Cost of Corrosion: Impact on Economy and India

Dual Degree Project Thesis

(Stage 1)

By

Arjit Chouksey
Roll No. 06D11003

Guide
Prof. A.S. Khanna

Department of Metallurgical Engineering and Materials Science

Indian Institute of Technology Bombay

October 2010

i
i
 Abstract

The purpose of the project is to study the impact of ‘Cost of Corrosion’ on the economy of a
nation. Since, not a lot of data is available; the study is aimed at devising a method for
evaluating the cost of corrosion in India and the study its impact on our economy. Four widely
accepted methods of estimation of Cost of Corrosion have been analyzed and the results have
been worked out. Limitations and benefits of every method have been critically viewed with
emphasis on the Indian Economy so as to have proper assessment when developing the model.
The data gathering would be done by getting the industries to fill a set of questionnaires which
would include minute details like time log, expenditure details, operation & maintenance
schedule, process flow diagrams and production capacity targeted etc.

The motivation for this project is to develop a model for evaluation of Cost of Corrosion for the
Indian industries and to suggest best corrosion management practices based on optimization of
cost and corrosion control needs.

i
ii
 Contents
Chapter 1. Introduction ....................................................................................................... 1

Chapter 2. Studies carried out so far ................................................................................... 7

2.1. United States (1949): The Uhlig Report ............................................................................ 8
2.2. UNITED KINGDOM (1970): THE HOAR REPORT .............................................................. 10
2.3. UNITED STATES (1978): THE BATTELLE-NBS REPORT ..................................................... 14
2.4. Corrosion Cost and Prevention Strategies in United States ........................................... 19
2.4.1. Approach Followed .................................................................................................. 20
2.4.2. Economic Analysis ....................................................................................................... 21
2.4.3. Corrosion Control Methods and Services Evaluation .............................................. 22
2.4.4. Industry Sector Analysis and Evaluation ................................................................. 25
2.4.5. Summary .................................................................................................................. 28

Chapter 3. Model on Life Cycle Cost Estimation Approach ................................................. 31

3.1. Cash Flow ........................................................................................................................ 32
3.2. Present Discounted Value of the Cash Flow ................................................................... 33
3.3. Calculation of Present Value of Cash Flow ..................................................................... 33
3.4. Annualized Value of Cash Flow ....................................................................................... 35
3.5. Summary ......................................................................................................................... 37

Chapter 4. Critical Analysis of the Methods and Results..................................................... 39

Chapter 5. A case study on Cost of Corrosion in Indian Paper and Pulp Industry based on the
data made available by CECRI India ...................................................................................... 43

Chapter 6. Plan of Action for II stage of the project ........................................................... 47

iii
iv
 List of Tables

Table Table Caption Page

No. No.

1. Direct and Indirect Costs of Corrosion in United States 10

2. U.K. Cost of Corrosion by major sectors of Industry 11

3. Estimated Potential Savings for the U.K. economy (Hoar Report) 13

4. Corrosion Costs of Japan 19

5. Classification of U.S. economy into different sectors in the 2002 report 26

6. Calculation of Corrosion Cost for Paper and Pulp Industry 45

v
vi
Chapter 1. Introduction [1], [2], [3], [4]

Corrosion may be considered as the natural and spontaneous deterioration of a material by

chemical or electrochemical attack, due to the inherent metastability of metals. As a result of
corrosion, metallic materials lose or alter the properties which have served as selection criteria
for different specific applications. Thus, the correct selection of material is of prime importance
in order to avoid or reduce this technological, human safety, economic and environmental
problem. As regards to the latter, corrosion leads to an accelerated depletion of mineral
reserves thus creating a major concern for future production and stability. Although corrosion is
an increasingly important economic concern, there is a relatively small amount of literature
providing data on corrosion economics. This fact may be a consequence of the lack of basic
knowledge of corrosion by economists, and of economy by scientists, along with the difficulty
involved in defining specific cases of corrosion and taking all variables into account, due to the
complex corrosion problems of diverse industrial activities.

With corrosion increasingly becoming the major concern of the production sector, there is a
need to follow strict corrosion management practices to avoid huge losses to production and
society. A designer is defined in the industry as anyone who has a responsibility for corrosion
mitigation, and who is in an effective position to lower the tremendous cost of corrosion by
calculating the most economical selection from a number of corrosion control methods, which
have been determined as able to perform well for a given application, following five practices
for corrosion control, i.e. selecting corrosion resistant materials, isolating the materials from the
environment(using organic, inorganic or metallic coatings), altering the environment through
process changes, employing electrochemical control and manufacturing design to minimize
localized corrosion.

Corrosion is deterioration of a substance on interaction with the surroundings. It is known that

corrosion has severe impact on the economy due to its direct and indirect costs that affect
almost every sector of the economy. The net cost of corrosion in every industrialized nation

1
covers a significant portion of its GDP. To add to it, this estimate does not even cover most of
the indirect costs.[10] In a developing nation like ours, it is very important that we use the
optimized corrosion protection techniques so as to have the check on our corrosion expenditure
and keep the losses to minimum.

A 1975 study carried out by Battelle-NBS calculated the cost of corrosion to be $70 billion per
year in the U.S.A. which was about 4.2% of the GDP. A similar study was carried out in different
countries that time which quoted a similar fraction of GDP as losses due to corrosion. The cost
of corrosion in India is estimated to be about Rs.36000 crores as of 2004 which counts to a
significant amount, especially for a developing nation like ours. To continue the process of
development, it’s very important that we avoid all kinds of avoidable losses like corrosion.

Corrosion cannot be eliminated totally but can definitely be kept under check and all kinds of
avoidable losses can be minimized. This helps us in keeping the expenditure to a minimum over
the long run thus contributing to a sustainable economy. In a developing economy, each and
every industry has to go for systematic corrosion auditing in order to identify and adopt the
most appropriate corrosion control measures and effect considerable savings.

A technical definition which brings out the true significance and impact of cost of corrosion is
measured with respect to corrosion management. The cost of corrosion measures the cost of
corrosion management to improve the function of, and to extend the life of a structure or
facility. The first step is to estimate how much the industry and government agencies are
spending on corrosion prevention and protection (direct costs). The second step is to determine
the benefits of corrosion management in terms of extending the service life and functionality of
the protected structure or facility. The third step is to estimate the value of indirect costs (with
respect to population in contact) and the cost of any accidents or unplanned shut-downs
throughout the service life of the structure. In addition, an important task is to work out how
the current cost can be lowered [5].

2
Keeping a record of the changes in corrosion control over the time can outline the role of
corrosion cost. Specifically, by documenting the role and significance of unexpected accidents,
shut-downs, regulations, and research in bringing about changes in the treatment of corrosion,
significant landmarks can be identified signifying the impact of corrosion cost. Savings made by
changing from current corrosion management practices to more cost-effective practices point
out the possible benefits of optimized corrosion management practice. Determination of the
most cost-effective practices is to be based on the evaluation of the current practices and
comparison with the alternate practices.

