Taking Note of Investor Tax

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1 PROSPECTUS Rede Ferroviária Nacional REFER, E.P. (incorporated with limited liability in the Republic of Portugal) 500,000, % Notes due 2021 Issue Price: % The 500,000, % Notes due 2021 (the "Notes") will be issued by Rede Ferroviária Nacional REFER, E.P. (the "Issuer" or REFER ) on 13 December Interest on the Notes is payable annually in arrear on 13 December in each year (each, an Interest Payment Date ). The interest rate on the Notes will be 4.250% per annum. Payments on the Notes will be made without deduction for or on account of taxes imposed by Portugal to the extent described under Conditions of the Notes Taxation. The Issuer may, at its option, redeem all, but not some only, of the Notes at any time at par plus accrued interest, in the event of certain tax changes as described under "Conditions of the Notes Redemption and Purchase". The Notes mature on 13 December The Notes will constitute direct, unconditional, unsubordinated and unsecured obligations of the Issuer. See Conditions of the Notes Status. Application has been made to Euronext Lisbon Sociedade Gestora de Mercados Regulamentados, S.A. ( Euronext Lisbon ) in its capacity as competent authority under the Portuguese Securities Code ( Código dos Valores Mobiliários ) for the Notes to be listed on Eurolist by Euronext Lisbon. References in this Prospectus to the Notes being listed (and all related references) shall mean that the Notes have been listed on Euronext Lisbon and admitted to trading on Euronext Lisbon. Euronext Lisbon is a regulated market for the purposes of the Investment Services Directive 93/22/EEC. The Notes are issued in dematerialised book-entry (forma escritural) and nominative (nominativos) form. The Notes will be registered by Interbolsa - Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A. ( Interbolsa ) as management entity of the Portuguese Centralised System of Registration of Securities (Central de Valores Mobiliários) ( CVM ). The Notes shall not be issued in bearer form, whether in definitive bearer form or otherwise. The denomination of the Notes shall be 50,000. So long as the Notes are held through Interbolsa, in accordance with applicable rules, and subject to any amendments thereto, the Notes shall be tradeable only in principal amounts of at least 50,000 and integral multiples of 50,000 thereafter. The Notes are rated Aa2 (stable) by Moody s Investors Service, Inc. ( Moody s ) and A (stable) by Standard & Poor s Rating Services, a division of the McGraw Hills Companies Inc. ( Standard & Poor s ). A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. Prospective investors should have regard to the factors described under the section headed Risk Factors in this Prospectus. Joint Lead Managers Barclays Capital Caixa-Banco de Investimento HSBC JPMorgan Société Générale Corporate & Investment Banking 11 December 2006

2 This Prospectus comprises a prospectus for the purposes of Directive 2003/71/EC (the Prospectus Directive ) and the Portuguese Securities Code and for the purpose of giving information with regard to the Issuer and the Notes which, according to the particular nature of the Issuer and the Notes is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer and the rights attaching to the Notes. The Issuer, the members of the Issuer s management body and the members of the Issuer audit committee are responsible for the Prospectus as per Article 149 of the Portuguese Securities Code. The Issuer is also responsible for the Prospectus as per Article 150 of the Portuguese Securities Code. The Issuer s audit committee, appointed by the Government, is responsible for the audit committee report. Salgueiro, Castanheira e Associados, S.R.O.C., member of Ordem dos Revisores Oficiais de Contas (Institute of Statutory Auditors) and an appointed member of the Issuer s audit committee has made the Legal Certification of the Accounts in accordance with the applicable laws in the Republic of Portugal and is therefore responsible for the Legal Certification of the Accounts. PricewaterhouseCoopers & Associados, Sociedade de Revisores Oficiais de Contas, Lda, ( PricewaterhouseCoopers & Associados S.R.O.C., Lda. ) members of Ordem dos Revisores Oficiais de Contas (Institute of Statutory Auditors) have audited the Issuer's accounts in accordance with applicable auditing standards in the Republic of Portugal for each of the two financial years ended on 31 December 2005 and 31 December 2004 ("Accounts") and is therefore responsible for its report on the audit of the Accounts. To the best of the knowledge of the Issuer, the Issuer's management body, the Issuer s audit committee, Salgueiro, Castanheira e Associados, S.R.O.C, and PricewaterhouseCoopers & Associados S.R.O.C., Lda. (which have taken all reasonable care to ensure that such is the case), the information contained in the sections of this Prospectus for which they are responsible is in accordance with the facts and does not omit anything likely to affect the import of such information. The Issuer and the Issuer's management body, having made all reasonable enquiries, confirm that this Prospectus contains or incorporates all information which is material in the issue and offering of the Notes, that the information contained or incorporated in this Prospectus is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this Prospectus are honestly held and that there are no other facts the omission of which would make this Prospectus or any of such information or the expression of any such opinions or intentions misleading. This Prospectus is to be read in conjunction with all documents which are deemed to be incorporated herein by reference (see Documents Incorporated by Reference ). This Prospectus does not constitute an offer of, or an invitation by, or on behalf of, the Issuer or the Managers (as defined in Subscription and Sale below) to subscribe for, or purchase, any of the Notes. The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Managers to inform themselves about and to observe any such restrictions. The Notes have not been and will not be registered under the United States Securities Act of 1933 (the Securities Act ). Subject to certain exceptions, the Notes may not be offered, sold or delivered within the Untied States or to U.S. persons. For a further description of certain restrictions on the offering and sale of the Notes and on distribution of this Prospectus, see Subscription and Sale below. 2

3 No person has been authorised to give any information or to make any representation other than those contained in this Prospectus 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 or on behalf of the Issuer or the Managers (as defined under "Subscription and Sale" below). Neither the delivery of this Prospectus 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 or the date upon which this Prospectus has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented. The Managers have not separately verified 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 or any of them as to the accuracy or completeness of the information contained in this Prospectus or any other information provided by the Issuer in connection with the Notes or their distribution. This Prospectus is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Issuer or the Managers that any recipient of this Prospectus should purchase any of the Notes. Each investor contemplating purchasing Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. In connection with the issue of the Notes, Barclays Bank PLC (the Stabilising Manager ) or any person acting on behalf of the Stabilising Manager may over-allot Notes (provided that the aggregate principal amount of Notes allotted does not exceed 105%. of the aggregate principal amount of the Notes) or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any persons acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. All references in this Prospectus to Euro, euro, and 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 Community as amended. 3

4 Table of Contents Page Risk Factors... 5 Documents Incorporated by Reference Important Accounting Information Conditions of the Notes Use of Proceeds Description of the Issuer Appendix Statement of Beneficial Ownership...38 Appendix List of Beneficial Owners Subscription and Sale General Information Appendix 1 Auditor s Report on the Financial Statements of the Issuer for the year ended 31 December Appendix 2 Auditor s Report on the Financial Statements of the Issuer for the year ended 31 December

5 Risk Factors In making their investment decision, potential investors should carefully consider the merits and risks of an investment in the Notes. In particular, investors should be aware of the following: The Issuer believes that the following factors may affect its ability to fulfil its obligations under the Notes. All of these factors are contingencies that may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring. Factors which the Issuer believes may be material for the purpose of assessing the market risks associated with the Notes are also described below. The Issuer believes that the factors described below represent the principal risks inherent in investing in the Notes, but the inability of the Issuer to pay interest, principal or other amounts on, or in connection with, the Notes may occur for other reasons, which may not be considered significant risks by the Issuer based on information currently available to it or which it may not be currently able to anticipate, and the Issuer does not represent that the statements below regarding the risks of holding the Notes are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Prospectus (including any documents incorporated by reference herein) and reach their own views prior to making any investment decision. Factors that may affect the Issuer s ability to fulfil its obligations relating to the Notes Risks relating to the railway and transport industry REFER s source of revenues include track access charges paid by the railway operators, as approved by the INTF Instituto Nacional do Transporte Ferroviário ( INTF ). This income, together with the financial compensation from the State, should enable the company to cover its operating costs and provide a certain level of sustainable cash flow. REFER s costs relating to the construction and maintenance of the railway infrastructure are entirely funded by the State either on a direct or indirect basis. Caminhos de Ferro Portugueses, E.P. ( CP ), a railway EPE which operates in the areas of the suburban transportation of passengers in Greater Lisbon and Oporto, the inter-city and regional transportation of passengers, the transportation of goods and logistics and the technical management of rolling stock and engine drivers, pays REFER a track access charge for the use of public domain assets. This infrastructure charge is linked to several factors including the cost of maintenance of assets. CP remains the sole entity entitled to the concession of the Portuguese railway transportation, except for the approximately 54 kilometres concession granted to FERTAGUS, S.A. ( FERTAGUS ), a privately owned company which runs the railway link between the two sides of the Tagus River. This concession began in 1999, has a 30 year term and is renewable for a further period of up to 15 years. FERTAGUS also pay REFER an operational tariff for the rent of stations, as occupational tariff for the use of the Coina railway complex (parking, repairing and maintenance of rolling stock), and an infrastructure charge. REFER cannot ensure that the proposed charges and tariffs will continue to be approved by INTF or that the railway operators will continue to, or will on a timely basis, pay the track access charges, operational tariffs, occupational tariffs and infrastructure charges or that the State will continue to compensate any losses as well as fund any and all costs relating to the construction and 5

6 maintenance of the railway infrastructure. A loss of one or more of the referred revenues, if not replaced by new sources of revenue, could adversely affect REFER s business, financial conditions or results of operations. For more information see Description of the Issuer below. Risks relating to the Issuer REFER is a Portuguese State-owned company responsible for managing the infrastructure of the National Railway Network, entrusted with specific responsibilities for infrastructure development, modernisation and management. As an Entidade Pública Empresarial (E.P.E.) REFER is not subject to bankruptcy or to the regime of insolvency applicable to private companies in Portugal. Under Portuguese law, EPEs may only be subject to such proceedings if so determined by a special Decree-Law. The statutory capital of REFER, in the amount of EUR 305,200,000, is fully paid up and cannot be divided or sold in any form. The Portuguese State owns 100% of the capital of REFER. Due to its legal nature the share capital of REFER is not divided into shares and is rather treated in its entirety as statutory capital. However, REFER cannot guarantee that the Portuguese State will not enact any legislation amending its legal nature or take measures that might affect its current status. For more information see Description of the Issuer below. Risks Relating to the Assets of the Issuer A substantial part of the assets of the Issuer are part of the public domain. According to Article 202 of the Portuguese Civil Code, assets which are part of the public domain may not be the object of rights of private parties. Therefore Noteholders will not have recourse to any assets of the Issuer which are part of the public domain. Factors which are material for the purpose of assessing the market risks associated with the Notes The Notes may not be a suitable investment for all investors Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) (ii) (iii) (iv) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained or incorporated by reference in this Prospectus or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where principal or interest is payable in one or more currencies, or the currency for principal or interest payments is different from the potential investor s currency; understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant financial markets; and 6

