BASE PROSPECTUS DATED 20 DECEMBER 2012

HERA S.p.A. (incorporated in the Republic of Italy as a joint stock company) €1,500,000,000 Euro Medium Term Note Programme

Under this €1,500,000,000 Euro Medium Term Note Programme (the Programme), HERA S.p.A. (the Issuer or Hera, and together with its subsidiaries, the Hera Group) may from time to time issue notes (the Notes) denominated in any currency agreed between the Issuer and the relevant Dealer (as defined below).

The maximum aggregate nominal amount of all Notes from time to time outstanding under the Programme will not exceed €1,500,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement described herein), subject to increase as described herein.

The Notes may be issued on a continuing basis to one or more of the Dealers specified under "Overview of the Programme" and any additional Dealer appointed under the Programme from time to time by the Issuer (each a Dealer and together the Dealers), which appointment may be for a specific issue or on an ongoing basis. References in this Base Prospectus to the relevant Dealer shall, in the case of an issue of Notes being (or intended to be) subscribed by more than one Dealer, be to all Dealers agreeing to subscribe such Notes.

An investment in Notes issued under the Programme involves certain risks. For a discussion of these risks see "Risk Factors" beginning on page 16. Application has been made to the Commission de Surveillance du Secteur Financier (the CSSF) in its capacity as competent authority under the Luxembourg Act dated 10 July 2005 (the Luxembourg Act) on prospectuses for securities to approve this document as a base prospectus. The CSSF assumes no responsibility for the economic and financial soundness of the transactions contemplated by this Base Prospectus or the quality or solvency of the Issuer in accordance with Article 7(7) of the Luxembourg Act dated 10 July 2005. Application has also been made to the Luxembourg Stock Exchange for Notes issued under the Programme to be admitted to trading on the Luxembourg Stock Exchange's regulated market and to be listed on the Official List of the Luxembourg Stock Exchange.

References in this Base Prospectus to Notes being listed (and all related references) shall mean that such Notes have been admitted to trading on the Luxembourg Stock Exchange's regulated market and have been admitted to the Official List of the Luxembourg Stock Exchange. The Luxembourg Stock Exchange's regulated market is a regulated market for the purposes of the Markets in Financial Instruments Directive (Directive 2004/39/EC).

Notice of the aggregate nominal amount of Notes, interest (if any) payable in respect of Notes, the issue price of Notes and certain other information which is applicable to each Tranche (as defined under "Terms and Conditions of the Notes") of Notes will be set out in a final terms document (the Final Terms) which, with respect to Notes to be listed on the Official List of the Luxembourg Stock Exchange, will be filed with the CSSF. Copies of Final Terms in relation to Notes to be listed on the Luxembourg Stock Exchange will also be published on the website of the Luxembourg Stock Exchange (www.bourse.lu).

The Programme provides that Notes may be listed or admitted to trading, as the case may be, on such other or further stock exchanges or markets as may be agreed between the Issuer and the relevant Dealer. The Issuer may also issue unlisted Notes and/or Notes not admitted to trading on any market. The Issuer may agree with any Dealer and the Trustee (as defined herein) that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes herein, in which event a supplement to the Base Prospectus, in the case of listed Notes only, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Notes. The Issuer has been rated "BBB+" (stable outlook) by Standard & Poor's Credit Market Services Italy S.r.l. (S&P) and "Baa1" (negative outlook) by Moody's Investors Service Ltd (Moody’s). The Programme has been rated "BBB+" by S&P and "Baa1" by Moody's. Each of S&P and Moody's is established in the European Union and is registered under the Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation). As such each of Moody's and S&P is included in the list of credit ratings agencies published by the European Securities and Markets Authority on its website (at http://www.esma.europa.eu/page/List- registered-and-certified-CRAs) in accordance with the CRA Regulation. Notes issued under the Programme may be rated or unrated by any one or more of the rating agencies referred to above. Where a Tranche of Notes is rated, such rating will be disclosed in the Final Terms and will not necessarily be the same as the rating assigned to the Programme by the relevant rating agency. A security rating and an issuer’s corporate rating are 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. Arranger Mediobanca

Dealers

Banca IMI BNP PARIBAS

Citigroup Crédit Agricole CIB

Deutsche Bank Mediobanca

Société Générale Corporate & Investment The Royal Bank of Scotland Banking

UniCredit Bank

The date of this Base Prospectus is 20 December 2012

2 IMPORTANT INFORMATION

This Base Prospectus comprises a base prospectus for the purposes of Article 5.4 of Directive 2003/71/EC (the Prospectus Directive) as amended (which includes the amendments made by Directive 2010/73/EU (the 2010 PD Amending Directive) to the extent that such amendments have been implemented in a relevant Member State of the European Economic Area, and for the purposes of the Luxembourg Act.

The Issuer accepts responsibility for the information contained in this Base Prospectus and the Final Terms for each Tranche of Notes issued under the Programme. To the best of the knowledge of the Issuer (having taken all reasonable care to ensure that such is the case) the information contained in this Base Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.

Subject as provided in the applicable Final Terms, the only persons authorised to use this Base Prospectus in connection with any Tranche of Notes are the persons named in the applicable Final Terms as the relevant Dealer or the Managers, as the case may be.

Copies of Final Terms will be available from the registered office of the Issuer and the specified office set out below of each of the Paying Agents (as defined below).

In respect of information in this Base Prospectus that has been extracted from a third party, the Issuer confirms that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. Although the Issuer believes that the external sources used are reliable, the Issuer has not independently verified the information provided by such sources.

This Base 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 Base Prospectus shall be read and construed on the basis that such documents are incorporated and form part of this Base Prospectus.

No representation, warranty or undertaking, express or implied, is made by the Dealers or the Trustee and no responsibility or liability is accepted by the Dealers or the Trustee as to the accuracy or completeness of the information contained or incorporated in this Base Prospectus or any other information provided by the Issuer in connection with the Programme. No Dealer or the Trustee accepts any liability in relation to the information contained or incorporated by reference in this Base Prospectus or any other information provided by the Issuer in connection with the Programme.

No person is or has been authorised by the Issuer or the Trustee to give any information or to make any representation not contained in or not consistent with this Base Prospectus or any other information supplied in connection with the Programme or the Notes and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer, any of the Dealers or the Trustee.

3 Neither this Base Prospectus nor any other information supplied in connection with the Programme or any Notes (a) is intended to provide the basis of any credit or other evaluation or (b) should be considered as a recommendation by the Issuer, any of the Dealers or the Trustee that any recipient of this Base Prospectus or any other information supplied in connection with the Programme or any Notes should purchase any Notes. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. Each recipient of this Base Prospectus or any Final Terms shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer and the Hera Group (as defined below) and of the rights attaching to the relevant Notes and reach its own view, based upon its own judgement and upon advice from such financial, legal and tax advisers as it has deemed necessary, prior to making any investment decision. Neither this Base Prospectus nor any other information supplied in connection with the Programme or the issue of any Notes constitutes an offer or invitation by or on behalf of the Issuer, any of the Dealers or the Trustee to any person to subscribe for or to purchase any Notes.

Neither the delivery of this Base Prospectus nor the offering, sale or delivery of any Notes shall in any circumstances imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Programme is correct as of any time subsequent to the date indicated in the document containing the same. The Dealers and the Trustee expressly do not undertake to review the financial condition or affairs of the Issuer during the life of the Programme or to advise any investor in the Notes of any information coming to their attention.

The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended, (the Securities Act) and are subject to U.S. tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons (see "Subscription and Sale" below).

4 IMPORTANT INFORMATION RELATING TO THE USE OF THIS BASE PROSPECTUS AND OFFERS OF NOTES GENERALLY

This Base Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Base Prospectus and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Issuer, the Dealers and the Trustee do not represent that this Base Prospectus may be lawfully distributed, or that any Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Dealers or the Trustee which is intended to permit a public offering of any Notes or distribution of this Base Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Base Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Base Prospectus or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Base Prospectus and the offering and sale of Notes. In particular, there are restrictions on the distribution of this Base Prospectus and the offer or sale of Notes in the United States, the European Economic Area (including the United Kingdom and Republic of Italy) and Japan, see "Subscription and Sale".

This Base Prospectus has been prepared on the basis that any offer of Notes in any Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) will be made pursuant to an exemption under the Prospectus Directive, as implemented in that Relevant Member State, from the requirement to publish a prospectus for offers of Notes. Accordingly any person making or intending to make an offer in that Relevant Member State of Notes which are the subject of an offering contemplated in this Base Prospectus as completed by final terms in relation to the offer of those Notes may only do so in circumstances in which no obligation arises for the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive, in each case, in relation to such offer. Neither the Issuer nor any Dealer have authorised, nor do they authorise, the making of any offer of Notes in circumstances in which an obligation arises for the Issuer or any Dealer to publish or supplement a prospectus for such offer.

Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

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) 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 Base Prospectus or any applicable supplement;

(ii) 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;

(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including Notes where the currency for principal or interest payments is different from the potential investor's currency;

5 (iv) understand thoroughly the terms of the Notes and be familiar with the behaviour of financial markets; and

(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.

Some Notes are complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as stand-alone investments. They purchase complex financial instruments as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in Notes which are complex financial instruments unless it has the expertise (either alone or with a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of the Notes and the impact this investment will have on the potential investor's overall investment portfolio.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

FINANCIAL INFORMATION

The Hera Group unaudited pro-forma consolidated statements of financial position as of 30 June 2012 and 31 December 2011, and the Hera Group unaudited pro-forma consolidated income statements and the Hera Group unaudited pro-forma consolidated cash flow statements for the six months ended 30 June 2012 and for the year ended 31 December 2011, accompanied by the related explanatory notes (together, the Unaudited Pro-forma Consolidated Financial Information) is incorporated by reference in this Base Prospectus (see "Documents Incorporated by Reference").

The Unaudited Pro-forma Consolidated Financial Information has been prepared in accordance with article 70, paragraph 6 and article 57, paragraph 1(d) of the regulation implementing Italian Legislative Decree No. 58 of 24 February 1998, adopted by Commissione Nazionale per le Società e la Borsa (CONSOB) with resolution No. 11971 of 14 May 1999, as subsequently amended, to represent the effects of the acquisition (the Transaction) by the Issuer of a controlling interest in Acegas-Aps Holding S.r.l. (AcegasAps Holding) on the consolidated statement of financial position, as if it had taken place on 30 June 2012 and 31 December 2011, and on the consolidated income statement and on the consolidated cash flow statement, as if it had taken place on 1 January 2012 and 1 January 2011. The Unaudited Pro-forma Consolidated Financial Information and the reports thereon issued by PricewaterhouseCoopers S.p.A. on 4 December 2012 are incorporated by reference in, and form part of, this Base Prospectus, which should be read and construed in conjunction with them.

The purpose of the preparation of the Unaudited Pro-forma Consolidated Financial Information is to simulate, using accounting principles that are consistent with those used in the preparation of the Hera Group's historical financial statements and compliant with the applicable legislation, the main effects of the Transaction on the consolidated statement of financial position and result of operations of the Hera Group, as if the Transaction had occurred on the dates assumed above.

As mentioned above, the Unaudited Pro-forma Consolidated Financial Information represents a simulation, for illustrative purposes only, of the main potential impacts of the Transaction. In particular, as pro-forma information is prepared to illustrate retrospectively the effects of transactions that will occur subsequently using generally accepted regulations and reasonable assumptions, there are limitations that are inherent to the nature of pro-forma information; hence, had the Transaction taken place on the dates assumed above, the actual effects would not necessarily have been the same as those presented in the Unaudited Pro-forma Consolidated Financial Information. Furthermore, in consideration of the different purposes of the pro-forma information as compared to the historical

6 financial statements and the different methods of calculation of the effects of the Transaction on the unaudited pro-forma consolidated statement of financial position, on the unaudited pro-forma consolidated income statement and on the unaudited pro-forma consolidated cash flow statements, these statements should be read and interpreted without comparisons between them.

Finally, it should be noted that the Unaudited Pro-forma Consolidated Financial Information does not attempt to predict or estimate the future results of the Hera Group and should not be used for this purpose.

The Unaudited Pro-forma Consolidated Financial Information should be read together with (i) the audited consolidated annual financial statements of the Issuer as at and for the financial year ended 31 December 2011, approved by the Board of Directors of the Issuer on 22 March 2012 and (ii) the interim unaudited condensed consolidated financial statements of the Issuer as at and for the six months ended 30 June 2012, approved by the Board of Directors of the Issuer on 28 August 2012.

OTHER INFORMATION

All references in this document to euro and € refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty on the Functioning of the European Union, as amended.

Certain figures included in this Base Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

FORWARD-LOOKING STATEMENTS

This Base Prospectus may contain forward-looking statements, including (without limitation) statements identified by the use of terminology such as "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "projects", "will", "would" or similar words. These statements are based on the Issuer’s current expectations and projections about future events and involve substantial uncertainties. All statements, other than statements of historical facts, contained herein regarding the Issuer’s strategy, goals, plans, future financial position, projected revenues and costs or prospects are forward-looking statements. Forward-looking statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified. Future events or actual results could differ materially from those set forth in, contemplated by or underlying forward-looking statements. The Issuer does not undertake any obligation to publicly update or revise any forward- looking statements.

7 CONTENTS

Clause Page

Overview of the Programme ...... 10 Risk Factors ...... 16 Documents Incorporated by Reference...... 33 Form of the Notes...... 36 Applicable Final Terms ...... 38 Terms and Conditions of the Notes ...... 49 Use of Proceeds...... 81 Description of the Issuer...... 82 Regulation...... 116 Taxation ...... 152 Subscription and Sale ...... 162 General Information ...... 165

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8 STABILISATION

In connection with the issue of any Tranche of Notes, the Dealer or Dealers (if any) named as the Stabilising Manager(s) (or persons acting on behalf of any Stabilising Manager(s)) in the applicable Final Terms may over-allot 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(s) (or persons acting on behalf of a 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 relevant Tranche of 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 relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilising Manager(s) (or persons acting on behalf of any Stabilising Manager(s)) in accordance with all applicable laws and rules.

9 OVERVIEW OF THE PROGRAMME

The following overview does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Base Prospectus and, in relation to the terms and conditions of any particular Tranche of Notes, the applicable Final Terms. The Issuer and any relevant Dealer may agree that Notes shall be issued in a form other than that contemplated in the Terms and Conditions, in which event, in the case of listed Notes only and if appropriate, a supplement to the Base Prospectus or a new Base Prospectus will be published.

This Overview constitutes a general description of the Programme for the purposes of Article 22.5(3) of Commission Regulation (EC) No 809/2004 implementing the Prospectus Directive.

Words and expressions defined in "Form of the Notes" and "Terms and Conditions of the Notes" shall have the same meanings in this Overview.

Issuer: Hera S.p.A.

Risk Factors: There are certain factors that may affect the Issuer's ability to fulfil its obligations under Notes issued under the Programme. These are set out under "Risk Factors" below and include, among others, the fact that the evolution in the legislative and regulatory framework for the electricity, natural gas, waste and water sectors may affect the overall business of Hera and the Hera Group; the fact that no assurances can be given that Hera or any member of the Hera Group will enter into new, or renew existing, concessions to permit it to continue to engage in the businesses described in this Base Prospectus; the process of energy market liberalisation, resulting in greater competition in the markets in which Hera operates; risks associated with the acquisitions that Hera has already carried out and/or are in the process of being completed and possible future acquisitions by Hera. In addition, there are certain factors which are material for the purpose of assessing the market risks associated with Notes issued under the Programme. These are set out under "Risk Factors" and include, among others, the fact that the Notes may not be a suitable investment for all investors, certain risks relating to the structure of a particular Series of Notes and certain market risks.

Description: Euro Medium Term Note Programme

Arranger: Mediobanca – Banca di Credito Finanziario S.p.A.

Dealers: Banca IMI S.p.A. BNP Paribas Citigroup Global Markets Limited Crédit Agricole Corporate & Investment Bank Deutsche Bank AG, London Branch Mediobanca – Banca di Credito Finanziario S.p.A. Société Générale The Royal Bank of Scotland plc UniCredit Bank AG

and any other Dealers appointed in accordance with the Programme Agreement.

10 Certain Restrictions: Each issue of Notes denominated in a currency in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements from time to time (see "Subscription and Sale") including the following restrictions applicable at the date of this Base Prospectus.

Notes having a maturity of less than one year:

Notes having a maturity of less than one year will, if the proceeds of the issue are accepted in the United Kingdom, constitute deposits for the purposes of the prohibition on accepting deposits contained in section 19 of the Financial Services and Markets Act 2000 unless they are issued to a limited class of professional investors and have a denomination of at least £100,000 or its equivalent, see "Subscription and Sale".

Under Part II of the Luxembourg Act dated 10 July 2005 on prospectuses for securities, which implements the Prospectus Directive, prospectuses relating to money market instruments having a maturity at issue of less than 12 months and complying also with the definition of securities are not subject to the approval provisions of Part II of such Act.

Trustee: BNY Mellon Corporate Trustee Services Limited.

Issuing and Principal Paying Agent: The Bank of New York Mellon.

Programme Size: The maximum aggregate principal amount of Notes outstanding at any one time under the Programme will not exceed €1,500,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement). The Issuer may increase the amount of the Programme, from time to time, in accordance with the terms of the Programme Agreement.

Distribution: Notes may be distributed by way of private or public placement and in each case on a syndicated or non-syndicated basis.

Currencies: Subject to any applicable legal or regulatory restrictions, any currency agreed between the Issuer and the relevant Dealer.

Redenomination: The applicable Final Terms may provide that certain Notes may be redenominated in euro. The relevant provisions applicable to any such redenomination are contained in Condition 4.

Maturities: The Notes will have such maturities as may be agreed between the Issuer and the relevant Dealer, subject to such minimum or maximum maturities as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the Issuer or the relevant Specified Currency.

11 Issue Price: Notes may be issued on a fully-paid basis and at an issue price which is at par or at a discount to, or premium over, par.

Form of Notes: The Notes will be issued in bearer form as described in "Form of the Notes".

Fixed Rate Notes: Fixed interest will be payable on such date or dates as may be agreed between the Issuer and the relevant Dealer and on redemption and will be calculated on the basis of such Day Count Fraction as may be agreed between the Issuer and the relevant Dealer.

Floating Rate Notes: Floating Rate Notes will bear interest at a rate determined:

(a) on the same basis as the floating rate under a notional interest rate swap transaction in the relevant Specified Currency governed by an agreement incorporating the 2006 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc., and as amended and updated as at the Issue Date of the first Tranche of the Notes of the relevant Series);

(b) on the basis of a reference rate appearing on the agreed screen page of a commercial quotation service; or

(c) on such other basis as may be agreed between the Issuer and the relevant Dealer.

The margin (if any) relating to such floating rate will be agreed between the Issuer and the relevant Dealer for each Series of Floating Rate Notes.

Other provisions in relation to Floating Rate Notes may also have a maximum interest rate, a Floating Rate Notes: minimum interest rate or both.

Interest on Floating Rate Notes in respect of each Interest Period, as agreed prior to issue by the Issuer and the relevant Dealer, will be payable on such Interest Payment Dates, and will be calculated on the basis of such Day Count Fraction, as may be agreed between the Issuer and the relevant Dealer.

Zero Coupon Notes: Zero Coupon Notes will be offered and sold at a discount to their nominal amount and will not bear interest.

Redemption: The applicable Final Terms will indicate either that the relevant Notes cannot be redeemed prior to their stated maturity (other than in specified instalments, if applicable, or for taxation reasons or following an Event of Default) or that such Notes will be redeemable at the option of the Issuer and/or the Noteholders upon giving notice to the Noteholders or the Issuer, as the case may be, on a date or dates specified prior to such stated maturity and at a price or prices and on such other terms as may be agreed between the Issuer and the relevant Dealer.

12 Notes having a maturity of less than one year may be subject to restrictions on their denomination and distribution, see "Certain Restrictions – Notes having a maturity of less than one year" above.

Denomination of Notes: The Notes will be issued in such denominations as may be agreed between the Issuer and the relevant Dealer save that the minimum denomination of each Note will be such amount as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant Specified Currency, see "Certain Restrictions – Notes having a maturity of less than one year" above, and save that the minimum denomination of each Note admitted to trading on a regulated market within the European Economic Area or offered to the public in a Member State of the European Economic Area in circumstances which require the publication of a prospectus under the Prospectus Directive will be €100,000 (or, if the Notes are denominated in a currency other than euro, the equivalent amount in such currency).

Relevant Put Event: The applicable Final Terms may provide that, upon the occurrence of a Relevant Event Put Event (as described below), Notes will be redeemable at the option of the Noteholders upon giving notice to the Issuer on a date or dates specified prior to their stated maturity and at a price or prices and on such other terms as may be agreed between the Issuer and the relevant Dealer and specified in the applicable Final Terms.

A Relevant Event Put Event will be deemed to have occurred if: (a) a Relevant Event (as described below) occurs; (b) at the time of the occurrence of the Relevant Event, a Rating Event (as defined in Condition 7.4) occurs; and (c) in making the relevant decision relating to the Rating Event, the relevant Rating Agency announces publicly or confirms in writing to the Issuer and the Trustee that such decision resulted, in whole or in part, from the occurrence of the Relevant Event.

A Relevant Event shall be deemed to occur if any of: (i) a Change of Control; (ii) a Concession Event; or (iii) a Sale of Assets Event occurs.

A Change of Control shall be deemed to occur if more than 50% of the share capital of the Issuer, or more than 50% of the voting rights normally exercisable at a general meeting of the Issuer, is acquired by any Person or Persons (other than Reference Shareholders) acting in concert.

A Concession Event shall be deemed to occur if at any time one or more of the Concessions (as defined in Condition 7.4) granted to the Issuer or to any of its Subsidiaries expires at its or their original stated termination date(s) and have not been extended or renewed, and such Concessions, taken together, constitute the

13 whole or a substantial part of the Hera Group's business, as defined in Condition 10.1(e), provided that the prorogatio regime to which a Concession may be subject between its expiry at the relevant stated termination date and the extension, renewal or new award of such Concession will not constitute a Concession Event.

A Sale of Assets Event shall be deemed to occur if at any time (A) the Issuer or any of its Principal Subsidiaries is required by applicable law to sell, transfer, contribute, assign or otherwise dispose of assets comprising the whole or a substantial part of the Hera Group's business, as defined in Condition 10.1(e), or (B) if such assets are expropriated (espropriati) on the basis of an order of a public authority having jurisdiction over the Issuer or the relevant Subsidiary.

Taxation: All payments in respect of the Notes will be made without deduction for or on account of withholding taxes imposed by any Tax Jurisdiction as provided in Condition 8. In the event that any such deduction is made, the Issuer will, save in certain limited circumstances provided in Condition 8, be required to pay additional amounts to cover the amounts so deducted.

Negative Pledge: The terms of the Notes will contain a negative pledge provision as further described in Condition 3.

Cross Default: The terms of the Notes will contain a cross default provision as further described in Condition 10.

Status of the Notes: The Notes will constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 3) unsecured obligations of the Issuer and rank pari passu among themselves and with all other unsecured obligations (other than subordinated obligations, if any) of the Issuer, from time to time outstanding, save for certain obligations required to be preferred by applicable law.

Rating: The Programme has been rated "BBB+" by Standard & Poor's Credit Market Services Italy S.r.l. (S&P) and "Baa1" by Moody's Investors Service Ltd (Moody’s). Each of S&P and Moody's is established in the European Union and is registered under the Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation). As such each of Moody's and S&P is included in the list of credit ratings agencies published by the European Securities and Markets Authority on its website (at http://www.esma.europa.eu/page/List-registered-and-certified- CRAs) in accordance with the CRA Regulation. Notes issued under the Programme may be rated or unrated by any one or more of the rating agencies referred to above. Where a Tranche of Notes is rated, such rating will be disclosed in the Final Terms and will not necessarily be the same as the rating assigned to the Programme by the relevant rating agency. A security 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.

14 Listing and admission to trading: Application has been made to the CSSF to approve this document as a base prospectus. Application has also been made to the Luxembourg Stock Exchange for Notes issued under the Programme to be admitted to trading on the Luxembourg Stock Exchange's regulated market and to be listed on the Official List of the Luxembourg Stock Exchange.

Notes may be listed or admitted to trading, as the case may be, on other or further stock exchanges or markets agreed between the Issuer and the relevant Dealer in relation to the Series. Notes which are neither listed nor admitted to trading on any market may also be issued.

The applicable Final Terms will state whether or not the relevant Notes are to be listed and/or admitted to trading and, if so, on which stock exchanges and/or markets.

Governing Law: The Notes and any non-contractual obligations arising out of or in connection with the Notes will be governed by, and shall be construed in accordance with, English law. Condition 15 (Meetings of Noteholders, Modification and Waiver) and the provisions of the Trust Deed concerning the meetings of Noteholders and the appointment of a Noteholders' Representative in respect of the Notes are subject to compliance with the laws of the Republic of Italy.

Selling Restrictions: There are restrictions on the offer, sale and transfer of the Notes in the United States, the European Economic Area (including, without limitation, the United Kingdom and the Republic of Italy), Japan and such other restrictions as may be required or applied in connection with the offering and sale of a particular Tranche of Notes, see "Subscription and Sale".

United States Selling Restrictions: Regulation S, Category [1/2/3]. TEFRA C or D/TEFRA not applicable, as specified in the applicable Final Terms.

15 RISK FACTORS

The following factors may affect Hera's ability to fulfil its obligations under the Notes. Some of these factors are contingencies which may or may not occur and Hera is not in a position to express a view on the likelihood of any such contingency occurring. In addition, factors that are material for the purpose of assessing the market risks associated with Notes are also described below.

These are the principal risks that Hera considers to be material; however, there may be additional risks of which Hera is not currently aware or that may not be considered significant risks by Hera based on information currently available to it or which it may not currently be able to anticipate, and any of these risks could also have a negative effect on Hera's ability to fulfil its obligations under the Notes.

Prospective investors should also read the detailed information set out elsewhere in this Base Prospectus and reach their own views, based upon their own judgement and upon advice from such financial, legal and tax advisers as they have deemed necessary prior to making any investment decision.

Words and expressions defined in "Terms and Conditions of the Notes", "Description of the Issuer" and "Regulation" or elsewhere in this Base Prospectus have the same meaning in this section.

Prospective investors should read the entire Base Prospectus.

FACTORS THAT MAY AFFECT THE ISSUER'S ABILITY TO FULFIL ITS OBLIGATIONS UNDER THE NOTES.

The Hera Group is dependent on concessions from local authorities for its regulated activities.

For the financial year ended 31 December 2011 and for the six months ended 30 June 2012, the regulated activities of Hera and its consolidated subsidiaries (collectively, the Hera Group or the Group), including waste collection services, distribution of electricity and gas (both natural and liquid propane gas), integrated water services and public lighting, accounted for approximately 52% of the Hera Group's EBITDA. These regulated activities are dependent on concessions from local authorities (in the case of integrated water service, gas distribution, waste management and public lighting) and from national authorities (in the case of electricity distribution), as the case may be, that vary in duration across the Hera Group's business areas. In addition, legislation in Italy could affect the expiry date of certain concessions (see, in particular, "Risk Factors – Recent legislation in Italy: expiry of concessions" and "Risks related to hydroelectric concessions", below). In the case of expiry of a concession at its stated maturity date as well as in the case of early termination for any reason (including failure by a concession holder to fulfil its material obligations under its concession), each concession holder must continue to operate the concession until it is replaced by the new incoming concession holder.

Each concession is governed by agreements with the relevant grantor requiring the relevant concession holder to comply with certain obligations (including performing regular maintenance). Each concession holder is subject to penalties or sanctions for the non-performance or default under the relevant concession. Failure by a concession holder to fulfil its material obligations under a concession could, if such failure is left unremedied, lead to early termination by the grantor of the concession. Furthermore, in accordance with general principles of Italian law, a concession can be terminated early for reasons of public interest. In either case, the relevant concession holder might be required to transfer all of the assets relating to the operation of the concession to the grantor or to the incoming concession holder. However, in the case of termination of a concession, the concessionaire might be entitled to receive a compensation amount determined in accordance with the terms of the relevant concession-agreement, which shall be paid by the incoming concession holder. With particular reference to the gas distribution concessions, based on Article 24, Paragraph 1, of Legislative Decree 93 of 2011, the new concessionaire is required to step in the existing guarantees and financing obligations or, as an alternative, to discharge them paying to the previous concessionaire an amount equal to

16 the reimbursement value (valore di rimborso) of the plants transferred. On the other hand, as far as concessions awarded in compliance with Legislative Decree no. 164/00 of 23 May 2000 (the Letta Decree) (i.e. by means of a public tender) are concerned, the reimbursement value due to the previous concessionaire at the expiration of the concession will be equal to the value of net fixed assets of locality (immobilizzazioni nette di località) of the distribution service, including construction in progress, net of public or private contributions, calculated using the methodology of the current tariff adjustment and on the basis of the consistency of the plants at the time of their transfer. Furthermore, pursuant to Ministerial Decree No. 102 of 21 April 2011, the incoming concessionaire in gas distribution service is also obliged, subject to certain exceptions, to hire, at the same economic conditions, the outgoing concessionaire's operational staff.

Regarding the indemnity due to the former concessionaire, in several cases there is a dispute between the parties regarding the quantification of the indemnity. Litigation in this respect is frequent and can have an impact on the business plan and on the Hera Group's activity.

No assurances can be given that Hera or any member of the Hera Group will enter into new, or renew existing, concessions to permit it to continue to engage in the businesses described above and in this Base Prospectus once its existing concessions expire, or that any new concessions entered into or renewals of existing concessions will be on terms similar to those of its current concessions. Any failure by Hera and its Group to enter into new concessions or renew existing concessions, in each case on similar or otherwise favourable terms, could have an adverse impact on Hera's business, results of operations and financial condition, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Moreover, Ministerial Decree No. 226 of 12 November 2011 (Decree 226/2011) establishes that where the holder of gas distribution concession also owns the gas distribution networks and plants it operates and fails to be awarded a new concession, it is entitled to receive compensation in exchange for transferring legal ownership of such plant to the incoming operator. Decree 226/2011 contains detailed provisions for calculating the amount of compensation due to such outgoing operators, including where there is a dispute. There can be no assurance that any amount paid to the Hera Group pursuant to such legislation will be adequate compensation for the loss of the relevant concession and disposal of the related assets.

In addition, in order to carry out and expand its business, Hera needs to maintain or obtain a variety of permits and approvals from regulatory, legal, administrative, tax and other authorities and agencies. The processes for obtaining these permits and approvals are often lengthy, complex, unpredictable and costly. If Hera is unable to maintain or obtain the relevant permits and approvals, its ability to achieve its strategic objectives could be impaired, with a consequent adverse impact on its business, results of operations and financial condition, and, in turn, an adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

The evolution in the legislative and regulatory framework for the electricity, natural gas, waste and water sectors poses a risk to Hera and its Group.

Changes in applicable legislation and regulation, whether at a national or European level, as well as in the regulation of particular regulatory agencies, including the Authority for Electricity and Gas (Autorità per l'Energia Elettrica e il Gas or the AEEG), and the manner in which they are interpreted, could impact Hera's earnings and operations either positively or negatively, both through the effect on current operations and through the impact on the cost and revenue-earning capabilities of current and future planned developments in sectors in which Hera conducts its business, directly or through its subsidiaries. Such changes could include changes in tax rates, legislation and policies, also involving an earlier termination of certain contracts assigned to and operated by the Hera Group, changes in environmental, safety or other workplace laws or changes in the regulation of cross-border transactions. Public policies related to water, waste, energy, energy efficiency and/or air emissions, may impact the overall business environment in which Hera and its Group operate and particularly the public sector. Hera and its Group operate their business in a political, legal and

17 social environment which is expected to continue to have a material impact on the performance of Hera and its Group. Regulation of a particular sector may affect many aspects of Hera's and its Group's business and, in many respects, determines the manner in which Hera and its Group conduct their business and the fees they charge or obtain for their products and services. Any new or substantially altered rules and standards may adversely affect Hera's business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Recent legislation in Italy: expiry of concessions.

Article 23-bis of Law Decree No. 112 of 25 June 2008 (converted with amendments into Law No. 133 of 6 August 2008), as amended by Article 15 of Law Decree No. 135 of 25 September 2009, an emergency legislative measure taken by the Italian government to implement a decision of the European Court of Justice (converted into Law No. 166 of 20 November 2009) (Article 23-bis) provided that, for companies whose shares were listed on a stock exchange prior to 1 October 2003 (such as Hera) and their subsidiaries, any local concessions (as opposed to national concessions, such as Hera's electricity distribution concession) granted at that date without a tender and with the exception of gas distribution (which Article 23-bis was not applicable to) shall expire at the date provided by the relevant contract, upon the condition that the participation held by public entities in such companies shall be reduced – even progressively – through public tender procedures or private placements to qualified investors and industrial operators, up to a share not exceeding 40% by 30 June 2013 and not exceeding 30% by 31 December 2015. Otherwise, the relevant contracts shall be terminated respectively on 30 June 2013 and 31 December 2015, with no need of formal decision by the awarding authority.

Article 23-bis was the subject matter of a law-repealing referendum (referendum abrogativo) held in Italy on 12 and 13 June 2011 (the Referendum). The Referendum was approved and as consequence thereof provisions set forth by Article 23-bis have been repealed starting from 21 July 2011 by virtue of Article 1 of Presidential Decree No. 113 of 18 July 2011. Afterwards, Article 4 of Law Decree No. 138 of 13 August 2011, converted into Law No. 148 of 14 September 2011, as subsequently amended and supplemented by Law No.183 of 12 November 2011 (such latter amendment being effective from 1 January 2012) (Article 4 of Decree 138) introduced a provision along the lines of the repealed Article 23-bis which, however, related only to certain public services (such as the waste management, public lighting and public transport services). In particular, Decree 138 reaffirmed that the participation held by public entities in companies whose shares were listed on a stock exchange prior to 1 October 2003 and their subsidiaries should have been reduced up to a share not exceeding 40% by 30 June 2013 and not exceeding 30% by 31 December 2015. Otherwise, the relevant concessions for waste management, public lighting and public transport services shall be terminated respectively on 30 June 2013 and 31 December 2015, with no need of formal decision by the awarding authority. By decision No. 199/2012, the Italian Constitutional Court declared the constitutional illegitimacy of the whole of Article 4 of Decree 138 because it had re-introduced provisions analogous to those provided under Article 23-bis, which had been previously repealed by the Referendum.

Article 4 of Decree 138 has been replaced by Article 34 of Law Decree No. 179 of 20 October 2012 (Article 34 of Decree 179) pursuant to which the concessions granted to companies whose shares were listed on a stock exchange prior to 1 October 2003 (such as Hera) and their subsidiaries will terminate according to the terms originally set forth in the relevant concession agreements or any ancillary documents. Article 34 of Decree 179 – which does not apply to gas, electricity and municipal pharmacies – further provides that if the concession agreement does not specify the expiry date of the concession, the concession shall expire not later than 31 December 2020, with no need of formal decision by the awarding authority. For the sake of clarity, laws and regulations in force as at the date hereof (namely, Article 34 of Decree 179) no longer provide for the reduction of public participation in those companies managing certain public services in the concession regime (such as Hera). On the contrary, such companies will maintain the relevant concessions (subject to Article 34 of Decree 179) until (i) the scheduled maturity date set forth in the relevant concession agreement

18 or (ii) 31 December 2020, if the relevant concession agreement does not set forth the concession’s expiry date.

Expiry of concessions currently held by Hera and its Group may adversely affect Hera's business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

As to the gas distribution concessions, the gas market is regulated by the Letta Decree which has been amended several times since its entry into force, also with reference to the distribution of gas. In particular, under the Letta Decree the distribution of gas will be provided by operators identified with public bids organised at a level over the municipality and within territorial areas that were defined by the Ministerial Decrees of 19 January 2011 and 18 October 2011. Such public bids must follow the rules provided for by the Ministerial Decree No.226 of 12 November 2011 (the Tender Criteria Decree). The substitution of one operator with another operator must ensure the protection of the workforce, as set out in Ministerial Decree of 21 April 2011, and a fair compensation must be recognised to the outgoing operator for the goods which will be available to the new operator. As at the date hereof, there is an element of uncertainty as to how the new concession system will work and how the new legislation will be interpreted by the authorities granting the concessions and the Italian courts.

No assurances can be given that the Hera Group will enter into new, or renew existing, concessions or, if awarded, that they will be subject to the same or more favourable overall conditions (fees and planned investments combined) than the current ones. Notwithstanding any compensation received by Hera and/or its Group where it loses a concession if Hera or its Group are not re-awarded concessions for the major territorial areas where currently they are the market leader or if they are re-awarded but on less favourable terms, there could be a negative impact on Hera's business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity. See also "Risk Factors –The Hera Group is dependent on concessions from local authorities for its regulated activities", above.

The Hera Group is exposed to revision of tariffs in waste, water and energy sectors.

The Hera Group operates, inter alia, in the waste, water and energy sectors and is exposed to a risk of variation of the tariffs applied to the end users. In the waste and water sector the tariffs payable by final customers are determined and adjusted by the relevant district authority and may be subject to variations as a consequence of periodic revisions resulting from investigations by the authority concerning, inter alia, efficiency improvements and the actual implementation of planned investments by the companies managing the integrated water service.

The Referendum outcome affected the integrated water service tariff: in particular, as a result of the Referendum, reference to the 'appropriateness of the return on invested capital', which was a component of the integrated water service tariff, was deleted from paragraph 1 of Article 154 of Legislative Decree No. 152 of 3 April 2006 (Decree 152/2006). It is likely that the current tariff method (provided by Ministerial Decree of 1 August 1996, the Standardised Method) will be revised, as envisaged in paragraph 2 of Article 154 of Decree 152/2006; the revision of the Standardised Method will be one of the tasks assigned to the AEEG, which, according to Article 21 of Law Decree No. 201 of 6 December 2011, (Law Decree 201), has assumed all the functions of the National Agency for Integrated Water Services (Agenzia nazionale indipendente di regolazione del servizio idrico integrato). Until revision of the water service tariff system, operators will apply the Standardised Method.

In the energy sector, the tariff payable by customers for distribution, transmission and metering may be subject to certain variations since the components of the tariff are adjusted by the AEEG with reference to four-year regulatory periods.

19 With respect to the urban waste management sector, Article 14 of Law Decree 201 has introduced a new waste tax to be paid to the relevant Municipality (the so called RES) starting from 1 January 2013. The components used to determine the RES are to be set forth by a Presidential Decree which, as at the date hereof, has not been adopted. Pending the adoption of such implementing measures, the determination of the waste tariff provided for by Decree No. 158 of 27 April 1999 shall continue to apply. According to Article 14, paragraph 29, of Law Decree 201, the Municipalities which have put in place measures for determining the quantity of the waste conferred to the concessionaire of the urban waste management service, may enact regulations providing for the application of a tariff instead of the RES, to be paid directly to the concessionaire. The impacts that the entry into force of the above mentioned implementing measures as to the manner in which tariffs should be determined could have an outcome that as at the date hereof is not foreseeable.

Decreases in tariffs, also as a consequence of changes in determination of tariffs, could adversely affect Hera's business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera faces risks relating to the process of energy market liberalisation, resulting in greater competition in the markets in which it operates.

The energy markets in which Hera and the Hera Group operate are undergoing a process of gradual liberalisation, which is being implemented in different ways and according to different timetables from country to country. As a result of the process of liberalisation, new competitors may enter many of the markets in which the Hera Group operates. Hera's ability to develop its businesses and improve its financial results may be constrained by such new competition. The energy markets in which Hera operates are subject to increasing competition in Italy, particularly in the electricity business, in which Hera competes with other producers and traders within Italy and from outside of Italy who sell electricity in the Italian market to industrial, commercial and residential clients. This could have an impact on the prices paid or achieved in Hera's electricity production and trading activities. Moreover, Hera and its Group may be unable to offset the financial effects of decreases in production and sales of electricity through efficiency improvements, or expansion into new business areas or markets.

In its natural gas business, Hera faces increasing competition from both national and international natural gas suppliers. Increasingly high levels of competition in the Italian natural gas market could possibly entail reduced natural gas selling margins. Furthermore, a number of national gas producers from countries with large gas reserves have begun to sell natural gas directly to final clients in Italy, which could threaten the market position of companies, like Hera, which resell gas purchased from producing countries to final customers. In addition, there is a regulatory risk linked to the definition by the AEEG of the maximum price for the residential market.

Although Hera and its Group have sought to face the challenge of liberalisation by increasing their presence and client base in free (i.e. non-regulated) areas of the energy markets in which they compete, they may not be successful in doing so. Any failure by Hera and its Group to respond effectively to increased competition could over time adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera's operations are subject to extensive environmental statutes, rules and regulations, which regulate, inter alia, air emissions, water discharges and the management of hazardous and solid waste.

Hera's compliance with environmental statutes, rules and regulations involves the incurrence of significant costs relating to environmental monitoring, installation of pollution control equipment, emission fees, maintenance and upgrading of facilities, remediation and permitting. The costs of compliance with existing environmental legal requirements or those not yet adopted may increase in the future. An increase in such

20 costs, unless promptly recovered, could have an adverse impact on Hera's business, results of operations and financial condition, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera has accrued risk provisions to cope with all existing environmental liabilities whereby either a legal or constructive obligation to perform a clean-up or other remedial action is in place and the associated costs can be reliably estimated. The accrued amount represents Hera's best estimates of the future environmental expenses to be incurred. Notwithstanding this, it is possible that in the future Hera and its Group may incur significant environmental expenses and liabilities in addition to the amounts already accrued owing to: (i) unknown contamination; (ii) the results of ongoing surveys or surveys that will be carried out in future on the environmental status of certain of the Hera Group's industrial sites as required by the applicable regulations on contaminated sites; and (iii) the possibility that disputes might be brought against Hera and its Group in relation to such matters. Such liabilities could have an adverse impact on Hera's business, results of operations and financial condition, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Events, service interruptions, systems failures, water shortages or contamination of water supplies could adversely affect profitability.

Hera controls and operates utility networks and maintains the associated assets with the objective of providing a continuous service. In exceptional circumstances, electricity, gas or water shortages, or the failure of part of a network or supporting plant and equipment, could result in the interruption of service or catastrophic damages resulting in loss of life and/or environmental damages and/or economic and social disruption.

For example, water shortages may be caused by natural disasters, floods, prolonged droughts, below average rainfall, increases in demand or by environmental factors, such as climate change, which may exacerbate seasonal fluctuations in supply availability. In the event of a shortage, Hera and its Group may incur additional costs in order to provide emergency supplies. In addition, water supplies may be subject to interruption or contamination, including contamination from the presence of naturally occurring compounds and pollution from man-made sources or third parties' actions. Hera and its Group could also be held liable for human exposure to hazardous substances in its water supplies or other environmental damages. Hera and its Group could be fined for breaches of statutory obligations, including the obligation to supply clean drinking water at the point of supply, or held liable to third parties, or be required to provide an alternative water supply of equivalent quality, which could increase costs. Hera and its Group maintain insurance against some, but not all, of these events but no assurance can be given that their insurance will be adequate to cover any direct or indirect losses or liabilities it may suffer. An additional risk arises from adverse publicity that these events may generate and the consequent damage to Hera's reputation. Such events could adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

The Hera Group faces risks relating to the variability of weather.

Electricity and natural gas consumption levels change significantly as a result of climatic changes. Changes in the weather can produce significant differences in energy demand and the Hera Group’s sales mix. Furthermore, adverse weather conditions can affect the regular delivery of energy due to network damage and the consequent service disruption. Significant changes of such nature could adversely affect the business prospects, results of operations and financial condition of Hera and its Group.

21 Hera is exposed to operational risks through its ownership and management of power stations, waste management and distribution networks and plants.

The main operational risks to which Hera is exposed are linked to its ownership and management of power stations, its waste management assets and its distribution networks and plants. These power stations and other assets are exposed to risks that can cause significant damage to the assets themselves and, in more serious cases, production capacity may be compromised. These risks include extreme weather phenomena, adverse meteorological conditions, natural disasters, fire, terrorist attacks, sabotage, mechanical breakdown of or damage to equipment or processes, accidents and labour disputes. In particular, Hera's electricity and steam generation units and distribution networks are exposed to malfunctioning and service interruption risks which are beyond its control and may result in increased costs, regulated repayments (automatic compensation) to users of the grid that suffered service interruptions exceeding the maximum thresholds set by the competent energy Authority and other losses. Furthermore, any of these risks could cause damage or destruction of the Hera Group’s facilities and, in turn, injuries to third parties or damage to the environment, along with ensuing lawsuits and penalties imposed by the relevant Authorities.

Hera believes that its systems of prevention and protection within each operating area, which vary according to the frequency and gravity of the particular events, its ongoing maintenance plans, the availability of strategic spare parts and its use of tools for transferring risk to the insurance market enable Hera to mitigate the economic consequences of potentially adverse events that might be suffered by any of its owned or managed plants or networks. There can, however, be no guarantee that the cost of maintenance and spare parts will not rise, that insurance products will continue to be available on reasonable terms or that any one event or series of events affecting any one or more plants or networks could not adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Risks related to the European sovereign debt crisis and the political uncertainties regarding the Eurozone. The escalation of the sovereign debt of certain European countries could lead to instability of the Euro and the Eurozone.

Since the final quarter of 2007, disruption in the global credit markets has created increasingly difficult conditions in the financial markets. The global financial system has yet to overcome these disruptions and difficult conditions. Financial market conditions remain challenging and in certain respects, such as in relation to sovereign credit risk and fiscal deficits in European countries, have deteriorated in the recent years. In particular, in 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Ireland, Portugal, Greece, Spain and Italy, which created concerns about the ability of these European Union states to continue to service their sovereign debt obligations. Due to these concerns, the financial markets and the global financial system in general were impacted by significant turmoil and uncertainty resulting in wide and volatile credit spreads on the sovereign debt of many European Union countries, a fall in liquidity and a consequent increase in funding costs as well as increased instability in the bond and equity markets.

In response to the crisis, assistance packages were granted to Ireland, Portugal and Greece, as well as to Spanish banks; European Union/International Monetary Fund stability facilities were created and plans were announced to increase the size of such resources. Measures were also announced to recapitalise certain European banks, encourage greater long term fiscal responsibility on the part of the individual Member States and bolster market confidence in the Euro as well as the ability of Member States to service their sovereign debt. Despite these and other plans to implement various other measures designed to alleviate these concerns, uncertainty over the outcome of the European Union governments’ financial support programs and more general concern about sovereign finances intensified during the first half of 2012 and still persist. However, certain of such proposed steps are subject to final agreement and ratification by the relevant European Union Member States and thus the implementation of such steps in their currently contemplated form remains uncertain. Even if such measures are implemented, there is no guarantee that

22 they will ultimately and finally resolve uncertainties regarding the ability of Eurozone states to continue to service their sovereign debt obligations. Further, even if such long-term structural adjustments are ultimately implemented, the future of the Euro in its current form, and with its current membership, remains uncertain.

Ongoing concern about the debt crisis in Europe, as well as the possible exit from the Eurozone of one or more Member States and/or the replacement of the Euro by one or more successor currencies to which the foregoing could lead, could have a detrimental impact on the global economic recovery and the repayment of sovereign and non-sovereign debt in these countries, including Italy, as well as on the financial condition of European institutions (both financial and corporate).

There can be no assurance that the market disruption in Europe will not worsen, nor can there be any assurance that current or future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets and secure the position of the Euro.

The continuing difficulties and slowdown in the economy, the substantial bailouts of financial and other institutions by governments as well as measures designed to reignite economic growth have led to significant increases in the debt of several countries. As a consequence, various countries of the Eurozone (including Italy) have had their credit ratings downgraded in recent months by the main rating agencies due to the escalation of their sovereign debt levels, political uncertainty regarding reform prospects of the Eurozone and concern over the Eurozone’s increasingly weak macroeconomic prospects.

The Hera Group's business may be adversely affected by the current disruption in the global credit market.

Disruption in the financial markets and the global financial system in general and related challenging market conditions have resulted in greater volatility but also in reduced liquidity, widening of credit spreads and lack of price transparency in credit markets (in this connection see also "Risks related to the European sovereign debt crisis and the political uncertainties regarding the Eurozone. The escalation of the sovereign debt of certain European countries could lead to instability of the Euro and the Eurozone" above). Changes in investment markets, including changes in interest rates, exchange rates and returns from equity, property and other investments, may affect the financial performance of the Hera Group. Any worsening of general economic conditions in the markets in which it operates could adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

The changes to the overall economy in Hera's principal markets could have a significant adverse effect on Hera's businesses and profitability.

