News
Electric bus tenders get a lift from ₹4,100 cr payment fund
Summary
The payment security mechanism is modelled along the lines of the one set up under SECI, or the Solar Energy Corporation of India.
NEW DELHI : The government is ready to offer a payment security mechanism to vehicle manufacturers who bid for its tenders for electric buses, after the failure of the previous bidding round, according to several people in the government and industry.
Under the mechanism, manufacturers who participate in an ‘own and operate’ bid will be assured of payments by the state transport units for their service. If transporters fail to make timely payments, bus makers will be able to receive funds from a corpus set up by the government.
The mechanism, the outcome of a joint initiative by the US and Indian governments, was necessitated because many state transport units are in poor financial health.
Under the mechanism, a ₹4,100 crore fund will be set up by the Centre, of which ₹1,200 crore will be provided by the US, according to a senior government official.
Under the gross cost contract (GCC) model, manufacturers own and operate the buses for a fixed per-kilometre payout. The next government tender, for 10,000 electric buses, will be floated under the PM e-bus sewa programme.
The payment security mechanism is modelled along the lines of the one set up under SECI, or the Solar Energy Corporation of India.
As with the solar power scheme, the e-bus services will come with guarantees from state governments that will enable the Reserve Bank of India to make direct payments to operators in case of delays or if state transporters default on payments.
The SECI was set up in 2011 to aid state electricity boards with weak balance sheets to buy solar power and make timely payments, thereby enabling the government’s mission to increase solar power in India’s energy mix.
A framework involving an intermediate fund of $493 million or ₹4,100 crore —the operating expenses for 10,000 electric buses for three months—was drawn up in the joint India-US declaration earlier in September, when President Joe Biden visited India.This will now be set up to act as a buffer to for manufacturers to maintain their cash flows in case of payment delays, and will be a fall-back option if undertakings given by state transport units to state governments fail. The framework will also involve financiers and leasing service providers in order to mitigate the payment risk for manufacturers who have to run the expensive e-buses on their own balance sheets, inflating their liabilities.
“The scheme will be finalized within the next two months," people in the government privy to the developments told Mint. The corpus will be refilled as and when manufacturers start to draw cash from it, they added.“What we understand is that the government of India and CESL (state-owned Convergence Energy Services Ltd), are working out a proposal on payment security mechanism as part of the PM e-bus sewa scheme, which will be the next tender from CESL. This is a welcome move and will help the bankability of contracts going forward," said Mahesh Babu, global CEO, Switch Mobility, which has nearly 2,500 e-bus orders, including from CESL tenders.
“No-one is funding our buses, the buses we have supplied in the GCC model lie on our balance sheet and we cannot go on inflating it. Therefore, to make this model bankable we will need funds and the buses will need to move out of our balance sheet," said Girish Wagh, executive director, Tata Motors.
“The niggling issue is what needs to be thought through again from a commercial viability issue and from a security of payments issue. But we do feel the government is very serious about this as the last tender didn’t see a lot of participation because of these issues," said Shenu Agarwal, managing director & CEO, Ashok Leyland, under which Switch Mobility operates.