7 (v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. Risks related to the structure of the Notes The Notes are subject to optional redemption by the Issuer Under the terms and conditions of the Notes (see Conditions of the Notes - Redemption and Purchase ), the Issuer may, subject to certain conditions, prepay the Notes if it is required to increase its payments for tax reasons due to any change in the applicable tax laws. In case of any such prepayment, all outstanding Notes would be redeemable at par with accrued interest. In such circumstances, an investor may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes. Risks related to Notes generally Set out below is a brief description of certain risks relating to the Notes generally: Change of law The conditions of the Notes are based on Portuguese law in effect as at the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to Portuguese law or administrative practice after the date of this Prospectus. Risks related to withholding tax Under Portuguese law, income derived from the Notes issued by Portuguese resident entities will be subject to Portuguese domestic withholding tax, currently assessed at the rate of 20%, applicable both to resident and non-resident corporate or individual investors. Regarding nonresident investors and individual resident investors, the 20% withholding tax rate assessed on income derived from the Notes is final, unless a waiver or a withholding tax exemption applies. Regarding resident corporate investors, the 20% withholding tax rate is on account of the final corporate tax liability. Non-resident investors (both individual and corporate) eligible for the debt securities special tax exemption regime which was approved by Decree-Law 193/2005, of 7 November ( Decree-Law 193/2005 ) and in force as from 1 January 2006, may benefit from an upfront withholding tax exemption, provided that certain procedures and certification requirements are complied with (see Taxation - Taxation in Portugal and eligibility for the Portuguese debt securities tax exemption regime, for these procedures and certification requirements). Failure to comply with these procedures and certifications will result in the application of the Portuguese domestic withholding rate of 20%, or if applicable, in reduced withholding tax rates of up to 15%, pursuant to tax treaties signed by Portugal, provided that the procedures and certification requirements established by the relevant tax treaty are complied with (see Taxation - Taxation in Portugal and eligibility for the Portuguese debt securities tax exemption regime ). Risks related to procedures for collection of Noteholders details It is expected that the direct registering entities, the participants and the clearing systems will follow certain procedures to facilitate the collection from the Noteholders of the information referred to in Risks related to withholding tax above required to comply with the procedures and certifications required by Decree-Law 193/2005. Under Decree-Law 193/2005, the obligation of collecting from the Noteholders proof of their non-portuguese resident status and of the accomplishment with the other requirements for the exemption rests with the direct registering entities, the participants and the entities managing the international clearing systems. A summary of those procedures is set out in Taxation - Taxation in Portugal and eligibility for the Portuguese debt securities tax exemption 7

8 regime. Such procedures may be revised from time to time in accordance with applicable Portuguese laws and regulations, further clarification from the Portuguese tax authorities regarding such laws and regulations and the operational procedures of the clearing systems. While the Notes are registered by Interbolsa, Noteholders must rely on such procedures in order to receive payments under the Notes free of any withholding, if applicable. Noteholders must seek their own advice to ensure that they comply with all applicable procedures and to ensure the correct tax treatment of their Notes. None of the Issuer, the Managers, the Paying Agent (as defined in Conditions of the Notes ) or the clearing systems assume any responsibility therefor. EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required, from 1 July 2005, 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. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) 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). A number of non-eu countries and territories including Switzerland have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from the same date. If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on payment made by a Paying Agent, the Issuer will be required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive. Risks related to the market generally Set out below is a brief description of the principal market risks relating to the Notes, including liquidity risk, and credit risk: No established trading market The Notes will have no established trading market when issued and one may never develop. If a market does develop, it may not be very liquid. Therefore, investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a significant adverse effect on the market value of the Notes. Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) Notes are legal investments for it, (ii) Notes can be used as collateral for various types of borrowing and (iii) other restrictions apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Notes under any applicable riskbased capital or similar rules. 8

9 The credit ratings may not reflect all risks Moody s and Standard & Poor s, both independent credit rating agencies, have assigned a credit rating to the Notes. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. 9

10 Documents Incorporated by Reference This Prospectus should be read and construed in conjunction with the audited non-consolidated annual financial statements (Report and Accounts, exclusively the sections entitled Financial Statements (Demonstrações Financeiras) and Annex to the Balance Sheet and the Profit and Loss Account (Anexo ao Balanço e Demonstração dos Resultados) and the reports entitled Report and Opinion by the Audit Committee (Relatório e Parecer da Comissão de Fiscalização) and Legal Certification of Accounts (Certificação Legal das Contas)) of the Issuer for the financial years ended 31 December 2005 and 31 December 2004 together in each case with the audit reports thereon attached to this Prospectus at Appendix 1 and Appendix 2 respectively, and the unaudited nonconsolidated interim financial statements (Balance Sheet and Profit and Loss Statement) for the six months ended 30 June 2006, which have been previously published or are published simultaneously with this Prospectus and which have been approved by the Comissão do Mercado de Valores Mobiliários or filed with it. Such documents, other than the audit reports which are attached hereto, shall be incorporated in, and form part of this Prospectus, save that any statement contained in a document which is incorporated by reference herein shall be modified or superseded for the purpose of this Prospectus to the extent that a statement contained herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Prospectus. Copies of documents incorporated by reference in this Prospectus may be obtained (without charge) from (i) the registered office of the Issuer, and (ii) the website of the Comissão do Mercado de Valores Mobiliários ( 10

11 Important Accounting Information Investors should read all of this Prospectus. However particular attention is drawn to the fact that in respect of the financial years ended 31 December 2005 and 31 December 2004, the auditors of the Issuer rendered qualified audit reports. The auditor s reports on the audited non-consolidated annual financial statements of the Issuer for the financial years ended 31 December 2005 and 31 December 2004 are set out in full in Appendix 1 and Appendix 2. 11

12 Conditions of the Notes The following is the text of the Conditions of the Notes: The issue of the 500,000, % Notes due 2021 (the "Notes", which expression shall in these Conditions, unless the context otherwise requires, include any further notes issued pursuant to Condition 14 and forming a single series with the Notes) of Rede Ferroviária Nacional REFER, E.P. (the "Issuer") was authorised by the Issuer s Board of Directors on 29 November 2006 and by a Despacho Conjunto of the Secretary of State of Finance and Treasury and the Secretary of State for Transport of 28 November A total of 10,000 Notes shall be issued. The Notes are subject to a fiscal agency agreement dated 13 December 2006 (the Fiscal Agency Agreement ) between the Issuer, Caixa-Banco de Investimento, S.A. as fiscal agent and the paying agent named in it. The fiscal agent and the paying agent for the time being are referred to below respectively as the Fiscal Agent and the Paying Agent (which expression shall include the Fiscal Agent). The statements in these Conditions include summaries of, and are subject to, the detailed provisions and definitions in the Fiscal Agency Agreement. Copies of the Fiscal Agency Agreement are available for inspection during normal business hours at the specified offices of the Paying Agent. In these Conditions, Noteholder and (in relation to a Note) holder means the person in whose name a Note is registered in the records of an affiliated member of Interbolsa (as defined below). The Noteholders are bound by, and are deemed to have notice of all the provisions of the Fiscal Agency Agreement applicable to them. References in these Conditions to the Fiscal Agent and the Paying Agent shall include any successor appointed under the Fiscal Agency Agreement. 1. Form, Denomination and Title 1.1 Form and Denomination The Notes are issued in dematerialised book-entry (forma escritural) and nominative (nominativos) form in the denomination of 50,000 each. The Notes will be registered by Interbolsa- Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A. ( Interbolsa ) as management entity of the Portuguese Centralised System of Registration of Securities (Central de Valores Mobiliários) ( CVM ). The Notes shall not be issued in bearer form, whether in definitive bearer form or otherwise. So long as the Notes are held through Interbolsa, in accordance with applicable rules, and subject to any amendments thereto, the Notes shall be tradeable only in principal amounts of at least 50,000 and integral multiples of 50,000 thereafter. 1.2 Title Each person shown in the records of an affiliated member of Interbolsa as having an interest in the Notes shall be considered the holder of the principal amount of Notes recorded. One or more certificates in relation to the Notes (each a Certificate ) will be delivered by the relevant affiliated member of Interbolsa in respect of its registered holding of Notes upon the request by the relevant Noteholder and in accordance with that affiliated member's procedures pursuant to article 78 of the Portuguese Securities Code. Title to the Notes passes upon registration in the records of an affiliated member of Interbolsa. Any Noteholder will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any 12

13 interest or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the Noteholder. 2. Transfers of Notes A Note may be transferred in accordance with the applicable procedures established by the Portuguese Securities Code and the regulations issued thereunder, Interbolsa and the relevant affiliated member of Interbolsa through which such Notes are held. 3. Status 3.1 Status The Notes are direct, unconditional, unsubordinated and (subject to the provisions of Condition 4.1) unsecured obligations of the Issuer and rank and will rank pari passu, without any preference among themselves. The payment obligations of the Issuer under the Notes shall, save for such exceptions as may be provided by applicable laws and subject to Condition 4.1, at all times rank at least equally with all its other present and future outstanding unsecured and unsubordinated obligations. 4. Negative Pledge 4.1 Negative Pledge So long as any of the Notes remains outstanding the Issuer will not create or have outstanding any mortgage, charge, lien, pledge or other security interest (each a "Security Interest") upon, or with respect to, any of its present or future business, undertaking, assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness (as defined below), unless the Issuer, in the case of the creation of a Security Interest, before or at the same time and, in any other case, promptly, takes any and all action necessary to ensure that: (a) all amounts payable by the Issuer under the Notes are secured by the Security Interest equally and rateably with the Relevant Indebtedness; or (b) such other Security Interest or other arrangement (whether or not it includes the giving of a Security Interest) is provided as is approved by an Extraordinary Resolution (as defined in the Fiscal Agency Agreement) taken in accordance with the provisions of the Portuguese Companies Code. 4.2 Interpretation For the purposes of these Conditions: "Relevant Indebtedness" means (i) 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 securities which are for the time being quoted, listed or ordinarily dealt in on any stock exchange, over-the-counter or other securities market, and (ii) any guarantee or indemnity in respect of any such indebtedness. 5. Interest 5.1 Interest Rate and Interest Payment Dates The Notes bear interest from and including 13 December 2006 at the rate of 4.250% per annum, payable annually in arrear on 13 December in each year (each an "Interest Payment Date"). The first payment (representing a full year's interest) shall be made on 13 December