The economy in Italy, Hera's principal market, was adversely affected in 2009 by a significant slowdown, with a direct impact on consumption. On a countrywide level, for example, 2009 saw the first reduction in demand for electric power (by 6.7%) and in demand for special waste services (by 2.2%) since 1981. Hera expects that, for 2013 as a whole and for the near future, demand for energy will be substantially below the level achieved before the economic crisis. In addition, the decrease in demand for energy has put pressure on sales margins due also to greater competition, particularly in the natural gas sector. If demands continue to be sluggish or if there is another reversal in demand without corresponding adjustments in the margins charged by Hera on its sales or without increase in its market share, then Hera's revenues (other than those arising from the gas distribution service, which based on the current tariff mechanism would not be affected by the foregoing) would be reduced and future growth prospects would be limited. This could adversely affect Hera's business, results of operations and financial condition and those of its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

In addition, changes in retail electricity consumption could require Hera to acquire or sell additional electricity on unfavourable terms. Consumption may vary substantially according to factors outside of

23 Hera's control, such as overall economic activity and the weather. Sales volumes may differ from the supply volumes that Hera had expected to utilise from electricity purchase contracts. Differences between actual sales volumes and supply volumes may require Hera to purchase additional electricity or sell excess electricity, both of which are themselves subject to market conditions, which may change according to multiple factors, including weather, plant availability, transmission congestion and input fuel costs. The purchase of additional electricity at high prices or sale of excess electricity at low prices could adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera has €520 million in puttable debt outstanding that Hera may be required to repurchase or refinance in 2014.

Hera has the following puttable debt outstanding: (i) a put loan of €70 million maturing on 6 December 2020, puttable every two years; (ii) the €250 million puttable callable resettable notes due in 2031 in respect of which the next put option is exercisable on 10 October 2014, 10 October 2016 (and every five years thereafter); and (iii) the €200 million structured notes due in 2034 in respect of which the next put option is exercisable on 8 August 2014 (and every two years thereafter).

In addition, following the amendments made in September 2011 to the puttable bonds referred to under (ii) and (iii), Hera has the option, but not the obligation, to repurchase/redeem any or both the put bonds on any business day before the next put option date at their then current market value (which includes the outstanding principal amount, plus accrued and unpaid interest, plus any related costs). Should Hera decide to exercise such option, the repurchase/redemption price would likely be higher than the then outstanding principal amount of the relevant puttable bond so repurchased and or redeemed, as the case may be.

However, no repurchase/redemption option will be exercised unless Hera believes that the then existing liquidity (including committed credit lines) is sufficient to repurchase or redeem the relevant notes. No assurances can be given, however, that Hera's business will generate sufficient cash flows from operations or that future debt and equity financing will be available in an amount sufficient, or on commercially reasonable or favourable terms, to enable Hera to refinance or to repay its puttable debts when due. To the extent Hera cannot successfully repay or refinance its puttable debts when due, this could adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera has exposure to credit risk arising from its commercial activity.

A central credit policy regulates the assessment of customers' and other financial counterparties' credit standing, the monitoring of expected collection flows, the issue of suitable reminders, the granting of extended credit terms if necessary, the taking of prime bank or insurance guarantees and the implementation of suitable recovery measures. Standard default interest is charged on late payments. Notwithstanding the foregoing, a single default by a major financial counterparty, or an increase in current default rates by counterparties generally, could adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera is exposed to risks associated with fluctuations in the prices of certain commodities.

In relation to the wholesale activities carried out by Hera's subsidiary Hera Trading S.r.l (Hera Trading), Hera must manage risks associated with the misalignment between the index-linking formulae governing Hera's purchase price for gas and electricity and the index-linking formulae linked to the price at which Hera may sell these commodities. Hera has also entered into certain fixed price contracts for gas and electricity, which may require it to pay above-market prices for those commodities or sell such commodities at below- market prices.

24 To mitigate such exposures, Hera has developed a strategy of stabilising margins by contracting for supplies of fuel and for its deliveries of electricity to final customers in advance. Furthermore, Hera is committed to limiting its exposure to commodity price risk through the use of derivative instruments. Nonetheless, Hera has not fully eliminated its exposures and significant variations in fuel, raw material or electricity prices, or any relevant interruption in supplies, could have an adverse impact on Hera's business, results of operations and financial condition, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Moreover, the hedging strategies pursued by Hera may create new risks and exposures and Hera cannot offer assurance that they will function as intended. If Hera is unable to execute its hedging strategy, it could adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera is exposed to interest rate risk arising on its financial indebtedness.

Hera is subject to interest rate risk arising from its financial indebtedness, which varies depending on whether such indebtedness is at a fixed or floating rate. The risk connected with the fluctuation of interest rates has been reduced by entering into hedging agreements. As at 31 December 2011, and as at 30 June 2012 approximately 69% and 63%, respectively, of the Hera Group's borrowings were at a fixed rate or were hedged by derivatives transactions. There can be no guarantee that the hedging policy adopted by Hera and its Group, which is designed to minimise any losses connected to fluctuations in interest rates in the case of floating rate indebtedness by transforming them into fixed rate indebtedness, will actually have the effect of reducing any such losses. To the extent it does not, this could adversely affect the business, results of operations and financial condition of Hera and its Group, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera is exposed to funding risks.

Hera's ability to borrow from banks or in the capital markets to meet its financial requirements is dependent on favourable market conditions. If sufficient sources of financing are not available in the future for these or other reasons, Hera and its Group may be unable to meet its funding requirements, which could materially and adversely affect its results of operations and financial condition. Borrowing requirements of the Hera Group's companies are pooled by the Group's central finance department in order to optimise the use of financial resources and manage net positions and the funding of portfolio consistently with management's plans while maintaining a level of risk exposure within prescribed limits.

Hera's approach toward funding risk is aimed at securing competitive financing and ensuring a balance between average maturity of funding, flexibility and diversification of sources; however, these measures may not be sufficient to fully protect Hera and its Group from such risk.

Risks related to Hera's rating.

As at the date hereof the long-term credit rating assigned to Hera is "BBB+" (stable outlook) by S&P and "Baa1" (negative outlook) by Moody's. Hera's future ability to access capital markets, other financing instruments and related costs may depend, inter alia, on the rating assigned to Hera. Accordingly, a downgrade of Hera's rating might limit its ability to access capital markets and/or result in increase in its costs of funding and/or refinancing of debt with a consequent adverse effect on Hera's business, financial condition and results of operations.

S&P and Moody's are established in the European Union and are registered under Regulation (EC) No. 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies. As such, S&P and Moody's are included in the list of credit ratings agencies published by the European

25 Securities and Markets Authority on its website available (www.esma.europa.eu/page/List-registered-and- certified-CRAs) in accordance with such Regulation.

There are risks associated with the acquisitions that Hera has already carried out and/or are in the process of being completed and possible future acquisitions by Hera, including potential increases in leverage resulting from the financing of the transactions and the integration of the new companies into the Hera Group.

As further described in this Base Prospectus, Hera has acquired a number of companies and its strategy is to further consider additional acquisitions. The acquisitions that Hera has already carried out and/or are in the process of being completed (such as the acquisition and subsequent merger of AcegasAps described under “Description of the Issuer –Recent developments – The integration of the AcegasAps Group into the Hera Group”) and any future acquisitions may result in a significant expansion and increased complexity of the Hera Group's operations. Certain adverse consequences could result from these acquisitions. Acquisitions require the integration and combination of different management, strategies, procedures, products and services, client bases and distribution networks, with the aim of streamlining the business structure and operations of the newly enlarged group. Although Hera assesses each investment based on financial and market analysis, which includes certain assumptions, the foregoing as well as any other acquisitions expose Hera and its Group to risks connected to the integration of new companies into the Hera Group. These risks may relate to: (i) difficulties related to the management of a significantly broader and more complex organisation; (ii) problems related to the coordination and consolidation of corporate and administrative functions (including internal controls and procedures relating to accounting and financial reporting); and (iii) the failure to achieve expected synergies. Furthermore, this process of integration may require additional investment and expense. There can be no assurance that Hera and its Group will be able to integrate their newly-acquired companies, or any companies that it may acquire in the future, into the Hera Group successfully. Failure to successfully manage one or more of the foregoing circumstances, or the need for significant further investments in order to do so could have a material adverse effect on the Hera Group's business, financial condition and results of operations, which could, in turn, have an adverse impact on the business, results of operations and financial condition of Hera, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

Hera and its Group are defendants in a number of legal proceedings and may from time to time be subject to inspections by tax and other authorities.

Hera and its Group are defendants in a small number of civil and administrative proceedings, which are incidental to their business activities and which Hera does not consider to be material. Hera and its Group has made provision in their balance sheet for such proceedings which amounted to €19.9 million as at 31 December 2011 and to €20.2 million as at 30 June 2012. Hera and its Group may, from time to time, be subject to further litigation and to investigations by taxation and other authorities. Hera and its Group are not able to predict the ultimate outcome of any of the claims currently pending against it or future claims or investigations that may be brought against it, which may be in excess of its existing provisions. In addition, it cannot be ruled out that Hera and its Group may incur significant losses in addition to the amounts already accrued in connection with pending legal claims and proceedings or future claims or investigations which may be brought owing to: (i) uncertainty regarding the final outcome of such proceedings, claims or investigations; (ii) the occurrence of new developments that management could not take into consideration when evaluating the likely outcome of such proceedings, claims or investigations in order to accrue the risk provisions as at the date of the latest financial statements; (iii) the emergence of new evidence and information; and (iv) the underestimation of probable future losses. Adverse outcomes in existing or future proceedings, claims or investigations could have adverse effects on Hera's financial position and results of operations and consequently an adverse impact on its business, results of operations and financial condition, with a consequent adverse impact on the market value of the Notes and Hera's ability to repay the Notes in full at their maturity.

26 Hera is exposed to a number of different tax uncertainties, which would have an impact on its tax results.

Hera determines the taxation it is required to pay based on its interpretation of applicable tax laws and regulations. As a result, it may face unfavourable changes in those tax laws and regulations to which it is subject, including the increase of the additional income tax (the so-called ‘‘Robin Hood tax’’). The above mentioned tax (which increased from 6.5% to 10.5%) is applicable for three tax periods — i.e. 2011, 2012 and 2013 — to a number of taxpayers, including companies engaged in the energy business, and has been extended to companies operating in the power, gas distribution and transmission and the renewable energy sectors and, by operation of law, the additional tax liability arising from the application of this tax cannot be transferred to Hera’s clients. Therefore, Hera’s financial position and its ability to perform the obligations under the Notes may be adversely affected by new laws or changes in the interpretation of existing laws.

The Unaudited Pro-forma Consolidated Financial Information incorporated by reference herein has been prepared to illustrate retrospectively the effects of the Transaction (as defined below) as if it had occurred on 31 December 2011 or on 30 June 2012 for consolidated statement of financial position purposes and on 1 January 2011 or on 1 January 2012 for consolidated income statement and consolidated cash flow statement purposes. Actual effects would not necessarily have been the same as those presented in the Unaudited Pro-forma Consolidated Financial Information

The Unaudited Pro-forma Consolidated Financial Information incorporated by reference in this Base Prospectus (see "Documents Incorporated by Reference"), has been prepared to represent the effects of the Transaction by the Issuer of a controlling interest in AcegasAps Holding on the consolidated statement of financial position, as if it had taken place on 30 June 2012 and 31 December 2011, and on the consolidated income statement and consolidated cash flow statement, as if it had taken place on 1 January 2012 and 1 January 2011, in each case based on available information and on certain assumptions, described in the explanatory notes within the Unaudited Pro-forma Consolidated Financial Information. The Unaudited Pro- forma Consolidated Financial Information does not attempt to predict or estimate the future results of the Hera Group and should not be used for this purpose

As pro-forma information is prepared to illustrate retrospectively the effects of transactions that will occur subsequently using generally accepted regulations and reasonable assumptions, there are limitations that are inherent to the nature of pro-forma information. Hence, had the Transaction taken place on the dates assumed above, the actual effects would not necessarily have been the same as those presented in the Unaudited Pro-forma Consolidated Financial Information. Furthermore, in consideration of the different purposes of the pro-forma information as compared to the historical financial statements and the different methods of calculation of the effects of the Transaction on the unaudited pro-forma consolidated statements of financial position, on the pro-forma consolidated income statements and on the pro-forma consolidated cash flow statements, those statements should be read and interpreted without comparison between them. Investors should therefore not place undue reliance on the Unaudited Pro-forma Consolidated Financial Information. The Unaudited Pro-forma Consolidated Financial Information Pro-forma should only be read and considered together with the other information contained or incorporated by reference in this Base Prospectus.

For additional information, see "Presentation of financial and other information - Financial information", "Description of the Issuer – Recent Developments – The integration of the AcegasAps Group into the Hera Group" and the Unaudited Pro-forma Financial Information which is incorporated by reference in this Base Prospectus.

27 FACTORS WHICH ARE MATERIAL FOR THE PURPOSE OF ASSESSING THE MARKET RISKS ASSOCIATED WITH NOTES ISSUED UNDER THE PROGRAMME

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 the light of its own circumstances. In particular, each potential investor should:

(i) 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 Base Prospectus or any applicable supplement;

(ii) 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;

(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including Notes with principal or interest payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor's currency;

(iv) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant indices and financial markets;

(v) consider all of the risks of an investment in the Notes, including Notes with principal or interest payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor's currency; and

(vi) 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.

Some Notes are complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as stand alone investments. They purchase complex financial instruments as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in Notes which are complex financial instruments unless it has the expertise (either alone or with a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of the Notes and the impact this investment will have on the potential investor's overall investment portfolio.

Risks related to the structure of a particular issue of Notes

A number of Notes that may be issued under the Programme may have features which contain particular risks for potential investors. Set out below is a description of these most common features (but is not intended to be an exhaustive description):

Risks applicable to all Notes

Notes subject to optional redemption by the Issuer

An optional redemption feature of Notes is likely to limit their market value. During any period when the Issuer may elect to redeem Notes, the market value of those Notes generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period.

28 The Issuer may be expected to redeem Notes when its cost of borrowing is lower than the interest rate on the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.

Redemption for tax reasons

Unless in the case of any particular Tranche of Notes the relevant Final Terms specifies otherwise, in the event that the Issuer would be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of Italy or certain other relevant jurisdictions or any political subdivision thereof or any authority therein or thereof having power to tax, the Issuer may redeem all outstanding Notes in accordance with the Conditions. 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 relevant Notes.

Variable rate Notes with a multiplier or other leverage factor

Notes with variable interest rates can be volatile investments. If they are structured to include multipliers or other leverage factors, or caps or floors, or any combination of those features or other similar related features, their market values may be even more volatile than those for securities that do not include such features.

Inverse Floating Rate Notes

Inverse Floating Rate Notes have an interest rate equal to a fixed rate minus a rate based upon a reference rate such as LIBOR. The market values of those Notes typically are more volatile than market values of other conventional floating rate debt securities based on the same reference rate (and with otherwise comparable terms). Inverse Floating Rate Notes are more volatile because an increase in the reference rate not only decreases the interest rate of the Notes, but may also reflect an increase in prevailing interest rates, which further adversely affects the market value of these Notes.

Fixed/Floating Rate Notes

Fixed/Floating Rate Notes may bear interest at a rate that converts from a fixed rate to a floating rate, or from a floating rate to a fixed rate. Where the Issuer has the right to effect such a conversion, this will affect the secondary market and the market value of the Notes since the Issuer may be expected to convert the rate when it is likely to produce a lower overall cost of borrowing. If the Issuer converts from a fixed rate to a floating rate in such circumstances, the spread on the Fixed/Floating Rate Notes may be less favourable than then prevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the new floating rate at any time may be lower than the rates on other Notes. If the Issuer converts from a floating rate to a fixed rate in such circumstances, the fixed rate may be lower than then prevailing rates on its Notes.

Notes issued at a substantial discount or premium

The market values of securities issued at a substantial discount (such as Zero Coupon Notes) or premium from their principal amount tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest-bearing securities. Generally, the longer the remaining term of the securities, the greater the price volatility as compared to conventional interest-bearing securities with comparable maturities.

29 Risks related to Notes generally

Set out below is a brief description of certain risks relating to the Notes generally:

Modification and waivers

The conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions allow defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.

The conditions of the Notes and the Trust Deed also provide that the Trustee may, without the consent of Noteholders, to the extent permitted under Italian law, agree to (a) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of the Notes or (b) determine without the consent of the Noteholders that any Event of Default or potential Event of Default shall not be treated as such.

EU Savings Directive

Under EC Council Directive 2003/48/EC (the EU Savings Tax Directive) on the taxation of savings income, Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State or to certain limited types of entities established in that other Member State. However, for a transitional period, 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 adopted similar measures (a withholding system in the case of Switzerland).

The European Commission has proposed certain amendments to the EU Savings Tax Directive, which may, if implemented, amend or broaden the scope of the requirements described above.

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. The Issuer is required to maintain a Paying Agent in a Member State that is not obliged to withhold or deduct tax pursuant to the EU Savings Tax Directive. For further information on the EU Savings Tax Directive, see the section entitled "Taxation" below.

Change of law

The conditions of the Notes are based on English law in effect as at the date of this Base Prospectus, save that provisions convening meetings of Noteholders and the appointment of a Noteholders' Representative in respect of any Series of Notes are subject to compliance with mandatory provisions of Italian law. No assurance can be given as to the impact of any possible judicial decision or change to English law and/or Italian law (where applicable) or administrative practice after the date of this Base Prospectus, and any such change could impact the value of any Notes thereby affected.

Notes where denominations involve integral multiples: definitive Notes

In relation to any issue of Notes which have denominations consisting of a minimum Specified Denomination plus one or more higher integral multiples of another smaller amount, it is possible that such Notes may be traded in amounts that are not integral multiples of such minimum Specified Denomination. In such a case a holder who, as a result of trading such amounts, holds an amount which is less than the

30 minimum Specified Denomination in his account with the relevant clearing system at the relevant time may not receive a definitive Note in respect of such holding (should definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to a Specified Denomination.

If definitive Notes are issued, holders should be aware that definitive Notes which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade.

Risks related to the market generally

Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk:

The secondary market generally

Notes may 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. This is particularly the case for Notes that are especially sensitive to interest rate, currency or market risks, are designed for specific investment objectives or strategies or have been structured to meet the investment requirements of limited categories of investors. These types of Notes generally would have a more limited secondary market and more price volatility than conventional debt securities. Illiquidity may have a severe adverse effect on the market value of Notes.

Delisting of the Notes

Application has been made for Notes issued under the Programme to be listed on the Official List and admitted to trading on the regulated market of the Luxembourg Stock Exchange and Notes issued under the Programme may also be admitted to trading, listing and/or quotation by any other listing authority, stock exchange or quotation system (each, a listing), as specified in the relevant Final Terms. Such Notes may subsequently be delisted despite the best efforts of the Issuer to maintain such listing and, although no assurance is made as to the liquidity of the Notes as a result of listing, any delisting of the Notes may have a material effect on a Noteholder's ability to resell the Notes on the secondary market.

Exchange rate risks and exchange controls

The Issuer will pay principal and interest on the Notes in the Specified Currency. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the Investor's Currency) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to the Specified Currency would decrease (a) the Investor's Currency-equivalent yield on the Notes, (b) the Investor's Currency-equivalent value of the principal payable on the Notes and (c) the Investor's Currency-equivalent market value of the Notes.

Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate or the ability of the Issuer to make payments in respect of the Notes. As a result, investors may receive less interest or principal than expected, or no interest or principal.

Interest rate risks

Investment in Fixed Rate Notes involves the risk that if market interest rates subsequently increase above the rate paid on the Fixed Rate Notes this will adversely affect the value of the Fixed Rate Notes.

31 Credit ratings may not reflect all risks

One or more independent credit rating agencies may assign credit ratings to the Issuer or 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.

In general, European regulated investors are restricted under Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation) from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU and registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions that apply in certain circumstances whilst the registration application is pending. Such general restriction will also apply in the case of credit ratings issued by non-EU credit rating agencies, unless the relevant credit ratings are endorsed by an EU- registered credit rating agency or the relevant non-EU rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended). The list of registered and certified rating agencies published by the European Securities and Markets Authority (ESMA) on its website (at http://www.esma.europa.eu/page/List-registered-and-certified- CRAs) in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency included in such list, as there may be delays between certain supervisory measures being taken against a relevant rating agency and the publication of the updated ESMA list. Certain information with respect to the credit rating agencies and ratings is set out on the cover of this Base Prospectus.

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 (a) Notes are legal investments for it, (b) Notes can be used as collateral for various types of borrowing and (c) 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 risk-based capital or similar rules.

32 DOCUMENTS INCORPORATED BY REFERENCE

The following documents which have previously been published or are published simultaneously with this Base Prospectus and have been filed with the CSSF shall be incorporated in, and form part of, this Base Prospectus:

(a) the audited consolidated annual financial statements of Hera as at and for the financial year ended 31 December 2011 including the information set out at the following pages, in particular:

Income statement Page 109 Aggregate income statement Page 110 Statement of financial position Pages 111 to 112 Cash flow statement Page 113 Statement of changes in shareholders' equity Page 114 Consolidated explanatory notes Pages 119 to 223 Auditors' Report Pages 241 to 242

(b) the audited consolidated annual financial statements of Hera as at and for the financial year ended 31 December 2010 including the information set out at the following pages, in particular:

Income statement Page 115 Statement of comprehensive income Page 116 Statement of financial position Pages 117 to 118 Cash flow statement Page 119 Statement of change in shareholders' equity Page 120 Consolidated explanatory notes Pages 125 to 231 Auditors' Report Pages 250 to 251

(c) the interim unaudited condensed consolidated financial statements of Hera as at and for the six months ended 30 June 2012 including the information set out at the following pages, in particular:

Income statement Page 75 Aggregate income statement Page 76 Statement of financial position Pages 77 to 78 Cash flow statement Page 79 Statements of changes in shareholders' equity Page 80 Consolidated explanatory notes Pages 84 to 161 Auditor's Review Report Page 166

(d) the interim unaudited condensed consolidated financial statements of Hera as at and for the six months ended 30 June 2011 including the information set out at the following pages, in particular:

Income statement Page 53 Aggregate income statement Page 54 Balance sheet Pages 55 to 56 Cash flow statement Page 57 Statements of changes in shareholders' equity Page 58 Consolidated explanatory notes Pages 62 to 132 Auditor's Review Report Pages 138

33 (e) the interim unaudited consolidated results of Hera as at and for the nine months ended 30 September 2012 including the information set out at the following pages, in particular:

Consolidated income statement Page 31 Consolidated statement of comprehensive income Page 32 Consolidated statement of financial position Pages 34 to 35 Consolidated statement of cash flows Page 36 Consolidated statement of changes in equity Page 37 Notes to consolidated financial statements Pages 38 to 41

(f) the interim unaudited consolidated results of Hera as at and for the nine months ended 30 September 2011 including the information set out at the following pages, in particular:

Income statement Page 30 Aggregate income statement Page 31 Statement of financial position Pages 33 to 34 Cash flow statement Page 35 Statement of changes in shareholders’ equity Page 36 Consolidated explanatory notes Pages 37 to 41

(g) the Unaudited Pro-forma Consolidated Financial Information, in particular;

Introduction Pages 1 to 2 Unaudited pro-forma consolidated statement of Page 3 financial position as of 30 June 2012 Unaudited pro-forma consolidated statement of Page 4 financial position as of 31 December 2011 Unaudited pro-forma consolidated income statement Page 5 for the six months ended 30 June 2012 Unaudited pro-forma consolidated income statement Page 6 for the year ended 31 December 2011 Unaudited pro-forma consolidated cash flow Page 7 statement for the six months ended 30 June 2012 Unaudited pro-forma consolidated cash flow Page 8 statement for the year ended 31 December 2011 Notes to the unaudited pro-forma consolidated Pages 8 to 25 financial information

(h) Report on the Hera Group unaudited pro-forma consolidated statement of financial position as of 30 June 2012 and on the unaudited pro-forma consolidated income statement and the unaudited pro- forma consolidated cash flow statement for the six months then ended: Entire document

(i) Report on the Hera Group unaudited pro-forma consolidated statement of financial position as of 31 December 2011 and on the unaudited pro-forma consolidated income statement and the unaudited pro-forma consolidated cash flow statement for the year then ended: Entire document

(j) The section "Terms and Conditions of the Notes" contained in the previous Base Prospectus dated 24 November 2011 at pages 53 to 84 (inclusive) prepared by the Issuer in connection with the Programme.

34 Investors should not place undue reliance on the Unaudited Pro-forma Consolidated Financial Information incorporated by reference herein. Such Unaudited Pro-forma Consolidated Financial Information should only be read and considered together with the other information contained or incorporated by reference in this Base Prospectus. For further information please see "Presentation of financial and other information – Financial information" and "Risk Factors – The Unaudited Pro- forma Consolidated Financial Information" above.

Any other information not listed above but contained in such document is incorporated by reference for information purposes only.

Following the publication of this Base Prospectus a supplement may be prepared by the Issuer and approved by the CSSF in accordance with Article 16 of the Prospectus Directive. Statements contained in any such supplement (or contained in any document incorporated by reference therein) shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or supersede statements contained in this Base Prospectus or in a document which is incorporated by reference in this Base Prospectus. Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Base Prospectus.

Copies of documents incorporated by reference in this Base Prospectus will be available for inspection at the registered office of the Issuer and at the specified office of the Paying Agent for the time being in London, and will be published on the website of the Luxembourg Stock Exchange (www.bourse.lu).

Any documents themselves incorporated by reference in the documents incorporated by reference in this Base Prospectus shall not form part of this Base Prospectus.

Any non-incorporated parts of a document referred to herein are either deemed not relevant for an investor or are otherwise covered elsewhere in this Base Prospectus.

The Issuer will, in the event of any significant new factor, material mistake or inaccuracy relating to information included in this Base Prospectus which is capable of affecting the assessment of any Notes, prepare a supplement to this Base Prospectus or publish a new Base Prospectus for use in connection with any subsequent issue of Notes.

35 FORM OF THE NOTES

Each Tranche of Notes will be in bearer form and will be initially issued in the form of a temporary global note (a Temporary Global Note) or, if so specified in the applicable Final Terms, a permanent global note (a Permanent Global Note) which, in either case, will:

(a) if the Global Notes are intended to be issued in new global note (NGN) form, as stated in the applicable Final Terms, be delivered on or prior to the original issue date of the Tranche to a common safekeeper (the Common Safekeeper) for Euroclear Bank SA/NV (Euroclear) and Clearstream Banking, société anonyme (Clearstream, Luxembourg); and

(b) if the Global Notes are not intended to be issued in NGN Form, be delivered on or prior to the original issue date of the Tranche to a common depositary (the Common Depositary) for, Euroclear Bank S.A./N.V. (Euroclear) and Clearstream Banking, société anonyme (Clearstream, Luxembourg).

Where the Global Notes issued in respect of any Tranche are in NGN form, the applicable Final Terms will also indicate whether or not such Global Notes are intended to be held in a manner which would allow Eurosystem eligibility. Any indication that the Global Notes are to be so held does not necessarily mean that the Notes of the relevant Tranche will be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any times during their life as such recognition depends upon satisfaction of the Eurosystem eligibility criteria. The Common Safekeeper for NGNs will either be Euroclear or Clearstream, Luxembourg or another entity approved by Euroclear and Clearstream, Luxembourg, as indicated in the applicable Final Terms.

Whilst any Note is represented by a Temporary Global Note, payments of principal, interest (if any) and any other amount payable in respect of the Notes due prior to the Exchange Date (as defined below) will be made (against presentation of the Temporary Global Note if the Temporary Global Note is not intended to be issued in NGN form) only to the extent that certification (in a form to be provided) to the effect that the beneficial owners of interests in such Note are not U.S. persons or persons who have purchased for resale to any U.S. person, as required by U.S. Treasury regulations, has been received by Euroclear and/or Clearstream, Luxembourg and Euroclear and/or Clearstream, Luxembourg, as applicable, has given a like certification (based on the certifications it has received) to the Agent.

On and after the date (the Exchange Date) which is 40 days after a Temporary Global Note is issued, interests in such Temporary Global Note will be exchangeable (free of charge) upon a request as described therein either for (a) interests in a Permanent Global Note of the same Series or (b) definitive Notes of the same Series with, where applicable, interest coupons and talons attached (as indicated in the applicable Final Terms and subject, in the case of definitive Notes, to such notice period as is specified in the applicable Final Terms), in each case against certification of beneficial ownership as described above unless such certification has already been given. The holder of a Temporary Global Note will not be entitled to collect any payment of interest, principal or other amount due on or after the Exchange Date unless, upon due certification, exchange of the Temporary Global Note for an interest in a Permanent Global Note or for definitive Notes is improperly withheld or refused.

Payments of principal, interest (if any) or any other amounts on a Permanent Global Note will be made through Euroclear and/or Clearstream, Luxembourg (against presentation or surrender (as the case may be) of the Permanent Global Note if the Permanent Global Note is not intended to be issued in NGN form) without any requirement for certification.

The applicable Final Terms will specify that a Permanent Global Note will be exchangeable (free of charge), in whole but not in part, for definitive Notes with, where applicable, interest coupons and talons attached upon either (a) not less than 60 days' written notice from Euroclear and/or Clearstream, Luxembourg (acting

36 on the instructions of any holder of an interest in such Permanent Global Note) to the Agent as described therein or (b) only upon the occurrence of an Exchange Event or (c) at any time at the request of the Issuer. For these purposes, Exchange Event means that (i) an Event of Default (as defined in Condition 10) has occurred and is continuing, or (ii) the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and no successor clearing system satisfactory to the Trustee is available. The Issuer will promptly give notice to Noteholders in accordance with Condition 14 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any holder of an interest in such Permanent Global Note) or the Trustee may give notice to the Agent requesting exchange. Any such exchange shall occur not later than 45 days after the date of receipt of the first relevant notice by the Agent.

The following legend will appear on all Notes which have an original maturity of more than one year and on all interest coupons relating to such Notes:

"ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE."

Notes which are represented by a Global Note will only be transferable in accordance with the rules and procedures for the time being of Euroclear or Clearstream, Luxembourg, as the case may be.

Pursuant to the Agency Agreement (as defined under "Terms and Conditions of the Notes"), the Agent shall arrange that, where a further Tranche of Notes is issued which is intended to form a single Series with an existing Tranche of Notes, the Notes of such further Tranche shall be assigned a common code and ISIN which are different from the common code and ISIN assigned to Notes of any other Tranche of the same Series until at least the expiry of the distribution compliance period (as defined in Regulation S under the Securities Act) applicable to the Notes of such Tranche.

Any reference herein to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Final Terms or as may otherwise be approved by the Issuer, the Agent and the Trustee.

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

37 APPLICABLE FINAL TERMS

Set out below is the form of Final Terms which will be completed for each Tranche of Notes issued under the Programme with a denomination of at least €100,000 (or its equivalent in another currency).

[DATE]

Hera S.p.A.

(incorporated with limited liability in the Republic of Italy)

Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes] under the €1,500,000,000

Euro Medium Term Note Programme

PART A

CONTRACTUAL TERMS

Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Base Prospectus dated 20 December 2012 [and the supplement[s] to it dated [date] [and [date]] which [together] constitute[s] a base prospectus for the purposes of the Prospectus Directive (Directive 2003/71/EC) (the Prospectus Directive) as amended (which includes the amendments made by Directive 2010/73/EU (the 2010 PD Amending Directive) to the extent that such amendments have been implemented in a relevant Member State). This document constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4 of the Prospectus Directive and must be read in conjunction with the Base Prospectus. Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Base Prospectus. The Base Prospectus is available for viewing on the website of the Luxembourg Stock Exchange at www.bourse.lu and (free of charge) during normal business hours at the registered offices of the Issuer and the specified office of the Paying Agents for the time being in London and Luxembourg.

[The following alternative language applies if the first tranche of an issue which is being increased was issued under a Base Prospectus with an earlier date.]

Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions) set forth in the Base Prospectus dated 24 November 2011 which are incorporated by reference in the Base Prospectus dated 20 December 2012. This document constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4 of the Prospectus Directive (Directive 2003/71/EC) (the Prospectus Directive) [as amended (which includes the amendments made by Directive 2010/73/EU (the 2010 PD Amending Directive) to the extent that such amendments have been implemented by a relevant Member State) and must be read in conjunction with the Base Prospectus dated 20 December 2012 which constitutes a base prospectus for the purposes of the Prospectus Directive. Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Base Prospectus dated 20 December 2012. Copies of such Base Prospectus are available for viewing on the website of the Luxembourg Stock Exchange at www.bourse.lu and (free of charge) during normal business hours at the registered offices of the Issuer and the specified office of the Paying Agents for the time being in London and Luxembourg.

38 [Include whichever of the following apply or specify as "Not Applicable" (N/A). Note that the numbering should remain as set out below, even if "Not Applicable" is indicated for individual paragraphs or subparagraphs. Italics denote directions for completing the Final Terms.]

[When adding any other final terms or information consideration should be given as to whether such terms or information constitute "significant new factors" and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.]

[If the Notes have a maturity of less than one year from the date of their issue, the minimum denomination may need to be £100,000 or its equivalent in any other currency.]

1. (a) Series Number: [ ]

(b) Tranche Number: [ ]

(c) Date on which the Notes will be The Notes will be consolidated and form a single consolidated and form a single Series: Series with [identify earlier Tranches] on [the Issue Date/exchange of the Temporary Global Note for interests in the Permanent Global Note, as referred to in paragraph 21 below, which is expected to occur on or about [date]][Not Applicable]

2. Specified Currency or Currencies: [ ]

3. Aggregate Nominal Amount:

(a) Series: [ ]

(b) Tranche: [ ]

4. Issue Price: [ ]% of the Aggregate Nominal Amount [plus accrued interest from [insert date] (if applicable)]

5. (a) Specified Denominations: [ ]

(N.B. Notes must have a minimum denomination of EUR 100,000 (or equivalent)

(Note – where multiple denominations above [€100,000] or equivalent are being used the following sample wording should be followed:

"[€100,000] and integral multiples of [€1,000] in excess thereof up to and including [€199,000].

No Notes in definitive form will be issued with a denomination above [€199,000].")

39 (b) Calculation Amount: [ ]

(If only one Specified Denomination, insert the Specified Denomination.

If more than one Specified Denomination, insert the highest common factor. Note: There must be a common factor in the case of two or more Specified Denominations.)

6. (a) Issue Date: [ ]

(b) Interest Commencement Date: [[ ]/Issue Date/Not Applicable]

(N.B. An Interest Commencement Date will not be relevant for certain Notes, for example Zero Coupon Notes.)

7. Maturity Date: [Fixed rate – specify date/ Floating rate – Interest Payment Date falling in or nearest to [specify month]]

8. Interest Basis: [[ ]% Fixed Rate] [[LIBOR/EURIBOR] +/- [ ]% Floating Rate] [Zero Coupon] (further particulars specified below)

9. Change of Interest Basis: [For the period from (and including) the Interest Commencement Date, up to (but excluding) [date] paragraph [12/13] applies and for the period from (and including) [date], up to (and including) the Maturity Date, paragraph [12/13] applies]/[Not Applicable]

10. Put/Call Options: [Investor Put] [Relevant Event Put] [Issuer Call] [(further particulars specified below)]

11. [Date [Board] approval for issuance of Notes [ ]] obtained: (N.B. Only relevant where Board (or similar) authorisation is required for the particular tranche of Notes)

PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE

12. Fixed Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph) [ ]% per annum payable in arrear on each (a) Rate(s) of Interest: Interest Payment Date

(b) Interest Payment Date(s): [ ] in each year up to and including the Maturity

40 Date] (N.B. This will need to be amended in the case of long or short coupons)

(c) Fixed Coupon Amount(s): [ ] per Calculation Amount (Applicable to Notes in definitive form.)

(d) Broken Amount(s): [ ] per Calculation Amount, payable on the (Applicable to Notes in definitive form.) Interest Payment Date falling [in/on] [ ]

(e) Day Count Fraction: [30/360] [Actual/Actual (ICMA)]

(f) [Determination Date(s): [ ] in each year (Insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last coupon. N.B. This will need to be amended in the case of regular interest payment dates which are not of equal duration N.B. Only relevant where Day Count Fraction is Actual/Actual (ICMA))]

13. Floating Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)

(a) Specified Period(s)/Specified Interest [ ] Payment Dates:

(b) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention]

(c) Additional Business Centre(s): [ ]

(d) Manner in which the Rate of Interest [Screen Rate Determination/ISDA Determination] and Interest Amount is to be determined:

(e) Party responsible for calculating the [ ] Rate of Interest and Interest Amount (if not the Agent):

(f) Screen Rate Determination:

• Reference Rate and Relevant Reference Rate: [ ] month [LIBOR/EURIBOR] Financial Centre: Relevant Financial Centre: [London/Brussels]

• Interest Determination Date(s): [ ]

(Second London business day prior to the start of each Interest Period if LIBOR (other than Sterling or euro LIBOR), first day of each Interest Period

41 if Sterling LIBOR and the second day on which the TARGET2 System is open prior to the start of each Interest Period if EURIBOR or euro LIBOR)

• Relevant Screen Page: [ ]

(In the case of EURIBOR, if not Reuters EURIBOR01 ensure it is a page which shows a composite rate or amend the fallback provisions appropriately)

(g) ISDA Determination:

• Floating Rate Option: [ ]

• Designated Maturity: [ ]

• Reset Date: [ ]

(In the case of a LIBOR or EURIBOR based option, the first day of the Interest Period)

(h) Margin(s): [+/-] [ ]% per annum

(i) Minimum Rate of Interest: [ ]% per annum

(j) Maximum Rate of Interest: [ ]% per annum

(k) Day Count Fraction: [[Actual/Actual (ISDA)][Actual/Actual] Actual/365 (Fixed) Actual/365 (Sterling) Actual/360 [30/360] [360/360] [Bond Basis] [30E/360] [Eurobond Basis] 30E/360 (ISDA)] (See Condition 5 for alternatives)

14. Zero Coupon Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)

(a) Accrual Yield: [ ]% per annum

(b) Reference Price: [ ]

(c) Day Count Fraction in relation to Early [30/360] Redemption Amounts and late [Actual/360] payment: [Actual/365]

PROVISIONS RELATING TO REDEMPTION

15. Notice periods for Condition 7.2 (Redemption Minimum period: [ ] days and Purchase – Redemption for tax reasons): Maximum period: [ ] days

42 16. Issuer Call: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)

(a) Optional Redemption Date(s): [ ]

(b) Optional Redemption Amount and [ ] per Calculation Amount method, if any, of calculation of such amount(s):

(c) If redeemable in part:

(i) Minimum Redemption [ ] Amount:

(ii) Maximum Redemption [ ] Amount:

(d) Notice periods: Minimum period: [ ] days

Maximum period: [ ] days

(N.B. When setting notice periods, the Issuer is advised to consider the practicalities of distribution of information through intermediaries, for example, clearing systems and custodians, as well as any other notice requirements which may apply, for example, as between the Issuer and the Agent or Trustee)

17. Investor Put: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)

(a) Optional Redemption Date(s): [ ]

(b) Optional Redemption Amount and [ ] per Calculation Amount method, if any, of calculation of such amount(s):

(c) Notice periods: Minimum period: [ ] days

Maximum period: [ ] days

(N.B. When setting notice periods, the Issuer is advised to consider the practicalities of distribution of information through intermediaries, for example, clearing systems and custodians, as well as any other notice requirements which may apply, for example, as between the Issuer and the Agent or Trustee)

43 18. Relevant Event Put: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)

(a) Optional Redemption Date(s): [ ]

(b) Optional Redemption Amount and [ ] per Calculation Amount method, if any, of calculation of such amount(s):

(c) Notice periods: Minimum period: [ ] days

Maximum period: [ ] days

(N.B. When setting notice periods, the Issuer is advised to consider the practicalities of distribution of information through intermediaries, for example, clearing systems and custodians, as well as any other notice requirements which may apply, for example, as between the Issuer and the Agent or Trustee)

19. Final Redemption Amount: [ ] per Calculation Amount

20. Early Redemption Amount payable on [ ] per Calculation Amount redemption for taxation reasons or on event of default:

GENERAL PROVISIONS APPLICABLE TO THE NOTES

21. Form of Notes:

(a) Form: [Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes [on 60 days' notice given at any time/only upon an Exchange Event]]

[Temporary Global Note exchangeable for Definitive Notes on and after the Exchange Date]

[Permanent Global Note exchangeable for Definitive Notes [on 60 days' notice given at any time/only upon an Exchange Event/at any time at the request of the Issuer]]

(Ensure that this is consistent with the wording in the "Form of the Notes" section in the Base Prospectus and the Notes themselves. N.B. The exchange upon notice/at any time options should not be expressed to be applicable if the Specified Denomination of the Notes in paragraph 5 includes language substantially to the following effect: "[€100,000] and integral multiples of [€1,000] in excess thereof up to and including

44 [€199,000]." Furthermore, such Specified Denomination construction is not permitted in relation to any issue of Notes which is to be represented on issue by a Temporary Global Note exchangeable for Definitive Notes.)

(b) [New Global Note: [Yes][No]]

22. Additional Financial Centre(s) for Condition [Not Applicable/give details] 6.5 (Payment Day): (Note that this paragraph relates to the place of payment and not Interest Period end dates to which sub-paragraph 13(c) relates)

23. Talons for future Coupons to be attached to [Yes, as the Notes have more than 27 coupon Definitive Notes: payments, Talons may be required if, on exchange into definitive form, more than 27 coupon payments are still to be made/No]

24. Redenomination applicable: Redenomination [not] applicable

(If Redenomination is applicable, specify the applicable Day Count Fraction and any provisions necessary to deal with floating rate interest calculation (including alternative reference rates))

[Relevant third party information] has been extracted from [specify source]. The Issuer confirms that such information has been accurately reproduced and that, so far as it is aware and is able to ascertain from information published by [specify source], no facts have been omitted which would render the reproduced information inaccurate or misleading.

Signed on behalf of Hera S.p.A.:

By: ......

Duly authorised

45 PART B

OTHER INFORMATION

1. LISTING AND ADMISSION TO TRADING

(a) Listing and Admission to trading [Application has been made by the Issuer (or on its behalf) for the Notes to be admitted to trading on the Luxembourg Stock Exchange's regulated market and listing on the Official List of the Luxembourg Stock Exchange with effect from [ ].] [Application is expected to be made by the Issuer (or on its behalf) for the Notes to be admitted to trading on the Luxembourg Stock Exchange's regulated market and listing on the Official List of the Luxembourg Stock Exchange with effect from [ ].] [Not Applicable.]

(b) Estimate of total expenses related [ ] to admission to trading:

2. RATINGS

Ratings: [The Notes to be issued [[have been][have not been]/[are expected to be]] rated [insert details] by [insert the legal name of the relevant credit rating agency entity(ies)]]:

(The above disclosure should reflect the rating allocated to Notes of the type being issued under the Programme generally or, where the issue has been specifically rated, that rating.)

Each of [Insert the legal name of the relevant credit rating agency entity] is established in the European Union and is registered under Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation). As such [insert the legal name of the relevant credit rating agency entity] is included in the list of credit ratings agencies published by the European Securities and Markets Authority on its website (at http://www.esma.europa.eu/page/List-registered-and- certified-CRAs) in accordance with the CRA Regulation.

3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE

[Save for any fees payable to the Managers, so far as the Issuer is aware, no person involved in the issue of the Notes has an interest material to the offer. The [Managers/Dealers] and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform other services for, the Issuer and its affiliates in the ordinary course of business– Amend as appropriate if there are other interests]

46 [(When adding any other description, consideration should be given as to whether such matters described constitute "significant new factors" and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.)]

4. YIELD (Fixed Rate Notes only)

Indication of yield: [ ]

The yield is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future yield.

5. HISTORIC INTEREST RATES (FLOATING RATE NOTES ONLY)

Details of historic [LIBOR/EURIBOR] rates can be obtained from [Reuters].

6. OPERATIONAL INFORMATION

(a) ISIN Code: [ ]

(b) Common Code: [ ]

(c) Any clearing system(s) other than [Not Applicable/give name(s) and number(s)] Euroclear Bank S.A./N.V. and Clearstream Banking, société anonyme and the relevant identification number(s):

(d) Delivery: Delivery [against/free of] payment

(e) Names and addresses of additional [ ] Paying Agent(s) (if any):

(f) Deemed delivery of clearing system Any notice delivered to Noteholders through the notices for the purposes of clearing systems will be deemed to have been given Condition 14: on the [second] [business] day after the day on which it was given to Euroclear and Clearstream, Luxembourg.

(g) Intended to be held in a manner [Yes] [No] which would allow Eurosystem eligibility:

[Yes: Note that the designation "yes" simply means that the Notes are intended upon issue to be deposited with one of the ICSDs as common safekeeper and does not necessarily mean that the Notes will be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria.] [include this text if "yes" selected in which case the Notes must be issued in NGN form]

47 [No: Note that whilst the designation is specified as "no" at the date of these Final Terms, should the Eurosystem eligibility criteria be amended in the future such that the Notes are capable of meeting them the Notes may then be deposited with one of the ICSDs as common safekeeper. Note that this does not necessarily mean that the Notes will then be recognised as eligible collateral for Eurosystem monetary policy and intra day credit operations by the Eurosystem at any time during their life. Such recognition will depend upon the ECB being satisfied that Eurosystem eligibility criteria have been met.] [include this text if "no" selected]

7. DISTRIBUTION

(a) Method of distribution [Syndicated/Non-syndicated]

(b) If syndicated, names of Managers: [Not Applicable/give names]

(c) Date of [Subscription] Agreement: [ ]

(d) Stabilising Manager(s) (if any): [Not Applicable/give name]

(e) If non-syndicated, name of relevant [Not Applicable/give name] Dealer:

(f) U.S. Selling Restrictions: [Reg. S Compliance Category [1/2/3]; TEFRA D/TEFRA C/TEFRA not applicable]]

48 TERMS AND CONDITIONS OF THE NOTES

The following are the Terms and Conditions of the Notes which will be incorporated by reference into each Global Note (as defined below) and each definitive Note, in the latter case only if permitted by the relevant stock exchange or other relevant authority (if any) and agreed by the Issuer and the relevant Dealer at the time of issue but, if not so permitted and agreed, such definitive Note will have endorsed thereon or attached thereto such Terms and Conditions. The applicable Final Terms in relation to any Tranche of Notes may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the following Terms and Conditions, complete the following Terms and Conditions for the purpose of such Notes. The applicable Final Terms (or the relevant provisions thereof) will be endorsed upon, or attached to, each Global Note and definitive Note. Reference should be made to "Applicable Final Terms" for a description of the content of Final Terms which will specify which of such terms are to apply in relation to the relevant Notes.

This Note is one of a Series (as defined below) of Notes issued by Hera S.p.A. (the Issuer) constituted by a Trust Deed (such Trust Deed as modified and/or supplemented and/or restated from time to time, the Trust Deed) dated 20 December 2012 made between the Issuer and BNY Mellon Corporate Trustee Services Limited (the Trustee, which expression shall include any successor as Trustee or any additional trustee).

References herein to the Notes shall be references to the Notes of this Series and shall mean:

(a) in relation to any Notes represented by a global Note (a Global Note), units of each Specified Denomination in the Specified Currency;

(b) any Global Note; and

(c) any definitive Notes issued in exchange for a Global Note.

The Notes and the Coupons (as defined below) have the benefit of an Agency Agreement (such Agency Agreement as amended and/or supplemented and/or restated from time to time, the Agency Agreement) dated 20 December 2012 and made between the Issuer, the Trustee and The Bank of New York Mellon as issuing and principal paying agent and agent bank (the Agent, which expression shall include any successor agent) and the other paying agents named therein (together with the Agent, the Paying Agents, which expression shall include any additional or successor paying agents).

Interest bearing definitive Notes have interest coupons (Coupons) and, if indicated in the applicable Final Terms, talons for further Coupons (Talons) attached on issue. Any reference herein to Coupons or coupons shall, unless the context otherwise requires, be deemed to include a reference to Talons or talons. Global Notes do not have Coupons or Talons attached on issue.

