India's External Affairs Minister Salman Khurshid arrived in Sri Lanka Monday for bilateral talks that will cover attacks on and arrests of Indian fishermen.
Khurshid is also expected to discuss Sri Lanka's Tamil majority north where a Tamil party has won provincial elections, Xinhua reported.
India and Sri Lanka will sign agreements for a 500 MW thermal power project to be jointly developed by India's state-owned NTPC and the state-run Ceylon Electricity Board (CEB).
The plant, the second using coal to be set up in post-war Sri Lanka, is estimated to cost $600 million.
The project would be developed by Trincomalee Power Co - an equal joint venture between NTPC and CEB.
The India-Sri Lanka agreement would cover the areas of power purchase, land lease and coal supply.
Khurshid will meet President Mahinda Rajapaksa and External Minister GL Peiris to discuss the devolution of power to the northern province, a former war zone where Tamils are in an overwhelming majority.
The Tamil National Alliance, the country's main Tamil party and which once backed the now vanquished Tamil Tigers, secured a landslide win in provincial elections held on September 21 in the northern province.
Khurshid is expected to get a tough message from Sri Lanka's fishing industry over thousands of Indian fishermen poaching in Sri Lankan waters.
Deputy Fisheries Minister Sarath Kumara Gunaratne told a newspaper that Sri Lanka would take up the issue with the European Union if talks with Khurshid fail to resolve the row involving fishermen.
"There is substantial evidence to show that poaching by Tamil Nadu fishermen is severely affecting the marine life of Sri Lankan territorial waters," he was quoted as saying in The Sunday Times.
Fishermen from the southern Indian state of Tamil Nadu allege that the Sri Lanka Navy frequently attack them in the sea, seize their catch and often destroy their vessels.
There have also been clashes between the Sri Lankan and Indian fishermen.