,462,262
    Other expenses PPPPPPPPPPPPPPPPP                         38,241,207                        41,733,421
    Subsidiary-related service expenses                       3,877,049                         5,015,368
    Af®liate-related service expenses P                      10,556,264                         3,897,375

    Total services PPPPPPPPPPPPPPPPPPP                      105,603,895                        87,108,426




                                                   54
                                                        Non-Consolidated Income Statement

                                                    2002                               2001


(8) Lease and rental expenses PPPPPPP                        12,612,139                        13,262,621
(9) Personnel expenses PPPPPPPPPPPPP
    (a) Salaries and wages PPPPPPPPPP                        40,545,022                        44,436,380
    (b) Social security payments PPPPP                       11,395,747                        12,572,919
    (c) Employee leaving payments P                           3,386,347                         4,041,499
    (d) Retirement bene®ts and
        similar payments PPPPPPPPPPPP
    (e) Other expenses PPPPPPPPPPPPP                          1,597,165                         2,135,343

    Total personnel expensesPPPPPPPP                         56,924,281                        63,186,141


(10) Amortisation, depreciation and
     write-downs PPPPPPPPPPPPPPPPPPPP
     (a) Amortisation of intangible
         assets PPPPPPPPPPPPPPPPPPPPPP                        2,823,940                         4,117,065
     (b) Depreciation of tangible
         assets: PPPPPPPPPPPPPPPPPPPPPP
         1. ordinary depreciation PPP      18,103,009                         19,633,145
         2. depreciation of
              transferable assets PPPPPP    5,636,529                          5,655,294
                                                             23,739,538                        25,288,439
    (c) Other write-downs of ®xed
        assets PPPPPPPPPPPPPPPPPPPPPP                           135,949
    (d) Write-downs of receivables
        included in current assetsPPPP                        1,354,694                          938,943

    Total amortisation, depreciation
    and write-downsPPPPPPPPPPPPPPPP                          28,054,121                        30,344,447


(11) Changes in inventories PPPPPPPPPP                        3,482,150                        (1,255,440)

(12) Risk provisionsPPPPPPPPPPPPPPPPPP                        1,599,117                         2,337,297

(13) Other provisions PPPPPPPPPPPPPPPP
(14) Other operating expenses PPPPPPP
     Taxes, duties and water diversion
     fees PPPPPPPPPPPPPPPPPPPPPPPPPPPP                        9,766,522                        49,080,470
     Other expenses PPPPPPPPPPPPPPPPP                         4,416,588                         8,678,239

    Total operating expenses PPPPPPPP                        14,183,110                        57,758,709


    Total operating expenses (B)PPPPP                       247,639,803                       369,439,677


    Operating income (A - B) PPPPPPPP                        32,227,399                        30,769,984


(C) FINANCIAL INCOME AND EXPENSE
(15) Income from investments in
      (a) Subsidiary companiesPPPPPPPP                       14,132,858                        14,369,088
      (b) Af®liate companies PPPPPPPPP                        4,034,351                             9,331
      (c) Other companiesPPPPPPPPPPPP                           552,476                         3,852,048

Total income from investments PPPPPP                         18,719,685                        18,230,467




                                                   55
                                                         Non-Consolidated Income Statement


                                                     2002                               2001


(16)   Other ®nancial income
       (a)   From receivables included
             in ®xed assets:
             1. subsidiaries PPPPPPPPPPPP
             2. af®liates PPPPPPPPPPPPPP         7,795                            117,469
             3. parent company PPPPPPP
             4. associated companies
             5. other PPPPPPPPPPPPPPPPP        91,011                             101,369
                                                                  98,806                         218,865
       (b)   From securities included in
             ®xed assets PPPPPPPPPPPPPP                              561                            3,559
       (c)   From securities included in
             current assets PPPPPPPPPPPP                           2,103                         962,659
       (d)   Income, not included
             above: PPPPPPPPPPPPPPPPPP
             1. from af®liates PPPPPPPPP      893,789                           1,155,590
             2. from af®liates PPPPPPPPP
             3. from parent company PP
             4. from others: PPPPPPPPPPP
             Ð     on ®nancial
                   investments PPPPPPPP       764,231                           4,551,625
             Ð     on current accounts       1,948,671                          1,669,195
             Ð     on other receivables     11,541,171                          8,804,065
                                                              15,147,862                       16,180,475


Total other ®nancial income PPPPPPPPP                         15,249,332                       17,365,558


(17)   Interest and other ®nancial
       expense
       (a)   Subsidiaries PPPPPPPPPPPPPP                       6,711,432                        4,688,352
       (b)   Af®liates PPPPPPPPPPPPPPPP
       (c)   Parent companyPPPPPPPPPP                            704,775                        2,935,795
       (d)   Other PPPPPPPPPPPPPPPPPPP       6,201,418                          1,302,784


Total interest and other ®nancial
   expense PPPPPPPPPPPPPPPPPPPPPPPPP                          13,617,625                        8,926,931


Total ®nancial income
   and expense (C) PPPPPPPPPPPPPPPPPP                         20,351,392                       26,669,094


(D) ADJUSTMENTS TO THE VALUE OF
   FINANCIAL ASSETS
(18) Revaluations PPPPPPPPPPPPPPPPPPPP
       (a) Of equity investmentsPPPPPPP
       (b) Of ®nancial assets not
       classi®ed as equity investments P
       (c) Of securities included in
       current assets not classi®ed as
       equity investments PPPPPPPPPPPPP
       (d) Other PPPPPPPPPPPPPPPPPPPPPP
Total revaluations



                                                    56
                                                           Non-Consolidated Income Statement

                                                      2002                                2001

(19)   Write-downs
       (a)   Of equity investments PPPP                          3,097,628                        8,988,108
       (b)   Of ®nancial assets not
             classi®ed as equity
             investmentsPPPPPPPPPPPPPP
       (c)   Of securities included
             among current assets not
             classi®ed as equity
             investmentsPPPPPPPPPPPPPP
       (d)   Other PPPPPPPPPPPPPPPPPPP

       Total write-downs PPPPPPPPPPPPP                           3,097,628                       (8,988,108)

Total adjustments to the value of
   ®nancial assets (D) PPPPPPPPPPPPPPP                           (3,097,628)                     (8,988,108)

(E)    EXTRAORDINARY INCOME AND
       EXPENSE
(20)   Extraordinary income
       (a)   Capital gains on disposal
             of assets PPPPPPPPPPPPPPPPP
       (b)   Non-operating income/
             reversal of asset items PPPP                          162,050                        1,634,906
       (c)   Annual portion of capital
             subsidiesPPPPPPPPPPPPPPPPP
       (d)   Other PPPPPPPPPPPPPPPPPPP

Total extraordinary income PPPPPPPPPP                              162,050                        1,634,906

(21)   Extraordinary expense
       (a)   Capital losses on disposal
             of assets PPPPPPPPPPPPPPPPP
       (b)   Non-operating expenses/
             reversal of liability itemsPP                       1,495,194
       (c)   Other: PPPPPPPPPPPPPPPPPPP
             Ð     taxes and duties for
                   prior periods PPPPPPP         61,407                               7,461
             Ð     other PPPPPPPPPPPPPP
                                                                    61,407                            7,461

Total extraordinary expense PPPPPPPPP                            1,556,601                            7,461

Total extraordinary income and
   expense (E) PPPPPPPPPPPPPPPPPPPPPP                            (1,394,551)                      1,627,445

INCOME BEFORE TAXESPPPPPPPPPPPPPP                               48,086,612                       50,078,415

(22) Income taxes
       - Current taxesPPPPPPPPPPPPPPPPP      12,885,820                          12,453,675
       - Advance tax payments PPPPPPPP         (589,774)                            565,835
       - Deferred taxes PPPPPPPPPPPPPPP       1,768,392                           1,591,059

Total income taxes PPPPPPPPPPPPPPPPPP                           14,064,438                       14,610,569

(23) NET INCOME FOR THE PERIOD PPP                              34,022,174                       35,467,846




                                                     57
                                                          AEM S.p.A.

                      Unaudited Interim Consolidated Balance Sheet
                                                            CONSOLIDATED                     CONSOLIDATED                   CONSOLIDATED
                                                        FINANCIAL STATEMENTS            FINANCIAL STATEMENTS            FINANCIAL STATEMENTS
                                                                 AS OF                           AS OF                           AS OF
ASSETS                                                       30 JUNE 2003                  31 DECEMBER 2002                  30 JUNE 2002

(A) AMOUNTS DUE FROM SHAREHOLDERS AND
    UNPAID
(B) FIXED ASSETS
I Ð INTANGIBLE FIXED ASSETS
    (1) Start-up and deferred charges PPPPPPPPPP                        10,850,662                       12,354,142                       2,169,056
    (2) Research, development and advertising
         costs PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                            34,865
    (3) Industrial patents and intellectual
         property rightsPPPPPPPPPPPPPPPPPPPPPPPPP                          2,205,345                      2,467,711                       2,877,036
    (4) Concessions, licences, trademarks and
         similar rightsPPPPPPPPPPPPPPPPPPPPPPPPPPP                       9,597,654                        7,001,702                       3,490,317
    (5) Goodwill PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                        115,719,123                      121,917,445
    (6) Consolidation differencePPPPPPPPPPPPPPPP                        42,555,321                       10,855,764                      12,400,212
    (7) Intangible assets in process of formation
         and advances PPPPPPPPPPPPPPPPPPPPPPPPPP                         6,626,584                          985,895                         542,470
    (8) Other intangible ®xed assetsPPPPPPPPPPPP                        12,981,602                       13,402,989                      18,026,104

      Total intangible ®xed assets PPPPPPPPPPPPPPPPP                   200,571,156                      168,985,648                      39,505,195

II Ð TANGIBLE FIXED ASSETS
     (1) Land and buildingsPPPPPPPPPPPPPPPPPPPPP                       180,523,654                      181,369,000                     179,138,000
     (2) Plant and machinery:
         Ð     Non-transferable plant and
               machinery PPPPPPPPPPPPPPPPPPPPPPPP 1,485,554,325                        1,462,710,000                   1,101,041,000
         Ð     Transferable works PPPPPPPPPPPPPPPP 180,725,512                           183,342,631                     184,739,880

                                                                      1,666,279,837                    1,646,052,631                   1,285,780,880
      (3)   Industrial and commercial equipment PPP                       7,121,562                        7,916,000                       7,999,000
      (4)   Other tangible ®xed assets PPPPPPPPPPPPP                     15,543,254                       14,239,001                      15,243,192
      (5)   Construction in progress and advances PP                    234,604,796                      215,703,166                     155,196,905

      Total tangible ®xed assets PPPPPPPPPPPPPPPPPPP                  2,104,073,102                    2,065,279,798                   1,643,357,977

III Ð FINANCIAL FIXED ASSETS
      1)  Equity investments in
          (a) subsidiary companies PPPPPPPPPPPPPP            15,000                       9,538,627
          (b) associated companies PPPPPPPPPPPPP         14,268,717                      94,421,475                      88,836,401
          (c) other companies PPPPPPPPPPPPPPPPPP        258,605,771                     265,559,337                     156,597,382

