Iconic South African Mines Are Ravaged Economy’s Unlikely Savior

Prinesha Naidoo and Felix Njini
Mon., July 5, 2021, 


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Iconic South African Mines Are Ravaged Economy’s Unlikely Savior


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Iconic South African Mines Are Ravaged Economy’s Unlikely Savior


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Iconic South African Mines Are Ravaged Economy’s Unlikely Savior




(Bloomberg) -- The world’s deepest precious-metals mines, together with giant iron-ore and coal pits are providing an unexpected boon to a South African economy slowly recovering from its biggest contraction in a century.

Surging demand and prices for commodities including platinum-group metals, iron ore, manganese and coal are generating record mining-company profits and bolstering government revenue. That’s even as decades of dwindling output and investor reluctance to build new mines blights prospects for the industry.

“Last year, we were concerned about the lack of space to support the economy amid the severe hit from the pandemic,” Elna Moolman, a South Africa economist at Standard Bank Group Ltd., said in an interview. “The recovery in commodities demand and their prices is providing very strong support to the economy.”

President Cyril Ramaphosa on Monday flagged the “significant role” the sector will play in accelerating South Africa’s recovery from last year’s coronavirus-induced slump.

The mining industry often takes center stage when South Africa’s economic fortunes dip.

Its gold industry -- once the world’s largest -- underpinned the nation’s transformation into the continent’s most industrialized economy. Bullion sales cushioned the economy against the impact of the oil-price and dollar collapse in the 1970s and as international outrage against apartheid rule a decade later resulted in massive capital outflows. The commodities boom in the 2000s provided the Treasury with a war chest to withstand the devastating effects of the global financial crisis.

The mining industry’s output surged 18.1% in the first quarter compared to the previous three months, helping buoy growth more than forecast. The sector accounted for 9% of gross domestic product during the period.

Last year, the mining industry, which employs more than 451,000 people, accounted for 8.2% of GDP, according to the Minerals Council South Africa, an industry lobby group.

Revenue for the fiscal year through March exceeded budget estimates for the first time in five years as the industry drove an increase in corporate income tax collections, and led to the shortfall on the main budget coming in below forecast.

That’s allowed the Treasury to reduce the amount of debt on sale at its weekly auctions for a second time since March and bodes well for its plans to achieve a primary surplus in fiscal 2024-25 and stabilize debt at 88.9% of GDP the following year.

The world’s top platinum suppliers’ exports of platinum-group metals surged 40% in 2020, even as Covid-19 disrupted operations and curbed output, the national statistics agency said in April. Sales of PGMs, which are in demand as stricter emission rules boost their use in vehicle autocatalysts, raked in 190 billion rand ($13.3 billion) amid a rally in palladium and rhodium prices.

South Africa’s terms of trade -- a measure of export prices relative to import costs -- increased 12% over the past year and more than 20% since the end of 2018, as the global economic recovery from the pandemic pushed up demand for commodities, according to HSBC Bank Plc economist David Faulkner.

The trade windfall is “one of the strongest gains on record, with past experience highlighting how South Africa’s macro fortunes can tilt on favorable commodity prices and a benign external backdrop,” Faulkner said in a note. “The result has been a period of respite, relief and rally.”

Still, a failure by Ramaphosa’s government to take advantage of the commodity rally to expedite a raft of reforms and attract investment to boost growth and create new jobs could counter the recent fiscal gains. The South African Reserve Bank forecasts that the commodities price rally may be temporary.

“These are economic challenges that will require sustained policy action to reverse,” Faulkner said. “They also leave South Africa with balance sheet vulnerabilities at risk of being exposed should the recent rise in metal prices prove transitory or risk appetite sour.”

What Bloomberg Economics Says...

“Rising commodity prices provide a welcome respite for the budget. They are, however, not a panacea. The government will still have to follow through with its consolidation plans to stabilize the debt trajectory.”

-- Boingotlo Gasealahwe, Africa Economist

More stories like this are available on bloomberg.com

BOJ Seen Paying Banks to Lend in Battle Against Climate Change


(Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda and his board are likely to offer incentives for lending in the battle against climate change when they meet later this month, according to economists.

The central bank has promised to unveil the initial details of its green lending measure at a policy meeting ending on July 16, with most analysts expecting it to model the facility at least partially on Covid-19 loan incentives introduced in March.

