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CONFORMED COPY
CREDIT NUMBER 2986 IN
Development Credit Agreement
(Coal Sector Rehabilitation Project)
between
INDIA
and
INTERNATIONAL DEVELOPMENT ASSOCIATION
Dated March 19, 1998
CREDIT NUMBER 2986 IN 
DEVELOPMENT CREDIT AGREEMENT
AGREEMENT, dated March 19, 1998, between INDIA, acting by its President (the 
Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). 
WHEREAS  (A) the Borrower and Coal India Ltd. (CIL), having satisfied itself as 
to the feasibility and priority of the Project described in Schedule 2 to this 
Agreement, has requested the Association to assist in the financing of the Project;
(B)
CIL has also requested the International Bank for Reconstruction and 
Development (the Bank) to provide assistance towards financing Parts A and B of the 
Project and by an agreement of even date herewith between the CIL and the Bank (the 
Loan Agreement), the Bank is agreeing to provide such assistance in an amount equal to 
five hundred thirty million dollars ($530,000,000) (the Loan); and
(C)
by an agreement of even date herewith between the Borrower and the Bank 
(the Guarantee Agreement), the Borrower is agreeing to guarantee the obligations of 
CIL in respect of the Loan and to undertake such obligations as are set forth in the 
Guarantee Agreement; and
WHEREAS the Association has agreed, on the basis, inter  alia, of the foregoing, 
to extend the Credit to the Borrower upon the terms and conditions set forth in this 
Agreement, the Loan Agreement and the Guarantee Agreement;
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NOW THEREFORE the parties hereto hereby agree as follows: 
ARTICLE I 
General Conditions; Definitions
Section 1.01. The “General Conditions Applicable to Development Credit 
Agreements” of the Association, dated January 1, 1985, with the modifications thereto 
set forth below (the General Conditions) constitute an integral part of this 
Agreement:
(a)
The last sentence of Section 3.02 is deleted.
(b)
The second sentence of Section 5.01 is modified to read: 
“Except as the Association and the Borrower shall otherwise agree, no 
withdrawals shall be made: (a) on account of expenditures in the 
territories of any country 
which is not a member of the Bank or for goods 
produced in, or services supplied from, such 
territories; or (b) for the purpose of 
any payment to persons or entities, or for any import 
of goods, if such payment 
or import, to the knowledge of the Association, is prohibited by a 
decision of 
the United Nations Security Council taken under Chapter VII of the Charter of 
the 
United Nations.”
(c)
Section 6.03 is modified to read:
“Section 6.03.  Cancellation by the Association.  If (a) the right of the 
Borrower to 
make withdrawals from the Credit Account shall have been suspended with 
respect to any 
amount of the Credit for a continuous period of thirty days, 
or (b) at any time, the 
Association determines, after consultation with the 
Borrower, that an amount of the Credit 
will not be required to finance the Project’s 
costs to be financed out of the proceeds of 
the Credit, or (c) at any time, the 
Association determines, with respect to any contract to 
be financed out of the 
proceeds of the Credit, that corrupt or fraudulent practices were 
engaged in by 
representatives of the Borrower or of a beneficiary of the Credit during the 
procurement or the execution of such contract, without the Borrower having taken 
timely and 
appropriate action satisfactory to the Association to remedy the 
situation, and establishes 
the amount of expenditures in respect of such 
contract which would otherwise have been 
eligible for financing out of the 
proceeds of the Credit, or (d) at any time, the 
Association 
determines that the procurement of any contract to be financed out of the 
proceeds of the Credit is inconsistent with the procedures set forth or referred to in 
the 
Development Credit Agreement and establishes the amount of expenditures in 
respect of such 
contract which would otherwise have been eligible for financing 
out of the proceeds of the 
Credit, or (e) after the Closing Date, an amount of 
the Credit shall remain unwithdrawn from 
the Credit Account, the Association may, 
by notice to the Borrower, terminate the right of 
the Borrower to make withdrawals 
with respect to such amount.  Upon the giving of such 
notice, such amount 
of the Credit shall be canceled.”
