Indonesia is becoming one of the most important data center growth hubs in Southeast Asia and has the potential to become the region’s “third leg” after Singapore and Malaysia. The country is entering a new phase of the digital economy. The growth of artificial intelligence (AI), cloud computing, and digital services, together with rising data storage needs, is driving massive investment in data centers in Indonesia.
The latest data from Cushman & Wakefield for the first half of 2026 shows a significant shift. Jakarta’s data center development pipeline now stands at 1,699 MW, an increase of about 56%, while capacity under construction has jumped 112% to 395 MW. By comparison, Johor, Malaysia, has a recorded pipeline of 3,088 MW, while Singapore has an operational market of about 1,043 MW with far more limited room for additional development. In other words, Indonesia is not yet the leader in terms of capacity, but in terms of growth rate, Jakarta is described as one of the fastest-growing data center markets in the Asia-Pacific region.
This trend reinforces the indication that the ASEAN data center map is shifting. A report by BRI Danareksa Sekuritas, cited by Katadata in August 2026, even states that Indonesia could become the “third leg” of regional data center investment spillover. Indonesia’s installed capacity was recorded at around 580 MW in the first half of 2026, with projections of a surge to 3.5 GW by 2030. Jakarta still dominates, accounting for about 55% of national capacity, while Batam is beginning to emerge as an alternative location that absorbs investment spillover from Singapore. Development plans have also emerged in the area around the Jatiluhur Reservoir in West Java.
When Digital Investment Meets Citizens’ Basic Needs in Jatiluhur, West Java?
One concrete example is the planned construction of BDx’s AI Campus 2 (CGK4) in Jatiluhur, West Java, with an investment value of around Rp3.5 trillion and a development capacity of up to 640 MW. The project, located about five kilometers from the Jatiluhur Reservoir, was temporarily halted by the West Java Provincial Government over environmental and building permit issues. Public attention then turned to its water demand: at full capacity, the requirement is estimated at 384 liters per second, or roughly 33 million liters per day. This figure is more than a technical matter. The Jatiluhur Reservoir is strategic infrastructure that supports an irrigation system covering about 242,000 hectares and plays a vital role in West Java’s food security.
This case illustrates a dilemma that will arise more and more often as data centers expand in Indonesia: when the digital industry and people’s basic needs depend on the same resources, who gets priority? Law No. 17 of 2019 on Water Resources makes people’s essential daily needs and smallholder agriculture the priorities in water use. The issue, therefore, is not whether Indonesia needs data center investment (of course it does), but how to ensure that this investment does not grow at the expense of water security, agriculture, and the environment of the surrounding communities.
Competition for water between the data center industry and domestic needs has already begun to appear in the industrial area of Johor Bahru, Malaysia, and serves as an early warning for Indonesia not to repeat the same pattern. The Secretary General of the National ICT Entrepreneurs Association (APTIKNAS), Fanky Christian, has even openly acknowledged that the water demand of data centers for AI risks triggering direct competition with household needs.
Indonesia’s Data Center Regulation Has Yet to Keep Pace with Growth
Ironically, the growth of data centers in Indonesia has not been fully matched by a regulatory framework that specifically anticipates their infrastructure impacts. With regard to water use, one relevant rule is Minister of Public Works and Public Housing (PUPR) Regulation No. 2 of 2024 on Procedures for Business Licensing for Water Resources Use and Approval of Water Resources Use. However, this regulation essentially governs the licensing of water resources use in general, rather than the specific characteristics of the data center industry, which has a continuous water demand that can increase as AI computing capacity grows. In addition, data center development still relies on general instruments such as the environmental impact assessment (AMDAL) and risk-based licensing. This situation raises a question: is the existing regulatory framework sufficient to anticipate the cumulative impacts of data centers on water, energy, and environmental carrying capacity?
Concerns have also come from various parties. The Chair of IDPRO, Hendra Suryakusuma, argues that the water and electricity needs of data centers must be considered in the context of broader community needs, and that cooling technology must also be adapted to the resource conditions at the construction site. For WALHI, however, the problem is more fundamental: Indonesia needs specific regulation to ensure that data center expansion does not exceed environmental carrying capacity. WALHI has even called for a moratorium on new data center construction until such a regulatory framework is in place. With more than 200 data centers already operating or spread across Indonesia, the debate is no longer merely about how to attract digital investment, but about how the state ensures that this investment grows within ecological limits and does not sacrifice people’s basic needs.
Learning from Malaysia: The Firmness Indonesia Does Not Yet Have
Malaysia has taken a firmer approach to controlling the growth of data centers. In February 2026, Prime Minister Anwar Ibrahim stated that the government had limited approvals of new data centers not related to artificial intelligence (AI) because of rising electricity and water demand. Meanwhile, at the state level, Johor has formed a special technical committee to assess every data center project, including its water and electricity requirements, Water Usage Effectiveness (WUE), and site suitability. Project approval also depends on water availability, and developers may be directed to use alternative water sources, such as recycled water, if a facility requires water for its cooling systems.
