PM urges caution amid data centre buzz
31 Oct 2024
PRIME Minister Datuk Seri Anwar Ibrahim has cautioned against rushing to build data centres (DCs), especially if they do not add value to Malaysians in terms of high-income jobs and knowledge sharing.
The cautionary note was issued by the premier in his budget speech on Friday as he emphasised the need for a new shift to attract more high-quality investments into the country. “The traditional approach of providing support and incentives to investors without taking into account the economic spillover achieved is no longer sustainable,” he said.
While not directly saying the government would relook at the rapid development of DCs in the country, he points out that DC investment shouldn’t be a priority in attracting more foreign direct investment (FDI) unless it directly benefits the people through job creation, higher incomes and knowledge transfer.
This raises questions of whether the government is stepping back from attracting FDI through new DC development, as these facilities require high consumption of water and electricity and huge amounts of land.
“Some may misconstrue [his remarks] as the government wanting to relook at data centre development in the country. But the government can’t just suddenly pull a handbrake on data centre development,” Socio-Economic Research Centre (SERC) executive director Lee Heng Guie tells The Edge.
“Maybe, at this point, the government is looking at the cost-to-benefit analysis of data centre development in the country. But this is not unique only to data centres. As a matter of fact, since last year, the government has been looking at the impact of all new FDI coming into Malaysia’s economy.”
Lee points out that while it is acknowledged that DCs would not create many jobs, they do build a digital ecosystem that spills over into other sectors. “From construction to property to semiconductors and artificial intelligence, they are all correlated.”
Over the past year, Malaysia has become a sought-after destination for DCs in Southeast Asia, especially hyper-scale ones.
The recent spike in DC capacity can be attributed to the boom in cloud services, big data processing and advanced technology adoption that is driving the demand for hyper-scale DCs.
A Sept 24 report by Maybank Investment Bank shows that 766mw of DCs have already been committed, which is three times the current capacity of 280mw. The report also states that the future of 2,016mw still in the early stages is uncertain.
A market observer says Malaysia appears to be at a stage at which it is still accessing DC development. If it is not properly managed, it could result in oversupply.
“It is risky to focus on data centres alone. The country also needs to manage its resources and attract other FDIs that will complement the data centre development,” he adds.
Having said that, many analysts and renewable energy (RE) developers say DCs’ huge appetite for clean energy will drive demand.
As such, the government announced last month a third-party access (TPA) system to open up the national grid to the green energy sector.
Anwar, who is also the finance minister, said the government will also introduce carbon tax on the iron and steel as well as energy industries by 2026. The proposed tax is aimed at promoting the use of low-carbon technologies.
“Revenue generated from this tax will be used to fund green research and technology programmes,” he said.
SERC’s Lee says the two-year timeline for the country to adopt this carbon tax gives high-carbon industries time to work on decarbonisation.
“To decarbonise their operations, companies will be required to invest in RE and other initiatives to be ESG-compliant, which will be capital-intensive,” he says.
Local manufacturers hope the proposed carbon tax will not translate into higher electricity tariffs for the industrial sector.
In a statement on Friday, the Federation of Malaysian Manufacturers says: “Given the coverage of the proposed carbon tax on the iron and steel and energy sectors, it is crucial that the government has in place the emission-trading scheme, which is the preferred mechanism by the industry, to drive more cost-effective emission reductions.”
In Budget 2025, the government also announced a slew of additional initiatives for the RE sector, which is seen as a new economic engine, as the country aims to be net zero by 2050.
The government has raised the allocation to the National Energy Transition Facilitation Fund to RM300 million, from RM100 million in 2024. The Green Technology Financing Scheme has been extended, with an additional RM1 billion allocation until 2026. An e-rebate allocation of RM70 million for consumers and industries to purchase energy-efficient equipment should prioritise small and medium enterprises, in particular, to replace inefficient motors or boilers. The government will also extend the current Net Energy Metering 3.0 (NEM 3.0) programme to June 30, 2025, from Dec 31, 2024, to continue incentivising rooftop solar installation.
Anwar also announced that UEM Lestra and Tenaga Nasional Bhd would invest RM16 billion to increase the transmission and distribution network capacity as well as decarbonise industrial areas.
Source: The Edge Malaysia
