Dongfeng is a subsidiary of China's third-largest automotive manufacturer Dongfeng Motor Group and is one of the largest producers of natural gas engines for the Chinese market.

The company expects to complete a new production facility this year with a production capacity of 30,000 vehicles and 20,000 natural gas engines per year. It expects to produce 4000-5000 natural gas engines in the 2006 calendar year.

The engines currently comply with Euro 2 emission standards and Dongfeng expects to lift this to Euro 3 certification by the end of this year.

ACE has been selected to jointly achieve this goal through its Natural Gas Vehicle System (NGVS) technology. The resulting engine will be electronically controlled with a multipoint injection system.

ACE said the timeframe for developing the new engines would be relatively short due to the progress already made by Dongfeng.

Base engines from the Chinese company will be delivered to ACE's Perth premises in August.

Dongfeng has advised it requires the development, certification and testing program to be completed by the end of this year to allow sales to commence in 2007.

"Upon successful completion, the parties will negotiate terms for the ongoing commercial arrangements with an initial purchase commitment of 300 ACE NGVS kits for the newly developed engines," ACE said.

The companies have also agreed to cooperate on the development of a single point injection Euro 3 engine once their current work is completed.

ACE now has production arrangements with three of the five largest heavy-duty engine manufacturers in China, accounting for the majority of diesel engines and trucks sold in the country.