      Total equity investments PPPPPPPPPPPPPPPPPPPPP                   272,889,488                      369,519,439                     245,433,783

      (2)   Long-term receivables
            (a) due from subsidiary companies
            (b) due from associated companies
                      within 12 monthPPPPPPPPPPPPP        5,175,684                       5,175,683                       1,368,989
                      beyond 12 months PPPPPPPPPPP        5,175,684                       5,175,683                       1,368,989
            (c) due from the Municipality of Milan
            (d) due from third parties
                      within 12 monthPPPPPPPPPPPPP        5,923,796                       6,194,437                       5,986,889
                      beyond 12 months PPPPPPPPPPP          482,619                         233,371                         343,025

                                                          6,406,415                       6,427,808                       6,329,914
      Total long-term receivables PPPPPPPPPPPPPPPPPP                    11,582,098                       11,603,491                       7,698,903
      (3) Other securities PPPPPPPPPPPPPPPPPPPPPPPP                    120,325,967                           79,673                          79,673
      (4) Own shares PPPPPPPPPPPPPPPPPPPPPPPPPPPP

      Total ®nancial ®xed assetsPPPPPPPPPPPPPPPPPPP                    404,797,553                      381,202,603                     253,212,359

      Total ®xed assets (B) PPPPPPPPPPPPPPPPPPPPPPPP                  2,709,441,812                    2,615,468,049                   1,936,075,531

(C) CURRENT ASSETS
I Ð INVENTORIES
    (1) Raw, ancillary and consumable materials :
        (a) materials PPPPPPPPPPPPPPPPPPPPPPPPP           7,863,306                       6,952,320                       7,311,583
        (b) Fuels PPPPPPPPPPPPPPPPPPPPPPPPPPPPP          32,438,415                      29,939,630                      15,235,241
        (c) other PPPPPPPPPPPPPPPPPPPPPPPPPPPP
                                                                        40,301,721                       36,891,950                      22,546,824
      (2)   Work in progress and semi-®nished
            productsPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP
      (3)   Contract work in progress PPPPPPPPPPPPPP                    14,536,453                       11,131,315                      13,302,061
      (4)   Finished products and goods for resale PP
      (5)   Advances PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP
      (6)   Other PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP

      Total inventories PPPPPPPPPPPPPPPPPPPPPPPPPPPP                    54,838,173                       48,023,265                      35,848,885



                                                                      58
                                                            CONSOLIDATED                    CONSOLIDATED                CONSOLIDATED
                                                        FINANCIAL STATEMENTS           FINANCIAL STATEMENTS         FINANCIAL STATEMENTS
                                                                 AS OF                          AS OF                        AS OF
ASSETS                                                       30 JUNE 2003                 31 DECEMBER 2002               30 JUNE 2002

II Ð RECEIVABLES
     (1) Due for sale of energy and for services
          provided PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                      272,018,975                   368,796,862                  254,557,102
     (2) Due from subsidiary companies PPPPPPPPP                                                       8,762,727
     (3) Due from associated companies PPPPPPPPP                         1,470,452                     2,471,068                    1,233,049
     (4) Due from the parent company PPPPPPPPPP                         65,007,663                    71,039,111                   55,067,571
     (5) Due from third parties:
          Ð    Due from the CCSEPPPPPPPPPPPPPPPP          3,039,637                     1,985,776                    1,484,182
          Ð    due from ®nancial transactions PPPP                                                                  25,000,000
          Ð    advances PPPPPPPPPPPPPPPPPPPPPPPPP         1,758,296                     1,882,846                      303,741
          Ð    Due from employees PPPPPPPPPPPPPP             63,440                        46,821                       60,439
          Ð    due from af®liated companies PPPPP                                         150,649
          Ð    other sundry receivablesPPPPPPPPPPP       71,564,430                    44,097,204                   42,672,109
                                                                        76,425,804                    48,163,296                   69,520,471

      Total receivables PPPPPPPPPPPPPPPPPPPPPPPPPPPP                   414,922,894                   499,233,064                  380,378,193

III Ð FINANCIAL ASSETS NOT HELD AS FINANCIAL
      FIXED ASSETS
      (1) Equity investments in subsidiary
            companies PPPPPPPPPPPPPPPPPPPPPPPPPPPPP
      (2) Equity investments in associated
            companies PPPPPPPPPPPPPPPPPPPPPPPPPPPPP
      (3) Other equity investments PPPPPPPPPPPPPPP        1,576,955
      (5) Other securities PPPPPPPPPPPPPPPPPPPPPPPP           2,706                        2,706                        2,706
      Total ®nancial assets PPPPPPPPPPPPPPPPPPPPPPPP                       1,579,661                       2,706                        2,706
IV Ð LIQUID FUNDS
     (1) Bank and post of®ce deposits PPPPPPPPPPP
          Banks Ð Post Of®cePPPPPPPPPPPPPPPPPPPP        122,503,484                    60,204,365                   17,762,185
                                                                       122,503,484                    60,204,365                   17,762,185
      (2)   Cheques PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP
      (3)   Cash and equivalents on hand PPPPPPPPPP                         233,442                      157,952                      330,246

      Total liquid funds PPPPPPPPPPPPPPPPPPPPPPPPPPP                   122,736,926                    60,362,317                   18,092,431

      Total current assets (C) PPPPPPPPPPPPPPPPPPPPPP                  594,077,653                   607,621,352                  434,322,215

(D)   ACCRUED INCOME AND PREPAID EXPENSES                               20,919,104                     1,760,778                    4,483,840

      TOTAL ASSETS PPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                     3,324,438,570                 3,224,850,179                2,374,881,586




                                                                      59
                                                            AEM S.p.A.

                         Unaudited Interim Consolidated Balance Sheet
                                                              CONSOLIDATED                    CONSOLIDATED                 CONSOLIDATED
                                                          FINANCIAL STATEMENTS           FINANCIAL STATEMENTS          FINANCIAL STATEMENTS
                                                                   AS OF                          AS OF                         AS OF
LIABILITIES AND SHAREHOLDERS' EQUITY                           30 JUNE 2003                 31 DECEMBER 2002                30 JUNE 2002
(A)     SHAREHOLDERS' EQUITY
IÐ      Share capital PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                    936,024,648                    936,024,648                   936,024,648
II Ð    Share premium reserve PPPPPPPPPPPPPPPPPPPPP
III Ð   Revaluation reserves PPPPPPPPPPPPPPPPPPPPPPPP
IV Ð    Legal reservePPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                      67,513,369                     65,812,261                    65,812,261
VÐ      Reserve for own shares in portfolio PPPPPPPPPP
VI Ð    Statutory reserves PPPPPPPPPPPPPPPPPPPPPPPPPP
VII Ð   Other reserves PPPPPPPPPPPPPPPPPPPPPPPPPPPPP
        (a) Reserve for accelerated depreciationPPPP       10,676,735                      7,876,636                     7,876,636
        (b) Extraordinary reserve PPPPPPPPPPPPPPPPPP       85,771,670                     72,451,129                    72,451,129
        (c) Consolidation reservePPPPPPPPPPPPPPPPPP           191,428                     28,762,252                    28,762,252
        (d) Other PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP              2,733                          2,733                         2,733
                                                                           96,642,566                   109,092,750                   109,092,750
VIII Ð Retained earnings/accumulated lossesPPPPPPPP                      (33,778,025)                   (53,221,215)                  (53,221,215)
IX Ð Net income for the period PPPPPPPPPPPPPPPPPP                                                       112,711,478
IX Ð Gross income for the period PPPPPPPPPPPPPPPP                        362,805,846                                                   48,786,138
        Total Group shareholders' equityPPPPPPPPPPPP                    1,429,208,404                  1,170,419,922                 1,106,494,582

MINORITY INTERESTS
    Minority interests in capital and reserves PPPPP        2,246,809                     10,565,092                    10,565,092
    Income/loss pertaining to minority
    shareholders PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP             606,460                       1,039,188                     (509,325)
        Total shareholders' equity pertaining to
        minority shareholders PPPPPPPPPPPPPPPPPPPPPP                         2,853,269                   11,604,280                    10,055,767

TOTAL SHAREHOLDERS' EQUITYPPPPPPPPPPPPPPPPPPP                           1,432,061,673                  1,182,024,202                 1,116,550,349

(B)     PROVISIONS FOR RISKS AND CHARGES
        (1) Pensions and similar commitments PPPPP                             84,752                        72,651
        (2) TaxationPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                797                                                         361
        (3) Other risk provisions:
            future costs
            speci®c risks PPPPPPPPPPPPPPPPPPPPPPPPPP       72,532,737                     74,241,165                    81,030,137
            deferred taxation PPPPPPPPPPPPPPPPPPPPP        35,830,561                     35,831,151                    24,718,783
            Total other risk reserves PPPPPPPPPPPPPPP                    108,363,298                    110,072,316                   105,748,920
        Total reserves for risks and charges (B) PPPPPP                  108,448,847                    110,144,967                   105,749,281

(C)     EMPLOYEE SEVERENCE INDEMNITIES PPPPPPPP                           71,847,868                     67,988,152                    60,539,419
(D)     PAYABLES
        (1) Bonds
        (2) Convertible bonds
        (3) Due to banks
                 within 12 months PPPPPPPPPPPPPPPP        344,914,237                    347,299,439                   354,047,571
                 beyond 12 months PPPPPPPPPPPPPPP         331,261,671                    419,480,681                   129,480,681
                                                                         676,175,908                    766,780,120                   483,528,252
        (4)    Due to other providers of ®nance
                    within 12 months PPPPPPPPPPPPPPPP      70,884,565                     29,510,605                     5,331,305
                    beyond 12 months PPPPPPPPPPPPPPP      359,970,459                    402,319,924
                                                                         430,855,024                    431,830,529                     5,331,305
        (5)    Advances PPPPPPPPPPPPPPPPPPPPPPPPPPPPP                     64,943,732                     61,725,095                    44,831,982
        (6)    Amounts owed to suppliers PPPPPPPPPPPP                    257,688,788                    336,619,432                   285,717,218
        (7)    Payables represented by bills of
               exchange PPPPPPPPPPPPPPPPPPPPPPPPPPPPP
        (8)    Due to subsidiary companies PPPPPPPPPPP
        (9)    Due to associated companiesPPPPPPPPPPP                      1,342,304                      8,135,571                     5,553,538
        (10)   Due to parent company PPPPPPPPPPPPPPP                      50,314,076                     39,638,149                    32,795,923
        (11)   Due to tax authorities PPPPPPPPPPPPPPPPP                   60,940,404                     52,261,620                    80,903,431
        (12)   Due to social security and welfare
               institutions PPPPPPPPPPPPPPPPPPPPPPPPPPP                   11,041,625                     12,400,732                    10,102,735
        (13)   Other payables:
               (a) due to employees PPPPPPPPPPPPPPPP        9,189,829                     10,079,870                     8,652,171
               (b) due to the CCSE PPPPPPPPPPPPPPPPP       15,585,932                     14,819,770                     8,336,243
               (c) otherPPPPPPPPPPPPPPPPPPPPPPPPPPPP       94,404,919                     98,362,457                    95,331,366
               (d) due to af®liated companiesPPPPPPP                     119,180,680                    123,262,097                   112,319,780
        Total payables (D)                                              1,672,482,541                  1,832,653,345                 1,061,084,164

