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Hydropower Fuels Kyrgyzstan’s Crypto Mining Industry

Kyrgyzstan’s water-rich environment holds significant potential for boosting the country’s crypto mining industry, given its abundance of natural resources. However, accessing this power is currently a challenging task.

Situated in Central Asia, Kyrgyzstan boasts breathtaking natural landscapes and, crucially for miners, an extensive reservoir of water resources. According to the country’s government, Kyrgyzstan stands out as the only nation in Central Asia whose water resources are almost entirely located within its own borders, representing a hydrological advantage. The republic takes pride in its substantial water and hydropower reservoirs, considering them among its primary assets.

Kyrgyzstan is home to over 2,000 rivers exceeding 10 km in length. Moreover, a considerable volume of water is concentrated in lakes, small ponds, and reservoirs, covering an area of 6,836 square kilometers. The country also features 6,580 glaciers with reserves totaling approximately 760 billion cubic meters. Despite this wealth of resources, the current challenge lies in effectively harnessing this potential for the benefit of the crypto mining industry.

Despite its abundant water resources, Kyrgyzstan currently faces challenges in utilizing this potential for its crypto mining industry. The country still relies on importing electricity due to various restrictions and technical issues.

Energy Minister Taalaibek Ibraev shared insights on the situation, mentioning that mining farm owners in Kyrgyzstan also possess small hydroelectric power stations. These power stations primarily cater to the owners’ needs and are utilized through contractual agreements. The excess electricity generated is then sold to the state.

However, it’s noteworthy that one of the country’s mining farms opts to purchase electricity from Kazakhstan and pays Kyrgyzstan for transit. This highlights the complexities and hurdles in fully tapping into Kyrgyzstan’s indigenous water resources to power its growing crypto mining sector.

One Farm Standing

Over the past year, there has been a notable transformation in Kyrgyzstan’s mining ecosystem. Despite calls for the industry to be legalized by supporters in political circles, miners faced significant restrictions due to a state of emergency in the energy sector that commenced in August.

As of October 2023, only one crypto mining farm remained operational. However, in a positive development, Kyrgyz President Sadyr Japarov granted approval for the construction of a new crypto mining farm in July. The government planned to invest up to $20 million in building the facility at the Kambar-Ata-2 Hydro Power Plant, utilizing excess power for mining operations.

Running a crypto farm in Kyrgyzstan, however, comes with substantial expenses. Beyond paying for electricity transit and other energy-related costs, crypto mining is subjected to the highest tariff rates permitted in the country. These financial challenges underscore the complex landscape that miners face despite the country’s potential in water resources for powering crypto mining operations.

Mining Taxes Filling Budget

In response to inquiries about whether the remaining crypto mining farm should be closed, Energy Minister Taalaibek Ibraev stated, “The law allows the operation of mining farms. But they must import electricity. Additionally, they pay taxes for transit. Let it work.” He highlighted that the operating farm imported electricity, paying taxes for transit, and contributed significantly to the country’s budget. In a specific instance, the farm consumed 17.2 million kilowatt-hours, generating 4.9 million soms (USD 55,000) for transit, along with additional taxes and contributions to the Social Fund.

The economic contribution of crypto farms to the country is evident in the budget revenues. According to a December report, the mining tax generated 7.64 million soms (USD 85,760) in November, marking an increase of 414,000 soms (USD 4,650) from the previous month. Cumulatively, the tax contributed 78,639,200 soms (USD 882,740) to the treasury in just 11 months. The highest monthly figure in 2023 was recorded in August, reaching 11.6 million soms (USD 130,210). The report noted a growth trend in payments starting in the second quarter of the year. This underscores the positive impact of crypto mining activities on the country’s fiscal resources.

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