India Ratings and Research (Ind-Ra) anticipates that the establishment of a Payment Security Mechanism (PSM), as announced in the 2024 interim budget, will enhance competition in electric bus (e-bus) concessions in India. This move is expected to result in a decline in the per-kilometer fee, a crucial bid parameter, fostering a more competitive environment. The PSM is deemed essential for improving the risk profile of project developers, making projects more bankable for state transport undertakings (STUs), especially considering their aggregate financial challenges.
Divya Charen C, Associate Director, Infrastructure, at Ind-Ra, notes, “The risk profile of e-bus concession contracts is set to improve significantly on implementation of the proposed PSMs that would help address counterparty risk and improve bankability of projects.”
The PSM is seen as a strategic initiative to attract new developers and investors into the e-bus concessions sector. Ind-Ra suggests that the forthcoming bids by the government for e-bus concessions will likely feature various PSMs, such as a payment security fund, direct debit mechanism from state government accounts, and state guarantees for payments.
The National Electric Bus Program (NEBP) and PM-eBus Sewa schemes, with deployment targets of 50,000 and 10,000 e-buses by 2030, respectively, have been pivotal in encouraging the adoption of electric buses. The competitive pricing witnessed in NEBP 1 bids in January 2023 further supports the trend of STUs favoring e-buses over diesel buses.
As of January 2024, there is a robust order book of over 20,000 e-buses, scheduled for delivery within the next 24 months. The government’s allocation of INR 26.71 billion for the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme in FY25 underscores its commitment to promoting electric mobility. The bidding parameter in the gross cost contract model for e-buses, namely the per-kilometer fee, is expected to be influenced by factors such as economies of scale, counterparty profiles, and assured lifecycle travel distances.
Ind-Ra emphasizes the need for standardization of contract provisions and seamless integration of e-buses into the operations of STUs as the adoption of electric buses continues to grow. The STUs have played a crucial role in driving e-bus adoption, facilitated by the gross cost contract model and supported by FAME subsidies.
The agency envisions that the government’s performance-linked incentives, focusing on advanced automotive technology, energy storage technologies, and indigenous manufacturing, will contribute to building a comprehensive ecosystem supporting both STUs and private bus operators in the electric mobility sector.
