Alternative Fuel Systems Inc. Completes Phase I of Mexico City Project.

CALGARY, Alberta--(AutomotiveWire)--Oct. 14, 1998--Alternative Fuel Systems Inc. (AFS) Wednesday confirmed that the second shipment of 540 AFS Sparrow fuel conversion systems has been shipped on schedule and payment in full received and confirmed by the Royal Bank of Canada.

The Sparrow systems will be installed in vehicles used within the Mexico City Valley's major transportation system. This completes Phase I of the first AFS commercial project in Mexico of 1,080 AFS Sparrow systems, contributing CDN$2 million in total revenues to the company.

Formalization of Phase II, in which AFS will provide systems to convert a minimum of 10,000 microbuses and other vehicles per year powered by gasoline engines to compressed natural gas over a minimum 10-year period, is pending.

AFS is the exclusive supplier of conversion systems to the multiphase Mexico City Valley project. The AFS proprietary technology was chosen in Mexico, following a global competition, for its economy, performance and ability to significantly reduce exhaust emissions. Full certification by the federal government of Mexico was received in June 1998 giving AFS full endorsement for the AFS Sparrow system which converts gasoline burning engines to natural gas.

AFS' other partners in Mexico City include MEG International (Hydro Quebec and Gaz de France), Kraus RNG, Convertidores Cataliticos Mexicanos SA de CV of Mexico City (CCM), CEM, Pan American Enterprises and an association representing Microbus owners.

Recently, Gaz de France, in partnership with Bufete Industrial, announced that this consortium headed by Gaz de France has won one of the two calls for tenders launched by the Mexican government for the distribution of natural gas in Mexico. This group will be taking over gas distribution activities from Pemex, a national hydrocarbons company, to ensure the large-scale development of natural gas operations in this area. Over the next ten years, this consortium is scheduling investments of US$280 million in Mexico. (www.gazdefrance.com)

Mexico City's first two state-of-the-art Compressed Natural Gas (CNG) refueling stations are being phased in. These stations were constructed by the Kraus Group, a division of RNG, of Winnipeg, Manitoba. These are among the largest NG stations in the world, each capable of servicing 1,600 vehicles per day when fully operational. These stations represent the first initiative in a five-year program that calls for the construction of 100 stations valued at $290 million to provide natural gas for public transportation vehicles.

AFS awaits "Type Approval" from the Petroleum Institute in Dehradun, India, to begin execution of a commercial contract signed with Motor Medics (India) Private Limited (MIP), announced Sept. 14, 1998.

In Santiago, Chile, the Canadian International Development Agency (CIDA) has approved a five-month extension of the major test project: "Sustainable Santiago." This project includes a "Natural Gas Conversion Project" in which the AFS Eagle Dual Fuel system is the only Canadian technology participating in the CONAMA/INTENDENCIA national pilot program.

Mercedes, Volvo and Scania are supplying new vehicles for the project while the AFS Eagle is being retrofitted on existing Mercedes diesel engines. Andina's Coca-Cola trucks using AFS' Eagle technology have been confirmed as part of the monitoring program of the national pilot and traffic permits for the trucks have been granted by CONAMA and SEREMI.

"Bus owners of the San Carlos 73 Line have declared a high level of satisfaction with the performance of AFS' Eagle technology. Monitoring of the pilot buses has begun and an interim report will be released by CONAMA and INTENDENCIA in the upcoming weeks." (Sustainable Santiago - Newsletter 5, September 1998.) (www.iclei.org/iclei/sustsant.htm)

The Japanese Initiative between AFS and Nippon Ecology Work Systems (ECOS) is also expanding. A new Hino bus engine has been converted with an AFS Eagle system to meet Euro 2 emission regulations as a dual fuel engine. New diesel dual fuel engines for Isuzu and Mitsubishi are being jointly developed to convert 4 and 6-cylinder Japanese truck engines to use AFS sophisticated electronic controls, meeting Low Emission Vehicle status both in Japan and in the United States.

AFS is conducting ongoing projects in Asia, the United Kingdom, Europe, India and Latin America.

AFS is listed on the Vancouver Stock Exchange, trading symbol ATF.V. AFS Web site: www.altfuelsys.com.

FOR INFORMATION: JO-ANNE CAPPIS, 403/262-1833; AFS, No. 420, 1207 - 11th Avenue S.W., Calgary, Alberta T3C 0M5; AFS e-mail: [e-mail]

The Vancouver Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.