Paraguay’s Power Struggles: Electricity Theft and Higher Tariffs Test Crypto Mining Boom
Paraguay has become a crypto mining hub, but illegal operations stealing electricity and increased electricity tariffs pose challenges to growing the industry.
Paraguayan cities on the border with Brazil have long been known as smuggling havens for drugs, firearms, and illicit cigarettes. But now, authorities in this South American country have added a new type of contraband to the list — computing hardware.
The crime? Clandestine computer “farms” tucked away in unassuming warehouses are siphoning electricity from Paraguay’s electricity grid. These ultra-powerful rigs are designed to mine cryptocurrencies, which can use a significant amount of electricity. The process involves solving cryptographic math puzzles to verify blockchain transactions, with the fastest miner receiving a monetary reward.
The illegal activity is proving to be a thorn in Paraguay’s side as the country grapples to protect its electricity infrastructure and leave the door open for new investment. The country’s national grid operator (ANDE for its Spanish acronym) calculates that 72 firms are legally mining cryptocurrencies in Paraguay. These include foreign businesses drawn to the country’s relatively affordable electricity costs, low tax rates and opportunities to use renewable energy from the Itaipú Dam on the Paraguay-Brazil border.
While Paraguay’s President Santiago Peña of the conservative Colorado Party is focused on attracting foreign investment, a new hike in electricity tariffs for crypto mining companies has raised concerns that they may leave the country to invest elsewhere.
This booming new industry highlights a complex web of issues that any business entering the region must navigate. While cheap access to natural resources and lax regulations draw companies to countries across Latin America, issues like corruption, climate change impacts and a constantly changing regulatory playbook can pose risks later on.
Paraguay’s Clandestine Crypto Mining Crackdown
Paraguay’s inexpensive, renewable electricity makes it an attractive country for firms dedicated to bitcoin mining. However, its authorities are also dealing with makeshift operations illegally sucking power from the grid.
Paraguay’s electricity is sourced via hydropower from the Itaipú Dam that it shares with Brazil, which can generate 14,000 megawatts (MW) of electricity. However, the country suffers from an energy paradox. Although Paraguay produces more energy than it uses from the dam and provides electricity to more than 99.5% of its population, the country still struggles with energy poverty and blackouts during hot or inclement weather. Climate change could also threaten the dam’s future output, The Brazilian Report notes.
Clandestine crypto farms are only complicating these issues, taking advantage of gaps in oversight to turn a profit without paying their fair share of electricity. Local outlet Última Hora calculated that losses from these illegal connections had already cost ANDE USD8.7 million over the first five months of 2024. Illegal connections to the grid — for crypto mining and other purposes — account for about 28% of Paraguay’s electricity consumption, ANDE’s Commercial Director Hugo Rolón told local outlet Diario Hoy in March.
ANDE has ramped up its efforts to crack down on illegal crypto mining operations this year, orchestrating a series of high-profile raids in recent months. It carried out the biggest bust in May 2024, confiscating more than 2,700 machines from a clandestine farm in Salto del Guairá across from Brazil on the Paraná River. Just this week authorities said they seized nearly 700 data processors from Hernandarias, another border city known for crypto mining activity just north of Ciudad del Este.
ANDE estimates it has seized more than 10,000 pieces of crypto mining equipment in recent years, using methods including drones and AI software to detect the farms. It also relies on citizens to report illegal power connections to authorities. Visitors to the power authority’s website will immediately notice a smiling lightbulb in a work jacket holding a wrench, juxtaposed with a stark warning beside him: “Stealing energy is a CRIME.” Clicking the text redirects residents to a form where they can confidentially report incidents of stolen power.
The scale of these clandestine farms has raised questions about who is behind them and how they have avoided detection until now. ANDE President Félix Sosa told a local radio station in June that the administration was cooperating with the Public Ministry to investigate claims that its own employees or contractors may have helped set up the very farms stealing electricity from the grid. A pair of opposition senators have called on Sosa to undergo more stringent questioning about how the country’s illegal crypto mining problem has developed.
Paraguay’s Congress has also been trying to address crypto mining and its implications for years, discussing ways to regulate and even ban the practice. Paraguay’s former president Mario Abdo Benítez vetoed a crypto mining regulation in 2022 that never ended up passing. Senators considered a temporary ban on the activity in light of the illegal connections in April, which also failed to gain enough traction to become law. However, the Senate did pass a law in July 2024 that solidifies a penalty of up to 10 years in jail for anyone stealing energy for unauthorized crypto mining operations.
Paraguay is not the only South American country whose authorities have raided illegal crypto mining farms siphoning electricity. Argentina’s tax authority (AFIP for its acronym in Spanish) launched a series of raids on clandestine crypto farms in 2022, including a “mega-operation” in Quilmes that culminated in 70 busts and 40 arrests.
In a more radical approach, Venezuela’s power ministry announced in May 2024 that the country would completely disconnect all crypto mining farms from the grid over energy concerns. The country’s non-governmental crypto association encouraged those with mining equipment to disconnect it from the grid. “We do not consider that this has a solution in the medium or short term,” the organization said in a Spanish-language X post.