(E)     ACCRUED EXPENSES AND DEFERRED INCOME                              39,597,641                     32,039,513                    30,958,373
        TOTAL LIABILITIES AND SHAREHOLDERS'
        EQUITY PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                     3,324,438,570                  3,224,850,179                 2,374,881,586

MEMORANDUM ACCOUNTS:
           guarantees received PPPPPPPPPPPPPP                            148,925,994                    157,759,911                   175,326,752
           guarantees given PPPPPPPPPPPPPPPP                             346,892,732                    321,591,696                   244,904,419
           guarantees given PPPPPPPPPPPPPPPP                                                                                           40,670,981
                                                                         495,818,726                    479,351,607                   460,902,152



                                                                        60
                                                             AEM S.p.A.

                   Unaudited Interim Consolidated Income Statement
                                                               CONSOLIDATED                   CONSOLIDATED                 CONSOLIDATED
STATEMENT OF INCOME                                        FINANCIAL STATEMENTS          FINANCIAL STATEMENTS          FINANCIAL STATEMENTS
                                                                    AS OF                         AS OF                         AS OF
                                                                30 JUNE 2003                31 DECEMBER 2002                30 JUNE 2002

(A)   VALUE OF PRODUCTION
(1)   REVENUES FROM SALES AND SERVICES
      Sale and distribution of electricity to restricted
      customers PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                       267,954,534                   381,443,148                  118,952,775
      Sale of electricity to suitable customers PPPPPPP                   30,241,030                    41,887,895                   73,426,943
      Distribution of electricity to suitable customers                    8,394,331                     6,228,822                    2,801,114
      Sale of heat PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                       34,081,956                    21,700,195                   13,205,781
      Sale of gas to end users and other companies P                     269,001,703                   372,519,926                  215,690,411
      Services provided on behalf of users and third
      parties PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                       70,452,089                   158,003,545                   79,936,052
      Fees for mains connections PPPPPPPPPPPPPPPPPP                       11,209,049                    19,041,021                    7,483,217

      Total revenues from sales and services PPPPPPP                     691,334,692                  1,000,824,552                 511,496,293


(2)   CHANGES IN INVENTORIES OF WORK-IN-
      PROGRESS, SEMI-FINISHED AND FINISHED
      PRODUCTS

(3)   CHANGE IN CONTRACT WORK-IN-PROGRESS PP                                 2,337,585                   (1,358,547)                   812,199

(4)   INCREASE FOR SELF-CONTRUCTED FIXED
      ASSETS PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                        13,190,085                    25,427,158                   12,258,461

(5)   OTHER REVENUES AND INCOME
      Ð   Sundry PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                            8,077,814                  40,046,431                    8,910,269
      Ð   Operating grants:
          1.   From the CCSE PPPPPPPPPPPPPPPPPPPP           1,237,888                       732,950                       104,362
          2.   From others PPPPPPPPPPPPPPPPPPPPPP              86,419                       295,466
                                                                             1,324,307                   1,028,416                     104,362

      Total other revenues and income PPPPPPPPPPPP                           9,402,121                  41,074,847                    9,014,631


      Total value of production (A) PPPPPPPPPPPPPPPP                     716,264,483                  1,065,968,010                 533,581,584


(B)   PRODUCTION COSTS
(6)   RAW, ANCILLARY AND CONSUMABLE
      MATERIALS AND GOODS FOR RESALE
      Purchases of energy and fuels PPPPPPPPPPPPPPPP                     273,285,814                   394,115,908                  198,336,644
      Purchases of other fuels PPPPPPPPPPPPPPPPPPPPP                         276,808                       551,003                      277,263
      Purchases of materials PPPPPPPPPPPPPPPPPPPPPPP                      10,972,612                    20,184,970                    9,808,500

      Total costs for raw, ancillary and consumable
      materials and goods for resale PPPPPPPPPPPPPPP                     284,535,234                   414,851,881                  208,422,407


(7)   COSTS FOR SERVICES
      Tolls for energy transportation PPPPPPPPPPPPPPP                     34,467,711                    49,467,458                   22,825,892
      Sub-contracts and works PPPPPPPPPPPPPPPPPPPPP                       35,356,475                    74,170,126                   38,399,032
      Other costs PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                       43,088,061                    70,721,419                   34,424,521

      Total costs for services PPPPPPPPPPPPPPPPPPPPPP                    112,912,247                   194,359,003                   95,649,445


(8)   USE OF THIRD PARTY ASSETS PPPPPPPPPPPPPPPP                          10,178,124                    10,398,860                    4,937,608
(9)   PAYROLL AND RELATED COSTS
      (a) wages and salaries PPPPPPPPPPPPPPPPPPPPP                        52,285,979                    85,624,519                   43,181,170
      (b) social security contributionsPPPPPPPPPPPPP                      15,081,481                    25,273,667                   12,702,188
      (c) employee leaving indemnitiesPPPPPPPPPPP                          4,970,035                     7,106,847                    3,529,015
      (d) pensions and similar commitments PPPPPP                            187,656
      (e) other costs PPPPPPPPPPPPPPPPPPPPPPPPPPPP                           739,074                     3,008,169                     780,397

      Total payroll and related costs PPPPPPPPPPPPPPP                     73,264,225                   121,013,202                   60,192,770




                                                                        61
                                                            CONSOLIDATED                   CONSOLIDATED               CONSOLIDATED
STATEMENT OF INCOME                                     FINANCIAL STATEMENTS          FINANCIAL STATEMENTS        FINANCIAL STATEMENTS
                                                                 AS OF                         AS OF                       AS OF
                                                             30 JUNE 2003                31 DECEMBER 2002              30 JUNE 2002

(10) AMORTIZATION, DEPRECIATION AND
     WRITEDOWNS
     (a) amortization of intangible ®xed assets PP                     16,287,017                   26,415,431                  10,601,922
     (b) depreciation of tangible ®xed assets:
         1.   ordinary depreciation PPPPPPPPPPPPP       37,566,925                    60,847,331                  29,641,502
         2.   depreciation of transferable ®xed
              assets PPPPPPPPPPPPPPPPPPPPPPPPPPPP        2,706,339                     5,636,529                   2,831,029
                                                                       40,273,264                   66,483,860                  32,472,531
     (c)   other ®xed assets written off PPPPPPPPPPP                                                   135,949
     (d)   writedown of receivables held among
           current assets and liquid funds PPPPPPPPPP                     1,174,987                  3,761,510                   1,154,393

     Total amortization, depreciation and
     writedowns PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                       57,735,268                   96,796,750                  44,228,846


(11) CHANGE IN INVENTORIES OF RAW, ANCILLARY
     AND CONSUMABLE MATERIALS AND GOODS
     FOR RESALE PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                       (2,446,471)                  (6,434,894)                  7,470,211

(12) PROVISIONS FOR RISKS PPPPPPPPPPPPPPPPPPPPPP                          3,766,444                 21,169,775                   6,871,582

(13) OTHER PROVISIONS

(14) OTHER OPERATING EXPENSES
     Taxes, duties, levies and water offtake charges                    8,831,109                   14,940,053                  22,155,660
     Other expenses PPPPPPPPPPPPPPPPPPPPPPPPPPPPP                       7,990,410                   14,380,361                   6,314,325
     Total other operating expenses PPPPPPPPPPPPPP                     16,821,519                   29,320,414                  28,469,985

     Total production costs (B) PPPPPPPPPPPPPPPPPPP                   556,766,590                  881,474,991                 456,242,854


     Difference between value and cost of
     production
     (A-B) PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                    159,497,893                  184,493,019                  77,338,730


(C) FINANCIAL INCOME AND EXPENSES
(15) INCOME FROM EQUITY INVESTMENTS
     (a) In subsidiary companies
     (b) In associated companies PPPPPPPPPPPPPPPP                                         34,351
     (c) In other companiesPPPPPPPPPPPPPPPPPPPPP         3,030,081                       552,477                     530,109
                                                                          3,030,081                    586,828                    530,109
(16) OTHER FINANCIAL INCOME
     (a) Income from receivables held among
         ®xed assets from:
         1.   Subsidiary companies PPPPPPPPPPPPP
         2.   Associated companies PPPPPPPPPPPPP
         3.   Parent company PPPPPPPPPPPPPPPPPP
         4.   Third partiesPPPPPPPPPPPPPPPPPPPPPP           17,718                       267,501                       9,017
                                                                            17,718                     267,501                       9,017
     (b)   Income from securities held as ®xed assets                          533                         561
     (c)   Income from securities held as current
           assets PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                                      2,103                       1,213
     (d)   Income other than the above:
           1.    From subsidiary companies PPPPPPPP                                                     35,968
           2.    From associated companies
           3.    From parent companies
           4.    From third parties: PPPPPPPPPPPPPPPP                     2,518,109                  6,395,175                   3,662,114

                Ð     on ®nancial investments
                Ð     on bank current accounts
                Ð     on other receivables

     Total other ®nancial income PPPPPPPPPPPPPPPPP                        2,536,360                  6,701,308                   3,672,344


(17) INTEREST AND OTHER FINANCIAL EXPENSES
     (a) Subsidiary companies
     (b) Associated companies
     (c) Parent companies PPPPPPPPPPPPPPPPPPPPPP                          122,426                      706,518                     543,787
     (d) Third parties PPPPPPPPPPPPPPPPPPPPPPPPPPP                     21,701,036                   31,178,843                  12,023,507

     Total interest and other ®nancial expenses PPP                    21,823,462                   31,885,361                  12,567,294


     Total ®nancial income and expenses PPPPPPPPP                     (16,257,021)                 (24,597,225)                (8,364,842)




                                                                     62
                                                          CONSOLIDATED               CONSOLIDATED              CONSOLIDATED
STATEMENT OF INCOME                                   FINANCIAL STATEMENTS      FINANCIAL STATEMENTS       FINANCIAL STATEMENTS
                                                               AS OF                     AS OF                      AS OF
                                                           30 JUNE 2003            31 DECEMBER 2002             30 JUNE 2002

(D) VALUE ADJUSTMENTS TO FINANCIAL ASSETS
(18) REVALUATION
     (a) Of equity investments PPPPPPPPPPPPPPPPPP                    906,693                    743,384                   279,721
     (b) Of ®nancial ®xed assets not representing
         equity investments
     (c) Of securities held as current assets not
         representing equity investments
     (d) Other

     Total revaluationPPPPPPPPPPPPPPPPPPPPPPPPPPPP                   906,693                    743,384                   279,721


