This paper examines the intricacy of energy policies, issues and challenges woven into the development of the energy sector in Malaysia. As highlighted in the Third Outline Perspective Plan (OPP3) and the Eighth Malaysia Plan (8MP) unveiled in April 2001, efforts will be intensified to moderate the growth of energy demand and to develop renewable energy as the fifth fuel in electricity generation. Whilst the general energy policy thrust for the next ten years remains unchanged, concerted efforts will be made to usher the energy sector development on a greener path. With a projected average economic growth rate of 7.5% per year in the 2001-2005 period, resource rich Malaysia would have to cater for the 7.8% yearly increase in final energy demand. Total primary energy supply is projected to grow at an average of 7.2% per year in the same period. Against the backdrop of a growing need for coal and piped natural gas imports and Malaysia becoming a net crude oil importer in 2008, greater challenges lie ahead for the energy sector. This implies that Peninsular Malaysia may become a net importer of fossil fuels (oil, gas and coal) sooner than expected. Higher utilization rate of natural gas as the 'green' fuel will be encouraged in electricity and non-electricity sectors. Furthermore, fiscal incentives in Budget 2001 to promote renewable energy and energy efficiency provide a timely boost for implementation of the new fifth fuel strategy. Although the overall approach in addressing energy issues and challenges hinges on the precautionary principle, the main thrust of energy sector development in Malaysia will continue to focus on adequacy, quality and security of energy supply and the promotion of its efficient utilization with minimum negative impacts on the environment. (C) 2003 Elsevier Science Ltd. All rights reserved.