The Centre has given an in principal go-ahead to pitch in close to Rs 2,000 crore to fund the close to Rs 10,000 crore Hyderabad metro rail project. The Centre’s support to the project is in the form of viability gap funding (VGF) whereby the finance ministry extends upto 20 per cent of the project cost as grant funds in order to make an infrastructure project viable. A decision to this effect was taken by the high power inter-ministerial committee headed by finance secretary D Subba Rao on Wednesday and once approved by the finance minister, this would be largest VGF approved for any infrastructure project since this scheme was put in place more than two years back.VGF (also called gap-funding) is a scheme introduced by the UPA government whereby the government can pitch-in upto 40 per cent of the project cost to make an otherwise unviable infrastructure project, viable. While 20 per cent comes from the finance ministry, a matching sum can come from the sponsor ministry/government. In the case of the 71 km Hyderabad metro rail project which is expected to require a total investment of around Rs 9,696 crore, the Centre would provide Rs 1,936 crore as VGF officials said. This VGF support from the central government is expected to act as a “sweetener” and the project would to awarded to that promoter who bids for the lowest amount of VGF - or government support.

However, every bidder for the Hyderabad metro project — which has a concession period of 35 years — would be entitled to value the project and calculate revenue streams keeping in mind that the Centre would extend financial support of close to Rs 2,000 crore.