(19) WRITEDOWNS
     (a) Of equity investments PPPPPPPPPPPPPPPPPP                   5,997,903                  4,577,276               22,564,067
     (b) Of ®nancial ®xed assets not representing
         equity investments PPPPPPPPPPPPPPPPPPPPP
     (c) Of securities held as current assets not
         representing equity investments PPPPPPPP
     (d) Other PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP

     Total writedowns PPPPPPPPPPPPPPPPPPPPPPPPPPP                   5,997,903                  4,577,276               22,564,067

     Total value adjustments to ®nancial assets PPP               (5,091,210)                (3,833,892)              (22,284,346)

(E) EXTRAORDINARY INCOME AND EXPENSE
(20) EXTRAORDINARY INCOME
     (a) Gains on disposalsPPPPPPPPPPPPPPPPPPPPPP                225,400,473
     (b) Out-of-period income/amounts not
         payable PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                     140,428                   1,634,353                1,589,000

     (d)   Other PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP

     Total extraordinary income PPPPPPPPPPPPPPPPPP               225,540,901                   1,634,353                1,589,000

(21) EXTRAORDINARY EXPENSE
     (a) Losses on disposals PPPPPPPPPPPPPPPPPPPPP                   164,711
     (b) Out-of-period expense/amounts not
         receivable PPPPPPPPPPPPPPPPPPPPPPPPPPPPP                    113,306                   5,764,810                    1,729
     (c) Other:
         Ð     Previous year's taxes PPPPPPPPPPPPPP                                 61,407
         Ð     Other expense PPPPPPPPPPPPPPPPPPPP                        240                     61,407

     Total extraordinary expense PPPPPPPPPPPPPPPPP                   278,257                   5,826,217                    1,729

     Total extraordinary items PPPPPPPPPPPPPPPPPPPP              225,262,644                 (4,191,864)                1,587,271

INCOME BEFORE TAXATIONPPPPPPPPPPPPPPPPPPPPPPP                    363,412,306                 151,870,038               48,276,813
(22) INCOME TAXES PPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                               38,119,372

(23) INCOME BEFORE TAXATION FOR THE PERIOD P                     363,412,306                                           48,276,813
(24) NET INCOME FOR THE PERIOD PPPPPPPPPPPPPPP                                               113,750,666

     (INCOME) LOSS PERTAINING TO MINORITY
     SHAREHOLDERSPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                      (606,460)                (1,039,188)                  509,325

     INCOME BEFORE TAXATION FOR THE PERIOD
     PERTAINING TO THE GROUP PPPPPPPPPPPPPPPPP                   362,805,846                                           48,786,138
     NET INCOME FOR THE PERIOD PERTAINING TO
     THE GROUP PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP                                             112,711,478




                                                               63
                                                  AEM S.p.A.

               Unaudited Interim Non-Consolidated Balance Sheet
                                 As at 30th June 2002 and 30th June 2003
                                           FINANCIAL STATEMENTS         FINANCIAL STATEMENTS          FINANCIAL STATEMENTS
                                             AS OF 30 JUNE 2003         AS OF 31 DECEMBER 2002          AS OF 30 JUNE 2002

ASSETS
(A) AMOUNTS DUE FROM
    SHAREHOLDERS
(B) FIXED ASSETS
I ± INTANGIBLE FIXED ASSETS
    (1) Start-up and deferred
        charges PPPPPPPPPPPPPPPPPPP                          297,579                       543,927                       790,275
    (2) Research, development and
        advertising costs PPPPPPPPPPP
    (3) Industrial patents and
        intellectual property rights P                       869,343                       500,935                       986,793
    (4) Concessions, licences,
        trademarks and similar
        rights PPPPPPPPPPPPPPPPPPPPP                         431,169                       470,514                       720,108
    (5) GoodwillPPPPPPPPPPPPPPPPPP
    (6) Intangible assets in process
        of formation and advances P                        6,248,573                       816,895                        81,078
    (7) Other intangible ®xed assets                         640,230                       564,430                       478,680

    Total intangible ®xed assetsPPPP                       8,486,894                     2,896,701                     3,056,934

II ± TANGIBLE FIXED ASSETS
     (1) Land and buildings PPPPPPPP                      83,664,195                    83,848,936                    83,336,543
     (2) Plant and machinery:
         Non-transferable plant and
         machinery PPPPPPPPPPPPPPPP       189,220,292                   194,469,650                   184,239,658
         Transferable works PPPPPPPP      180,725,512                   183,342,631                   184,739,879
                                                         369,945,804                   377,812,281                   368,979,537
    (3) Industrial and commercial
        equipment PPPPPPPPPPPPPPPP                         4,055,792                     4,344,627                     4,642,373
    (4) Other tangible ®xed assets P                      10,938,089                     9,829,225                    10,582,339
    (5) Construction in progress and
        advances PPPPPPPPPPPPPPPPPP                      229,747,402                   190,843,507                   145,541,313

    Total tangible ®xed assets PPPPP                     698,351,282                   666,678,576                   613,082,105

III ± FINANCIAL FIXED ASSETS
      (1) Equity investments in:
          (a) subsidiary companies PP 1,438,397,936               1,401,196,622               1,391,890,973
          (b) associated companies PP    16,614,548                  86,797,667                 102,783,391
          (c) other companies PPPPPP 258,567,967                    265,521,533                 156,584,018
          Total equity investments PPP              1,713,580,451               1,753,515,822               1,651,258,382
      (2) Long-term receivables PPPPP
          (a) due from subsidiary
              companies PPPPPPPPPPPP
          (b) due from associated
              companies PPPPPPPPPPPP
              beyond 12 months PPPP       5,175,684                   5,175,684                   1,368,989
              within 12 months PPPPP      5,175,684                   5,175,684                   1,368,989
          (c) due from parent
              companies PPPPPPPPPPPP
          (d) due from third parties:
              beyond 12 months PPPP       2,288,880                   2,978,205                   3,307,243
              within 12 months PPPPP         75,078                      75,036                     131,313
                                            2,363,958                     3,053,241                     3,438,556
        Total long-term receivables                        7,539,642                     8,228,925                     4,807,545
    (3) Other securities PPPPPPPPPPP                     120,325,967                        79,673                        79,673
    (4) Own shares PPPPPPPPPPPPPPP
    Total ®nancial ®xed assets PPPPP                    1,841,446,060                 1,761,824,420                 1,656,145,600

    Total ®xed assets (B)PPPPPPPPPPP                    2.548.284.236                 2,431,399,697                 2,272,284,639




                                                            64
                                         FINANCIAL STATEMENTS         FINANCIAL STATEMENTS          FINANCIAL STATEMENTS
                                           AS OF 30 JUNE 2003         AS OF 31 DECEMBER 2002          AS OF 30 JUNE 2002

(C) CURRENT ASSETS
I ± INVENTORIES
      (1) Raw, ancillary and
          consumable materials:
          (a) materials PPPPPPPPPPPPP     7,191,118                     6,330,995                    7,099,698
          (b) fuels PPPPPPPPPPPPPPPPP
          (c) other PPPPPPPPPPPPPPPPP
                                                         7,191,118                     6,330,995                    7,099,698
    (2) Work in progress and semi-
        ®nished products PPPPPPPPPP
    (3) Contract work in progress PP                                                   5,777,571                    6,591,773
    (4) Finished products and goods
        for resale PPPPPPPPPPPPPPPPP
    (5) Advances PPPPPPPPPPPPPPPPP
    (6) Other PPPPPPPPPPPPPPPPPPPPP
    Total inventories PPPPPPPPPPPPPP                     7,191,118                    12,108,566                   13,691,471

II ± RECEIVABLES
      (1) Due from users and
          customers PPPPPPPPPPPPPPPPP                   17,462,002                    29,724,011                   24,790,074
      (2) Due from subsidiary
          companies PPPPPPPPPPPPPPPP                   265,440,901                   173,695,271                   47,604,497
      (3) Due from associated
          companies PPPPPPPPPPPPPPPP                     1,470,452                     6,471,069                    1,233,049
      (4) Due from the parent
          companyPPPPPPPPPPPPPPPPPP                     50,181,604                    51,109,048                   45,247,205
      (5) Due from third parties:
              due from the CCSE PPPP      1,007,930                     1,010,709                    1,013,489
              due from ®nancial
              transactions PPPPPPPPPPP                                                              25,000,000
              advances to suppliers PP    1,568,318                     1,791,865                      303,741
              due from employeesPPP          41,630                        39,005                       44,743
              sundry receivables PPPPP   18,635,857                    23,893,189                   20,709,359
                                                        21,253,735                    26,734,768                   47,071,332

    Total receivablesPPPPPPPPPPPPPPP                   355.808.694                   287,734,167                  165,946,157

III ± FINANCIAL ASSETS NOT HELD AS
FINANCIAL FIXED ASSETS
      (1) Equity investments in
          subsidiary companies PPPPPP
      (2) Equity investments in
          associated companies PPPPPP
      (3) Other equity investments PP     1,576,954
      (5) Other securities PPPPPPPPPPP        2.706                         2,706                        2,706

    Total ®nancial assetsPPPPPPPPPPP                     1.579.660                         2,706                        2,706

IV ± LIQUID FUNDS
     (1) Banks and post of®ce
         deposits PPPPPPPPPPPPPPPPPP                   113.263.682                    53,197,816                    2,240,247
     (2) Cheques PPPPPPPPPPPPPPPPPP
     (3) Cash and equivalents on
         hand PPPPPPPPPPPPPPPPPPPPP                        220.937                       152,919                      321,287

    Total liquid fundsPPPPPPPPPPPPPP                   113.484.619                    53,350,735                    2,561,534

    Total current assets (C)PPPPPPPPP                  478,064,091                   353,196,174                  182,201,868

(D) ACCRUED INCOME AND PREPAID
    EXPENSES PPPPPPPPPPPPPPPPPPPPP                      54,028,066                    52,078,511                   59,746,917

TOTAL ASSETS PPPPPPPPPPPPPPPPPPPPP                    3,080,376,393                 2,836,674,382                2,514,233,424


LIABILITIES AND SHAREHOLDERS'
EQUITY
(A) SHAREHOLDERS' EQUITY
    I ± Share capital PPPPPPPPPPPPPPP                  936,024,648                   936,024,648                  936,024,648
    II ± Share premium reserve PPPPP
    III ± Revaluation reserves PPPPPPP
    IV ± Legal reserve PPPPPPPPPPPPPP                   67,513,369                    65,812,260                   65,812,260

                                                          65
                                           FINANCIAL STATEMENTS          FINANCIAL STATEMENTS          FINANCIAL STATEMENTS
                                             AS OF 30 JUNE 2003          AS OF 31 DECEMBER 2002          AS OF 30 JUNE 2002