14 5.2 Interest Accrual Each Note will cease to bear interest from and including its due date for redemption unless 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 it shall continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder, and (b) the day seven days after the Fiscal Agent has notified Noteholders of receipt of all sums due in respect of all the Notes up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant Noteholders under these Conditions). 5.3 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. 6. Payments 6.1 Method of Payment Payments in respect of the Notes will be made by transfer to the registered account of the Noteholders maintained by or on behalf of it with a bank that processes payments in euro, details of which appear in the records of the relevant affiliated member of Interbolsa at the close of business (a) in the case of principal, on the Payment Business Day (as defined below) before the due date for payment of principal, and (b) in the case of interest, on the Payment Business Day before the due date for payment of interest. 6.2 Payments subject to Applicable Laws Payments in respect of principal and interest on the Notes are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 8. No commissions or expenses shall be charged to the Noteholders in respect of any such payments. 6.3 Delay in Payment Noteholders shall not, except as provided in Condition 5, be entitled to any further interest or other payment for any delay in receiving the amount due as a result of the relevant due date not being a Payment Business Day. "Payment Business Day" means a day which (subject to Condition 9): (a) (b) (c) is or falls after the relevant due date; is a Business Day in Lisbon; and is a TARGET Settlement Day. In this Condition, "Business Day" means, in relation to any place, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in that place and "TARGET Settlement 14

15 Day" means any day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is open. 6.4 Initial Paying Agent The name of the initial Paying Agent and its initial specified office is set out at the end of these Conditions. The Issuer reserves the right at any time to vary or terminate the appointment of any Paying Agent provided that: (a) there will at all times be a Fiscal Agent; (b) there will at all times be at least one Paying Agent (which may be the Fiscal Agent) having its specified office in a major European city which (i) for as long as the Notes are listed on Euronext Lisbon and the rules of that exchange so require, and/or (ii) the Notes are registered by Interbolsa, shall be Lisbon; and (c) there will at all times be a Paying Agent in a Member State of the European Union that is not obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of November Notice of any termination or appointment and of any changes in specified offices will be given to the Noteholders promptly by the Issuer in accordance with Condition Redemption and Purchase 7.1 Redemption at Maturity Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on 13 December The Notes may not be redeemed at the option of the Issuer other than in accordance with this Condition. 7.2 Redemption for Taxation Reasons If: (a) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction (as defined in Condition 8), or any change in the application or official interpretation of the laws, regulations or administrative rulings of a Relevant Jurisdiction, which change or amendment becomes effective after 13 December 2006, on the next Interest Payment Date the Issuer would be required to pay additional amounts as provided or referred to in Condition 8; 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 required 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 Fiscal Agent (who shall make the same available for inspection by Noteholders) (i) a certificate signed by two Directors of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred, 15

16 and (ii) an opinion of independent legal advisers of recognised standing to the effect that the Issuer would become obliged to pay such additional amounts as a result of such change or amendment. 7.3 Purchases The Issuer or any of its Subsidiaries may at any time purchase Notes in any manner and at any price in accordance with Portuguese law. If purchases are made by tender, tenders must be available to all Noteholders alike. The Notes so purchased, while held by or on behalf of the Issuer or any of its Subsidiaries, shall not entitle the holder to vote at any meetings of the Noteholders and shall not be deemed to be outstanding for the purposes of calculating quorums at meetings of the Noteholders or for the purposes of Condition In this Condition, Subsidiary means any entity in respect of which another entity (i) holds (directly or indirectly) the majority of the voting rights or (ii) has (directly or indirectly) the right to appoint or remove a majority of the board of directors or (iii) holds (directly or indirectly) the majority of the share capital. 7.4 Cancellations All Notes which are (a) redeemed by the Issuer or (b) purchased by or on behalf of the Issuer or any of its Subsidiaries will forthwith be cancelled and accordingly may not be held, reissued or resold. 7.5 Notices Final Upon the expiry of any notice as is referred to in Condition 7.2 above the Issuer shall be bound to redeem the Notes to which the notice refers in accordance with the terms of such paragraph. 8. Taxation 8.1 Payment of interest without Withholding All payments in respect of the Notes by or on behalf of the Issuer shall be made 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 any of the Relevant Jurisdictions, 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 after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes 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: (a) to, or to a third party on behalf of, a Noteholder who is liable to the Taxes in respect of the Note by reason of his having some connection with any Relevant Jurisdiction other than the mere holding of the Note; or (b) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or (c) to, or to a third party on behalf of, a Noteholder in respect of whom the information (which may include certificates) required in order to comply with Decree-Law 193/2005 of 7 November, and 16

17 any implementing legislation, is not received; or which does not comply with the formalities in order to benefit from tax treaty benefits, when applicable; or (d) to, or to a third party on behalf of, a Noteholder resident for tax purposes in the Relevant Jurisdiction, or a resident in a tax haven jurisdiction as defined in Order 150/2004, of 13 February 2004, (Portaria do Ministro das Finanças e da Administração Pública n. 150/2004) as amended from time to time, issued by the Portuguese Minister of Finance and Public Administration, or a nonresident legal entity more than 20% of which is owned by entities resident in the Republic of Portugal; or (e) to, or to a third party on behalf of (i) a Portuguese resident legal entity subject to Portuguese corporation tax, or (ii) a legal entity not resident in Portugal acting with respect to the holding of the Notes through a permanent establishment in Portugal. 8.2 Interpretation In these Conditions, "Relevant Jurisdiction" means the Republic of Portugal 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 on the Notes. 8.3 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. 9. Prescription Claims against the Issuer in respect of the Notes will become void unless made within periods of 20 years (in the case of principal) and five years (in the case of interest) from the Relevant Date in respect of the Notes. The Notes shall revert to the Republic of Portugal at the end of 20 years. Interest payments shall revert to the Republic of Portugal at the end of 5 years. In these Conditions, "Relevant Date" means the date on which the payment first becomes due but, if the full amount of the money payable has not been received by the Fiscal Agent 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 Events of Default 10.1 Events of Default If any of the following events occurs: (a) default is made in the payment of any principal or interest due in respect of the Notes or any of them and the default continues for a period of 10 days; or (b) the Issuer fails to perform or observe any of its other obligations in respect of the Notes which failure is incapable of remedy or continues for the period of 30 days following the service by any Noteholder on the Fiscal Agent of notice requiring the same to be remedied; or (c) (i) any Indebtedness for Borrowed Money (as defined below) of the Issuer is declared due and repayable prematurely by reason of an event of default (however described); (ii) the Issuer fails to make any payment in respect of any Indebtedness for Borrowed Money on the due date for payment as extended by any originally applicable grace period; (iii) any security given by the Issuer 17

18 for any Indebtedness for Borrowed Money becomes enforceable and steps are taken to enforce the same; or (iv) default is made by the Issuer in making any payment due under any guarantee and/or indemnity given by it in relation to any Indebtedness for Borrowed Money of any other person PROVIDED THAT the aggregate amount of Indebtedness for Borrowed Money in respect of which one or more of the events listed in (i) to (iv) of this paragraph have occurred equals or exceeds 10,000,000 or its equivalent; or (d) the Issuer ceases or announces an intention to cease to carry on the whole or a substantial part of its business, save for the purposes of reorganisation on terms approved by an Extraordinary Resolution of the Noteholders, or the Issuer stops or announces an intention to 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 (e) any legislative proposal is approved in the Parliament or the Council of Ministers and promulgated by the President of the Republic of Portugal that has as its object or consequence the winding up or liquidation of the Issuer and the commencement of winding up or liquidation proceedings (including the obtaining of a moratorium); or (f) the Issuer makes a conveyance or assignment for the benefit 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 (g) it is or will become unlawful for the Issuer to perform or comply with any of its obligations under or in respect of the Notes or any of such obligations are or become unenforceable or invalid; or (h) any regulation, decree, consent, approval, licence or other authority necessary to enable the Issuer to perform its obligations under the Notes or for the validity or enforceability thereof expires or is withheld, revoked or terminated or otherwise ceases to remain in full force and effect or is modified in a manner which adversely affects any rights or claims of any of the Noteholders; or (i) assets of the Issuer exceeding 10,000,000 in value shall be seized or expropriated by any authority and remain so for 60 days; or (j) a moratorium shall be declared in respect of all or any Indebtedness for Borrowed Money of the Republic of Portugal or any guarantee of Indebtedness for Borrowed Money of the Republic of Portugal; or (k) (i) any legislative proposal is approved in the Parliament or by the Council of Ministers and promulgated by the President of the Republic of Portugal that has as its object or consequence the Issuer ceasing to be an "entidade pública empresarial" (EPE) enjoying legal personality, administrative and financial autonomy with its own estate as provided for in number 1 of article 1 of its by-laws or any change in the regime applicable to the winding up and liquidation of EPE's; or (ii) the Issuer ceases to be wholly owned by the Republic of Portugal or the Republic of Portugal no longer has effective control and supervision over the Issuer; or (l) the Issuer ceases to develop its core business of being an infrastructure provider of the railway services in the Republic of Portugal as described in number 1 of article 2 of its by-laws, save on terms approved in writing by an Extraordinary Resolution of the Noteholders; or (m) any event occurs which, under the laws of the Republic of Portugal, has or may have, an analogous effect to any of the events referred to in subparagraphs (d) to (g) above, 18

19 then any Note may, by notice in writing given to the Fiscal Agent at its specified office by the holder, be declared immediately due and payable whereupon it shall become immediately due and payable at its principal amount together with accrued interest without further formality Interpretation 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 any notes, bonds, debentures, debenture stock, loan stock or other securities or any borrowed money or any liability under or in respect of any bank loan or acceptance or acceptance credit. 11. Common Representative The Noteholders shall at all times be entitled to appoint and dismiss a Common Representative by Resolution. Upon the appointment of a new Common Representative by the Noteholders pursuant to this Condition, any previously appointed and dismissed Common Representative will immediately cease its engagement and will be under the obligation immediately to transfer to the new Common Representative appointed by the Noteholders all documents and information then held by such Common Representative pertaining to the Notes. 12. Notices So long as the Notes are listed on Euronext Lisbon and the rules of Euronext Lisbon so require, all notices to the Noteholders will be valid if published in the Euronext Lisbon Bulletin and made available at the Comissão do Mercado de Valores Mobiliários internet site ( The Issuer may publish notices in other publications at its sole discretion. The Issuer shall also ensure that notices are duly given or published in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Notes are for the time being listed or traded. Without prejudice to the preceding sentence, if the Notes cease to be listed on Euronext Lisbon, all notices to the Noteholders will be valid if mailed to them at their respective addresses recorded in the respective register of Noteholders of the affiliated members of Interbolsa through which the Notes are held. Any notice shall be deemed to have been given on the date of publication or, if so published more than once or on different dates, on the date of the first publication, or, if applicable, on the day after being so mailed. 13. Meetings of Noteholders and Modification 13.1 Meetings of Noteholders The Fiscal Agency Agreement contains provisions for convening meetings of Noteholders. Meetings of the Noteholders to consider any matter affecting their interests, including the modification or abrogation of any of these Conditions by Extraordinary Resolution and the appointment or dismissal of a Common Representative are governed by the Portuguese Companies Code. Meetings may be convened by the Common Representative or by the chairman of the general meeting of shareholders of the Issuer before the appointment of, or in case of refusal to convene the meeting by, the Common Representative, and shall be convened if requested by Noteholders holding not less than 5% in principal amount of the Notes for the time being outstanding. To each Note corresponds one voting right. Resolutions (other than Extraordinary Resolutions) are passed by a majority of the votes cast whatever principal amount of the Notes held or represented by the persons present at the meeting. At any meeting the business of which includes consideration of proposals for, inter alia, the modification or abrogation of certain of the provisions of these Conditions, the necessary proportion 19

