I. Approval of Agenda and Minutes of Previous Meeting (June 29, 2005)

5. The draft Minutes of the third SC meeting dated 29 June, 2005 were approved and formally adopted. The agenda was also formally adopted with one additional item.

6. An additional item was added upfront to the agenda. A significant milestone was reached with the signing of the contribution agreement between the Trustee and the Government of the Netherlands for a pledge of US$ 100 million. Following its signing, the Dutch Ambassador confirmed that the first tranche of $60 million from the Netherlands would be transferred into the fund next week and the second tranche would be deposited next year with the amount being dependent on the liquidity prognosis of the fund at that time. Being the largest contribution into the fund to date, this milestone was acknowledged with acclaim.

II. Recovery Update

7. Co-chair Kuntoro provided a PowerPoint presentation to update members not only on the amounts approved for reconstruction projects in Aceh and Nias, as well as developments within the BRR, itself. A copy of the presentation is attached to these minutes.

8. Salient points of his presentation, with page references to a hardcopy of the presentation, are as follows:

(i) Status of Project Approvals and Funding (Pages 11-13 inclusive) Funds pledged are US$ 6-7 billion with $4.1 billion now approved totaling 391 projects. Of 401 projects reviewed, 209 are still being held pending because they did not meet BRR approval criteria. Of the approved projects, $863 million, including MDTFANS approved projects, are on-budget. With respect to off-budget, $202 billion have received unconditional approval and $1.258 billion conditional approval. 364 projects have confirmed funding with the sectoral breakdown being shown on Page 12. There is a shortfall of $170 million in the funding of the approved projects (Page 13) and Co-chair Kuntoro appealed for help from donors. He also reminded the meeting of the larger port and roading projects, some of which have already commenced construction. Therefore, he was hopeful of being able to report on more physical construction next month.

(ii) Anti-corruption (Page 16) Attention was drawn to the proposed Anti-corruption unit that is being created within the BRR. Co-chair Kuntoro emphasized the quality of the staff being proposed for this unit and that discussions were underway with the ex Head of Hong Kong's Anti-Corruption Commission to head up BRR's Anti-corruption Unit.

(iii) Upstream Processes (Page 10) Considerable work has been undertaken on the planning and approval process and, in addition, on fund matching and facilitation. The BRR is now focusing on fund disbursement.

(iv) Badan Structure (Page 7) Like Bapel, each of the Advisory and Supervisory Boards report directly to the President. He expected that either Ernst and Young or Price Waterhouse would be recruited as BRR external auditor, with support from the ADB.

(v) Personnel and TA Support (Pages 4 and 5) Page 4 shows the current staffing level of the BRR. Co-chair Kuntoro also thanked donors for the provision of technical assistance personnel.

(vi) Peace Accord (Page2) Co-chair Kuntoro welcomed positive developments in the peace negotiations with GAM and expected a peace

accord to be signed in Helsinki on 15 August. He anticipated that this would create an entirely new "ball game" with BRR responsibility to be extended so that it not only focuses on those areas affected by the earthquakes and tsunamis but also addresses and integrates GAM-influenced areas as part of the reconstruction program.

9. In the ensuing discussion, members concurred with the comments on Page 17 of the presentation that progress in approving projects needed to be matched with progress in their implementation, and raised the following questions:

(i) What is the status/ progress with respect to the Advisory and Supervisory Boards? Ibu Naima Hassan advised that she is a member of the Supervisory Board and that it had met once. The BRR was unsure of progress in respect of these boards because, although both are components of the Badan, they are independent and responsible for organizing themselves.

(ii) Are MDTFANS funds included in the on-budget component? Those MDTFANS-funded projects approved to date that are on-budget are included.

(iii) Must all MDTFANS funds be on-budget? In accordance with the current policy of the Steering Committee, the majority of funds should flow through the Government budget wherever effective because the SC believes in the legitimate role of the Government in key areas of the reconstruction and the SC can influence policy, and play a positive role in strengthening public sector capacity beyond the lifetime of the BRR. However, MDTFANS does have flexibility and the SC recognizes that there are needs for an off-budget approach as demonstrated by the proposed support project for the BRR that will be administered by the UNDP.

(iv) Will the BRR address GAM-influenced areas after the peace accord? The BRR confirmed that it is expecting to be asked by the Government to extend its mandate so as to support these conflict areas. The philosophy would be very much a bottom-up community driven approach.