The net worth of corrosion losses throughout the world is about $1.8 trillion. In India, the losses
are around Rs. 1, 52,000 crores. With proper utilization of optimized corrosion control practices,
about 25-40 percent of the net losses can be saved. About 90 percent of the corrosion is related
with iron based materials. [6]

The important question that comes up is how to design the optimized corrosion control
practices. For that purpose, the most important thing is to understand the reasons for failure in
industries. The reasons for failure of components in industry are

1) Corrosion: uniform and localized

2) Wear: adhesive, abrasive, corrosive and fretting wear
3) Fracture: ductile and brittle
4) Fatigue: low cycle and high cycle fretting

The corrosion mechanism needs to be identified exactly so that the reason behind the
degradation can be traced. Once the reason is known, appropriate techniques can be taken to
mitigate it or slow it down. Also, on identification of the mechanism, it can be taken into
account while designing the structure or the procedure. [3]

3
As described above, cost of corrosion can be taken as the present cost of corrosion
management practices to mitigate corrosion. Corrosion management is the overall management
system, which is concerned with the development, implementation, review and maintenance of
the corrosion control policy. [7] The first step of corrosion management involves an in-depth
understanding of corrosion phenomena, from both a scientific and a technological viewpoint, in
order to develop strategies that minimize the costs associated with the corrosion of materials.

Corrosion management strategies have to be clear and objective oriented. They should tackle
the problem at its core, identify the reason and mitigate it. A successful framework of corrosion
management includes: [7]

1) Roles and responsibilities of staff within the organization;

2) Development of plans and procedures as per the specific needs and implementation
strategy for these plans;
3) Setting standards at the time of implementation to enable the measurement of
performance against these standards and documenting them;
4) Regular review and critical analysis of system performance;
5) Periodic audits of management and monitoring systems to ensure smooth functioning;
6) Generation of feedback based on the performance and appropriate changes in policies
to make up for pitfalls.

Corrosion Management can be applied to an existing structure or from the time of construction.
For both the cases, some steps are different. But the operation strategy is the same for every
case. The objective is to minimize the damage due to corrosion. There are four steps involved
while taking up corrosion management of any structure. [1], [3], [7]
1) Design stage
2) Construction stage
3) Start-up stage
4) Operation stage

4
Design Stage: The most important stage of all. It involves the designing of the project taking into
account all the factors that may play a role in deciding the service life of the project. The
environment conditions are studied and various corrosion mechanisms possible are analyzed.
Based on these conditions, corrosion resistant materials are identified along with various
protective coatings and other protection mechanisms. Out of all the feasible options; the most
cost effective approach is chosen based on optimization of capital cost and service life
requirements.

Construction Stage: This is of great importance as any faults during this stage may lead to
failures and huge losses in the future. The staff needs to know the importance of each and every
step involved. Great care must be taken to follow all the regulations and guidelines strictly. An
overseeing body should take care of every intrinsic detail of the project. All the steps
undertaken should be well documented and studied.

Start-Up Stage: This is the testing stage before the project begins the functioning. This step is for
gelling up of all the components so that everything works smoothly before the production
starts. Also, it is useful for letting the staff get used to the project and understand the operation.
If there are any faults during the construction stage or flaw in the design, they are noticed in
this phase and can be corrected thus avoiding major losses.

Operation: The objective in this stage is to keep all the components working efficiently and the
data collection is proper and analyzed. The analysis of data should be firm and quick and the
comparison to be done against the pre-defined standards. If any kind of discrepancy or
irregularity is found, the maintenance work should begin immediately with continuous
inspection and monitoring.

5
6
Chapter 2. Studies carried out so far

The Dual Degree Project started off with a critical study of a number of previous attempts of
evaluating the cost of corrosion. These studies have formed the basis for current thinking
regarding cost of corrosion to National Economies. The earliest study was reported in 1949 by
H.H. Uhlig who estimated the total cost of corrosion by summing materials and corrosion
control method costs. The revelations made by this report triggered a number of studies in
different nations with the objective of evaluating corrosion costs to respective economies. The
major studies which gave reasonable estimates were: [8], [9]
1) Study in Japan based on Uhlig Method, 1977
2) The Hoar Report, U.K., 1970
3) The Battelle-NBS Model, U.S.A., 1978
4) Battelle-NBS Model study in Australia(1983) and Kuwait(1995)
5) Corrosion Cost and Prevention Strategies in the United States, 2002

The common result of all these studies has been the significant amount of cost of corrosion
varying from 1.5 to 5.2 percent of Gross National Product (GNP)

All these studies estimate direct cost of corrosion. The indirect costs of corrosion due to
corrosion damage are often regarded as far greater than direct costs but are difficult to
estimate due to different perspectives and standards.

These studies broke down cost of corrosion into 2 significant components:

1) Total Corrosion cost that can be avoided by better corrosion control practices
2) Corrosion costs that require improvisation of technology for control

7
This classification was based on the findings while formulation of the reports. All of them
concluded that the available technology and knowledge isn’t disseminated properly and the
industries don’t realize the benefits in the long run of using better corrosion control methods.

We are going to include a critical review of a few successful methods to create a background
and direction for a way to develop a step wise evaluation procedure for industries in a
developing economy like India.

2.1. United States (1949): The Uhlig Report [8]

This was the earliest effort to estimate the cost of corrosion. The annual cost was estimated to
be about $5.5billion which accounts to be about 2.1% of the GNP. This study attempted to
measure the total costs by summing up the cost for both the owner / operator (direct cost) and
for the users (indirect cost) of corroding components. The cost for the owners / operators was
estimated by summing up cost estimates for corrosion prevention products and services used in
the entire U.S. economy. The study estimated the total amount of corrosion prevention
products and services used throughout the nation by collecting the sales data of all the leading
manufacturers and service providers (for example, coatings, inhibitors, corrosion resistant
metals and cathodic protection) and multiplied it by their prices. An advantage of this method is
that the cost data are more readily available for well-defined products and services.

The basic philosophy employed by Uhlig with regard to direct loss stemmed from the following
assumptions: “The ferrous metals, iron and steel, are by far the engineering materials most used
in industry. If iron were completely resistant to corrosion, there would not be any need for
alternate material. Since iron and steel obviously undergo dissolution under many
environmental conditions, special alloys or protective coatings are used. Therefore, when
nonferrous metals or alloy steels are used, the increased cost over iron and steel of the same
shape and size can be considered to be a direct loss due to corrosion.”

8
With regard to protective coatings, Uhlig made an assumption that approximately 50 per cent
of annual production of paints might be consumed in protecting metals against corrosion. This
percentage would be likely to vary from country to country. In consequence, for example, the
annual sales of phosphating solution were reported as a direct cost of corrosion, since
phosphating is a primary protection before painting. Uhlig applied an interesting approach to
the estimation of direct cost of corrosion in the boiler industries. He multiplied the total
horsepower capacity of the country by the unit cost of water conditioning plus labour and boiler
tube replacement per unit of horsepower. His data on domestic water heater replacements
were based on a large user-base survey. Nearly half-a-million domestic hot water tanks being
used throughout the country were observed for 5 years and a figure of 25 per cent of all tanks in
service, which required annual replacement, was arrived at. Surprisingly, only 10 per cent was
included as a direct loss, indicating the conservative approach he adopted. His approach was
more of using a safe approximation rather than depending on exhaustive interpretation of the
data.

His data on internal combustion engines were based on laboratory experimental studies as well
as service data. He concluded that, on an average, 60 per cent of automobile engine wear could
be attributed to corrosion. Automobile mufflers need periodic replacement because of
corrosion failures. He collected the data on total number of mufflers supplied by car dealers and
independent repair shops and multiplied the figure by unit cost and labour cost. He himself
admitted that these data did not include mufflers installed at gasoline filling stations, fleet shops
or by individual car owners and the total estimate therefore represented a conservative figure.