20 of Notes required for passing such Extraordinary Resolution will be a majority consisting of not less than 50% of the aggregate principal amount of Notes than outstanding, or at any adjourned such meeting not less than two-thirds of the votes cast. Resolutions passed at any meeting of the Noteholders will be binding on all Noteholders, whether or not they are present at the meeting or have voted against the approved resolutions Modification of Fiscal Agency Agreement The Issuer shall only permit any modification of, or any waiver or authorisation of any breach or proposed breach of or any failure to comply with, the Fiscal Agency Agreement, if to do so could not reasonably be expected to be prejudicial to the interests of the Noteholders Notification to the Noteholders Any modification, abrogation, waiver or authorisation in accordance with this Condition 13 shall be binding on the Noteholders and shall be notified by the Issuer to the Noteholders as soon as practicable thereafter in accordance with Condition Further Issues The Issuer is at liberty from time to time without the consent of the Noteholders to create and issue further notes or bonds (whether in bearer or nominative form) either (a) ranking pari passu in all respects (or in all respects save for the first 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) or (b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may determine at the time of the issue. 15. Governing Law and Submission to Jurisdiction 15.1 Governing Law The Fiscal Agency Agreement and the Notes are governed by, and will be construed in accordance with, the laws of the Republic of Portugal Sovereign Immunity The Issuer irrevocably and unconditionally waives and agrees to the fullest extent permitted by law not to raise with respect to the Fiscal Agency Agreement or the Notes any right to claim sovereign or other immunity from jurisdiction or execution and any similar defence, and to the fullest extent permitted by law irrevocably and unconditionally consents to the giving of any relief or the issue of any process, including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment made or given in connection with any legal action or proceedings arising out of or in connection with the Notes. 20

21 Use of Proceeds The net proceeds of the issue of the Notes, amounting to a maximum of 500,000,000, will be applied by the Issuer for the refinancing of its short term debt. 21

22 Description of the Issuer Description of the Issuer Introduction REFER was incorporated as an Entidade Pública Empresarial ( EPE ) for an indefinite period of time by Decree-Law 104/97, of 29 April 1997, as the Portuguese State-owned company responsible for managing the infrastructure of the National Railway Network, entrusted with specific responsibilities for infrastructure development, modernisation and management. The registered office of REFER is at Estação de Santa Apolónia, Largo dos Caminhos de Ferro, , Lisbon, Portugal and its telephone number is REFER is tax payer number and is registered with the Lisbon Commercial Registration Office. REFER s aim is to build, maintain and operate the National Railway Network, on behalf, and by delegation, of the Portuguese State, efficiently and effectively, guaranteeing quality, reliability and safety, protecting the environment and contributing to greater use of the railways. REFER enjoys administrative and financial autonomy and is subject to the supervision of the Ministry of Finance and of Public Administration and the Ministry of Public Works, Transport and Communications. Their oversight powers encompass the power to authorise or approve financing and investment plans, documents relevant to accounts, application of income and utilisation of reserves/capital endowments or other amounts provided by the State Budget and European Union funds. Additionally, the Portuguese State ensures that all REFER s infrastructure investments are fully funded and that any shortfalls in amounts due to REFER by the commercial operators are duly covered. As a Portuguese State-owned company, and an EPE REFER is not subject to winding up, liquidation and insolvency rules applicable to private companies. Under Portuguese law EPEs may only be subject to such proceedings if so determined by a special Decree-Law. Ownership and Capital Structure As at the date hereof, REFER has a statutory capital of 305,200,000, which is fully paid up. The statutory capital cannot be divided or sold in any form. As sole owner of the statutory capital of REFER, the Republic of Portugal acts pursuant to Decree-law 558/99 of 17 December and in accordance with public interest. Due to the legal nature of REFER as an EPE, its share capital is not divided into shares and is rather treated in its entirety as statutory capital (as per article 16 of the company s bylaws). The statutory capital of REFER can be increased by means of the contribution of cash or assets, either through the Portuguese State Budget or pursuant to a decision by the Minister of Finance and the Minister in charge of the railway sector. The decrease of REFER s statutory capital depends upon a decision taken by the Ministers referred to above. The Railway Sector Framework EC Directive 91/440/EEC (which was subsequently amended by EC Directive 2001/12/EC of 26 February 2001) and the General Ground Transport Law (Lei de Bases do Sistema de Transportes Terrestres) (Law 10/90 of 17 March 1990) laid down the guidelines for the restructuring of the national rail system. They emphasised the need to separate rail infrastructure management from the provision of transport services. In 1996 the Portuguese Government decided to develop a modernisation plan for the Railways, comprising restructuring, financial overhaul and investment in 22

23 infrastructure, leading to a reduction in operational costs and capacity increase, and provision of an adequate public service. The Government defined the general lines for this reorganisation and divided the sector into three bodies: - a Railway Regulator, whose main objective would be to regulate the activities of rail operators and infrastructure managers and promote safety, quality, and preservation of the environment; - an infrastructure management company which would be responsible for ensuring rail infrastructure installation, development and maintenance and management of command and control functions; and - Transport operators which would be responsible for passenger and freight services (most notably Caminhos de Ferro Portugueses, E.P. ( CP )). With the creation of REFER, CP, (previously both infrastructure manager and railway operator), handed over to REFER its activities and assets related to the management of infrastructure. At the same time, REFER assumed all the rights and obligations and the assets of the offices for the Lisbon and Oporto rail networks, and for the installation of a rail line on the Bridge 25 de Abril (formerly managed by three separate state agencies). The European Commission considers greater integration of the railway sector of the European Union an essential ingredient in creating the internal market and achieving sustainable mobility. It also considers that revitalising European railways, by way of broader access for international freight to the Trans-European Rail Freight Network, requires fair competition between road and rail transport, which specifically means giving due consideration to the various external effects such as environmental considerations, which have a bearing on the relative advantages of road and rail transport. Appropriate pricing systems for use of the railway system, combined with appropriate pricing systems for other types of transport infrastructure and with the existence of competitive operators, will allow for a balance to be struck between different modes of transport. Pricing and capacitysharing schemes must provide all companies with equitable and non-discriminatory access and seek, as far as possible, to satisfy the needs of all users and all types of traffic. Directive 2001/14/EC, on the sharing of railway infrastructure capacity, application of infrastructure user fees and safety certification, therefore revoked various previous regulations and directives and adjusted the legislative context to the needs and objectives set out for the sector. This directive has been transposed by Decree-Law no. 270/2003, of 28 October The Decree-Law defines the conditions for the rendering of railway transportation services and management of the railway infrastructure, aiming at the financial balance of the infrastructure manager. The transposition operated by the above mentioned Decree-Law emphasizes and confirms the central role of REFER in the definition of railway infrastructure in Portugal. The new legislation is mainly aimed at: - developing a legal and economic framework that favours access to freight operators market and guarantees healthy competition; - enabling user fees to be set so as to adequately remunerate the infrastructure manager s ordinary business without burdening the operators; - strengthening the powers of the National Institute of Rail Transport ( INTF ), namely regulatory powers; and - surveillance powers. 23

24 INTF is now responsible for regulating and supervising the railway sector, solving conflicts between operators and managers of the infrastructure, licensing new operators and issuing security certificates. The new legislation also aimed at the publication by REFER of a Network Directory ( Directório de Rede ), a comprehensive public document on the technical specifications of the railways network, in order to guarantee that access to the network is transparent and not discriminatory. REFER s Sources of Revenues REFER s sources of revenue include Track Access Charge ( TAC ) paid by the railway operators. This income, together with the financial compensation from the State, should enable the company to cover its operating costs and provide a certain level of sustainable cash flow. The TAC should be gradually directed towards full coverage of REFER s operating costs (Art. 8 of the Decree-Law 104/97 and Art. 19 of REFER s statutes). REFER s costs relating to the construction and maintenance of the railway infrastructure are entirely funded by the State either on a direct or an indirect basis. Pursuant to Art. 11, nr. 3 of the Law 10/90 and Art. 12 of REFER s statutes, the Government shall provide adequate protection of the company s economic and financial stability and shall ensure that the company is able to service the loans assumed by REFER to finance the construction and maintenance of the railway infrastructure, so as to avoid any obstacles to the modernisation policy of national railway infrastructure. Since REFER s inception, the Portuguese State has opted to encourage the company to seek the most competitive funding sources in the market place, whilst providing an explicit State guarantee for the total duration of the loans, as the main instrument for the Government s financial support to the company. Thus, as at 31 December 2005, the company s financial obligations benefiting from the Portuguese State guarantee represented 62% of the medium and long term debt of REFER. This State support policy towards REFER has been pursued in 2005 and Additionally, and with the Portuguese State s advice and support, REFER has successfully concluded the process for the obtention of an international public rating by Standard & Poor s and Moody s. Standard & Poor s has assigned an A (stable outlook) and Moody s an Aa2 (stable outlook). Railway Operators Since the issue of Decree-Law 104/97, CP is exclusively a railway operator. Its responsibilities include: - suburban transportation of passengers in the Greater Lisbon area (USGL); - suburban transportation of passengers in the Greater Oporto area (USGP); - inter-city and regional transportation of passengers (UVIR); - transportation of goods and logistics (UTML); and - technical management of rolling stock and engine drivers (UMAT). CP is also an EPE enjoying a status identical to that of REFER. CP pays REFER a TAC for the use of public domain assets. This infrastructure charge is linked to several factors including the cost of maintenance of assets. CP remains the sole entity entitled to the concession of the Portuguese railway transportation, with the exception only of the concession of approximately 54 kilometres granted to FERTAGUS, S.A. ( FERTAGUS ), a privately owned company which runs the railway link between the two banks of the Tagus. This concession began in 1999, has a duration of 30 years and is renewable for a further period of up to 15 years. 24