     V ± Reserve for own shares in
     portfolio PPPPPPPPPPPPPPPPPPPPPP
     VI ± Statutory reserves PPPPPPPPP
     VII ± Other reserves PPPPPPPPPPPP                    783,873,843                   827,154,769                   827,154,769
     VIII ± Retained earnings/
     accumulated lossesPPPPPPPPPPPPP
     IX ± Net income (loss) for the year                                                 34,022,174
     IX ± Gross income (loss) for the
     period PPPPPPPPPPPPPPPPPPPPPPPP                      235,576,935                                                   2,983,968

     Total shareholders' equityPPPPPP                    2,022,988,795                 1,863,013,851                 1,831,975,645

B)  RESERVES FOR RISKS AND
    CHARGES
    (1) Pensions and similar
        commitments PPPPPPPPPPPPP
    (2) Deferred taxation PPPPPPPPP                         7,865,532                     7,865,532                     6,097,140
    (3) Other risk provisiona PPPPPP                       47,588,776                    49,120,278                    49,663,271
    Total reserves for risks and
    charges PPPPPPPPPPPPPPPPPPPPPPP                        55,454,308                    56,985,810                    55,760,411
(C) SEVERANCE INDEMNITIES                                  25,354,346                    31,107,023                    30,777,940
D) PAYABLES
    (1) Bonds PPPPPPPPPPPPPPPPPPPP
    (2) Convertible bonds PPPPPPPPP
    (3) Due to banksPPPPPPPPPPPPPP
             Within 12 months PPPPP        290,459,926                   167,500,000                   155,122,845
             beyond 12 months PPPP         209,704,643                   295,164,569                     5,164,569
                                                          500,164,569                   462,664,569                   160,287,414
     (4) Due to other providers of
         ®nance PPPPPPPPPPPPPPPPPPP
         Within 12 months PPPPPPPPP           929,600                      4,496,893                     5,331,305
         beyond 12 monthsPPPPPPPPP
                                                              929,600                     4,496,893                     5,331,305
     (5) Advances PPPPPPPPPPPPPPPPP                        22,700,922                    20,226,679                    17,761,592
     (6) Trade accounts PPPPPPPPPPPP                      171,643,484                   176,458,377                   181,440,577
     (7) Payables represented by
          credit instruments PPPPPPPPP
     (8) Due to subsidiary companies                      201,413,328                   152,993,363                   174,371,064
     (9) Due to associated companies                        1,342,304                     8,135,571                     5,553,537
     (10) Due to parent company PPPP                       46,261,819                    29,832,388                    24,350,950
     (11) Due to tax authorities PPPPP                      8,124,469                    11,524,752                     8,642,094
     (12) Due to social security and
          welfare institutions PPPPPPPP                     7,560,144                     9,179,191                     8,088,290
     (13) Other payables:
          (a) due to employees PPPPP         2,958,060                     3,543,368                     3,876,257
          (b) due to the CCSEPPPPPPP            11,642                         4,311                       307,575
          (c) other PPPPPPPPPPPPPPPPP       12,610,549                     5,424,327                     5,357,584
                                                           15,580,251                     8,972,006                     9,541,416

     Total payablesPPPPPPPPPPPPPPPPP                      975,720,890                   884,483,789                   595,368,239

(E) ACCRUED EXPENSES AND
    DEFERRED INCOME PPPPPPPPPPPP                              858,054                     1,083,909                       351,189
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY PPPPPPPPPPP                         3,080,376,393                 2,836,674,382                 2,514,233,424
    MEMORANDUM ACCOUNTS:
        sureties receivedPPPPPPPPPPP                       90,465,326                    98,604,052                   120,058,429
        guarantees given PPPPPPPPPP                       272,476,870                   256,190,345                   217,157,788
                                                                                                                                0

                                                          362,942,196                   354,794,397                   337,216,217




                                                             66
                                                          AEM S.p.A.

             Unaudited Interim Non-Consolidated Income Statement
                           For the periods ended 30th June 2002 and 30th June 2003
                                                                                      FINANCIAL STATEMENTS

                                                          AS OF 30 JUNE 2003          AS OF 31 DECEMBER 2002     AS OF 30 JUNE 2002
(A) VALUE OF PRODUCTION
(1) REVENUES FROM SALES AND SERVICES
Sales of electricity to other electricity companies PPP                     349,620                    707,399                 427,600
Sales of electricity to users PPPPPPPPPPPPPPP                                20,602                     30,508                  17,213
Sales of electricity to subsidiary companies                                461,865                    839,027                 278,853
Sales of materials to subsidiary companies P                              5,324,930                 11,020,006               5,115,869
Sales of materials to associated companies                                      971                     10,900                   9,530
Sales of fuel to subsidiary companiesPPPPPP                                                          8,795,328               8,762,799
Services on behalf of users and third parties                          27,348,673                   62,394,088              28,971,163
Services provided to subsidiary companies P                            25,190,251                   53,163,022              25,216,845
Services provided to associated companiesP                                717,375                    2,219,622                 829,004
Fees for mains connection PPPPPPPPPPPPPPP                                     645

Total revenues from sales and servicesPPPP                             59,414,932                  139,179,900              69,628,876


(2) CHANGES IN INVENTORIES OF WORK-
    IN-PROGRESS, SEMI-FINISHED AND
    FINISHED PRODUCTS
(3) CHANGES IN CONTRACT WORK IN
    PROGRESS PPPPPPPPPPPPPPPPPPPPPPPPPP                                    934,199                 (1,055,922)               (241.720)
(4) INCREASE FOR SELF CONSTRUCTED
    FIXED ASSETS PPPPPPPPPPPPPPPPPPPPPPP                                  1,378,196                  2,740,763               1.404.172
(5) OTHER REVENUES AND INCOME
    Ð Sundry PPPPPPPPPPPPPPPPPPPPPPPPP                                 90,460,748                  138,718,152              57.353.812
    Ð Operating grants:
         1. From the CCSE PPPPPPPPPPPPPP
         2. From others PPPPPPPPPPPPPPPP                    28,607                       284,309
                                                                            28,607                    284,309

Total other revenues and income PPPPPPPPP                              90,489,355                  139,002,461              57,353,812

Total value of production (A)PPPPPPPPPPPPP                            152,216,682                  279,867,202             128.145.140


(B) PRODUCTION COSTS
(6) RAW, ANCILLARY AND CONSUMABLE
    MATERIALS AND GOODS FOR RESALE
    Purchases of energy PPPPPPPPPPPPPPPPP                                      206                      91,705                   3,444
    Purchases of fuel for productionPPPPPP                                                           5,915,187               5,915,187
    Purchases of other fuelsPPPPPPPPPPPPPP                                262,213                      524,297                 263,434
    Purchases of materials PPPPPPPPPPPPPPP                             10,051,867                   18,649,801               9,133,544

     Total raw, ancillary and consumable
     materials and goods for resale PPPPPPP                            10,314,286                   25,180,990              15,315,609


(7) SERVICES
    Conveying energy costs PPPPPPPPPPPPPP                                                                  240
    Subcontracts and worksPPPPPPPPPPPPPP                               20,836,345                   52,929,135              22,241,572
    Other costs PPPPPPPPPPPPPPPPPPPPPPPPP                              18,788,705                   38,241,207              18,924,164
    Services from subsidiary companies PPP                              7,145,234                    3,877,049               2,044,063
    Services from associated companies PPP                              5,891,394                   10,556,264               4,800,227

     Total services PPPPPPPPPPPPPPPPPPPPPPP                            52,661,678                  105,603,895              48,010,026


(8) USE OF THIRD PARTY ASSETS PPPPPPPP                                    5,854,670                 12,612,139               6.200.418
(9) PAYROLL AND RELATED COSTS
    a) wages and salaries PPPPPPPPPPPPPP                               20,020,529                   40,545,022              21.014.481
    (b) social security contributions PPPPPP                            5,627,566                   11,395,747               5.863.342
    (c) employee leaving indemnitiesPPPP                                2,000,816                    3,386,347               1.691.004
    (d) pensions and similar commitments
    (e) other costsPPPPPPPPPPPPPPPPPPPPPP                                  422,013                   1,597,165                 441.631

Total payroll and related costs PPPPPPPPPPP                            28,070,924                   56,924,281              29,010,458



                                                                     67
                                                                             FINANCIAL STATEMENTS

                                               AS OF 30 JUNE 2003            AS OF 31 DECEMBER 2002      AS OF 30 JUNE 2002
(10)   AMORTIZATION, DEPRECIATION AND
       WRITEDOWNS
       (a)  amortization of intangible
            ®xed assets PPPPPPPPPPPPPPPPPP                       854,411                     2,823,940                 1,341,777
       (b)  depreciation of tangible ®xed
            assets:
            1. ordinary depreciation PPPPPP    9,039,072                      18,103,009                 9.777.877
            2. depreciation of transferable
            ®xed assets PPPPPPPPPPPPPPPPPP     2,706,339                       5,636,529                 2.831.029
                                                             11,745,411                     23,739,538                12.608.906
       (c)   other ®xed assets written offPP                                                   135,949
       (d)   writedown of receivables held
             among current assets and liquid
             funds PPPPPPPPPPPPPPPPPPPPPPPP                      430,413                     1,354,694                  306,443

Total amortization, depreciation and
writedowns PPPPPPPPPPPPPPPPPPPPPPPPPPPPP                     13,030,235                     28,054,121                14,257,126


(11)   CHANGE IN INVENTORIES OF RAW,
       ANCILLARY AND CONSUMABLE
       MATERIALS AND GOODS FOR RESALE                            (860,123)                   3,482,150                 2,713,448
(12)   PROVISIONS FOR RISKSPPPPPPPPPPPPP                          504,028                    1,599,117                   380.559
(13)   OTHER PROVISIONS
(14)   OTHER OPERATING EXPENSES
       Taxes, duties, levies and water
       offtake charges PPPPPPPPPPPPPPPPPPPP                     5,301,715                    9,766,522                 4,815,654
       Other expenses PPPPPPPPPPPPPPPPPPPP                      2,866,135                    4,416,588                 2,791,200

       Total other operating expenses PPPPP                     8,167,850                   14,183,110                 7,606,854


Total production costs (B)                                  117,743,548                    247,639,803               123.494.498