The basis of Uhlig study was the estimation of overhead costs for using improvised materials
resistant to corrosion instead of the basic materials like iron and steel. In a similar fashion, Uhlig
study considered that 50% of the net production of paints was utilized as coatings for protection
against corrosion. So the costs of these paints were reported as Direct Costs of Corrosion.
Similarly a number of assumptions were followed to calculate the direct cost of corrosion to
various sectors like boiler industries, domestic water heaters, automobiles, internal combustion
engines, etc.

9
However, this was a very conservative estimate as it ignored a number of sources of direct
losses like replacements at regular fleet shops, owner replacements, replacement at home, etc.
They based their study only on the data provided by recognized industries from the identified
sectors and extrapolated the data to GDP.

Data estimation U.S. [8], [9]

2.2. UNITED KINGDOM (1970): THE HOAR REPORT [10]

This approach gave a better estimation than the Uhlig method. They collected extensive data
and considered the losses followed by damage and failures due to corrosion. They carried out
extensive surveys to estimate the data of expenditures on corrosion protection techniques,
repair due to corrosion and replacement and shut down. With the judgment and experience of
exports, an estimate on potential savings by the use of improvised protection techniques,
improved metallurgy and better maintenance.

Information obtained from one industry was used to estimate the costs for other industries of
the same sector. Subsequently, the costs for individual industry sectors were added up to give a
net corrosion cost for the economy.

10
The cost of corrosion was conservatively estimated to be about £1365 million per annum which
was about 3.5% of the GNP in 1970. The report also stated that with proper use of resources, a
potential saving of about £310 million per annum is achievable.

To better understand the causes and figure out the avenues of savings, the Hoar Committee
divided the study to concentrate on each industrial sector individually. So this ensured that no
corrosion cost were included for inter-sector interactions. Only the corrosion costs for the
particular sector were calculated.

[9], [10]

The committee recognized the sources of cost of corrosion and based on detailed study of every
cause, suggested 16 measures to lower the effective cost of corrosion. [9]

1) Better dissemination of existing corrosion control information;

2) Improved protective treatments;

3) Closer control over the application of existing protective measures;
4) Improved design with existing materials;
5) Greater awareness of corrosion hazards by the users;

11
 6) Use of new materials;
7) Cost-effectiveness analysis of materials and protective treatments leading to
procurement based on total life costs;
8) Previous feedback on service performance;
9) Improved specifications for protective treatments;

10) More basic research on corrosion mechanisms;

11) Improved communication between government departments;
12) Improved storage facilities;
13) Information on corrosion sensitivity of equipment;
14) Better non-destructive testing techniques;
15) Standardization of components; and
16) More frequent or longer duration maintenance periods.

The Hoar committee suggested that major cause of corrosion was lack of awareness and poor
sharing of available knowledge and technology. According to the study, better interaction
between research departments and industries would substantially decrease the current
expenditure.

The Committee also studied the taxation laws and their effect on corrosion costs. Maintenance
costs qualified for tax reliefs which motivated operators to have lower construction costs and
higher maintenance costs. The report suggested reforms in the tax policies so as to improve on
the initial construction costs and lower the maintenance costs, thus reducing the net effect of
corrosion.

To ensure that all the measures were implemented, 4 recommendations were made which were
to be followed nationwide.

1) Establish a national corrosion and protection center,

2) Receive education and training,
3) Provide better research opportunities and channels, and
4) Develop closer links between technical and trade organizations.

12
These potential savings were estimated with the help of expertise from companies which had
relatively less corrosion losses as compared to other companies in the same sector. The
corrosion practices followed in these industries were standardized and cost evaluated for 1
year. Their costs were compared to other industries and the net difference in terms of life
expectancy, replacement cost, rehabilitation cost, shut-down cost and replacement cost were
evaluated and then scaled down to 1 year.

13
2.3. UNITED STATES (1978): THE BATTELLE-NBS REPORT [9]

The Battelle-NBS study was the first to combine the expertise of corrosion and economics
experts to determine the economic impact of corrosion on the U.S. economy. The study used a
version of the Battelle National Input/Output Model to estimate the total corrosion cost. This
model quantitatively identified corrosion-related changes in the resources (i.e., materials, labor,
and energy), changes in capital equipment and facilities, and changes in the replacement lives of
capital items for entire sectors of the economy. The input/output model is able to account for
both the direct effects of corrosion on individual sectors and the interactions among various
sectors.

The total U.S. cost of metallic corrosion per year was estimated to be $70 billion, which
comprised 4.2 percent of the GNP in 1975. Out of this total cost, about 15 percent or $10 billion
was estimated to be avoidable by the use of the most economically effective, presently
available corrosion technology.

The Battelle-NBS study used an input/output framework to estimate the cost of corrosion for
the U.S. economy. The U.S. economy was divided into 130 industrial sectors in the input/output
model. For each industry sector, the investigators asked experts to estimate the costs of
corrosion prevention and the cost of repair and replacement due to corrosion.

The input-output (IO) analysis is a general equilibrium model of an economy showing the extent
to which each sector uses inputs from the other sectors to produce its output showing the inter-
dependency of all the sectors of the economy.

The IO model shows the increase in economic activity in every other sector that would be
required to increase net production of a sector by 1 unit.

Economic IO analysis explicitly accounts for all the direct and indirect inputs to produce a
product by using the IO matrices of a national economy. Sectors are represented as rows of the
14
matrix. The input of each sector is represented in the corresponding column. The rows and
column coefficients are normalized to sum to 1. This completes the production matrix. The
corresponding coefficients in each cell would tell about the input required from one sector to
produce a unit output of another sector thus listing the inter-dependency of all the sectors of
economy.

Determining the coefficients exactly was of particular significance as it would tell about the
input of any product or service and the changes if it was not present. This was the philosophy
behind using the Input/Output model and gave rise to a scenario of assuming 3 different worlds
to estimate the cost of corrosion. Thus this gave an opportunity to consider a world without
corrosion and comparing the inputs required for producing a certain product or service in the
real world to the ideal world without any corrosion. This difference in the inputs would exactly
tell the expenditure done to tackle imminent corrosion.

The Battelle-NBS study collected data on corrosion-related changes in:

1) Resources (material, labor, energy, value added required to produce a product ),
2) Capital equipment and facilities,
3) Replacement rates for capital stock of the capital items, and
4) Final demand for a product.

Based on these data, coefficients in the IO model were evaluated. Data was obtained by
exhaustive surveys of industries, consultants and research pioneers. The study was aimed at
evaluating the increase in cost for production of a unit product just because corrosion exists.
This gave birth to 3 scenarios to be studied simultaneously to evaluate the cost and to identify
the best measures of corrosion prevention and predicting the savings on implementing the best
available technology for corrosion protection.

1) World I: real world of corrosion;

2) World II: hypothetical world without corrosion;

15
 3) World III: hypothetical world in which the economically most effective corrosion
prevention method was practiced.

The aim of the study was to utilize the Input/Output model to evaluate the cost of production
for each of the worlds and then carry out a comparative study to work out the cost of corrosion
and identify the best possible prevention methods.

The difference between the costs of World I and World III are avoidable costs by use of available
technology and knowledge. The difference between World I and World II would give us the cost
of corrosion that is incurred in the present scenario. Just because corrosion exists and it cannot
be eliminated, a certain cost will be incurred which can be evaluated by difference between the
costs of World II and World III.

