The revised fuel supply contracts will reduce pressure on the miner, which has struggled to increase domestic supplies for years because of failure to get swift environmental and regulatory approval and inadequate railway infrastructure.
Its board, however, deferred a decision on penalties the company will pay in case it does not meet the supply guarantees, company officials said on Tuesday.
Global brokerage major JP Morgan said the deferral highlights the continued difficulty in fixing the penalty amount.
"We remain underweight on Coal India and in our view regulatory overhang is likely to persist," the brokerage said in its note.
Shares in the company traded 3.3 per cent lower at Rs 347.50 on the NSE against a 0.1 per cent drop on the Nifty index.
There has been a lot of back and forth on the issue of penalty between the company and the government. Power utilities had asked for penalties equal to 10 to 20 per cent of a shortfall in supply, while Coal India had earlier agreed to only 0.01 per cent. Earlier this year, the government, which owns 90 percent of the company, ordered it to sign contracts guaranteeing 80 percent of coal supplies to new projects, which would pave the way for power generators to obtain funding for their planned projects.
India aims to add 88,000 megawatts of power generation capacity in the next five years, most to be fuelled by coal. Coal India will now be able to sign agreements to supply utilities developing 48 power projects, officials said. Coal India is the world's largest coal miner and produces nearly 80 per cent of the country's domestic coal supply of about 550 million tonnes.
India relies on coal for two-thirds of its power generation and will need even more for the additional capacity planned to tackle a peak-hour power deficit of as much as 13 percent.
Coal India posted its first drop in quarterly profit in two years due to its reversal of a price increase following protests from power companies and to a sharp jump in its annual wage bill.
(With inputs from Thomson Reuters)