Paz After Baz"a: Can the New Supply Model Preserve Transport Margins
Paz ends 2025 with a stronger transport-energy segment, but 2026 is the first real proof year for a model that operates without a refinery inside the group. The question is no longer just whether supply is available, but whether two main external suppliers can preserve the gross profit and EBITDA built in 2025.
What This Follow-Up Is Isolating
The main article already argued that Paz's operating engine improved, but also that the key test moved into 2026: can transport energy preserve its margins without a refinery inside the group. This follow-up isolates only that question. Not the real estate, not Yellow, not the balance sheet. Just the economics of fuel supply after Baz"a.
The issue is urgent because 2025 was not yet a clean proof year. On a basis that excludes 98-octane gasoline, LPG, and base oils, about 97% of the petroleum products Paz marketed in 2024 and 2025 were purchased from Baz"a, with most of the remainder coming from BAZAN. In other words, even after the spin-off, Paz was still operating in practice on a supply base that was almost entirely Baz"a. The new agreements were signed only on December 11, 2025, and only from the start of 2026 are the two refineries expected to become the segment's main suppliers together.
The problem is that the earnings bar Paz now has to defend is already higher. The transport-energy segment ended 2025 with NIS 1.123 billion of gross profit, NIS 466 million of EBITDA, NIS 237 million of operating profit excluding inventory losses, and 2,731 million liters of fuel volumes. The fourth quarter alone ended with NIS 109 million of EBITDA versus NIS 85 million a year earlier, while EBITDA excluding IFRS 16 rose to NIS 70 million from NIS 46 million. So the 2026 question is no longer whether Paz knows how to run the business. It is whether it can preserve that economics under a different supply model.
This chart filters out the noise. Volumes rose only 1%, but gross profit rose 8% and EBITDA rose 17%. That means Paz enters 2026 with a better profit base, not simply with slightly higher activity.
2025 Was Still a Baz"a Year
This is the detail that is easiest to miss. Paz was already operating after the Baz"a spin-off, but the supply economics of 2025 still relied heavily on the June 2023 framework agreement with Baz"a. That agreement kept the pricing formulas in line with what had applied before the spin-off and added a separate consideration mechanism for certain fuels and certain customers. In 2025 that mechanism alone reduced transport-energy operating profit by about NIS 25 million, almost the same as the NIS 24 million hit in 2024.
That is a key datapoint. It means supply terms themselves can move segment profitability by tens of millions of shekels even without dramatic volume shifts. That is also why caution around 2026 is warranted. Paz does not disclose the new pricing formulas at a level that lets investors measure in advance whether the new model starts from a similar earnings point, a better one, or simply a different one. Anyone who assumes that the exit from Baz"a has already been "cleaned out" of the numbers is skipping an important step.
| Layer | What 2025 still looked like | Why it matters |
|---|---|---|
| Supply base | About 97% of marketed petroleum products were still bought from Baz"a, with most of the remainder from BAZAN | 2025 was not yet a real test of a genuinely split supply model |
| Contract terms | Baz"a pricing formulas remained similar to the terms that had applied before the spin-off | Part of 2025 economics still rested on continuity, not on a new market structure |
| Quantified effect | The Baz"a consideration mechanism reduced segment operating profit by about NIS 25 million | Supply terms have already proven they can move margins by tens of millions |
What Actually Changes in 2026
From here the new contracts take over. With BAZAN, Paz signed a 2026-2027 agreement to buy 95-octane gasoline, transport diesel, and jet fuel. In parallel it signed a separate loading agreement through the end of 2031, with automatic renewal for another five years if the relevant approvals remain in place. With Baz"a, Paz signed a 2026 agreement to buy 95-octane gasoline, transport diesel, mazut, and jet fuel. In both cases the contracts include monthly and annual forecasts, Take or Pay mechanics, and commercial terms covering price, payment, collateral, and loading or related services.
Paz also says that when a monthly deviation occurs versus forecast, it expects to make up the lifted volumes within the following two months, so that no annual exposure is created. That matters because it means the stated risk is not a simple annual penalty for underlifting. The test moves to forecast accuracy, product-mix flexibility, and the ability to manage two major supply interfaces at the same time.
| Supplier | Products | Contract horizon | The practical checkpoint |
|---|---|---|---|
| BAZAN | 95 gasoline, transport diesel, jet fuel | January 1, 2026 to December 31, 2027 | A two-year supply base backed by a longer loading layer through 2031 |
| Baz"a | 95 gasoline, transport diesel, mazut, jet fuel | Through December 31, 2026 | A shorter supply layer that will come up for review relatively quickly |
| Both agreements | Forecasts, Take or Pay, payment and collateral terms | Starting in 2026 | Success depends not only on fuel availability but also on execution discipline |
Management's position is that the material change in supplier mix is not expected to have a material effect on results. But precision matters here too: that statement is explicitly defined as forward-looking information that depends on implementation of the agreements and on factors outside the company's control. So this is not a conclusion that can already be booked. It is a working assumption that the 2026 reports still need to validate.