This study focused on the direct costs of corrosion as the indirect costs were far too greater and
impossible to evaluate. The direct costs included were:

1) Replacement of equipment or buildings

2) Loss of product
3) Maintenance and repair
4) Excess capacity
5) Redundant equipment
6) Corrosion control (such as inhibitors, organic and metallic coatings)
7) Engineering research and development testing
8) Design
9) Insurance
10) Parts and equipment inventory

The Battelle-NBS study was employed primarily to evaluate the corrosion cost for sectors. The
Input/Output model was to be customized for industries from each sector. The coefficients of

16
the Input/Output Matrix were determined by surveying the industry experts and consultants as
how much would specific requirements of products and service would change if there was no
corrosion at all. 3 important avenues were identified which would indicate the changes in
expenditure.

1) Changes to the materials inputs to produce products, e.g., coatings, corrosion inhibitors,
and corrosion-resistant materials,
2) Changes in the capital equipment and facilities of the industry due to corrosion effects
on replacement lives of equipment, and
3) Changes in other areas such as technical services.

To estimate the changes in these 3 indicators of costs, these have to be broken down into
specifications which can be identified by the industry and compared uniformly through-out the
sector. They are classified into 4 components.

1) Inputs: There are corrosion effects on inputs required to make a product. These effects
include the costs of coatings and plating for corrosion control, corrosion inhibitors,
maintenance and repair, corrosion-resistant metals, and cathodic protection.
2) Capital Replacement: Replacement of capital equipment and facilities in the industry is
affected by corrosion through changes in the replacement lives for the capital items,
excess capacity, and redundant equipment.
3) Growth Capital: The costs of capital equipment and facilities for growth are affected by
corrosion through changes in the replacement lives for the capital items.
4) Value Added: Activity of the industry is affected by corrosion through changes of inputs,
including costs of research and development and technical services.

Once the coefficients in the Input/Output matrix have been evaluated, this matrix can now be
used to estimate the cost of producing a product or service in the real world where corrosion is
imminent. And also can be calculated are the avoidable costs of corrosion thus signifying the

17
impact of cost of corrosion and benefits of utilizing improvised technology and corrosion control
methods. The Study stated that a potential saving of about $10billion was possible just by
proper use of the more cost-effective available technology.

The same exercise was carried out again in 1995 to evaluate the consistency of the model and
to tabulate the improvements based on the previous report. With the effectiveness of the
Battelle-NBS model, it was employed by various nations such as Australia, Kuwait, Japan and
India to calculate the cost of corrosion.

The Australian study specifically employed a comparative study between the real world and the
world where optimum corrosion protection methods are used. The study showed significant
amount of savings that can be done by utilizing the optimal corrosion protection methods. The
model results indicated that the potential economic savings by use of best practice corrosion
mitigation technology in Australia during the year 1974-1975 totaled Aus. $992.8 million.

A similar variation of Battelle-NBS model was employed by CECRI under Rajagopalan in 1986 to
evaluate the cost of corrosion. The analysis classified the economy into 22 core industrial
sectors and estimated the cost of corrosion to be around Rs.4076 crores, considering only the
direct cost of corrosion. The report suggested that there was a lot of ignorance in India
regarding corrosion control and protection and thus predicting a saving of about 44 percent of
the net cost, about Rs.1804 crores.

The Input/Output model employed in Japan consisted of 32x32 matrix evaluating the direct cost
of corrosion. The inputs to the matrix were direct costs estimated by the Uhlig method. This was
an attempt to compare the 2 methods. The result shows clearly that the direct cost estimated
by Input/Output Model is about 4 times the values estimated by the Uhlig method, justifying
the conservative nature of Uhlig approach thus giving a low estimate.

18
 Table 4. Corrosion costs of Japan [9]

2.4. Corrosion Cost and Prevention Strategies in United States [9]

It is known that the corrosion of metallic structures has a significant impact on the U.S.
economy, including various sectors of the economy such as infrastructure, transportation,
utilities, production and manufacturing, and government. A 1975 benchmark study by Battelle-
NBS calculated the cost of corrosion to be $70 billion per year, which was 4.2 percent of the
nation's gross national product (GNP).

A need was identified to carry out a systematic study to estimate the current impact of metallic
corrosion on the U.S. economy and to provide strategies to minimize the impact of corrosion.
Through discussions between NACE International (The Corrosion Society), members of
Congress, and the U.S. Department of Transportation (U.S. DOT), an amendment for the cost of
corrosion was included in the Transportation Equity Act for the 21st Century (TEA-21), which
was passed by the U.S. legislature in 1998. In the period from 1999 to 2001, CC Technologies
conducted the research, in a cooperative agreement with the Federal Highway Administration
(FHWA).

In this study, the total direct cost of corrosion was determined by analyzing 26 industrial sectors
in which corrosion is known to exist and extrapolating the results for a particular industry to the
whole sector thus assessing a nationwide estimate. The total direct cost of corrosion was
determined to be $276 billion per year, which is 3.1 percent of the U.S. gross domestic product
(GDP). Indirect costs to the user (society costs) are conservatively estimated to be equal to the
direct costs. This implies that cost of corrosion can be as high as over 6 percent of the GDP. But

19
since the indirect costs are not paid for, it is generally not included in the study. The indirect
costs are a burden to the society as a whole and not to any individual.

2.4.1. Approach Followed

In the current study, two different approaches were taken to estimate the total cost of
corrosion. The first approach followed a method where the total cost is determined by summing
the costs for corrosion control methods and services. The cost of materials were obtained from
various sources such as the U.S. Department of Commerce Census Bureau, existing industrial
surveys, trade organizations, industry groups, and individual companies. The data collection for
corrosion control materials and products relied heavily on surveys of relevant web sites. Data
collection of corrosion control services such as engineering services, research and testing, and
education and training was obtained primarily from trade organizations, educational
institutions, and individual experts.

The second approach followed a method where the cost of corrosion was first determined for
specific industry sectors and then extrapolated to calculate a national total corrosion cost. Data
collection for the sector-specific analyses differed significantly from sector to sector depending
on the availability of data and the form in which the data were available. In order to determine
the annual corrosion costs for the reference year of 1998, data were obtained for various years
in the last decade, but mainly for the years 1996 to 1999.

Discussions with industry experts provided the basis of the industry sector data collection. The
data related to the public sectors were available readily through reports from the government.
Although the data regarding the private sectors and the consultants was hard to obtain due to
hesitation of the industries to share the internal operational data. In such cases, industry
experts were contacted to estimate the data on the basis of available operational data for that
particular sector.

20
To work amongst different sectors, the objective was to cover the economy as broadly and
exhaustive as possible and to cover all the inter-sector interactions and to account for them.
The sectors were divided among five different categories so as to cover as much industry
sectors as possible. The net contribution of industry sectors to the U.S. GDP was about 27
percent. The five sectors were Infrastructure, Utilities, Transportation, Production and
Manufacturing and Government (Defence and Nuclear waste storage).

2.4.2. Economic Analysis

To determine the direct cost of corrosion incurred by the owners and operators, the percentage
of GDP accountable to the particular industry sector was estimated. With the direct cost
evaluated, the costs were extrapolated to the net U.S GDP thus giving the net contribution of
the sector.

For the calculation of these direct corrosion costs, following elements were included:

1) Additional or more expensive material used to prevent corrosion damage,

2) Labour attributed to corrosion management activities,
3) Equipment required because of corrosion-related activities,
4) Loss of revenue due to disruption in supply of product,
5) Loss of reliability, and
6) Lost capital due to corrosion deterioration.

