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PUBLIC BUSINESS ENTERPRISE RENFE-Operadora

Annual Accounts and Notes Thereto with Report on Compliance with Financial Obligations

31 December 2008

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

PUBLIC BUSINESS ENTERPRISE

RENFE-Operadora

Balance Sheet 31 December 2008

(Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

The accompanying notes form an integral part of the annual accounts for 2008.

Assets Note 2008

Intangible assets 5 36,064Property, plant and equipment 6 5,751,866 Non-current investments in group companies and associates

Equity instruments 8 42,312 Non-current investments 10

Equity instruments 1,700Loans to companies 16,142Other financial assets 67

Deferred tax assets 23 2,999

Total non-current assets 5,851,150

Non-current assets held for sale 11 2,258Inventories 12 45,444 Trade and other receivables 13

Trade receivables – current 247,777Trade receivables from group companies and associates – current 15,370Other receivables 164,316Current tax assets 4,134Public entities, other 253,564

Current investments 10

Other financial assets 300 Prepayments for current assets 3,267Cash and cash equivalents 15 457,206

Total current assets 1,193,636

Total assets 7,044,786


RENFE - Operadora

Balance Sheet 31 December 2008

(Expressed in thousands of Euros)



Equity and Liabilities Note 2008

Capital and reserves 16

Equity contributions 2,491,247Reserves

Other reserves (95,527)Other shareholders’ contributions 228,085 Loss for the year (177,251)

Total equity 2,446,554 Grants, donations and legacies received 17 6,998

Total equity 2,453,552 Non-current provisions 18 87,552 Non-current payables

Loans and borrowings 21 2,957,962Derivatives 14 9,045 Other financial liabilities 21 25,555

Deferred tax liabilities 23 2,999 Accruals 19 11,786

Total non-current liabilities 3,094,899

Current provisions 18 75,126 Current payables 21

Loans and borrowings 216,874 Other financial liabilities 597,992

Trade and other payables 22 Current suppliers 438,323

Suppliers, group companies and associates – current 45,735 Other payables 58,110 Personnel (salaries payable) 23,803 Public entities, other 19,903

Accruals 19 20,469

Total current liabilities 1,496,335

Total equity and liabilities 7,044,786


RENFE - Operadora

Income Statement for the year ended 31 December 2008




Note 2008

Revenues 24 1,935,232 Work performed by the entity and capitalised 6 18,810 Supplies 12 (97,412) Other operating income 25 556,753 Personnel expense 26 (744,423) Other operating expenses 27 (1,413,277) Amortisation and depreciation 5 and 6 (319,973) Non-financial and other capital grants 17 607 Provision surpluses 18 7,279 Impairment and gains/(losses) on disposal of fixed assets

Impairment 6 (14,292) Gains on disposal and other 6 4,871

Results from operating activities (losses) (65,825) Financial income 28 57,156 Financial expenses 28 (169,734) Exchange losses 28 (7,525) Impairment and gains/(losses) on disposal of financial instruments

Gains on disposal and other 8 and 28 8,859

Net financial expense (111,244) Loss before income tax (177,069) Income tax 23 (182) Loss for the year (177,251)


RENFE-Operadora

Statement of Changes in Equity for the year ended 31 December 2008

A) Statement of Recognised Income and Expense




Note 2008

Loss for the year (177,251)

Income and expense recognised in the income statement

Grants, donations and legacies 17 (607)

Tax effect 182

Total recognised income and expense (177,676)


RENFE-Operadora

Statement of Changes in Equity for the year ended 31 December 2008

B) Statement of Changes in Equity (Thousands of Euros)



Equity

(Expressed in thousands of Euros) Equity

contributions Other shareholders’

contributions Reserves Loss for the year Grants, donations and

legacies received Total

Balance at 31 December 2007 2,040,671 272,528 (234,853) 2,078,346

Others (4,127) (4,127)

I. Adjustments for change to NPGC (91,400) 7,423 (83,977)

Adjusted opening balance 2008 2,040,671 272,528 (95,527) (234,853) 7,423 1,990,242

I. Total recognised income and expense (177,251) (425) (177,676)

II. Operations with equity holders or owners:

1. Share capital increases and other:

- Equity contribution 2008 449,000 449,000

- Unrecognised assets 1,576 1,576

2. Other operations with equity holders or owners:

- Offset of 2008 losses 157,429 157,429

- Other contributions (2008 ERE and other) 32,981 32,981

III. Other changes in equity

- Application of 2007 loss (234,853) 234,853

Closing balance 2008 2,491,247 228,085 (95,527) -177,251 6,998 2,453,552


RENFE-Operadora

Statement of Cash Flows for the year ended 31 December 2008




2008

A) Cash flows from operating activities

1 Loss for the year before tax (177,069)

2. Adjustments for: 436,130

a) Amortisation and depreciation 319,974

b) Change in provisions (7,172)

c) Grants recognised in the income statement (607)

d) Proceeds from disposals of fixed assets 9,421

- Impairment and losses 14,292

- Gains/(losses) on disposal and other (4,871)

e) Proceeds from disposals of financial instruments (8,859)

f) Financial income (57,156)

g) Finance expenses 169,734 h) Exchange gains/losses 7,525

i) Other income and expenses 3,271

3. Changes in operating assets and liabilities (28,599)

a) Inventories 397

b) Trade and other receivables (46,583)

c) Other current assets 277 d) Trade and other payables 12,426

e) Other current liabilities 4,884

4. Other cash flows from operating activities (114,335)

a) Interest paid (147,201)

b) Dividends received 5,497 c) Interest received 27,396

d) Other amounts paid (received) (27)

5. Cash flows from operating activities 116,126 B) Cash flows from investing activities 6. Payments for investments a) Group companies and associates

(1,268,759) (12,454)

b) Intangible assets (24,577)

c) Property, plant and equipment (1,231,694)

d) Other assets (34)

7. Proceeds from sale of investments 7,760

a) Property, plant and equipment 6,985

b) Other financial assets 775

8. Cash flows from investing activities (1,260,999)

9. Proceeds from and payments for equity instruments 593,309

a) Issue of equity instruments 449,000

b) Grants, donations and legacies received 144,309

10. Proceeds from and payments for financial liability instruments 377,542

a) Issue 567,487

1. Loans and borrowings 562,800

2. Other payables 4,687

b) Redemption and repayment of (189,945)

1. Loans and borrowings (189,945)

11. Cash flows from financing activities 970,851

C) Net increase/decrease in cash and cash equivalents (174,021)

Cash and cash equivalents at beginning of year 631,227

Cash and cash equivalents at year end 457,206

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Notes to the Annual Accounts


1. Nature and Activities of the Entity, Legal Status and Composition of the Group

RENFE-Operadora is a Public Business Enterprise, the statutory activity of which consists of the rendering of passenger and freight rail transport services.

Its registered offices are located at Avenida Pío XII, 110 in Madrid.

The activity and legal status applicable to Public Business Enterprise RENFE-Operadora since its creation on 1 January 2005 following the restructuring of the Spanish rail sector are set out below:

a) Rail Sector Law 39 of 17 November 2003 (hereinafter the RSL) and creation of Public Business Enterprise RENFE-Operadora

In accordance with the third additional provision of the RSL, Public Business Enterprise RENFE-Operadora (hereinafter RENFE-Operadora or the Entity) was created as a public business enterprise as set out in article 43.1.b) of Law 6 of 14 April 1997 governing the Organisation and Operation of the General State Administration (hereinafter LOFAGE). RENFE-Operadora is a separate legal entity with its own equity and full capacity to act. The Entity is governed by the Ministry of Public Works through the Infrastructure Secretary General.

RENFE-Operadora was created following the separation of infrastructure administration and rail transport operating activities in accordance with EU directives concerning deregulation of the rail sector.

In order to achieve these objectives, the RSL entrusts the administration of rail infrastructures to Public Business Enterprise Red Nacional de los Ferrocarriles Españoles (hereinafter RENFE), which on 1 January 2005 changed its name to Public Business Enterprise Administrador de Infraestructuras Ferroviarias (hereinafter Adif), absorbing Gestor de Infraestructuras Ferroviarias (hereinafter GIF). Adif subrogated all rights and obligations held by GIF, while the rail service activity was spun off to a newly-created public business enterprise (RENFE-Operadora) entrusted with rendering all types of rail transport services to the public.

b) RENFE-Operadora statute

The RENFE-Operadora statute was approved in Royal Decree 2396 of 30 December 2004. Significant aspects of the statute include the following:

i) Statutory and principal activities of the Entity

The statutory activity of RENFE-Operadora is to render passenger and freight rail transport services, including maintenance of rolling stock, as well as other activities or services which are complementary or related to rail transport, in accordance with the RSL and implementing regulations.

Passenger transport services are currently rendered by RENFE-Operadora under two different economic regimes – public service and preparation for free competition:

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Suburban and regional transport services are provided on a contractual basis (under a public service contract) with public contributions either from the State or from the Autonomous Communities.

High speed and long distance services are subject to the regime that prepares for free competition.

Freight transport services are subject to the free competition regime.

In order to carry out its statutory activity, RENFE-Operadora may perform all types of administrative and other arrangements provided for in civil and mercantile legislation. RENFE-Operadora may also carry out any related commercial or industrial activities, including actions through interests in Spanish and foreign businesses and companies, provided such actions are in accordance with prevailing legislation.

Furthermore, in accordance with section four of the third additional provision and article 45 of the RSL, the Entity is required to secure a rail licence within six months from the date the Law entered into force. Nevertheless, RENFE-Operadora is authorised to render rail transport services from the date the Law entered into force and is assigned all necessary infrastructure to carry out the services being rendered at that time. The Entity may be directly assigned the necessary capacity to render new services.

ii) Legal status and contracting system

RENFE-Operadora is subject to private law except for issues relating to decision making by its governing bodies, for administrative powers confirmed thereon and in other aspects of public business enterprises which are specifically regulated in the Law on Organisation and Operation of the General State Administration, in budgetary legislation and in the Entity’s statute. In any event the Rail Sector Law and implementing regulations are applicable.

RENFE-Operadora is subject to private law with respect to contracting and acquisitions. Nonetheless, for the preparation and awarding of contracts, public contracting legislation for so-called special sectors is applicable. Until 30 April 2008, RENFE-Operadora was subject to Law 48 of 30 December 1998 governing contracting procedures in entities operating in the water, energy, transport and telecommunications sectors, which adapts Council Directives 93/38/EEC of 14 June 1993 and 92/13/EEC of 25 February 1992 to the Spanish legal framework, as well as section 2 of the eleventh additional provision of Royal Legislative Decree 2 of 16 June 2000, which approved the revised text of the Law on Public Administration Contracts.

On 1 May 2008 Law 30 of 30 October 2007, governing public sector contracts, and Law 31 of 30 October 2007, governing contracting procedures in the water, energy, transport and postal services sectors came into force adapting, respectively, European Community Directives 18/2004/EEC and 17/2004/EEC of 31 March to the Spanish legal framework.

Law 31/2007 includes RENFE-Operadora in its scope of application as a “contracting entity” with regard to contracts for which the objective scope and thresholds are established therein.

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Contracts for amounts lower than the thresholds established in Law 31/2007 are subject to the relevant standards of Law 30/2007, in accordance with the fourth additional provision thereof, whereby approval of certain internal regulatory instructions on contracting procedures, which guarantee advertising, competition, transparency, confidentiality, equality and non-discrimination principles, is required. These instructions were approved by the Secretary General and board of directors of RENFE-Operadora on 29 April 2008 in the document “Instrucción Administrativa IN-SGC-001/08”, containing the instructions that regulate RENFE-Operadora contracting procedures.

iii) Accounting and control

The Entity is required to adapt its accounting practices to those prescribed by applicable legislation, especially General Budget Law (hereinafter GBL) 47 of 26 November 2003, the provisions of the Code of Commerce and any implementing regulations, the Spanish General Chart of Accounts and the criteria for normalisation of the accounts of railway undertakings established in EU regulations.

In accordance with General Budget Law 47 of 26 November 2003 and the Annual Audit Plan, the economic and financial management of RENFE-Operadora is subject to a public audit by the Spanish State Administration Auditors (hereinafter IGAE), without prejudice to the powers of inspection granted to the Spanish Court of Auditors in the corresponding organic law and other pertinent legislation.

The Ministry of Public Works, through the Secretary General for Infrastructure, is responsible for the technical control and efficient management to be carried out by RENFE-Operadora, as well as for exercising the duties entrusted by Law for setting and managing rail charges (see note 1.f), for which purpose the management audits and inspections deemed necessary may be carried out.

iv) Budget

The Entity prepares annual estimated operating and capital expenditure budgets in line with the prevailing Contract-Programme and following the structure required by the Ministry for the Treasury. Following initial approval by the board of directors, the budgets are processed as established in General Budget Law 47 of 26 November 2003 (see note 1.e).

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v) Equity and financial system

In order to carry out its activities, RENFE-Operadora has its own equity, separate from that of the General State Administration (hereinafter the AGE), comprising all assets, rights and obligations to which it holds title, in accordance with Ministry of Public Works Order 2909/2006, referred to in section 4 of the first additional provision of the Rail Sector Law.

Management, administration and operation of assets and rights owned by RENFE-Operadora are subject to the third additional provision of the Rail Sector Law and the Entity’s statute. Any matters not expressly stipulated therein are subject to the Law on Public Administration Equity.

The Entity prepares and updates an inventory of assets and rights. This inventory is revised at 31 December each year and submitted for the approval of the board of directors during the first quarter of the following year.

In accordance with the third additional provision of the RSL and article 65 of the LOFAGE, RENFE-Operadora will avail of the following resources to meet its objectives:

Ordinary and extraordinary income obtained from the Entity’s activity

Borrowed funds, up to the annual limit set by the respective General State Budget Laws

Any subsidies established in the General State Budgets

Subsidies, contributions and donations to the Entity from specific European Union funds and other public administrations, entities and individuals

Returns, income from and increases in net assets

Interest and returns on shareholdings in other companies

Any other funds granted to the Entity by law or assigned under agreement or through any other legally established procedure

RENFE-Operadora may carry out all types of financial operations, particularly extend or obtain credits and loans in any form, including through the issue of debentures, bonds, promissory notes and any other financial liability, without prejudice to the provisions of General Budget Law 47 of 26 November 2003 and within the limits established in the yearly budget laws.

RENFE-Operadora’s financial year starts on 1 January and ends on 31 December each year.

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vi) Personnel

The first additional provision of the RSL establishes that, for the purpose of article 44 of the revised text of the employees’ statute, approved by Royal Decree 1 of 24 March 1995, RENFE-Operadora is the business successor of Red Nacional de los Ferrocarriles Españoles. Consequently, RENFE employees who were with the company on 1 January 2005 and who rendered services corresponding to RENFE-Operadora were transferred to the latter as of its creation and remained subject to the same employees’ statute.

c) Assignation of assets, rights and obligations from RENFE to RENFE-Operadora

Ministry of Public Works Order 2909 of 19 September 2006 (hereinafter the Ministerial Order) established the assets, rights and obligations to be held by RENFE-Operadora.

For the purpose of distributing RENFE equity between Adif and RENFE-Operadora and integrating the corresponding amount in RENFE-Operadora equity, all assets, rights and obligations have been valued at Euros 1,230,489 thousand, the carrying amount shown in RENFE annual accounts at 31 December 2004, without prejudice to point 2.1.b) of the Ministerial Order referred to in the following two paragraphs.

The Ministerial Order assigns certain buildings to RENFE-Operadora which are necessary for administrative tasks and for use by the governing bodies, as well as other properties which are considered necessary to guarantee its financial stability. In addition, RENFE-Operadora is granted the right to use certain areas in railway yards (43,633.88 m2) at no charge to the company for the period of time necessary for Adif and RENFE-Operadora to agree on a new location in buildings to be assigned to RENFE-Operadora, with Adif assuming the costs of restoring these areas. Nevertheless, should no new location be agreed within three years of this Order coming into force, the specific assets would be transferred to RENFE-Operadora’s equity.

