“Gray” Mining in the Republic of Kazakhstan and its Legalization

Earlier in the one of our articles, we covered the topic of registering companies to conduct digital mining activities. Currently, the registration of digital mining companies is of a notification nature in accordance with the Order of the Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated October 13, 2020 No. 384/НҚ “On approval of the Rules for informing about digital mining activities” (hereinafter – Order No. 384).

However, the application of a notification nature for the registration of digital mining companies has led to the emergence of a significant proportion of the so-called “gray miners” or “gray mining companies“. These are mining companies-miners that carry out their activities without notifying the ICRIAP of the Republic of Kazakhstan about its activity and hide the consumption of digital mining electricity. According to information from open sources and statements by government officials, the share of “gray” miners is equal to the number of officially registered “white” miners and consume more than 1 gigawatt of electrical energy[1].

How is the government fighting “gray” mining?

By the end of 2021, a significant increase in “gray” mining led to restrictions and rolling blackouts in some regions of Kazakhstan. Also, the state budget received less than 120 billion tenge in the form of tax deductions. In this regard, the authorized body in the field of digitalization of the ICRIAP RK is working in 3 following areas[2]:

1) the introduction of revolving checks by mobile teams of the Department of Energy and law enforcement agencies;

2) creation of a list of organizations, determination of historical data on energy consumption, as well as tax and customs audits;

3) development of prohibiting activities mechanisms by restricting IP- addresses from which “gray” mining is carried out.

Moreover, even the confiscation of involved in “gray” mining property is possible.

However, the most important innovation will be the transition from the notification procedure for the activities of mining companies to the permissive procedure. In other words, a company intending to engage in digital mining will be required to apply for a license to conduct this activity.

How to legalize a digital mining company?

Considering that innovations are still at the stages of development and discussion, one should be guided by the current regulatory legal acts. As mentioned above, Order No. 384 is the main act regulating the procedure for informing about digital mining activities.

Order No. 384 establishes a certain algorithm of actions and a list of information that must be provided to the ICRIAP of the Republic of Kazakhstan to officially start digital mining:

Step 1. You must already have an established legal entity in the Republic of Kazakhstan. Basically, a common organizational and legal form is a Limited Liability Partnership.

At the same time, it should be noted that it is possible to open a legal entity in the Astana International Financial Center and engage in digital mining. However, if data processing centers are located on the territory of the Republic of Kazakhstan, digital mining activities must be carried out in accordance with the legislation of the Republic of Kazakhstan.

Step 2. According to paragraph 3 of Order No. 384, it is necessary that the legal entity informs within 30 (thirty) calendar days about the planned activities (before designing) for the construction of data processing centers [3] (hereinafter referred to as the DPC) in the form of an appeal on paper or in the form of an electronic document in the ICRIAP RK. We consider it convenient to use the electronic format of the appeal through Egov.kz.

When providing information, it is mandatory to specify the following:

1) name of the legal entity/individual entrepreneur;

2) BIN / IIN;

3) legal address of a legal entity / individual entrepreneur;

4) contact details (phone numbers, e-mail address);

5) bank details of a legal entity/individual entrepreneur;

6) the required power in megawatts (MW /) for the implementation of activities in the field of digital mining / provision of services to provide a comprehensive computing infrastructure for performing computing operations and processing data by persons engaged in digital mining;

7) the number of planned jobs;

8) planned investments (tenge);

9) IP address (dedicated pool of IP addresses);

10) a copy of the cargo customs declaration and / or a document confirming the availability of equipment in the field of digital mining on the basis of ownership or other legal grounds;

11) information about the location of the data processing center for digital mining;

12) a document confirming the residence of the Republic of Kazakhstan, a person carrying out activities in the field of digital mining;

13) a copy of the technical specifications for connection to electric networks for carrying out activities in the field of digital mining.

The ICRIAP RK provides a response on inclusion in the list of organizations that informed about the start of activities in the field of digital mining.

It should be noted that upon the termination of digital mining activities, the entrepreneur is also obliged to notify the ICRIAP about this by sending a letter on paper or an e-mail through Egov.kz.

Step 3. After receiving an application from a legal entity engaged in digital mining activities, the ICRIAP RK informs the Ministry of Energy of the RK, sends the following in the form of an electronic document within 5 (five) calendar days:

1) a copy of the cargo customs declaration and / or a document confirming the availability of equipment in the field of digital mining on the basis of ownership or other legal grounds; 

2) information about the location of the data processing center for digital mining; 

3) a document confirming the residence of the Republic of Kazakhstan, a person carrying out activities in the field of digital mining;

4) a copy of the technical conditions for connection to electric networks for carrying out activities in the field of digital mining.

Step 4. At the same time, entrepreneurs in existing data processing centers quarterly, until the tenth day of the next month, submit information on digital mining activities in the form of a paper application or in the form of an electronic document to the ICRIAP.

Information should be provided on the current amount of power consumption in megawatts (MW), planned investments in data center equipment, the potential for investments for the development of data center infrastructure planned this year, and the number of jobs for data center maintenance personnel.

Conclusion

As of June 03, 2022, digital mining activities are registered in a notification character with the ICRIAP RK. So, according to this ministry, as of April 05, 2022, 245 organizations were officially notified of current activities in the field of digital mining and the start of activities in the field of digital mining. At the same time, 37 organizations were officially notified of the provision of infrastructure for digital mining[4].

However, it should be noted that measures are currently being developed to combat “gray” miners. In this regard, in order to facilitate the legalization procedure, we recommend sending a notification to the ICRIAP RK about the start of digital mining activities, which in the future will probably facilitate obtaining a license to conduct this activity. At the same time, after the official approval and publication of new rules for the registration of mining companies, our company will provide an analysis of innovations for our clients.

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[1] https://kapital.kz/economic/102596/bagdat-musin-seryy-mayning-eto-ekonomicheskoye-prestupleniye.html
[2] https://primeminister.kz/ru/news/mcriap-rk-razrabotalo-ryad-kompleksnyh-mer-po-borbe-s-tenevymi-maynerami-1513635
[3] Server room (data processing center) – a room designed to accommodate server, active and passive network (telecommunication) equipment and equipment of structured cabling systems
[4] https://www.gov.kz/memleket/entities/mdai/documents/details/292598?directionId=6&lang=ru

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