Difference between value and cost of
production (A-B)PPPPPPPPPPPPPPPPPPPPPPPPP                    34,473,134                     32,227,399                 4.650.642
(C)   FINANCIAL INCOME AND EXPENSES
(15) INCOME FROM EQUITY
      INVESTMENTS
      (a)   In subsidiary companies PPPPPPP                                   14,132,858
      (b)   In associated companies PPPPPP                                     4,034,351
      (c)   In other companies PPPPPPPPPPP     3,030,081                         552,476                  530,109
                                                                3,030,081                   18,719,685                  530.109
(16)   OTHER FINANCIAL INCOME
       (a)  Income from receivables held
           among ®xed assets from:
           1. Subsidiary companiesPPPPPPP
           2. Associated companies PPPPPP                                         7,795
           3. Parent company PPPPPPPPPPP
           4. Af®liated companies PPPPPPP
           5. Third parties PPPPPPPPPPPPPPP       7,112                          91,011                     3.709
                                                                    7,112                      98,806                      3.709
       (b)   Income from securities held as
             ®xed assets PPPPPPPPPPPPPPPPPP                          533                          561
       (c)   Income from securities held as
             current assets PPPPPPPPPPPPPPPP                                      2,103                                    1,213
       (d)   Income other than the above:
             1.    From subsidiary
                   companies PPPPPPPPPPPPP     1,280,734                        893,789                   380.984
             2.    From associated
                   companies PPPPPPPPPPPPP
             3.    From parent companies P
             4.    From third parties:
                   Ð     on ®nancial
                         investmentsPPPPPPP     332,046                         764,231                   755.274
                   Ð     on bank current
                         accountsPPPPPPPPPP     577,078                        1,948,671                  614.949
                   Ð     on other
                         receivables PPPPPPP    719,282                       11,541,171                  804.344
                                                                2,909,140                   15,147,862                 2.555.551

Total other ®nancial incomePPPPPPPPPPPPPP                       2,916,785                   15,249,332                 2,560,473



                                                           68
                                                                          FINANCIAL STATEMENTS

                                               AS OF 30 JUNE 2003         AS OF 31 DECEMBER 2002     AS OF 30 JUNE 2002
(17)   INTEREST AND OTHER FINANCIAL
       EXPENSES
       (a)  Subsidiary companies PPPPPPPPP                  2,252,250                   6,711,432                2.928.109
       (b)  Associated companiesPPPPPPPPP
       (c)  Parent companies PPPPPPPPPPPP                     122,426                     704,775                  543.787
       (d)  Third parties PPPPPPPPPPPPPPPPP                 6,975,572                   6,201,418                1.046.123


       Total interest and other
       ®nancial expenses PPPPPPPPPPPP                       9,350,248                  13,617,625                4,518,019


       Total ®nancial income and
       expenses (C) PPPPPPPPPPPPPPPPPPPPPPP                 (3,403,382)                20,351,392               (1.427.437)


(D)    VALUE ADJUSTMENTS TO FINANCIAL
       FIXED ASSETS
(18)   REVALUATION
       (a)  Of equity investments PPPPPPPP                    521,300
       (b)  Of ®nancial ®xed assets not
            representing equity
            investments PPPPPPPPPPPPPPPPPP
       (c)  Of securities held as current
            assets not representing equity
            investments PPPPPPPPPPPPPPPPPP
       (d)  OtherPPPPPPPPPPPPPPPPPPPPPPPP

       Total revaluationsPPPPPPPPPPPPPPPPPP                   521,300


(19)   WRITEDOWNS
       (a)  Of equity investments PPPPPPPP                  5,735,703                   3,097,628                  465.543
       (b)  Of ®nancial ®xed assets not
            representing equity
            investments PPPPPPPPPPPPPPPPPP
       (c)  Of securities held as current
            assets not representing equity
            investments PPPPPPPPPPPPPPPPPP
       (d)  OtherPPPPPPPPPPPPPPPPPPPPPPPP

       Total writedowns PPPPPPPPPPPPPPPPPP                  5,735,703                   3,097,628                  465,543


       Total value adjustments to ®nancial
       assets (D)PPPPPPPPPPPPPPPPPPPPPPPPPP                 (5,214,403)                (3,097,628)                (465.543)


(E) EXTRAORDINARY INCOME AND
EXPENSES
(20) EXTRAORDINARY INCOME
      (a) Gains on disposals PPPPPPPPPPPP                209,887,773
      (b) Out-of-period income/amounts
          not payable PPPPPPPPPPPPPPPPPP                            23                    162,050                  226,306
      (c) Annual portion of capital
          grants PPPPPPPPPPPPPPPPPPPPPPP
      (d) OtherPPPPPPPPPPPPPPPPPPPPPPPP

       Total extraordinary income PPPPPPPPP              209,887,796                      162,050                  226,306


(21)   EXTRAORDINARY EXPENSES
       (a)  Losses on disposals PPPPPPPPPPP                   164,711
       (b)  Out-of-period expense/
            amounts not receivable PPPPPPP                      1,499                   1,495,194
       (c)  Other :
            Ð     Previous year's taxes PPPP                                  61,407
            Ð     Other expensePPPPPPPPPP                                                  61,407

       Total extraordinary expenses PPPPPPP                   166,210                   1,556,601                         0


       Total extraordinary items (E) PPPPPPP             209,721,586                   (1,394,551)                 226.306


       INCOME BEFORE TAXATION PPPPPPPP                   235,576,935                   48,086,612                2.983.968

                                                       69
                                                                     FINANCIAL STATEMENTS

                                            AS OF 30 JUNE 2003       AS OF 31 DECEMBER 2002      AS OF 30 JUNE 2002
(22)   INCOME TAXES FOR THE PERIOD
       Ð   Current taxes PPPPPPPPPPPPPPPP                             12,885,820
       Ð   Advanced taxes PPPPPPPPPPPPPP                                (589,774)
       Ð   Deferred taxes PPPPPPPPPPPPPPP                              1,768,392

Total income taxes PPPPPPPPPPPPPPPPPPPPPP                        0                  14,064,438                        0


GROSS INCOME BEFORE TAXATION FOR
THE PERIOD PPPPPPPPPPPPPPPPPPPPPPPPPPPPP              235,576,935                                            2,983,968
NET INCOME FOR THE PERIOD PPPPPPPPPPPP                                              34,022,174




                                                    70
                                           Taxation
The following summary contains a description of certain Italian and EU tax consequences in
respect of the purchase, ownership and disposal of Notes. This summary is based on the laws
in force in Italy and elsewhere as of the date of this Offering Circular and is subject to any
changes in such laws occurring after such date, which changes could be made on a
retroactive basis.
The following summary does not purport to be a comprehensive description of all the tax
considerations which may be relevant to a decision to purchase, own or dispose of the Notes
and does not purport to deal with the tax consequences applicable to all categories of
investors, some of which (such as dealers in securities or commodities) may be subject to
special rules. Prospective purchasers of the Notes are advised to consult their own tax advisers
concerning the overall tax consequences of their ownership of the Notes, including the
application to their particular situation of the tax considerations discussed below.

Italy
Tax treatment of the Notes
Legislative Decree No. 239 of 1st April 1996 (``Decree 239''), as subsequently amended,
provides for the applicable regime with respect to the tax treatment of interest, premium
and other income (including the difference between the redemption amount and the issue
price) from securities falling within the category of bonds (obbligazioni) or debentures similar
to bonds (titoli similari alle obbligazioni) pursuant to Article 41, paragraph 2(c) of the
Presidential Decree No. 917 of 22 December 1986, as amended issued, inter alia, by Italian
issuers previously qualifying as public economic entities (enti pubblici economici) and
transformed into joint stock companies by operation of law, provided that the securities are
issued for an original maturity of not less than 18 months.

Italian resident Noteholders
A Noteholder who is an Italian resident and who is either (i) an individual not engaged in an
entrepreneurial activity to which the Notes are connected (unless he has opted for the
application of the ``risparmio gestito'' regime - see under ``Capital gains tax'' below), or (ii) a
non-commercial partnership, or (iii) a non-commercial private or public institution, or (iv) a
real estate investment fund established before 26th September 2001 in respect of which the
relevant managing company has not opted for the taxation regime described below, or (v) an
investor exempt from Italian corporate income taxation, such Noteholder will be subject to a
tax withheld at source, referred to as imposta sostitutiva, levied at the rate of 12.5% on any
interest, premium and other income relating to the Notes, accrued during the relevant
holding period. If any Noteholder falling under (i) to (iii) above is engaged in an
entrepreneurial activity to which the Notes are connected, the imposta sostitutiva applies as a
provisional tax.
Pursuant to Article 6 of Law Decree No. 351 of 25th September 2001, converted with
amendments into Law No. 410 of 23rd November 2001, Italian real estate investment funds
established on or after 26th September 2001 are subject to a substitute tax at the rate of 1%
levied on the net value of the fund. Interest, premium and other income from the Notes, as
well as the value of such Notes, will contribute to determine such net value. The tax is paid
by the company managing the fund (SGR). The new regime also applies to those Italian real
estate investment funds established before 26th September 2001 whose managing company
has so requested within 25th November 2001.
A Noteholder who is an Italian resident and who is either a company or a similar commercial
entity and whose Notes are deposited with an authorised intermediary will not be subject to
imposta sostitutiva on any interest, premium and other income from the Notes, but such
income must be included in such Noteholder's income tax return and is therefore subject to
general Italian corporate tax (and, in certain circumstances, depending on the ``status'' of the
Noteholder, also to the regional tax on productive activities (IRAP)).
A Noteholder who is an Italian resident and who is either an open ended or a closed-ended
investment fund or a SICAV and whose Notes are deposited with an authorised intermediary
will not be subject to imposta sostitutiva on any interest, premium and other income relating

                                                71
to the Notes and accrued during the holding period, but such income must be included in
the result of the relevant portfolio accrued at the end of the tax period, to be subject to a
12.5% substitute tax.

A Noteholder who is an Italian resident and a pension fund (subject to the regime provided
for by articles 14, 14ter and 14quater, paragraph 1, of Legislative Decree No. 124 of 21st
April 1993) and whose Notes are deposited with an authorised intermediary will not be
subject to imposta sostitutiva on any interest, premium and other income relating to the
Notes and accrued during the holding period, but such income must be included in the result
of the relevant portfolio accrued at the end of the tax period, to be subject to a 11%
substitute tax.

Pursuant to Decree 239, imposta sostitutiva is applied by banks, SIMs, ®duciary companies,
SGRs, stockbrokers and other entities identi®ed by a decree of the Ministry of Finance (each
an ``Intermediary'').

An Intermediary must (i) be resident in Italy or be a permanent establishment in Italy of a
non-Italian resident ®nancial intermediary and (ii) intervene, in any way, in the collection of
interest or in the transfer of the Notes. For the purpose of the application of the imposta
sostitutiva, a transfer of Notes includes any assignment or other act, either with or without
consideration, which results in a change of the ownership of the relevant Notes or in a
change of the Intermediary with which the Notes are deposited.

Where the Notes are not deposited with an Intermediary, the imposta sostitutiva is applied
and withheld by any entity paying interest to a Noteholder.

Non-Italian resident Noteholders
An exemption from the imposta sostitutiva applies to any non-Italian resident Noteholder
provided that the non-Italian resident bene®cial owner is either (i) resident, for tax purposes,
in a country which allows for a satisfactory exchange of information with Italy; or (ii) an
international body or entity set up in accordance with international agreements which have
entered into force in Italy; or (iii) a Central Bank or an entity which manages, inter alia, the
of®cial reserves of a foreign State; or (iv) an institutional investor which is resident in a
country which allows for a satisfactory exchange of information with Italy, even if it does not
possess the status of a taxpayer in its own country of residence.