III. MDTFANS Steering Committee Policy

A. Finalization and Approval of Policy

10. The MDTFANS Manager made a presentation (copy attached) that summarized the outcome of a meeting of the ad hoc Drafting Committee, which was held on Tuesday 26 July at the request of Sweden and Germany. Key revisions stemming from this meeting were:

• A logical framework approach would be used to organize the policy and its indicators. This would be developed as the first task of the Secretariat's Monitoring and Evaluation (M&E) Officer, when appointed, and would then be presented as part of the policy;
• The definition of a "better Aceh and Nias" would be improved to incorporate social concerns (alleviating poverty, improving livelihoods, and increasing equity) as well as improving infrastructure and services;
• Three additional approaches would be added: (i) pursuit of gender-sensitive activities, (ii) opportunities to support the peace process, and (iii) avoid worsening regional disparities;
• The Secretariat's new M&E Officer, when appointed, will determine macro- indicators, baseline values, and deliverable outputs for the expected results;
• Other bi-lateral and multi-lateral agencies would be included as potential partner agencies subject to their policies, procedures, and governance /fiduciary frameworks being acceptable to both the SC and the Trustee;
• The MDTFANS Mission Statement has been revised to include poverty alleviation;
• The MDTFANS Concept Evaluation Template should always correlate with the policy, will include a graded scale 0-5 instead of Yes/No, and issues such as risks, cost effectiveness, potential for rapid implementation, and specific issues to be addressed during appraisal will all be noted in the Additional Comments section.

11. Subject to the approval of the SC, it is proposed to update and circulate the Policy document for no objection in accordance with the above. It would then be regarded as the SC's current Policy. In future, should a member wish to revise the Policy, the Drafting Committee would be reconvened to consider the request. In addition, the Secretariat would review the implementation and appropriateness of the Policy as part of its semi-annual report.

Discussion
12. While supporting the proposals, members responded as follows:

(i) Conflict Sensitive. With respect to the proposed new approach of seeking opportunities to support the peace process, there is a need to recognize the delicate and fragile nature of the situation and, while supporting the approach, the SC should be cautious and not be too eager to involve MDTFANS prematurely.

(ii) Partner Agencies. The SC should be more open to other Partner Agencies. Co-chair Kundhavi had no problem with this so long as their

policies, procedures, and governance /fiduciary frameworks are acceptable to both the SC and the Trustee. However, she suggested that the SC should concentrate on the comparative advantages and quality of potential partner agencies. Also, if it is opened up too much, the system may become too cumbersome.

(iii) Paid-in Capital, Implementation, and Possible Prioritization of Approved Projects. If the required amount for approved projects is more than the amount in the fund account then how are projects prioritized? Members suggested that there should be rank ordering of projects subject to availability of funds. Also, a standard monitoring format should be developed for all approved projects with outputs being defined that are clear and mandatory. Members also suggested that if a project was forced to stop due to lack of funds then the responsibility would probably lie with the SC rather than the World Bank (IDA) as Trustee, because it is the SC and not the Trustee that decides on the allocation of funds. As a consequence members wondered whether the SC endorsement should include conditionality with respect to funds availability. The MDTFANS Manager and other WB staff responded that they did not consider any perceived funding gap to be a problem. The projects already approved are well within the envelope of pledges made, even though they may not be within the amount of actual contributions received. The four approved projects for which IDA is Partner Agency are longer term projects with annual disbursement profiles that are tracked. The Secretariat now has a clearer picture of expected paid-in funds for the remainder of this year, and, as a result, has been able to undertake forward planning. The commitments for this year will not exceed the amounts that are, or will be, contributed into the fund. Also, WB has wide trust fund experience and, having faced this problem before, has included carefully crafted language in the Grant Agreements stating that while the first year's commitments are covered, projects are approved subject to funds availability. One member commented that it felt uncomfortable with such an approach because donors can be fickle when it comes to pledges and the situation cannot be controlled. Others commented that it is a question of trust. Co-chair Nadim advised that in the case of the EC, the pledge made is considered to be a legally binding decision and, in addition to contributions paid in this year, the EC would expect to make substantial payments by the first quarter of 2006.

(iv) Fiduciary Control. In order to safeguard funds, members inquired if mechanisms are in place to track funds expenditure and whether any assessment of fiduciary risk will be carried out once funds start to flow. The MDTFANS Manager pointed out that the SC delegates monitoring and supervision of projects to Partner Agencies. Anti-corruption action plans are required as part of the appraisal package. In addition, it is proposed to provide tracking on the e-Aceh website.