For the purposes of the spin-off of the activity branch attributable to RENFE-Operadora at 1 January 2005, the assets transferred were valued at Euros 53,726 thousand, of which Euros 9,165 thousand correspond to the carrying amount of the premises transferred and Euros 44,561 thousand relates to the estimated costs of replacing any disturbed assets in these areas.

(d) Contract - Programme

On 29 December 2006 the Council of Ministers approved the Contract-Programme between the AGE and Public Business Enterprise RENFE-Operadora, which will remain in force from 1 January 2006 until 31 December 2010.

This Contract-Programme was approved under the terms of article 68 of General Budget Law 47 of 26 November 2003, as well as the following transitional provisions: fourth transitional provision of Rail Sector Law 39 of 17 November 2003; fourth transitional provision of Royal Decree 2387 of 30 December 2004, which approved the RSL; and second transitional provision of Royal Decree 2397 of 30 December 2004, which approved the RENFE-Operadora statute.

The Contract-Programme establishes the mutual objectives, duties and commitments between the AGE and RENFE-Operadora within the framework of its statutory activity, economic policy in general and transport policy in particular, in line with EU regulations and in accordance with Rail Sector Law 39 of 17 November 2003, as part of the Government’s general transport plan

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detailed in the Strategic Infrastructures and Transport Plan (hereinafter PEIT), approved by the Council of Ministers on 15 July 2005.

Its most relevant aspects are as follows:

i) Organisation.

The Entity is organised based on the following areas of activity:

Suburban and regional area.

High speed – long distance area.

Freight and logistics area.

Manufacturing and maintenance area.

ii) Preparation of accounts

RENFE-Operadora will determine the criteria for recognising costs, which will be subject to IGAE reporting and applied consistently throughout the duration of the Contract-Programme. The method for recognising costs will include payment of total borrowings contracted by the Entity and the related finance expenses as well as the allocation of common expenses. Should RENFE-Operadora deem it necessary to amend the recognition criteria used, the previous IGAE report will be requested, and the economic and financial information contained in the Contract-Programme will be revised.

Each year the IGAE will notify of the criteria for preparing income statements and balance sheets segregated by activities, and of the level of compliance with these criteria in their application.

In accordance with article 166.2 of the General Budget Law, the Entity has received from the State Public Sector Financial Control and Audit Division of the IGAE the final financial control report on the income statements and balance sheets segregated by areas of activity for 2007, in compliance with clause 4 of the Contract-Programme between the AGE and the Entity for 2006-2010.

iii) Objectives

The main objectives of the Contract-Programme are as follows:

- To strengthen the specialised development of the rail system, encouraging quality services within an integrated, harmonised transport policy, promoting the development of sustainable, safe movement and setting individual objectives based on the various areas of activity.

- Sustained growth adapted to an increase in market share, by attracting new clients, developing new products and seeking new business opportunities linked to the rail network.

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- The rationalisation and improvement of the Entity’s management, developing an integrated management system and making the current organisational model more suitable, focusing it on a new, more flexible and compatible model, both in terms of the objective set by the PEIT to make rail transport more dynamic, and the development of the different target markets. To do so, detailed research is required into the correct allocation of resources, and into the markets which can best satisfy these, as a means to:

• Specialise management, permanently adjusting supply to meet demand in each specific market, in accordance with the ratios established in the Contract-Programme.

• Attain operational excellence through efficient, safe, reliable and quality transport, supported by innovative, agile and competitive organisation backed by technology.

• Incorporate the most suitable forms of co-participation with the private sector in each case, to ensure the highest possible profitability as part of the strategy to prepare the Entity to compete in an increasingly deregulated rail sector.

• Develop internal control systems so that each area of activity has not only a statement of profit of loss, but also a balance sheet, allowing each tool to be used as a key element for planning and monitoring the areas.

- Provide the Entity with an autonomous management framework that is sufficiently flexible to allow streamlined, competitive business management in each of its markets, in accordance with specific profitability criteria and in line with corporate social responsibility obligations.

- The establishment of a financial-budgetary framework compatible with achieving the above-mentioned objectives.

iv) Reciprocal commitments

The following reciprocal commitments have been established:

By RENFE-Operadora:

- To incorporate into its management objectives the financial-budgetary framework defined in the Contract-Programme, with RENFE-Operadora being given the power to adopt the necessary measures for ensuring compliance with this framework.

- To carry out the scheduled workforce reduction plan (hereinafter the ERE) with the conditions stipulated in the Contract-Programme and included in the 2005-2009 Social Plan as agreed with personnel representatives, the conditions of which were approved by General Directorate for Employment on 13 September 2005.

- To assume the expense containment commitment included in the Contract-Programme, and to put this forward for collective negotiation with personnel.

- To carry out investments within the framework of the Contract-programme, and not assume expense commitments which go beyond 2010 above those established in clause 8 of the Contract-Programme.

- To not exceed the borrowings foreseen in clause 10 of the Contract-Programme.

- To provide the Monitoring Commission with the statements and balance sheets by area of activity.

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- To keep up-to-date with tax and social security payments.

- To develop environmental management and a social responsibility policy in line with general sustainability objectives.

By the AGE:

- To provide RENFE-Operadora with an autonomous management framework that is sufficiently flexible to allow streamlined, competitive business management in each of its markets, in accordance with specific profitability criteria and in line with corporate social responsibility obligations and financial equilibrium.

- To make the foreseen contributions and settlement thereof.

- To promote the incorporation of authorisation for established net borrowings in the General State Budget (hereinafter the GSB) Law for each year.

v) Investments

The Contract-Programme establishes the investment schedule for each year in the 2006-2010 period. However, these figures may be modified (without exceeding the global value of Euros 5,772,418 thousand for the duration of the Contract-Programme), in which case the authorisation for annual borrowings to be included in the General State Budgets for RENFE-Operadora will also be affected.

vi) Human resources

RENFE-Operadora agrees that the average headcount for each year will not surpass the figures established in the Contract-Programme, and also agrees to implement the 2005/2009 Social Plan, with measures that include an early retirement and voluntary redundancy plan (workforce reduction plan or ERE, approved by the General Directorate for Employment on 13 September 2005), which will remain in force until 31 December 2009, as well as a recruitment plan.

e) State contributions

The third and fourth transitional provisions of the RSL, as well as the second transitional provision of Royal Decree 2396/2004 approving the RENFE-Operadora statute, establish that until Chapters II and III of Title IV of the RSL is applicable to passenger rail transport, which will not occur until the European Union opens the market for this type of transport, the State will contribute subsidies and compensations to RENFE-Operadora for rendering loss-making transport services. The amount of these contributions is established in the Contract-Programme to be entered into by the Entity and the AGE.

The new Contract-Programme establishes that the AGE will make the agreed contributions, charged to the GSB for each year, within which current transfers will be used to offset larger expenses incurred by RENFE-Operadora in rendering suburban and regional services with respect to the operating income these services generate, and also, to finance generic losses for the rest of RENFE-Operadora’s activities, as well as those arising as a result of the ERE.

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Details of the current transfers and capital foreseen by the Contract-Programme for 2006-2010, in thousands of Euros, are as follows (figures in thousands of Euros):

Contributions from the AGE 2006 2007 2008 2009 2010 Total

Current transfers 558,164 595,000 584,673 490,877 395,779 2,624,493

Compensation for suburban and regional rail services rendered

300,540 316,470 343,416 347,491 349,872 1,657,789

Contribution to offset losses (*) 257,624 278,530 226,974 143,386 45,907 952,421

Compensation for suburban and regional rail services from 2007

- - 9,728 - - 9,728

Compensation ERE 2006 - - 4,555 - - 4,555

Equity contributions 404,000 404,000 449,000 479,000 404,000 2,140,000

TOTAL CONTRIBUTIONS 962,164 999,000 1,033,673 969,877 799,779 4,764,493

(*) Includes the cost of the ERE or Human Resources Plan.

The GSB for 2008, approved on 26 December 2007, reallocated current transfers for 2008 in respect of compensation for suburban and regional rail services and to offset losses, initially foreseen in the Contract-Programme at Euros 343,416 thousand and Euros 226,974 thousand, respectively, based on the Entity’s actual requirements.

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The reconciliation between total State contributions recognised in accordance with the Contract-Programme and the allocations established by GSB Law 51 of 26 December 2007 is as follows:

Thousands of Euros

State contributions

2008 Contract-

Programme

2008 GSB

For public service agreements (note 4 (l)) 343,416 379,980

Offset of operating deficit (note 4 (l)) 185,534 157,429

For Human Resources Plan (note 4 (l))

Accrued and allocated in the 2008 GSB 41,440 32,981

Total current transfers accrued in 2008 570,390 570,390

Contribution accrued in 2007 and allocated in the 2008 GSB 9,728 9,728

Contribution accrued in 2006 and allocated in the 2008 GSB 4,555 4,555

Total current transfers 2008 584,673 584,673

Equity contributions 2008 (note 16) 449,000 449,000

Total contributions

1,033,673 1,033,673

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According to the Contract-Programme, AGE contributions in the form of current transfers and equity contributions are fixed and not updated.

If current transfers exceed losses before the aforementioned contributions recognised in the Entity’s annual accounts, the surplus will be used for financial restructuring of the Entity. Nevertheless, if losses before the inclusion of the current transfers appearing in the GSB exceed the transfers, the AGE will not make any contributions to cover this difference, with the Entity assuming responsibility to take the necessary steps to ensure limitation of debt.

The Contract-Programme establishes the contributions from current transfers and equity contributions for the 2006-2010 period, to be charged to the GSB for each year.

Contributions through current transfers accrued at 31 December 2008 have been allocated in accordance with the criteria set out in the Contract-Programme, as follows (see note 4 (l)):

Current transfers in respect of compensation for suburban and regional rail services have been recognised in the income statement as operating subsidies, amounting to Euros 379,980 thousand.

Current transfers to offset losses of Euros 190,410 thousand, a contribution that includes Euros 32,981 thousand in respect of the ERE, have been recognised as other shareholders’ contributions to equity.

RENFE-Operadora has recognised Euros 48,723 thousand in current receivables reflecting balances receivable at 31 December 2008 in relation to the aforementioned current transfers from the State (see note 13 (e)).

The IGAE will prepare a financial control report as outlined in article 171 of General Budget Law 47 of 26 November 2003, and in the fourth transitional provision of the RSL, based on the proposed Contract-Programme settlement prepared by the Monitoring Commission and submitted to the Ministry for the Treasury’s Special Delegation for RENFE-Operadora. The financial control report will contain the results of the examination of compliance with the economic forecasts set out in the Contract-Programme. This report will include a technical opinion on the settlement of contributions, prepared by the Monitoring Commission.

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f) Relationship with Adif

i) Rail security levy

Articles 65 to 68 of the RSL establish all of the aspects relating to this levy. In order to apply this levy, surveillance and access control services must be provided both for passengers and their luggage at stations and other rail installations owned by the State or Adif.

This levy is payable by passengers or the railway undertaking or agency from which the passenger has contracted the transport service (in this case RENFE-Operadora). The railway undertaking is required to settle the levy with Adif.

ii) Charges paid to Adif

Articles 74 and 75 of the RSL establish the amounts payable by rail transport operators to Adif for use of the rail infrastructures.

The amount is prescribed in Ministry of Public Works Order 898 of 8 April 2005, subsequently amended by Ministry of Public Works Order 3852 of 20 December 2007. The law grants legal coverage to the existing economic relationship between Adif and the parties subject to these charges, and establishes the essential components thereof.

These charges are classified as follows:

Use of rail lines forming part of the public service rail network:

- Access (category A), the amount of which is based on the yearly volume of traffic foreseen in the corresponding declaration of activity

- Capacity reservation (category B), based on kilometres reserved, distinguishing between type of line and time of day of the reservation, as well as type of transport service and train.

- Circulation (category C), based on kilometres effectively travelled, taking into account the same parameters established in the charge for capacity reservation.

- Traffic (category D), based on the economic value of the passenger rail transport service, measured in terms of capacity (seats per kilometre), taking into account the type of line and the time of day of the service.

Use of stations and other rail installations:

- Use of stations by passengers (category A), based on the number of passengers using the rail transport service, distance travelled and the classification of the departure and arrival stations.

- Stopping and use of station platforms (category B), based on the time a train is stopped and the classification of the station, especially taking into account those stations which could encounter traffic congestion problems (first category stations).

- Use of gauge-changing installations (category C), based on the number of times the train passes through a gauge-changing installation.

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- Use of sidings (category D), based on the time trains are stopped on sidings, which are tracks that are not considered mainline circulation tracks in the rail network statement published by Adif, and on the type of line on which the corresponding station is located (only applicable in the case of high-speed lines).

- Rendering of services which require authorisation for use of public rail assets (category E), which represents a charge for use of the public rail assets, based on the surface area occupied and the type of land.

On 29 December 2007, Ministry of Public Works Order 3852 of 20 December 2007 was published, modifying appendices II and V of Order 898 of 2005, setting the amounts for the railway charges established by articles 74 and 75 of Rail Sector Law 39/2003.

The aforementioned appendices reflect the classification of railway lines and to stations.

The charges for 2008 were increased by 2% compared to 2007, in accordance with article 74, section one of Law 51/2007 setting the GSB for 2008.

iii) Agreements and other relationships

In order to guarantee continuity of services, from the moment of the spin-off a number of agreements have been negotiated between Adif and RENFE-Operadora affecting different areas of the relationship between the two entities. These form part of a series of agreements approved by the boards of directors and signed by the chairpersons of both entities, whose economic implications for 2008 are detailed in notes 25 and 27.

h) Settlement of pending State contributions to RENFE during the period from 1 January 2001 to 31 December 2004, which partially affect RENFE-Operadora

On 19 July 2006 the IGAE issued a financial control report on State contributions to RENFE for 2001-2004, approving the settlement proposed by Adif and RENFE-Operadora. The 2006-2010 Contract-Programme states the government’s intention to settle the debt listed below during 2008.

As a result, there is a balance of Euros 214,084 thousand receivable from the State, the breakdown of which between Adif and RENFE-Operadora is as follows:

Thousands of Euros

Adif 132,939 RENFE-Operadora 81,145

Total 214,084

The amount allocated to RENFE-Operadora reflects unrealised exchange rate differences at 31 December 2004 on loans and credits pending repayment by RENFE, and which were assigned to RENFE-Operadora in accordance with the ministerial order.

In accordance with article 52 of Law 51 of 26 December 2007, setting the GSB for 2008, the State assumed the debt of RENFE-Operadora, for Euros 81,145 thousand, and of Adif, for Euros 132,939 thousand, with effect from 1 January 2008.

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The Spanish Public Treasury resolution of 30 January 2008 sets out the procedures for the State to settle the debt assumed from Adif and RENFE-Operadora. This resolution establishes that the Spanish Public Treasury would manage the debt as from 1 January 2008, as it is not necessary to make use of the procedure described in article 52, section 3 of Law 51 of 26 December 2007.

RENFE-Operadora transferred the documentation on the loan covering debt prior to the aforementioned resolution to the Spanish Public Treasury and the financial institution settled the corresponding interest accrued up to 31 December 2007.

In January 2008 the State subrogated the aforementioned loan and the liability associated with the bank loan was derecognised, as was the balance receivable at that date.

h) Composition of the group

The Entity holds interests in subsidiaries. Consequently, in accordance with prevailing legislation, the Entity is the parent of a group of companies. In accordance with generally accepted accounting principles in Spain, consolidated annual accounts must be prepared to present fairly the financial position of the Group, the results of operations and changes in its equity and cash flows. Details of interests in group companies and associates are provided in note 8.

