refer 2006 en

8/9/2019 Refer 2006 En

1/112

2006

Annual ReportVersion submitted to

the Minister aproval

8/9/2019 Refer 2006 En

2/112

1

REFER, E.P.2006Annual Report

Introduction.........................................................................................................................................3

GOVERNING BODIES............................................................................................................................9

MACROECONOMIC FRAMEWORK.....................................................................................................21

ACTIVITIES IN 2006 .............................................................................................................................23

ACTIVITIES IN 2006 .............................................................................................................................2411.. IInnffrraassttrruuccttuurree MMaannaaggeemmeenntt .................................................................................................27

11..11 CCoonnsseerrvvaattiioonn aanndd MMaaiinntteennaannccee .................................................................................33

11..22 OOppeerraattiioonn....................................................................................................................38

22.. IInnvveessttmmeenntt iinn LLoonngg DDuurraattiioonn IInnffrraassttrruuccttuurreess ((LLDDII))...................................................................42

33.. AAccttiivviittiieess:: -- OOtthheerr ..................................................................................................................50

ENVIRONMENT...................................................................................................................................53

Property Assets ..................................................................................................................................56

Safety................................................................................................................................................59Human Resources ............................................................................................................................61

Human Resources ............................................................................................................................62

Economic and Financial Situation ....................................................................................................68

Proposta de Aplicao de Resultados .............................................................................................78

Financial Statements ........................................................................................................................80

An Annex to the Balance Sheet and Profit and Loss Statement ........................................................86

8/9/2019 Refer 2006 En

3/112

2


Introduction

8/9/2019 Refer 2006 En

4/112

3


Introduction

The year of 2006 marked Portugals 150th year since the countrys inaugural train trip from Lisbons

Santa Apolnia Station to Carregado, a historical milestone.

REFER, the railway infrastructure management company, although in operation for only nine years,

was handed an important historical legacy.

With this legacy in mind, REFER has progressively consolidated its mission of providing a competitive

transport infrastructure by managing and developing an efficient, safe and environmentally friendly

railway network.

It was also within this perspective that, during the last year, the Board of Directors profoundly

reorganised the company to meet strategic operation objectives from a customer-oriented

perspective. Consequently, it created four General Departments:

1. The General Department of Organisation and Development, which combines a number of

operation areas of a corporate nature, in particular the General Secretariat, Human

Resources, Organisational Development, Legal Issues and Claims, Contracting and

Procurement, Information Systems and Technology and Work and Facilities Safety. This

General Department will create a more effective organisation and simplify work processesand procedures.

2. The General Department of Planning and Strategic Control combined the prior Strategic

Planning Department and the Planning and Control Department into a single General

Department. The success of REFERs mission is highly dependant on corporate Planning and

Control and Strategic Planning for preparing the Railway Master Plan adapted to REFERs

missions based on agreements with the state.

This General Department was also assigned the Crossings and Level Crossings Management

Department which implements actions to reduce accident rates at level crossings. It meetsthis goal by eliminating level crossings, improving safety conditions at crossing sites and

through awareness and civic education campaigns covered by a Level Crossing Elimination

and Reclassification Plan, thereby ensuring integrated management of all the railway

networks level crossings.

3. The General Department of Infrastructure Operation improves the efficiency of railway

infrastructures, provides more effective solutions to meet market needs and to overcome

challenges, implements the new organisational structure that has been under development

in stages, since it requires a substantial number of personnel, and covers the operation core

of the whole national railway network.

Introduction

8/9/2019 Refer 2006 En

5/112

4


Designing the new organic structural model presupposes more optimised use of resources,

more management flexibility and better adaptability to the mission. The said design focuses

on the following aspects:

Safe access to a quality infrastructure,

Capacity management in a liberalised market, Customer relations and customer satisfaction,

Business opportunities and profitability of assets.

4. The General Department of Engineering and Construction, in carrying out its investment

activities, has created structures for all railway infrastructure interventions whether

modernisation, renewal or rehabilitation thereby ensuring appropriate planning for overall

goals, not only in cost control and completion deadlines, but also in optimising the necessary

means and resources.

The Engineering Department is a key player since it encompasses all railway expertise forcoordinating and carrying out modernisation and rehabilitation railway projects, for inspecting

and characterising railway infrastructures, for preparing technical standards and for

innovation by studying and applying new technology to the infrastructures.

As a public service provider managing the railway infrastructures, REFER improved its service to

operators in 2006. REFER attained 94% punctuality rates for pendular trains, 93% for regional trains

and 97% for suburban trains. It also maintained efforts from previous years to provide operators with

an infrastructure equipped with systems for greater safety and reliability.

A the end of 2006, about 55% of the wide track (on which 90% of trains run) was equipped with

sophisticated circulation command and control safety systems that included, in addition to very

safe automatic signalling, the Automatic Speed Control System (CONVEL), the Automatic Stopping

System (ATS) and the fixed Ground-Train Radio system.

REFERs investments in Long Duration Infrastructures (LDI), on behalf of the state, included the

investment projects to modernise and develop the National Railway Network and to eliminate level

crossings. In 2006, REFER eliminated 66 level crossings and reclassified 87.

As for investments to modernise the National Railway Network, emphasis goes to the completion of

the general contract work to modernise the Azambuja Vale de Santarm section that allows trains

to run on renovated tracks all the way from Vila Franca de Xira North to Vale de Santarm, a

distance of over 30 km; the completion of the construction contract work for the railway viaduct at

Santana do Cartaxo and the work to modernise the power and surveillance remote control systems

at the Substation of Vila Franca de Xira and Entroncamento;completion of the work to install the

automatic train speed control system in the sections of Campanh / Contumil and Santo Tirso /

Guimares and the link to the Douro Line of the logistics platform of the container company

Sociedade Portuguesa de Contentores (SPC) in Valongo.

8/9/2019 Refer 2006 En

6/112

5


In 2006, REFER invested 313 million euros. Interventions for LDI covered by PIDDAC (Central

Administration Development Investment and Spending Program) represented 85% of this total, in

the amount of 266 million euros. The remaining 15% (47 million euros) were assigned to investments

not covered by PIDDAC and for current investments in infrastructures (41.1 million euros), general

studies (4.6 million euros) and operation investments (0.9 million euros).In past years, the state has financed a progressively smaller part of these investments due to its

cost-cutting policies. In 2006, Chap. 50 represented about 1.7% (4.5 million euros), E.U. Funds

represented 33% (87.8 million euros) and Other Financing Sources represented 65.3% (173.5 million

euros). Note that, as in previous years, since contributions by PIDDAC and by E.U. funds have been

decreasing, loans have been the main means of financing investments, with the consequent

negative impact on financial expenses.

To improve its information systems and technology, in 2006 REFER made a strong investment intechnological upgrades to its servers and respective management software.

The technological infrastructure was improved by installing a spatial database system that will

support the next project to implement a geographic information system for the railway

infrastructure the SIGRAIL project which is expected to bring significant progress to this field in

2007.

In 2007, the company also expects to switch to electronic invoicing, an important milestone that

will substantially improve processes involving REFERs suppliers and clients.

In the second half, REFER carried out a refinancing operation in an overall amount of 1.1 billion

euros. The amount in question allowed the company to consolidate all of its short-term debt.

The refinancing operation was split into two parts, the first in the amount of 600 million euros at 20

years and with the states surety, and the second of 500 million euros at 15 years, issued by REFER

based on its rating. This operation is part of a professional REFER debt management strategy using

cost-optimisation instruments to reduce associated costs and to reduce the interest rate risk.

In keeping with its Environmental Policy, REFER has continued to develop its Environmental

Management System (according to standard ISO 14001), for which the Board of Directors has

approved a number of procedures transversal to the organisation.

According to its noise management policy, REFER completed the strategic noise chart for the

Cascais Line, whilst a noise chart for the Sintra Line is being prepared (to be completed at the end

of the first quarter of 2007), as well as the digital cartography for the North Line (Lisbon Azambuja

section) and the Cintura Line, an essential factor for developing the respective charts and plans (to

be carried out during 2007).

As for waste management, the company has maintained its work to decrease the dispersion ofwaste outside stockpile sites. The company was able to transform its wood crossties into energy and

8/9/2019 Refer 2006 En

7/112

6


thus eliminated most of this stockpiled material. The company implemented the e-waste

application and has expanded its selective material collection. In 2006, it began collecting oil,

batteries and computer consumables, the latter under a protocol signed between REFER and the

AMI Foundation.

Monitoring plans are also in progress for the Minho Lines, the Braga Branch Line, and the South Line,which are expected to be completed at the end of the first quarter of 2007.

Moreover, during 2006, intense work was carried out to prepare the work contracts to be awarded

in early 2007, for which it compiled the preliminary information for licensing procedures and for the

respective environmental follow-up.

It is essential to provide railway transport operators with high safety levels for passenger transport. On

a daily basis, REFER collects and processes all the statistical information about railways activities,

thus making it aware of the type of anomalies that occur on the National Railway Network, therebyfacilitating the deployment of measures to eliminate and control the risks of railway accidents.