For the purpose of the application of the exemption, the countries which allow for a
satisfactory exchange of information with Italy are those listed in Ministerial Decree 4th
September 1996, as amended from time to time, which include, inter alia, all members of the
European Union, Australia, Brazil, Canada, Japan and the United States of America, but
exclude, inter alia, Switzerland and Cyprus.

The imposta sostitutiva will be applicable at the rate of 12.5% (or at the reduced rate
provided for by the applicable double tax treaty, if any) to interest, premium and other
income paid to Noteholders who are resident, for tax purposes, in countries which do not
allow for a satisfactory exchange of information with Italy.

In order to ensure gross payment, non-Italian resident Noteholders must be the bene®cial
owners of the payments of interest, premium or other income and (i) deposit, directly or
indirectly, the Notes with a resident bank or SIM or a permanent establishment in Italy of a
non-Italian resident bank or SIM or with a non-Italian resident entity or company
participating in a centralised securities management system which is in contact, via computer,
with the Ministry of Economy and Finance and (ii) ®le with the relevant depository, prior to
or concurrently with the deposit of the Notes, a statement of the relevant Noteholder, which
remains valid until withdrawn or revoked, in which the Noteholder declares itself to be
eligible to bene®t from the applicable exemption from imposta sostitutiva. Such statement,
which is not requested for international bodies or entities set up in accordance with
international agreements which have entered into force in Italy nor in case of foreign Central
Banks or entities which manage, inter alia, the of®cial reserves of a foreign State, must
comply with the requirements set forth by Ministerial Decree 12th December 2001.

                                               72
Early Redemption
Without prejudice to the above provisions, in the event that the Notes are redeemed, in full
or in part, prior to 18 months from the Issue Date, the Issuer will be required to pay a tax
equal to 20% of the interest and other amounts accrued from the Issue Date up to the time
of the early redemption pursuant to Article 26, ®rst paragraph, of Presidential Decree No. 600
of 29th September 1973, as subsequently amended. Such payment will be made by the Issuer
and will not affect the amounts to be received by the Noteholder by way of interest or other
amounts, if any, under the Notes.

Notes with an original maturity of less than 18 months
Interest payments relating to Notes issued with an original maturity of less than 18 months
are subject to a withholding tax levied at the rate of 27%.

Where the Noteholder is (i) an Italian individual engaged in an entrepreneurial activity to
which the Notes are connected, (ii) an Italian company or a similar Italian commercial entity,
(iii) a permanent establishment in Italy of a foreign entity to which the Notes are connected,
(iv) an Italian commercial partnership, or (v) an Italian commercial private or public
institution, such withholding tax is a provisional withholding tax. In all other cases, including
where the Noteholder is a non-Italian resident, the withholding tax is a ®nal withholding tax.
If any Noteholder is non-Italian resident, the withholding tax rate may be reduced by the
applicable double tax treaty, if any.

Capital gains tax
Pursuant to Legislative Decree No. 461 of 21st November 1997, as subsequently amended,
where an Italian resident Noteholder is an individual holding the Notes otherwise than in
connection with an entrepreneurial activity and certain other persons, any capital gain
realised by such Noteholder from the sale or redemption of the Notes would be subject to an
imposta sostitutiva, levied at the current rate of 12.5% Noteholders may set-off losses with
gains.

In respect of the application of the imposta sostitutiva, taxpayers may opt for one of the
three regimes described below.

Under the tax declaration regime (regime della dichiarazione), which is the default regime
for Italian resident individuals not engaged in an entrepreneurial activity to which the Notes
are connected, the imposta sostitutiva on capital gains will be chargeable, on a cumulative
basis, on all capital gains, net of any incurred capital loss, realised by any Italian resident
individual Noteholder holding the Notes not in connection with an entrepreneurial activity
pursuant to all sales or redemptions of the Notes carried out during any given tax year.
Italian resident individuals holding the Notes otherwise than in connection with an
entrepreneurial activity must indicate the overall capital gains realised in any tax year, net of
any relevant incurred capital loss, in their annual tax return and pay imposta sostitutiva on
such gains together with any balance income tax due for such year. Capital losses in excess of
capital gains may be carried forward against capital gains realised in any of the four
succeeding tax years.

As an alternative to the tax declaration regime, Italian resident individual Noteholders
holding the Notes not in connection with an entrepreneurial activity may elect to pay the
imposta sostitutiva separately on capital gains realised on each sale or redemption of the
Notes (the risparmio amministrato regime). Such separate taxation of capital gains is allowed
subject to (i) the Notes being deposited with Italian banks, SIMs or certain authorised
®nancial intermediaries and (ii) an express election for the risparmio amministrato regime
being made within the speci®ed time in writing by the relevant Noteholder. The depository is
responsible for accounting for imposta sostitutiva in respect of capital gains realised on each
sale or redemption of the Notes (as well as in respect of capital gains realised upon the
revocation of its mandate), net of any incurred capital loss, and is required to pay the
relevant amount to the Italian tax authorities on behalf of the taxpayer, deducting a
corresponding amount from the proceeds to be credited to the Noteholder or using funds
provided by the Noteholder for this purpose. Under the risparmio amministrato regime,
where a sale or redemption of the Notes results in a capital loss, such loss may be deducted

                                               73
from capital gains subsequently realised, within the same securities management, in the same
tax year or in the following tax years up to the fourth. Under the risparmio amministrato
regime, the Noteholder is not required to declare the capital gains in their annual tax return.
Any capital gains realised by Italian resident individuals not holding the Notes in connection
with an entrepreneurial activity, who have entrusted the management of their ®nancial
assets, including the Notes, to an authorised intermediary and have opted for the so-called
risparmio gestito regime will be included in the computation of the annual increase in value
of the managed assets accrued, even if not realised, at year end, subject to a 12.5%
substitute tax, to be paid by the managing authorised intermediary. Under the risparmio
gestito regime, any depreciation of the managed assets accrued at year end may be carried
forward against increase in value of the managed assets accrued in any of the four
succeeding tax years. Under the risparmio gestito regime, the Noteholder is not required to
declare the capital gains realised in their annual tax return.
Any gain obtained from the sale or redemption of the Notes would be treated as part of the
taxable income (and, in certain circumstances, depending on the ``status'' of the Noteholder,
also as part of the net value of the production for IRAP purposes) if realised by an Italian
company or a similar commercial entity (including the Italian permanent establishment of
foreign entities to which the Notes are connected) or Italian resident individuals engaged in
an entrepreneurial activity to which the Notes are connected.
Any capital gains realised by a Noteholder who is an Italian open ended or a closed-ended
investment fund or a SICAV will be included in the result of the relevant portfolio accrued at
the end of the tax period, to be subject to the 12.5% substitute tax.
Any capital gains realised by a Noteholder who is an Italian pension fund (subject to the
regime provided for by articles 14, 14ter and 14quater, paragraph 1, of Legislative Decree No.
124 of 21st April 1993) will be included in the result of the relevant portfolio accrued at the
end of the tax period, to be subject to the 11% substitute tax.
Capital gains realised by non-Italian-resident Noteholders from the sale or redemption of the
Notes traded on regulated markets are not subject to the imposta sostitutiva.
Capital gains realised by non-Italian resident Noteholders from the sale or redemption of the
Notes not traded on regulated markets are not subject to the imposta sostitutiva provided
that the effective bene®ciary: (i) is resident in a country which allows for a satisfactory
exchange of information with Italy; or (ii) is an international entity or body set up in
accordance with international agreements which have entered into force in Italy; or (iii) is a
Central Bank or an entity which manages, inter alia, the of®cial reserves of a foreign State;
or (iv) is an institutional investor which is resident in a country which allows for a satisfactory
exchange of information with Italy, even if it does not possess the status of a taxpayer in its
own country of residence.
If none of the conditions described above is met, capital gains realised by non-Italian resident
Noteholders from the sale or redemption of the Notes not traded on regulated markets are
subject to the imposta sostitutiva at the current rate of 12.5%.
Non-Italian resident individuals or entities without a permanent establishment in Italy to
which the Notes are connected that may bene®t from a double tax treaty with Italy
providing that capital gains realised upon the sale or redemption of the Notes are to be
taxed only in the country of tax residence of the recipient, will not be subject to imposta
sostitutiva in Italy on any capital gains realised upon the sale or redemption of the Notes.

Italian gift tax
Italian inheritance tax has been abolished by Law No. 383 of 18th October 2001 in respect of
gifts made or succession proceedings started after 25th October 2001. Transfers of the Notes
by reason of gift to persons other than the spouse, siblings, ascendants or descendants within
the fourth degree will be subject to the transfer taxes ordinarily applicable to the relevant
transfer for consideration, if due, in respect of the value of the gift received by each person
exceeding e180,759.91.
Moreover, an anti-avoidance rule is provided for in respect of gifts of assets whose sale for
consideration would give rise to capital gains to be subject to the imposta sostitutiva
provided for by Legislative Decree No. 461 of 21st November 1997, as subsequently amended,

                                                74
such as the Notes. In particular, if the donee sells the Notes for consideration within ®ve
years from their receipt as a gift, the donee is required to pay the relevant imposta
sostitutiva as if the gift had never taken place.
Transfer tax
Pursuant to Italian Legislative Decree No. 435 of 21st November 1997, which partly amended
the regime set forth by Royal Decree No. 3278 of 30th December 1923, the transfer of the
Notes may be subject to the Italian transfer tax, which is currently payable at a rate between
a maximum of e0.0083 and a minimum of e0.00465 per e51.65 (or fraction thereof) of the
price at which the Notes are transferred. Where the transfer tax is applied at a rate of
e0.00465 per e51.65 (or fraction thereof) of the price at which Notes are transferred, the
transfer tax cannot exceed e1929.62.
However, the transfer tax does not apply, inter alia, to: (i) contracts entered into on
regulated markets relating to the transfer of securities, including contracts between an
intermediary and its principal or between quali®ed intermediaries; (ii) off-market transactions
regarding securities listed on regulated markets, provided that the contracts are entered into
(a) between banks, SIMs or other ®nancial intermediaries regulated by Decree No. 415 of
23rd July 1996 as superseded by Decree No. 58 of 24th February 1998, or stockbrokers; (b)
between the subjects mentioned in (a) above, on the one hand, and non-Italian residents, on
the other hand; (c) between the subjects mentioned in (a) above, even if non-resident in
Italy, on the one hand, and undertakings for collective investment in transferable securities,
on the other hand; (iii) contracts related to sales of securities occurring in the context of a
public offering (offerta pubblica di vendita) aimed at the listing on regulated markets, or
involving ®nancial instruments already listed on regulated markets; (iv) contracts regarding
securities not listed on a regulated market entered into between the authorised
intermediaries referred to in (ii)(a) above, on the one hand, and non-Italian residents on the
other hand.

