MULTI-DONOR FUND FOR ACEH AND NIAS

Minutes of the Seventh Steering Committee Meeting held in Banda Aceh, on Tuesday 13 December 2005 at 9.45 am

AttendeesThe list of attendees is attached.

The meeting was co-chaired by Pak Kuntoro Mangkusubroto, Chairman of the Rehabilitation and Reconstruction Agency for Aceh and Nias (BRR) (first part of meeting), Pak Heru Prasetyo, Director of BRR Jakarta Representative Office (second part of meeting), Pierre Phillipe, representing the European Commission, and Andrew Steer, Country Director, World Bank.

PART A: Recovery Policy

1. Welcome and BRR Progress Report

1. Co-chair Kuntoro welcomed all members and observers to the seventh meeting of the Multi- Donor Fund Steering Committee (SC), the second to be held in Banda Aceh. This being the last SC Meeting in the year 2005, Pak Kuntoro expressed his gratitude to the Multi-Donor Funds and its members for all the support that the BRR and the Government of Indonesia (GoI) had received in the recovery. He mentioned that many initial difficulties had been overcome, and that processes continued to improve.

2. The Meeting then welcomed the arrival of Her Excellency, the Minister of Transportation from the Netherlands and H.E. the Ambassador of the Netherlands who had come to Banda Aceh for a ground breaking ceremony for the reconstruction of the port of Malahayati, funded by the Dutch government. The Minister addressed the SC to explain that she had come to Indonesia on a special water sector mission together with representatives of the Dutch public and private sector. Her mission did not only cover Aceh, but the whole of Indonesia to discuss cooperation in support of coastal and water protection. Given that the Netherlands is one of the world’s leading nations in developing adequate solutions to water issues this mission examines possibilities of cooperation. The Minister then had to leave to continue her field program.

3. Co-Chair Kuntoro continued his address to the SC with the BRR update on reconstruction (see Presentation on the Multi-Donor Fund website). Summarizing the status, he pointed out that the analysis of the current portfolio had proven that a more active approach to coordinate the fulfillment of needs is necessary in order to prevent organizations from focusing on ‘easy’ projects with good public response (e.g. reconstruction of houses in Banda Aceh). The BRR has therefore decided to change its strategy and take a portfolio-based approach to steering the reconstruction efforts. Analysis of core needs showed that main financial gaps exist in:

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1. Transport: - about US$300 million2. Flood Control and Irrigation - about US$200 million3. Environment - about US$150 million4. Energy - US$120 million

Co-chair Kuntoro laid out the anticipated timelines for recovery in each sector, and their respective peaks. While reconstruction of housing is expected to peak in 2006, and recovery of infrastructure should see the bulk of activities in 2006/2007, the re-development of social and institutional infrastructure will continue to play an important role until 2007/2008. Economic recovery is a constant process that will continue to the end of the recovery phase and beyond.

4. He also presented the status of government projects. 397 projects had been approved of which only 77 had begun implementation, 210 were currently in the tender process, and 100 were not yet tendered. This led him to the conclusion, that as part of the current development of the portfolio-based strategy, the BRR will also conduct an assessment of all approved government projects to consider re-allocation of funds where these projects do not meet the stated needs in a timely fashion.

5. Co-chair Kuntoro explained that a portfolio-based approach would entail: 1) identification of needs per sector through the BRR, and based on data provided to the BRR (incl. from the RAN Database); 2) defining priorities in each sector, and developing a portfolio of projects needed; 3) matching needed projects with possible implementers and/or funds; and 4) implementation of a few key projects per sector through the BRR.

6. Since Co-chair Kuntoro had to leave for the groundbreaking of the Malahayati Seaport, he closed his update with inviting all Steering Committee Members to the commemoration activities in Banda Aceh, and announcing that the official Presidential Invitation had been sent out. Before leaving the meeting, he wished everybody a Merry Christmas and a Happy New Year.