On 28 October 2006, to commemorate the 150th year of railway transport, the respective ministry

announced the strategic guidelines for the railway sector that identified four strategic goals to

support priority targets and actions identified for the 2015 horizon:

Improve access and mobility, to substantially increase the railways market share; Ensure suitable safety, interoperability and environmental sustainability standards;

Evolve to a sustainable financing model and promote efficiency; Promote research, development and innovation.

Adapting REFERs investment plan in order to integrate the conventional network with the high-

speed network, articulation with the national logistics platform network and improvement of links to

ports were regarded as priorities for the infrastructure manager.

REFER has been meeting its goal of submitting a contract program to the state based on

transparent principles regarding its financial and accounting autonomy. The said contract

program stipulates the companys obligations to develop its activities and the states commitment

to provide financial support through pre-determined annual allocations for infrastructure investment

and management.

Lastly, but not less important, the Board of Directors approved the first REFER Ethics and Conduct

Code that will reinforce the companys ethics. This code is expected to be a fundamental basis for

the social responsibility policy developed by REFER.

8/9/2019 Refer 2006 En

8/112

7


At the end of the year, on average REFER had 3,654 personnel who collaborated diligently with the

Board of Directors to fulfil the companys goals and to overcome the main future challenges faced

by REFER and the railway sector.

We would also like to express our appreciation for the Audit Committees collaboration and to thankthe financial institutions, the National Railway Transport Institute and the respective supervision

ministries for their essential support in meeting our targets.

8/9/2019 Refer 2006 En

9/112

8


GOVERNINGBODIES

8/9/2019 Refer 2006 En

10/112

9


GOVERNING BODIES

According to Decree-Law 104/97, REFER has the mission to provide a competitive transport

infrastructure by managing and developing an efficient and safe railway network in an

environmentally friendly manner.

REFER split its structure in order to fulfil two aspects of its mission. Nevertheless, it has maintained its

main goal of rendering a public infrastructure management service whereby the whole corporate

and administrative structure serves both activities indiscriminately.

In addition to the activities covered by its missions infrastructure management and investment

management REFER, in performing its normal operations, also carried out other complementary

activities.

According to its official activities, REFER operates in two complementary business areas:

Infrastructure Management and Operation, as a public service provider managing theNational Railway Network infrastructures, which includes capacity management,

infrastructure conservation and maintenance and the management of the respective

command, control and safety systems;

Investment in the construction, installation and renovation of the infrastructures, anactivity performed on behalf of the state (the assets belong to the public railway

domain).

The following table illustrates the strategic goals for 2007 as defined by REFER in the Activities /

Budgets Plan:

Analysis perspect ive St rategic Goals1. Ensure economicfinancial sustainability

2. Reduce costs of rendered services

3. Increase input from complementary operation activities

4. Improve network service levels

5. Improve and modernise the network infrastructure

6. Improve services rendered to end clients

7. Ensure high safety levels

8. Promote environmental sustainability

9. Increase the organisation's productivity

10. Optimise management and control of investments / contracts

11. Foster the uniformity of processes and promote standardisation

12. Strengthen technical and management expertise

13. Forster professional development

Financial

Client

Internal / Processes

Organisational Learning

Companys Mission, Goals andPolicies

8/9/2019 Refer 2006 En

11/112

10


This chapter will list the external and internal regulations to which REFER is subject:

Legal Code for the Land Transport System, Law 10/90 of March 17 , the land transport systemincludes the infrastructures and production means assigned to land travel by persons and

merchandise within the Portuguese territory or when the trip ends or has part of its route within

the said territory and is governed by this law, its development decree-laws and regulations.

On 29 April 1997,Decree-Law 104/97 was published that created REFER, E.P.REFER, whose share capital is 100% held by the state, is governed jointly by the Ministry of

Finance and the Ministry of Public Works.REFER carries out activities to fulfil its goal, according to the principles of modernisation and

effectiveness, to regularly and continuously render a public service of managing the national

railway network infrastructures.

According to what was established, REFER: May perform all necessary or convenient management acts to fulfil its objective; Maintain the rights and assume the responsibilities assigned by the applicable

legal provisions and regulations covering the public railway domain.

Decree-Law 299-B/98 published on 29 September 1998, created Instituto Nacional doTransporte Ferrovirio (INTF) (National Railway Transport Institute) which regulates and inspectsthe railway sector, supervises activities and intervenes in public service concessions.

Decree-Law 568/99, of December 23, revises regulations applicable to level crossings,approved by Decree-Law 156/81, of June 9, and establishes the obligation to prepare multi-

year plans to eliminate level crossings. It was altered byDecree-Law 24/2005, of January 26. Decree-Law 93/2000, of May 23, establishes the conditions to be met in the national territory

to obtain interoperability of the trans-European high speed railway system (transposes Council

Directive 96/48/CE, of 23 July 1996). It was altered by Decree-Law 152/2003, of July 11, which

rectifies omissions detected in the transposition of Council Directive 96/48/CE, of July 23,

made applicable by Decree-Law 93/2000, of May 23, which stipulated the conditions to be

met to achieve interoperability of the trans-European high-speed railway system in the

national territory.

In October 2003,Decree-Law 270/2003 of October 28 was published and which transposesto national law Directives 2001/12/CE, 2001/13/CE and 2001/14/CE, normally called 1stRailway Package to open the railway transport market to participation by private companies,

Internal and External Rules andRegulations

8/9/2019 Refer 2006 En

12/112

11


thus guaranteeing a number of criteria regarding technical, financial and safety capacity.

(Altered by Decree-Law 146/2004, of June 17)

Decree-Law 276/2003, of November 4, establishes the new legal policy applicable to assetsof the public railway domain, including rules on the respective utilisation, disfranchising,

exchange and the rules applicable to relations of bordering proprietors and of the population

in general with those assets, legislative authorisation given by Law 51/2003, of August 22.

Consequent to what was stipulated in this legal statute, REFER prepared and published, in thisyear, the first edition of the Network Directory which provides railway transport companies withessential information for their access to and utilisation of the national railway infrastructure

managed by REFER and open to railway transport.

Decree-Law 24/2005, of January 26, alters the Level Crossing Regulations approved byDecree-Law 568/99, of December 23.

In March 2005, INTF published Regulations 21/2005 covering the tariff rates of servicesrendered to operators by the infrastructure manager.

Decree-Law 156/2005, of September 15, establishes the obligation for all goods and serviceproviders that maintain contact with the general public to maintain a complaints book.

For contracting purposes, REFER is covered by Decree-223/01, in the specific case ofcontract works, and everything not regulated therein is covered byDecree-Law 59/99.

As an issuer of securities, REFER must publish all the information stipulated in the SecuritiesCode and in CMVM Regulations 4/2004 and 11/2005 (Securities and Exchange Commission)in reference to the application of the IFRS.

8/9/2019 Refer 2006 En

13/112

12


The following table illustrates the most relevant contracts with companies in the REFER Group during2006:

(euros)

C om pany Contract Am ountCPCOM Advertising facilities contract 395.589

Concession of commercial spaces 902.903Advertising 515.476

1.813.968

REFER TELECOMREFER Telecom concession 874.628

Antennas of mobile network operators 680.987Radiomvel's Infrastructures 3.375

1.558.990

INVESFERINVESFER - BRAGA 25.068INVESFER - CASCAIS (MDC) 11.431INVESFER - COIMBRA 1.924.904

INVESFER - LAGOS 17.921INVESFER - CASCAIS (LINHA VIVA) 18.204INVESFER - PORTO CAMPANH 116.317INVESFER - PORTO BOAVISTA 9.163INVESFER - ROSSIO 128.315INVESFER - SINES 121.194INVESFER - VILA REAL DE SANTO ANTNIO 89.444INVESFER - ALCNTARA 177.632INVESFER - ENTRECAMPOS: Cancellation 1.034.333Supplementary capital entries 18.782.000

22.455.926

Most relevant contracts with REFER Group com paniesin 2006

The loans to INVESFER bear interest at the 12-month Euribor rate + 0.5% and will be reimbursedbetween 2007 and 2009. In 2006, 1,590,267 euros were recognised as interest on the financing

provided.