Section 1.02. Unless the context otherwise requires, the several terms defined 
in the General Conditions have the respective meanings therein set forth and the 
following additional terms have the following meanings:
(a)
“BCCL” refers to Bharat Coking Coal Ltd, a subsidiary of Coal India Ltd.;
(b)
“Coal India Ltd.” or “CIL” means Coal India Ltd., a limited liability 
company established under the Borrower’s Companies Act, 1956, as amended;
(c)
“ECL” refers to Eastern Coalfields Ltd., a subsidiary of Coal India Ltd.;
(d)
“Loan Agreement” means the agreement of even date herewith between CIL 
and the Bank for the Project, as  such agreement may be amended from time to time; and 
such term includes the “General Conditions Applicable to Loan and Guarantee Agreements 
for Single Currency Loans”  of the Bank, dated May 30, 1995, as applied to such 
agreement, and all schedules and agreements supplemental to the Loan Agreement;
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(e)
“Project Mine” means any mine listed in Schedule 7 to the Loan Agreement 
and “Project Mines” means all of such mines;
(f)
“Rs” means Rupees in the currency of the Borrower; and
(g)
“Subsidiaries” means, collectively, Central Coalfields Ltd., Mahanadi 
Coalfields Ltd., Northern Coalfields Ltd., South Eastern Coalfields Ltd., Western 
Coalfields Ltd., Bharat Coking Coal Ltd., Eastern Coalfields Ltd., Central Mining 
Planning and Design Institute, and any other corporation in which CIL now has or in 
the future may have majority ownership and "Subsidiary” means any one of the 
Subsidiaries.
ARTICLE II 
The Credit
Section 2.01. The Association agrees to lend to the Borrower, on the terms and 
conditions set forth or referred to in the Development Credit Agreement, an amount in 
various currencies equivalent to one million five hundred thousand Special Drawing 
Rights (SDR1,500,000).
Section 2.02. The amount of the Credit may be withdrawn from the Credit Account 
in accordance with the provisions of Schedule 1 to this Agreement for expenditures 
made (or, if the Association shall so agree, to be made) in respect of the reasonable 
cost of services required for Part C of the Project and to be financed out of the 
proceeds of the Credit.
Section 2.03. The Closing Date shall be June 30, 2003, or such later date as the 
Association shall establish. The Association shall promptly notify the Borrower of 
such later date.
Section 2.04. (a) The Borrower shall pay to the Association a commitment charge 
on the principal amount of the Credit not withdrawn from time to time at a rate to be 
set by the Association as of June 30 of each year, but not to exceed the rate of 
one-half of one percent (1/2 of 1%) per annum.
(b)
The commitment charge shall accrue: (i) from the date sixty days after 
the date of this Agreement (the accrual date) to the respective dates on which amounts 
shall be withdrawn by the Borrower from the Credit Account or canceled; and (ii) at 
the rate set as of the June 30 immediately preceding the accrual date or at such other 
rates as may be set from time to time thereafter pursuant to paragraph (a) above. The 
rate set as of June 30 in each year shall be applied from the next payment date in 
that year specified in Section 2.06 of this Agreement.
(c)
The commitment charge shall be paid: (i) at such places as the 
Association shall reasonably request; (ii) without restrictions of any kind imposed 
by, or in the territory of, the Borrower; and (iii) in the currency specified in this 
Agreement for the purposes of Section 4.02 of the General Conditions or in such other 
eligible currency or currencies as may from time to time be designated or selected 
pursuant to the provisions of that Section.
Section 2.05. The Borrower shall pay to the Association a service charge at the 
rate of three\1efourths of one percent (3/4 of 1%) per annum on the principal amount of 
the Credit withdrawn and outstanding from time to time.
Section 2.06. Commitment charges and service charges shall be payable 
semi-annually on February 15 and August 15 in each year.
Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall 
repay the principal amount of the Credit in semiannual installments payable on 
February 15 and August 15 commencing February 15, 2008 and ending August 15, 2032.  
Each installment to and including the installment payable on August 15, 2017 shall be 
one and one-fourth percent (1-1/4%) of such principal amount, and each installment 
thereafter shall be two and one-half percent (2-1/2%) of such principal amount.