The 2025 Disruptions Already Showed What Is at Stake
2025 did not just set up the 2026 contracts. It also gave the supply chain a real stress test. In June, BAZAN shut down facilities after damage at its site during Operation Rising Lion. In July and August, Baz"a reported faults that shut units for certain periods and pointed to the possibility of non-full output for the following three months. Both suppliers continued to meet Paz's orders, and Paz says it did not receive any notice of non-supply for future orders.
That is the reassuring side. The less comfortable side is that the year itself demonstrated how tied Paz still is to the same domestic refining system. Even after the supplier-mix change, the refineries remain the main and central suppliers of the fuel products Paz buys. This is not independence. It is dependence split across two nodes rather than concentrated almost entirely in one.
That is why the 2026 debate is not just about continuity of supply. It is about margin. Do two main suppliers give Paz enough flexibility to preserve transport economics, or do they simply replace internal vertical dependence with two outside procurement interfaces that are still exposed to outages, maintenance, and pricing terms?
Margins Are Not Protected Equally Across the Business
To judge whether the new model can preserve margins, the transport-energy segment needs to be broken into the places where money is actually made. Part of the business, especially 95-octane gasoline at stations, operates under regulated marketing margins. Certain aircraft fueling services also operate under price controls. That is one layer of protection. But the segment also includes direct marketing to commercial and institutional customers, Pazomat, sales to the Palestinian Authority, aviation, EV charging, and Paz Shemen. Not all of those layers have the same regulatory anchor, and not all respond the same way to changes in supply terms.
The 2025 numbers actually strengthen the cautious read. The main customer of the transport-energy segment bought about NIS 1.4 billion in 2025, down from about NIS 1.6 billion in 2024. At the same time, Paz makes clear that the Palestinian Authority was its largest and material customer, and that profitability and volumes from that channel declined in 2025. Despite that, segment EBITDA still rose to NIS 466 million from NIS 397 million. In other words, the 2025 improvement did not rely on pushing more volume to the largest customer. It relied on better earnings quality in the rest of the system.
This chart matters because it shows that 2025 profit did not come from an easy shortcut. It improved despite weakness in a material channel. That is positive, but it also raises the proof burden: if the new supply terms begin to compress margin, it will be harder to hide that behind volume.
The extension of the Palestinian Authority agreement does not solve that question either. The agreement was extended through the end of 2027 on similar commercial terms, and in 2025 Paz still supplied about 50% of the Authority's petroleum consumption and about 75% of West Bank LPG consumption. That gives a volume base, but it also keeps customer concentration, credit exposure, and coordination with security bodies in place. At the same time, Paz provides significant credit to the Authority, has no additional collateral beyond assignment of tax proceeds, and says it cannot estimate the ability or time needed to collect those funds if it has to enforce them.
One more layer of volatility sits on top of this. Paz does not hedge petroleum inventory. In 2025 it recorded inventory losses of about NIS 8 million before tax, versus about NIS 24 million in 2024. That is not big enough to erase the segment's EBITDA, but it is enough to remind investors that the 2026 question will not end with procurement formulas alone. It also runs through commodity prices, inventory, and working capital.
So Can the New Supply Model Preserve Transport Margins
The short answer is yes, but for now it is still a thesis that needs proof. The supporting case is clear. Paz enters this transition after a strong 2025 in gross profit and EBITDA, and that improvement did not rely on a large jump in volumes. Two refineries become parallel main suppliers instead of one overwhelmingly dominant source. And parts of the business still benefit from regulatory frameworks that blunt some of the volatility.
The burdened side is just as clear. 2025 still relied almost entirely on Baz"a. Supply terms have already proven they can move segment profitability by tens of millions of shekels. The refineries themselves already suffered disruptions in 2025. The largest customer remains material, and profitability from that channel already weakened. And Paz still does not provide enough disclosure to measure in advance whether the new agreements preserve the 2025 economics or simply reshape them.
That is why 2026 is a proof year in the most practical sense. If Paz can hold gross profit and EBITDA near 2025 levels without an unusual jump in volumes and without new disclosures about supply friction, it will become much easier to argue that the exit from refining did not damage the transport core. If margins give back ground even without a revenue shock, that will suggest 2025 profitability depended more than it seemed on the old supply framework.
The bottom line is straightforward: the new model does not need to prove that Paz can source fuel. It needs to prove that Paz can buy, load, sell, and absorb volatility without a refinery inside the group and without giving back the transport margins it achieved in 2025.
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