Electricity Tariffs: How Low Can You Go?
While Paraguay’s power authorities are busy dismantling illegal crypto mining operations, the country’s licit ventures face their own challenges.
One of the main issues is a recent electricity price hike specific to crypto mining and data center companies, which demonstrates how regulatory changes can quickly affect the economics of doing business in the region. In late June 2024, ANDE drew the ire of these firms by announcing it would raise their electricity tariffs by about 10% to 16%.
Sosa told senators that the increase was prompted by a May agreement between Paraguay and Brazil to renegotiate tariffs on energy generated from the Itaipú Dam, conservative newspaper La Nación reported. Paraguay and Brazil agreed to raise that tariff by 15.4% to USD19.28 kW/month until 2026. The two countries are still negotiating “Annex C” of the Itaipú treaty about the dam’s overall finances.
Some crypto miners in the country have cried foul over the new calculation. Jimmy Kim, the spokesperson for Paraguay’s new crypto mining chamber (Capamad), told local news outlet ABC Color that the increase was unexpected. He said that when ANDE last set the electricity tariff for crypto mining companies in 2022, the Itaipú power rate had been higher (US20.75 kW/month) than the new, planned price.
Leaders within Paraguay’s burgeoning crypto mining sector worry that the new electricity prices will dissuade firms from setting up shop in the country and push existing ones out. Capamad, which represents 12 businesses, said that the decision could drive away an industry it values at more than USD1.5 billion. It warned that these companies may leave Paraguay for other countries, such as neighboring Brazil. ANDE’s Sosa later denied claims that crypto mining companies were fleeing the country, saying that none of these businesses had terminated their contracts with the power authority so far.
A few other Latin American countries are also exploring mining with renewable energy, including the one using bitcoin as a legal currency alongside the US dollar — El Salvador. In May 2024, the government said it had mined 474 bitcoins using geothermal energy powered by a volcano since making bitcoin legal tender in 2021. Meanwhile, in Argentina, bitcoin mining company Genesis Digital Assets (GDA) partnered with YPF Luz to mine bitcoin by repurposing flare gas in Neuquén province.
For now, Paraguay is still home to several heavy hitters in the bitcoin mining space. Some notable players that have invested in Paraguay include US-based Marathon Digital Holdings and Sazminig, as well as Canada’s Bitfarms. ANDE’s Sosa said crypto miners have 391 MW of contracted power in service and 821 MW in total, ABC Color reported, with more expected as it signs pending contracts.
One of the latest firms to touch down in Paraguay is Canadian data center specialist HIVE Digital Technologies, which announced on 22 July 2024 that it plans to install a 100 MW crypto mining data center in Paraguay after meeting with President Peña and his staff. While the company said it believes an operation of this size could bring in more than USD100 million in revenue for the government over the next three years, it is keeping a close watch on policy.
“Stability in government fiscal policies, such as energy pricing and taxation, will be a key factor in our future expansion considerations relating to continued growth in Paraguay,” the company stated.
Beyond Crypto: Latin America’s Data Center Boom
Paraguay’s crypto mining boom is one facet of a bigger tech opportunity in Latin America: data centers.
Latin America’s data center industry is expected to grow from USD6.36 billion in 2023 to USD10.07 billion by 2029, a recent Research and Markets forecast predicts. One of the biggest potential use cases for data centers is the growing demand for AI applications.
“Several remote locations in Latin America, most of which went overlooked because of limited local cloud demand, will now be considered for new generative AI data center facilities,” Americas Market Intelligence Energy Practice Director Arthur Deakin wrote in a recent post.
Crypto mining companies are now considering turning to AI for better returns, The Defiant notes. This is partly because mining bitcoin, the world’s most popular cryptocurrency, is becoming less profitable. Bitcoin recently underwent “halving,” a phenomenon designed to cut block rewards for miners in half every four years and limit new bitcoins.
The effects are starting to show. A JPMorgan report shows that bitcoin mining’s profitability fell to an all-time low in August, CoinDesk reported. So, crypto miners are diversifying and consolidating to become more powerful and have a better chance of surviving in this new environment.
The promise of AI also highlights concerns about how many new installations Latin America can handle. Many parts of the region face issues including water shortages and hotter temperatures in the face of climate change. Community opposition to projects is relatively commonplace. For example, Mongabay reported that residents in drought-stricken Querétaro, Mexico, and Santiago, Chile have raised concerns about how new data centers may strain already-stressed water supplies.
Paraguay’s foray into crypto mining highlights why companies must look far beyond the promise of cheap electricity — even if this is their biggest expense. Energy theft and the potential climate impacts on its hydropower generation are just two examples of challenges that can complicate the picture. While the region poses opportunities for powering data centers with renewable energy to support crypto mining and the fast-growing AI segment, businesses should be aware of the challenges that fluctuating energy rates, changing government policies, fragile infrastructure and climate change effects can pose.
Whether it’s Paraguay or elsewhere in Latin America, Southern Pulse has the experience, network, and relationships to simplify this challenging region with honest, direct answers to your most complicated questions.
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