The final terms for this Note (or the relevant provisions thereof) are set out in Part A of the Final Terms attached to or endorsed on this Note which complete these Terms and Conditions (the Conditions) and may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the Conditions, complete the Conditions for the purposes of this Note. References to the applicable Final Terms are to Part A of the Final Terms (or the relevant provisions thereof) attached to or endorsed on this Note.

49 The Trustee acts for the benefit of the holders for the time being of the Notes (the Noteholders, which expression shall, in relation to any Notes represented by a Global Note, be construed as provided below) and the holders of the Coupons (the Couponholders, which expression shall, unless the context otherwise requires, include the holders of the Talons), in accordance with the provisions of the Trust Deed.

As used herein, Tranche means Notes which are identical in all respects (including as to listing and admission to trading) and Series means a Tranche of Notes together with any further Tranche or Tranches of Notes which are (a) expressed to be consolidated and form a single series and (b) identical in all respects (including as to listing and admission to trading) except for their respective Issue Dates, Interest Commencement Dates and/or Issue Prices.

Copies of the Trust Deed and the Agency Agreement are available for inspection during normal business hours at the registered office of the Trustee and at the specified office of each of the Paying Agents. Copies of the applicable Final Terms are available for viewing at the registered office of the Issuer and at the specified office of each of the Paying Agents and copies may be obtained from those offices save that, if this Note is neither admitted to trading on a regulated market in the European Economic Area nor offered in the European Economic Area in circumstances where a prospectus is required to be published under the Prospectus Directive, the applicable Final Terms will only be obtainable by a Noteholder holding one or more Notes and such Noteholder must produce evidence satisfactory to the Issuer and the relevant Paying Agent as to its holding of such Notes and identity. If the Notes are to be admitted to trading on the regulated market of the Luxembourg Stock Exchange the applicable Final Terms will be published on the website of the Luxembourg Stock Exchange (www.bourse.lu). The Noteholders and the Couponholders are deemed to have notice of, and are entitled to the benefit of, all the provisions of the Trust Deed, the Agency Agreement and the applicable Final Terms which are applicable to them. The statements in the Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed and the Agency Agreement.

Words and expressions defined in the Trust Deed, the Agency Agreement or used in the applicable Final Terms shall have the same meanings where used in the Conditions unless the context otherwise requires or unless otherwise stated, and provided that, in the event of inconsistency between the Trust Deed and the Agency Agreement, the Trust Deed will prevail and, in the event of inconsistency between the Trust Deed or the Agency Agreement and the applicable Final Terms, the applicable Final Terms will prevail.

1. FORM, DENOMINATION AND TITLE

The Notes are in bearer form and, in the case of definitive Notes, serially numbered, in the Specified Currency and the Specified Denomination(s). Notes of one Specified Denomination may not be exchanged for Notes of another Specified Denomination.

This Note may be a Fixed Rate Note, a Floating Rate Note or a Zero Coupon Note or a combination of any of the foregoing, depending upon the Interest Basis shown in the applicable Final Terms.

Definitive Notes are issued with Coupons attached, unless they are Zero Coupon Notes in which case references to Coupons and Couponholders in the Conditions are not applicable.

Subject as set out below, title to the Notes and Coupons will pass by delivery. The Issuer, the Paying Agents and the Trustee will (except as otherwise required by law) deem and treat the bearer of any Note or Coupon as the absolute owner thereof (whether or not overdue and notwithstanding any notice of ownership or writing thereon or notice of any previous loss or theft thereof) for all purposes but, in the case of any Global Note, without prejudice to the provisions set out in the next succeeding paragraph.

50 For so long as any of the Notes is represented by a Global Note held on behalf of Euroclear Bank S.A./N.V. (Euroclear) and/or Clearstream Banking, société anonyme (Clearstream, Luxembourg), each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular nominal amount of such Notes (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the nominal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer, the Paying Agents and the Trustee as the holder of such nominal amount of such Notes for all purposes other than with respect to the payment of principal or interest on such nominal amount of such Notes, for which purpose the bearer of the relevant Global Note shall be treated by the Issuer, any Paying Agent and the Trustee as the holder of such nominal amount of such Notes in accordance with and subject to the terms of the relevant Global Note and the expressions Noteholder and holder of Notes and related expressions shall be construed accordingly. In determining whether a particular person is entitled to a particular nominal amount of Notes as aforesaid, the Trustee may rely on such evidence and/or information and/or certification as it shall, in its absolute discretion, think fit and, if it does so rely, such evidence and/or information and/or certification shall, in the absence of manifest error, be conclusive and binding on all concerned.

Notes which are represented by a Global Note will be transferable only in accordance with the rules and procedures for the time being of Euroclear and Clearstream, Luxembourg, as the case may be. References to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in Part B of the applicable Final Terms.

2. STATUS OF THE NOTES

The Notes and any relative Coupons are direct, unconditional, unsubordinated and (subject to the provisions of Condition 3 (Negative Pledge)) unsecured obligations of the Issuer and rank pari passu among themselves and with all other unsecured obligations (other than subordinated obligations, if any) of the Issuer, from time to time outstanding, save for certain obligations required to be preferred by applicable law.

3. NEGATIVE PLEDGE

3.1 Negative Pledge

So long as any of the Notes remains outstanding, the Issuer will not, and will ensure that none of its Principal Subsidiaries (as defined below) will, create or have outstanding any mortgage, charge, lien, pledge or other security interest (each a Security Interest), other than a Permitted Encumbrance (as defined below), 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 it under the Notes, the Coupons, the Conditions and the Trust Deed are secured by the Security Interest equally and rateably with the Relevant Indebtedness to the satisfaction of the Trustee; or

(b) such other Security Interest or other arrangement (whether or not it includes the giving of a Security Interest) is provided either (A) as the Trustee in its absolute discretion deems not materially less beneficial to the interests of the Noteholders or (B) as is approved by a Resolution (which is defined in the Trust Deed as a resolution duly passed by a majority of not less than three-fourths of the votes cast thereon) of the Noteholders.

51 3.2 Interpretation

For the purposes of these Conditions:

(a) euro means the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty;

(b) Established Rate means the rate for the conversion of the Specified Currency (including compliance with rules relating to roundings in accordance with applicable European Union regulations) into euro established by the Council of the European Union pursuant to Article 140 of the Treaty;

(c) Group means the Issuer and its Subsidiaries;

(d) Person means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality;

(e) Permitted Encumbrance means:

(i) any Security Interest in existence on the relevant Issue Date of each Series of Notes, provided that the principal amount secured by the Security Interest is not subsequently increased and the Security Interest remains limited to all or part of the same property and assets that originally secured the Security Interest;

(ii) any Security Interest securing any Project Finance Indebtedness;

(iii) any Security Interest created by a company which becomes a Principal Subsidiary or any Security Interest over the shares/quotas of a company which becomes a Subsidiary of the Issuer or of a Principal Subsidiary in each case after the Issue Date and where such Security Interest already existed at the time that company became a Principal Subsidiary or a Subsidiary of the Issuer or of a Principal Subsidiary, as the case may be (provided that such Security Interest was not created in contemplation of that company becoming a Principal Subsidiary or a Subsidiary of the Issuer or of a Principal Subsidiary, and the aggregate principal amount secured at the time of that company becoming a Principal Subsidiary or a Subsidiary of the Issuer or of a Principal Subsidiary is not subsequently increased and the Security Interest remains limited to all or part of the same property and assets that secured the Security Interest prior to the time of that company becoming a Principal Subsidiary or a Subsidiary of the Issuer or of a Principal Subsidiary); and

(iv) any Security Interest created in substitution of any security permitted under paragraphs (i) to (iii) above, provided that the principal amount secured by the substitute Security Interest does not exceed the principal amount secured by the initial Security Interest;

For the purposes of the definition of Permitted Encumbrances:

Concession means a concession for public services (servizi pubblici pursuant to Italian law) and/or public utility services (servizi di pubblica utilità pursuant to Italian law) or the relevant concession contract.

52 Project means the ownership, acquisition (in each case, in whole or in part), development, restructuring, leasing, maintenance and/or operation of an asset or assets, including, for the avoidance of doubt, any Concessions and the equity participations in a company holding such assets or assets.

Project Finance Indebtedness means any present or future, secured or unsecured, Indebtedness for Borrowed Money (as defined in Condition 10.1) incurred to finance or refinance a Project, whereby (A) the claims of the relevant creditor(s) against the borrower are limited to (i) the amount of cash flow or net cash flow generated by and through the Project during the tenor of such Project Finance Indebtedness and/or (ii) the amount of proceeds deriving from the enforcement of any Security Interest taken over the Project to secure the Project Finance Indebtedness and (B) the relevant creditor has no recourse whatsoever against any assets of any member of the Group other than the Project and the Security Interest taken over the Project to secure the Project Finance Indebtedness. For the avoidance of doubt, the definition of Project Finance Indebtedness shall include also any bridge financing incurred in connection with a Project.

(f) Permitted Reorganisation means:

(i) in the case of a Principal Subsidiary, any reorganisation, amalgamation, merger, demerger, consolidation, contribution in kind or restructuring whilst solvent or other similar arrangement (including, without limitation, leasing of the assets or going concern) of the relevant Principal Subsidiary whereby, in any one transaction or series of transactions, all or substantially all of its assets and undertaking are transferred, sold, contributed, assigned to or otherwise vested in, the Issuer or any other Principal Subsidiary or any of their Subsidiaries; or

(ii) in the case of the Issuer, any reorganisation, amalgamation, merger, demerger, consolidation, contribution in kind or restructuring whilst solvent or other similar arrangement (including, without limitation, leasing of the assets or going concern) whereby, in any one transaction or series of transactions, all or substantially all of its assets and undertaking are transferred, sold, contributed, assigned or otherwise vested in a body corporate in good standing (which, for the avoidance of doubt, may include any Subsidiary) and such body corporate (1) assumes or maintains (as the case may be) liability as principal debtor in respect of the Notes and the Trust Deed, including the obligation to pay any additional amounts under Condition 8, whether by contract or operation of law to the satisfaction of the Trustee and in accordance with applicable law; and (2) continues substantially to carry on the business of the Issuer as conducted as the date of such reorganisation,

in both cases under (i) and (ii) above, without the consent of the Noteholders or the Trustee being required in respect thereof, and provided further that:

(A) the Issuer and/or the Principal Subsidiaries to which the relevant reorganisation relates shall be solvent at the time of such reorganisation;

(B) no Event of Default shall have occurred or if an Event of Default shall have occurred it shall (if capable of remedy) have been cured; and

(C) no Permitted Reorganisation Rating Event having occurred.

53 (g) A Permitted Reorganisation Rating Event shall be deemed to have occurred if at the time of the occurrence of the relevant reorganisation, the Notes carry from any of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody's Investors Service Ltd and Fitch Ratings Ltd, or any of their successors (each a Rating Agency):

(i) an investment grade credit rating (BBB-/Baa3/BBB-, or equivalent, or better), and such rating from any Rating Agency is either downgraded to a non-investment grade credit rating (BB+/Ba1/BB+, or equivalent, or worse) or withdrawn; or

(ii) a non-investment grade credit rating (BB+/Ba1/BB+, or equivalent, or worse), and such rating from any Rating Agency is downgraded by one or more notches (for illustration, Ba1 to Ba2 being one notch); or

(iii) no credit rating, and no Rating Agency assigns within 90 days of the occurrence of the reorganisation an investment grade credit rating (as defined in (I)) to the Notes, and

in making the relevant decision(s) referred to above, the relevant Rating Agency announces publicly or confirms in writing to the Issuer and/or the Trustee that such decision(s) resulted, in whole or in part, from the occurrence of the relevant reorganisation;

(h) Potential Event of Default means any condition, event or act which, with the lapse of time and/or the issue, making or giving of any notice, certification, declaration, demand, determination and/or requests and/or the taking of any similar action and/or the fulfilment of any similar condition, would constitute an Event of Default;

(i) Principal Subsidiary at any time shall mean a Subsidiary of the Issuer: (i) whose revenues (consolidated in the case of a Subsidiary which itself has Subsidiaries) or whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries) represent not less than 10% of the consolidated revenues or, as the case may be, consolidated total assets of the Issuer and its consolidated Subsidiaries taken as a whole, all as calculated respectively by reference to the then latest audited consolidated accounts of the Issuer and its consolidated Subsidiaries; or (ii) to which is transferred the whole or substantially the whole of the undertaking of a Subsidiary of the Issuer which immediately before the transfer is a Principal Subsidiary;

(j) Redenomination Date means (in the case of interest bearing Notes) any date for payment of interest under the Notes or (in the case of Zero Coupon Notes) any date, in each case specified by the Issuer in the notice given to the Noteholders pursuant to Condition 4 below and which falls on or after the date on which the country of the Specified Currency first participates in the third stage of European economic and monetary union;

(k) Reference Shareholder means any Italian municipality, province and consortium, or any consortium or company directly or indirectly controlled by Italian municipalities, provinces and consortiums; for the purposes of this definition, consortium means a consortium incorporated pursuant to Article 31 of Legislative Decree No. 267 of 18 August 2000, as amended;

(l) 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, or are capable of 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 indebtedness referred to under (j) above;

54 (m) Relevant Jurisdiction means Italy or any political subdivision or any authority thereof or therein having power to tax or any other jurisdiction or any political subdivision or any authority thereof or therein having power to tax to which the Issuer becomes subject in respect of payments made by it of principal and interest on the Notes and Coupons;

(n) Relevant Notes means all Notes where the applicable Final Terms provide for a minimum Specified Denomination in the Specified Currency which is equivalent to at least €100,000 and which are admitted to trading on a regulated market in the European Economic Area;

(o) Subsidiary means, in respect of any Person (the first Person) at any particular time, any other Person (the second Person):

(i) whose majority of votes in ordinary shareholders' meetings of the second Person is held by the first Person; or

(ii) in which the first Person holds a sufficient number of votes giving the first Person a dominant influence in ordinary shareholders' meetings of the second Person; or

(iii) which are under the dominant influence of the first Person by virtue of certain contractual relationships between the first Person and the second Person and/or any other person,

pursuant to the provisions of Article 2359 of the Italian Civil Code;

(p) TARGET2 System means the Trans European Automated Real Time Gross Settlement Express Transfer (TARGET2) System; and

(q) Treaty means the treaty on the functioning of the European Union, as amended.

4. REDENOMINATION

Redenomination

Where redenomination is specified in the applicable Final Terms as being applicable, the Issuer may, without the consent of the Noteholders and the Couponholders but after prior consultation with the Trustee, on giving prior notice to the Agent, Euroclear and Clearstream, Luxembourg and at least 30 days' prior notice to the Noteholders in accordance with Condition 14, elect that, with effect from the Redenomination Date specified in the notice, the Notes shall be redenominated in euro.

The election will have effect as follows:

(a) the Notes shall be deemed to be redenominated in euro in the denomination of €0.01 with a nominal amount for each Note equal to the nominal amount of that Note in the Specified Currency converted into euro at the Established Rate, provided that, if the Issuer determines, with the agreement of the Agent and the Trustee, that the then market practice in respect of the redenomination in euro of internationally offered securities is different from the provisions specified above, such provisions shall be deemed to be amended so as to comply with such market practice and the Issuer shall promptly notify the Noteholders, the stock exchange (if any) on which the Notes may be listed and the Paying Agents of such deemed amendments;

55 (b) save to the extent that an Exchange Notice has been given in accordance with paragraph (c) below, the amount of interest due in respect of the Notes will be calculated by reference to the aggregate nominal amount of Notes held (or, as the case may be, in respect of which Coupons are presented for payment) by the relevant holder and the amount of such payment shall be rounded down to the nearest €0.01;

(c) if definitive Notes are required to be issued after the Redenomination Date, they shall be issued at the expense of the Issuer (i) in the case of Relevant Notes in the denomination of €100,000 and/or such higher amounts as the Agent may determine and notify to the Noteholders and any remaining amounts less than €100,000 shall be redeemed by the Issuer and paid to the Noteholders in euro in accordance with Condition 6; and (ii) in the case of Notes which are not Relevant Notes, in the denominations of €1,000, €10,000, €100,000 and (but only to the extent of any remaining amounts less than €1,000 or such smaller denominations as the Agent and the Trustee may approve) €0.01 and such other denominations as the Agent shall determine and notify to the Noteholders;

(d) if issued prior to the Redenomination Date, all unmatured Coupons denominated in the Specified Currency (whether or not attached to the Notes) will become void with effect from the date on which the Issuer gives notice (the Exchange Notice) that replacement euro- denominated Notes and Coupons are available for exchange (provided that such securities are so available) and no payments will be made in respect of them. The payment obligations contained in any Notes so issued will also become void on that date although those Notes will continue to constitute valid exchange obligations of the Issuer. New euro-denominated Notes and Coupons will be issued in exchange for Notes and Coupons denominated in the Specified Currency in such manner as the Agent may specify and as shall be notified to the Noteholders in the Exchange Notice. No Exchange Notice may be given less than 15 days prior to any date for payment of principal or interest on the Notes;

(e) after the Redenomination Date, all payments in respect of the Notes and the Coupons, other than payments of interest in respect of periods commencing before the Redenomination Date, will be made solely in euro as though references in the Notes to the Specified Currency were to euro. Payments will be made in euro by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or, at the option of the payee, by a euro cheque;

(f) if the Notes are Fixed Rate Notes and interest for any period ending on or after the Redenomination Date is required to be calculated for a period ending other than on an Interest Payment Date, it will be calculated:

(i) in the case of the Notes represented by a Global Note, by applying the Rate of Interest to the aggregate outstanding nominal amount of the Notes represented by such Global Note; and

(ii) in the case of definitive Notes, by applying the Rate of Interest to the Calculation Amount;

and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Fixed Rate Note in definitive form is a multiple of the Calculation Amount, the amount of interest payable in respect of such Fixed Rate Note shall be the product of the amount (determined in the manner provided above) for

56 the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding;

(g) if the Notes are Floating Rate Notes, the applicable Final Terms will specify any relevant changes to the provisions relating to interest; and

(h) such other changes shall be made to this Condition as the Issuer may decide, with the agreement of the Agent and the Trustee, and as may be specified in the notice, to conform it to conventions then applicable to instruments denominated in euro.

5. INTEREST

5.1 Interest on Fixed Rate Notes

Each Fixed Rate Note bears interest from (and including) the Interest Commencement Date at the rate(s) per annum equal to the Rate(s) of Interest. Interest will be payable in arrears on the Interest Payment Date(s) in each year up to (and including) the Maturity Date.

If the Notes are in definitive form, except as provided in the applicable Final Terms, the amount of interest payable on each Interest Payment Date in respect of the Fixed Interest Period ending on (but excluding) such date will amount to the Fixed Coupon Amount. Payments of interest on any Interest Payment Date will, if so specified in the applicable Final Terms, amount to the Broken Amount so specified.

As used in the Conditions, Fixed Interest Period means the period from (and including) an Interest Payment Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Payment Date.

Except in the case of Notes in definitive form where an applicable Fixed Coupon Amount or Broken Amount is specified in the applicable Final Terms, interest shall be calculated in respect of any period by applying the Rate of Interest to:

(a) in the case of Fixed Rate Notes which are represented by a Global Note, the aggregate outstanding nominal amount of the Fixed Rate Notes represented by such Global Note; or

(b) in the case of Fixed Rate Notes in definitive form, the Calculation Amount;

and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Fixed Rate Note in definitive form is a multiple of the Calculation Amount, the amount of interest payable in respect of such Fixed Rate Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding.

Day Count Fraction means, in respect of the calculation of an amount of interest in accordance with this Condition 5.1:

(a) if "Actual/Actual (ICMA)" is specified in the applicable Final Terms:

(i) in the case of Notes where the number of days in the relevant period from (and including) the most recent Interest Payment Date (or, if none, the Interest Commencement Date) to (but excluding) the relevant payment date (the Accrual

57 Period) is equal to or shorter than the Determination Period during which the Accrual Period ends, the number of days in such Accrual Period divided by the product of (I) the number of days in such Determination Period and (II) the number of Determination Dates (as specified in the applicable Final Terms) that would occur in one calendar year; or

(ii) in the case of Notes where the Accrual Period is longer than the Determination Period during which the Accrual Period ends, the sum of:

(A) the number of days in such Accrual Period falling in the Determination Period in which the Accrual Period begins divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; and

(B) the number of days in such Accrual Period falling in the next Determination Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; and

(b) if "30/360" is specified in the applicable Final Terms, the number of days in the period from (and including) the most recent Interest Payment Date (or, if none, the Interest Commencement Date) to (but excluding) the relevant payment date (such number of days being calculated on the basis of a year of 360 days with 12 30-day months) divided by 360.

In the Conditions:

Determination Period means each period from (and including) a Determination Date to (but excluding) the next Determination Date (including, where either the Interest Commencement Date or the final Interest Payment Date is not a Determination Date, the period commencing on the first Determination Date prior to, and ending on the first Determination Date falling after, such date); and

sub-unit means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, one cent.

5.2 Interest on Floating Rate Notes

(a) Interest Payment Dates

Each Floating Rate Note bears interest from (and including) the Interest Commencement Date and such interest will be payable in arrears on either:

(i) the Specified Interest Payment Date(s) in each year specified in the applicable Final Terms; or

(ii) if no Specified Interest Payment Date(s) is/are specified in the applicable Final Terms, each date (each such date, together with each Specified Interest Payment Date, an Interest Payment Date) which falls the number of months or other period specified as the Specified Period in the applicable Final Terms after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date.

Such interest will be payable in respect of each Interest Period (which expression shall, in the Conditions, mean the period from (and including) an Interest Payment Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Payment Date).

58 If a Business Day Convention is specified in the applicable Final Terms and (x) if there is no numerically corresponding day in the calendar month in which an Interest Payment Date should occur or (y) if any Interest Payment Date would otherwise fall on a day which is not a Business Day, then, if the Business Day Convention specified is:

(A) in any case where Specified Periods are specified in accordance with Condition 5.2(a)(ii) above, the Floating Rate Convention, such Interest Payment Date (a) in the case of (x) above, shall be the last day that is a Business Day in the relevant month and the provisions of (ii) below shall apply mutatis mutandis or (b) in the case of (y) above, shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event (i) such Interest Payment Date shall be brought forward to the immediately preceding Business Day and (ii) each subsequent Interest Payment Date shall be the last Business Day in the month which falls the Specified Period after the preceding applicable Interest Payment Date occurred; or

(B) the Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day; or

(C) the Modified Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event such Interest Payment Date shall be brought forward to the immediately preceding Business Day; or

(D) the Preceding Business Day Convention, such Interest Payment Date shall be brought forward to the immediately preceding Business Day.

In the Conditions, Business Day means a day which is both:

I. 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 each Additional Business Centre specified in the applicable Final Terms; and

II. either (i) in relation to any sum payable in a Specified Currency other than euro, 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 the principal financial centre of the country of the relevant Specified Currency (which if the Specified Currency is Australian dollars or New Zealand dollars shall be Sydney and Auckland, respectively) or (ii) in relation to any sum payable in euro, a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET2) System (the TARGET2 System) is open.

(b) Rate of Interest

The Rate of Interest payable from time to time in respect of Floating Rate Notes will be determined in the manner specified in the applicable Final Terms.

(i) ISDA Determination for Floating Rate Notes

Where ISDA Determination is specified in the applicable Final Terms as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will be the relevant ISDA Rate plus or minus (as indicated in the applicable Final Terms) the Margin (if any). For the purposes of this subparagraph (i), ISDA Rate for an Interest Period means a rate equal to the Floating Rate that would be determined by the Agent under an interest rate swap transaction if the Agent were acting as Calculation Agent for that swap

59 transaction under the terms of an agreement incorporating the 2006 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc. and as amended and updated as at the Issue Date of the first Tranche of the Notes (the ISDA Definitions) and under which:

(A) the Floating Rate Option is as specified in the applicable Final Terms;

(B) the Designated Maturity is a period specified in the applicable Final Terms; and

(C) the relevant Reset Date is either (a) if the applicable Floating Rate Option is based on the London interbank offered rate (LIBOR) or on the Euro-zone interbank offered rate (EURIBOR), the first day of that Interest Period or (b) in any other case, as specified in the applicable Final Terms.

For the purposes of this subparagraph (i), Floating Rate, Calculation Agent, Floating Rate Option, Designated Maturity and Reset Date have the meanings given to those terms in the ISDA Definitions.

Unless otherwise stated in the applicable Final Terms the Minimum Rate of Interest shall be deemed to be zero.

(ii) Screen Rate Determination for Floating Rate Notes

Where Screen Rate Determination is specified in the applicable Final Terms as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will, subject as provided below, be either:

(A) the offered quotation; or

(B) the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) of the offered quotations,

(expressed as a percentage rate per annum) for the Reference Rate which appears or appear, as the case may be, on the Relevant Screen Page as at 11.00 am (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the Interest Determination Date in question plus or minus (as indicated in the applicable Final Terms) the Margin (if any), all as determined by the Agent. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Agent for the purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations.

The Agency Agreement contains provisions for determining the Rate of Interest in the event that the Relevant Screen Page is not available or if, in the case of (A) above, no such offered quotation appears or, in the case of (B) above, fewer than three such offered quotations appear, in each case as at the time specified in the preceding paragraph.

60 (c) Minimum Rate of Interest and/or Maximum Rate of Interest

If the applicable Final Terms specifies a Minimum Rate of Interest for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (b) above is less than such Minimum Rate of Interest, the Rate of Interest for such Interest Period shall be such Minimum Rate of Interest.

If the applicable Final Terms specifies a Maximum Rate of Interest for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (b) above is greater than such Maximum Rate of Interest, the Rate of Interest for such Interest Period shall be such Maximum Rate of Interest.

(d) Determination of Rate of Interest and calculation of Interest Amounts

The Agent will at or as soon as practicable after each time at which the Rate of Interest is to be determined, determine the Rate of Interest for the relevant Interest Period.

The Agent will calculate the amount of interest (the Interest Amount) payable on the Floating Rate Notes for the relevant Interest Period by applying the Rate of Interest to:

(i) in the case of Floating Rate Notes which are represented by a Global Note, the aggregate outstanding nominal amount of the Notes represented by such Global Note; or

(ii) in the case of Floating Rate Notes in definitive form, the Calculation Amount;

and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Floating Rate Note or in definitive form is a multiple of the Calculation Amount, the Interest Amount payable in respect of such Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding.

Day Count Fraction means, in respect of the calculation of an amount of interest in accordance with this Condition 5.2:

(i) if "Actual/Actual (ISDA)" or "Actual/Actual" is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 365 (or, if any portion of that Interest Period falls in a leap year, the sum of (I) the actual number of days in that portion of the Interest Period falling in a leap year divided by 366 and (II) the actual number of days in that portion of the Interest Period falling in a non-leap year divided by 365);

(ii) if "Actual/365 (Fixed)" is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 365;

(iii) if "Actual/365 (Sterling)" is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 365 or, in the case of an Interest Payment Date falling in a leap year, 366;

(iv) if "Actual/360" is specified in the applicable Final Terms, the actual number of days in the Interest Period divided by 360;

61 (v) if "30/360", "360/360" or "Bond Basis" is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows:

360 ×(Y - Y )+ [30×(M - M )]+ (D - D ) Day Count Fraction = 2 1 2 1 2 1 360

where:

"Y1" is the year, expressed as a number, in which the first day of the Interest Period falls;

"Y2" is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;

"M1" is the calendar month, expressed as a number, in which the first day of the Interest Period falls;

"M2" is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;

"D1" is the first calendar day, expressed as a number, of the Interest Period, unless such number is 31, in which case D1 will be 30; and

"D2" is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31 and D1 is greater than 29, in which case D2 will be 30;

(vi) if "30E/360" or "Eurobond Basis" is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows:

360 ×(Y - Y )+ [30×(M - M )]+ (D - D ) Day Count Fraction = 2 1 2 1 2 1 360

where:

"Y1" is the year, expressed as a number, in which the first day of the Interest Period falls;

"Y2" is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;

"M1" is the calendar month, expressed as a number, in which the first day of the Interest Period falls;

"M2" is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;

"D1" is the first calendar day, expressed as a number, of the Interest Period, unless such number would be 31, in which case D1 will be 30; and

"D2" is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31, in which case D2 will be 30;

62 (vii) if "30E/360 (ISDA)" is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows:

360 ×(Y - Y )+ [30×(M - M )]+ (D - D ) Day Count Fraction = 2 1 2 1 2 1 360

where:

"Y1" is the year, expressed as a number, in which the first day of the Interest Period falls;

"Y2" is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;

"M1" is the calendar month, expressed as a number, in which the first day of the Interest Period falls;

"M2" is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;

"D1" is the first calendar day, expressed as a number, of the Interest Period, unless (i) that day is the last day of February or (ii) such number would be 31, in which case D1 will be 30; and

"D2" is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless (i) that day is the last day of February but not the Maturity Date or (ii) such number would be 31, in which case D2 will be 30.

(e) Notification of Rate of Interest and Interest Amounts

The Agent will cause the Rate of Interest and each Interest Amount for each Interest Period and the relevant Interest Payment Date to be notified to the Issuer, the Trustee and any stock exchange on which the relevant Floating Rate Notes are for the time being listed (by no later than the first day of each Interest Period) and notice thereof to be published in accordance with Condition 14 as soon as possible after their determination but in no event later than the fourth London Business Day thereafter. Each Interest Amount and Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without prior notice in the event of an extension or shortening of the Interest Period. Any such amendment will be promptly notified by the Agent to each stock exchange on which the relevant Floating Rate Notes are for the time being listed and to the Noteholders in accordance with Condition 14. For the purposes of this paragraph, the expression London Business Day means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for general business in London.

(f) Determination or Calculation by Trustee

If for any reason at any relevant time the Agent or, as the case may be, the Calculation Agent defaults in its obligation to determine the Rate of Interest or the Agent defaults in its obligation to calculate any Interest Amount in accordance with subparagraph (b)(i) or subparagraph (b)(ii) above or as otherwise specified in the applicable Final Terms, as the case may be, and in each case in accordance with paragraph (d) above, the Trustee shall determine the Rate of Interest at such rate as, in its absolute discretion (having such regard as it shall think fit to the foregoing provisions of this Condition, but subject always to any Minimum Rate of Interest or Maximum Rate of Interest specified in the applicable Final Terms), it shall deem fair and reasonable in all the circumstances or, as the case may be, the Trustee shall calculate the Interest Amount(s) in such manner as it shall deem

63 fair and reasonable in all the circumstances and each such determination or calculation shall be deemed to have been made by the Agent or the Calculation Agent, as applicable.

(g) Certificates to be final

All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 5.2, whether by the Agent or, if applicable, the Calculation Agent, shall (in the absence of wilful default, bad faith or manifest error) be binding on the Issuer, the Agent, the Calculation Agent (if applicable), the other Paying Agents and all Noteholders and Couponholders and (in the absence of wilful default or bad faith) no liability to the Issuer, the Noteholders or the Couponholders shall attach to the Agent or, if applicable, the Calculation Agent or the Trustee in connection with the exercise or non- exercise by it of its powers, duties and discretions pursuant to such provisions.

5.3 Accrual of interest

Each Note (or in the case of the redemption of part only of a Note, that part only of such Note) will cease to bear interest (if any) from the date for its redemption unless payment of principal is improperly withheld or refused. In such event, interest will continue to accrue until whichever is the earlier of:

(a) the date on which all amounts due in respect of such Note have been paid in accordance with Condition 6; and

(b) as provided in the Trust Deed.

6. PAYMENTS

6.1 Method of payment

Subject as provided below:

(a) payments in a Specified Currency other than euro will be made by credit or transfer to an account in the relevant Specified Currency maintained by the payee with, or, at the option of the payee, by a cheque in such Specified Currency drawn on, a bank in the principal financial centre of the country of such Specified Currency (which, if the Specified Currency is Australian dollars or New Zealand dollars, shall be Sydney and Auckland, respectively); and

(b) payments in euro will be made by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or, at the option of the payee, by a euro cheque.

Payments will be subject in all cases to any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 8.

6.2 Presentation of definitive Notes and Coupons

Payments of principal in respect of definitive Notes will (subject as provided below) be made in the manner provided in Condition 6.1 above only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of definitive Notes, and payments of interest in respect of definitive Notes will (subject as provided below) be made as aforesaid only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of Coupons, in each case at the specified office of any Paying Agent outside the United States (which expression, as used

64 herein, means the United States of America (including the States and the District of Columbia and its possessions)).

Fixed Rate Notes in definitive form (other than Long Maturity Notes (as defined below)) should be presented for payment together with all unmatured Coupons appertaining thereto (which expression shall for this purpose include Coupons falling to be issued on exchange of matured Talons), failing which the amount of any missing unmatured Coupon (or, in the case of payment not being made in full, the same proportion of the amount of such missing unmatured Coupon as the sum so paid bears to the sum due) will be deducted from the sum due for payment. Each amount of principal so deducted will be paid in the manner mentioned above against surrender of the relative missing Coupon at any time before the expiry of ten years after the Relevant Date (as defined in Condition 8) in respect of such principal (whether or not such Coupon would otherwise have become void under Condition 9) or, if later, five years from the date on which such Coupon would otherwise have become due, but in no event thereafter.

Upon any Fixed Rate Note in definitive form becoming due and repayable prior to its Maturity Date, all unmatured Talons (if any) appertaining thereto will become void and no further Coupons will be issued in respect thereof.

Upon the date on which any Floating Rate Note or Long Maturity Note in definitive form becomes due and repayable, unmatured Coupons and Talons (if any) relating thereto (whether or not attached) shall become void and no payment or, as the case may be, exchange for further Coupons shall be made in respect thereof. A Long Maturity Note is a Fixed Rate Note (other than a Fixed Rate Note which on issue had a Talon attached) whose nominal amount on issue is less than the aggregate interest payable thereon provided that such Note shall cease to be a Long Maturity Note on the Interest Payment Date on which the aggregate amount of interest remaining to be paid after that date is less than the nominal amount of such Note.

If the due date for redemption of any definitive Note is not an Interest Payment Date, interest (if any) accrued in respect of such Note from (and including) the preceding Interest Payment Date or, as the case may be, the Interest Commencement Date shall be payable only against surrender of the relevant definitive Note.

6.3 Payments in respect of Global Notes

Payments of principal and interest (if any) in respect of Notes represented by any Global Note will (subject as provided below) be made in the manner specified above in relation to definitive Notes or otherwise in the manner specified in the relevant Global Note, where applicable against presentation or surrender, as the case may be, of such Global Note at the specified office of any Paying Agent outside the United States. A record of each payment made, distinguishing between any payment of principal and any payment of interest, will be made on such Global Note either by the Paying Agent to which it was presented or in the records of Euroclear and Clearstream, Luxembourg, as applicable.

6.4 General provisions applicable to payments

The holder of a Global Note shall be the only person entitled to receive payments in respect of Notes represented by such Global Note and the Issuer will be discharged by payment to, or to the order of, the holder of such Global Note in respect of each amount so paid. Each of the persons shown in the records of Euroclear or Clearstream, Luxembourg as the beneficial holder of a particular nominal amount of Notes represented by such Global Note must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for his share of each payment so made by the Issuer to, or to the order of, the holder of such Global Note.

65 Notwithstanding the foregoing provisions of this Condition, if any amount of principal and/or interest in respect of Notes is payable in U.S. dollars, such U.S. dollar payments of principal and/or interest in respect of such Notes will be made at the specified office of a Paying Agent in the United States if:

(a) the Issuer has appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment in U.S. dollars at such specified offices outside the United States of the full amount of principal and interest on the Notes in the manner provided above when due;

(b) payment of the full amount of such principal and interest at all such specified offices outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions on the full payment or receipt of principal and interest in U.S. dollars; and

(c) such payment is then permitted under United States law without involving, in the opinion of the Issuer, adverse tax consequences to the Issuer.

6.5 Payment Day

If the date for payment of any amount in respect of any Note or Coupon is not a Payment Day, the holder thereof shall not be entitled to payment until the next following Payment Day in the relevant place and shall not be entitled to further interest or other payment in respect of such delay. For these purposes, Payment Day means any day which (subject to Condition 9) is:

(a) 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:

(i) in the case of Notes in definitive form only, the relevant place of presentation;

(ii) each Additional Financial Centre specified in the applicable Final Terms; and

(b) either (i) in relation to any sum payable in a Specified Currency other than euro, 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 the principal financial centre of the country of the relevant Specified Currency (which if the Specified Currency is Australian dollars or New Zealand dollars shall be Sydney and Auckland, respectively) or (ii) in relation to any sum payable in euro, a day on which the TARGET2 System is open.

6.6 Interpretation of principal and interest

Any reference in the Conditions to principal in respect of the Notes shall be deemed to include, as applicable:

(a) any additional amounts which may be payable with respect to principal under Condition 8 or under any undertaking or covenant given in addition thereto, or in substitution therefor, pursuant to the Trust Deed;

(b) the Final Redemption Amount of the Notes;

(c) the Early Redemption Amount of the Notes;

(d) the Optional Redemption Amount(s) (if any) of the Notes;

66 (e) in relation to Zero Coupon Notes, the Amortised Face Amount (as defined in Condition 7.5); and

(f) any premium and any other amounts (other than interest) which may be payable by the Issuer under or in respect of the Notes.

Any reference in the Conditions to interest in respect of the Notes shall be deemed to include, as applicable, any additional amounts which may be payable with respect to interest under Condition 7.5 or under any undertaking or covenant given in addition thereto, or in substitution therefor, pursuant to the Trust Deed.

7. REDEMPTION AND PURCHASE

7.1 Redemption at maturity

Unless previously redeemed or purchased and cancelled as specified below, each Note will be redeemed by the Issuer at its Final Redemption Amount specified in, or determined in the manner specified in, the applicable Final Terms in the relevant Specified Currency on the Maturity Date.

7.2 Redemption for tax reasons

The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time (if this Note is not a Floating Rate Note) or on any Interest Payment Date (if this Note is a Floating Rate Note), on giving not less than 30 nor more than 60 days' notice to the Trustee and the Agent and, in accordance with Condition 14, the Noteholders (which notice shall be irrevocable), if the Issuer satisfies the Trustee immediately before the giving of such notice that:

(a) on the occasion of the next payment due under the Notes, the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 8 as a result of any change in, or amendment to, the laws or regulations of a Tax Jurisdiction (as defined in Condition 8) or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the Notes; and

(b) such obligation cannot be avoided by the Issuer taking reasonable measures available to it,

provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Notes then due.

Prior to the publication of any notice of redemption pursuant to this Condition, the Issuer shall deliver to the Trustee 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, and an opinion of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment and the Trustee shall be entitled to accept the certificate as sufficient evidence of the satisfaction of the conditions precedent set out above, in which event it shall be conclusive and binding on the Noteholders and the Couponholders.

Notes redeemed pursuant to this Condition 7.2 will be redeemed at their Early Redemption Amount referred to in Condition 7.5 below together (if appropriate) with interest accrued to (but excluding) the date of redemption.

67 7.3 Redemption at the option of the Issuer (Issuer Call)

If Issuer Call is specified in the applicable Final Terms, the Issuer may, having given:

(a) not less than 15 nor more than 30 days' notice to the Noteholders in accordance with Condition 14; and

(b) not less than 15 days before the giving of the notice referred to in (a) above, notice to the Trustee and to the Agent;

(which notices shall be irrevocable and shall specify the date fixed for redemption), redeem all or some only of the Notes then outstanding on any Optional Redemption Date and at the Optional Redemption Amount(s) specified in the applicable Final Terms together, if appropriate, with interest accrued to (but excluding) the relevant Optional Redemption Date. Any such redemption must be of a nominal amount not less than the Minimum Redemption Amount and not more than the Maximum Redemption Amount, in each case as may be specified in the applicable Final Terms. In the case of a partial redemption of Notes, the Notes to be redeemed (Redeemed Notes) will be selected individually by lot, in the case of Redeemed Notes represented by definitive Notes, and in accordance with the rules of Euroclear and/or Clearstream, Luxembourg, (to be reflected in the records of Euroclear and Clearstream, Luxembourg as either a pool factor or a reduction in nominal amount, at their discretion) in the case of Redeemed Notes represented by a Global Note, not more than 30 days prior to the date fixed for redemption (such date of selection being hereinafter called the Selection Date). In the case of Redeemed Notes represented by definitive Notes, a list of the serial numbers of such Redeemed Notes will be published in accordance with Condition 14 not less than 15 days prior to the date fixed for redemption. No exchange of the relevant Global Note will be permitted during the period from (and including) the Selection Date to (and including) the date fixed for redemption pursuant to this Condition 7.3 and notice to that effect shall be given by the Issuer to the Noteholders in accordance with Condition 14 at least five days prior to the Selection Date.

7.4 Redemption at the option of the Noteholders (Investor Put/Relevant Event Put)

If:

(a) Investor Put is specified as applicable in the relevant Final Terms, upon the holder of any Note giving to the Issuer in accordance with Condition 14 not less than 15 nor more than 30 days' notice, upon the expiry of such notice, and/or

(b) Relevant Event Put is specified as applicable in the relevant Final Terms and a Relevant Event Put Event (as defined below) has occurred, upon the holder of any Note giving to the Issuer in accordance with Condition 14 during the period ending on the 60th day following the public announcement of the Relevant Event Put Event (the Notice Period),

the Issuer will redeem, subject to, and in accordance with, the terms specified in the applicable Final Terms, such Note on the Optional Redemption Date and at the Optional Redemption Amount specified in the applicable Final Terms, together, if appropriate, with interest accrued to (but excluding) the Optional Redemption Date.

It may be that before an Investor Put can be exercised, certain conditions and/or circumstances will need to be satisfied. Where relevant, the provisions will be set out in the applicable Final Terms.

To exercise the right to require redemption of this Note the holder of this Note must, if this Note is in definitive form and held outside Euroclear and Clearstream, Luxembourg, deliver, at the specified office of any Paying Agent at any time during normal business hours of such Paying Agent falling, in the case of a Relevant Event Put only, within the Notice Period, a duly completed and signed

68 notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent (a Put Notice) and in which the holder must specify a bank account (or, if payment is required to be made by cheque, an address) to which payment is to be made under this Condition accompanied by this Note or evidence satisfactory to the Paying Agent concerned that this Note will, following delivery of the Put Notice, be held to its order or under its control. If this Note is represented by a Global Note or is in definitive form and held through Euroclear or Clearstream, Luxembourg, to exercise the right to require redemption of this Note the holder of this Note must, within (in the case of a Relevant Event Put only), the Notice Period, give notice to the Agent of such exercise in accordance with the standard procedures of Euroclear and Clearstream, Luxembourg (which may include notice being given on his instruction by Euroclear or Clearstream, Luxembourg or any common depositary or common safekeeper, as the case may be, for them to the Agent by electronic means) in a form acceptable to Euroclear and Clearstream, Luxembourg from time to time.

Any Put Notice or other notice given in accordance with the standard procedures of Euroclear and Clearstream, Luxembourg given by a holder of any Note pursuant to this Condition 7.4 shall be irrevocable except where, prior to the due date of redemption, an Event of Default has occurred and the Trustee has declared the Notes to be due and payable pursuant to Condition 10, in which event such holder, at its option, may elect by notice to the Issuer to withdraw the notice given pursuant to this Condition 7.4.

A Relevant Event Put Event shall be deemed to occur if

(i) any of (A) a Change of Control, (B) a Concession Event or (C) a Sale of Assets Event occurs (each, a Relevant Event); and

(ii) at the time of the occurrence of the Relevant Event the Notes carry from any Rating Agency either:

(A) an investment grade credit rating (BBB-/Baa3/BBB-, or equivalent, or better), and such rating from any Rating Agency is within 180 days of the occurrence of the Relevant Event either downgraded to a non-investment grade credit rating (BB+/Ba1/BB+, or equivalent, or worse) or withdrawn and is not within such 180- day period subsequently (in the case of a downgrade) upgraded to an investment grade credit rating by such Rating Agency or (in the case of a withdrawal) replaced by an investment grade credit rating from any other Rating Agency; or

(B) a non-investment grade credit rating (BB+/Ba1/BB+, or equivalent, or worse), and such rating from any Rating Agency is within 180 days of the occurrence of the Relevant Event downgraded by one or more notches (for illustration, Ba1 to Ba2 being one notch) and is not within such 180-day period subsequently upgraded to its earlier credit rating or better by such Rating Agency; or

(C) no credit rating, and no Rating Agency assigns within 90 days of the occurrence of the Relevant Event an investment grade credit rating to the Notes

(each, a Rating Event), and

(iii) in making the relevant decision(s) referred to above, the relevant Rating Agency announces publicly or confirms in writing to the Issuer and/or the Trustee that such decision(s) resulted, in whole or in part, from the occurrence of the Relevant Event.

69 A Change of Control shall be deemed to occur if more than 50% of the share capital of the Issuer, or more than 50% of the voting rights normally exercisable at a general meeting of the Issuer, is acquired by any Person or Persons (other than Reference Shareholders) acting in concert.

A Concession Event shall be deemed to occur if at any time one or more of the Concessions (as defined below) granted to the Issuer or to any of its Principal Subsidiaries expires at its or their original stated termination date(s) and is not extended or renewed, and such Concessions, taken together, constitute the whole or a substantial part of the Group's business, as defined in Condition 10.1(e), provided that the prorogatio regime to which a Concession may be subject between its expiry at the relevant stated termination date and the extension, renewal or new award of such Concession will not constitute a Concession Event.

Concession means a written contract between the Issuer and/or one of its Subsidiaries, on one side, and one or more public national or local authorities or entities (such as ministries or municipalities), on the other, by which the latter has granted to the Issuer or the relevant Subsidiary the management of public services or services of public interest, such as environmental services (waste collection and treatment and municipal cleaning), integrated water services, gas distribution and supply (including the provision of district heating and heat management) or electricity and co-generation (including distribution), and in which the consideration for the provision of services consists either solely of the right to exploit the service or this right together with payment of the relevant price by the competent awarding authorities.

A Sale of Assets Event shall be deemed to occur if at any time (i) the Issuer or any of its Principal Subsidiaries is required by applicable law to sell, transfer, contribute, assign or otherwise dispose of assets comprising the whole or a substantial part of the Group's business, as defined in Condition 10.1(e), or (ii) if such assets are expropriated (espropriati) on the basis of an order of a public authority having jurisdiction over the Issuer or the relevant Subsidiary.

7.5 Early Redemption Amounts

For the purpose of Condition 7.2 above and Condition 10, each Note will be redeemed at its Early Redemption Amount calculated as follows:

(a) in the case of a Note with a Final Redemption Amount equal to the Issue Price, at the Final Redemption Amount thereof; or

(b) in the case of a Zero Coupon Note, at an amount (the Amortised Face Amount) calculated in accordance with the following formula:

EarlyRedemptionAmount =RP×(1+ AY)y

where:

RP means the Reference Price;

AY means the Accrual Yield expressed as a decimal; and

y is a fraction the numerator of which is equal to the number of days (calculated on the basis of a 360-day year consisting of 12 months of 30 days each) from (and including) the Issue Date of the first Tranche of the Notes to (but excluding) the date fixed for redemption or (as the case may be) the date upon which such Note becomes due and repayable and the denominator of which is 360,

70 or on such other calculation basis as may be specified in the applicable Final Terms.

7.6 Purchases

The Issuer or any of its Subsidiaries may at any time purchase Notes (provided that, in the case of definitive Notes, all unmatured Coupons and Talons appertaining thereto are purchased therewith) at any price in the open market or otherwise. Where permitted by applicable law and regulation, all Notes purchased pursuant to this Condition 7.6 may be cancelled or held, reissued or resold at the discretion of the relevant purchaser.

7.7 Cancellation

All Notes which are redeemed will forthwith be cancelled (together with all unmatured Coupons and Talons attached thereto or surrendered therewith at the time of redemption). All Notes so cancelled and the Notes purchased and cancelled pursuant to Condition 7.6 above (together with all unmatured Coupons and Talons cancelled therewith) shall be forwarded to the Agent and cannot be reissued or resold.

7.8 Late payment on Zero Coupon Notes

If the amount payable in respect of any Zero Coupon Note upon redemption of such Zero Coupon Note pursuant to Condition 7.1, 7.2, 7.3 or 7.4 above or upon its becoming due and repayable as provided in Condition 10 is improperly withheld or refused, the amount due and repayable in respect of such Zero Coupon Note shall be the amount calculated as provided in Condition 7.5(b) above as though the references therein to the date fixed for the redemption or the date upon which such Zero Coupon Note becomes due and payable were replaced by references to the date which is the earlier of:

(a) the date on which all amounts due in respect of such Zero Coupon Note have been paid; and

(b) five days after the date on which the full amount of the moneys payable in respect of such Zero Coupon Notes has been received by the Agent or the Trustee and notice to that effect has been given to the Noteholders in accordance with Condition 14.

