Malaysia data centres battle higher power costs, unclear pricing
Competitive rates for electricity, which forms the bulk of operating costs, make Malaysia a magnet for data centres compared to land-scarce neighbour Singapore, luring billions of dollars in investment from companies like Microsoft and Google.
The tariff hike unveiled in December, with details fleshed out last month, could boost electricity costs by 10% to 14% before surcharges for major consumers such as data centres, an industry official and a government official said.
A key element of the uncertainty stems from the bands used to calculate power bills in the tiered pricing system, with industry players saying most major centres are expected to fall in the ultra-high voltage category with the highest tariffs.
With many in the industry unprepared for the scale of increases, some investors may now adopt a wait-and-watch approach, said Gary Goh, founder and director of data centre advisory firm Sprint DC Consulting.
"For a 100-megawatt (MW) facility, this could translate to an additional $15 million to $20 million per year without considering fuel surcharge," he added.
The government plans to announce a fuel surcharge every month that reflects changes in fuel prices and foreign exchange. This month the surcharge stands at zero, state grid operator Tenaga Nasional Berhad (TNB) said on its website on Tuesday.
Malaysia is set for the region's fastest surge in data centre power demand, tripling to 21% by 2027 from 7% in 2022, a joint report in May by consultancy Bain & Co and firms such as Google and Singapore's state-owned Temasek showed.
The new tariff structure means operators of big data centre operators will now account for a higher share of grid management costs than smaller peers, said Cheam Tat Inn, managing director of the Malaysian arm of U.S. operator Equinix.
"If you are a large data centre, then you pay for a bigger share of the infrastructure or distribution network costs," Cheam said.
Equinix, with two data centres in Malaysia, was looking at various providers of alternative energy in anticipation of higher tariffs, Cheam said last month.
Tenaga declined to comment, directing queries to Malaysia's Energy Commission, which did not immediately respond to requests for comment. Prime Minister Anwar Ibrahim has defended the increases as necessary to boost social spending.
Until now, Malaysia had used lower power prices and a stable power grid to lure investment in data centres.
But tariff hikes could drive investment towards neighbouring Vietnam and Thailand, said Mahadhir Aziz, president of the Data Centre Association of Malaysia, which groups firms such as Bridge, AirTrunk and DayOne, as well as Equinix.
"The government would have to look at this now, at least regionally," he added.
"Data centers or digital infrastructure business, while they may have invested in land and buildings here, can actually still reconsider their investments."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
an hour ago
- Reuters
For retailers, US-Vietnam trade deal leaves questions
LONDON, July 3 (Reuters) - A trade deal announced by the U.S. and Vietnam creates new question marks for sportswear and clothing retailers like Nike and Adidas that source shoes and clothes from factories in the Southeast Asian country, industry experts said on Thursday. The U.S. will impose a 20% tariff on many imports from Vietnam, while "transshipping" from third countries through Vietnam will face a 40% levy, President Donald Trump said on Wednesday. Garment and shoe factories in Vietnam rely heavily on yarns, polyester fabrics, and trims like buttons and zippers imported from neighbouring China. It was not immediately clear whether such products assembled in Vietnam from Chinese inputs would be vulnerable to the transshipment tariff. Typically, transshipment would designate a product mostly made in China, shipped to Vietnam and then relabelled and exported as made in Vietnam. U.S. customs already watches for that practice, but the Trump administration has hardened its stance on it, with U.S. Treasury Secretary Scott Bessent saying that "a huge amount" of trade from Vietnam is transshipment from China, in a CNBC interview Thursday. Many questions remain over the trade agreement, said Sheng Lu, professor of fashion and apparel studies at the University of Delaware. "Strictly speaking, transshipment is illegal, whereas using foreign components in compliance with rules of origin requirements is common practice," said Lu. "Confusing these two distinct practices will only create greater uncertainty and risk further supply chain disruption." Vietnam has been a top destination for retailers and brands looking to reduce their reliance on factories in China, but has also become a target of Trump's aggressive trade policy. Vietnam is a key producer of sports shoes for Nike, accounting for 50% of Nike branded shoes overall in the company's fiscal year 2024, and is also Adidas' biggest supplier country, producing 27% of the German brand's products. A Nike spokesperson said the company is still looking into the details of the deal. Adidas declined to comment. "With this new change and with the potential for this transshipment tariff, I think it's going to cause a lot of importers to really question, is Vietnam really a good other option?" said Lila Landis, a customs compliance consultant based in Fort Worth, Texas. While details are still not confirmed, the 40% tariff could possibly be stacked atop the correct China duty for any given product, making it highly punitive, Landis added. Overall, the U.S. imported 274 million pairs of shoes from Vietnam last year, according to industry group Footwear Distributors and Retailers of America (FDRA), which on Wednesday called the tariffs unnecessary and said they would hit American consumers. "There's disappointment in the 20% on the Vietnam side," said Joe Jurken, managing director at supply chain management company The ABC Group. The announced tariff on Vietnam narrows the gap with China, which the U.S. has hit with a 55% tariff, and may even tempt some brands to stick with China, Jurken said, instead of switching suppliers which is lengthy and costly. "There's a lack of capacity in Vietnam because there's not enough factories, and there's an overabundance of capacity in China... so the Chinese factories, in our opinion, will benefit from this over the short term," Jurken said. Still, the 20% tariff rate is better than the 25-30% rate the market feared, according to analysts at Raymond James. And the deal announcement goes some way to end uncertainty, and could encourage some retailers that were considering Vietnam to go ahead and place orders, said Jim Kennemer, managing director at Cosmo Sourcing. "It's going to be nearly impossible to get a 100% not-China supply chain," he said.