At the date of formulation of these annual accounts, the consolidated annual accounts of Public Business Enterprise RENFE-Operadora and subsidiaries have not yet been prepared.

2. Basis of Presentation

a) Fair view

The Entity has prepared these annual accounts for 2008 in accordance with the accounting principles and criteria established by the General Charts of Accounts, article 28 of its statute and section 3 of article 121 of the GBL, as well as communication from the State Public Accounts Office’s General Subdirectorate of Accounting Planning and Management, carried out in line with the development functions and accounting principles and criteria applicable to the entities outlined in section 3 of article 121 of the GBL, granted to the State Public Accounts Office by this law in section b) of article 125.1.

The annual accounts for 2008 have been prepared by finance and planning management and officially authorised by the chairman of the Entity on the basis of the Entity’s accounting records and in accordance with the above-mentioned accounting principles and criteria to present fairly the equity and financial position at 31 December 2008 and the results of operations, changes in equity, and cash flows for the year then ended.

The annual accounts for 2008 are the first the Entity has prepared applying the Spanish General Chart of Accounts approved by Royal Decree 1514/2007. In accordance with section one of the fourth transitional provision of this Royal Decree, the 2008 annual accounts have been considered as the opening annual accounts and, therefore, do not include comparative figures.

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Note 33, "Issues Arising from Transition to the New Accounting Principles", presents the balance sheet and statement of profit and loss forming part of the 2007 annual accounts approved by the Entity’s board of directors on 1 July 2008, which were prepared in accordance with the Spanish General Chart of Accounts in force during that year. This note also contains an explanation of the main differences between the accounting principles applied in the current year and those applied in the previous year, as well as a quantification of the impact of this change in accounting criteria on equity at 1 January 2008, which is the transition date and, therefore, the opening balance sheet date.

As mentioned in note 33 and pursuant to the first transitional provision of Royal Decree 1514/2007, the Entity has opted to measure all equity items in the opening balance sheet in accordance with principles and standards prevailing at 31 December 2007, except for financial instruments which are measured at fair value.

The chairman of the Entity considers that the 2008 annual accounts will be approved by the board of directors with no significant changes.

b) Critical issues regarding the valuation and estimation of relevant uncertainties and judgements used when applying accounting principles

Relevant accounting estimates and judgements, and other estimates and assumptions have to be made when applying the Entity’s accounting principles to prepare the annual accounts. A summary of the items requiring a greater degree of judgement or which are more complex, or where the assumptions and estimates made are significant to the preparation of the annual accounts is as follows:

(i) Relevant accounting estimates and assumptions

The Entity tests for impairment of interests in group companies on an annual basis, where these interests show signs of impairment. The calculation of the recoverable amount of interests in group companies requires the use of estimates by management. The recoverable amount is the higher of fair value less costs to sell and value in use.

The Entity generally uses cash flow discounting methods to calculate these values. Cash flow discounting calculations are based on the 5-year projections of the budgets approved by management. The flows take into consideration past experience and represent management’s best estimate of future market performance. The key assumptions employed to calculate the fair value less costs to sell and value in use include growth rates, the weighted average capital rate and tax rates. The estimates, including the methodology employed, could have a significant impact on the values and the impairment loss.

Provisions and, in this case, termination benefits for voluntary redundancy relating to the current ERE are recognised when there is a contractual or legal obligation or, in the case of a tacit obligation, when there is a valid expectation among employees that they will be able to adhere to the plan. The Entity measures these provisions as the best estimate at the start of the period based on experience and on the probable number of employees that will avail of voluntary redundancy and early retirement.

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(ii) Change in accounting estimate

Although estimates are calculated by the Entity’s directors based on the best estimate available at 31 December 2008, future events may take place requiring these estimates to be modified in subsequent years. The effect on the annual accounts of modifications resulting from adjustments to be made in subsequent years are recognised prospectively.

c) Going concern basis

At 31 December 2008 the balance sheet reflects negative working capital of Euros 302,699 thousand. However, the Entity’s Chairman has prepared these annual accounts on a going concern basis, in light of financial support from the Ministry of Public Works under the terms of the Contract-Programme and the GSB for 2009, and considering that the Entity has available credit facilities for an amount of Euros 482,000 thousand at 31 December 2008 (see note 21).

3. Application of Losses

The Entity will propose to the board of directors that the losses of Euros 177,251 thousand for the year ended 31 December 2008 be used to offset equity, specifically other shareholders’ contributions.

Details of the application of the Entity’s losses for the year ended 31 December 2007 are presented in the Statement of Changes in Equity.

4. Significant Accounting Policies

The accompanying annual accounts have been prepared in accordance with the accounting principles and measurement and classification criteria contained in the Spanish General Chart of Accounts, the most significant of which are as follows:

(a) Incorporation of the activity branch

In order to measure and recognise the integration in the Entity of the assets and liabilities received from RENFE’s rail transport services activity as set out in the aforementioned Ministerial Order, RENFE-Operadora management has followed the criteria established by the IGAE General Subdirectorate of Accounting Planning and Management.

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The most significant aspects of these criteria are as follows:

Spin-off of assets and liabilities

RENFE-Operadora recognised the assets and liabilities received from RENFE at their carrying amount, according to their nature and with a balancing entry in equity.

Recognition of user rights and obligations to replace disturbed assets

The user rights mentioned in note 1 (c) were recognised by RENFE-Operadora under intangible assets, to be amortised over the term of the concession, at the carrying amount for the three years of the concession, with a balancing entry in equity. These rights are amortised over the term of the concession.

The Entity initially recognised a balance receivable from Adif for the estimated cost of replaced assets, with a balancing entry in equity. Due to application of the new Spanish General Chart of Accounts and in accordance with the criteria established by the IGAE General Subdirectorate of Accounting Planning and Management regarding the measurement and recognition method applicable to the aforementioned replacement right, the Entity has reclassified the receivable in under construction and advances in property, plant and equipment, also recognising the effect of the financial discount. At the date ownership of the replaced assets is transferred, RENFE-Operadora should recognise these assets at the carrying amount disclosed in Adif accounts.

In accordance with the Ministerial Order determining the assets, rights and obligations assigned to RENFE-Operadora and for the sole purposes of determining shareholders’ equity, this user and replacement right has been valued at Euros 53,726 thousand, of which Euros 9,165 thousand reflect the carrying amount and Euros 44,561 thousand relate to the estimated cost of replacing the disturbed assets (see notes 5 and 6).

(b) Transactions, balances and cash flows in currencies other than the Euro

Transactions in currencies other than the Euro have been translated into Euros using the exchange rate prevailing at the transaction date.

Monetary assets and liabilities denominated in currencies other than the Euro have been translated into Euros at the closing rate, while non-monetary assets and liabilities measured at historical cost have been translated at the exchange rate prevailing at the transaction date.

In the Statement of Cash Flows, transaction cash flows in currencies other than the Euro have been translated into Euros at the exchange rates at the dates the cash flows occur.

Exchange gains and losses arising on the settlement of transactions in currencies other than the Euro and the translation into Euros of monetary assets and liabilities denominated in those currencies are recognised in profit or loss.

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(c) Capitalisation of finance expenses In accordance with the second transitional provision of Royal Decree 1514/2007 enacting the Spanish General Chart of Accounts, the Entity has opted to apply this accounting policy to work in progress at 1 January 2008 which will not be available for use or capable of operating for more than one year. Until that date the Entity opted to recognise borrowing costs as expenses when incurred, as permitted under accounting legislation prevailing until 1 January 2008. Borrowing costs related with specific financing directly attributable to the acquisition, construction or production of property, plant and equipment which will not be available for use for more than one year are included in the cost of the asset. The amount of borrowing costs eligible for capitalisation is determined as the actual borrowing costs incurred on funds borrowed specifically for the purpose of obtaining a qualifying asset.

The Entity begins capitalising borrowing costs as part of the cost of a qualifying asset when it incurs expenditures for the asset and it undertakes activities that are necessary to prepare the asset for its intended use or operation, and ceases capitalising borrowing costs when all the necessary activities are complete, even though the necessary administrative permits may not have been obtained. Interruptions in the active development of a qualifying asset are not considered. Capitalised borrowing costs are recognised in the income statement under the caption borrowing costs capitalised on part of the cost of qualifying assets.

(d) Intangible assets

Intangible assets are recognised at cost of acquisition or production. Intangible assets are carried at cost, less any accumulated amortisation and accumulated impairment valuation allowances, as follows.

o Software acquired and produced by the Entity is recognised when it meets the conditions for capitalisation and is usually amortised on a straight-line basis over the five-year period of expected use. Software maintenance costs are charged as expenses when incurred.

o Concessions and licences are amortised on a straight-line basis over the term of the concession.

o Other intangible assets, which mainly comprise the user rights mentioned in note 4(a), are amortised on a straight-line basis over the concession period.

Expenditure on activities that contribute to increasing the value of the Entity’s business as a whole, such as goodwill, trademarks and other similar items generated internally, as well as establishment costs, are recognised as expenses when incurred.

Subsequent costs incurred on intangible assets are recognised in profit and loss, unless they increase the expected future economic benefits attributable to the intangible asset.

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The Entity assesses whether the useful life of each intangible asset acquired is finite or indefinite. An intangible asset is regarded by the Entity as having an indefinite useful life when there is no foreseeable limit to the period over which the asset will generate net cash inflows. At 31 December 2008 the Entity has no intangible assets with an indefinite useful life.

The Entity reviews the residual value, useful life and amortisation method for intangible assets at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates.

(e) Property, plant and equipment

Cost of property, plant and equipment

Property, plant and equipment received from Adif in the spin-off of the rail transport service activity have been recognised at the carrying amounts disclosed by RENFE (see note 4(a)). Other property, plant and equipment are recognised at cost of acquisition or production.

Property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment valuation allowances.

Work carried out by the Entity to improve or extend the useful lives of its assets is treated as an investment and is recognised at the accumulated cost, which is the sum of external costs, based on supplier invoices, internal costs, determined on the basis of in-house consumption of materials in warehouses, and the remaining costs incurred. Capitalised production costs are recognised as self-constructed assets in the income statement.

Non-current investments in property held by the Entity under operating leases are classified as property, plant and equipment. These assets are depreciated over the shorter of the lease term and their useful life.

In accordance with the Ministerial Order determining the assets, rights and obligations to be assigned to RENFE-Operadora, the asset and rights which were held by or assigned to RENFE prior to entry into force of Rail Section Law 39/2003, specifically workshops and installations used for the repair and installation of trains (detailed in appendices V.1 and V.2 to the Order) and land on which these assets are located, up to the point of access to circulation tracks of the general rail network, will be incorporated in the equity of the Entity.

At 31 December 2008 RENFE-Operadora is in the process of defining the land on which the workshops and installations mentioned in the preceding paragraph are located. Accordingly, this land has not yet been accounted for under property, plant and equipment at that date. The effect of not recognising this land at 31 December 2008 is not considered significant to the annual accounts taken as a whole.

Subsequent to initial recognition of the asset, only the costs incurred which increase capacity or productivity or lengthen the useful life of the asset are capitalised. The carrying amount of parts that are replaced is derecognised. Costs of day-to-day servicing are recognised in profit and loss as incurred.

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Pursuant to section 2.2 of the measurement standard referring to property, plant and equipment in the 2007 Spanish General Chart of Accounts, approved by Royal Decree 1514 of 16 November 2007, an impairment loss is incurred on property, plant and equipment when the carrying amount exceeds the recoverable amount, which is the higher of the fair value less selling costs and the value in use.

RENFE-Operadora considers that, in light of the nature of its assets, and in particular as the assets cannot be operated at European network level, it is not possible to calculate their fair value as there is no active market for these assets. In accordance with the conceptual framework of the Spanish General Chart of Accounts, the value in use should therefore be calculated by discounting expected cash flows. The Entity considers that calculation of these cash flows should take into account the public service nature of its activity, and the specific type of financing deriving from that nature and awarded through Contract-Programmes, which determine the capital transfers and contributions that comprise a considerable portion of its financing. The cash flow components received by public entities and the criteria for calculating specific risks associated with the property, plant and equipment of these entities have not yet been established in the Spanish General Chart of Accounts. Consequently, the criteria set out in the 2007 Spanish General Chart of Accounts cannot be applied to the annual accounts for 2008, as these criteria relate to the nature and objectives of companies whose aim is to generate profits, rather than to public entities whose main objective is to provide public services.

In accordance with article 125.1 section b) of General Budget Law 47 of 26 November 2003, the IGAE is responsible for approving partial or special plans in the public sector prepared under the Spanish General Chart of Accounts applicable to entities in the public business enterprise sector. The IGAE considers that the criteria included in the Spanish General Chart of Accounts approved by Royal Decree 1514 of 16 November 2007, relating to the impairment of property, plant and equipment, are not in keeping with the objectives of public entities whose activities are not profit-orientated, and highlights the need to establish special criteria applicable to the assets of such entities. These criteria should be established by adapting the Spanish General Chart of Accounts to these entities. Accordingly, in its annual accounts for 2008 RENFE-Operadora has not applied the impairment criteria established in standard 2.2 of the 2007 Spanish General Chart of Accounts to its property, plant and equipment.

However, when the specific circumstances of certain assets imply that they no longer provide service, the loss is recognised directly in losses on the disposal of property, plant and equipment in the income statement.

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Depreciation of property, plant and equipment

Property, plant and equipment are depreciated by allocating the depreciable amount of an asset on a systematic basis over its useful life. The depreciable amount is the cost of an asset, less its residual value. The Entity determines the depreciation charge separately for each component of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the asset and with a useful life that differs from the remainder of the asset.

Property, plant and equipment are depreciated using the following criteria:

Depreciation method

Estimated years of useful life

Buildings Straight-line 50 Track installations Straight-line 25 - 40 Transport equipment rolling stock: - Locomotives Straight-line 20 - Self-propelled trains Straight-line 25 - Hauled equipment and coaches Straight-line 20-25 - Other transportation equipment Straight-line 10-30 Machinery Straight-line 10 Data processing equipment Straight-line 5 Vehicles Straight-line 10 Other property, plant and equipment Straight-line 5-40

The Entity reviews residual values, useful lives and depreciation methods at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates.

Installations in leased items are depreciated over the shorter of the useful life of the installations or the lease term.

(f) Non-current assets held for sale

Non-current assets or disposal groups, including investments in group companies, associates or jointly controlled entities for which the carrying amount is principally recoverable through a sales transaction instead of a continuing operation are classified as held for sale, provided that these are available for immediate sale in their present condition subject to terms that are usual and customary for sales of such assets and that the sale is highly probable. For the sale to be highly probable, the Entity must be committed to a plan to sell the asset or disposal group, and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset or disposal group must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except in cases in which the delay is caused by circumstances beyond the Entity’s control and that the Entity remains committed to its plan to sell the asset or disposal group.

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Non-current assets or disposal groups classified as held for sale are measured at the lower of the carrying amount and fair value less costs to sell and are not depreciated. A gain on increases in the fair value less costs to sell (either due to remeasurement of fair value or to impairment losses that occurred before classification of the asset as held for sale) is recognised in the income statement to the extent that it reverses any impairment of the asset. The Entity measures a non-current asset that ceases to be classified as held for sale or to form part of a disposal group at the lower of the carrying amount before the asset was classified as held for sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset not been classified as held for sale, and its recoverable amount at the date of reclassification. Any required adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale is included in profit or loss from continuing operations.

(g) Leases

The Entity, as lessee, has rights to use certain assets through lease contracts.

Leases in which the Entity assumes substantially all the risks and rewards incidental to ownership are classified as finance leases, otherwise they are classified as operating leases.

