KUALA LUMPUR: Johor has rejected nearly 30 per cent of data centre applications over the past five months as part of efforts to conserve resources and maximise its economic benefits.
The southern state began scrutinising applications through a committee in June 2024.
The Straits Times reported that this move followed concerns that the rapidly growing industry could strain local water and electricity resources.
Johor's Data Centre Development Coordination Committee vice-chairman Lee Ting Han said four out of 14 applications from foreign operators had been rejected since the committee was established.
"The rejections were primarily due to operators failing to demonstrate sustainable practices to reduce water and energy consumption," he was quoted as saying.
Applications are now required to include detailed sustainability plans, proposed site locations and job creation metrics, including salaries.
"Some proposals were turned down because they selected areas lacking adequate utility infrastructure, risking resource shortages for local communities," he added.
Johor's data centre capacity has grown exponentially, from 10 megawatts in 2021 to approximately 1.3 gigawatts currently.
It is projected to reach 2.7GW by 2027, with 13 facilities now spanning over 1.65 million square feet, according to research firm Baxtel.
The cost to build a data centre in Malaysia is estimated at US$10 million (RM47.3 million) per MW, making sustainable practices vital for long-term viability.
Johor's growth has coincided with Singapore's 2019 moratorium on new data centres, which was lifted only in 2022. Singapore's land and power constraints created opportunities for its neighbour to attract investments.
Before June, data centre operators only needed a development order from local authorities to commence construction. Now, they must first secure approval from the state's committee.
This additional layer of scrutiny evaluates proposals on three main criteria: sustainability practices, creation of skilled, well-paying jobs, and the likelihood of attracting clients once operational.
Deputy Investment, Trade, and Industry Minister Liew Chin Tong previously said competitive salaries were important to retain Malaysian talent, particularly in Johor, which competes with Singapore for skilled workers.
"If Johor offers two-thirds of Singapore's pay, our talent pool will return," he said on Nov 4.
Lee said the committee ensures companies commit to attractive wages, noting that fresh engineering and design graduates could earn starting salaries of RM4,000, above the industry average of RM2,800. Experienced professionals could see salaries exceeding RM10,000.
Prime Minister Datuk Seri Anwar Ibrahim, during the recent 2025 Budget speech, cautioned against hastily approving data centre projects that fail to create high-income jobs or promote knowledge sharing.
"The traditional approach of providing incentives to investors without considering economic spillovers is no longer sustainable," he said.
The federal government is finalising sustainable development guidelines for data centres, set to be introduced by the end of 2024.
These will include metrics such as power usage effectiveness, water usage effectiveness, and carbon usage effectiveness to ensure projects align with environmental goals.
The Investment, Trade, and Industry Ministry confirmed the guidelines would prioritise renewable energy, energy-efficient equipment, and water conservation.
"Sustainable practices will ensure data centres operate efficiently while preserving national electricity and water resources."
Government agency Sirim is also benchmarking international best practices to shape these guidelines, based on consultations with industry stakeholders.
Johor's proactive measures, coupled with federal initiatives, aim to position the state as a responsible and sustainable data centre hub for Southeast Asia.