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* India to disburse $263 mln credit lines for 3 projects
* Congo must source 75 pct of goods, services from India
* Debt relief frees up $262 mln of 2010 budget -minister
By Katrina Manson
KINSHASA, Aug 5 (Reuters) - India has signed a deal with Democratic Republic of Congo to extend a $42 million credit line for building a hydroelectric plant, Congolese and Indian officials said on Thursday.
The deal falls under a $263 million loan commitment from India that it agreed with Congo late last year.
Congo, which won $8 billion of debt relief granted by the World Bank and International Monetary Fund (IMF) last month, is looking to Asia to help rebuild its infrastructure after years of corrupt dictatorship and a devastating 1998-2003 war.
The deal marks the third loan from India, following $25 million for 3,000 water pumps and $33.5 million for 346 Indian-made buses and a cement plant last year.
"These are good terms at very small rates of interest," Nadeem Panjetan, general manager of Export-Import Bank of India, told Reuters on Thursday, in reference to the deal which requires Congo to source 75 percent of goods and services from India and tender an Indian firm to do the work.
Congo will only start repaying after five years, and then will pay 1.75 percent interest over 20 years, he said, adding the bulk of labourers are likely to be Congolese.
The Kakobola hydroelectric plant, in the country's western Bandundu province, will cater for more than 1.9 million people, energy minister Gilbert Tshiongo said on Thursday.
President Joseph Kabila has warned that Congo must not over-reach itself with onerous new loans.
China has agreed a $6 billion minerals-for-infrastructure deal with Congo, revised down from $9 billion on IMF concerns.
India's ambassador said two other projects, a $168 million hydroelectric plant in central Congo as well as the renovation of Kinshasa's decrepit urban railway, are also in the pipeline.
"India has gone through many phases of development so we think our experience will be useful to the country," Ambassador Devendra Srivastava told Reuters.
An estimated 7,000 Indians live in Congo, a legacy of Belgian rule when they established ivory trading networks.
Congo's budget minister Jean Baptise Ntahwa told reporters on Thursday that $262 million intended for debt service payments had been freed up this year following debt relief.
He said Congo's currency was strengthening and inflation falling, but it faced a difficult road ahead.
The vast central African state struggles to run its country of 67 million on its 2010 budget of $5.69 billion.
"We produce almost nothing...we have nothing to export," said Ntahwa. His ministry will present its 2011 budget next week, he added.
Editing by Tim Cocks/Ruth Pitchford