Lease payments under an operating lease, net of incentives received, are recognised as an expense on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the lease’s benefit.

Contingent rents are recognised as an expense when it is probable that they will be incurred.

(h) Financial instruments

In accordance with the first transitional provision of Royal Decree 1514/2007, the Entity has opted to measure all equity items included in the opening balance sheet based on the accounting principles prevailing at 31 December 2007, except for financial instruments which are measured at fair value.

Financial instruments are classified on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument.

The Entity classifies financial instruments into different categories based on the nature of the instruments and management’s intentions on initial recognition.

The Entity evaluates whether an embedded derivative should be separated from the host contract, only when the Entity becomes party to the contract or in a subsequent year when there has been a modification to the contractual terms which significantly affects the expected cash flows associated with the embedded derivative, host contract or both in comparison with the original expected cash flows. Embedded derivatives are presented separately from the host contract in the corresponding derivative items of the balance sheet.

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A financial asset and a financial liability are offset only when the Entity currently has the legally enforceable right to set off the recognised amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Financial assets and financial liabilities held for trading

Financial assets or financial liabilities held for trading are those which are classified as held for trading from initial recognition.

A financial asset or financial liability is classified as held for trading if it:

- Originates or is acquired or incurred principally for the purpose of selling or repurchasing it in the near term.

- Forms part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.

- Is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.

Financial assets and financial liabilities held for trading are initially recognised at fair value. Transaction costs directly attributable to the acquisition or issue are recognised as an expense when incurred.

After initial recognition, they are recognised at fair value through profit or loss. Fair value is not reduced by transaction costs incurred on sale or disposal. Accrual interest and dividends are recognised separately.

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Loans and receivables Loans and receivables comprise trade and non-trade receivables with fixed or determinable payments that are not quoted in an active market other than those classified in other financial asset categories. These assets are recognised initially at fair value, including transaction costs, and are subsequently measured at amortised cost using the effective interest method. Nevertheless, financial assets which have no established interest rate, which mature or are expected to be received in the short term, and for which the effect of updating is immaterial, are measured at their nominal amount.

Held-to-maturity investments

Held-to-maturity investments are debt securities with fixed or determinable payments and fixed maturity traded on an active market and that Entity’s management has the positive intention and ability to hold to maturity, other than those classified in other categories. The measurement criteria applicable to financial instruments classified in this category are the same as those applicable to loans and receivables.

The Entity has not reclassified or sold any held-to-maturity investments during the year.

Investments in group companies and associates

Group companies are those over which the Entity, either directly or indirectly, through subsidiaries, exercises control as defined in article 42 of the Spanish Commercial Code, or when the companies are controlled by one or various individuals or entities acting jointly or under the same management through agreements or statutory clauses.

Control is the power to govern the financial and operating policies of an entity or business so as to obtain benefits from its activities, in assessing control potential voting rights held by the Entity or other entities that are exercisable or convertible at the end of each reporting period are considered.

Associates are companies over which the Entity, either directly or indirectly through subsidiaries, exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The existence and effect of potential voting rights that are exercisable or convertible at the end of each reporting period, including potential voting rights held by the Entity or other entities, are considered when assessing whether an entity has significant influence.

Investments in group companies and associates are initially recognised at cost, which is equivalent to the fair value of the consideration paid, including transaction costs, and are subsequently measured at cost net of any accumulated impairment losses.

If an investment no longer qualifies for classification under this category, it is reclassified as available-for-sale and is measured as such from the reclassification date.

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Available-for-sale financial assets

The Entity classifies in this category debt securities and equity instruments which do not comply with the requirements for inclusion in the aforementioned categories.

Available-for-sale financial assets are initially recognised at fair value plus transaction costs directly attributable to the acquisition, which is the same as the cost of acquisition.

After initial recognition, financial assets classified in this category are measured at fair value and any gain or loss is accounted for in income and expenses recognised in equity, except for impairment losses.

Where fair value cannot be estimated reliably using the measurement criteria applicable to group companies and associates, the carrying amount corrected for latent unrecorded goodwill existing at the measurement date has been considered, if this is lower.

On disposal of the financial assets, amounts recognised in equity or the impairment loss are reclassified to profit or loss as described in “Impairment of available-for-sale financial assets” in note 4 (i). However, interest calculated using the effective interest method and dividends are recognised in profit and loss using the policy described in “Interests and dividends” in note 4 (i).

Interest and dividends

Interest is recognised using the effective interest method.

Dividends from investments in equity instruments are recognised when the Entity is entitled to receive them. If the dividends are clearly derived from profits generated prior to the acquisition date because amounts higher than the profits generated by the investment since acquisition have been distributed, the carrying amount of the investment is reduced.

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Derecognition of financial assets

As established in the second transitional provision of Royal Decree 1514/2007 approving the 2007 Spanish General Chart of Accounts, the Entity has applied the accounting criteria for derecognising financial assets prospectively as from 1 January 2008. Derecognised financial assets that have been previously recognised are disclosed in accordance with prior accounting principles.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire or have been transferred and the Entity has transferred substantially all the risks and rewards of ownership.

If, as a result of a transfer, a financial asset is derecognised in its entirety, the new financial asset, financial liability or servicing liability are recognised at fair value.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received, net of transaction costs, including any new asset obtained less any new liability assumed and any cumulative gain or loss deferred in recognised income and expense, is recognised in profit or loss.

Impairment of financial assets

A financial asset or a group of financial assets is impaired and impairment losses are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that event or events have an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The Entity recognises valuation allowances for impairment of loans and receivables and debt instruments when a reduction or delay is incurred in the estimated future cash flows, due to debtor insolvency.

For equity instruments, objective evidence of impairment exists when the carrying amount of an asset is uncollectible due to a significant or prolonged decline in its fair value.

Impairment of financial assets carried at amortised cost

In the case of financial assets carried at amortised cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For variable income financial assets, the effective interest rate is used corresponding to the measurement date under the contractual conditions.

The amount of an impairment loss is recognised in profit and loss and may be reversed in subsequent periods if the decrease can be objectively related to an event occurring after the impairment has been recognised. The loss can only be reversed to the limit of the amortised cost of the assets had the impairment loss not been recognised.

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Impairment of investments in group companies and associates

Where there are signs of impairment, this is calculated by comparing the fair value of the investment with the recoverable amount, which is the greater of the value in use and the fair value less selling costs.

Value in use is calculated based on the Entity’s share of the present value of future cash flows expected to be derived from ordinary activities and from the disposal of the asset, or the estimated cash flow expected to be received from the distribution of dividends and the final disposal of the investment.

Nonetheless, and in certain cases, unless there is better evidence of the recoverable amount of the investment, when estimating the impairment of these types of assets, the investee’s equity is taken into consideration, adjusted, where appropriate, to generally accepted accounting principles set forth in the applicable Spanish legislation, corrected for latent unrecorded goodwill existing at the measurement date.

The carrying amount of the investment includes any receivable or payable monetary item, the settlement of which is not contemplated nor is it likely to occur in the foreseeable future, excluding items which are commercial in nature.

In subsequent years, reversals in impairment losses in the form of increases in the recoverable amount are recognised, up to the limit of the carrying amount that would have been determined for the investment if no impairment loss had been recognised.

Impairment losses or reversals thereof are recognised in the income statement.

Impairment of available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset at fair value through profit or loss has been accounted for in recognised income and expense, the accumulative loss is reclassified from equity to profit or loss when there is objective evidence that the asset is impaired, even though the financial asset has not been derecognised. The amount of the impairment loss reclassified from equity to profit or loss is calculated as the difference between the cost or amortised cost, less any impairment loss previously recognised in profit or loss, and the fair value.

Impairment losses for investments in equity instruments are not reversed through profit or loss. Increases in the fair value after the impairment loss was recognised are classified in equity.

If the fair value of debt instruments increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the increase is recognised in profit and loss up to the amount of the previously recognised impairment loss and any excess is accounted for in recognised income and expense.

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Financial liabilities

Financial liabilities, including trade and other payables, which are not classified as held for trading or as financial liabilities at fair value through profit or loss, are initially recognised at fair value less any transaction costs that are directly attributable to the issue of the financial liability. After initial recognition, liabilities classified under this category are measured at amortised cost using the effective interest method.

Nevertheless, financial liabilities which have no established interest rate, which mature or are expected to be settled in the short term, and for which the effect of discounting is immaterial, are measured at their nominal amount.

Derecognition and modifications of financial liabilities

A financial liability, or part of it, is derecognised when the Entity either discharges the liability by paying the creditor, or is legally released from primary responsibility for the liability either by process of law or by the creditor.

The difference between the carrying amount of a financial liability, or part of a financial liability, extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. (i) Inventories

Inventories are initially measured at cost of acquisition or production using the weighted average cost method.

The cost of purchase comprises the purchase price, interest on the nominal amount, plus transport, handling and other costs directly attributable to the acquisition. Trade discounts, rebates and other similar items are deducted in determining the cost of purchase. When the cost of inventories exceeds net realisable value, materials are written down to net realisable value, which is understood to be the estimated selling price, less costs to sell. The previously recognised valuation adjustment is reversed against profit and loss when the circumstances that previously caused inventories to be written down no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances. The reversal of the valuation adjustment is limited to the lower of the cost and revised net realisable value of the inventories. Write-downs to net realisable value recognised or reversed on inventories are classified under supplies.

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(j) Cash and cash equivalents

Cash and cash equivalents include cash on hand and demand deposits in financial institutions. They also include other short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent when it has a maturity of less than three months from the date of acquisition.

The Entity recognises cash payments and receipts for financial assets and financial liabilities in which turnover is quick on a net basis in the statement of cash flows. Turnover is considered to be quick when the period between the date of acquisition and maturity does not exceed six months.

In the statement of cash flows, any bank overdrafts which are repayable on demand and form an integral part of the Entity’s cash management are included as a component of cash and cash equivalents.

(k) Grants, donations and legacies

Non-repayable grants, donations and legacies are initially accounted for as income recognised directly in equity and are recognised in profit and loss as income on a systematic and rational basis in line with expenses arising on the grants, donations or legacies.

Non-repayable grants, donations and legacies received from shareholders or owners do not constitute income and are recognised directly in equity, irrespective of the type of grant, donation or legacy.

However, as the Entity belongs to the public sector, any donations and legacies received by the parent public entity to finance its public interest activities are subject to the criteria described in the preceding paragraphs.

RENFE-Operadora has access to the following grants:

Grants awarded as equity contributions

Credit allocations under the GSB for 2008 earmarked for equity contributions to reinforce the equity structure and maintain the balance between own and external financing are recognised in equity contributions under equity.

Subsidies to achieve the objectives established in the Human Resources Plan (ERE) envisaged in the Contract-Programmes.

Amounts not earmarked to finance public or general interest activities are recognised directly in other shareholders’ contributions under equity.

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Grants to offset losses in other business areas

Credit allocations under the GSB for 2008 not earmarked to cover the expected deficit due to public interest services in the suburban and regional area of activity or indemnities for the ERE, and which are not equity contributions, are recognised directly in other shareholders’ contributions under equity.

Subsidies for complying with public service agreements.

Credit allocations under the GSB for 2008 earmarked to cover the expected deficit due to public interest services in the suburban and regional area of activity are recognised in equity, in accordance with Contract-Programme criteria, when the conditions for such recognition have been met, and are subsequently accounted for as income for the year based on their use, in line with expenses deriving from the grant.

Subsidies received from the Autonomous Communities or Municipal Authorities.

Contributions from Autonomous Communities or Municipal Authorities to finance the operating deficit of certain lines are recognised as income for the year, based on their use, in line with expenses deriving from the grant.

Capital grants to finance fixed assets

Outright capital grants, which are mainly from the European Regional Development Fund (ERDF), are used to finance the company’s permanent installations. Grants are recognised when awarded and the conditions for their concession are met (individual concession agreement, the concession conditions have been met and there is no reasonable doubt concerning their future compliance). Capital grants are recognised as income in equity over the same period and in the proportions in which depreciation on those assets is charged or when the assets are disposed of, derecognised or impaired.

(1) Employee benefits

The Entity has undertaken to pay its employees in respect of certain obligations deriving from the following:

Length of service bonuses

The collective labour legislation in force for RENFE-Operadora establishes that employees are entitled to receive a length of service bonus on the basis of number of years’ employment with the Entity. This bonus is receivable after 30, 35 and 40 years of service. The amount payable in 2008 is established in the prevailing collective labour agreement for the period 2007-2008 entered into by management of the Entity and the workers’ representatives.

At 31 December 2008 the balance sheet includes a provision of Euros 25,334 thousand in this respect. Euros 23,947 thousand of this amount has been recognised in non-current provisions, and Euros 1,387 thousand in current provisions (see note 18).

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The provision at 31 December 2008 has been calculated using an actuarial study prepared applying the individual capitalisation method and using the following technical parameters: annual interest rate of 3.80%, annual growth rate of 2.3% and table of expected length-of-service in RENFE based on the PERM/F-2000 table.

Obligations assumed in respect of non-current remuneration are recognised in accordance with the defined benefit plans; i.e. the difference between the present value of committed remuneration and the fair value of the plan assets, less the cost of any unrecognised services rendered, is recognised in provisions. The cost of past services and actuarial gains and losses are recognised in the income statement when incurred.

Early retirement and voluntary redundancy

On 13 September 2005 the Ministry of Labour and Social Affairs approved an ERE (workforce reduction plan) for RENFE-Operadora, in force until 31 December 2009

This ERE was approved for a maximum of 2,000 redundancies by means of two options. Early retirement may be taken voluntarily by current employees with indefinite contracts, aged between 58 and 64 on joining the Plan and who meet the requirements of prevailing Social Security legislation to receive retirement benefits after the period of unemployment. Voluntary redundancies are available to current employees with indefinite contracts who do not meet the requirements set out above. 397 employees joined the Plan in 2008, 35 of which correspond to voluntary redundancies.

The amount payable at 31 December 2008 in relation to ERE 2005/2009 has been recognised under non-current and current provisions (see note 18).

The provision is recognised when there is a contractual or legal obligation or, in the case of a tacit obligation, when there is a valid expectation among employees that they will be able to adhere to the plan. Provisions are measured as the best estimate at the start of the period based on experience and on the probable number of employees that will avail of voluntary redundancy and early retirement.

The Entity has recognised the obligation arising with employees that could avail of the aforementioned ERE in non-current and current provisions, at the present value of the best estimate of the amount of indemnities that will be payable to employees, totalling Euros 96,358 thousand at 31 December 2008 (see note 18).

Expenses on these commitments are adjusted in relation to the initial estimate and recognised in profit and loss when employees adhere to the ERE and leave the Entity.

(m) Termination benefits

Termination benefits are recognised as a liability when the Entity has a detailed formal plan for the termination and there is a valid expectation among the affected employees that termination will arise either because the plan has already started to be implemented or because its main characteristics have been published. Termination benefits for voluntary redundancy are recognised when an offer has been made and the Entity is without realistic possibility of withdrawal and are measured based on the number of employees expected to accept the offer.

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When termination benefits fall due more than 12 months after the reporting date, they are discounted based on the market yield on high quality corporate bonds.

Management of RENFE does not consider that significant dismissals subject to indemnity will arise apart from those contemplated under the ERE for 2005/2009. These indemnities would be recognised as expenses when the decision to terminate employment were taken.

(n) Provisions

Provisions are recognised when the Entity has a present obligation (legal, contractual, implicit or tacit) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account all risks and uncertainties surrounding the amount to be recognised as a provision and, where the time value of money is material, the financial effect of discounting provided that the expenditure to be made each period can be reliably estimated.

The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The discount rate does not reflect risks for which future cash flow estimates have been adjusted.

The financial effect of provisions is recognised as a financial expense in the Income Statement.

