EXECUTIVE BRIEF: Water Security in ASEAN — The Silent Constraint Shaping Industrial Location
ASEAN is undergoing a massive industrial transformation, positioning itself as a key alternative for global manufacturing and digital infrastructure. However, a silent constraint threatens this momentum: water security. While land, labor, and energy often dominate site selection discussions, water availability, quality, and reliability have become decisive factors for high-growth sectors like semiconductors, EVs, and data centers.
This brief explores how water stress impacts investment viability across key ASEAN nations—specifically Indonesia, Vietnam, Thailand, and Malaysia. It highlights the misalignment between industrial ambitions and water infrastructure reality, concluding with actionable recommendations for governments and developers to bridge this critical gap and secure sustainable growth.
The New Industrial Priority: Why Water Matters
ASEAN’s industrial landscape is rapidly evolving, driven by supply chain diversification and the expansion ofadvanced manufacturing. Yet, beneath the headlines of growth lies a structural challenge. Water is shifting from a background utility to a strategic input that directly dictates investment decisions and operational resilience.
For global investors, water readiness is now non-negotiable. Industrial location decisions are increasingly shaped by three core factors:
- Long-Term Availability: Sites must prove they have reliable raw water sources capable of supporting expansion for over a decade, not just meeting today’s needs.
- Quality & Infrastructure: Industries favor locations with centralized treatment and recycling systems. This reduces capital expenditure (Capex) and minimizes regulatory risks for tenants.
- Climate Risk: Investors are actively avoiding zones prone to floods, droughts, or pollution, as climate volatility poses a direct threat to supply chain continuity.
The verdict is clear: Industrial parks with integrated water planning gain a structural advantage. Those without it face rising costs, delays, and a shrinking pool of potential investors.
The Impact on High-Growth Sectors
Water constraints do not affect all industries equally; they disproportionately impact the very sectors driving ASEAN’smodern economy.
- Semiconductors & Electronics: These facilities require massive volumes of ultra- pure Even minor shortages can disqualify a site entirely.
- EV & Battery Ecosystems: The processing and cooling requirements for battery production amplify water demand significantly.
- F&B Manufacturing: Water quality is paramount, directly affecting product safety, brand reputation, and export eligibility.
- Data Centers: Cooling efficiency determines sustainability metrics and A 1-megawatt data center consumes approximately 25.5 million liters of water annually—roughly the daily requirement of 300,000 people.
For these industries, water security isn’t just an operational detail—it is a precondition for market entry.
Country Snapshots: Water Constraints Across ASEAN
According to the Asian Water Development Outlook (December 2025), economic water security varies significantly across the region. While Thailand and Malaysia are rated “Capable,” Indonesia and Vietnam remain “Engaged,” indicating underdeveloped management systems. These distinctions are becoming binding constraints for site selection.
Indonesia: Abundant but Uneven
Indonesia possesses ample freshwater, but spatial imbalances and infrastructure gaps limit its industrial usability.
- Regional Stress: Java hosts ~56% of the population but holds less than 10% of freshwater availability, stressing core industrial corridors.
- Infrastructure Loss: Non-revenue water (NRW) reaches 30-40%, driven by aging networks and leakages.
- Allocation Priorities: Regulations prioritize residential and agricultural use, leaving industrial needs as the lowest priority.
- Groundwater Risk: Many parks rely on groundwater self-supply, raising severe sustainability concerns.
Vietnam: Growth Outpacing Infrastructure
Vietnam’s rapid export-led expansion is straining its water and wastewater systems.
- Rising Demand: Industrial water demand is growing at ~5–7% annually.
- Localized Shortages: Northern Vietnam faces seasonal shortages and pollution due to high industrial concentration (avg. 80% occupancy in parks).
- Treatment Gaps: Insufficient treatment of industrial wastewater increases ESG and compliance risks for investors.
Thailand: Climate Volatility as a Constraint
Thailand’s advanced hubs face risks from drought and demand concentration.
- EEC Pressure: The Eastern Economic Corridor (EEC) is experiencing sharp demand spikes, creating significant supply deficits in Chonburi and Rayong.
- Climate Vulnerability: Heavy reliance on surface reservoirs exposes the sector to drought risks.
- Allocation Conflict: Competition remains intense, with 75% of water still allocated to agriculture, squeezing urban and industrial users.
Malaysia: Mature Systems with Localized Stress
Despite strong national infrastructure, high-tech clusters face concentration risks.
