Journal of Corporate Real Estate

The application of public asset management in Indonesian local government: A case

study in South Sulawesi province
Muhammad Hasbi Hanis, Bambang Trigunarsyah, Connie Susilawati,
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JCRE
13,1 The application of public
asset management in Indonesian
local government
36
A case study in South Sulawesi province
Muhammad Hasbi Hanis, Bambang Trigunarsyah and
Connie Susilawati
Queensland University of Technology, Brisbane, Australia

Abstract
Purpose – The purpose of this paper is to identify the challenges faced by local government in
Indonesia when adopting a public asset management framework.
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Design/methodology/approach – A case study within the South Sulawesi provincial government

was used as the approach to achieve the research objective. The case study involved two data
collection techniques – interviews and document analysis.
Findings – The result of the study indicates there are significant challenges that the Indonesian local
government need to manage when adopting a public asset management framework. Those challenges
are: the absence of an institutional and legal framework to support the asset management application;
the non-profit principle of public assets; multiple jurisdictions involved in the public asset
management processes; the complexity of local government objectives; the non-availability of data for
managing public property; and limited human resources.
Research limitations/implications – This research is limited to one case study. It is a
preliminary study from larger research that uses multiple case studies. The main research also
investigates opportunities for local government by adopting and implementing public asset
management.
Originality/value – The paper’s findings provide useful input for the policy makers, academics and
asset management practitioners in Indonesia to establish a public asset management framework
resulting in efficient and effective organizations, as well as an increase of public services quality. This
study has a potential application in other developing countries.
Keywords Assets management, Local government, Indonesia, Public administration
Paper type Case study

Journal of Corporate Real Estate
Vol. 13 No. 1, 2011
pp. 36-47
q Emerald Group Publishing Limited
1463-001X
DOI 10.1108/14630011111120332
1. Introduction
Asset management can be defined as: “A continuous process-improvement strategy for
improving the availability, safety, reliability and longevity of assets; that is systems,
facilities, equipment and processes.” (Jim, 2007). It is an emerging discipline which has
been acknowledged as a crucial tool in defining and establishing more efficient and
effective organisations. It is important not only for private organisations, but also for
government at both the central and at local level.
Summerell (2005) argues that by applying asset management processes,
local government could improve the effectiveness and efficiency of service delivery.
This improvement would be achieved through reduced and fully auditable operating
costs, reduced vacancy rates and improved delivery timescales, better managed value
and reduced churn, as well as lower moving costs.
 To apply a public asset management framework, however, local government is Indonesian
confronted by a number of challenges. Understanding those challenges will help these local government
public bodies to design value-adding strategies and with the development of alternative
solutions. The aim of this study, therefore, is to identify the challenges faced by local
government. Lessons learned from other countries are used as a basis for identifying the
challenges. The paper starts with a literature review, focusing on public asset
management experiences in other countries. There follows a discussion of the strategy 37
and methodology selected in this study. This is followed by a discussion of the findings.
Finally, the paper provides conclusions from the research.

2. Literature review
There are some common circumstances shared among local governments throughout
the world in relation to municipal assets. First, decentralisation by central governments
transforms local government to become a large property holder almost overnight
(Hentschel and Kaganova, 2007). Second, this transformation is not often followed by an
income adjustment to support local government’s ownership of the assets (Banner and
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Gagne, 1995; Berry-Stolzle, 2008; Bloomberg, 2007; Bovaird and Loffler, 2008a;
Buchanan and Musgrave, 1999; Too, 2007). Third, there is a wide gap between demand
for public services and availability of assets as supporting tools to successfully deliver
these services (Ayuningtiyas, 2008; Bovaird and Loffler, 2008b; Brown and Potoski,
2004; Jolicoeur and Barrett, 2004). Fourth, asset depreciation becomes an important
factor to be considered in asset management activities (Anthony and Michael, 2004;
Kaganova and Nayyar-Stone, 2000).
These four considerations can be managed by implementing a public asset
management framework (Anthony and Michael, 2004; Kaganova, 2008; Kaganova and
Nayyar-Stone, 2000; Summerell, 2005). Although there may be other non-asset solutions
to ameliorate problems, the adoption and implementation of an asset management
framework will answer many of the issues for public asset managers. However, several
studies indicate that there are significant challenges to local government in adopting and
implementing public asset management. The following sections discuss these
challenges.

