Contract Design and Bus Electrification: Evidence from Santiago, Chile

Abstract

Santiago went from about 100 electric buses in 2018 to nearly 4,400 by early 2026, the largest electric-bus fleet outside China. This paper analyzes the contract design behind the transition. Successive tenders unbundled service operation from fleet ownership and charging infrastructure. They turned buses and terminals into concession-dedicated assets that transfer to the next operator. They also paid fleet financing through fixed monthly installments, administered centrally and owed regardless of which operator runs the route. This design removed the two risks that make lenders charge a premium on transit assets: stranding at contract end and operator default. It made electric capital financeable without operators bearing it. A permanent subsidy, created in 2009, made the long payment horizons credible. Competition widened accordingly: participation rose from 16 offers in 2019 to 84 in 2023, and the monthly fleet installment per electric bus fell by 10 to 25 percent. Using payment and tender records, I show that electrification did not materially change the cost per kilometer of service and did not require a new funding source. The 2019 bids priced both technologies under the same contracts. They imply that renewing the fleet with new diesel buses would not have been cheaper per kilometer. I conclude with policy lessons and the conditions under which the model transfers to other cities.