25 FERTAGUS must pay REFER an operational tariff for the rent of stations, an occupation tariff for the use of the Coina railway complex (parking, repairing and maintenance of rolling stock), and an infrastructure charge. The concession contract between FERTAGUS and the Portuguese State sets the TAC to be paid by FERTAGUS in the event that traffic volume exceeds minimum defined levels. Below this threshold, REFER is paid by the Portuguese State. This minimum traffic volume levels have been reached in Regulatory Institute The National Institute of Rail Transport ( INTF ) was created pursuant to Decree-Law 299-B/98, of 29 September Its key objectives are to: - promote and regulate a legal, economic and technical framework with clear incentives for the safety and efficiency of the railway sector; - promote growth and competitiveness while satisfying the needs of the population and helping the socio economical development of the country; and - work in a interactive manner with the Government and all other players in the sector, including REFER, the operators and end users. Management, Audit Committee and Employees As a company fully owned by the Portuguese State, the management of REFER is conducted by a Board of Directors appointed by the Government. The present Board of Directors was appointed on 26 October Members of the Board of Directors of REFER as at the date hereof are as follows: Board of Directors Luís Sousa Pardal (President) Alfredo Vicente Pereira (Vice-President) Alberto Castanho Ribeiro Romeu Costa Reis Carlos Alberto Fernandes The Board of Directors meets regularly once every month and on an extraordinary basis whenever convened by the President, either at his initiative or at the request of any other Board Member. The decisions of this corporate body are only valid if taken in meetings attended by the majority of the members of the Board of Directors. The company is bound: (a) by the joint signature of two Board Members, one being the President or the Vice-President; (b) by the signature of one Board Member, within the scope of its delegation of powers; and (c) by the signature of an attorney, within the scope of the powers granted and limited by the respective power of attorney. The audit and monitoring of the activity of the Board of Directors of REFER is carried out by its Audit Committee, appointed by a joint governmental order issued by the Minister of Finance and the Minister in charge of the railway sector. The members of the Audit Committee as at the date hereof are as follows: José António Coelho Alves Portela (President) 25

26 Salgueiro, Castanheiro e Associados, SROC, represented by Issuf Ahmad Hilário Manuel Marcelino Teixeira. The Audit Committee meets whenever called by the President, either at its initiative or at the request of any other Committee Member. The business address of the Directors and of the Audit Committee Members is Rua de Santa Apolónia 53, Lisboa, Portugal. There are no potential conflicts of interest between the private interests or other duties of the Directors or of the Audit Committee Members and their duties to REFER. At 30 June 2006 REFER had a total operating staff of 3,652 employees. For the period December 2004 to June 2006, the average number of workers of REFER was as follows: Jun-06 Average number of workers 4,362 4,024 3,652 The General Secretary of REFER is Maria Toioko Ramos, whose business address is Rua de Santa Apolónia 53, , Lisbon, Portugal. REFER has designated Alberto Manuel Almeida Diogo as its representative for relations with the market. Contact Details Business address: Estação de Santa Apolónia 53, , Lisbon, Portugal; Phone no.: Fax no.: REFER s internet site is 26

27 Litigation At 30 June 2006, REFER had the following pending legal proceedings: Ongoing legal proceedings Total Provision Labour relations 8,673, % Other 9,354, % There has been no material change in pending legal proceedings since 30 June In addition, as at 30 June 2006 there were judicial proceedings in progress related to expropriations of about 3,439,042. As all expropriations are to be considered as an investment, REFER s policy is to create no provisions on this item. Financial Year The financial year of REFER is the calendar year. Debt Structure Outstanding Outstanding Maturity Fixed/Floating 31Dec05 30Jun06 (million euro) Guaranteed by the Republic of Portugal EIB - CP II E Jun-12 Floating EIB - CP II B Sep-11 Fixed EIB - CP III Northern Line-B Jun-22 Floating EIB - Douro Line Sep-16 Floating EIB - Tagus Rail Crossing Sep-16 Floating EIB - Tagus Rail Crossing B Sep-17 Floating EIB - Tagus Rail Crossing C Sep-18 Fixed ( 50m)/Floating EIB - Minho Line A Sep-18 Fixed ( 50m)/Floating EIB - CP III Northern Line-D Sep-20 Floating EIB - Lisbon-Algarve Line A Sep-21 Floating EIB - Minho Line B Sep-21 Floating EIB - CP III/2 - Northern Line A Mar-22 Floating EIB - CP III/2 - Northern Line B Dec-23 Floating EIB - Suburban Lines Jun-24 Floating 27

28 EIB - Lisbon-Algarve Line B Mar-12 Floating EIB - Suburban Lines B Sep-25 Fixed Schuldschein BHH Aug-10 Floating Schuldschein ABN Apr-11 Floating Schuldschein West LB Oct-12 Floating Not guaranteed by the Republic of Portugal Logo Securities 1 (Wrap) Jan-08 Floating Logo Securities 2 (Wrap) Jan-09 Floating REFER Eurobond 2005/ Mar-15 Fixed At the date of this Prospectus, the Notes do not benefit from any security interest (garantia especial) granted by the Issuer or any third party. Recent Developments At the level of infrastructure capacity management, advances are being made both in effective operational control and in adopting new support mechanisms and applications. This is the area of the company s business where on-going modernisation work has the greatest impact, at the same time reducing employee numbers and altering processes and behaviours. In terms of investment in long-term infrastructure, REFER is completing the operational programme for the period This programme is the reference and support tool used in drawing up REFER s multi-year investment and maintenance plans, with the aim of guaranteeing the parameters that are a condition of the network s ability to deliver the reliability and quality inevitably required by the different types of services provided by the operators. Conscious that information technologies play an increasingly prominent role in the organisation of a modern company, REFER continues to make considerable efforts in this area, integrating the company with the world wide web and improving and extending use of the SAP system. Information about subsidiaries Company Headquarters Share capital FERBRITAS Empreendimentos Industriais e Comerciais, S.A. INVESFER Promoção e Comercialização de Terrenos e Edifícios, S.A. REFER TELECOM Serviços de Rua José da Costa Pedreira no 11 Lisbon Palácio de Coimbra Rua de Santa Apolónia no 51 Lisbon Estação de Santa Apolónia Holding % Balance sheet value 6,746, % 6,640, , % 9,892, % 9,892,518 28

29 Telecomunicações, S.A. CPCOM Exploração de Espaços Comerciais da CP, S.A. RAVE Lisbon Av. da República, 90 Galeria Fracção 4 Lisbon Av. D.João II, Lote , 1º Piso Parque das Nações Lisbon 517, % 414,247 2,279, % 911,602 Sources and Application of Funds The investments made by REFER are made in the capacity of agent of the State and, therefore, such investments do not reflect an investment policy of the company itself, but rather the government s options with respect to the railway sector. The following financial information is derived substantially from the 2004 and 2005 audited annual accounts and report and the June 2006 unaudited interim accounts In 2004, REFER invested a total of 494,179 million, corresponding to 78% of what had been planned. Of this total, just over 17 million were directed at investments not covered by PIDDAC (the Central Administration Investment and Development Expenditure Plan), consisting essentially of current infrastructure investments, in addition to general studies and operation investments. As shown by an analysis of the following table, PIDDAC and EU funds fell very short of covering the actual investment. Therefore, the bulk of financial needs were met by loans. Investments made by REFER in 2004 (thousand euro) PROGRAMS Budget (a) Carried out (b) PIDDAC Financial Coverage EU Financing Other (b)/(a) (%) National Railway Network General Network Reinforcement of 25 de Abril Bridge Structure National Railway Network Oporto Metropolitan Area National Railway Network Lisbon Metropolitan Area

30 (thousand euro) Multimodality Total Investment in Long Duration Infrastructure - PIDDAC Total Other Investments Total REFER Investments In 2005, REFER invested about million, of which million (96%) were invested in projects included in the PIDDAC, for a 80% completion rate compared to what had been planned. Of the total investment, 1.4% was spent in other investments, of which we emphasise general studies and current infrastructure investments. Investments made by REFER in 2005 (thousand euro) PROGRAMS Reviewed 2005 budget (a) Carried out (b) Financial Coverage PIDDAC E.U. Financ. Others (b)/(a) (%) Integration of the Territory s Structural Corridors in the Trans- European Transport Network Development of Urban Accesses Intermodal Coordination Development of Regional and Interregional Accesses Safety, Quality and Efficiency of the Transport System Total Investment

31 in Long-duration Infrastructures PIDDAC Total Investment Not PIDDAC Total REFER Investments June 2006 By the beginning of 2006, the need to concentrate efforts in priority projects led to a period of relative uncertainty which resulted in a substantial delay in the execution of the investment program. As at 30 October 2006, the revised budget for 2006 was approximately million. Investments made by REFER in 2006 (thousand euro) PROGRAMS 2006 budget (a) Carried out Financial Coverage (b) PIDDAC E.U. Financ. Others (b)/(a) (%) Integration of the Territory s Structural Corridors in the Trans- European Transport Network Development of Urban Accesses Intermodal Coordination Development of Regional and Interregional Accesses Safety, Quality and Efficiency of the Transport System Total Investment in Long-duration Infrastructures PIDDAC Total Investment

32 Not PIDDAC Total REFER Investments Principal Establishments REFER s real estate properties, including Estação de Santa Apolónia, its headquarters, form part of the railway sector public domain. Hence, it includes the railway platforms and all the buildings (such as the station buildings) which are adjacent to the railway. These properties are located throughout the Portuguese territory where the railway service is or has been provided. 32

33 Taxation The following is a summary of certain Portuguese and EU tax consequences with respect to the Notes. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular Noteholder, including tax considerations that arise from rules of general application or that are generally assumed to be known to Noteholders. This discussion is based on Portuguese law as it stands at the date of this prospectus and is subject to any change in law that may take effect after such date. Prospective investors in the Notes should consult their professional advisers with respect to particular circumstances and the effects of state, local or foreign laws to which they may be subject. Noteholders who are in doubt as to their tax position should consult their professional advisers. Taxation in Portugal and eligibility for the Portuguese debt securities tax exemption regime Economic benefits derived from interest, amortisation, reimbursement premiums and other instances of remuneration arising from Notes issued by private entities are designated as investment income for Portuguese tax purposes. Investment income on the Notes paid to a Noteholder (who is the effective beneficiary thereof (the Beneficiary )) considered to be resident in the Portuguese territory for tax purposes or to a non- Portuguese resident having a permanent establishment therein to which income is imputable, is subject to withholding tax at a rate of 20%, except where the Beneficiary is either a Portuguese resident financial institution (or a non-resident financial institution having a permanent establishment in the Portuguese territory to which income is imputable) or benefits from a reduction or a withholding tax exemption as specified by current Portuguese tax law. In relation to Beneficiaries that are corporate entities resident in the Portuguese territory (or non residents having a Permanent establishment therein to which income is imputable), withholding tax is treated as a payment in advance and therefore such Beneficiaries are entitled to claim appropriate credit against their final corporate income tax liability. In relation to Beneficiaries that are individuals resident in Portuguese territory, withholding tax shall be considered as final. Investment income on the Notes paid to Beneficiaries considered to be non-residents in the Portuguese territory (and having no permanent establishment herein to which income is imputable) is also subject to a final withholding tax rate of 20%. Reduction at source may be available in accordance with any applicable double taxation treaty, subject to compliance with certain procedures and certification requirements required by the Portuguese tax authorities, aimed at verifying the non-resident status and eligibility for the respective Tax Treaty benefits. Pursuant to Decree-Law 193/2005, as amended from time to time, investment income paid to non- Portuguese resident Noteholders, in respect of debt securities registered with a clearing system recognised by the Portuguese Securities Code, as well as capital gains derived from a sale or other disposition of such Notes, will be exempt from Portuguese income tax provided that the following conditions are met. Regarding capital gains realised by non-resident entities, the exemption will apply provided that (i) they are not imputable to a permanent establishment located therein, (ii) that the non-resident entities are not residents in a low tax jurisdiction (those countries and territories listed in Portaria 150/2004, of 13 February), (iii) nor held, directly or indirectly, in more than 25% by Portuguese residents, as required by Article 26º of the Portuguese Tax Benefits Statute. Regarding the investment income derived on the Notes, for the withholding tax exemption to apply, Decree- Law 193/2005 requires that: (i) the Noteholders have no place of residence, head office, effective management or permanent establishment in the Portuguese territory to which the income is attributable; (ii) they are not domiciled in a country, territory or region subject to a clearly more 33

