Financing hurdles affect electric bus deployment for public transport in India: WRI
The working paper flagged many hurdles hindering the flow of high private capital necessary to make the transition
Existing financial models centred around loans from commercial banks with short repayment tenures, additional risk premiums and the lack of government guarantees are major constraints in the electric bus deployment for public transport in India, a study by World Resources Institute (WRI) India has noted.
The study ‘Assessing Financing Challenges for Implementing the Large-scale Electric Bus Program in India’ released on Thursday at their annual flagship event Connect Karo’ as India plans to introduce more than 50,000 electric buses for public transport through initiatives such as the National Electric Bus Program and the PM-eBus Sewa scheme in the next few years.
The working paper flagged many hurdles hindering the flow of high private capital necessary to make the transition. Loans are usually secured against corporate guarantees and assets beyond the project, limiting an operator’s ability to scale up their operations in the face of higher demand, the authors found. Further delayed payments from public transport authorities create financial stress on the operators. These high financing costs are reflected in the higher bid rates quoted by the operators.
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“With an aim to attain net zero emissions by 2070, the Government of India has rightly acknowledged the critical role of bus electrification in this transition journey. This necessitates a closer look at the financing hurdles in the ecosystem and explore innovative ways that suit the Indian market conditions,” Pawan Mulukutla, WRI India executive program director for integrated transport, clean air, and Hydrogen and one of the co-authors of the report said,
The authors noted the estimated cost of deploying 60,000 e-buses, including the supporting charging infrastructure, is ₹643 billion. However in large-scale procurement efforts, the participation rate in recent tenders has been low, slowing the procurement pace. This is despite the lower operating costs when compared to diesel buses. These e-buses are to be procured under a gross-cost contract model, where public transport authorities or city transport companies compensate private operators on a per-kilometre basis and private operators procure and operate the buses, marking a shift from the conventional operating models in which government agencies procured and operated most buses.
To unlock private sector capital in this sector, the authors noted that there is a need to take proactive initiatives as taken for hard infrastructural projects. “In the infrastructure sector, because the public agency bears the project revenue risks, including it as a party to lending agreements gives lenders the reassurance to invest. The public sector must safeguard payments or project revenues in e-bus projects to lower the lenders’ requirement of debt collaterals…,” the paper authored by Manish Dutta Pandey, Aswathy KP, and Pawan Mulukutla said.
“Including the sector in the infrastructure sub-sector list and providing priority sector lending would ease the availability of finance,” the paper added, citing high private capital inflows in the highways and solar power sectors.
The working paper also highlighted the need for a long-term payment security mechanism to reduce the financial risk of private operators. The paper also mentioned that due to the high upfront working capital requirements for e-buses deployment and operation, traditional operators are left out of the process. “However, it will be difficult for the sector to scale without the inclusion of such operators, who are experienced in handling local human resources and are also familiar with the operating conditions,” the paper said.
They said to ensure their inclusion Indian authorities should emulate the model followed by Bogota in Colombia where e-buses were directly procured from a financial leasing company for 15 years and operators were hired for a shorter tenure of five years.
Apart from the policy modifications specific to the e-bus sector, the paper advocated for stringent reforms to improve public transport authorities’ internal efficiencies and financial position required to achieve long-term sustainability in the public transport sector.