The absence of an institutional and legal framework

The first challenge is the absence of institutional and legal frameworks. Kaganova and
Nayyar-Stone (2000) identified that local governments often have insufficient discretion in
the area of real property asset management. They also have difficulty in setting up proper
and supportive frameworks for public assets managers. In other words, the institutional
and legal frameworks for local government asset management are not sufficiently
developed in many countries. In Bulgaria, for example, the national law requires a city
mayor to sign each lease contract for the municipal properties. Bulgarian cities have a large
numbers of such property leases so signing documents consumes significant amounts
of the mayor’s time. As signing leases is a routine property management function,
it should be delegated to less senior municipal officers in order to maximise the mayor’s
functions.
Similarly, local regulations for asset management do not clearly define local public
property. In Russia, for example, there are no regulations that clearly define which public
land in cities is owned by which level of government (Kaganova and Nayyar-Stone, 2000).
 JCRE Albania and Kyrgyzstan have not passed any laws on public property. The Romanian
13,1 and Macedonian judicial systems are overwhelmed by legal disputes between the
central and local governments regarding property ownership.

The non-profit principle of public assets

The second challenge is the non-profit principle for public assets. The majority of local
38 governments in developed and developing countries have been under financial pressure
due to increased responsibilities and decreased subsidies from central government.
However, they still treat public assets as public goods and as non-income generating
resources.
Local government does not usually acknowledge any income generated
from infrastructure assets (Lemer, 1999, p. 258). This is because the type of revenue
generated by infrastructure assets is typically indirect. Such income might be identified,
for example, from a road improvement or a water-and-sewer extension which enhances
property values, leading in turn to higher property-tax revenues. Higher sales-tax
receipts might result from infrastructure investments that enable development or
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expansion of retail and entertainment activities in a downtown or suburban area. Higher

income-tax revenues can be achieved when infrastructure improvements facilitate local
industry’s efforts to expand its workforce, increase its productivity and compete more
effectively by controlling its costs.
Kaganova and Nayyar-Stone (2000, p. 309) indicate that public property was
commonly treated as a public good until the 1980s. There was no systematic
consideration of the optimisation of use or financial performance of public property in
order to maximise the profitability of the assets. Only the capital costs of new public
projects were of concern rather than the ongoing performance of the assets. However, in
the early 1980s, a new vision in managing public assets developed, which involved
treating public assets as productive and potentially capable of showing financial return.

Multiple jurisdictions in public asset management

The third challenge is a cross-jurisdiction issue for the management of public assets.
Management of these assets is highly grouped, often with each category falling within a
different jurisdiction, department or district.
Lemer (1999, p. 255) indicates that one of the challenges to the better management of
public assets is that they are managed by different agencies and at many jurisdiction
levels. Authorities involved in management have their own regulations, procedures and
policies, which sometimes contradict each other, because they have their own objectives
and there is little coordination between them. This lack of coordination between
property departments and public services divisions might, for example, lead to an
imbalance of supply and demand of public services (Priest, 2006, p. 237). There is a
further complication resulting from the number of professional disciplines involved in
the asset management process; for example, lawyers, engineers, planners and financial
analysts, all having a unique perspective on the management processes.

