The India Government on May 6, 2013,  approved final approval for viability gap funding of Rs. 1458 crore (12.35 percent of Total Project Cost of Rs. 11,814 crore) under the Viability Gap Funding  Scheme to the project from Government of Andhra Pradesh for development of Hyderabad Metro Rail on DBFOT  basis. The Union Finance Minister had earlier granted in-principal approval for Viability Gap Funding support to the project.

Viability Gap Funding is typically provided in competitively bid projects. Under Viability Gap Funding, the Central government meets up to 20 per cent of capital cost of a project being implemented in public private partnership  mode by a Central Ministry, State government, statutory entity or a local body. The State government, sponsoring ministry or the project authority can pitch in with another 20 per cent of the project cost to make the projects even more attractive for the investors.

The official estimated cost of the project stands at US$2.6 billion.

The bidding process was completed by July 2008, the bid being awarded to a consortium led by Maytas Metro. Maytas failed to achieve financial closure for the project and in July 2009, the Andhra Pradesh Government canceled the contract to Maytas and called for fresh bids for the project.

In the July-2010 rebidding process, Larsen & Toubro (L&T) emerged as the lowest bidder for the project. L&T came forward to take up the work for about US$270 million as viability gap funding as against the sanctioned US$890 million.

The project:

Hyderabad Metro is a rapid transit system, currently under construction, for the city of Hyderabad, India. It is being implemented entirely on PPP mode, with the state government holding a minority equity stake.

The Phase I of the project includes 3 lines covering a distance of around 71 km. The metro rail stretches between Nagole and Mettuguda (8 km) and between Miyapur and S.R. Nagar (12 km) are targeted to be operational by December 2014.In September 2012, the Indian government has approved Phase II which is expected to start in 2013. It includes around 80 kilometers.