Information on relevanttransactions with related entities

8/9/2019 Refer 2006 En

14/112

13


euros

FornecedorValores

Facturados 2006

Mota - Engil, Engenhar e Construo 51.610.804

Ferrovias e Construes, S.A. 31.291.759

Alcatel Transport Solutions 26.157.901

Alcatel Portugal SA 25.163.873

Dimetronic SA 18.963.746

SOMAGUE Engenharia SA 14.234.907

FERBRITAS-Empreend. Ind.Comrcio SA 12.022.951

Refer Telecom Serv Telecomunic SA 11.936.412

Neopul - Soc Estudos Construes SA 11.183.360

Socied.de Const. Soares da Costa SA 10.813.167

SOPOL-Soc Geral de Construes e 10.219.127

Teixeira Duarte-Eng. Construes SA 9.973.613

INVESFER-Prom.Com.Terr.Edifcios SA 8.333.452

BRISA Engenharia e Gesto, SA 7.199.297

CP-Caminhos Ferro Portugueses, EP 7.158.720

Bento Pedroso Construes SA 7.078.532

EFACEC - Sistemas de Electronica SA 5.667.541

Futrifer-Indstrias Ferrovirias SA 4.902.321

Somafel-Eng.e Obras Ferrovirias SA 4.575.460

TECNOVIA-Sociedade de Empreitadas 4.449.317

EDP Distribuio Energia SA(Lisboa) 4.425.592

Bombardier Transportation Portugal, 4.363.159

Geofer -Prod Com Bens Equipament SA 4.229.898

Fergrupo - Const Tecnicas Ferrov SA 4.100.191

Promorail - Tecnologias de 3.970.972

Satepor-Indstria de Travessas de 3.654.567

Grupo 8-Vigilncia Prev Electr Lda 3.569.007

Opca-Obras Publicas Cim Armado SA 3.509.663

INTF - Instituto Nacional 3.439.023

Obrecol - Obras e Construes SA 3.138.401

Metropolitano de Lisboa EP 3.071.861

Siemens,S.A. 2.713.535

Consulgal-Consult Engenh Gesto, SA 2.654.037

Azvi, S.A,-Sucursal em Portugal 2.423.463

Arcelor Espan, S.A. 2.333.601

GESFIMO-Esprito Santo Irmos, 2.069.813

EDP Comercial 1.901.884

Manuel Rodrigues Gouveia SA 1.830.114

TPF Planege - Consultores Eng 1.785.913

DHV FBO - Consultores S.A. 1.783.798

Ws Atkins(Portugal)Consultores 1.770.892

Efacec - Servicos Manut Assist SA 1.621.226

AVS-Corretor Seguros , SA 1.547.843

COBA - Consult Ob Barrag Planeam SA 1.488.891

Joo Mata Lda 1.462.771

GIL - Gare Intermodal de Lisboa SA 1.402.034

LNEC-Laborat. Nac. Engenharia Civil 1.386.948

Accenture, Consultores de Gesto, 1.381.140

TECNASOL-FGE Fundaes Geotecnia SA 1.351.110

PORSOL - Materiais de Soldadura,Ld 1.330.230

CME - Construo e Manuteno 1.301.677

Petrleos de Portugal-Petrogal-SA 1.296.189

FITONOVO Portugal Deservagens 1.249.675

ISQ - Inst de Soldadura e Qualidade 1.188.588

Maranho - Soc de Construes Lda 1.170.022

EMEF -Emp Manutenc Equip Ferrov SA 1.140.293

For contracting purposes, REFER is

covered by Decree Law 223/01.Anything not regulated therein related to

contract works is covered byDecree-Law59/99.

REFER applied internal procedures to

contract services worth less than 400,000euros, for which it prepares standard

models of contracts and contract

specifications.

Information about othertransactions

8/9/2019 Refer 2006 En

15/112

14


According to its statutes, the governing bodies of REFER includes a Board of Directors and an Audit

Committee.

The REFER Board of Directors and the respective duties are described below:

Governing Bodies

Chairman of the Board of DirectorsLus Filipe Melo e SousaPardal, Eng.

General Dep. of Engineering and Construction;

General Dep. of Organisation and Development;

Environment

Vice-Chairman of the BoardAlfredo Vicente Pereira, Dr.

Economics and Finance

General Dep. of Planning and Strategic Control

Property Assets

Board MemberRomeu Costa Reis, Dr.

International Relations

E.U. Funds

Auditing

Communication and Image

Board MemberAlberto Jos Engenheiro Castanho Ribeiro,Eng. General Dep. of Operations and Infrastructures

Board MemberCarlos Alberto Joo Fernandes, Eng.

DGEI:

Infrastructure Access Tariffs

Commercial Contract Management Department

Liaison with the FERTAGUS Concession Contract

Contracts with the State

8/9/2019 Refer 2006 En

16/112

15


REFERs accounts are audited by the international audit firm PricewaterhouseCoopers & Associados

Sociedade de Revisores Oficiais de Conta, Lda., according to what is stipulated by Contract no.

01/05/CA/EF Rendering of External Auditing Services, REFER Group Support to the Audit

Committee.

8/9/2019 Refer 2006 En

17/112

16


Information referred to in the Council of Ministers Resolution 155/2005 of 8 September 2005:

Social Secur ityRegime

MainRemunerat ions

AccessoryRemunerat ions

EmployerDeduct ions for

SSMain

Remunerat ionsAccessory

Remunerat ionsEmployer

Deduct ions forSS

Board of Directors (f rom 01/01/2005 to 26/10/2005)Jos de S Braamcamp Sobral Chairman Normal Regime 52.767,00 48.716,00 18.024,00

Jos Osrio da Gama e Castro Vice Chairman CGA (pension fund) 53.391,00 37.742,00 17.611,00

Lus Miguel dos Reis Silva Member Normal Regime 48.845,00 40.262,00 16.749,00

Jos Roque de Pinho Marques Guedes Member Normal Regime 47.239,00 37.748,00 16.367,00

Manuel Alfredo Aguiar de Carvalho Member Old Age Pension 53.857,00 72.044,00 11.729,00

Boad of Directors (f rom 27/10/2005 to 31/12/2005)Lus Filipe Melo e Sousa Pardal Chairman Normal Regime 68.223,00 30.084,00 18.607,00 10.139,00 10.663,00 4.098,00

Alfredo Vicente Pereira Vice Chairman Normal Regime 64.641,00 26.786,00 17.757,00 9.593,00 5.344,00 2.864,00

Romeu Costa Reis Member CGA (pension fund) 60.546,00 25.497,00 0,00 8.969,00 9.257,00 0,00

Alberto Jos Engenheiro Castanho Ribeiro Member Normal Regime 60.546,00 26.430,00 16.784,00 8.969,00 10.127,00 3.690,00

Carlos Alberto Joo Fernandes Member CGA (pension fund) 60.546,00 25.481,00 0,00 8.969,00 9.257,00 0,00

TOTAL 314.502,00 134.278,00 53.148,00 302.738,00 281.160,00 91.132,00

2006 2005

The accessory remunerations to the Board of Directors include the subsidy for accumulation of

duties stipulated in Council of Ministers Resolution 29/89 of August 26, no. 17.

The Audit Committee consists of three members appointed by a joint order of the Minister ofFinance and the Minister of Transport. The third member, a chartered accountant, is independent

and earns fees rather than a wage.

MainRemunerations

Employer Deductionfor SS

Jos Antnio Coelho Alves Portela Chairman of A.C. (Until 2006) 8.713

Hilrio Manuel Marcelino Teixeira 11.406 2.709

20.119 2.709

2006

Remuneration to Members ofthe Governing Bodies

8/9/2019 Refer 2006 En

18/112

17


This chapter is included in the 2006 Sustainability Report.

Analysis of the companys economic, social andenvironmental sustainability

8/9/2019 Refer 2006 En

19/112

18


This chapter is included in the 2006 Sustainability Report.

Evaluation of the level of compliance with the Principlesof Good Governance

8/9/2019 Refer 2006 En

20/112

19


In a pioneering attitude within the sector, REFER was one of the first railway companies to approve a

Code of Ethics and the respective Committee, at a national and international level. The company

is committed to everyone, personnel and the general community alike, in its compliance with its

ethical values and principles. It strives to strengthen its personnels character and convictions

through a culture of coherence and responsibility.

Since the REFER Code of Ethics and Conduct is important to the companys activities, it was

distributed to all company personnel.

All REFER personnel, clients, suppliers, all public entities representing the community in general and

individual citizens may access the REFER Code of Ethics and Conduct at www.refer.pt. They may

also contact the Ethics Committee directly for an answer to any doubts, to request clarifications

and report any event, complaint or abnormal situation that may violate the codes standards.

These contacts will remain completely confidential.

Anyone or any entity may contact the Ethics Committee at [email protected] or forward a

letter to:

Comisso de tica da REFER

Estao de Santa Apolnia

1100 105 LISBON

Code of Ethics and Conduct

8/9/2019 Refer 2006 En

21/112

20


MACROECONOMICFRAMEWORK

8/9/2019 Refer 2006 En

22/112

21


MACROECONOMIC FRAMEWORK

According to the Bank of Portugals economic forecasts for 2006 and 2007, in 2006 the Portuguese

economy recovered slightly after a meagre growth of 0.3% in 2005. In real terms, GDP increasedby 1.2% in 2006, and a 1.5% growth is forecast for 2007.

In terms of expenditure, note that the economy was boosted by stronger net foreign demand

which meant higher exports. Portugals growth rate is much lower than in the main markets of

Portuguese exports. Moreover, a small country that is highly dependent on energy is naturally more

affected by the rising oil prices.

Private consumption, on an average annual basis, is estimated to have slowed to 1.1% in 2006,

maintaining the trend from 2005. This performance, associated to higher debt payments (due to

higher interest rates and weak employment opportunities) has led to lower family savings.

2006 MACROECONOMIC SCENARIO Growth Rate (E)Private Consumption 1,1

Public Consumption -0,2

GFCF -3,2

Exports 9,0

Imports 4,0

GDP 1,2

Current Accounts + Capital Accounts (% GDP) -7,6

Harmonised Index of Consumer Prices 3,0

Source: Bank of Portugal

The overall Gross Fixed Capital Formation has been negative in previous years. This has led to a

continued sharp drop in investment, which in 2006 fell 3.2%, followed by a growth forecast for 2007

of 0.5%. This negative performance was felt by public investment, housing investment and

corporate investment.