The complexity of public organisation’s objectives

The fourth challenge is the complexity of public organisation’s objectives. The objectives
of private organisations and public entities are different. Private organisations are
managing their property primarily to increase profit, either as a revenue generator
 or as a tool to aid production. The public sector as a not-for-profit supplier has objectives Indonesian
to be an efficient operator and an equitable distributor of resources. Another important local government
consideration for a public organisation is to generate a social return such as affordable
housing (Susilawati and Armitage, 2004), employment opportunities and an improved
quality of life to its community (Simons, 1993, p. 49).
However, a prime objective of public asset management is ensuring local government
understands the capital value and costs associated with its operational assets. Although 39
conceptually simple, identifying value from public assets is complex from operational,
fiscal and accounting standpoints.
Public asset management objectives should specify milestones to be attained
within certain time periods. However, in practice, statements of objectives are often
overly general, vague and open-ended in terms of time. Such poorly written objectives
fail to convey management commitment to achieve particular results and provide
little guidance for defining meaningful measures to assess performance. Useful program
objectives can be developed using the SMART convention; specific in terms of the
results to be achieved, measurable, ambitious but realistic and time-bound (Poister,
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2003, p. 63).
Political influence also takes a part in public asset management processes. It holds a
strong influence on the asset decision making in local government organisations
(Dooren and Van de Walle, 2008; Dye, 1998; Ranson and Stewart, 1994; Rongen, 1995).
Politicians have significant power, whether through their political parties or through the
House of Representatives, to influence local governments’ asset managers. This power
can have a profound effect on public organisations and their decision-making processes
and procedures and on the actual decisions made.

The economic inefficiency in public asset management

The fifth challenge is the economic inefficiency associated with public property.
Governments are not efficient land and property owners or managers. This argument is
supported by various studies in developing countries where government ownership of
assets frequently results in huge amounts of illegal construction, shortage of buildable
areas, overcrowding of existing housing and under-utilisation of buildable sites in
prime locations (Kaganova and Nayyar-Stone, 2000). Developing countries experience
major challenges of public ownership of land and real estate, seen for example, in
the under-allocation of construction sites in locations that, as a result, does not satisfy
the effective demand for the community, or in the inefficient management of surplus
property (Kaganova et al., 2006).
One source of inefficiency is the presence of large portfolios of vacant or underused
properties. This situation is caused by the continuing change of structure or the scope of
services provided by government departments and agencies. The demand for space
changes is faster than local governments’ capability to reutilise or dispose of surplus
public assets (Kaganova et al., 2006, pp. 13-14). Although government no longer requires
the assets, there is no incentive or financial benefit to put the properties on the market
since they are a “free good” and the cost of holding the asset is not highlighted in any
chart of accounts. Examples can be found everywhere, from military facilities that are
not needed because the war is over, to vacant or half vacant school buildings in former
Soviet Union countries that are not used due to demographic, economic and social
changes (Kaganova et al., 2006).
 JCRE “Opportunity losses” often result from local government failure to capture the
13,1 “highest and best use” of public assets. Some of these decisions are politically motivated;
some reflect managerial incompetence or corruption, whilst others reflect disagreement
as to how far the market should be allowed to go in dictating property use. The
inefficiency ranges from the use of well-located land sites for municipal equipment
storage or waste yards, to the systematic practice of leasing public property to private
40 parties for below-market rents without the benefit of competitive tendering (Ingo and
Elif, 2007).

The availability of data related to public asset management

The sixth challenge is the availability of data required for managing public property.
Even among the more advanced asset managers, information about real property has
been a problem until relatively recently (Kaganova et al., 2006, pp. 14-15). As recently as
1996, only 65 per cent of local governments in New Zealand and 66 per cent in England
and Wales had their public assets records computerised. In 1997, Washington DC had
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duplicative and inconsistent inventory records of buildings that the city owned and a
substantially incomplete inventory of leases. Even in early 2002, there was no reliable
government data on property holdings of the federal government in the USA. Its
worldwide inventory lacked such key data as space utilisation, facility condition and
historic background (Kaganova et al., 2006).
Revenues and expenses are not tracked on a property-by-property basis, because this
information is not collected by property within governmental financial systems. The
potential market value of real estate is also frequently unknown, even for obviously
marketable and legally saleable assets. Book values for property are often so outdated as
to be meaningless.
Possession of readily usable information is an integral part of the organisation’s
strategic planning. The information includes: physical lives of assets; expected amount
and timing of major capital and maintenance expenditures; asset replacement values;
and market value. Having that information enables asset managers to influence
organisational decisions that affect their operations. It also enables organisations to run
their operations with access to financial information, ensuring that there are no
unpleasant surprises as a result of decision making “in the dark” (Kooymans and
Abbott, 2006, pp. 198-9).

