Minutes of Previous Meeting
5. The draft Minutes of the First Steering Committee Meeting dated May 10, 2005 were adopted as a true and correct record of proceedings.

II. MDTFANS STRATEGY DISCUSSION
Presentation by BRR
6. Co-chair Pak Kuntoro Mangkusubroto first introduced BRR Deputies and other new members of his team present at the meeting.

7. Co-chair Kuntoro advised there had been progress on several fronts:

i) Funds committed for Aceh and North Sumatra reconstruction to date
ii) Status of GOI budget for Aceh and North Sumatra reconstruction
iii) Actual Progress on the Ground

8. The current status of funds committed for Aceh and North Sumatra reconstruction through the BRR is as follows:

9. GOI has budgeted IDR 8 trillion (approx US$850 million equivalent) in CY2005 for reconstruction in Aceh and North Sumatra. Co-chair Kuntoro hoped that this would be approved next week and funds for on-budget projects would flow within one month.

10. Co-chair Kuntoro advised that in examining the geographic map of Aceh and Nias with respect to committed and/or approved projects, the map was decidedly bare as over 800 km of coastline was seriously affected by the tsunami and earthquakes. Therefore, the BRR's approach in the first few months should be straightforward in that the BRR would accept offers of support from anyone for anywhere within the affected areas of the map so long as there was a need in accordance with the Master Plan, and the proposed project had not already been committed to another donor. In effect, the current situation is one of "first come, first served" and the role of the BRR in the initial months of recovery is to match supply with demand.

11. In adopting this strategy for the first phase, Co-chair Kuntoro advised that he favored the approach of utilizing NGO funds and "turnkey" large-scale projects from donor countries first; the reason being that the affected areas will receive tangible benefits in a rapid fashion without the BRR needing to worry about potential funds "leakage". It is proposed that the bulk of MDTFANS funds will be utilized for projects on the government's budget and disbursed through line agencies. Co-chair Kuntoro advised that he did not want to see "business as usual" with line agencies when implementing reconstruction projects in Aceh and North Sumatra. He suggested the possible need for restructuring such as placing international consultants between a network of kabupaten-based PMU/PIUs and prospective bidders/contractors. In summary, he stressed that Aceh and Nias needed the infrastructure and if, through projects being funded and executed by NGOs and/ or bi-laterals, the BRR is not burdened with corruption issues, then that is a preferred approach.

14. Members suggested that the first-phase approach was both innovative and brave with the potential for projects to be scattered throughout the affected areas. However there are risks in adopting such an ad hoc approach. As an example, what thought had been given to the provision of essential utilities such as water supplies, sanitation etc.? Co-chair Kuntoro advised that the philosophy is a bottom-up community driven approach using consensus. However, he will welcome different approaches in various regions rather than standardizing throughout. He is relying on the communities to ensure integration among donors and avoid duplication. He cited land tenure as being the important starting point because building cannot commence without the various communities resolving land ownership issues.

15. Members pointed out that without standardization, depending on relationships between villages and NGOs, newly-constructed facilities could range from basic to lavish, leading to problems of equity. There is also the question of sustainability. With

new infrastructure and equipment coming into poor areas that have little or no expertise, who will maintain these and who will finance such maintenance? Co-chair Kuntoro advised that he expected standards to be specified for infrastructure and equipment but that he did not want to regulate that any one particular standard should be used in a systematic manner. Rather, he preferred a flexible approach. He concurred with the need to prepare for sustainability by training in addition to constructing. He also acknowledged the issue raised earlier that there is risk when you need to undertake projects urgently. However, he pointed out that he would rather reconstruct many villages now, and correct mistakes in a few, rather than wait for detailed planning so as to avoid what he expected would be a "small percentage" of error. He suggested that nothing would start if it had to be perfect from the beginning.

16. Other members noted that, even with a market-oriented (supply/demand) approach, the market still needed control, supervision, and direction. In addition, members pointed out that the BRR is an interim agency (four years) and, therefore, there is a need to reform, strengthen, and revitalize local government so it can increasingly play a role in the development process. Co-chair Kuntoro concurred that there is a need for a hands-on approach as far as local government is concerned and that change is best brought about by experience, e.g. initiating projects, handling funds, carrying out procurement.