The need for foreign financing deepened in 2006, a trend that is expected to continue in 2007. The

impact of oil prices is clearly visible in the deteriorating goods and services deficit. The negative

revenue balance resulted from lower foreign investment in Portugal and higher interest rates.

Although employment stagnated, it is expected to improve in the following year by keeping pace

with the moderate economic recovery, a growth which is based exclusively on employment in the

private sector.

Inflation rose from 2.1% in 2005 to 3% in 2006, and is expected to return to 2.1% in 2007.

REFER thus operated within an unfavourable global setting in 2006, which was further aggravatedby rising interest rates and their consequent negative impact on the companys financial results.

MacroeconomicFramework

8/9/2019 Refer 2006 En

23/112

22


The Portuguese states budget cuts had a particularly negative effect on the two areas in which

REFER operates. The company received fewer contributions for its investment activities and less

compensation for the operation costs to render a public service. In 2006, those compensations fell

way short of needs, as in previous years, thereby increasing the companys reliance on debt and

accentuating its structural disequilibrium.

8/9/2019 Refer 2006 En

24/112

23


ACTIVITIES IN 2006

8/9/2019 Refer 2006 En

25/112

24


ACTIVITIES IN 2006

REFER renders a public service by managing the overall National Railway Network infrastructure,

and is therefore responsible for carrying out activities to meet its goals according to the principles of

modernisation and effectiveness by operating in two business areas:

Infrastructure Management includes managing the railway infrastructures capacity,conservation and maintenance and managing the respective circulation command and

control systems, including signalling, regulation and promptness in order to ensure the

indispensable safety and quality conditions of a public railway transport system.

Investment consists of building, installing and renewing the infrastructure, an activity carriedout on behalf of the state (the assets are part of the public railway domain).

Activities in 2006

8/9/2019 Refer 2006 En

26/112

25


Besides the activities related to its mission infrastructure management and investment REFER,

through its normal operations, also performs other complementary activities, as shown below in the

Profit and Loss Statement per Activity:

(10^6 euros)

Conservation Operation Total

Earnings 53,88 48,80 51,43 100,24 96,29 250,41Sales 0,00 0,00 0,00 0,00 20,20 20,20

Services Rendered 0,25 28,76 29,04 57,80 4,91 62,97

Production Variation 0,00 0,00 0,00 0,00 -15,41 -15,41

Supplementary Earnings 0,52 0,77 4,15 4,93 10,97 16,41

Operation Subsidies 0,00 15,27 13,73 29,00 0,00 29,00

Work for the Company 50,09 0,03 0,00 0,04 0,00 50,13

Other Operating Earnings 0,44 0,00 0,00 0,00 1,31 1,75

Operating Earnings 51,29 44,84 46,93 91,77 21,98 165,04Costs 55,01 181,75 138,84 320,59 42,95 418,56

Materials 17,95 6,09 0,29 6,38 0,80 25,12

External Supplies and Services 7,86 71,30 16,72 88,02 7,97 103,85

Taxes and Duties 0,04 1,62 0,68 2,30 3,95 6,29

Personnel 22,12 27,31 56,11 83,42 4,76 110,30

Other Operating Costs 0,12 1,85 1,67 3,52 0,01 3,65

Depreciation 2,94 4,01 1,75 5,76 0,47 9,17

Provisions 0,00 1,73 0,34 2,07 4,27 6,34

Operating Costs 51,04 113,91 77,56 191,47 22,21 264,72

Operating Income 0,26 -69,08 -30,63 -99,71 -0,23 -99,68

Financial Income -1,45 -60,56 -54,71 -115,27 51,89 -64,84

Extraordinary Income 0,07 -3,31 -2,07 -5,38 1,67 -3,63

86- Income Taxes 0,00 0,06 0,05 0,11 0,02 0,13

INCOME PRIOR TO FINANCIAL COSTS -1,12 -133,01 -87,46 -220,47 53,31 -168,28

Finan. costs not capital. in Investments 33,42 33,42

NET PROFIT -34,54 -133,01 -87,46 -220,47 53,31 -201,70

PROFIT AND LOSS STATEMENT PER ACTIVITY

InvestmentInfrastructure Management

Other Total Company

Service rendering earnings are recorded under the activities responsible for their execution or

management. Therefore, operation activities include earnings from services rendered to railway

operators, in particular rolling stock manoeuvres.

User fees, also recorded as a rendering of services, are broken down into operation and

conservation, similar to the Compensation Indemnities included in the Operation Subsidies.

Supplementary earnings from operation activities consist of selling traction energy. Contract

specifications are assigned to the investment mission. This headings other items arise from non-

regulated activities.

8/9/2019 Refer 2006 En

27/112

26


Work for the company includes all the materials, labour, equipment and structural costs assigned

directly to the investment mission. Only expenses arising from work at the warehouse are not

covered by this concept, since they were distributed among the infrastructure management

activities proportionally to each activitys consumption of warehoused materials.

Sales (like Production Variation) income stemmed from the sale of a property, and is thus a non-regulated activity.

Operating and extraordinary costs are distributed among REFERs missions and activities essentially

through the distribution keys that indicate the allocation of resources from each company

organisation unit to its business functions. However, some amounts are specifically associated to

concrete activities, in terms of infrastructure management, such as infrastructure maintenance

costs (particularly subcontracted maintenance), expenses on stations, telecommunications, rescue

trains, capacity management and traction energy. Works carried out for third parties are viewed as

a non-regulated activity.Financial Income arises from assigning the respective costs and earnings among the activities that

give rise to the companys deficit, according to each ones contribution. Only financial expenses

not capitalised as investment are submitted to a specific analysis, in view of REFERs debt

structure.

Income taxes were distributed according to the relative weight of each activitys operating costs.

8/9/2019 Refer 2006 En

28/112

27


1. Infrastructure ManagementThe infrastructure management mission essentially covers the following two activities:

Railway infrastructure conservation and management;

Operation (management of circulation command and control and management of the

railway infrastructure capacity)

Real In 2005(1 ) (2 ) %(1)/ (2)

Ea rn ings 91 ,73 92 ,13 -0 ,4%Utilisation Rate 53,77 55,37 -2,9%

Operation Subsidies 29,00 27,10 7,0%

Other Earnings 8,96 9,65 -7,2%

C osts 173,13 163,52 5,9%Materials 6,39 7,89 -19,0%

Subcontracts 67,90 52,37 29,6%

Other Supp. of Ext. Serv. 14,76 14,52 1,6%

Personnel 77,23 81,70 -5,5%

Depreciation 2,99 3,20 -6,7%

Other Costs 3,86 3,83 0,8%

Operat ing Income -81,40 -71 ,39 14,0%

Cos ts o f DGOD, DGPCEand Suppor t Depar tments

18,31 16,78 9,1%

Tota l -99,71 -88 ,17 13,1%

Employees 3.135 3.474 -9,8%

Change

Operating EarningsTotal operating earnings from infrastructure management activities recorded at the end of 2006

reached 91.7 million euros, a slight decrease (0.4%) compared with the previous year.

The changes that influenced earnings are highlighted below:

The user fee (59%) was the item with the greatest impact on this activitys earnings, totalling

53.8 million euros, a 2.9% decrease compared with last year. Note that this amount includes a

full year of charges to FERTAGUS, which was not the case in the user fee revenue in previousyears.

8/9/2019 Refer 2006 En

29/112

28


For comparative purposes, the years of

2006 and 2005 should be harmonised. That

is, 2005 should include the impact of a full

annuity by the FERTAGUS operator, which would place that years earnings for

essential services at 57.7 million euros, (thus

a 7% decrease).

The evolution of earnings from essential

services rendered to both operators is

shown in this graph, keeping in mind that prior to 2005 the FERTAGUS operator was covered

by a special policy.

An analysis of earnings from the CP

operator which has nearly all the

traffic on the national railway network,

representing 96% of the TKs

provides a clearer view of the annual

earnings trend from essential services.

The tariffs published in the 2006

Network Directory were the first to be

calculated according to Regulations no. 21/2005. Consequently, and since there were

differences between that directorys rules and those applied previously, amplified by a

period of intense investment, REFER felt that the tariffs of that first year, for rendering

essential services, should be the reference tariff for the management efficiency incentive in

following years. According to this principle, the tariffs of essential services covered by the

2006 Directory should not be subject to the price cap.

This was not the opinion of the Regulatory Entity when it considered that, in this matter, the

regulations were to be applied immediately and, as such, the prices of essential services

were restricted to increases below the inflation rate. This decision had a strong impact, as

revealed by the tariffs disclosed in the 1st Addendum to the 2006 Directory, and caused a

drastic cut in revenue, of about 27% compared to initial expectations based on the tariffs

that had been published in the Directory.

Services rendered to the operators also involved rendering services associated to railway

activities, called additional services and auxiliary services, subject to the tariffs published in

the Directory.

