In April, a government-owned company, Convergence Energy Services Ltd (CESL), completed the world’s biggest auction for 5,450 electric buses, which has become a case study for demand aggregation to bring prices down. City transport organisations found that they had to pay between Rs 39 and Rs 45 a km for e-buses; in contrast, it cost them about Rs 90 a km to run a diesel bus. Those who won the bids (Tata Motors, Eicher, Olectra) would run the buses on routes given by the transport organisations and be paid on a per-km basis, for 12 years.
Following the success of the tender, the Centre has asked CESL to get more e-buses on the road. The interim target is 50,000 e-buses, but Transport Minister, Nitin Gadkari, has set his sights on 3 lakh buses.
BusinessLine caught up with Mahua Acharya, the CEO of CESL, to chat on the way ahead. Excerpts from the interview:
What are the challenges and prospects you foresee in achieving the target of 50,000 e-buses?
Demand is no problem. There is more demand than we can tender for. But cities are not always ready to receive the buses. Not all of them have electrical infrastructure in the depots, which are designed for diesel buses. So, when you ask them, do you have a power connection, they say, ‘yes, of course’. Then I ask, ‘but, you will need a lot of power; can you power 50 buses,’ there is silence.
They have to buy transformers, sometimes. They need connections from the DISCOMs. Chances are that the STUs never planned for this change and now have to seek a new budget to purchase equipment. These approvals take time and involve lots of technical questions. So, while they are all excited about electric buses, when you go one level down, you see that charging infrastructure at depots is the Achilles’ Heel.
There is another hurdle. Many STUs don’t have the capacity to even answer our questions. In fact, most don’t have the capacity to do assessments. Don’t get me wrong – they are all willing and enthusiastic about shifting to electric buses, but these are the things that get in the way.
We had to draft a standard operating procedure for ‘what do we mean by electric infrastructure for your depot’. By popular demand, we put it on our website, but if we had more staff, money and time, we would be doing capacity-building programmes – because that’s needed. Much work to be done here.
How did you handle the problem of charging infrastructure at depots in the first tender?
We had the benefit of time with the tender. We had the benefit of several months while negotiating the terms of contract. We did assessments of the depot infrastructure and electrical stuff, and worked with the states to solicit funding where needed. STUs got the budgets they needed. You heard the Delhi Transport Minister say how long it takes to get this work done. To get your infrastructure up and ready — civil works, lines, cables — takes 18 months!
In the first tender you had the lead time?
We had the lead time and also wove it into the contracts. We said, ‘unless your depot is ready, your bus contract doesn’t start ticking.’ STUs are obliged to get the charging ready.
Charging infrastructure at depots seems to be an intractable problem...
We have to crack it somehow. We have requested ministries for assistance. The Ministry of Power is acutely aware and providing support.
Is there a solution that you can suggest?
I think that would be a higher budget for the right thing. Power is a state subject, but schemes such as the Revamped Distribution Sector Scheme (RDSS) of the Power Ministry can be used to help. States may reallocate unused funds.
But basically, STUs need to plan for this and seek early decisions from their Cabinets. The Government has to be at the wheel on this one.
So, it boils down to allocating more money to RDSS?
Allocation, speed and clarity. We have alerted every city that they must get the depots ready.
What are the other challenges?
The other challenge is the model. Last time, the model was the bus OEMs would run the buses for the transport companies and would be paid per km of running, for 12 years. But there is another model out there. State Transport Undertakings also outsource routes to concessionaires called ‘operators’. The operators then buy the buses and collect money from passengers. Now, these operators are willing to move to electric, but they don’t have the balance sheet. The average operator in India owns fewer than 10 buses. With that kind of balance sheet, they won’t be able to buy electric buses. Who is going to finance them? That’s a model we need to figure out.
But I also know it is possible because the operators have all the data that is needed for financiers. They know how much passengers are paying, the load per bus, the routes that are popular (and therefore lucrative) and those that are less income generating. They only have to shift from diesel to electric, but they may operate on the same routes with the same passenger behaviour.
Can CESL not buy the buses and give them to the operators?
That will make us extremely asset-heavy. That is not the way to do it.
What is the alternative then?
We need to think this through. My aim is to build a market. To use market forces to create value.
We are thinking about asking financiers to buy the buses and lease them to the operators. We have spoken to one or two financiers; we will speak with more in the coming days.
Is it a good business opportunity for NBFCs?
It is a very good opportunity, but they are not coming up – certainly not at the scale we need. We reached out to them for three-wheelers, they had lots of reservations.
We need to work this out. One idea is to empanel financiers, draw up a list of operators and ask which of them could be financeable. The market will tell which operators are creditworthy and which are not. It seems to me that this model will work.
So, you have two challenges and a possible solution to each.
Yes. But there is a third problem for which I don’t have a solution yet— driver redundancy. What about the drivers who used to drive the diesel buses? Private operators are reluctant to use them – this makes their projects unbankable and uninsurable. But drivers themselves may not be as willing to leave their government jobs.
We are working on a model and will have to appeal to both the private and public parties alike to help us all get closer to each other’s needs and find a happy middle ground.
Okay. Into this scheme of things, how do you bring in carbon credits?
We will get carbon credits. Each electric bus displaces 20 tonnes of carbon dioxide a year, if it replaces a BS I, II or III diesel bus. If the electricity for charging comes from renewable sources, the number becomes 50 tonnes. We will have to put a total number — say, 5 lakh buses — and then each bus until we reach that number will keep getting carbon credits.
But who would own the carbon credits?
That is yet to be sorted out. In the tender that has got over, we said that CESL would be the agency that would prepare the carbon assets and monetise. I don’t know what kind of arrangement we will have between the transport company and the OEM; that is yet to be discussed. Each may claim deserved ownership of the credits. Both have a point.
I’d argue that neither would have a point because carbon credit is not factored into the tender documents.
That is true – and with that generous view, we could develop carbon finance instruments that mitigate for risk – such as a payment security fund.
In the upcoming tenders?
The upcoming tenders will be built without the carbon credits – in the sense it may not affect the price bid, but the tender will specify how the carbon money will be divvied up between parties.
What has your experience been with electric 3-wheelers auctions?
It is very hard to finance electric 3W. E-3W are very expensive, Rs 3.5 lakhs. Banks don’t want to lend. They don’t want to lend to the segment, it is really tough. They are still complaining that the technology is new. Then, they are concerned about defaults. Also, it is a matter of livelihood, so they can’t go after the defaulters.
How did you tackle the issue in the tender for 70,000 three-wheelers?
We found a great NBFC whose job is to finance electric three-wheelers. We told them we would give them a good price (20 per cent cheaper than the market) and we would provide them the demand we have aggregated. You have the capital, you know lending. We have an MoU with this company called Three Wheels United, under which they will buy the electric three-wheelers and lease them out to customers. They say there are no defaults.
How did you do demand aggregation in this case?
Amitabh Kant (the then CEO of Niti Aayog, the government’s think-tank) had given us a target for demand aggregation for three lakh vehicles. How to get these vehicles on the road was left to us – i.e. we had the flexibility.
So, we floated an expression of interest. We got two sets of demand. One, from municipalities who wanted garbage depositors. The other was from transport companies who work for e-commerce companies. They are new companies, so balance sheets are still weak. They said to us, you buy the vehicles and give them to us on lease.
That’s how we have worked out a solution. But this sector needs catalytic finance. I hope someone steps up and takes this risk – public and/ or private sector alike.