The Guardian
an hour ago
- The Guardian
Japan walks line between recession and submission as it seeks to overcome Trump tariffs
It all seemed to be going so well. In April, Japan's chief trade negotiator, Ryosei Akazawa, sat opposite Donald Trump in the Oval Office after 'positive and constructive' talks, sporting a Maga baseball cap and giving a thumbs up for the cameras. Japan's economic revitalisation minister drew criticism back home for the gesture, forcing him to insist there was 'no political significance' behind it. But the backdrop to the offending photo was far more significant than the uncomfortable optics. Akazawa's trade delegation was in Washington to begin tariff negotiations with its American counterparts that officials in Tokyo were initially optimistic would end with Japan's exemption from Trump's most egregious protectionist instincts. 'A Great Honor to have just met with the Japanese Delegation on Trade,' Trump wrote on Truth Social after meeting Akazawa. 'Big Progress!' Eleven weeks and seven rounds of talks later, Japan and the US have reached an impasse, with Trump unleashing on his country's most important ally in the Asia-Pacific the kind of invective he once reserved for China and the European Union: 'They won't take our RICE, and yet they have a massive rice shortage,' he wrote online, adding it showed 'how spoiled countries have become'. The friction is beginning to seep into other parts of the bilateral relationship, with Tokyo and Washington at odds, to varying degrees, on the cost of hosting American troops in Japan and recent attacks by the US and Israel on Iran. To add insult to injury, the chasm that has opened up between Tokyo and Washington on trade came as the US agreed to slash reciprocal tariffs on Vietnamese imports from 46% to 20%. Japan now has just days before the end of Trump's 90-day pause on the imposition of punishing tariffs to pull off a breakthrough. Much will depend on Akazawa's ability to convince American negotiators to withdraw or reduce a 25% levy on Japanese cars imposed in April. That is on top of a possible rise in reciprocal duties on other Japanese goods to 24% from the current baseline of 10%. But if anything, the mood music from Washington indicates that Trump is even less inclined to make concessions ahead of the president's second tariff 'liberation day', despite constant reminders from senior politicians in Tokyo of the value Japan brings to the US economy. They include the prime minister, Shigeru Ishiba, who noted this week that Japan is the largest foreign investor in the US and its biggest contributor in terms of job creation. 'Our hope is that this will be taken into consideration,' he said. Just days earlier, Trump had framed Japan in terms that prompted as much consternation as anger on this side of the Pacific. Speaking to reporters on Air Force One, he floated the idea of raising tariffs on imports from Japan to 30% or 35%, and bemoaned its consumers' lack of enthusiasm for American cars and rice. 'I'm not sure we're going to make a deal. I doubt it,' Trump said, labelling Japan 'very tough' and 'very spoiled'. Japan has much to lose if it fails to secure an extension to the deadline on reciprocal tariffs or convince the US to lower duties. The US is Japan's second-biggest trading partner after China, with exports to the US totalling $148.2bn last year. Trade between the two countries was worth an estimated $227.9bn last year, while the autos sector is already suffering from existing tariffs, with exports to the US dropping 25% in May compared to a year ago. That will not put the brakes on Trump's mission to hack away at Japan's $68bn trade surplus with the US – hence his recent demands that it increase imports of US oil and other goods. The trade row has landed Ishiba and his government in a predicament every bit as sticky as the early-summer heat and humidity blanketing Japan. Battered by funding scandals, soaring rice prices and a cost-of-living crisis, Ishiba's administration is limping into the campaign for upper house elections on 20 July, nine months after his Liberal Democratic party (LDP) and its junior coalition partner lost their majority in the lower house. Any inkling that Tokyo is prepared to bend to Trump's demands will not go down well with