7. Pak Heru assumed the co-chair in place of Pak Kuntoro.

8. The meeting continued with a presentation from Pak Amin (Head of Sectoral Planning and Financing) on the planned Portfolio review that will be conducted from 15 December to 15 January 2006. the purpose of the review is to improve the efficiency and effectiveness of project implementation, to provide an in-depth gap analysis and to accelerate the implementation process for urgent projects (de-bottlenecking). Finally, it will provide the necessary information to re-program or reallocate funds from non-urgent and non-performing projects. This portfolio review will primarily target the portfolio of government projects and result in proposals for budget revisions for the 2005 carry-over budget (in January 2006) and the 2006 budget (in May 2006).

9. He further presented the meeting with the fact that, during the Fiscal Year 2005, district and province governments in Aceh had a 33.5%-66.5% ratio of project vs. operational (routine)

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spending, meaning that there are substantive funds to be tapped at the regional level for the reconstruction (FY 2005: US$187 million for projects). Another resource at the district level is the set of deconcentration funds directed to line agencies. Local governments will need support for reconstruction funding, and the BRR foresees involving them and their funds through co-funding of activities.

10. Key implications of this new approach were summarized as follows:

The government budget remains the largest portfolio, and therefore needs to become the locomotive of all efforts

Un-earmarked donor funds have become very limited Other significant funds to be considered are: local government and decon-

centration funds Co-financing seems to be a viable tool for achieving coordination of funds, and

an increasing involvement of local governments in reconstruction.

In fact, Pak Amin pointed out that this kind of increasing financial and personnel involvement of local governments is part of the BRR’s exit strategy.

11. Regarding financing policy for the different sectors, Pak Amin informed the SC members that in the future, the BRR intends to approach the Multi-Donor Fund primarily with requests for the infrastructure sector. The timeline for the overall development and implementation of the portfolio approach is to conduct an assessment of the existing portfolio until 15 January and, in a second step, to develop the portfolio strategy until mid-March, including a consolidated planning program with local governments to better identify local needs. The BRR also indicated that the updated list of APBN funded projects will be available from the BRR after mid-January.

12. The BRR update continued with a short presentation on the Infrastructure Sector Strategy

from Pak Eddy. He explained that the GoI recovery blueprint was still underlying BRR’s approach to infrastructure recovery, but being refined to state the actual needs more precisely. Pak Eddy also set out some major enabling components that need to be tackled as quickly as possible to enable overall reconstruction in all infrastructure sub-sectors in Aceh and Nias, such as housing and shelter, sea defense, kabupaten level infrastructure, and economic infrastructure to support income generation and livelihoods. Key issues to be handled as soon as possible were spatial planning along the Acehnese west coast (other areas are mostly covered), topographical mapping and an aquifer assessment again on the West Coast where the topographical changes have been most drastic. Pak Eddy also explained that the BRR intends to set up a Reconstruction Program and Construction Management Unit. Finally, a prioritized list of eight possible projects to be forwarded to the Multi-Donor Fund over the next 12 months was presented. Of these, the West Coast and Nias Spatial planning was considered the most urgent to provide a sound basis for the current reconstruction of settlements, and the BRR asked the SC to fast-track endorsement of this project.

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13. Finally, Pak Eddy stressed that the Multi-Donor Fund has specifically been selected by the BRR to support the infrastructure sector within the new strategic approach due to the flexibility of funds and the possibility to cooperate with BRR and local government funds through co-financing, an effort that will be necessary to cover the large cost gaps in this sector.

14. SC response to the new portfolio-based approach was overwhelmingly positive, particularly for the idea of introducing co-financing and receiving a more comprehensive set of projects that are an integral part of the larger reconstruction program currently under development.

15. A discussion was held on the modes of bringing the proposed spatial planning project quickly on its way. One option was to include this activity by amending the existing Housing Project. In this case, the BRR would be added as a second implementing agency. If this should prove difficult, then donors agreed that the project should be pursued via a stand-alone project concept note. However, several donor parties stressed that no new funds should be committed until the SC had undertaken its strategic review in January. In particular, it was requested to make sure there was synergy with spatial planning activities supported by the ADB.

