Global fast food chain McDonald’s is powering its UAE truck fleet with fuel converted from its waste cooking oil by the Middle East’s first biodiesel producer.

The vegetable oil is converted by Neutral Fuels, a joint venture between the Dubai-headquartered Neutral Group and a local partner, that has built a biodiesel factory in Dubai.

McDonald’s is delivering all of their 20,000 litres of oil used every month to the factory, which converts it to biodiesel on an one-to-one basis. The output will be sufficient to power the entire truck fleet.

The scheme has been in place for the past month, with McDonald’s and Neutral Fuels having agreed to a long-term offtake agreement. The restaurant chain already powers its truck fleet with biodiesel in the UK and Austria.

The Neutral Fuels plant can produce 1 million litres of biodiesel a year and an extra shift will allow it to double its capacity.

The joint venture is looking to get further business and is currently in negotiations with other potential clients.

“There are a number of conversations ongoing and we expect to make an announcement after Ramadan,” says Karl Feilder, chairman of the Neutral Group.

Rather than selling biodiesel in the retail market, the company will apply the same business model used with McDonald’s, to convert waste oil and supply it back to the client as biodiesel.

According to Feilder, the company is able to produce biodiesel and sell it at a profit at current prices paid for conventional diesel at the pump in the UAE.

As it is producing fuel, Neutral Fuels is in competition with petrol retailers in the UAE, a position that can cause complications with regulators. The company had to obtain a special permission from the Dubai Ruler’s Court and the Department of Petroleum Affaires to start up operations.

Regulatory hurdles will make it problematic for the company to expand in the GCC, according to Feilder.

“If you look at the other GCC markets, the regulatory issues are very significant. We’re very fortunate to be granted a licence in Dubai, I think it would be very tricky to go into other markets in the GCC,” he says.

Neutral Fuels was not granted permission to set up a factory by the Abu Dhabi government. Instead of GCC expansion, the company is looking at setting up new factories in the Asian region.

Dubai’s decision-makers may have been tempted to grant license to the biodiesel project to ease the financial burden placed on the Emirate by domestic fuel consumption. The state-owned petrol retailers Emirates National Oil Company (Enoc) is making losses by supplying fuel at subsidised prices, while having to buy on the international market.

Biodiesel also has significant ecological advantages. Compared to conventional diesel fuel, it total hydrocarbon emissions are on average 67 per cent lower, says the US National Biodiesel Board.

Governments in Europe and Latin America have long implemented mandated minimum use of biofuels by requiring minimum amounts to be blended into petrol and diesel. The European Union has targeted 10 per cent of fuel to be from renewable sources by 2020. The US is encouraging the use of biofuels with tax incentives.

In addition to ecological benefits, used cooking oil is shipped out of Dubai to be processed abroad. Processing the oil locally will save transport costs, says Neutral Fuels.