For all the sectors studied and included in this report, only the direct costs were included. This
was owing to the fact that indirect costs cannot be calculated easily as they are spread through
the society and a period of time. Although, when it comes to the utilities of public use, indirect
costs can be calculated by evaluating the cost throughout the service life of the product or
service, e.g. Highway Bridge or Airports.

21
The Authors of this study made a critical study of all the previous attempts made at evaluating
the cost of corrosion and were well aware of the pitfalls and benefits of every method. The
general consensus amongst the panel was that the 1 st method of evaluating the cost of
corrosion based on expenditures on corrosion control procedures and services was likely to miss
on a large chunk of cost, as seen by the conservative nature of the results obtained by Uhlig
method. While the 2nd method of approaching through studying different sectors of the
economy is more likely to include all the expenditures and cash flow.

2.4.3. Corrosion Control Methods and Services Evaluation

This method involves the estimation of direct cost of corrosion by adding the costs of corrosion
control methods and services. The corrosion control methods that were considered include
protective coatings, corrosion-resistant alloys, corrosion inhibitors, polymers, cathodic and
anodic protection, and corrosion control and monitoring equipment. Other contributors to
direct costs were Research and Development, education and training and awareness programs.

This method involved detailed collection of data for each of the control methods and services
and all the data was compiled and analysed. The details for each component are as follows

Protective Coatings: Both organic and metallic coatings are used to provide protection against
corrosion of metallic substrates. These metallic substrates, mostly carbon steel, will corrode in
the absence of the coating, resulting in the reduction of the service life of the steel part or
component. According to the data available, a total of about 5.56 billion L of organic coatings
was sold in the United States which costs around $16.56 billion. With further break up of these
coatings based on the sector of application, an amount of about $6.7 was estimated to be
contributed to corrosion protection. Further, this is the cost owing only to raw material. With
the complexity of the procedure of coating application, the amount increases almost by five
times.

22
For specific applications, metallic coatings are utilized, the most common being galvanization
process. It’s the application of metallic zinc on the metal substrate mostly carbon steel. The data
states that about 11 million metric tonnes of galvanized and electrolytic galvanized steel was
produced in the year 1997. This costs to about $1.4 billion. This cost does not even include the
cost of the steel substrate. All of this direct cost is owed directly to corrosion protection.
Other sophisticated processes such as metallization of anodes are growing rapidly and cover a
market of about $5 million to $10 million annually.

Corrosion Resistant Alloys: Corrosion resistant alloys find application in places where the
conditions are severe and coatings are insufficient to provide protection or are economically
unviable or not being cost effective. According to the data, United States consumes about $7.7
billion worth of corrosion resistant steel, consisting of alloys manufactured in United States as
well as the import which contributes to about 25 percent of the net consumption.

Corrosion Inhibitors: A corrosion inhibitor is a substance which when added in small quantities
effectively reduces the corrosion rate of the material exposed to the environment. Inhibition in
general is an internal process being employed mostly to protect steel pipes and vessels as an
alternate method to using costly alloys. The edge of inhibitors over other corrosion protection
methods is that it can be added or changed on site without stopping or disturbing the process. A
lot of production sector including oil and gas, petroleum refinery, chemical industries and heavy
manufacturing industries rely on inhibitors. The consumption of inhibitors in United States came
around $1.1 billion, double of what was used during the last evaluation in NBS-Battelle study,
signifying the growing importance of cost savings by corrosion protection.
Polymers: There is not a lot of market for polymers being used for corrosion protection, but
certainly they contribute a significant amount. The key market includes composites, PVC pipes,
polyethylene pipes and fluoropolymers. The contribution of Polymers to direct cost was
estimated to be about $1.8 billion which is a significant percent of the net.

23
Cathodic Protection: Cathodic protection involves variable costs with the major contributors
being the cost of material and the cost of installation and operation. The hardware sales for
installation purposes alone contribute about $146 million a year. Sacrificial anodes contribute to
about $60 million. The cost for installation varies greatly depending on the location and the
environment and so does the cost of operation. On an average, the annual cost of cathodic
protection is around $2.2 billion.

Corrosion Control Services: This includes the consultants and service providers for the purpose
of corrosion protection apart from the measure taken by the industry in-house. The user-base
of NACE was filtered to estimate the net contribution of engineers and scientists for corrosion
protection. Assuming active consultancy from 25 percent of the members in United States, the
total cost was around $1.2 billion; another aspect of the total cost that stands out.
Research and Development: This sector seemed to have fallen short of funding in United States,
even when compared to the cost of failures and damages by corrosion. Academic budget was
around $20 million signifying that the industry research is leading corrosion science rather than
academics which is of significant concern as the knowledge and technology remains confined to
the particular industry or sector.

Education and Training: Comprising of degree programmes, certification programmes, in-house

training and general education training, the net cost was evaluated to be about $8 million as
stated by NACE international.

The data analysis under all the categories of corrosion management resulted in a net direct cost
of corrosion of $121 billion, which accounted for about 1.4 percent of United States GDP. This
justifies the initial concern that this is a conservative approach leaving out on a large portion of
the costs and inter-industry/sector interactions. The largest contributor was protective coating
which is used in almost every sector, but the major concern comes from the unfavourably low
contributions from Research and Development; and Education and training. These two
components must be well funded and disseminated as for the purpose of cost-savings, there is a

24
need to constantly improvise the current corrosion protection methods and invent new
methods and products. As the production and manufacturing process are getting complex and
more sophisticated, the problem of corrosion is attaining enormous figure. So there is a
constant need of improvement and revitalization.

2.4.4. Industry Sector Analysis and Evaluation

To cover the economy as broadly and cover the maximum cross section, the economy was
divided on the basis of contribution to GDP into five categories. Further, each sector was divided
into different industries depending on major contribution and to cover all the aspects of
production in the economy.

A total of 26 sectors were identified with a view to calculate the net worth of corrosion to the
society as a whole, not just to the individuals such as owners or users. The problem with the
previous methods was the approximation of indirect costs, and the cost to the environment
which was ignored. Costs sustained indirectly due to failures such as shutdown production loss,
traffic jams, delays in schedule are difficult to be evaluated as they cannot be assigned to the
owner. They are to be endured by the society as a whole. Once assigned money value, indirect
costs would be included in the cash flow just like any other costs and thus their impact can be
estimated giving a true cost of corrosion.

25
The classification is as follows [9]:
Table 5. Classification of United States economy into different sectors

Infrastructure Highway Bridges

Gas and Liquid Transmission Pipelines
Waterways and Ports
Hazardous Materials Storage
Airports
Railroads
Utilities Gas Distribution
Drinking Water and Sewer Systems
Electrical Utilities
Telecommunications
Transportation Motor Vehicles
Ships
Aircraft
Railroad Cars
Hazardous Materials Transport
Production and Manufacturing Oil and Gas Exploration - Production
Mining
Petroleum Refining
Chemical, Petrochemical, and Pharmaceutical
Pulp and Paper
Agricultural
Food Processing
Electronics
Home Appliances
Government Defence
Nuclear Waste Storage

26
Infrastructure: With the immense load of fast transportation and fast growing economy, there is
a need for a very efficient infrastructure system in place. Every second costs a lot. So as to
maintain the growth at such a demanding pace, there should be high level of mobility and
freight activity. The transportation infrastructure includes more than 6.4 million km. of railway,
roads, airways and waterways with more than 800,000 km. of oil and gas pipelines, 8.5 million
tanks for storage and disposal of hazardous material and 18000 public and private airports. The
detailed analysis shows the huge impact of corrosion on all of these and the measures that are
required to keep the system up and running efficiently. The annual direct cost of corrosion to
Infrastructure was estimated to be around $22.6 billion.

