Zayana Zaikariah was quoted in BenarNews, 21 February 2025
By Iman Muttaqin Yusof
Malaysia is positioning itself as Southeast Asia’s next major hub for Artificial Intelligence (AI) data centers, attracting billions in investments from global tech giants like NVidia, Microsoft, and ByteDance.
Under Prime Minister Anwar Ibrahim, Malaysia is offering cheap land, tax incentives, and a growing workforce to become a “data center hub.”
But as the industry expands, water scarcity will be a significant challenge because, as mechanical engineering professor Poh Seng Lee explained, data centers operate 24/7 and rely heavily on water to cool high-performance servers.
“Many data centers employ water-based cooling solutions, such as evaporative cooling and cooling towers, due to water’s superior heat absorption properties,” the professor at the National University of Singapore told BenarNews.
“This results in substantial water consumption.”
Malaysia approved over 141.7 billion ringgit (U.S. $32 billion) in digital investments – including data centers and cloud services – between January and October 2024, creating 41,078 jobs, according to government data.
This followed 114.7 billion ringgit (U.S. $ 25.96 billion) in similar investments from 2021 to 2023.
Experts warn that Malaysia’s infrastructure may struggle to keep up with the expansion of data centers.
The three states of Johor, Selangor and Negeri Sembilan together host 101 data centers, with the lion’s share, 72, set up in Johor that borders Singapore.
In these states, data centers require 808 million liters per day (MLD) but current infrastructure can only provide 142 MLD. In Johor, only 17 of the centers have received approval for their water demand, according to Malaysia’s water regulator.
Data centers “are the foundation of the digital infrastructure on which our modern society and economy are built,” the website of the Data Center Coalition, a U.S.-based industry group, explained.
“Data centers are physical locations that organizations use to house their critical applications and data,” it said.
“Data centers aggregate our collective computing demands – everything from sharing photos with friends and family to streaming our favorite shows to supporting online learning and storing important medical and financial information – efficiently and securely in one location.”
‘Alternative water sources’
As it is, Malaysia’s water reserves face increasing pressure from rapid urbanization, industrial growth, and climate change.
While Malaysia has abundant water to meet current needs, rising demand from the expanding data center industry could cause water shortages, said Charles Santiago, chairman of the Malaysian Water Services Commission (SPAN).
“Alternative water sources must be considered to prevent a crisis,” he said at a recent news conference.
Malaysia must also ensure these investments “align with its renewable energy goals to prevent a surge in carbon emissions,” Zayana Zakariah, a climate and energy researcher at the Institute of Strategic & International Studies Malaysia, told BenarNews.
Malaysia’s Water Services Commission has proposed stricter water management policies for data centers and requested the government to review them.
One commission proposal says data center operators must explore alternative sources such as reclaimed water and desalination, before securing approval to operate.
“Water operators must assess the feasibility of alternative sources before approving new data centers,” the commission said in a statement.
“Reclaimed water, rainwater harvesting, and seawater desalination [should] be key considerations [when granting approval].”
The Malaysian government has said it is working on stricter sustainability policies for the industry.
Malaysia was taking a “more selective” approach to approving data center projects due to resource constraints,” Nik Nazmi Nik Ahmad, the minister of Natural Resources and Environmental Sustainability, said in a January interview with The Financial Times.
Tech companies would soon have to “pay a premium for water and energy supplies to operate in Malaysia,” he said.
Meanwhile, the Malaysian Investment Development Authority (MIDA) also introduced new sustainability guidelines in December 2024, requiring data centers to improve efficiency and monitor their carbon footprint.
Can the industry adapt?
Gary Goh, director and founder of a data center advisory firm Sprint DC Consulting, said investors already consider data centers part of Malaysia’s growth trajectory.
“[Data centers’] rapid expansion reflects the immense value they bring – not only in direct investment but also in enabling digital economies, supporting technological advancement, and creating job opportunities,” he told BenarNews.
“The market’s sensitivity to the data center sector further underscores its importance. For instance, the jittery sentiment in January’s data center market caused significant stock value losses, highlighting how integral this industry has become to broader financial markets.”
Environmental regulations could slow Malaysia’s data center expansion, said Adam Hamzah, the founder of a Malaysian company, Data Center Specialist.
“Companies might face higher costs or need to change operations,” he said.
However, he acknowledged that these measures could also drive innovation and sustainability in the sector.
For instance, Singapore’s three-year moratorium on data center developments over energy consumption and sustainability concerns spurred the industry.
“The moratorium forced companies to innovate, making them more energy- and water-efficient,” said Lee, the professor at the National University of Singapore.
“Malaysia should implement stricter policies now to balance economic growth with environmental responsibility.”
This article first published in BenarNews, 21 February 2025