8. TAXATION

All payments of principal and interest in respect of the Notes and Coupons by the Issuer will be made without withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of any Tax Jurisdiction unless such withholding or deduction is required by law. In such event, the Issuer shall pay such additional amounts as shall be necessary in order that the net amounts received by the holders of the Notes or Coupons after such withholding or deduction shall equal the respective amounts of principal and interest which would otherwise have been receivable in respect of the Notes or Coupons, as the case may be, in the absence of such withholding or deduction; except that no such additional amounts shall be payable with respect to any Note or Coupon:

(a) presented for payment in Italy; or

(b) the holder of which is liable for such taxes or duties in respect of such Note or Coupon by reason of his having some connection with a Tax Jurisdiction other than the mere holding of such Note or Coupon; or

71 (c) presented for payment more than 30 days after the Relevant Date (as defined below) except to the extent that the holder thereof would have been entitled to an additional amount on presenting the same for payment on such thirtieth day assuming that day to have been a Payment Day (as defined in Condition 6.5); or

(d) 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 on the taxation of savings income or any law or agreement implementing or complying with, or introduced in order to conform to, such Directive; or

(e) presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union; or

(f) by, or on behalf of, a holder who is entitled to avoid such withholding or deduction in respect of such Note or Coupon by making a declaration or any other statement to the relevant tax authority, including, but not limited to, a declaration of residence or non- residence or other similar claim for exemption; or

(g) in the event of payment to a non-Italian resident legal entity or a non-Italian resident individual, to the extent that interest or other amounts is paid to a non-Italian resident legal entity or a non-Italian resident individual which is resident in a country which does not allow for a satisfactory exchange of information with the Italian authorities; or

(h) in relation to any payment or deduction of any interest, premium or other proceeds of any Note or Coupon on account of imposta sostitutiva pursuant to Italian Legislative Decree No. 239 of 1 April 1996, as amended from time to time.

As used herein:

(i) Tax Jurisdiction means the Republic of Italy or any political subdivision or any authority thereof or therein having power to tax or any other jurisdiction or any political subdivision or any authority thereof or therein having power to tax to which the Issuer becomes subject in respect of payments made by it of principal and interest on the Notes and Coupons; and

(ii) the Relevant Date means the date on which such payment first becomes due, except that, if the full amount of the moneys payable has not been duly received by the Principal Paying Agent on or prior to such due date, it means the date on which, the full amount of such moneys having been so received, notice to that effect is duly given to the Noteholders in accordance with Condition 14.

9. PRESCRIPTION

The Notes and Coupons will become void unless claims in respect of principal and/or interest are made within a period of ten years (in the case of principal) and five years (in the case of interest) after the Relevant Date (as defined in Condition 8) therefor.

There shall not be included in any Coupon sheet issued on exchange of a Talon any Coupon the claim for payment in respect of which would be void pursuant to this Condition or Condition 6.2 or any Talon which would be void pursuant to Condition 6.2.

72 10. EVENTS OF DEFAULT AND ENFORCEMENT

10.1 Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of at least one-fifth in principal amount of the Notes then outstanding or if so directed by a Resolution of the Noteholders shall, (subject in each case to being indemnified and/or prefunded and/or secured to its satisfaction) (but, in the case of the happening of the events described in subparagraph (b) or (c)(i)(B) below, only if the Trustee shall have certified in writing to the Issuer that such event is, in its opinion, materially prejudicial to the interests of the Noteholders) give notice to the Issuer that the Notes are, and they shall accordingly forthwith become, immediately due and repayable at their Early Redemption Amount, together with accrued interest as provided in the Trust Deed, in any of the following events (each, an Event of Default):

(a) if default is made in the payment of (i) any principal due in respect of the Notes or any of them and the default continues for a period of seven days; or (ii) interest due in respect of the Notes or any of them and the default continues for a period of 14 days; or

(b) if the Issuer fails to perform or observe any of its other obligations under these Conditions or the Trust Deed and (except in any case where the Trustee considers the failure to be incapable of remedy, when no continuation or notice as is hereinafter mentioned will be required) the failure continues for a period of 30 days (or such longer period as the Trustee may permit) following the service by the Trustee on the Issuer of written notice requiring the same to be remedied; or

(c) if (i) any Indebtedness for Borrowed Money (as defined below) of the Issuer or any of its Principal Subsidiaries either (A) becomes due and repayable prematurely by reason of an event of default (however described) or (B) becomes capable of being declared due and repayable prematurely (as extended by any originally applicable grace period) by reason of an event of default (however described); (ii) the Issuer or any of its Principal Subsidiaries 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 or any of its Principal Subsidiaries for any Indebtedness for Borrowed Money becomes enforceable; or (iv) default is made by the Issuer or any of its Principal Subsidiaries 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 no event described in this subparagraph 10.1(c) shall constitute an Event of Default unless the relevant amount of Indebtedness for Borrowed Money or other relative liability due and unpaid, either alone or when aggregated (without duplication) with other amounts (if any) of Indebtedness for Borrowed Money and/or other liabilities due and unpaid relative to all other events specified in (i) to (iv) above, amounts to at least €20,000,000 (or its equivalent in any other currency); or

(d) if any order is made by any competent court or resolution is passed for the winding up or dissolution of the Issuer or any of its Principal Subsidiaries, save for the purposes of (i) a Permitted Reorganisation (as defined above) or (ii) a reorganisation on terms approved in writing by the Trustee or by a Resolution of the Noteholders; or

(e) if (i) the Issuer or any of its Principal Subsidiaries ceases or threatens to cease to carry on the whole or a substantial part of its business, save for the purposes of (A) a Permitted Reorganisation (as defined above), or (B) a reorganisation on terms previously approved in writing by the Trustee or by a Resolution of the Noteholders (and provided that neither the occurrence of a Concession Event nor of a Sale of Assets Event (each as defined in

73 Condition 7.4) shall give rise to an Event of Default under this Condition 10.1(e)(i)), or (ii) the Issuer or any of its Principal Subsidiaries stops or threatens 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 is adjudicated or found bankrupt or insolvent (for the purposes of this paragraph (e), a substantial part of an entity's business means a part of the relevant entity's business which accounts for 20% or more of the Group's consolidated assets and/or revenues as evidenced by the most recently available and duly approved audited consolidated financial statements thereof); or

(f) if (i) proceedings are initiated against the Issuer or any of its Principal Subsidiaries under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or an application is made (or documents filed with a court) for the appointment of an administrative or other receiver, manager, administrator or other similar official, or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to the Issuer or any of its Principal Subsidiaries or, as the case may be, in relation to the whole or any material part of the undertaking or assets of any of them or an encumbrancer takes possession of the whole or any part of the undertaking or assets of any of them, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or any material part of the undertaking or assets of any of them, and (ii) in any such case (other than the appointment of an administrator or an administrative receiver appointed following presentation of a petition for an administration order) unless initiated by the relevant company, is not discharged within 14 days (for the purposes of this paragraph (f), material part means 20% or more by value of the whole); or

(g) if the Issuer or any of its Principal Subsidiaries (or their respective directors or shareholders) initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, composition, reorganisation or other similar laws (including the obtaining of a moratorium) or makes a conveyance or assignment for the 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) save for the purposes of reorganisation on terms previously approved in writing by the Trustee or by a Resolution of Noteholders; or

(h) 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 the Trust Deed; or

(i) if any event occurs which, under the laws of any Relevant Jurisdiction, has or may have, in the Trustee's opinion, an analogous effect to any of the events referred to in subparagraphs (d) to (g) above.

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 acceptance or acceptance credit.

74 10.2 Enforcement

The Trustee may at any time, at its discretion and without notice, take such proceedings against the Issuer as it may think fit to enforce the provisions of the Trust Deed, the Notes and the Coupons, but it shall not be bound to take any such proceedings or any other action in relation to the Trust Deed, the Notes or the Coupons unless (i) it shall have been so directed by a Resolution of the Noteholders or so requested in writing by the holders of at least one-fifth in nominal amount of the Notes then outstanding and (ii) it shall have been indemnified and/or secured and/or pre-funded to its satisfaction.

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

11. REPLACEMENT OF NOTES, COUPONS AND TALONS

Should any Note, Coupon or Talon be lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Agent upon payment by the claimant of such costs and expenses as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Notes, Coupons or Talons must be surrendered before replacements will be issued.

12. PAYING AGENTS

The names of the initial Paying Agents and their initial specified offices are set out below.

The Issuer is entitled, with the prior written approval of the Trustee, to vary or terminate the appointment of any Paying Agent and/or appoint additional or other Paying Agents and/or approve any change in the specified office through which any Paying Agent acts, provided that:

(a) there will at all times be an Agent;

(b) so long as the Notes are listed on any stock exchange or admitted to listing by any other relevant authority, there will at all times be a Paying Agent with a specified office in such place as may be required by the rules and regulations of the relevant stock exchange or other relevant authority;

(c) there will at all times be a Paying Agent in a Member State of the European Union that will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; and

(d) there will at all times be a Paying Agent in a jurisdiction within Europe, other than the jurisdiction in which the Issuer is incorporated.

In addition, the Issuer shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in Condition 6.4. Any variation, termination, appointment or change shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 nor more than 45 days' prior notice thereof shall have been given by the Issuer to the Noteholders in accordance with Condition 14.

75 In acting under the Agency Agreement, the Paying Agents act solely as agents of the Issuer and, in certain circumstances specified therein, of the Trustee and do not assume any obligation to, or relationship of agency or trust with, any Noteholders or Couponholders. The Agency Agreement contains provisions permitting any entity into which any Paying Agent is merged or converted or with which it is consolidated or to which it transfers all or substantially all of its assets to become the successor paying agent.

13. EXCHANGE OF TALONS

On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet matures, the Talon (if any) forming part of such Coupon sheet may be surrendered at the specified office of the Agent or any other Paying Agent in exchange for a further Coupon sheet including (if such further Coupon sheet does not include Coupons to (and including) the final date for the payment of interest due in respect of the Note to which it appertains) a further Talon, subject to the provisions of Condition 9.

14. NOTICES

All notices regarding the Notes will be deemed to be validly given if published (a) in a leading English language daily newspaper of general circulation in London, and (b) if and for so long as the Notes are admitted to trading on, and listed on the Official List of the Luxembourg Stock Exchange, a daily newspaper of general circulation in Luxembourg or the Luxembourg Stock Exchange's website, www.bourse.lu. It is expected that any such publication in a newspaper will be made in the Financial Times in London and the Luxemburger Wort or the Tageblatt in Luxembourg. The Issuer shall also ensure that notices are duly published in a manner which complies with the rules of any stock exchange or other relevant authority on which the Notes are for the time being listed or by which they have been admitted to trading. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in more than one newspaper, on the date of the first publication in all required newspapers. If publication as provided above is not practicable, a notice will be given in such other manner, and will be deemed to have been given on such date, as the Trustee shall approve.

Until such time as any definitive Notes are issued, there may, so long as any Global Notes representing the Notes are held in their entirety on behalf of Euroclear and/or Clearstream, Luxembourg, be substituted for such publication in such newspaper(s) the delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg for communication by them to the holders of the Notes and, in addition, for so long as any Notes are listed on a stock exchange or are admitted to trading by another relevant authority and the rules of that stock exchange or relevant authority so require, such notice will be published in a daily newspaper of general circulation in the place or places required by those rules. Any such notice shall be deemed to have been given to the holders of the Notes on the day on which the said notice was given to Euroclear and/or Clearstream, Luxembourg.

Notices to be given by any Noteholder shall be in writing and given by lodging the same, together (in the case of any Note in definitive form) with the relative Note or Notes, with the Agent. Whilst any of the Notes are represented by a Global Note, such notice may be given by any holder of a Note to the Agent through Euroclear and/or Clearstream, Luxembourg, as the case may be, in such manner as the Agent and Euroclear and/or Clearstream, Luxembourg, as the case may be, may approve for this purpose.

76 15. MEETINGS OF NOTEHOLDERS, MODIFICATION AND WAIVER

15.1 Meetings of Noteholders

The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the modification or abrogation by Resolution (as defined in the Trust Deed) of the Notes, the Coupons, any of these Conditions or any of the provisions of the Trust Deed.

In relation to the convening of meetings, quorums and the majorities required to pass a Resolution (as defined in the Trust Deed), the following provisions shall apply in respect of the Notes but are subject to compliance with mandatory laws, legislation, rules and regulations of Italy (including, without limitation, Legislative Decree No. 58 of 24 February 1998 as amended) and the By-laws of the Issuer in force from time to time and shall be deemed to be amended, replaced and supplemented to the extent that such laws, legislation, rules and regulations and the By-laws of the Issuer are amended at any time while the Notes remain outstanding. Italian law currently provides that any such meeting may be convened by the Issuer or the Noteholders' Representative (as defined below) at their discretion and, in any event, shall be convened by either of them upon the request of Noteholders holding not less than one-twentieth of the aggregate principal amount of the Notes of any Series for the time being outstanding. If the Issuer or the Noteholders' Representative defaults in convening such a meeting following such request or requisition by the Noteholders representing not less than one-twentieth of aggregate principal amount of the Notes of any Series for the time being outstanding, the same may be convened by decision of the President of the competent court upon request by such Noteholders. Every such meeting shall be held at such time and place as provided pursuant to Article 2363 of the Italian Civil Code.

Such a meeting will be validly held (subject to compliance with mandatory laws, legislation, rules and regulations of Italy in force from time to time) if (i) in the case of a sole call meeting, there are one or more persons present being or representing Noteholders holding at least one-fifth of the principal amount of the outstanding Notes; or (ii) in the case of multiple call meetings, (a) in the case of a first meeting, there are one or more persons present being or representing Noteholders holding at least one half of the aggregate principal amount of the outstanding Notes, (b) in the case of a second meeting, there are one or more persons present being or representing Noteholders holding more than one third of the aggregate principal amount of the outstanding Notes and (c) in the case of a third meeting or any subsequent meeting following a further adjournment, there are one or more persons present being or representing Noteholders holding at least one fifth of the aggregate principal amount of the outstanding Notes, provided however that that the Issuer's by-laws may in each case (to the extent permitted under the applicable Italian law) provide for a higher quorum. For the avoidance of doubt, each meeting will be held as a sole call meeting or as a multiple call meeting depending on the applicable provisions of Italian law and the Issuer's By-laws as applicable from time to time. The majority required to pass a resolution at any meeting convened to vote on any resolution will be one or more persons holding or representing at least two thirds of the aggregate principal amount of the Notes represented at the meeting; provided, however, that (A) certain proposals, as set out in Article 2415 of the Italian Civil Code (including any proposal to modify the maturity of the Notes or the dates on which interest is payable on them; to reduce or cancel the principal amount of, or interest on, the Notes; or to change the currency of payment of the Notes) may only be sanctioned by a resolution passed at a meeting of Noteholders (including any adjourned meeting) by the higher of (i) one or more persons holding or representing not less than one half of the aggregate principal amount of the outstanding Notes, and (ii) one or more persons holding or representing not less than two thirds of the Notes represented at the meeting, provided that a different majority (higher or lower depending on the circumstances and the amount of Notes represented at the meeting) may be required pursuant to Article 2369 paragraph 7, of the Italian Civil Code and (B) the Issuer's by-laws may in each case (to the extent permitted under applicable Italian

77 law) provide for higher majorities. A Resolution (as defined in the Trust Deed) passed at any meeting of the Noteholders will be binding on all Noteholders, whether or not they are present at the meeting, and on all Couponholders.

15.2 Noteholders' Representative

A joint representative of the Noteholders (rappresentante comune) (the Noteholders' Representative), which may be the same legal entity as the Trustee, subject to applicable provisions of Italian law, may be appointed pursuant to Article 2417 of the Italian Civil Code in order to represent the Noteholders' interests under these Conditions and to give effect to resolutions passed at a meeting of the Noteholders. If the Noteholders' Representative is not appointed by a meeting of Noteholders, the Noteholders' Representative shall be appointed by a decree of the competent Court where the Issuer has its registered office at the request of one or more Noteholders or at the request of the directors of the Issuer. The Noteholders' Representative shall remain appointed for a maximum period of three years but may be reappointed again thereafter.

15.3 Modification, Waiver, Authorisation and Determination

The Trustee may:

(a) without the consent or sanction of the Noteholders or Couponholders and without prejudice to its rights in respect of any subsequent breach, Event of Default or Potential Event of Default from time to time and at any time, to the extent permitted under Italian law, but only if and in so far as in its opinion the interests of the Noteholders shall not be materially prejudiced thereby, waive or authorise any breach or proposed breach by the Issuer of, any of the covenants or provisions contained in these Conditions or any of the provisions of the Trust Deed, the Agency Agreement or the Notes, or determine, without any such consent as aforesaid, that any Event of Default or Potential Event of Default shall not be treated as such, provided always that the Trustee shall not exercise any powers conferred on it by this Condition 15.3 in contravention of any express direction by Resolution (as defined in the Trust Deed) or by a request under Condition 10.1 but so that no such direction or request shall affect any waiver, authorisation or determination previously given or made; and

(b) subject to the Trustee receiving a legal opinion(s) as to any relevant law, dated the date of any modification or amendment or supplement, as the case may be, in a form acceptable to the Trustee and without any such consent or sanction of the Noteholders or Couponholders as aforesaid, from time to time and at any time, to the extent permitted by Italian law, concur with the Issuer in making any modification (a) to these Conditions or any of the provisions of the Trust Deed, the Agency Agreement, or the Notes which in the opinion of the Trustee it may be proper to make provided that the Trustee is of the opinion that such modification is not materially prejudicial to the interests of the Noteholders or (b) to these Conditions or the Notes or the Trust Deed or the Agency Agreement if in the opinion of the Trustee such modification is of a formal, minor or technical nature or to correct a manifest error or an error which is, in the opinion of the Trustee, proven or (c) to the Trust Deed (including, without limitation, Schedule 3 thereto or any matters referred to in those paragraphs) the Agency Agreement, the Notes and Condition 15 (Meetings of Noteholders, Modification and Waiver) made to comply with mandatory laws, legislation, rules and regulation of Italy and the provisions of the Issuer's By-laws (statuto) applicable to the convening of meetings, quorums and the majorities required to pass a Resolution which provisions entered into force at any time while the Notes remain outstanding.

78 Any such modification, waiver, authorisation or determination may be given or made on such terms and subject to such conditions (if any) as the Trustee may determine, shall be binding on the Noteholders and the Couponholders and, if, but only if, the Trustee shall so require, shall be notified by the Issuer to the Noteholders in accordance with Condition 14 as soon as practicable thereafter.

15.4 Trustee to have Regard to Interests of Noteholders as a Class

In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation or determination), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders or Couponholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders or Couponholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political subdivision thereof and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders except to the extent already provided for in Condition 8 and/or any undertaking given in addition to, or in substitution for, Condition 8 pursuant to the Trust Deed.

15.5 Notification to the Noteholders

Any modification, waiver, authorisation or determination in accordance with these Conditions shall be binding on the Noteholders and the Couponholders and, unless the Trustee agrees otherwise, any modification shall be notified by the Issuer to the Noteholders as soon as practicable thereafter in accordance with Condition 14.

16. INDEMNIFICATION OF THE TRUSTEE AND TRUSTEE CONTRACTING WITH THE ISSUER

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified and/or secured and/or pre-funded to its satisfaction.

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

17. FURTHER ISSUES

The Issuer shall be at liberty from time to time without the consent of the Noteholders or the Couponholders to create and issue further notes having terms and conditions the same as the Notes or the same in all respects save for the amount and date of the first payment of interest thereon and so that the same shall be consolidated and form a single Series with the outstanding Notes.

79 18. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

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

19. GOVERNING LAW AND SUBMISSION TO JURISDICTION

19.1 Governing law

The Trust Deed, the Agency Agreement, the Notes, the Coupons and any non-contractual obligations arising out of or in connection with the Trust Deed, the Agency Agreement, the Notes and the Coupons are governed by, and shall be construed in accordance with, English law. Condition 15 (Meetings of Noteholders, Modification and Waiver) and the provisions of the Trust Deed concerning the meetings of Noteholders and the appointment of a Noteholders' Representative in respect of the Notes are subject to compliance with the laws of the Republic of Italy.

19.2 Submission to jurisdiction

Each party hereto irrevocably agrees, for the benefit of the other parties that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed, the Notes and/or the Coupons (including a dispute relating to any non-contractual obligations arising out of or in connection with the Trust Deed, the Notes and/or the Coupons) and accordingly submits to the exclusive jurisdiction of the English courts.

Each party hereto waives any objection to the courts of England on the grounds that they are an inconvenient or inappropriate forum.

19.3 Appointment of Process Agent

The Issuer appoints Law Debenture Corporate Services Limited at its registered office at Fifth Floor, 100 Wood Street, London EC2V 7EX as its agent for service of process, and undertakes that, in the event of Law Debenture Corporate Services Limited ceasing so to act or ceasing to be registered in England, it will appoint another person approved by the Trustee as its agent for service of process in England in respect of any suit, action or proceedings (together referred to as Proceedings) arising out of or in connection with the Trust Deed, the Notes and the Coupons (including any Proceedings relating to any non-contractual obligations arising out of or in connection with the Trust Deed, the Notes and the Coupons). Nothing herein shall affect the right to serve proceedings in any other manner permitted by law.

19.4 Other documents

The Issuer has in the Trust Deed and the Agency Agreement submitted to the jurisdiction of the English courts and appointed an agent for service of process in terms substantially similar to those set out above.

80 USE OF PROCEEDS

The net proceeds from each issue of Notes will be applied by the Issuer for its general corporate purposes, which include making a profit and/or to refinance existing indebtedness.

81 DESCRIPTION OF THE ISSUER

OVERVIEW

Hera S.p.A. (Hera) is a joint stock company incorporated under Italian Law (società per azioni), having its registered office at Viale Carlo Berti Pichat No. 2/4, 40127 Bologna, Italy and registered with the Companies’ Register of Bologna under No. 04245520376, Fiscal Code and VAT Number 04245520376. Hera may be contacted by telephone on +39 051 287111 and by fax on +39 051 287525.

Pursuant to its by-laws, Hera’s term of incorporation shall last until 31 December 2100, subject to extension.

The corporate objects of Hera, as provided by its by-laws, are to carry out, in Italy and overseas, directly or indirectly – through equity interests in any kind of company, public body, consortium or enterprise – public services (servizi pubblici pursuant to Italian law) and public utility services (servizi di pubblica utilità pursuant to Italian law). Hera may also engage in real estate, commercial, industrial and financial transactions, or participate in competitive tenders for the purpose of providing local public services or other public utility services, as well as any other activity connected to its corporate objects. Hera may also carry out, directly and/or indirectly – through the acquisition of equity interests in other companies, public entity, consortium or enterprise – any other activity which is instrumental, related or complementary to its core business activities or that furthers the achievement of its corporate purpose, excluding those activities reserved by law to particular categories of parties. Hera may not engage in financial activities with the public.

Hera is a leading provider of integrated multi-utility services in Italy and operates at a supra-regional level in over 180 municipalities across Bologna, Ravenna, Rimini, Forlì, Cesena, Ferrara, Modena, Faenza and Imola (in the Emilia Romagna region), and in the contiguous province of Pesaro-Urbino (in the Marche region). Furthermore, starting from 1 January 2013 (being the date on which the merger by way of incorporation of AcegasAps Holding S.r.l. (AcegasAps Holding) into Hera will become effective) Hera will conduct its businesses also in the province of Trieste and Padua (in the Friuli Venezia Giulia and Veneto regions, respectively). For further information on the Merger, see “— Recent Developments — The integration of the AcegasAps Group into the Hera Group" below.

Hera is the holding company of the group consisting of Hera and its consolidated subsidiaries (collectively, the Hera Group). The Hera Group is an industrial group in the integrated multi-utility services market which operates in the sectors of electricity (production, transport, distribution and sale), heat (production and sale), gas (distribution and sale), integrated water services, environmental services (collection and disposal of waste). The Hera Group also provides other public utility services which include telecommunications, public lighting, traffic light services and facility management.

As at the date of this Base Prospectus, Hera has a fully paid-up share capital of €1,115,013,754, divided into No. 1,115,013,754 shares of a nominal value of €1 each. The ordinary shares of Hera have been listed since June 2003 on the Mercato Telematico Azionario, the screen-based market of the Italian stock exchange, managed by Borsa Italiana S.p.A. As at the date of this Base Prospectus Hera has a market capitalisation of approximately €1.360 billion. (For further information on Hera’s share capital and the capital increases resolved upon to serve the Merger and the Public Tender Offer (both as defined below) see “— Recent Developments — The integration of the AcegasAps Group into the Hera Group” below).

82 HISTORY AND DEVELOPMENT OF THE HERA GROUP

The Hera Group was created in November 2002 from the consolidation of eleven public utility companies operating in the Emilia Romagna region with the aim of improving the quality of services provided to citizens in basic areas such as energy, water and environmental services and taking advantage of the significant synergies and efficiency levels made possible by this operation. The eleven public utility companies were initially reorganised into five new territorial operating companies (TOCs) owned and coordinated by Hera. In 2009 all TOCs were merged into Hera.

In June 2003, the Hera Group was partially privatised, with the placement of approximately 44.5% of Hera’s share capital on the Mercato Telematico Azionario.

Since its initial public offering, Hera has continued its consolidation process with the aggregation of other multi-utility companies. In particular, Hera has continued the development and growth of the Hera Group through the pursuit of merger and acquisition opportunities with companies operating in neighbouring territories with similar or complementary business portfolios resulting in the creation of value through the synergy and rationalisation of activities and thus strengthening its market position and achieving economies of scale in its main business areas: waste management, integrated water services and energy.

During 2012 Hera started an integration process with AcegasAps Holding. AcegasAps Holding is the holding company of the group consisting of AcegasAps S.p.A. (AcegasAps) and its consolidated subsidiaries. AcegasAps is the company resulting from a merger by way of incorporation in 2003 of Acegas S.p.A., a multi-utility company providing public services in the Province of Trieste, and APS S.p.A., a multi- utility company providing public services in the Province of Padua. For further information on AcegasAps Holding and AcegasAps see “— Recent Developments — The integration of the AcegasAps Group into the Hera Group — Overview of the AcegasAps Group” below.

On 15 October 2012, the shareholders’ meetings of each of AcegasAps Holding and Hera approved the merger project. The merger deed setting out the terms of the merger by way of incorporation of AcegasAps Holding into Hera (the Merger) was entered into on 17 December 2012 and the Merger will become effective from 1 January 2013. As a consequence of the Merger, Hera will control AcegasAps by holding shares equal to 62.691% of the total share capital (net of the treasury shares held by AcegasAps). Upon completion of the Merger, Hera will launch a public tender offer for the purchase and exchange of all of AcegasAps’ shares pursuant to Article 106, Paragraphs 1 and 2-bis, of Legislative Decree No. 58 of 24 February 1998 (the Financial Services Act and the Public Tender Offer, respectively). For further information on the Merger and the Public Tender Offer, see “— Recent Developments —The integration of the AcegasAps Group into the Hera Group” below.

HERA GROUP

The Hera Group’s business model is based on a centralised integrated management approach according to which those activities capable of giving rise to economies of scale are carried out directly by the holding company, while operational activities requiring closer contact with customers and public local authorities are entrusted to territorial business units in order to maximise efficiency and to maintain ties with the areas served, thus preserving the competitive advantage of proximity to customers.

The following diagram sets forth the organisational structure of the Hera Group as at the date of this Base Prospectus.

83 39% 11% 100% 14% 100% 75% 95% Sviluppo Set Spa ENERGIA MEDEA Spa MODENA HERA Energie HERAMBIENTE Ambiente Toscana ITALIANA Spa NETWORK Spa Rinnovabili Spa Spa 5% Srl 15% 100% 100% 40,64% 33% 20% 40% MARCHE Calenia Energia HERA TRADING HERA COMM Srl MULTISERVIZI Ghirlandina REFRI Srl Q.tHermo Srl Spa Srl Spa Solare Srl 32% 10,4% 26% 89,58% 60% 70% TAMARETE ENERGIA Srl GALSI Spa SO.SEL. Spa HE RA LUCE Srl GAL.A Spa FERONIA Srl

20% 50% 22,32% 25% 51% 57,5% FlameEnergy ADRIATICA NUOVA GEOVIS SEI Spa Trading Gmbh ACQUE Srl AIMAG Spa Spa AKRON Spa

79,94% 57,38% 29,61% 100% 70% 51% Hera Comm FAMULA ON-LINE ACANTHO Spa Marche Srl SGR SERVIZI Spa Spa 5% SOTRIS Spa Consorzio Akhea

51% 51% 97% 50% 60% ROMAGNA ERIS Scarl HERA ENERGIE Srl UNIFLOTTE Srl ENOMONDO Srl COMPOST Srl

59% 23% 40% 51% 51% Estense Global SE RVICE IMOLA SINERGIA Srl Service Scarl Srl FEA Srl ASA Scpa

100% Planning/maintenance Energy generation/trading Energonut Spa Services Renewable energies Companies in which Hera directly hol ds an equity interest Environment Companies in which Hera holds an equity interest through its subsidiaries

STRATEGY

Since its establishment, Hera’s strategic objective has always been the creation of value from a multi- stakeholder perspective, in the medium and long-term. In so doing, Hera has undertaken a strategy of growth and increased efficiency in its core business activities addressing merger and acquisition opportunities with companies operating in similar or complementary areas of business in order to both consolidate its market position and exploit synergies and economies of scale.

On 22 October 2012, Hera approved its 2012-2016 business plan (the Business Plan) then presented to the investors and the wider business community. The Business Plan is deeply rooted in territorial development and environmental sustainability. In particular, the Business Plan sets forth the following strategic priorities:

• extraction of value from the Hera Group assets, leveraging on scale, operational efficiency and service coverage;

• enlargement of customer base and consolidation of service portfolio;

• increase of the number of multi business clients;

• deployment of an integrated perspective on smart network;

• progressively increase of the number of treatment assets dedicated to recycle/ re-use;

• development of initiatives in the renewable segment and enhancement of energy generation from renewables; and

• execution of acquisitions already in progress and selection of new external growth opportunities.

84 The Hera Group intends to pursue these goals while continuing to improve its economic and financial performance and to consolidate its relationships with stakeholders.

This discussion contained in the section headed “Description of the Issuer” may include forward-looking statements with respect to future synergies, future financing activities, financial structure objectives and other future financial or business performance, conditions, strategies, expectations or goals. All statements that are not descriptions of historical facts are forward-looking statements, based on management's estimates, assumptions and projections that are subject to risks and uncertainties. These statements can generally be identified by the use of forward-looking terminology such as "believes", "expects", "intends", "may", "will", "should", or "anticipates" or similar terminology. No undue reliance should be made on such information and estimates.

BUSINESS OF THE HERA GROUP

OVERVIEW

The businesses of the Hera Group include both fully regulated services managed under "licensed concessionary regimes": waste collection services, distribution of electricity and gas (both natural and liquid propane gas), integrated water services and public lighting) (collectively, the Regulated Activities) and businesses managed under "free competition" regimes: the sale of gas and electricity, special waste management, district heating (teleriscalsdamento) and heat management services and co-generation (collectively, the Liberalised Activities). The Regulated Activities are directly managed by Hera whilst the Liberalised Activities are managed through Hera's subsidiaries, Hera Comm S.r.l. unipersonale, Hera Trading S.r.l. unipersonale and Herambiente S.p.A.

As at the date of this Base Prospectus, the business of the Group is balanced in terms of contribution to EBITDA from Regulated Activities and Liberalised Activities, which accounted for approximately 55% and 45%, respectively, of the Hera Group’s EBITDA as at 30 June 2012.

The Hera Group operates in five main business areas:

(i) waste management services, which include services related to solid urban waste, including the collection and transport of urban waste, urban cleaning and the recovery and disposal of urban waste, and services related to special waste, primarily the treatment and disposal of hazardous and non-hazardous special waste;

(ii) energy services – gas and district heating services, which include the sale and distribution of natural gas and liquid propane gas (LPG) and the associated provision of district heating and heat management services;

(iii) energy services – electricity and co-generation services, which include both the distribution, sale and the generation of electricity activities through combined cycle and co-generation power plants;

(iv) integrated water services, which include the provision of fresh water services, sewage services and waste water treatment services; and

(v) other services, which include the operation of public lighting and traffic light management.

KEY CONCESSIONS

The following is a summary of the Hera Group's key concessions, through which it carries out its regulated activities:

85 • Waste collection services: The urban waste collection and cleaning activities of the Hera Group's waste management services business operate in over 170 municipalities in Italy. The Hera Group's concessions for this business expire after 2020.

• Distribution of natural gas and LPG: The Hera Group operates its gas distribution business across 173 municipalities. This business is conducted pursuant to concessions originally granted for a duration of 10 to 30 years or more, depending on the original agreements concluded with each municipality. These arrangements have been modified, however, by Italian Decree 164/2000 of 23 May 2000 (the Letta Decree), implementing Directive 98/30/EC, and by subsequent amendments, which provide for a transitional period during which existing operators, such as the Hera Group, continue providing services under the original concessions until the selection of a new concessionaire by means of a public tender.

• Distribution of electricity: The Hera Group's electricity distribution business operates in the Province of Modena, in the Municipality of Imola and in the Province of Bologna. The Hera Group's concessions for this business will expire in 2030. In particular, the public tender calendar defines the geographical areas currently served by Hera with a tender period of around three years, starting from 2013.

• Integrated water cycle: The Hera Group's integrated water cycle business operates in over 220 municipalities, under agreements with various local authorities (generally, provincial authorities). The Hera Group's concessions for this business are set to expire after 2020.

Hera's management believes that the complementary nature of Hera's businesses creates expansion opportunities and allows the Hera Group to achieve cost synergies and efficiencies; it also allows the Hera Group to cross-sell utility services to customers in its customer base.

OPERATIONAL OVERVIEW AND FINANCIAL DATA BY BUSINESS AREA

Financial overview

The following table sets forth information in relation to the Hera Group's profits for the periods indicated.

Year ended Six months ended 31 December 30 June 2011 2010 change % 2012 2011 change % (unaudited) in millions of Euro in millions of Euro Revenues 4,105.7 3,668.6 +11.9% 2.298.9 1,983.2 +15.9% Change in inventories of finished - (1.7) -100.0% - - - products and work in progress Other operating revenues 210.2 210.4 -0.1% 91.1 87.7 +3.9% Raw materials and consumables (2,440.1) (2,140.5) +14.0% (1,399.8) (1,122.0) +24.8% Services costs (870.5) (810.7) +7.4% (427.5) (422.1) +1.3% Other operating costs (39.8) (38.8) +2.6% (19.3) (17.5) +10.3% Personnel costs (370.0) (361.9) +2.2% (192.8) (189.7) +1.6% Capitalised costs 49.3 81.9 -39.8% 13.1 24.4 -46.3% EBITDA (1) 644.8 607.3 +6.2% 363.7 344.0 +5.7% Amortisation, depreciation & (310.3) (291.9) +6.3% (151.6) (144.6) +4.8% provisions EBIT (2) 334.5 315.4 +6.1% 212.1 199.4 +6.4% Financial operations (113.3) (109.8) +3.2% (61.8) (53.5) +15.5% Other non operating costs ------PRE TAX PROFIT 221.2 205.6 +7.6% 150.3 145.9 +3.0% Income taxes (94.4) (63.5) +48.7% 66.9 (62.7) +6.7% NET PROFIT 126.8 142.1 -10.8% 83.4 83.2 +0.2%

86 ______Note: (1) EBITDA means net profit before financial operations, income taxes, amortisation, depreciation and provisions. (2) EBIT means net profit before financial operations and income taxes.

The following table sets forth the proportion of the Hera Group's total revenues and EBITDA represented by each business area for 2011 as compared to 2010, as well as for the first six months of 2012 as compared to the corresponding period in 2011.

Year ended Six months ended 31 December 30 June 2011 2010 2012 2011 Total EBITDA Total EBITDA Total EBITDA Total EBITDA revenues revenues revenues revenues (unaudited) Gas and district 33.0% 32.4% 30.3% 31.9% 39.9% 41.6% 33.8% 35.1% heating services Electricity 35.1% 11.4% 35.9% 9.8% 32.5% 9.9% 34.3% 12.3% services Integrated water 13.2% 23.3% 14.2% 23.4% 11.5% 20.7% 12.6% 19.6% services Waste 16.4% 30.1% 17.2% 32.1% 14.0% 25.2% 17.1% 30.6% management services Other services 2.3% 2.8% 2.4% 2.8% 2.1% 2.6% 2.2% 2.4% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Waste Management Services

According to various analysts' reports on the Italian local utilities sector and Hera's internal research and data, the Hera Group is the leading domestic operator in the waste management sector, collecting approximately 1.8 million tons of urban waste for the year ended 31 December 2011 and treating a total of approximately 5.1 million tons of waste during the same period.

In 2009, Hera spun off all the activities of its urban waste business, excluding the cleaning and collection of urban waste, into a separate entity named Herambiente S.p.A. (Herambiente), with the objective of concentrating the Hera Group's expertise and plants into a new company to better exploit its development opportunities.

In July 2010, Hera sold a portion of the share capital of Herambiente to Ambiente Arancione Cooperatief U.A. (Ambiente Arancione), a vehicle owned by Eiser. The aim of this sale was to establish the conditions for the further development of Herambiente's activities outside its existing operating area and to leverage upon the strong competencies developed in recent years by Herambiente in the waste business. As at the date of this Base Prospectus, Hera hold 75% of the share capital of Herambiente and Ambiente Arancione holds the remaining 25%.

As at the date of this Base Prospectus, the Hera Group operates over 84 waste management plants located in certain areas of Emilia-Romagna region and Marche region, 80 of which are managed by Herambiente S.p.A., while the remaining ones are managed by Marche Multiservizi S.p.A.

87 Hera's waste management operations include (i) the collection of urban waste (a Regulated Activity), (ii) the treatment of urban and special waste (a Liberalised Activity) and (iii) the management of waste-to-energy (WTE) plants and other disposal plants for both its Regulated and Liberalised activities.

The Hera Group provides urban waste services to approximately 2.8 million residents in over 180 municipalities, on the basis of fixed-term licences.

Through the operation of waste processing facilities, Hera has the ability to recycle a significant amount of the waste collected. The Hera Group is also one of the principal Italian operators in the WTE sector, with six WTE plants dedicated to urban waste and one plant which specialises in hazardous waste. The Hera Group's WTE plants collectively treated 530.0 thousand tons of urban waste, resulting in electrical generation of 200 gigawatt/hours (GWh), in 2011.

The Hera Group's activities in the special waste sector are primarily connected to the treatment and disposal of hazardous and non-hazardous special waste using its dedicated and mixed use plants (i.e., urban and industrial waste).

The table below sets forth information with respect to the Hera Group's EBITDA for the waste management business for the year ended 31 December 2011 and for the six months ended 30 June 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change % 2012 2011 change % (unaudited) in millions of Euro in millions of Euro Revenues 740.1 703.1 +5.3% 350.8 370.4 -5.3% Operating costs (412.7) (386.0) +6.9% (186.6) (195.4) -4.5% Personnel costs (148.4) (147.2) +0.8% (75.8) (76.4) -0.8% Capitalised costs 15.2 25.2 -39.7% 3.2 6.6 -51.5% EBITDA 194.2 195.1 -0.5% 91.6 105.2 -12.9%

The table below sets out the volumes of waste, by type of waste and type of plants, treated by the Hera Group in 2011 and the first six months of 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change 2012 2011 change in thousands of tons % in thousands of tons % Urban waste 1,808.7 1,864.1 -3.0% 859.9 904.1 -4.9% Special Waste – Market waste 1,573.3 1,608.5 -2.2% 725.8 817.1 -11.2% Special Waste – Special waste 1,725.1 2,230.5 -22.7% 763.8 1,000.9 -23.7% from plant by-products Waste treated by type – Total 5,107.1 5,703.1 10.5% 2,349.5 2,722.1 -13.7% Landfills 1,268.3 1,429.7 -11.3% 572.7 632.5 -9.5% Waste-to-energy plants 923.0 800.6 +15.3% 474.3 489.6 -3.1% Selection plants 299.2 322.2 -7.1% 154.7 151.2 +2.3% Compost plants 574.7 463.8 +23.9% 228.6 284.1 -19.5% Stabilisation and chemical- 815.0 1,218.6 -33.1% 359.3 479.8 -25.1% physical plants Other plants (1) 1,226.9 1,468.2 -16.4% 560.0 685.0 -18.2% Waste treated by plant – Total 5,107.1 5,703.1 -10.5% 2,349.5 2,722.1 -13.7% ______Note:

88 (1) Includes purification plants and certain other plants.

Urban Waste

Waste can be broadly divided into two macro-areas, depending on its origin: urban waste and special waste (waste from manufacturing, commercial and services activities), the latter comprising both non-hazardous and hazardous waste.

As at 30 June 2012, Herambiente's asset base consisted of 80 plants, covering the entire value chain of the waste treatment and disposal business, most of which are hybrid plants for the treatment or disposal of either urban or special waste. This has resulted in a reduction of the by-product processing costs and the optimisation of Herambiente's logistic flow and plant feeding.

Herambiente's activities in the urban waste sector can be summarised as follows:

(i) Collection

Urban waste collection and cleaning activities (under the concession scheme) are performed in Emilia Romagna and Tuscany, in particular in the area around Florence, representing a total of over 181 municipalities with more than 2.8 million inhabitants served. The volume of urban waste collected in 2011 was approximately 1.8 million tons, resulting in a market share of approximately 77% in the regions in which the Hera Group conducts its operations (Source: Hera Group internal data). Urban waste is collected on both a sorted and unsorted basis.

(ii) Treatment

The flow of waste collected by the Hera Group, together with waste contributed by third parties which have commercial agreements with Herambiente, is sent to different types of plants depending on its origin or composition. Herambiente's asset base includes plants for separation, selection, composting, chemical-physical treatment, inertisation, transhipment and storage of waste. Treatment is an intermediate phase, after which waste is ready to be disposed of (in incinerators or landfills) or recycled.

(iii) Disposal

Herambiente's disposal facilities include 12 landfills, 6 incinerators for urban or special non- hazardous waste (four of which have recently been refurbished) and 1 incinerator specifically dedicated to special hazardous waste, representing a rare concentration of capacity in the Italian market. These disposal facilities enable the Hera Group to intercept many waste flows on the market in addition to disposing of refuse collected through its own operations. Incinerators, also known as WTEs, allow energy recovery by waste combustion, producing 200 GWh of electricity in 2011, from the treatment of approximately 530 thousand tons of waste. Energy can also be produced from the combustion of gas generated by landfills. In 2011, landfills operated by Herambiente produced 90 GWh of electricity. Most of the plants owned by the Hera Group have "International Organization for Standardization" or "ISO" certificates (ISO 14000 or ISO 90000) and Eco-Management and Audit Scheme (EMAS) certificates. Hera intends to obtain EMAS certification for all plants by the end of 2019, which will, in turn, provide significant benefits, such as extensions of the environmental authorisations required to operate the plants.

89 Special Waste

The Hera Group activities in the special waste sector are principally connected to the treatment and disposal of hazardous and non-hazardous special waste. Special waste is a liberalised business, which involves few major national players and a high number of minor players (i.e., single plant players). The special waste business in Italy is affected by a "capacity deficit" forcing operators in the special waste business to dispose of waste abroad, thus sustaining considerable transport costs. Hera's management, therefore, believes that this market offers significant growth opportunities and the Hera Group's current treatment and disposal capacity permits it to take advantage of the opportunities to expand its presence in this business.

Special waste plants are technologically similar to urban waste plants (apart from hazardous waste plants, which have certain special characteristics). By contrast to urban waste, special waste is not subject to any constraint for treatment and disposal within the region or the province where it is produced.

To serve the special waste market, the Hera Group has a dedicated sales force, which negotiates with key clients, such as Eni (Syndial, Polimeri Europa) and Ravenna Petrochemical Pole, as well as pharmaceutical companies, mid-size companies and small-size waste operators. Its service portfolios range from "plain vanilla" services (basic treatment and disposal) to more sophisticated services, such as full-service contracts and reclamation work. Full-service contracts are "all inclusive" waste management packages, which comprise, for example, waste retrieval directly from the client and the management of different types of refuse to appropriate facilities.

Volume for special waste treated or disposed of in 2011 was approximately 3.3 million tons (including sub-products from selections and sorting activities).

Portfolio of WTE plants As at the date of this Base Prospectus, the Hera Group owns the following portfolio of WTE plants: Treatment capacity authorised Electrical in 2010 capacity Plants (tons/year) (MW) Status WTE Forlì...... 120,000 10.6 New line started in 2008, expanding capacity WTE Ravenna ...... 180,000 6.3 Single line plant, started in 2000 WTE Rimini...... 90,000 15.7 New line under construction WTE Modena...... 140,000 30.0 New line started in 2009, expanding capacity WTE Ferrara ...... 130,000 12.9 New line started in 2007, expanding capacity WTE/F3 Ravenna...... 40,000 4.2 Specialised plant for hazardous materials WTE FEA ...... 220,000 22.0 New line started in 2003, expanding capacity

For further information on the Waste Management Services see "Regulation" below.

Energy Services

The Hera Group provides the following energy services:

• gas and district heating services, which include the sale and distribution of natural gas and LPG and the associated provision of district heating and heat management services; and

• electricity and co-generation services, which include the distribution, sale and generation of electricity activities through combined cycle and co-generation power plants.

While the sale of energy in Italy is highly liberalised, distribution is carried out through concessions.

90 The Hera Group also generates electricity through combined cycle power plants and in connection with other energy generation processes, such as combined heat and power production, turbo-expansion, WTE and bio- gas production.

To respond to the greater competitive pressure in the sale of energy products, Hera has developed a commercial strategy called "Dual Fuel" (a combined offer to customers of both gas and electricity) and has intensified and further developed its customer care activities, thus expanding its customer base in its principal target markets.

All of the energy resources procurement activities are directly managed by Hera Trading S.r.l. unipersonale (Hera Trading), a company specialising in optimising the purchase of electricity through the Borsa Elettrica Italiana and different European trading platforms. Hera's management believes that its strategic and organisational initiatives will continue to allow the Hera Group to maximise its level of competitiveness and profitability within the energy business, taking advantage of the progressive liberalisation of the energy market across Europe. Hera Trading manages gas contracts with wholesale suppliers and power generation electricity assets, accounting for approximately 41.9% of the Hera Group's total sales in 2011.

In addition to the general risk management policies applied across the Hera Group, Hera's risk management policy with respect to its commodities requires that market position risks be fully hedged.

Energy Services – Gas and District Heating

According to Hera's internal research and data, the Hera Group is a leading operator in the Italian market, in terms of volume of natural gas sold and distributed, with sales of over 3,321 million cubic metres to approximately 1.1 million customers in 2011. The volume of gas sold increased to 1,988.0 million cubic metres for the six months ended 30 June 2012, as compared to 1,688.5 million cubic metres for the same period in 2011.

In addition to the distribution and sale of natural gas and LPG, the Hera Group provides district heating services (i.e. the sale of heating for customer home heating and domestic hot water) to several municipalities, including Bologna, Forlì, Cesena, Imola, Casalecchio di Reno, Castel Bolognese and Ferrara.

In the natural gas procurement business, over the last five years the Hera Group has been able to progressively increase the percentage of gas sourced directly abroad or through the virtual exchange point (i.e., a physical trading platform) to approximately 1,800 million cubic metres or approximately 55% of the Hera Group's overall gas sales in 2011.

Gas and District Heating

The Hera Group distributes and sells natural gas and LPG and provides district heating and heat management services. The gas and district heating business accounted for almost 32.4% of the Hera Group's EBITDA for the year ended 31 December 2011 and 41.6% for the six months ended 30 June 2012.