34 favourable tax regime included in the blacklist approved by an Order issued by the Portuguese Minister of Finance and Public Administration (currently Portaria do Ministro das Finanças e da Administração Pública n. 150/2004, of 13 February 2004), with the exception of central banks and agencies of a governmental nature in those blacklisted jurisdictions; and (iii) no more than 20% of the shareholding of such non-resident entities is held, directly or indirectly, by Portuguese resident entities. For purposes of application at source of this tax exemption regime, Decree-Law 193/2005 requires completion of certain procedures and certifications. Under these procedures and certifications, that are aimed at verifying the non-resident status of the Noteholder, the Noteholder is required to have the Notes held through an account opened with one the following entities: (i) a direct registering entity, which is an entity affiliated with the clearing system recognised by the Portuguese Securities Code; (ii) an indirect registering entity, which although not assuming the role of the direct registering entities, is a client of the latter; or (iii) entities managing an international clearing system holding an account with a clearing system recognised by the Portuguese Securities Code, which are entities operating within the international market to clear and settle securities transactions. For the purposes of article 2(d) of Decree-Law 193/2005, the Portuguese Government has recognised both the Euroclear System ( Euroclear ) and Clearstream Banking, société anonyme ( Clearstream ) as entities managing an international clearing system. 1. Domestic Cleared Notes - held through a direct registering entity Direct registering entities are required, for purposes of Decree-Law 193/2005, to register the Noteholders in one of two accounts: (i) an exempt account or (ii) a non-exempt account. Registration of the Notes in the exempt account is crucial for the exemption to apply. For this purpose, the registration of the non-resident Noteholders in an exempt account, thus allowing application of the exemption up-front, requires evidence of the non-resident status to be provided by the Noteholder to the direct registering entity as follows: (i) (ii) (iii) Noteholders constituting a central bank, public institution, international body, credit institution, financial company, pension fund or insurance company, with its head office in any OECD country or in a country with which Portugal has entered into a double taxation treaty will be required to prove their non-resident status by providing: (A) its tax identification; (B) a certificate issued by the entity responsible for such supervision or registration confirming the legal existence of the Noteholder and its head office; (C) a declaration of tax residence issued by the Noteholder itself, duly signed and authenticated, if a central bank, public law entity taking part in the public administration (either central, regional or peripheral, indirect or autonomous of the country of the relevant Noteholder) or an international body; or (D) proof of non-residence pursuant to the terms of paragraph (iii) below. Investors constituting either an investment fund or a collective investment scheme domiciled in any OECD country or any country with which Portugal has entered into a double tax treaty, shall make proof of their non-residency by providing any of the following documents: (A) a declaration issued by the entity which is responsible for its registration or supervision or by the tax authorities, confirming its legal existence, domicile and law of incorporation; or (B) proof of non-residence pursuant to the terms of paragraph (iii) below. Other investors will be required to make proof of their non-resident status by way of (A) a certificate of residence or equivalent document issued by the relevant tax authorities; (B) a document issued by the relevant Portuguese Consulate certifying residence abroad, or (C) a document specifically issued by an official entity taking part in the public administration (either 34

35 central, regional or peripheral, indirect or autonomous) of the relevant country; for these purposes, an identification document such as a passport or an identity card or document by means of which it is indirectly possible to presume the relevant tax residence (such as a work or permanent residency permit) are not acceptable. There are rules relating to the authenticity and validity of the above mentioned documents, in particular that the Noteholder must provide an original or a certified copy of the residency certificate or equivalent document. This document must be valid for up to 3 months after the date on which the withholding tax would have been applied and will be valid for a 3 year period starting on the date such document is produced. The Noteholder must inform the direct registering entity immediately of any change in the requirement conditions that may eliminate the tax exemption. 2. Internationally Cleared Notes - held through an entity managing an international clearing system If the Notes are registered in an account with an international clearing system (either with Euroclear or Clearstream) and the management entity of such international clearing system undertakes not to provide registration services to (i) Portuguese tax residents that do not benefit from either an exemption or waiver of Portuguese withholding tax, or (ii) non-resident entities for tax purposes which do not benefit from the above Portuguese income tax exemption, the proof required to benefit from the exemption is as follows: (i) Through presentation of a certificate, on a yearly basis, with the name of each beneficial owner, address, tax payer number (if applicable), the identity of the securities, the quantity held and also the reference to the legislation supporting the exemption or the waiver of Portuguese withholding tax. The following corresponds to the wording and contents of the form of certificate for exemption from Portuguese withholding tax on income from debt securities, as contained in Order ( Despacho ) nº 4980/2006 (second series), published in the Portuguese official diary, second series, nº45, of 6 March 2006, issued by the Portuguese Minister of Finance and Public Administration. CERTIFICATE FOR EXEMPTION FROM PORTUGUESE WITHHOLDING TAX ON INCOME ARISING FROM DEBT SECURITIES (PARAGRAPH 1 OF ARTICLE 17 OF THE SPECIAL TAX REGIME APPROVED BY THE DECREE-LAW 193/2005, OF 7 NOVEMBER 2005) The undersigned Participant hereby declares that he holds debt securities covered by the special tax regime approved by the Decree-Law 193/2005, of 7 November 2005 (the Securities ), in the following securities account number (the Account ) with..... (name and complete address of the international clearing system managing entity). We will hold these Securities in our capacity as beneficial owner or in our capacity as intermediary, holding Securities on behalf of one or more beneficial owners, including ourselves, if applicable, all of whom are eligible for exemption at source from Portuguese withholding tax according to the laws of Portugal. 1. We are: Name:... Residence for tax purposes (full address): Tax ID Number:

36 2. We hereby certify that, from the date hereof until the expiry date of this certificate: A. We are the Beneficial Owner of the following Securities: Security ISIN or Common Code Security description Nominal position and we hereby declare that we are not liable to Portuguese withholding tax, in accordance with the applicable legislation, indicated below: Decree-Law 193/2005, of 7 November 2005 Art. 90 of CIRC (Corporate Income Tax Code) Exemption from withholding tax B. We are intermediaries of the following Securities: Security ISIN or Common Code Security description Nominal position which are held on behalf of: Name:... Residence for tax purposes (full address):.... Tax ID Number:.... and we attach a statement of beneficial ownership, which includes the justification for the exemption of personal or corporate income withholding tax. 3. We hereby undertake to provide the... (name of the international clearing system managing entity) with a document evidencing the exemption of personal or corporate income withholding tax referred in the attached statement of beneficial ownership, whenever the beneficial owner is not a central bank, public institution, international body, credit institution, financing company, pensions fund and insurance company resident in any OECD country or in a country with which Portugal has concluded a Convention for the Avoidance of International Double Taxation, on behalf of which we hold Portuguese debt securities in the Account. 4. We hereby undertake to notify the... (name of the international clearing system managing entity) promptly in the event that any information contained in this certificate becomes untrue or incomplete. 36

37 5. We acknowledge that certification is required in connection with Portuguese law and we irrevocably authorise... (name of the international clearing system managing entity) and its Depository to collect and forward this certificate or a copy hereof, any attachments and any information relating to it, to the Portuguese authorities, including tax authorities. 6. This statement is valid for a period of twelve months as from the date of signature. PLACE: DATE: Authorised Signatory Name Title/Position Authorised Signatory Name Title/Position 37

38 Appendix Statement of Beneficial Ownership The undersigned beneficiary: Name: Address:... Tax ID number:.... Holding via the following financial intermediary: The following securities: Name of the financial intermediary: Account number:... Common /ISIN code: Security name:... Payment date: Nominal position: Hereby declares that he/she/it is the beneficial owner of the above-mentioned securities and nominal position at the payment date / / ; and 2. Hereby declares that he/she/it is not liable to withholding tax, in accordance with the applicable legislation, indicated herein after (tick where applicable): Decree-Law 193/2005, 7 of November 2005 Art. 90 of CIRC (Corporate Income Tax Code) Exemption from withholding tax Art. 9 of CIRC State, Autonomous Regions, local authorities, their associations governed by public law and social security federations and institutions Art. 10 of CIRC General Public Interest Companies, Charities and other non-governmental social entities; exemption by Ministerial Regulation no...., published in the Diário da República Art. 14 of EBF (Tax Incentives Statute) Pension Funds and assimilated funds. Art. 21 of EBF Retirement Savings Funds (FPR), Education Savings Funds (FPE), Retirement and Education Savings Funds (FPR/E) Art A of EBF Venture Capital Investment Funds Art. 24 of EBF Stock Savings Funds (FPA) Other legislation (please give details) This document is to be provided to the Portuguese tax authorities, upon request, pursuant to Article 17 of the Special Tax Regime approved by the Decree-Law 193/2005 of 7 November

39 Authorised signatory: Name:... Title:... Signature:... (ii) * * * * * Alternatively, through a yearly declaration that states that the beneficial owners are exempt or not subject to withholding tax. This declaration is complemented with a disclosure list, on each coupon payment date, of each beneficial owner s identification, with address, tax payer number (if applicable), security identification, quantity held, and the reference to the legislation supporting either the tax exemption or the exemption of the withholding tax. The following corresponds to the wording and contents of the form of certificate for exemption from Portuguese withholding tax on income from debt securities, as contained in Regulatory Notice (Aviso) n. 3714/2006 (second series), published in the official diary, second series, no 59, of 23 March 2006 issued by the Portuguese Secretary of State of Tax Affairs. * * * * * STATEMENT FOR EXEMPTION FROM PORTUGUESE WITHHOLDING TAX ON INCOME ARISING FROM DEBT SECURITIES (PARAGRAPH 2 OF ARTICLE 17 OF THE SPECIAL TAX REGIME APPROVED BY THE DECREE-LAW 193/2005, OF 7 NOVEMBER 2005) The undersigned participant hereby declares that he holds or will hold debt securities in accordance with the special tax regime approved by the Decree-Law 193/2005, of 7 November 2005 (the Securities ), in the following securities account number.. (the Account ) with.... (name and complete address of the international clearing system managing entity). We hold or will hold the Securities in our capacity as beneficial owner or in our capacity as intermediary, holding Securities on behalf of one or more beneficial owners, including ourselves, if applicable, all of whom are eligible for exemption at source from Portuguese withholding tax according to Portuguese legislation. 1. We are: Name:..... Residence for tax purposes (full address):.. Tax ID Number: We hereby undertake to provide the.. (name of the international clearing system managing entity) with a list of Beneficial Owners at each relevant record date containing the name, residence for tax purposes, Tax Identification Number and nominal position of Portuguese debt Securities for each Beneficial Owner, including ourselves if relevant, on behalf of which we hold or will hold Portuguese debt securities in the Account. 3. We hereby undertake to notify the.. (name of the international clearing system managing entity) promptly in the event that any information contained in this certificate becomes untrue or incomplete. 39

