Alternative Fuel Systems Inc. Receives Certification by Mexico Government; AFS Sparrow System Passes Stringent Auto Emissions Tests.

CALGARY, Alberta--(BUSINESS WIRE)--June 29, 1998--The Alternative Fuel Systems Inc. (AFS) Sparrow system has exceeded federal standards of a rigorous official regulatory emissions testing conducted by the transportation authorities, Instituto Mexican del Petroleo (IMP) dynamometer test laboratory, of the Federal Republic of Mexico.

This successful testing gives AFS official government certification and makes the Sparrow system a prominent device in the fight to reduce Mexico's pollution.

The vehicles with the AFS Sparrow conversion system that were tested -- a Microbus and Volkswagen Beetle -- came significantly below the allowable amount of emissions, and was achieved without compromise to performance and driveability.

A Microbus supplied by the AFS Mexican partner Convertidores Cataliticos Mexicanos SA de CV (CCM) of Mexico City, showed approximately 50 percent the amount of NOx and reactive HC emissions permitted by new Mexican regulations, and a Volkswagen Beetle only showed approximately 25 percent of the emissions permitted, giving them a wide margin of clean exhaust emissions.

The AFS Sparrow conversion and electronic fuel injection system is highly economical, easy to install, and maintains or improves power and operational efficiency.

The IMP results confirm preliminary tests conducted prior to the signing of the major contract Dec. 17, 1997, between AFS and CCM naming AFS as the exclusive supplier of 1,080 AFS Sparrow conversion kits in a $2 million contract, covered by a Letter of Credit accepted by the Royal Bank of Canada. A Letter of Intent for the conversion of 10,000 vehicles per year over the next 10 years also has been signed.

The first shipment of 540 Sparrow systems to Mexico City is scheduled for July 10, 1998, and another 540 units are scheduled for shipment the end of September. Certification of the AFS Sparrow by the federal government clears the way for the program to be introduced to other targeted Mexican cities including Guadalajara, Monterrey, Chihuahua, and Puebla.

The microbus is typical of over 70,000 microbuses currently operating on the streets of the Mexico City Valley. The Volkswagen Beetle, manufactured in Mexico, is the mainstay of the Mexico City taxi fleet, numbering over 60,000. Beetles are also used for many public service fleets. Both vehicles are the initial target candidates for CNG conversion in the Mexico City Valley.

Two state-of-the-art compressed natural-gas refueling stations are under construction in the Mexico City Valley and on schedule, each capable of servicing 1,600 vehicles per day. Upon completion, the stations will be two of the largest in the world. A five-year government program calls for the construction of an additional 100 refueling stations, indicating the scope of need for natural-gas converted vehicles in Mexico.

Approximately 80 percent of the air pollution in the Mexico City Valley has been traced to vehicle exhaust emissions. Among the pollutants, unburned reactive hydrocarbon (rHC) and nitrogen oxides (NOx) are responsible for ozone formation, the worst pollutant in the greater Mexico City area. The Mexico City Valley is one of the world's most polluted urban centers, with an estimated population of 25 million.

Additional government programs under consideration targeting vehicular emissions include the introduction and the implementation of retrofit programs to install catalytic converter systems on older gasoline burning engines.

Other AFS conversion programs throughout the world are on schedule and progressing successfully. In a pilot project in New Delhi, India, two Maruti cars manufactured by Maruti Udyog Ltd. (MUL) have been converted from gasoline burning engines to NG operation using the AFS Sparrow fuel management system. Impending government legislation requires MUL to have an NG option for all models. Ownership of MUL, which manufactures approximately 75 percent of the cars operating in India, is divided 50/50 between the government of India and the Suzuki Motor Corporation.

The AFS Eagle is currently being tested in a pilot project in Santiago, Chile, in which Mercedes diesel engines in buses and trucks are being converted to dual fuel operation. The Sustainable Santiago Project is a joint initiative of the International Council of Local Environmental Initiatives, and the Municipality of Santiago and the Corporation for the Development of Santiago.

AFS has introduced a Reversing Flow Catalytic Converter (RFC) developed with Matros Technologies (MT) of St. Louis, Mo., a world leader in catalytic processes. The patented RFC is highly effective in reducing total hydrocarbon concentrations (THC) from tailpipe emissions of diesel and natural-gas fueled engines, compared to conventional oxidation converters. Johnson Matthey, the world's largest manufacturer of catalytic converters, is supplying catalyst material for this project, and the University of Alberta is providing testing facilities.

These successful programs are creating significant milestones in the progress of AFS as a company, and in the progress of fighting pollution on a worldwide basis.

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.

    CONTACT:  AFS, Calgary
               Jo-Anne Cappis, 403/262-1833