Kua Kia Soong
Malaysia’s rise as a regional data centre hub has been hailed as proof that the country is becoming a major player in the digital economy.
Ministers proudly announce billions of ringgit in investment from global technology giants. State governments compete to attract new projects, and consultants celebrate Johor’s emergence as Southeast Asia’s data-centre capital.
Yet one fundamental question is being neglected. Should Malaysia keep approving new data centres when many people in Malaysia still face concerns over water security, unreliable electricity and rising utility costs? The answer should be obvious.
Before making the case for a moratorium, it helps to set out the scale of Malaysia’s data centre boom and the growing strain on electricity and water security.
The numbers behind the boom
Malaysia has become Southeast Asia’s fastest-growing data centre hub. This growth is driven largely by global technology firms relocating capacity from Singapore, and wider expansion of AI infrastructure.
Between 2021 and June 2025, the federal government approved 143 data centre projects worth a total of RM144.4bn. By early 2026, Malaysia reportedly had 34 operational data centres and 33 more under development, according to the Malaysia Digital Investment Department.
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Johor, Selangor and Negeri Sembilan together host around 101 data centres. Johor alone accounts for about 72 facilities, making it the country’s main hub. By late 2025, Johor had 51 approved projects, of which 17 were operational and 11 under construction.
Malaysia’s operational data centre capacity is projected to grow from around 1,025 megawatts (MW) at the end of 2025 to more than 2,000MW by the end of 2026. A further 3,500MW is in the pipeline.
By the end of 2024, 38 projects had already secured electricity supply agreements with a combined maximum demand of 5.9 gigawatts (GW). That is roughly 43% of Tenaga Nasional’s contracted capacity.
Malaysia’s National Water Services Commission (Span) estimates that 104 data centres could need around 876 million litres of water a day for cooling.
At the same time, Malaysia is already facing record electricity demand. Reuters reported in May 2026 that power demand in the peninsula rose by 11.5% year-on-year, driven partly by data centre expansion and extreme heat. Analysts expect demand to keep growing by around 4% a year, largely because of data centres.
The federal government and state governments should act now and impose a moratorium on new data centre approvals until they can guarantee adequate energy and water supplies for the people and for local industries.
Unlike manufacturing plants, which create large numbers of jobs and wide supply chains, modern hyperscale data centres use enormous amounts of electricity and water. Yet they employ relatively few workers once construction ends.
The speed of this expansion is unprecedented. It is driven largely by artificial intelligence, cloud computing and the relocation of facilities from Singapore, where land, water and energy limits have forced policymakers to slow expansion there.
In effect, Malaysia risks becoming the resource hinterland for the region’s digital economy.
Electricity security must come first
Electricity is not unlimited. Data centre demand is reportedly already contributing to record power consumption in the peninsula.
To meet growing demand, Malaysia has leaned more heavily on natural gas generation, while warning of future liquefied natural gas imports to support the expanding power sector.
The real question is not whether Malaysia can eventually generate more electricity. It is whether households and local industries should have to compete with foreign-owned data centres for power supply.
No government should approve projects that could jeopardise domestic energy security. Before granting a single new data centre licence, the government should publicly show:
- Sufficient reserve electricity margins
- Guaranteed domestic supply for households
- No rise in electricity tariffs linked to data centre demand
- Adequate grid infrastructure
- Clear renewable energy commitments from operators
Without these guarantees, ordinary people are effectively subsidising private digital infrastructure.
Water – an even bigger worry
The water issue may be even more serious. Data centres need vast amounts of water to cool servers running around the clock.
Malaysia already experiences periodic water shortages, pollution incidents and supply disruptions. Several states face growing pressure from climate change, drought and competing industrial demand.
Johor’s own authorities have reportedly tightened approvals over concerns about water and electricity availability. Industry reports suggest up to 30% of applications have been rejected because of resource constraints.
This should serve as a warning to the rest of the country. No one in Malaysia should face water rationing while data centres keep consuming millions of litres a day. The right to water must take precedence over the cooling needs of multinational technology firms.
Lessons from other cities
Malaysia is not alone in facing this dilemma. In June 2026, mayors from cities around the world launched an initiative to tackle the growing burden of data centres on electricity grids and water resources.
City leaders warned that investment is moving so fast that regulation cannot keep pace. Many governments are now asking whether the economic benefits justify the environmental and infrastructure costs.
Malaysia should ask the same questions:
- What is the real return to society from these projects?
- How many permanent jobs do they create?
- How much tax revenue do they generate after incentives?
- What are the long-term costs to water systems, electricity networks and public infrastructure?
These questions deserve transparent answers before any further approvals. A moratorium is not an anti-investment policy. It is a prudent pause to keep development sustainable.
The federal government and state governments should jointly suspend approvals for new data centres until:
- Independent assessments confirm adequate long-term electricity supply
- Independent assessments confirm adequate water availability
- Ordinary people’s domestic consumption is guaranteed priority access
- Data centre operators pay the full environmental and infrastructure costs they create
- Mandatory renewable energy targets are enforced
- Full transparency is provided on water and electricity consumption
- Public hearings are held before any major project is approved
Putting people first
Malaysia should embrace digital development, but not at the expense of its people. Economic growth must serve society, not the other way round.
When electricity and water become scarce, government’s first duty is to its people, not foreign investors.
Until the federal government and state governments can guarantee secure, affordable and sustainable energy and water for every household in Malaysia, there should be a nationwide moratorium on new data centre approvals.
The digital economy can wait. The basic needs of the people cannot.
Dr Kua Kia Soong is a former MP and director of Suaram.
The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.
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