40 4. We acknowledge that certification is required in connection with Portuguese law and we irrevocably authorise. (name of the international clearing system managing entity) and its Depository to collect and forward this statement or a copy hereof, any attachments and any information relating to it, to the Portuguese authorities, including tax authorities. 5. This statement is valid for a period of twelve months as from the date of signature. PLACE: DATE: Authorised Signatory Name Title/Position Authorised Signatory Name Title/Position 40

41 Appendix List of Beneficial Owners For: Interest due / / Security code (ISIN or Common Code): Securities description: Securities Clearance Account Number: We certify that the above Securities are held on behalf of the following Beneficial owners: Name Tax identification number Residence for tax purposes Quantity of securities Legal basis of the exemption from withholding tax Code (*) Legislation (**) (*) Please indicate the legal basis for the exemption from withholding tax to apply: Code Legal basis of the exemption 1 Special Tax Regime approved by the Decree-Law 193/2005, of 7 November Art. 90 of CIRC (Corporate Income Tax Code) Exemption from withholding tax 3 Art. 9 of CIRC State, Autonomous Regions, local authorities, their associations governed by public law and social security federations and institutions 4 Art. 10 of CIRC General Public Interest Companies, Charities and other nongovernmental social entities 5 Art. 14 of EBF (Tax Incentives Statute) Pension Funds and assimilated funds 6 Art. 21 of EBF Retirement Savings Funds (FPR), Education Savings Funds (FPE), Retirement and Education Savings Funds (FPR/E) 7 Art A of EBF Venture Capital Investment Funds 8 Art. 24 of EBF Stock Savings Funds (FPA) 9 Other legislation (**) This column must be filled out when the code 9 is indicated in the previous column. The two documents referred to in (i) or (ii) above shall be provided by the participants (i.e. the entity that operates in the international clearing system) to the direct register entity through the 41

42 international clearing system managing entity and must take into account the total accounts under their management relating to each Noteholder that is tax exempt or benefits from the waiver of Portuguese withholding tax. The international clearing system managing entity shall inform the direct register entity of the income paid to each participant for each security payment. ***** The absence of evidence of non-residence in respect to any non-resident entity which benefits from the above mentioned tax exemption regime shall result in the loss of the tax exemption and consequent submission to applicable Portuguese general tax provisions. 42

43 EU Savings Directive The EU has adopted a Directive regarding the taxation of savings income. The Directive requires Member States to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person to an individual in another Member State, except that Austria, Belgium and Luxembourg will instead impose a withholding system for a transitional period unless during such period they elect otherwise. 43

44 Subscription and Sale Barclays Bank PLC, Caixa-Banco de Investimento, S.A., HSBC Finance, J.P. Morgan Securities Ltd. and Société Générale (the "Managers") have entered into a Subscription Agreement (the "Subscription Agreement") dated 11 December 2006 with the Issuer. Under the Subscription Agreement, the Managers have jointly and severally agreed, subject to the satisfaction of certain conditions, to subscribe or procure subscribers for the Notes at the issue price of % of the principal amount of Notes, less a combined management, underwriting and selling commission of 0.20%. of the aggregate 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 entitles the Managers to terminate it in certain circumstances prior to payment being made to the Issuer. United States The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation 5 under the Securities Act. Each Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes (a) as part of their distribution at any time or (b) otherwise until 40 days after the later of the commencement of the offering and the Closing Date (as defined in the Subscription Agreement) within the United States or to, or for the account or benefit 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 confirmation 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 benefit of, U.S. persons. 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, except as permitted by the Subscription Agreement: (a) (b) 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 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 or the Guarantor; and 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. Portugal Selling restriction Each Manager has represented, warranted and agreed that (i) no offer has been addressed to more than 100 (non-qualified) Portuguese investors and (ii) no offer has been preceded or followed by 44

45 promotion or solicitation to unidentified investors, or followed by publication of any promotional material. The offer of the Notes is intended for Qualified Investors. Qualified Investors within the meaning of Article 30 of the Portuguese Securities Code includes credit institutions, investment firms, insurance companies, collective investment institutions and their respective managing companies, pension funds and their respective pension fund-managing companies, other authorised or regulated financial institutions, notably securitisation funds and their respective management companies, all other financial companies, securitisation companies, venture capital companies, venture capital funds and their respective management companies, financial institutions incorporated in a state that is not a member state of the European Union that carry out activities similar to those previously mentioned, entities trading in financial instruments related to commodities and regional and national governments, central banks and public bodies that manage debt, supranational or international institutions, namely the European Central Bank, the European Investment Bank, the International Monetary Fund and the World Bank. General Each Manager has undertaken that it will not, directly or indirectly, offer or sell any Notes or distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable securities laws and regulations and all offers and sales of Notes by it will be made on the same terms. 45

46 General Information Authorisation 1. The Issuer has obtained all necessary consents, approvals and authorisations in Portugal in connection with the issue and performance of the Notes. The issue of the Notes was authorised by the Issuer s Board of Directors on 29 November 2006 and a by Despacho Conjunto of the Secretary of State of Finance and Treasury and the Secretary or State for Transport of 28 November Listing 2. Application has been made to Euronext Lisbon for the Notes to be admitted to trading on the regulated market of Euronext Lisbon and to be listed on Eurolist by Euronext Lisbon. The Issuer estimates that the amount of expenses related to the admission of the Notes to trading on Eurolist by Euronext Lisbon to be approximately 10,000. Clearing Systems 3. The Notes have been accepted for clearance through the Central de Valores Mobiliários (the CVM ) managed by Interbolsa. The ISIN for the Notes is PTCPEDOM REFER/06 - NOTES DUE 2021 The address of Interbolsa is Avenida de Boavista 3433, Porto, Portugal. CdVM currently has links in place with Euroclear Bank, S.A. / N.V. ( Euroclear ) and Clearstream Banking, société anonyme ( Clearstream, Luxembourg ) through accounts held by Euroclear and Clearstream, Luxembourg with affiliate members of Interbolsa. No significant change 4. There has been no significant change in the financial or trading position of the Issuer since 30 June 2006 and there has been no material adverse change in the prospects of the Issuer since 31 December Litigation 5. The Issuer is not nor has been involved in any governmental, legal or arbitration proceedings (including any proceedings which are pending or threatened of which the Issuer is aware) during the 12 months preceding the date of this Prospectus which may have or has had in the recent past significant effects on the financial position or profitability of the Issuer Accounts 6. The auditors of the Issuer are PricewaterhouseCoopers & Associados S.R.O.C., Lda, members of Ordem dos Revisores Oficiais de Contas (Institute of Statutory Auditors), who have audited the Issuer's accounts in accordance with applicable auditing standards in the Republic of Portugal for each of the two financial years ended on 31 December 2005 and 31 December PricewaterhouseCoopers & Associados S.R.O.C., Lda. issued a qualified opinion on the 31 December 2005 and 31 December 2004 financial statements which are set out in Appendix 1 and Appendix 2 respectively on pages 47 and 48 of this Prospectus. The Issuer's audit Committee (the Audit Committee ) have also issued qualified opinions on the accounts for each of the two financial years ended 31 December 2005 and 31 December Salgueiro, Castanheira e Associados, S.R.O.C., members of Ordem dos Revisores Oficiais de Contas (Institute of Statutory Auditors), has issued the Legal Certification of Accounts for each of the two financial years ended 31 December 46

47 2005 and 31 December 2004 and is therefore responsible for the Legal Certification of Accounts under the Portuguese Securities Code. Third party information 7. Where information in this Prospectus has been sourced from third parties this information has been accurately reproduced and as far as the Issuer is aware and is able to ascertain from the information published by such third parties no facts have been omitted which would render the reproduced information inaccurate or misleading. The source of third party information is identified where used. Documents 8. For the period of 12 months starting on the date on which this Prospectus is made available to the public, copies (and English translations where the documents in question are not in English) of the following documents will be available from the registered office of the Issuer and the specified offices of the Paying Agent for the time being in Lisbon during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted): (a) the constitutional documents of the Issuer; (b) the audited non-consolidated annual financial statements of the Issuer in respect of the financial years ended 31 December 2005 and The Issuer currently prepares audited accounts on an annual basis. The financial statements of the Issuer are non-consolidated (available at (c) the unaudited non-consolidated interim financial statements of the Issuer for the six months ended 30 June 2006 (available at (e) the Subscription Agreement; (f) the Fiscal Agency Agreement; and (g) a copy of this Prospectus, together with any supplement to this Prospectus. It is expected that the financial statements in respect of the year ended 31 December 2006 will be finalised by 31 March The financial statements may only be published following their approval by the Portuguese Government. Yield 9. The yield on the Notes is expected to the approximately per cent. 47

48 Appendix 1 Auditor s Report on the Financial Statements of the Issuer for the year ended 31 December 2005 PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. Palácio Sottomayor Rua Sousa Martins, 1-3º Lisboa Portugal Tel Fax Audit Report In respect of the Individual Financial Information (Free translation from the original version in Portuguese) Introduction 1 As required by article 245 of the Securities Market Code, we present the Audit Report in respect of the Financial Information included in the Board of Directors Report and the financial statements of Rede Ferroviária Nacional - REFER, E.P., comprising the balance sheet as at December 31, 2005 (which shows total assets of Euro thousand and total shareholder's equity of Euro thousand, including a net loss of Euro thousand), the statements of income by nature and by functions, the cash flow statement for the year then ended and the corresponding notes to the accounts. Responsibilities 2 It is the responsibility of the Company s Board of Directors (i) to prepare financial statements which present fairly, in all material respects, the financial position of the company, the result of its operations and its cash flows; (ii) to prepare historical financial information in accordance with the generally accepted accounting principles in Portugal which is complete, true, timely, clear, objective and licit, as required by the Securities Market Code; (iii) to adopt adequate accounting policies and criteria; (iv) to maintain appropriate systems of internal control; and (v) to disclose any relevant matters which have influenced the activity, the financial position or results of the company. 3 Our responsibility is to verify the financial information included in the documents referred to above, namely if it is complete, true, timely, clear, objective and licit, as required by 48