While that framework offers to pay commercial banks different rates depending on the purpose of lending, some BOJ officials want to avoid getting bogged down in trying to differentiate between green projects, according to people familiar with the matter.

The decision to support climate change mitigation efforts already takes the BOJ well beyond the conventional remit of a central bank, raising questions over where its responsibilities end and the government’s begin. But with European central banks taking the lead on grappling with the issue, BOJ officials don’t want to be seen as passively sitting back, the people said.

“The BOJ will likely end up offering banks 0.1% or 0.2% interest,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “That’s not going to be a game-changer, but at least the bank is trying to show it’s doing what it can by jumping into untested waters.”

Even before the BOJ announced in June its intention to introduce the climate measure, some 83% of economists surveyed by Bloomberg said they expected the incentives approach would eventually be used for green or growth objectives after the pandemic.

Under the March incentives, loans from the central bank to commercial banks are either interest-free or the central bank indirectly pays interest of 0.1% or 0.2% to the banks on the amounts they then lend out to companies.

If this model is used, the BOJ runs the risk of having to make decisions on what constitutes a good green project and what is greenwashing or attempts to get preferential treatment and favorable publicity without genuine measures to help transition efforts.

Some economists are questioning why the BOJ is stepping into a new green realm when it has yet to meet an inflation target in its own conventional realm of central banking.

“The climate program would allow the BOJ to indirectly choose good companies and bad companies,” said Daisuke Karakama, chief market economist at Mizuho Bank. “I don’t think they have the right to do that. They’re not politicians. They aren’t elected by public.”

From the get-go, Kuroda has said he wants to keep the measure neutral for markets and to avoid getting involved in micro managing the allocation of resources as much as possible.

Those concerns could favor a simpler system to begin with.

Yuichi Kodama of Meiji Yasuda Research Institute says he expects the BOJ will simply offer zero-interest loans. The need to show policy coordination with the government’s climate goal is ultimately more important than actually giving incentives to that end, he said.

Like it did with of its second Covid lending measure, the BOJ could latch on to the Suga administration’s lead and provide funding for loans guaranteed by government ministries or agencies.

Muguruma sees the possibility of the BOJ taking an approach along those lines. Adopting government guidelines would enable the central bank to avoid establishing its own taxonomy for defining how green a loan is, she said.

While no conclusions have been made, some BOJ officials see that kind of approach as a possibility, the people said.

Japan’s environment ministry guidelines set out conditions for green loans and requires follow-up reports to ensure transparency. The industry ministry is working on making a transition finance map.

While it’s unclear how many details the BOJ will give next week, a concern for Japan’s biggest banks is whether the climate measure will also support green loans and investment involving projects overseas.

(Adds details on ministry guidelines and concern over loans involving overseas projects.)

VOTE BUYING

Ottawa to launch procurement for high frequency rail between Quebec City, Toronto

WHILE THE ALBERTA GOVERNMENT IS LEFT TO FUND HIGH SPEED RAIL BETWEEN CALGARY AND EDMONTON

AFTER ALL THE MPS ARE CONSERVATIVE WITH ONE OPPOSITION MP FROM THE NDP

Mon., July 5, 2021, 



HALIFAX — The federal government is set to announce a new high frequency rail corridor to improve the connection between some of Ontario and Quebec’s major cities.

Transport Minister Omar Alghabra spoke about the upcoming announcement in a video posted to social media Monday, where he joined passengers on a Via Rail train to Quebec City.

Alghabra said the government will be launching the procurement process to build a dedicated line connecting Quebec City to Montreal, Ottawa and Toronto.

"It will increase speed up to 200 kilometres an hour and it will increase frequency for passengers like yourselves and transform the connection between these cities," he said in the video.

Alghabra is expected to make a further announcement Tuesday in Trois-Rivières, Que.

Former transport minister Marc Garneau previously announced a commitment of more than $71 million on the part of the government in 2019 for the new rail.

Via Rail has said the project aims to separate passenger and freight rail operations and create more capacity for people and goods.

The project also proposes new high frequency rail stations along the corridor and plans to reduce trip times by 25 per cent.

This report by The Canadian Press was first published July 5, 2021.

- - -

This story was produced with the financial assistance of the Facebook and Canadian Press News Fellowship.