The other earnings item fell 7.2% compared with the previous year. In this item, note theaccounting of additional services, broken down into 3.43 million euros for the sale of

C H A N G E I N U F f o r E S S E N T IA L S E R V IC E SC P + F E R T A G U S O P E R A T O R S

0

20.000

40.000

60.000

80.000

2002 2003 2004 2005 2006

C H A N G E I N T H E U F F O R E S S E N T I A L S E R V I C E S C PO P E R A T O R

0

20.000

40.000

60.000

80.000

2002 2003 2004 2005 2006

8/9/2019 Refer 2006 En

30/112

29


traction power, 2.2 million euros for train manoeuvre activities, 1.8 million euros for parking

rolling stock and 1.4 million euros for eliminated trains, that is, earnings arising from the

capacity requested and not used that is subject to a tariff payment that varies according

to the advance period in which the request was cancelled.

The state allocated about 29 million euros in compensation indemnities to REFER to settlethe accounts, a 7% increase over 2005.

Operating Costs

Infrastructure management costs include two major items: external supplies and services, with

emphasis on subcontracts and personnel costs.

Operating costs for infrastructure management reached 173.1 million euros, a 6%, growth over

the previous year.The following changes took place in the main items:

A 29.6% rise in the subcontracts item, resulting from various factors, in particular a sharp rise

in new assets, some of which did not exist in the recent past, less investment fronts, a new

maintenance policy focussed on providing greater reliability to the infrastructures and new

legal provisions that influenced work planning.

On the other hand, personnel costs decreased about 5.5%. The company continues to

progressively reduce its railway infrastructure management personnel due to the railway

networks technological modernisation that provides a more centralised operation policyand optimises production processes.

Consequent to a smaller workforce and better work distribution, personnel costs have been

decreasing progressively in the past years.

The average number of workers fell by 9.8%, corresponding to a reduction of 339 workers.

Of the total operating costs of this activity, 91% (158 million euros) are eligible for tariff calculation

purposes, 5% (8.1 million euros) correspond to Annex I and the remaining 4% (7 million euros) are

Other Infrastructure Management Activities not eligible for tariff calculation purposes.

The percentages remained unaltered in relation to the previous year.

The Operating Result of the Infrastructure Management Mission was aggravated by highermaintenance activities, with an impact on operating costs and, in particular, on the cost of external

supplies and services. This situation was caused mostly by the network modernisation implying a

substantial number of new installations, many of which did not exist previously, and others that

replaced very rudimentary systems. The modernisation introduced new technology for infrastructure

operation and made the infrastructures more suitable to demands.

8/9/2019 Refer 2006 En

31/112

30


The new infrastructures provide greater safety, reliability and flexibility, but require more demanding

and more efficient maintenance, with faster response times since the mostly centralised systems

have a greater impact on operations.

The railway service quality is very directly influenced by the infrastructures reliability. To minimise

occurrences, it is fundamental for the conservation concept to evolve into a policy of preventative

action instead of acts to merely correct problems.

8/9/2019 Refer 2006 En

32/112

31


Description of the National Railway Network At the end of 2006, the National Railway

Network was 3,613 km long, of which only

2,839 km had train traffic.The lines currently in operation are classified

as Main Network, Complementary Network or

Secondary Network according to their length,

and are broken down as follows:

The networks are briefly described in the

following table:

DESCRIPTION OF THE NATIONAL RAILWAY NETWORK

Without Train Traffic National RailwayNetwork

25,000V 1,500V Sub-TotalWide Track 1.411 25 1.436 1.211 2.648 325 2.972

Single Track 844 - 844 1.196 2.040 - 2.040

Double Track 534 25 559 15 575 - 575

Multiple Track 33 - 33 33 - 33

Narrow Track 0 0 0 192 192 449 640Single Track - - - 192 192 449 640

TOTAL 1.411 25 1.436 1.403 2.839 774 3.613

TOTAL TOTAL

With Train Traffic

Electrified Non-electrified TOTAL

Electrified lines totalled 1,436 km, corresponding to 51% of the network with railway traffic, whereby

531 km began operating in the last 5 years.

The Cascais Line was the first in the National Railway Network to have electric traction, where 1,500

Volts of direct current was installed and inaugurated in 1926. Only in 1956, that is, 30 years later,

were new electrification systems put in operation, for which alternating current was used at

27%

38%

35%Secondary Network

Main Network

ComplementaryNetwork

51%

49%

Electrified SingleTrack 15,000V

Non-electrified

30%

20%

51%

49%

Electrified Single Track

25,000VElectrified Multiple Track25,000V

Electrified Single Track15,000V

Non-electrified

8/9/2019 Refer 2006 En

33/112

32


25,000Volts/50 Hertz. Because of this circumstance, the Cascais Line previously had an

electrification system distinct from that of the remaining network.

In the first 39 years, electrification at 25,000 Volts was extended to 462 km of track. This length was

exceeded by the service start-ups in the last 5 years, thus revealing the investment being made in

this area, as shown in the following graph:

ELECTRIF IED LINE

0200400600800

1.0001.2001.4001.600

1990 1992 1994 1996 1998 2000 2002 2004 2006

Year

Kmo

fLine

At the end of 2006, about

55% of the wide track (on

which 90% of trains run),

was equipped with

sophisticated circulation

command and control

safety systems that

included, besides the

automatic and highly safe signalling system, the Automatic Speed Control System (CONVEL) and

the Automatic Train Stopping System (ATS), and the fixed equipment of the Ground Train Radio

system.

As for todays network coverage by the systems shown in the table, its worth noting that 72% of the

speed control system was installed in the last 5 years and that 69% of the line kilometres equipped

with the ground-train radio system began operating within the same period.

These figures clearly reveal the effort by REFER to provide operators with an infrastructure equipped

with systems that ensure greater safety and reliability.

Convel 1.404

ATS (Automatic Braking) 25

Ground/Train Radio 1.400

Ground/Train Radiow/o Data Transmission

25

SAFETY AND COMMAND CONTROL SYSTEMS(Km)

8/9/2019 Refer 2006 En

34/112

33


1.1 Conservation and MaintenanceInfrastructure conservation activities include the following tasks:

Conservation of the track, signalling, telecommunications and other fixed installations;

Planning of the conservation management activities;

Control of the quality, safety, reliability and economic operation parameters;

Management of accidents and incidents with implications on the infrastructure.

(10^6 euros)

Real In 2005(1 ) (2 ) %(1)/ (2)

Cos tsMaterials 6,10 7,68 -20,6%

Subcontracts 64,29 43,67 47,2%

Other External Services 4,29 4,51 -5,0%

Personnel 22,96 22,53 1,9%

Depreciation 1,77 1,70 4,4%

Other Costs 1,84 1,94 -5,3%

Sub to ta l 101,25 82,03 23,4%

Structural Costs 0,94 0,89 5,6%Cos ts fo r DGOD, DGPCESuppor t Depar tments 11,72 10,84 8,1%

TOTAL 113 ,91 93,76 21,5%

Employees 944 988 -4,5%

Change

Operating CostsThe costs of infrastructure conservation and maintenance activities include:

Conservation costs;

Conservation costs for the lines of Annex I;

Structural conservation costs;

Other operating costs;

Costs of conservation activities increased 21.5%, compared with the previous year. Underlying this

change, essentially note the 47.2% increase in subcontracts item, of about 20.6 million euros.

8/9/2019 Refer 2006 En

35/112

34


That increase resulted

essentially from a new

maintenance policy

committed to making the

infrastructures more reliableand from new legal

provisions that influence the

work planning, relying on

subcontracting for the

various specialised tasks.

Emphasis goes to the

following subcontracts

whose costs all increased in

the following proportions: for

the track by 31%; signalling by 22.9%; power lines by 87.3%; construction by 53.7%;

telecommunications by 157.7%; substations by 29.9%; and bridges by 30.1%.

Personnel costs increased 1.9% over the previous year. The average number of employees

assigned to this activity decreased by 4.5%, (44 workers). Fewer workers did not imply lower

personnel costs. REFER readjusted its workforce, which had an impact on the professionalqualification levels and on the preparation for challenges arising from technological innovations

associated to the railway sector. There are now more staff and less unqualified workers, particularly

in the signalling area.

Note that the higher costs in this activity, compared with the previous year, also resulted from higher

costs by the General Departments (DGOD and DGPCE) and Support Departments assigned to

conservation activities, 8.1%.

Of the total operating costs in this activity, 93% (81.9 million euros) are eligible for calculating thetariff, 4% (3.1 million euros) correspond to Annex I, the remaining are Other Conservation Activities

(3.3 million euros).

In the previous year, the percentages were of 92% (65.1 million euros) and 4% (3.1 million euros)

respectively.

(10^6 euros)

Real 2005(1) (2) %(1)/(2)

Track 21,53 16,43 31,0%Signalling 13,80 11,23 22,9%Power Lines 8,44 4,50 87,3%Construction and Low Voltage 9,07 5,90 53,7%Telecommunications 6,99 2,71 157,7%Substations 2,45 1,89 29,9%Bridges 1,89 1,45 30,1%Other Subcontracts 0,12 -0,45 -127,1%

Total 64,29 43,67 47,2%

SpecialtiesChange

8/9/2019 Refer 2006 En

36/112

35


Railway Network Conservation and Maintenance ActionsIn order to improve the infrastructures availability, the company carried out a number of measures,

of which we highlight:

Maintenance of the track superstructure by heavy

mechanical work at various sites of the railway network,

in particular in some sections of the North Line, Douro

Line, Tua Line, Oeste Line, Algarve Line, East Line and

Cceres R.