17. Members also inquired about the status of Memoranda of Understanding signed before the BRR was set up. Co-chair Kuntoro questioned why some donors had proceeded to sign MOU's with various government agencies knowing the BRR would be set up shortly, but he confirmed that the BRR would honor all such agreements signed with other government agencies prior to the establishment of the BRR.

18. Observers asked about the role of, and the BRR's interaction with, the private sector as potential sources of funding. Co-chair Kuntoro said that the role of the private sector would be no different to that of other stakeholders such as NGOs, but that it could especially help revitalize business through micro-financing.

19. Concerning technical assistance support for the BRR, members asked, first, whether the BRR had considered using specialist expertise within line ministries and, second, just what expertise the BRR requires. With respect to the latter, Co-chair Kuntoro advised that a list had been prepared and circulated but the BRR also needed the flexibility to tap into resources as and when the need arises. Since the BRR would be submitting its concept proposal for support in conjunction with the UNDP as Partner Agency at the next meeting, any further discussion on this matter was deferred.

20. Co-chair Andrew Steer, in noting that the BRR would apply a market-driven approach in the first instance, with a more structured approach in the long term, pointed out that three of the four concept proposals endorsed at the previous meeting are very much market driven in that they will flexibly respond to the needs of the respective communities. The other concept was in respect of land rights, which Co-chair Kuntoro has already confirmed as being needed urgently. With respect to the remaining uncommitted MDTFANS funds and how they should fit into the gaps, he mentioned a stocktaking report which is currently under production by the World Bank and the BRR, with assistance from the UN and ADB among others. Coincidently, this report will be published about six months after the tragedy occurred. i.e. at a time when the media are likely to be focusing on performance of the reconstruction effort. World Bank staff elaborated on the structure of this report and advised the third and final section will discuss how to get the job done. This report could be useful in helping the Steering Committee decide on a strategy for guiding MDTFANS funding.

21. The MDTFANS Manager advised that the Secretariat had produced a set of strategic principles that could be used to (i) help the Secretariat to conduct an initial assessment of concepts, (ii) assist the Steering Committee with prioritizing concepts, and (iii) inform potential proponents about whether their proposal would be eligible for MDTFANS financing. Some members suggested these may need more depth. Also there is a need to differentiate between selection/ eligibility criteria (which is enumerated in the MDTFANS Operations Manual), evaluation criteria, and the MDTFANS broader strategy. It was agreed that the issue of MDTFANS strategy would be discussed further once a draft of the "stocktaking" report became available.

22. Co-chair Andrew Steer advised that, based on feedback he had received, apparently not all of the issues/concerns raised by members had been reflected in the draft manual. It was agreed that the Secretariat would again review the draft and incorporate member's requirements to the extent possible. Where, for some reason, it is found to be inappropriate to incorporate a member's comments, the Secretariat would provide an explanation. The Secretariat will submit the revised manual for approval on a "no objection" basis at the next meeting.

IV. OTHER BUSINESS

Recommendations to improve the efficiency of MDTFANS Operation
23. The constructive comments and recommendations put forward by a group of contributors to the MDTFANS are attached to these minutes.