- Supply Disruptions: High-tech hubs like Penang and Selangor experience periodic outages despite national abundance.
- Data Center Boom: In Johor, projected data center demand (>673 million liters/day) vastly exceeds current supply capacity (142 million liters/day), creating a massive infrastructure gap.
Skylight’s Perspective
Water stress is emerging across ASEAN as climate change, industrial concentration, and infrastructure gaps intensify. For nations like Indonesia, this presents a structural risk: industrial water use remains a low priority in allocation frameworks, despite being critical for EVs, data centers, and advanced manufacturing.
If unaddressed, this misalignment will constrain site selection and long-term competitiveness. We believe immediate action is required in three key areas:
- Reform is Urgent: Current regulations must evolve to recognize industry as a strategic priority, not an afterthought.
- Integration is Key: Water planning can no longer happen in isolation; it must be synchronized with industrial zoning.
- Collaboration is Mandatory: Public-private partnerships are essential to funding the infrastructure required to close the supply-demand gap.
To secure ASEAN’s position as a premier industrial destination, governments and developers must act swiftly. Thefollowing measures outline a path toward resilience, grouped into policy, infrastructure, and sustainability initiatives.
Policy Reforms & Governance
- Reform Allocation Priorities: Governments must elevate industrial water use within national frameworks. Clearer prioritization prevents uncertainty and operational disruptions for major investors.
- Integrate Planning with Zoning: Industrial zoning decisions must align with basin- level water availability and climate resilience assessments to avoid placing assets in stressed areas.
Infrastructure Investments
- Accelerate Government Support: State-owned enterprises should lead the charge in delivering reliable bulk water supply to industrial parks, reducing the dangerous reliance on groundwater extraction.
- Expand PPP Models: Utilizing Public-Private Partnerships (PPPs) can help finance and operate industrial water infrastructure efficiently, scaling capacity without overburdening government budgets.
Sustainability Initiatives (For Industrial Park Developers)
- Develop “Water-Ready” Parks: Move beyond land Parks must integrate centralized intake, treatment,and recycling systems as core infrastructure from day one.
- Invest in Efficiency & Reuse: Embed wastewater recycling and rainwater harvesting to support water-intensive tenants and strengthen ESG positioning.
- Strengthen Transparency: Enforcing clear reporting on water sourcing and usage builds investor conffdence and ensures long-term regulatory compliance.
- Align Tenant Targeting: Match tenant acquisition strategies (e.g., data centers logistics) with verified water availability to prevent future bottlenecks.
The window to address these structural constraints is narrowing. Governments, developers, and investors must collaborate immediately to treat water security not as a utility issue, but as a foundational pillar of economic strategy. Only by bridging the gap between ambition and infrastructure can ASEAN achieve true, sustainable industrial resilience.
Latest Update
- South Korean Company, Sphere X Enters Indonesian Nickel Sector
- Nickel Industries Limited announced the entry of a new strategic investor into its Excelsior Nickel Cobalt(ENC) HPAL project in Indonesia, with South Korean company Sphere Corp acquiring a 10% equity stake, at a valuation of approximately US$2.4 billion.
- Sphere will offtake its 10% share of nickel as cathode material and has also entered into an offtakeagreement for additional volumes at market
- Sphere is a supplying specialty materials company for aerospace and a Tier 1 vendor for SpaceX since 2023, supplying specialized alloy materials used in key components such as rocket engines and launch systems.
- In August 2025, the company finalized a long-term supply agreement worth up to US$1.05 billion, under which Sphere will provide nickel and super alloys through 2035.
- ENC is a major High-Pressure Acid Leach (HPAL) project located in Morowali Industrial Park, part of Nickel Industries Limited, an Australian-listed company that mines and processes nickel in Indonesia designedto produce high-value, battery-grade nickel products for the EV market, aiming for 72,000 tonnes of nickel annually and positioning itself as the world’s first HPAL to make all three Class-1 products (MHP, nickel sulfate, nickel cathode).
- The transaction is likely to strengthen Sphere’s nickel supply chain for SpaceX, reinforcing Indonesia’s position as a pivotal global supplier of nickel for advanced and strategic industries.
- Unilever Plans to Sell SariWangi to Djarum Group
- PT Unilever Indonesia Tbk plans to divest one of its most well-known tea brands, SariWangi, to PTSavoria Kreasi Rasa (a subsidiary of the Djarum Group) for approximately IDR 5 trillion (US$93.8million), with transaction completion targeted for 2 March 2026.