The Canadian Press

Alstom Flags Cash Burn From Lingering Bombardier ‘Skeletons'

Tara Patel
Tue., July 6, 2021, 




(Bloomberg) -- Alstom SA Chief Executive Officer Henri Poupart-Lafarge expects costly and painful months ahead as the rail-equipment maker works to turn around the flagging operations of the Canadian rival it acquired.

Alstom is detailing on Tuesday a path for improving profitability for the combined group after the Bombardier deal was sealed in January. The French company is forecasting a cash drain in the first half of this year and a return to pre-acquisition margin levels only in the 2024-2025 fiscal year, according to a statement.

The shares fell as much as 8.2% in early trading in Paris, the steepest intraday drop since March last year.

There will be “no more skeletons” going forward, the CEO said in an interview, saying provisions for problematic contracts related to Bombardier have been capped at the roughly 1.08 billion euros ($1.3 billion) already announced. “The key element is to turn around Bombardier.”

Alstom has won major train orders in recent months, benefiting from a wave of investment in carbon-free transport across the globe. But integrating Bombardier’s business following the 5.5 billion-euro takeover has been a rocky process right from the start.

Negative Surprise

The cash outflow “is clearly a negative surprise,” Morgan Stanley analysts Katie Self and Ben Uglow wrote in a note, calling the forecast “an effective kitchen sink” that could mark a low point for integration of Bombardier.

Alstom is forecasting negative cash flow in the first half of this fiscal year of between 1.6 billion euros and 1.9 billion euros, according to the statement. This will lead to “significant” negative free cash flow for the full year.

The cash burn is due to higher spending needed to make up for delivery delays and mismanagement related to ex-Bombardier orders, Poupart-Lafarge said. These are in countries like the U.K. and Switzerland and will require Alstom to raise train deliveries by 35%.

What Bloomberg Intelligence Says

Alstom’s guidance of negative cash flow of 1.6-1.9 billion euros in 1H of fiscal 2022 relates to Bombardier’s loss-making projects, yet it should mark a low point in the company’s integration. The magnitude came as a surprise, as it far exceeds the 1 billion-euro size of these problematic programs. Ebit margin may take three years to reach pre-deal targets.

-- Mustafa Okur, BI industrials analyst

Click here for the report

On the brighter side, Alstom is looking at additional spending in the U.S. on infrastructure under the Biden administration as “upside potential,” he said. “It could definitely be a game changer.”

In Europe, the biggest markets will be Germany along with Italy, Spain and Portugal -- southern countries set to spend under the region’s post-pandemic economic stimulus package.

Key Highlights

Alstom sees significant negative free cash flow this fiscal year including between negative EU1.6 billion and negative EU1.9 billion in the first half“Stabilization” of Bombardier legacy contracts in two or three yearsAdjusted Ebit margin to reach between 8% and 10% from 2024-25 onwards vs 5% pro formaYearly positive free cash flow toward mid-term targetOrder backlog stands at 74.5 billion eurosGoal to expand global market share by 5 percentage points to 36%: CEO

(Adds shares in third, analyst comment in fifth paragraph)

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Airlines to Be Charged More for Polluting in EU Green Push

Ewa Krukowska and Alberto Nardelli
Mon., July 5, 2021, 9


(Bloomberg) -- Airlines in the world’s biggest carbon market will eventually have to pay for all the pollution from their planes as the European Union strengthens its climate policies under the Green Deal.

A proposal by the European Commission includes a gradual phase out of emission allowances for carriers, and will be part of measures to be announced on July 14, according to a person with knowledge of the matter. The package will also introduce stricter demands on companies in the transport sector to use cleaner fuel.

The EU aims to make its Green Deal and the ambitious environmental overhaul a new growth strategy as its economy recovers from the pandemic. The planned clean push also includes strengthening and expanding the bloc’s carbon market, creating a new emissions-trading program for buildings and road transport and setting new emissions standards for cars.

The Commission wants to oblige fuel suppliers to blend an increasingly high level of sustainable aviation fuels into existing jet fuel sold at EU airports, said the person, who asked not to be identified because talks on the the draft laws are private. In addition, the EU executive is planning to encourage the uptake of synthetic low-carbon fuels under the so-called Fit for 55 package.

Cleaner fuels will also get preferential treatment under EU’s new energy taxation framework.

