Note 6 - Investment in Unconsolidated Companies

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

NOTE 6 — INVESTMENT IN UNCONSOLIDATED COMPANIES

Investment in unconsolidated companies consists of the following:

	December 31,
	2021		2020
	(Dollars in thousands)
Investment in Sarulla	$	68,968	$	67,451
Investment in Ijen		36,918		30,766
Total investment in unconsolidated companies	$	105,886	$	98,217

The Sarulla Complex

The Company holds a 12.75% equity interest in a consortium that developed the 330 MW Sarulla geothermal power plant project in Tapanuli Utara, North Sumatra, Indonesia. The Sarulla project is comprised of three separately constructed 110 MW units, the most recent of which, NIL 2, was completed in April 2018. The Sarulla project is owned and operated by the consortium members under the framework of a joint operating contract and energy sales contract that were both executed on April 4, 2013. Under the joint operating contract, PT Pertamina Geothermal Energy, the concession holder for the project, provided the consortium with the right to use the geothermal field, and under the energy sales contract, PT PLN, the state electric utility, is the off-taker at the Sarulla complex for a period of 30 years. The Company has a significant influence over the Sarulla project through representation on Sarulla's board of directors and thus accounts for its investment in the Sarulla geothermal project under the equity method prescribed by ASC 323 - Investments - Equity Method and Joint Ventures.

During the years ended December 31, 2021, 2020 and 2019, the Company made no additional cash equity investment in the Sarulla complex. As of December 31, 2021, the total cash investment in the Sarulla complex since its inception is $62.0 million.

The Sarulla consortium entered into interest rate swap agreements with various international banks, effective as of June 4, 2014, and 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, are recorded in other comprehensive income. The Company’s share of such gains (losses) recorded in other comprehensive income (loss) are as follows:

	Year Ended December 31,
	2021		2020
	(Dollars in thousands)
Change, net of deferred tax, in unrealized gains (losses) in respect of the Company’s share in derivative instruments of unconsolidated investment	$	3,892	$	(3,975	)

The related accumulated loss recorded by the Company under accumulated other comprehensive income (loss) as of December 31, 2021 and 2020 was $6.4 million and $10.3 million, respectively.

The Sarulla power plant complex has been experiencing a reduction in generation primarily due to wellfield issues at one of its power plants, as well as equipment failures which resulted in a decrease in profitability. To address these issues, the project management developed a Long-Term Recovery Plan ("LTRP") that includes drilling of additional wells and various equipment modifications. The LTRP is expected to be implemented starting in 2022, pending approval by the lenders. Additional initiatives are also undergoing in an effort to strengthen the Sarulla project's financial position, including potential tariff changes. Additionally, in March and September 2021, Sarulla failed to meet its debt service coverage ratio under the credit facility agreement due to lower performance of the power plants. The Company determined that as of December 31, 2021, the aforementioned events and circumstances are still temporary and expected to be remediated by the LTRP and additional initiatives once finalized and executed. As the Company determined that the current situation and circumstances related to its equity method investment in Sarulla are temporary, no impairment testing was required. However, failure to execute the LTRP and/or the other remedial initiatives, altogether or separately, may result in a triggering event that would potentially require an impairment testing. 

The Ijen Project

On July 2, 2019, the Company agreed to acquire 49% in the Ijen geothermal project company from a subsidiary of Medco Power (“Medco”), which is a party to a Power Purchase Agreement and holds a geothermal license to develop the Ijen project in East Java in Indonesia for a total consideration of approximately $2.7 million. As part of the transaction, the Company committed to make additional funding for the exploration and development of the project, subject to specific conditions and during 2021 and 2020, the Company made additional cash investments of such of approximately $6.4 million and $21.0 million, respectively, for a total of $38.1 million . Medco retains 51% ownership in the project company and the Company and Medco are developing the project jointly. The Company accounted for its investment in the Ijen geothermal project company under the equity method prescribed by ASC 323 - Investments - Equity Method and Joint Ventures.