- Industry experts view the divestment as part of Unilever’s portfolio rationalization strategy amid slowing revenue growth across several business lines.
- SariWangi contributed approximately 7% of total revenue and 3.1% of net profit, leading analysts to conclude that the divestment will have a limited impact on Unilever Indonesia’s overall financial performance.
- For the Djarum Group, the acquisition would further strengthen its F&B portfolio, complementing existing brands such as Fox (confectionery), Milklife (dairy), Caffino (coffee), and Hydro Plus (isotonic drinks), and underscoring the group’s continued expansion and strategic interest in the growing F&B sector.
- Huayou Diversifies Its Portfolio in Indonesia by Acquiring PT Puri Sentul Permai Tbk
- Ruby Mining , a subsidiary of nickel mining giant Huayou Holdings Group, plans to acquireapproximately 86% of PT Puri Sentul Permai Tbk, a public company in the hotel and restaurant service sector especially in toll rest areas, with several hotel portfolios such as Swiss-Belexpress, and Kedaton 8 hotel.
- This acquisition aims to develop Ruby Mining’s business and expand its investment portfolio in Indonesia. The plan to acquire the shares will be preceded by a due diligence process and will result in a change in the company’s control, targeted to be finish in Q3, 2026.
- Huayou Holdings Group is a global technology company engaged in lithium- ion battery materials for EV and a major investor in Indonesia nickel downstream projects. The company controls an integrated supply chain, ranging from the exploration of mineral resources such as nickel, cobalt, and lithium, to the production of battery materials and recycling activities.
- In Indonesia, Huayou Holdings has a number of strategic projects, including the Indonesia Pomalaa Industrial Park (IPIP), the Huayue HPAL Project, the Huafei HPAL Project, the Huake RKEP Project, the KNI HPAL Project, and the Sorowako Limonite Project.
- President Prabowo Inaugurates Indonesia’s Largest Refinery Project Worth US$7.4 Billion
- President Prabowo Subianto inaugurated the Balikpapan Refinery Development Master Plan (RDMP) on January 12, The project is valued at IDR 123 trillion (US$7.4 billion) and is Indonesia’s largest refinery upgrade.
- Refinery capacity increased from 260,000 barrels per day (bpd) to 360,000 bpd, includes a new Residual Fluid Catalytic Cracking (RFCC) unit with a capacity of 90,000 bpd and facilities capable of producing 283,000 tons of petrochemicals annually, including 225 tons of propylene.
- Development includes upstream and downstream projects such as:
- The 78 km Senipah-Balikpapan Gas Pipeline to supply raw materials.
- Tanjung Batu Fuel Terminal for fuel distribution to eastern Indonesia.
- Two crude oil storage tanks, each with a capacity of 1 million barrels.
- Balikpapan RDMP aims to produce Euro V-quality fuel, reducing emissions and supporting Indonesia’s net-zero goals, expected to reduce gasoline imports by 40,000 bpd and LPG imports by 9%, as well as increase LPG production capacity from 48,000 to 384,000 metric tons per year.
- Indonesia Slashed Meat Import Quota Threatens Beef Supply
- Indonesia plans to import 297,000 tons of meat in Of this, 250,000 tons are allocated to state-owned enterprises (SOEs) like Berdikari and Perusahaan Perdagangan Indonesia (PPI), with 100,000 tons from India, 75,000 tons from Brazil, and 75,000 tons from other countries. An additional 17,000 tons are reserved for industrial use, leaving only 30,000 tons for private companies—a significant reduction from the 180,000 tons allocated in 2025.
- Business associations, including the Indonesian Animal Protein Entrepreneurs Association (APPHI) andthe Indonesian Meat Entrepreneurs and Processors Association (APPDI), have expressed strong They argue that the reduced quota for private companies will disrupt the supply chain, particularly forthe hotel and restaurant sectors, which require specific types of meat that SOEs may not provide. This could lead to workforce reductions and negatively impact the economy.
- Critics highlight that the policy contradicts President Prabowo Subianto’s directive to eliminate import quotas on goods affecting public They call for greater transparency and a substantial revision of the quota framework to ensure a balanced supply and prevent market disruptions.
- The reduced quota is seen as burdensome for private companies, which typically plan their operationsbased on previous years’ The policy risks creating supply shortages, increasing prices, and potentially forcing businesses to cut costs by reducing their workforce.
