Demand for Piped Drinking Water and a formal Sewer System in Bhutan

In this study, we estimate demand for sewage connections and piped drinking water in Bhutan. To estimate household willingness to pay for these services, we use data from a sample of 18,766 households surveyed through the Bhutan Living Standard Survey of 2007 and 2012. A Hedonic model is estimated using pooled data with sub-district level fixed effects to control for heterogeneity and unobserved effects across sub-districts. The findings from our study indicate that there is significant demand for sewage and piped water connections inside dwellings. On average, unconnected urban households are willing to pay Nu 348 and Nu 362 (USD 5 to 6) per month for sewage and piped drinking water connections or 6 percent of their monthly household expenditures for each service. Un-connected urban households are willing to pay significantly more than the current joint charge of Nu 78 per month for water and sanitation. Similarly, rural households are willing to pay some 2 percent of monthly household expenditures for piped water. There is scope for municipalities in Bhutan to increase their revenues from public services and to cover potential investment costs associated with expanding services. This study also provides a baseline for designing contracts should Bhutan choose to privatize water and sanitation services.