India’s e-bus adoption ambitions require a financially sound plan
4 min read . Updated: 11 Jan 2023, 11:06 PM IST
PremiumState transport corporations are in poor shape and so the Centre must open up financing pathways
In November 2021, at CoP-26 in Glasgow, India committed itself to a net-zero target by 2070 and set ambitious goals to achieve by 2030. Electrification of India’s public bus fleet is an important aspect of the agenda for clean energy to replace fossil fuels in the transport sector and help curb carbon emissions. In April 2022, India opened a window for ‘Grand Challenge’ bids. One of the world’s biggest tenders for electric buses, it sought 5,450 e-buses in five major cities, valued at ₹5,000 crore (at least) in capital cost and ₹24,000 crore in contracts over their 12-year period.
The discovered price of operating e-buses under this tender was a modest ₹47.49 per km for the most expensive 12m low-floor air-conditioned e-bus, almost 30% less than the price for operating a diesel bus and 25-40% less than the price found by tendering processes for smaller quantities. This discovery led the government to up its volume target to 50,000 e-buses for the country. By November 2022, in addition to the then live tender of about 6,500 e-buses, a second expression of interest (EoI) had been published for states to submit demand lists; an estimated 5,000-6,000 e-buses may be ordered under this.
What deserves a look is the question of financing the transition. Collaborations between government entities and private operators, or public-private partnership (PPPs), are an established model. State transport corporations (STC) form agreements with private players to operate buses in partnerships where the private operator procures buses, complete with batteries and battery charging systems, operates and maintain them, and the STCs provides land, infrastructure and other supports. Such a structure assures a fixed revenue-per-km of operation to the operator, as per the price discovered by bids, in exchange for predefined levels of service and quality. This model involves no upfront investment by the STC, and focuses on operational efficiencies. The biggest drawback of this model, however, is potential non-compliance with contractual obligations leading to a dispute and breakdown of investor and overall trust. It is a real risk.
The question of financing: Each e-bus costs about ₹1-1.5 crore, which means almost ₹9,000 crore in capital cost alone. For companies to deliver buses against this tender, they have to raise a minimum of 70% as debt.
Here is where the rubber hits the road. Of India’s 72 STCs, only six are financially stable; the rest have been loss-making for years. The average earnings of an STC is ₹35- 40-per-km, whereas the cost-per-km (of operating diesel buses) is upwards of ₹90. While a full transition to e-buses could, potentially, solve the economics, STCs will still bear losses unless they make a full electric transition. The financial health of STCs does not provide comfort for loans to be given against such contracts. Historical payment delays and failures have also not helped; many STCs have begun to earn a reputation like Indian power distribution companies on this score.
With debt difficult to raise against STC contracts, it is harder for the transition to realize its full economic value. The first set of contracts has been financed with balance sheet entries, but for this market to grow and deepen, project financing is key. This requires loan structures that rely on the project’s own cash flow for repayment, with the project’s assets, rights and interests held as secondary collateral. This is where the government needs to step in. It must provide payment security, just as it has done for the renewable energy sector in a transformational way. It could start with a payment security fund, until a longer-term institutional solution is put in place.
A SECI for Transport?: The public transport system in India needs a dedicated institution (with teeth) to de-risk the market and raise capital. This entity, say a ‘BusCo’, needs to be capable of handling contract processes and also providing the necessary bankability to contracts. The setting up of the Solar Energy Corporation of India (SECI) in 2011 was in many ways a game-changer for the renewable energy sector. The role played by it as an intermediary body between private power developers and state-owned power distributors (discoms) has relevant lessons today for the contracting of e-buses, especially in its ability to reduce the risk of delayed payments. The most critical learning from the SECI experience is the effectiveness of a payment security mechanism. SECI fulfils all responsibilities linked to the selection of bidders and provides a monitoring mechanism for obligations and payments. The industry has found contracts under such a system bankable.
In this case, a ‘BusCo’ could play a similar role as the beneficiary of a state government guarantee on STC payments, secured by a tripartite agreement signed between the Centre, state governments and Reserve Bank of India. Over time, it could become the one-stop-shop responsible for the deployment of electric mobility in India.
Our e-bus programme has emerged as a potentially disruptive exercise at scale, addressing concerns of air pollution, climate change and, most importantly, escalating fuel bills. It now needs to be put on a steady path and incubated strategically. Left as nobody’s baby will only be a lost opportunity for the country.
These are the authors’ personal views.
O.P. Agarwal & Mahua Acharya are, respectively, senior advisor, World Resources Institute India and managing director, Convergence Energy Services Ltd
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