Abkhazia moves to shut down cryptomining as blackouts escalate

For years, Abkhazia has suffered from seasonal blackouts every winter. While the authorities blame cryptocurrency miners, experts say the problem goes much deeper.

Power outages are a winter tradition in Abkhazia. Abkhazia’s electricity supply depends on water levels in the hydroelectric power plant on the River Ingur (Enguri), which is jointly managed by Abkhazian and Georgian staff. During winter, these are critically low, as the mountains are covered with snow and very little water reaches the dam.

Every February since 2015, Abkhazian authorities have announced restrictions on energy consumption. In some years the restrictions have lasted a month while in others just a couple of weeks. During such times, the lights can be off for two to four hours a day.

This winter, the situation has escalated.

In early December, power lines, transformers, and electrical systems throughout Abkhazia began to burn out as the grid became overloaded. In early December, half of Sukhum (Sukhumi), Abkhazia’s capital and largest city, was left without electricity after the equipment at one substation caught fire.

‘The reason for this is the network load due to the illegal connection of equipment for mining cryptocurrencies’, says Ruslan Kvarchiya, director of operational and technological management at state power distribution firm Chernomorenergo.

As the system burnt, intermittent restrictions were immediately introduced throughout Abkhazia for six hours a day. In parallel, the authorities began investigating illegal connections to the power grid.

Mining Abkhazian-style

Cryptocurrency mines have become the largest consumers of electricity in Abkhazia. The authorities, aware of the problem, banned large-scale mines back in 2016 leading them to simply connect to the grid illegally.

Officers from the Department for Combating Economic Crimes, and even special forces, raided facilities where illegal mining was taking place. But all they could legally do was to switch the devices off and to seal them with a paper seal. As soon as the officers leave, the mining resumes.

Abkhazian President Aslan Bzhaniya has put forward a new draft law to put a stop to this cat-and-mouse game. The bill provides penalties of ₽1 million–₽5 million ($13,000–$67,000) for illegal use of electricity. The bill would criminalise the theft of more than a megawatt of electricity and allow for the confiscation of mining equipment if it were reconnected to the grid.

The law passed its first reading in parliament on 2⁠ February and will be finalised in its second reading.

Russia sets its own conditions

‘If it wasn’t for the fact that Russia supplies Abkhazia with energy, there would be no hunt for miners’, the owner of one small cryptomine who asked to remain anonymous, told OC Media.

‘They [the authorities] wouldn’t care about low voltage and regular blackouts, miners would work as best they can, but Russia sets its own conditions. And you have to reckon with them.’

Between 20 February 2020 and 1 May 2021, renovation works on the Ingur (Enguri) hydropower plant have meant that up to 800 million kilowatt-hours of electricity is being supplied from Russia. 

In order to stay within this limit, Abkhazia should consume approximately 8 million kWh a day, according to Economy Minister Kristina Ozgan. At the current rate of consumption, however, Abkhazia will run out of electricity by March.

However, since President Aslan Bzhaniya announced a decision to toughen the law and introduce penalties for cryptomining, consumption has been decreasing.

Cryptomining goes mainstream

As soon as the miners realised that their days of carefree mining were over, many began to sell their equipment, making mining accessible to the general population. 

Even people who did not have even a remote idea about what mining was began to dream of a ‘money-making machine’, which is how this equipment is called in Abkhazia nowadays.

‘Our whole courtyard chipped in and we installed one such device in the basement of our five-storey building’, one resident of Abkahazia tells OC Media. 

‘It takes as much energy as an oil heater. But in six months we’ll be able to lay asphalt in front of our building. If the city authorities aren’t able to help us with this, we’ll do it ourselves, but just let us do our thing.’

Another man tells OC Media how he installed a mining device in his house.

‘There are a lot of videos on YouTube about how to make a soundproof box. I put it there, installed a pipe to remove the heat, and pulled the cable into another room through a hole in the door.’ 

‘This device consumes as much energy as two oil heaters. I turned them off and turned the miner on. It turns out that it not only makes money, but also heats the house. In two months, it should return the costs and begin to generate income. The main thing is to keep it connected to the electricity’, he said, adding that he does not believe he is breaking the law.

‘I don’t steal electricity — I pay for it. I don’t overload the grid. I’m not a criminal. These officials have a thousand such devices and then they go on TV and lecture us on how to live. It’s them who are the real criminals’, he said.

Said Kudzhba, an inspector at the Department for Energy Supervision, told OC Media that the ban on cryptomining should extend to everyone and that it should be forbidden to own mining devices at all.

‘When mining started to gain traction, I bought several devices myself’, Kudzhba says. ‘But when it became clear that they were harming our energy system, I turned them off. And I advised all my friends to do the same.’

According to Kudzhba, providing society with heating and electricity is a priority and making money from such a scarce resource is a crime, even if it’s not spelt out yet in the criminal code.

Low tariffs and poor infrastructure

OC Media spoke with several electrical engineers who all said the same thing — if the price of electricity were fair, no one would mine cryptocurrency. 

‘Look, is there so much mining in other countries? No! Because there you have to pay for energy. And somehow we don’t’, Viktor Vershinin, a senior manager at Chernomorenergo said.

The price of one kilowatt-hour of electricity is just $0.005 in Abkhazia. By comparison, Armenian and Georgian consumers pay up to $0.08 per kWh, while the prices in Azerbaijan are up to $0.06.

Vershinin says that mining is not the cause of the energy crisis — it is the last nail in the coffin of Abkhazia’s electrical grid.

‘The demand for electricity has been growing. We all have more and more powerful appliances at home, such as air conditioners or heated floors. And the wires are old’, Vershinin said.

‘For many years, there were no people in power who would understand that it was necessary to invest in electrical engineering, raise the tariffs, and install meters. Without this, we’ll never have quality electricity.’

According to President Bzhaniya, to ensure uninterrupted power supply throughout Abkhazia, at least ₽4 billion ($54 million) needs to be invested into updtrading and renovating the grid and about ₽1 billion ($13.5 million) is needed to install meters in people’s homes.

In one of her latest speeches, the minister of economy emphasised that without investment, Abkhazia’s energy sector would hardly be able to stave off the crisis. But in order to start attracting outside investment, it would be necessary to amend legislation that currently prohibits private ownership of in Abkhazia’s energy sector.

The place names in this article are those of the author.  For ease of reading, we choose not to use qualifiers such as ‘de facto’, ‘unrecognised’, or ‘partially recognised’ when discussing institutions or political positions within Abkhazia, Nagorno-Karabakh, and South Ossetia. This does not imply a position on their status.