Unprecedented urban growth coupled with inadequate urban infrastructure has resulted in a shortfall of basic urban services for Bhutan s urban residents. Infrastructure requirements across urban centers vary, but access to water, sanitation, solid waste management, and urban transport are often inadequate.

The government s Tenth Five-Year Plan identifies the need to invest in urban infrastructure and management in Bhutan s two major municipalities Thimphu and Phuentsholing and other larger urban centers to ensure sustainable urban management. Thimphu Municipality is Bhutan s capital, with a population of 92,000 making up 40% of Bhutan s urban population. This population is expected to double by 2025. Thimphu s development strategy identifies four primary issues in the infrastructure and environment sector:

(i) water supply,

(ii) wastewater collection and treatment,

(iii) drainage and flooding, and

(iv) solid waste collection and disposal.

The ongoing Urban Infrastructure Development Project (UIDP) supported by the Asian Development Bank (ADB) covers water supply, solid waste management, and wastewater collection. The UIDP and Thimphu s local area plan identifies wastewater management as a priority issue in Thimphu, with water pollution from wastewater discharge, solid waste, and effluent from workshops and industries degrading the urban environment. Following Thimphu Municipality, Phuentsholing Municipality is the second largest urban center in Bhutan. The 2005 urban population of 20,537 is expected to increase to 31,996 by 2025. It is the busiest commercial hub where most of the country s cross-border trade takes place.

Its urban development plan identifies congestion and poor urban mobility as a key issue that restricts the municipality s growth. There is only one entry and exit point for the core area, which results in traffic congestion from local traffic and trucks transporting goods to and from Thimphu, and containers carrying raw materials and finished goods to and from the Pasakha industrial area. Bypass roads and bridges are required to divert traffic and reduce congestion, provide an alternative crossing over the Om Chu River to connect the eastern and western portions of the municipality, and accommodate the expected traffic from the proposed dry port. In addition, to avoid border traffic passing through the core area, a second border gate is proposed that will link directly to the proposed bypass road.

The UIDP has contributed to rehabilitating and improving roads and other municipal services in Phuentsholing. SJM has recently been designated the fourth municipality of Bhutan. The urban population of 5,952 in 2005 is expected to almost triple by 2025. In addition, the satellite town of Deothang with a current population of about 2,000 was subsumed under SJM when it was designated a municipality. While the municipality serves as the gateway to six districts of eastern Bhutan and is one of the oldest urban areas, there has been considerably less investment in urban infrastructure compared with the other three municipalities (Gelphu, Phuentsholing, and Thimphu).

This burdens existing infrastructure in an area that is rapidly expanding and has large growth potential as a trade node with the development of the Asian Highways Project and the proposed east west transnational highway. Structure and local area plans identify the need to improve road infrastructure, which is unplanned; water supply, which has insufficient capacity to meet current demands, lacks treatment, is of poor quality, and does not meet potable standards; water distribution, which is badly deteriorated with high leakage; sanitation, which is currently restricted to on-site facilities not properly maintained; and drainage, which is primarily an open drain system. A study commissioned by the government shows that, based on projected water demand of 3.7 million liters per day (MLD), current sources of 1.1 MLD will not be sufficient. A comparison of supply and consumption of water suggests nonrevenue water was over 50% in July 2011.

Nganglam, which was designated the growth center of southeastern Bhutan and identified as a nationally important urban center with large industrial development potential, has not adequately invested in urban infrastructure. Nganglam s investment plan identifies urban expansion to the planned Rinchenthang town with water supply and urban transport as priority urban infrastructure needs. Infrastructure investments in Bhutan s urban areas need to be preceded by further planning and detailed design.

The project is consistent with government plans and strategies, and with the inclusive social development objective of ADB s Bhutan country partnership strategy, which aims to improve urban infrastructure services, upgrade city planning, and strengthen the planning and management functions of municipalities. It is consistent with ADB s Strategy 2020 as it contributes to regional outcomes in terms of Millennium Development Goal 7; Bhutan s infrastructure, specifically urban infrastructure, which is one of ADB s five core areas of specialization; and environmentally sustainable development.

Lessons learned from past and ongoing urban projects and the country assistance program evaluation are incorporated in the project. These include:

(i) expanded assistance for integrated urban development in key urban centers;

(ii) continued involvement in the sector as key to capacity building of municipalities and for meeting municipal service requirements of rapidly growing populations;

(iii) the ability of local governments to plan budgets, manage operation and maintenance (O&M), and deal with private sector service providers requires considerable strengthening and technical capacity building;

(iv) local governments have low revenue bases and struggle to provide basic O&M, thus requiring gradual introduction of cost-reflective utility tariffs and user fees.