Coal India's board has agreed for the state-run company to sign new guaranteed fuel pacts with power producers and it will pay a penalty of an average of 0.01 percent of shortfalls in supplies, the company's chairwoman said on Monday.
The company will sign the agreements by April 20, media reports said.
The government, Coal India's largest shareholder with a 90 percent stake, has forced it to sign fuel supply agreements with power producers, guaranteeing to supply 80 percent of contracted quantity.
"For the penalty clause, we have decided to keep it at a minimum and it should be operationalised after three years," Chairwoman Zohra Chatterji told reporters after a company board meeting.
Following intense lobbying by the power sector, the government directed Coal India to guarantee long-term supplies to the power sector, even if it has to resort to imports.
Activist UK investor The Children's Investment Fund Management (TCI), which owns 1 percent of the company, has threatened legal action against the firm's directors for not protecting the interests of minority shareholders.
Coal fuels more than half the power generated in India, which does not produce enough power to meet the demands of a fast-growing economy and increasingly affluent population of 1.2 billion people.
The country has about 10 percent of the world's coal reserves but is still forced to import coal to meet demand.
Coal India's production has virtually stagnated over the past three years as the company battles regulatory and infrastructure hurdles.
(Reporting by Aradhana Aravindan in Mumbai and Harichandan Arakali in Bangalore; Editing by Tony Munroe)