Latest Update – Japanese Market Movements
- RaiseNext to Relocate and Expand Office in West Java – RaiseNext Co., Ltd. is relocating and expanding the Cilegon office of its subsidiary, PT. SHINKO PLANTECH, in West Java, PT. SHINKO PLANTECH specializes in plant maintenance services, including routine maintenance, periodic repairs, modifications, renovations, and construction projects, primarily for Japanese clients in the petrochemical and chemical industries. The relocation is due to the expiration of the current land lease, and the new “New Cilegon Office” will be closer to customer facilities. The new site will be 1.5 times larger and include a workshop equipped with an overhead crane, aiming to improve operational efficiency and customer service capabilities to meet local needs.
- Elementary School Renovated in Lampung with Japan’s Support – An elementary school in Rawa Serapan Village, Lampung Province, was renovated with support from Japan’s Grassroots Human Security Grant Aid The project addressed critical issues, including a shortage of classrooms, unusable toilets, and deteriorated facilities. Japan provided approximately IDR 1 billion to construct a new school building, atoilet facility, and classroom equipment. This renovation allows all applicants to be admitted, eliminates the need for students to share classrooms or return home to use toilets, and significantly improves the learning environment. The initiative strengthens Japan- Indonesia relations by addressing local challenges collaboratively.
- Asuene Signs MoU with Living Lab Ventures – Asuene APAC Ltd., a subsidiary of Asuene Co., Ltd., signedan MoU with Living Lab Ventures (LLV), a corporate venture capital firm under Sinar Mas Land, to accelerate decarbonization efforts in Southeast Asia. Asuene provides cloud-based services for visualizing, reducing, and reporting CO₂ emissions, as well as supply chain management. This partnership follows Asuene’s success in an accelerator program hosted by PETRONAS. LLV, leveraging BSD City as a demonstration field, offers startups market access, business matching, and pilot testing spaces. The collaboration aims to support Indonesia’s carbon neutrality goal by 2060 and expand Asuene’s presence in the APAC region.
- JBIC Provides Syndicated Loan for Shinsei Electronics – The Japan Bank for International Cooperation (JBIC) signed a loan agreement with Mitsubishi HC Capital’s Indonesian subsidiary to support Shinsei Electronics’ operations in Indonesia. The total loan amount is approximately USD 271,000, with JBIC contributing USD 184,000. The funds will be used to procure equipment for manufacturing electronic circuit boards in MM2100 Industrial Shinsei Electronics, which entered the Indonesian market in 2006, specializes in circuit boards for industrial and medical machinery. This loan is part of JBIC’s broaderframework to support Japanese SMEs’ overseas expansion, with a total allocation of USD 40 million.
- Hamamatsu City and Marubeni Collaborate on Overseas Expansion – Marubeni and Hamamatsu City in Shizuoka Prefecture have partnered to support the overseas expansion of Hamamatsu-based Marubeni will provide incentives, such as a three-month waiver of management fees for companies entering its industrial parks in Asia, including MM2100 Industrial Park. This initiative builds on a similar agreement with Aichi Prefecture in 2023 and leverages Marubeni’s expertise in industrial park development. The collaboration aims to stimulate business activities, support economic growth, and contribute to the industrial development of target markets in Asia.
- Biotech Company’s Waste-to-Energy Initiative in Sulawesi – BIOTECHWORKS- H2 has partnered with BOSOWA ENERGASINDO to develop Waste-to-Energy (WTE) projects in Makassar and Parepare, Indonesia, with a combined capacity to process 1,150 tons of waste The initiative complements BOSOWA’s RDF business by focusing on energy conversion of organic waste. A feasibility study will begin in February 2026,with construction starting in Q3 2026 and operations targeted for Q4 2027.
- BeFa Launches Standard Factories Adjacent to MM2100: Bekasi Fajar Industrial Estate (BeFa) has launched sales of standardized ready-built factories on a 5-hectare site near MM2100 Industrial Estate in Bekasi, West Java. The project includes 48 plots, with the first phase offering seven plots ranging from 1,120 to 1,456 square meters, priced from IDR 12 billion (approximately JPY 113 million). Each two-story factory has a floor area of 680 square meters and is designed for diverse uses, including factories, warehouses,workshops, and halal-certified storage facilities. BeFa provides support for obtaining halal certification and offers customization options for operating areas and specifications. This initiative addresses the growing demand for flexible industrial spaces post-COVID-19, allowing businesses to reduce upfront investment by purchasing ready-built factories instead of developing their own facilities. A show unit isunder construction and will be completed by May 2026. This is BeFa’s second sale-based factory development, following a similar project in 1999.
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