91 The table below sets forth information with respect to the Hera Group's EBITDA for the gas and district heating business for the year ended 31 December 2011 and for the six months ended 30 June 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change % 2012 2011 change % (unaudited) in millions of Euro in millions of Euro Revenues 1,490.2 1,237.1 +20.5% 996.7 731.5 +36.3% Operating costs (1,224.7) (1,003.3) +22.1% (808.3) (581.1) +39.1% Personnel costs (70.1) (66.9) +4.8% (41.3) (36.8) +12.2% Capitalised costs 13.3 27.0 -50.7% 4.0 7.0 -42.9% EBITDA 208.7 193.9 +7.6% 151.1 120.6 +25.3%

Natural Gas

The Hera Group distributes gas under various concessions granted by the municipalities, which are also Hera's shareholders, within their respective territories. The most significant of these concessions, in terms of revenues and users served, are the gas distribution licences with the municipalities of Bologna, Ravenna, Forlì, Cesena, Imola and Modena. See "— Business of the Hera Group—Key Concessions".

The Hera Group currently distributes natural gas in the provinces of Bologna, Ravenna, Forlì-Cesena, Riccione (Rimini province), Ferrara, Modena and in Pesaro-Urbino through Marche Multiservizi, utilising a pipeline network of approximately 15,000 kilometres in 2011.

The Hera Group collects natural gas directly from the national network currently operated by Snam Rete Gas S.p.A. through the Hera Group's primary receiving and decompression stations, filters and decompresses the gas received and prepares it for distribution to end users.

The Hera Group operates its natural gas sales through Hera Comm. S.r.l. unipersonale (Hera Comm), which sells gas in the same provinces as the distribution networks and also to liberalised customers in neighbouring territories (such as Reggio Emila, Parma, Piacenza and Rovigo).

To strengthen the Hera Group's position in a progressively liberalised gas market and to reduce natural gas procurement costs, Hera has concentrated all gas trading activities in Hera Trading.

The Hera Group continuously monitors and maintains its natural gas distribution network with the aim of ensuring network reliability, quality and continuity of service and detection of leakage risks. The Hera Group relies on a remote control system, which allows it to react quickly and directly from its headquarters to perform a range of routine maintenance tasks and certain emergency interventions. The Hera Group also relies on a remote alarm system to detect leaks. In accordance with regulatory requirements, the Hera Group's call centres are staffed seven days a week, 24 hours a day for emergency calls and urgent intervention. The Hera Group's natural gas distribution network and plants are managed and maintained in compliance with all current legislative and industry standards.

Turbo-expansion plants have been installed in some of the Hera Group's primary receiving and decompression stations to retrieve electricity that would otherwise be dissipated in the environment if traditional decompression methods were used. The electricity produced is used for internal consumption or sold to the Hera Group's customers. The revenues for such sales are included in the Hera Group's gas revenues.

92 The following table sets forth information on the number of customers served, volumes of gas distributed and volumes of gas sold by the Hera Group in 2011 and the first six months of 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change 2012 2011 change % % Customers (thousands of customers) 1,114.5 1,072.5 +3.9% 1,116.3 1,066.9 +4.62 Distributed volumes (millions of 2,389.2 2,504.1 -4.6% 1,406.0 1,351.7 +4.0% cubic metres) Volumes sold (millions of cubic 3,321.0 2,914.0 +14.0% 1,988.0 1,688.5 +17.7% metres) - of which Trading (millions of 1,252.6 721,8 +73.5% 729.8 503.0 +45.1% cubic metres)

For further information on the Gas Services see "Regulation" below.

District Heating

District heating is a service involving the sale of heat for customer home heating and domestic hot water. It is an alternative system to traditional boilers, which makes it possible to concentrate the production of heat in few central installations that are more efficient and better controlled than home boilers. From these central installations, the heat is distributed through a network of isolated pipelines to customers' houses in the form of hot water. The heat then fuels the domestic heating system using non-polluting heat exchangers. District heating provides a solution to air pollution problems through the replacement of home boilers (frequently fuelled with gas-oil or methane) and allows heat generation from high-efficiency production methods, renewable energies or energy recovered for other production processes.

The Hera Group provides district heating services to the municipalities of Bologna, Forlì, Cesena, Imola, Casalecchio di Reno, Castel Bolognese and Ferrara.

In the district heating business, the Hera Group has developed networks systems, which served approximately 78,347 apartments in the cities of Bologna, Imola, Modena, Ferrara, Ravenna and Forlì in 2011. The heat power produced by co-generators, WTE plants and traditional heating systems resulted in the sale by the Hera Group of approximately 499.4 thermal GWh of heat power in 2011 and approximately 321.3 thermal GWh of heat power in the first six months of 2012 to its final end customers.

The table below sets forth the volumes distributed by the Hera Group's district heating business in 2011 and the first six months of 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June District Heating 2011 2010 change 2012 2011 change % % Distributed volume (of thermal GWh) 499.3 534.5 -6.6% 321.3 296.1 +8.5%

Heat Management

The Hera Group relies on its industrial plant management experience to offer heat-production plant management for third parties. The Hera Group's heat management services include the management and maintenance of third party plants and fuel supplies, the provision of technological and environmental upgrade services and inspection/monitoring of the efficiency of the combustion process and emissions.

93 Energy Services – Electricity & Co-generation

Hera's electricity sale and distribution activity is approximately 12,300 terawatthours (TWh) of electricity to approximately 482.1 thousand of customers and distribution of approximately 2,300 TWh of electricity in the year ended 2011.

The Hera Group has a growing electricity generation capacity: it operates a small number of power plants and also produces electricity as a by-product of other production processes such as co-generation, WTE, biogas and turbo-expansion. A portion of the electricity generated by the Hera Group is sold directly to Gestore Servizi Energetici (the GSE) at subsidised tariffs. To fulfil the demand of the rest of its customers for electricity exceeding its production capacity, the Hera Group purchases electricity from national and international suppliers on an annual basis.

The Hera Group's electricity services revenues are generated from the distribution and sale of electricity. In 2011, the Hera Group sold 9,996.1 GWh of electricity to its customers and distributed 2,303.9 GWh of electricity to users connected to its distribution network. In the first six months of 2012, the Hera Group sold 4,712.8 GWh of electricity to its customers and distributed 1,088.9 GWh of electricity to users connected to its distribution network. The Hera Group also generates electricity through combined cycle power plants and in connection with other energy generation processes, such as combined heat and power production, turbo- expansion, WTE and bio-gas production.

The Hera Group's co-generation business revenues are generated by selling the energy produced by the combined heat and power plants installed in the industrial plants of large business customers. The Hera Group develops these plants directly in order to consolidate the partnership with its gas end users.

The electricity business represented 11.4% of the Hera Group's EBITDA for the year ended 31 December 2011 and 9.9% for the six months ended 30 June 2012.

The table below sets forth information with respect to the Hera Group's EBITDA for the electricity business for the year ended 31 December 2011 and for the six months ended 30 June 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change % 2012 2011 change % (unaudited) in millions of Euro in millions of Euro Revenues 1,585.2 1,468.3 +8.0% 812.8 741.5 +9.6% Operating costs (1,497.0) (1,399.2) +7.0% (768.4) (691.5) +11.1% Personnel costs (26.4) (23.8) +10.9% (12.4) (14.0) -11.4% Capitalised costs 11.4 14.5 -21.4% 3.9 6.2 -37.1% EBITDA 73.2 59.8 +22.4% 35.9 42.2 -14.9%

Distribution

The Hera Group's distribution network consists of a primary high-voltage distribution network, which connects receiving stations to primary network stations, and a secondary medium- and low-voltage network, which connects primary network stations to secondary network stations and individual customers. The electricity distribution network managed by the Hera Group is located primarily in the city of Imola and in the area of Modena. The network is approximately 10,000 kilometres long. The Hera Group had more than 260 delivery points, which were served by its networks.

94 Electricity Licences

The Hera Group is authorised to distribute electricity under two electricity licences issued by the Ministry of Industry. As at the date of this Base Prospectus, these licences are set to expire on 31 December 2030.

Network and Plant Maintenance

The Hera Group's electricity distribution system is maintained by employing local maintenance teams, which monitor plant operations and conduct regular checks to verify the current state of the network. The local maintenance teams are also responsible for ensuring the safety of overhead lines and insulated underground cables. All of the Hera Group's substations, high-voltage transmission lines and secondary substations are monitored through a remote control system. This system is designed to rapidly detect problems that may arise in the network and monitor operating pressure. The Hera Group has installed an electronic remote measuring system, which covers around 100% of the Hera Group's points of delivery, in compliance with regulations applicable to electricity distribution systems.

Electricity Sales

The sale of electricity is fully liberalised and customers may choose to be part of the liberalised market by subscribing to a specific contract with a supply company or they may instead remain in the "regulated" market (the Universal Service regime) and pay the tariffs set by the Authority for Electricity and Gas (AEEG).

The table below sets forth the volumes of electricity sold by the Hera Group in 2011 and the first six months of 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change % 2012 2011 change %

Distributed volumes (GWh) 2,303.9 2,237.8 3.0% 1,088.9 1,132.9 -3.9% Volumes sold (GWh) 9,996.1 7,744.0 +29.1% 4,712.8 4,815.0 -2.1%

Electricity Generation

The electricity produced in 2011 by companies in which Hera holds an equity interest came to around 1,461 GWh. Such companies are SET, Tirreno Power and Calenia Energia. SET and Calenia Energia run two power stations in Teverola (Caserta) and Sparanise (Caserta), respectively; these are two combined-cycle plants (CCGT) which guarantee higher performance and improved environmental compatibility with respect to the traditional oil or coal-fuelled power stations. In 2011, carbon dioxide emissions from the two plants came to 390 g/kWh (Teverola) and 380 g/kWh (Sparanise); nitric oxide emissions came to 71 g/MWh and 75 g/MWh. The Tirreno Power plant pool comprises combined-cycle plants (70%), coal-fuelled plants (19%), traditional power stations (9%) and hydroelectric plants (2%).

For further information on the Energy Services see "Regulation" below.

Integrated Water Services

According to various analyst reports on Italian local utilities, published national statistics and Hera's internal research, the Hera Group believes it is one of the leading Italian providers, in terms of volumes managed, of integrated water services, which include fresh water sourcing, treatment and distribution, sewage services and waste water collection and treatment. In Italy, these activities are fully regulated and managed by local operators on the basis of concessions with an average duration of 20 years. The tariffs for the services are regulated by the Italian Ministerial Decree dated 1 August 1996 (known as the Metodo Tariffario) and

95 agreed with the regional authorities, known as Autorità Territoriali d'ambito Ottimale (the ATOs), on a three-year basis. See "Regulation" below.

Currently, the Hera Group conducts its integrated water services on the basis of concessions which, on average, will expire in 2022 under agreements with seven ATOs (corresponding to the seven provinces in which it operates in the Emilia-Romagna region, in addition to its presence in the Pesaro-Urbino province through its subsidiary Marche Multiservizi), providing approximately 253.7 million cubic metres of drinking water for civil and industrial use in 2011.

The Hera Group has completed an efficient water distribution system of approximately 31,270 kilometres serving approximately 3.1 million inhabitants, a number that increases considerably in the tourist areas of the Adriatic Riviera during the summer period.

Included in the plant structure utilised for its integrated water service is the sewage network that extends approximately 15,000 kilometres. As at the date of this Base Prospectus, the Hera Group manages approximately 848 treatment plants.

The integrated water business represented 23.3% of the Hera Group's EBITDA for the year ended 31 December 2011 and 20.7% for the six months ended 30 June 2012.

The table below sets forth information with respect to the Hera Group's EBITDA for the integrated water services business for the year ended 31 December 2011 and for the six months ended 30 June 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change % 2012 2011 change % (unaudited) in millions of Euro in millions of Euro Revenues 596.7 579.2 +3.0% 287.7 273.3 +5.3% Operating costs (347.3) (344.7) +0.8% (159.4) (156.1) +2.1% Personnel costs (106.1) (105.2) +0.9% (54.5) (52.9) +3.0% Capitalised costs 6.9 12.7 -45.7% 1.4 3.4 -58.8% EBITDA 150.2 142.0 +5.8% 75.2 67.5 +11.4%

The following table sets forth the volume of water sold by the Hera Group, by category, in 2011 and the first six months of 2012, in each case compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June Volume sold 2011 2010 change % 2012 2011 change % in millions of cubic metres In millions of cubic metres Aqueduct(1) 253.7 250.8 +1.2% 121.0 120.7 +0.2% Sewerage 222.6 220.0 +1.2% 104.1 104.1 +1.1% Purification 221.4 220.0 +0. 6% 104.2 104.2 +0.1% ______Note: (1) Includes extraction, adduction and distribution.

Fresh Water Services

The Hera Group's fresh water services consist of the extraction of fresh water from a surface or underground source, its preparation for human consumption and distribution and its sale directly to retail users or resellers through the Hera Group's network of aqueducts and pipelines.

96 As at 31 December 2011, the Hera Group managed more than 31,200 kilometres of pipeline of which the majority was for civil use.

Fresh Water Supply

The Hera Group draws water supplies principally from surface water, which is extracted from springs, streams and reservoirs, and from underground water, which is extracted from aquifers through the use of wells. In 2011, the Hera Group supplied a total water volume of more than 254 million cubic metres to its distribution network.

Fresh Water Treatment

All water is treated before distribution to customers to reduce or eliminate compounds and substances in excess of the concentration limits permitted under applicable law, and, where necessary, water drawn for drinking purposes is disinfected before it is supplied to the Hera Group's network to eliminate viruses, bacteria and pollutants.

Aqueduct and Distribution System

The Hera Group's aqueduct system covers a network of more than 31,270 kilometres of pipelines. The primary conduits used to transport fresh water to the Hera Group's distribution network are the Reno aqueduct, which has a maximum capacity of 2,400 litres per second, and the pipelines of Romagna Acque, a company wholly owned by the Romagna municipalities. The Hera Group's distribution network further consists of independently fed secondary aqueduct networks used to deliver water to local neighbourhoods.

The Hera Group's water distribution system is a complex network of several interconnected networks and plants, which are connected to various supply sources in order to ensure a continuous supply even if a particular water source or plant is affected by a temporary interruption or shutdown.

The Hera Group also stores extracted and treated water in tanks to back-up its distribution system during peak consumption hours or power blackouts and to serve as water reserves.

Hera continually monitors its distribution network, both electronically and through periodic inspections and preventative tests of the Hera Group's plants, as well as through tests of the operating pressure, capacity and losses (i.e., leaks) of the Hera Group's network. In 2011, the Hera Group's network losses, on average, were approximately 26.9% of water introduced into the system for that year, as compared to national average network losses of 40% (Source: Comitato di Vigilanza sulle Risorse Idriche, Rapporto sullo stato dei Servizi Idrici 2011).

Waste Water Services

The Hera Group manages a significant portion of the sewage and waste water treatment systems in the provinces in which it operates, with different kinds of plants for mud treatment.

Waste Water Collection

Waste water can be classified as follows:

• domestic or non-industrial waste water produced by households and small offices and containing both organic substances and substances derived from products used for domestic cleaning and personal hygiene;

• industrial waste water, released during production processes and typically containing a high concentration of pollutants; and

97 • meteoric waste water produced by climatic conditions (i.e., rain water, floods etc.).

Maintenance of Sewer Network

Sewage systems require regular ordinary maintenance operations, such as monitoring the efficiency of the elevation plants, removing sediments and obstacles that may obstruct water flows and maintaining public manholes. Extraordinary maintenance operations include renovation, restructuring or repairs to improve operating conditions, hydraulic efficiency and the infrastructural safety of the network. The Hera Group employs specialised internal maintenance teams for programmed and emergency operations and outsources some of the major infrastructural maintenance works. All such operations are controlled by a single remote control centre, which was designed and developed by Hera and is located in Forlì.

Waste Water Treatment

The Hera Group's integrated water cycle is completed by water treatment services operations. The Hera Group treats domestic, industrial and meteoric waste water from approximately 227 municipalities in the areas of Bologna, Ferrara, Forlì-Cesena, Rimini, Ravenna, Modena and Pesaro Urbino.

Control and Maintenance

Pursuant to its agreements with the municipalities and companies which have leased assets to Hera, the Hera Group is responsible for the ordinary and extraordinary maintenance of the waste water treatment plants (i.e., the purification plants). The Hera Group continually monitors its most important plants and has personnel present in these plants 24 hours a day, assisted by other more specialised maintenance and operational staff during normal business hours. The Hera Group monitors the operation of its other plants through regular visits, third party services for maintenance and inspections and a remote control system, which is used to monitor the operational efficiency and status of all its plants. The Hera Group conducts quality, environment and product quality control on fresh water, treated water and residual waste water. The Hera Group monitors and tests the chemical, physical and microbiological characteristics of its fresh water to ensure environmental compliance with current standards.

For further information on the Integrated Water Services see "Regulation" below.

Other Services

The Hera Group provides other services in addition to those set forth above, most notably public lighting managed by Hera Luce S.r.l. (Hera Luce) and telecommunications managed by Acantho S.p.A.

The table below sets forth information with respect to the Hera Group's EBITDA for the other services it performs for the year ended 31 December 2011 and for the six months ended 30 June 2012, in each case, as compared to the corresponding periods in the previous year.

Year ended Six months ended 31 December 30 June 2011 2010 change % 2012 2011 change % (unaudited) in millions of Euro in millions of Euro Revenues 98.7 99.4 -0.7% 50.1 48.1 +4.2% Operating costs (63.7) (66.5) -4.2% (31.9) (31.4) +1.6% Personnel costs (19.0) (18.7) +1.6% (8.9) (9.5) -6.3% Capitalised costs 2.5 2.2 +8.7% 0.5 1.2 -58.3% EBITDA 18.5 16.4 +12.8% 9.8 8.4 +16.7%

98 Public Lighting and Traffic Light System Management

The provision of public lighting services is managed by Hera Luce, which has its registered office in San Mauro Pascoli (Forlì-Cesena).

As at 31 December 2011, Hera Luce managed approximately 300,000 light points and was responsible for the efficiency of the public lighting service in 60 municipalities located in the areas of Bologna, Ferrara, Forlì-Cesena, Modena, Pesaro-Urbino, Ravenna, Rimini and Florence, in addition to the traffic light installations for 26 municipalities in these provinces.

HERA GROUP INVESTMENTS

CAPITAL EXPENDITURE

For the year ended 31 December 2011, the Hera Group's investments totalled €324.9 million, compared to €345.8 million for the previous year. For the six months ended 30 June 2012, investments totalled €121.4 million, as compared to €133 million for the same period in 2011.

The table below sets forth the Hera Group's capital expenditure (excluding financial investments) for the year ended 31 December 2011 and the first six months of 2012, in each case compared to the corresponding periods in the previous year. Such data are unaudited and are derived from Issuer’s internal data.

Year ended Six months ended 31 December 30 June 2011 2010 change 2012 2011 change % % in millions of Euro in millions of Euro Gas and district heating services 52.2 48.8 +7.0% 16.0 20.6 -22.35% Electricity services 33.8 39.0 -13.3% 9.6 13.0 -26.2% Integrated water services 100.6 94.2 +6.8% 39.7 43.7 -9.2% Waste management services 70.1 98.7 -29.0% 20.2 29.3 -31.1% Other services 14.0 13.3 +5.3% 6.1 6.7 -9.0% Central structures 54.2 51.8 +4.6% 29.8 19.8 +50.5% Total 324.9 345.8 -6.0% 121.4 133.1 -12.5%

Waste Management Services

Investments in waste management services, principally related to maintenance and expansion activities of existing plants, showed a decrease in 2011 and in the first six months of 2012, as compared to the same periods in the previous year, mainly due to the completion of the Rimini WTE plant.

Gas and District Heating Services

In 2011 investments in the gas and district heating services were higher than in the same period in the previous year, whilst they showed a decrease in the first six months of 2012, compared to the same period of 2011. Such investments mainly concerned (i) extension, improvement and upgrading of networks and distribution facilities, with respect to gas services, (ii) network extension in the areas of Bologna (€4.4 and €1.1 million in 2011 and in the first six months of 2012, respectively), Imola (€4.8 and €1.5 million in 2011 and in the first six months of 2012, respectively), Forlì-Cesena (€5.3 and €0.7 million in 2011 and in the first six months of 2012, respectively), Ferrara (€1.8 and €0.5 million in 2011 and in the first six months of 2012, respectively) and Modena (€1.0 and €0.2 million in 2011 and in the first six months of 2012, respectively),

99 with respect to district heating services and (iii) structural interventions in the heating systems run by the companies of the Group, with respect to heat management services.

Electricity

In 2011 and in the first six months of 2012 investment in electricity & co-generation evidenced a significant decrease mainly due to the completion of the new photovoltaic plant built near the Bologna freight terminal and to the conclusion of the commitment to the large-scale replacement of the metres with electronic meters, in compliance with the replacement plans authorised by AEEG (such investments being €2.8 million in 2011, compared to €5 million for the previous year).

Investments in this area were mainly related to the extension of the service, extraordinary maintenance of distribution networks in the Modena and Imola area and network support services. Other significant investments concerned electricity and heat production plants (CCGT) and, in particular, were aimed to the completion of the Imola cogeneration plant, while industrial cogeneration investments concerned the construction of new plants for companies in the area.

Integrated Water Services

Investments in this area registered an increase in 2011, as compared to the same period in 2010, whilst they fell in the first six months of 2012, as compared to the same period in 2011. Such investments mainly relate to expansions, improvement and upgrading of networks and plants and regulatory compliance, with particular regard to purification and sewage systems.

Other Services

Investments in this area, mainly related to, inter alia, telecommunications, public lighting, traffic lights and cemetery services, evidenced an increase in 2011, compared to the same period of 2010, which was also due to the construction of the new crematorium; whilst they registered a slight decrease in the first six months of 2012, compared to the same period in 2011.

Central Structures

Investments in this area evidenced an increase in 2011 and in the first six months of 2012, in each case compared to the corresponding periods in the previous year, which was mainly due to the construction of new sites, maintenance operations for fleet, development of the information system, completion of laboratories and remote-monitoring units.

RESEARCH AND DEVELOPMENT

Hera currently conducts a number of research and development projects relating to the sectors in which it operates, with the aim of improving its processes and operations. For example, Hera's research and development team is, inter alia, currently working on projects relating to researching emerging pollutants and environmental catalytic converters as well as projects relating to energy efficiency, improvement of sewerage and the disposal of waste. Hera plans to continue its current research and development projects.

100 EMPLOYEES

As at 30 June 2012, the Hera Group had 6,494 employees, as compared to 6,484 employees as at 31 December 2011. The table below sets forth the number of its employees as at the dates indicated:

Employees As at 30 June 2012

Managers 129 Middle managers 356 White-collar staff 3,377 Blue-collar staff 2,632 Total 6,494

Substantially all of the Hera Group's employees are members of unions and are employed pursuant to national collective labour agreements, which are periodically renegotiated by representatives of the various professional categories represented within Hera. Pursuant to Italian law, employees in Italy are ensured stability of employment and their employment can be terminated only for cause and for certain statutory reasons. Upon termination of their employment, employees are entitled to a severance payment based on their annual salary, length of employment and inflation.

REGULATORY FRAMEWORK

Some of the Hera Group's operations are within heavily regulated sectors. The legislative and regulatory environment within which the Hera Group operates is summarised in the section headed "Regulation", below.

LEGAL PROCEEDINGS

Due to its extensive customer base and varied business, the Hera Group is party to a number of civil and administrative proceedings arising from the conduct of its corporate activities including, without limitation, employee disputes and may from time to time be subject to inspections by taxation and other authorities. Hera's management believes that provisions made in the Hera Group's balance sheet for such proceedings, which amounted to €19.9 million as at 31 December 2011 and to €20.2 million as at 30 June 2012 are adequate, under the circumstances, to cover all potential risks and damages that may arise from any such proceedings and that there are no other material legal or arbitration proceedings pending against Hera or against any other company in the Hera Group.

101 INPS Dispute

The Hera Group is also party to several disputes with the National Social Security Institute in Italy (the Istituto Nazionale della Previdenza Sociale, INPS) with regard to the demand for payment of contributions to social security benefits (ie, in relation to Cassa Integrazione Guadagni (earnings supplement fund), Cassa Integrazione Guadagni Straordinaria (extraordinary earnings supplement fund) and mobility), the reduction of contribution rates for family allowances (ie, Cassa Unica Assegni Familiari (families allowance fund)) and for maternity contributions with regard to employees governed by the electricity sector collective labour agreement in the Modena area.

AGCM Proceeding

On 13 December 2012, the Autorità Garante della Concorrenza e del Mercato (AGCM), the Italian competition Authority, served Hera, HeraAmbiente and Akron, companies belonging to the Hera Group and operating in the environmental services sector, with the notice to start proceedings for an alleged abuse of dominant position in the markets connected to the waste paper sorting activity in the Emilia Romagna areas in which Hera is the monopolist. According to Italian competition law, if the alleged abuse is ascertained at the end of the proceedings (which is expected to occur by 31 December 2013), the AGCM could impose administrative fines for abuse of dominant position.

CORPORATE GOVERNANCE

Corporate governance rules for Italian companies, such as Hera, whose shares are listed on the Italian stock exchange are provided by the Italian Civil Code, the Financial Services Act, CONSOB Regulation No. 11971 of 14 May 1999 (Regulation No. 11971) and in the voluntary code of corporate governance issued by Borsa Italiana S.p.A. (the Corporate Governance Code).

Hera has opted for a traditional system of corporate governance, which involves the presence of shareholders’ meeting, board of directors and board of statutory auditors.

As at the date of this Base Prospectus, the by-laws entrusts the management of the Company to a collegial body composed of eighteen members, including the independent ones – in accordance with applicable laws and regulations - appointed by the shareholders’ meeting by a voting list system (collectively the Board of Directors, each a Director). All the members are appointed for three financial years and they may be reappointed.

The Board of Directors has the widest powers as possible in order to perform the ordinary and extraordinary management of the Company. It is authorised to carry out all the acts it deems necessary or appropriate to achieve Hera’s corporate purpose, with the sole exception of those powers expressly reserved to the shareholders’ meeting under applicable law or Hera’s by-laws.

Pursuant to the Company’s by-laws the board of statutory auditors is composed of five members, three regular auditors and two substitutes, who must meet the requirements provided for by applicable law and the by-laws (collectively the Board of Statutory Auditors, each a Statutory Auditor). All members of the Board of Statutory Auditors are appointed by the shareholders’ meeting by way of a voting list system for three financial years. The substitute auditors will replace any regular auditor who resign or is otherwise unable to serve as statutory auditor in accordance with applicable law and the Hera’s by-laws.

The Board of Statutory Auditors is the body that supervises the Group’s correct administration, assessing the adequacy of the organisation, administration and accounting structure adopted by the Board of Directors.

102 Management

Board of Directors

The shareholders’ meeting held on 29 April 2011 appointed the Board of Directors for a period of three financial years. Unless a cause of early termination of their office occurs, all the member will remain in office until the date of the shareholders’ meeting called to approve Hera’s financial statements for the year ending 31 December 2013.

The following table sets out the current members of the Hera’s Board of Directors and their respective positions within the Hera Group.

Name Position Tomaso Tommasi di Vignano Chairman Giorgio Razzoli* Vice Chairman Maurizio Chiarini Chief Executive Officer Mara Bernardini* Director Filippo Brandolini* Director Marco Cammelli* Director Luigi Castagna* Director Piergiuseppe Dolcini* Director Valeriano Fantini* Director Enrico Giovannetti* Director Fabio Giuliani* Director Luca Mandrioli* Director Daniele Montroni* ** Director Mauro Roda* Director Roberto Sacchetti* Director Rossella Saoncella* Director Bruno Tani* Director Giancarlo Tonelli* Director ______Notes: * denotes Independent Director. ** Appointed on 27 June 2012 by the Board of Directors in accordance with a cooptation procedure provided for by article 17 of Hera’s by-laws pursuant to article 2386 of the Italian Civil Code. The shareholders’ meeting held on 15 October 2012 has ratified such appointment and the relevant Director will remain in office until the date of the shareholders’ meeting called to approve Hera’s financial statements for the year ending 31 December 2013.

Pursuant to the Framework Agreement - governing the steps to be taken with respect to the Merger - each of the Municipalities of Padua and Trieste may appoint a member of the Hera’s Board of Directors, once such Merger becomes effective. In this context Hera has undertaken to increase the number of Directors up to 20 and, accordingly, the shareholders’ meeting held on 15 October 2012 has appointed Mr Giovanni Perissinotto and Mr Cesare Pillon, who both qualify as independent non executive Directors. Such appointment will become effective from 1 January 2013 (i.e. the date on which the Merger will become effective) and will terminate on the date of the shareholders’ meeting called to approve Hera’s financial statements for the year ending 31 December 2013.

The business address of the members of the Board of Directors is the Company’s registered office at Viale Carlo Berti Pichat n. 2 / 4, 40127 Bologna, Italy.

103 Other offices held by members of the Board of Directors

The table below sets forth the offices of the boards of directors, boards of statutory auditors, supervisory committees or other positions other than those within the Hera Group held by the members of its Board of Directors.

Name Main positions held outside the Hera Group Tomaso Tommasi di Vignano Director of LANDI S.p.A. Giorgio Razzoli Chairman of the Board of Statutory Auditors of ESPRINET S.p.A. Maurizio Chiarini Vice Chairman and Member of the Executive Committee of Federutility Mara Bernardini No other activities Filippo Brandolini Member of the Executive Committee of Confservizi (Asstra – Federambiente – Federutility) Executive Vice President of CEEP (European Centre of Employers and Enterprises providing Public services) in Brussels Marco Cammelli Chairman of the National Commission for Cultural Heritage the Association of Italian Banking Foundations and Savings Banks (ACRI) Chairman of the Fondazione del Monte di Bologna e Ravenna Luigi Castagna No other activities Piergiuseppe Dolcini Director of SINLOC Sistema Iniziative Locali S.p.A. Valeriano Fantini Chairman of Anthea S.r.l. Enrico Giovannetti Member of the Board of Statutory Auditors of the Consorzio di Solidarietà Sociale of Modena Member of the Scientific Committee of the Mario Del Monte Foundation Fabio Giuliani Independent Auditor and Statutory Auditor at key provincial and regional companies in the industrial, financial and insurance sector, as well as previously Auditor for government bodies in the Emilia- Romagna region Luca Mandrioli Member of the Board of Statutory Auditors of Emil.Ro Factor S.p.A.

Daniele Montroni No other activities Mauro Roda No other activities Roberto Sacchetti Member of the Management Board of Federutility Rossella Saoncella No other activities Bruno Tani Chief Executive Officer of GRUPPO SOCIETA' GAS RIMINI S.p.A. Chief Executive Officer of SGR Reti S.p.A. Director of SOCIETA' GAS RIMINI HOLDING Giancarlo Tonelli Director of Neos Finance S.p.A Director of Carimonte Holding S.p.A.

104 Senior Management

The following table sets forth the members of Hera's senior management, together with their current positions: Name Position Tomaso Tommasi di Vignano Executive Chairman Maurizio Chiarini Chief Executive Officer Giorgio Razzoli Vice Chairman Roberto Barilli General manager of operations Stefano Venier General manager of market & development Luca Moroni Chief Financial Officer Giancarlo Campri Director of personnel and organisation Ennio Dottori Director of quality, safety and environment Mila Fabbri Director of legal & corporate affairs Gian Carlo Randi Director of procurement & tender contracts Andrea Ramonda Director of business development and asset upstream Massimo Vai Director of strategic planning and regulatory Salvatore Molè Director of operating areas Marcello Guerrini Director of IT System and Services Claudio Poli Director of internal auditing Filippo Bocchi Director of corporate social responsibility Giuseppe Gagliano Director of external relations Jens Klint Hansen Director of investor relations

Independent Directors

The current Board of Directors includes 16 independent Directors who meet the requirements of independence and qualify as independent Directors in accordance with the guidelines provided for by the Corporate Governance Code. As at the date of this Base Prospectus the independent Directors are Mara Bernardini, Filippo Brandolini, Marco Cammelli, Luigi Castagna, Piergiuseppe Dolcini, Valeriano Fantini, Enrico Giovannetti, Fabio Giuliani, Luca Mandrioli, Daniele Montroni, Giorgio Razzoli, Mauro Roda, Roberto Sacchetti, Rossella Saoncella, Bruno Tani, Giancarlo Tonelli. Once the Merger will become effective, the number of independent Directors is expected to increase to 18 (see “Board of Directors” above).

The Board of Director has chosen not to designate a lead-independent director since, given the current organisational structure of the Board of Directors, the conditions upon which the Corporate Governance Code recommends such a designation do not exist.

Committees of the Board of Directors

Under the authority conferred by Hera’s by-laws, the Board of Directors has deemed it appropriate to establish four committees with advisory and consultative role in order to increase the efficiency and the effectiveness of its activities.

As at the date of this Base Prospectus the following committees have been created within the Board of Directors:

• The Executive Committee giving opinions on important issues, such as proposed appointments to top level executive positions, draft of financial statements, the annual Group business plan and budget, before such issues are brought before the Board of Directors. The Executive Committee has, inter alia, the authority to make certain financial decisions relating to amounts, which exceed the financial authority granted individually to the Chairman and the Chief Executive Officer, but which are not significant when compared to the Group economic-financial amounts. As at the date of this

105 Base Prospectus, the Executive Committee is composed of three members: Mr. Tomaso Tommasi di Vignano (Chairman), Mr. Giorgio Razzoli (Vice-Chairman) and Mr. Maurizio Chiarini.

• The Remuneration Committee, having the task of, inter alia, (i) submitting proposals to the Board of Directors on the remuneration of chairman, Chief Executive Officers and general managers and monitoring on the implementation of the Board of Directors’ decisions taken in this regard and (ii) submitting to the Board of Directors general recommendations on this matter. In accordance with the Corporate Governance Code, the Remuneration Committee is composed of non-executive and independent Directors who, as at the date of this Base Prospectus, are Giorgio Razzoli (Chairman), Bruno Tani, Marco Cammelli and Daniele Montroni.

• The Internal Control Committee having the task of, inter alia, (i) evaluating, together with the Chief Financial Officer, following a Statutory and Independent Auditors’ opinion, whether the Hera Group's accounting principles are adequate for and consistently applied to the consolidated financial statements; (ii) giving advices on specific matters related to the identification of the main corporate risks; (iii) evaluating the scope of work of internal auditing and reviews any reports issued; (iv) reporting directly to the Board of Directors. In accordance with the Corporate Governance Code, the Internal Control Committee is composed of non-executive and independent Directors who, as at the date of this Base Prospectus, are Giorgio Razzoli (Chairman), Fabio Giuliani, Rossella Saoncella and Luca Mandrioli.

• The Ethics Committee is tasked with assessing compliance of employees’ conducts with the principles set forth in the Hera’s code of ethics and investigating any reported violation. As at the date of this Base Prospectus, the committee is composed of three members: Giorgio Razzoli (Chairman), Mario Viviani and Filippo Maria Bocchi.

Board of Statutory Auditors

The shareholders’ meeting held on 29 April 2011 appointed the Board of Statutory Auditors for a period of three financial years and it will remain in office until the date of the shareholders’ meeting called to approve Hera’s financial statements for the year ending 31 December 2013.

The following table sets out the current members of the Hera’s Board of Statutory Auditors.

Name Position Sergio Santi Chairman Elis Dall'Olio Standing Auditor Antonio Venturini Standing Auditor Massimo Spina* Substitute Auditor Roberto Picone Substitute Auditor ______Note: * Substitute Auditor appointed in the context of the shareholders’ meeting held on 15 October 2012, upon resignation of Mr Stefano Ceccacci.

The business address of the members of the Board of Statutory Auditors is the Company’s registered office at Viale Carlo Berti Pichat n. 2 / 4, 40127 Bologna, Italy.

106 Conflicts of Interest

No potential conflicts of interest exist between any duties to Hera of Hera's Board of Directors, Board of Statutory Auditors or management and the private interests, or other duties, of such persons. No member of Hera's Board of Directors, Board of Statutory Auditors or management has or has had any interest in any transactions that are or were unusual in their nature or conditions and were significant to the Hera Group's business.

Certain members of the Board of Directors may have interests in companies that carry out transactions with the Hera Group in the ordinary course of business from time to time. See "Transactions with related parties" below.

Hera has not granted any loans or guarantees to or for the benefit of any member of its Board of Directors, Board of Statutory Auditors or senior management.

Transactions with related parties

On 21 December 2010, the Board of Directors of Hera approved a new procedure that regulates the approval and the execution of the transactions with related parties entered into by Hera, directly or through its subsidiaries, which was adopted in accordance with the provisions of Article 2391-bis of the Italian Civil Code and the implementing CONSOB Regulation No. 17221 of 12 March 2010 (as subsequently amended by CONSOB Regulation No. 17389 of 23 June 2010). Such procedure replaces, with effect from 1 January 2011, any previous regulation for transactions with related parties approved by the Board of Directors of Hera.

For further information, see "Procedure for related parties transactions" available, on the Hera's website http://eng.gruppohera.it/group/corporate_governance/corporate_governance_system/operations_correlated_p arties/.

The Hera Group performs local public services, in almost all of the territories of its municipality shareholders, based on direct contracts with the municipalities, which are concluded on an arms-length basis. In the management of these services, Hera makes use of networks, plants and assets owned by the Hera Group and manages other networks, plants and assets owned by the local public bodies, which are shareholders of Hera, and by the asset companies, whose shareholders are also shareholders of Hera.

Major Shareholders

As at the date of this Base Prospectus, Hera has a widespread shareholding structure with over 180 different public shareholders (mainly municipalities from the Emilia Romagna region) representing about 61% of Hera’s paid-up share capital, 51% of which is governed by a shareholders' agreement, effective from 21 December 2011 and expiring on 31 December 2014, among 113 public shareholders (the Shareholders’ Agreement). The following table sets forth all shareholders of Hera holding, either directly or indirectly, more than 2% of issued ordinary shares, based on communications provided pursuant to Article 120 of Legislative Decree No. 58 of 24 February, 1998, as amended (the Financial Services Act), and publicly available information:

107 Type of Percentage of Declarer Direct Shareholder possession voting capital Lazard Asset Management LLC Lazard Asset Management LLC Assets under 2.013% management Total 2.013% Carimonte Holding S.p.A. Carimonte Holding S.p.A. Owner 2.057% Total 2.057% Comune di Rimini Rimini Holding S.p.A. Owner 2.160% Total 2.160% G.S.G.R. S.R.L. Gruppo Società Gas Rimini S.p.A. Owner 2.010% Total 2.010% Comune di Ferrara Holding Ferrara Servizi S.r.l. Owner 2.136% Comune di Ferrara Owner 0.605% Total 2.741% Comune di Ravenna Ravenna Holding S.p.A. Owner 7.791% Total 7.791% Comune di Modena Holding Strategie e Sviluppo dei Owner Territori Modenesi S.p.A. 13.731% Total 13.731% Comune di Imola CON.A.M.I. Azienda Multiservizi Owner Intercomunale 5.312% Comune di Imola Owner 0.007% Total 5.319% Comune di Cesena Comune di Cesena Owner 2.288% Total 2.288% Comune di Bologna Comune di Bologna Owner 14.993% Total 14.993%

On 10 December 2012, the Municipalities of Trieste and Padua acceded to the Shareholders’ Agreement referred to above (see “– Recent developments – The integration of the AcegasAps Group into the Hera Group” below).

Buy-back programme

In 2006, Hera initiated a programme to buy-back its ordinary shares on the market and hold them as treasury shares in order to fund opportunities that may arise for the integration of small companies and to standardise any anomalous fluctuations in share prices compared with those of its main Italian competitors. At the shareholder' meeting on 27 April 2011, this treasury share purchase plan was extended for another 18 months whereby a maximum of 25 million shares may be purchased by Hera, up to a total amount of €40 million. As at 30 September 2012, Hera held approximately 12.4 million treasury shares.

Independent auditors

The Company’s current independent auditors are PricewaterhouseCoopers S.p.A., with registered office at Via Monte Rosa 91, 20149 Milan, Italy (PricewaterhouseCoopers or the Auditors).

PricewaterhouseCoopers is registered under No. 43 in the Special Register (Albo Spceiale) held by Commissione Nazionale per le Società e la Borsa (CONSOB) and is also a member of ASSIREVI (Associazione Nazionale Revisori Contabili), the Italian association of auditing firms.

108 The independent Auditors’ appointment was initially conferred for the period 2006 – 2011 by the shareholders’ meeting held on 27 April 2006. Upon the extension resolved upon by the shareholders' meeting in 2010, such appointment will expire on the date of the shareholders’ meeting called to approve Hera’s financial statements for the financial year ended 31 December 2014.

PricewaterhouseCoopers audited the consolidated annual financial statements of the Hera Group for the financial years ended 31 December 2010 and 31 December 2011.

RECENT DEVELOPMENTS

Interim results as at and for the nine months ended 30 September 2012

On 13 November 2012, the Issuer published its consolidated unaudited interim results as at and for the nine months ended 30 September 2012. A copy of such consolidated unaudited interim results is incorporated by reference in this Base Prospectus (see "Documents Incorporated by Reference" above).

The integration of the AcegasAps Group into the Hera Group

Overview

On 25 July 2012, Hera entered into a framework agreement (the Framework Agreement) with AcegasAps Holding for the integration of AcegasAps and its consolidated subsidiaries (collectively the AcegasAps Group) into the Hera Group; such integration is in line with Hera’s growth and development strategy aimed at pursuing mergers and acquisitions opportunities with companies operating in similar or ancillary areas of business.

Overview of the AcegasAps Group

AcegasAps resulted from the aggregation of Acegas S.p.A. and APS S.p.A., after a carve-out operation and the simultaneous incorporation of APS S.p.A. into Acegas S.p.A., effective from 19 December 2003. AcegasAps manages a complex range of activities performed mainly in the Italian provinces of Trieste and Padua, although services also extend into other areas of North-East Italy as well as into certain Balkan countries. The shares of AcegasAps are listed on the Mercato Telematico Azionario, the Italian automated screen-based trading system managed by Borsa Italiana S.p.A. AcegasAps Holding holds 62.691% of the share capital of AcegasAps.

In the last few years, AcegaAps made several investments and joint ventures in the energy sector including the following.

In July 2010, Est Più S.p.A. (Est Più), a joint venture owned 70% by ENI S.p.A. (ENI) and 30% by AcegasAps, purchased Newco Energia S.r.l. (Newco Energia), a company into which IRIS S.p.A. had contributed its energy business in the Province of Gorizia. In September 2011, Est Più was merged by incorporation into Newco Energia and renamed Est Più.

In January 2012, the shareholders meeting of Est Più approved a reorganisation of the activities which included a proportional demerger of the gas distribution sector and the sector engaged in the sale of electric energy to protected customers and to the free market including the related support activities into two newly established companies. As a result, Est Più changed its name into Est Reti Elettriche S.p.A. (Est Reti Elettriche) and retained the electric energy distribution business as well as the management of public lightening and traffic lights, while the two newly established companies named Isontina Reti Gas S,p.A. (Isontina Reti Gas) and Est Più S.p.A. (the New Est Più) received the gas distribution business and the electric energy sale business, respectively. Upon completion of this part of the reorganisation process, ENI

109 and AcegasAps came to hold directly 70% and 30% each of Est Reti Elettriche, Isontina Reti Gas and New Est Più.

On 11 December 2012, Italgas S.p.A. (Italgas), and AcegasAps entered into a joint venture framework agreement for gas distribution in the provinces of Padua, Trieste, Gorizia and Pordenone (the Italgas Framework Agreement) which provides, inter alia, that Italgas will purchase 50% of the share capital of Isontina Reti Gas and AcegasAps will purchase an additional 20% of the share capital of Isontina Reti Gas. As a result of such purchase the equity interest held by AcegasAps in Isontina Reti Gas will be equal to 50%. In addition, the Italgas Framework Agreement also provides that:

• Italgas will contribute to Isontina Reti Gas its gas distribution business including plants and concessions granted with respect to 42 municipalities in the provinces of Trieste, Pordenone and Padua; and

• Acegas will contribute to Isontina Reti Gas its gas distribution business in Italy including plants and concessions granted with respect to 13 municipalities in the provinces of Trieste and Padua.

The contributions in kind are expected to be completed in 2013, following the clearance of the antitrust regulator. Upon completion of such contributions in kind, AcegasAps will hold 51% of the capital of Isontina Reti Gas and Italgas will hold the residual 49% of the capital.

The following chart sets forth the organisational structure of the AcegasAps Group as at the date of this Base Prospectus.

AcegasAps Holding

AcegasAps

Plants, network infrustrure and services Commercial

Water cycle Electricity Gas Environment Services

50% 33% 30% 100% 100% 100% Centro Idrico ElettroGorizia Isortina reti Nestambiente Acegas APS Trieste OTF Srl Novoledo S.r.l. S.p.a. Gas SpA Srl Service Srl 33.333% 100% 100% 51% Iniziative Adria Link S.r.l. Abroad SIL Srl Es tenergy SpA Ambientali Srl 30% 100% 59% 100% 30% Es t Reti Naonis Energia CTS Srl Rilagas AD Es t Più SpA Elettriche SpA Srl 100% 90% Sinergie SpA 100% 100% Isogas SpA Sigas DOO Insigna Srl 70% Tri-generazione Srl 50% Insigna Srl

The AcegasAps Group represents the largest multi-utility group in North-East Italy serving approximately 500,000 customers, families, companies and public administrations and is active in the following sectors:

110 (i) water cycle, which includes the entire integrated water cycle (drinking water, purification and sewerage);

(ii) electricity, which includes the production, distribution and sale of electric energy;

(iii) gas, which consists of the distribution of gas and the maintenance of the infrastructures;

(iv) environment, which includes the cycle of waste collection and recycling; and

(v) other services, which include a series of complementary activities that provide synergies in the provision of public services.

Water cycle

AcegasAps manages the entire integrated water cycle which comprises drinking water, purification and sewerage. The main water sources are located in the area of Villaverla for the area Padua area and in the municipality of Sonara.

As for drinking water, AcegasAps provides services to the entire province of Trieste; it also provides pick- up, transportation, treatment, adduction and distribution services in the municipalities of Duino-Aurisina, Monrupino, San Dorligo della Valle and Sgonico. Furthermore, AcegasAps supplies raw water to the municipality of San Pier d'Isonzo in the province of Gorizia.

From 1 October 2007, the AcegasAps Group has assumed all supply relationships and the management of the integrated water cycle previously managed by APGA S.r.l. (Azienda Piovese Gestione Acque) in ten municipalities of the Saccisica area near the Padua and the Cona area near Venice.

Electricity

Following the liberalisation of the electricity market in Italy, the AcegasAps Group drew a clear distinction in the energy sector between the activities of sale, distribution and production.

Sales of electric energy to eligible customers are realised through EstEnergy S.p.A. (a wholesaler in which AcegasAps holds a 51% equity interest) while sales to protected categories are performed through its wholly-owned subsidiary AcegasAPS Service S.r.l.

AcegasAps distributes electric energy in the Trieste region pursuant to a concession granted by the Ministry of Economic Development (Ministero dello Sviluppo Economico), which is set to expire in 2030 and allows AcegasAps to provide energy distribution services directly to users attached to the energy grid.

The energy provided by AcegasAps is of low (230/400 volts) and medium (2,000; 10,000; 20,000; 27,500 volts) voltage for both residential customers and larger industrial clients. The company is responsible for ensuring a continuous supply of energy and managing and maintaining the electricity grid and the energy plants to which it is connected.

AcegasAps also operates in the production of electricity through Elettrogorizia S.p.A. using its own electric and thermal power plants, through a 33% ownership in.

Gas

AcegasAps holds concessions for gas distribution in the municipalities of Trieste, Sgonico, San Dorligo della Valle, Duino Aurisina and Monrupino (in the province of Trieste) and in the municipalities of Padua, Vigonza, Cadoneghe, Albignasego, Ponte San Nicolò, Saonara, Vigodarzere and Galzignano (in the province of Padua).

111 Gas distribution activities also include the maintenance of the infrastructure held in concession with the objective of improving and optimising the services provided.

Environment

AcegasAps manages the cycle of waste collection and recycling benefiting from synergies between environmental operating services (waste collection, public street cleaning and sweeping, cleaning of industrial sites) and waste treatment (re-use, disposal and/or recovery).

The AcegasAps Group operates in the environmental sector also through NestAmbiente, a wholly-owned subsidiary of AcegasAps that operates in the disposal of hazardous and non-hazardous waste as well as in the containment, reclamation and/or reinstatement of polluted sites, sanitation and disinfestation, the detection of Radon and electromagnetic fields and the provision of global environmental services.