Minho Line Nine/Valena Replacement of the wood

crossties, levelling of track switching devices anddeactivation of the Mides station.

Minho Line Stabilisation of the embankment between

km 60+000 and 60+250, construction of the retaining

wall and drainage system.

Minho Line Durres Stop Rehabilitation of the

excavation embankments surface.

Minho Line Improvement of the track superstructure between ncora and Senhora da

Agonia, km 97+190 103+991. Service start-up of electro-mechanical signalling at Vila

Nova de Cerveira, Minho Line.

Service start-up of electro-mechanical signalling at the

Juncal station, Douro Line.

Service start-up of automatic level crossings at 50.163 and

51.126, Minho Line and their command by electric

signalling from the Barcelos Station, Minho Line.

Chemical weed control along the National RailwayNetwork.

Brush clearing along the marginal strips and cleaning of

water systems throughout the railway network, at the

most vulnerable sections to prevent fires.

Reinforcement and repair of the narrow canal of

Alcntaraat the intersection with the South Line at km0.530

Construction of fences in urban areas, on the North Line

between PK 312/325, on the Oeste Line in the area

8/9/2019 Refer 2006 En

37/112

36


surrounding the stations of Marinha Grande, Leiria and Monte Real, on the Beira Alta Line in

the area of the Celorico Station, on the South Line between PK 25 and 26 and on the

Algarve Line. The railway domain was fenced off at some alternative roads to level crossings

and underpasses/overpasses, to prevent pedestrians from

accessing the railway track and, as such, improving safety. Rehabilitation of the track to reduce slowdowns on the North

Line from km 107.000 to km 107.700.

Algarve Line and Oeste Line, Lourial / B. Lares section

replacement of wood crossties with concrete crossties.

Integrated maintenance on lines with heavy train traffic in

Greater Lisbon, on the South Line and on the Alentejo Line, which at the same time involved

specialised services for the track and geotechnics, construction, low voltage, power lines,

special structures (bridges, aqueducts and tunnels) and complementary services, byintroducing a new maintenance method focussed more on preventative maintenance to

meet the goal of gradually improving service quality.

Urgent and essential intervention to rehabilitate the embankment at Km 60.045/60.085 on

the Beira Alta Line.

Urgent intervention to rehabilitate

the embankment at km 260.500

and to repair the track at km

255.500 on the South Line due to

damage to the railway

infrastructure caused by intense

rain in late 2006.

North Line PK 281.690 stabilisation of the

embankment where a landslide took place due to

adverse weather conditions, which displaced the

power cable duct that could have caused other

problems to the railway infrastructure.

North Line Work on the track

north and south of the Ftima

Tunnel to restore normal

operation that had been

affected by serious damage

to the railway infrastructure in

8/9/2019 Refer 2006 En

38/112

37


this region caused by heavy rain in November.

Vendas Novas Line, PK 29.370 29.400 Due to the heavy rain and the consequent

concentration of water at the site, the backfill embankment collapsed, for which urgent work

was carried out to repair the destroyed track bed. The track was disassembled and

reassembled.

8/9/2019 Refer 2006 En

39/112

38


1.2 OperationThe operation activities include:

Circulation command and control management;

Circulation personnel management;

Safety management, including operation management of occurrences;

Authorisation and control of infrastructure restrictions;

Capacity analysis;

Assigning capacity to operators;

Infrastructure restrictions planning;

Measuring, control, billing and collection of the used capacity.

(10^6 euros)

Real 2005(1) (2) %(1)/(2)

CostsMaterials 0,29 0,21 41,2%

Subcontracts 3,60 8,70 -58,6%

Other External Services 10,18 9,91 2,7%

Personnel 53,21 58,36 -8,8%


Other Costs 2,02 1,84 -209,7%

Subtotal 70,38 80,17 -12,2%

Structural Costs 0,55 0,42 31,5%Costs of DGOD, DGPCE andSupport Depart. 6,63 6,30 5,2%

Total 77,56 86,90 -10,7%

Employees 2.118 2.411 -12,2%

Change

8/9/2019 Refer 2006 En

40/112

39


Operating Costs

The operating costs include:

Operation costs;

Operation costs of the lines of Annex I;

Structural operation costs;

Other operating costs.

Costs covered by these activities fell about 10.7% compared with the previous year.

Lower personnel cost, about 5 million euros less than in the previous year, contributed to this

change. The average number of workers decreased by 12.2% (293 workers less) compared with

December 2005.

Subcontracts was

another item that also

decreased by 58.6%

compared with 2005.

Telecommunications

fell about 94%

compared with thesame period in the

previous year.

Of the total operating

costs for this activity,

90% (76.1 million euros) are eligible for calculating the tariff, 6% (4.9 million euros) correspond to

Annex I, and the remaining amount is for Other Activities (3.7 million euros).

In the previous year, the percentages were of 90% (81.7 million euros) and 5% (5 million euros)

respectively.

Network Directory

The Network Directory is an essential document in the railway activity, since REFER uses it to establish

the technical and commercial conditions for rendering the infrastructure availability service and

associated services to operators. The directory stipulates the rules guaranteeing transparent and

non-discriminatory network access in compliance with the principles of competition.

(10^6 euros)

Real 2005(1) (2) %(1)/(2)

Telecommunications 0,28 4,76 -94,0%Remote Control 0,00 0,00Rescue Train 1,41 2,25 -37,5%Level Crossings 1,26 1,15 9,8%Other Subcontracts 0,64 0,54 19,2%

Total 3,60 8,70 -58,6%

SpecialtiesChange

8/9/2019 Refer 2006 En

41/112

40


The 2006 Network Directory, published in September 2005, was the first directory to be prepared

according to the rules stipulated in Regulations 21/2005. After its publication, the operators filed

appeals that forced REFER to present the properly compiled processes to the Regulatory Entity and

to provide, in 2006, a variety of additional information complementary to the submitted information

it used to justify the tariff rates, so that INTF could reach a decision.

The 1st Addendum to the 2006 Directory was published based on that decision.

Capacity Management

Operators with access to the infrastructure reached about 39 million TKs (train kilometres) on the

national railway lines in the past two years.

GENERAL NETWORKEVOLUTION OF TK's

05.00010.000

15.00020.00025.00030.000

35.00040.00045.000

2001 2002 2003 2004 2005 2006

Ano

10^3

CP Operator Fertagus Operator Total TK's

The measures to progressively liberalise the

market, starting with cargo, have not yet

influenced demand in 2006. There are stillonly two operators: CP, which is responsible

for 96% of traffic on the network; and

FERTAGUS with 4%, which offers only a

passenger service on the North/South axis.

Traffic distribution on the various network lines

is very heterogeneous and concentrated in

the Main Network whose length represents 39% of the network with traffic and 73% of total traffic.

BREAKDOWN OF TK 's PER OPERATOR4%

96%

Fertagus

CP

8/9/2019 Refer 2006 En

42/112

41


In 2006, the Rossio tunnel remained closed to traffic, which now is channelled to the Cintura Line.

TK's ON THE GENERAL NETWORKMain Network 28.392.178

Complementary Network 7.769.685

Secondary Network 2.877.119

TOTAL 39.038.982

Punctuality Rate

Preventative maintenance aims to provide a more reliable infrastructure and thereby reduce the

number of faults or failures disrupting normal operation.

During 2006, there was a general improvement in services rendered to the operators. The

Punctuality Rate, due to causes for which REFER (IPR) is at fault, was as follows:

0%

20%

40%

60%

80%

100%

Pendular International Intercity Inter-Regional Regional Suburban Cargo

2005 2006

Note the improvement in Pendular trains (+5.1%), which reached an IPR of 0.94, on IC trains (+

1.32 %), once again proving the success of REFERs goal to provide a more reliable infrastructure

and thus reduce the number of faults or failures disrupting normal operation.

B R E A K D O W N O F T K ' s P E R N E T W O R K T Y P E

73%

20%

7%

Main Network

ComplementaryNetwork

Secondary Network

8/9/2019 Refer 2006 En

43/112

42


2. Investment in Long Duration Infrastructures (LDI)The investment mission includes, besides each departments costs and earnings directly related

with the investment, a share in the structure of other company departments, materials, labour and

equipment applied to carry out this activity.(10^6 euros)

Real 2005(1 ) (2 ) %(1)/ (2)

Cos tsMaterials 17,97 17,65 1,8%


Other External Services 4,72 4,73 -0,4%

Personnel 15,95 17,02 -6,3%


Other Operating Costs 0,02 0,02 -11,9%

Other Costs /Earn ings 0,50 2,18 -76,8%

Sub tota l 40,31 42 ,90 -6 ,0%Cos ts o f DGOD, DGPCE and

Suppor t Depar tments 10,90 8,58 27,1%

Tota l 51,21 51 ,47 -0 ,5%

Employees 519 550 -5,6%

Change

During 2006, work for the company reached 50.1 million euros, broken down as follows:

23.37million euros of structural costs,

17.96 million euros of materials,

7.82 million euros of running costs,

0.93 million euros of labour and equipment.

