Johor Tightens Data Centre Approvals as Water Demand Tests Its Technology Boom

RM182.96 billion in projects meets a water limit

Johor is tightening approvals for new data centres as the Malaysian state's rapid expansion into artificial intelligence computing and cloud services puts greater pressure on water supplies. Officials say applications for Tier 1 and Tier 2 facilities will no longer be approved, citing proposals that could draw as much as 50 million litres a day for cooling, roughly the volume of 20 Olympic swimming pools.

By November 2025, Johor had approved 51 data centre projects with a combined investment value of RM182.96 billion. Seventeen were operating, 11 were under construction, and 23 had been approved during 2025. The scale of investment has made protection of public utilities a central part of decisions about further growth.

Residents have complained that water supply disruptions have become more frequent in recent years. State officials want new facilities to meet stricter sustainability and energy efficiency standards aligned with international benchmarks, while avoiding demands that could overwhelm networks serving homes and businesses.

Johor's response combines tighter screening, a higher water tariff for data centres and support for alternative supplies. Developers are already turning to reclaimed wastewater, treated river water and cooling equipment that uses less water. Some are also looking beyond the state's earliest data centre cluster to places where utility capacity can be secured sooner.

As of November 27, the central challenge is how to accommodate a large pipeline of digital investment while keeping household taps running and expanding electricity supply. Johor's decisions will affect which projects proceed, where they are built and how much operators must spend on cooling and water treatment.

What the approval change means

Tier ratings describe how well a data centre can keep operating when equipment fails or maintenance is needed. Higher tiers generally provide stronger redundancy, meaning spare equipment or alternative systems that can take over when something stops working. Johor's decision directs new development toward facilities with greater resilience and more sophisticated designs.

Water consumption depends on the cooling equipment and water sources chosen for a facility. Older or simpler designs often use cooling towers that consume substantial amounts of water and lack arrangements for reclaimed supplies. Officials say some proposals in the lower tiers could require up to 50 million litres daily.

Johor is therefore examining both reliability and resource use. A project must show how it will keep servers operating while limiting demands on the same public infrastructure used by surrounding communities. Water conservation plans now carry greater weight in the approval process.

Developers can reduce consumption through efficient chiller plants, closed loop cooling, liquid cooling directly at computer chips or systems cooled by air. Each option has its own balance of water and electricity needs. A facility designed to save water may require more power, making both resources part of the state's assessment.

How Johor became a regional computing hub

Singapore's pause on new data centre projects between 2019 and 2022 helped accelerate Johor's growth. The island nation was managing constraints on electricity and water, prompting developers and customers to consider locations across the border.

Johor offered lower costs and proximity to Singapore's subsea cables and technology workforce. Those cables carry data between countries, while nearby connections support low latency, meaning shorter delays when information travels between computers. Growing coordination across the border added to the state's appeal.

Industry estimates show how quickly the market expanded. Johor had only single digit megawatts of data centre capacity in 2021. It now has hundreds of megawatts operating and gigawatts planned. One market analysis put live capacity at about 487 megawatts and the planned total at around 5.7 gigawatts.

At 1,000 megawatts per gigawatt, that planned total is about 5,700 megawatts, nearly 12 times the estimated live capacity of 487 megawatts. The gap helps explain why utility planning matters before the full development pipeline is built.

Singapore later introduced a green data centre framework to guide limited new capacity under strict efficiency targets. Johor, which benefited from the earlier pause, is now using its own approval process to screen projects for sustainability before construction.

Higher tariffs and tighter screening

Johor began tightening its scrutiny in 2024, introducing guidelines that encourage renewable water and energy supplies. Applications without credible conservation plans were rejected. By late 2024, close to 30 percent of proposals had been turned down because they failed to show responsible use of water and power.

Approval rates have since improved as applicants adjust their designs to the state's expectations. The policy is changing the economics of development as well as the technical requirements: operators must consider the cost of water, treatment equipment and alternative supplies from the start.

In August 2025, Johor introduced a dedicated water tariff for data centre operators of RM5.33 per cubic metre. A cubic metre equals 1,000 litres. The tariff is RM1 to RM1.75 higher than the general tariff for customers other than households.

The main steps leading to the present restrictions span several years:

• 2019 to 2022: Singapore paused new data centre projects while managing power and water constraints.
• 2024: Johor introduced tighter screening and guidelines encouraging renewable water and energy supplies.
• Late 2024: Close to 30 percent of proposals had been rejected for inadequate plans for responsible water and power use.
• July 2025: Malaysia introduced permit requirements for exports, transshipments and transit movements of high performance chips made in the United States.
• August 2025: Johor introduced the RM5.33 per cubic metre water tariff for data centres.
• November 2025: Johor's approved project total reached 51, worth RM182.96 billion, as officials outlined the halt on approvals for Tier 1 and Tier 2 facilities.

