Govt to unveil Rs 4,126 crore 'payment security fund' for e-buses

Move to ensure companies get secure, timely payments

In a significant step towards promoting eco-friendly and sustainable public transportation, the Centre is poised to unveil a Rs 4,126 crore ‘payment security fund’ to streamline the procurement of 38,000 electric buses (e-buses) across the country.

The planned move is to ensure that manufacturers receive secure and timely payments for the e-buses they supply to State Transport Undertakings (STUs) and other government agencies. This follows the underwhelming response from participants in recent e-bus tenders. The hesitation among bidders largely stems from concerns about the low bankability of e-bus leasing contracts and the existing financial challenges faced by STUs.

“A Rs 4,126 crore payment security fund is currently in development. Our plan is to introduce this fund in the coming months,” Hanif Qureshi, joint secretary, Ministry of Heavy Industries (MHI), told Business Standard.

The primary purpose of this fund is to aid the government in achieving its ambitious target of deploying 50,000 e-buses by 2027 under the $10 billion (Rs 82,796 crore) National Electric Bus Programme (NEBP). “Given that we have already sanctioned approximately 12,000 buses, this fund will play a crucial role in supporting the remaining target,” Qureshi added.

Significantly, the United States government is collaborating with India on this initiative by contributing $150 million (Rs 1,241 crore) towards the fund, with the Indian government committing the remaining funds.

The absence of a payment security mechanism not only deterred smaller original equipment manufacturers (OEMs) with limited financial resources but also Tata Motors, the country’s largest bus manufacturer, from participating in the last two tenders held by state-run Convergence Energy Services Limited (CESL) for 6,465 and 4,675 e-buses.

During an interview in January, Girish Wagh, executive director of Tata Motors, had emphasised the need for a payment security mechanism to increase the model’s bankability. He had stated that Tata Motors would only consider participation if such a mechanism was in place.

CESL is already considering cancelling a dry lease tender for 4,675 e-buses, announced on January 4, due to a tepid response from OEMs.

OEMs’ apprehensions are not without reason. According to a Ministry of Road Transport and Highways report in FY19, only eight of the 56 State Road Transport Units (SRTUs) had made a net profit. Delhi Transport Corporation (DTC) alone had a loss of Rs 5,200 crore.

Furthermore, the current aggregated tender under CESL has limited flexibility, preventing SRTUs from selecting preferred working partners and making them vulnerable to financial risks, said Preetesh Singh, senior manager, Automotive Industry Consulting Group, NRI Consulting and Solutions.

Financial institutions have been cautious about supporting e-buses, given that the cost of each e-bus exceeds Rs 1.2 crore -- approximately five times that of a diesel bus.

“This move will encourage greater participation in upcoming tendering processes and foster improved penetration of e-buses in the country,” Singh said.

Currently, STUs are required to maintain an escrow account holding funds equivalent to an estimated two months’ fees. In its January tender, CESL had indicated that it submitted a proposal to MoRTH for the creation of a payment security mechanism.

The proposed fund, termed ‘payment reserve for advancing public transport’ (PRAPT), was under deliberation by MoRTH and other government agencies, CESL had said.

While the new fund is being finalised in consultation with MoRTH, its administration will fall under the purview of the MHI, which also serves as the nodal ministry for the promotion of electric mobility in the country.

GREEN track

Rs 4,126 crore fund to help deployment of 38,000 buses
Rs 1,241 crore to be provided by the US government
Rs 2,885 crore to be invested by the Indian government