After four decades of differences, the state governments of Jammu and Kashmir and Punjab have signed an agreement on the construction of Shahpur-Kandi hydroelectric power project on Ravi river, an official said on Sunday.

After its completion at an estimated cost of Rs 2,285 crore, the project would provide 20 per cent of its electricity generation to Jammu and Kashmir.

In addition, the project would provide irrigation for thousands of hectares of land in Kathua and Samba districts to helpbring barren lands under cultivation.

"We will get 1,150 cusecs of water for irrigation of lands in Kathua and Samba districts," a senior state government official told, who confirmed that the agreement on the project was signed on Saturday.

The deal on the project was brokered between the two states by Union Water Resource Ministry after intervention by the Prime Minister's Office, sources said.

Same sources said the intervention had become necessary as the construction of the project had remained in cold storage for four decades, following which people in both the states were suffering.

The Jammu and Kashmir government had been insisting on a compensation of Rs 8,000 crore as estimated losses it had suffered due to construction of Ranjat Sagar Dam by the Punjab government. The dam had submerged huge areas of land and displaced habitations in Basohli tehsil of Kathua district.

Punjab had refused to pay the demanded compensation to Jammu and Kashmir, resulting in the Shahpur-Kandi power project being shelved for 40 years.