Recently, Kyrgyz President Sadyr Japarov accepted an exclusive interview with the national news agency Kabar and answered questions about building "mines" at hydroelectric power stations, that is, using hydropower to produce virtual currencies. Sadyr Japarov highly praised the mining business for consuming excess electricity in the region and contributing to the development of Kyrgyzstan by paying electricity bills and taxes, and allowed cryptocurrency mining activities in areas where power generation capacity permits.
In this issue, we will talk about Kyrgyzstan, a small landlocked country in Central Asia that was a former Soviet republic.
Speaking of its historical relationship with China, it has quite some origins. In the Tang Dynasty, it was under the jurisdiction of Anxi Protectorate of my country and was once called "Suiye". The great poet Li Bai was born here. The current President of Kyrgyzstan, Sadyev, mentioned in the news just now, is also from China. His father was born and raised in China.
In the 21st century, Kyrgyzstan has once again become an important node of our Eurasian Continental Bridge. In September this year, the China-Kyrgyzstan-Uzbekistan Railway (China, Kyrgyzstan, Uzbekistan) will be officially started. It will be more than 500 kilometers long, starting from Kashgar in Xinjiang, crossing the Pamir Plateau, passing through Kyrgyzstan, and arriving at Tashkent, the capital of Uzbekistan. It is planned to connect Turkmenistan, Iran, and Turkey to reach EU countries.
80% of Kyrgyzstan's territory is made up of mountains, with 1,923 lakes and more than 25,000 rivers. Due to the terrain advantages of many mountains and rivers, hydropower resources are extremely rich. The annual power generation available for development is 143 terawatt-hours, which is almost twice the annual power consumption of the entire Bitcoin network.
Currently, most of Kyrgyzstan's power infrastructure was built during the Soviet era, including power plants, substations and transmission networks, which have long exceeded their service life (30 years) and are still operating beyond their service life. Therefore, Kyrgyzstan is actively building multiple hydropower stations, which have attracted a considerable number of miners to settle here. The current situation is that 90% of the country's electricity comes from hydropower, while the remaining 10% is produced by coal, mainly to make up for the low hydropower generation in winter.
Bitcoin miners in Kyrgyzstan can basically be divided into two groups: "white" legal miners and "gray" illegal miners.
White miners obtain compliance licenses, abide by regulations and pay taxes. Most of these mines operate their businesses directly in hydropower stations, which can effectively reduce regulatory and electricity costs, and enjoy some tax incentives introduced to encourage hydropower development.
Gray miners secretly obtain low residential or industrial electricity prices through other projects. However, no matter which type of miners they belong to, they are often closely related to local officials or powerful people.
Obviously, from the perspective of the central government’s interests, in the long run it will definitely crack down on gray miners and support white miners. Therefore, the latest policy is to encourage white miners to participate in the pilot construction of small hydropower stations to operate mining projects. Previously, due to lack of funds, these projects were suspended for many years. This is equivalent to miners providing the necessary financing for the undeveloped hydropower stations in disguise.
Already, big miners are financing several smaller hydroelectric plants and if these pilot projects prove successful, they could be followed by larger projects.
Then, let’s talk about Kyrgyzstan’s current President Sadyr Japarov.
When he was young, Zhaparov was a Soviet officer. With the disintegration of the Soviet Union, his "iron rice bowl" was soon lost. After that, he went into business, involving many industries and fields. He worked as a farmer, director of an oil company, and owner of an oil refinery. He successfully accumulated huge wealth and political and business connections, and had practical experience in important economic sectors in Kyrgyzstan.
Since Zaparov has a very successful business record, it can be judged that his governance will not violate the basic market business laws, and he is unlikely to do stupid things like draining the pond to fish or burning the forest to hunt.
But we need to be particularly aware that after becoming president, Zhaparov was nicknamed "Central Asian Trump". He is very good at using populism and has actively promoted the nationalization of all foreign-funded minerals. In 2022, he nationalized a gold mine controlled by a Canadian mining company through international arbitration.
It can also be said that Kyrgyzstan is essentially still a region where the business environment and regulations and policies change overnight. Like many former Soviet countries, it does not have a relatively predictable legal system, and must rely more on political and business relations and their personal networks.
Kyrgyzstan has a bigger problem: political instability. Not only is there no continuity in policy, but even the political power is difficult to maintain. Of course, this is also a common problem in Central Asian countries.
Nevertheless, I believe that for miners with risk tolerance and entrepreneurs with connections, chaos is a ladder and opportunities always come with risks.