49 the Securities Market Code, and to issue an independent and professional report based on our audit. Scope 4 Except as discussed in paragraphs nºs 7 and 8 below, we conducted our exam in accordance with the Standards and Technical Recommendations approved by the Institute of Statutory Auditors, which require that we plan and perform the exam to obtain reasonable assurance about whether the financial statements are free of material misstatement. Accordingly, our exam included: (i) verification, on a sample basis, of the evidence supporting the amounts and disclosures in the financial statements, and assessing the reasonableness of the estimates, based on the judgements and criteria of Management used in the preparation of the financial statements; (ii) assessing the appropriateness and consistency of the accounting principles used and their disclosure, as applicable; (iii) assessing the applicability of the going concern basis of accounting; (iv) assessing the overall presentation of the financial statements; and (v) assessing whether the financial information is complete, true, timely, clear, objective and licit. 5 Our exam also covered the verification that the financial information included in the Board of Director s report is in agreement with the remaining documents referred to above. 6 We believe that our exam provides a reasonable basis for our opinion. Qualifications 7 The available information relating to tangible fixed assets, including the fixed assets in construction, it is not considered sufficient, as: i) During 2003 the Company has completed the breakdown by similar categories of the items included within the register relating to the assets transferred to REFER, E.P. from CP - Caminhos de Ferro Portugueses E.P., in agreement with Decree - Law nº104/97, Annexes III, IV e V, amounting to some Euro thousand. However, the Company has not yet performed a physical count to confirm the existence, operating conditions and reasonableness of the valuation of the above mentioned assets. Therefore, it is not possible to ensure the completeness and accuracy of the accounting records, supporting the Financial Statements, mainly in what relates to the assets transferred from CP Caminhos de Ferro Portugueses, E.P.; ii) Since its incorporation in 1997, it has been Company s policy not to depreciate the state owned fixed assets relating to long life infrastructures (ILD's), either transferred to the Company at the start-up moment, or build by it, being the subsidies received to finance those investments considered as Reserves and included in Equity (in accordance with paragraph 4 b) of Article 22 of the Company s Articles of Association, approved by Decree Law nº 104/97 of April, 22), and not as Deferred Income, to be charged to the 49

50 income statement proportionally to the depreciation of the above mentioned fixed assets; iii) The value of the tariff charged for the usage of the railway infrastructure owned by REFER, E.P., calculated in accordance with Decree Law nº 270/2003 of October, 28, increased by the values received from the Portuguese State as compensations and by the remaining revenue generated by the Company s activities, has not been sufficient to cover the Company s operational costs, related with both the management of the above mentioned infrastructure and the remaining activities. Thus, as the value of the Fixed Assets subject to depreciation will not be recovered by the inclusion of the related depreciation within the Company s revenue, the Fixed Assets balance shown by the financial statements should be adjusted in order not to exceed its recoverable amount; therefore it is not possible to calculate the effect of the adjustments which may arise from the above situations. 8 During the third quarter of 2004 the Company and CP Caminhos de Ferro Portugueses, E.P. signed an agreement in respect of several transactions still pending from booking and which generated to REFER, E.P. a net loss of some Euro thousand. As of the date of the present report and arising from situations not covered by the above mentioned agreement, there are several transactions amounting to some Euro thousand, whose booking by both entities is still pending, and from which Euro thousand relate to Thus, Assets may be overstated by some Euro thousand and Liabilities understated by approximately Euro thousand, while Retained Earnings and the loss for the period of twelve months ended December 31, 2005 may be understated by approximately Euro thousand and Euro thousand, respectively. Opinion 9 In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary, if the scope limitations referred to in paragraphs nºs 7 and 8 above had not existed, the financial statements referred to above, present fairly, in all material respects, the financial position of Rede Ferroviária Nacional - REFER, E.P. as of December 31, 2005, the results of its operations and its cash flows for the year then ended in accordance with the generally accepted accounting principles in Portugal and the information included is complete, true, timely, clear, objective and licit.. Emphasis 10 Without qualifying the opinion stated on the previous paragraph, we draw attention to the fact that as at December 31, 2005 the entities Invesfer Promoção e Comercialização de Terrenos e Edifícios, S.A.", GIL Gare Intermodal de Lisboa, S.A. and Fernave Formação Técnica, Psicologia em Transportes e Portos, S.A. presented a situation of loss of half their 50

51 initial shareholding capital. Thus, as indicated by article 35 of the Companies Code, measures should be taken to overcome this situation, namely by increases of the shareholding capital. 11 We also draw attention to the fact that, as mentioned within notes 2 and 41 of the notes to the accounts, during 2005 the Company has changed the criteria in use to calculate the value of the Cost of Sales and of Services Rendered presented within the statement of income by functions. This situation generated not only a change of the Gross Margin shown by the above mentioned statement of income, from positive to negative, but also an adjustment of the values relating to 2004 presented for comparison purposes. Lisbon, March 31, 2006 PricewaterhouseCoopers & Associados, S.R.O.C., Lda. represented by: Jorge Manuel Santos Costa, R.O.C. 51

52 Appendix 2 Auditor s Report on the Financial Statements of the Issuer for the year ended 31 December 2004 To the Board of Directors of Rede Ferroviária Nacional REFER, E.P. PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. Palácio Sottomayor Rua Sousa Martins, 1-3º Lisboa Portugal Tel Fax Auditor s Report (Free Translation from the original in Portuguese) 1 We have audited the accompanying balance sheet of Rede Ferroviária Nacional - REFER, E.P. as of December 31, 2004, the related income statements, by natures and by functions, and cash flows and the related notes to the accounts for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 Except as discussed in paragraph nº 3 below, we conducted our audit in accordance with the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 The available information relating to tangible fixed assets, including the fixed assets in construction, it is not considered sufficient, due to: i) During 2003 the Company has completed the breakdown of the items included within the register relating to the assets transferred to REFER, E.P. from CP - Caminhos de Ferro Portugueses E.P., in agreement with Decree - Law nº104/97, Annexes III, IV e V, 52

53 amounting to some Euro thousand. However, the Company has not yet performed a physical count to confirm the existence, operating conditions and reasonableness of the valuation of the above mentioned assets. Therefore, it is not possible to ensure the completeness and accuracy of the accounting records, supporting the Financial Statements, mainly in what relates to the assets transferred from CP Caminhos de Ferro Portugueses, E.P.; ii) Since its incorporation in 1997, it has been Company s policy not to depreciate the state owned fixed assets relating to long life infrastructures (ILD's), either transferred to the Company at the start-up moment, or build by it, being the subsidies received to finance those investments considered as Reserves and included in Equity (in accordance with paragraph 4 b) of Article 22 of the Company s Articles of Association, approved by Decree Law nº 104/97 of April 22), and not as Deferred Income, to be charged to the income statement proportionally to the depreciation of the above mentioned fixed assets; it is not possible to calculate the effect of the adjustments which may arise from the above situations. 4 In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary, if the scope limitations referred to in paragraph nº 3 above had not existed, the financial statements present fairly, in all material respects, the financial position of Rede Ferroviária Nacional - REFER, E.P. as of December 31, 2004, the results of its operations and its cash flows for the year then ended in accordance with the generally accepted accounting principles in Portugal. 5 Without qualifying the opinion stated on the previous paragraph, we draw attention to the fact that our report relating to the 2003 financial statements, dated March 30, 2004, included qualifications in respect of the matters discussed below, which were adequately considered by the Company during 2004 and therefore the related qualifications no longer apply to the 2004 financial statements: i) In 2000, 2001 and 2002 REFER, E.P. has booked within fixed assets in construction, the amounts of some Euro thousand, Euro thousand and Euro thousand, respectively, relating to internal costs incurred by the Company with the management and execution of several investments in progress related with the ILD's, being the available information at the above mentioned dates not sufficient to allow to ascertain the reasonableness of neither the capitalisation policies applied by the Company, nor of the values capitalised. However, during the audit in respect of the 2004 financial statements and based on additional information produced by the Company in respect of the above mentioned years, it was possible to perform tests which allowed to conclude over the reasonableness of the values capitalized; 53

54 ii) During the third quarter of 2004 the Company and CP Caminhos de Ferro Portugueses, E.P. signed an agreement in respect of several transactions still pending from booking and which generated to REFER, E.P. a net loss of some Euro thousand, booked to retained earnings, as the above mentioned amount relate to transactions made in previous years. As of the date of the present report and arising from situations not covered by the above mentioned agreement, there are several transactions amounting only to some Euro thousand, whose booking by both entities is still pending; iii) From 2000 to 2003, the Company paid the amounts, in Euro thousand, of 4.869, , and 8.111, respectively, relating to indemnities in respect of personnel redraws by mutual agreement. These values, stated in the balance sheet as Deferred Costs, were being amortized on a straight line basis over a period of 5 years, and the related balance as of December 31, 2003 amounted to Euro thousand. In accordance with the generally accepted accounting principles in Portugal, the amounts of the referred indemnities are to be considered as costs of the year in which they are incurred, and thus the Company as of December 31, 2004 has transferred the above mentioned balance to retained earnings; iv) As of December 31, 2004 the Company has booked a provision in respect of potential responsibilities arising from the investments held in the entities GIL - Gare Intermodal de Lisboa, S.A. and Fernave Formação Técnica, Psicologia em Transportes e Portos, S.A., which present negative equity values of some Euro thousand and Euro thousand, respectively. The above mentioned provision, amounting to some Euro thousand, has been booked to retained earnings (Euro thousand) and to results for the year (Euro 886 thousand). 6 We also draw attention to the fact that as of December 31, 2004 the entities GIL Gare Intermodal de Lisboa, S.A., Fernave Formação Técnica, Psicologia em Transportes e Portos, S.A. and Metro Mondego, S.A. presented a situation of loss of half their initial shareholding capital. Thus, as indicated by article 35 of the Companies Code, measures should be taken to overcome this situation, namely by increases of the shareholding capital. Lisbon, March 31,

55 THE ISSUER Rede Ferroviária Nacional REFER, E.P. Estação Sta. Apolónia Lisbon FISCAL AGENT AND PAYING AGENT Caixa-Banco de Investimento, S.A. Rua Barata Salgueiro, Lisbon To the Issuer as to Portuguese law Gonçalves Pereira, Castelo Branco & Associados, R.L. Sociedade de Advogados de Responsabilidades Limitada Praça Marquês de Pombal 1-8th floor Lisbon LEGAL ADVISERS To the Issuer as to English law Herbert Smith LLP Exchange House Primrose Street London EC2A 2HS To the Managers as to Portuguese law Linklaters Linklaters Avenida Fontes Pereira de Melo, º Lisbon To the Managers as to English law Linklaters, S.L. Zurbarán, Madrid AUDITORS PricewaterhouseCoopers & Associados S.R.O.C., Lda. Palácio Sottomayor Rua Sousa Martins, 1-2 Esq Lisbon 55