CONFORMED COPY

CREDIT NUMBER 848 IN

Development Credit Agreement(Punjab Water Supply and Sewerage Project)

between

INDIA

and

INTERNATIONAL DEVELOPMENT ASSOCIATION

Dated October 27, 1978

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CREDIT NUMBER 848 IN

DEVELOPMENT CREDIT AGREEMENT

AGREEMENT, dated October 27, 1978, between INDIA, acting byits President (hereinafter called the Borrower) and INTERNATIONALDEVELOPMENT ASSOCIATION (hereinafter called the Association.)

WHEREAS (A) the Borrower has requested the Associationto assist in the financing of the Project described in Schedule 2to this Agreement by extending the Credit as hereinafter provided;

(B) by an agreement of even date herewith (hereinaftercalled the Punjab Agreement) between the Association and the Stateof Punjab, acting by its Governor (hereinafter called Punjab),Punjab has agreed to undertake certain obligations in respectof the Project;

(C) by an agreement of even date herewith (hereinafter

called the Project Agreement) between the Association and thePunjab Water Supply and Sewerage Board (hereinafter called WSSB),WSSB has agreed to carry out the Project and to undertake certainother obligations in respect of the Project;

(D) WSSB intends to contract from the Life Insurance Cor-poration of India (hereinafter called LIC) a loan of Rsl30,OO0,OOO

(hereinafter called the LIC Loan) to assist in the financing ofthe Project on terms and conditions, including those set forth inSchedule 2 to the Project Agreement, set forth or referred to inan agreement (hereinafter called the LIC-WSSB Loan Agreement),

to be entered into between LIC and WSSB;

(E) by an agreement of even date herewith (hereinaftercalled the LIC Agreement) between the Association and LIC, theparties thereto have agreed to coordinate the withdrawal and useof proceeds of the loan to be provided by LIC; and

WHEREAS the Association has agreed, on the basis inter

alia of the foregoing, to extend the Credit to the Borrower uponthe terms and conditions hereinafter set forth, in the PunjabAgreement and in the Project Agreement of even date herewith;

NOW THEREFORE the parties hereto hereby agree as follows:

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ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all the

provisions of the General Conditions Applicable to DevelopmentCredit Agreements of the Association, dated March 15, 1974,with the same force and effect as if they were fully set forthherein (said General Conditions Applicable to Development CreditAgreements of the Association being hereinafter called theGeneral Conditions).

Section 1.02. Wherever used in this Agreement, unless thecontext otherwise requires, the several terms defined in theGeneral Conditions and in the Preamble to this Agreement have

the respective meanings therein set forth and the followingadditional terms have the following meanings:

(a) "Punjab" means the State of Punjab, a State of Indiaor any successor thereof;

(b) "Punjab Agreement" means the agreement of even dateherewith between the Association and Punjab, as the same may beamended from time to time, and such term includes all agreementssupplemental to the Punjab Agreement;

(c) "Act" means the Punjab Water Supply and Sewerage Act,1976 of Punjab, as amended;

(d) "WSSB" means the Punjab Water Supply and SewerageBoard established by the Act;

(e) "LIC" means the Life Insurance Corporation of India,a statutory corporation established by the Life Insurance Cor-poration Act, 1956 of the Borrower;

(f) "Project Agreement" means the agreement between theAssociation and WSSB of even date herewith, as the same may

be amended from time to time, and such term includes all schedulesto the Project Agreement and all agreements supplemental tothe Project Agreement;

(g) "LIC Agreement" means the agreement of even date here-with between the Association and LIC, as the same may be amendedfrom time to time;

(h) "Sub-project" means a water supply project, a sewerageproject or a water supply and sewerage projeLt carried out orproposed to be carried out under the Project;

(i) "Three Towns" means the towns of Jullundur, Amritsarand Ludhiana in Punjab;

(j) "Five Towns" means the towns of Moga, Patiala, Rajpura,Bhatinda and Pathankot in Punjab;

(k) "Eight Towns" means the eight towns mentioned in para-graphs (i) and (j) above;

(1) "MCs" means the Municipal Corporations and the MunicipalCommittees of the Eight Towns and "MC" means a Municipal Corpor-ation or a Municipal Committee of said MCs;

(m) "Subsidiary Loan Agreements" means agreements betweenWSSB and the MCs, as the same may be amended from time to time,and such term includes all schedules to the Subsidiary LoanAgreements and all agreements supplemental to the Subsidiary LoanAgreements; and

(n) "Rs" means rupees in the currency of the Borrower.

