Order book for e-buses grows to over 20,000 even as industry awaits payment security mechanism

With the prospect of introducing a payment security mechanism getting brighter for electric buses, the order book for battery-powered buses is expected to swell further, supported by the participation of more players to bid for e-bus tenders in the coming months.

As of January 2024, there was a strong order book of more than 20,000 e-buses, which are to be delivered in the next 24 months. More than 6,500 e-buses are plying on Indian roads with 2,739 e-buses registered in the current financial year till January 24, 2024, says India Ratings and Research.

The State transport undertakings (STUs) have so far led the e-bus adoption, primarily driven by its deployment under the gross cost contract (GCC), which helps overcome the upfront cost disadvantage and demand creation through FAME subsidies. In this GCC model, STUs are end customers, which are procuring the service rather than incurring capex.

However, there was a poor response from OEMs for the third e-bus tender after some enthusiastic participation in the first two tenders. The reason was OEMs had doubts over the payment ability of the STUs, as a majority of them are under financial stress.

• Also read: Electric bus penetration may reach double-digit by the end of FY24

Demand for PSM

Hence there has been a demand for the establishment of a payment security mechanism (PSM), which is described as a funded capital reserve that will give interest-free working capital in the case of a default event.

So PSM is seen as crucial for improving the risk profile of project developers to meet the upgradation and expansion needs of STUs at competitive prices, given the STUs are loss-making on an aggregate level.

“Implementation of a PSM that would help address counterparty risk and improve the bankability of projects that would provide the much-needed balance sheet flexibility to the OEMs/operators and a further improvement in price contracted under GCC. New developers and investors are likely to be interested in e-bus concessions, thus also improving opportunities for equity release for developers,” says Divya Charen C, Associate Director - Infrastructure, India Ratings.

The upcoming bids of the government for e-bus concessions to benefit from all or a combination of PSMs such as payment security fund, direct debt mechanism from State government’s account, and State guarantee for payments, subject to the consent of States.

NEBP scheme

The Centre has announced the National Electric Bus Programme (NEBP) in 2022 and PM-eBus Sewa schemes in 2023 with a target of deploying 50,000 and 10,000 e-buses, respectively, by 2030. Furthermore, the competitive price discovered in NEBP 1 bids for 6,465 buses in January 2023 in the absence of any subsidy augurs the era of STUs preferring e-buses over diesel buses.

Tata Motors’ Executive Director Girish Wagh recently indicated that the company was working with the government and made good progress on the PSM. “This PSM is more or less agreed upon. I think there are a few things that are remaining which need to be sorted out which will ensure that our balance sheet remains lighter and which will help us to get into this business very, very aggressively, he added.

The company operates over 2,000 e-buses, of which it bagged orders for 1,000 buses as part of the CESL (Convergence Energy Services Ltd (CESL) tender 1.

Dheeraj Hinduja, Executive Chairman of Ashok Leyland, also said in a recent interaction that though the company was awaiting more details on PSM, there were improvements on rates recently.

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