FREPLA project on Vientiane Times' Business pages

Future Resource Economy and Policies in Laos till the Year 2020 (FREPLA2020) Project Seminar held on 27th of August 2010 in Vientiane, Laos was referred to on 31st August on Vientiane Times' Business section

FREPLA2020 Project organized a high level seminar on resource economy policies and natural resources management. It gathered several Laotian Ministries and representatives from donor organizations to discuss macro-economic development and energy use scenarios of Laos, policies, challenges and needed development policy portfolios related to different sectors and natural resources management among other things.

The potential power of radical ICT system audit in the Mekong River countries: Towards better ICT infrastructures and resource management systems

In this blog we will discuss the requirements of information and communication technology (ICT) architecture and the governance mechanisms that can connect business and environmental management processes and analytics to data and applications.

Remarkable and innovative advances have occurred during the past 3 decades, especially in the electronics industry and informatics. Digital technology has provided a strong platform for digital products and e-business solutions, which are easily reproduced, easily distributed and subject to boundless modification, extension and recombination. The Internet has become integrated into the lives of many citizens and to every day’s life.

The World Wide Web and related information technologies are becoming primary tools of economic production, civic participation and political involvement, and define the economic, social and political landscape.

Today the new ICT architecture extends beyond the corporations and governments. We can say that all corporations and governments are so called extended organizations because of the Internet and associated digital infrastructures. Especially Internet has changed many things of modern management, also in environmental management.

Digital economy has many innovative “e”s, not only e-commerce. First, e is for electronic – the internet revolution that is changing the way we live, work and do business. E-commerce changes the balance of power between consumers and companies. The most obvious benefit is cheaper products and services as consumers learn to compare prices at the click of a mouse.

Secondly, e is for enterprise – the dynamism and creativity that drives the new economy.

Thirdly, e is for environment – the scope to use new technologies to reduce our impact on the natural world. In the best case knowledge economy helps us to increase dematerialization and immaterialization. E-commerce could help to cut energy and resource use, and improve environmental productivity and eco-efficiency.

Virtual traffic can replace real traffic. In many big cities of Asia traffic is a real environmental problem. From this perspective new ICT based communication and interaction tools are producing ecological and economic benefits. With the right policy framework, e-business could create more efficient logistics and distribution systems.

E-commerce has high potential for significant gains in resource productivity of Mekong River countries. Fourthly, e is for equity – the potential of the internet to strengthen communities and build social cohesion. All sorts of networks are being strengthened by the Internet.

What we can expect to happen in the future is the Wikinomics of resource management. As governments develop specifications for their new ICT architecture, they need to deal with several realities. Such realities are software packages, intellectual property rights, proprietary applications, systems, databases and virtual processes.

If governments want to get full value added from their ICT infrastructures they should perform an audit of the existing ICT systems and develop an understanding of the magnitude of the mitigating to better and more sustainable performance level. This kind of ICT auditing could create larger capacity to link large systems and multiple databases of the governments.
Probably this kind of audit could lead us to better resource management systems and better capacity building process.

If the Mekong River countries could improve their ICT infrastructures, many practical problems could be solved. Also better governance and institutional capacity performance could be reached.

In the World Bank report of “Natural Resource Management for Sustainable Development”, which was Lao PDR Development Report in 2009, this strategic aspect of government and institutional capacity is strongly underlined. Especially a framework for vertical collaboration across central and sub-national levels of government could be developed by better ICT infrastructures.

It is time to discuss about sustainable knowledge society challenges in the Mekong River countries.

Future challenges of energy pricing

One challenging issue in energy policy is pricing energy utilities. Price is a key variable of energy demand and supply in Mekong river countries. Selling energy utilities is dependent on marketing activities of energy. Marketing is a discipline of four coequal elements: the product, its promotion, its distribution and its pricings.

Marketing consists of 4 ps. Pricing is the company´s attempt to capture some of the value in the profits it earns. If effective product development, promotion and distribution sow the seeds of energy business, effective pricing is the harvest.

It is quite interesting and puzzling why many energy companies fail to price effectively even when they otherwise employ very effective marketing strategies. Price is of primary importance to energy companies. Energy companies must cover costs, to maintain cash flow and to achieve a target rate of return.

On the other hand, they must think how customers response to the prices of energy utilities. If prices are too high, demand for energy utilities will be weak. If prices are too low, demand for energy utilities is too strong and some customers are left without energy utilities. In real life markets are not in the equilibrium as conventional micro economic theories assume.

The customers´ goal is to obtain the most value for their money. For commodities, that often means buying the cheapest offering. For differentiated energy product, that may mean paying a little more for the perceived superiority of a particular brand.

A few pennies´ differences in price may be of great importance to a energy company selling millions of units, while being of little consequence to a customer who buys just one unit. Yet that will not stop potential customers from rejecting any price that is a few pennies more than they are willing to pay. It is important to understand that customers are not concerned with the seller´s need to cover production costs, to improve cash flow or to meet a target rate of return. Their concern is to get their money´s worth.

In the Mekong River countries one key future challenge will be intelligent pricing of energy utilities. Intelligent pricing strategy of energy utilities depends on production costs, price sensitivity and energy market competition. These three factors determine an energy product´s pricing environment. Energy companies can adopt product-driven focus or customer-driven focus in their pricing decisions.

Intelligent pricing begins starts with a better understanding of the economic underpinnings of cost and value of energy utilities. There should be more analytical research in this field because the success of energy sector investments depends critically on price intelligence of energy products and services.

Risk intelligence challenges in the Mekong River countries

Risk is the possibility of loss or reversal – or gain or advance. The risks that matter are the ones that pose a problem in our decision-making. We are surrounded with risks either with financial or non-financial. One of the biggest challenges in environmental decision-making is to develop better tools for risk intelligence.

In the Mekong River countries a very big challenge is to manage many risks associated with river basin management. Many production activities and markets depend on the Mekong River. Agriculture, hydropower supply and fishery are such activities. There are many business risks associated with natural resource management. Typically we can talk about production (or supply side risks) and marketing risks (demand-side risks).

In risk management it is important to identify different kinds of risks. For example, typical production risks are operating risks, supply chain risks, technology risks, workforce risks and asset risks.

Operation risks are happening when there are control or compliance failures or partner coordination failures. Supply chain risks are like supplier failure or political rapture. Supply chain risk is also key cost volatility. Technological risks include infrastructure breakdown and information security breaches. Workforce risks are capacity losses or disruption. Also key staff loss or defections are workforce risks. Very considerable risks are asset risks like counterparty credit loss, fraud or theft.

Typical marketing risks are security and political risks, end-market and customer risks, competitive risks, regulatory or legal risks or financial or economic risks. Security and political risks include market-disruption events and geopolitical volatility. End-market or customer risks are brand or reputation erosion and customer consolidation.

In markets competitive risks are always present. Disruptive technology and new entrants to the market are typical competitive risks. The government can create regulatory or legal risks like new legislation and litigation. Also official corruption can be categorized in this risk category. Financial market volatility and economic recession are typical financial or economic risks.

If better risk intelligence is wanted, just listing big risks is not enough. Only our imagination limits the conjectures, models, assumptions and guesses we advance to explain a risk.

The formulation of possible solutions is needed. It is necessary to invest in risk management systems and associated competences. Experienced staff to analyze and handle different risks is needed.

A lot of money and capital can be saved to better aims if the Mekong river countries manage their risks in a better way. Risk intelligence is about making choices bearing risks that our natural run of experience can really penetrate.

All this is easier said than done, but it is worth of trying.