Note also that this activitys results should correspond only to financial costs that, by imposition of

accounting rules, cannot be capitalised, but that are related directly with the lack of financial

resources for investment activities.

Investment management costs fell slightly compared with the previous year.

Personnel costs fell 6.3% compared with 2005. On average, in 2006 there were 519 employees

assigned to this area compared with 550 in 2005, a 5.6% decrease, meaning 31 less employees.

8/9/2019 Refer 2006 En

44/112

43


Overall Investment Value

In 2006, REFER invested approximately 313 million euros, 41% of what had been planned.

Investments in LDI stipulated in the PIDDAC represented 85% of this total (266 million euros). The

remaining 15% (47 million euros) were investments outside PIDDAC and covered current

investments in infrastructures (41.1 million euros), general studies (4.6 million euros) and operation

investments (0.9 million euros).

The table below illustrates investments in 2006, compared with what had been programmed and

the respective means of financing.

Investment Budget - Performance and F inancing SourcesOn 31 December 2006 (thousand euros)

(a ) (b )Integrat ion of the Terr itory's Structural Corr idors in the Trans-European Transpor t Network 279 .607 161 .126 2 .221 82 .862 76 .043 58%

North Line Integrated Project 164.276 107.830 1.511 68.811 37.508 66%Algarve Line Int. Proj., incl. Sol. Bulk Route 46.844 15.718 350 4.797 10.571 34%North Line - New Espinho Station 43.331 12.421 230 12.191 29%Port of Sines - Spain Railway Link 25.156 25.156 130 9.253 15.773 100%

Developm ent of U rban Access Routes 249 .793 84 .355 1.365 3 .407 79.583 34%Sintra Line, R.Alcntara, and Oeste Line (until Sabugo) 73.272 22.437 420 22.017 31%

Cascais Line 10.135 3.898 50 3.848 38%North-South Railway Axis (Chelas-Fogueteiro) 2.526 1.447 6 1.441 57%North-South Railway Axis (Brao de Prata-Chelas) 30.579 816 145 671 3%North-South Railway Axis (Coina-Pinhal Novo) 14.299 7.856 65 7.791 55%North-South Railway Axis (Barreiro-Pinhal Novo) 20.743 4.020 110 3.910 19%North-South Railway Axis (Pinhal Novo-Setbal) 17.171 4.360 120 1.727 2.513 25%Minho Line (Porto - Nine) 36.866 16.623 190 620 15.813 45%Guimares Line 5.966 5.705 30 660 5.015 96%Douro Line ( Ermesinde - Marco) 33.836 13.962 200 13.762 41%Braga Branch Line 4.400 3.232 30 400 2.802 73%

Inte rm odal C oord ina tion 4.050 2 .245 20 0 2 .225 55%Cacia Terminal and Port of Aveiro Link 3.391 1.777 18 1.759 52%Leixes Line and S.Gemil Junction 660 469 2 467 71%

Developm ent of Reg iona l and Inte rreg iona l Accesses 106 .855 11.281 802 1 .081 9 .397 11%Integrated Beira Baixa Line Project 86.500 9.750 800 1.081 7.869 11%Integrated Oeste Line Project 18.747 105 0 105 1%Modernisation of the Algarve Line 1.608 1.426 2 1.424 89%

T ransport System Safety, Qua lity and E ffic iency 23 .238 6 .865 100 443 6 .322 30%Traffic Safety - Elimin. and Reconversion of Level Cross. 23.238 6.865 100 443 6.322 30%

Tota l Inve stm ent in Long Dura tion Infrastructures 663 .543 265 .872 4 .508 87 .794 173 .571 40%Studies and Projects 14.405 4.620 4.620 32%

Current Infrastructure Investments 74.066 41.143 41.143 56%

Operation Investments 2.501 874 874 35%

Tota l Inve stm ent - EAG 's (** ) 90 .973 46.638 0 0 46 .638 51%Tota l REFER Investm ents 754 .516 312 .510 4 .508 87 .794 220.208 41%

(*) - The investment financing coverage is applied to the actual expenditure

(**) - includes 47,627 thousand euros approved through Deliberation 25/05

(b ) / (a )ROGRAMS / PROJECTSBudg et 2006 Perform ed

Financia l Coverage (*)P ID DA C E U Fina nc . O the r

8/9/2019 Refer 2006 En

45/112

44


An analysis of the table reveals the most significant differences between actual investments and

the value budgeted for 2006:

Integrated Algarve Line Project, including the Solid Bulk Route,

34% of this PIDDAAC project was implemented The project had a low implementation ratebecause the execution project had to be reformulated, thus delaying the respective work for

the Alccer Alternative Route (23,500,000 euros). Additionally, at the start of the work there

was also a delay in implementing the regulations and in eliminating obstacles. Lastly, the

level crossings, the stabilisation of embankments and other minor works were not started

(7,000,000 euros).

Sintra Line, Alcntara Branch Line and Oeste Line (up to Sabugo)

Preparing the budget for this PIDDAC project included the Sintra Line Undertaking (32,450,000euros), the Rossio Tunnel Undertaking (32,750,000 euros) and work to implement the

regulations (3,700,000 euros).

The 31% implementation rate is low and is associated to the fact that the Barcarena Work

(29,000,000 euros) did not start as planned due to problems during the contract work tender,

which involved posterior reformulation of some aspects related with the work stages.

The work to implement the regulations also did not start in 2006. The work contract for the

Rossio Tunnel did not progress as planned due to the contract termination.

North South Railway Axis (B. Prata Chelas Section)

The completion of this project depends on the definitions stipulated in the RAVE, whereby all

interventions planned for 2006 were delayed (approx. 28,000,000 euros).

Integrated Beira Baixa Project

The difference between the planned value and what was actually implemented is mainly

related with the fact that this undertaking was subject to guideline changes during the year in

terms of the work strategy, both in the Mouriscas A/Castelo Branco section and in the Castelo

Branco/Covilh section.

Part of the financial application was for the construction of the Technical Building (3,500,000

euros) in the Cast. Branco / Covilh section, and the rest was essentially for completing works

and financial adjustments in the Mouriscas / Cast. Branco section (work: 2,450,000 euros +

inspection: 1,700,000 euros).

8/9/2019 Refer 2006 En

46/112

45


Financial Coverage of InvestmentsThe financing of investments on long duration infrastructures through the PIDDAC was ensured by

the State Budget Chap. 50, by E.U. Funds and other financing sources.

The financial coverage structure forPIDDAC investments in 2006 was as

follows: Chap. 50 represented

about 1.7% (4.5 million euros), E.U.

Funds 33% (87.8 million euros) and

other financing sources reached

65.3% (173.5 million euros).

Note that in 2006 the contribution

by PIDDAC and by E.U. fundsdecreased, similar to previous

years. As such, reliance on loans represented the largest part of the financial coverage for

investments, with the consequent negative impact on financial expenses.

FINANCIAL COVERAGE OF INVESTMENTS

0

100.000

200.000

300.000

400.000

500.000

600.000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Investment Carried Out

Thousand

euro

s

PIDDAC Fundos Comunitrios Out. Fontes Financ.

FINANCIAL COVERAGE OF THE PIDDAC INVESTM ENT IN 2006

33%

2%

65%

EU Funds

Chap. 50

Other Sources

8/9/2019 Refer 2006 En

47/112

46


Railway Network Modernisation ActionsREFERs investment activities on behalf of the state included investment projects to modernise and

develop the National Railway Network, of which we point out the following actions:

North Line

General work contract to modernise the Azambuja Vale de Santarm section so that all

circulation will be on renovated lines between Vila Franca de Xira North and Vale de

Santarm, in a length of over 30 km;

Construction work contract for the railway viaduct in Santana do Cartaxo and for the work to

modernise the power and video surveillance remote control systems at the Substation of Vila

Franca de Xira and Entroncamento;

Continuation of the contract work to install signalling and telecommunications between

Alhandra and Vale de Santarm and for studies on protecting the Azambuja Station from

floods caused by the Tejo River;

The preliminary study was started again for the alternative route of Santarm and to

modernise the Setil Entroncamento subsection that will allow the North Line to be fully

modernised in a length of about 170 km;

Minho Line

Construction of the roadway viaduct providing access to the overpass at Km 11+476, which

made it possible to close the level crossing of Leandro, in the county of Maia, and the workfor eliminating the level crossings north of the county of Viana de Castelo;

Installation of the automatic speed control system for trains in the sections of Campanh /

Contumil and Santo Tirso / Guimares and the link to the Douro Line of the Logistics Platform

of the container company Sociedade Portuguesa de Contendores (SPC) in Valongo;

To improve the Minho Lines current operating conditions and to obtain the route times

stipulated for the Porto Vigo route, in December 2006, an international public tender was

launched to build the tunnel for the alternative route of Trofa, which is 1.404 m long;

As for the public information system in the area of the Porto Operation Command Centre,work was continued to use the system in a semi-automatic manner, whereby it was possible

to install and operate this equipment at the Ermesinde Station;

Sintra Line

The Rossio Tunnels rehabilitation was interrupted in October 2006 when the contract with the

Teixeira Duarte/EPOS consortium, which had been signed in July 2006, was terminated based

on contractual non-compliance with technical specifications and the deadline. Until that

date, only about 30% of the initial contract work had been completed. In December 2006,

two new contracts were awarded for the Primary Support work between the Rossio Station -

8/9/2019 Refer 2006 En

48/112

47


km 0+573 and km 0+869 km 0+934 and to perform the remaining construction work and

special works necessary for completing the tunnels rehabilitation;

Completion of the work to the Papel underpass, power lines station and signals (track

switching gear) of Cacm and the installation of sound barriers (2nd stage);

Sines Elvas Link

Full track and platform renovation of the vora Line Casa Branca vora Section (P.K.

