Operators of energy-hungry data centre providers want government help to reduce their electricity bills that have eaten into profits since the tariff was revised in January.

The operators of these server farms say electricity bills contribute nearly half of their business costs and a 16% jump in their power bills is threatening their competitiveness against regional rivals.

“Industry electricity costs have gone up by 16%, and given that power constitutes more than 40% of our overall costs, this has a negative impact on margins,” said AIMS Data Centre Sdn Bhd CEO Chiew Kok Hin.

“The money would have otherwise been used to develop innovative products and services and capacity. This increase has indirectly affected our growth.”

AIMS is a subsidiary of Time dot- Com Bhd and part of the Malaysian Data Centre Alliance (MDCA). The MDCA has sent a request to national utility company Tenaga Nasional Bhd for special rates when the new tariffs were announced.

MDCA is an alliance of 17 data centre providers nationwide that was formed in October last year. The companies include AIMS, HeiTech Managed Services Sdn Bhd and NTT MSC Sdn Bhd.

The half-year revenue for the industry is RM292 million and it is set to achieve the target revenue of RM562 million for 2013, which marks a 20% growth from 2012.

A spokesman for Heitech Managed said the large increment in electricity price has cut profits on existing contracts significantly.

He said the company also needed to charge new customers a lot more than previously, making them less competitive than data centres in neighbouring countries.

“Overall the cost of doing business has increased and margins are reduced,” he said.

“We will continue our request for a lower tariff with the relevant agency. We think data centre providers need support to stay viable in Malaysia in line with the governments Economic Transformat ion Programme to position Malaysia as a world class data centre hub,” the spokesman said.

AIMS Chiew said the MDCA is asking for a redesignation on its electricity tariff category rather than a lower rate. He said in Singapore data centres are given preferential rates to promote the industry and to provide competitive costing.

TNB said it was open to suggestions and would consider any request from the MDCA.

“Briefings/ discussions were conducted before and after the tariff review as part of our regular communication with industry players.

TNB will communicate with the respective companies on this matter,” said a TNB official recently.

In the meantime, Chiew said data centres are already passing on the cost to customers in stages, which has made their services more expensive.

This, he said, will also have a trickle down impact whereby their customers will also have to pass down the added cost to their own customers.

“Eventually our customers from industries such as tourism, SMEs, publications, FSIs and every company that requires data storage will pass this down to their customers which are the consumers,” he said.

The extra cost could also see these data centres losing out in terms of competitiveness to their regional peers in Singapore, where data centres have special designated lower rates.

“In Singapore, businesses which can commit to a certain amount of usage, will enjoy a special rate. This is something we don’t see here in Malaysia.

So this brings down our competitive rate as compared to Singapore as cost is unfortunately still a deciding factor for investors.

“Singapore recognises the importance of the data centres as a vital ingredient for growth within the telecommunication and IT sectors but across other economic sectors as well. As such, they do accord and implement relatively better policies and frameworks that facilitate foreign investment and also allow local domestic data centre operators to thrive,” Chiew said.

Chiew said as data centres become less competitive due to the higher electricity cost, he foresees smaller businesses looking elsewhere to store their data and potential investors may not look towards Malaysia as a data centre hub anymore.

“Companies that are in the business of outsourcing have a great dependency on cost optimised data centres. So the price increase in power has hindered the growth and trend we see towards outsourcing of services and infrastructure.

“We believe at some point the growth will return but at least for the next 12-24 months the growth momentum has been slowed,” said Chiew.

~ Interview by Farah Adila. Published in The Malaysian Reserved. May 5, 2014.~