Introduction

As Saudi Arabia accelerates its digital transformation under Vision 2030, the significance of data centers cannot be overstated. These facilities are the linchpins of the Kingdom’s digital economy, supporting a wide range of services, from cloud computing and artificial intelligence (AI) to data storage and processing. In response to the growing demand for advanced digital infrastructure, the Communications, Space, and Technology Commission (CST) has introduced comprehensive regulations to govern data centre operations. These frameworks aim to encourage innovation, attract investments, and ensure compliance in line with international standards.

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The development and operation of data centres in Saudi Arabia are not without challenges. Financing remains a critical consideration, given the sector’s capital-intensive nature. Operators and investors must also navigate a complex landscape of Environmental, Social, and Governance (ESG) requirements, ensuring that their projects align with global sustainability goals while meeting regulatory obligations. This bulletin provides an in-depth analysis of these interrelated aspects—regulations, financing, and ESG—tailored to data centre operators, financiers, and investors.

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Saudi Data Centers Services Regulations

The Data Centers Services Regulations (DCSR), effective January 2024, are a cornerstone of Saudi Arabia’s regulatory framework. These regulations are designed to streamline the development and operation of data centers, ensuring transparency, reliability, and competitiveness.

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Under the DCSR, all data center operators must register with the CST, which categorizes facilities into four tiers—Qualifying, Limited, Standard, and Advanced. Each category corresponds to the operational scale, technical capacity, and compliance level of the data center. Advanced-tier operators, for example, must meet stringent requirements related to service quality, environmental impact, and disaster recovery capabilities, reflecting their role as critical infrastructure providers.

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The Data Center Service Providers Guide (DCSPG) complements the DCSR, offering detailed guidance on the registration requirements and procedures.

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The DCSR, among other things, emphasise robust compliance and operational accountability for data center service providers. Providers must adhere to CST-issued rules on service level agreements (SLAs), business continuity, disaster recovery, and risk management to ensure operational resilience. They cannot absolve themselves of liability for damages caused by outages or security failures without clear agreements with customers, and they must notify customers about their insurance coverage. If a provider decides to cease operations, they must notify CST and customers, maintaining services for at least three months to facilitate a smooth transition (unless a shorter period is agreed with the customer). Providers offering cloud computing services must register separately with CST, while those holding telecommunications licenses must ensure compliance across overlapping domains. Additionally, providers must maintain accurate operational data and meet stringent technical qualifications to ensure compliance and registration approval. These provisions collectively enhance operational transparency, customer protection, and regulatory alignment, fostering a resilient and competitive data center ecosystem in Saudi Arabia.

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Important to also note that registrations are issued for three-year renewable periods and are non-transferable.

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Cloud Computing Regulations

The Cloud Computing Services Provisioning Regulations and accompanying guides issued by the CST establish a comprehensive framework for cloud computing providers, emphasizing operational transparency, data sovereignty, and compliance with technical standards. Providers are classified into three categories—Class A, B, and C—based on the sensitivity of the data they are permitted to handle, ranging from private sector to government-level data. Service providers must clearly disclose key operational details in their contracts, including the location of data storage, service continuity plans, disaster recovery measures, and terms governing international data transfers. Registration requirements include adherence to stringent technical and cybersecurity standards, such as Tier certifications, ISO/IEC 27001 compliance, and the National Cybersecurity Authority’s guidelines. Providers are also subject to ongoing evaluations to ensure compliance with regulatory obligations. These regulations and guides ensure that cloud computing services in Saudi Arabia align with international best practices while safeguarding the Kingdom’s data sovereignty and security objectives.

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Data Protection and Cybersecurity

Data protection is a fundamental aspect of Saudi Arabia’s regulatory framework. The Personal Data Protection Law (PDPL) governs the collection, processing, and storage of personal data within the Kingdom. This law emphasizes key principles such as processing according to a legal basis (such as user consent), data minimisation, and transparency, aligning in certain respects with the EU’s General Data Protection Regulation (GDPR).

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For data center operators, compliance with the PDPL is essential to maintain customer trust and avoid legal repercussions. Operators must implement robust data governance frameworks, ensuring that all processing activities are conducted on a lawful basis. Regular audits and compliance assessments are also recommended to demonstrate accountability.

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Cybersecurity is another critical area of focus. The regulations of the National Cybersecurity Authority mandate comprehensive security protocols to protect critical infrastructure from evolving threats. Data center operators are required to also:

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• Conduct annual risk assessments to identify vulnerabilities.
• Establish incident response mechanisms capable of addressing cyberattacks, including ransomware and distributed denial-of-service (DDoS) attacks; and
• Implement advanced encryption technologies to safeguard sensitive data.

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Looking ahead, quantum-resistant encryption is expected to become a key requirement as quantum computing technologies advance. Operators are also encouraged to adopt AI-driven threat detection systems, which can provide real-time monitoring and response capabilities.

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Financing Data Centers: Navigating Complex Capital Requirements

The data center sector is one of the most capital-intensive industries, with development costs for hyperscale facilities often exceeding $1 billion. In response to these financial demands, operators and investors are increasingly turning to innovative financing models.

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One emerging trend in international data center financings is the unbundling of IT equipment from real estate financing, allowing operators to secure lower interest rates for equipment leases while maintaining flexibility for scaling operations. By separating these components, operators can align repayment schedules with the shorter lifecycle of IT assets, reducing overall costs.

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Asset-backed securitisation (ABS) has also gained traction, particularly among hyperscale and colocation providers. By securitising long-term contracts with anchor tenants such as the likes of Amazon and Microsoft, operators can access predictable revenue streams, enabling favourable financing terms. ABS structures have been particularly successful in the United States and are gaining interest in Europe. Such structures may eventually be considered in Saudi Arabia as the legal framework develops to accommodate such financings.

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In addition to these models, green bonds and sustainability-linked loans (SLLs) are becoming popular financing tools. These instruments tie financial terms to environmental performance metrics such as Power Usage Effectiveness (PUE) and renewable energy adoption and Water Usage Effectiveness (WUE). For example, operators who meet or exceed predefined ESG targets can benefit from reduced interest rates, aligning financial incentives with sustainability goals.

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ESG Considerations: Balancing Growth with Sustainability

Environmental, Social, and Governance (ESG) principles are central to Saudi Arabia’s Vision 2030. Data centers, as major energy consumers, are subject to increasing scrutiny regarding their environmental impact. To address this, operators will need to consider:

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• Adopting renewable energy solutions, such as solar and wind power;
• Implementing energy-efficient cooling technologies to reduce electricity consumption; and
• Participating in carbon offset programs to mitigate greenhouse gas emissions.

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Socially, compliance with data protection laws (such as the PDPL, among others, where relevant) fosters consumer trust, while community engagement initiatives enhance the sector’s societal contributions. Operators are investing in local talent development, offering training programs, and creating job opportunities.

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Governance practices are equally important. Transparent ESG reporting, aligned with frameworks like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), is now an expectation among global investors. Operators must also demonstrate ethical supply chain management, ensuring that vendors and partners adhere to ESG principles.

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Conclusion

Saudi Arabia’s data center industry is at a transformative juncture, underpinned by robust regulatory frameworks, innovative financing models, and a strong commitment to ESG principles. For stakeholders, navigating this complex landscape requires a proactive approach that balances compliance, innovation, and sustainability. By aligning operations with these priorities, operators, investors, and financiers can unlock significant opportunities while contributing to Saudi Arabia’s ambitious Vision 2030 goals.