89.900/116.100), corresponding to the 1st stage. Note the innovative aspect of this

intervention by applying monoblock concrete crossties for 3 rails. Along with this intervention,

the SOR (Simplified Operation Regime) operation system was altered to telephone blocking;

In the Sines Casa Branca Section, the basic program was started and completed;

In the vora Elvas section, the basic program was completed and the preliminary study was

started, now in progress in coordination with the RAVE;Contract work to adapt/alter signalling, Convel, telecommunications, power lines, track and

implementation of provisory measures of the RCT+TP (Traction Current Return Protection

Earthing) regulations on the Sines Line;

South Line Alccer Large Alternative Route

In December 2006, a contract was awarded for the 1st construction stage of the Alccer

Alternative Route that will take place in 3 stages, corresponding essentially to land levelling

and drainage. In November, the announcement for the 2nd stage was published for the

Railway Crossing of the Sado River Bridge and Viaducts;

The construction of this large alternative route, besides reducing travel time between Lisbon

and Faro by about 10 minutes, will reinforce capacity by separating passenger and cargo

traffic between the alternative route and the existing section, harmonise the operation

conditions with the standards of adjacent sections and will be eventually integrated in the

Sines / Spain route;

In the modernisation of the Algarve Link, emphasis goes to the contract work for the sound

barriers between Ermidas and Funcheira and the consignment of the sound barriers between

PK 94 and Ermidas, and the execution project for the overpasses/underpasses to be built in

the zone of Alccer do Sal, which are in the review stage.

Continuation of the construction of the building for the Lisbon Operation Command Centre

(CCOs), designed to optimise the networks operation and the railway circulation operation

management, in order to obtain high standards of reliability, availability, efficiency, quality

and safety.

8/9/2019 Refer 2006 En

49/112

48


Level CrossingsThe previous Department of Crossings and Level Crossings Management took measures to reduce

accident rates at level crossings by eliminating them, by improving safety conditions and through

awareness raising campaigns.

To eliminate and reclassify level crossings (LCs), in 2006 and in collaboration with the Constructionand Renovation Department (CR) and the REFER North Delegation (DN), the following actions were

carried out:

LEVEL CROSS INGS

Planned Performed Planned PerformedNORTH DELEGAT ION (DN) 1) 21 17 --- 2INVESTMENT DE PART. ( IV) /CONSTRUCT . AND RENOV. DEPARTMENT (CR )

Beira Baixa (BB) Line Undertaking 4 --- --- ---Metropolitan Lisbon (ML) Undertaking 3 2 --- ---

Sines Elvas (SE) Link Undertaking 1 1 --- ---

IV/CR - Total 8 3 0 0DEP . OF CROSS INGS AND MANAGEMENT OF LC ' s ( LC)

Dep. of Elimination and Reclassif. of LC's (SRPN) 71 19 23 20

Dep. of Management of LCs (GTPN) 9 25 101 63

LC - Tota l 80 44 124 83REFER - TOTAL 109 64 124 83

6

2) --- --- ---15 3) 1 3) 1 ---

EP - Estradas de Portugal, E.P.E. 1 --- --- ---

AENOR --- 1 --- 1

EXTERNAL ENTITIES - TOTAL 22 2 1 1131 66 125 84

1)

2)

3) Works with a Protocol between REFER and Town Councils

Elim inated LC 's Reclassif ied LC 's

REFR

Includes the actions performed for the North Line Undertaking Plan 2006

Town Councils

EXTERNAL

ENTTES

Prior works carried out, LC's to be eliminated according to no. 2 of art. 4 of the LC Regulations - DL 588/99 of 23/12

TOTAL

The following work was carried out to eliminate or reclassify these level crossings:Work Eliminated LCs ReclassifiedLCsOverpass/Underpass (25 OU's) 25 1

Alternative Route 17 1

Automation --- 10

Automation Alt. (1) --- 27

Visibility --- 35

Others 24 13

TOTAL 66 871) Installation of lift gates at automated LCs

8/9/2019 Refer 2006 En

50/112

49


Consequently, of the universe of railway network lines with traffic, on 31/12/2006 there were 1,297

LCs, for an average density of 0.457 LCs/km, broken down as follows:

With Guard 97

Automated

With lift gates 371

Without lift gates 27

Without Guard

Type D 307

5th cat. 185

Pedestrians 174

Sub to ta l 1161136

1297OTAL

398

492

LC Type

Public LC's

Number

Pr i vate LC 's

Through work by the Conservation and Maintenance Department / Operations Management

Department, various actions were also carried out to improve safety conditions at level crossings,

by improving the paving of LCs and by placing signalling requiring the use of sound signals when

approaching LCs with low visibility.

Ac c id e n t s a t Le ve l C ro s s i n g s - 1 9 9 0 t o 2 0 0 6

025

50

75

100

125

150

175

200

225

250

No.ofAccidents

TOTAL 234 218 198 205 182 166 147 144 144 154 119 123 113 105 102 78 68

Pers. Hit 35 45 38 34 22 18 18 22 17 25 15 17 18 15 18 19 11

Collisions 199 173 160 171 160 148 129 122 127 129 104 106 95 90 84 59 57

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

By combining all these actions, it has been possible to progressively reduce accidents at level

crossings. In a five-year period, total accidents have decreased from 113 to 68.

8/9/2019 Refer 2006 En

51/112

50


3. Activities: - OtherOther Activities Include:

Material Recovery and Waste Management;

Rendering of services, in particular: Telecommunications, Conservation of Branch Lines,Overpasses and Underpasses, Track Crossings Level Crossings, Repairs for which Third Parties

are Responsible, Concession of Commercial Spaces and Other Secondary Services;

Work for Warehoused Stocks, in particular the creosoting of crossties.

(10^6 euros)

Real 2005(1 ) (2 ) %(1)/ (2)

Ea rn ings 13,66 13,80 -1 ,1%Other earnings 13,66 13,80 -1,1%

Costs 5 ,81 5,82 0 ,0%Materials 0,20 0,36 -42,7%


Other External Services 3,79 3,31 14,4%

Personnel 0,90 0,97 -7,0%


Other Costs 0,00 0,00 -195,9%

Opera ting Incom e 7,84 7,99 -1 ,8%Cos ts o f DGOD, DGPCEand Suppor t Depar tments 4,74 7,37 -35,6%

Tota l 3 ,10 0,62 -399 ,3%

Employees 73 75 -2,7%

Change

Operating earnings from this activity decreased 1.1% compared with the previous year.

Note that the item of concessions and miscellaneous licences in 2006 reached about 3 million

euros, of which, 1.8 million euros correspond to the contract with CPCOM advertising and

concession of commercial spaces at stations.

In contracts to generate revenue from facilities, in 2006 special emphasis goes to agreements with

CP to operate the Tadim Cargo Terminal (Braga) in the amount of 10,000 euros/month (which

began in March 2006 and thus totalled 98,500 euros) and the assignment of facilities for the

Merchandise Depot in Elvas (in the amount of 16,000 euros/year in 2006).

8/9/2019 Refer 2006 En

52/112

51


In 2006, the Scrap Sales item recorded 2.2 million euros, whereby the most relevant materials were

rail and track switching devices (tsds).

At the end of 2006, this activity showed a positive Operating Income.

8/9/2019 Refer 2006 En

53/112

52


ENVIRONMENT

8/9/2019 Refer 2006 En

54/112

53


ENVIRONMENT

The Environment Departments activities are grouped into four main areas:

Environmental Management;

Environmental Evaluation and Monitoring;

Environmental Follow-up; and

Technical Specialties.

In Environmental Management, the first 7 procedures transversal to the organisation were prepared

and approved, by the Board of Directors, and were combined with previous waste management

measures. In the particular context of waste management, two work instructions were prepared

and approved for specific waste (oils and used tires), a policy that is to be maintained and

expanded to other types of waste. Emphasis also goes to the first steps for defining strategicenvironmental goals and the respective control indicators to be taken into account in future

developments of the Balance ScoreCard.

In environmental evaluation and monitoring, we highlight the preparation work and preliminary

measures to start the main contract works, for which tenders were launched in 2006. These

measures included preparing and compiling the licensing processes, supervising preliminary

studies and clarifying minimisation measures to the official entities of the Ministry of the Environment.

Procedures were also prepared for the future supervision of those licensing processes. The

company launched the first two environmental monitori

refer 2006 en

Documents