The combination of screening and pricing gives developers a financial reason to reduce reliance on potable water, the treated water supplied for drinking and everyday household use. Projects with heavy demand for that supply, or weak plans for reuse, face higher costs and longer scrutiny.

Why cooling uses so much water

Servers produce heat while processing and storing information. Cooling systems carry that heat away so the equipment can keep working. Water demand varies with the climate, the cooling design and the amount of heat produced, including the concentrated loads from equipment used for artificial intelligence.

A rough engineering estimate puts the daily water requirement of a data centre with 100 megawatts of capacity at about 1.1 million gallons, or 4.16 million litres, when it uses cooling based on evaporation in hot weather. That is comparable to the daily needs of a small city. Older facilities with open loop systems and no water recycling can draw much more during peak heat.

Cooling towers release heat by evaporating water, which then needs to be replaced. Mechanical chillers generally use more electricity but consume less water. Closed loop systems circulate cooling fluid, while the equipment used to release the collected heat determines how much additional water is needed.

Liquid cooling directly at chips moves heat through coolant loops inside servers. It is increasingly used for dense AI equipment and can sharply reduce water needs when paired with dry coolers. Systems cooled by air can avoid water consumption altogether, although their electricity demand can rise in humid conditions.

Operators use two measures to assess this balance: Power Usage Effectiveness and Water Usage Effectiveness. The first compares the electricity used by the entire facility with the electricity used by its computing equipment. The second tracks water use relative to computing energy use. Together, they help designers assess whether savings in one resource come with higher demand for the other.

Household supply is already under pressure

Johor's water system must serve households, agriculture and expanding industry at the same time. State planners and researchers point to ageing pipes, recurring interruptions and rising climate risks as pressures that complicate the addition of large industrial customers.

Johor has at times supplemented its supply with treated water from Singapore. That reliance underlines the difficulty of expanding industrial activity quickly while maintaining dependable service for residents.

Malaysia's National Water Services Commission has warned that unchecked use of potable water by data centres is unsustainable and could threaten water security over the longer term. Clear rules and investment in infrastructure are part of its call for action.

Reclaimed water offers a way to reduce the competition for drinking water supplies. Wastewater can be treated again to produce water suitable for industrial cooling, leaving more potable supply available for homes and other users. Pipes, treatment capacity and reliable delivery remain necessary to make that alternative work.

Academic experts also warn that clusters of facilities can strain whichever local network supplies them. Planning across Johor, rather than only around individual projects, is needed alongside repairs that reduce leakage and investment in additional treatment capacity.

A reclamation plant offers another model

Bridge Data Centres has built a water reclamation plant in Ulu Tiram to serve an upcoming campus with 400 megawatts of capacity. Completed in about ten months, the plant currently processes five million litres of water daily, with plans to expand to 20 million litres.

The proposed expansion would quadruple its processing capacity. It illustrates the size of the supporting water infrastructure being developed alongside computing facilities, rather than leaving each campus dependent entirely on the public drinking water network.

The plant receives treated sewage effluent through a pipeline from a nearby facility. It removes odour and impurities before putting the water through multiple stages of reverse osmosis. That process pushes water through membranes that filter out unwanted substances, producing high quality process water suitable for cooling coils and heat exchangers.

Agreements signed with Indah Water Konsortium and Johor Special Water commit up to 12 million litres a day of treated effluent to Bridge, with a separate allocation to Computility Technology. These supply arrangements connect municipal wastewater treatment with industrial demand.

Other operators are pursuing different alternatives. DayOne is set to process raw river water supplied by Johor Special Water for its Kempas site. AirTrunk plans to use recycled water at its two Johor Bahru facilities. Together, these projects show developers building water sourcing and treatment into their expansion plans.

New locations still need coordinated planning

Sedenak Tech Park, Johor's earliest data centre cluster, faces water and power bottlenecks until new capacity arrives. Some companies are looking to areas such as Ulu Tiram, where resources can be secured sooner.

Analysts caution that moving development into another district without broader planning risks transferring the burden to a different local network. Alternative sites still need confirmed water allocations, electricity connections and infrastructure capable of supporting later expansion.