The legislative push is aimed at aligning the European economy with a new goal to reduce greenhouse gases by at least 55% by 2030 from 1990 levels. The previous objective was a cut of 40%.

That package will also include proposals to increase the share of renewable energy, boost energy efficiency and toughen national emissions-reduction goals. The Commission will aim to make the transition in a “fair, cost-efficient and competitive way,” it said in the draft document that will be sent to national governments and the European Parliament next week.

A Climate Action Social Facility Fund will be launched to help the most vulnerable households offset the costs of the transition. To help allay concerns of poorer member states, the EU also wants to bolster carbon market’s Modernization Fund. which supports lower-income countries and to re-distribute one-tenth of carbon allowances for auctions.

Solar Is Dirt-Cheap and About to Get Even More Powerful

Dan Murtaugh
Tue., July 6, 2021,

Solar Is Dirt-Cheap and About to Get Even More Powerful

(Bloomberg) -- The solar industry has spent decades slashing the cost of generating electricity direct from the sun. Now it’s focusing on making panels even more powerful.

With savings in equipment manufacturing hitting a plateau, and more recently pressured by rising prices of raw materials, producers are stepping up work on advances in technology — building better components and employing increasingly sophisticated designs to generate more electricity from the same-sized solar farms.

“The first 20 years in the 21st century saw huge reductions in module prices, but the speed of the reduction started to level off noticeably in the past two years,” said Xiaojing Sun, global solar research leader at Wood Mackenzie Ltd. “Fortunately, new technologies will create further cost-of-electricity reductions.”

A push for more powerful solar equipment underscores how further cost reductions remain essential to advance the shift away from fossil fuels. While grid-sized solar farms are now typically cheaper than even the most advanced coal or gas-fired plants, additional savings will be required to pair clean energy sources with the expensive storage technology that’s needed for around-the-clock carbon-free power.

Bigger factories, the use of automation and more efficient production methods have delivered economies of scale, lower labor costs and less material waste for the solar sector. The average cost of a solar panel dropped by 90% from 2010 to 2020.

Boosting power generation per panel means developers can deliver the same amount of electricity from a smaller-sized operation. That’s potentially crucial as costs of land, construction, engineering and other equipment haven’t fallen in the same way as panel prices.

It can even make sense to pay a premium for more advanced technology. “We’re seeing people willing to pay a higher price for a higher wattage module that lets them produce more power and make more money off their land,” said Jenny Chase, lead solar researcher at BloombergNEF.

Higher-powered systems are already arriving. Through much of the past decade, most solar panels produced a maximum of about 400 watts of electricity. In early 2020, companies began selling 500-watt panels, and in June, China-based Risen Energy Co. introduced a 700-watt model.

“More powerful and highly-efficient modules will reduce costs throughout the solar project value chain, supporting our outlook for significant sector growth over the next decade,” Fitch Solutions analysts said in a research note last month.

Here are some of the ways that solar companies are super-charging panels:

Perovskite

While many current developments involve tweaks to existing technologies, perovskite promises a genuine breakthrough. Thinner and more transparent than polysilicon, the material that’s traditionally used, perovskite could eventually be layered on top of existing solar panels to boost efficiency, or be integrated with glass to make building windows that also generate power.

“We will be able to take solar power to the next level,” said Kim Dohyung, principal researcher on a perovskite project team at Korea Electric Power Corp., one of several companies experimenting with the material. “Ultimately, this new technology will enable us to make a huge contribution in lowering greenhouse gas emissions.”

Adoption of perovskite has previously been challenged by costs and technical issues that prevented commercial-scale production. There are now signs that’s changing: Wuxi UtmoLight Technology Co. in May announced plans to start a pilot line by October with mass production beginning in 2023.

Bi-facial Panels

Solar panels typically get their power from the side that faces the sun, but can also make use of the small amount of light that reflects back off the ground. Bi-facial panels started to gain in popularity in 2019, with producers seeking to capture the extra increments of electricity by replacing opaque backing material with specialist glass. They were also temporarily boosted by a since-closed loophole in U.S. law that exempted them from tariffs on Chinese products.

The trend caught solar glass suppliers off-guard and briefly caused prices for the material to soar. Late last year, China loosened regulations around glass manufacturing capacity, and that should prepare the ground for more widespread adoption of the two-sided solar technology.

