Georgia must scrap electricity subsidies to curb Abkhaz bitcoin mining – researcher
LONDON (ICIS)–Georgian authorities should immediately scrap electricity subsidies to curb illegal cryptocurrency mining in Abkhazia which threatens to deepen economic imbalances and the country’s dependence on Russian imports, a senior researcher at a Tbilisi-based think tank told ICIS.
Givi Adeishvili, head of economic and social policy direction at the Institute for Development of Freedom of Information (IDFI) said per-capita electricity consumption in the north-western Abkhaz region is now 3.3 times higher than in the rest of the country.
While overall Georgian electricity consumption was down 10% year on year in 2020, it increased by 24% to 2.5TWh over the same period in the Black Sea province.
More specifically, per-capita consumption in Georgia was 2.6MWh in 2020, but the same figure for Abkhazia was 8.5MWh.
Cheap electricity delivered to the province is used for cryptocurrency mining, Adeishvili said.
“Even if we were to allow for economic growth and high energy inefficiency, which would increase electricity consumption, these would still not explain the levels we currently see in Abkhazia,” he said.
He warned that if the practice is not reined in, Georgia’s electricity deficit would increase, deepening its dependence on Russian or Azerbaijani imports.
Legal cryptocurrency mining has been widespread in the whole of Georgia in recent years, as the country can rely on relatively cheap hydropower production, which has encouraged the practice. Cryptocurrency mining requires high electricity consumption.
This meant that when the first bitcoin bubble occurred in 2017 and prices soared from $975 in March to just over $20,000 towards the end of that year, legal cryptocurrency mining accounted for around 5% of Georgia’s total consumption.
As the bitcoin price fell in 2018, overall electricity consumption from legal cryptocurrency farms in Georgia shrank to 1% of that year’s total demand, Adeishvili said. Electricity prices in Georgian provinces have also increased in the meantime.
ILLEGAL CRYPTOCURRENCY MINING
However, illegal cryptocurrency mining continued underground, particularly in the Abkhaz region, which receives electricity from the Georgian Enguri hydropower plant at prices that hover around US $0.01/KWh compared to $0.06-0.07/KWh paid by Georgian consumers.
The situation is compounded by Abkhazia’s ambiguous political status. Although the region has been under de facto Russian control following the Russian-Georgian war of 2008, it is still internationally recognised as being part of Georgia.
Under existing arrangements, Georgia supplies electricity to Abkhazia. As the 1.3GW Enguri power plant straddles the Georgian-controlled Upper Svaneti territory and the Gali district of Abkhazia, the two initially agreed for electricity generated at the facility to be supplied in equal measure to both.
However, with the increase in electricity demand in Abkhazia, the province off-took 93% of the output in 2020, according to a recent IDFI report co-authored by Adeishvili.
The situation took a further twist in January when the Enguri power plant went into planned maintenance. It is expected to be offline until the end of May.
To plug the shortfall, Abkhazia ramped up Russian electricity imports, Adeishvili said. The official cost of Russian offtake is not known, but the researcher said the cost may be around $0.05/KWh.
The import bill is thought to be shouldered by Georgia because devolving it to Abkhazia would implicitly mean acknowledging its separatist status.
However, Georgia cannot recover its costs internally because Abkhazia pays only subsidised electricity prices which are significantly cheaper than in the rest of the country.
Earlier this year the unrecognised Abkhaz parliament passed a package of bills including steep fines for illegal use of electricity and extended by another year a ban on cryptocurrency mining until May 2022.
However, Adeishvili doubted the ban could be enforced, as there is a lack of transparency and electricity metering in Abkhazia. The province is also very poor, and the value of bitcoin has now soared close to $60,000.
Adeishvili said that as long as Abkhazia pays electricity prices of $0.01/KWh and cryptocurrency prices remain high, the ban is impossible to enforce.
“As long as bitcoin prices are $60,000, even electricity prices at $0.03-0.04/KWh are attractive,” he explained.
ICIS contacted both the Georgian ministry of energy and the unrecognised Abkhaz parliament for comment. Neither replied by publication time.