Malaysia serves as a useful example of a highly self-contained model of IPP program implementation: the composition of project investors was almost exclusively domestic; debt financing for the projects came exclusively from domestic sources and was based in local currency; and fuel, the largest component of total project cost in the gas-fired thermal plants that Malaysian IPPs employed, came solely from domestic sources.
These features made Malaysia's IPP sector less vulnerable to the shock of the Asian financial crisis than its neighbors, but by no means immune. Malaysia's partially privatized but state controlled off-taker had high levels of foreign currency debt for which repayment obligations became enormously burdensome as a result of the currency devaluation that Malaysia experienced during the crisis.
Additionally, the Asian financial crisis led to a contraction in the Malaysian economy, which resulted in a slow-down of electricity demand growth and exacerbated an overcapacity problem that was already causing serious financial strain on the government off-taker. The outcome of subsequent negotiations between the off-taker and the IPPs during the Asian financial crisis and its aftermath raise interesting questions regarding the sources of reliability of state-entity commitments made to private power investors.