ARTICLE II

The Credit

Section 2.01. The Association agrees to lend to the Borrower,on the terms and conditions in the Development Credit Agreementset forth or referred to, an amount in various currencies equiva-lent to thirty-eight million dollars ($38,000,000).

Section 2.02. The amount of the Credit may be withdrawnfrom the Credit Account in accordance with the provisions ofSchedule 1 to this Agreement, as such Schedule may be amendedfrom time to time by agreement between the Borrower and theAssociation, for expenditures made (or, if the Association shallso agree, to be made) in respect of the reasonable cost of goodsand services required for the Project and to be financed out ofthe proceeds of the Credit.

Section 2.03. Except as the Association shall otherwiseagree, procurement of the goods and civil works to be financed out

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of the proceeds of the Credit shall be governed by the provisions

set forth or referred to in Section 2.03 of the Project Agreement.

Section 2.04. The Closing Date shall be March 31, 1983 or

such later date as the Association shall establish. The Associa-

tion shall promptly notify the Borrower of such later date.

Section 2.05. The Borrower shall pay to the Association

a service charge at the rate of three-fourths of one per cent

(3/4 of 1%) per annum on the principal amount of the Credit

withdrawn and outstanding from time to time.

Section 2.06. Service charges shall be payable semiannually

on February 1 and August 1 in each year.

Section 2.07. The Borrower shall repay the principal amount

of the Credit in semiannual installments payable on each Febru-

ary 1 and August 1 commencing February 1, 1989, and ending

August 1, 2028, each installment to and including the installment

payable on August 1, 1998, to be one-half of one per cent (1/2

of 1%) of such principal amount, and each installment thereafter

to be one and one-half per cent (1-1/2%) of such principal amount.

Section 2.08. The currency of the United Kingdom of Great

Britain and Northern Ireland is hereby specified for the purposes

of Section 4.02 of the General Conditions.

ARTICLE III

Execution of the Project

Section 3.01.(a) Without any limitation or restriction

upon any of its other obligations under the Development Credit

Agreement, the Borrower shall cause Punjab and WSSB to perform

in accordance with the provisions of the Punjab Agreement and the

Project Agreement, respectively, all the obligations therein set

forth, shall take and cause to be taken all action, including the

provision of funds, facilities, services and other resources,necessary or appropriate to enable Punjab and WSSB to perform such

obligations, and shall not take or permit to be taken any action

which would prevent or interfere with such performance.

(b) The Borrower shall make the proceeds of the Credit

available to Punjab in accordance with the Borrower's standard

arrangements for development assistance to the States of India.

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ARTICLE IV

Remedies of the Association

Section 4.01. For the purposes of Section 6.02 of the GeneralConditions the following additional events are specified pursuantto paragraph (h) thereof:

(a) Punjab shall have failed to perform any of its obliga-tions under the Punjab Agreement;

(b) WSSB shall have failed to perform any of its obligationsunder the Project Agreement;

(c) LIC shall have failed to perform any of its obligationsunder the LIC Agreement;

(d) Punjab shall have taken any action for the dissolutionor disestablishment of WSSB or for the suspension of the operationof WSSB;

(e) the Act shall have been amended in such a way as tomaterially and adversely affect the ability of WSSB to carryout its obligations under the Project Agreement;

(f) an extraordinary situation shall have arisen whichshall make it improbable that WSSB will be able to perform itsobligations under the Project Agreement; and

(g) (i) subject to subparagraph (ii) of this paragraph:

(A) the right of WSSB to withdraw the proceedsof the LIC Loan shall have been suspended,cancelled or terminated in whole or in part,pursuant to the terms of the LIC-WSSB LoanAgreement, or

(B) the LIC Loan shall have become due and payableprior to the agreed maturity thereof.

(ii) subparagraph (i) of this paragraph shall not

apply if WSSB establishes to the satisfaction ofthe Association that:

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(A) such suspension, cancellation, termination

- prematuring is not caused by the failure

of WSSB to perform any of its obligations

under the LIC-WSSB Loan Agreemeht, and

(B) adequate funds for the Project are available

to WSSB from other sources on terms and

conditions consistent with the obligations

of WSSB under the LIC-WSSB Loan Agreement.