Charles Santiago, former chairman of Malaysia's National Water Services Commission, has urged companies to expand reclaimed water use and explore rainwater capture and desalination where feasible. Desalination removes salt from water to make it usable. He welcomed signs of agreement between government and industry on conservation.

Any effort that uses alternative water must be welcomed. It signals that there is strong public and private commitment.

Reclamation works best alongside a wider programme that expands raw water availability and upgrades pipes to reduce losses. More treatment plants can supply industrial users, while pipe replacement helps preserve the water already entering the network.

Policy makers are expanding treatment capacity and pipe replacement programmes while aligning incentives to make alternative water the default for industrial cooling. Clear reporting of water and electricity use would help identify efficient facilities and protect household supply during dry spells.

Electricity and chip controls add other pressures

Johor's operating data centre capacity is already measured in hundreds of megawatts, with a much larger pipeline planned. Demand from digital services and AI training is increasing, and national planners expect data centres to account for a greater share of Malaysia's electricity generation over the next decade.

Officials have outlined new generation capacity of 6 to 8 gigawatts using gas, even as Malaysia targets net zero emissions by 2050. Net zero means balancing the greenhouse gases released with those removed. Expanding electricity supply while pursuing that target adds another consideration to development plans.

Cooling choices connect the water and electricity challenges. Switching to air cooling may reduce water consumption but increase power demand unless the system is carefully designed. Johor is asking developers to address both demands before approval, alongside infrastructure investment.

Malaysia's technology growth also intersects with global trade controls. In July 2025, the government began requiring permits for all exports, transshipments and transit movements of high performance chips made in the United States. Transshipment involves transferring goods during their journey, while transit involves moving them through a country.

The permit requirement was designed to ensure compliance with export controls as Malaysia negotiates closer economic ties with key partners. Chinese and multinational cloud operators have invested heavily in Johor, and some have reorganised overseas units to navigate changing rules.

Projects therefore face compliance checks as well as sustainability reviews. On the ground, water and electricity remain the constraints that shape construction and operation, while acceptable resource use matters to the communities around new facilities.

How operators are adjusting their plans

Developers considering Johor or other Malaysian locations are revising designs around conservation, alternative supplies and confirmed utility capacity. Several approaches are already visible in projects under way, while others offer ways to reduce cooling demand where local conditions permit.

• Secure reclaimed municipal wastewater or treat raw river water for industrial use to reduce pressure on potable supplies.
• Build treatment and storage at the site, using reverse osmosis, ultrafiltration and odour removal to maintain suitable process water quality.
• Set ambitious Water Usage Effectiveness and Power Usage Effectiveness targets during design, before the facility starts operating.
• Use liquid cooling at the server level for AI equipment and pair it with dry coolers to reduce losses through evaporation.
• Recover and reuse heat where feasible, such as preheating water for nearby facilities, to reduce chiller loads.
• Choose locations with confirmed power and alternative water allocations, and schedule expansion around grid and pipeline upgrades.
• Publish water withdrawal and recycling volumes and engage with local communities early about resource demands.

Onsite treatment can include ultrafiltration, which passes water through fine membranes to remove particles. Storage and quality controls help maintain a stable supply for cooling equipment. These systems require investment, but the higher tariff and tighter approval process make resource efficiency a larger part of the business case.

Johor has not given a date for the additional water and power capacity needed to ease Sedenak's bottlenecks. Operators must plan expansion around utility allocations and upgrade schedules while meeting the state's conservation expectations.

The state's message is that growth must proceed alongside infrastructure investment. Projects that limit both electricity and water demand, commit to recycled supplies and address community concerns are likely to face fewer delays and have a clearer route through approvals.

What to Know

• Johor officials say new Tier 1 and Tier 2 data centre applications will no longer be approved; some proposals could draw 50 million litres of water daily.
• By November 2025, the state had approved 51 projects worth RM182.96 billion, with 17 operating, 11 under construction and 23 approved during 2025.
• A dedicated water tariff of RM5.33 per cubic metre began in August, above the general tariff for customers other than households.
• One market estimate put live capacity at about 487 megawatts and the planned total at around 5.7 gigawatts.
• Bridge's Ulu Tiram reclamation plant processes five million litres daily and is planned to expand to 20 million litres for a campus with 400 megawatts of capacity.
• Reclaimed wastewater and treated river water are becoming part of operators' supply plans, alongside more efficient cooling.
• Malaysia introduced permits in July for exports, transshipments and transit movements of high performance chips made in the United States.
• Water reuse, pipe repairs, added treatment capacity and electricity investment remain central to accommodating further growth.