3. Research methodology
A case study in the South Sulawesi province of Indonesia was used to achieve the
research objective. The study employed semi-structured interviews, with subsequent
examination of documents from the interviewees who were provincial government’s
asset managers and asset management practitioners.
Indonesia is a unitary state with three levels of government: central, provincial and
regency/city government. There are 33 provinces within which each province has
several regency/city governments (Bureau of Statistics Indonesia, 2006). South Sulawesi
is one of the six provinces on the island of Sulawesi. It was selected because South
Sulawesi province is the gateway to the eastern part of Indonesia. It is located in the
centre of Indonesia and well known as Indonesia centre point. It is often used as a
reference or example for other local governments in that region.
 Interviews were conducted in late 2009 at the South Sulawesi provincial office. There Indonesian
were five participants selected based on their job responsibilities, as follows: two local government
technical public asset management officers, two middle-level managers and an asset
management decision maker.
The interviews revealed that some documents needed to be analysed to support
and better understand the data from the interviewees. The first group of documents
were the laws and regulations related to public asset management, both at the central 41
government and at provincial government level. The second group of documents
related to the asset management processes developed by the provincial governments.
Those documents include reports, notes, communication documents, asset registers
and inventory lists and other relevant information. All data collected were analysed
qualitatively.

4. Results and discussions

The significance of public asset management to local governments, especially in
developing countries such as Indonesia, can be highlighted by identifying the challenges
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and opportunities that they need to manage when adopting an asset management
framework. However, this paper covers only the challenges, being the first step to
recognising the public asset management issues. This section discusses those issues,
using the six challenges described in the literature review section.

The absence of institutional and legal framework

In 2004, the Indonesian Government implemented the Decentralised Government Act[1]
(Ministry of Internal Affairs, 2004) which mandated the central government to
transfer authority for managing public assets to local government. This means that the
local government authorities became responsible for managing their municipal assets.
Although some important and strategic assets are still under the control of the central
government (such as major airports and seaports, military defence equipments, etc.), the
majority of the assets were transferred to local government bodies.
There is other legislation which regulates public asset management processes in
Indonesia, including the State Asset Act[2], the State Budget Act[3] and the Auditing
and Reporting State Budget Act[4]. At a lower level, there are also several government
regulations relating to public asset management. These are at both the central[5],
as well as the provincial government level. The latter regulations[6] provide general
guidance on local government asset management processes, from planning through
acquisition to disposal. This indicates that local government in Indonesia, particularly the
South Sulawesi province, already has the legal framework for managing public assets.
Although the content needs to be improved to adopt best practices, the foundation to build
a robust public asset management framework exists and the South Sulawesi province is
already heading towards better public asset management processes as a result.
However, these legislative and regulatory frameworks are ambiguous. The definition
of local public property is based on the Central Government Regulation[7], but it is too
general and difficult to translate into practice by local government officials. There is no
further practical guidance for the local government officers with regard to their public
asset management activities.
Furthermore, the ability of local government officials to develop localised practical
regulations is not as advanced as in central government. In the South Sulawesi province,
 JCRE for example, there is no specialised agency in the provincial government responsible
13,1 for managing these public assets and the responsibility is allocated to the provincial
government secretary. At the national level, the Indonesian Government established
the Directorate General of State Asset Management under the Ministry of Finance,
Indonesia[8] for the purpose.

42 Non-profit principle of public assets

Private organisations treat their assets as income-generating resources. In contrast,
many public sector organisations have no systematic way of quantifying the benefits of
public assets. In the South Sulawesi province, there is no performance measurement to
control or record expenses and the revenues generated by public assets. In other
provinces, it is even prohibited for the local government to earn profit from public real
property assets such as office buildings. The government believes that those assets are
taxpayers’ assets and, therefore, it is their right to benefit from the assets, at no cost. This
situation is more evident between government organisations. It is unusual to charge
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other government entities for the use of public building facilities, including offices and
infrastructures, although a charging regime is very much the norm in developed
countries such as Australia.
Public assets like office buildings are utilised by government organisations free of
charge. The South Sulawesi provincial government secretary allows provincial
government divisions (known as Dinas) to utilise public offices without any lease or
contract agreement. Introducing and educating public asset managers to current public
asset management practices should help to transform local government’s perception of
public assets, with a shift from non-profit to revenue-generating assets.

