Alternative Fuel Systems Inc. Finalizes China Contract for Natural-Gas Conversion Systems With Sichuan Shutong CNGV Co. Ltd.

CALGARY, Alberta--(BUSINESS WIRE)--Jan. 28, 1999--Alternative Fuel Systems Inc. (AFS) (VcSE:ATF) has finalized an agreement to supply major fuel-system components, technical support and training to Sichuan Shutong CNGV Co. Ltd. (Sichuan Shutong), China's largest company specializing in the development of natural-gas vehicles.

The manufacturing and supply agreement was finalized at a signing ceremony in Chengdu, China, on Jan. 27. Signing on behalf of AFS was Edward Mirosh, vice president, and Ren Jia Yin, chairman, for Sichuan Shutong.

The China National Machinery Import and Export Corp. was instrumental in orchestrating the contract and was the third signatory, represented by Mrs. Gong Huixian.

Sichuan Shutong plans to convert 20,000 vehicles at its facilities to use natural-gas fuel and to construct 72 new CNG fueling stations over the next three years. Currently, there are 28 CNG fueling stations installed, and 12,000 vehicle conversions have been made in Sichuan Province.

The AFS contract, initially valued at CDN$1.7 million, is for the supply of 3,000 Sherex/AFS two-stage regulators and for the manufacturing and adaptation technology to build complete three-stage vehicle CNG fuel management systems based on the regulator.

Also included in the contract is the supply of a CNG engine and emissions testing facility. Testing of AFS Sparrow fuel management systems will be done by Sichuan Shutong. Details of the agreement are available in the AFS news release dated Jan. 12.

AFS is in discussions with Sichuan Shutong for the manufacture of other AFS NGV components as well, and to expand CNG product and technology sales related to NGV in Sichuan Province by several times the initial contract amount.

These discussions will also include manufacturing components for the EAGLE and SPARROW systems, and future AFS Eagle dual-fuel management system sales.

This initial contract is a precursor for the preparation of a licensing agreement that AFS has agreed to negotiate with Sichuan Shutong granting exclusive manufacturing and marketing rights for the Sherex/AFS regulator-based fuel management systems within Sichuan Province.

6 The licensing agreement will also ensure that product improvements are shared and that AFS will be paid a licensing fee based on a formula for buying back finished fuel management systems for resale outside Sichuan Province at a preferred price.

At the signing ceremony, attended by provincial and industry leaders, Chen Quin Ren, vice director, representing Sichuan Province, said, "Even though we have a 20-year history in CNG, today both parties will help speed up CNG use in Sichuan, giving benefits of cheaper fuel and cleaner air."

Alternative Fuel Systems is pursuing other projects in China in regions such as Beijing and Shanghai.

AFS is listed on the Vancouver Stock Exchange, trading under the symbol ATF.

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