Doped Polysilicon

Another change that can deliver an increase in power is shifting from positively charged silicon material for solar panels to negatively charged, or n-type, products.

N-type material is made by doping polysilicon with a small amount of an element with an extra electron like phosphorous. It’s more expensive, but can be as much as 3.5% more powerful than the material that currently dominates. The products are expected to begin taking market share in 2024 and be the dominant material by 2028, according to PV-Tech.

In the solar supply chain, ultra-refined polysilicon is shaped into rectangular ingots, which are in turn sliced into ultra-thin squares known as wafers. Those wafers are wired into cells and pieced together to form solar panels.

Bigger Wafers, Better Cells

For most of the 2010s, the standard solar wafer was a 156-millimeter (6.14 inches) square of polysilicon, about the size of the front of a CD case. Now, companies are making the squares bigger to boost efficiency and reduce manufacturing costs. Producers are pushing 182- and 210-millimeter wafers, and the larger sizes will grow from about 19% of the market share this year to more than half by 2023, according to Wood Mackenzie’s Sun.

The factories that wire wafers into cells — which convert electrons excited by photons of light into electricity — are adding new capacity for designs like heterojunction or tunnel‐oxide passivated contact cells. While more expensive to make, those structures allow the electrons to keep bouncing around for longer, increasing the amount of power they generate.

(Adds analyst comment in ninth paragraph)

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©2021 Bloomberg L.P.

Blast rocks Caspian Sea area near Azerbaijani gas field


Mon., July 5, 2021, 



MOSCOW (AP) — A strong explosion shook the Caspian Sea area where Azerbaijan has extensive offshore oil and gas fields. A column of fire rose from the area, but the state oil company said none of its platforms were damaged.

The state oil company SOCAR said the blaze late Sunday may have come from a mud volcano.

The Caspian Sea has a high concentration of such volcanoes, which spew both mud and flammable gas.

SOCAR spokesman Ibrahim Ahmadov told the Interfax-Azerbaijan news agency on Monday that the company staff found a mud volcano ablaze on the uninhabited island of Dashly, about 30 kilometers (20 miles) off the coast of Azerbaijan between the towns of Alat and Neftchala.

Azerbaijan's Emergency Ministry said that the volcano continued to burn on Monday morning, but the fire “doesn't pose a threat either to the sea oil and gas infrastructure and other objects, or to people's lives.”

The Associated Press

Thailand chemical factory fire out;

 health concerns remain

Tue., July 6, 2021, 

BANGKOK (AP) — Firefighters finally extinguished a blaze at a chemical factory just outside the Thai capital early Tuesday, more than 24-hours after it started with an explosion that damaged nearby homes and then let off a clouds of toxic smoke that prompted a widespread evacuation.

Little was left of the Ming Dih Chemical factory other than the twisted metal frames and charred remains of its warehouses that were destroyed in the explosion and fire, which broke out at about 3 a.m. Monday.

More than 60 people were injured in the disaster, including a dozen emergency responders, and more than 30 of them were hospitalized. One man, identified as an 18-year-old volunteer firefighter, was killed in the blaze.

Even though fire was entirely put out by 3:40 a.m. Tuesday, firefighters continued to douse water and foam over the site to prevent the highly inflammable chemical styrene monomer from reigniting. The cause of the disaster was still under investigation.

Authorities ordered a 5 kilometer (3 mile) area around the foam and plastic pellet manufacturing factory, near Bangkok's main airport, evacuated as the factory burned, telling residents to avoid inhaling any fumes and warning that if breathed in it could cause dizziness and vomiting, and cancer in the long term.

On Tuesday, Attapol Charoenchansa, who heads the country's pollution control department, said teams were testing the air quality and water in the area of the factory, and were considering narrowing the evacuation zone to allow some residents to return home.

He cautioned, however, that if the forecast rain comes, it could wash the chemicals into water sources, which would be difficult to control.

Prime Minister Prayuth Chan-ocha said he had ordered authorities to gather as much information as possible on the extent of contamination to soil, ground water, the city's drinking water and air so as to “mitigate the health impact in both the short and long term.”

“Although the fire is under control, our work has not yet been completed,” he said in a statement posted on Facebook.

In addition to the casualties, officials said shockwaves from the initial explosion also damaged about 100 houses and 15 cars.

