Johari Says States Without Enough Water Will Not Get New Data Centres as Malaysia Tightens Approvals

Malaysia will not approve new data centres in states that lack sufficient water supply, even where land is available, Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani told the Dewan Rakyat on Wednesday, The Edge Malaysia reported. Speaking during the winding-up debate on Budget 2027, he said there would be no blanket moratorium, but applications will be assessed on water availability, electricity supply and the financial strength of investors.

The Malaysian Investment Development Authority (Mida) will work with state governments to assess water requirements, while power availability will be evaluated with Tenaga Nasional Bhd. Johari said 117 data centres have been approved nationwide: 55 are operating, 19 are under construction and 16 have approval but have not started building. The remaining 27 are at various stages and are expected to meet their electricity needs through off-grid arrangements.

Data centres drawing power from Tenaga will pay market rates without subsidies, and their electricity requirements have been separated from those of other industrial users to protect the utility’s reserve margin. Operators must also pay for contracted capacity even if they use less: one that books 300 megawatts but uses only 100 megawatts still pays for the full amount. A minimum local content requirement of 30 per cent will apply to data centre-related development.

What it means in practice

Much of the new capacity is being built for artificial intelligence workloads, which need large amounts of power and, for many cooling designs, water. The approach builds on the energy ministry’s review of data centre power reservations and puts a price on speculative bookings that tie up grid capacity. Developers announcing very large AI campuses, such as the letters of intent for 500MW of AI capacity, will face a tougher test of whether the water and the money are really there.

For states competing for investment, the message is that land banks alone are not enough. States hoping to attract hyperscalers may need to invest in water supply first, and the 30 per cent local content rule is meant to ensure that more of the spending reaches Malaysian contractors and suppliers rather than flowing straight back out of the country.

What to watch next is how Mida turns the water criteria into published guidelines, how strictly the take-or-pay power terms are enforced, and whether a planned data centre bill writes these conditions into law.