(b)
Whenever: (i) the Borrower’s per capita gross national product (GNP), as 
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determined by the Association, shall have exceeded for three consecutive years  the 
level established annually by the Association for determining eligibility to access 
the Association’s resources; and (ii) the Bank shall consider the Borrower 
creditworthy for Bank lending, the Association may, subsequent to the review and 
approval thereof by the Executive Directors of the Association and after due 
consideration by them of the development of the Borrower’s economy, modify the 
repayment of installments under paragraph (a) above by:  (A)  requiring the Borrower 
to repay twice the amount of each such installment not yet due until the principal 
amount of the Credit shall have been repaid; and  (B)  requiring the Borrower to 
commence repayment of the principal amount of the Credit as of the first semiannual 
payment date referred to in paragraph (a) above falling six months or more after the 
date on which the Association notifies the Borrower that the events set out in this 
paragraph (b) have occurred, provided, however, that there shall be a grace period of 
a minimum of five years on such repayment of principal.
(c)
If so requested by the Borrower, the Association may revise the 
modification referred to in paragraph (b) above to include, in lieu of some or all of 
the increase in the amounts of such installments, the payment of interest at an annual 
rate agreed with the Association on the principal amount of the Credit withdrawn and 
outstanding from time to time, provided that, in the judgment of the Association, such 
revision shall not change the grant element obtained under the abovementioned 
repayment modification. 
(d)
If, at any time after a modification of terms pursuant to paragraph (b) 
above, the Association determines that the Borrower’s economic condition has 
deteriorated significantly, the Association may, if so requested by the Borrower, 
further modify the terms of repayment to conform to the schedule of installments as 
provided in paragraph (a) above.
Section 2.08. The currency of the United States of America is hereby specified 
for the purposes of Section 4.02 of the General Conditions.
ARTICLE III 
Execution of the Project
Section 3.01. (a) The Borrower declares its commitment to the objectives of the 
Project as set forth in Schedule 2 to this Agreement, and, to this end, shall carry 
out Part C of the Project with due diligence and efficiency and in conformity with 
appropriate administrative, financial and accounting practices, and shall provide, 
promptly as needed, the funds, facilities, services and other resources required for 
the Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and except as the Borrower and the Association shall otherwise agree, the Borrower 
shall carry out Part C of the Project in accordance with the Implementation Program 
set forth in Schedule 3 to this Agreement.
Section 3.02. Except as the Association shall otherwise agree, procurement of 
consultants’ services required for the Project and to be financed out of the proceeds 
of the Credit shall be governed by the provisions of Schedule 4 to this Agreement.
ARTICLE IV 
Financial Covenants 
Section 4.01. (a) The Borrower shall maintain or cause to be maintained records, 
accounts and financial statements adequate to reflect in accordance with sound 
accounting practices the operations, resources and expenditures in respect of Part C 
of the Project of the departments or agencies of the Borrower responsible for carrying 
out Part C of the Project or any part thereof.
(b)
The Borrower shall:
(i)
have the records and accounts referred to in paragraph (a) of this 
Section, in 
accordance with appropriate auditing principles consistently 
applied, by 
independent auditors acceptable to the Association;
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(ii)
furnish to the Association as soon as available, but in any case 
not later 
than six months after the end of each such year:\0b(A) 
certified copies of its 
financial statements for such year as so 
audited; and (B) the report of such 
audit by said auditors, of such 
scope and in such detail as the Association 
shall have reasonably 
requested; and
(iii)
furnish to the Association such other information concerning said 
records, 
accounts and financial statements as well as the 
audit thereof as the 
Association shall from time to time 
reasonably request.
(c) 
For all expenditures with respect to which withdrawals from the Credit 
Account were made on the basis of statements of expenditure, the Borrower shall:
(i)
maintain or cause to be maintained in accordance with sound 
accounting 
practices, records and accounts reflecting such 
expenditures;
(ii)
ensure that all records (contracts, orders, invoices, bills, 
receipts and 
other documents) evidencing such expenditures are 
retained until at least one 
year after the Association has received 
the audit report for the fiscal year 
in which the last withdrawal from 
the Credit Account was made; and
(iii)
enable the Association’s representatives to examine such records.