Other services

The AcegasAps Group has developed a series of complementary activities that create synergies in the provision of public services, in particular, funeral and cemetery services, total facility management, district heating, public lightning, traffic lights management, re-lining.

Structure of the transaction

Pursuant to the terms of the Framework Agreement, the integration of the AcegasAps Group into the Hera Group is expected to be carried out in two steps: (i) the Merger and (ii) the Public Tender Offer (both as defined in “- History and Development of the Hera Group” above).

The Merger

According to the terms of the Framework Agreement, on 15 October 2012 the shareholders’ meetings of each of AcegasAps Holding and Hera resolved upon the relevant merger project. Pursuant to such project, the shares of AcegasAps will be entirely cancelled and the share exchange ratio will be approximately equal to 0.763 Hera’s newly issued shares, plus a cash consideration of approximately €0.018, for each €1 of par value in the share capital of AcegasAps Holding. On the basis of the aforementioned exchange ratio, the Municipality of Trieste and Padua will receive in total approximately 143.38 million of Hera’s shares (equal to approximately 11.39% of the post-merger share capital) and a cash consideration of €3.4 million. In order to serve the Merger, Hera's shareholders meeting approved a €143,380,651 capital increase, without pre- emptive rights. As a result, Hera's post-Merger share capital will be equal to €1,258,394,405.00 divided into 1,258,394,405 shares of a nominal value of €1 each.

The merger deed setting out the terms of the Merger – which replaces the Framework Agreement in its entirety – was entered into on 17 December 2012 and will become effective on 1 January 2013. As a consequence of the Merger, Hera will control AcegasAps with a 62.69% equity interest (net of the treasury shares held by AcegasAps).

The Public Tender Offer

Upon completion of the Merger, Hera will launch a Public Tender Offer for the purchase and exchange of all AcegasAps’ shares pursuant to Article 106, paragraphs 1 and 2-bis, of the Financial Services Act for the purpose of delisting AcegasAps from the Mercato Telematico Azionario, the Italian automated screen-based trading system managed by Borsa Italiana S.p.A. The exchange ratio has been set at approximately 4.16 of Hera’s newly issued shares and a cash consideration equal to approximately €0.27 for each AcegasAps share (for a total consideration of €5.6 million, should the Public Tender Offer be fully successful). In order to serve the Public Tender Offer, Hera’s shareholders have resolved upon a capital increase without pre-

112 emptive rights in accordance with article 2441, paragraph 4, first sentence, of the Italian Civil Code up to €84,833,826 to be implemented within 31 December 2014.

In the event of full acceptance by the minority shareholders in the Public Tender Offer, the total consideration to be paid by Hera with respect to the overall transaction (including the Merger) will be around €9 million and the Hera’s shares issued for the Merger and the Public Tender Offer will be approximately 228.21 million, equal to 16.99% of the share capital resulting after both the Merger and the Public Tender Offer, 10.67% of which will be held by the Municipalities of Trieste and Padua (together, the Municipalities).

Expected effects of the integration of the AcegasAps Group into the Hera Group

The synergies between the Hera Group and the AcegasAps Group in their ownership structures, development paths and composition of their business portfolios, as well as the combination of Regulated and Liberalised Activities, are expected to facilitate the integration process and enable the entity resulting form the Merger to strengthen its market position in terms of size and coverage of the value chain. The entity resulting form the Merger will be one of the largest local utilities groups in Italy, in particular, in the following sectors: management and distribution of water, distribution and sale of gas and electricity, production of electricity, collection and treatment of waste and other services.

The Merger is expected to create additional synergies, preliminarily estimated to be in the range of €25-30 million on an annual basis.

Corporate Governance consequences

The Framework Agreement provided, inter alia, that Hera and AcegasAps Holding enter into certain governance agreements and that each of them amends its respective by-laws in relation to certain governance issues.

Powers to be exercised in Hera

On 10 December 2012, the Municipalities acceded – with effect from 1 January 2013 – to the Shareholders’ Agreement in force amongst certain Hera’s public shareholders, for the purpose of maintaining unaltered the percentage of holdings contributed pursuant to such agreement once the Merger is effective. By entering into the Shareholders’ Agreement, the Municipalities of Trieste and Padua will be entitled to be represented in the shareholders’ committee and appoint a member of such committee each.

Moreover, once the Merger becomes effective, the Municipalities of Trieste and Padua will be entitled (i) to appoint a member of Hera’s Board of Directors each and (ii) to jointly appoint a member of Hera’s Executive Committee to be selected from the directors appointed pursuant to (i) above. For this purpose, Hera’s shareholders’ meeting has resolved to increase its directors up to 20 (16 of which being appointed by the majority of Hera’s shareholders) and, accordingly, has appointed two further directors (in this respect see “— Corporate Governance” above) with effect from 1 January 2013 (i.e., the date on which the Merger is expected to be effective) and such appointment will terminate on the date of the shareholders’ meeting called to approve Hera’s financial statements for the year ending 31 December 2013. With effect from such date, Hera’s shareholders’ meeting has also passed a resolution reducing the number of directors to 15 (12 of which being appointed by the majority of Hera’s shareholders) in order to reduce costs and inefficiencies related to the Board of Directors’ decision-making process.

Powers to be exercised in AcegasAps

On 10 December 2012, in accordance with the provisions of the Framework Agreement, Hera and the Municipalities of Trieste and Padua executed a shareholders agreement in relation to certain corporate governance issues affecting AcegasAps. The shareholders agreement will expire on the third anniversary of

113 the execution of the Merger deed (last day excluded) as long as the shares of AcegasAps are listed on the Mercato Telematico Azionario or on the fifth anniversary of the execution of the Merger deed (last day excluded) if the shares cease to be listed prior to the expiration of the third anniversary.

Pursuant to such agreement, during the interim period from the execution of the merger deed to the approval of AcegaAps financial statements for the year ending 31 December 2012 (such period, the Interim Period), Hera is entitled to designate two members of the board of directors of AcegasAps. As a result, the Municipalities:

• by no later than the date on which the Merger becomes effective, the Municipalities will cause two of the current members of the board designated by them to resign and two members designated by Hera will be appointed; and

• during the Interim Period, the Municipalities will instruct the directors designated by them not to pass, without the favourable vote of at least one director designated by Hera, any resolution concerning: (i) the distribution of profits and/or reserves and/or ordinary or extraordinary dividends and/or dividend advances; (ii) related party transactions; (iii) disposal of treasury shares; (iv) acquisitions or divestitures of shareholding interests or business units; (v) execution or termination of joint venture or partnership agreements of whatever nature; (vi) execution or termination of any agreement whose value exceeds €5 million; (vii) the execution of loan agreements.

From the expiration of the Interim Period, Hera has agreed that it will amend the by-laws of AcegasAps so as to provide for a board consisting of ten members, two of which will be designated by the Municipality of Trieste (including the chairman), two by the Municipality of Padua (including the chief executive officer) and the residual six by Hera.

Furthermore, from the expiration of the first term following the date on which the Merger becomes effective, Hera has agreed that it will amend the by-laws of AcegasAps so as to reduce the number of its board members to five, provided that Hera will continue to retain the right to designate the majority of the board. Such amendment will become effective following the delisting of AcegasAps from the Mercato Telematico Azionario.

From the first renewal of the board of statutory auditors of AcegasAps, Hera and the Municipalities of Trieste and Padua have agreed that such board will consist of three statutory auditors and two alternate statutory auditors.

The Municipalities will be entitled to jointly designate the chairman of the board of statutory auditors and an alternate auditor, it being understood that, as long as AcegasAps is listed on the Mercato Telematico Azionario, the minority shareholders will be entitled to designate the chairman, while in the case that the minority shareholders fail to do so, the Municipalities will jointly designate the chairman (provided that the Municipalities reach an agreement in such respect).

Hera will be entitled to designate two statutory auditors and an alternate auditor, it being understood that, as long as AcegasAps is listed on the Mercato Telematico Azionario and the minority shareholders have designated the chairman, one of such statutory auditors will be designated jointly by the Municipalities (and not by Hera) while the remaining statutory auditors will continue to be designated by Hera. Such mechanism will be applicable to the extent that the Municipalities reach and agreement in such respect.

Acquisition by Fondo Strategico Italiano S.p.A. of an equity interest in Hera

On 3 September 2012, Hera and Fondo Strategico Italiano S.p.A. (FSI) – a financial holding company 90% owned by Cassa Depositi e Prestiti S.p.A. (which, in turns, is controlled by the Italian Ministry of Economy and Finance) – entered into an agreement setting out the terms and conditions pursuant to which, following

114 the completion of the Merger and the satisfaction of other conditions precedent, FSI will subscribe for approximately 6% of Hera’s shares.

115 REGULATION

EU and Italian laws comprise significant regulation in relation to the Hera Group's core energy, water and waste management businesses and these regulations may affect the Hera Group's operating profit or the way it conducts business. The principal legislative and regulatory measures applicable to the Hera Group are summarised below. Although this summary contains all the information that the Issuer considers material in the context of the issue of the Notes, it is not an exhaustive account of all applicable laws and regulation. Prospective investors and/or their advisers should make their own analysis of the legislation and regulations applicable to the Hera Group and of the impact it may have on an investment in the Notes and should not rely on this summary only.

EU Energy Regulation: the Third Energy Package

The European Union is active in energy regulation by means of its legislative powers, as well as investigations and other actions by the European Commission. A significant portion of Member States' domestic regulation in the electricity and gas sector is imprinted by the EU Legislation. Notably, in 2009 the European institutions adopted the so-called Third Energy Package which includes several directives and regulations aimed at completing the liberalisation of both electricity and gas markets. In particular, the Third Energy Package contemplates the separation of supply and production activities from transmission network operations. To achieve this goal, Member States may opt between the following three unbundling options:

• Full ownership unbundling. This option entails vertically integrated undertakings selling their gas and electricity grids to an independent operator, which will carry out all network operations.

• Independent System Operator (ISO). Under this option, vertically integrated undertakings maintain the ownership of the gas and electricity grids, but they are obliged to designate an independent operator for the management of all network operations.

• Independent Transmission Operator (ITO). This option is a variant of the ISO option albeit vertically integrated undertakings do not have to designate an ISO, but need to abide by strict rules ensuring separation between supply and transmission.

The Third Energy Package also contains several measures aimed at enhancing consumers' rights, such as the right: (i) to change supplier within three weeks and free of charge and to receive the final closure account at the latest six weeks after switching suppliers; (ii) to obtain compensation if quality targets are not met; (iii) to receive information on supply terms through bills and company websites; and (iv) to see complaints dealt with in an efficient and independent manner. The third energy package also strengthens protection for small businesses and residential clients, while rules are introduced to ensure that liberalisation does not cause detriment to vulnerable energy consumers. Finally, the third energy package provides for the creation of a European Union agency for the coordination of national energy regulators, which will issue non-binding framework guidelines for the national agencies. It is expected that this will result in more harmonised rules on energy regulation across the EU.

As envisaged in the Third Energy Package, in March 2011 the Agency for the Cooperation of Energy Regulators (ACER) began operations. ACER replaces and strengthens the European Regulators Group for Electricity and Gas (ERGEG). ACER coordinates the actions of the national regulatory authorities in the energy sector and its main responsibility concern: − rules governing European electricity and gas networks; − terms and conditions for access to (and operational security for) cross-border infrastructures where national authorities are in disagreement; − the Ten-Year Network Development Plan (TYNDP).

116 In Italy, the principles provided under the Third Energy Package (in particular, EU Directives 2009/72/EC, 2009/73/EC and 2008/92/EC), have been recently implemented by means of Legislative Decree No. 93 of 1 June 2011, published in the Official Gazette on 28 June 2011 (Legislative Decree 93/2011).

The main provisions of Legislative Decree 93/2011 include:

(i) unbundling of the Transmission System Operator (TSO). In the electricity sector, the unbundling between grid ownership and generation activity has been confirmed and the TSO is expressly prohibited from operating power generation plants. For the gas sector, an Independent Transmission Operator model has been adopted, with a vertically integrated ownership structure, more stringent functional separation rules and wider control and approval powers to the Authority for Electricity and Gas;

(ii) integration of renewable energy sources generation into the electrical system more efficiently;

(iii) exemption from third party access (TPA) obligation in respect of new interconnection infrastructure. With reference to the electricity sector, the duration of the exemption from the third party access obligation (for a maximum of 50% or 80% of new capacity) will be set on a case-by-case basis and the exemption will elapse if the relevant works are not started or the relevant infrastructure has not entered into operation within the time limits set out in the relevant exemption measure. With reference to the gas sector, in addition to the time limit provided by the relevant exemption measure, the new rules provide for a 25 year cap for the duration of the exemption and for the activation of an open season procedure in order to assess the interest of third parties in the relevant infrastructure notwithstanding the TPA exemption.

In 2012, by means of the Law Decree No. 1/2012 (the so-called Growth Decree) which was converted into law No. 27/2012, the Italian government required a full ownership unbundling for Snam S.p.A., ENI’s subholding controlling the Italian transportation, distribution, LNG and storage through the 100% owned companies Snam Rete Gas, Italgas, GNL Italia and Stogit.

The criteria for the unbundling implementation have been established in Presidential Decree dated 25 May 2012. On 15 October 2012, Cassa Depositi e Prestiti S.p.A. (CDP) announced that it had completed the closing of the acquisition from ENI of 30% less 1 share of the voting share capital of Snam. Further to such transaction, ENI is no longer the controlling shareholder of Snam and, accordingly, Snam is no longer subject to ENI’s direction and coordination activity. By means of the sale by ENI to CDP of its controlling interest in Snam and by the subsequent sale of the remaining stake in the capital of Snam by ENI to individual investors and institutional investors through transparent and non-discriminatory sale procedures, the transportation network operation will be separated from the supply and production activity in a full ownership unbundling regime pursuant to the Third Energy Package

Italian Energy Regulation

The Ministry for Economic Development (MED) and the Authority for Electricity and Gas (AEEG) share the responsibility for the overall supervision and regulation of the Italian electricity sector.

In particular, the MED establishes the strategic guidelines and principles for the electricity and gas sector, while the AEEG, regulates specific and technical matters. The AEEG, inter alia:

• sets electricity and gas distribution tariffs, as well as the price for previously regulated (or "captive") customers, which have not yet chosen a different supplier;

• formulates observations and recommendations to the Government and Parliament regarding the market structure and the adoption and implementation of European directives and licenses or authorisations;

117 • establishes guidelines for the production and distribution of services, as well as specific and overall service standards and automatic refund mechanisms for users and consumers in cases where standards are not met and for the accounting and administrative unbundling of the various activities under which the electricity and gas sectors are organised;

• protects the interests of customers, monitoring the conditions under which the services are provided, with powers to demand documentation and data, to carry out inspections, to obtain access to plants and to apply sanctions, and determines those cases in which operators should be required to provide refunds to users and consumers;

• handles out-of-court settlements and arbitrations of disputes between users or consumers and service providers; and

• reports to the Autorità Garante della Concorrenza e del Mercato (the Antitrust Authority) any suspected infringements of Law No. 287 of 10 October 1990 by companies operating in the electricity and gas sectors.

Furthermore, according to Legislative Decree 93/2011, the AEEG establishes rules aimed at:

• achieving the best quality level in the electricity and natural gas sectors;

• protecting vulnerable customers;

• removing obstacles that could prevent access of new operators in the electricity and gas market.

In addition to regulation by the AEEG, the Antitrust Authority also plays an active role in the energy market in ensuring competition between suppliers and protecting the rights of clients to choose their suppliers.

Electricity regulation

The liberalisation of the electricity sector, in Italy, started in 1999, when Legislative Decree no. 79/1999 (the so called Bersani Decree) was passed, providing, inter alia, for the separation of generation, transmission and distribution activities, the introduction of free competition in power generation and the gradual opening of the retail market to competition for consumers meeting certain consumption thresholds (the "free market"), while maintaining a regulated monopoly structure for power transmission and distribution.

The regulatory framework for the Italian electricity sector based on the Bersani Decree has been further amended in the past decade by, inter alia, Law No. 239 of 23 August 2004 (known as the Marzano Law) and several other provisions implementing European directives on energy sector including, in particular, Directive 2003/54/EC and Directive 2001/77/EC, in the view of improving liberalisation and competition. The discipline of separation has been implemented by the AEEG with Resolution No. 11/07 concerning the unbundling integrated text.

In the same direction, the regulatory framework on electricity sector is currently under revision and improvement in compliance with the principles of the third energy package and the relevant implementation decree (Legislative Decree 93/2011).

In brief, the Italian electricity sector, is based on the following principles:

• liberalisation, as of 1 April 1999, in the generation, import and export of electricity;

• as from 1 January 2003, no electricity company can produce or import more than 50% of the total of imported and domestically produced electricity in Italy;

118 • creation and operation of the Power Exchange market, a virtual marketplace, managed by an ad hoc entity (the Electricity Market Operator or GME), in which producers, importers, wholesalers and other participants in the free market, buy and sell electricity at prices determined through a competitive bidding process;

• end users may freely choose their supplier (as from 2007 all end-users are "eligible clients" and are admitted to the free market, subject to no minimum consumption thresholds);

• ensuring continuous, secure, efficient and competitively priced electricity supply to end users remaining in the "Universal Service" regime (consisting, since 1 July 2007, of residential clients and small business clients that have not chosen a supplier in the market), through the establishment of the Single Buyer (a company indirectly controlled by the State) in charge of purchasing electricity in the market on the most favourable terms and selling it to retail companies supplying Universal Service clients (as defined below), in order to enable electricity end users the benefit from the electricity liberalisation process;

• a new licensing regime for electricity distribution and incentives for the consolidation of electricity distribution networks within each municipality.

The Bersani Decree originally provided for separation between management of the national electricity transmission grid (which was to be managed by an independent Electricity Services Operator, the Gestore della Rete di Trasmissione Nazionale, the GRTN) from ownership of the grid assets. Law 290/2003 re- united the ownership and management of the national grid, which is currently owned and managed by the Terna Group (as a consequence of an internal company reorganization, Terna Rete Italia S.p.A., a new company incorporated in April 2012 wholly owned by Terna S.p.A., manages the national electricity network, and is responsible for its maintenance and development. Terna S.p.A still owns the concessions related to the transportation and dispatch activities, the property of the assets and is responsible for defining the national network development plan). The GRTN has been renamed Gestore dei Servizi Energetici S.p.A. (the GSE) and is entrusted with the promotion of energy from renewable resources, including CIP-6 electricity, besides being the holding company of the Electricity Market Operator and the Single Buyer.

Generation

The Bersani Decree liberalised the regime for electricity generation. In order to increase the level of competition in the market, the Bersani Decree provided that, as at 1 January 2003, no single electricity generation company shall be allowed to generate or import, directly or indirectly, more than 50% of the total electricity generated in and imported into Italy.

In accordance with Legislative Decree No. 379 of 19 December 2003 the availability of electricity capacity must be regulated by a compensation mechanism aimed at assuring adequacy of the system to cover the demand with the necessary reserve margins. This capacity payment mechanism has to be based on the following principles: it must ensure transparency and it must not cause distortion in the market, while reducing the total costs for consumers.

119 In 2004, the AEEG established, by means of Resolution no. 48/2004, a provisional system of payments to remunerate producers that make generation capacity available to the electricity system at times of peak demand, known as capacity payments (Capacity Payments). Capacity Payments to a given producer include both (i) an amount due for capacity available on critical days identified formerly by the GRTN and now by Terna, and (ii) an amount payable when Power Exchange Market prices fall below specified thresholds, as an extra incentive.

With Resolution No 166/2010, the AEEG revised the allocation criteria of the extra incentive in order to provide compensation to producers with generation plants mainly located in market zones characterised by low prices.

Also, as a consequence of Law no. 75 of 2011 and of the outcome of the Referendum dated 12 and 13 June 2011 opposing the development of the thermonuclear energy, the Capacity Payments system has been recently reshaped by AEEG by means of Resolution no. 98/2011 providing general criteria for the new mechanism, which will apply as from 2017. The Capacity Payment system will basically consist in Terna purchasing from producers (through specific tenders) options on generation capacity expected to be necessary in the following years in order to keep the electric system in balance. On the basis of the criteria provided by the AEEG, the grid operator (Terna) shall draw a proposal on the details of such mechanism, to be approved by the MED.

Promotion of Renewable Resources

In Italy, the first incentive mechanism promoting electricity production through non conventional sources was introduced, in 1992, by means of the so called CIP-6 Regulation, issued by the Interministerial Price Committee, an Italian governmental committee. CIP-6 Regulation established an incentive remuneration price for electricity produced by new generation plants using renewable resources or assimilated to renewable sources. In November 2000, the MED issued a decree that transferred all the competences regarding the CIP-6 regime from the Interministerial Price Committee to the Electricity Services Operator as of 1 January 2001. Under current regulations, the Electricity Services Operator is required to purchase all CIP-6 electricity and resell it to the market. Article 30 of Law 99/2009 provided for the possibility for producers to early terminate the relevant agreements with GSE and step out from the Cip-6 regime at the terms and conditions established by MED through subsequent decrees.

The Bersani Decree introduced the incentive regime based on the so-called- green certificate mechanism, applying to all renewable plants, except solar plants (for which specific incentive regime is provided, see below). The Bersani Decree provided that, starting from 2001, all companies introducing into the national transmission grid more than 100 GWh of electricity generated from conventional sources in a given year must, in the following year, inject into the national transmission grid an amount of electricity produced from qualified renewable resource power plants (Renewable Obligation) initially equal to at least 2% (and currently 6.8%) of the amount of electricity produced exceeding 100 GWh, net of co-generation, self- consumption and exports. The Renewable Obligation may be fulfilled by either (i) directly producing the required amount of energy from renewable sources or (ii) purchasing the equivalent amount of Green Certificates from other producers who have obtained tradable Green Certificates representing a fixed amount of electricity certified as generated from renewable resources1.

As mentioned above, the Green Certificates incentive mechanism is based on the right of producers of energy from renewable sources to obtain from the GSE a certain amount of Green Certificates and the possibility to sell them to those parties that are subject to the Renewable Obligation.

1 The provisions regulating the Green Certificates mechanism introduced by the Bersani Decree were subsequently amended by Legislative Decree No. 387 of 29 December 2003 (implementing EU Directive 2001/77/EC), Law No. 244 of 24 December 2007 (the so-called 2008 Budget Law), Ministerial Decree dated 18 December 2008 (D.M 18 December 2008) and Law No. 99 of 23 July 2009 (Law 99/2009).

120 The Green Certificates may be traded through bilateral contracts or in the Green Certificates market organised and managed by the GME. In both cases the price of Green Certificates is defined through the match of the offer price and the demand price. The offer price is based on a percentage decrease of the reference price (i.e. the offer price of the GCs issued by GSE) (Reference Price) and which represents the maximum price of Green Certificates on the GME market. Such Reference Price is equal to the difference between a fixed value of 180 Euro/MWh and the average electricity sale price during the previous year (as defined by AEEG on a yearly basis).

In case a producer is not able or not willing to sell its Green Certificates on the GME Market or through bilateral agreements the GSE, upon the producer's request, is obliged to purchase the unsold GCs (the 3-year validity of which has elapsed) for a purchase price equal to the average price of Green Certificates recorded in the previous year by GME (the GSE Withdrawal Price). According to Section no. 15, paragraph 1 of Ministerial Decree 18 December 2008, with reference to the 2009-2011 period only (the so-called interim period), the GSE Withdrawal Price applicable to unsold GCs shall be (on a temporary basis) the average price recorded on the GME Market over the previous three years.

Pursuant to the provisions of Legislative Decree no. 28/2011 (the Renewable Decree), implementing EU Directive 2009/28/EC2, the incentive regime based on Green Certificates will progressively no longer be applicable

In this regard, the Renewable Decree provided for the definition, through ministerial decree, of a Burding Sharing system among the Italian Regions for the achievement of the 2020 target of renewable energies development. The relevant decree (the Burden Sharing Decree) has been recently enacted by the Ministry of Economical Development together with the State-Region Committee (at the date hereof, such decree has not been published yet on the Official Gazette).

With reference to the renewables incentive regime, the Renewable Decree provides for new incentive mechanisms applying as from 2013 and transitional provisions applying to renewable plants entering into operation between the date of entry into force of the Renewable Decree and 31 December 2012.

The new incentive mechanism provided for by the Renewable Decree is based on the following principles: − incentives shall be paid for a period equal to the average conventional life-cycle period of the specific typology of Renewable Plant, starting from the initial date of operation thereof; − once granted, incentives shall remain constant for the entire incentive period and may also take into account the economic value of the energy produced; − incentives shall be granted pursuant to private law agreements to be entered into between GSE and the titleholder of the relevant Renewable Plant, based on a standard form to be produced by the AEEG.

The re-shaped incentive scheme outlined by Renewable Decree will be based on the following mechanisms:

(a) Plants up to 5 MW (or such higher threshold set forth with reference to different renewable sources) will benefit from a feed-in tariff. The amounts of the applicable feed-in tariff (which will be fixed by a ministerial decree implementing the Renewable Decree) shall vary depending on the type of renewable source employed and the power capacity bracket to which the relevant plant belongs. The tariff applying on the date of entry into operation of the plant shall be maintained throughout the entire incentive period.

2 The Directive 2009/28/EC is aimed at achieving a 20% share of energy from renewable resources in the EU's final consumption of energy in 2020. In light of this objective, for the first time, Member States are assigned mandatory individual targets for the share of renewable energy sources in final energy consumption (for Italy such target is 17%).

121 (b) Plants over 5 MW (or such higher threshold set forth with reference to different renewable sources) will also benefit from a feed-in tariff, the amount of which will be determined on the basis of auctions by reduction (aste al ribasso) held by GSE. The procedure for the first auction has started on 6 October 2012 (application and bids may be filed with the GSE until 6 December 2012).

The definition of both the amount of the feed-in tariffs applicable to plants up to 5 MW and the procedural aspects of the auction-by-reduction system are provided for by ministerial decree dated 6 July 2012 (Implementation Decree).

The Renewable Decree and relevant Implementation Decree also provide for transitional provisions with reference to electric power produced in the 2011-2015 period by (i) plants entered into operation before 30 April 20133 which will continue to benefit from the GCs incentive scheme pursuant to the existing regulation as amended by the Renewable Decree and thee Implementation Decree.

The main amendments introduced by the Renewable Decree to the current Green Certificates mechanism concern:

• the gradual phase-out (starting from 2013 through 2015) of the Renewable Obligation. The relevant share will be progressively reduced to zero by the end of 2015;

• the regime applying to the re-purchase of unsold Green Certificates by the GSE and, in particular, the GSE Withdrawal Price. The GSE Withdrawal Price of Green Certificates referring to 2011-2015 electricity production shall be equal to 78% of the Reference Price;

• with reference to plants entering in operation between 1 January 2013 and 30 April 2013, a reduction to the coefficient for the calculation of Green Certificates is provided on the basis of the actual date of entry into operation.

The Green Certificates market is therefore expected to experience a structural situation of Green Certificates oversupply (also as a consequence of the progressive decrease in the amount of the Renewable Obligation) and a drop in the Green Certificates average price. In such a scenario, the new criteria for determining the GSE Withdrawal Price are likely to enhance, to a certain extent, the stability of the Green Certificates Withdrawal Price. As from 2016, the Green Certificates mechanism shall not be longer applicable.

Therefore, starting from 2016, Renewable Plants for which the Green Certificates incentive period is still ongoing will be entitled to switch to the new feed-in tariff regime for the remainder of the relevant incentive period, and will not be subject to the auction mechanism. The applicable tariffs will be calculated on the basis of the formula provided by article 19 of the Implementation Decree.

The Green Certificate mechanism has never applied to solar plants. Photovoltaic solar plants benefit from a feed-in premium tariff on top of the price of the electricity generated (the so called Conto Energia). The Conto Energia has been regulated in the past years by several ministerial decrees (so-called First, Second, Third and Fourth Conto Energia). Currently, the incentive regime applying to solar plants is provided for by ministerial decree dated 5 July 2012 (so-called Fifth Conto Energia). The feed-in tariffs set forth under the Fifth Conto have a comprehensive nature, including both the incentive component and the remuneration of the electricity produced.

GSE is entitled to conduct inspections on the plants and to revoke the incentives in case of discrepancy between the documentation and design submitted to the GSE within the application for incentives and the works realised as well as in case of false statements rendered by the operator to the GSE in order to achieve the incentives.

3 The deadline for waste-to-energy plants (fed totally o partially by biodegradable waste) is 30 June 2013.

122 Hydroelectric Power

On 14 January 2008, the Italian Constitutional Court ruled that the ten-year extension of concessions for the use of water for large-scale hydroelectric power plants, introduced by Law No. 266 of 23 December 2005 (the 2006 Budget Law) was unconstitutional and, therefore, invalid. As a consequence, paragraphs 6, 7 and 8 of Article 12 of Legislative Decree No. 79 of 16 March 1999, which previously governed the renewal of concessions, should be considered once again in force. As a result, the large water concessions granted to Hera and its subsidiaries expiring before 31 December 2010 were extended to that date while large water concessions due to expire after 31 December 2010 will maintain their existing expiry date under the relevant concession.

However, pursuant to paragraph 1-bis of Article 12 of Legislative Decree No. 79 of 16 March 1999 (introduced by Law Decree No. 78 of 31 May 2010 (converted into Law No. 122 of 30 July 2010), hereinafter Law Decree 78/2010) concession holders will be granted a 5-year extension of their concessions, although such extension is applicable only until various regional regulations are enacted. By means of decision No. 205 of 13 July 2011 (Decision 205/2011), the Constitutional Court declared such provision unconstitutional, as the duration and planning of major water concessions – being referred to the production, transportation and distribution of energy – are matters falling under the joined competence of State and Regions. Therefore, the State is not entitled to legislate on this matter itself.

After 31 December 2011 large water concessions should in principle be re-awarded through competitive tendering procedures, unless they are renewed until the same expiry date of drinking water concessions due to expire after 31 December 2011, with which the large water concessions are linked.

With regards to major water concessions, Law Decree 78/2010, provides for a five-year term extension linked to certain plant modernisation criteria. The decree further provides for an additional seven-year term extension applying as from 31 December 2010 to public companies in which the provinces, either directly or through controlled subsidiaries, have a 30-40% shareholding (with regard to, among others, concessions that are located in the provinces bordering Trento, Bolzano and Switzerland). Such provisions are subject to variation as and when they are implemented by the relevant regions. By means of Decision 205/2011, the Constitutional Court declared such provision unconstitutional, for the reasons outlined above

Under Law Decree 78/2010, should the procedure for selecting a new operator not be completed at the expiration date of a licence, the incumbent operator will continue to manage the concession in accordance with applicable laws and regulations that govern the concession (including legislation related to the costs incurred by the outgoing operator exceeding ordinary maintenance costs) until the incoming operator takes over the concession. Law Decree 78/2010 also introduces a 30% increase in concession fees related to mountain drainage basins and riparian municipalities as of 1 January 2010.

Imports

The volume of electricity that can be imported into Italy is limited:

(i) by the capacity of transmission lines that connect the Italian grid with those of other countries and by concerns relating to the security of the system (currently, a maximum import capacity of approximately 8,040 MW is available to import energy safely);

(ii) by the threshold established by the Bersani Decree with reference to electricity that can be imported by a single company (no more than 50% of the total electricity imported).

123 The rules for the allocation of interconnection capacity have remained unchanged since 2007. Pursuant to agreements between Terna and neighbouring transmission system operators (TSOs), interconnection capacity rights for each border are jointly allocated by explicit auction (on a yearly, monthly and daily basis). Revenues arising from the auctions (which are shared evenly between the TSOs involved) and belonging to Terna are transferred onto clients on a pro rata basis by reducing the dispatching charges.

The provisions on exemption from the third-party access obligations for companies investing in new connection infrastructures provided for by Law Decree No. 239 of 29 August 2003 (converted into Law No. 290 of 27 October 2003) have been recently amended by Article 39 of Legislative Decree 93/2011, as briefly described above.

Recently, the Ministry of Economic development has issued a decree providing for criteria and conditions applying to electricity imports during 2012 (the Import Decree). The Import Decree provides for the allocation of import capacity through a bidding system and introduces a "market coupling" mechanism for the daily import capacity allocation. The Import Decree was published on the Official Gazette on 22 November 2011, and is effective as of 23 November 2011.

Transmission

The term "transmission" refers to the transport of electricity on high and very high voltage interconnected networks from the plants where it was generated or, in the case of imported energy, from the points of acquisition, to distribution systems. The national electricity transmission grid, which includes very-high voltage (380/220 kV) and high-voltage (G=150 kV) lines, is 98% held by Terna and 2% held by other companies (such as Rete Ferroviaria Italiana S.p.A.).

Distribution

The term "distribution" refers to the transportation and conversion of electric energy, from the transmission grid, on distribution networks of medium and low-voltage for delivery to end-users.

Distribution companies in Italy are licensed by the state to provide distribution services to all clients who request them. These clients are subject to the payment of applicable tariffs.

The Bersani Decree sought to promote the consolidation of the Italian electricity distribution industry by providing for a single distribution licence within each municipality and establishing procedures to consolidate distribution activities under a single operator in municipalities where both Enel S.p.A. (the former monopolist) and a local distribution company were engaged in electricity distribution. The same Decree gave local distribution companies the right to request that Enel S.p.A. sell its distribution networks located in the municipalities where those companies already distributed electricity to at least 20% of the consumers.

Regulated activities are remunerated through the network tariff component, which is set directly by the AEEG at the same level for all operators on the national territory.

Network tariffs are set in order to allow distribution companies to cover operating costs, plus an appropriate return on invested capital, and depreciation.

The weighted average cost of capital (WACC) for the remuneration of invested capital in the distribution service increased from 6.8% for the second regulatory period to 7% in the third, while that for the metering service decreased from 8.4% to 7.2%. In the current regulatory period these rates have been changed by AEEG (see Annex A and B to the Resolution ARG/elt No. 199/2011) and are now calculated in the same way both for the distribution and the metering services. The remuneration for the net capital invested for the regulatory period 2012-2015 is now established in 7.6% for the investments carried out until 31 December 2011 and 8.6% for those started from January 2012.

124 The rules envisage incentives, using differentiated WACCs (1,5 or 2%) and for a minimum of eight years, for specific types of investments in the distribution network, such as those relating to the construction of new transformer stations, investments in replacing existing transformers in MV/LV transformer substations with new low-loss transformers, and smart grids.

The tariff component covering operating costs is subject to a price cap mechanism aimed at enhancing operational efficiency. The yearly efficiency target, known as the X-factor, was set at 2.8% for distribution services and at 7.1% for metering, so as to allow the higher efficiency gains achieved by the companies to be passed on to the end-user within eight and six years, respectively. The new rates, higher than the former ones provided for the previous regulatory period, will push the operators to enhance their efficiency rates, in order to obtain a positive effect for the final consumers.

Wholesale market

The Power Exchange is a marketplace for the spot trading of electricity by producers and consumers under the management of the Electricity Market Operator. It began operations on 1 April 2004. Producers can sell their electricity on the Power Exchange at the system marginal price defined by hourly auctions. Otherwise they can choose to enter into bilateral contracts, whereby the price is agreed with the other counterparty.

One of the most important participants on the Power Exchange is the Single Buyer, a company belonging to the Electricity Services Operator, which is wholly owned by the Italian State. The Single Buyer aims to ensure continuous, secure, efficient and competitively-priced electricity supply to clients remaining in the Universal Service regime (consisting, since 1 July 2007, of residential clients and small business clients that have not chosen a supplier in the open market), in order to enable them to reap the benefits of the electricity liberalisation process. Based on its own periodic estimates of future electricity demand and the MED guidelines, the Single Buyer purchases electricity in the market on the most favourable terms and then it sells this energy to retail companies supplying Universal Service clients. The Single Buyer is the largest wholesaler in the market, purchasing approximately 30% of the total national demand.

The Single Buyer purchases electricity on the Power Exchange and through bilateral contracts (including contracts for differences) with producers, and imports electricity. The total payments by the Single Buyer to electricity producers for its purchases, plus its own operating costs, must equal the total revenues it earns from energy sales to the retail companies operating within the regulated market under the regulated price structure. As a consequence, the AEEG adjusts reference prices from time to time to reflect, inter alia, those prices actually paid by the Single Buyer.

Other participants in the Power Exchange are the retail companies belonging to integrated operators, the wholesalers and some large electricity users. The AEEG and the Antitrust Authority constantly monitor the Power Exchange to ensure that it delivers the expected results: improved competition between electricity producers and an enhancement of the efficiency of the Italian electricity system.

Recently the market was enhanced through the commencement of operations of new forward-markets: (i) the forward physical market, (the MTE), which is managed by Electricity Market Operator; and (ii) the derivatives financial market, (the IDEX), which is managed by Borsa Italiana.

On 2008, the Italian parliament approved Legislative Decree No. 185 of 29 November 2008 (the Anti-Crisis Decree), which was subsequently converted into law by Law No. 2 of 28 January 2009. The provisions of the Anti-Crisis Decree concerning energy have been implemented by a ministerial decree issued by the MED on 29 April 2009. The new rules set forth a series of measures to be implemented in the period 2009-2012, involving: (i) the adoption of a new mechanism to set prices on the day-ahead market; and (ii) the creation of an intra-day market and the development of the aforementioned forward-markets. In addition to that, the MED decree sets forth guidelines for the reform of the ancillary services market (ASM) to become operative from 1 January 2010. These guidelines call for: (i) the segmentation of the market according to the services

125 provided; (ii) the utilisation of new calculation procedures to select offers; and (iii) separate accounting for costs according to the specific services purchased.

Furthermore, the MED decree required functional integration between the intra-day market and the new ASM. All the above provisions have been implemented. Pursuant to the Anti-Crisis Decree and the implementing measures, the AEEG is empowered to adopt measures obliging owners of "essential power plants" to make offers in the market under economic terms fixed by the AEEG. According to the Anti-Crisis Decree, essential power plants should be identified by the AEEG among those plants that are technically necessary for avoiding grid congestion and/or necessary for ensuring safe operation of the transmission grid for a significant period of time. The AEEG adopted, on 29 April 2009, Resolution No. 52/09. This resolution, which partially modifies Resolution No. 111/06, establishes: (i) criteria for the identification of the essential power plants; (ii) conditions on the basis of which owners of the essential power plants should offer capacity in the markets; and (iii) mechanisms aimed at ensuring: (a) reduction of the consideration paid by system users in order to cover the costs incurred by Terna in ensuring grid safety; (b) reduction of the costs incurred by the system and, in particular, production costs; and (c) fair remuneration for the owners of the essential power plants that offer electricity in the market. According to Resolution No. 52/09, the above measures are effective from 1 January 2010. Resolution No. 52/09, has been challenged before the Lombardy Regional Administrative Court. On 28 April 2010, the above proceeding was suspended by the Lombardy Regional Administrative Court and deferred to the European Court of Justice (ECJ Case C- 242/10). According to the conclusions submitted by the Advocate General before the European Court of Justice, there is no breaching of EU Law in the case. On 21 December 2011, the ECJ issued a sentence consistent with the conclusions of the Advocate General, stating that in principle Article 3(2) and Article 11(2) and (6) of Directive 2003/54/EC must be interpreted as not precluding national legislation which, for the purposes of reducing the price of electricity in the interests of the end consumer and of ensuring the security of the electricity system, imposes on operators which own installations considered to be essential (based on criteria identified by the national regulatory authority) in order to meet the requirements of the demand for electricity of dispatching services, the obligation to submit bids on the national electricity markets in accordance with conditions pre-determined by that authority.

Retail market

On 18 June 2007, the Government adopted Legislative Decree No. 73 of 18 June 2007 (subsequently converted into law through Law No. 125 of 3 August 2007, which came into force on 15 August 2007) in the run up to the opening of the free electricity market to all clients (which took place on 1 July 2007). The measure establishes:

• the obligation for corporate separation between distribution and sales activities for distribution companies having more than 100,000 clients.

• provisions to ensure non-discriminatory access to metering data.

• provisions to ensure the supply of electricity by suitable sales companies, or distribution companies with less than 100,000 customers connected to their network, to Universal Service clients. For these clients (residential clients and small business clients that have not opted for the free market), electricity supply is ensured by the Single Buyer. The standard conditions and reference prices for the service are determined by the AEEG.

• a Last-Resort Service supplier, selected by tender, for clients not eligible for Universal Service. Until completion of the tenders (for the second semester of 2008), responsibility for Last-Resort Service clients remained with their former suppliers.

126 In accordance with the provisions specified above, supply to clients that do not opted to acquire services on the free market and that are eligible for Universal Service must be handled by a special-purpose company. Such companies will continue to buy power from the Single Buyer in order to serve those clients.

The decree of the Minister for Economic Development of 23 November 2007, and the subsequent decree of 8 February 2008, set out provisions governing the procedures for allocating the Last-Resort Service through tenders. From 1 May 2008, the Last-Resort Service suppliers have been chosen through tenders held on a geographical basis (the AEEG identified six geographical areas, A through F) at a price established by the tender. Initially, the tenders covered the period from May to December 2008; thereafter, they covered two- year periods.

In relation to the tenders for the 2009-2010 period, the AEEG issued Resolution ARG/elt No. 122/08, increasing the number of geographical areas up for bid from six to twelve. Resolution ARG/elt No. 139/10 has confirmed this solution for the regulatory period 2011-2012, but proceeded to the reformulation of the geographical areas borders.

Pursuant to AEEG Resolution No. 182/2010, the last resort suppliers appointed in 2010 shall continue to be responsible for the Last Resort Service until the end of 2013.

The Tariff Structure

The price paid by all Italian end-users for electricity includes:

• a generation component covering the price of the electricity itself;

• network components (transmission and distribution costs);

• a sale component;

• system charges; and

• taxes.

Since July 2007, the Italian electricity market has been fully liberalised and, therefore, the generation and the sale components of the price are no longer determined by the AEEG, except in respect of the Universal Service, for which the AEEG sets the structure of the tariffs and publishes the quarterly reference prices (AEEG Resolution No. 156/07). In this regard, AEEG has updated, by means of Resolutions No.269/2012/R/eel and 384/2012/R/eel, the tariffs payable by Universal Service clients for the third and fourth quarter 2012.

In May 2008, the AEEG established mandatory hourly-block prices in the Universal Service market for customers provided with smart meters. For residential clients, the new prices became effective from 1 July 2010.

Apart from Universal Service and Last-Resort Service clients, there is a specific tariff regulation for vulnerable clients. An Interministerial Decree issued on 28 December 2007 established income thresholds for benefiting from special energy prices and other criteria. Pursuant to Resolution No. 117/08 (as subsequently amended), the AEEG has adopted implementing provisions, defining more precisely the categories of clients that are entitled to special prices. According to the estimates of the AEEG approximately five million families benefit from these measures. The increased costs resulting from the compensation mechanism are covered by a specific rate component applicable to all users, with the exception of those who benefit from the above measures.

127 Regulated components, i.e. transmission, distribution and metering tariffs are set directly by the AEEG and are set at the same level for all operators on the national territory.

On 6 April 2011, the European Commission sent reasoned opinions to Italy, Poland and Romania urging them to bring their national legislation on end-user prices (in particular, in regard to Italy, on the price for electricity) in line with EU rules. According to the Commission, regulated prices hinder market access for new entrants and deprive consumers and companies of the right to choose the best service on the market4.

System Charges and Other Charges

The tariff structure also addresses the need to cover various costs resulting from public policy-related requirements imposed on the Italian electricity industry by providing for the following charges, payable by all electricity consumers:

• Charges concerning the electricity system, established by the MED, that consist of: (i) a nuclear surcharge, covering part of the costs incurred by So.g.i.n., the company to which Enel S.p.A. transferred its discontinued nuclear operations, in connection with the dismantling of nuclear plants and decommissioning of nuclear fuels; (ii) a surcharge that benefits renewable resources producers; (iii) special surcharges covering the cost of supplying electricity at mandated discounts to certain clients (primarily the Italian state-owned railway company and Acciai Speciali Terni); and (iv) research and development surcharges, covering related costs.

• Other general interest charges established by the AEEG to adjust or refine the operation of the tariff mechanism, which include adjustments to cover potential differences between distributors' costs as recognised under the current tariff structure and actual tariff revenues.

• Incentives for the enhancement of the quality of service.

Tariffs for Connection to the Grid

While awaiting a complete overhaul of the regulations on the delivery of connection service, the AEEG has also reorganised the rules concerning the economic conditions for connection to electricity networks, applying a price cap to connection contributions and fixed fees.

Pursuant to Resolution ARG/elt 203/09, the AEEG set an equalising mechanism intended to compensate distributors, for the years 2010 and 2011, in case the revenues from connection fees fall under the reference level of year 2006 (pre-crisis level). The mechanism is intended to stabilise distributors revenues in the current period of economic crisis.

Moreover, the AEEG has set new rules for all connections of generation plants to the grid into a single document, rationalising the previous rules (Resolution No. 99/08). These provisions, applied from 1 January 2009, establish connection procedures with more stringent deadlines and indemnities and, differently from previous rules, fixed fees for medium-voltage connections in addition to those already established for low- voltage connections.

The provisions of Resolution No. 99/08 have recently been amended by Resolution No. 125/2010, which has introduced, inter alia, specific procedures to enhance the coordination between grid operators, as well as a system of guarantees to be presented by the applicant in specific critical areas (i.e. parts of the electric grid which are close to their capacity limit), in order to avoid requests of connection capacity, which are not followed by the realization of the plant. These new provisions are effective for the applications sent beginning January 2011. Resolution No. 125/2010 also provided, in Annex B thereto, for a provisional

4 For more information visit: http://europa.eu/rapid/press-release_IP-11-414_en.htm?locale=en#PR_metaPressRelease_bottom. So far - October 2012-the website the Commission has not be updated with the recent developments of the case.

128 regime applying also to requests for connections sent or accepted by applicants during 2010. However, the Lombardy Regional Administrative Court has suspended the effectiveness of certain provisions of Resolution No. 125/2010 concerning the guarantee system, after an appeal filed by APER (i.e. Association of power generators with renewable sources) and several other producers. The suspension of the effectiveness of the appealed provisions has been confirmed by the AEEG with the Resolution No. 9/2011. Subsequently, the Authority amended the criticized provisions of Resolution No. 125/2010 by means of Resolution No. 187/2011.

Continuity and Quality of Service Regulation

Since 1 July 2000, the AEEG has issued guidelines setting targets for electricity service continuity and quality.

The AEEG has established an incentive system whereby it grants bonuses to companies that exceed their targets for continuity of service and imposes penalties on companies that fail to meet them. Bonuses (net of penalties) are paid through a specific component of the tariff structure.

Pursuant to Resolution No. 333/2007 (as subsequently amended), the AEEG established new rules concerning the quality of electricity services for the 2008-2011 regulatory period. Specifically, with regard to service continuity, it introduced rules governing the average annual number of long and short interruptions and confirmed those relating to the cumulative duration of interruptions.

With respect to quality of service for clients connected at MV level, if a distribution company fails to meet specific service standards set by the AEEG in respect of number of prolonged interruptions, the company is required to reimburse the client a fixed amount.

In July 2007, the AEEG defined an automatic compensation system to support clients in the event of a prolonged service interruption (Resolution 172/07). For both exceptional and ordinary interruptions, distributors are obliged to restore the electricity service within the same lapse of time. The AEEG created an Exceptional Events Fund to compensate clients for interruptions that take place in "exceptional" circumstances. This fund is financed by clients, through an increase in distribution tariffs, and by distributors and Terna, in proportion to interruptions caused by them.

Moreover, from 1 January 2008, the AEEG established strict obligations for companies that sell electricity and natural gas as regards the quality of call centre services, mandating quality standards defined on the basis of specific indicators (such as access to the service, average waiting time and level of service). From 1 July 2009, new common quality standards entered into force (Resolution No. 164/08, No. 10/2012 - DCOU) for companies selling electricity and gas on the basis of specific commercial quality indicators (such as time to answer written complaints and time taken to rectify – following a complaint – an amount already charged in the bill based on a new meter reading).

By means of AEEG Resolution No. 199/2011, regarding tariff regulation for the next regulatory period 2012-2015, the AEEG also approved the standards for the quality of distribution and metering services (Resolution No. 198/2011, as amended by Resolutions 136/2012/R/eel, 294/2012/R/eel and 336/2012/R/eel). The new code provides for a special protection of clients connected to Medium Voltage, subjecting them to specific regulation on the continuity of the service, extending to the protection against short service interruptions.