Proposed EU Withholding Tax
On 3rd June 2003, the European Council of Economics and Finance Ministers agreed on
proposals under which Member States will be required to provide to the tax authorities of
another Member State details of payments of interest (or similar income) paid by a person
within its jurisdiction to an individual resident in that other Member State, except that, for a
transitional period, Belgium, Luxembourg and Austria will instead be required to operate a
withholding system in relation to such payments (the ending of such transitional period
being dependent upon the conclusion of certain other agreements relating to information
exchange with certain other countries). The proposals are anticipated to take effect from 1st
January 2005.




                                               75
                                  Subscription and Sale
J.P. Morgan Securities Ltd., Mediobanca ± Banca di Credito Finanziario S.p.A., UniCredit Banca
Mobiliare S.p.A., Banca Akros S.p.A. (Gruppo Banca Popolare di Milano), Banca Nazionale del
Lavoro S.p.A., Bancaperta S.p.A. (Gruppo Credito Valtellinese), Banca Popolare di Sondrio
            Â                                                                       Â Â Â Â
S.C.R.L., Credit Agricole Indosuez, ING Belgium SA/NV, Ras®n SIM S.p.A. and Societe Generale
(the ``Managers'') have, pursuant to a Subscription Agreement dated 29 October 2003 (the
``Subscription Agreement'') made between the Issuer and the Managers, agreed to subscribe
for the Notes at the issue price of 99.767% of the principal amount of Notes and the Issuer
has agreed to pay the Managers a combined management and underwriting commission of
0.30% of the principal amount of the Notes. The Issuer will also reimburse the Managers in
respect of certain of their expenses, and has agreed to indemnify the Managers against
certain liabilities incurred in connection with the issue of the Notes. The Subscription
Agreement may be terminated in certain circumstances prior to payment to the Issuer.

United States
Each Manager has acknowledged that the Notes have not been and will not be registered
under the Securities Act and has represented, warranted and agreed that it has not offered
or sold and will not offer or sell any Notes within the United States or to, or for the account
or bene®t of, U.S. persons except in accordance with Rule 903 of Regulation S or pursuant to
any other exemption from the registration requirements of the Securities Act.
The Notes are subject to U.S. tax law requirements and each Manager has represented,
warranted and agreed that it has not offered, sold or delivered and will not offer, sell or
deliver any Notes within the United States or its possessions or to a United States person,
except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph
have the meanings given to them by the U.S. Internal Revenue Code of 1986 and regulations
thereunder.
Each Manager has agreed that, except as permitted by the Subscription Agreement, it will
not offer, sell or deliver the Notes (i) as part of their distribution at any time or (ii) otherwise
until 40 days after the later of the commencement of the offering and the Closing Date
within the United States or to, or for the account or bene®t of, U.S. persons and that it will
have sent to each dealer to which it sells any Notes during the distribution compliance period
a con®rmation or other notice setting forth the restrictions on offers and sales of the Notes
within the United States or to, or for the account or bene®t of, U.S. persons. Each Manager
has further represented and agreed that neither it, its af®liates nor any persons acting on its
or their behalf have engaged or will engage in any directed selling efforts with respect to
the Notes, and it and they have complied and will comply with the offering restrictions
requirement of Regulation S. Terms used in this paragraph have the meanings given to them
by Regulation S under the Securities Act.
In addition, until 40 days after the commencement of the offering, an offer or sale of Notes
within the United States by any dealer that is not participating in the offering may violate
the registration requirements of the Securities Act.

United Kingdom
Each Manager has represented and agreed that:
(i) it has not offered or sold and, prior to the expiry of the period of six months from the
Closing Date, will not offer or sell any Notes to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 (as
amended);
(ii) it has only communicated or caused to be communicated and will only communicate or
cause to be communicated an invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the
``FSMA'')) received by it in connection with the issue or sale of the Notes in circumstances in
which Section 21(1) of the FSMA does not apply to the Issuer; and

                                                76
(iii) it has complied and will comply with all applicable provisions of the FSMA with respect
to anything done by it in relation to the Notes in, from or otherwise involving the United
Kingdom.

Italy
Each Manager has represented and agreed that offering of the Notes has not been cleared
                                        Â
by Commissione Nazionale per le Societa e la Borsa (``CONSOB'') (the Italian Securities
Exchange Commission) pursuant to Italian securities legislation and, accordingly, each
Manager has representated and agreed that no Notes may be offered, sold or delivered, nor
may copies of the Offering Circular or of any other document relating to the Notes be
distributed in Italy, except:
(i) to professional investors (operatori quali®cati), as de®ned in Article 31, second paragraph,
of CONSOB Regulation No. 11522 of 1st July 1998, as amended; or
(ii) in circumstances which are exempted from the rules on solicitation of investments
pursuant to Article 100 of Legislative Decree No. 58 of 24th February 1998 (the ``Financial
Services Act'') and Article 33, ®rst paragraph, of CONSOB Regulation No. 11971 of 14th May
1999, as amended.
Each Manager has further represented and agreed that any offer, sale or delivery of the
Notes or distribution of copies of the Offering Circular or any other document relating to the
Notes in Italy under (i) or (ii) above must be:
(a) made by an investment ®rm, bank or ®nancial intermediary permitted to conduct such
activities in Italy in accordance with the Financial Services Act and Legislative Decree No. 385
of 1st September 1993 (the ``Banking Act''), as amended and any other applicable laws and
regulations; and
(b) in compliance with Article 129 of the Banking Act and the implementing guidelines of
the Bank of Italy pursuant to which the issue or the offer of securities in Italy may need to
be preceded and followed by an appropriate notice to be ®led with the Bank of Italy
depending, inter alia, on the aggregate value of the securities issued or offered in Italy and
their characteristics.

General
No action has been taken by the Issuer or the Managers that would, or is intended to,
permit a public offer of the Notes or possession or distribution of this Offering Circular or
any other offering or publicity material relating to the Notes in any country or jurisdiction
where any such action for that purpose is required. Accordingly, each Manager has
undertaken that it will not, directly or indirectly, offer or sell any Notes or distribute or
publish any offering circular, prospectus, form of application, advertisement or other
document or information in any country or jurisdiction except under circumstances that will
result in compliance with any applicable laws and regulations and all offers and sales of
Notes by it will be made on the same terms.
Without prejudice to the generality of the previous paragraph, each Manager has agreed
that it will obtain any consent, approval or permission which is required for the offer,
purchase or sale by it of Notes under the laws and regulations in force in any jurisdiction to
which it is subject or in which it makes such offers, purchases or sales and it will, to the best
of its knowledge and belief, comply with all such laws and regulations.
Certain of the Managers including J.P. Morgan Securities Ltd., Mediobanca Banca di Credito
Finanziario S.p.A., UniCredit Banca Mobiliare S.p.A. or their af®liates engage or may engage
in various general ®nancing and banking transactions with, and provide ®nancial advisory
services to, the Issuer and its af®liates.




                                               77
                                  General Information
Authorisation
The issue of the Notes was duly authorised by a resolution of the Shareholders' Meeting of
the Issuer dated 4th August 2003 and by a resolution of the Board of Directors of the Issuer
dated 8th October 2003.

Listing
Application has been made to list the Notes on the Luxembourg Stock Exchange. A legal
notice relating to the issue of the Notes and the by-laws (statuto) of the Issuer have been
lodged with the Registrar of Commerce and Companies (Registre du Commerce et des
    Â Â
Societes) in Luxembourg where such documents may be examined and copies obtained.

Clearing Systems
The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg.
The ISIN for this issue is XS0179091425 and the Common Code is 017909142. The WKN code
for this issue is 800633.

No signi®cant change
Save as disclosed in this Offering Circular, there has been no signi®cant change in the
®nancial or trading position of the Issuer and the Issuer and its subsidiaries taken as a whole
(the ``Group'') since 30th June 2003 and there has been no material adverse change in the
®nancial position or prospects of the Issuer or the Group since 31st December 2002.

Litigation
Save as disclosed in this Offering Circular, neither the Issuer nor any member of the Group is
involved in any legal or arbitration proceedings (including any proceedings which are
pending or threatened of which the Issuer is aware) which may have or have had in the 12
months preceding the date of this Offering Circular a signi®cant effect on the ®nancial
position of the Issuer or the Group.

Financial Statements
The auditors of the Issuer are Reconta Ernst & Young S.p.A. of Via Torino 68, 20123 Milan,
Italy, who have audited the Issuer's ®nancial statements, without quali®cation, in accordance
with Italian GAAP for the ®nancial years ended on 31st December 2001 and 31st December
2002.

Documents
Copies of the following documents will be available from the registered of®ce of the Issuer
and from the speci®ed of®ce of the Paying Agent for the time being in Luxembourg so long
as any of the Notes remains outstanding:
(a) the by-laws (statuto) (with an English translation thereof) of the Issuer;
(b) the audited consolidated and non-consolidated ®nancial statements of the Issuer in
respect of the ®nancial years ended 31st December 2001 and 31st December 2002 (in each
case with an English translation thereof);
(c) the most recently published audited consolidated and non-consolidated annual ®nancial
statements of the Issuer (with an English translation thereof);
(d) the audited consolidated and non-consolidated interim ®nancial statements of the Issuer
for the six months ended 30th June 2002 and 30th June 2003;
(e) the most recently published unaudited consolidated and non-consolidated interim
®nancial statements of the Issuer (the Issuer currently prepares unaudited consolidated and
non-consolidated interim ®nancial statements on a semi-annual basis); and
(f) the Subscription Agreement, the Trust Deed and the Agency Agreement (all as de®ned in
the Conditions).



                                                78
                                           ISSUER
                                        AEM S.p.A.
                                  Corso di Porta Vittoria 4
                                        20122 Milan
                                            Italy

                                          TRUSTEE
                       J.P. Morgan Corporate Trustee Services Limited
                                       Trinity Tower
                                   9 Thomas More Street
                                     London E1W 1YT
                                          England

                                PRINCIPAL PAYING AGENT
                                   JPMorgan Chase Bank
                                       Trinity Tower
                                   9 Thomas More Street
                                     London E1W 1YT
                                          England

                                      PAYING AGENT
                             J.P. Morgan Bank Luxembourg S.A.
                                        5, rue Plaetis
                                     L-2338 Luxembourg

                                     LEGAL ADVISERS

      To the Issuer as to English law                   To the Issuer as to Italian law
 Skadden, Arps, Slate, Meagher & Flom (UK) LLP            Chiomenti Studio Legale
                 40 Bank Street                                 Via A. Boito 8
                 Canary Wharf                                    20121 Milan
                London E14 5DS                                       Italy
                    England
To the Managers as to English and Italian law          To the Trustee as to English law
       and the Trustee as to Italian law                        Allen & Overy
                Allen & Overy                                 One New Change
        Corso Vittorio Emanuele II, 284                      London EC4M 9QQ
                 00186 Rome                                        England
                      Italy


                                         AUDITORS
                               Reconta Ernst & Young S.p.A.
                                      Via Torino 68
                                       20123 Milan
                                           Italy

                                      LISTING AGENT
                             J.P. Morgan Bank Luxembourg S.A.
                                        5, rue Plaetis
                                     L-2338 Luxembourg




                                                 79
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