ARTICLE V 
Remedies of the Association
Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the 
following additional events are specified:
(a)
As a result of events which have occurred after the date of the 
Development Credit Agreement, an extraordinary situation shall have arisen which shall 
make it improbable that CIL will be able to perform its obligations under the Loan 
Agreement.
(b)
CIL shall have failed to perform any of its obligations under the Loan 
Agreement.
(c)
Any event specified in Section 6.01 of the Loan Agreement shall occur.
Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the 
following additional event is specified, namely, that the events specified in Section 
5.01 of this Agreement shall occur.
ARTICLE  VI 
Effective Date; Termination
Section 6.01. The following events are specified as additional conditions to 
effectiveness of the Development Credit Agreement within the meaning of Section 12.01 
(b) of the General Conditions:
(a)
the Borrower shall have invited an “expression of interest” under 
paragraph 2.5 of the Consultant Guidelines, as hereinafter defined, for carrying out a 
study under Part C of the Project; and
(b)
all the conditions precedent to the effectiveness of  the Loan Agreement 
have been fulfilled, other than those related to the effectiveness of this Agreement.
Section 6.02. The date ninety (90) days after the date of this Agreement is 
hereby specified for the purposes of Section 12.04 of the General Conditions.
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ARTICLE  VII 
Representatives of the Borrower; Addresses
Section 7.01. The Secretary, Additional Secretary, Joint Secretary, Director, 
Deputy Secretary, or Under Secretary of the Department of Economic Affairs in the 
Ministry of Finance of the Borrower is designated as representative of the Borrower 
for the purposes of Section 11.03 of the General Conditions.
Section 7.02. The following addresses are specified for the purposes of Section 
11.01 of the General Conditions:
For the Borrower:
The Secretary to the Government of India
Department of Economic Affairs
Ministry of Finance
New Delhi, PIN 110001
India
Cable address: 
Telex:
ECOFAIRS
953-3166175
New Delhi
For the Association:
International Development Association
1818 H Street, N.W.
Washington, D.C.  20433
United States of America
Cable address:
Telex:
INDEVAS
248423 (RCA),
Washington, D.C.
 82987 (FTCC),
 64145 (WUI) or
197688 (TRT)
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names in 
the District of Columbia, United States of America, as of the day and year first above 
written.
INDIA
By /s/ Sudhakar Rao 
Authorized Representative
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Robert Drysdale
Acting Regional Vice President
South Asia
SCHEDULE 1 
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Withdrawal of the Proceeds of the Credit
1.
The table below sets forth the Categories of items to be financed out of the 
proceeds of the Credit, the  allocation of the amounts of the Credit to each Category 
and the percentage of expenditures for items so to be  financed in each Category:
 Amount of the
Credit Allocated
     % of
 (Expressed in
Expenditures
Category
SDR Equivalent)
to be Financed
Consultants’
   1,500,000
100% 
services for Part C of
the Project
   _________
TOTAL
   1,500,000
   =========
2.
Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be 
made in respect of payments made for expenditures prior to the date of this Agreement.
3.
The Association may require withdrawals from the Credit Account to be made on 
the basis of statements of expenditure or expenditures for: (a) services under 
contracts costing less than $200,000 equivalent each for employment of consulting 
firms; and (b) services under contracts costing less than $50,000 equivalent each for 
employment of individual consultants, all under such terms and conditions as the 
Association shall specify by notice to the Borrower.
SCHEDULE 2 
Description of the Project 
The objectives of the Project are to support the Borrower’s market-oriented 
reforms in the coal sector and to provide financial and technical support for CIL’s 
efforts to make itself commercially viable and self-sustaining.
The Project consists of the following parts, subject to such modifications 
thereof as the Borrower, CIL, Bank, and/or Association, as the case may be,  may agree 
upon from time to time to achieve such objectives:
Part A:
Improving and Maintaining the Commercial Viability of Project Mines
Increasing and sustaining productivity in the Project Mines through investments 
in: (i) mining and telecommunications equipment; and (ii) mining surface 
infrastructures, such as coal handling plants and roads and water supply systems.
Part B:
Institutional Development
1.
