Alternative Fuel Systems Inc. Signs Agreement With China's Largest Compressed Natural Gas Automobile Business.

CALGARY, Alberta--(BUSINESS WIRE)--Jan. 12, 1999--Alternative Fuel Systems Inc. (AFS) has signed a $1.7M (Cdn) contract document with Sichuan Shutong CNGV Co. Ltd. and CMC Prospects Import and Export Company of the People's Republic of China (P.R.C.).

The contract document calls for AFS to supply major fuel system components, technical support and training, and will be formalized by CMC Prospects Import and Export Company during a visit to the AFS home office at the end of this month.

Under the terms of the agreement, AFS will supply 3,000 Sherex 2-stage gas regulator systems which will be used as an integral part in Sichuan Shutong's subsequent manufacture and assembly of their fuel management system that satisfies one of China's important market requirements for smaller, less modern, 1 to 2 litre engines.

AFS will provide technical support and training, and has been asked by the buyer to assist in the establishment of an NGV engine development and emission testing laboratory in Chengdu. AFS will have the right to purchase for its own use, or resale in special niche markets outside of China, those parts manufactured by Sichuan Shutong CNGV Co. Ltd. As part of the contract, AFS will supply 2 Sparrow fuel management systems to Shutong for evaluation and demonstration on 4 to 6 litre vehicles, a truck, and a city mini-bus.

Sichuan Shutong is a comprehensive enterprise of production, marketing, and scientific research, specializing in vehicle-retrofitting and service with the ability to construct CNG and LPG fueling stations. Sichuan Shutong is China's largest company specializing in CNG automobile business.

This collaboration establishes AFS as a strong presence within one of the most densely populated and heavily industrialized regions of the Sichuan Province. This major economic area possesses abundant natural gas reserves, yet has no crude oil. With its well developed NG pipeline network following the mainland transportation arteries and 28 NGV stations spreading across the region, there is strong support for this enormous and rapidly growing market.

The Chinese government plans to implement rigorous emissions standards on new and older model vehicles beginning in the year 2000. Prior to 1998, almost all cars in China operated with carburetors. The massive plan to reduce harmful emissions will require that all older models be retrofitted.

There is a very strong resolve and commitment by the government of China to implement solutions to the severe air-pollution problem. In China, gasoline prices are expected to increase by 20 percent in 1999, becoming twice the cost of natural gas. This will provide a strong incentive to promote conversion to cleaner NG vehicle fuel systems, and thus create new opportunities for economic development.

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 symbol ATF.

FOR FURTHER INFORMATION PLEASE CONTACT:

Alternative Fuel Systems Inc.

Jo-Anne Cappis

Investor Information

403/262-1833

403/237-7441 FAX

E-mail: [e-mail]

Web site: www.altfuelsys.com

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