Styrene monomer is used in the production of disposable foam plates, cups and other products, and can produce poisonous fumes when ignited.

The chemical itself also emits styrene gas, a neurotoxin, which can immobilize people within minutes of inhalation and can be fatal at high concentrations. Last year in the Indian city of Visakhapatnam, a leak of styrene gas from a chemical factory killed 12 people and sickened more than 1,000.

The area around the factory is a mixture of older industrial complexes and newer housing developments that were built after the opening of the airport in 2006.

___

Associated Press writer Chalida Ekvittayavechnukul contributed to this report.

David Rising, The Associated Press

 

Despite jobs rebound, economists warn ‘She-cession’ still lingers

Dani Romero

Mon., July 5, 2021, 7:24 a.m.·3 min read

The U.S. labor market, having rebounded strongly from COVID-19, still has pockets of weakness in spite of a worker shortage throttling multiple industries.

Most notably, economists cite the continued struggles of the leisure and hospitality sector, where millions of laid-off women helped to create what some observers have recently called a “she-cession.” Lockdowns exacerbated racial and gender employment gaps that existed before COVID-19 walloped the global economy.

The hospitality industry — which includes restaurants, hotels, museums, spectator sports, and more — accounted for 10% of the entire workforce pre-pandemic, the National Women’s Law Center said in May. Even amid the broad economic rebound, the NWLC found that the sector is still lagging its size in February 2020.

And between February 2020 and May 2021, women lost nearly 1.4 million leisure and hospitality jobs, a NWLC analysis revealed. The net female job losses represented more than half of those lost in the entire sector between February 2020 and May 2021, the organization said.

The answer to healing a still damaged jobs market lies with closing the workforce’s gender gap, labor policy experts say.

“Certain occupations, certain industries that are dominated by women have seen a traumatic loss in jobs and massive layoffs,” Kent Wong, director of the UCLA Labor Center, said in an interview.

At the height of the COVID-19 outbreak in June 2020, women over the age of 20 had an unemployment rate of 11.3%, Bureau of Labor Statistics survey data show, higher than the male unemployment rate of 10.3%. Since that spike high, female joblessness has gradually normalized, dropping to 5.5% in the most recent jobs data.

Still, the NWLC argues that women have a lot of lost ground to recapture.

“It's important for us all to remember that we are not actually out of this crisis yet,” Julie Vogtman, director of job quality at the NWLC, told Yahoo Finance Live in a recent interview.

'Alarming rate'

Sandra Presley, 57, is interviewed at a job fair for restaurant and hotel workers, after coronavirus disease (COVID-19) restrictions were lifted, in Torrance, near Los Angeles, California, U.S., June 23, 2021. REUTERS/Lucy Nicholson

Female-dominated sectors, like leisure and hospitality, were heavily scaled back during the pandemic, and have yet to fully recover, economists say.

Even the C-suite has not been spared, with Challenger Gray tracking data noting high female executive turnover at the start of 2021.

“Women are leaving the workforce at an alarming rate,” the firm said in February. “The pandemic has hit industries primarily employing women hardest, and child care and compensation issues which continually plague women are being exacerbated by the pandemic.”

According to UCLA’s Wong, women are more likely to bear the responsibilities for caregiving at home — be it children, parents, in-laws, or other family members. They are also more inclined to shoulder most of the responsibilities associated with balancing work and family.

“We need to think about how they can attract and retain folks by creating jobs that will actually support women, support their families and support our economy, rather than keeping people hanging on by a thread,” Vogtman said.

And now that most states are moving to curtail COVID-era unemployment benefits, state and federal laws still allow employers to pay less than $5 an hour to people working for tips, said Vogtman.

Within that segment, “nearly one in five Black women” live in poverty, he said - underscoring how the recovery could leave scores of women — particularly those of color — behind.

Vogtman warned that policymakers and employers should guard against a return “to a status quo that wasn’t working for millions of people well before the pandemic.”

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

 

Israel blocks law that keeps out

Palestinian spouses

Tue., July 6, 2021, 

JERUSALEM (AP) — Israel’s parliament early on Tuesday failed to renew a law that bars Arab citizens from extending citizenship or residency rights to spouses from the occupied West Bank and Gaza, in a tight vote that raised doubts about the viability of the country’s new coalition government.

