A letter to our stakeholders

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As in the past, and even more so, 2009 was a year of significant returns for Terna in both its economic results, which were the best ever, and in terms of sustainability. Going against the unfavourable macroeconomic trend, our economic results indicate an ability to do good work and, especially, to anticipate the effects of the recession and its related risks. This is the background of the disposal of Terna’s equity interests in Brazil, which generated a capital gain of over €400 million to the benefit of our dividends and future investment in development.

 The concentration of our business in Italy and the projects regarding nearby areas – the Balkans and the Southern Mediterranean first of all – highlight the particular role played by Terna, whose activities at the same time generate value for its shareholders, provide an indispensable service for society, and create opportunities for economic development. The lines interconnecting Italy with other countries will enable the Company to ensure Italy a more secure and cost-effective service, as well as to diversify supply. They will also allow the countries connected to increase their production of electricity by using, among other things, their endowments of renewable energy sources.

 Last year was also an important one for upgrading the transmission service in Italy, Terna’s specific responsibility. The Company respected and exceeded the targets set by the industry Authority, with positive effects also in terms of reducing the cost of the service. Continuing the acceleration of the previous years, investment amounted to more than €900 million. The SA.PE.I. – the undersea cable connecting Sardinia and the mainland which is the deepest in the world, increases the security of the system, and makes it possible to use more wind energy – went into operation. Many important works included in the Grid Developmenti Plan have completed or will soon complete the authorisation process, so 2010 will be a year of worksites for Terna even more than previous ones.

 In keeping with these developments, we have paid even more attention to local communities and the environment. Relations with local institutions are crucial for Terna. That is where solutions embodying concrete respect for local communities can be found, which are necessary in order to construct infrastructure and ensure an efficient and secure service for society. As this report describes in a number of places, the activity of consulting local institutions was very intense. The issue of discussing with local communities will remain a crucial point of Terna’s activities and its relations with its stakeholders in the future, too, when there will be great social sensitivity to the construction of large infrastructure.

 The consideration of environmental aspects continued to characterise Terna’s activities in 2009. The Company continued its initiatives in cooperation with the WWF and the LIPU, which are aimed on the one hand at increasing integration of nature preservation in work carried out to develop the grid and on the other at careful assessment of the interaction between electric lines and biodiversity. The nesting boxes installed on Terna’s pylons have enabled numerous protected species to reproduce. Even in the absence of obligations, there were voluntary actions regarding energy conservation, which led, among other things, to a reduction of the emissions per kilometre of the Company’s vehicles and the use of energy-efficient technologies in the Company’s new head office.

An appropriate provision of the electricity transmission service also entails constant attention to our people. In 2009, 91% of our employees were involved in training activities, and the transmission of knowledge and experiences was enhanced by the increased use of internal instructors. There were also numerous initiatives for the prevention of occupational injuries, which further improved an already consolidated approach by, among other things, intensifying checks on contract work. And in relation tocontracts, Terna signed an agreement with the Guardia di Finanza, the Financial Police, to prevent potential risks of criminal infiltration through the companies that construct the infrastructure of the transmission grid.

 Again in 2009, Terna contributed to cultural, artistic, and charitable initiatives as a way to return value to local communities and to Italy as a whole. The Terna Prize 02 is the main example: a competition that promotes contemporary Italian artists and in particular young ones by creating a network of exchanges, including with other countries. Nor should we forget – even though the circumstances were tragic – the Company’s active contribution on the spot, alongside the public institutions, in the days following the earthquake in Abruzzo.

 Two initiatives carried out in 2009 were particularly indicative of our conviction that business management has to go hand in hand with responsibility towards stakeholders. The first was a campaign to disseminate once again the Code of Ethicsi among all employees to emphasise how everyone’s conduct is essential for the construction of relations based on trust with all of the Company’s stakeholders. The second was participation in the UN’s Global Compact to signal also to the outside world our will to make a positive contribution in terms of social responsibility and sustainability.

 Last year also abounded in acknowledgments of our commitment. Among the many examples, we wish to mention in particular the inclusion of Terna in the Dow Jones Sustainability World Index, which ranks us among the companies with the largest market capitalisation that distinguish themselves by excellent sustainability performances, a credential that presents us positively in the eyes of investors who also look at non-financial performances when choosing where to invest. This is not only an important achievement, but also a spur to attain increasingly significant economic, environmental, and social results in the future.

          LUIGI ROTH                                                                                                                                                                                                                                  FLAVIO CATTANEO
           Chairman                                                                                                                                                                                                                                     Chief Executive Officer