NOTE

—

Accumulated loss of unconsolidated company in excess of investment

mainly consist of the following:

	December 31,
	2016			2015
	(Dollars in thousands)
Sarulla	$	(11,081	)	$	(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

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

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 a total

321

MW, utilizing both steam and brine extracted from the geothermal field to increase the power plant

’s efficiency. The

first

phase with

110

MW capacity is currently under testing and expected to commence operation in

March

2017.

For the

second

phase power plant, engineering and procurement has been substantially completed, site construction is in progress and all of the major generating units including those to be supplied by Ormat were delivered. For the

third

phase, engineering, procurement and construction work at the site are in progress and manufacturing of equipment to be supplied by Ormat is underway as planned. Drilling for the

second

and

third

phases is still ongoing and the project has achieved to date, based on preliminary estimates, approximately

80%

of the required production capacity and over

85%

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 as of now the project is in compliance with lenders requirements. The project is still experiencing delays in the field development and cost overruns resulting from delays and excess drilling costs. Due to the cost overrun in drilling, the lenders have requested from the sponsors to commit for 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.

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

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 year ended

December

31,

2016

and

2015,

the project recorded a gain of

$9.3

million and $

8.0

million, respectively, net of deferred tax, of which the Company's share was

$1.2

million and

$1.0

million, respectively, which was recorded in other comprehensive income. The related accumulated loss recorded by the Company in other comprehensive income (loss) as of

December

31,

2016

$5.9

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 next year. The Company has eliminated the related intercompany profit of

$12.0

million against equity in loss of investees.

During the year ended

December

31,

2016,

the Company made an additional

cash equity investment contribution to the Sarulla project in the amount of

$3.6

million.