NOTE

— UNCONSOLIDATED INVESTMENTS

Unconsolidated investments consist of the following:

	March 31,		December 31,
	2017		2016
	(Dollars in thousands)
Sarulla	$	2,806	$	(11,081	)

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 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 the power plant commenced commercial operation on

March

17,

2017.

For the

second

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

first

shipment of equipment manufactured by Ormat during the

first

quarter of

2017.

Drilling for the

second

and

third

phases of the power plant is ongoing and the project has achieved to date, based on preliminary estimates,

100%

of the required injection capacity and approximately

65%

of the required production capacity.

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 project has missed a few milestones under the loan documents, but has received waivers from the lenders and is currently in compliance with the lenders’ requirements. The project experienced delays in field development and cost overruns resulting from delays and excess drilling costs. Due to the cost overruns in drilling, the lenders requested that the sponsors commit to provide additional equity. The sponsors have agreed and the project’s financing documents were revised to reflect this request. Ormat, in its capacity as a supplier of equipment to the project, has achieved all contractual milestones under the supply agreement.

The Sarulla consortium entered into interest rate swap agreements with various international banks in order to fix the interest

linked to LIBOR rate on up to

$0.96

billion of the

$1.07

billion credit facility at

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

three

months ended

March

31,

2017

and

2016,

the project recorded a gain of

$4.5

million and a net loss of

$24.9

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

$0.6

million and

$3.2

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

March

31,

2017

$5.3

million.

Pursuant to a supply agreement that was signed in

October

2013,

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

$13.7

million against Equity in loss of investees.

During the

three

months ended

March

31,

2017,

the Company ma

de an additional cash equity investment in the Sarulla project of approximately

$14.9

million and

$26.9

million in total.