B. Reserve Amount

13. The MDTFANS Manager drew attention to a brief paper provided by the Secretariat in member's hardcopy binders. This provides information on (i) amounts pledged, and amounts of pledges both committed and uncommitted, and (ii) cash forecast of expected paid in contributions and expected disbursements up to 31 December 2006. Based on this, the Secretariat recommends that the amount to be held in reserve be based on the amounts pledged rather than cash held by MDTFANS. Setting aside paid in contributions for future operations may put unsustainable liquidity pressures on the fund. The MDTFANS Manager suggested that there is no automatic answer or clear number with respect to the amount that should be kept in reserve. Based on standard experience with respect to contingencies, he proposed that 10 percent of the pledged amount be held in reserve. At the request of members Co-chair Kuntoro, on behalf of the BRR, confirmed that a reserve was needed, not only for earthquake/ tsunami reconstruction, but, with the positive outlook in respect of the peace accord, to support activities in the GAM-influenced areas of Aceh. All members accepted the rationale for holding some funds in reserve. Co-chair Kundhavi and some other members suggested that the reserve be smaller than 10 percent so that the fund can be seen to be performing earlier on. However, based on consensus, it was agreed to keep a reserve amount of 10 percent of the amount pledged but, similar to the SC Policy, it can be reassessed at a later date.

IV. Grant Requests

A. Status of concepts received from BRR

14. The MDTFANS Manager also drew members' attention to documentation contained within the binders that include current status of all concept proposals submitted by BRR, and copies of concept proposals and Secretariat evaluations both for those to be considered today, and those that are pending or rejected.

16. The concept builds on existing cash for work pilot activities and will draw lessons from these. While in accordance with SC Policy, the Secretariat suggested that the proposal be on-budget, it has been proposed as an off-budget proposal. Tenders have gone out for the hire of equipment and the activity would lose momentum if it is delayed. In response to member's questions UNDP staff confirmed that capacity building is provided particularly in respect of recycling, and special activities would be provided for women. Up until now workers have been sharing any revenues generated from the recovered/ recycled waste. With an up-scaling of the project, UNDP would examine other alternatives for use of generated revenues such as small businesses or a small grants program. Members suggested that such revenues should be used for future livelihood programs. Co-chair Nadim considered the project to be indispensable and asked how long appraisal would take, and if the resources were available, bearing in mind the problems associated with a similar emergency project in Maluku. He also suggested that, during appraisal, the UNDP should examine trying to tap into some NGO funds for potential co-financing. UNDP staff confirmed that UNDP, as Partner Agency, would be responsible for appraisal. Members pointed out the need for the appropriate environmental impact assessment during appraisal to address (i) the potential risks to people from hazardous wastes, and (ii) land acquisition associated with landfill sites. One of the Civil Society representatives mentioned that there is currently a dispute in respect of one of the proposed landfill sites involving about 6-7 hectares. Co-chair Kuntoro advised that BRR supported the proposal as being off the government's budget because it is needed urgently.

SC Endorsement No. 06/05

The SC endorsed the concept proposal to utilize $15.2 million off the government's budget for the Tsunami Recovery Waste Management Program with UNDP as the designated Partner Agency Agency, subject to satisfactory appraisal.

C. Livelihood Land Use Rehabilitation Program

17. Staff from Conservation International Indonesia presented the concept on behalf of the Sustain Sumatra Alliance. Attention was drawn to the fact that one of the smaller partners, Greenomics, had withdrawn from the Alliance. The objective is to restore and improve targeted communities using a community-driven approach. The project would also help resettle several thousand internally displaced persons (IDPs) who moved to the targeted locations in the Gayo Highlands. The project would be designed to sustain and enhance the livelihoods of upland farmers through environmentally beneficial planning such as using land bordering a national park for agroforestry

(coffee) thereby preventing encroachment onto the Park. An MOU has already been signed with Starbucks Coffee Company. Two rural learning extension centers would also be established to train the IDPs. World Bank staff confirmed that IDA was prepared to be Partner Agency for the proposed project. They also affirmed the good reputation of the Alliance and its experience in Indonesia over many years. The way the Alliance has structured the project is such that it would be off the government's budget.

18. Members were unsure whether USAID would be funding the project or not. The Alliance confirmed that USAID did not have the funds available just now so it was seeking MDTFANS support instead. Several members, including Co-chair Kuntoro, generally liked the concept and the fact that it was located in the highlands. However, there were several concerns. Members wondered whether the scale of the project (10,000 hectares) might be too ambitious and consideration should be given to scaling it down. Also, due to the uncertain number of affected IDPs, the impact on them remains unsure. Finally, although members had no objection to what appears to be a good concept located in the highlands, they questioned whether it was a priority project at this time bearing in mind there are also really needy IDPs in other affected locations. In the light of the above, the SC decided not to endorse the proposal now but asked the Alliance to refine the concept based on the various suggestions/ comments made and resubmit it later in the year for consideration as a possible MDTFANS-funded project in 2006.

