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Shandong’s Slippery Gutter Oil Man

How a Businessman Tapped and Reprocessed Waste to Supply Tons of Oil for Dubious Human Consumption

It’s oil with an extra something, but there’s nothing virgin about it. Pumped from sewers outside restaurants and drained from dumpsters, it’s cooking oil born from waste both human and mechanical.

Known in China as “gutter oil,” it’s commonly used by cooks at greasy spoon restaurants and canteens that buy it on the cheap from businessmen like Liu Liguo.

In July 2011, Liu was arrested at the gate of a gutter oil company he founded and charged with violating food safety laws. Prosecutors say Liu had several companies. One used cutting-edge technology to produce as much as 60 tons of oil per day.

Investigators testifying at Liu’s recent trial in Ningbo described a massive distribution network concentrated in four provinces. The trial, which began in August, shed light on a long supply chain involving fifty-eight companies, including well-known makers of popular brands of cooking oil. A verdict is pending.

Liu’s business was the largest gutter oil manufacturing network so far uncovered. He started with a modest biodiesel processing facility and expanded into a string of companies that sold up to 12,000 tons of waste cooking oil for nearly 100 million yuan between 2007 and last year.

Gutter oil looks edible, but authorities say it contains carcinogens and hazardous chemicals.

The prosecutor accused Liu of knowingly trading non-edible waste oil to resellers who then “passed it off as soybean oil.”

Taste for the Business

Liu was born in Pingyin, Shandong province, in 1977. He worked at an aluminum plant for ten years until the company stopped paying workers.

In 2003, Liu raised money from relatives and friends to start a business: the Pingyin Changshun Oil Processing Plant.

A former aluminum plant colleague surnamed Li said Liu’s company initially produced real cooking oil.

Later in an interview with China Newsweek while he was held in a detention center, Liu said the company at first “processed pig lard. The factory took animal fat, removed the color, took away the smell, and sold it. It was meant for human consumption.”

Liu lost money during the first two years. But he continued borrowing money from relatives and friends, accumulating some 2 million yuan in debt.

The year 2005 marked a turnaround. At the time, China’s biodiesel industry was still in its infancy and there were no uniform regulatory standards. Liu restructured the company, renamed it and bought biodiesel-making equipment.

China allows the use of gutter oil to power vehicles, and Liu found the business profitable. Producers of biodiesel in 2006 could refine a ton for roughly 3,500 yuan and sell it for 5,000 yuan.

Much of the gutter oil used by Liu’s companies came from Beijing sewers at a time when there were no standards for biodiesel. “During that time, I learned a lot about the gutter oil business,” Liu said.

Gas stations mixed biodiesel and diesel, boosting Liu’s business. He managed to make up to 300,000 yuan a month.

Factory Secrets

In 2007, Liu’s plant in Pingyin started processing gutter oil as “red oil,” for cooking oil suppliers across the country.

Liu said that there were at least five gutter oil companies operating in Pingyin alone. But he denied a prosecution claim that his factories produced gutter oil mainly for food; he said it was only used to feed animals.

Feed-grade oil has to be approved by a provincial agricultural department. But Liu’s companies never obtained permits. Factories without such permits make up a large share of the Chinese feed oil market.

On March 9, 2009, Liu rented a 1,300 square meter plant in Pingyin County’s Jixi Industrial Park. With registered capital of 500,000 yuan, he founded Jinan Bohui Biological Technology Co. Ltd. to produce up to 10,000 tons of bio-wax and 2 tons of refined feed oil annually.

In May 2010, Liu launched a company called Jinan Gelin Bioenergy Co. Ltd. Documents filed with a government commerce department said the company had registered capital of 1 million yuan and operations in the production and sale of biodiesel, oleic acid, stearic acid, and fatty acid.

Workers were not allowed to discuss the product’s market. One worker, Yang Honglei, said workers were not allowed to ask “careless questions.”

Jinan Gelin officials later said each day the factory would get a shipment of some 30 tons of gutter oil. After being melted and stewed, the oil was sent to a hydrolysis workshop. In steel tanks, workers added white clay and activated carbon to filter the oil, turning it clear and odorless.

Gutter oil was then distilled and put through a gas-fractionation plant to be separated for final products. Fatty acids accounted for 30 to 40 percent, and “red oil” accounted for 60 to 70 percent.

A byproduct of Jinan Gelin’s products were fatty acids. “Red oil” sold for around 8,000 yuan per ton, making it the company’s main profit source. The prosecution said after the gutter oil was processed it looked and smelled clean.

A woman surnamed Feng living in a village near the plant claimed Jinan Gelin was a heavy polluter. The air “smelled like rotting dogs. The stench attacked your nostrils until you retched, and then your head ached.”

Roses withered and died. Fruit on nearby trees turned black and fell. Rabbits and chickens died of respiratory infections. Locals petitioned authorities to no avail.

In October 2010, a Jinan Municipal Engineering Consulting Co. report said the plant met environmental standards. An August 2010 report from the same company said recycling gutter oil into biodiesel would protect the environment and keep gutter oil off kitchen tables.

From Sewer to Table

Liu sold Jinan Gelin’s gutter oil secretly, authorities learned. According to the prosecution, Liu contacted delivery drivers shortly before sending out a shipment. The oil went to customers in several provinces.

By 2009, Liu’s customer network included several cooking oil companies. One network took shape after he started working with Cheng Jiangping, an oil seller, who led him to Yuan Yi, an oil trader on the Henan Qingfeng Grain and Oil Market.

Liu later confessed that in June and July 2009, after the Jinan Bohui Biological Technology company opened, he sold oil through Yuan. Police later accused Yuan of selling large quantities of Liu’s oil even though he knew it came from sewers.

Yuan sold the oil at a markup to grain and oil companies in Henan province, or in cans to construction site and market canteens. Gutter oil thus wound up on thousands of dining tables.

Another company, Henan Huikang Oil Co., came under investigation in late 2009. The company bought inferior oil from Liu, mixed it with regular soybean oil, and sold it to a number of food companies, authorities said. The sales of more than 160 tons were worth more than 1.5 million yuan. This low-quality oil was also sold to feed producers and pharmaceutical companies.

A month after Jinan Gelin completed an equipment overhaul designed to increase production capacity, Liu was arrested at his company, Bohui Biological Technology. That arrest led Shandong police to four other companies that sold gutter oil and the detentions of more than fifty people.

At his trial, Liu argued there was insufficient evidence to prove his products were a “poisonous and harmful food product.”

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Caixin Media Company Limited is a media group dedicated to providing high-quality and authoritative financial and business news and information. Through periodicals, online content, mobile apps,...

By Caixin staff reporter Xie Haitao. This article was originally published by Caixin on January 18, 2013.

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