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E-Bus Project Operation Modeling: Business Models, Impact & Challenges

E-Bus Project Operation Modeling: Business Models, Impact & Challenges.
Overview of an electris bus being driven by a female driver.

Now, let’s dive into the exciting world of different business models in an E-Bus project, where we’ll explore real-life examples. Get ready to discover the diverse approaches and gain insights into successful implementations!

This article will focus on:

  • defining Public-Private Partnerships (PPPs)
  • exploring the benefits of PPPs
  • discussing challenges that have arisen in PPPs
  • explaining the concepts of net cost contracts and gross cost contracts.

E-Bus Project Operation Modeling

There are different business models for the operation of E-Buses, and they can be divided according to the different roles of the stakeholders and include:

  • government controlled
  • government and energy cooperation
  • Public-Private Partnerships (PPPs)
  • government, utility, and private operators co-operate.

We will mainly focus on Public-Private Partnerships and look at some applied examples.

An overview of a group of passengers boarding to an E-Bus near the road of a city. Passengers boarding an E-Bus. Minh, L.(2023)

Public-Private Partnerships Model

A Public-Private Partnership (PPP) model for E-Buses is a cooperation between a government entity and a private sector company to promote using E-Buses in public transportation.

  • In a PPP model, the government entity and the private sector company share the responsibilities and benefits of implementing and operating an electric bus system.
  • The government entity may provide funding, land, and regulatory support. In contrast, the private sector company may provide the technical expertise, management skills, and investment to build and operate the electric bus system. In return, the private sector company may receive a share of the revenue generated by the E-Bus system.
  • In this model, the amount of up-front investment by the authority in the bus fleet and the charging infrastructure is lower.

A close overview of two people shaking hands. Two people shaking hands, representing a partnership. Aakash Malhotra (2022)

PPPs: Net Cost Contract & Gross Cost Contract

PPPs emerged as a way for cities to combine the public sector’s expertise in planning and managing a bus service with the private sector’s ability to access finance and introduce cost efficiencies into bus Operations and Maintenance (O&M). PPPs follow either a Net Cost Contract (NCC), Gross Cost Contract (GCC), or a hybrid.

In all cases, the public sector is responsible for the design and management of the E-Buses, while the private sector is responsible for the O&M of the E-Buses, and the difference lies in the distribution of risk between the two parties. Risk is introduced by the allocation of responsibility for collecting passenger fares as the primary source of revenue.

A close up of a person signing a paper. A contract being signed. Cytonn Photography (2018)

Net Cost Contract & Gross Cost Contract

A Gross Cost Contract (GCC) pays the operator a fixed sum to provide a fixed service for a set period, and all revenue collected is for the authority.

On the other hand, in a Network Concession Contract (NCC) for bus services, the operator is responsible for providing a designated service for a specified duration and retains all generated income. If the bus services in a particular area prove to be financially unviable, the governing authority provides a subsidy to the operator to sustain the services.

If the services are financially viable and profitable, the authority compensates the operator with a fee. Within the framework of an NCC, the operator is obligated to predict and account for both its costs and expected revenues.

Typically, these contracts are awarded through competitive tendering. However, during a transitional period, negotiated route contracts may be awarded through negotiations with an incumbent operator.

In the next diagram, an example showcasing the types of bus operating models in India and the two types of contract applied is shown.

A diagram showcasing an example of the types of bus operating models in India, and the India flag.Click to expand. Types of bus operating models in India. PEM Motion (2023)

NCC: Striking a Balance Between Profit and Service Quality

In 2006, Indore, India, started its city bus service with NCC. Indore’s rapid deployment of buses and established assurance of a fixed premium from operators prompted other similarly sized cities to adopt the Indore Model – a reference to the NCC variant to structure their service models. However, after initial successes, cities failed to adapt the model to their local conditions, lacked technical capacity and depot space, and adopted poor planning. The resulting services were unreliable and unsafe, with low ridership levels leading to cyclical passenger numbers and revenue declines.

This is typical of the NCC model, as the income from passenger fares, which remain affordable, does not always cover the rising costs of running the buses.

A woman boarding an E-Bus in the streets of a city. An E-Bus passenger boarding. James (2020)

GCC: Ensuring service quality

The General Contracting Concession (GCC) model involves the public authority retaining key responsibilities such as fare collection, service planning, and management. Private partners, in turn, receive a predetermined and mutually agreed fixed payment for their involvement in bus operations and maintenance.

This approach empowers public authorities with increased control over service quality, as the payments made to operators are directly tied to their performance in delivering the service. However, it’s important to note that public authorities heavily rely on fare revenue to compensate operators. In cases where there’s insufficient income collected, operator payments may experience delays, potentially resulting in the suspension of services.

The city of Aurangabad, India, resumed its bus service in the GCC in 2019 by outsourcing the operation to another public sector company: Maharashtra State Road Transport Corporation (MSRTC). In this way, the city avoids higher operating costs due to the built-in profit margins of private operators.

A close up of two passengers of an E-Bus sitting. E-Bus passengers. O’Donnell (2020)

Conclusion

PPPs are a business model for introducing or expanding bus services in cities with limited financial resources, and can solve the investment needs of the bus sector and increase bus services.

PPPs can be used in bus operations to secure alternative sources of revenue by adopting data-driven planning practices, improving monitoring mechanisms, strengthening tendering and contracting, and building technical capacity. Regardless of the model adopted, almost all cities have faced challenges with public-private partnerships in achieving service quality levels and being present throughout the process.

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