Utilities: Utilities form an essential part of the U.S. economy by supplying gas, water, electricity,
and communication. All the day to day activities are dependent on the efficient working of the
utilities system. Utilities serve the masses. Utilities supply natural gas with a huge pipeline
length reaching 2,785,000 km. The water works includes about 1,483,000 km. of municipal
piping and 16,400 water treatment plants. This energy driven nation consumes huge amount of
electricity every day and requires a highly efficient electricity supply system.

All utility companies combined spent $42.3 billion on capital goods in 1998. Of this total, $22.4
billion was used for structures and $19.9 billion was used for equipment. The total annual direct
cost of corrosion in the utility category is estimated to be $47.9 billion.

Transportation: This sector includes vehicles and equipment such as vehicles, aircrafts, rail cars
and hazardous material transport that utilize the Infrastructure sector of the economy. Out of
these, ships, jet planes and hazardous material transport are highly prone to corrosion and
require continuous monitoring and rehabilitation for smooth functioning. The total annual
direct cost of corrosion exceeds $29.7 billion.

Production and Manufacturing: This sector includes almost every industry belonging to primary,
secondary and tertiary sector and heavy manufacturing. These include oil production, mining,

27
petroleum refining, chemical and pharmaceutical production, and agricultural and food
production. The total annual direct cost of corrosion was estimated to be about $17.6 billion.

Government Sector: There are a large number of public sectors operating under federal and
state governments in the United States. They contribute a significant portion to the GDP of the
nation. Out of all the sectors, two most important departments, Department of Defence and
Department of Energy were selected because of their huge impact on the economy.

Department of Defence deals with the rehabilitation of the aging equipment and the acquisition
of new improvised equipment. With a large amount of capital spent, it is needed that corrosion
should not damage the resources completely and the equipment should see out its service life.
The total annual direct cost of corrosion to the Department of Defence was estimated to be
around $20 billion.

Nuclear wastes are generated from spent nuclear fuel, dismantled nuclear weapons, and
products such as radio pharmaceuticals. The most important design item for the safe storage of
nuclear waste is effective shielding of radiation. Corrosion is not considered a major issue in the
transportation of nuclear wastes due to the stringent packaging requirements and the relatively
short duration of the transport. However, corrosion is an important issue in the design of the
casks used for permanent storage with a design life of several thousand years. The annual direct
cost of corrosion for the storage tanks was estimated to be about $ 42.2 million. [2], [7], [11]

2.4.5. Summary

The cost of corrosion was estimated for the individual economic sectors discussed above. The
total cost due to the impact of corrosion for the analysed sectors was $137.9 billion per year.
Since not all economic sectors were examined, the sum of the estimated costs does not
represent the total cost of corrosion to the entire United States economy. By estimating the
percentage of U.S. GDP of the sectors for which corrosion costs were determined and

28
extrapolating the cost numbers to the entire U.S. economy, a total cost of corrosion of $276
billion was estimated. This is approximately 3.1 percent of the nation's GDP. The indirect
corrosion costs were conservatively estimated to be equal to the direct cost; giving a total direct
plus indirect cost of $552 billion (i.e., 6 percent of the GDP).

Assumptions for considering large indirect corrosion costs are:

(1) Lost productivity because of outages, delays, failures, and litigation;
(2) Taxes and overhead on the cost of corrosion portion of goods and services; and
(3) Indirect costs of non-owner/operator activities.

This study showed that the technological changes have provided many new ways to prevent
corrosion, as well as the improved use of available corrosion management techniques.
However, better corrosion management can be achieved using preventive strategies in non-
technical and technical areas by applying a few preventive strategies such as spreading
awareness about the impact of corrosion cost and significance of using cost effective protection
techniques, imparting technical education to industry personnel stating the importance of
carrying out the prevention practices as per the guidelines and by proper distribution of
available technology. Also emphasis was laid on improving existent technology by investing in
Research and Development and technical education.

29
30
Chapter 3. Model on Life Cycle Cost Estimation Approach [5],
[6], [9]

In order to determine accurate corrosion costs, it is important to include indirect costs in the
analysis of alternatives. The cash flow must include all expenditures by the owner and all
expenditures to others, such as the cost of delays, service interruption, or environmental
damage. The design with the lowest annualized cost is then the design with the lowest cost of
providing the service. If, on the other hand, only direct costs are included, the design with the
lowest cost to the owner may not be the one with the lowest cost of production to the
economy.

When optimizing both the direct and indirect costs of corrosion, it is important that all benefits
and costs of all the options are accounted for. This benefit-cost analysis (BCA) determines the
net present value of options and the highest net benefit to economy. [9]

Life Cycle Cost approach is useful in finding alternatives for corrosion management thus
considering alternative protection mechanisms based on optimization of cost and protection
needs. It determines the Annualized Value of each option, which is used to compare the
alternatives. The comparison should to be done should be annualized over the entire service life
of the structure or product.

Current Cost of Corrosion: The current cost of corrosion is defined as the sum of the corrosion-
related costs of design and construction/manufacturing; the cost of corrosion-related
maintenance, repair, and rehabilitation known as corrosion management; and the cost of
depreciation or replacement of structures that have become unusable as a result of corrosion.
The current cost of corrosion is the difference between the estimates where no consideration is
given to corrosion and the one where corrosion control practices are followed.

31
Measurement of the current cost of corrosion follows 3 steps.

1) Determination of the cash flow of corrosion-related activities;

2) Calculation of the present discounted value (PDV) of the cash flow; and
3) Calculation of the annualized equivalent value.

The current cost of corrosion is determined by following the algorithm of life cycle costing and is
characterized by its annualized value. Annualized value is the indicator of the effectiveness of a
particular approach to tacking the damage due to corrosion.

3.1. Cash Flow

After deciding on the corrosion management practice to be followed, cash flow is determined.
Cash flow determination involves estimation of direct and indirect costs of corrosion. The
corrosion-related cash flow of a structure/facility includes all costs, direct and indirect, that are
incurred due to corrosion throughout the entire life-cycle of the structure. Every industry in a
sector has its own requirements and setup and therefore every control and protection practice
is customized. The standard practices followed while evaluation cash flow is determining the
cash flow for a typical approach and then extrapolate it to the whole sector.
For evaluation of cash flow, both direct and indirect costs are classified and calculated.

Direct cost includes the following:

1) Amount of additional or better metallurgy material used to prevent corrosion.

2) Number of labour hours dedicated to maintenance and repair activities attributed to
corrosion.
3) Cost of the equipment and facilities used as a result of corrosion.
4) Loss of revenue due to decreased production (shut down) and lower supply as a result.
5) R&D costs incurred.

32
 Indirect costs include the following:

1) Increased costs of the product and services.

2) Lost time revenue spent for search of alternative products.
3) Effect on Economy
4) Effect on the Environment

3.2. Present Discounted Value of the Cash Flow

Structures are designed to serve their function for a required period of time, which is referred
to as the service life. Once the cash flow for the service life is determined, the value of each
corrosion control approach for the entire life-cycle can be determined.

The cash flow cycle of a structure/facility is as follows:

1) Zero year: the total initial investment including user cost (in case of old
structured/facility the removal cost as well as user cost not included).
2) Service period – cost of maintenance, repair and rehabilitation.
3) Last year – cost of removal of structure/facility including user cost. After removal, a new
life cycle begins.

