Decarbonization of the transport sector is essential to reduce the Greenhouse Gas (GHG) emissions and to meet the ambitious target of achieving net-zero emissions by 2070 set by Government of India, Union Minister for Environment, Forest and Climate Change, Shri Bhupender Yadav has said today. The Minister was speaking at a side event on India- US “Payment Security Mechanism (PSM)” for e buses in India

To achieve the goal of net zero emissions, the adoption of electric vehicles (EVs) plays a crucial role and given that buses serve the mass public, prioritizing electric buses is essential as a significant mode for decarbonizing the transport sector, the Minister went on to add.

Shri Yadav stated that this transitioning to e-buses, however, pose challenges to Public Transport Authorities (PTAs) owing to their high upfront costs and lower realization of revenue from operations. The India-US Payment Security Mechanism (PSM) for e-buses will serve as an incentive for both Indian and international OEMs/Bus operators to participate in e-bus operations and potentially establish a manufacturing hub in India, contributing to the growth of e-bus industry and e-bus exports, he added.

The Minister reminded the audience that it was during the visit of Prime Minister of India Shri Narendra Modi to USA, that the India- US Government Joint Statement to develop a “Payment Security Mechanism (PSM)” was released with an aim to facilitate the deployment of 10,000 made-in-India electric buses. The move was reaffirmed during India's G20 Presidency, underscoring the importance of reducing carbon emissions in the transport sector.

The Minister expressed confidence that this initiative will popularize e-buses by encouraging private sector participation in the procurement and operation of these vehicles for an extended period of 10 to 12 years, fostering their adoption throughout India. “PSM scheme represents a comprehensive strategy to address financial uncertainties, fostering widespread and sustainable adoption of e-buses not only within India but also on a global scale”, he said.

Secretary John Kerry, US Special Presidential Envoy for Climate, speaking on the occasion, said “with PSM we are taking a major footstep towards helping India electrify its bus fleet”. He said that this move was taking an Indian solution to maximize Indian opportunity to decarbonisation transportation sector.

It is noteworthy that India is driving a structural change in the transportation sector through the adoption of electric vehicles. Electrification of the public transport ecosystem is one to the building blocks of this structural change.

India’s existing bus fleet stands at 1.5 million, most of which run on diesel. After a few successful pilots in response to a federal subsidy program, India rolled out a large, unified tender of 5,450 e-buses worth over $1 billion and spread across five states. Discovered prices were significantly lower than diesel. Encouraged by the success, the Government established a target of 50,000 e-buses. A total of 12,000 e-buses in different stages of contracting are now coming onto Indian roads.

The session aimed to discuss a joint US-India collaboration to establish a payment security mechanism to address current constraints. With contributions of $240 million from the Government of India and $150 million from the US government and their partners, the establishment of th ePSM guarantees delayed payments from the fiscally constrained state bus companies. The PSM aims to unlock up to $10 billion in non-recourse lending to e-bus manufacturers in India to deploy 38,000 buses.

Background

Payment Security mechanism for e-buses (MHI)

Approximately 90 Public Transport Authorities (STUs/STCs/SPVs) operate around 1.50 lakh buses in India. Of these, around 27,000 buses operate in urban areas, while approximately 1.23 lakh buses serve intercity and mofussil routes, catering to about 7 crore passengers daily. The performance analysis of 35 PTAs for FY 2019-20 reveals a combined net loss of around INR 19,726 Cr., marking a 28% increase from the previous year's net loss of INR 15,391 Cr.

The cumulative losses of PTAs stood at INR 1,22,378 Cr. as of March 31, 2020, primarily attributed to low tariffs and high operational costs. The overall cost recovery index for PTAs during this period was 74%.

CESL's second tender for 4,675 e-buses was cancelled in January 2023 due to low participation by OEMs/Operators. Concerns raised include delays in payments, weak financial conditions of STUs/STCs, and the absence of a Payment Security Mechanism (PSM). MHI proposes a PSM similar to SECI's, providing a 3-month payment security to e-bus operators/OEMs in case of payment default by PTAs. The PSM aims to cover the procurement of up to 38,000 electric buses under the National E-Bus Program.

During the Prime Minister's visit to the USA in June 2023, the India-US Government Joint Statement committed to developing a PSM, with the USG pledging a $150 million grant for payment security to PTAs. The estimated requirement of PSM for 38,000 e-buses is approximately INR 3,435 Cr., with potential funding sources from USG/GEAPP/SCF ($150 million or INR 1,231 Cr.) and GoI (INR 2,204 Cr.). Initially MHI intends to procure 25,000 e-buses for which Rs 2345 crores will be required.

MHI consulted various stakeholders, including ADB, World Bank, KfW, MoRTH, NITI Aayog, MoHUA, DEA, RBI, CESL, financial institutions, banks, NBFCs, OEMs, E-bus operators, and the US Government. A draft concept note on PSM was shared with State/UTs for comments and consent. Consent was received from 3 states without subsidy (Delhi, Punjab, J&K), and with MoHUA subsidy from 4 states (Chandigarh, Haryana, Maharashtra, and Odisha).

MHI submitted the EFC note to stakeholders on October 27, 2023, seeking comments and feedback.

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