129 Natural Gas Regulation

Italian regulations enacted in May 2000 (Legislative Decree No. 164 of 23 May 2000, the Letta Decree) implementing EU directives on gas sector liberalisation (1998/30/EC) introduced competition into the Italian natural gas market through the liberalisation of the import, export, transport, dispatching, and sale of gas. The liberalisation process was successively strengthened by EU Directive 2003/55/EC, which introduced, on the one hand, stricter unbundling obligations on companies operating in the gas transport and distribution sectors and, on the other hand, incentives for new import infrastructure. EU Directive 2009/73/EC on natural gas internal market has been recently implemented in Italy by Legislative Decree 93/2011.

Wholesale and Imports of Gas

Pursuant to the Letta Decree, no single operator was allowed to import gas (for the purpose of selling such gas, directly or through subsidiaries, holding companies or companies controlled by the same holding company) in a quantity exceeding a specified percentage of the total domestic gas consumption, set at 75% in 2002 and decreasing by two percentage points each year thereafter, to 61% in 2010. At the same time, until that date, no single operator is allowed to hold a market share higher than 50% of domestic sales to final clients, directly or through subsidiaries, holding companies or companies controlled by the same holding company. Legislative Decree No. 130 of 23 April 2010 set new antitrust caps that prevent any single operator from introducing into Italy gas in a quantity exceeding 40% of domestic gas consumption. This cap may be lifted to 60% if the relevant operator invests in new storage capacity equal to at least 4 billion cubic metres.

Law 99/2009 foresees the constitution of a market exchange for the supply and sale of natural gas, managed by GME.

GME organises and manages the natural gas market (the MGAS). In the MGAS, parties authorised to carry out transactions at the "Punto Virtuale di Scambio" (PSV – Virtual Trading Point) may make spot purchases and sales of natural gas quantities. In the MGAS, GME plays the role of central counterparty of the transactions concluded by market participants. The MGAS consists of a Day-Ahead Gas Market (MGP- GAS) and a Intra-Day Gas Market (MI-GAS).

Transportation and Dispatch

According to the Letta Decree, transporting and dispatching gas is considered an activity of public interest. Companies involved in these activities must guarantee access on a non-discriminatory basis to users who request it, provided that the connection works required are technically and economically feasible. Companies that carry out transport and dispatch activities govern the flow of gas and the auxiliary services needed for the system to function, including modulation. These companies are also responsible for the strategic storage of gas under MED directives5 and they must ensure compliance with any other obligations aimed at guaranteeing the safety, reliability, efficiency and lowest cost of the service and of supplies.

From 1 January 2002, only operators that have no other activities in the gas production process, except for storage activities, may transport and dispatch gas. Even so, all such activities must be accounted for separately.

Snam Rete Gas S.p.A. owns and operates approximately 95% of the Italian gas transport network.

5 Legislative Decree No. 93/2011 abolished the ratio imports/strategic storage = 10%.

130 Storage

Operators storing gas in depleted fields or other geological formations must obtain a licence granted by the MED in accordance with objective and not discriminatory procedures and criteria. These licences are granted for a maximum of 20 years. Licensees are obliged to supply strategic, mining and storage services to users who so require them.

Storage activities are conducted under concessions, granted by the MED, which have terms of 20 years and may be extended for a total of two further 10-year periods. Operators are required to provide storage services to third parties upon request, with priority for residential clients, provided that they have enough capacity and that providing such storage services are economically and technically feasible.

The Legislative Decree 93/2011 provides incentives for investment in new natural gas infrastructure (interconnector pipelines, LGN terminals, storage) by exempting the investing entity from the obligation to provide third-party access for a period up to 25 years (exemptions may be granted on a case by case basis by the MED in consultation with the AEEG and subject to approval of the European Commission).

Distribution

The Letta Decree established that distribution activities be exercised only by operators having won bids for gas distribution concessions for periods not exceeding 12 years. Licensees of distribution networks are obliged to grant access to any third party that so requests on the basis of tariffs set by the AEEG and in compliance with its network code adopted by the AEEG. The AEEG, in July 2004, adopted Resolution No. 138/2004, which set the criteria for access to distribution services and for the drafting of the network codes by distribution operators, introducing special measures for the operations of interconnection points between transportation and distribution networks.

The operation of the gas distribution service is regulated by a concession agreement executed by the relevant municipality and the concessionaire which provides, inter alia, the rules for the operation of the service, the quality service targets, the economic terms and conditions, consequences in case of defaults, conditions for the termination of the concession, etc.

According to the Letta Decree (as subsequently amended), all distribution concessions which were active as of 21 June 2000 awarded without a public tender, shall terminate at the end of the so-called Transitory Period (except if their natural expiry date occurs before such date). The duration of the Transitory Period was originally equal to five years (i.e., until 31 December 2005). According to Article 1, Paragraph 69, of Law No. 239/2004, the Transitory Period was postponed to 31 December 2007. However, the Transitory Period may be further extended if certain conditions are met (i.e., (i) for public interest reasons and (ii) in case of fulfilment of the conditions set out under Article 15, Paragraph 7, of the Letta Decree.

The concessions active as of 21 June 2000, awarded by means of a tender procedure, shall terminate at their natural expiry date but, in any case, not later than 31 December 2012.

In particular, according to Article 23 of Law Decree dated 30 December 2005, No. 273 (converted into Law dated 26 February 2006, no. 51) (Decree no. 273/2005) the Transitory Period can be further extended as follows: − a two-year postponement if at least one of the requirements provided for by Article 15, Paragraph 7, of the Letta Decree is met. Although an express resolution authorising the extension is not required, an explicit ascertainment by the Municipality of the occurrence of the technical conditions legitimating the extension is necessary; − a one-year postponement if public interest reasons occur. An explicit Municipal resolution acknowledging the reasons of public interest is always required. Accordingly, one-year

131 postponements granted without such a Municipal resolution may give rise to issues in terms of not compliance with the principles governing the Transitory Period.

The postponement under Article 15, Paragraph 7, of the Letta Decree and the postponement for public interest reasons can be summed. As a consequence, the Transitory Period may be extended until 31 December 2010.

With respect to the automatic extension granted under Article 23, Paragraph 1, of Law no. 273/2005, the EU Court of Justice (17 July 2008, C-347/06) ruled that the same is in compliance with the EU Treaty provided that the extension is necessary in order to allow the parties to terminate the concession under acceptable conditions considering both the public services needs and the economical consequences of the termination on the parties.

At the expiration of the concession, the plants will be transferred to the Municipality upon the payment of an indemnity in favour to the previous concessionaire. Such indemnity may be paid by the new concessionaire or by the Municipality.

In several cases, there is a dispute between the parties regarding the quantification of the indemnity and the related assessment has been assigned to an arbitrators panel.

Regarding the investments held by the previous concessionaire on the plants transferred to the new concessionaire, based on Article 24, Paragraph 1, of Legislative Decree 93/2011, the new concessionaire is required to step in to the existing guarantees and financing obligations or, as an alternative, to discharge them paying to the previous concessionaire an amount equal to the reimbursement value (valore di rimborso) of the plants transferred.

On the other hand, as far as concessions awarded in compliance with the Letta Decree (i.e. by means of a public tender) are concerned, the reimbursement value due to the previous concessionaire at the expiration of the concession will be equal, for the first round of tenders, to the residual industrial value, then to the value of net fixed assets of locality (immobilizzazioni nette di località) of the distribution service, including construction in progress, net of public or private contributions, calculated using the methodology of the current tariff adjustment and on the basis of the consistency of the plants at the time of their transfer.

Pursuant to the Letta Decree and Legislative Decree 159/2007, the Minister for Economic Development and the Minister for Relations with the Regions and Local Governments, should establish (i) criteria for the tender and evaluation of bids for gas distribution concessions and (ii) the minimum geographical areas for the tenders.

A first decree (Ministerial Decree dated 19 January 2011) setting out the criteria for establishing the territorial jurisdictions was published on 31 March 2011 and a second decree (Ministerial Decree dated 18 October 2011) defining the composition of the so-called Ambiti Territoriali Ottimali (ATOs) (ATOs Decree) was published on 28 October 2011. In addition, on 21 April 2011 a further ministerial decree concerning the gas distribution concessions was published (Social Decree). Based on such decree, the new concessionaire is required to hire certain categories of employees to be employed in the distribution service assigned within the tender.

The above mentioned Ministerial Decree dated 19 January 2011 shall certainly have an impact on the new tenders, considering that:

(a) as far as the criteria for the identification of the ATOs are concerned, the Italian territory shall be divided into 177 ATOs and each ATO will include the territory of a maximum 50 municipalities, provided that it will serve at least 50.000 users (up to a maximum of 300,000 users). In general, an ATO would represent the territory of a Province. Major towns (more than 300,000 users), such as Rome, Milan, Turin, Genoa and Naples, shall be represented by specific ATOs. The Ministerial

132 Decree dated 19 January 2011 only provides the criteria for the definition of the ATOs. The exact composition of each ATO has been fixed by the ATOs Decree; and

(b) under article 3 of the Ministerial Decree dated 19 January 2011, starting from the publication of same decree, the tenders for the awarding of the gas distribution service for which (i) the tender notice has not been published yet or (ii) the deadline for the filing of the offers has not yet expired, shall be awarded exclusively by the ATOs.

Article 24, Paragraph 4, of the Legislative Decree 93/2011 clarified that the Municipalities which, at the date of entry into force of the Legislative Decree 93/2011, have published a tender notice and do not have awarded yet, may conduct the tender in accordance with the rules applicable at the date of the tender procedure's starting. Subsequently, Annex 1 of Article 1, Paragraph 2, of the ATOs Decree defined the composition of the ATOs.

According to the Ministerial Decree dated 19 January 2011 all the Municipalities encompassed in each ATO shall launch a sole tender.

On 12 November 2011, the Ministry of Economic Development adopted decree no. 226/2011, regulating the new tender procedure for the awarding of the distribution concessions within the ATOs (Tenders Decree). According to article 12 of the Tenders Decree, the selection is made on the basis of the most economically convenient offer, calculated through the combination of three parameters (economic conditions, security and quality criteria and network development plans). A specific score is assigned to each of the aforementioned parameters by a commission of five independent members.

According to the Letta Decree, the following entities are admitted to participate to the next tender procedures:

(a) limited companies (S.p.A and S.r.l.), even when held by public entities; limited cooperative associations (società cooperative a responsabilità limitata) and European Economic Interest Groups. (article 14, para 5)

(b) companies listed on the stock exchange and their subsidiaries (the foregoing has been recently introduced by Legislative Decree No. 83/2012).

(c) as far as the first tenders are concerned, companies granted the gas distribution service by means of a direct award occurred prior to the entry into force of the Letta Decree, even in the event such companies or their subsidiaries, holding companies and companies belonging to the same group of companies operate local public services other than the gas distribution by means of direct award (article 15, para 10).

On the other hand, pursuant to the Letta Decree and to the Tenders Decree, the following entities are not admitted to participate:

(a) companies (and their subsidiaries, holding companies and companies belonging to the same group of companies), which benefit from a direct award or have not been selected through a public tender procedure, and manage, even on a de facto basis, the local public services in Italy, any other European Country or even countries not part of the European Union (article 14, para 5 of the Letta Decree), with the exception under letter c) above (i.e. article 15, par. of the Letta Decree);

(b) companies which control, pursuant to article 2359 of the Italian Civil Code or, even de facto, other participants to the same tender. The same prohibition applies whenever bids, even though proposed by different participants, can be ascribed to the same decision centre (article 10 of Tenders Decree).

133 Costs for providing distribution and metering services are covered by tariffs fixed by the AEEG at the beginning of each reference period, equal to four years, and updated on a yearly basis by applying defined mechanisms.

The current reference period is that for 2009-2012. The return on invested capital recognised in the current period is equal to 7.6% for distribution activities (compared to 7.5% in the previous period) and 8% for metering activities. Operating costs included in the tariff are subject to a price-cap of between 5.4% and 3.2%, depending on dispatch locations, for distribution activities, and 3.6% for metering activities.

Retail market

As at 1 January 2003, companies that intend to sell gas to final customers must obtain a licence from the MED. Authorisation can only be refused on objective and non-discriminatory grounds.

From 1 January 2002, only companies that are not engaged in any other activity in the natural gas sector, other than as importers, drillers or wholesalers, may sell gas. Law 99/2009 provides for the constitution of a market exchange for the supply and sale of natural gas and for the Electricity Market Operator, in compliance with the principles of transparency, competition and non-discrimination, to be designated as manager of the natural gas exchange market. Law 99/2009 also establishes 'Last-Resort Service' provisions for residential clients. In this regard, the Single Buyer would be responsible for ensuring annual supplies up to 200,000 cubic metres to final residential clients.

The sale of gas to end-users requires an authorization from the MED, which can only be refused on objective and non-discriminatory grounds.

Until 31 December 2002, only certain large consumers – gas eligible clients – were able to freely choose their suppliers of natural gas. During the same period, clients, mainly residential, who did not qualify as gas eligible clients, were obliged to purchase gas from distributors operating in their local area at a tariff set by the AEEG.

Since 2003, all clients have been able to freely choose their suppliers of natural gas.

Law 99/2009 and the MED Decree dated 3 September 2009 transfer responsibility for selecting suppliers of last resort to the Single Buyer. Every year, the AEEG established the procedure for selecting suppliers of last resort for natural gas.

By means of Resolution No. 71/11, the AEEG introduced a set of new rules to limit the application of the economic conditions to residential customers, non residential customers with consumption level below 50,000 cubic meter/year and users involved in providing public assistance services.

Tariff Structure

The distribution tariff for natural gas is set by the AEEG and is updated every four years. Pursuant to Resolution No. ARG/gas 159/08 (as subsequently amended), the AEEG defined the methodology for determining the distribution tariffs for the 2009-2012 regulatory period. The allowed operating cost (which is subject to an X-factor of 3.2%) is determined by reference to the size of the company and the density of its client base. The remuneration for the invested capital in the current regulatory period is 7.6% for distribution activities and 8.0% for metering activities. Distribution rates for the new period were set on 1 January 2009. The most noteworthy component of the newly introduced tariff regulation relates to the inclusion of a fixed income requirement that companies will receive, which is no longer dependant upon the energy distributed. In so doing, this regulation eliminated a significant risk for companies and has made gas and electricity tariff regulation more consistent.

134 In connection with such changes, a review of the regulated asset basis has also been introduced, which takes into account a value of distribution assets more akin to their industrial value (ie, the reconstruction value of such assets, as depreciated by other assets).

Resolution No. ARG/gas 64/09 defined the new methodology for calculating the Reference Economic Conditions. The AEEG also introduced a set of new rules to limit the application of the Reference Economic Conditions to domestic customers with consumption of less than 200,000 m3 of natural gas per year.

By Resolution ARG/gas 88/09 of 6 July the AEEG established the expenditure compensation system for the supply of natural gas, in support of consumers in difficult economic conditions (the "gas bonus"), developed on the electricity bonus model already in force and introduced following the issue of the Anti-Crisis Decree. The system is operative from 1 November 2009.

The Resolutions R/Gas No. 315/12 and 450/12 stated, for the whole regulatory period 2009-2012, the reference tariffs for natural gas distribution and metering services and the tariff options for non-natural gas distribution and metering services through canalised networks, in order to comply with the decision of Consiglio di Stato No. 2521/12.

To incentivise the investments in new infrastructures, a provisional formula of efficiency index has been provided for in AEEG’s Resolution ARG/gas No. 156/2011, applying on an experimental basis exclusively in respect of the incentive mechanisms for speeding up the completion of the national network development investments. The final index, once approved, is reasonably expected to integrate the general incentive mechanism for the new investments that will be provided in the tariff regulation for the next regulatory period 2014-2017.

As at the date hereof, the Resolution R/Gas No. 436/12 has extended the regulation in place for the year 2013.

Heat and Services

District heating activities are not subject to specific regulation in Italy. District heating supply agreements are subject to the general provisions of the Italian Civil Code. Each company determines prices for district heating at its own discretion, without being subject to any specific regulatory requirements regarding the determination of the tariffs or the methods of their calculation. Most companies, however, fix tariffs by reference to the cost of natural gas for similar usage.

This solution has maintained equivalent costs for the two categories of energy providers (gas and district heating) and, as a result, customers are treated equally.

However, in January 2012 the Antitrust Authority started a cognitive survey regarding the district heating market. The survey will analyse the possible competition constraints inside heating’s regional markets and will probably be crucial for the adoption of a future omogeneus national regulatory framework.

Environmental Regulation

Energy efficiency certificates

In Italy, the regulatory framework on energy efficiency is in force as from 2005 and was regulated by two ministerial decrees enacted in July 2004. Under energy efficiency regulation, electricity and gas distributors are required to achieve end-use energy efficiency targets, with reductions in primary energy consumption. A further decree of 21 December 2007 revised and updated the July 2004 decrees and, in particular, raised the targets for 2008 and 2009 and set new energy saving targets for 2010-2012 for both electricity and gas distributors.

135 The 2004 decrees provided that distributors who are required to achieve energy saving, must deliver the AEEG a quantity of the so-called "energy efficiency certificates" (TEE) or "white certificates" equal to their energy saving obligation. The energy efficiency certificates, of a unit value of 1 TOE, are issued by the Electricity Market Operator (GME) (after savings having been certified by the Authority) in favour of the distributors and their subsidiaries and in favour of companies operating in the energy service sector (so called ESCOs, energy service companies) and, from 2008, also in favour of companies with "energy manager" pursuant to Law No. 10 of 16 January 1991, upon implementation of projects improving energy efficiency. This kind of project includes measures aimed at reducing the quantity of primary energy required to meet the customers' energy demand or to reduce energy consumption. If the resulting energy efficiency certificates are not sufficient, distributors (being subject to the obligation above) may purchase the remaining energy efficiency certificates on the market. The methods for assessing the energy saving achieved by the individual measures implemented are included in the guidelines issued by the AEEG (No. 103/03, amended by resolutions No. 200/04, No. 123/07 and No. 1/09) in accordance with the ministerial decrees of 20 July 2004.

On 3 July 2008, Legislative Decree No. 115 of 30 May 2008 implementing Directive 2006/32/EC on energy end-use efficiency and energy services was published in the Italian Official Gazette. Such decree further extended the obligations of electricity and gas distributors to retail energy sales companies.

The AEEG, through Resolution No. EEN 21/2009, updated the rate of contribution for Energy Efficiency Certificates for 2010 to €92.22/toe on the basis of a mechanism linked to developments in the average annual level of residential rates for electricity and gas and the price of diesel fuel. The update will reduce the contribution in a given year if there is an average increase in these measures in the previous year. At contrary, if there is an average decrease during the previous year, the update will increase the contribution.

For the year 2011, Resolution No. EEN 17/10 has set the rate of contribution for Energy Efficiency Certificates at €93.68/toe. According to Resolution No. EEN 12/11, the rate of such contribution was fixed in €86.98/toe, for the year 2012

Recently, on 5 September 2011, the MED issued a decree providing for a new incentive regime for cogeneration power plants. Such incentives (granted for a ten-year period or for a 15-year period with reference to cogeneration plants with a district heating) cannot be aggregated with Energy Efficiency Certificates. Such Decree was partially amended by the Decree dated 8 August 2012, which modified the definition of “reconstruction” provided therein.

A new energy efficiency directive proposal – which should replace the current directives on cogeneration (2004/8/EC) implemented in Italy by Legislative Decree No. 20/2007 and energy services (2006/32/EC) implemented in Italy by Legislative Decree No. 115/2008 – was approved by the European Parliament on 11 September 2012. The above proposal for a new energy efficiency directive provides for, inter alia, an annual energy saving requirement of 1.5% for each Member State; such result may be achieved by introducing an equivalent obligation for energy distribution or sales companies or through alternative measures (such as, by way of example, financing programmes or voluntary agreements).

With regard to power generation, the Commission proposal for the new directive requires the Member States to draft a national plan for the promotion of high-efficiency cogeneration, district heating and air conditioning. In addition to the above, notwithstanding certain exemptions, the Commission proposed that Member States should require adoption of cogeneration equipment for generation plants having a capacity exceeding 20 MW.

On 4 October 2012, the European Council endorsed the political agreement on such draft Directive (Energy Efficiency Directive).

136 CO2 Emissions

Both the European Union and Italy are signatories to the so called Kyoto Protocol setting legally binding targets for reduction of emissions in the context of the United Nations Framework Convention on Climate Change (UNFCCC). The Kyoto Protocol established an international carbon market to trade emission permits, allowing parties to comply with reduction targets in a cost efficient way. In accordance with a burden-sharing agreement among EU Member States, Italy has set a target to reduce emissions of CO2 and the other greenhouse gases listed in the Kyoto Protocol over the 2008-2012 period by 6.5% from their 1990 levels.

In the framework of the Kyoto Protocol, in 2003, the EU adopted Directive 2003/87/EC (the Emissions Trading Directive) establishing a scheme for greenhouse gas (GHG) emission allowance trading. In October 2004, the EU also passed a further directive (the Linking Directive), amending the Emissions Trading Directive to allow other flexible mechanisms for limiting greenhouse gas emissions and comply with the EU Emission Trading Scheme (EU ETS). Both the Emissions Trading Directive and the Linking Directive have been implemented in Italy by Legislative Decree 216/2006.

On 23 January 2008, the European Commission proposed measures to achieve the EU's ambitious targets for reducing greenhouse gas emissions and increasing the production from renewable energies. The proposed measures contemplate a 21% reduction from 2005 levels in 2020.

On 20 February 2008, the Italian National Committee for the management and implementation of the Emissions Trading Directive, announced the final decision on the total assignment of Emissions Allowances, pursuant to Article 8, paragraph 2 of Legislative Decree No. 216 of 4 April 2006, known as National Allocation Plan for phase 2 (NAP2). This Decision – which was adopted, on 28 February 2008, by the Ministry of Environment and the MED – defined the total allocations for the second trading period of EU ETS (2008-2012) and referred to each sector and each plant covered by EU ETS. National Plan provided also the amount of allowances to set aside for "New Entrants" and methods to allocate allowances.

In May 2010, the Government approved Law Decree No. 72 of 20 May 2010, converted into Law No. 111 of 19 July 2010, which identifies a repayment mechanism for the plants which have not received CO2 emission quotas free of charge due to the depletion of the reserve for the "new entries".

On 28 July 2010 the National Committee approved (in accordance with Article 2, paragraph 1 of Law No. 111 of 19 July 2010) Resolution No. 016/2010, providing the determination of the CO2 quotas for the "New Entry" plants which have not received the quotas free of charge due to the depletion of the reserve.

According to Directive 2009/29/EC (published in the EU Official Journal on 5 June 2009), the EU – amending Directive No. 2003/87/EC – set a GHG emissions cut, by 2020, of 20% compared to the 1990 level. The new Directive foresees new allocation criteria: from the start of the third trading period, auctioning will progressively replace free allocation as the main method for allocating allowances to EU ETS sectors. The EU Community-wide quantity of allowances issued each year starting in 2013 shall decrease by a linear factor of 1.74% compared to the average annual total quantity of allowances issued by Member States in accordance with the Commission Decisions on their national allocation plans for the period from 2008 to 2012. On the total annual amount of EU Allowances available to operators, 88% will be auctioned pro quota between Member States, 10% will be distributed following solidarity criteria, and the remaining 2% will be assigned amongst Member States the greenhouse gas emissions of which were, in 2005, at least 20% below their emissions in the base year applicable to them under the Kyoto Protocol. The power sector will face full auctioning from the start of Phase III.

The Commission proposes to auction 120 million allowances in 2012, ahead of the start of the 2013-2020 trading period. On 13 July 2011, Member states agreed to such a proposal.

137 Regarding revenues from auctioning, the Directive obliges Member States to use at least half of the income to fight and adapt to climate change such as the development of renewable energies, measures to avoid deforestation and to favour forestry sequestration, and measures to support financing of energy efficiency and clean technologies. Member States should adopt all the necessary implementation measures into national law by 31 December 2012.

In order to meet the GHG reduction commitments up to 2020 and to establish a comprehensive emission reduction policy, with the Decision No. 406/2009/CE (the so-called "Effort Sharing Decision") jointly adopted by the EU Parliament and the Council. EU provided national targets for sectors not covered from EU ETS (such as buildings, transport, agriculture and waste). Emission target for Italian sectors extra ETS is equal to -13% compared to 2005 levels. On 18 October 2012, the European Climate Change Committee approved a draft Decision concerning national annual limits for 2013-2020 on Member States' emissions of greenhouse gas emissions from sectors not covered by EU ETS.

Such draft Decision sets annual emission allocations (AEAs) in tonnes.

On 21 January 2011, the Climate Change Committee approved the European Commission's proposal on restricting the use of Clean Development Mechanism (CDM) credits for industrial gas emission reduction projects. According to EU Regulation 550/2011, from 1 January 2013 the use of industrial gas credits (HFC-23 and N2O) will be prohibited. The use of these credits for compliance obligations of Phase II of ETS is not affected by these restrictions: the deadline to surrender credits from certified emission reductions (before 2013) from existing industrial gas projects is 30 April 2013.

On 17 June 2011, the Climate Change Committee approved the European Commission's proposal to enhance the security of national registries following cases of fraud and theft of allowances.

On 18 November 2011, the European Commission adopted Regulation No. 1193/2011, establishing a Union Registry for the trading period commencing on 1 January 2013, and subsequent trading periods, of the Union emissions trading scheme pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision No. 280/2004/EC of the European Parliament and of the Council and amending Commission Regulations (EC) No. 2216/2004 and (EU) No. 920/2010.

Recently, the European Commission adopted two ETS Regulations on monitoring, reporting, verification and accreditation6. Such Regulations (which form part of the set of implementing rules for the third trading period of the EU ETS starting in January 2013) shall be implemented from 1 January 2013.

Landfill disposal

Legislative Decree No. 36 of 13 January 2003 (Decree 36/2003) implemented Council Directive No. 1999/31/EC (the so called Landfill Directive), aimed at preventing, or reducing to any possible extent, the negative environmental effects of landfill.

Decree 36/2003 requires companies that operate a landfill to carry out a series of activities concerning collection, storage and disposal of the percolate, for a period of 30 years after closure of the landfill. The price applied by the operator for landfill disposal must cover the costs for landfill management for at least 30 years after closure.

6 Commission Regulation (EU) No. 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council. Commission Regulation (EU) No. 600/2012 of 21 June 2012 on the verification of greenhouse gas emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council.

138 Site Remediation

The Environmental Code sets out the legal framework on contaminated sites. This regime replaces the previous framework on contaminated sites, set forth by Legislative Decree No. 22 of 5 February 1997 and by Ministerial Decree No. 471 of 25 October 1999.

The regulation envisages three kinds of liabilities burdening the responsible person/entity of a polluting or pollution-risk event: (i) civil liability, (ii) obligations towards public authorities and (iii) criminal liability.

Pursuant to the Environmental Code, the polluter (and also the owner of the site) has the duty to immediately notify the competent authorities of a polluting or pollution-risk event and to adopt spontaneously a number of measures within the deadlines established by law, in order to prevent further consequences of the contamination event.

On the other hand, the owner of the site has no direct duties of remediation and cleanup; nonetheless, these duties could be transferred to him by way of a contractual arrangement.

In the event the polluter does not carry out the cleanup and remediation works, the competent Authorities can directly take care of the same. However, when the Authorities perform directly cleanup and remediation works, the same shall identify the polluter and manage to recover by the same the costs borne for the cleanup. Should the polluter not be identified or being insolvent, the Authorities shall adopt a resolution which has the effect of imposing on the relevant property a so called onere reale: ie an obligation propter rem which obliges whatever owner of the land to repay the cost borne by the Authorities to carry out the cleanup and remediation works. For this reason the onere reale is recorded on the cadastral register and can be enforced against any party purchasing the land. In order to avoid the imposition of the onere reale, the owner of a polluted site might be interested in carrying out directly the relevant works.

The Environmental Code introduces real threshold concentration values for contamination (CSC). If these values are exceeded, it is mandatory to proceed with further investigations, performing a site characterization and a site-specific risk assessment. If the risk assessment reveals the absence of unacceptable risk, the site is declared "not contaminated"; however, in such cases, a monitoring programme may be required. Environmental Code requires a risk assessment if analytical results, collected during the preliminary investigation, exceed the contamination threshold values (CSC). Except for few exceptions, the CSCs provided under Annex 5 of Part IV of the Environmental Code are the same values of those set forth in the previous Ministerial Decree No. 471 of 25 October 1999.

In August 2011, through Legislative Decree No. 121/2011, certain crimes connected to the execution of remediation activities have been included in Decree 231.

Air Pollution

The Environmental Code provides for a regulatory framework concerning the air emission and the relevant measures aimed at reducing the air pollution.

The breach of the set of rules provided for the Environmental Code and regarding the air pollution reduction may entail administrative and criminal sanctions.

In August 2011, certain crimes connected to the exceeding of the air emission limits (set forth by the Environmental Code or by the relevant air emission authorisation) have been included in Decree 231.

139 Regulations applicable to the supply of public services

In accordance with Law No. 448 of 28 December 2001, public services had to be supplied under a regime of free competition whereby concessions were granted by local government to joint stock companies selected through public bids.

Furthermore, under Article 113, paragraph 15-bis, of Legislative Decree No. 267 18 August 2000 (Decree 267/2000), as amended by Law No. 350 of 24 December 2003, the then existing concessions (not originally granted through a public bidding process) were set to expire on 31 December 2006. This general rule did not apply to:

• concessions granted to companies in public and private ownership if the private party was chosen through a public bidding procedure;

• concessions granted to companies wholly owned by public entities if the sole purpose of such companies was to supply services to those public entities;

• concessions granted to companies that, as at 1 October 2003, were (i) already listed on a stock exchange or (ii) totally or partially owned by a listed company; and

• concessions granted to companies originally entirely owned by public bodies which, by 1 October 2003, had transferred a part of their shares through a public bidding procedure.

In the last two circumstances, concessions were set to expire after a period representing the average duration of the concessions issued in the same sector, save for extension granted on a case by case basis, in order to enable the supplier to recover its investments.

According to paragraph 15-ter of Decree 267/2000, the expiry date of 31 December 2006, could be extended by a minimum of one year to a maximum of two years, subject to specific conditions, on the basis of a previous agreement with the EU Commission.

There are certain exclusions related to companies whose original licences were granted through a process other than public bidding. Paragraph 15-quater of Decree 267/2000 provides as follows: "From 1 January 2007, the exclusion, as set forth in paragraph 6, shall be effective, with the exception of the first tenders for the concession of services supplied by companies, which are bidders for the same tender. The Government shall further define the conditions applicable to foreign companies or Italian companies (awarded by concessions abroad without a public bidding process) participating in tenders, provided that, in the first case, the reciprocity principle applies and the timetable for the effective opening of the markets is guaranteed". Listed companies are allowed, in any case, to bid for concessions both within and outside the areas in which they currently operate.

In the event that a new operator wins the public bid, a right to use the networks to provide the services is assigned to the new operator. The new operator must pay to the outgoing operator an indemnity for any portions of networks constructed by the outgoing operator. The amount of this indemnity is equal to the book value of the assets constructed by the outgoing operator to the extent not already amortised.

Article 23-bis of Law Decree No. 112 of 25 June 2008 (converted into law by Law No. 133 of 6 August 2008) (hereinafter Article 23-bis), provided that, by 31 December 2010, a public competitive bid process should have been established for the right to run the service under concession rules. By repealing the relevant provisions set forth by Article 113 of Decree 267/2000, Article 23-bis (as amended) provided the general obligation to grant concessions based only on competitive bids. More particularly, for companies whose shares were listed on a stock exchange prior to 1 October 2003 (such as Hera) and their subsidiaries, Article 23-bis further provided that, any local concessions awarded before 1 October 2003, otherwise than under a public auction – with the exception of gas distribution (as opposed to national concessions, such as

140 Hera's electricity distribution concession) – would have been terminated unless public shareholders reduced their shareholdings to less than 40% of such companies' share capital by 30 June 2013 and less than 30% by 31 December 2015.

Furthermore, with its decision of 12 January 2011, the Constitutional Court ruled on the admissibility of a referendum to abrogate Article 23-bis providing for "Procedures for the assignment and management of economically significant local public services" and Article 154, paragraph 1 of Legislative Decree 152 of 3 April 2006 providing for "Determination of the tariff for the integrated water service", only to the extent referred to "based on adequate remuneration of invested capital". As a consequence of the referendum held on 12 and 13 June 2011 (the Referendum), the provisions set forth by Article 23-bis have been repealed starting from 21 July 2011 by means of article 1 of Presidential Decree No. 113 of 18 July 2011.

As a result of said referendum, Article 23-bis has been repealed and, as a consequence thereof, also the following provisions have been repealed: (i) Presidential Decree No. 168/2010; (ii) paragraphs 5, 5-bis, 6, 7, 8, 9, 14, 15-bis, 15-ter and 15-quater of Article 113 of the Decree 267/2000; (iii) Article 150, paragraph 1, of Legislative Decree No. 152/2006; (iv) Article 202, paragraph 1, of Legislative Decree No. 152/2006.

Indeed, the Constitutional Court, by judgement No. 24/2011 admitting the referendum aimed at repealing Article 23-bis, clarified that: − the "repeal of Article 23-bis does not cause any revival of the provisions repealed by that Article" and − "in case of repealing of the rules provided for by Article 23-bis, European laws on transparency and competition in the public services market shall apply".

Subsequently, Article 4 of Law Decree No. 138 of 13 August 2011 – converted into law by Law No. 148 of September 14 2011, as amended and supplemented by Law No.183 of 12 November 2011 (Decree 138/2011), re-introduced provisions analogous to those previously contained in Article 23-bis.

In particular, paragraph 32 of Article 4 provided for a transitory period regarding local public services awards:

(a) local public services awarded by the authority, without any public tender, to "in house" companies7 or, in any case, local public services assigned by the authority without any public tender to companies which do not meet the "in house" requirements as well as local public services not included among the cases provided by the letters b, c or d below should have terminated on 31 March 20128;

(b) local public services awarded to public-private companies, in case the private partner has been selected through tenders which did not have as their object (i) the award of the position as shareholder and, at the same time, (ii) the award to the private shareholder of operational tasks connected to the management of same service, should have expired on 30 June 20129;

(c) local public services awarded to companies whose capital share is owned both by public and private partners, where the private partner was selected through competitive procedures, for the purposes, at the same time, of selecting the private partner and of assigning operational tasks to the private partner regarding the management of the service, shall expire at the expiry date provided by the relevant contract;

7 i.e. local public services granted to. (i) companies controlled 100% by the public entity and (ii) providing their main activity in favour of the same, having an overall amount higher than Euro 200,000.00 or, in any case, local public services assigned by the authority without any tender to companies which do not meet the "in house" requirements under (i) and (ii) above as well as local public services not included among the cases provided for by letters (b), (c)and (d). 8 Term subsequently extended to 31 December 2012. 9 Term subsequently extended to 31 March 2013.

141 (d) local public services which as of 1 October 2003 resulted to have been awarded directly to companies participated by public entities and listed in official stock exchanges as of the same date, as well as to their subsidiaries pursuant to Article 2359 of the Italian Civil Code, should have expired at the date provided by the relevant contract, upon the condition that the participation held by public entities (soci pubblici) in such companies as of 13 August 2011 or governed by a shareholders' agreement (partecipazione sindacata) should have been reduced up to a share not exceeding 40% by 30 June 2013 and not exceeding 30% by 31 December 2015. Otherwise, the relevant awards should have terminated respectively on 30 June 2013 or 31 December 2015, with no need of formal decision by the awarding authority.

By judgement No. 199/2012, the Constitutional Court declared the constitutional illegitimacy of the whole Article 4 of Decree No. 138/2011. The Court ruled that Article 4 was in breach of Article 75 of the Constitution because it had re-introduced provisions analogous to those provided under Article 23-bis, which had been previously repealed by the referendum. Following the repeal of Article 4 by judgement No. 199/2012, on 20 October 2012 has entered into force Law Decree. No. 179/2012 which, however, does not apply to (i) gas; (ii) electricity and (iii) municipal pharmacies. Article 34 of said decree, with regards to local public services, provides that:

− public entities, before granting the concessions, shall publish on their websites a report clarifying the kind of the award of the concession they have chosen (i.e. public bidding procedure for select a private company, public bidding procedure for select the private partner of a public-private company, direct award to wholly public companies) and the relevant reasons grounding the choice;

− with reference to the concessions existing as of the date of entering into force of the decree (i.e. 20 October 2012) the afore mentioned report has to be published within 31 December 2013.

− with reference to those concessions which do not provide for an expiry date, the competent awarding Authority shall integrate the concession agreement with an expiry date; should the awarding Authority fail in providing an expiry date, the relevant concession shall cease at 31 December 2013;

− concessions granted to companies whose shares were listed on a stock exchange prior to 1 October 200310 (such as Hera) will terminate according to the terms originally indicated in the concession agreement or in the other relevant acts; if no specific expiry date is provided, the concession shall expire not later than 31 December 2020, and no formal resolution from the awarding authority will be required in this respect.

As to the procedures for the assignment of local public services, Article 34 of Decree No. 179/2012 does not contain any specific provision, except for the general principle according to which the local public service must be assigned on a homogeneous territorial basis (ambiti territoriali ottimali e omogenei). Therefore, considering that:

(i) article 23 bis has been repealed by the above mentioned referendum;

(ii) article 113 of Decree 267/2000, for the part abrogated by article 23 bis11, cannot be revived, according to the above mentioned Constitutional Court judgement No. 24/2011

10 As well as the concessions granted to their subsidiaries. 11 Please note that art. 23 bis had abrogated almost all of the relevant dispositions of article 113 of Decree 267/2000. The only relevant dispositions of 113 not expressely abrogated by article 23 bis provide for (i) the management of the public services plants and grid which (if separated from the management), has to be awarded by a public tender (ii) the relationship between Public Entities and concessionaire of the public services, which has to be regulated by a service contract.

142 for the time being Public Entities shall apply the principles and regulations provided for by the EU Treaty on the Functioning of the European Union and, in general terms by EU Law and relevant case law. In this respect, the relevant Authority shall alternatively award the new concession:

1. to private companies, selected by means of a public bidding procedure;

2. directly to public-private companies, should the private partner be selected through a tender having as its object (i) the award of the position as shareholder and, at the same time, (ii) the award to the private shareholder of operational tasks connected to the management of the service;

3. directly to companies wholly owned by public entities if the sole purpose of such companies is to supply services to those public entities and if the awarding Authority may operate on the concessionaire public company the same control that the Authority operates on its offices and departments (so called "in-house" companies).

Water services

The Galli Law and Environmental Code

The first comprehensive set of legal provisions enacted to regulate the sector of water services was contained in Law No. 36 of 5 January 1994 (the Galli Law) aimed at revising the existing scheme of regulation applicable to the management of water resources, the supply of drinking water and waste water treatment. The Galli Law supported a transition towards integrated management of all water resources, including both drinking water and waste water services, and delegates the authority for integrated water services to local authorities.

The Galli Law is no longer directly applicable since it has been repealed by Legislative Decree No. 152 of 3 April 2006 (the Environmental Code). Through the Environmental Code, the Galli Law was reviewed but substantively maintained. The Environmental Code which contains integrated provisions for all environmental businesses and, in principle, the regulation of the management of the integrated water service system in Italy, is based on the following principles:

• a sole integrated system for the management of the entire cycle of water resources (integrated water services or servizio idrico integrato), including the abstraction, transportation and distribution of water for non-industrial purposes, water drainage and purification of waste water;

• the identification by the Italian regions and within each of them, of "Optimal Territorial District" (ATOs), within which the integrated water services are to be managed. The boundaries of ATOs were defined on the basis of: − consistency with hydrological conditions and logistical considerations; − the goal of achieving industry consolidation; and − the potential for economies of scale and operational efficiencies.

• the institution of a water district authority for each ATO (Autorità di Ambito Territoriale Ottimale or AATOs), responsible for: − organising integrated water services, by means of an integrated water district plan which, inter alia, sets out an investments policy and the management plan referred to the relevant district (Piano d'Ambito); − identifying and overseeing an operator of integrated water services; − determining the tariffs; and

143 − monitoring and supervising the service and the activities carried out by the selected operator, in order to ensure the correct application of the tariffs and the achievement of the objectives and quality levels set out in the district plan.

The organisation of integrated water services relies on a clear distinction in the division of tasks among the various governing bodies. The State and regional authorities carry out general planning activities. Local authorities (water district authorities) supervise, organise and control the integrated water services but these activities are managed and operated on a day-to-day basis by (public or private) service operators.

Law No. 42 of 26 March 2010 provided for abolition of the AATO's starting from 27 March 2011 which has since been extended to 31 March 2011 to 31 December 2011 and again to 31 December 2012. By this deadline, regional governments are required to re-assign, by means of specific laws, the roles previously performed by the AATOs, in accordance to the principles of subsidiarity, differentiation and adequacy.

Pursuant to the Environmental Code, the award of the management of the integrated water system is made in favour of a sole operator (the Water District Operator) for each ATO with a public tender procedure to be organised by the relevant AATO.

Article 150, paragraph 1, of Environmental Code has been repealed as a consequence of the repeal of Article 23-bis, except for the competence of the ATO in awarding the tenders.

The contractual relationship between the AATO and the operator is regulated by ad hoc agreements (convenzioni di gestione) which shall, in particular, provide for: − the legal regime chosen for the management of the service; − the term of the contract, which must not exceed 30 years; − the obligation for the operator to return the assets assigned to it at the end of the contractual term; − the standards, in terms of quality of the service and financial performance, that the operator is required to guarantee, as well as the criteria to be applied to monitor such performance; − the applicable penalties and the causes of termination pursuant to the Italian Civil Code; − the criteria and the methods for the application of tariffs determined by the AATO; and − the obligation to execute an appropriate financial guarantee.

The AATO is responsible for preparing the draft agreement, to be drafted on the basis of a "sample agreement" adopted by the regional governments.

Hera is subject to environmental laws and regulations possibly limiting the characteristics of water discharges and wastewater from its plants.

The Environmental Code provides for civil, penal and administrative sanctions in case of violations of its provisions.

It must also be noted that, from August 2011, according to the rules set forth by Legislative Decree No. 121/2011, some crimes concerning water discharge disposal have been introduced within Legislative Decree No. 231/2001 (Decree 231) on entities administrative responsibility12.

12 Decree 231 provides that a company is responsible for certain offences (not only crimes) committed by its executives, directors, agents and/or employees in the interest or to the benefit of that company. The list of offences has been steadily increasing along the years and now covers, inter alia, also health and safety, environment, computer crimes, etc. To avoid (or reduce) its responsibility, the company may adopt a set of rules and procedures aimed at offences. Such set of rules and procedures is commonly referred to in Italy as Model 231. The company must operate to implement its Model 231 and supervise on its compliance. The distinctive features of a Model 231 are (i) the identification of the business areas/operations “at risk” (where an offence could be committed), (ii) the adoption of adequate rules to prevent those risks; (iii) the appointment of a corporate body that will supervise the compliance, collect information (also on the basis of

144 Finally, Article 21 of the Law Decree No. 201 of 6 December 2011 (converted into Law No. 214 of 22 December 2011) has assigned several functions for the regulation and the control on the supply of water services to the AEEG.

Implementation of the Galli Law in Emilia-Romagna

The Emilia-Romagna region implemented the Galli Law through Regional Law No. 25/99, as amended by Regional Law No. 1/2003, which:

• defines the integrated water districts for the purpose of integrated water services under the Galli Law and urban waste management services under the Ronchi Decree (as defined below);

• regulates the co-operation between local authorities in each ATO, for the organisation, regulation and oversight of public services;

• defines terms and procedures for organising public services with a view to attaining an industrial level operation based on criteria of efficiency, effectiveness and convenience, and ensuring protection of the environment and the territory; and

• guarantees to ensure a high quality of services to consumers.

Regional Law No. 25/99 identified nine ATOs in the Emilia-Romagna region, which coincide with the boundaries of each province and the metropolitan area of Bologna. It provides that the provinces and municipalities of each ATO should form joint ventures (either through an agreement or consortium) to group the interests of associated public authorities and jointly to exercise their administrative functions in relation to water and environmental services. These joint ventures, which are still to be formed, will exercise control functions under the Regional Law No. 25/99 in the form of a district agency for public services, a distinct legal entity under public law (district agency).

As explained above, in resolution No. 2679 of the regional council of 3 December 2001, the Emilia- Romagna region approved the model agreement regulating relations between district agencies and operators of integrated water services to implement the mandate envisaged by the Galli Law.

The Emilia-Romagna region also established policies and guidelines for the initial activation of the integrated water service to implement Regional Law No. 25/99.

Finally, through the implementation of Regional Law No. 25/99, in Resolution No. 1102 of the regional council dated 12 June 2001, the Emilia-Romagna region arranged to appoint the regional authority for monitoring water services and urban waste management. The regional authority for monitoring water services and urban waste management is a body that:

• avails itself of an observer;

• consults the committee monitoring the use of water resources;

• regulates the system of relationships with the consultative committees of users; and

• works in conjunction with the integrated water district agencies.

anonymous indications by employees/agents) and suggest updating ("Compliance Officer"), and (iv) a disciplinary system to sanction the breaches ("Disciplinary System").

145 The matter has also been regulated by Regional Law n. 10/2008, which, inter alia, provided that within each ATO it shall have to be also established a "Costumers' consultation committee" for the purposes of monitoring the water and waste services quality standards.

Regional Law No. 25/99 and no. 10/2008 has been partially repealed by Regional Law No. 23 of 23 December 2011, which, in particular, has provided that:

• Emilia Romagna Region has only one ATO for the water services, which includes the whole territory of the Region;

• the AATO should have been replaced, from 1 January 2012, by a new Agency (i.e. "Agenzia territoriale dell’Emilia Romagna per I servizi idrici e I rifiuti"), which should have assumed all the functions previously exercised by the AATO for the water services. The Agency has been already instituted and it is currently operative;

• the Region will promote the realization of municipal waterworks, which will be released and managed by the SII concessionaire, if so provided by the concessions.

The Water Tariff Structure

Pursuant to Article 154 of the Environmental Code, the water tariff constitutes the consideration (corrispettivo) for the concession granted to the selected operator and it is, in principle, calculated so as to allow for a full recovery of operating costs incurred and to achieve a given percentage return on the investment made. The costs to be considered in order to calculate the tariff should be set out in a regulation of the Minister to the Protection of the Environment and Territory.

The Referendum result led to the partial repeal of paragraph 1 of Article 154 of the Environmental Code: in particular, following the Referendum outcome, the requisite referred to the 'appropriateness of the return on invested capital', which is a component of the integrated water service tariff, has been deleted; it is likely that the current tariff method, set forth by Ministerial Decree of 1 August 1996, (the Standardised Method, please see below) will be revised, as envisaged in paragraph 2 of the same Article 154. The next review of the standardised method will be one of the tasks assigned to the new Independent National Regulatory Agency for Integrated Water Services (Agenzia nazionale indipendente di regolazione del servizio idrico integrato), established under Law No. 106 of 12 July 2011, converting Law Decree No. 70 of 13 May 2011. Until this date, pursuant to Article 170, paragraph 3 of the aforementioned Environmental Code, operators had to apply tariffs approved pursuant to the current reference legislation (ie the standardised method set forth by Ministerial Decree of 1 August 1996).

The tariff under the Standardised Method shall also cover services related to the sewage system, treatment of wastewater and the supply of drinking water.

The Standardised Method provides for the determination of an average tariff (tariffa reale media dell'ambito), effectively the price paid by the end user to the operator managing the water services in the respective Integrated Water District. The average tariff is calculated on the basis of the "normalised method" (metodo normalizzato) for establishing the cost components and determining the "reference tariff" (tariffa di riferimento). Each AATO must refer to the reference tariff when determining the actual average tariff, that is the tariff which takes into account the different quality and quantity of the services supplied in the individual ATO. In addition, the Ministerial Decree of 1 August 1996 introduces a price-cap mechanism which limits increases in the tariffs when tariff adjustments are made whilst, at the same time, permitting tariff increases due to improvements in the efficiency and in the quality of the service. One tariff is determined for each ATO.

146 According to the Standardised Method, the "reference tariff" for each district is determined in accordance with a formula which takes into account operating costs (such as raw materials, services, wages and salary, changes in inventories and depreciation), the amortisation of tangible and intangible fixed assets, the return on projected net investment and the official estimated inflation rate as determined by the Italian government's long term financial budget, as well as the price-cap (the maximum price increase).