The following parts of the Project will be carried out through the provision of 
technical assistance:
(a)
Commercializing CIL’s coal sales through the development and improvement 
of CIL’s coal supply contracts;
(b)
Enhancing CIL’s capability to prepare and analyze financial models as 
part of CIL’s ongoing commercialization and restructuring process and to implement the 
restructuring process;
(c)
Improving the design practices of the Central Mining Planning and Design 
Institute (“CMPDI”), a wholly-owned subsidiary of CIL, by reviewing such practices and 
developing a time-bound improvement program;
(d)
Improving the Subsidiaries’ equipment utilization ratios;
(e)
Developing and enhancing CIL’s procurement capabilities;
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(f)
Supervising the implementation of the Project in the Project Mines;
(g)
Improving the quality of coal produced by conducting 4 pilot projects 
under different mining conditions to: (i) test the selective mining method; 
(ii) determine the target sites for use of such method; and (iii) identify and provide 
the equipment required by such method; and  
(h)
Developing and improving the skills of CIL’s managers in commercial 
mining operations through the provision of training.
Part C:
Improving the Coal Industry’s Regulatory Framework
Improving the coal industry’s regulatory framework and bringing it in line with 
international best practices through a study on the rules and regulations governing 
such industry and implementing the recommendations of such study.
*** 
The Project is expected to be completed by December 31, 2002.
SCHEDULE 3 
Implementation Program
1.
The Borrower shall:
(a)
by January 1, 2000, deregulate prices and distribution of regulated 
low-grade steam coal;
(b)
(i)
not  later than October 31, 1999, complete the study to be carried 
out under Part C of the Project in a manner satisfactory to the Association; (ii) not 
later than January 31, 2000, furnish to the Association for comments a draft 
time-bound action plan regarding the implementation of such study’s recommendations 
which are feasible; and (iii) not later than March 15, 2001, begin implementation of 
such action plan, taking into account the Association’s comments, and in accordance 
with a timetable prepared in consultation with the Association; and
(c)
take all necessary actions to obtain the relevant authorities’ commitment 
to finance BCCL’s and ECL’s Voluntary Retirement Scheme through the provision of the 
following amounts to, inter alia, the National Renewal Fund by the following dates: 
(i) Rs. 0.8 billion by May 31, 1998; (ii) Rs. 1.6 billion by March 31, 1999; and 
(iii) Rs. 1.6 billion by March 31, 2000.
2.
The Borrower shall:
(a)
maintain policies and procedures adequate to enable it to monitor and 
evaluate on an ongoing basis, in accordance with indicators acceptable to the 
Association, the carrying out of Part C of the Project and the achievement of the 
objectives thereof;
(b)
prepare, under terms of reference satisfactory to the Association, and 
furnish to the Association, on or about January 31, 2000, a report integrating the 
results of the monitoring and evaluation activities performed pursuant to paragraph 
2(a) of this Schedule, on the progress achieved in the carrying out of Part C of the 
Project during the period preceding the date of said report and setting out the 
measures recommended to ensure the efficient carrying out of Part C of the Project and 
the achievement of the objectives thereof during the period following such date; and
(c)
review with the Association, by April 30, 2000, or such later date as the 
Association shall request, the report referred to in paragraph 2(b) of this Schedule, 
and, thereafter, take all measures required to ensure the efficient completion of Part 
C of the Project and the achievement of the objectives thereof, based on the 
conclusions and recommendations of the said report and the Association views on the 
matter.
SCHEDULE 4 
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Consultants’ Services
Part A:
General
Consultants’ services shall be procured in accordance with the provisions of the 
“Guidelines: Selection and Employment of Consultants by World Bank Borrowers” 
published by the Bank in January 1997 (the Consultant Guidelines) and the following 
provisions of this Schedule.
Part B:
Quality- and Cost-based Selection 
Consultants services shall be procured under contracts awarded in accordance 
with the provisions of Section II of the Consultant Guidelines, paragraph 3 of 
Appendix 1 thereto, Appendix 2 thereto, and the provisions of paragraphs 3.13 through 
3.18 thereof applicable to quality- and cost-based selection consultants. 
Part C:
Review by the Association of Procurement Decisions
Prior Reviews
With respect to all contracts, the procedures set forth in paragraphs 1, 2 
(other than the third subparagraph of paragraph 2(a) and 5 of Appendix 1 to the 
Consultant Guidelines) shall apply.