D. Support to Strengthen the Role and Capacity of Civil Society Organizations in the Recovery of Aceh

19. The MDTFANS Manager mentioned the evolution of this project. Initially it was envisaged as a stand alone small grant facility. However, the concept now focuses on Civil Society Organizations (CSOs). In the light of a number of questioned raised during evaluation, the Secretariat tabled the concept for consideration by the SC with the suggestion that endorsement be conditional upon these issues being addressed during appraisal.

20. Staff from the UNDP, as the proponent and Partner Agency, presented the concept. The proposed program would provide technical assistance, capacity building and small grant assistance to civil society to (i) help CSOs engage in monitoring recovery assistance, (ii) build the capacity of CSOs and their networks, (iii) support pro-poor advocacy, civic education, and democracy building, and (iv) provide demand-driven small grant programs that respond to community needs. While the Secretariat proposed that the concept be on the government's budget in accordance with SC policy, the concept envisaged that funding would be off-budget. UNDP staff pointed out that CSOs had operated for many years but their focus tended to be more on human rights rather than livelihood development. While the CSOs mobilized to assist in relief efforts, they had suffered badly themselves in terms of loss of personnel. However, their role was considered indispensable. The UNDP assessed that CSOs were currently weak in organization, lacked technical skills, needed to build networks,

and had only partial knowledge of civil rights. The concept proposed to address these challenges through the four components listed above. A multi-stakeholder committee would be established with a Secretariat located with the BRR. While prime attention would be on disaster areas, the nature of the project is that it would cover all areas. UNDP staff advised that they were also proposing to revise the concept so that it would support both CSOs and local government.

21. The observer representing international NGOs recommended that the SC support the concept because local CSOs are an integral part of the rehabilitation and reconstruction effort. Indeed, the activities of international NGOs depended greatly on support from local NGOs and CSOs. When the international community departs he would like to see them leave behind a strong civil society.

22. Members generally supported the approach of the Secretariat that any endorsement of the proposal should be conditional. While most supported the focus being on CSOs, they were more cautious in respect of supporting local governments because they felt there may be a number of other initiatives focused directly on local government. There was concern also about the logic of the concept with a series of components. For example, what is the connection between components such as CSO support/ capacity building and the small grants facility? Members also raised questions as to what civil society in Aceh and Nias actually looks like. How much capacity can civil society absorb? Also, from the perspective of the SC, they wondered about potential overlapping and felt that mapping should be carried out before the SC considered concepts of this kind. The member representing the ADB also expressed concern about possible overlap and drew attention to its component under ADB's Earthquake and Emergency Support Program for enhancing the capacity and capabilities of local NGOs in the areas of finance/ accounting and internal controls. If the UNDP has carried out an assessment of CSOs, then members asked if it could be shared with donors. The SC decided that the UNDP should consider all the comments/ suggestions made about the concept and then resubmit it to the Secretariat. Rather than wait for further consideration at the next SC meeting, it was agreed that the Secretariat should circulate the revised concept electronically for virtual review on a no objection basis.

E. Hospital Preparedness for Emergencies (HOPE)

19. The MDTFANS Manager advised that the proponent, the Center for International Disaster and Emergency Studies, Bloomberg School of Public Health, John Hopkins University was unable to be present, although a representative from the proposed Partner Agency, WHO, was present. The primary objective of the concept is to increase disaster preparedness and response capability of hospitals and communities in Aceh to reduce loss of life, human suffering and material loss as a result of future disasters. He advised that, as indicated in the stocktaking report, the health sector is currently over subscribed and, as a result, is not a priority sector in terms of the SC Policy. However, intrinsically, it is a good proposal, so the Secretariat decided to put it on the table for consideration and, if need be, to reclassify it as a community development or environmental project since it relates to community-based disaster mitigation.

20. Members felt that while support in disaster mitigation is needed, the project does not fit with SC policy and priorities. It was pointed out that there are funds available outside of MDTFANS. As an example, the Red Cross/ Red Crescent has substantial funds and this concept would match its objectives. While accepting the worth of this concept, members decided not to endorse it.

21. Due to the lateness of the hour, rather than make a formal presentation, the MDTFANS Manager drew members' attention to the information provided in the binder concerning a competition among high school students in Aceh to design a logo for the MDTFANS. Co-chair Kuntoro has agreed to serve on the judging panel. Advertising material was distributed to those who were interested.

VI. MDTFANS STATUS

22. Members' attention was drawn to information contained within their binders concerning current pledges and membership, and paid-in contributions and liquidity of MDTFANS.

VII. NEXT MEETING

23. It was agreed that future meetings would commence earlier in the day. The next meeting was provisionally set down for 25 August to be held in Banda Aceh. In association with that meeting, prizes for selected winners of the logo competition would be presented.

24. The meeting closed at approximately 8pm.

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