a) Update on situation and key concerns - Co-chair Kuntoro agreed to provide an update at the commencement of each meeting on the situation in Aceh and North Sumatra and key concerns;
b) Role of MDTFANS - refer these minutes paragraphs 13-21 inclusive;
c) Clarity with respect to Membership - bearing in mind that only a few donors have physically contributed to the fund to date, it was agreed that, for the time being, those donors who have publicly made a pledge of US$10 million with confirmation in writing (ideally by means of a letter to the Trustee, signed Memorandum of Understanding or signed contribution agreement) shall be classed as voting members. The Secretariat will collate a list of current voting members based on this agreed criteria. Co-chair Andrew Steer pointed out that a projected disbursement schedule of the concepts endorsed by the Steering Committee to date, shows that there is an urgent need for more contributions to be made into the fund. Without sufficient funds in the MDTFANS, grant agreements for each proposed project in total cannot be fully implemented. He asked for an indication of which members expected to be able to release either some, or all, of their pledged funds into MDTFANS in the coming months. Germany advised that it pledged US$10 million to MDTFANS with a contribution of Euro 3 million this year. Norway confirmed its pledge of US$18 million and, together with the Netherlands, UK, Denmark, Sweden, and New Zealand confirmed that they could make contributions soon. The European Commission indicated that the amount pledged by the European Commission is expected to be considered by the Budget Committee and European Parliament in July and so it was unable to provide a timetable in respect to its own disbursement;
d) Timing of Meetings - it was agreed that the Secretariat would prepare a suggested schedule of meetings for the remainder of the year and, at each meeting, the date of the next would be confirmed;
e) Minutes - it was agreed that the Secretariat would meet these requirements;
f) Evaluation Criteria - refer to paragraph 21
g) Endorsement of Project Concepts - it was agreed that project concepts already endorsed by the Steering Committee would only be resubmitted for full discussion by the Steering Committee should there be a substantive change in the concept from that endorsed by the Committee. However, in terms of the Operations Manual, a member has the right to object to appraisal documents submitted in accordance with the endorsed concept on a "no objection" basis, in which case the matter would be discussed further by the Committee;
h) Communications Strategy - the Secretariat has now appointed a Deputy in charge of communications and coordination. As a consequence, the Secretariat will now produce a communications strategy in conjunction with both contributors and the Government.

Report on the selection of civil society and NGO representatives
24. As enumerated in the MDTFANS Operations Manual, there shall be two civil society representatives appointed by the BRR's advisory and supervisory bodies to serve as voting members, and a representative of an appropriate international NGO that is currently active in Aceh and North Sumatra to serve as a long standing observer.

1. Civil society Representatives - the Chairman of the BRR Supervisory Committee has called for nominations and has proposed a selection process
2. International NGO Representative - the International Committee of NGOs met in Banda Aceh on Monday 13 June and recommended a temporary representative. The recommendation will be confirmed at a fuller meeting next week.

Report on new concept proposals
25. The Manager, MDTFANS, advised the Committee that the Secretariat had received five new concept proposals as follows:

Other
26. With the six-month anniversary of the disaster fast approaching, members expressed concern that international journalists were experiencing difficulty in obtaining visas to visit the affected areas in Aceh and North Sumatra. The BRR confirmed that it was in discussion with concerned Government agencies in an endeavor to overcome red tape and, if possible, try and arrange a one-stop shop to enable foreigners to obtain visas to visit the affected regions. In the meantime, members may convey details to the BRR, which will endeavor to expedite visas.

27. The United Nations Resident Coordinator reported that the UNHCR had returned to Aceh and US$40 million had been released to UNHCR for permanent shelters;

28. The Manager, MDTFANS, was asked whether it would be possible to incorporate special provisions referring to anti-corruption measures in MDTFANS documentation. The Manager, MDTFANS, responded that such provisions had now been incorporated in the MDTFANS Operations Manual and that, in accordance with their own policies, practices, and procedures, Partner Agencies would incorporate such provisions into specific project Operations Manuals and project grant agreements.

29. Representatives from several non-contributing countries (USA, Japan, and Australia) who were present at the meeting advised that they would very much like to be included in the dialogue associated with such a multi-donor forum. Co-chair Andrew Steer warmly welcomed this and suggested that the Steering Committee should think creatively about how to maximize the usefulness of these meetings to all donors. One suggestion would be to have two parts to the meeting with the first open, on an equal basis, to all donors, at which time broader policy and coordination issues would be addressed. This could be followed by a session at which narrower MDTFANS decisions could be taken. This matter was held in abeyance pending further discussion among contributors.

Next meeting
30. It was agreed that the next (3rd) meeting of the MDTFANS Steering Committee would be held on Wednesday 29 June in Jakarta at a time to be determined by the Secretariat in consultation with co-chairs. The European Commission requested that apart from the concept proposal for a flexible fund to support the BRR, no other concept proposals should be submitted to the Steering Committee at the next meeting and, while the EC has no objection in principle to the appraisal report of the KDP which is currently in the pipeline, the EC wishes to withhold its formal "no objection" pending further discussion on the future strategy in respect of MDTFANS, which can also draw on information obtained from an early draft of the "stock-taking" report currently under production. The meeting closed at 7.30pm.

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