NOTE 4 — UNCONSOLIDATED INVESTMENTS

Unconsolidated investments consist of the following:

	September 30,			December 31,
	2016			2015
	(Dollars in thousands)
Sarulla	$	(16,664	)	$	(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 an 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 is being 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 is currently in the commissioning and fine tuning stage but commercial operation date is expected to be delayed by few weeks. The delay is a result of local riots protesting the EPC contractor that caused a work stoppage. Work has resumed and we currently expect commercial operation of the first phase to begin in January 2017. For the second phase, engineering and procurement has been substantially completed, site construction is in progress and all of the equipment to be supplied by Ormat was delivered. For the third phase, engineering and procurement is still in progress, Construction work at the site is in progress and manufacturing of equipment to be supplied by Ormat is underway as planned. Drilling activities for the second and third phases are still ongoing and the project has achieved to date, based on preliminary estimates, approximately 80% of the required production capacity and approximately 80% of the required injection capacity. The project has missed a few milestones defined under the loan documents, but has received waivers from the lenders and commercial operation of the second and third phases is still expected to commence within 18 months after commercial operation of the first phase. As of September 30, 2016, the project is in compliance with milestones agreed with the lenders. The project is experiencing delays in the field development and certain cost overruns resulting from delays and excess drilling costs. Although estimated cost at completion is still within the approved budget (including contingencies), the lenders have requested that the sponsors commit additional equity. The sponsors have agreed and financing documents were revised to reflect this request. With respect to Ormat’s role as a supplier, all contractual milestones under the supply agreement were achieved.

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 (loss). During the three and nine months ended September 30, 2016, the project recorded a gain equal to $10.5 million and a loss of $30 million, respectively, net of deferred tax of $5.4 million and $15.4 million, respectively, of which the Company's share was $1.3 million and $3.8 million, respectively, which were recorded in other comprehensive income (loss). The related accumulated loss recorded by the Company in other comprehensive income (loss) as of September 30, 2016 is $10.9 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 $10.8 million against equity in loss of investees.

During the nine months ended September 30, 2016, the Company did not make any additional cash equity investments in the Sarulla project.