NOTE 4 — UNCONSOLIDATED INVESTMENTS

Unconsolidated investments consist of the following:

	March 31,			December 31,
	2016			2015
	(Dollars in thousands)
Sarulla	$	(12,216	)	$	(8,100	)

The Sarulla Project

The Company holds a 12.75% equity interest in a consortium which is in the process of developing the Sarulla geothermal power project in Indonesia with expected generating capacity of approximately 330 megawatts (“MW”). The Sarulla project is located in Tapanuli Utara, North Sumatra, Indonesia and will be owned and operated by the consortium members under the framework of a Joint Operating Contract (“JOC”) and Energy Sales Contract (“ESC”) that were signed on April 4, 2013. Under the JOC, PT Pertamina Geothermal Energy (“PGE”), the concession holder for the project, has provided the consortium with the right to use the geothermal field, and under the ESC, PT PLN, the state electric utility, will be the off-taker at Sarulla for a period of 30 years. In addition to its equity holdings in the consortium, the Company designed the Sarulla plant and will supply its Ormat Energy Converters (“OECs”) to the power plant, as further described below.

The project will be constructed in three phases of approximately 110 MW each, utilizing both steam and brine extracted from the geothermal field to increase the power plant’s efficiency. The first phase of operations is expected to commence towards the end of 2016 and the remaining two phases of operations are scheduled to commence within 18 months thereafter. Engineering and procurement for the first and second phases has been substantially completed but is still in progress for the third phase. Construction for the first phase is in progress with major activities related to mechanical and electrical equipment installation. The infrastructure work for the second phase is in progress. Major equipment, including Ormat’s OECs and Toshiba’s steam turbine, for the first phase has arrived and is currently being installed. The drilling of production and injection wells is also in progress for all three phases. The project is still experiencing delays mainly in field development, but also in the plant’s construction work. The project has missed a few milestones, but has received waivers from the lenders. The project is also facing certain cost overruns resulting from delays and excess drilling costs. Although estimated cost at completion is still within the approved budget (including the contingent equity), the lenders have requested that the sponsors commit additional equity. The sponsors have agreed and financing documents are being revised to reflect this request. With respect to Ormat’s role as a supplier, all contractual milestones under the supply agreement were achieved and the main shipment of the second phase is on its way to the Indonesian port. Manufacturing of third phase equipment is progressing as planned.

On May 16, 2014, the consortium closed $1.17 billion in financing for the development of the Sarulla project with a consortium of lenders comprised of Japan Bank for International Cooperation (“JBIC”), the Asian Development Bank and six commercial banks and obtained construction and term loans on a limited recourse basis backed by a political risk guarantee from JBIC. Of the $1.17 billion, $0.1 billion (which was drawn down by the Sarulla project company on May 23, 2014) bears a fixed interest rate and $1.07 billion bears interest at a rate linked to LIBOR.

The Sarulla consortium entered into interest rate swap agreements with various international banks in order to fix the Libor interest rate on up to $0.96 billion of the $1.07 billion credit facility at a rate of 3.4565%. The interest rate swap became effective as of June 4, 2014 along with the second draw-down by the project company of $50.0 million.

The Sarulla project company accounted for the interest rate swap as a cash flow hedge upon which changes in the fair value of the hedging instrument, relative to the effective portion, will be recorded in other comprehensive income. As such, during the three months ended March 31, 2016, the project recorded a loss equal to $24.9 million, net of deferred tax of $12.8 million, of which the Company's share was $3.2 million, which was recorded in other comprehensive income. The related accumulated loss recorded by the Company as of March 31, 2016 is $10.3 million.

Pursuant to a supply agreement that was signed in October 2013, the Company is supplying its OECs to the power plant and has added the $255.6 million supply contract to its Product segment backlog. The Company started to recognize revenue from the project during the third quarter of 2014 and will continue to recognize revenue over the course of the next two years. The Company has eliminated the related intercompany profit of $7.6 million against equity in loss of investees.

During the three months ended March 31, 2016, the Company did not make any additional equity investments in the Sarulla project.