This approach is reinforced by guidelines from Malaysia’s National Water Services Commission (SPAN), which encourage the use of alternative water sources for data center cooling. Recycled water is prioritized where available, while air-based cooling systems with zero water discharge are also an option. Indeed, some facilities in Johor have built their own water treatment systems that use treated wastewater. For Indonesia, Malaysia’s experience shows that protecting water resources does not have to mean halting digital investment. What is needed are rules that ensure investments are sited in line with environmental carrying capacity, use water-efficient technology, and do not compete with people’s basic needs. In line with this, IESR urges Indonesia to establish green data center standards, including the use of waterless cooling systems or closed-loop circulation systems.
The Way Forward: Equitable Regulation, Not an Obstacle
Calling for firmer regulation does not mean rejecting the presence of data centers in Indonesia. On the contrary, the sustainability of this industry requires regulatory certainty from the outset. IDPRO itself regards reliability, sustainability, energy efficiency, and responsibility in water use as important elements in the direction of Indonesia’s data center industry development. The government therefore needs to build a regulatory framework that is oriented not only toward accelerating investment, but also toward making environmental carrying capacity part of every development decision. At a minimum, every data center project should be required to conduct a water demand and impact analysis before a permit is issued; prioritize water-efficient cooling technologies such as waterless or closed-loop systems; ensure that water allocation does not reduce the fulfillment of domestic and agricultural needs; and involve affected communities, including farmers and water source users, from the planning stage. For areas that are already experiencing water stress or water insecurity, the government should also consider a temporary restriction or moratorium on new construction until adequate standards and safeguard mechanisms are in place. This step is in line with IESR’s recommendation that the government promptly issue safeguard regulations for AI and data centers that make environmental, social, and energy aspects part of the licensing requirements. Thus, the purpose of regulation is not to stop digital investment, but to ensure that the growth of the digital economy is not paid for with reduced public access to water, disrupted agriculture, or damaged environmental carrying capacity.
Promoting Equitable Data Center Regulation in Indonesia
With Indonesia’s data center capacity projected to rise from around 580 MW in the first half of 2026 to 3.5 GW by 2030, the government no longer has much time to build a regulatory framework capable of keeping pace with the industry’s expansion. The Jatiluhur case should serve as a warning that issues of water, energy, and environmental carrying capacity cannot be treated as side effects to be discussed only after a project is under way. The more computing capacity is built, the more important it becomes to ensure that every investment is placed within clear ecological limits and does not sacrifice people’s basic needs.
Indonesia does need data centers to support its digital transformation and economic growth. However, becoming a regional data hub should not be measured solely by how much capacity has been built or how much investment has been attracted. Success must also be measured by the state’s ability to ensure that this growth takes place responsibly. Equitable regulation is not an obstacle to investment; it is the foundation that allows investment to grow without sacrificing the water that people need, the land that sustains agriculture, and the environment we all live in. Ultimately, the question Indonesia must answer is not merely how quickly we can build data centers, but how far we can ensure that digital progress moves forward without leaving communities and the environment behind.
References
Katadata. (2026, October 1). Data Center di Jatiluhur Disorot, IESR Menilai Perlu Ada Aturan Khusus [Jatiluhur Data Center Under Scrutiny, IESR Says Specific Regulation Is Needed]. https://katadata.co.id/digital/teknologi/6abe0997bef5a/data-center-di-jatiluhur-disorot-iesr-menilai-perlu-ada-aturan-khusus
Katadata. (2026, October 1). WALHI Minta Indonesia Perketat Aturan Data Center, Berkaca pada Malaysia [WALHI Urges Indonesia to Tighten Data Center Rules, Taking Lessons from Malaysia]. https://katadata.co.id/amp/digital/teknologi/6abe245be3347/walhi-minta-indonesia-perketat-aturan-data-center-berkaca-pada-malaysia
Katadata. (2026, August). Laporan BRI Danareksa Sekuritas: Indonesia Berpotensi Menjadi “Third Leg” Regional Data Center Spillover [BRI Danareksa Sekuritas Report: Indonesia Has the Potential to Become the “Third Leg” of Regional Data Center Spillover]. (Cited in ASEAN data center market research; installed capacity data for H1 2026 and projections for 2030).
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Kontan. (2026, September 10). FOLK Masuk Bisnis Pendukung Data Center [FOLK Enters the Data Center Support Business]. https://industri.kontan.co.id/news/folk-masuk-bisnis-pendukung-data-center
Peraturan Menteri Pekerjaan Umum dan Perumahan Rakyat Republik Indonesia Nomor 2 Tahun 2024 tentang Tata Cara Perizinan Berusaha Penggunaan Sumber Daya Air dan Persetujuan Penggunaan Sumber Daya Air [Regulation of the Minister of Public Works and Public Housing of the Republic of Indonesia Number 2 of 2024 on Procedures for Business Licensing for Water Resources Use and Approval of Water Resources Use].
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World Bank & Cushman & Wakefield. (2025). Data Kapasitas Data Center ASEAN, Semester I 2025 [ASEAN Data Center Capacity Data, H1 2025] (operational, under construction, and planned pipeline data for the ASEAN region).
Cushman & Wakefield. (2026). Data Pipeline dan Kapasitas Data Center Jakarta, Semester I 2026 [Jakarta Data Center Pipeline and Capacity Data, H1 2026] (comparison with Johor, Malaysia, and Singapore).