Cross-jurisdictions in public asset management

The provincial government secretary, as regulated by the South Sulawesi Provincial
Regulation[9], has been given the authority to manage public assets but there is an equal
status and separate reporting lines for asset managers and users. It is not uncommon for
the heads of divisions (Dinas) to make decisions which actually fall within the local
government secretary’s jurisdiction as the asset manager. However, there is often a
reluctance to interfere with the users’ jurisdiction.
Another issue in regard to public assets is poor coordination and communication
among the central and local governments. In some cases, particularly in South Sulawesi,
the local government managers have difficulty in identifying which asset falls into which
jurisdiction. It is often not clear whether a particular asset is under central government
or the local government’s jurisdiction and these situations are mainly caused by a lack
of coordination and proper asset documentation. There is often no evidence of asset
ownership, whether it is transferred to a local government from the central government or
from another local entity.
So, it is important to improve communication and coordination between the central
government and local government bodies, as well as among local government entities.
In the case of the South Sulawesi provincial government, better communication and
coordination would help to clarify jurisdictions, responsibility and authority related to
public assets. The coordination should be based on the South Sulawesi Provincial
Regulation on managing public assets.
 The complexity of public organisations objectives Indonesian
As with many local government bodies throughout the world, the South Sulawesi local government
provincial government also experiences confusion over objectives. From several
interviews with government officials, it was clear that there is a problem for asset
managers in identifying the provincial government’s objectives in regard to public asset
management, although officials always revert to the local government budget planning
metrics as their objective in cases of doubt. 43
Reviews of documents and regulations seen after the interviews with the provincial
government officials indicate that the South Sulawesi provincial government has no
specific objectives relating to the public assets. Although there are some working programs
scheduled for one, three and five years ahead to deliver public services, there is no clear
relationship between public assets as supporting tools for the program and the program
itself. The assets are managed and the programs are drawn up without reference to each
other: there is no alignment between public sector social programs and the assets needed to
deliver them. This condition is accentuated by strong political influences. Various political
parties, through the House of Representatives, try to enforce their own interests in the
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development of working programs related to public services and public assets.

The South Sulawesi provincial government could adopt the Poister (2003, p. 63)
approach to identify their objective. The approach starts by specifying milestones to be
attained within certain time periods through the SMART convention, i.e. specific,
measurable, ambitious but realistic and time-bound. This SMART convention program
is then aligned to the portfolio and management of the existing public assets.

Economic inefficiency associated with public property

One source of inefficiency in the South Sulawesi province is the presence of large
portfolios of vacant or underused properties. This situation arises from the harmonisation
of structure or the change of services provided by government departments and
agencies which is faster than the provincial governments’ capability to utilise or dispose
of public properties. The regulations for disposing of or reusing vacant property are too
complicated, time consuming and legally risky. Such regulations create a condition where
local government officials are reluctant to sell or utilise the property.
In the case of South Sulawesi province, of 776 parcels of land (with total of 14.6 million
m2 valued at purchase price or historical cost at around US$138.3 million) owned by the
provincial government, 10 per cent is surplus (South Sulawesi Province Secretary, 2009).
Disposing of all surplus land and property would save the provincial government a
considerable sum and raise up to US$803.1 million at current market value (Hanis et al.,
2008), far more than the historic book value of the whole provincial portfolio.

Data availability required for managing public property

Data are a key element for successful asset management. The South Sulawesi province
has an asset register, recording such information as: name and type of assets, asset code
and asset register, asset dimensions, year of acquisition, location/address, ownership
status and the documentation details, type of utilisation, source of funds and price of
purchase. However, data such as asset market value, lease agreement, asset revenues and
expenses and other non-physical data are not universally or reliably recorded. This level
of data is not sufficient to support asset management decision-making and as a result
it is difficult for asset managers to make any reliable decisions about the property assets.
 JCRE Furthermore, maintenance information regarding the asset is not recorded on the
13,1 same page as the asset register; this is recorded in a different report by another division.
The provincial government has no systematic record of asset cost, asset condition or
rental income. This makes it impossible for managers to review whether an asset is
under-performing or successfully achieving adequate returns.
Unfortunately, asset management data in the South Sulawesi province is not seen as a
44 valuable resource and in the absence of any incentive to collect the data, asset managers
are left to make decisions in a vacuum.