All materials and activities incurring corrosion-related costs during the service life of the
structure must be identified, quantified, and valuated. (i.e. all the direct and indirect costs)

3.3. Calculation of Present Value of Cash Flow

Initial Investment: This occurs in present time, so no discounting required.

Annual Maintenance: Annual maintenance is assumed to be constant throughout the life-cycle
of the structure.

33
The present discounted annual value PDV (AM) is calculated back to the present as follows:

PDV (AM) = AM × [1 – (1 + i)-N] / i

Where, AM = cost of annual maintenance ($ per year)
N = length of service life in years
i = interest rate

To obtain the present value of activities that grow annually at a constant rate (g), a modified
interest rate needs to be calculated by using the following formula:

i0 = (i – g) / (1 + g) and i > g
Where, i0 = modified interest rate
i = interest rate
g = constant annual growth rate

If the first payment (P1) occurs in year one, the present value of a cash flow that grows annually
at a constant rate over n years is calculated using the following formula:

PV (P) = [P1/ (1 + g)] × [1 – (1 + i0)-n] / i0

PV (P), the present value of a cash flow series that starts at P1 in year 1 and grows at a constant
rate ‘g’ for ‘n’ years when interest rate is ‘I’, is equivalent to the present value of an annuity of
[P1/ (1 + g)] for ‘n’ years when interest rates are ‘i0’, where ‘i0’ is given by the equation above.

The first payment for repair activities, however, usually does not occur in year one, but, rather
in year ‘t’, therefore, the above formula calculates the value at year (t-1) discounted back to
year zero of the life-cycle to determine the present discounted value of the repair:

34
PDV (P) = PV (P) × (1 + i)-(t-1)
The PDV of one-time costs, such as one-time repairs (R), rehabilitation (RH), or removal of an
old structure (ROS) is calculated as follows:

PDV(R) = R × (1 + i)-tR
PDV (RH) = RH × (1 + i)-tRH
PDV (ROS) = ROS × (1 + i)-tROS
Where, R = cost of the repair
RH = cost of the rehabilitation
ROS = cost of removing the old structure
t = year in which the cost is incurred

The present value (PV) of alternatives is calculated as the sum of the PV of its cash flow added
to the initial capital investment (I):

PDV = I + PDV (AM, P, R, RH, ROS)

3.4. Annualized Value of Cash Flow

While comparing alternative corrosion management approaches, the entire cash flow during
the lifetime of a structure is annualized for the same amount of service life. The annualized
value of the Present value of cash flow is calculated as

AV = PDV × i / [1 – (1 + i)-N]

Since the investment is made only in year zero for construction and manufacturing purposes, its
annualized value is evaluated such as its present discounted value is equal to the present
discounted value of its annuity.

35
PDV (I) = PDV [A (I)] = Σn=1N [A (I) / (1+r) N]
Where, A (I) = annualized value of the capital investment
A (CM) = annualized value of all corrosion management costs
r = annual discount rate
n = service year, n = 1… N,
N = entire service life
PDV (I) = present discounted value of the initial investment
PDV [A (I)] = present discounted value of annuity of the initial investment

The actual cash flow throughout the life of the structure varies with respect to the needs of
different protection procedures, but for the purpose of evaluating the best approach, its service
time is calculated and all the cash flows are annualized to give us the most cost-effective
approach.

Just like for the case of investment, the annuity of the corrosion management yearly cash flow is
determined such that the present discounted value of the original cash flow is equal to the
present discounted value of the annuity:

PDV [A (CM)] = PDV (CM) = Σn=1N [A (CM) / (1+r) N]

Where,
PDV (CM) = present discounted value of the original cash flow of corrosion management
PDV [A (CM)] = present discounted value of the uniform cash flow or annuity
The annuity of the original cash flow is then:
A = A (I) + A (CM)

This annuity or “annualized cost” is a constant annual value paid every year; present discounted
value is equal to the present discounted value of the irregular cash flow for the entire service
life of the structure.

36
3.5. Summary

The current cost of corrosion is the sum of the amount spent preventing corrosion at the design
and construction phase; the amount spent on maintenance, repair, and rehabilitation to control
and correct corrosion (cost of corrosion management); the amount spent on removing and
replacing structures that become unusable due to corrosion (depreciation or cost of
replacement); and the indirect (user) cost generated by or during these activities .

The goal of corrosion management is to achieve the desired level of service at the least cost.
The cost here consists of both the direct costs to the owner and to the user at the end of the
supply chain. Finding the corrosion management program that has the greatest net benefits to
society requires a careful analysis of all the direct and indirect costs involved. This analysis
requires specific corrosion-related cost information. Unfortunately, because of the complexity
of corrosion control and management procedures and the cash flow details and also due to the
reluctance of the experts and industries to share the data, especially in our nation, insufficient
information is available to identify the design-maintenance option that has the lowest annual
cost to one particular procedure.

37
38
Chapter 4. Critical Analysis of the Methods and Results

With understanding the approach and analyzing the data, all the previous methods were
critically analyzed and the possibility of applying them to Indian scenario was explored.
The problem with Indian scenario is lack of awareness and dissemination of knowledge and
available technology. The ignorance about the impact of corrosion is another factor that is a
major concern for us right now.

The following conclusions have been drawn from studying all the previous methods.

1) The Uhlig method of estimating corrosion cost always gives a conservative estimate of
the direct cost of corrosion. They used an assumption of using indirect cost as equivalent
to direct cost, therefore the total cost of corrosion, as estimated by the Uhlig method,
will tend to below. Another limitation of Uhlig’s method is that data are generated from
the particulars gathered at the point of manufacturer. Industry-wide distribution of the
costs of corrosion, and the likely potential savings of each industrial sector, cannot be
estimated.

2) The Hoar method is based mainly on direct interaction with industries and corrosion
experts. It involves lot of effort and total cooperation from industries and experts for
data sharing and analyzing. The direct cost of corrosion, as estimated by the Hoar
method, is found to be somewhat higher than is the estimate made using the Uhlig
method, as shown by Shibata of Japan. And it’s understandable as it deals with real time
data, unlike Uhlig approach which was conservative in terms of data interpretation and
was based on extrapolation.

3) The NBS-BCL method of IO analysis, though apparently more scientific, is subject

ultimately to uncertainties in quantifying the capital cost and intermediate output. This

39
 method relies on the development of coefficients for each industrial sector and
therefore is quite laborious and requires a lot of data interpretation and correlation.

4) All of the three approaches enabled an estimation of direct cost of corrosion. However,
the indirect cost of corrosion invariably is worked out on a speculative basis. Therefore
it’s fair to assume that they miss out a lot on the net cost of corrosion. Moreover, they
are speculative methods and require a lot of data collection which as such is not possible
right now in India.

40
 Figure 1. Corrosion cost calculation methodology to be followed

Economic analysis of corrosion

Assessment of corrosion costs

Identification of Sectors for

data collection and analysis
Available statistics and
information

Questionnaires for Industries and

experts for data collection and
analysis

Screening, processing and analyzing data

Estimation of Corrosion costs

(avoidable and unavoidable)

Extrapolation to the Nation economy

based on sectors contribution to the
41
GDP
42
Chapter 5. A case study on Cost of Corrosion in Indian
Paper and Pulp Industry based on the data made available by
CECRI India [11], [12]

Paper manufacturing is a highly capital and energy intensive industry. Pulp and paper plant are
classified according to the capacity of installation.

