States want for public transport but manufacturers doubt if their road transport undertakings (STUs) will make payments, said a senior civil servant on Thursday.

STUs are subsidised by state governments. “The question is if they are given these services as per the proposed model, will they be able to repay? If the ticket collections are there, will they not go into staff salaries or the general fund of the state government? Will they be used to pay back manufacturers?” said Giridhar Aramane, Union Road Transport and Highways Secretary.

Aramane spoke at Insight 2022, a conclave by Convergence Energy Services (CESL), a wholly owned subsidiary of Energy Efficiency Services (EESL), a ministry of power undertaking.

CESL brought these concerns to the ministry when it was asked to procure additional buses. Manufacturers have repayment liability to banks and they worry that defaults by STUs will lead to financial issues.

After more than 5,000 were readied in five states as part of the Grand Challenge scheme, there is a demand from other states for an additional 15,000. There is potential for 50,000 such buses.

“Manufacturers have to be provided the comfort of payment by STUs,” Aramane said. “We need to ensure that they’re protected from this risk.”

He proposed a model similar to Solar Energy Corporation of India (SECI), where there’s a tripartite agreement between state governments, power producers, and the Reserve Bank of India (RBI). The Centre steps in through RBI if a state government defaults on payment.

Another option proposed by international agencies is being examined. “They’ll provide concessional finance for a guarantee fund. The Government of India will have to borrow this money and establish the fund so that manufacturers can be reimbursed in case of a default.”

Cash-strapped STUs don’t have the financial capacity to buy . The first phase fleet of the Grand Challenge procurement scheme was tendered out on a gross cost-contracting model, wherein STUs procure service based on the terms and conditions defined in the tender document, followed by market price discovery.

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