The 59-59 vote, which came after an all-night session of the Knesset, marked a major setback for Prime Minister Naftali Bennett.

The new Israeli leader, who had hoped to find a compromise between his hard-line Yamina party and the dovish factions in his disparate coalition, instead suffered a stinging defeat in a vote he reportedly described as a referendum on the new government. The vote means the law is now set to expire at midnight Tuesday.

The Citizenship and Entry into Israel Law was enacted as a temporary measure in 2003, at the height of the second intifada, or uprising, when Palestinians launched scores of deadly attacks inside Israel. Proponents said Palestinians from the occupied West Bank and Gaza were susceptible to recruitment by armed groups and that security vetting alone was insufficient.

Under it, Arab citizens, who comprise a fifth of Israel’s population, have had few if any avenues for bringing spouses from the West Bank and Gaza into Israel. Critics, including many left-wing and Arab lawmakers, say it’s a racist measure aimed at restricting the growth of Israel’s Arab minority, while supporters say it’s needed for security purposes and to preserve Israel’s Jewish character.

The law has been renewed annually and appeared to have the support of a large majority in parliament, which is dominated by hard-line nationalist parties. But former Prime Minister Benjamin Netanyahu’s Likud Party and his allies decided to oppose it to embarrass Bennett and harm his coalition, which includes a collection of eight parties across the political spectrum, including a small Islamist Arab party.

Interior Minister Minister Ayelet Shaked, a member of Bennett's Yamina party, said the opposition move to block the law's renewal would lead to thousands more applications for citizenship. She accused Netanyahu and his allies of choosing "petty and ugly politics, and let the country burn.”

Amichai Chikli, a renegade member of Yamina who voted with the opposition, said the outcome was a sign of deeper issues.

“Israel needs a functioning Zionist government, and not a mismatched patchwork that is reliant on” the votes of Arab lawmakers, said Chikli. He was the only member of his party to oppose the new coalition-led government last month.

Netanyahu, ousted by the new coalition after 12 years as prime minister, made clear his political goals.

“With all due respect for this law, the importance of toppling the government is greater,” Netanyahu said Monday.

Bennett reportedly proposed a compromise with liberal members of the coalition that would have extended the law by six months while offering residency rights to some 1,600 Arab families, a fraction of those affected. But the measure was defeated, in part because two Arab members of the coalition abstained. The vote exposed the deep divisions and the fragility of the new government.

The decision, however, gave some hope to Arab families that have been affected by the law. The law has created an array of difficulties for thousands of Palestinian families that span the war-drawn and largely invisible frontiers separating Israel from east Jerusalem, the West Bank and Gaza, territories it seized in the 1967 war that the Palestinians want for a future state.

“You want your security, it’s no problem, you can check each case by itself,” said Taiseer Khatib, an Arab citizen of Israel whose wife of more than 15 years, from the West Bank city of Jenin, must regularly apply for permits to live with him and their three children in Israel.

“There’s no need for this collective punishment just because you are Palestinian,” he said during a protest outside the Knesset on Monday ahead of the vote.

The law has been continually renewed even after the uprising wound down in 2005 and the number of attacks plummeted. Today, Israel allows more than 100,000 Palestinian workers from the West Bank to enter on a regular basis.

Male spouses over the age of 35 and female spouses over the age of 25, as well as some humanitarian cases, can apply for the equivalent of a tourist permit, which must be regularly renewed. The holders of such permits are ineligible for driver’s licenses, public health insurance and most forms of employment. Palestinian spouses from Gaza have been completely banned since the militant Hamas group seized power there in 2007.

The law does not apply to the nearly 500,000 Jewish settlers who live in the West Bank, who have full Israeli citizenship. Under Israel’s Law of Return, Jews who come to Israel from anywhere in the world are eligible for citizenship.

Israel’s Arab minority has close familial ties to Palestinians in the West Bank and the Gaza Strip and largely identifies with their cause. Arab citizens view the law as one of several forms of discrimination they face in a country that legally defines itself as a Jewish nation-state.

Palestinians who are unable to get permits but try to live with their spouses inside Israel are at risk of deportation. Couples that move to the West Bank live under Israeli military occupation.

The citizenship law also applies to Jewish Israelis who marry Palestinians from the territories, but such unions are extremely rare.

Laurie Kellman, The Associated Press