Section 4.02 For the purposes of Section 7.01 of the General

Conditions, the following additional events are specified pursuant

to paragraph (d) thereof:

(a) any event specified in paragraphs (a), (b) or (c) of

Section 4.01 of this Agreement shall occur and shall continue

for a period of 60 days after notice thereof shall have been

given by the Association to the Borrower; and

(b) any event specified in paragraphs (d), (e) or (g) (i)

(B) of Section 4.01 of this Agreement shall occur.

ARTICLE V

Effective Date; Termination

Section 5.01. The following events are specified as addi-

tional conditions to the effectiveness of the Development Credit

Agreement within the meaning of Section 12.01 (b) of the General

Conditions:

(a) the execution of the Punjab Agreement on behalf of

Punjab has been duly authorized or ratified by all necessary

governmental action;

(b) the execution of the Project Agreement on behalf of WSSB

has been duly authorized or ratified by all necessary governmental

and corporate action;

(c) the execution of the LIC Agreement on behalf of LIC

has been duly authorized or ratified by all necessary corporate

and governmental action;

(d) the execution of the LIC-WSSB Loan Agreement on behalf

of LIC and WSSB, respectively, has been duly authorized or rati-

fied by all necessary corporate and governmental action; and

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(e) the modifications to the institutional framework ofWSSB as agreed between the Association and Punjab have beencarried out.

Section 5.02. The following are specified as additionalmatters, within the meaning of Section 12.02 (b) of the GeneralConditions, to be included in the opinion or opinions to befurnished to the Association:

(a) that the Punjab Agreement has been duly authorizedor ratified by Punjab, and is legally binding upon Punjab inaccordance with its terms;

(b) that the Project Agreement has been duly authorizedor ratified by WSSB, and is legally binding upon WSSB in accor-dance with its terms;

(c) that the LIC Agreement has been duly authorized orratified by LIC, and is legally binding upon LIC in accordancewith its terms; and

(d) that the LIC-WSSB Loan Agreement has been duly autho-rized or ratified by LIC and WSSB, respectively, and is legallybinding upon LIC and WSSB in accordance with its terms.

Section 5.03. The date January 25, 1979 is hereby speci-fied for the purposes of Section 12.04 of the General Conditions.

Section 5.04. The obligations of the Borrower under Section4.02 of this Agreement shall cease and determine on the date onwhich this Agreement shall terminate or on a date 25 years afterthe date of this Agreement, whichever shall be the earlier.

ARTICLE VI

Representative of the Borrower; Addresses

Section 6.01. Any Secretary, Additional Secretary, JointSecretary, Director or Deputy Secretary in the Ministry ofFinance, Department of Economic Affairs of the Borrower is desig-nated as representative of the Borrower for the purposes ofSection 11.03 of the General Conditions.

Section 6.02. The following addresses are specified forthe purpose of Section 11.01 of the General Conditions:

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For the Borrower:

The Secretary to the Government of India

Ministry of FinanceDepartment of Economic AffairsNew Delhi, India

Cable address:

ECOFAIRSNew Delhi

For the Association:

International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex:

INDEVAS 440098 (ITT)

Washington, D.C. 248423 (RCA) or64145 (WUI)

IN WITNESS WHEREOF, the parties hereto, acting through

their representatives thereunto duly authorized, have caused this

Agreement to be signed in their respective names in the Districtof Columbia, United States of America, as of the day and year

first above written.

INDIA

By /s/ R. L. MisraAuthorized Representative

INTERNATIONAL DEVELOPMENT ASSOCIATION

By /s/ Robert PicciottoActing Regional Vice President

South Asia

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SCHEDULE 1

Withdrawal of the Proceeds of the Credit

1. The table below sets forth the Categories of items to befinanced out of the proceeds of the Credit, the allocation ofthe amounts of the Credit to each Category and the percentageof expenditures for items so to be financed in each Category:

Amount of theCredit Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(1) Equipment and 23,000,000materials

(a) procured by 100% of foreigninternational expenditures orcompetitive 100% of localbidding expenditures

(ex-factory)

(b) procured by 45%methods otherthan interna-tional competi-tive bidding

(2) Civil works 12,500,000 45%

(3) Consultants' 600,000 100%services andtraining

(4) Unallocated 1,900,000

TOTAL 38,000,000

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expenditures inthe currency of any country other than the Borrower and for goods

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or services supplied from the territory of any country other

than the Borrower; and

(b) the term "local expenditures" means expenditures in

the currency of the Borrower and for goods or services suppliedfrom the territory of the Borrower.