1) Large scale, having an installed capacity of more than 33 000 tonnes per year ;
2) Medium scale, having an installed capacity of less than 33 000 TPY but greater
than 5000 TPY;
3) Small scale, having an installed capacity of up to 5000 TPY.

The cost of construction is determined depending on the capacity of installation. It costs an

around Rs. 31,500 to Rs. 90,000 per tonne of production capacity. The average as available by
the data is Rs. 45,000 per tonne of installed capacity. India has about 5.1 million tonne of
installed capacity which gives a capital cost of around Rs. 2, 29,500 crores.

The paper manufacturing environments are highly aggressive; either highly alkaline or highly
acidic depending on the nature of the manufacturing process. The construction material of the
plant is mostly mild steel or carbon steel. Thus the problems of corrosion and wear are observed
almost everywhere in the plant as the material is not very corrosion resistant.

We will be using the Life Cycle Costing method for corrosion audit of the paper and pulp
industry. The materials used for manufacturing paper are bamboo and agricultural by-products.
The capacity of the plant is 200 tonnes per day.

Since, the paper manufacturing industries in India are government owned, we could not gather
the data with ease. Although, they shared some data used in an in-house study, therefore the
details were given in £ currency, which had been converted to Rs. using current exchange rate.

43
The net cash flow of the plant was stated as being £ 50 million. The maintenance department
registers an expenditure of about £ 1250 every day.

The paper manufacturing process was studied with the flow of raw material through different
parts of the plant and major areas exposed to corrosion prone environment were identified.
These sectors were considered for the evaluation purpose. The ideology here is same as the one
that was followed in the United States 2002 report. Major contributors to the cost of corrosion
are identified and their cash flow is calculated.

The major units of wood processing method that were observed and analysed were

1) Chipping unit: wood logs are cut into specified sizes here for the purpose of further
processing. Each unit consists of different cutting equipment such as knife, wire cutter,
knife holder and conveyers. These parts are made of mild steel and carbon steel and due
to the processing conditions, suffer erosion corrosion. The data given here was for the
annual replacement costs as a part of rehabilitation and maintenance process. It was
around £ 2500 annually per unit.
2) Digestion unit: The purpose of this unit is to dry the wood and make pulp or remove the
complex substances from wood and get the dried flesh of wood. The digester unit
components are a cone, strainer, pump, valves and a lid and safety plate. The net
replacement costs of the components were around £ 2000 annually.
3) Blow tank: it serves the purpose of storing the pulp obtained after digestion. It is a mild
steel tank with pumps made of cast steel. The replacement costs for this unit were
around £ 1250 annually.
4) Screening unit: this unit removes the undigested chips and returns them to the digestion
unit. It is made of 316 stainless steel. It is under immense degradation pressure due to
presence of foreign materials and undigested chips which damage the screen. The
annual replacement costs were reported to be around £ 1000.

44
For the purpose of simplicity and initial evaluation, we have considered only pulp processing.
For corrosion auditing purposes, Depreciation guidelines and rules were referred to evaluate
the depreciation amount. The income tax act of India states that all the paper industries have to
pay 35 percent of the net income as the tax. So, the net expenditure was tabled and the present
value calculated.

Table 6. Calculation of Corrosion Cost for the Paper and Pulp Industry

Equipment Annual Present Worth Tax credit(1-t) Present Value(£)

Expenditure(£) Factor
Chipping unit 2500 9.93 0.65 16136
Digestion unit 2000 9.93 0.65 12909
Blow tank 1250 9.93 0.65 8068
Screening unit 1000 9.93 0.65 6454

Using an annual cost factor of 0.1, net expenditure on corrosion and wear is about £ 4400.
This is for the capital installation of about £ 50 million. The net paper industry of India is about £
3.825 billion, thus the cost of corrosion to paper industry in India is £ 0.36 million.

45
46
Chapter 6. Plan of Action for 2nd stage of the project

We are working to develop a method based on Life Cycle Cost estimation as described above.
The net present value method appears to be more realistic than do other approaches as it
enables a life cycle costing of each structure/procedure to be made and arrives at the most
cost-effective corrosion control method. Recent studies in India have shown that the corrosion
coefficients arrived at by this method invariably are less, compared to NBS-BCL coefficients.

Our objectives for developing this method are:

1) To develop a method to estimate cost of metallic corrosion in India

2) Identify awareness and education means to help in reducing these losses

To achieve these objectives, we would follow an action plan.

1) Determination of cost of corrosion based on corrosion control methods and services.

2) Determination of cost of corrosion for specific industry sectors.
3) Extrapolation of individual sector costs to a national cost.
4) Assessment of barriers to implementation of optimized corrosion strategies, and
5) If possible, development of strategies and recommendation plans for promoting
utilization of cost effective protection methods.

We are in talks with BG, Punj Lloyd, Corrosion Control Services and ONGC to work on their
specific procedures or structures and to validate the model described above. Another effort is to
identify the sources of corrosion in the sugar-cane industry as previous studies have revealed
huge losses due to corrosion. We have started the data collection and are trying to estimate the
cost of operation.

47
An effort is being made to study the corrosion problems of the Well Stimulation Services vessels
and transportation truck. We are working on identifying the causes of unexpected corrosion and
then work out a viable corrosion management policy to keep it under control. Also we will
estimate the cost of corrosion sustained since the time of commissioning the trucks.

48
References

1) C. Thomas Savell and I. Carl Handsy, “Accelerated Corrosion Expert Simulator (ACES)”,
2) R. Bhaskaran, N. Palaniswamy and N.S. Rengaswamy, “Corrosion Auditing in a
Petrochemical Complex”, Materials Performance, NACE International, Vol. 43 No. 12,
page 42-45
3) http://www.Corrosion-Club.com
4) Ricardo Sotaquira G, Jorge H Panqueva and Hugo H Andrade S, “A systematic approach
for Estimating Corrosion Incidence to the Economy of a Nation”, 1994, International
System Dynamics Performance
5) M. V. Biezma and J. R. San Cristo´bal, “Methodology to Study Cost of Corrosion”,
Corrosion Engineering, Science and Technology (2005), Vol. 40, No. 4, page 344-352
6) R. Bhaskaran, N. Palaniswamy and N.S. Rengaswamy, “A review of differing approaches
used to estimate the cost of corrosion (and their relevance in the development of
modern corrosion prevention and control strategies)”, Anti-Corrosion Methods and
Materials, 52/1 (2005) page 29–41, Emerald Group Publishing Limited
7) Review of corrosion management for offshore oil and gas processing, Capcis Limited, U.K
8) H. H. Uhlig: Chem. Eng. News, 1949, 27, 27–64; Referral: http:www.corrosioncost.com
9) “Corrosion Cost and Preventive Strategies in the United States”, United States
Department of Transportation, March 2002
10) T. P. Hoar: Proc. R. Soc., 1976, 348, 1–18;
Referral: http://rspa.royalsocietypublishing.org/content/348/1652/1.full.pdf+html
11) Bhaskaran, R., Palaniswamy, N., Rengaswamy, N.S., Raghavan, M. and Jayachandran, M.
(2004b), “Cost of corrosion in Indian Paper & Pulp Industry – a case study”,
communicated to Corrosion Engineering, Science and Technology No. 4, Corrosion
Engineering, Science and Technology 2005 VOL 40 NO 1, page 75-80
12) “INDIA 2008”, A REFERENCE ANNUAL, Compiled and edited by ‘Research, Reference and
Training Division’, Publications Division Ministry of Information and Broadcasting,
GOVERNMENT of INDIA

49