Assessing Financing Challenges for Implementing the Large-scale Electric Bus Program in India

This working paper aims to capture, through focused consultations with stakeholders and a secondary literature review, the challenges in raising finances for public e-bus projects. We conducted discussions with multiple stakeholders (roundtable and one-on-one interactions) involved in the e-bus procurement process.

Broadly, stakeholders are classified into primary, secondary, and tertiary stakeholders: * Primary stakeholders include e-bus original equipment manufacturers (OEMs) and their subsidiaries, traditional bus operators, and new e-bus operators. They are responsible for raising investment for projects. * Secondary stakeholders include financiers, non-banking financial companies (NBFCs), and other commercial banks supporting bus financing. They are the enablers, providing the capital necessary to procure and deploy e-buses. * Tertiary stakeholders are officials from PTAs that currently operate e-buses or plan to augment their e-bus fleets. Their role in arranging the initial finance is limited, but they are responsible for paying the per-kilometer monthly fee throughout the contract.

These interactions aimed to provide insights into two key questions: * What are the current constraints in financing e-bus projects for private operators under the existing model? * What measures need to be taken to facilitate more favorable financing terms?

The obtained responses helped identify sectoral challenges related to manufacturing capacity scale-up, contract management, bankability, access to financing, financing rates, and loan tenure.

We conducted an extensive literature review to understand how the highway and solar power generation sectors in India evolved and the policy incentives that mobilized private investment in PPP projects. We assessed in depth the hybrid annuity model in the highway sector and the Solar Energy Corporation of India model in the solar power sector because of their relevance to e-bus projects. E-bus projects can leverage learnings from models addressing funding gaps in highway construction (ADB 2022) and mitigating payment risks from loss-making distribution companies (Sharma 2019). These findings will help policymakers assess the challenges involved in attracting large-scale private investment in a sector with financially weak public agencies and facilitate private financing for PTAs to enable them to transition to electric fleets.

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