With deliberation No 74/2012/R/idr of 1 March 2012, AEEG has started a procedure for reviewing the water tariffs, with the aim to adopt, as soon as possible, a new transitory tariff Method. To this aim, AEEG, with deliberation No 374/2012/R/idr of 2 August 2012, has requested that all the water services concessionaires provide AEEG with all the relevant information on the water services provided by them, by compiling a specific form, whose format was updated and approved by AEEG deliberation No. 2 of October, 10, 2012.

Constitutional Court decision No. 335/2008

By means of decision No. 335 of 10 October 2008 (Decision 335/2008), the Constitutional Court declared both Article 14, paragraph 1 of the Galli Law and the corresponding Article 155, paragraph 1 of the Environmental Code to be partially unconstitutional. These provisions establish that the tariff component covering waste water treatment is payable by end users "even if there are no treatment plants or such plants are temporarily inactive". The judgement is based on the opinion that the integrated water services tariff represents payment for services provided under contract and not a form of taxation.

Following Decision 335/2008, the Italian parliament approved Law No. 13 of 27 February 2009, which under Article 8-sexies introduced a new binding component to the tariff, remunerating the costs incurred in carrying out the overall activities involved in water treatment, including the design, construction and completion of treatment plants and the related investments, as expressly identified and programmed in the area plans.

Under the new legislation, this new component "must be paid" to the operator by end-users, in cases where there are no treatment plants or such plants are temporarily inactive, from the start-up of the tender procedures for the design or completion of the infrastructure necessary in order to provide the treatment service, provided that such procedures are implemented in accordance with the established schedule. The second paragraph of Article 8-sexies, referred to above, also governs the method of reimbursing the sums received from end-users, in accordance with the Constitutional Court ruling, establishing that design, construction and completion costs incurred are to be deducted from the rebate.

In September 2009, the Ministry of the Environment issued a Decree 30 September 2009 (published on 8 February 2010), setting out the rules concerning the reimbursement of the disallowed tariff component covering waste water treatment.

In particular, the Decree establishes that: − the operator must provide the AATO with all the relevant information necessary to permit the AATO to calculate the amount of the rebates. In particular:

(a) the customers' list containing all the information about whose customers are connected to the sewage network;

(b) amounts paid by the single customer with reference to the tariff component covering waste water treatment;

(c) all the information related to costs incurred in design, construction and completion of the treatment plants; and

(d) the calculation of sums paid by the end user in connection with waste water management;

147 − the AATO must determine the rebate, on the basis of the information provided by the operator; and − the operator must reimburse the disallowed tariff component, either in a lump sum or in instalments, within five years from 1 October 2009.

The AATOs are authorised to take all measures necessary to ensure that the operator maintains its financial stability, possibly through an extraordinary revision of tariffs.

Waste

The Ronchi Decree and the Environmental Code

The first comprehensive reform concerning the waste sector was carried out through Legislative Decree No. 22 of 5 February 1997 (the Ronchi Decree) which pursued the objective of overcoming fragmented management, separating planning from operations, and reforming the system of remuneration of the service by applying a rate suitable to cover investment and operating costs. The Ronchi Decree implemented several European directives regarding waste, significantly changing the Italian regulatory framework and sought to reduce waste volumes and promote recycling.

The Ronchi Decree, in the same manner as Galli Law, is no longer applicable since it has been repealed by Environmental Code which introduced important amendments aimed at promoting the development of competitive tendering of waste management service.

In particular, the regulation contained in the Ronchi Decree and in the Environmental Code is based on the following key principles:

• wastes are classified according to their origin as urban waste, special waste, hazardous waste and non-hazardous waste;

• segregated waste collection is encouraged, establishing collection targets in set timeframes: 35% by 31 December 2006, 45% by 31 December 2008 and 65% by 31 December 2012;

• each region will be divided into ATO's and a Waste District Authority will be established for each ATO (Autorità di Ambito Territoriale Ottimale or AATOs), which is responsible for organising, awarding and supervising integrated urban waste management services (collection, transport, recycling and disposal of urban waste);

• the AATO will draft a district plan, in accordance with the criteria set out by the relevant regional government;

• the municipalities' responsibilities relating to integrated waste management will be transferred to the AATOs;

• a phasing-out of landfills as a disposal system for waste materials; and

• the order of priority of the procedures through which waste can be managed will be the following: (i) preparation for reuse; (ii) recycling; (iii) recovery, including energy generation; and (iv) disposal;

• creation of a national regulatory authority (the Regulatory Authority) that is responsible for monitoring water and waste assets, so as to ensure and control the observance of the principles and the fulfilment of Part Four's objectives, especially with respect to the transparency of the outsourcing of services. The Regulatory Authority assumes all of the waste related responsibilities that are

148 currently granted by the Ronchi Decree to the national waste observatory, which continues to function in the interim period13; and

• simplifying administrative resources through the introduction of a single tendering procedure for building and operating waste storage, treatment, landfill and incineration plants as well as general waste management.

Law No. 42 of 26 March 2010 provided for abolition of the AATO's starting from 27 March 2011 which has then been extended to 31 March 2011, to 31 December 2011 and again to 31 December 2012. By this deadline, regional governments are required to re-assign, by means of specific laws, the roles previously performed by the AATOs, in accordance to the principles of subsidiarity (sussidiarità), differentiation and adequacy.

The Environmental Code has been subject to significant revisions that have significant repercussions on the activities of the companies operating in the sector, following the entry into force of first level and implementation provisions (the latest such amendment being implemented through Legislative Decree No. 205 of 3 December 2010). Further amendments are expected, as a result of the implementation of the recent European regulations.

Article 202, paragraph 1, of the Environmental Code has been repealed as a consequence of the repeal of Article 23-bis, except for the competence of the ATO in awarding the tenders. However, the Ronchi Decree is discussed herein because of its impact on the Hera Group's operations. In fact, service organisation rules provided under the Ronchi Decree are still applicable, due to the lack of regulation in these areas of the Environmental Code.

Moreover, Article 25, paragraph 4, of the Law Decree No 1 of 24 January 2012, has now clarified that the urban waste management services consist of collection, transport and recycling of urban waste, and may even include the disposal activity. The inclusion of the disposal activities in the urban waste management services is conditional upon the decision of the AATO to include in the urban waste management service also the construction and operation of the relevant disposal plants. Should the disposal plants not be in the ownership of the Public Entities, the owner shall ensure to the concessionaire of service the access to the disposal plant.

Under the Environmental Code, companies producing waste are responsible and chargeable for waste storing, transportation, recycling and disposal. Legislative Decree No. 205 of 3 December 2010, amending the Environmental Code rules concerning the paper-based waste management system, introduced the new electronic waste monitoring system (the SISTRI), which according to article 52 of Law Decree No. 83 of 22 June 2012, will become operative within 30 June 2013.

Also, with respect to waste management, from August 2011, according to the rules set forth by Legislative Decree No. 121/2011, some crimes concerning waste disposal have been introduced within Decree 231.

Implementation of the Ronchi Decree in Emilia-Romagna

The Emilia-Romagna region implemented the Ronchi Decree through Regional Law No. 25/99, which defines the integrated water districts and regulates the co-operation between local authorities in relation to waste management services. See "—Water services – Integrated Water Districts and the Water District Authority – Implementation of the Galli Law in Emilia-Romagna".

13 Legislative Decree No. 284 of 8 November, 2006 repealed Article 207 of the Environmental Code and abolished the “Regulatory Authority”.

149 Under Regional Law No. 25/99, urban waste management services are defined as the sweeping and cleaning of roads and public squares, the collection and recovery of waste and the delivery of waste for retrieval and disposal.

A district agency was set up under Regional Law No. 25/99 with the aim of organising and setting up the integrated urban waste cycle, along with the integrated water services. The district agency organises the activities in the urban waste management cycle under the provincial waste management plans prepared by the provinces under the Regional Law No. 25/99, so as to promote efficiency, effectiveness, fair prices and state-of-the-art management.

Regarding the provisions of Article 23 of the Ronchi Decree (urban waste management in the ATOs), the region and the provinces must ensure the centralised management of waste management services in each ATO. If necessary, the arrangements may be recorded in the form of special agreements under article 15 of Law No. 241 of 7 August 1990. The public services entities may also participate in these agreements.

The Regional Law No. 25/99 was implemented through Resolution No. 1102 of the regional council of 12 June 2001 under which the Emilia-Romagna region appointed a regional authority for monitoring water and waste management services.

Finally, it should be noted that, through Resolution No. 1620 of the regional council of 31 July 2001, the Emilia-Romagna region has also approved criteria and policies in respect of waste planning and management.

As previously discussed, Regional Law No. 10/2008 provided, inter alia, that a "Custumers' consultation committee" had to be also established, within each ATO, for the purposes of monitoring the water and waste services quality standards.

Regional Law No. 25/99 and No. 10/2008 have been partially repealed by Regional Law No. 23/2011, which, in particular, has provided that:

• Emilia Romagna Region has only one ATO for the urban waste management services, which includes the whole territory of the Region;

• the AATO should have been replaced, from 1 January 2012, by a new Agency (i.e. "Agenzia territoriale dell’Emilia Romagna per i servizi idrici e i rifiuti", the Agency), which should have assumed all the functions previously exercised by the AATO for urban waste management services. The Agency has been already instituted and is currently operational;

• the urban waste management service does not include the waste disposal in disposal plants (and in recovery plants classified as R1) owned by private owners14.

Waste tariff mechanism

The Ronchi Decree replaced the urban solid waste disposal tax (the so-called, Tassa per lo smaltimento dei rifiuti solidi urbani) with a tariff regime, aimed at fully covering costs, based on a "price cap" method and giving responsibility to the municipalities for determining the tariff on the basis of a reference value established according to the so-called "normalised method" provided for under Presidential Decree No. 158 of 27 April 1999 (Decree 158/1999). The Environmental Code has now assigned to each AATO the task of determining the tariff to be paid to the service operators, which shall be commensurate with the ordinary average quantity and quality of waste produced by square metre in relation to the use and types of activities

14 The Agency should have identified such plants within 22 February 2012. Such recognition has not been done yet. However, the term provided by Law was not a deadline.

150 carried out, on the basis of general parameters determined by an ad hoc regulation of the Ministry for the Protection of the Environment and Territory. The tariff also covers ancillary costs, such as street-sweeping.

By 31 December 2009, the Ministry is required to adopt a regulation identifying the cost components for determining the tariff. Should the Ministry not adopt such regulation, on the basis of the provisions of Decree 158/1999, the previous regulations apply. As of the date hereof, this regulation has not been adopted yet and there is currently no clarity as to the timing for its adoption.

In July 2009, with Decision No. 38/2009, the Constitutional Court declared that the waste tariff pursuant to Article 49 of Legislative Decree No. 22 of 15 February 1997, also known as "TIA1" was by way of tax and therefore not subject to VAT. Following this decision, the Italian government approved Law Decree No. 78 of 31 May 2010, providing under Article 14, paragraph 33 that "the provisions of Article 238 of Legislative Decree No. 152 of 3 April 2006 shall be interpreted in the sense of the non taxation nature of the tariff provided therein. The disputes relating to this tariff, which ensued subsequently to the effective date of this Decree, fall under the jurisdiction of the ordinary judicial authority."

Therefore, currently the TIA is subject to VAT, while an intervention by the legislator is awaited for the possible issue of refunds for the period in which TIA1 applied, together with the consequent reorganisation of the entire issue and the relative regulatory regime.

Article 14 of Law Decree No. 201/2011 has introduced, applicable from 1 January 2013, a new municipal waste tax, to be payed to the Municipality (the so-called "RES"). By 31 October 2012, a Presidential Decree shall define the components of the RES. Should this Decree not be adopted within 31 October 2012, from 1 January 2013 until the date of the adoption of such Presidential Decree, Decree No. 158/1999 shall apply. As of the date hereof, such regulation has not yet been adopted and there is currently no clarity as to the timing envisaged for its adoption.

According to Article 14, paragraph 29, of the Law Decree No. 201/2011, the Municipalities which have put in place measures for determining the specific quantity of waste conferred to the concessionaire of the urban waste management service, may enact regulations providing for the application of a tariff instead of the RES, to be paid directly to the concessionaire. The determination of such tariff will be provided by the above mentioned Decree.

151 TAXATION

ITALIAN TAXATION

The statements herein regarding taxation summarise the principal Italian tax consequences of the purchase, the ownership, the redemption and the disposal of the Notes.

This is a general overview that does not apply to certain categories of investors and does not purport to be a comprehensive description of all the tax considerations which may be relevant to a decision to purchase, own or dispose of the Notes. It does not discuss every aspect of Italian taxation that may be relevant to a Noteholder if such Noteholder is subject to special circumstances or if such Noteholder is subject to special treatment under applicable law.

This overview also assumes that the Issuer is resident in the Republic of Italy for tax purposes, is structured and conducts its business in the manner outlined in this Base Prospectus. Changes in the Issuer's organisational structure, tax residence or the manner in which it conducts its business may invalidate this overview. This overview also assumes that each transaction with respect to the Notes is at arm's length.

Where in this overview, English terms and expressions are used to refer to Italian concepts, the meaning to be attributed to such terms and expressions shall be the meaning to be attributed to the equivalent Italian concepts under Italian tax law.

The statements herein regarding taxation are based on the laws in force in the Republic of Italy as of the date of this Base Prospectus and are subject to any changes in law occurring after such date, which changes could be made on a retroactive basis. The Issuer will not update this overview to reflect changes in laws and if such a change occurs the information in this overview could become invalid.

Article 2, paragraphs 6-34 of Law Decree 13 August 2011, No. 138 converted into law with amendments by Law 14 September 2011, No. 148 (the Decree 138) introduced a general reform of financial income and capital gains pursuant to which, inter alia, save for certain exceptions, such kind of income will be subject to withholding (or substitutive) tax at 20% rate (instead of the current 12.5% rate) starting from 1 January 2012. Accordingly, this overview only considers the rates and rules applicable as from 1 January 2012. Provisional rules are set forth by the Decree 138, which are not described herein.

Certain other amendments to the tax regime of financial instruments have been introduced by Law Decree No. 201 of 6 December 2011, converted into law, with amendments, by Law No. 214 of 22 December 2011, (the Decree 201), providing for the general application of stamp duties (imposta di bollo) to financial instruments. Provisional rules are also set forth by the Decree 201, which are not described herein.

Prospective purchasers of the Notes are advised to consult their own tax advisers concerning the overall tax consequences under Italian tax law, under the tax laws of the country in which they are resident for tax purposes and of any other potentially relevant jurisdiction of acquiring, holding and disposing of the Notes and receiving payments of interest, principal and/or other amounts under the Notes, including in particular the effect of any state, regional or local tax laws.

152 Interest on the Notes

Notes qualifying as bonds or securities similar to bonds

Legislative Decree No. 239 of 1 April 1996, as amended, (Decree 239) regulates the income tax treatment of interest, premium and other income (including any difference between the redemption amount and the issue price, hereinafter collectively referred to as Interest) from notes issued, inter alia, by Italian resident companies listed in an Italian regulated market, falling within the category of bonds (obbligazioni) or securities similar to bonds (titoli similari alle obbligazioni). After the amendments introduced by Decree 138, in order to apply Decree 239 (formerly applicable only to Notes having a maturity of eighteen months or more), the maturity of the Notes became irrelevant.

For this purpose, securities similar to bonds are securities that incorporate an unconditional obligation to pay, at maturity, an amount not lower than their nominal value and that do not allow any direct or indirect participation either in the management of the issuer or in the business in connection with which they have been issued, nor any control on such management.

Italian resident Noteholders

Where an Italian resident Noteholder, who is the beneficial owner of the Notes, is (i) an individual not engaged in a business activity to which the Notes are effectively connected, (ii) a non-commercial partnership, (iii) a non-commercial private or public institution, or (iv) an investor exempt from Italian corporate income taxation, Interest payments relating to the Notes are subject to a substitutive tax, referred to as imposta sostitutiva, levied at the rate of 20% (either when the Interest is paid by the Issuer, or when payment thereof is obtained by the Noteholder on a sale of the relevant Notes). The imposta sostitutiva may not be recovered by the Noteholder as a deduction from the income tax due.

If the Notes are held by an investor engaged in a business activity and are effectively connected with the same business activity, the Interest is subject to the imposta sostitutiva and is included in the relevant income tax return. As a consequence, the Interest is subject to the ordinary income tax and the imposta sostitutiva may be recovered as a deduction from the income tax due.

Pursuant to the Decree 239, imposta sostitutiva is levied by banks, società di intermediazione mobiliare (SIMs), società di gestione del risparmio (SGRs), fiduciary companies, stock exchange agents and other entities identified by the relevant Decrees of the Ministry of Economy and Finance (the Intermediaries).

An Intermediary must satisfy the following conditions:

(i) it must be: (a) resident in Italy; or (b) a permanent establishment in Italy of an intermediary resident outside of Italy; or (c) an organisation or company non-resident in Italy, acting through a system of centralised administration of securities and directly connected with the Department of Revenue of the Ministry of Economy and Finance (which includes Euroclear and Clearstream) having appointed an Italian representative for the purposes of Decree 239; and

(ii) intervene, in any way, in the collection of Interest or in the transfer of the Notes. For the purpose of the application of imposta sostitutiva, a transfer of the Notes includes any assignment or other act, either with or without consideration, which results in a change of the ownership of the relevant Notes.

Where the Notes are not deposited with an Intermediary, imposta sostitutiva is applicable and withheld by any Italian bank or any Italian intermediary paying Interest to a Noteholder.

153 The imposta sostitutiva regime described herein does not apply in cases where the Notes are held in a discretionary investment portfolio managed by an authorised intermediary pursuant to the so-called discretionary investment portfolio regime (Risparmio Gestito regime as defined and described in "Capital Gains", below). In such a case, Interest is not subject to imposta sostitutiva but contributes to determine the annual net accrued result of the portfolio, which is subject to an ad-hoc substitutive tax of 20% on the results.

The imposta sostitutiva also does not apply to the following subjects, to the extent that the Notes and the relevant coupons are deposited in a timely manner, directly or indirectly, with an Intermediary:

(i) Corporate investors

Where an Italian resident Noteholder is a corporation or a similar commercial entity (including a permanent establishment in Italy of a foreign entity to which the Notes are effectively connected), Interest accrued on the Notes must be included in: (I) the relevant Noteholder's yearly taxable income for the purposes of corporate income tax (IRES), generally applying at the current ordinary rate of 27.5%; and (II) in certain circumstances, depending on the status of the Noteholder, also in its net value of production for the purposes of regional tax on productive activities (IRAP), generally applying at the rate of 3.9% (certain categories of taxpayers, including banks, financial entities and insurance companies, are subject to higher IRAP rates). The IRAP rate can be increased by regional laws up to 0.92%. Said Interest is therefore subject to general Italian corporate taxation according to the ordinary rules;

(ii) Investment funds

Italian investment funds (including a Fondo Comune d'Investimento, or a SICAV, as well as Luxembourg investment funds regulated by Article 11-bis of Law Decree No. 512 of 30 September 1983, collectively, the Funds) are neither subject to substitutive tax nor to any other income tax, provided that either the Fund or the Fund's manager is subject to the supervision of a regulatory authority. Proceeds payable by the Funds to their quotaholders will generally be subject to a 20% withholding tax;

(iii) Pension funds

Pension funds (subject to the tax regime set forth by Article 17 of Legislative Decree No. 252 of 5 December 2005, the Pension Funds) are subject to an 11% substitutive tax on their annual net accrued result. Interest on the Notes is included in the calculation of such annual net accrued result; and

(iv) Real estate investment funds

Interest payments in respect of the Notes to Italian resident real estate investment funds established pursuant to Article 37 of Legislative Decree No. 58 of 24 February 1998 (the Real Estate Investment Funds) are generally subject neither to imposta sostitutiva nor to any other income tax in the hands of the same Real Estate Investment Funds. Unitholders are generally subject to a 20% withholding tax on distributions from the Real Estate Investments Funds. Law Decree No. 70 of 13 May 2011 (converted with amendments by Law No. 106 of 12 July 2011)has introduced certain changes to the tax treatment of the unitholders of Real Estate Investment Funds, including a direct imputation system (tax transparency) for certain non-qualifying unitholders (eg Italian resident individuals) holding more than 5% of the units of the fund.

154 Non-Italian resident Noteholders

An exemption from imposta sostitutiva on Interest on the Notes is provided with respect to certain beneficial owners resident outside of Italy, not having a permanent establishment in Italy to which the Notes are effectively connected. In particular, pursuant to the Decree 239 the aforesaid exemption applies to any beneficial owner of an Interest payment relating to the Notes who: (i) is resident, for tax purposes, in a country which allows for a satisfactory exchange of information with the Republic of Italy (as currently listed by Ministerial Decree dated 4 September 1996 and which will be included in a new list to be enacted by a ministerial decree to be issued pursuant to Law No. 244 of 24 December 2007 – a White List Country); or (ii) is an international body or entity set up in accordance with international agreements which have entered into force in the Republic of Italy; or (iii) is the Central Bank or an entity also authorised to manage the official reserves of a country; or (iv) is an institutional investor which is established in a White List Country, even if it does not possess the status of taxpayer in its own country of establishment (each, a Qualified Noteholder).

The exemption procedure for Noteholders who are non-resident in Italy and are resident in a White List Country identifies two categories of intermediaries:

(a) an Italian or foreign bank or financial institution (there is no requirement for the bank or financial institution to be EU resident) (the First Level Bank), acting as intermediary in the deposit of the Notes held, directly or indirectly, by the Noteholder with a Second Level Bank (as defined below); and

(b) an Italian resident bank or SIM, or a permanent establishment in Italy of a non-resident bank or SIM, acting as depositary or sub-depositary of the Notes appointed to maintain direct relationships, via electronic link, with the Italian tax authorities (the Second Level Bank). Organisations and companies non-resident in Italy, acting through a system of centralised administration of securities and directly connected with the Department of Revenue of the Ministry of Economy and Finance (which include Euroclear and Clearstream) are treated as Second Level Banks, provided that they appoint an Italian representative (an Italian resident bank or SIM, or permanent establishment in Italy of a non-resident bank or SIM, or a central depositary of financial instruments pursuant to Article 80 of Legislative Decree No. 58 of 24 February 1998) for the purposes of the application of Decree 239.

In the event that a non-Italian resident Noteholder deposits the Notes directly with a Second Level Bank, the latter shall be treated both as a First Level Bank and a Second Level Bank.

The exemption from the imposta sostitutiva for the Noteholders who are non-resident in Italy is conditional upon:

(a) the deposit of the Notes, either directly or indirectly, with an institution which qualifies as a Second Level Bank; and

(c) the submission to the First Level Bank or the Second Level Bank of a statement of the relevant Noteholder (autocertificazione), to be provided only once, in which it declares that it is eligible to benefit from the exemption from imposta sostitutiva. Such statement must comply with the requirements set forth by a Ministerial Decree dated 12 December 2001, is valid until withdrawn or revoked and needs not to be submitted where a certificate, declaration or other similar document for the same or equivalent purposes was previously submitted to the same depository. The above statement is not required for non-Italian resident investors that are international bodies or entities set up in accordance with international agreements entered into force in the Republic of Italy or Central Banks or entities also authorised to manage the official reserves of a State.

Additional requirements are provided for "institutional investors".

155 In the case of non-Italian resident Noteholders not having a permanent establishment in Italy to which the Notes are effectively connected, the imposta sostitutiva may be reduced (generally to 10%) or eliminated under certain applicable tax treaties entered into by Italy, if more favourable, subject to timely filing of the required documentation.

Notes qualifying as atypical securities (titoli atipici)

Interest payments relating to Notes that are neither deemed to fall within the category of bonds (obbligazioni) or securities similar to bonds (titoli similari alle obbligazioni) nor in the category of shares (azioni) or securities similar to shares (titoli similari alle azioni) are subject to a withholding tax, levied at the rate of 20%.

Where the Noteholder is (i) a non-Italian resident person, (ii) an Italian resident individual not holding the Notes for the purpose of carrying out a business activity, (iii) an Italian resident non-commercial partnership, (iv) an Italian resident non-commercial private or public institution, (v) a Fund, (vi) a Real Estate Investment Fund, (vii) a Pension Fund, (viii) an Italian resident investor exempt from Italian corporate income taxation, such withholding tax is a final withholding tax.

Where the Noteholder is (i) an Italian resident individual carrying out a business activity to which the Notes are effectively connected, (ii) an Italian resident corporation or a similar Italian commercial entity (including a permanent establishment in Italy of a foreign entity to which the Notes are effectively connected), such withholding tax is an advance withholding tax.

In case of non-Italian resident Noteholders, without a permanent establishment in Italy to which the Notes are effectively connected, the above-mentioned withholding tax rate may be reduced (generally to 10%) or eliminated under certain applicable tax treaties entered into by Italy, if more favourable, subject to timely filing of the required documentation.

Capital Gains

Italian resident Noteholders

Pursuant to Legislative Decree No. 461 of 21 November 1997 (Decree No. 461) a 20% capital gains tax (the CGT) is applicable to capital gains realised on any sale or transfer of the Notes for consideration by Italian resident individuals (not engaged in a business activity to which the Notes are effectively connected), regardless of whether the Notes are held outside of Italy.

For the purposes of determining the taxable capital gain, any Interest on the Notes accrued and unpaid up to the time of the purchase and the sale of the Notes must be deducted from the purchase price and the sale price, respectively.

Taxpayers can opt for one of the three following regimes:

(a) Tax return regime (Regime della Dichiarazione)

The Noteholder must assess the overall capital gains realised in a certain fiscal year, net of any incurred capital losses, in his annual income tax return and pay the CGT so assessed together with the income tax due for the same fiscal year. Losses exceeding gains can be carried forward into following fiscal years up to the fourth following fiscal year. Since this regime constitutes the ordinary regime, the taxpayer must apply it to the extent that the same does not opt for any of the two other regimes;

156 (b) Non-discretionary investment portfolio regime (Risparmio Amministrato)

The Noteholder may elect to pay the CGT separately on capital gains realised on each sale or transfer of the Notes. Such separate taxation of capital gains is allowed subject to (i) the Notes being deposited with banks, SIMs or other authorised intermediaries and (ii) an express election for the Risparmio Amministrato regime being made in writing by the relevant Noteholder. The Risparmio Amministrato lasts for the entire fiscal year and unless revoked prior to the end of such year will be deemed valid also for the subsequent one. The intermediary is responsible for accounting for the CGT in respect of capital gains realised on each sale or transfer of the Notes, as well as in respect of capital gains realised at the revocation of its mandate. The intermediary is required to pay the relevant amount to the Italian tax authorities by the 16th day of the second month following the month in which the CGT is applied, by deducting a corresponding amount from the proceeds to be credited to the Noteholder. Where a particular sale or transfer of the Notes results in a net loss, the intermediary is entitled to deduct such loss from gains subsequently realised on assets held by the Noteholder with the same intermediary and within the same deposit relationship, in the same fiscal year or in the following fiscal years up to the fourth following fiscal year. The Noteholder is not required to declare the gains in his annual income tax return; and

(d) Discretionary investment portfolio regime (Risparmio Gestito)

If the Notes are part of a portfolio managed by an Italian asset management company, capital gains are not subject to the CGT, but contribute to determine the annual net accrued result of the portfolio. Such annual net accrued result of the portfolio, even if not realised, is subject to an ad-hoc 20% substitutive tax, which the asset management company is required to levy on behalf of the Noteholder. Any losses of the investment portfolio accrued at year end may be carried forward against net profits accrued in each of the following fiscal years, up to the fourth following fiscal year. Under such regime the Noteholder is not required to declare the gains in his annual income tax return.

The aforementioned regime does not apply to the following subjects:

(A) Corporate investors

Capital gains realised on the Notes by Italian resident corporate entities (including a permanent establishment in Italy of a foreign entity to which the Notes are effectively connected) form part of their aggregate income subject to IRES. In certain cases, capital gains have also to be included in the taxable net value of production of such entities for IRAP purposes. The capital gains are calculated as the difference between the sale price and the relevant tax basis of the Notes. Upon fulfilment of certain conditions, the gains may be taxed in equal instalments over up to five fiscal years.

(B) Funds

Capital gains realised by the Funds on the Notes are not taxable at the level of same Funds (see Italian Resident Noteholders, above).

(C) Pension Funds

Capital gains realised by Pension Funds on the Notes contribute to determine their annual net accrued result, which is subject to an 11% substitutive tax (see Italian Resident Noteholders, above).

157 (D) Real Estate Investment Funds

Capital gains realised by Real Estate Investment Funds on the Notes are not taxable at the level of same Real Estate Investment Funds (see Italian Resident Noteholders, above).

Non Italian resident Noteholders

Capital gains realised by non-resident Noteholders (not having permanent establishment in Italy to which the Notes are effectively connected) on the disposal of the Notes are not subject to tax in Italy, regardless of whether the Notes are held in Italy, subject to the condition that the Notes are listed in a regulated market in Italy or abroad (eg the Luxembourg Stock Exchange).

Should the Notes not be listed in a regulated market as indicated above, the aforesaid capital gains would be subject to tax in Italy, if the Notes are held by the non-resident Noteholder therein. Pursuant to Article 5 of Decree 461, an exemption, however, would apply with respect to beneficial owners of the Notes, which are Qualified Noteholders.

In any event, non-Italian resident Noteholders without a permanent establishment in Italy to which the Notes are effectively connected that may benefit from a tax treaty with Italy providing that capital gains realised upon sale or transfer of Notes are taxed only in the country of tax residence of the recipient, will not be subject to tax in Italy on any capital gains realised upon any such sale or transfer.

Transfer taxes

Stamp duty tax (tassa sui contratti di borsa), previously applicable on transfers of the Notes, has been repealed. Following the repeal of the Italian transfer tax, as from 31 December 2007, contracts relating to the transfer of securities are subject to the registration tax as follows: (i) public deeds and notarised deeds (atti pubblici e scritture private autenticate) executed in Italy should be subject to fixed registration tax; (ii) private deeds (scritture private non autenticate) should be subject to fixed registration tax only in "case of use" or voluntary registration.

Inheritance and gift tax

Inheritance and gift taxes apply on the overall net value of the relevant transferred assets, at the following rates, depending on the relationship between the testate (or donor) and the beneficiary (or donee):

(a) 4% if the beneficiary (or donee) is the spouse or a direct ascendant or descendant (such rate only applying on the net asset value exceeding, for each person, €1 million);

(b) 6% if the beneficiary (or donee) is a brother or sister (such rate only applying on the net asset value exceeding, for each person, €100,000);

(c) 6% if the beneficiary (or donee) is a relative within the fourth degree or a direct relative-in-law as well an indirect relative-in-law within the third degree; and

(e) 8% if the beneficiary is a person, other than those mentioned under (a), (b) and (c), above.

In case the beneficiary has a serious disability recognised by law, inheritance and gift taxes apply on its portion of the net asset value exceeding €1.5 million.

158 Stamp duty

Pursuant to Article 19(1) of Decree 201, a proportional stamp duty applies on an annual basis to any periodic reporting communications which may be sent by a financial intermediary to a Noteholder in respect of any Notes which may be deposited with such financial intermediary. The stamp duty applies at a rate of 0.1% for the year 2012 and at 0.15% for subsequent years; this stamp duty is determined on the basis of the market value or – if no market value figure is available – the nominal value or redemption amount of the Notes held. The stamp duty can be no lower than €34.20 and, for the year 2012 only, it cannot exceed €1,200.

Under a preliminary interpretation of the law, it may be understood that the stamp duty applies both to Italian resident and non-Italian resident Noteholders, to the extent that Notes are held with an Italian-based financial intermediary.

Wealth tax on securities deposited abroad

Pursuant to Article 19(18) of Decree 201, Italian resident individuals holding the Notes outside the Italian territory are required to pay a wealth tax at a rate of 0.1% for 2011 and 2012, and at 0.15% for subsequent years.

This tax is calculated on the market value of the Notes at the end of the relevant year or – if no market value figure is available – the nominal value or the redemption value of such financial assets held outside the Italian territory. Taxpayers are entitled to an Italian tax credit equivalent to the amount of wealth taxes paid in the State where the financial assets are held (up to an amount equal to the Italian wealth tax due).

Tax monitoring

Pursuant to Law Decree No. 167 of 28 June 1990, converted by Law No. 227 of 4 August 1990, as amended, individuals resident in Italy who, at the end of the fiscal year, hold investments abroad or have financial activities abroad must, in certain circumstances, disclose the aforesaid and related transactions to the Italian tax authorities in their income tax return (or, in case the income tax return is not due, in a proper form that must be filed within the same time as prescribed for the income tax return). Such obligation is not provided if, inter alia, each of the overall value of the foreign investments or financial activities held at the end of the fiscal year, and the overall value of the related transfers carried out during the relevant fiscal year, does not exceed €10,000.

EU Savings Directive

The European Union has adopted the EU Savings Directive, regarding the taxation of savings income in the form of interest payments on 3 June 2003. Under the EU Savings Directive, Member States are required to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person within its jurisdiction to an individual and certain other persons in another Member State, except that Luxembourg and Austria may instead impose a withholding system for a transitional period in relation to such payments, deducting tax at rates rising over time to 35%. The transitional period will terminate at the end of the first fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.

A number of non-EU countries, and certain dependent or associated territories of certain Member States, have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to payments made by a person within their jurisdiction to, or collected by such a person for, an individual resident in a Member State. In addition, the Member States have entered into reciprocal provisions of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a paying agent in a Member State to, or collected by such a paying agent for, an individual resident in one of those territories.

159 The EU Savings Directive was implemented in Italy by Legislative Decree No. 84 of 18 April 2005. Pursuant to said decree Italian paying agents (eg, banks, SIMs, SGRs, financial companies and fiduciary companies resident in Italy for tax purposes, permanent establishments in Italy of non-resident persons as well as any other person resident in Italy for tax purposes paying interest for professional or commercial reasons) shall report to the Italian tax authorities details of interest payments made to individuals which qualify as beneficial owners thereof and are resident for tax purposes in another EU Member State. Such information will be transmitted by the Italian tax authorities to the competent authorities of the State of residence of the beneficial owner of the interest payment by 30 June of the fiscal year following the fiscal year in which said interest payment is made.

With reference to the definition of interest subject to the above described regime, Article 2, paragraph 1, lett. a, of mentioned Decree No. 84 of 18 April 2005, provides that it includes, inter alia: "interest paid or credited, on accounts arisen from receivables of whatever nature, secured or not by mortgage (…), in particular interest and any other proceed, arising from public bonds and other bonds".

Prospective investors resident in a Member State of the European Union should consult their own legal or tax advisers regarding the consequences of the EU Savings Directive in their particular circumstances.

LUXEMBOURG TAXATION

The description below is of a general nature and is included herein solely for information purposes. It is based on the laws presently in force in Luxembourg, though it is not intended to be, nor should it be construed to be, legal or tax advice. The information contained within this section is limited to Luxembourg withholding tax issues and prospective investors in the Notes should therefore consult their own professional advisers as to the effects of state, local or foreign laws, including Luxembourg tax law, to which they may be subject.

Withholding Tax

(i) Non-resident holders of Notes

Under Luxembourg general tax laws currently in force and subject to the laws of 21 June 2005 (the Laws) mentioned below, there is no withholding tax on payments of principal, premium or interest made to non-resident holders of Notes, nor on accrued but unpaid interest in respect of the Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of the Notes held by non-resident holders of Notes.

Under the Laws implementing the EC Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments and ratifying the treaties entered into by Luxembourg and certain dependent and associated territories of EU Member States (the Territories), payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to or for the immediate benefit of an individual beneficial owner or a residual entity, as defined by the Laws, which is a resident of, or established in, an EU Member State (other than Luxembourg) or one of the Territories will be subject to a withholding tax unless the relevant recipient has adequately instructed the relevant paying agent to provide details of the relevant payments of interest or similar income to the fiscal authorities of his/her/its country of residence or establishment, or, in the case of an individual beneficial owner, has provided a tax certificate issued by the fiscal authorities of his/her country of residence in the required format to the relevant paying agent. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent. Payments of interest under the Notes coming within the scope of the Laws would at present be subject to withholding tax of 35%.

160 (ii) Resident holders of Notes

Under Luxembourg general tax laws currently in force and subject to the law of 23 December 2005 (the Law) mentioned below, there is no withholding tax on payments of principal, premium or interest made to Luxembourg resident holders of Notes, nor on accrued but unpaid interest in respect of Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of Notes held by Luxembourg resident holders of Notes.

Under the Law payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to or for the benefit of an individual beneficial owner who is a resident of Luxembourg will be subject to a withholding tax of 10%. Such withholding tax will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his/her private wealth. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent. Payments of interest under the Notes coming within the scope of the Law would be subject to withholding tax of 10%.

161 SUBSCRIPTION AND SALE

The Dealers have, in a programme agreement (such Programme Agreement as modified and/or supplemented and/or restated from time to time, the Programme Agreement) dated 20 December 2012 agreed with the Issuer basis upon which they or any of them may from time to time agree to purchase Notes. Any such agreement will extend to those matters stated under "Form of the Notes" and "Terms and Conditions of the Notes". In the Programme Agreement, the Issuer has agreed to reimburse the Dealers for certain of their expenses in connection with the establishment and any future update of the Programme and the issue of Notes under the Programme and to indemnify the Dealers against certain liabilities incurred by them in connection therewith.

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 S under the Securities Act.

The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 and Treasury regulations promulgated thereunder. The applicable Final Terms will identify whether TEFRA C rules or TEFRA D rules apply or whether TEFRA is not applicable.

Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will not offer, sell or deliver Notes (a) as part of their distribution at any time or (b) otherwise until 40 days after the completion of the distribution, as determined and certified by the relevant Dealer or, in the case of an issue of Notes on a syndicated basis, the relevant lead manager, of all Notes of the Tranche of which such Notes are a part, within the United States or to, or for the account or benefit of, U.S. persons. Each Dealer has further agreed, and each further Dealer appointed under the Programme will be required to agree, that it will send 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.

Until 40 days after the commencement of the offering of any Series of Notes, an offer or sale of such Notes within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with an available exemption from registration under the Securities Act.]

Public Offer Selling Restriction under the Prospectus Directive

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of Notes which are the subject of the offering contemplated by this Base Prospectus as completed by the final terms in relation thereto to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make an offer of such Notes to the public in that Relevant Member State:

(a) at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;

162 (b) at any time to fewer than 100 or, if the relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or

(c) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Notes referred to in (a) to (c) above shall require the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an offer of Notes to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.

United Kingdom

Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that:

(a) in relation to any Notes which have a maturity of less than one year, (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 (FSMA) by the Issuer;

(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 any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

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

Japan

The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No.25 of 1948, as amended; the FIEA) and each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will not offer or sell any Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949, as amended)), or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.

163 Republic of Italy

The offering of the Notes has not been registered pursuant to Italian securities legislation and, accordingly, no Notes may be offered, sold or delivered, nor may copies of the Base Prospectus or of any other document relating to the Notes be distributed in the Republic of Italy, except:

(i) to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the Financial Services Act) and Article 34-ter, first paragraph, letter b) of CONSOB Regulation No. 11971 of 14 May 1999, as amended from time to time (Regulation No. 11971); or

(ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 34-ter of Regulation No. 11971.

Any offer, sale or delivery of the Notes or distribution of copies of the Base Prospectus or any other document relating to the Notes in the Republic of Italy under (i) or (ii) above must be:

(a) made by an investment firm, bank or financial intermediary licensed to conduct such activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the Banking Act); and

(b) in compliance with Article 129 of the Banking Act, as amended, and the implementing guidelines of the Bank of Italy, as amended from time to time, pursuant to which the Bank of Italy may request information on the issue or the offer of securities in the Republic of Italy; and

(c) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian authority.

General

Each Dealer has agreed and each further Dealer appointed under the Programme will be required to agree that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes this Base Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Issuer, the Trustee nor any of the other Dealers shall have any responsibility therefor.

None of the Issuer, the Trustee and the Dealers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.

With regard to each Tranche, the relevant Dealer will be required to comply with such other restrictions as the Issuer and the relevant Dealer shall agree and as shall be set out in the applicable Final Terms.

164 GENERAL INFORMATION

Authorisation

The establishment and the update of the Programme were duly authorised by a resolution of the Board of Directors of the Issuer dated 5 October 2011. The issue of Notes under the Programme will be authorised prior to each relevant issue of Notes by the competent bodies of the Issuer in accordance with applicable laws and the relevant provisions of the Issuer's By-Laws. Each issuance resolution (delibera di emissione) shall be passed in notarial form and registered in the competent Companies' Register (Registro delle Imprese).

Listing of Notes

Application has been made to the CSSF to approve this document as a base prospectus. Application has also been made to the Luxembourg Stock Exchange for Notes issued under the Programme to be admitted to trading on the Luxembourg Stock Exchange's regulated market and to be listed on the Official List of the Luxembourg Stock Exchange. The Luxembourg Stock Exchange's regulated market is a regulated market for the purposes of the Markets in Financial Instruments Directive (Directive 2004/39/EC).

The Issuer may also issue unlisted Notes and/or Notes not admitted to trading on any market.

Documents Available

For the period of 12 months following the date of this Base Prospectus, copies of the following documents will, when published, be available for inspection from the registered office of the Issuer and from the specified office of the Principal Paying Agent for the time being in London.

(a) the By-laws (statuto) of the Issuer (with an English translation thereof);

(b) the audited consolidated financial statements of Hera S.p.A. in respect of the financial years ended 31 December 2011 and 2010 (with an English translation thereof), in each case together with the audit reports prepared in connection therewith. Hera S.p.A. currently prepares audited accounts on an annual basis;

(c) the unaudited interim consolidated financial statements of Hera S.p.A. in respect of the six months ended 30 June 2012 and 30 June 2011, with the auditor's limited review report prepared in connection therewith and the unaudited interim consolidated results of Hera S.p.A. as at and for the nine months ended 30 September 2012. Hera S.p.A. currently prepares unaudited interim accounts on a quarterly basis;

(d) the unaudited pro-forma consolidated statement of financial positions of the Issuer as of 30 June 2012 and 31 December 2011, the unaudited pro-forma consolidated income statement of the Issuer and the unaudited pro-forma consolidated cash flow statements for the six months ended 30 June 2012 and for the year ended 31 December 2011 accompanied by the related explanatory notes, and the reports thereon issued by PricewaterhouseCoopers S.p.A.;

(e) the Programme Agreement, the Trust Deed, the Agency Agreement and the forms of the Global Notes, the Notes in definitive form, the Coupons and the Talons;

(f) a copy of this Base Prospectus;

165 (g) any future Base Prospectus, prospectuses, information memoranda, supplements and Final Terms (save that a Final Terms relating to a Note which is neither admitted to trading on a regulated market in the European Economic Area nor offered in the European Economic Area in circumstances where a prospectus is required to be published under the Prospectus Directive will only be available for inspection by a holder of such Note and such holder must produce evidence satisfactory to the Issuer and the Principal Paying Agent as to its holding of Notes and identity) to this Base Prospectus and any other documents incorporated herein or therein by reference; and

(h) in the case of each issue of Notes admitted to trading on the Luxembourg Stock Exchange's regulated market subscribed pursuant to a subscription agreement, the subscription agreement (or equivalent document).

In addition, copies of this Base Prospectus, each Final Terms relating to Notes which are admitted to trading on the Luxembourg Stock Exchange's regulated market and each document incorporated by reference are available on the Luxembourg Stock Exchange's website at www.bourse.lu.

Clearing Systems

The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg (which are the entities in charge of keeping the records). The appropriate Common Code and ISIN for each Tranche of Notes allocated by Euroclear and Clearstream, Luxembourg will be specified in the applicable Final Terms. If the Notes are to clear through an additional or alternative clearing system the appropriate information will be specified in the applicable Final Terms.

The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg.

Conditions for determining price

The price and amount of Notes to be issued under the Programme will be determined by the Issuer and each relevant Dealer at the time of issue in accordance with prevailing market conditions.

Significant or Material Change

Save as disclosed in the section "Description of the Issuer – Recent Developments" above, there has been no significant change in the financial position of Hera S.p.A. or the Group since 30 September 2012 and there has been no material adverse change in the financial position or prospects of Hera S.p.A. or the Group since 31 December 2011.

Litigation

Save as disclosed in the section "Description of the Issuer – Legal Proceedings", neither the Issuer nor any other member of the Group is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware) in the 12 months preceding the date of this document which may have or have in such period had a significant effect on the financial position or profitability of the Issuer or the Group.

Auditors

The auditors of the Issuer are PricewaterhouseCoopers S.p.A., who have audited the Issuer's accounts, without qualification, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union for each of the two financial years ended on 31 December 2011 and 31 December 2010, and reviewed the Issuer's half-yearly accounts, without qualification, for each of the two six month periods ended on 30 June 2012 and 30 June 2011. The auditors of the Issuer have no material interest in the Issuer.

166 PricewaterhouseCoopers S.p.A. is registered under No. 43 in the Special Register (Albo Speciale) maintained by CONSOB and set out at Article 161 of the Unified Text of the Rules for the Capital Markets (Testo Unico delle Disposizioni in materia di mercati finanziari) and under No. 119644 in the Register of Accountancy Auditors (Registro dei Revisori Contabili), in compliance with the provisions of the Legislative Decree of 27 January 1992, No. 88. PricewaterhouseCoopers S.p.A. is also a member of ASSIREVI, the Italian association of auditing firms and it is registered at the Public Company Accounting Oversight Board (PCAOB) in the United States.

Dealers transacting with the Issuer

Certain of the Dealers and their affiliates, including parent companies, have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services to the Issuer and its affiliates in the ordinary course of business. In addition, in the ordinary course of their business activities, the Dealers and their affiliates (including parent companies) may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer or Issuer's affiliates. Certain of the Dealers or their affiliates (including parent companies) that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer consistent with their customary risk management policies. Typically, such Dealers and their affiliates (including parent companies) would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in securities, including potentially the Notes issued under the Programme. Any such short positions could adversely affect future trading prices of Notes issued under the Programme. The Dealers and their affiliates (including parent companies) may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. For the avoidance of doubt, the term ‘affiliates’ includes also parent companies.

167 ISSUER

HERA S.p.A. Viale Carlo Berti Pichat, 2/4 40127 Bologna Italy

ISSUING AND PRINCIPAL PAYING AGENT

The Bank of New York Mellon One Canada Square London E14 5AL England

LUXEMBOURG PAYING AGENT

The Bank of New York Mellon (Luxembourg) S.A. Vertigo Building – Polaris 2-4 rue Eugène Ruppert L-2453 Luxembourg

TRUSTEE

BNY Mellon Corporate Trustee Services Limited One Canada Square London E14 5AL England

LEGAL ADVISERS

To the Issuer

Legance Studio Legale Associato Via Dante 7 20123 Milan Italy

168 To the Dealers as to English and Italian law

Allen & Overy Allen & Overy Via Alessandro Manzoni, 41-43 Corso Vittorio Emanuele II 20121 Milan 00186 Rome Italy Italy To the Trustee as to English law Allen & Overy LLP One Bishops Square London E1 6AD England AUDITORS TO THE ISSUER

PricewaterhouseCoopers S.p.A. Via Monte Rosa 91 20149 Milan Italy ARRANGER

Mediobanca – Banca di Credito Finanziario S.p.A. Piazzetta Enrico Cuccia, 1 20121 Milan Italy DEALERS Banca IMI S.p.A. BNP Paribas Largo Mattioli, 3 10 Harewood Avenue 20121 Milan London NW1 6AA Italy United Kingdom Citigroup Global Markets Limited Crédit Agricole Corporate & Investment Bank Citigroup Centre 9 quai du Président Paul Doumer Canada Square 92920 Paris La Défense Cédex London E14 5LB France United Kingdom Deutsche Bank AG, London Branch Mediobanca – Banca di Credito Finanziario Winchester House S.p.A. 1 Great Winchester Street 1 Piazzetta Enrico Cuccia, 1 London EC2N 2DB 20121 Milan United Kingdom Italy

Société Générale The Royal Bank of Scotland plc 29 Boulevard Haussmann 135 Bishopsgate 75009 Paris London EC2M 3UR France United Kingdom UniCredit Bank AG Arabellastrasse 12 81925 Munich Germany

169 LUXEMBOURG LISTING AGENT

The Bank of New York Mellon (Luxembourg) S.A. Vertigo Building – Polaris 2-4 rue Eugène Ruppert L-2453 Luxembourg

170