16. The final topic on the BRR Update agenda was a presentation by Pak Heru on the reconstruction of Nias where the local BRR office has taken a lead in the wake of the First Nias Islands Stakeholders Meeting to develop a comprehensive recovery strategy for the islands. The presentation outlined major reconstruction bottlenecks and possible future involvement of the Multi-Donor Fund. The first proposed project to be forwarded to the Multi-Donor Fund is a Small Bridge Program that will link villages to larger infrastructure to ensure that materials reach their destination on a larger scale than up to date. The next NISM was announced for 17 January 2006.

17. Members welcomed the separate initiative to promote a more swift recovery of Nias.

PART B: Business Meeting

1. Approval of the Minutes of SCM #6

18. Due to time constraints the approval of Minutes for the preceding SCM was overlooked. However, since no further comments were made subsequent to the changes made earlier at the request of several parties, the Secretariat assumes that the Minutes have been approved unless further points will be raised after receiving the Draft Minutes of SCM #7.

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2. Six-Month Progress Report

19. Donors relayed several comments back to the Secretariat to improve the report. First, it was requested to modify the language a bit as to not undermine the credibility of the Multi-Donor Fund with a self-serving tone. Regarding “Challenges and Lessons Learnt”, it was felt that it was too early to draw conclusions, and that a separate lessons leaned exercise should be conducted during the first quarter of 2006. It was also requested to describe in more detail how the Multi-Donor Fund was able to raise its disbursements from USD 3 million to USD 75 million in such a short period of time, and what definition of disbursement applies in this report.

20. It was agreed that donors shall finalize their inputs to the report by Thursday, 15 December. Further it was agreed that an internal stocktaking together with the BRR on lessons learned should be conducted in the new year to identify important experiences that should be shared with the development community, especially with regard to trust fund procedures.

3. Other Items

Project Update21. For the project update presentation, please refer to the website (www.multidonorfund.org)

World Food Programme as Partner Agency 22. The Trust Fund Manager informed the Steering Committee that the World Food Programme

(WFP) was being recommended as a Partner Agency for the Multi-Donor Fund. WFP procedures had been found acceptable, except for financial management, where an additional four conditions will be added to the Fiscal Agency Agreement to ensure compatibility with World Bank/Multi-Donor Fund procedures.

23. The SC endorsed the WFP as a Partner Agency of the Multi-Donor Fund.

Update on Recovery of Aceh and Nias (RAN) Database24. Annette Rolfe of the BRR RAN Database team made a short presentation on the workings

of the database, indicating that first reports will be created within a short period of time. However, the database was not yet fully operational, still requiring further data entry and analysis. In the near future, there will be: a check-up on financial reporting to the RAN database (is it in line with actual planning and spending); a data validation exercise by comparing data with the results of sub-district progress reports; and sector reports to support coordination.

25. The ensuing discussion pointed out that technical problems with data entry still need to be solved, and it was suggested to have someone from the Secretariat officially liased to the RAN Database Team. Another question was about who will own the database when BRR leaves, and it was indicated that in the course of future capacity building it will need to be determined who will have the capacities to take over the management of the database.

Photo Exhibition

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26. The participants were informed that the Multi-Donor Fund “Reflections of Aceh and Nias” Photo Exhibition was up in the departure hall of the national terminal of Soekarno-Hatta Airport, and that further airport exhibitions in the international terminal, and the Medan airport were to follow before December 26. Further, the planned exhibition of photos in a joint exhibition with the BRR was under preparation to start on December 21.

4. Conclusion

27. Summing up the results of the Steering Committee meeting the Co-Chairs stated that this meeting had brought a new approach to the Multi-Donor Fund regarding its position in the overall recovery portfolio that would need to be clarified during the upcoming strategic discussions in January, both regarding the Multi-Donor Fund’s support to the project package proposed to the SC, as well as further support specifically targeted at Nias.

The meeting closed at 12.30 p.m.

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Secretariat (www.mdtfans.org)Multi-Donor Fund for Aceh and Nias

C/- World Bank Office, Jakarta Stock Exchange BuildingJl. Jend. Sudirman Kav 52-53, Jakarta 12190, Indonesia

Tel: (62-21) 5299-3000 Fax: (62-21) 5299-3111