If it is no longer probable that an outflow of resources embodying economic resources will be required to settle an obligation, the provision is reversed.

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(o) Revenue from the sale of goods and rendering of services

Revenue from the sale of goods and rendering of services is recognised at the fair value of the consideration received or receivable, on an accruals basis irrespective of collections and payments. Volume rebates, prompt payment and any other discounts, as well as the interest added to the nominal amount of the consideration, are recognised as a reduction therein.

(p) Income tax

The income tax expense or tax income for the year comprises both current and deferred tax.

Current tax assets or liabilities are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and tax laws that have been enacted or substantially enacted at the balance sheet date.

Current and deferred tax are recognised as income or an expense and included in profit and loss for the year, except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different year, directly in equity, or from a business combination.

(i) Taxable temporary differences

Taxable temporary differences are recognised in all cases except where:

- They arise from the initial recognition of goodwill or an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable income.

- They are associated with investments in subsidiaries, associates, jointly controlled entities and interests in joint ventures over which the Entity is able to control the timing of the reversal of the temporary difference and it is not probable that the difference will reverse in the foreseeable future.

(ii) Deductible temporary differences

Deductible temporary differences are recognised provided that:

- It is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the differences arise from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable income.

- The temporary differences are associated with investments in subsidiaries, associates, jointly controlled entities and interests in joint ventures which will reverse in the foreseeable future and sufficient taxable income is expected to be generated against which the temporary difference can be offset.

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(iii) Measurement

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the years when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted. The tax consequences that would follow from the manner in which the Entity expects to recover or settle the carrying amount of its assets or liabilities are also reflected in the measurement of deferred tax assets and liabilities.

(iv) Classification

Deferred tax assets and liabilities are recognised in the balance sheet under non-current assets or liabilities, irrespective of the expected date of recovery or settlement.

(q) Classification of assets and liabilities as current and non-current

The Entity classifies assets and liabilities in the balance sheet as current and non-current. Current assets and liabilities are determined as follows:

- Assets are classified as current when they are expected to be realised or are intended for sale or consumption in the Entity’s normal operating cycle, they are held primarily for the purpose of trading, they are expected to be realised within twelve months of the balance sheet date or are cash or a cash equivalent, unless the assets may not be exchanged or used to settle a liability for at least twelve months from the balance sheet date

- Liabilities are classified as current when they are expected to be settled in the Entity’s normal operating cycle, they are held primarily for the purpose of trading, they are due to be settled within twelve months of the balance sheet date or the Entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

(r) Environmental issues

The Entity takes measures to prevent, reduce or repair the damage caused to the environment by its activities. Expenses derived from environmental activities are recognised as other operating expenses in the period in which they are incurred. Nonetheless, the Entity recognises environmental provisions by applying the general criteria described in note 31.

(s) Related party transactions Transactions with group companies and related parties are recognised at the fair value of the consideration given or received. The difference between this value and the amount agreed is recognised in line with the underlying economic substance of the transaction.

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5. Intangible Assets

Details and movement in 2008 are as follows:

Thousands of Euros

Opening balance Additions

Closing balance

Cost Concessions and licences 805 - 805 Software 32,760 25,361 58,121 Other intangible assets 9,037 - 9,037

42,602 25,361 67,963 Accumulated amortisation Concessions and licences (797) (3) (800) Software (17,387) (5,973) (23,360) Other intangible assets (5,792) (1,947) (7,739)

(23,976) (7,923) (31,899)

Total 18,626 17,438 36,064

Additions to software mainly reflect the receipt of several modules of the SHIVA sales platform (Euros 10,946 thousand), which is still under development, and receipt of the Integrated Information and Communications Security System (Euros 3,210 thousand), as well as other software developments for lesser amounts.

Other intangible assets mainly comprise user rights held by the Entity within Adif spaces in accordance with the Ministerial Order, which determines RENFE-Operadora's assets from the spin-off (see note 4 (a)). To date, Adif and RENFE-Operadora have reached agreements amounting to Euros 129 thousand and user right costs at 31 December 2008 have therefore decreased to Euros 9,037 thousand, compared to the Euros 9,165 thousand specified in the Ministerial Order.

The cost of fully amortised intangible assets in use at 31 December 2008 amounts to Euros 12,183 thousand, mainly reflecting software.

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6. Property, Plant and Equipment

Details of property, plant and equipment and movement are as follows:

Thousands of Euros

Cost Opening balance

Additions and transfers Disposals

Reclassifications (note 11)

Closing balance

Buildings and constructions 207,103 66,435 (760) 0 272,778 Track installations (a) 57,239 29,139 0 0 86,378 Total transportation equipment 6,301,509 940,538 (103,195) (10,316) 7,128,536 Locomotives and self-propelled trains 5,172,426 963,429 (86,143) (10,316) 6,039,396 Hauled equipment and coaches 982,307 (46,487) (16,528) 0 919,292 Other transportation equipment 146,776 23,596 (524) 0 169,848 Other property, plant and equipment 348,645 101,382 (570) 0 449,457 Machinery 49,145 9,767 (11) 0 58,901 Data processing equipment 64,016 10,131 0 0 74,147 Vehicles 3,619 150 (422) 0 3,347

Other 231,865 81,334 (137) 0 313,062

Total inventory 6,914,496 1,137,494 (104,525) (10,316) 7,937,149 Under construction and advances 1,451,305 63,409 0 0 1,514,714

Total cost 8,365,801 1,200,903 (104,525) (10,316) 9,451,863

Accumulated depreciation Buildings and constructions (83,187) (6,712) 396 0 (89,503) Track installations (13,727) (2,780) 0 0 (16,507)

Total transportation equipment (3,140,361) (275,192) 85,814 8,058 (3,321,681) Locomotives and self-propelled trains (2,404,898) (262,469) 72,287 8,058 (2,587,022) Hauled equipment and coaches (655,790) (5,089) 13,098 0 (647,781) Other transportation equipment (79,673) (7,634) 429 0 (86,878) Other property, plant and equipment (242,270) (30,537) 501 0 (272,306) Machinery (36,353) (3,833) 4 0 (40,182) Data processing equipment (41,908) (8,210) 0 0 (50,118) Vehicles (3,119) (93) 388 0 (2,824) Other (160,890) (18,401) 109 0 (179,182)

Total accumulated depreciation (3,479,545) (315,222) 86,711 8,058 (3,699,997)

TOTAL 4,886,256 885,682 (17,814) (2,258) 5,751,866

(a) Includes the cost of track installations in workshop areas.

The difference between the 2008 opening balance and the closing balance in the 2007 annual accounts is due to reclassifications and adjustments deriving from application of the new Spanish General Chart of Accounts. Opening accumulated depreciation has also been adjusted in an amount of Euros 4,127 thousand, reflecting prior years’ depreciation accounted for in reserves.

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Additions for the year primarily relate to rolling stock earmarked for high speed and suburban services.

Additions also include unrecognised assets with a cost of Euros 3,701 thousand (see note 16 (a)), primarily reflecting special access platforms for people with impaired mobility, amounting to Euros 716 thousand.

The main item to consider with regard to the carrying amount disclosed in the disposals column, Euros 17,814 thousand, reflects irreversible impairment losses of Euros 13,244 thousand, the carrying amount of which is recognised in impairment and losses on fixed assets.

Part of transportation equipment (locomotives, self-propelled trains, hauled equipment and coaches) has been pledged to secure loans from Eurofima amounting to Euros 2,158,807 thousand (see note 21) to finance this equipment, in accordance with the basic agreement for the creation of Eurofima and the respective financing contracts.

The opening balance of assets under construction and advances includes Euros 44,561 thousand reflecting replacement rights receivable by RENFE-Operadora from Adif. At 31 December 2008 these rights total Euros 43,207 thousand, net of the financial discount effect of Euros 1,354 thousand.

Annual movement in assets under construction reflects an increase deriving from the incorporation of finance expenses of Euros 11,344 thousand, based on the interpretation of the Spanish Institute of Accountants and Auditors (ICAC) ruling of 8 May 2000 relating to the capitalisation of finance expenses (see note 28). The validity of this ruling has been confirmed in the ICAC’s reply to consultation number 3 published in issue 75 of the BOICAC (Official Gazette of the ICAC) of September 2008.

Additions during the year include Euros 18,810 thousand reflecting work performed by the entity and capitalised, of which Euros 13,159 thousand relate to materials consumed, recognised in inventories.

Details of accumulated depreciation for 2008 are as follows:

Thousands of Euros

Depreciation of property, plant and equipment 312,050 Accelerated depreciation of non-operating assets 1,047 Accumulated depreciation of unrecognised assets (note 16 (a)) 2,125 315,222

Depreciation and amortisation for the year recognised in the Income Statement comprise Euros 312,050 thousand relating to property, plant and equipment and Euros 7,923 thousand for intangible assets.

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Details of the main groups of assets are as follows:

Thousands of Euros

Main groups of property, plant and equipment

Cost Accumulated depreciation

Carrying amount

Depreciation for 2008

Workshop buildings 235,548 72,915 162,632 4,838Administrative buildings 23,486 14,253 9,233 985Long distance and regional self-propelled electric trains 2,489,064 534,307 1,954,758 86,193Suburban trains 2,362,580 1,258,918 1,103,662 108,366Regional self-propelled diesel trains 303,295 179,628 123,668 9,276Electric locomotives 551,933 463,656 88,276 19,466Diesel locomotives 317,226 136,393 180,833 14,814Talgo locomotives 282,346 146,904 135,442 9,802Conventional passenger coaches 125,485 115,382 10,103 2,755Freight wagons 501,659 375,784 125,876 14,848

7,192,622 4,621,140 3,894,483 271,343

The cost of fully depreciated property, plant and equipment in use at 31 December 2008 is as follows:

Thousands of

Euros

Buildings 13,738Track installations 3,912Transportation equipment 827,918Other property, plant and equipment 177,379

1,022,947

Profits on the sale of property, plant and equipment have been recognised in profit/(losses) from disposal of fixed assets. Details are as follows:

Thousands of Euros Profit from disposal of fixed assets 1,260 Profit from international project sales 3,611 4,871

The Entity has contracted insurance policies to cover the risk of damage to its property, plant and equipment. The coverage of these policies is considered sufficient.

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7. Risk Management Policy

The Entity’s activities can be exposed, to varying degrees, to various financial risks. Management and mitigation of financial risks is controlled by the Entity’s Corporate Finance and Administration Department in accordance with established standards, policies and procedures.

The possible risks associated with the financial instruments used by the Entity and the related information are as follows:

(a) Credit risk

The Entity is not significantly exposed to credit risk. Sales from the rendering of passenger transport services pose practically no risk, as these are predominantly cash sales.

Exceptionally, ticket sales made through travel agencies and other intermediaries pose the greatest credit risk.

The Entity has policies to ensure that sales of freight transport services are only made to customers with adequate credit records.

The areas of activity that manage the aforementioned services set credit limits and periodically evaluate customer solvency through independent experts or using internal information.

Where a particular customer shows signs of high credit risk, recognition of the associated impairment is considered and the agreed credit limit is reassessed, or eliminated, depending on the circumstances.

Valuation allowances for bad debts require a high degree of judgement by Entity management and a review of individual balances based on customers’ credit ratings, market trends and historical analysis of bad debts at an aggregated level.

(b) Liquidity risk

Liquidity risk arises where the Entity might not hold, or have access to, sufficient liquid funds at an appropriate cost to settle its payment obligations at any given time.

The Entity aims to maintain required liquidity levels. The Corporate Finance and Administration Department establishes minimum liquidity levels on a daily basis.

(c) Currency risk

The Entity is not exposed to currency risk as its trade transactions are denominated in Euros.

Transactions carried out through the BCC with foreign railway companies are also denominated in Euros, even in countries with a functional currency other than the Euro.

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Exchange gains and losses disclosed in the accounts relate to fluctuations in the Swiss Franc against the Euro in relation to unpaid calls for shares of Eurofima. There is no change in this situation over the years.

(d) Interest rate risk

In order to carry out its activity, the Entity has contracted loans and credits that accrue interest at fixed or variable rates, in accordance with Corporate Finance and Administration Department guidelines regarding the most suitable method, based on interest rate trends.

For certain loan contracts the Entity has also contracted embedded derivative financial instruments to reduce and mitigate the impact of interest rates on its financial statements.

Whether a fixed or a variable rate of interest is selected depends on expected future rates and the term of the credits and loans. However, fixed rates are reviewed periodically and a variable interest rate may be selected at that time.

At 31 December 2008, 47% of total loans contracted are fixed interest loans.

The effect of measurement of the aforementioned derivatives in 2008 is a loss of Euros 2,699 thousand.

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8. Non-current investments in group companies and associates

Details of non-current investments in equity instruments of group companies and associates are as follows:

Thousands of Euros

Opening balance Additions

Retirements Disposals

Closing balance

Group companies

- Shares held 0 446 0 446

Associates

- Shares held 83,910 0 (1,464) 82,446

- Unpaid calls (*) (65,617) (7,498) 0 (73,115)

- Valuation allowances (1,395) 0 0 (1,395)

16,898 (7,498) (1,464) 7,936

Jointly controlled entities

- Shares held 9,865 26,024 0 35,890

- Unpaid calls 0 (1,960) 0 (1,960)

9,865 24,064 0 33,930

Total 26,763 17,012 (1,464) 42,312

(*) The increase is due to exchange losses from the effect of the decline in value of the Euro against the Swiss Franc.

Additions to equity instruments are as follows:

On 21 January 2008 the Entity participated in the incorporation of Irvia Mantenimiento Ferroviario S.A, subscribing shares representing 49% of the share capital of this company amounting to Euros 1,715 thousand. On 23 December 2008 a share capital increase of Euros 1,960 thousand was carried out in this company. Following this increase the Entity still holds a 49% interest in the company.

On 29 July 2008, the board of directors of the Entity authorised a number of agreements regarding the new company incorporated with Algeposa Servicios Logísticos Ferroviarios, S.A., called Railsider Logística Ferroviaria, S.A. (hereinafter Railsider):

o On 8 October 2008, the Entity completed the incorporation of Railsider, subscribing shares amounting to Euros 29 thousand, representing 49% of the share capital of this company.

o On 18 December 2008 a share capital increase was completed, in which the Entity subscribed shares through the non-monetary contribution of Algetrén Logística, S.A. and Cadefer, S.A, in which the Entity held a 40% and 30% interest, respectively. As a result of this share capital increase, the Entity’s interest decreased to 17.84%.

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The carrying amount of the contributed shares totalled Euros 1,286 thousand and Euros 135 thousand, respectively.

The fair value of the aforementioned contribution totals Euros 9,547 thousand. The difference between the fair value and the carrying amount is Euros 8,126 thousand, which is recognised in the Income Statement under “Gains/(losses) on disposal and other”.

o On 30 December 2008, the Entity completed the acquisition of 15.58% of the share capital of Railsider for Euros 8,362 thousand, making a cash payment of Euros 5,853 thousand and deferring Euros 2,509 thousand, reflected under “Other payables” in non-current payables (see note 21). This amount falls due on 31 December 2010. At 31 December 2008 the Entity holds a 33.42% interest in the aforementioned company.

According to the acquisition contract, the deferred portion of the purchase price is subject to compliance with certain conditions established in the contract which, if not met, could reduce the outstanding amount, up to a maximum of 60% of the total balance payable.

o On 30 January 2009, a second share capital increase was completed, amounting to Euros 16,396 thousand, and fully subscribed by the Entity through the contribution of assets (wagons for transporting iron and steel products). The assets were previously valued by an independent firm and the appraisal accepted by both shareholders. As a result of this share capital increase the Entity holds a 49% interest in this company.