Human resources
Another key challenge mentioned by interviewees is a limitation on the number of staff
available to manage the assets, being only two staff members, two middle-level managers
and one decision maker reporting to the local government secretary who together are
responsible for thousands of assets, including the 776 parcels of land.
In addition, the South Sulawesi provincial government has no expert in the area of
asset management and limited expertise in computerised database systems. At one time,
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the software used to record all data was destroyed and it took several months to fix the
problem as the software developer came from another region.
To overcome this challenge, more staff is needed and the current staff must be
trained in appropriate asset management skills. For a short-term alternative, the
provincial government could recruit and employ asset management experts from
private organisations.
A study of public sector asset management practices in developed countries reveals
that in most cases their practices were transferred from private sector real estate
management and this was carried out under the direction of real estate experts employed
by government. A comprehensive approach to property asset management in the USA,
Canada, New Zealand and Australia was introduced when a real estate expert was
recruited to manage public assets in the city government. The experience of non-real estate
corporations in managing their assets offered valuable lessons for local governments.
A summary comparing the challenges that are faced by the South Sulawesi
provincial government with other government asset managers in different countries
appears in Table I.

5. Conclusion
In implementing a public asset management framework, it is important for local
government to understand the challenges that they will face and an understanding of the
challenges will assist in developing effective strategies. The challenges are the absence of a
legal and institutional framework; the attitude of local government towards public assets;
cross jurisdictions in public asset management; the complexity of public organisations
objectives; economic inefficiency associated with public property; the non-availability
of data required for managing public property; and human resources constraints.
Local government in Indonesia is experiencing all of these challenges. Although there
is a legal framework designed to improve public asset management, it is not adequate
compared to the size of the public asset portfolio. There is no specialised division within
local government responsible for managing the public assets. These assets are considered
as free goods, which means that no charge is levied for their use by other local government
divisions. Public asset management involves many divisional jurisdictions within local
 Indonesian
No. South Sulawesi province Other countries
local government
1 Sufficient legal framework but no The absence of legal and institutional asset
institutional arrangements management framework
2 Non-profit principle toward public assets The traditional perception of local government
towards public assets
3 Jurisdictional complication among local Asset management involves many jurisdictions 45
government divisions (Dinas) within the local government
4 No clear objectives and strongly influence The complexity of public organisation
by political interests objectives
5 Economic inefficiency associated with Economic inefficiency associated with public
public asset holding property holding
6 Unavailability of data required for public Unavailability of data required for public asset
Table I.
asset management management
Challenges faced by the
7 Limited human resource “There is no data available with regard to
South Sulawesi
human resources condition in another country”
provincial government
Sources: Kaganova and Nayyar-Stone (2000); Lemer (1999, p. 258); Kaganova et al. (2006); Priest compared with other local
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(2006); Susilawati and Armitage (2004); Simons (1993, p. 49); Poister (2003, p. 63); Ingo and Elif (2007); government in other
Kooymans and Abbott (2006, pp. 198-9) countries

government and there is a lack of coordination and communication among them. Public
sector organisations objectives regarding public assets are not clear and frequently are
skewed by political interests. Large portfolios of vacant or underused properties cause
economic inefficiency for local government and a huge waste of resources. The absence of
supporting databases makes asset management decision making a matter of guesswork
whilst insufficient, ill-trained and inexperienced staff militates against efficient effective
and quality asset management services to the public sector.

Notes
1. The Decentralised Government Act Number, 32/2004.
2. State Asset Act No. 17/2003.
3. State Budget Act No. 1/2004.
4. Auditing and Reporting State Budget Act No. 15/2004.
5. Government Regulation No. 6/2006.
6. South Sulawesi Province Regulation No. 4/2007.
7. The Government Regulation No. 6/2006.
8. The Presidential Decree No. 66/2006.
9. South Sulawesi Provincial Regulation No. 4/2007.

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Corresponding author
Muhammad Hasbi Hanis can be contacted at: m.hanis@student.qut.edu.au

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