NOTE

—

Invesment in an unconsolidated company

Investment in an unconsolidated company

mainly consist of the following:

	December 31,
	2017		2016
	(Dollars in thousands)
Sarulla	$	34,084	$	(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

MW. The Sarulla project is located in Tapanuli Uta

ra, North Sumatra, Indonesia and is owned and operated by the consortium members under the framework of a JOC and 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, PLN, the state electric utility, is 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 has and will supply its 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

and is performing well, demonstrating its ability to produce geothermal power in excess of its design capacity. The

second

phase of the power plant commenced commercial operation on

October 2, 2017.

Construction work on the

third

phase of the power plant is progressing and on schedule although the gathering piping system

may

face some delays. The Company has achieved all of its contractual milestones under the Supply Agreement. Drilling for the

third

phase 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

85%

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 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 experienced delays in field development and cost overruns resulting from delays and excess drilling costs. Due to the cost overruns in drilling, the lenders

may

request that the project sponsors contribute additional equity to the project.

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 years ended

December 31, 2017

and

2016,

the project recorded a gain of $

million and

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

million and

$1.2

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, 2017

$5.

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 year.

During the year ended

December 31, 2017,

the Company made an additional cash equity investment contribution to the Sarulla project in the amount of $

million

for a total of

$58.2

million since inception