voters, while analysts warn that the economic impact of accepting higher tariffs could push the Japanese economy – the world's fifth biggest – into recession. Japan's rice crisis has also become a point of contention, as the government attempts to bring down prices with the release of almost all of its 1m tonnes of stockpiled grain, along with a rise in cheaper imports. Japan has imported historically high volumes of US rice in recent months, and yet despite Trump's threats, is reluctant to agree to anything that would ignite anger among rice farmers – a politically influential group in the LDP. Washington is also pressuring Japan to boost imports of other US farm products, as well as cars and oil, to help reduce the trade deficit. Japan has declined to comment on Trump's threat to impose even higher tariffs, saying it would pursue 'sincere' bilateral talks. 'We are aware of what President Trump said, but we don't comment on every remark made by US government officials,' the deputy chief cabinet secretary, Kazuhiko Aoki, said this week 'We intend to advance bilateral talks in a sincere and faithful manner toward reaching an agreement that will benefit both Japan and the United States.' Tariffs, though, are putting strain on what the former US ambassador to Tokyo, Mike Mansfield, once described as the 'most important bilateral relationship in the world, bar none'. After failing to make progress with Trump during a meeting at the G7 in Canada last month, Ishiba abruptly cancelled plans to attend the Nato summit in The Hague – a move analysts attributed to ongoing friction over trade. Japan also declined to offer full-throated support for the US attacks on Iran, saying only that it 'understood' Washington's determination to halt Tehran's nuclear weapons programme. This week, the US secretary of state, Marco Rubio, called off his first visit to Japan and South Korea, saying he was needed in Washington for talks with the Israeli prime minister, Benjamin Netanyahu. Amid rumours that he is preparing to make yet another trip to Washington this weekend, Akazawa has limited room for manoeuvre – and precious little time, according to analysts. 'Practical and electoral constraints will prevent Japan from offering major concessions on autos, rice, and oil, with negotiators set to continue their slow-and-steady approach,' said James Brady, vice-president of the political risk advisory firm Teneo. 'The probability of a deal being reached before next week's [tariff] deadline appears increasingly low.'
The Independent
2 hours ago
- The Independent
Asian shares are mixed as Trump's tariff deadline looms, while US stocks set records
Asian shares were mixed on Friday after U.S. stocks climbed further into record heights as the clock ticks on President Donald Trump's July 9 tariff deadline. Japan's Nikkei 225 fell 0.6% to 39,762.20 after earlier gains, while South Korea's KOSPI index was down 1.2% to 3,078.31. Hong Kong's Hang Seng index lost 0.6% to 23,914.44 while the Shanghai Composite index added 0.4% to 3,475.24. Australia's S&P/ASX 200 rose 0.1% to 8,609.50. India's Sensex index was up 0.1% to 83,288.73. 'Asian markets slipped into Friday like someone entering a dark alley with one eye over their shoulder — because while US equities danced higher on a sweet spotted post-payroll sugar rush, the mood in Asia was far less celebratory. The reason? That familiar, twitchy unease every time Trump gets near the tariff trigger,' Stephen Innes, managing partner at SPI Asset Management, wrote in a commentary. On Thursday, after a report showed a U.S. job market stronger than Wall Street expected, the S&P 500 rose 0.8% and set an all-time high for the fourth time in five days. The Dow Jones Industrial Average added 344 points, or 0.8%, and the Nasdaq composite gained 1%. Many of Trump's stiff proposed taxes on imports are currently on pause, but they're scheduled to kick in next week unless Trump reaches deals with other countries to lower them. In other dealings on Friday, U.S. benchmark crude was down 19 cents to $68.81 per barrel. Brent crude, the international standard, shed 30 cents to $68.50 per barrel. The U.S. dollar slid to 144.48 Japanese yen from 144.92 yen. The euro edged higher to $1.1771 from $1.1761. ___ AP Business Writer Stan Choe contributed.