On 4 November 2008, the Entity participated in the incorporation of Tarvia Mantenimiento Ferroviario S.A., subscribing shares amounting to Euros 4,410 thousand, representing 49% of the share capital of this company. Euros 1,960 thousand of this amount is payable.

On 25 November 2008, the board of directors of the Entity authorised the acquisition of all shares of Coin Asesores S.A. for Euros 446 thousand. On 22 December 2008 this acquisition was completed and the amount fully disbursed to Comercial del Ferrocarril S.A. (Comfersa) as sole shareholder.

Disposals in 2008 are as follows:

On 25 November 2008 the Entity’s board of directors authorised the sale of the interest in Emfesa to Adif. RENFE-Operadora held a 35% interest in Emfesa, with a carrying amount of Euros 42 thousand. The transaction was completed on 30 December 2008.

The price payable by Adif was the carrying amount at 31 December 2008 disclosed in the annual accounts prepared and audited at that date. This amount is payable in two stages, the first when the contract is signed, with a payment of Euros 775 thousand reflecting the carrying amount at 30 September 2008 after deduction of estimated income tax for 2008, relating to the period from 1 January to 30 September 2008.

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The carrying amount at 31 December 2008, reflecting the purchase price of the shares, will be calculated once Emfesa’s annual accounts have been prepared and audited and the difference between this price and the payment on account will be determined. Adif could be required to settle the difference or the Entity will reimburse the difference, depending on the outcome of this operation.

Disposals of the interests in Algetrén Logística, S.A. and Cadefer S.A. contributed to Railsider capital, as explained in the additions section above, have also been recognised.

Profit of Euros 733 thousand on the sale of Emfesa and profit on the aforementioned Railsider non-monetary contribution together total Euros 8,859 thousand, recognised in “Gains/(losses) on disposal of financial instruments”(see note 28 (d)).

None of the companies in which the Entity holds an interest are listed on the stock exchange.

No impairment allowances or reversals thereof have been recognised in 2008.

The most significant interest relates to Eurofima, an entity in which RENFE-Operadora holds a 5.22% interest. Eurofima is a European company with registered offices in Basel (Switzerland), incorporated in 1956 by different European states. The current shareholders of this company are various European Union railway entities. Its statutory activity consists of contributing to the development of railway transport in Europe, providing financing to the respective shareholders.

Details of equity and profit for the year as per the audited annual accounts at 31 December 2008, translated into Euros at the year-end Euro-Swiss Franc exchange rate (1.4850), are as follows. In accordance with the new presentation principles of Eurofima, equity includes unpaid calls.

Thousands of Euros

Equity 879,352

Profit for the year 32,604

At 31 December 2008, Euros 73,115 thousand are pending disbursement in relation to the interest in Eurofima, representing Swiss Francs 108,576 thousand, recognised at the 2008 year-end exchange rate.

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Details of the main companies in which the Entity holds an interest are as follows:

Thousands of Euros

Name Activity % ownershipShare capital and reserves

Profit / (loss) for the year Cost

Unpaid calls

Impairment allowances

Group companies:

Coin Asesores S.A. Management of transport goods and services 100 453 16 446 - -

Total group companies 446 - -

Associates:

Albatros Alcázar, S.A.

Design and manufacture of electronic systems for electricity and air conditioning 20 4,689 968 2,940 - -

Alfil Logistics, S.A. Rail transport 40 2,671 260 2,404 - (1,395)

Construrail, S.A. Rail transport 49 3,257 631 1,225 - -

Conte Rail, S.A. Transport, storage and distribution 46 1,941 159 710 - -

Combiberia S.A. Rail transport 22.5 885 76 135 - -Transportes Ferroviarios Especiales, S.A. (TRANSFESA) Rail transport 20.36 115,271 2,311 12,720 - -

EUROFIMA Rail transport development 5.22 879,352 32,604 55,448 (73,115) Sociedad de Estudios y Explotación de Material de Transportes, S.A. (SEMAT) Rail transport 36.36 19,069 1,062 6,864 - -

Total associates 82,446 (73,115) (1,395)

Jointly controlled entities: Intercontainer Iberica Compañia Logistica Intermodal, S.A Rail transport 46 388 243 177 - -

Railsider Logistica Ferroviaria S.A Rail transport 33.42 53,676 (58) 17,940 - -

Actren, Mantenimiento Ferroviario, S.A.

Maintenance of rolling stock 49 855 229 490 - -

Btren Mantenimiento Ferroviario, S.A.

Maintenance of rolling stock 49 5,000 (22) 2,450 - -

Erión, Mantenimiento Ferroviario, S.A.

Maintenance of rolling stock 49 336 177 245 - -

Irvia mantenimiento ferroviario, S.A.

Maintenance of rolling stock 49 7,442 - 3,675 - -

Nertus Mantenimiento Ferroviario, S.A. .

Maintenance of rolling stock 49 8,928 1,706 3,920 - -

Tarvia Mantenimiento Ferroviario S.A.

Maintenance of rolling stock 49 9,000 (5) 4,410 (1,960) -

Comercial del Ferrocarril, S.A. (COMFERSA)

Advertising and sales equipment 49 12,401 2,739 2,553 - -

Elipsos Internacional S.A Rail transport 50 335 82 30 - -

Total jointly controlled

entities 35,890 (1,960) -

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RENFE-Operadora



9. Financial Assets by Category

The classification of financial assets by category at 31 December 2008 is as follows:

Thousands of Euros

Non-current Current

Loans and receivables Loans 16,142 - Other financial assets (guarantee deposits) 67 300 Trade receivables - 263,147 Other receivables - 422,014 Assets available for sale Equity instruments 1,700 -

Total financial assets 17,909 685,461

The Entity considers that the carrying amount of the financial assets is the same as or similar to their fair value.

Net losses and gains by category of financial asset are as follows:

Thousands of Euros

Loans and receivables

Available-for-sale financial

assets Total

Finance income at amortised cost (1) 1,139 - 1,139

Dividends - 2,568 2,568

Other (2) 1,274 - 1,274

Net gains/(losses) in profit and loss 2,413 2,568 4,981

Total 2,413 2,568 4,981

(1) The figures relate to Andalusia Regional Government non-current loans of Euros 311

thousand and a balance of Euros 828 thousand receivable from Adif for settlements relating to the Extremadura Regional Government debt.

(2) Reflects explicit interest charged to customers. 10. Investments

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RENFE-Operadora



Details at 31 December 2008 are as follows:

Thousands of Euros

Non-

current Current Equity instruments Equity instruments 1,728 -

Impairment allowances (28) -

1,700 -

Loans to companies 16,142 - Other financial assets (guarantee deposits) 67 300

Total 17,909 300

a) Equity instruments

Details of equity instruments at 31 December 2008 are as follows:

Thousands of

Euros Shareholdings under 20%:

Ingeniería y Economía del Transporte, S.A. (Ineco) 598 Intercontainer Interfrigo, S.A. 526

Other companies 604 1,728

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RENFE-Operadora



b) Loans to third parties

This caption reflects the present value of the non-current receivables from Adif in respect of services rendered to the Extremadura Regional Government as a result of the spin-off. These receivables are included in the Ministerial Order and collected through Adif. The total nominal amount of the receivable from Adif is Euros 29,526 thousand, including Euros 12,000 thousand recognised under “Other receivables” (see note 13 (f)). The present value has been calculated considering the average debt ratio at 31 December 2008 (4.20%) and an estimated collection period of two years.

Thousands of Euros

Receivable Adif-Extremadura Regional Govt. 17,526 Valuation adjustments (1,384)

Present value at 31 December 2008 16,142

11. Non-current Assets Held for Sale

The Entity has recognised locomotives amounting to Euros 2,258 thousand as assets held for sale. This classification reflects the carrying amount of the locomotives, which are expected to be sold under the 1st Complementary Contract to the 2007-2010 Framework Contract signed with the Argentine Transport Secretary. The sales transaction is expected to be effective in 2009.

12. Inventories

Details of inventories at 31 December 2008 are as follows:

Thousands of Euros

Manufacturing and maintenance area warehouse 52,809

Fuel 63 Central warehouse 451

53,323 Impairment allowances (7,879)

Total inventories 45,444

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RENFE-Operadora



Movement in inventory impairment allowances in 2008 is as follows:

Thousands of Euros

Balance at 01.01.08 5,795 Charges 7,879 Applications (5,795)

Balance at 31.12.08 7,879

The cost of supplies in 2008 is as follows:

Thousands of Euros Net purchases 97,015 Changes in inventory impairment 2,084 Change in inventories (1,687)

Total supplies 97,412

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RENFE-Operadora



13. Trade and Other Receivables


Thousands of Euros

Trade receivables

General customers: Trade receivables for freight transport 78,953 Trade receivables for passenger transport 12,718 Trade receivables for services and concessions 68,804 160,477 Public entity customers: Receivables for traffic, public entities 21,683 Others 5,205 26,888 Invoices pending issue: 70,739 Valuation allowances: Impairment due to credit risk (7,287) Other: Provision for rebates (3,038)

(10,325) Total trade receivables 247,777 Other receivables Current government receivables 48,723 Revenue on agreements with Autonomous Communities 84, 391 Other receivables 48,551 Impairment allowances (17,349) Total other receivables 164,316 Trade receivables, associates (note 29) Associates, freight transport 7,624 Associates, services and concessions 7,746

Total trade receivables, associates 15,370

Current tax (note 23) 4,134

Other public entity receivables (note 23) 253,564

Total trade and other receivables 685,161

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RENFE-Operadora



a) General customers

This caption primarily comprises receivables from Adif totalling Euros 53,300 thousand, of which Euros 10,251 thousand relates to passenger transport, Euros 4,072 thousand to freight transport and Euros 38,977 thousand to services and concessions (leases, traction services, exploration services, coach rental, services rendered by RENFE-Operadora personnel and others).

Trade receivables for services and concessions include Euros 17,595 thousand receivable from travel agencies.

Trade receivables also include balances receivable from the manufacturers of rail materials for Euros 5,477 thousand, which include penalties for failure to provide services.

b) Public entity customers

This caption mainly reflects receivables for collective agreements relating to suburban rail traffic. Euros 6,969 thousand is receivable from the Madrid Transport Consortium and Euros 6,812 thousand from the Catalan Metropolitan Transport Authority.

c) Invoices pending issue


Thousands of Euros

Freight transport 10,917 Passenger transport 10,079 Other receivables from Adif 6,480 Grants from Autonomous Communities (note 13.f) 16,602 Other items 26,661

70,739

Passenger transport includes Euros 4,406 thousand receivable for suburban and regional transport of Adif current and retired personnel and their families in 2008, which will be invoiced in 2009.

RENFE-Operadora and Adif have an agreement governing entitlement to rail transport of Adif personnel and beneficiaries which states in clause nine that “journeys made without issuing a ticket or with tickets other than those issued under SIRE for suburban and regional transport, except tickets acquired using the VTV application, will be subject to an additional protocol which establishes the control systems to evaluate the use and the corresponding compensation”.

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RENFE-Operadora



To evaluate these services RENFE-Operadora has established a system to make global estimations taking into account the particular characteristics of each product, which in suburban areas is equivalent to the methodology used with certain transport consortiums.

d) Valuation allowances

Movement in valuation allowances in 2008 is as follows:

Thousands of Euros

Impairment

Provision for

rebates

Total

Balances at 31 December 2007 (18,020) (2,457) (20,477)

Charges (8,902) (6,181) (15,083) Reversals 2,286 - 2,286

Applications - 5,600 5,600 Balances at 31 December 2008 (24,636) (3,038) (27,674)

Charges to valuation allowances for impairment losses arising out of credit risk associated with financial assets at amortised cost in 2008 relate primarily to the increase in debt associated with grants from Autonomous Communities. This debt is overdue by more than two years and amounts to Euros 4,271 thousand, of which Euros 3,597 thousand pertains to the Castilla-La Mancha Regional Government and departments thereof, and Euros 653 thousand to the Valencia Regional Government. Part of the charge is due to the increase in the Spain Rail debt, for which provision has been made, amounting to Euros 3,844 thousand.

Reversals mainly relate to the ruling on litigation regarding certain receivables from Transportes Ferroviarios Especiales (Transfesa), for which provision had been made.

The charge to the provision for rebates is recognised as a decrease in revenues.

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RENFE-Operadora



e) Current government receivables


Thousands of Euros

- Grant to offset the cost incurred for suburban and regional rail services in 2008 (note 1 (e))

31,665

- Contribution to offset 2008 losses (note 1 (e)) 13,119

- Contribution for indemnities under the 2008 ERE (note 1 (e)) 2,748

- Receivable for the difference in the amount allocated to offset the cost incurred for suburban and regional rail services in 2007 (note 1(e))

811

- Receivable for the difference in the amount allocated for the 2006 ERE (note 1(e))

380

48,723

f) Revenue on agreements with Autonomous Communities

The Public Business Enterprise Red Nacional de los Ferrocarriles Españoles had certain agreements with Autonomous Communities governing regional passenger transport services considered necessary by the autonomous communities although they were not included under those defined as “of public interest”, and therefore the operating losses incurred were subsidised by these Autonomous Communities.

Following the spin-off, these agreements were subrogated by RENFE-Operadora. These services regulated by the agreements mentioned in the preceding paragraph continued to be rendered in 2002 and 2003 after the contracts had expired in certain of these Autonomous Communities (Castilla la Mancha and Valencia). These services were invoiced firstly by RENFE and subsequently, since I January 2005, by RENFE-Operadora in the same manner as set out in the agreements. These Autonomous Communities have not settled the invoices issued by RENFE or RENFE-Operadora. New agreements governing the aforementioned services have been negotiated and signed with other Autonomous Communities in 2007 and 2008.

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RENFE-Operadora



Details of receivables from Autonomous Communities at 31 December 2008, including amounts pending invoice, are as follows:

Thousands of Euros

Invoiced at 31/12/2008

Pending invoice at

31/12/2008 (note 13 (c))

Total

Receivables from Autonomous Communities:

Under prevailing agreement: Andalusia Regional Government 15,511 8,883 24,394 Castilla y León Regional Government 3,202 883 4,085 Aragón Regional Government 1,212 3,405 4,617 Galicia Regional Government 950 0 950 Extremadura Regional Government 799 2,374 3,173 La Rioja Regional Government 419 0 419 Navarra Regional Government 38 0 38

Murcia Regional Government 14 360 374

22,145 15,905 38,050No prevailing agreement:

Castilla-La Mancha Regional Government 16,846 985 17,831

Castilla La Mancha Regional Government

departments 1,289 73 1,362 Valencia Regional Government 9,672 493 10,165

Cantabria Regional Government 854 (854) 0

28,661 697 29,358

50,806 16,602 67,408

Receivables from Adif under settlement agreements: Extremadura Regional Government 12,000 0 12,000

Andalusia Regional Government 21,585 0 21,585

33,585 0 33,585 84,391 16,602 100,993

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RENFE-Operadora



Receivables from Autonomous Communities, under prevailing agreement reflect balances receivable from Autonomous Communities, or pending invoice to these authorities, under agreements in force at 31 December 2008.

Regarding the receivable from the Andalusia Regional Government, the agreement signed with this entity in 2007 for regional passenger rail transport services in Andalusia is still in force. At 31 December 2008 the balance reflects services rendered in 2007 and 2008 amounting to Euros 11,281 thousand and Euros 13,113 thousand, respectively. At the date of preparation of these annual accounts Euros 14,245 thousand has been collected, of which Euros 5,698 thousand relates to the first quarter of 2007.

In the case of Murcia Regional Government, in 2008 a new agreement was signed, in force from 1 October 2007 to 30 September 2008 and renewable annually by express agreement.

Receivables from Autonomous Communities, no prevailing agreement reflect balances receivable from Autonomous Communities, or pending invoice to these authorities, for which agreements have not been renewed at 31 December 2008.