3. The disbursement percentages have been calculated in com-

pliance with the policy of the Association that no proceeds of the

Credit shall be disbursed on account of payments for taxes levied

by, or in the territory of, the Borrower on goods or services, oron the importation, manufacture, procurement or supply thereof; tothat end, if the amount of any such taxes levied on or in respect

of any item to be financed out of the proceeds of the Creditdecreases or increases, the Association may, by notice to the

Borrower, increase or decrease the disbursement percentage then

applicable to such item as required to be consistent with the

aforementioned policy of the Association.

4. Notwithstanding the provisions of paragraph 1 above, no

withdrawals shall be made in respect of:

(a) payments made for expenditures prior to the date of this

Agreement except that withdrawals in an aggregate amount not

exceeding the equivalent of $100,000 may be made in respect of

Category (3) on account of expenditures made before that date but

after February 28, 1978; and

(b) payments made for expenditures in a Sub-project in

any of the Eight Towns until:

(i) the Association has approved such Sub-project;

(ii) the Subsidiary Loan Agreement between WSSB andthe MC concerned has been executed;

(iii) the Association has approved the recommendationsof WSSB and the MC concerned on credit terms andconditions for financing water supply and sewerageconnection costs including WCs, and the selectioncriteria for credit eligibility of their customers;and

(iv) the Association has approved the detailed imple-mentation program in respect thereof.

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5. Notwithstanding the allocation of an amount of the Credit orthe disbursement percentages set forth in the table in paragraph 1above, if the Association has reasonably estimated that the

amount of the Credit then allocated to any Category will be

insufficient to finance the agreed percentage of all expendituresin that Category, the Association may, by notice to the Borrower:

(i) reallocate to such Category, to the extent required to meet

the estimated shortfall, proceeds of the Credit which are thenallocated to another Category and which in the opinion of theAssociation are not needed to meet other expenditures, and (ii)

if such reallocation cannot fully meet the estimated shortfall,reduce the disbursement percentage then applicable to such expen-

ditures in order that further withdrawals under such Category may

continue until all expenditures thereunder shall have been made.

6. If the Association shall have reasonably determined that the

procurement of any item in any Category is inconsistent with theprocedures set forth or referred to in this Agreement, no expendi-tures for such item shall be financed out of the proceeds of theCredit and the Association may, without in any way restricting orlimiting any other right, power or remedy of the Association underthe Development Credit Agreement, by notice to the Borrower, can-cel such amount of the Credit as, in the Association's reasonableopinion, represents the amount of such expenditures which wouldotherwise have been eligible for financing out of the proceeds of

the Credit.

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SCHEDULE 2

Description of the Project

The purposes of the Project are to assist in the developmentof the water supply and sewerage sector in Punjab, to constructand improve water supply and sewerage services in the Eight Townsand to introduce a sound public utilities approach to suchservices. The Project consists of the following Parts:

Part A - Sector Development

1. Provision of technical assistance, training and specializedequipment for the development and strengthening of WSSB and watersupply and sewerage departments of MCs. Services will be providedto assist in the preparation of management, organization andstaffing proposals and in the establishment of project monitoring,accounting and financial management information systems.

2. Studies of water and sewerage tariffs in the Eight Towns.

Part B - Sub-projects

1. Construction and improvement of water supply works in theEight Towns to serve an additional population of about 800,000people. These water supply Sub-projects would include the follow-ing major components: about 28 tubewells, 31 service reservoirs,2 treatment works and 480 kilometers of transmission and distribu-tion mains.

2. Construction and improvement of sewerage and sewage disposalworks in the Eight Towns to serve an additional population ofabout 1,200,000 people. These sewerage Sub-projects would includethe following major components: about 120,000 connections and WCs,600 kilometers of laterals, 140 kilometers of interceptors andoutfalls and 2 pumping stations.

The Project is expected to be completed by March 31, 1982.