Although negotiations are underway with these Autonomous Communities to collect these amounts and renew the agreements for the services rendered, at 31 December 2008 provision has been made for the Euros 17,349 thousand outstanding for over two years. Of this amount, Euros 10,244 thousand relates to the Castilla-La Mancha Regional Government, Euros 789 thousand to Castilla La Mancha Regional Government departments and Euros 6,295 thousand to Valencia Regional Government.

Receivables from Adif under settlement agreements, Extremadura Regional Government comprise Euros 12,000 thousand receivable from Adif, reflecting the current portion of the receivable for services rendered to Extremadura Regional Government as a result of the spin-off, in accordance with the Ministerial Order. Payment of this amount was approved by the Adif steering committee on 10 March 2009. The total balance receivable from Adif in this respect is a nominal amount of Euros 29,526 thousand, including Euros 17,526 thousand reflecting the non-current portion, with a present value of Euros 16,142 thousand, recognised in non-current investments (see note 10 (b).

Receivables from Adif under settlement agreements, Andalusia Regional Government reflect the balance receivable through Adif in 2007 from the Ministry of Public Works, Adif, Andalusia Regional Government and RENFE-Operadora in respect of the settlement agreements for receivables at 31 December 2006 for regional passenger rail transport services rendered until that date. In light of these agreements, Adif assumed this Euros 36,332 thousand debt, having collected Euros 14,747 thousand in 2008.

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RENFE-Operadora



g) Other receivables

Other receivables comprise Euros 32,382 thousand of VAT recoverable on investments for which the partial works certificates are pending payment and for which the VAT, as it is not accrued, is not payable to tax authorities.

Other receivables also include cash income of Euros 8,538 thousand from ticket sales at stations, pending deposit by Adif in RENFE-Operadora current accounts at year end.

Euros 3,469 thousand are also receivable from other rail companies for passenger and freight transport services.

14. Derivative Financial Instruments

Details of derivative financial instruments are as follows:

Thousands of

Euros Derivatives held for trading a) Embedded derivatives (notes 20 and 21) 9,045 Total derivatives traded on OTC markets 9,045

Two of the Eurofima loans contain clauses regarding applicable interest rates, which determine the existence of an embedded derivative in both cases. The Entity has recognised these embedded derivatives as liabilities held for trading (see notes 20 and 21). Changes in the fair value are as follows: Thousands of Euros

Value at

01/01/2008 Value at

31/12/2008 Finance income

Finance expenses

Derivative contract 2364 (1,300) (8,582) 0 (7,282)Derivative contract 2394 (5,046) (463) 4,583 0

Total (6,346) (9,045) 4,583 (7,282)

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RENFE-Operadora



15. Cash and Cash Equivalents

Details of cash and cash equivalents at 31 December 2008 are as follows:

Thousands of Euros

Cash 125 Banks, current accounts 986 Cash equivalents Principal 454,828 Interest 1,267

456,095

Total cash and cash equivalents 457,206

At 31 December 2008 cash equivalents amount to Euros 456,095 thousand and mainly comprise current transactions in interest-earning current accounts and fixed-term deposits that accrue interest at rates of between 1.85% and 6.46% which mature in under three months of the acquisition date.

16. Capital and Reserves

Details of equity and movement during the year are shown in the statement of changes in equity.

a) Equity contributions

This balance reflects the difference between the assets and liabilities assigned to the Entity on 1 January 2005 in the RENFE spin-off process which are detailed in note 1 (c) and the General State Budget allocation for each year.

This caption also includes various unrecognised assets for 2008 amounting to Euros 1,576 thousand, details of which are provided in property, plant and equipment (note 6).

b) Reserves

Reserves reflect changes in equity as a result of adjustments to adapt the Entity’s accounts to the new measurement criteria established in the 2007 Spanish General Chart of Accounts (see note 33).

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RENFE-Operadora



c) Other shareholders’ contributions

During the year RENFE-Operadora has recognised Euros 157,429 thousand reflecting the amount allocated to offset losses, included in the GSB for 2008. Euros 144,310 thousand of this amount has been collected and Euros 13,119 thousand is receivable at 31 December 2008.

This caption also includes the contribution earmarked and allocated in the Contract-Programme and the GSB for 2008 to offset expenses of Euros 32,981 thousand relating to the 2008 ERE.

17. Grants, Donations and Legacies

Details of the amounts recognised in the Income Statement by type of grant are as follows:

Thousands of

Euros

Balance at 1 January 2008 7,423Transfer to profit and loss (607)Tax effect 182 Balance at 31 December 2008 6,998

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RENFE-Operadora



18. Provisions

Details of movement during 2008 are as follows:

Thousands of Euros

ITEM Opening balance Charges Applications Surpluses

Financial effect of discount Transfers

Closing balance

Non-current provisions:

Provisions for personnel expenses 105,921 11,163 (83) (16,781) 1,965 (41,563) 60,622 - Provision personnel - Length of service bonuses 22,806 4,506 0 (639) - (2,726) 23,947

- Provision ERE 63,389 (76) 0 0 1,965 (38,743) 26,535 - Employment claims 18,999 6,733 (83) (16,142) 0 (100) 9,407 - Collaboration fund (stabilisation

reserve) 727 0 0 0 0 6 733

Provision environmental activities 4,349 0 0 0 (409) (813) 3,127

Provision third-party claims 29,721 5,198 0 (7,279) (2,260) (1,577) 23,803

TOTAL 139,991 16,361 (83) (24,060) (704) (43,953) 87,552

Current provisions: Provisions for personnel expenses 69,877 10,493 (51,307) 0 981 41,563 71,607 - Provision personnel - Length of service bonuses 0 0 (1,339) 0 0 2,726 1,387

- Provision ERE 69,080 3,157 (42,138) 0 981 38,743 69,823

- Employment claims 0 0 0 0 0 100 100 - Collaboration fund (stabilisation

reserve) 520 6,535 (6,839) 0 0 (6) 210

- Social benefit funds 277 801 (991) 0 0 0 87

Provision environmental activities 950 0 (23) 0 0 813 1,740

Provision third-party claims 1,830 0 (1,628) 0 0 1,577 1,779

TOTAL 72,657 10,493 (52,958) 0 981 43,953 75,126

Provisions for length of service bonuses reflect RENFE-Operadora’s obligation, in compliance with labour regulations, to grant a bonus to employees on completion of a certain period of service at the Entity (see note 4 (m)).

Provision ERE reflects the present value of the Entity’s estimated commitments in relation to the 2005-2009 ERE (see note 4 (m))

The stabilisation reserve reflects the provision made for the fund deriving from collaboration with the Social Security for the management of disability due to work-related accidents and illnesses.

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RENFE-Operadora



The provision for environmental activities reflects the contingencies estimated by the Entity in relation to the protection and improvement of the environment (see note 31).

The provision for claims covers claims lodged against the Entity by third parties. From management’s point of view, and after receiving legal advice, the outcome of these litigations is not expected to differ significantly from the amount of the provisions at 31 December 2008.

The Entity has contingent liabilities in respect of bank guarantees relating to the ordinary course of business amounting to Euros 13,346 thousand. No significant risks are expected to arise due to failure to comply with the conditions of these guarantees.

19. Accruals

Details of accruals at 31 December 2008 are as follows:

Thousands of Euros Non-current Current Deferred income - 20,469 Others 11,786 - Total 11,786 20,469

Others include the amount received by the Entity as the result of an agreement for the interest rate on debt contracted with Eurofima. The amount has been considered as a reduction in the interest payable and recognised in profit and loss using the interest method. In 2008 financial income of Euros 1,727 thousand has been recognised in this respect (see note 28 (a)).

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RENFE-Operadora



20. Financial Liabilities by Category

The classification of financial liabilities by category at 31 December 2008 is as follows:

Thousands of Euros Non-current Current

Liabilities held for trading Derivative financial instruments (note 14) 9,045 - Debts and payables Loans and borrowings 2,957,962 216,874

Other financial liabilities 25,555 597,992

Trade and other payables

Suppliers - 484,058 Other payables - 101,816

Total 2,992,562 1,400,740 The Entity considers that the carrying amount of financial liabilities does not differ significantly from the fair value.

Net gains and losses by financial liability category are as follows:

Thousands of Euros

Liabilities held for trading

Debts and payables

Total

Financial expenses at amortised cost - (147,989) (147,989)

Change in fair value (2,699) - (2,699)

Net losses in profit and loss (2,699) (147,989) (150,688)

Total (2,699) (147,989) (150,688)

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RENFE-Operadora



The change in fair value reflects the effect of the independent expert valuation of embedded derivatives performed at year end, generating a gain of Euros 4,583 thousand in the case of the first derivative and a loss of Euros 7,282 thousand for the second (see note 14).

21. Financial Debt



Non-related companies

Loans and borrowings Principal of loans and borrowings 2,958,807 180,000

Interest on loans and borrowings (845) 36,874

2,957,962 216,874 Derivative financial instruments held for trading (notes 14 and 20) 9,045 0 Other financial liabilities Other payables 2,509 0Fixed asset suppliers 10,001 597,988

Guarantee deposits 13,045 4

25,555 597,992

Total 2,992,562 814,866

Non-current loans and borrowings mainly comprise the net financial debt contracted by RENFE-Operadora with Eurofima and BEI in 2006, 2007 and 2008 to finance investments in rolling stock as foreseen in the 2005-2009 Strategic Plan, and the non-current debt assigned by the Ministerial Order in the RENFE spin-off.

At 31 December 2008 RENFE-Operadora’s current and non-current financial liabilities accrue interest at an average annual rate of 4.20 %.

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RENFE-Operadora



Distribution of non-current loans and borrowings by year of maturity is as follows:

Year Thousands of

Euros 2010 372,8002011 14,2862012 134,488Subsequent 2,437,233

2,958,807

The loans obtained from Eurofima are secured by certain rolling stock assets (see note 6).

Fixed asset suppliers include payables of Euros 10,001 thousand to Eurofima for the acquisition of property, plant and equipment.

Other payables, amounting to Euros 2,509 thousand, comprise the balance payable to Algeposa Servicios Logísticos Ferroviarios, S.L. in relation to the acquisition of the interest in Railsider Logística Ferroviaria S.A. (see note 8).

At 31 December 2008 credit facilities have not been drawn down. The conditions of credit facilities available at that date are as follows:

Thousands of Euros

Limit Total drawn

down

Total available

Applicable rate 482,000 - 482,000 Between 3.632% and

3.735%

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RENFE-Operadora



22. Trade and Other Payables

Details of trade and other payables at 31 December 2008 are as follows:

Thousands of Euros

Group companies and associates Suppliers (note 29) 45,735 Non-related companies Suppliers 438,323 Trade payables 58,110 Personnel 23,803 Public entities, other (note 23) 19,903

Total 585,874

23. Taxation

Details of balances with public entities at 31 December 2008 are as follows:


Assets Deferred tax assets 2,999 - Current tax assets - 4,134 Value added tax and similar taxes - 253,564 2,999 257,698 Liabilities Deferred tax liabilities 2,999 - Social Security - 19,903

2,999 19,903

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RENFE-Operadora



Details of the main taxes applicable to the Entity at 31 December 2008 are as follows:

(a) Income tax

A reconciliation of net income and expenses for the year and taxable income is as follows:

In 2008 the Entity has made withholdings and payments on account of Euros 4,134 thousand. Deferred tax liabilities of Euros 2,999 comprise the tax effect of grants recognised in equity.

Following prudent criteria, the Entity only recognises tax credits in respect of temporary differences up to the limit of the deferred tax liabilities. This situation has had an effect of Euros 182 thousand on the income tax expense disclosed in the income statement for 2008.

Details of loss carryforwards available to be offset against future profits are as follows:

Thousands of

Euros Available until 2005 166,157 2020 2006 165,747 2021 2007 243,833 2022 2008 226,631 2023

In accordance with section 13 of the Ministerial Order determining the assets, rights and obligations to be assigned to RENFE-Operadora, the tax credit generated on losses reflected in RENFE’s income tax returns and the tax credit for deductions pending application by RENFE until 2004 are distributed equally between Adif and RENFE-Operadora.

Thousands of Euros

Income statement

Income and expenses

recognised in equity

Total Income and expenses for the period (177,251) (425) (177,676) Income tax 182 (182) - Permanent differences (5,960) - (5,960) Temporary differences: Originating in current year 11,727 - 11,727 Originating in prior years (55,329) 607 (54,722) Taxable income/(tax loss) (226,631) - (226,631)

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RENFE-Operadora



Details of loss carryforwards assigned to RENFE-Operadora are as follows:

Thousands of

Euros Available until 1998 63,663 2013 1999 105,053 2014 2000 69,889 2015 2001 27,796 2016

Details of deductions pending application assigned to RENFE-Operadora are as follows:

Thousands of

Euros Available until 2002 1,438 2009 2003 859 2010 2004 1,041 2011

In accordance with Spanish tax legislation, losses declared may be carried forward to be offset against taxable profits of the fifteen subsequent accounting periods. However, following prudent criteria, the Entity has not recognised tax credits for loss carryforwards in the balance sheet, as future taxable profits are not expected to be generated.

Details of deductions pending application for double taxation of dividends are as follows:

Thousands of

Euros Available until 2005 819 2012 2006 1,152 2013 2007 1,500 2014 2008 1,444 2015

In accordance with prevailing legislation, tax deductions may be applied in the seven accounting periods following the one in which they are generated. The Entity has not recognised deductions to be applied in future periods in the balance sheet, as future taxable profits are not expected to be generated.

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RENFE-Operadora



(b) Value added tax

In accordance with section 13 of the Ministerial Order, the first additional provision of the RSL establishes that in order to determine the assets, rights and obligations to be assigned to RENFE-Operadora which had been owned by or assigned to RENFE, RENFE assumes 50% of the payment obligations which may result from litigations, claims and tax obligations existing at the 2004 close or which may arise subsequently but due to events occurring prior to 31 December 2004. These criteria is also applied to receivables, except for those deriving from assets and rights assigned exclusively to one of the two entities, in which case the corresponding titleholder would assume the entire balance.

Adif has filed a contentious-administrative appeal with the Spanish national court of appeals against settlements proposed by the tax authorities in respect of the VAT inspection for 1998, 1999 and 2000. 1998 VAT payable amounts to Euros 119,030 thousand.

In a ruling issued on 11 September 2008, the Spanish National Court of Appeals partly upheld the contentious-administrative appeal filed by Adif, declaring unlawful the ruling issued by the Central Economic Administrative Court on 29 June 2005, which confirmed the additional taxes raised by the taxation authorities following the VAT inspection in relation to 1998, 1999 and 2000. In its ruling, the Spanish National Court of Appeals considers unlawful the application of the pro rata rule in relation to grants received against state funds, and which was the determining factor for the additional taxes raised. At the date of preparation of these annual accounts, this ruling is firm.

(c) Years open to inspection

At 31 December 2008 the Entity has open to inspection all applicable taxes since its incorporation, i.e. 1 January 2005.

Due to the treatment permitted by fiscal legislation of certain transactions, additional tax liabilities could arise in the event of inspection. In any event, the Entity’s directors consider that any such liabilities that could arise would be immaterial and would not have a significant effect on the annual accounts.

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RENFE-Operadora



24. Revenues

Details for 2008 are as follows:

Thousands of Euros

Passenger revenue High speed-long distance area of activity 1,042,409 Suburban and regional area of activity 572,408

Freight revenue

Freight and logistics area of activity 320,415

1,935,232

25. Other Operating Income


Thousands of Euros Operating grants 420,135

Agreements with Adif 47,156

Non-trading income 89,462

556,753

Details of operating grants are as follows:

Thousands of Euros

Regional public service agreement 107,383

Suburban public service agreements 272,597

Subsidies from Autonomous Communities 40,025 Other grants 130 420,135

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RENFE-Operadora



Details of agreements with Adif are as follows:

Thousands of

Euros

Income on rental of rolling stock (Freight-Infrastructure agreement) 11,082

Income on station management – Suburban routes agreement 12,645

Other services rendered to Adif 10,655

Income on Integral Train Maintenance – Terminals agreement (*) 6,060

Income on RENFE-Operadora – Circulation agreement 3,384

Income on Freight – Circulation agreement 2,029Income on Integral Train Maintenance – Conventional Infrastructure agreement (*) 1,063

Income on Freight – Terminals agreement 238

47,156(*) Integral Train Maintenance is the current manufacturing and maintenance area of

activity

Details of non-trading income are as follows:

Thousands of

Euros

Leases and use of rail facilities 26,920

Services to third parties 24,074

Indemnities or similar 7,837

Repairs 6,039

Advertising 4,888Surexpreso and Lusitania (Portuguese railways), Elipsos (French railways) 4,487

Sale of material 3,693

Training courses 3,651

Fees 3,281

Operation of Lleida – Pobla de Segur route 2,091

Work carried out for rolling stock warehouses 1,829

Others 672

89,462

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RENFE-Operadora



26. Personnel Expense


Thousands of

Euros Wages and salaries 579,294 Social Security and collaboration fund 162,038 Length of service bonuses 982 Other 18,046 Wages and salaries 760,360 Contribution to retirement plan ERE 2005/2009 (note 18) 844 Provision surplus (note 18) (16,781) Personnel expense 744,423

The average headcount of the Entity during 2008, distributed by category, is as follows.

Number Management 8 Support personnel 1,473 Middle management 1,098 Administrative staff 444 Drivers 5,238 Check-in/information personnel 728 Inspection 1,902 Workshop personnel 2,833 Others 642 14,366

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RENFE-Operadora



The distribution of personnel by gender at 31 December 2008 is as follows:

27. Other Operating Expenses


Thousands of Euros Repairs and maintenance 400,983 Traffic-related expenses 136,745 Travel agencies 25,781 Advertising and publicity 43,682 Leases and use of rail facilities 22,443 Independent professional services 15,058 Insurance premiums 4,792 Utilities 4,263 Office materials 5,237 Adif charges 284,298 Adif agreements 153,235 Electric energy for traction 190,403 Traction fuel 50,194 Power, for uses other than traction 17,793 Others 51,182

Total external services 1,406,089

Changes in trade provisions 6,620 Local taxes 568

Total other operating expenses 1,413,277

Number Female Male

Management 1 7 Support personnel 296 1,206 Middle management 200 934 Administrative staff 239 189 Drivers 51 5,210 Check-in/information personnel 203 487 Inspection 96 1,783 Workshop personnel 108 2,671 Others 123 483

1,317 12,970

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Traffic-related expenses are mainly on-board services rendered on passenger routes, and costs of handling, carriage and removals associated with freight traffic. “Electric energy for traction”, “Traction fuel” and “Power for uses other than traction” have corresponding agreements with Adif which establish the terms of Adif’s energy management and the compensation payable by RENFE-Operadora, which amount to Euros 253,238 thousand in 2008. These captions also include Euros 5,152 thousand from other suppliers. Expenses from the remaining agreements signed with Adif total Euros 153,235 thousand.

RENFE-Operadora has not recognised any expenses related to the audit of the Entity’s 2008 annual accounts as this work is commissioned by the IGAE.

28. Financial Income and Expenses


Thousands of Euros

(a) Finanial income:

Returns on non-current investments 23,664

Income from interest rate reductions (note 19) 1,727

Interest on delayed payments in debt agreements 110

Interest on delayed payments, third parties 980

Returns on payments and current account systems 839

Dividends (associates) 2,929

Dividends (other companies) 2,568

Other interest receivable 329

Borrowing costs capitalised (note 6.c) 11,344

Valuation adjustments 12,666

57,156

(b) Financial expenses: Non-current financing (note 20) (147,987)

Current financing (note 20) (2)

Other finance expenses (5,888)

Valuation adjustments (15,857)

(169,734)

(c) Exchange gains/losses: Losses (7,531)

Gains 6

(7,525)

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(d) Impairment and gains/(losses) on disposal of financial instruments:

Disposals (note 8) 8,859

8,859

Net financial expense (111,244)

29. Balances and Transactions with Related Parties

(a) Balances with related parties

Details are as follows: Thousands of Euros

Receivables (note 13)

Payables (note 22)

Nertus Mantenimiento Ferroviario S.A. 1,176 18,550Comercial del Ferrocarril, S.A. (COMFERSA) 1,039 7,436Albatros Alcázar, S.A. 62 6,114Irvia, S.A. 3,437 6,043Actren, Mantenimiento Ferroviario, S.A. 694 5,507Transportes Ferroviarios Especiales, S.A. (TRANSFESA) 4,232 24Construrail, S.A. 1,607 19Alfil Logistics, S.A. 1,362 0Erión Mantenimiento Ferroviario, S.A. 566 1,188Conte Rail, S.A. 0 810Intercontainer Ibérica, S.A. 572 0Sociedad Ibérica Transporte Intermodal Combiberia S.A. 418 0Btren Mantenimiento Ferroviario, S.A. 130 0Sociedad de Estudios y Explotación de Material de Transportes, S.A. (SEMAT)

66 38

Elipsos Internacional 9 6

15,370 45,735

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(b) Transactions with related parties The Entity’s transactions with related parties are as follows:

Thousands of Euros

Group entities

Other related parties

Total

Revenues 0 52,534 52,534Financial instruments 0 2,929 2,929Financial income 0 0 0Dividends 0 2,929 2,929Total income 0 55,463 55,463 Expenses 0 82,737 82,737Other services received 0 82,737 82,737Financial instruments 0 0 0Financial expenses 0 0 0Total expenses 0 82,737 82,737 Investments 446 31,931 32,377Acquisition of assets 0 5,906 5,906Investments in group companies, associates and jointly controlled entities 446 26,025 26,471Total investments 446 31,931 32,377

(c) Financial structure

The Entity is the parent of a group of companies, as stated in note 8.

30. Information on the Entity’s Directors and Senior Management Personnel

During 2008 the members of the board of directors have earned remuneration of Euros 365 thousand solely in respect of wages and salaries and allowances.

At 31 December 2008, Euros 16 thousand is payable to members of the board of directors, of which Euros 12.6 thousand reflects allowances accrued by members classed as senior government officials for attendance at the December board meeting. At that date this amount was payable to the Public Treasury, in accordance with Law 5 of 10 April 2006. The Entity has made contributions of Euros 141.18 in respect of life and accident insurance premiums.

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In 2008 senior management of the Entity have received remuneration of Euros 1,273.10 thousand in respect of wages and salaries (including variable remuneration). The Entity has made contributions of Euros 772.42 in respect of life and accident insurance.

At 31 December 2008 the Entity has not extended any loans or advances to members of the board of directors or senior management, or extended any guarantees on their behalf. The Entity has no pension obligations with these or former directors.

At the date of preparation of these annual accounts the board of directors of the Entity comprises 16 men and one woman.

31. Environmental Information

In terms of its operations, RENFE-Operadora considers that the Entity substantially complies with the laws relating to environmental protection ("environmental laws"), maintaining the necessary procedures to promote and guarantee compliance with these regulations.

The Entity has adopted the necessary measures relating to protecting and improving the environment and, where necessary, minimising environmental impact and meeting all relevant applicable legislation.

The Entity incurred environmental expenses of Euros 1,358 thousand during 2008, detailed as follows:

Thousands of Euros

Prevention of land and water contamination 438 Various waste management and treatment 242 Hazardous waste management and treatment 377 Wastewater management and treatment 297 Others 4 TOTAL

1,358

In 2006 the Entity’s management estimated contingencies related to environmental protection and improvement, and consequently, a provision for environmental risk and expenses of Euros 5,700 thousand was recognised at 31 December 2006 to cover decontamination activities outlined in the characterisation reports prepared by a third party for RENFE-Operadora.

Work to restore contaminated land for Euros 23 thousand was undertaken in 2008, with Euros 1,740 thousand remaining in the short term for activities in 2009, according to the Action Plan (2008 – 2013) approved by the steering committee at its meeting on 29 January 2008 (see note 18).

At 31 December 2008 the Entity has no significant assets for protecting and improving the environment nor has it received any environmental grants during the year.

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32. Leases and Similar Transactions

(a) Operating lease income The most significant groups in this caption in 2008 are as follows:

Thousands of Euros

- Rental of premises, areas, warehouses and installations 13,825

- Rental of rolling stock and other machinery 6,484

- Rental of land 4,669

- Rental of car parks 1,942

Total 26,920

(b) Operating lease expenses

Operating lease expenses are disclosed in the income statement, as follows:

Thousands of Euros

Rentals and charges (note 27) 22,443

Adif agreements (note 27) 13,929

36,372

Details of the most significant items in 2008 are as follows:

Thousands of Euros - Adif agreements (occupancy of premises,

buildings, car parks and other) 13,929

- Rentals for overnight stays of operating personnel 11,900

- Rental of IT software (IBM) 4,981

- Rental of telephone lines (SAVIA) 1,356

- Circulation rights charges 982

- Rental of buildings and premises 761

- Others 2,463

Total 36,372

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33. Issues Arising from Transition to the New Accounting Principles

As mentioned in note 2, the annual accounts for 2008 have been considered as opening annual accounts, and therefore do not include comparative figures for the prior year. This note contains the balance sheet and statement of profit and loss included in the annual accounts for 2007 approved by the board of directors at their meeting held on 1 July 2008, which were prepared in accordance with the Spanish General Chart of Accounts in force during that year. This note also includes an explanation of the main differences between the accounting principles applied in the current year and those applied in the previous year, as well as a quantification of the impact of this change in accounting principles on equity at 1 January 2008, which is the transition date and, therefore, the opening balance sheet date.

In accordance with the first transitional provision of Royal Decree 1514/2007, the Entity has opted to measure all equity items included in the opening balance sheet based on the accounting principles prevailing at 31 December 2007, except for financial instruments which are measured at fair value.

(a) Balance Sheet and Statement of Profit and Loss

Appendices II and III comprise the balance sheet and statement of profit and loss included in the annual accounts for 2007.

(b) Reconciliation with the opening balance sheet

Details of the main changes deriving from the application of the new Spanish General Chart of Accounts approved by Royal Decree 1514/2007 on equity at 1 January 2008, the date of the transitional balance sheet, are provided in Appendix 1. The main differences deriving from application of the Spanish General Chart of Accounts approved by Royal Decree 1514/2007 are as follows:

Elimination of establishment costs. Elimination of deferred expenses that do not meet the definition of an asset

included in the aforementioned Spanish General Chart of Accounts.

Recognition of an increase in the provision for the 2005-2009 ERE, reflecting the estimated probable number of employees that will avail of voluntary redundancy and early retirement in 2008 and 2009.

Recognition of implicit interest on non-current loans.

Recognition of derivative financial instruments at fair value.

Reclassification of unpaid calls on share capital as a decrease in the value of the investment.

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Reclassification of the provision for large-scale repairs under property, plant and equipment.

Reclassification of deferred arrangement costs relating to loans and borrowings as

a decrease in loans.

Reclassification of certain items previously recognised in intangible assets to property, plant and equipment.

Recognition of deferred tax assets arising on tax loss carryforwards expected to be

recovered (at least up to the amount of deferred tax liabilities).

Appendix I

This appendix forms an integral part of note 33 to the annual accounts for 2008, in conjunction with which it should be read.

Reconciliation of equity at 1 January 2008 with equity under the new accounting principles



Equity

Equity

contributions

Other shareholders’ contributions Reserves

Prior years’ losses

Grants, donations and legacies

received Total

Balance at 1 January 2008 2,040,671 272,528 (234,853) 2,078,346

Effect of changes in presentation:

- Reclassification of grants 10,604 10,604

- Tax effect of reclassification of grants (3,181) (3,181)

Effect of changes in recognition and measurement criteria:

- Elimination of establishment costs (4,927) (4,927)

- Elimination of deferred expenses (89) (89)

- Provision 2005-2009 ERE (80,695) (80,695)

- Recognition of implicit interest (2,524) (2,524)

- Recognition of deferred tax assets for tax loss carryforwards 3,181 3,181

- Recognition of embedded derivatives (6,346) (6,346)

Balance at 1 January 2008 under new accounting principles 2,040,671 272,528 (91,400) (234,853) 7,423 1,994,369

Appendix II


RENFE-Operadora

Activo 2007 Pasivo 2007

Inmovilizado Fondos Propios Gastos de Establecimiento 4.927 Aportaciones Patrimoniales 2.040.671 Inmovilizado Inmaterial 18.837 Resultados ejercicios anteriores y Compensación Pérdidas 272.528 Inmovilizado Material 4.855.915 Pérdidas del ejercicio -234.853 Coste 8.320.824 2.078.346 Amortizaciones y provisiones -3.464.909 Inmovilizaciones financieras 95.829 Ingresos a distribuir en varios ejercicios 24.117

4.975.508Provisiones para riesgos y gastos a largo plazo 104.687

Deudores a largo Plazo Administraciones Públicas - Acreedores a largo plazo 2.666.575 Otros deudores a largo plazo 67.783

67.783 Acreedores a corto plazo Deudas con entidades de crédito 220.634 Deudas con empresas grupo y asociadas 19.628

Gastos a distribuir en varios ejercicios 1.208 Acreedores comerciales 404.715 Otras Deudas no comerciales 740.407

Activo Circulante Ajustes por periodificación 15.585 Existencias 45.841 Provisiones para riesgos y gastos a corto plazo 37.699 Deudores 586.841 Inversiones Financieras Temporales 631.019 Tesorería 527 Total acreedores a corto plazo 1.438.668 Ajustes por periodificación 3.666

Total Activo Circulante 1.267.894

Total Activo 6.312.393 Total Pasivo 6.312.393

Balance de Situación 31 de diciembre de 2007 (Expresados en miles de euros)

Appendix III


2007

86.978765.814264.932-13.037

1.180.551

2.285.238

113.234411

113.645

12.04011.57339.364

62.977

642

Gastos de explotación Ingresos de explotación

Gastos

Pérdidas del ejercicio 234.853

Resultados extraordinarios positivos Resultados extraordinarios negativos -

Total pérdidas y gastos extraordinarios Total beneficios e ingresos extraordinarios 63.619

Ingresos y beneficios de ejercicios anteriores 50.315Gastos y pérdidas de ejercicios anteriores Ingresos extraordinarios 5.300Gastos extraordinarios del ejercicio 672Pérdidas procedentes del inmovilizado Subvenciones de capital transferida al resultado

Beneficios en la enajenación de inmovilizado 7.332Pérdidas y gastos extraordinarios Beneficios e ingresos extraordinarios

Perdidas de actividades ordinarias 235.495Resultados financieros negativos 89.564

Total gastos financieros Total ingresos financieros 24.081

Diferencias negativas de cambio Diferencias positivas de cambio 1.953Gastos financieros y gastos asimilados Intereses e ingresos asimilados 22.128

Gastos financieros Ingresos financieros

Total gastos de explotación Pérdidas de explotación 145.931

Otros gastos de explotación Variación de la provisión de tráfico Total Ingresos de explotación 2.139.307Dotaciones para amortizaciones de inmovilizadoGastos de Personal Otros ingresos de explotación 517.272Consumos de explotación Importe neto de la cifra de negocios 1.622.035

2007

(Expresada en miles de euros) 31 de diciembre de 2007

Cuenta de Pérdidas y Ganancias RENFE-Operadora

247.662

ENTIDAD PUBLICA EMPRESARIAL

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